Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B
Key Component
Section B1
The Post 2010 Environment and the Longer Term
Contents
Executive Summary ................................................................................................................ 1
Section 1: Changes from Draft to Final ................................................................................ 2
Section 1.1: Material Changes in B1 .................................................................................. 2
Section 2: Achievements to Date Compared with Earlier Plans......................................... 3
Section 2.1: Introduction .................................................................................................... 3
Section 2.2: Security of Supply .......................................................................................... 3
Section 2.3: Area of Water Scarcity Status......................................................................... 4
Section 2.4
Capital Maintenance...................................................................................... 4
Section 2.5
Customer Level of Service ............................................................................ 5
Section 3: Assessment of the Post 2010 Environment for the Company .......................... 7
Section 2.1
Achieving Sustainable Use of Water Resource ............................................. 7
Section 3.2:
Safeguarding Drinking Water Quality............................................................. 9
Section 3.3:
Ensuring a Reliable Supply of Water ........................................................... 10
Section 3.4:
Mitigating Climate Change Impacts ............................................................. 11
Section 3.5:
Enhancing Customer Services .................................................................... 11
Section 3.6:
Financing our Future ................................................................................... 12
Section 4: Managing the Risk and Uncertainty.................................................................. 14
Section 5: Achieving the Right Balance for Customers................................................... 17
Page i
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Executive Summary
This section of the business plan sets out the Company’s achievements to date compared to
earlier plans, assesses what the post 2010 environment for the Company could look like,
identifies what the risks and uncertainties are, and how the Company proposes to achieve the
right balance for customers.
It highlights the significant progress that the Company has made through the granting of ‘Area
of Water Scarcity’ status in 2006 and delivery of its ‘early start’ programme. Both of these have
contributed to achieving a SoSI of 100. A high level of service continues to be delivered to
customers, although this is not reflected in Ofwats OPA ranking, which has been skewed by
several issues including a disproportionate impact relative to other measures, the retrospective
introduction of a new methodology (SOSI), and the scalability of the performance measure
across all companies.
The Company’s assessment of the post 2010 environment is that despite the short-term impact
of the current economic downturn, there will be significant economic growth and a rising
population. It also expects that there will be tightening environmental standards and this,
together with the effects of climate change, will put even greater pressure on existing water
resources and therefore the company’s ability to supply customers.
The Company has identified six themes in its Strategic Direction Statement, these flow through
into this Business Plan and they identify the approach and targets which the Company will
deliver post 2010. These are consistent with customers priorities.
Page 1 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1:
Changes from Draft to Final
Section 1.1:
Material Changes in B1
The most significant change between draft and final business plan submissions is due to the
deteriorating economic situation which the country is engulfed by. This has led the Company to
review areas of capital investment to identify where investment can be deferred without undue
risk to service levels. For example, infrastructure renewals will continue at existing renewal
rates for the period 2010 to 2015. This keeps a check on price increases but there is little risk
of catastrophic failure of the pipe network in the period.
Overall a thorough review has been undertaken to ensure that the post 2010 environment is
managed in a manner that balances affordability with the need for investment.
The changing economic pressures are reflected in the Company’s outlook for the post 2010
environment.
Page 2 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2:
Achievements to Date Compared with Earlier Plans
Section 2.1:
Introduction
The period since 2005 has been challenging for the Company. In the period 2000 to 2005 the
Company installed complex treatment processes in order to ensure continued supply of high
quality water. Requiring the provision of several membrane filters and advanced technology
such as reverse osmosis, these complex treatment processes were necessary because the
quality of the raw water that the Company relies upon had deteriorated. The full operational and
cost impact of this step-up in treatment complexity was felt in the period post 2005 and allowed
for in the Companys operating costs by Ofwat.
The “early start” capital investment programme, due for completion in November 2006, was the
biggest two-year programme in the Company’s history. This programme was necessary in
order to improve the security of supply to consumers, by providing some extra water and
greater ability to move water around our networks to where it is needed at any particular time.
At the same time, the Company made the first application to the Secretary of State for EFRA, to
be granted “area of water scarcity” status, to allow it to meter as many as possible of its
domestic customers on a more efficient and rapid area basis.
All of this occurred during the longest, driest period in the area for over 80 years, when water
resources were being stretched to meet customers’ needs.
Nevertheless, the Company has maintained an uninterrupted supply of high quality drinking
water to its customers and continues to score highly in customer surveys in respect of quality of
service.
Section 2.2:
Security of Supply
The South East of England is identified as an “area of water scarcity” by the Environment
Agency. This means that in prolonged dry periods, or droughts, there is insufficient rainfall to
recharge aquifers and consequently demand for water cannot be met.
In order to mitigate the risks associated with dry periods and droughts, the ‘early start’
programme involved:
•
•
the construction of the Denge Security Main (approx 21km) to enable water to be
transferred throughout the Companys area to the point of need, and
the development of two new water resources, Buckland Mill and Bushy Ruff.
The programme is complete with the exception of the Bushy Ruff resource development.
Unfortunately, despite giving full support to the development of Bushy Ruff in the 2004 Price
Review (PR04), subsequent investigation led the Environment Agency (EA) to decide that any
abstraction there would require an equal reduction at one of the Company’s other licensed
boreholes within the same aquifer (i.e. no net gain in yield). Accordingly, we cannot proceed
with the Bushy Ruff scheme. The Company has, however, been able to commission a new
borehole at Cow Lane and completed the refurbishment of Dover Priory treatment works.
Page 3 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
These programmes ensure that the Company has enough water available to meet customers’
demand in a dry year and has met its Security of Supply Index (SoSI) regulatory target of 100 in
2008/09.
The situation is the subject of on-going discussion with Ofwat and the Company expects to be
“logged down” for the unspent element of Bushy Ruff funding.
Section 2.3:
Area of Water Scarcity Status
The Company’s strategy has been to develop a twin-track approach to balancing supply and
customer demand for water. This seeks to maximise reductions from cost-beneficial demand
management, while providing additional water resources to avert the risks of any remaining gap
between supply and demand. As it has limited opportunity to develop new low-cost water
resources, the Company had previously proposed a longer-term demand management strategy
that required 90% of customers to be metered by 2015. A pre-requisite for this was to obtain
statutory “Area of Water Scarcity” status to enable customers to be metered on an area rather
than individual basis.
Following the grant of ‘Area of Water Scarcity” status, the Company began metering on an area
basis on 1st January 2007. The meter installation programme is ahead of schedule for the
period. Nearly 16,000 meters have been installed. The Company now has a domestic meter
penetration of 66% and we expect to exceed 70% by 2010. The Company believes that it can
therefore revise its installation target to 96% by 2012. The Company received approval from
Ofwat on 9th January 2009 to proceed with an accelerated metering programme as from 1 April
2009 in order to achieve this revised target.
To support the Company’s strategy and develop its understanding of the benefit that metering
can bring, it has begun a trial of a rising-block tariff, involving approximately 1,000 customers in
Lydd. The tariff has two elements: a fixed volume to meet essential health and hygiene
requirements; and additional unlimited volumes for discretionary or non-essential use. The
former is at a tariff lower than the standard volumetric rate and the latter is higher than the
standard. The early results of this trial will be available by autumn 2009, and will be used to
inform the development of a revised tariff scheme for all customers during 2013/14.
Section 2.4
Capital Maintenance
The Company has one of the lowest below-ground asset-replacement rates in the water sector,
at in excess of 300 years. Despite this, Ofwat’s performance indicators suggest that the
network, both trunk and distribution mains, is in a stable condition. Accordingly, the Company
continued with that replacement rate in the 2005-10 period. It is achieving this rate.
Similarly, the above-ground assets are defined as being in a stable condition, using Ofwat’s
performance indicators. Again, the Company continued with the 2000-2005 rate of expenditure
to maintain this level of service during the 2005-10 period. The rate was not achieved in the
early part of the period, due to the need to divert spending to maintain operational water
production at all sites during the drought. However, the Company is working to catch up with
the planned pumping station and treatment works refurbishments by March 2010.
Page 4 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.5
Customer Level of Service
The level of service being given to customers continues to be of a very high standard and one
which in general the majority of customers are satisfied with. In 2007/08 the Company
achieved the highest category in the DG service level indicators and is achieving the majority of
the forecast in the AMP4 business plan – see Figure 2.
DG2 - properties at risk of receiving low pressure
Level of Performance
Actual
By 2007-08
2007-8
7
2
DG3 - supply interruptions (overall performance score)
0.1
0
DG6 - % billing contacts dealt with within 5-days
100
99.8
DG7 - % written complaints dealt with within 10 days
100
99.3
DG8 - % metered customers receiving bill based on a meter reading
100
100
DG9 - % calls abandoned
1.4
1.7
DG9 - % calls receiving the engaged tone
0.5
0
Figure 2
The Company undertakes a bi-annual customer survey, the details of which can be found in
Appendix C1.2 and C1.3. In these surveys, customers rate “how satisfied are you overall with
the service provided by your water company”, using a scale from 1 meaning not at all satisfied
to 5 meaning highly satisfied. Customer rate the service at 4.3.
In Ofwat’s Overall Performance Assessment (OPA) ranking, the Company’s position has
deteriorated from being the highest ranked in 2003/4 and 2004/5 to equal 7th, 12th and 19th in
2005/6, 2006/7 and 2007/8 respectively. This is very disappointing for the Company, especially
given the financial incentive in the price review associated with its ranking and the causes of
the deterioration. The causes have been highlighted in the Company’s June Return in recent
years, but relate to the disproportionate impact of the failures (i.e. points allocation) and the
scalability of the performance measure test across all companies leading to a greater impact of
failure on smaller companies. Specifically, the Company has seen the following impacts:
Year
Performance Failure
2005/6
Downgrading of CCW complaints audit to Acceptable
2006/7
Single iron failure at customers tap
2006/7
6-month hosepipe restriction
2007/8
Failure to achieve SoSI of 100
OPA Impact
-4 points
-10 points
-3 points
-30 points
Ofwat need to consider the following issues when determining the OPA ranking and its impact
on price limits ‘k’.
Page 5 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
i)
If a company has a Water Resource Management Plan that is agreed by the EA and
funded in price limits, which includes the use of hosepipe restrictions every 10 years
as a measure, is it fair to penalise the company for utilising the measure?
ii)
The severity of the OPA impact is disproportionate to the performance failure. Is a
single iron failure at one customers tap, or a reduction in CCW’s complaint audit
from good to acceptable, a greater customer service failing than a 6-month hosepipe
restriction for all customers.
iii)
How will Ofwat reconcile the unfairness of a CCW complaints audit that uses the
same sample size for each company, regardless of the number of complaints
received? For example in 2005/6 the sample size represented 18.9% of all
complaints received by the Company compared to 0.8% for Southern Water
Services. Clearly, the greater the sample size as a proportion of the total, the
greater the probability that the poorer quality responses will be included. This is not
a fair or relative comparison.
iv)
How will Ofwat reconcile the unfairness of the OPI performance measure which is
directly related to the number and size of water supply zones? Analysis shows that
as the Company gets larger it is likely to have more zones and bigger zones, which
leads to a significant dilution of the impact of a single failure.
v)
How will Ofwat reconcile the impact of the retrospective (2007/8) introduction, a
measure which all parties knew would have the consequence of moving the
Company from what would otherwise have been 2nd place in the ranking to 19th?
Firstly, the Company’s strategy was set in 2003/04 as part of the “early start”
programme. Secondly, the Company’s strategy was founded on a 3Ml/d yield from
a new source at Bushy Ruff, agreed in 2003/4 with the Environment Agency. In
2006 the EA notified the Company that any gain would be required to be offset by
an equal reduction at another source in the same zone. Therefore, the development
was not progressed and the Company had to explore alternative options to address
the SoSI score; these were completed in 2008/09. Both of these factors were
outside the Company’s control and yet it has suffered significantly as a
consequence.
Ofwats response to this matter of only considering individual aggregated impacts of greater
than 1% is not robust particularly given the convergence at the top of their ranking. The
removal of the WaSC’s from this comparison, as is suggested in Ofwats methodology, will
simply worsen the impact. Accordingly, the Company expects Ofwat to review their approach
and provide further consideration of the Company’s position. It should consider the contents of
the Company’s letter of 3rd March 2009 on this matter.
Page 6 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 3:
Assessment of the Post 2010 Environment for the
Company
The future holds many challenges for the Company, but the two that feature most highly and
represent its customers priorities are: ensuring a reliable supply of safe drinking water, and
continuing to balance customers’ demand for water with the water which is available. This will
need to be done in a sustainable manner.
Therefore the Company needs to anticipate and respond to changes that will impact upon
sustainability and the way in which service is delivered. Two significant issues that have to be
addressed are climate change and the Company’s impact on the natural environment.
Climate change is an enormous challenge facing society. Water is at the heart of it. Climate
change is already causing more erratic rainfall patterns that impact on the recharge of water
resources as well as customers’ use.
The Company will need to adapt to the impacts of climate change which are already inevitable,
so that it can meet its customers’ water needs now and in the longer term in an
environmentally-acceptable way.
The Company will need to do all it can to reduce the contribution which its activities make to
climate change. It will also need to try to help its customers to reduce their own impacts by way
of their use of water.
In particular, the Company will need to reduce its emissions of global warming gases. In the
UK, the water industry is responsible for some 4 million tonnes of carbon dioxide (CO2)
emissions annually (1% of the UK total) and the Company contributes proportionately to this
total.
The Company’s ability to meet the area’s water needs is reliant on the natural environment that
surrounds it. This is under stress from a number of sources and the Company has a part to
play in ensuring its protection and enhancement where appropriate. It is expected that
environmental aspirations in the Company’s area will rise over the next 25 years and the task of
providing an economical water supply must reflect and contribute to achieving them.
These two challenges should be seen against the likelihood that customers will be better off in
25 years’ time – at recent growth rates, their income will on average be about twice as large in
real terms. Unless something changes, this is likely to mean a continuing trend towards larger
houses and accompanying forms of consumption, as well as a greater ability to pay for the
services they want from the Company.
Section 2.1
Achieving Sustainable Use of Water Resource
During the periods of drought, following below average rainfall, the output of the Company’s
groundwater sources are currently insufficient to meet customer demand and provide adequate
reserves.
Page 7 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Historically during such periods the Company has had to impose supply restrictions (e.g.
hosepipe bans). Such restrictions are planned to occur no more than once in every ten years.
The 2006 restriction was the first since 1996 and was necessary following two dry winters and
what was the longest driest period since the 1930’s.
The Company is committed to the “twin track” approach of developing new sources in parallel
with active management of customers demand. In this AMP period the Company will
commission two new treatment works that will provide much needed access to additional water
resources. Also, having been granted ‘Area of Water Scarcity’ status by the Secretary of
State, the Company has commenced a programme of compulsory metering that currently will
mean 90% of its domestic customers receive a measured bill by 2015. Metering is an essential
strand of the Company’s twin track approach as it provides information to customers that allows
them to choose how much water they use and therefore how much they pay. It is also the
fairest way to pay for the service provided.
Looking ahead there are three key issues that will dominate the Company’s operating
environment and influence the degree to which it can achieve a sustainable use of water
resources.
The Company operates in an area where there is likely to be significant economic growth
and rising population. The government had already sanctioned major housing development in
Ashford and the Thames Gateway and in July 2008 Dover was granted Growth Point status,
indicating a minimum of 10,100 new houses by 2026. In the latest South East Plan,
approximately 16,000 new houses have been allocated for the Company’s operating area over
the next 25 years, including those in Dover.
In 2009 the fast rail link from Folkestone to London will be operational. There is a possibility of a
third nuclear power station at Dungeness and there are plans for the expansion and
regeneration of Dover Port and Folkestone Harbour and the surrounding urban area in each
case.
The Company expect that environmental standards will tighten and increase in number and
public expectations will also rise. A review of abstraction licences under the Habitats Directive
and Alleviation of Low Flows Project has recently been completed for three water sources and
already the next set of investigations are being identified by the Environment Agency’s
Restoring Sustainable Abstraction (RSA) programme and the Water Framework Directive
(WFD). The latter is a major piece of European legislation aimed at improving the quality of
water in our rivers and keeping them clean.
At best these are likely to confirm acceptance of existing abstraction licences but more likely
they will reduce the volume of water available for supply to customers in what is recognised as
a water stressed and over abstracted area.
Already we are experiencing the effect of climate change with more erratic periods of rainfall,
more intense rainfall and longer drier periods. This change is expected to become more severe
and it will have a negative impact on existing water resources that normally re-charge through
the winter months thus reducing the water available for supply to customers. There will be a
need for access to a greater volume of water resource to provide flexibility in supply.
Page 8 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company’s strategy to manage the impact of these three key issues is to continue its ‘twin
track’ approach of restraining demand and delivering additional resources. This will be carried
out in an integrated manner and set out in our Water Resource Management Plan (WRMP).
Further details of the proposals can be found in section B5, but the Company strategy is to
progress a proactive and ambitious set of demand management activities including 96% of
domestic customers by 2012 and the introduction of a tariff(s) that encourage the conservation
of water.
The Company will also undertake a holistic and comprehensive evaluation of its Denge source,
in conjunction with the EA, to ascertain its long-term viability and funding requirements in
AMP6.
Section 3.2:
Safeguarding Drinking Water Quality
The Company attaches the utmost priority to delivering a high quality of water to all its
consumers. The quality of the water leaving the treatment works is tested and samples taken
from customers’ taps that are sent to laboratories for analysis. Testing arrangements and the
results are closely monitored by the Drinking Water Inspectorate (DWI) and the Company aims
for full compliance with the relevant water supply regulations. Feedback from customer surveys
indicates that the vast majority of the Company’s customers are satisfied with the quality of the
drinking water that is provided.
Looking ahead there are a number of issues to be considered. In the shorter term the
Company will need to comply with a tightened standard for lead in the water supply, which will
be no more than 10 micrograms per litre (µ/l) by 2013. The Company has invested in treatment
to prevent lead from old pipes from dissolving into the water and tap water accordingly meets
existing standards and is generally already compliant with the new standard. Consequently the
Company hope to avoid extensive lead pipe replacement and expects to limit its activity to a
small number of critical areas.
In some parts of the Company’s area (i.e. Romney Marsh) consumers very occasionally
experience discoloured tap water.
This is due to chalk or rust from the inside of iron pipes becoming dislodged and suspended in
the water. Discoloured water is not dangerous to health but rightly customers do not like it and
it drives them towards the more expensive and less sustainable alternative of bottled water.
Clearly, there is a need to reduce these occurrences further through increased flushing and
cleaning of the water mains in those affected areas though this uses water and the longer term
solution lies in replacing the affected pipes.
With climate change longer dry periods and shorter more intense, periods of rainfall, are
already experienced and these in turn can result in flooding. This can lead to a greater
variability in the quality of the water in the underground sources. It is anticipated that weather
extremes will worsen over the next 25 years and therefore, whilst existing water treatment
works are still able to provide treated water that is safe, there may be a need to install
additional treatment at some locations in the future.
Page 9 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company has had discussion with DWI and have their support for two projects to help
safeguard drinking water quality, including additional treatment at Denge and mains flushing to
manage the impact of deteriorating raw water quality in the short term.
Additionally, the Company will continue to develop and embed its ‘source to tap’ Water Safety
Plans and Distribution Operation and Maintenance Strategy into management systems and
operational activity.
There will also be work required to improve the resilience of the Company’s assets and in
particular to protect six sites from the risk of flooding.
Further details of these projects can be found in section B4 and B6.
Section 3.3:
Ensuring a Reliable Supply of Water
For customer to receive a ‘reliable and continuous supply of drinking water’ the Company has
to ensure that it has sufficient infrastructure such as treatment works, pumping stations and
distribution pipes available and able to be used. This requires both capital investment and
extensive maintenance activity to ensure that the infrastructure remains reliable.
OFWAT monitor the level of maintenance and use indicators to assess the condition and
performance of the infrastructure which they refer to as “serviceability” status. This is done
annually and the most recent assessment indicates that the Company’s below ground
infrastructure (i.e. pipes) is in a ‘stable’ state and its above ground infrastructure (i.e. treatment
works) is ‘stable’.
The OFWAT assessment of performance is based upon historical data, looking at past burst
rate on pipes. It does not take account of the rate of deterioration and frequency of
replacement and therefore is not a true reflection of the requirements to maintain the condition
and performance in the future. The Company supports the principles of the Capital
Maintenance Common Framework (CMCF) which provides a forward-looking, risk-based
assessment that considers things such as age, deterioration rate and consequence of failure.
Accordingly, it has used this method to assess investment requirements for the future
maintenance of its infrastructure.
Currently the Company replace pipes, on average, in excess of every 300 years. This rate of
renewal is unlikely to be sustainable when you take into account that the pipes are currently
designed to last less than 100 years.
Controlling leakage is an important activity for the Company and pipe renewals help to achieve
this. Therefore, any increase in the rate of pipe renewals will also help with this and may
reduce leakage further.
The potential impacts of climate change have been seen in recent years through drought and
flooding. The Company will need to ensure that both treatment works and network pipes are
resilient to such events.
Page 10 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The modelling that the Company has undertaken suggests that simply maintaining the status
quo will result in a deterioration of its assets particularly infrastructure, and accordingly the
strategy is to increase the outputs and expenditure to move closer to a circa 150 year
replacement rate in the medium term.
In addition to the above the Company has identified three trunk mains and two service
reservoirs that are currently single point failure risks to supply with significant impact for
significant elements of the customer base. Therefore, its strategy is to eliminate these risks
through a mixture of duplication and replacement projects. Details of these can be found in
section B3.
Section 3.4:
Mitigating Climate Change Impacts
The water industry is responsible for approximately 1% of the carbon dioxide emissions in the
UK. In the interests of sustainability the Company believe this must be significantly reduced in
the next 25 years. This will require it to explore and implement strategies and policies that
reduce the emissions arising from its activity.
Also over 40% of CO2 emissions in the UK come directly from what we do as individuals, for
example, water use, heating, using electricity in our homes and driving. The Company must
work with its customers to jointly reduce emissions and contribute to reducing the severity of
climate change impacts.
The government is leading us in this area, setting a target for cutting CO2 emissions in the UK
by 60% by 2050. There will be further targets set, likely to be in the Climate Change Bill, to
which the Company will be required to respond. The Company is committed to reducing our
emissions and will work with contractors, suppliers and customers to seek a balance between
risk, benefit and cost.
During AMP5, the Company will seek to reduce its CO2 emissions through the development of
its demand management proposals and through the use of more energy efficient technology as
part of the maintenance programme. Also investigations will continue to explore the potential
for self generation using renewable sources.
Section 3.5:
Enhancing Customer Services
Since the water industry was privatised in 1989, the industry has made significant
improvements in the service it provides. The economic regulator, OFWAT, assesses annually
the level of service that each water company provides to its customers and publishes this
information.
This Company was the first company to achieve the highest category (i.e. good) of service
delivery in all of the measures.
Clearly, the Company places great importance on providing a level of service to customers that
gives them the confidence that it can be trusted to deliver an essential service.
Page 11 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
It is important that the Company does not rely on the past and that it ensures that customers’
expectations, preferences and willingness to pay are at the heart of the services it provides in
the future. This will require more consultation with customers, clear communications and
provision of information that is relevant and reliable. The ease with which customers can
access information, such as their account and services that the Company provides, is also an
area where improvements will be required.
Presently, the Company is a monopoly provider with only limited exposure to competition.
There is mounting pressure to promote further competition in the sector. The Company is fully
committed to providing a ‘source to tap’ service to its customers that guarantees the best
service at the best price without undue cross-subsidy of groups of customers. If the
introduction of further competition achieves this then the Company will welcome it. Equally, as
a water service provider it will continue to develop the services it is able to offer to achieve the
same.
Section 3.6:
Financing our Future
Presently the price that customers are charged generates the income which the Company
requires over the five year price review period to deliver its plans. This includes funding for
long-term borrowing necessary to finance the significant capital investment that has been
delivered and will be delivered in the future.
There are two charging mechanisms for domestic customers. If customers do not have a meter
they will pay based upon the rateable value of their property. If customers have a meter they
pay for the volume of water they use at a standard volumetric rate. All commercial customers
are metered.
The Company strongly believes that all customers should pay for water based upon the amount
they use as this is the fairest and most sustainable way. In order to do this, customers must
have a meter. Over 60% of the Company’s domestic customers are already metered and the
Company continues to use its ability to compulsorily meter customers to ensure that all those
customers that can be metered are.
Customer debt has been increasing in recent years and particularly since the removal of the
right to disconnect domestic customers in 1999. There are two groups of customer here; those
who choose not to pay and those who genuinely cannot afford to pay. The Company has a
vulnerable customer tariffs and other support mechanisms in place to help the latter but only
recourse to the courts with the former.
It is easy to speculate what the future could look like, but the one thing that is for certain is that
customers will still want quality drinking water reliably supplied at their taps.
It is envisaged that there may be change in the way companies are regulated; this could be
through integration of the regulators, change to facilitate competition, or modified price setting.
Page 12 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
For the Company’s charges to be fair and sustainable in the future they should also reflect the
true costs of water supply to customers. This will require the development and introduction of
new charging structures that consider the health and well being of customers and reflect the
increasing environmental cost that our demand for water has.
Any charging structure and changes to those structures will inevitably create hardship for some
customers and the Company will continue to explore how it can assist further. However, the
Company believes that affordability and debt has a much wider social implication and there is a
role for government to deal with this through social benefits and taxation. This would provide a
safety net for those who are genuinely unable to pay.
Legislative change is required to provide companies with recourse to tools such as trickle flow
meters and pre-payment meters. This would help to ensure customers that can pay do so
thereby reducing the money owed to companies and the burden on all those customers who do
pay.
Page 13 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4:
Managing the Risk and Uncertainty
The Company faces much risk and uncertainty arising from our own circumstances and the
actions of others:
•
Supply Demand Balance – the Company is following an ambitious proactive demand
management approach to managing the supply demand balance. The Company has
selected this approach because it believes it to be both the most cost effective and
sustainable solution. It should come as no surprise, given the “Area of Water Scarcity”
status granted to the Company by the Secretary of State in March 2006. However, the
strategy is heavily reliant upon customers’ responding to price signals and adapting their
behaviour to become more efficient in their use of water. If they fail to do so, the
Company would need to bring forward capital investment to develop the next most cost
effective water resource. Conversely, the Final Business Plan revenue requirement
assumes a mid-range output from demand management measures (i.e. 130l/hd/d).
Therefore if customers reduce consumption more than this (i.e. closer to the 120l/hd/d
target) the Company will be exposed to a significant reduction in revenue that will have
to met from shareholder dividend. While Ofwat have introduced the new revenue-cap
price-setting mechanism, the Company believes that, due to its aggressive demand
management proposals, it has potential exposure beyond that envisaged when the
mechanism was introduced. This risk is far greater than any other company will face
and consequently it would be unfair to expect the shareholders to meet such a shortfall
until 2015-2020.
•
Reaction to Tariff Proposals – there could be a degree of negative reaction from
customers and politicians to the Company’s plan to introduce a ‘rising block’ tariff across
its domestic customer base. This may be led by concern for vulnerable customer
groups, such as those on low income who are less able to pay. The Company is
currently trialling the tariff, which includes a mechanism to help some of those
customers, and is looking at other ways in which these concerns can be dealt with. This
will include further lobbying of government to accept its responsibility and deal with
water poverty through the social benefits and taxation systems.
•
Availability of Water Resources – the Company operates in an area where water
resources are scarce, options are few, and the supply/demand balance is finely poised.
Added to these are the potential impacts arising from climate change on aquifer
recharge and raw water quality. These increase the risks to the Company significantly.
Risks from the loss of existing resources, the relative failure of demand management
policies, and unexpected growth are disproportionately high compared to the rest of the
industry. The Company’s Water Resource Management Plan (WRMP) sets out these
risks and makes allowances in deployable output and headroom assessments.
•
Operating Efficiency – the Company is highly efficient but operates in a very difficult
local environment that has many adverse cost implications, which are not recognised by
Ofwat’s efficiency modelling techniques. The risk of setting an inappropriate aggressive
efficiency target for a company employing less than 100 staff is self-evident. Too high a
target would lead to service failure and/or failure to provide a reasonable return on
capital. The Company will continue to strive for further efficiencies and has presented
robust arguments in its local factors presentation in this Business Plan. ( Section B2)
Page 14 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
•
Traffic Management Act – the charges associated with the implementation of this latest
legislation are still particularly uncertain and unlikely to be reflected in full in the base
year opex. Therefore the actual costs in the next period could be significantly different
to those allowed for in base opex.
•
Bad Debt – the Company continues to experience an increasing level of household
customer debt. In 2007/08 alone the amount of cash collected as a proportion of money
billed deteriorated by nearly 2% and in 2008/09 this is expected to total 4%. This
situation has not been helped by the removal of the right to disconnect customers
which, although rarely used, was a deterrent to non-payment. Whilst the Company is
making every effort to collect debt, it is likely that the current and foreseeable economic
climate will cause further deterioration. The Company will continue to work with the
industry and government to look at how the use of ‘trickle flow’ and ‘pre-payment’
meters could be used to mitigate this.
•
Loss of Large User – the Company is in the unique position of having
commercial customers (i.e. large users) who account for nearly 25% of
turnover, with the Company’s highest single supply being the Dungeness
power station. Clearly the loss of any of these six customers would have a
impact on the financeability of the Company.
•
Carbon Trading - The adoption of the Carbon reduction Commitment remains unclear
and its future impact on the business will depend on three factors:
o
o
o
six major
measured
B nuclear
significant
The value of Emissions Rights tradeable permits in the market mechanism being
created;
The performance of industries in achieving reduction and the impact on average
values;
The capping mechanism of tradeable permits for Emissions Rights
The water industry as a regulated body is not fully in control of its own destiny and
potentially legislation could interfere with aspirations for achieving carbon reduction.
Not withstanding, what is known is that provided comparative performance is achieved
the recycling of revenue from CRC will at worst introduce a cash flow cost but not a
debt.
However, if industry performs well and the Company cannot maintain pace with the
achievement of others, plus if the capping system for tradeable permits significantly
increases their value, then a penalty to the Company could result, which in financial
terms could be equivalent to 10%of the value of the Emissions Rights purchased.
•
Housing Growth – housing growth in the South East of England continues to be
projected and some early signs that it is happening are evident (i.e. Thames Gateway
and Ashford). The Channel Tunnel fast rail link (Folkestone/Ashford/London) is planned
to be operational by 2009 and this is likely to increase pressure on the local market
further. There is the possibility that growth could outstrip the forecasts in the WRMP and
that it will require investment in new resources to be brought forward.
Page 15 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
There is also evidence that the current buoyant construction industry in Kent and the
south-east is driving construction prices higher due to skills shortages and the
geographic location of the business. The full impact of the current economic slowdown
is difficult to predict as many major projects are still likely to continue despite the
slowdown and we believe that construction costs will remain under pressure.
•
FRED 29 – adoption of FRED 29 will increase substantially the amount of corporation
tax payable by the Company, well beyond the levels expected to be allowed under
Ofwat’s current approach to setting allowed tax.
•
Earthquake –the Company’s operating area has recently been affected by two
earthquakes (April 2007 and March 2009) and Folkestone sits on the geological fault
which gave rise to them. Such tremors can be expected to continue. The consequence
of the first quake was a ground movement that has caused a horizontal fracture across
one of the Company’s boreholes. The estimated cost of repair is several hundreds of
thousands of pounds. There is also a possibility that a change in the chalk aquifer has
occurred, leading to rapid deterioration in raw water quality immediately after rainfall.
This is currently being monitored and no provision for expenditure is included at this
stage.
Many of the uncertainties described result in significant elements of cost within the Company’s
opex or impact upon revenue. The Company is expected to absorb such cost and revenue
shocks. This exposes a considerable risk to the business that serves to underline the
increasing difficulty that the Company faces in balancing the need for further efficiencies
against its ability to finance its activities and through the higher operational risk that investors
have to allow for when determining an acceptable return on capital.
Page 16 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 5:
Achieving the Right Balance for Customers
Currently the Company offers a superb level of customer service, which can be seen in the low
number of complaints received, and a high level of compliments, the consistent praise of
Consumer Council for Water (CCW) using the Company as the benchmark for the Region and
the performance against OFWAT measures over many years.
Customers want a sustainable and reliable supply of high quality water and ease of contact on
those occasions that they have to talk to us.
The analysis of consumer feedback confirms that their overriding priority is to receive “an
uninterrupted supply of good quality drinking water”. There is also increasing evidence that
they require this to be achieved in an environmentally friendly manner. This is best
demonstrated by the Willingness to Pay conclusions that indicate consumers are prepared to
pay most for a reduction in CO2 emissions, protection of river water levels and water savings
measures. The feedback also indicates that there is a reluctance, or lower priority, to invest in
improving service levels of normal activity, such as customer service. This indicates that in
general the majority of consumers are satisfied with the service they are receiving.
The conclusions about customer priorities have been used in the development of the six
themes detailed in the Strategic Direction Statement and their respective targets. They are:
Theme 1 – Achieving a Sustainable Use of Water
Theme 2 – Safeguarding Drinking Water Quality
Theme 3 – Ensuring a Reliable Supply of Water
Theme 4 – Mitigating Climate Change Impacts
Theme 5 – Enhancing Customer Service
Theme 6 – Financing our Future
Historically, the Company has always followed a twin-track approach to balancing supply and
demand.
This has meant developing new water resources in parallel with demand
management activity. The Company operates in one of the driest parts of England and has
limited access to good quality (i.e. low treatment cost) raw water. However, new resources
were funded and developed in the current AMP period, but studies indicate that the next
resource will be a desalination plant. This will be a significantly more expensive treatment
works to build and operate. In anticipation of this, the Company applied to the Secretary of
State and was granted “Area of Water Scarcity” status in March 2006. This enabled the
commencement of a programme to selectively meter 90% of domestic customers by 2015.
In view of the above and on-going pressure to balance supply and demand, the Company are
proposing to accelerate its metering programme to achieve c96% penetration by 2012. This
will provide the mechanism to introduce an innovative tariff across all domestic customers
which will provide water for essential health and hygiene at a lower volumetric rate, whilst water
for discretionary use will be charged at a higher volumetric rate. This is a low cost option to
address the next phase of the supply demand balance and fits with the customers “willingness
to pay” results. It will result in reduced carbon emissions and reduced impact on the water
environment through reduced water use or water saving activity.
Page 17 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
In addition to metering and the use of tariffs, the Company propose to continue to reduce
leakage from the distribution mains where it is cost beneficial to do so.
Consumers are very clear in their desire for an uninterrupted supply of drinking water through
their taps. In the willingness to pay survey, consumers indicated that they would be prepared to
pay more to maintain the current level of unplanned interruptions. Unplanned interruptions are
a consequence of deteriorating assets (i.e. pipes and treatment works). Currently both are
considered “stable” in Ofwat's serviceability assessment. In the case of the pipe network this is
despite a current renewal rate in excess of 300 years.
The Company has undertaken a full risk assessment in accordance with the prescribed Capital
Maintenance Common Framework (CMCF) but, given the importance of balancing affordability
with the need for investment, is adopting a pragmatic approach for this period that will maintain
current renewal rates and service levels.
Safeguarding water quality is the Company’s prime focus and accordingly it has agreed with
Drinking Water Inspectorate (DWI) two projects to enable this. The first is the provision of
additional treatment at the Denge treatment works, where there is a deteriorating raw water
quality and the second is a systematic mains flushing programme in the Denge water supply
zone.
Consumers have not indicated a willingness to pay more for improved levels of service. This
does not come as a surprise given the consistently high standard delivered by the Company.
Accordingly, there are not significant improvements proposed.
The impact of the Company’s proposed activities on customers’ bills will be a £41.07 increase
over the period 2010-2015. The most recent customer survey, undertaken by Turquoise,
indicated that 37% of customers would be prepared to pay £10/annum more for the plans
proposed.
Page 18 of 18
Section B1 – The Post 2010 Environment
06/04/09, 14:12:05
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B
Key Component
Section B2
Improving Efficiency
Contents
Executive Summary ................................................................................................................. 1
Section 1
Changes from Draft to Final ......................................................................... 2
Section 2
Overall Approach to Assessing Scope for Efficiency Improvements ....... 3
Section 2.1 Benchmarking ................................................................................................ 3
Section 2.2 Capital Expenditure & New Technology ......................................................... 3
Section 2.3 Ability to make savings................................................................................... 4
Section 2.4 Nature and Extent of Fixed Costs................................................................... 4
Section 2.5 Scope for Changes to Management Structure................................................ 4
Section 2.6 Water Service Efficiency Improvements ......................................................... 5
Section 2.6.1 Operating Expenditure............................................................................ 5
Section 2.6.2 Capital Expenditure ................................................................................ 5
Section 2.7 Summary........................................................................................................ 7
Table Commentaries ................................................................................................................ 8
Appendix B2.1 First Economics Report – The Rate of Frontier Shift Affecting Water
Industry Costs ............................................................................................. 17
Appendix B2.2 Special Factors Submission....................................................................... 18
Page i
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Executive Summary
This section is largely unchanged from the Draft Business Plan, but the estimates of the scope
for efficiency have been changed in the light of the deteriorating economic conditions which
have arisen since the Draft Business Plan was produced. The table below summarises the
efficiency factors assumed in the two plans:
Activity
Base Operating Expenditure
Compounded
Efficiency %
FBP
-2.48 (reduced cost)
Compounded Efficiency
%
DBP
-0.063 (reduced cost)
Enhancement Operating Expenditure
0
+1.89 (increased cost)
Capital Maintenance – infra
0
+2.53 (increased cost)
Capital Maintenance – non-infra
0
+5.10 (increased cost)
Capital Enhancement – infra
0
+2.53 (increased cost)
Capital Enhancement – non-infra
0
+5.10 (increased cost)
Capex meters
0
+5.10 (increased cost)
The Company has considered carefully the findings of the First Economics report (Appendix
B2.1) on efficiencies prepared for Water UK. This report concluded that the most efficient
companies’ opex will rise by RPI + (0.0 to 0.75%) and for capex by RPI + (1 to 2%). This is
because expected productivity improvements are likely to be offset by input price inflation.
The company takes the view that economic conditions have changed since First Economics
produced their report and that some of the capex input price increases that were projected in
that report are no longer likely. Therefore the company has concluded that capex costs will be
unchanged for an efficient company, and have used an assumption of 0% efficiency. The same
changes to input prices also apply, to a lesser extent, to operating expenditure. We have
therefore assumed a 0% continuing opex efficiency.
The company believes Ofwat should take proper account of the special operating factors which
affect the company as set out in Appendix B2.2. These total £1.76m in this Business Plan. If it
does so, then we estimate that an accurate assessment of the company’s relative efficiency will
place it in Band B (upper). This would lead to a catch-up target of approximately 2.5% during
AMP5 (50% of 5%) and this is the assumption that we have used.
Page 1 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1
Changes from Draft to Final
The significant changes that have occurred since the Company’s draft Business Plan are the
level of efficiency proposed and the inclusion of the Company’s Special factors claim.
With respect to efficiencies the Company believes there is no scope for on-going efficiencies
that would normally be expected from an efficient company.
The operating cost efficiency proposed is in line with where the Company believes it will be
Ofwat’s relative efficiency assessment once it has accepted the Company’s Special Factors
submission.
Page 2 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2
Overall Approach to Assessing Scope for Efficiency
Improvements
The Company has carefully examined all areas of its operation to identify efficiencies using a
“bottom up” approach. This has identified specific efficiencies that will be achieved in the early
years of the period. In the latter years, where it is difficult to foresee what efficiency might be
available, assumptions have been used based upon historic data.
The Company has also considered carefully the findings of the First Economics report
(Appendix B2.1) on efficiencies prepared for Water UK. This report concluded that the most
efficient companies opex will rise by RPI + (0.0 to 0.75%) and by RPI + (1 to 2%). This is
because expected productivity improvements are likely to be offset by input price inflation.
Having considered all of the above factors, the cumulative efficiencies included in the company
strategy for the period 2010 to 2015 are:
Operating Expenditure (net)
-2.48%
(cost reduction)
Capital Expenditure – Non-Infrastructure
0%
(no change)
Capital Expenditure – Infrastructure
0%
(no change)
The efficiencies identified are excluding RPI
The level of efficiency reduction offered is intended not to inhibit the Company’s ability to
continue to provide the high levels of service that customers enjoy. The Company believes that
this pragmatic approach strikes a balance between customers and shareholders interests.
With respect to capex efficiency the Company believes that it is already at the frontier and
believes that it can manage costs in line with the price indices.
Section 2.1
Benchmarking
For larger companies a 3% per annum reduction would quickly translate in FTE employees and
numbers reduced in the appropriate manner. For a Company employing 98 staff in 12 distinct
functions this is not so simple. Issues such as critical mass, holiday cover, shift patterns and
standby rotas all have an influence. For example, the Operations Centre is manned 24 hours a
day, in three shifts using 7 FTE. This number cannot be reduced without affecting standards of
service and yet the efficiency targets suggested by OFWAT in 2004 (i.e. 3% per annum) would
result in the reduction of a FTE over AMP4. Staff represent approximately 56% of controllable
costs.
Section 2.2
Capital Expenditure & New Technology
The review of potential efficiencies for capital expenditure is more problematic as the costs are,
for the most part, not under direct management control. Efficiency is by proactive negotiation on
tenders and Period Works Contracts.
Page 3 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Capital efficiency will be driven by technological improvements, purchasing power (where diseconomies exist for smaller scale, but complex projects) and other market forces. For a smaller
water company the introduction of improved technology can prove more costly, and will require
a multi-skilled workforce, rather than specialist operators, resulting in rising operating costs.
This rise in operating costs can be demonstrated at Folkestone and Dover and will continue as
it moves further away from simple chlorination treatment works.
Due to the relatively low number of these treatment works it is not efficient to have specialists
responsible for the maintenance of these plant. Therefore the introduction of this complex plant
has resulted in the need to retrain existing employees and recruit employees with different
skills, who command higher salaries.
Section 2.3
Ability to make savings
Historically, savings have been made by a reduction in headcount, however there comes a
level in a smaller company where further reductions would be an unacceptable risk to the
operation of the business.
Section 2.4
Nature and Extent of Fixed Costs
Another influence on the Company’s ability to achieve operational cost efficiencies is the
disproportionately high level of fixed and non-controllable costs. The fact is that fixed and noncontrollable costs comprise a higher proportion of total operating costs for smaller companies,
than larger. In reality, the efficiency target can effectively double in the smaller company. In
the case of the Company fixed and non-controllable costs represent approximately 53% of total
operating costs.
Many of these fixed costs are subject to increases above inflation, such as energy, abstraction
charges, business rates and insurance premiums, which makes the target efficiency savings
harder to achieve. The financial modelling does not take this into account.
Section 2.5
Scope for Changes to Management Structure
This is an area where companies could make further efficiencies. However for a small
company, with a management team of four these opportunities are limited. For example, the
Finance, Corporate Management and Company Secretarial functions are already combined
under the remit of one manager.
There is also a practical minimum number of management personnel needed to ensure that
there is a senior decision making facility available 24 hours a day, 365 days a year, whilst
servicing meetings and commitments needed to function within a regulated industry. The
existing management team is at that practical level of management that is required to function.
Page 4 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.6
Water Service Efficiency Improvements
In assessing efficiency improvements, the Company has made a series of company, and site
specific decisions, on future efficiencies. The primary reason for this is concern over the
modelling techniques used by Ofwat, which we believe do not take account of the specific
operating conditions for the Company. Appendix B2.2 sets out the Special factors that the
company believes Ofwat must use to take proper account of these conditions. The Special
Factors submission identified £1.76m of additional operating costs that the Company incurs due
to these conditions and which are not accounted for Ofwats econometric models.
Section 2.6.1
Operating Expenditure
The budget managers and management team have given consideration to the nature and
potential impact of the future efficiencies that can be achieved in the next AMP period. Initial
findings suggest that future efficiencies will be smaller than those historically seen and they are
proving more difficult to identify.
The commentary to Table B2.2 gives more detail on the breakdown of operating costs and
those that are truly within the direct control of the business.
Section 2.6.2
Capital Expenditure
Section 2.6.2.1
Impact of Regional Contract Prices
Operating in the South East, the Company is impacted by increased contract prices when
compared to the national average and even the “London Weighting”. Evidence of this has been
acquired recently in the form of a mains renewal contract, tendered by the Veolia Water Group,
for work in and around north-east London. The tenderers wanted an additional, up to 20%, on
tendered rates to undertake the same work for Folkestone and Dover Water Services. This is
consistent with the unit cost prices that have been presented in the Company’s “Cost Base”
submission to Ofwat.
FDWS has relatively low volumes of work, which is undertaken in diffuse locations, in the most
south-easterly corner of England. It is nevertheless specialist activity that requires a
competent, experienced contract force. This low, diffuse, but specialist volume of work,
coupled with high local demand for labour as a result of the construction of major infrastructure
projects such as the Channel Tunnel Rail Link, Ashford and Thames Gateway growths points,
the 2012 London Olympics, and the on-going demand generated within and around London,
means that suitable contractors tend not to be based locally. Tenders received from
contractors are consequently higher than the national average and on average 13% above
London rates for similar work.
Section 2.6.2.2
Company Specific Factor
The average capital expenditure for infrastructure in the three year period 2005/6 to 2007/8 is
£775k in 07/08 price base. Applying an average 13% to this figure to determine the additional
cost of procuring this work in the south-east corner of Kent, generates a Company Special
Factor of £101k per annum. This would be in addition to any London or south east factors.
Page 5 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.6.2.3
Capital Maintenance
The majority of the infrastructure maintenance work is carried out within a Period Works
Contract, or is competitively tendered. There is no scope to make efficiency savings on the
existing contract and, looking forward, the scale of construction work projected for the south
east will compress the capacity of the construction industry in the region.
Maintenance of above ground assets tends to take the form of refurbishments or
modernisations. This involves a lower level of projects but with a higher technical expertise
required. Contracts tend to be let on an individual or grouped competitive basis and this work is
subject to similar pressures as a result of the low volume, diffuse nature of the work required.
With regards to the Company’s own assessment of the likely scope for capex efficiencies
therefore, the company concludes that there is no scope to outperform price indices for an
efficient company for both infrastructure and non-infrastructure. This is a more optimistic view
than that in the First Economics report for Efficiency Improvement. The company takes the
view that economic conditions have changed since First Economics produced their report and
that some of the input price increases that were projected in that report are no longer likely.
Section 2.6.2.4
Capital Enhancement Expenditure
These schemes tend to differ significantly from capital maintenance schemes and are dealt with
on an individual basis, with individual project appraisals undertaken to develop an overall
strategy and cost. Whilst this process results in accurate cost estimates, these schemes also
tend to occur due to technological changes or advances and are therefore subject to a greater
level of risk and uncertainty.
The cost of works undertaken to date in the AMP4 period on the “early start” programme, have
all exceeded the funds allocated from the Final Determination. This supports the view that oneoff schemes limit the scope to gain efficiency through experience or economies of scale.
The Company has taken the view to set the capital enhancement efficiency target in line with
that set for capital maintenance at 0%.
Section 2.6.2.5
Metering Expenditure
The Business Plan provides an opportunity to review the target efficiency assessed for
the metering programme as distinct from other elements of the capital programme.
Whilst, the volume of work is set to increase from around 4,000 meters per year to
around 8,000 meters per year, the actual savings anticipated are limited. The size of
the programme does not warrant a significant reduction in the unit purchase costs of a
meter or boundary box. The programme is still likely to be consistent, in terms of when
and where meters are to be installed. However as the more difficult properties have to
be metered the costs will increase.
Page 6 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Additionally, it is likely that the size of the metering programme in the South-East of
England between 2010-2015, will be significantly higher than it is currently. This may
create shortages in the labour market and for materials (i.e. meter supplies). This may
well force unit prices upwards.
Section 2.7
Summary
Cumulative efficiencies proposed by the Company from 2010-2015 are:
Activity
Base Operating Expenditure
Compounded
Efficiency %
-2.48 (reduced cost)
Enhancement Operating Expenditure
0
Capital Expenditure – infra
0
Capital Expenditure – non-infra
0
Capital Expenditure – metering
0
Page 7 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table Commentaries
Table B2.1a Operating Expenditure Out-performance in AMP4
Introduction
The Company has made major strides in reducing operating costs since the start of the AMP4
period, but is now seeing operating costs rising as a direct consequence of its metering
programme, increasing employment costs and rising energy prices.
Block A
Water Services Operating Expenditure Out-performance
Significant operational savings have been achieved early in the current period but further gains
are becoming progressively more difficult. The latest Ofwat efficiency assessment shows the
Company in Band D (lower) for base operating costs. This implies a deterioration from the
Final Determination in 2004 where the Company was challenged to achieve a catch-up
efficiency of approximately 2.7% per year. As can be seen from the table, this does not reflect
the excellent performance achieved by the Company so far in this period.
In the period 2004/05 to 2008-09, the Company expects to achieve the following outperformance:
07/08 Prices
2004-05
Final
Determination £m
8.250
Actual Costs
£m
7.685
Out-performance
£m
0.565
2005-06
8.546
7.849
0.697
2006-07
8.386
7.956
0.430
2007-08
8.279
8.120
0.159
2008-09
8.140
8.203*
-0.062
41.601
39.776
1.789
Total
* This number is based upon latest forecasts.
This out-performance is partially as a consequence of reduced demand which is also reflected
in lower income in the period.
Line 2
This reflects the log-down of Opex associated with non delivery of the Bushy ruff
scheme. Details of the values are contained in Section C5 and are consistent
with the C5 tables.
Line 3
This reflects the log-up of Opex associated with increased AMP4 metering
activity. Details of the values are contained in Section C5 and are consistent with
the C5 tables..
Lines 4-6
No changes in these areas, hence zero.
Page 8 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Lines 7&8
There has been no shortfalls in meeting outputs and none are anticipated in
AMP4. The Company has not been involved in a merger.
Line 10
These are the figures reported in June Returns. For 2008/9, the Company has
carried forward the 2007/8 figures, less atypicals. For 2008/9, £46,000 has been
added to the 2007/8 figure. The £46,000 represents the £39,000 assumed in
PR04 for metering opex, inflated to 2007/8 prices. In addition the £39,000 of
new opex projected in Table B4.3 relating to Buckland Mill and Cow Lane has
been added.
Line 11
The Company believes that the introduction of FRS17 since the last Periodic
Review has not affected the comparability of pension assumptions. .
Lines 12
This line reflects the atypical expenditures that have been reported in June
returns (appropriately inflated). The company has been on a pension holiday for
one of its legacy funds during AMP4. As a result the company has reported
atypical savings in previous June Returns. These savings have been excluded
from Line 11 in this table as pension adjustments are dealt with in Line 4 of
Table B3.3.
Line 16-19
These calculations have been carried out in accordance with Ofwat guidance
PR09/04 of 18 October 2007. The Company does not qualify for additional
water opex incentive revenue allowance in line 18. Because the Company does
not expect to outperform regulatory expectations in 2008/09 its incremental outperformance in line 16 is constrained to 0 as set out in Annex B of the PR09/04
letter.
Page 9 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table B2.1(b) Capital Expenditure Out-performance in AMP4
The Company proposed an ‘early start’ programme that involved the construction of the Denge
Security Main (approx 21km) to enable water to be transferred throughout its area to the point
of need, and the development of two new water resources, Buckland Mill and Bushy Ruff. This
project had the full support of the Environment Agency (EA) and was funded in the Price
Review 2004 (PR04) Final Determination. The completion of the project would have moved the
Company from a negative SoSI (Security of Supply Index) score to a maximum of 100.
Unfortunately after subsequent investigation of the impact on the aquifer, the EA confirmed that
any abstraction from the Bushy Ruff borehole would require an equal reduction at one of the
Company’s other licensed boreholes within the same aquifer (i.e. no net gain in yield).
Therefore, whilst the remainder of the project has been completed, Bushy Ruff borehole
development has not progressed.
This situation is the subject of on-going discussion with Ofwat and the Company, and Ofwat’s
log up/log down response following the draft position confirms this. The Company disagrees
with some of Ofwat’s figures presented in their document. The Company’s commentary on
these is contained in Section C5.
Ofwat have supported the Company’s log up application and these costs are included in the
B2.1a and B2.1b tables.
The Company has caught up with its mains renewal outputs and is on track to deliver the
16.5km as per the monitoring plan. It also expects to be in a pre-payment position due to higher
costs of procurement. During the early part of the period, the Company’s Period Works
contractor “walked away” from the contract on the basis that they were losing money. They
required between 30% and 50% uplift to continue.
The second highest tendered price at the time the contract was let, was approximately 20%
higher. Consequently, the Company delayed the programme and has been tendering jobs in
smaller packages at prices that are typically higher, up to 15%, than the original Period Works
contract and higher than those assumed at PR04.
The number of pumping stations/treatment works refurbished during the period is currently
behind schedule. The reason for this is that the Company chose to delay the programme
during the drought to maintain operational outputs from all production sites. The programme
has subsequently been accelerated and the Company expects to deliver the required outputs.
During the period the Company has made good progress with the new water resource
investigations and is expecting to conclude these by the end of the period.
In the period 2004/05 to 2009/10 the Company aims to achieve the following (excluding IRE):
2004-05
2005-06
Final Determination
(£m)
5.241
8.189
Page 10 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Actual Costs (£m)
5.773
7.802
Out-performance
(£m)
-0.532
0.387
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
2006-07
2007-08
2008-09
2009-10
Final Determination
(£m)
8.754
2.834
2.693
3.247
Actual Costs (£m)
5.699
3.342
4.019
6.008*
Out-performance
(£m)
3.055
-0.508
-1.326
-2.761
* includes approved log-up expenditure on metering
Line 2
The decrease is due to the log-down for Bushy Ruff. Details of the values are
contained in Section C5 and are consistent with the C5 tables.
Line 3
The changes are due to the log-down for Cow Lane Extension, Broad Oak study
and the log-up associated with the additional meter installation programme. Details
of the values are contained in Section C5 and are consistent with the C5 tables.
Lines 4-11 No changes in these areas, hence zero.
Line 12
These numbers are taken from the following sources:
Historic Data:
Data is taken from June Returns, Table 35: The calculation is line 26, less lines 4 & 21;
this gives the capital programme spend net of grants and contributions and excluding
infrastructure renewal expenditure. These figures are in their JR reported year and
have been inflated by RPI to generate values in 07/08 price base.
Forecast Data for Years 4 & 5:
The calculation uses the following lines from the Pr09 Tables:
Sum of :
B3.6 Line 16
B4.3 Line 8
B4.3 Line 18
B5.2 Line 12
B5.2 Line 22
Net CM non infra expenditure post efficiency and less contributions
Water Qual (non infra post efficiency)
Water Qual (infra post efficiency)
SDB (infra post efficiency)
SDB (non infra post efficiency)
Less SDB Contributions:
B5.2 Line 23
B5.2 Line 24
B5.2 Line 25
B5.2 Line 26
Requisitions
Grants
Infra Charges
Compensation
The numbers are already in 07/08 price base so have not been altered.
Page 11 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table B2.2
Water Service Efficiency Improvements
Introduction
The Business Plan does not appear to accept a single aggregate judgement for the completion
of this table. However, given the small size of the Company, and therefore the lack of specialist
knowledge in the area of econometric modelling, it was felt that this was the only approach
available to us.
Ofwat Efficiency Rankings
The published efficiency rankings have shown the Company moving from Band D to Band D
(lower) during AMP4 for opex. This is despite the significant out-performance so far this period
as demonstrated in Table B2.1(a). A consistent feature of the various analyses has been the
apparent modest performance of companies operating in Kent which seems attributable to lack
of recognition of local factors and the impact over many years of major infrastructure projects
such as: the Channel Tunnel construction; Channel Tunnel Rail Link; Ashford and Thames
Gateway growth points; and the London Olympics 2012. This factor has removed contracting
capacity in the county and impacted on the availability of several segments of the labour market
in which the water industry competes. Any econometric analysis must make proper recognition
of these local factors. The Company has experienced this in several areas, most recently with
employment costs and contracting premiums. Recent recruitment for supervisory and
management staff has seen increases in excess of 20% to attract experienced and skilled staff
to the area. Contractors have indicated in a recent group procured tender for mains renewal
that they required up to a 20% surplus, above London rates, to work for Folkestone and Dover
Water Services.
The Company is aware of the gap between the efficiency “frontier” and its own performance in
terms of operating costs. The Company’s analysis shows that there are three factors that
contribute towards this ‘gap’ which are summarised as follows:i)
Geographic and Aggregation of Costs : The Company believes that both the
geographic location and size of Company are key factors not properly accounted for
in Ofwats Relative Efficiency assessment. It is important to note that the frontier
company for 2001-2 (Southern Water) operated across the counties of Hampshire,
West Sussex, East Sussex, Kent and the Isle of Wight. The Competition
Commission investigation into the merger of Vivendi Water UK Plc and First Aqua
(2002) provided a unique analysis of the performance of Southern Water on a
disaggregated basis because of the possibility that a remedy for the proposed
merger would be the sale of a new company based on the Southern territory in
either Hampshire or Kent.
Page 12 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
It is a fact that the disaggregation of the 2001/2 Southern operating cost revealed its
performance ranged from A++ in Hampshire to Band C on the Isle of Wight with
Kent placed in Band B. In other words, to match the best performance in the
Industry, Folkestone & Dover would need to match Band B since unexplained
variables prevented the best performing company (Southern) from matching its own
performance elsewhere in the region. Further it is understood that this data, which
was provided to the Commission, was shared with OFWAT. It is also worth noting,
for the purposes of this exercise, that the definition of Southern (Kent) consisted of
the two separate and detached zones known as Medway and Thanet. It is the
Company’s belief that the operating cost performance of Thanet (which more closely
matches, and adjoins, Folkestone & Dover) was in fact more expensive than
Medway.
It is perhaps not surprising to find that in 2006/07 two other companies that operate
in Hampshire are Band A ranked companies
•
Company Specific and Local Factors : It is absolutely apparent that there
are a series of specific and local factors which need to be taken into
account in determining the Company’s relative efficiency ranking. These
factors are discussed in detail in Appendix B2.2.
The Company is extremely concerned that Ofwat is only prepared to consider
factors that are a cost impact of greater than 1% of the Company’s turnover. On the
basis of the Company’s allowance in PR04 this would equate to approximately
£200k, or 2.5% of opex, being excluded from the assessment. Given the range of
the efficiency bands this could be crucial to a Company such as Folkestone and
Dover Water Services.
ii)
Block A
Efficiency Gap : the gap can only be assessed accurately after recalibrating the
frontier comparator to its geographic performance and then comparing the
performance of Folkestone & Dover after making appropriate allowance for company
specific factors. In addition both opex and capital maintenance efficiencies should
be reviewed in parallel, due to the absence of capitalisation of management and
overheads which would otherwise leave the Company with ‘stranded’ costs if a
downturn in capital spending occurred.
Base Operating Efficiency (Base)
The last review period saw the Company faced with ambitious efficiency targets of
approximately 3% per annum, and through the hard work of all employees these targets have
been met in the early part of the AMP4 period. However these targets have become
increasingly difficult to achieve towards the end of the quinquennium.
It is the Company’s belief that future efficiency gains will be small in comparison to those
previously seen.
Page 13 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The management team has reviewed all base operating costs and identified specific areas of
the business where savings could still be made. These include:
•
•
•
Outsourcing / shared services with Veolia Group Companies
Reduced water demand
Absorb ‘new opex’ through improved working practices
The management review has confirmed that manpower is not an area for further reduction if
customer service levels are to be maintained. The belief is clearly that man power levels are at
critical mass when issues of work volume and staffing cover are considered.
While reviewing the potential to make additional savings it became obvious that the pool of
“controllable costs” available was becoming smaller as demonstrated in Table 2.1.1 below:
Table 2.1.1
Controllable Costs
Base year per June Return
Atypicals
2007/08
£m
8.191
-0.071
8.120
Restated Opex
Bulk Supply Standing Charge (SEW)
Bulk Supply Minimum Volume (SWS)
Business Rates
Abstraction Charges
Ofwat Licence Fee
Power
Bad Debt (normalised)
Telephone Services
Insurances
Management Fee
Controllable Costs
No control
377,373
No control
146,766
No control 1,181,040
No control
367,442
No control
34,530
Limited control
856,918
Limited control
356,188
Limited control
91,209
Limited control
120,415
No control
318,383
£4.27m
As this demonstrates, out of a total opex of £8.120m, only 52.6% is truly controllable, therefore
any efficiency imposed by Ofwat on total operating costs translates into an even higher
efficiency target on those truly controllable costs. Controllable costs are detailed in Table 2.1.2
below:
Page 14 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table 2.1.2
Breakdown of Controllable Costs
Labour
Materials and Consumables
£000
2,376
%
55.6
297
7.0
Hired & Contracted :
•
Operational
276
6.5
•
Scientific
234
5.5
•
Management
484
11.3
•
IT
158
3.7
Transport
216
5.1
Other
229
5.3
4,270
100
Total Controllable Costs
Non-Controllable Costs
The analysis above highlights that there is a significant value of costs that, although classified
as controllable by OFWAT, are outside the direct control of the FDWS Management.
The Reservoir financial model applies the efficiency targets to all operating costs thus making
any opex efficiency target virtually twice as big for the costs to which it can be applied.
This is further compounded by the fact that many of these non-controllable costs rise at a
higher rate than inflation, for example EA charges, business rates and insurance premiums.
The company has tried to account for the most significant of these items in Table B3.3.
Block B
Operating Expenditure Efficiency (Enhancement)
The Company has assessed that on-going efficiency should be at the same level as for base
opex. However, there will be no catch up since the new opex is recently priced using the best
cost information available.
Block C
Block D
Block E
Block F
Capital Maintenance Expenditure Efficiency (Infra)
Capital Maintenance Expenditure Efficiency (Non-Infra)
Capital Enhancement Expenditure Efficiency (Infra)
Capital Enhancement Expenditure Efficiency (Non-Infra)
Page 15 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company has also considered carefully the findings of the First Economics report
(Appendix B2.1) on efficiencies prepared for Water UK. This report concluded that the most
efficient companies’ capex will rise by RPI + 1 to 2%. This is because expected productivity
improvements are likely to be offset by input price inflation. The company takes the view that
economic conditions have changed since First Economics produced their report and that some
of the capex input price increases that were projected in that report are no longer likely.
Therefore the company has concluded that capex costs will be unchanged for an efficient
company, and have used an assumption of 0% efficiency.
Page 16 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Appendix B2.1
First Economics Report – The Rate of Frontier Shift
Affecting Water Industry Costs
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 17 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Appendix B2.2 Special Factors Submission
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 18 of 17
Section B2 – Improving Efficiency
09/11/10, 14:59:10
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B
Supporting Information
Section B3
Maintaining Service and Serviceability
Contents
Executive Summary
6
Section 1
Changes from Draft to Final
Section 1.1
Section 1.2
Material Changes in B3
Response to Ofwat feedback and challenges
9
11
Section 2
Service Summary: Planning Objectives, Direction and Delivery
13
Section 2.1
Section 2.1.1
Section 2.1.2
Section 2.1.3
Section 2.2
Section 2.3
Stakeholder Engagement
Customers
Consumer Council for Water
Regulators
Strategic Direction
Serviceability Approach
13
13
16
16
16
17
Section 3
Approach to Asset Management Planning
20
Section 3.1
Section 3.2
Section 3.2.1
Section 3.2.2
Section 3.2.3
Section 3.3
Section 3.3.1
Section 3.3.2
Section 3.3.3
Section 3.4
Section 3.4.1
Section 3.4.2
Section 3.4.3
Section 3.5
Section 3.6
Overview and Background
Historical Analysis
Infrastructure Assets
Non-Infrastructure Assets
Cost of Failure
Forward Looking Analysis
Regulatory Measures
Infrastructure Assets
Non Infrastructure Assets
Identification of Asset Needs
Current Performance
Interventions
Cost-Benefit Analysis
Cost Estimation Approach
Quality Assurance and Review
20
26
26
27
28
28
28
29
29
29
29
29
30
30
32
Section 4
Business Case by Asset Group
34
Section 4.1
Section 4.1.1
Section 4.1.2
Section 4.1.3
Section 4.2
Infrastructure Assets
Water Distribution – Trunk Mains
Water Distribution – Distribution Mains
Water Distribution – Communication Pipes
Non-Infrastructure Assets
34
34
52
71
79
Page i
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
9
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4.2.1
Section 4.2.2
Section 4.2.3
Section 4.2.4
Section 4.2.5
Section 4.2.6
Section 4.2.7
Section 4.3
Section 4.4
Section 4.5
Summary of Non Infrastructure
Water Distribution (non-infrastructure) – Revenue Meters
Water Treatment Works
Water Pumping Stations
Service Reservoirs
Service Reservoirs - Hills Reservoir Second Cell
Management & General (non-infrastructure)
Links with Other Parts of the Business Plan
Balance of Risk and Customer Affordability
Programme Delivery
79
79
86
103
107
113
123
126
126
128
Section 5
Table Commentaries
132
Section 6
Appendices
140
Page ii
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
List of Tables
Table 1 AMP4 and AMP5 Base Investment
Table 2 Summary of Cost for the Company’s proposed AMP5 Capital Maintenance Strategies
Table 3 Draft to Final Business Plan Material Changes
Table 4 Summary of Serviceability Reference Levels
Table 5 Summary of Business Cases
Table 6 Summary of Data Quality for Key Systems
Table 7 Summary of Cost Estimating Approach for Base Programme
Table 7 Trunk Mains Inventory Summary
Table 8 Inventory Analysis of Potable Water Trunk Mains
Table 9 The Company’s Trunk Mains Burst History (1998 to 2007)
Table 10 Trunk Mains listed by highest risk
Table 11 Trunk Mains listed by greatest consequence
Table 12 Trunk Main Cost Effectiveness Analysis
Table 13 Capital Costs for TP28 Solutions
Table 14 Capital Costs for TP03 and TP04 28 Solutions
Table 15 Scoring of Benefits for Trunk Main Strategy
Table 16 Trunk Main CBA Results
Table 17 Trunk Main CBA Sensitivity Results
Table 18 Expenditure for Trunk Main Investment
Table 19 Mains Survival Model Validation Results
Table 20 CAPEX for each proposed distribution mains renewal strategy
Table 21 OPMs for Distribution Main Replacement Strategy
Table 22 Distribution Mains Renewal CBA Results
Table 23 Distribution Mains Renewal CBA Sensitivity Results
Table 24 Expenditure for Distribution Mains Renewal
Table 25 Leakage Capitalisation
Table 26 Communication Pipes Inventory (base data) at November 2007
Table 27 Communication Pipe Intervention Options
Table 28 Communication Pipe Strategies – NPV analysis
Table 29 Communication Pipe Forecast Activity and Cost
Table 30 OPMs for Communication Pipe Strategies
Table 31 Communication Pipe Strategies - CBA Results
Table 32 Annual Meter Replacements by Age
Table 33 Average Failure Rates for Revenue Meters by Age
Table 34 Meter Replacement Forecasts Costs
Table 35 Meter Replacement Forecasts Costs
Table 36 Expert panel attendees
Table 37 Severity Levels defined for Coliform & Plate Counts service area
Table 38 Number of failure modes in each asset group
Table 39 Selected consequences of ‘Failure of RO filter element’
Table 40 Failure rate sensitivity - 10 highest failure modes by change in AMP5 Capex
Table 41 Sensitivity analysis results
Table 42 Water Treatment Works - CBA Results
Table 43 Water Treatment Works Historic and Forecast Expenditure
Table 44 Water Pumping Stations - CBA Results
Page iii
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
7
8
10
18
19
24
32
36
36
37
43
44
45
48
49
51
51
51
52
63
67
68
69
69
70
70
72
74
75
75
76
76
81
83
84
85
89
91
92
93
96
100
101
102
105
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table 45
Table 46
Table 47
Table 48
Table 49
Table 50
Table 51
Table 52
Table 53
Table 54
Table 55
Table 56
Table 57
Water Pumping Stations Historic and Forecast Expenditure
106
Service reservoirs data and observations
Error! Bookmark not defined.
Transition probability matrix for service reservoirs
Error! Bookmark not defined.
Service Reservoir - CBA Results
Error! Bookmark not defined.
Service Reservoirs Historic and Forecast Expenditure
Error! Bookmark not defined.
nd
Hills 2 Cell – Summary of Whole Life Cost Analysis
Error! Bookmark not defined.
nd
Hills 2 Cell – Summary of Considerations for Intervention Options Error! Bookmark not defined.
nd
Hills 2 Cell – Capital Costs of Site Options
Error! Bookmark not defined.
Scoring of Benefits for Hills Second Reservoir
Error! Bookmark not defined.
Hills Second Cell Strategy CBA Results
Error! Bookmark not defined.
Trunk Main CBA Sensitivity Results
Error! Bookmark not defined.
Summary of Balancing Of Risk and Affordability – Key Decisions and Intervention Changes
127
Summary of Capital Delivery Strategy
131
List of Figures
Figure 1 Willingness to Pay for service improvements from status quo
Figure 2 Company Organisation chart
Figure 3 Asset Management Approach
Figure 4 Asset Development of Asset Management Plans
Figure 5 Internal Issues Process
Figure 6 Distribution Mains Serviceability and Expenditure
Figure 7 Treatment Works and Resource Serviceability and Expenditure
Figure 8 Treatment Burst Forecast for Distribution Mains Intervention Options
Figure 9 Analysis of Trunk Mains by Age and Material
Figure 10 Burst Rate for Trunk Main by Material
Figure 11 Distribution Main Serviceability and Expenditure
Figure 12 Trunk main process model
Figure 13 Trunk Main Risk and Burst Forecast – Fit with Planning Objective
Figure 14 Distribution Mains by Age and Material
Figure 15 Historic Burst Trend
Figure 16 Analysis of Mains Failure Type
Figure 17 Mains Replacement History and Forecast for AMP4
Figure 18 Water Distribution Serviceability and Expenditure
Figure 19 Current Business Process for Distribution Mains Replacements
Figure 20 Burst Forecasts for Distribution Mains Intervention Options
Figure 21: Historical Activity - Communication Pipe Replacement *
Figure 22 Forecast Communication Pipes Failure Rate by Strategy
Figure 23 Communication Pipes Replacement – Historic and Forecast Activity
Figure 24 Communication Pipes Replacement – Historic and Forecast Capital Expenditure
Figure 25 Meter Stock By Age and Manufacturer
Figure 26 Meter Failure Rate by Volume Passed (all Meters)
3
Figure 27 Meter Failure Rate by Volume Passed (up to 2100m )
Figure 28 The Company’s Revenue Meter Failure Trend
Figure 29 Meter Replacements by Intervention Strategy
Figure 30 Comparison of Historic and Forecast Replacements for the Chosen Strategy
Figure 31 Historic spend versus serviceability for treatment works
Page iv
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
15
20
21
22
25
27
28
30
37
38
38
41
47
55
56
56
57
57
60
65
72
74
77
78
81
82
82
83
84
86
88
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Figure 32
Figure 33
Figure 34
Figure 35
Figure 36
Figure 37
Figure 38
Figure 39
Figure 40
Figure 41
Figure 42
Figure 43
Figure 44
Figure 45
Figure 46
Figure 47
Example of a trapezoidal cost distribution
94
Comparison of expert panel and OWMS failure rates for Ultraviolet equipment
95
Comparison of expert panel and OWMS failure rates for Orthophosphate equipment
95
Forecast interruptions with no proactive interventions
97
Forecast of interruptions risk under differing maintenance strategies across all sites
99
Comparison of historic and predicted expenditure on treatment works (including amounts planned
for the remainder of AMP4)
103
Historic spend versus serviceability for pumping stations
104
Comparison of historic and predicted expenditure on pumping stations (including amounts
planned for the remainder of AMP4)
106
Historic spend versus serviceability for service reservoirs
Error! Bookmark not defined.
Expected condition of a service reservoir with age
Error! Bookmark not defined.
Variation in discounted annual cost of refurbishing reservoir with ageError! Bookmark not defined.
Comparison of historic and predicted expenditure on service reservoirs (including amounts
planned for the remainder of AMP4)
Error! Bookmark not defined.
Plan of Feasibility Options
Error! Bookmark not defined.
Overview of IT maintenance and enhancement process
124
Overview of the Telemetry, SCADA & Communications System
125
Capital Delivery Process
129
Page v
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B
Supporting Information
Section B3
Maintaining Service and Serviceability
Executive Summary
The Company has developed clear business cases for AMP5 interventions through the application
of risk based approaches with customer service central to the assessment of risk. The plan
presented demonstrates that the cost effective planning objective has been applied and that the
Company will continue to deliver the high levels of customer service already experienced by
customers and deliver stable serviceability for infrastructure and non infrastructure assets.
As presented in the draft plan there are two particular areas which represent significant risk to
customer service and serviceability; these are trunk mains and the existing Hills service reservoir.
The Company has greatly developed these business cases since draft and undertaken detailed
feasibility studies on the intervention options. The final plan presents robust and clearly argued
business justifications, founded on risk to customer service and that meet the cost effective
planning objective. In addition, the interventions are also shown to be cost beneficial.
The interventions to address these significant risks are the trunk mains solutions to TP28, TP03
and TP04 and the Hills reservoir 2nd cell. These interventions are significant investments; the key
drivers are:
Trunk main TP28 is the primary feed for Folkestone and supplies 18,000 properties in the town
which represents 24% of the Company’s customer base. The likelihood of trunk main failure is
increased by the fact that the trunk main is running along a geological fault line. Earthquakes are
frequent with the earthquake of 2007 being widely reported while smaller events are more
common. The latest event was on the 3rd March 09 and registered 3.0 on the Richter scale. (A
technical note prepared by Atkins and summarising recent seismic activity in the region is
contained in Appendix 2). The ongoing risk to service and serviceability for such a large number of
customers is unacceptable. The intervention option selected, which is to provide an alternative
feed to the Folkestone zone by way of 800m network link and pumping station for the final plan is
fully endorsed by the Board. The intervention also provides secondary benefits as a solution to the
Paddlesworth supply risk presented in the draft plan, which has now been removed as a separate
intervention as it is contained in the TP28 solution.
The trunk mains TP03 and TP04 are the two highest risk trunk mains in the Company. They are
the only remaining pre 1980s UPVC mains which have a significantly higher failure rate than other
materials; TP04 also has a history of bursts. The operation of the Denge Security Main, an AMP4
strategic investment to provide a reliable alternative supply of water to the Denge zone, results in
increased operating pressure for these mains and the likelihood of failure is thus increased.
Further, the Denge Security Main is the only alternative supply of water to the Denge zone in the
event of loss of supply from the Denge source. The increased risk of failure of TP03 and TP04
when the Denge Security Main is called to operate presents a risk of service failure to 6,500
properties which have no alternative means of supply. This is an unacceptable risk for customers.
Page 6 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The intervention included in the base programme is like for like replacement of these mains and is
fully supported by the Board.
The Hills reservoir also supplies 24% of the Company’s customers in Folkestone, via the trunk
main TP28 and an additional 6,500 properties when the Denge Security Main is operating. The
reservoir was constructed in 1924 and inspections in 2000 and 2008 have highlighted the need for
extensive maintenance to the joins which are at the end of their life. The reservoir is also located
on a geological fault and it is important that intrusive assessments are undertaken to understand
the structural condition of the reservoir. The reservoir cannot be isolated for the period of time for
this work to be undertaken without significant risk to customer service and serviceability. The
Company has undertaken a detailed feasibility study between draft and final to develop the most
cost effective intervention. This work has reduced the capital cost by £4m between draft and final.
The intervention to address this risk is fully supported by the Board.
These interventions are essential in AMP5 to ensure that the unacceptable risks to service and
serviceability are appropriately managed. The interventions also represent large standalone
investments in AMP5 and the Company believes these should be regulatory outputs and that they
qualify as Exception Items under the definition provided by Ofwat.
Through the draft to final development, the Board has continually challenged the programme to
ensure that it correctly balances customer affordability with ensuring significant risks to service
inherent in the current asset base are addressed and that overall service and serviceability can be
maintained. The large standalone interventions described above have made this process
particularly important. As a result of the challenges a number of investment areas identified at draft
have been reduced or removed from the final business plan, where the risks to service and
serviceability can be managed in AMP5 through operational means. Examples of this are the
reduction of the main renewal programme from the preferred and more cost beneficial programme
of 5km/yr to a 3km/yr programme and the decision to manage operationally the run to waste and
turbidity risks at specific treatment works. These changes have reduced investment by over £3m.
The Company has also undertaken extensive validation of the modelling approach for treatment
works, pumping stations and service reservoirs, refined the approach to risk allowances for
interventions and undertaken detailed feasibility studies on key interventions. The overall result is a
reduction in capital investment between draft and final of £12.8m.
Comparing the AMP5 programme (pre-efficiency and with Exception Items separately identified)
with the AMP4 determination shows relatively small increases on like for like investment areas.
£m (07/08 pb)
AMP4
AMP5
IRE
5.4
6.6
MNI
9.0
10.6
Sub Total
14.4
17.2
IRE – Exceptional Items
3.9
MNI – Exceptional Items
7.5
Sub Total
11.4
TOTAL
14.4
Table 1 AMP4 and AMP5 Base Investment
Page 7 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
57.2
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table 2 provides detailed breakdown of the Base investment for AMP5.
Asset Category
Planning
Objective
Water Distribution:
Trunk Mains
Cost effective
stable
serviceability;
maintain risk at
start of AMP5
levels
Water Distribution:
Distribution Mains
Cost effective
stable
serviceability
Water Distribution:
Communication Pipes
Cost effective
stable
serviceability
Intervention
Selected
AMP5
Capex, £k
Network for TP28,
Replacement of
TP03, TP04
(2,604)*
3 km/yr renewal
strategy
Maintain stable
leakage
Repair on fail and
replace BPE, Fe
and Cu on fail
AMP5 Opex
in 2014/15,
£k
17
3,897
5,221
0
936
0
481
0
10,535
17
280
0
4,377
0
1,238
0
1,537
0
4,642
0
3,379
0
Non Infrastructure Total
18,057
0
Base Programme Total
28,592
17
Infrastructure Total
Revenue Meters
Water Treatment Works
Water Pumping Stations
Service Reservoirs
Management & General
Cost effective
stable
serviceability
Cost effective
stable
serviceability
Cost effective
stable
serviceability
Cost effective
stable
serviceability
Replace on fail
Optimal
Interventions from
modelling
Hills 2
Cost effective
stable
serviceability
nd
Cell
Table 2 Summary of Cost for the Company’s proposed AMP5 Capital Maintenance Strategies
* The TP28 solution is part infrastructure, part non infrastructure. The non infrastructure value in contained in
brackets, the other value is the infrastructure element.
Page 8 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1
Changes from Draft to Final
Section 1.1
Material Changes in B3
Between draft and final the Company has undertaken significant work on the Business Plan to
address the challenges made by Ofwat and internal challenges from the Board. The most
significant areas of change are:
•
Managing the programme to provide an appropriate balance between customer bill
increases and risk. Managing the risk operationally of run to waste and turbidity at
treatment works, plus network meter replacements has resulted in approximately £1m of
investment that was included in the draft business plan being managed operationally by the
Company for the final business plan. Additionally, the reduction in mains renewal from the
preferred strategy of 5km/yr to 3km/yr has reduced investment by £2.3m. These reductions
have enabled the bill impact to customers to be balanced against operational risk.
•
Development of the robustness of key business cases presented in B3 including clear
planning objectives for each business case, plus revisions to all sections to address
feedback from the AMA scoring process.
•
Detailed validation and sensitivity testing for the Water Treatment, Pumping Station and
Service Reservoir non infrastructure business cases. This has resulted in over £7.7m
reduction between draft and final.
•
Detailed feasibility studies on interventions options for trunk mains and Hills 2nd cell, this
has resulted in:
•
o
A reduction of £4m on the solution to Hills 2nd Cell;
o
The solution to trunk main TP28 being integrated with the Hills to Paddlesworth
solution which therefore, no longer requires a separate solution in the final business
plan and saves over £500k.
The overall programme between draft and final has reduced by over £12.8m.
The following table highlights the material capital investment changes between draft and final
business plans. (As the table only highlights material changes, not all business cases are included.
The totals are for the whole B3 programme and are not the sum of the above.)
Page 9 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Draft
Final
Intervention
Selected
AMP5
Capex,
£k
Intervention
Selected
AMP5
Capex,
£k
Water Distribution:
Trunk Mains
Replacement
of, TP28,
TP03, TP04
4,971
Replacement
of, TP28,
TP03, TP04
6,501*
Water Distribution:
Hills to Paddlesworth
Supply
Network
improvement
290
Water Distribution:
Distribution Mains
5 km/yr
renewal
strategy
Maintain
Leakage
Asset Category
Infrastructure Total
6,353
Not inc.
None
3 km/yr
renewal
strategy
Maintain
Leakage
12,095
0
5,221
936
Comment
Design development and
more detailed cost
estimating
Solution integrated with
TP28 solution
Revised strategy to
balance programme
Included as per AMP4
10,535
Water Distribution:
Network Meters and
Control Valves
Proactive
maintenance
100
None
0
To be managed
operationally to balance
programme
Water Distribution:
Hills to Paddlesworth
Supply
Network
improvement
238
None
0
Solution integrated with
TP28 solution
893
None
0
To be managed
operationally to balance
programme
Water Treatment
Works
Water Pumping
Stations
Service Reservoirs
Run to Waste;
UV and
Turbidity
Monitoring
schemes
Maintaining
Stable
Serviceability
Maintaining
Stable
Serviceability
Maintaining
Stable
Serviceability
Hills Second
Cell
Non Infrastructure Total
Capital Maintenance Total
12,122
1,198
2,600
8,676
29,344
41,439
Maintaining
Stable
Serviceability
Maintaining
Stable
Serviceability
Maintaining
Stable
Serviceability
Hills Second
Cell
4,377
1,238
1,537
4,642
Sensitivity and robust
validation conducted on
modelling approach
resulting in reduced
investment necessary to
deliver stable
serviceability across all
three asset classes
Design development and
more detailed cost
estimating
18,057
28,592
Table 3 Draft to Final Business Plan Material Changes
* The solution to TP28 includes £2,604k of non-infrastructure costs that are reported in this line, are not
included in the Infrastructure total but are included in the Non Infrastructure total.
Page 10 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1.2
Response to Ofwat feedback and challenges
This section highlights the key challenges presented to the Company by Ofwat and a summary of
the Company’s response. Where appropriate references are made to further details provided as
part of the Company’s overall submission. The key messages are taken from the following
documents and meetings: Company Specific Feedback on Draft Business Plan (28th October
2008); Capital Expenditure for 2010-15: draft baseline (19th December 2008); and the meetings
held with Ofwat on 4th November 2008 and 4th February 2009. The feedback and meetings with
Ofwat have been constructive and valuable to the process of developing the final business plan
and assisting the Company in focusing its response to key issues.
In summary, the key issues raised by Ofwat in relation to Maintaining Service and Serviceability
are:
1. Clarity of planning objectives and compelling justification and articulation of benefits to
customers in serviceability terms, particularly for the trunk mains solutions and Hills 2nd cell;
2. Extent of un-validated expert judgements for the water treatment works, water pumping
stations and service reservoir business cases and the lack of differentiated business cases
for these asset groups;
3. Robustness of cost estimates and use of 20% risk allowance; and
4. Size of the programme and balancing priorities and risk.
The Company’s response to these challenges is:
1. The Company accepts that the planning objectives were not clearly stated in parts of the
draft plan. This has been addressed for the final plan and these are summarised in Table 5
as well as being presented for each business case. While the draft business plan largely
relied on cost benefit assessments to justify proposals, the final business plan
demonstrates that the proposed AMP5 interventions deliver stable serviceability and are
cost effective. The trunk main and Hills 2nd cell interventions are proposed to mitigate key
risks to service and serviceability. The risk-based approaches used by the Company are
clearly grounded in assessing the risk to customers and are supported by customer
priorities. Where appropriate these interventions have been tested using the cost benefit
analysis. The details for each Business Case are presented in Section 4.
2. In the draft business plan the Company recognised the need to provide further validation
and sensitivity testing of the water treatment works, water pumping stations and service
reservoir business cases. This has been undertaken by identifying the key parameters
driving the modelling results (for example failure rates, durations and impacts, and unit
costs of asset replacement and refurbishment) and then subjecting these parameters to
comparison with Company data, peer reviews and internal challenge. The change in the
investment costs between draft and final highlighted above is largely a function of this
validation process. Secondly, a range of sensitivity analyses have been undertaken on the
results which clearly demonstrate that the model is providing stable results; the range of the
investment costs resulting from the sensitivity analysis is consistently less than the change
in input parameters undertaken for the sensitivity analysis. This is detailed in the
appropriate business cases in Section 4.2.
Page 11 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
3. As proposed in the draft business plan, the scope and cost estimates for key intervention
options have been refined between draft and final, particularly in regard to the trunk main
and Hills 2nd cell options where the Company has invested in detailed design optioneering
and cost estimating before selecting the preferred solution. This development work is
explained in the relevant business cases. Unit costs used for the business planning
investment are consistent with the unit costs used to derive the cost base submission and
historic costs where future interventions are similar to historic interventions. Where this is
not the case unit costs have been developed using cost consultant data based on industry
rates. An individual risk register has been developed for all schemes over £1m and the risk
allowance used in the cost estimate modelled using a P80 value from a Monte Carlo
approach. Where appropriate, schemes below £1m have used an average risk allowance
from the above modelling. The Company is confident that the cost estimating approach
used for the final business plan is robustly linked to historic unit costs where possible, is
clearly auditable and consistent with estimating standard practice. An overview is provided
in Section 3.5 and full details contained in Section C5.
4. Ofwat has significantly challenged the size of the Company’s investment programme and
its balancing of risk and the impact on customer bills. Between draft and final business
plans, the Company has discussed each area of investment with the Executive
Management Team and the Board and reviewed the priorities necessary to deliver high
quality customer service and stable serviceability. As identified in Section 1.1 above, this
has resulted in the Company accepting greater levels of risk in key areas such as mains
renewal and run to waste facilities on treatment works in order to enable key interventions
to proceed that will deliver long term reductions in service risk to customers. In addition,
through careful design development an alternative solution to trunk main intervention for
TP28 is included in the final business plan that delivers secondary benefits to the
Paddlesworth risk, as well as being a significantly lower cost solution to that proposed at
draft. Section 4.4 provides a full commentary on the balancing of the programme and risk
across the whole business plan.
Page 12 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2
Service Summary: Planning Objectives, Direction and
Delivery
Section 2.1
Stakeholder Engagement
The Company has a policy of engaging with its customers and stakeholders to inform the direction
that the Company takes. This includes customer surveys, undertaken at six-monthly intervals with
a mixture of customer service and proposed service change questions, feedback collected through
the Company’s website, writing to local councils, stakeholder workshops, Business Plan meetings
and steering group meetings. The Company also employed ICF International to conduct a
domestic customer research project which included a detailed willingness to pay survey.
Stakeholders’ opinions were incorporated into the Strategic Direction Statement. This describes
the Company’s vision for the next 25 years and is discussed further in 0. Evaluation of the
Company’s Overall Performance Measures, in conjunction with the objectives set out in the
Strategic Direction Statement, has helped to target investment and produce the solutions which
are proposed in this plan.
Section 2.1.1
Customers
Ongoing Customer Consultation
The Company consults with customers every six months using business as usual surveys.
Questions remain fairly typical unless there is a proposed change in service. In recent surveys,
questions have focussed on assessing customer support for metering. Two surveys have been
completed prior to the draft stage of the business plan and the results of a third survey have been
incorporated into the final business plan.
In addition, Ofwat undertook customer surveys between draft and final and customer views arising
from these surveys have also been included in the Company’s decisions.
The results of all of this have led the Company to prioritise its investment requirements. More
information on this can be found in Section C1. The Strategic Direction Statement is discussed in
0.
The Company accounted for customer preferences and has used the willingness to pay figures in
the cost benefit analysis for its draft and final business plans. Feedback from draft was received
about how happy customers were with the Company’s interpretation of their preferences. This has
been taken into account and any changes are presented in this plan.
With regard to maintaining service and serviceability, the key messages from customers are:
•
87% of customers identified “maintaining a supply of high quality tap water” as their highest
priority; and
•
55% of customers were willing to pay more to maintain the service levels proposed in the
draft business plan with 37% prepared to pay £10/annum more.
The Company believes that both these pieces of evidence provide clear statement of customer
support for maintaining the current levels of customer service and serviceability in the future.
Page 13 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Willingness To Pay (WTP) Survey
In advance of the draft business plan the Company employed ICF International to conduct the
detailed qualitative research, piloting, survey implementation, data collection and data entry roles
for the domestic customer research project. ICF International, in conjunction with Accent Market
Research, used a survey to judge customers’ willingness to pay through selected scenarios in
which bills were changed as a result of changes in the level of service received. In total, 0.6% of
the Company’s customers have been surveyed, which is believed to be a high proportion
compared with other companies.
To determine the structure of the survey, a series of internal workshops and stakeholder focus
groups were used to identify measures to be discussed with customers. Eight of the Company’s 15
company survey questions were selected to be used as subjects of the survey and resulting
customer interviews. (The survey report is contained in Appendix 1.)
Through the survey, customers were able to value service against specific service-related
measures, enabling customers’ views to be compared in the same context as business drivers.
They were also able to select their priorities for service, which included environmental impacts as
well as serviceability measures. The survey was initiated with the selected attributes and was
sense-checked by a pilot study, consisting of 101 face-to-face customer interviews.
From the respondents of the survey, a further 492 were selected for interviews. Interviewees were
run through a selection of ‘choice cards’, where they could choose to select the status quo or to
select a change in service, which would result in a consequential change in bills.
ICS used this preference data to model scenarios and assign willingness to pay figures to the
individual attributes (see Figure 1). The application of the WTP results to the cost benefit analysis
is presented in Section C8.
In addition to the willingness to pay data, the survey collected a variety of information on the
respondents’ attitudes on water services, as well as their use of water. The survey also collected a
variety of socioeconomic information to be used for determining the degree to which the sample of
respondents matched the characteristics of the general population in the region. High level results
of the willingness to pay project can be seen in Figure 1.
Page 14 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Hardness of water
Unplanned
interruptions > 6hrs
Attribute
Water safety (technical
quality)
Taste, smell,
appearance & odour
Hosepipe bans >
3months
River water levels
Water savings through
efficiency measures
Annual Greenhouse
Gas emissions
0
2
4
6
8
10
£/household/year
Figure 1 Willingness to Pay for service improvements from status quo
Figure 1 is representative of customers’ stated preferences in the willingness to pay survey. This
has helped the Company to prioritise investments based on customer opinion and has informed
the Company’s Strategic Direction statement. For example, the highest willingness to pay figures
were tied to Greenhouse Gas emissions and this is reflected in the Company’s Strategic Direction
Statement as noted targets to reduce energy carbon use by 1% each year until 2020, at which
point the Company also intends to obtain 20% of its energy from renewable resources.
Results of the project have also influenced the development of the capital maintenance
programme. For example, reduction in CO2 emissions has led to a continued focus on the
reduction of leakage and the need for efficient pumping plant. Maintaining the low number of mains
bursts and plant failures also addresses customers’ focus on the reduction of unplanned
interruptions to supply.
Aesthetic water quality also scored highly with customers and consequently the Company is
proposing investment in order to prevent discolouration incidents (see Sections B4 and B6).
The Company fully recognises that these surveys took place before the recession and credit
crunch and, therefore, that there is some uncertainty about the validity of the results in the current
Page 15 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
economic climate. While the Company has not re-commissioned further surveys, two points are
important. Firstly with regard to the business cases presented to maintain service and
serviceability, these are based soundly on cost effective planning objectives, not on cost benefit
grounds; where the cost benefit of interventions has been assessed this has been undertaken to
provide additional supporting justification and to meet Ofwat requirements. Secondly, as described
in fully Section C8, the cost benefit analysis has been subject to a number of sensitivity cases
including willingness to pay results and these results are valuable in the context of changes to
customers economic circumstances.
Section 2.1.2
Consumer Council for Water
CCWater is invited to participate in the Company’s Steering Group for Water Efficiency and
Metering Strategy. This group was established when the Company was awarded its ‘Water
Scarcity’ status and meets quarterly.
In addition, the Company is currently trialling a stepped tariff programme in Lydd, which CCWater
is closely monitoring. CCWater audits the Company annually and is also invited to customer-based
workshops run by the Company.
The Company has kept CCWater informed of its proposals through a series of quadripartite
meetings (including the Environment Agency and Drinking Water Inspectorate), with the most
recent meeting being held on 24th February 2009. Whilst supportive of the strategy presented and
the need for investment to maintain service levels of customers, they were concerned at the likely
impact to customer bills and particularly the affordability for those on lower incomes. The question
of affordability is important, and the Company’s approach to balancing risk to customer service and
affordability is presented in Section 4.4.
Section 2.1.3
Regulators
The Company regularly meets with its regulators in a variety of forums. Ofwat has been engaged
at all stages of the development of the Business Plan and these meetings have been constructive
and valuable for the Company in developing its business plan.
The Water Efficiency and Metering Strategy Steering Group include the EA, Defra, Ofwat and
Waterwise as members. The Company is also part of the Water Resources in the South East
Group, which is led by the EA to develop regional solutions in the context of the SE water
companies’ Water Resource Management Plans.
Workshops led by the Company to collect customers’ opinion on its Strategic Direction Statement
and Water Resource Management Plans have also included Ofwat, CCWater, the EA, DWI, Kent
County Council and District Councils. The Company has been involved with the auditing of the
Folkestone Water Cycle Strategy, which is led by Defra.
The Company has discussed the development of its plans at regular intervals with the
Quadripartite Group which includes the EA, CCWater, and DWI as members. At the quadripartite
meetings there has been strong support from all regulators present for the Company’s proposals.
The demand led strategy for supply demand was particularly supported with the recognition that
maintaining existing service levels becomes more critical as in the future the impact of failures will
affects more customers.
Section 2.2
Strategic Direction
In 2007, the Company prepared a Strategic Direction Statement, setting out the main water supply
issues anticipated in its area for the next 25 years and its approach to managing these. This
Page 16 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
statement was based on consultations with customers, local authorities and regulatory bodies; thus
incorporating stakeholder views into the Company’s long term strategy. The Board was heavily
involved in the creation of the Strategic Direction Statement objectives, as well as those contained
in the Water Resource Management Plan, and endorses them fully.
The Strategic Direction Statement is an expression of the Company’s future vision, which is:
“To be a sustainable water supplier, exceeding stakeholder expectations through
continuous improvement.”
The Strategic Direction Statement is summarised into six main objectives, principally identified
during customer surveys, willingness to pay studies and stakeholder engagement. The main
objectives include maintaining a reliable, safe supply of water whilst providing services in a
sustainable and environmentally-friendly manner.
In the next 25 years, the Company is planning towards:
1. Achieving a sustainable use of water resources.
2. Safeguarding Drinking Water Quality.
3. Ensuring a reliable supply of water
4. Mitigating Climate Change impacts
5. Enhancing Customer Service
6. Financing the future
These six themes run throughout the business, providing a basis for the long-term strategic vision
and formal business objectives of the company and are also followed through into the structure for
setting employees’ personal targets.
The Company’s asset management process supports this by utilising a network of primary and
supporting asset systems to ensure that a good quality, reliable service is provided to customers.
The Company strives to maintain its infrastructure in a way that balances the risk of failure against
additional cost to customers and has therefore planned to focus investment on maintaining a
stable level of serviceability in AMP5.
The feedback from the Environment Agency, Drinking Water Inspectorate and Natural England has
been particularly supportive of the Company’s Strategic Direction Statement. It has been described
as ambitious and an industry leader in its drive to achieve a sustainable water supply. Customers
were also supportive with over 94% agreeing that water conservation is a priority and that paying
fro water according to the amount used is the fairest way.
The Strategic Direction Statement will be reviewed by the Board and customers will be updated
with progress. It is intended that the Strategic Direction Statement will be republished every five
years, unless there are significant policy changes in the intervening period, to update customers.
Section 2.3
Serviceability Approach
The Company’s serviceability is measured by Ofwat, which awards a status to the Company based
on the trending of its data. According to Ofwat, serviceability in Water Infrastructure is stable.
Water Non-Infrastructure serviceability is also assessed as being stable in 2007/08, following two
previous years of improving serviceability status. There has been relatively little change in the
Company’s serviceability in recent years; burst figures are low, at below 100/1,000 km per year,
leakage is below the regulated Ofwat target and mains renewal is steady, if low (the current
replacement rate leads to an asset life of greater than 300 years).
Page 17 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
In the draft business plan the Company proposed serviceability reference levels and control limits
which Ofwat have either supported or, in a number of cases, increased. The Company accepts
these changes and the reference levels and control limits for AMP5 are therefore:
Serviceability Indicator
Reference
High
Low
100
127
73
0
23
0
0.13
0.42
0
2
15
0
0.04
0.18
0
Service Reservoir Coliforms (%)
0
8
0
Turbidity (Nr)
0
2
0
Enforcements (incident nr)
0
1
0
1830
2035
1625
Infrastructure
Total Bursts (nr)
Interruptions > 12h (nr)
Iron mean zonal compliance (MZC %)
DG2 Pressure (nr)
Non Infrastructure
WTW Coliforms (%)
Unplanned maintenance (nr)
Table 4 Summary of Serviceability Reference Levels
The business plan has been developed in alignment with these reference levels and the Company
is currently planning investment based on the Common Framework cost-effective objective to allow
it to maintain stable serviceability.
The Common Framework provides a method for companies to estimate their future capital
maintenance requirements to meet two possible objectives:
1. A cost effective objective, appropriate for providing steady service, to be used to justify
base service provision;
2. A cost benefit objective, appropriate for justifying a changed level of service in terms of
targeted serviceability. General guidance on cost benefit analysis is provided in Section C8
of the business plan information requirements.
Although it has adopted the cost-effective objective in developing the AMP5 Capital Maintenance
plan, the Company has tested the predicted investment requirements based on cost-benefit
principles as Ofwat has asked to see that investment is still cost-beneficial. An overview of the
proposed expenditure can be found in Table 5.
Mains renewal is currently at a very low rate of approximately 3km/year and although serviceability
is not seen to be declining in the short-term, the Company’s risk profile is steadily increasing and
increasing mains renewal is seen as part of the long-term investment strategy to manage the risks
associated with an aging asset stock. More information can be found in Section 4.1, Infrastructure
Assets Business Case.
Page 18 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Asset Category
Infrastructure
Water Distribution:
Trunk Mains
Water Distribution:
Distribution Mains
Water Distribution:
Communication Pipes
Non Infrastructure
Water Distribution
Revenue Meters
Water Treatment Works
Water Pumping Stations
Service Reservoirs
Management & General (noninfrastructure)
Planning Objective
Cost effective stable serviceability and maintain risk
to service stable at start of AMP5 levels
Cost effective stable serviceability
Cost effective stable serviceability
Cost effective stable serviceability and risk to
service stable
Cost effective stable serviceability
Cost effective stable serviceability
Cost effective stable serviceability and risk to
service stable
Cost effective stable serviceability
Table 5 Summary of Business Cases
The proposed strategy have been focussed on customer and stakeholder priorities, as expressed
through customer and stakeholder consultation, willingness to pay surveys and the Strategic
Direction Statement. Investment has also been prioritised into areas where there is significant risk
to serviceability and customer service. The following Section explains how the Company has done
this. The overall balancing of the plan is discussed further in Section 4.4.
Page 19 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 3
Approach to Asset Management Planning
Section 3.1
Overview and Background
The Company’s overall approach to asset management is described in graphical form in Figure 3
below. Figure 4 expands the process for developing asset management plans. As the Company is
relatively small in size, the Head of Capital Investment and Asset Management is also a member
of the Executive Management Committee, which approves all capital investment and is thus
involved in asset management decisions. It is through this position that integrated asset
management strategies and policies are set and implemented. Communication between
departments is also aided by the small size of the Company and there are weekly meetings
between asset management and operations teams to ensure that information is circulated
efficiently. The Head of Capital Investment and Asset Management also attends all Board
meetings and, therefore, provides a key linkage between the Board the execution of asset
management in the organisation. The high level organisation chart in Figure 2 shows this structure.
The small size of the Company and its asset base allows problems to be identified, trends to be
highlighted and rapid feedback to be disseminated and communicated throughout the structure.
There are robust monthly reviews from an operational perspective. For example, leakage, turbidity
and plumb solvency profiles are tracked monthly and progress is monitored in the EMC monthly
meetings. The Executive Management Committee also tracks water quality samples, downtime on
site, customer complaints and customer contacts. An example report is provided in Appendix 3.
BOARD
Managing Director
Head of Corporate
Services
Head of Operations
Head of Capital
Investment and
Asset Management
Asset Manager
Project Managers &
Support
Figure 2 Company Organisation chart
Page 20 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Head of Customer
Services, Finance
and Regulation
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Operations
INVESTIGATE
Assist Asset
Performance
Investigations
PLAN
Collate
Asset
Needs
Inform
Strategic
Direction
DELIVER
Inform Asset
Management
Plans
Inform
Scheme
Definition
OPERATE
Inform
Scheme
Programme
Data
Data
Operate
Assets
Maintain
Assets
Data
Record
Data
Record
Asset
Needs
Data
Data
Capital Investment &
Asset Management
Data
Investigate
Asset
Performance
Develop
Strategic
Direction
Data
Develop
Asset
Management
Plans
Consult
Ops.
Programme
Schemes
Deliver
Schemes
Data
Customer Services
Data
Consult
Customers
Inform
Strategic
Direction
Inform Asset
Management
Plans
Customer
Contact
Inform
Operations
Record
Data
Data
Finance & Regulation
Data
Consult
Stakeholders
CIMS
Inform
Strategic
Direction
Oracle
Inform Asset
Management
Plans
OWMS
HIAFFINITY
Figure 3 Asset Management Approach
Page 21 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
NIAD
GIS
Problems
Register
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
DEVELOP ASSET MANAGEMENT PLANS
Asset Data and
Historical Analysis
Forward-Looking Analysis
Asset Needs and Intervention Options
Asset and
Serviceabilty
Failure
Assessment
CostPerformance
Assessment
(opex, Reactive
Maintenance,
etc.)
Historical
Performance
Summary
Maintenance
Activity
Assessment
Industry
Benchmarking
Build and Verify
Asset
Performance
Models
Assess
Probability,
Consequences
and Costs of
Failures
Forecast
Service
Identify Asset
Needs
Identify
Intervention
Options
Figure 4 Asset Development of Asset Management Plans
Page 22 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Cost-Benefit
Analysis
(Whole-Life)
Investment
Optimisation
Investment
Review and
Challenge
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Data Holding
Infrastructure asset data, including asset performance data, is held by the Company’s
Geographical Information System (GIS). GIS allows spatial analysis of asset and customer data.
Likewise, the equivalent Non-Infrastructure data is held in the Company’s Non-Infrastructure Asset
Database (NIAD).
Operational activity relating to all asset types is handled by the Company’s Operational Works
Management System (OWMS). This is related to financial information to analyse operational
expenditure.
Capital activity is held by the Capital Investment Management System (CIMS). This incorporates a
risk register and statements of need to analyse the need for investment (See Issues Register and
Process).
In addition to the asset databases held by the Company, a customer database (HIAFFINITY) holds
customer service, customer contact and billing information. In another role, it is also used as the
asset database for meters.
Water sampling data is held in a laboratory information management system and this can be used
to map quality failures geographically in the GIS. It also helps to provide an overview of the
aesthetic service provided by the Company and can be compared to aesthetic customer
complaints (e.g. discolouration complaints).
Financial data concerning the Company and its customers is held in ORACLE, the Company’s
financial system.
Data Quality
The following primary data sets are central to the Company’s operational, capital delivery and
asset management functions. The data, availability and quality are commented on in the following
table
Data Set
Oracle; capital
and operational
costs
Data availability
On-line data
available to July
2002.
Score (good, fair, poor)
Hi Affinity;
customer
contact, billing
and meter asset
database
1997 Custima
implemented; Hi
Affinity upgrade
2006
Good.
GIS, including
burst reporting
From 1990
onwards
Good.
NIAD
Implemented
2007/08
Good
Good
All operational and capital project costs are captured
and reported through Oracle. Alignment of data with
OWMS system needs to be improved to give better
granularity of costs at activity level
All customer contact and billing data captured in this
system. System has limited flexibility as asset inventory
for meters but meter data reliable.
Full GIS mapping of network; burst reports for all burst.
Data based on full asset survey. Links to OWMS need
development.
Page 23 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Data Set
Operational
Works
Management
System (OWMS)
Data availability
Implemented 2003
Hydraulic
Network Model
Full model, last
updated to reflect
network changes
2007
Score (good, fair, poor)
Average.
Capture reactive and proactive maintenance and
network activity. Data structure and links with Oracle
and NIAD need improvement.
Average to Good
Company wide model which validates well to
Operational experience. Required demand updates and
re-validation.
Table 6 Summary of Data Quality for Key Systems
Asset Management Processes
In support of the Common Framework and its forward-looking approach, the Company has
developed a long-term strategic Business Plan, looking at investment in and beyond the AMP5
period, aligned with its Strategic Direction objectives. The Company follows a standard asset
management cycle as described in Figure 3.
•
Investigate – Historical data is collected during operational activities and is analysed by the
Company and hired consultants. Monthly reports are prepared for the Executive
Management Committee (EMC) example reports can be seen in Appendix 3. Data is
trended to create serviceability and risk profiles (See Section 3.2.3). Profiles are extended
and data is modelled to provide estimates for the future (See Section 3.4). In the same
way, issues on the problems register are turned into Statements of Need to record and
analyse the potential consequences to serviceability if left untreated.
•
Plan – Project Justifications are produced based on Statements of Need. At a higher level,
Asset Needs are identified by comparing risk profile scenarios with and without
intervention. Costs for interventions are calculated and projects are compared using costbenefit analysis (see Section C5). Projects with high benefits are optimised and selected
based on their relevance to the Company’s priorities, impact on serviceability and costbenefit ratio. Periodically, the optimal basket of solutions selected through this process is
presented to Ofwat in the Company’s business plan.
•
Deliver – The selected projects, both capital and operational, are delivered.
•
Operate – The Company operates its asset base and collects asset observations, condition
and performance data. Customer contact, financial and capital data are also recorded.
Asset needs are recorded on a register. Data is held in the corporate databases described
in the Data Holding section above. Feedback is gathered throughout the process both
internally and externally through stakeholder engagement.
•
Feedback – Feedback on the success and implementation of projects leads to better
planning.
The development of longer-term asset strategies is incorporated into the development of regulatory
Business Plans and the Strategic Direction statement. The Company is also looking further ahead,
with its distribution and trunk mains renewal ambitions covering a 10-15 year planning horizon, as
described in Section 4.
Page 24 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Issues Register and Process
The Company has an internal issues identification process, which allows all staff to flag asset and
site delicacies. This is an integral part of the ‘identification of asset needs’ shown in Figure 3 and
Figure 4 above.
Issues, when apparent, are added to a register as indicated in Figure 5. Identified issues are
developed into Statements of Need using a standard form (see Appendix 4). This form requires
details about the delicacy, historical occurrences, and potential consequences including
serviceability impacts, related problems, perceived solutions and score. Needs are scored by
probability and severity (both on a 1-5 basis) against Water Quality, Water Sufficiency, Health and
Safety, Financial and Regulatory Overall Performance Measures.
Statements of Need, once clarified, are entered into and held in the CIMS database. Short-term
and small risks that can be solved by operations are assigned to project managers. Larger
problems, which are deemed to require more than a conventional operational solution, are
reviewed to become part of larger project solutions. High risk needs are reviewed quarterly by the
Head of Capital Investment and Asset Management. All Project Justifications in the planning stage
should refer to a specific Statement of Need.
Issue Identified
Statement of Need (SON) raised &
scored
SON clarified
Entered into CIMS system
Capex meeting to review SON
Project Definition
Project Justification
Figure 5 Internal Issues Process
Page 25 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Opex solutions
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Regulation
The Company tracks its progress against Ofwat serviceability indicators DG2, 6, 7 and 8. It also
tracks leakage on a monthly basis and has monitoring and reporting tools in place to measure
pressure and leakage performance within the distribution network. Leakage is measured against
the Company’s leakage target.
The Company follows DOMs regulations and undertakes Drinking Water Safety Plans, in
accordance with DWI requirements. The implementation of the Water Safety Plans has led to a
number of problems being identified including Iron and Manganese deposits.
Development
The Company has commenced an internal project to review and refine the processes of data
collection and management as part of its ongoing data improvement initiative. It is the
responsibility of the whole business to capture relevant data but it is the responsibility of the asset
management team to analyse the data to inform decisions. A full asset survey was recently
undertaken for non-infrastructure assets and mechanisms are being developed to keep this data
updated. The implementation plan will ensure that a high level of data quality is maintained and
that the process of updating the data is fully incorporated into the Company’s business as usual
activities.
Section 3.2
Historical Analysis
Section 3.2.1
Infrastructure Assets
Infrastructure asset data (including physical performance data such as numbers of bursts) is held
in the Company’s GIS software and is supported by sister company data where lacking in detail.
GIS allows spatial analysis of asset data and is particularly useful for tracking customer
complaints, water quality sample results and bursts. This allows the Company to track the number
and location of customers affected by bursts. The Company has also developed a hydraulic model
to track the number of customers affected by unplanned interruptions to supply using data stored
in GIS.
Figure 6 shows the number of bursts per 1,000 km against water distribution mains service and the
number of unplanned interruptions greater than 12 hours. The Company proposes investment in
distribution mains and trunk mains in AMP5 to maintain the low number of bursts occurring each
year, thus helping to keep stable serviceability and a stable company risk profile.
Page 26 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
FDWS Historic Base Service Provision versus Serviceability
Water Distribution Mains
2.00
1.80
1.20
1.60
1.00
1.40
0.80
1.20
1.00
0.60
0.80
0.40
0.60
0.40
0.20
0.20
0.00
19
90
19 /91
91
19 /92
92
19 /93
93
19 /94
94
19 /95
95
19 /96
96
19 /97
97
19 /98
98
19 /99
99
20 /00
00
20 /01
01
20 /02
02
20 /03
03
20 /04
04
20 /05
05
20 /06
06
20 /07
07
/0
8
0.00
Ratio to average of actuals
Base Service Provision (£M)
1.40
Water Distribution
Mains Base
Service Provision
DG2 properties
below ref level
D3 Unplanned
interruptions
>12hrs
Mains burst per
1000km
5 yr rolling avg
(Base Service
Provision)
Year
Figure 6 Distribution Mains Serviceability and Expenditure
Section 3.2.2
Non-Infrastructure Assets
The Company’s non-infrastructure data is held in its NIAD database and also includes condition
and performance data. A full non-infrastructure asset survey has been completed for PR09.
Tynemarch has used this data to underpin the analysis of the Company’s investment requirements
for non-infrastructure assets. The Company is currently investing in systems to ensure that this
data is maintained in the same way as GIS infrastructure data and is core to asset management
and investment decisions.
In AMP5, the Company is proposing investment in water treatment works, UV and turbidity
monitoring schemes to maintain serviceability levels. Figure 7 shows turbidity and detected
coliforms at Water Treatment Works against treatment works base service.
Page 27 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
1.00
4.50
0.90
4.00
0.80
3.50
0.70
3.00
0.60
2.50
0.50
2.00
0.40
1.50
0.30
0.20
1.00
0.10
0.50
0.00
0.00
Treatment Works
& Facilities Base
Service Provision
WTW with
coliforms
detected
Turbidity 95%ile
Measured Works
5 yr rolling avg
(Base Service
Provision)
19
90
/
19 91
91
/
19 92
92
/
19 93
93
19 /94
94
19 /95
95
19 /96
96
/
19 97
97
19 /98
98
19 /99
99
/
20 00
00
/
20 01
01
20 /02
02
20 /03
03
20 /04
04
/
20 05
05
20 /06
06
20 /07
07
/0
8
Base Service Provision (£M)
FDWS Historic Base Service Provision versus Serviceability
Treatment Works and Resource Facilities
Year
Figure 7 Treatment Works and Resource Serviceability and Expenditure
The data held in the Company’s CIMS, OWMS, ORACLE, HI-AFFINITY and GIS databases
enables the Company to track its progress against Ofwat serviceability indicators; these are
discussed in Section 3 above. In addition to these databases, the Company has a telemetry
system, MC2000, which holds data for the majority of sites since 2001. Flow data is kept as a 24
hour rolling average for each site, based on readings taken at five minute intervals. This is
supported by the Company’s ORACLE system. Auto-trending of data is configured to allow
immediate analysis of key parameters.
Section 3.2.3
Cost of Failure
The cost of failures has been derived from Company historic costs. Where it is has been
necessary to disaggregate costs to a more detailed level than Company data provides, expert
judgement has been applied.
These costs have been used in the development of cost effective business cases and in the cost
benefit analysis. The details of these costs in contained in Section C8, section 1.2.3. In the context
of the cost benefit analysis, costs of failure are called “private costs”.
Section 3.3
Forward Looking Analysis
The Company has adopted the UKWIR Capital Maintenance Planning Common Framework
approach, which is forward-looking in its analysis, based on the forecasting of customer service
and subsequent investment needs. Having assessed current performance, the Common
Framework stipulates that the Company must examine how serviceability is likely to change
through resource capability and changing requirements. Deterioration of the asset base and stock,
change in demand, availability of energy and raw water, quality and environment enhancements,
efficiency and the impact of climate change are likely to constrain any forward-looking models and
where appropriate these factors have been incorporated into the Company’s modelling approach.
Section 3.3.1
Regulatory Measures
Page 28 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company measures performance against regulatory targets as well as a number of internal
sub-threshold measures. For example, the Company has an internal customer service target of
addressing complaints within five days, which exceeds Ofwat’s 10 day target. The Company also
collects data to track the new Lead standard, which will be implemented in 2013, in addition to the
current standard.
Section 3.3.2
Infrastructure Assets
For the purpose of forecasting infrastructure performance data, the Company has access to the
Veolia Group’s pipe sample database which contains over 3,700 samples. Additional data from this
database has been used to supplement Company data where appropriate and where materials,
ground type and mains age align within the Veolia dataset. Information on corrosion rates derived
from the pipe sample testing results has been used to derive corrosion rates for use in the
Company’s forward looking analysis modelling.
The Company has built and maintains a water mains hydraulic model. The model allows detailed
assessments of the impact of intervention options to be made for both infrastructure and noninfrastructure assets. This model has proved to be a key tool in the forward looking analysis and
cost benefit studies associated with infrastructure assets. Where data has been modelled, this has
been made available for cost-benefit analysis as described in Section 3.4.3.
Section 3.3.3
Non Infrastructure Assets
Available data for Non-Infrastructure assets has been supported by expert opinion regarding the
likelihood and consequence of asset failure that was collected at a number of Company
workshops. As the Company is small and operational staff have very detailed knowledge of the
assets and their performance, the use of expert opinion is a valid approach Experts were asked a
number of questions and data was then collated and included in the forward-looking analysis. The
expert opinions were validated through the comparison of a prioritised list of the types of asset
predicted to be driving cost and service failures against historical data. Where possible this
validation was undertaken using the Company’s own historical data, however, where suitable inhouse data were not available the results were validated against sister company data held
centrally by Veolia.
Section 3.4
Identification of Asset Needs
The Company is aware of its serviceability obligations and has expressed these as part of its
Strategic Direction Statement. Serviceability trends are monitored and the Company informs itself
of its progress through monthly reports about asset performance, as discussed at the Executive
Management Committee and Quadripartite Group meetings.
Section 3.4.1
Current Performance
The Company records the current performance of its asset base through collection and analysis of
customer and operational data as described in Section 3. This data forms a basis for forwardlooking analysis. For example, the Company has been recording the impact of its current rate of
mains renewal and has used this as the basis of assessing an appropriate mains renewal rate for
AMP5 to meet its objective of maintaining steady levels of serviceability and risk for these assets,
for the benefit of both the customers and the Company.
Section 3.4.2
Interventions
Page 29 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Current performance is analysed and future trends in serviceability have been modelled. The
Company uses the comparison of a ‘reactive maintenance only’ scenario to a range of investment
scenarios as a basis for Company intervention options. Figure 8 shows modelled burst forecasts
for a range of mains replacement scenarios (including ‘reactive only’) for the next 15 years.
Burst Forecasts for Distribution Mains Intervention Options
140
130
120
Bursts / year
110
100
90
80
70
60
50
25
24
/
20
23
/
20
20
22
/
24
23
22
20
21
/
21
20
/
20
20
19
/
20
19
20
20
18
/
18
17
/
17
20
16
/
15
/
20
20
16
15
14
/
14
20
13
/
13
12
/
20
20
20
10
/
11
/
11
12
40
Year
Reactive Only
3km/yr
5km/yr
9km/yr
12km/yr
Reference
Upper Control Limit
Lower Control Limit
Figure 8 Treatment Burst Forecast for Distribution Mains Intervention Options
Section 3.4.3
Cost-Benefit Analysis
The Common Framework allows companies to justify funding requirements based upon economic
arguments: aligning levels of service and serviceability with customers’ willingness to pay.
Although the Company is working to maintain serviceability in line with the Common Framework
cost-effectiveness objective, as described in Section 2.3, it has used cost-benefit analysis to
support the justification for its decisions. This process is detailed in Section C8. Outputs from the
Company’s models are used to help quantify the consequences that will result from a lack of
investment.
Section 3.5
Cost Estimation Approach
Section C5 provides a full explanation of the Company’s approach to cost estimating for future
projects. The below is a summary of that approach particularly focusing on the cost estimation of
the Base programme.
The Company has implemented a systematic approach to the development of project cost
estimates for the final business plan, based on the use of Company unit costs wherever possible.
The Company’s unit costs have been used as the basis of the Cost Base submission and,
therefore, there are clear audit trails between the Company’s unit costs, the standard costs in the
Page 30 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Cost Base submission and the cost estimates for the interventions presented in the final business
plan (where these have been on unit costs).
The key steps in the development of cost estimates for the capital programme are:
•
A consistent approach to the definition of project scope. All capital investment schemes in
the business plan are developed from a scheme definition form which details the scope
against consistent work breakdown structures. The scope for interventions is based on
detailed feasibility studies and engineering reviews.
•
Direct costs are estimated based on the defined scope and derived from the Company’s
unit costs where possible; or from supplier estimates or unit rates from consultants where
unit costs are not available.
•
The consistent application of indirect costs for design, project management, construction
management for infrastructure and non infrastructure projects. From the Cost Base work,
percentages were derived for indirect costs on infrastructure and non-infrastructure
projects. For infrastructure projects, the percentage used is 15.6% and is developed from
typical Company infrastructure projects. Similarly, for non infrastructure projects the
percentages used are 7% for design, 18% for project management including contractors
overhead and profit and 18% for construction management including preliminaries, site
supervision, site overheads. These values have been developed from typical Company
projects and are consistent with the Cost Base submission.
•
Risk: for schemes above £1m, project specific risk registers have been produced with risk
likelihood and cost impact ranges quantified. From this a P80 probability risk value has
been generated using Monte Carlo approach. Where a risk allowance is appropriate,
schemes estimates less than £1m have included a risk allowance based on the average
risk applied to schemes above £1m. Full details including example risk registers for projects
are contained in section C8.
•
Consistent application of Company overhead at 12.8%. This includes costs for asset
management, programme management and allowances for time spent on capital projects
by members of the finance, regulation and senior management teams. This is consistent
with that applied in Cost Base.
With regard to the specific interventions in the Base programme, the following table summaries the
approach to cost estimating for each project. This is an extract of the full table included in Section
C5, section 2.0. Further details for each intervention are provided in the relevant business case in
Section 4.
Scheme
INF125
Title
Scope and Estimating Approach
Risk Allowance
Mains Renewal
Each mains renewal project in AMP5 programme
developed from GIS analysis and review with
Company operational staff to define actual
schemes. Company unit costs used. Indirect cost
& Company overhead as per overall approach.
Scheme specific risk
register for AMP5
schemes. AMP6 +
risk allowance base
on average P80 risk.
Page 31 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Scheme
Title
Scope and Estimating Approach
Risk Allowance
INF200
Trunk Mains TP28
Detailed feasibility study undertaken by Atkins. For
infrastructure elements - Company unit costs used.
For non-infrastructure elements - No historic
Company costs, costs provided by Atkins / F+G
from cost models and supplier quotations. Indirect
cost & Company overhead as per overall approach.
Scheme specific risk
register
INF113
INF114
Trunk Mains TP03 and TP04
Detailed feasibility study undertaken by Atkins.
Company unit costs used. Indirect cost & Company
overhead as per overall approach.
Scheme specific risk
register
INF101
Communication
Pipes
Activity rates based on Common Framework
Modelling. Unit costs based on Company historic
rates which represent an all in rate.
No risk sum included all in rate.
INF150
Leakage
Maintenance
Same level of capitalisation as agreed with Ofwat
for AMP4.
No risk sum included.
NIF306
Revenue Meter
Replacement
Activity rates based on Common Framework
Modelling. Unit costs based on Company historic
rates which represent an all in rate.
No risk sum included all in rate.
WTWs,
WPS,
SRs
Insufficient Company unit cost data to apply
modelling approach. Schedule of unit rates
identified and costs estimated using cost consultant
rates (Faithful +Gould at draft; peer reviewed by
Franklin & Andrews for final business plan).
Indirect cost & Company overhead as per overall
approach.
No risk sum included
as risk on like for like
replacement very low.
NIF300
Hills 2nd Cell
Detailed feasibility study undertaken by Atkins. For
infrastructure elements - Company unit costs used.
For non-infrastructure elements - no historic
Company costs therefore, costs provided by
Faithful +Gould from cost models and supplier
quotations. Indirect cost & Company overhead as
per overall approach.
Scheme specific risk
register
M&G700
M&G701
IT
Rates based on Veolia IT unit rates. All in rates,
inclusive of on-cost and Company overhead
No risk sum included like for like
replacement
M&G702
Telemetry
Scope developed in-house based on bottom up
estimate of work required. Rates base on Company
data and supplier quotations
No risk sum included like for like
replacement
M&G703
Vehicles
Rates based on Veolia Framework Agreement,
including cost of internal fit-out for operational
purposes
No risk sum included no risk
NIF
Table 7 Summary of Cost Estimating Approach for Base Programme
For derivation of the Company’s failure costs (called private costs in the context of cost benefit
analysis) see Section 3.2.3 above, and Section C8.
Section 3.6
Quality Assurance and Review
The Company is ISO14001 and ISO18001 accredited, having established Environmental
Management Systems and Quality and Risk Management Systems respectively.
Page 32 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
ISO18001 is supported at a strategic level by the Company’s business as usual asset
management approach. Key processes and procedures are in place, supported by a small but
robust asset management team. The Head of Capital Investment and Asset Management, as
discussed in Section 5.3, has complete visibility of the Company’s investment programme as well
as the day to day development and management of the asset base.
The Company incorporates quality and risk management systems in its business as usual
operation of the Company. The Board undertakes high-level annual risk reviews and reviews
quarterly the internal risk register. Risk appetite and risk tolerance is reviewed each year and over
the past ten years, the risk exposure that the Company finds acceptable has changed and
reduced. Mechanisms are also in place for staff to flag up asset issues on a daily basis. Each
department has its own risk register for day to day risk management. Each site location has a
facility to link to the Company network where asset data can be entered and updated. It is a
requirement of ISO18001 accreditation that risk registers are updated on a regular basis and these
are reviewed monthly by managers.
To help minimise and mitigate health and safety risks the Company employs a full time health and
safety manager. Within project delivery processes such as design review and HAZOPS are
followed to ensure solutions are robustly reviewed. Safety procedures are in place for all of the
chemicals and treatment processes in use including UV, chlorine gas and Hypochlorite.
Quality procedures are also followed at every level of the business. Expert judgement is used for
sense checking of everything from investment proposals to cost benefit calculations and asset
design drawings. For example, operators are involved in checking and approving all designs to
ensure that local knowledge and expertise is incorporated. The managing director approves all
capital investment and a monthly Executive Management Committee meeting challenges and
reviews business operational performance. The Company’s Business Plan is put through the same
checking, review and approval process before issue.
As the Company is also ISO14001 accredited, it has to meet additional environmental
management standards. The Company measures its performance and development against a
number of environmental OPMs including water pollution and carbon emissions. The Company is
audited annually against the ISO criteria for these standards and has also been environmentally
assessed.
Page 33 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4
Business Case by Asset Group
Section 4.1
Infrastructure Assets
Section 4.1.1
Water Distribution – Trunk Mains
Summary
•
The Planning Objective for water distribution trunk mains is to cost effectively maintain
stable serviceability and to stabilise risk to service at start of AMP5 levels.
•
Historically, trunk main performance has had a marginal impact on overall infrastructure
serviceability due to a low frequency of burst rates and very low number of DG3 incidents.
•
However, the modelling undertaken by the Company demonstrates that the risk to
customer service (primarily in terms of interruption to supply) from trunk main failure is
increasing. This business case demonstrates how this risk to service should be stabilised in
the most cost effective way.
•
Reliability of supply is a major component of the Company’s Strategic Direction Statement.
The Company’s target is to maintain burst rates at below 100 bursts per 1,000km per
annum and to have no unplanned interruptions lasting longer than 6 hours.
•
Customers also express strong support for reliability of service; with 87% of customer
identifying “maintaining a reliable supply of high quality tap water” as their highest priority.
•
The Company has developed a priority ranking for its Trunk Mains, based on likelihood and
consequence of failure using the Common Framework approach and detailed modelling of
the asset base. From this the Company has assessed a variety of intervention options to
deliver the planning objectives before finalising on the selected cost effective options. The
options selected are:
o
Replacement of the two highest risk trunk mains (TP03 and TP04) which are the
only remaining pre-1980 UPVC mains in the Company’s asset stock and have a
significantly higher likelihood of failure than other trunk main materials (see Figure
11).
o
To mitigate the consequences of failure of TP28 by installing a new pumping station
and 800m of new main, thereby providing 18,000 properties in the Folkestone zone
with a reliable alternative supply of water should failure occur. This same solution
has secondary benefits in that it enables the Company to also provide an alternative
source of water for 10,000 properties in the Paddlesworth zone.
•
A material factor in the Company’s decision replace TP03 and TP04 is that, due to network
changes resulting from the introduction of the Denge Security Main, these existing trunk
mains will be subject to increased operating pressures which will materially increase their
failure likelihood when the Denge Security Main is operating. When the Denge Security
Main is operating TP03 and TP04 are the only source of water for 6,500 properties in
Denge.
•
Material factors in the decision to provide network connections to mitigate the
consequences of failure of TP28 are the high consequences of failure. TP28 provides water
to 18,000 properties (rising to 24,500 properties when the Denge Security Main is
operating). Additionally, TP28 is laid down a steep hill which is in a known geological slipplane. Previous movement has occurred in this location resulting in the joints of the main
Page 34 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
needing to be re-caulked. The increased likelihood of failure resulting from seismic activity
causing movement in the slip plane has not been included in the modelling results as it is
very difficult to quantify, however, the consequences for customer service and serviceability
are significant.
•
The three investments have also been tested for cost benefit and the investment is shown
to be cost beneficial.
•
The proposed AMP5 investment for the replacement of TP03 and TP04 and the network
solution to TP28 is £6.5m, compared to an AMP4 expenditure on maintaining the
serviceability of trunk mains of £0.6m.
•
The Company believes that the three selected trunk mains schemes are Exceptional Items
as per Ofwat’s definition and in the context of the Capital Maintenance CIS baseline. The
network modifications for TP28 and replacement of TP03 and TP04 are therefore proposed
by the Company as defined outputs for AMP5.
Asset Data and Historical Analysis
•
The Company has a comprehensive and accurate asset inventory, based on its full network
GIS system. Within this data the age and material profile are recorded for each trunk main
with only 0.14% of mains being of unknown age and 1.7% of mains being of unknown
material (percentage by overall length). This information is presented in the following tables
and figures. Business as usual processes related to burst reporting provide additional data
for verification of this data set.
•
Asset performance in terms of bursts is recorded in the same way as for distribution mains.
Failure data is reliably recorded by staff on site and updated on GIS. The Company has
accurate burst data; however, further steps will be made in AMP5 to ensure cause of failure
is also accurately captured.
•
Trunk main bursts represent a small proportion of mains failure. Table 10 shows the trunk
main burst history by material. The average number of trunk mains bursts per year is 4.7.
This compares to the Company wide average number of bursts per year of approximately
100. The long term burst rate of trunk mains is 22 bursts/1000km. This compares to a
Company wide long term burst rate of 136 bursts/1000km, although the average for the last
five years is lower at 102 bursts/1000km.
•
Figure 10 clearly shows the elevated risk of failure from the Company’s UPVC mains.
•
Trunk main failures affect serviceability primarily through burst rate (albeit trunk mains
bursts are only a small proportion of the overall mains bursts) and DG3 incident greater
than 12 hours in duration. As can be seen from Figure 11, DG3 figures are very low for the
Company with zero DG3 incidents greater than 12 hours in the last 6 years. The DG3
incident in 2001/02 was as a result of failure of temporary works on statutory diversion work
associated with Channel Tunnel Rail Link. It is important to note that DG3 reporting only
highlights actual failures, it does not accurately reflect deteriorating assets and increased
risk levels where these risks have not yet materialised.
•
Serviceability history has been shown against historic spend in Figure 11. As with trunk
main failures being a small proportion of the overall failure rate, the same is true for historic
spend and replacement activity, which has also been low. For the whole of AMP4, the
Page 35 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
expenditure on mains renewals is forecast to be £2.8m to deliver 16.5km of renewal. By
comparison, the AMP4 expenditure on Trunk Mains is forecast to be £0.6m for delivery of
0.7km. This is due to expenditure on trunk mains being significantly more expensive per
unit length than for distribution main, due to higher the costs associated with larger
diameter mains. Rates of activity and levels of expenditure are believed to similar for
periods prior to AMP4, although accurate historical data is not available. Historically, trunk
main replacement activity has also been vey low and has been related to replacing short
lengths of poor performing mains. From historic cost data and an analysis of historic bursts
and burst rates, it can be concluded that the low level of historic activity on trunk mains has
had a marginal effect on overall infrastructure serviceability.
•
Cost of failure has been assessed from Company data as described in Section 3.2.3 and
Section C8.
The trunk mains inventory is a sub-set of the overall asset inventory, where mains have an
identifier “TP” or “TR” to designate either a potable water or raw water trunk main. The designation
is not based upon size of main but on the operational significance of the main. The inventory
length totals are presented in Table 8 and Table 9 below.
Trunk Main Category
Total Length (km)
Raw water mains
Potable water mains
34.2
220.3
Table 8 Trunk Mains Inventory Summary
Table 9 presents a detailed breakdown of sizes and lengths of all potable water trunk mains.
Material
Asbestos
Cement
Cast Iron
Ductile Iron
HPPE
MDPE
Spun Iron
Steel
UPVC
no data
Grand Total
< 150
4
31
67
602
68
771
150224
14
12,769
8,527
4,152
27
14,393
9
3,029
3,699
46,620
Nominal diameter (mm)
225300375299
374
449
5,150
5,937
4,149
2,519
8,183
47,174
508
4,227
19,330
38
16,005
7,175
4,247
2,313
4,256
6,932
33,553
69,816
34,775
450599
600749
5,382
3,795
14,800
2,127
3,638
3,026
2,035
27,615
7,188
Table 9 Inventory Analysis of Potable Water Trunk Mains
Figure 9 illustrates the age and material mix raw and treated water trunk mains.
Page 36 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Grand
Total
7,919
34,155
97,963
9,449
27
48,553
9
18,564
3,699
220,339
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Trunk Mains by Age & Material
90
80
70
Data unavailable
UPVC
Steel
Spun Iron
PE
MOPVC
Galv
Duct. Iron
Cast Iron
Asb. Cem.
Length (km) .
60
50
40
30
20
10
0
100+
100-80
80-60
60-40
40-20
20-0
Data Unavaialble
Age Band
Figure 9 Analysis of Trunk Mains by Age and Material
Table 10 and Figure 10 present the burst record which clearly highlights the elevated failure risk
presented by UPVC in comparison to other pipe materials.
AC
Cast Iron
Ductile
Iron
HPPE
Spun
Iron
UPVC
Grand
Total
Average
per Yr
2
22
16
1
22
26
89
4.68
Length (km)
7.900
34.155
97.365
9.188
48.422
14.062
211.128
-
Bursts/km/yr
0.013
0.034
0.009
0.006
0.024
0.097
-
0.022
Bursts
Table 10 The Company’s Trunk Mains Burst History (1998 to 2007)
Page 37 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Brust Rates for Trunk Mains by Material
0.12
Bursts / km / year
0.1
0.08
0.06
0.04
0.02
0
AC
Cast Iron
Ductile
Iron
HPPE
Spun Iron
UPVC
Figure 10 Burst Rate for Trunk Main by Material
FDWS Historic Base Service Provision versus Serviceability
Water Distribution Mains
2.00
1.80
1.20
1.60
1.00
1.40
0.80
1.20
1.00
0.60
0.80
0.40
0.60
0.40
0.20
0.20
0.00
19
90
19 /91
91
19 /92
92
19 /93
93
19 /94
94
19 /95
95
19 /96
96
19 /97
97
19 /98
98
19 /99
99
20 /00
00
20 /01
01
20 /02
02
20 /03
03
20 /04
04
20 /05
05
20 /06
06
20 /07
07
/0
8
0.00
Ratio to average of actuals
Base Service Provision (£M)
1.40
Water Distribution
Mains Base
Service Provision
DG2 properties
below ref level
D3 Unplanned
interruptions
>12hrs
Mains burst per
1000km
5 yr rolling avg
(Base Service
Provision)
Year
Figure 11 Distribution Main Serviceability and Expenditure
Forward Looking Analysis – Data
A description of the asset data available as the basis for forward looking analysis is described in
the distribution mains business case; but these apply equally to trunk mains. This section presents
the work undertaken specifically for the trunk mains forward looking analysis study.
•
Veolia data-set for trunk main performance: As previously identified, the Company has
very small failure data for trunk mains. However, Veolia collects all its companies’ data
which is categorised on an identical basis with regard to bursts, material, diameter and
Page 38 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
ground conditions, propensity to ring fracture etc. Therefore, the Company has been able
to compliment its own failure data with applicable data sets for pipe material and ground
conditions from the Veolia data. This enables a validated modelling approach to be taken,
as otherwise the Company would be too small to provide reliable performance data. This
database has been built over the period since 1992 as part of a Veolia Group initiative to
understand the behaviour of underground assets and contains more than 3,750 sample
results. This is high-quality information with a great deal of consistency. Each sample has
been tested in the same manner by the same laboratory to consistent standards. Each
result has been geo-located and available via the GIS.
•
Environmental data: The group has consistent soil corrosion and soil movement potential
data in digital form across all companies provided by the National Soil Resources Institute1.
This allows soil corrosion and soil movement potential to be mapped with mains failures
and pipe sample results in a consistent manner across the group. This means, for
example, that data from other group companies regarding performance of cast iron pipe in
non-corrosive ground is applicable to the Company.
•
Trunk mains walks: The Company undertook detailed assessment of operability and
consequential damage for a number of key trunk mains TPs: 03, 25, 36, 45, 48, 52 & 60 as
part of a programme to survey all principal trunk mains. TP28 was the subject of a review
during AMP3 and therefore a walk was not repeated. This was done by surveying each
main along its length to determine any specific consequential damage risks and risks to
operation of valves etc.
This information supported the analysis undertaken for
consequence modelling described below. In the future this information will be maintained
on the GIS; in the mean time it is contained in individual survey reports.
•
Condition assessment: Pipe samples have been taken from trunk mains where corrosion
attack is thought to be a risk (for example: TP36).
•
Partitioning trunk mains for analysis: To facilitate analysis of trunk mains’ risk the mains
were partitioned using the GIS. This is described further in section below.
Forward Looking Analysis – Analytical Approach
The modelling approach is based on network asset data and the recorded burst history. Pipe
lengths are assigned to a category according to groupings of material and ground conditions.
Within each of these, all pipes are assumed to behave on average in the same manner. The
approach used is the same in principle for all material types and is applied on a class-by-class
basis, allowing for different modes and rates of deterioration. The principles employed for this
analysis are compatible with the UKWIR Common Framework.
The approach assesses service risk, based upon an analysis of asset data, in conjunction with
recorded burst data. To achieve this goal, a mathematical model has been set up to replicate the
likelihood of current failure events and to forecast future levels up to the year 2050. The approach
takes into account the effects of bursts and repairs and proactive renewal on the assets and their
behaviour.
An economic model then allows the modelling of different strategies in terms of a fail and fix
approach or the proactive renewal of mains. The output from the model consists of predicted
failures with annual costs for repair on failure, and options for proactive renewal in isolation, or in
conjunction, with distribution mains.
1
NSRI, Soil Data Maps, http://www.landis.org.uk/gateway/ooi/nmvector.cfm
Page 39 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Figure 12 illustrates the process in diagrammatical form.
The base data used for the predictive modelling of failure includes:
•
Trunk mains – each section tagged with the trunk main reference.
•
Burst records – associated with trunk mains, covering the 19 year period 1988 to 2007.
•
Soils data – derived from National Soil Resources Institute (NSRI) soils maps, showing
corrosivity to iron and zinc.
Each pipe length was assigned values from the soils data that it intersects. Bursts were then
joined to the pipe data spatially, to provide the pipe data relevant to each burst.
Page 40 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Asset Bursts:
Soil type, material, birth
year, burst year
Asset Stock:
Soil type, material,
birth year, length
Summary:
-Nr. of assets, length and failure profile
-Grouping according to the combination of
material and soil type
Note:
Remove asset failures:
-if failure was before asset laid
-if reason for failure is other than burs t
Data structured for model
Optimised
parameters
Calibrated
Weibull Parameters (β, ‫ץ‬,
η) and equivalent length
(Le)
Model Input - Output file
Calibration Model
Iterate
OR
Renewal Model
Calibration of Weibull
parameters and equivalent
length by optimisation of trunk
main
Burst and Repair
Model
Iterate
Probability of failure
at asset level
Consequence costs
Unit costs of repair and renewal
Probability of failure
at asset level
Risk and Strategy Model
Assess resultant probability of failure
and cost-benefit at asset level for
different renewal years
Renewal options
Summary
Failures, OPEX, intervention options,
CAPEX and consequence cost at
asset level by strategy
TRUNK MAIN PROCESS MODEL
Figure 12 Trunk main process model
Failure Modelling
The model used assumptions, which as far as practicable, represent the physical behaviour of the
assets. Key parameters affecting deterioration, material and soil aggressivity were combined to
form pipe “classes”. Within each of these all pipes were assumed to behave, on average, in the
Page 41 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
same manner. At any particular time during the period for which failure records are available,
various aspects are used to describe the deterioration behaviour of a set of assets:
•
Failure at commissioning, due to deterioration, is zero;
•
Deterioration develops over time and for each class tends to follow a smooth continuous
“S” type of curve, which has the following properties:
o
It has zero slope at time of commissioning;
o
It takes a number of years before the onset of any significant number of failures due
to deterioration;
o
After the onset of failure, there tends to be a gradual increase in the trend. In effect,
the rate of increase in probability of failure becomes approximately constant; and
o
As the pipe reaches “very old age” the majority of pipes in the same class have
failed, and the rate of change in probability of failure slackens off, leaving a small
residual remaining in a serviceable state for a notable period of time.
This type of deterioration curve can be modelled using a Weibull distribution plot, which is often
used for Reliability Modelling. It has been applied here in a specially modified basis. A more
detailed description of the modelling process are contained in the consultant’s reports (see
Appendix 6 and 7).
Consequence Modelling
The consequence of failure of a trunk main was generically defined according to a number of input
factors relating to customer impact and topological features. The key items were:
•
•
•
•
•
•
Number of customers affected on failure;
Number of customers in isolated once failure has been shut in;
Number of valve operation and complexity to achieve isolation;
Number customers subject to low pressures on failure;
Proximity to railway lines and priority roads; and
Trunk mains passing under buildings.
What is highlighted in this approach is that it is the consequence of failure for customers that is
being considered and is central to the analysis provided.
Rather than apply a crude measure that flags a whole trunk main segment as affected by a
particular input, regardless of the segment length, the mains were partitioned into 10m ‘sections’
prior to analysis. These sections are then re-combined to produce the length of each segment
affected by each input. In this way a realistic assessment of risk can be attributed to each pipe unit
(asset ID). A detailed explanation of this process are given in the consultant’s reports (see
Appendix 6 and 7).
Strategic Capital Maintenance Model
The purpose of this model is to test intervention options necessary during the initial planning period
(AMP5) to achieve the planning objective.
The model combines risk assessment, at pipe unit level, with the cost of replacing each pipe unit.
This allows ranking of mains by their predicted future performance and risk profile.
Page 42 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The results of using the Strategic Maintenance Model are presented below. Two assessments
were made:
•
•
Ranking of individual trunk main by highest risk (failure likelihood and consequence); and
Ranking of individual trunk main by greatest consequence only.
The maximum risk rather than total risk is used to rank the trunk mains. If the trunk mains were
ranked by total risk longer trunk mains would be prioritised over shorter ones as they contain more
‘10m section’.
Priority Ranking by Overall Risk
2010
2015
Rank
Trunk
Main
Length
(m)
Consequence
Score
Max Risk
Total Risk
1
TP03
5,236
1.550
1.391
2.166
Burst
Reduction
p.a.
0.59
2
TP04
2,446
0.984
0.982
0.984
0.32
1.295
3
TP01
3,129
3.282
0.618
0.657
0.30
0.852
4
TP09
5,193
1.414
0.154
0.624
0.17
0.801
5
TP25
5,196
3.579
0.132
0.594
0.06
0.784
6
TP17
5,107
2.402
0.151
0.442
0.03
0.489
7
TP10
4,829
1.958
0.101
0.333
0.03
0.363
8
TP36
4,565
2.088
0.088
0.408
0.06
0.504
9
TP45
6,690
3.740
0.092
0.779
0.02
0.832
10
TP31
5,407
3.279
0.080
0.367
0.07
0.459
11
TP02
3,506
1.563
0.108
0.284
0.27
0.408
12
TP55
2,554
3.828
0.077
0.407
0.00
0.412
13
TP60
2,992
3.885
0.089
0.313
0.00
0.311
14
TP52
2,476
1.556
0.060
0.135
0.04
0.163
15
TP30
2,932
3.078
0.080
0.322
0.03
0.383
16
TP34
3,822
1.524
0.056
0.230
0.02
0.260
17
TP47
1,577
0.902
0.091
0.111
0.07
0.144
18
TP40
2,484
3.517
0.074
0.255
0.00
0.255
19
TP22
4,848
1.955
0.070
0.294
0.03
0.335
20
TP39
378
3.895
0.052
0.075
0.01
0.092
Table 11 Trunk Mains listed by highest risk
Page 43 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Risk
Reduction
2.842
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Priority Ranking by Consequence
2010
2015
Rank
Trunk
Main
Length
(m)
Consequence
Score
Max Risk
Total
Risk
Burst
Reduction
p.a.
Risk
Reduction
1
TP28
994
6.811
0.056
0.178
0.00
0.182
2
TP39
378
3.895
0.052
0.075
0.01
0.092
3
TP60
2,992
3.885
0.089
0.313
0.00
0.311
4
TP55
2,554
3.828
0.077
0.407
0.00
0.412
5
TP45
6,690
3.740
0.092
0.779
0.02
0.832
6
TP25
5,196
3.579
0.132
0.594
0.06
0.784
7
TP40
2,484
3.517
0.074
0.255
0.00
0.255
8
TP48
931
3.437
0.027
0.097
0.00
0.101
9
TP29
839
3.382
0.037
0.103
0.01
0.134
10
TP37
154
3.339
0.015
0.022
0.00
0.028
11
TP01
3,129
3.282
0.618
0.657
0.30
0.852
12
TP31
5,407
3.279
0.080
0.367
0.07
0.459
13
TP61
1,242
3.088
0.007
0.034
0.01
0.048
14
TP30
2,932
3.078
0.080
0.322
0.03
0.383
15
TP35
1,330
2.794
0.038
0.058
0.02
0.075
16
TP57
2,022
2.695
0.025
0.052
0.02
0.067
17
TP33
891
2.602
0.029
0.033
0.00
0.034
18
TP41
1,958
2.476
0.023
0.059
0.01
0.062
19
TP17
5,107
2.402
0.151
0.442
0.03
0.489
20
TP38
3,076
2.310
0.059
0.216
0.00
0.217
Table 12 Trunk Mains listed by greatest consequence
Intervention Options
From this analysis the Company commissioned technical solutions and cost estimates to be
prepared for 14 trunk main interventions. The selection of the trunk mains was the top 13 from the
priority list (Table 11) plus TP28, as being the highest consequence main from Table 12. From its
previous Business Plan submission at PR04, the Company identified TP28 as representing a
significant risk to customer service due to the high consequences of failure; TP28 feeds
approximately 18,000 properties and runs beneath the M20 and Channel Tunnel Rail Link high
speed railway in a service culvert. In addition TP28 is exposed to failure as a result of it being in a
slip plane for which the likelihood of failure has not been modelled in the above analysis. This
justifies its inclusion in the initial assessment.
To develop the specific intervention studies on the trunk mains, an expert panel workshop was
convened of Company network staff and design consultants to assess the potential intervention
options for each trunk main. Each trunk main was assessed for the potential to improve valving
Page 44 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
and provide cross connections to mitigate the risk of failure, as well as examining total
replacement. Operational issues and requirements were also incorporated into decisions to include
or reject solutions to each trunk main. This process was enhanced by the production of a GIS
shape file plot of the trunk mains, together with relevant supporting information from the trunk main
walks. This ensured that trunk main model output was used as the focus for rational scheme
development and that solutions were practicable and buildable and thus significantly improving the
reliability of the cost estimates. A scheme definition form was created for each solution to each
trunk main identified above and each intervention was priced on unit rates to provide an overall
comparison.
For each trunk main, the reduction in risk that can be achieved by the intervention option was
calculated. This is shown in the final column in Table 11 and Table 12. An assessment was then
undertaken to compare for each intervention, the amount of reduction in maximum risk per £m of
investment, and similarly for total risk and the reduction in risk from the intervention. This enabled
the cost effectiveness of the different interventions to be assessed. The results of this comparison
are shown in the following table:
Trunk
Main
TP04
TP03
TP01
TP55
TP09
TP25
TP02
TP28
Intervention
Cost, £m
0.944
2.196
0.829
0.447
1.511
1.488
0.936
3.361
Maximum
Risk / £m
1.04
0.63
0.75
0.17
0.10
0.09
0.12
0.03
Rank
1
3
2
4
7
8
5
14
Total Risk/
£m
1.04
0.99
0.79
0.91
0.41
0.40
0.30
0.08
Rank
1
2
4
3
5
6
9
14
Risk
Reduction /
£m
1.37
1.29
1.03
0.92
0.53
0.53
0.44
0.08
Rank
1
2
3
4
5
6
7
14
Table 13 Trunk Main Cost Effectiveness Analysis
This clearly demonstrates that TP03 and TP04 are the most cost effective trunks main
interventions, particularly where considering the risk reduction for customers delivered by the
investment.
In addition, from Table 11 above, it can clearly be seen that TP03 and TP04 represent by far the
greatest risk score of all ten trunk mains. This is largely driven by the fact that they are pre-1980’s
UPVC mains, which as shown in Figure 10, have the highest likelihood of failure in the Company.
Combined they represent 51% of the risk of the top ten mains. Historical data shows that TP03 has
experienced 4 bursts, 1991, 2002, 2005 and 2006 although TP04 has no recorded bursts. This is
not entirely surprising as TP03 is fed directly from the Denge Tower and, therefore, experiences
higher pressures compared to TP04. It should also be highlighted that the cost of repair on the
trunk mains in this area is high. The mains are laid predominately in gravel and in low lying coastal
areas. Excavating to undertake a repair requires extensive dewatering while the operation is
undertaken, which is both costly to arrange and operate.
A further consideration for the Company is that these trunk mains are part of the overall Denge
Security Main. The Denge Security Main is an AMP4 strategic investment scheme to enable the
Denge Water Resource Zone to be fed from the Hills Water Resource Zone in the event of the
Denge source being rendered un-usable due to inundation from the sea or a pollution event. (The
Denge source is a very shallow coastal gravel aquifer, rain fed and is vulnerable to surface
pollution or saline intrusion from flooding). The Denge Security Main is comprised of existing mains
Page 45 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
which include TP03 and TP04, plus a new section of main between St Mary’s Bay and a crossing
of the M20 close to Sellindge. As a consequence of the implementation of the Denge Security
Main, TP03 and TP04 will be subjects to flows and pressures greater than those they have been
operating at historically. Given that these mains comprise pre-1980s UPVC with very poor fracture
toughness, the increase in operating pressures evident from hydraulic modelling will certainly
result in an increased likelihood of failure. Moreover, this risk of failure will increase when the
Denge Security Main is required to operate. With the Denge Security Main being the means by
which the Company protects 6,500 properties at Denge from loss of service an increased
likelihood of failure to that service when no alternative means of support is unacceptable to the
Company.
As described above the trunk main TP28 was included in the initial assessment as a result of its
very high customer service impacts in the event of failure. The Company commissioned hydraulic
analysis to better inform the consequences of failure of TP28 (see Appendix 8 for the report).
TP28 is the primary source of water for 18,000 properties in Folkestone and is laid down an
extremely step slope with a history of movement and on a known geological fault line. The
modelling described above does not included the likelihood of failure resulting from ground
movement or seismic activity and therefore, the risk score for TP28 in the modelling is not
representative of the actual risk. The consequence score is representative and as shown in Table
12 is the highest consequence main in the Company by a significant margin.
On failure, 18,000 properties are at risk of interruption to supply; network changes can restore
supply by feeding all customers from the Paddlesworth reservoir but network modelling
demonstrates that this is possible only for 16 to 20 hours depending on demand. The network
modelling provides the window in which a repair would need to be made to ensure service for all
18,000 customers. Given the location of the main on such steep ground with limited access and
the volumes routinely carried by the main, a failure is likely to cause significant disruption to the
surrounding area, especially as the main is in a narrow road. This significantly complicates the task
of undertaking a trunk main repair and a 16-20 hour window is insufficient for a repair in this
location. Further, the lower sections of the main pass through a culvert under the M20 and
Channel Tunnel Rail Link high speed railway. Mains failure in this vicinity also threatens structural
damage to the structures under which the main passes. Finally, an additional 6,500 properties at
risk of interruption to supply when operating the Denge Security Main which cannot be supplied
from other sources if failure occurs during this time.
In considering these facts and from discussions with the Senior Management Team and the Board,
the Company does not consider the existing situation as being acceptable when numbers of
customers at risk is so high. Finally, with the serviceability measures for interruption to supply
>12hours being a reference level of 0 and an upper control limit of 23, failure of TP28 also
represents a significant risk to serviceability.
The intervention options, therefore, proposed by the Company for trunk mains are:
• T03 and TP04 as being the most cost effectiveness interventions, and
• TP28 due to risks to customer service and serviceability being unacceptable to the
Company.
Finally, re-running the Strategic Maintenance Model with the Company’s selected interventions
demonstrates that these interventions achieve the planning objective to maintain risk at the start of
AMP5 levels. This is shown in Figure 13. For the purposes of this analysis the delivery of TP03,
Page 46 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
TP04 and TP28 have been assumed to occur at the end of AMP5, in reality the benefits are
achieved as soon as the scheme is complete.
Risk Level
10
45
5
40
0
35
-5
30
-10
25
-15
20
-20
15
-25
10
-30
5
-35
0
2005
2010
2015
2020
-40
2025
Year
Post Investment Risk
Unmitigated Risk
Unmitigated Change in Bursts pa
Mitigated Change in Bursts p.a.
Figure 13 Trunk Main Risk and Burst Forecast – Fit with Planning Objective
For the three options selected above, the Company commissioned option development work on all
interventions. This work looked in detail at route selection and the implications on the design and
construction method from service crossings, traffic sensitivities and topological features. Planning
and environmental considerations were also reviewed and incorporated into the design. The
Company’s unit costs were applied for estimating and as described in Section 3.5 and Section C5,
for each scheme a specific risk register was developed and used for the final cost estimate.
This work is summarised in the following section.
TP28
Initial reviews identified a number of solutions for TP28. These were:
•
Option 1: Full duplication of the main by an alternative route to the existing TP28; this
solutions was the selected option for the draft business plan. This offers the best level of
risk protection by providing a full alternative, but is also the most expensive.
•
Option 2: Duplication of the main following the existing route. While the shortest route, this
solution provides no mitigation of the risk of failure due to ground movement as such
movement would cause failure in a new main in the same way as the existing. Furthermore,
Page 47 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Change in Bursts p.a.
Trunk Main Strategy fit with Planning Objectives
50
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
in the event of the existing main failing, the discharge of water from this failure could quite
possibly cause a failure in the new main. On the basis that this option did not mitigate the
risks, it was rejected.
•
Option 3: Full duplication of the main by an alternative route to the existing TP28, but
including a section in a sunken shaft through the chalk escarpment with the main passing
over the Eurotunnel railway into France. While potentially feasible, the option has
significantly greater risks relating to ground conditions and permitting of the construction by
Eurotunnel which are very difficult to quantify further an account for at this stage. Due to
complexity and uncertainty of this solution it is not a preferred solution for the Company.
•
Option 4: Between draft and final business plans, the Hills to Paddlesworth scheme
included in the draft business plan was re-assessed for its potential to also provide a
solution to the TP28 risk. From the subsequent hydraulic modelling (Appendix 8) this option
is shown as being feasible, although sections of the existing network are exposed to
velocities of 2.4m/s for this solution. However, it is a lower cost solution than the
alternatives. With some modifications to the Hills to Paddlesworth scheme presented at
draft can be an effective solution to TP28 and provide secondary benefit in providing a
reliable alternative source of water for Paddlesworth zone.
For all options the solutions above were developed in conjunction with the detailed study of the
Hills 2nd cell (See Section 4.2.6) to ensure correct technical alignment of interfaces between to the
two schemes. A copy of the trunk main feasibility report is contained in Appendix 14.
Costs for the four options are given in Table 14:
TP28 Solution
Costs, £m
Option 1 –
Alternative Route
Surface
Option 2 –
Duplicate
Existing Route
Option 3 –
Alternative Route
with Shaft
Option 4 –
Pumping Station
and Main
Direct Costs
2.872
0.495
0.953
2.136
Indirect Costs
0.448
0.077
0.149
0.333
(14.2%), 0.472
(28.3%), 0.162
(19.9%), 0.219
(26.4%), 0.653
Company
Overhead
0.486
0.094
0.169
0.239
Total
4.278
0.828
1.489
3.361
0
0
0
0.017
Risk (%), £m
Opex Change pa
Table 14 Capital Costs for TP28 Solutions
The Company’s selected solution is Option 4 as this offers the lowest cost solution at an
acceptable balance of risk. Option 2 has been excluded as it runs in the same slip plane as the
existing main and provides no risk mitigation. Option 3 is heavily dependant on the proposed
solution being approved by Eurotunnel for which there is significant uncertainty. A detailed design
and approvals process is necessary before this option could be put forward as a credible solution.
Option 4 also provides secondary benefits in that it can be used to provide an alternative source of
supply for 10,000 properties fed by the Paddlesworth reservoir. Paddlesworth reservoir is a singe
cell reservoir which cannot be taken out of service. An extract of the scheme definition form
showing the detailed costs breakdown for option 4 is contained in Appendix 12.
Page 48 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
TP03 and TP04
Solution options for TP03 and TP04 are straight forward as they required a like for like
replacement. Routes for the replacement trunk mains have been carefully chosen, as the Denge
area is a significant natural resource and parts are designated as SSSI, Natura 2000 and therefore
need to be protected. A copy of the trunk main feasibility report is contained in Appendix 14.
Examples of the cost breakdown structure and risk register taken from the Scheme Definition
Forms for TP03 are contained in the Appendices to Section C5.
TP03 and TP04
Solution Costs, £m
TP03
TP04
Direct Costs
1.437
0.646
Indirect Costs
0.224
0.101
(17.2%), 0.286
(12.0%), 0.090
Company Overhead
0.249
0.108
Total
2.196
0.944
Opex
0
0
Risk (%), £m
Table 15 Capital Costs for TP03 and TP04 28 Solutions
Cost Benefit Analysis
The Company is confident that it has chosen the right trunk main interventions based on risk to
customer service and serviceability and that the interventions selected are cost effective. It has
demonstrated how the selection of these interventions meets the planning objective for the asset
group. As a further test, the Company has chosen to assess the AMP5 interventions for cost
benefit. These interventions are scored using the Company’s methodology as described in Section
C8. The assessment and results are summarised below.
Assessment of Benefits
Only the performance measures affected by the intervention have been assessed. These are
described in the following table. The solution to TP28 provides secondary benefits to provides
support to the Paddlesworth reservoir and zone, however, these secondary benefits have not been
explicitly included in the CBA analysis.
OPM
Intervention
Data Used for Likelihood and Consequence
3
Pressure
TP03, 04 and
28
This was considered, however, low pressure only occurs at the point
of burst and is, therefore, a very short duration impact. The impact of
loss of supply is covered in OPM 4, therefore, this OPM is not used.
4
Supply
Inter-
TP03, 04 and
28
The burst frequencies are determined from the deterioration modelling
for the existing pipe and the renewed pipe (new ductile iron) across a
40 year profile.
Page 49 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
OPM
ruptions
Intervention
Data Used for Likelihood and Consequence
TP03
TP03 feeds 1,901 properties. A failure has been assessed as
resulting in all customers being without water for up to 6 hours. This is
due to historic failures of TP03 not resulting in DG3 incidents.
The likelihood of this service impact being experienced without
investment is the forecast probability of failure from the trunk mains
model. In 2010/11 this probability is assessed as 1.90 burst per year,
rising to 9.55 burst per year after 40 years.
TP04
TP04 feeds 946 properties. A failure has been assessed as resulting
in all customers being without water for up to 6 hours. This is based
on historic failures of TP03 not resulting in DG3 incidents.
The likelihood of this service impact being experienced without
investment is the forecast probability of failure from the trunk mains
model. In 2010/11 this probability is assessed as 1.00 burst per year,
rising to 5.09 burst per year after 40 years.
TP28
TP28 feeds 17,927 properties. A failure has been assessed as
resulting in all customers being without water for up to 6 hours. While
continuity of service can be provided from the Paddlesworth zone for
16 to 20 hours, as explained above, a trunk main repair on TP28 is
estimated to take more than this. A judgement has been made that
loss of supply would not exceed 6 hours. As the benefit value
increases with longer interruption times, this is also ensuring the
benefit is not overstated.
The likelihood of this service impact being experienced without
investment is the forecast probability of failure from the trunk mains
model. In 2010/11 this probability is assessed as 0.047 burst per
year, rising to 0.066 burst per year after 40 years.
Post-intervention, the risk is eliminated; therefore, post-intervention
likelihood is 0. (Both the existing TP28 and the revised network
solution would have to fail at the same time to result in an interruption
to supply).
TP03, T04
Not applicable
TP28
A significant failure on TP28 which resulted in approximately 18,000
customers off supply, and potentially resulting in damage to the M20
and/or the CTRL high speed rail link could trigger additional regulatory
reporting. This has been included here. The total number of hours is
estimated as 1 man year to report for each failure event.
The likelihood of failures are the same as for OPM 4.
TP03, 04
Not applicable.
TP28
This was considered in relation to the CTRL and M20 crossings,
however, the forecasting the likelihood of injury resulting from a trunk
main burst resulted in such low probabilities that it was not included in
the analysis.
12. Carbon
equivalent
emissions
TP03, 04 and
28
The cost of carbon for operational and embedded carbon are
calculated automatically from the scheme costs. This is described
more full in Section C8.
14 Traffic
Disruptions
TP03, 04
Not applicable as the mains do not cross significant road or rail
networks.
8 Extra
Reg.
Reporting
10 Personal
Injury
Page 50 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
OPM
Intervention
Data Used for Likelihood and Consequence
TP28
Due to TP28 being in a culvert below the M20 and CTRL high speed
rail link the potential for interruption to transport has been included.
The likelihood of failure is the same as used in OPM4. The impact
duration has been assessed as 30 days. This is a simple estimate to
allow for structural reviews to be undertaken. Any serious damage
would take longer then this to repair.
Table 16 Scoring of Benefits for Trunk Main Strategy
CBA Results
As demonstrated by the data in Table 17, the changes in service performance generating the
greatest benefit are clearly the supply interruptions for all schemes and the transport disruption for
TP28. Even excluding the transport disruption for TP28, this scheme remains cost beneficial.
Whole
Life
Cost,
£k
Whole
Life
Benefit,
£k
Net NPV,
(WLB less
WLC)
£k
Benefit Value per OPM, £k
OPM 4.
Supply
Interruptions
OPM 8.
OPM 12.
Extra
Regulatory
Reporting
Carbon
equivalent
emissions
OPM 14.
Transport
disruption
23,164
-136
26,608
3,286
208,514
210,515
-50
0
1,952
53,620
54,434
-21
0
792
Solution
Ref
Scheme
Title
INF200MP
TP28
(Option 4)
3,286
49,639
46,353
INF113MP
TP03
1,952
210,465
INF114MP
TP04
792
54,412
Table 17 Trunk Main CBA Results
The TP04 and TP03 solutions shows significant benefit as the likelihood of failure for these UPVC
main is high, particularly TP03 which has a history of bursts.
The results from the two CBA sensitivity scenarios described in Section C8 are as follows.
Net NPV, (WLB less WLC)£k
Solution Ref
Scheme Title
Sensitivity # 1 – Private
Cost Only
INF200MP
TP28(Option 4)
INF113MP
TP03
INF114MP
TP04
Sensitivity # 2 – Lower
Bound WTP (95%ile)
20,873
34,281
-
1,719
98,791
-
733
25,248
Table 18 Trunk Main CBA Sensitivity Results
This clearly shows that TP28 is cost beneficial even if customer valuations are removed and only
costs to the Company are considered. Using lower bound 95%ile Willingness to Pay values still
shows all schemes as being beneficial.
Selection of Optimal Solutions
The Company has demonstrated that it has applied the common framework approach to the
assessment of its trunk main assets. Its approach is clearly based on risk, with customer service
Page 51 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
central to its assessment of risk. From this basis it has selected interventions for trunk mains TP03
and TP04 that are the most cost effective in meeting its planning objective. The Company has also
selected TP28 for intervention due to the unacceptable risk to customer service and serviceability
that failure of this main represents. Each of these investments has been discussed with the Board
who have endorsed their support to ensure the Company can effectively manage the risk to
service.
A range of solutions have been considered for the interventions from which the proposed solution
has been selected. The solutions selected have also been assessed as cost beneficial. The
investment aligns with the Company’s Strategic Direction Statement, where as part of “Ensuring A
Reliable Supply of Water”, the Company’s target is no unplanned interruption to supply exceeding
6 hours. In addition, it aligns to customer priorities as described in Section 2.1.1, in that 87% of
customer identified “maintaining a reliable supply of high quality tap water” as their highest priority.
The expenditure across future planning periods is forecast as:
AMP4
AMP5
Capex £m (07/08 pb)
0.6
6.501
Opex change to base
0
0
Table 19 Expenditure for Trunk Main Investment
The Company recognises that this is a significant change to expenditure compared to historic
rates, but believes the case presented provides robust justification for the AMP5 investment.
Section 4.4 discusses the overall approach to the balancing of risk and affordability in detail.
However, it is important to note here that a key decision in relation to the additional trunk main
investment and addressing these issues has been for the Company to reduced its mains renewal
programme from 5km/year at draft business plan stage to 3km/year for the AMP5 period.
Finally, Ofwat define exceptional items as (Ofwat, Capital Expenditure for 2010-2015: CIS draft
baseline report)
1. Investment is not typical and a step change from recent historic expenditure is needed (e.g.
maintenance of long life assets resulting in ‘lumpy’ investment);
2. The investment delivers a benefit that other regulatory indicators would not detect; or
3. The business case for the output and expenditure should be assessed independently of our
Asset Management Assessment.
The Company believes that the three investments meet Ofwat’s definition above; the trunk mains
programme is a step change from historic investment and the benefits of the investment are to
maintain risk to service at the start of AMP5 levels and these benefits would not be detected by
other regulatory indicators. In Ofwat’s draft business plan feedback (Annex 9) it stated that it was
considering the trunk main investment as being exceptional due to the lumpy nature of the
investment and that it related to specific outputs.
Therefore, the Company proposes that the trunk main schemes should be considered exceptional
items in the context of the Capital Maintenance CIS baseline. Additionally, the Company proposes
that the three investments be defined outputs for AMP5.
Section 4.1.2
Water Distribution – Distribution Mains
Page 52 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Summary
•
As described in Section 1 above, the Planning Objective for distribution mains is to cost
effectively maintain stable serviceability.
•
Under the section “Ensuring a Reliable Supply of Water” the Company’s Strategic Direction
Statement states that the burst rate will be held stable at less than 100 per 1,000km per
year as well as no unplanned interruptions exceeding 6 hours .
•
Customers express strong support for reliability of service; with 87% of customer identifying
“maintaining a reliable supply of high quality tap water” as their highest priority.
•
Historic performance is that the Company has had stable serviceability for its infrastructure
assets since JR99. Expenditure in AMP4 is greater then in AMP3 and the Company
forecasts that in delivering its Monitoring Plan mains renewal outputs, which it is on
programme to achieve by the end of 2009 will exceed the costs allowed in the PR04
determination. The additional costs for mains renewal are due to more stringent traffic
management requirements and that the simpler schemes have been delivered in previous
AMP periods. Increasingly, the mains renewal schemes are located in dense urban areas
of Dover and Folkestone which has increased unit costs.
•
The current rate of renewal gives an average asset life for distribution mains of greater than
300 years, which is at the lowest end of the industry and is a significant concern for the
Company.
•
The Company has developed and calibrated a distribution main survival model to forecast
mains failures. This is combined with consequence modelling to generate a forecast of risk
at pipe unit level.
•
The pipes most at risk have been converted into defined schemes, which have been
individually priced. These have then been combined to generate costs estimates for
different renewal rates in AMP5. The programmes of actual replacement have then been
re-entered into the distribution main survival model to give revised forecasts for failure.
•
From the modelling, the Company considers that long term stable serviceability can only be
delivered through a mains renewal rate of 5km/year.
•
Due to considerations of customer affordability, however, which in part result from the
higher investment in trunk mains, the Company is proposing a 3km/year mains renewal
programme for AMP5 and 5km/year for AMP6 and beyond. The Company believes that in
the short term (AMP5) it can continue to deliver stable serviceability with a 3km/year mains
renewal rate.
•
The capital investment in AMP5 is £5.22m. This compares to £2.8m in AMP4. There is no
change to opex resulting from this investment.
•
The selected strategy (3km/yr) is shown as being marginally not cost beneficial. The
Company’s preferred strategy (5km/yr) is shown as being cost beneficial., for the benefit of
customers the Company has selected a renewal strategy which is less beneficial in the
longer term.
Asset Data and Historical Analysis
•
The Company has a comprehensive and accurate asset inventory, based on its full network
GIS system. Within this data the age and material profile are recorded for each main with
only 0.41% of mains being of unknown age and 0.31% of mains being of unknown material
(percentage by length). This information is presented in the following tables and figures.
Page 53 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Business as usual processes related to burst reporting provide additional data for
verification of this data set.
•
Asset performance in terms of bursts is well recorded, with more than 20 years of historical
data. Failure data is reliably recorded by staff on site and updated on GIS. The Company
has accurate burst data, however, further steps will be made in AMP5 to ensure that cause
of failure is also accurately captured (the type of failure is already recorded as shown in
Figure 16).
•
Figure 15 shows the all main burst history for the Company, with the long term average
being between 100 and 120 bursts per annum. From the trunk main section, the average
number of trunk mains bursts per annum is 4.7 which have a marginal impact on the burst
performance, which is almost entirely driven by distribution mains.
•
Figure 14 shows the age and material profile of distribution mains. 22% of the Company’s
mains are over 100 years old and 37% are greater than 80 years old. When considered in
combination with a historic renewal rate of 300 years, this is a significant concern for the
Company as it is clear from industry experience that this is in excess of the asset life of the
pipe and represents a significant long term risk to customers bills in the future.
•
The Company’s AMP4 monitoring plan forecasts 16.5km of mains renewal being delivered
in this period. The Company is on track to deliver this level of renewal by the end of
2009/10, however, the Company is forecasting that it will exceed its mains renewal budget
to achieve this level of replacement by £0.7m.
•
Ofwat’s classification of the Company’s infrastructure performance has been stable since
JR99, with improving in JR06 and JR07.
•
Figure 17 and Figure 18 show mains replacement activity and infrastructure serviceability
and expenditure. In AMP4, the Company’s average renewal rate is 3.3km/year, however,
the expenditure fluctuates annually depending on the actual schemes delivered in any one
year. Figure 18 shows a reasonably consistent relationship between distribution mains
expenditure and maintaining a stable burst rate.
Page 54 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Distribution Mains By Age & Material
250
Length (km) .
200
Data unavailable
UPVC
Steel
Spun Iron
PE
Lead
Galv
Duct. Iron
Cast Iron
Asb. Cem
150
100
50
0
100+
100-80
80-60
60-40
40-20
20-0
Age Band
Figure 14 Distribution Mains by Age and Material
The burst table from the GIS contains all reported bursts in a reliable manner from 1988 onwards.
An analysis of this data is presented in Figure 15 which presents all recorded bursts after third
party damage failures have been removed. The trend line indicated is the 5-year average. The
Company’s burst rate is one of the lowest in the water industry. Clearly the burst rate appears
stable but this must be considered against a background of pressure reduction activity in AMP2
and AMP3. It should also be noted that a considerable variation in burst numbers occurs from
year to year.
From Table 4 the serviceability reference level for burst is 100 bursts/yr with control limits of 127
and 73.
Page 55 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
FDWS Historical Burst Analysis
160
140
Bursts
120
100
80
60
Burst Analysis
40
5yr Rolling Average
20
07
06
05
04
08
20
20
20
20
03
20
01
00
99
02
20
20
20
20
19
98
97
19
95
94
93
92
91
90
89
96
19
19
19
19
19
19
19
19
19
19
88
0
Calendar year
Figure 15 Historic Burst Trend
An analysis of the burst records by failure type is presented in Figure 16 and this indicates that the
proportion of corrosion related failures is relatively low; the greatest contribution coming from ring
fractures which are largely driven by ground movement.
FDWS Mains Failure Alalysis
0%
1%
12%
0%
12%
At Ferrule
At Joint
Bolts
Hole
Long Fracture
62%
13%
Ring Fracture
Unknown
Figure 16 Analysis of Mains Failure Type
The Company has a history of consistently modest mains replacement activity as can be seen
from Figure 17. The annual proportion by length replaced being typically around 0.3% per year;
this implies average asset lives of greater than 300 years. This is a significant concern for the
Company as it is clear from industry experience that this is in excess of the asset life of the pipe
and represents a significant risk to customer’s bills in the future.
Page 56 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
09
/1
0
20
08
/0
9
20
07
/0
8
20
06
/0
7
20
05
/0
6
20
20
04
/0
5
03
/0
4
20
02
/0
3
20
01
/0
2
20
00
/0
1
20
99
/0
0
19
19
19
98
/9
9
16
14
12
10
8
6
4
2
0
97
/9
8
km/yr
FDWS Mains Replacement History and Forecast for AMP4
Year
Figure 17 Mains Replacement History and Forecast for AMP4
FDWS Historic Base Service Provision versus Serviceability
Water Distribution Mains
2.00
1.80
1.20
1.60
1.00
1.40
0.80
1.20
1.00
0.60
0.80
0.40
0.60
0.40
0.20
0.20
0.00
19
90
19 /91
91
19 /92
92
19 /93
93
19 /94
94
19 /95
95
19 /96
96
19 /97
97
19 /98
98
19 /99
99
20 /00
00
20 /01
01
20 /02
02
20 /03
03
20 /04
04
20 /05
05
20 /06
06
20 /07
07
/0
8
0.00
Ratio to average of actuals
Base Service Provision (£M)
1.40
Water Distribution
Mains Base
Service Provision
DG2 properties
below ref level
D3 Unplanned
interruptions
>12hrs
Mains burst per
1000km
5 yr rolling avg
(Base Service
Provision)
Year
Figure 18 Water Distribution Serviceability and Expenditure
Forward Looking Analysis – Data
Datasets used for the analysis are described below:
•
Burst records: This data is generated via the works management system and are
recorded within the GIS. A system of mains burst record reports is the vehicle used to
collect the additional technical data required for burst reporting. Cross checking is
Page 57 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
undertaken between the works management system and the burst record reports to ensure
that records are obtained for all bursts.
2
•
Pipe Samples: The Company has been taking and testing pipe samples since 1992 as
part of a Veolia Group initiative to understand the behaviour of underground assets. The
Company has 385 sample results in its pipe sample database, which is part of the larger
group database containing 3,750 sample results. This is high-quality information with a
very great deal of consistency. Each sample has been tested in the same manner by the
same laboratory to consistent standards. Each result has been geo-located, latterly on the
GIS. Veolia collects all its companies’ data which is categorised on an identical basis with
regard to bursts, material, diameter and ground conditions, propensity to ring fracture etc.
Therefore, the Company has been able to compliment its own failure data with applicable
data sets for pipe material and ground conditions from the Veolia data. The Company
therefore has very good knowledge of long-term pipe performance and also benefits from
the much larger data set for the Veolia Group.
•
All Mains Hydraulic Model: The Company has maintained an all mains hydraulic model,
which is used for operational and planning purposes. The model is directly generated from
the GIS so has an identical network structure. This enables comparisons to be made, via
each pipes asset ID, between asset failure events and consequent hydraulic implications.
•
GIS and Asset IDs: Each element of the underground network has a unique numeric
identifier within the GIS. This is allocated when the records are digitised and is the
common reference between the GIS, the burst table and the hydraulic model. The
modelling approach adopts this identifier as the pipe unit with properties of length,
diameter, material and age. It also allows the GIS to be used to display outputs from the
forward looking analysis for sense checking and the development of real schemes.
•
Hydraulic observations: The all mains hydraulic model has been used to forecast the
impact of a failure of any pipe unit within the network. This was undertaken primarily as a
critical mains analysis for trunk mains study purposes but it also provides hydraulic impact
predictions for every pipe unit in the network. It has therefore been used to predict the
numbers of properties that would suffer a loss of supply or poor pressure due to the
isolation of any particular pipe unit.
•
Mains at Risk Register: This register is updated regularly as part of the business as usual
process to identify priorities for mains replacement activity. This provides an essential
balance to the modelling approach and facilitates the building of practical schemes around
modelled output as well as accommodating practical operational issues.
•
Veolia data-set for distribution main performance: As previously identified the
Company has relatively small failure data for distribution mains. However, Veolia collects all
its companies’ data which is categorised on an identical basis with regard to bursts,
material, diameter and ground conditions, propensity to ring fracture etc. Therefore, the
Company has been able to compliment its own failure data with applicable data sets for
pipe material and ground conditions from the Veolia data.
•
Environmental Data: The group has consistent soil corrosion and soil movement potential
data in digital form across all companies provides by the National Soil Resources Institute2.
This allows soil corrosion and soil movement potential to be mapped with mains failures
and pipe sample results in a consistent manner across the group. For example this means
that data from other group companies regarding performance of cast iron pipe in noncorrosive ground is applicable to the Company.
NSRI, Soil Data Maps, http://www.landis.org.uk/gateway/ooi/nmvector.cfm
Page 58 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Forward Looking Analysis – Analytical Approach
The approach taken to produce forward-looking forecasts of distribution mains failures and
intervention options is described in this section. The process utilises the asset data and
observations described above as inputs to a mains survival model provided and run by Three
Valleys Water3. The size of The Company allows for a rational examination of the model output so
each of the model’s predictions is tested for sense and practicability. The approach has six
principal elements:
1. Use of a distribution mains survival model to forecast the likelihood of pipe failure at
individual pipe unit level for each year of the planning period.
2. Use of the Company’s all mains hydraulic model, via the critical mains analysis process, to
predict the impact to customer service of isolating any particular pipe unit.
3. Combining likelihood of failure and consequence of failure to forecast risk at pipe unit level.
4. Production of service forecasts for each pipe unit for each year of the planning period.
5. A rational examination of the output and manual combination with output from the
Company’s Mains at Risk Register.
6. The development of real replacement schemes for AMP5 that can be accurately priced and
used within analysis.
Figure 19 illustrates the overall process.
3
Appendix G Burst Model methodology Report, Three valleys Water February 2004
Page 59 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Asset Data
(GIS)
Burst Data
(GIS)
Combine Asset
and Burst Tables
Ground
Movement
Data
Corrosive
Ground
Data
Pipe Unit
Characterisation
Pipe
Category
Failure
Rates
Pipe
Category
Failure
Rates
Determine Pipe
Unit Failure Risk
All Mains
Hydraulic
Model
Determine Pipe Unit
Failure Predictions
Critical Mains
Analysis
Pipe Unit Service
Forecasts (Do
Nothing Scenario)
Hydraulic
Consequence of
Pipe Unit
Isolation
Model Chooses Pipe Unit
Replacements Based on Risk
Intervention
Options (annual
renewal rates)
Shape File Plots of
Model Output
Operational
Review and Real
Scheme
Development
Mains At
Risk
Register
Mains
Renewal Unit
Cost Data
Determine Real Costs
of Real Schemes
Real Scheme
Intervention Options
Figure 19 Current Business Process for Distribution Mains Replacements
Page 60 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The survival model is based on the following primary drivers for pipe failure:
•
•
•
•
•
The pipe unit’s material;
The pipe unit’s diameter;
The pipe unit’s age;
The environment surrounding the pipe unit; and,
Whether or not the pipe unit has already experienced a failure or failures.
The model does not take into account system pressures nor does it account for traffic loading
directly. The data that would make this possible is not available.
Distribution Mains Survival Model
Central to the analytical approach is the use of the distribution Mains Survival Model which is used
to predict the future failure probabilities for pipe units within the asset inventory. This sub-section
describes the method used while supporting detail is provided in Appendices 10 and 11. There are
four principal stages to the burst modelling process:
1.
2.
3.
4.
Data preparation
Calibration
Validation
Forecasting
Data preparation
All the data used is extracted from GIS. The specification and detail of the cleansing process is
given in Appendix 13.
Data is required for both pipes ‘in use’ and ‘abandoned’. For each main recorded in GIS with a
unique ID there is a list of required fields such as date laid, date abandoned if any, original
material, length, diameter, ground movement, District Metered Area, Hydraulic Demand Zone or
corrosion speed. Some information is held in GIS, some is derived from different GIS fields.
Each historical burst recorded in GIS has to be attributed to a main, ‘in use’ or ‘abandoned’. Then
different filters and consistency controls are performed to ensure consistency, for example the
removal of bursts attributed to mains with date laid later than the burst dates.
Calibration
The model is based on survival analysis; it uses a Weibull Proportional Hazard Model4. Survival
analysis is concerned with studying the time between entry to a study and a subsequent event, in
this case a burst. The model performs a regression by using historical data on pipes and bursts to
calculate coefficients for the selected explanatory variables and the baseline hazard function.
The model can handle different explanatory variables. The variables that have been tried are
length of pipe, diameter, age, ground movement and corrosion speed. Each one is tested for
statistical significance. The free software “R” has been used for statistical computation.
4
DR Cox & D Oakes (1984) Analysis of survival data (Chapman & Hall)
Page 61 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company has a good burst record on the GIS with the earliest recorded bursts dated 1987.
The model uses data obtained from the GIS.
The distribution mains network comprises 20,548 pipe units with a total length of 913 km. Within
this a total of 17,117 pipe units are categorised a “ferrous” (cast iron, spun iron and ductile iron)
comprising a total length of 780km and representing 85% of the asset type.
Different calibrations have been tested using all pipes or only ferrous. Running the model with only
ferrous pipes provided the best calibration and therefore a more reliable model. Non ferrous pipes
represent 15% of the network and only contribute 4.7% of the recorded bursts. Nearly half of these
bursts occurred on uPVC pipes that have already been replaced. For these reasons, excluding
non-ferrous pipes from the calibration does not have any material impact on the model results. Any
impact, marginal though it would be, would result in the burst rate being under-estimated.
Stratifying the data was also tested. Separating pipes in different strata based on their historical
number of bursts experienced can lead the model to predict more accurately the future failures.
Two strata have been created:
1.
2.
Pipe units that have experienced 0 or 1 bursts historically; and,
All other pipe units.
Other stratifications were tested but the results generated were not statistically significant. After
extensive testing of strata and explanatory variables the following solutions were retained to take
onto the validation phase.
Ferrous only pipe units considered:
•
•
•
•
Two strata;
For strata 1 use length, diameter, age, ground movement and corrosion speed as
explanatory variables;
For strata 2 use length, ground movement and corrosion speed as explanatory variable;
and,
Parametric calibration weighted by length and without length.
Validation
The type of model, the variables used and the definition of strata were determined by the
calibration process while the validation process ensures that the model can accurately reflect
historic experience. The process is one of repeated comparison between forecasts and actuality.
Different calibration periods have been tried with different validation periods in order to find the
best calibration in terms of the total number of bursts forecasted for the company compared to the
real number of experienced bursts.
The following tested calibration periods used were: 1989-2000, 1989-2001, 1989-2002, 1989-2003
and 1989-2004.
As historical reliable data are available for 1989-2006, different validation periods are possible
depending on the chosen main. When possible the validation period used were 2003-2006 and
2004-2006. But the other available validation period were also tested.
Page 62 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The distribution pipes with the best validation are:
•
•
•
•
•
Ferrous only pipe units considered;
2 strata;
For strata 1 use length, diameter, age, ground movement and corrosion speed as
explanatory variables;
For strata 2 use length, ground movement and corrosion speed as explanatory variable;
and
Parametric calibration with no weight for length;
The results of the validation exercise are presented in Table 20. From this analysis the validation
period of 2001 to 2006 has been used as this provides the most accurate validation.
Validation Period
Forecast Bursts
Actual Bursts
Difference
2001 to 2006
647
607
106.6%
2004 to 2006
330
262
125.8%
2003 to 2006
437
394
110.8%
Table 20 Mains Survival Model Validation Results
The validation used in the model over-predicts actual bursts by 6.6% over the validation period. It
is important to remember that it is the trend that is important rather than the exact values predicted.
Forecasting
The resultant regression factors coming from the calibration and validation process are used to
forecast the number of bursts for each pipe unit for each year of the planning period. Due to
restrictions on time and computing capacity each pipe unit has burst forecasts generated in this
manner for each year up to 2029 and at 2049. Linear regression has been used between 2030
and 2048 for each pipe unit to generate the required forecasts.
Prediction of Future Asset Performance
The survival model produces predictions for bursts on each pipe unit for each year of the planning
period. The Company’s critical mains analysis (based on the all mains hydraulic model) produces
predictions of impacts on customers (properties) for each pipe unit. The pipe unit identifier (GIS
asset ID) is used to link these together to produce a forecast of risk for each pipe unit for each year
of the planning period. This allows a forecast of service provision (bursts) to be made for the
network over the planning period if capital maintenance expenditure is ceased for the planning
period. Figure 20 shows how the model predicts the burst rate would climb if no capital
maintenance was undertaken (demonstrated by the upper line in figure) and the benefits to service
of various intervention options.
Intervention Options
Though the forward looking analysis results are generated at a pipe-unit level they are only valid at
network level so intervention options have been chosen as different annual rates in kilometres per
year. The following scenarios are considered valid for testing purposes:
•
•
•
Reactive fix on fail only
3km/yr;
4km/yr;
Page 63 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
•
•
•
•
5km/yr;
6km/yr;
9km/yr; and
12km/yr.
The lowest of the options compares with historic activity while the others represent possible
practicable programmes of work.
The model allows the impact of different intervention scenarios to be predicted. This is done by
removing pipe units from the model as they are replaced. It is assumed, for modelling purposes,
that replacement mains installed will not experience failure during the planning period (40 years).
The model chooses the pipe units to tag for replacement each year by ranking them by the total
risk. Total risk is defined as:
•
(Predicted Bursts × Properties Affected) ÷ Pipe Unit Length
The results of this process produce for each intervention option a list of individual pipe units that
have been chosen for replacement together with a forecast of the burst profile over the planning
period. Figure 20 illustrates the results of the burst forecasting for the range of intervention options
considered and the sensitivity of the asset base to differing levels of replacement. Note: only a
selection of the intervention options are plotted in the below graph to aid clarity.
The modelling approach undertaken by the Company, a Weibull Proportional Hazard Model with
up to 5 covariates is used to forecast bursts, so this would facilitate modelling of uncertainty in
predictions. The model can accommodate Monte Carlo simulation to provide uncertainty analysis
and confidence bands. However, the events population size (historical number of bursts) for the
Company is relatively small and would lead to a wide confidence interval. The value of the likely
results, considering the complexity and effort inherent in the process, was considered to low to
merit inclusion in the approach. The Company understands that the confidence limits of our
predictions will be wide but also understand that this is inevitable with such a small asset and
event base from which to model. What is important from the modelling is the longer term trend
resulting from the intervention options.
Page 64 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Burst Forecasts for Distribution Mains Intervention Options
140
130
120
Bursts / year
110
100
90
80
70
60
50
25
24
/
24
20
23
/
20
20
22
/
23
22
20
21
/
21
20
20
/
20
19
/
20
20
18
/
19
18
20
17
/
17
16
/
20
15
/
20
20
16
15
14
/
14
20
13
/
13
12
/
20
11
/
20
20
10
/
11
12
40
Year
Reactive Only
3km/yr
5km/yr
9km/yr
12km/yr
Reference
Upper Control Limit
Lower Control Limit
Figure 20 Burst Forecasts for Distribution Mains Intervention Options
Options of 9km/yr and greater are predicted to have a significant depressive impact on bursts. The
5km/yr option is predicted to maintain a steady burst rate in the short to medium term while options
less than this are predicted to allow customer service and serviceability to deteriorate.
From the above analysis the Company selected 5km/yr as being the most cost effective
intervention to deliver stable serviceability.
Scheme Development
This section describes the development of individual scheme designs and cost estimates to deliver
the 5km/yr renewal strategy. The process followed also enables different renewal strategies to be
priced and this information was used in the cost benefit analysis described below.
The model output for the first two quinquennium of the planning period was converted to shape
files on the GIS so that the model’s predictions could be observed against the infrastructure
background, burst locations etc. At this stage the model’s output was compared with the
Company’s business as usual mains at risk register and a review with the Company’s network
technicians enabled the final schemes to be defined. The key elements of this review were:
•
Rejection of model selections where no failure has occurred;
•
The collection of adjacent model selections in different years into coherent schemes;
•
The selection of infill replacements between model selections;
•
The inclusion of schemes from the mains at risk register that are not identified by the model
(e.g. failure on PVC pipes, operational issues etc.); and
Page 65 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
•
Definition of real schemes that are practicable and can be designed and accurately priced.
From these process 43 distribution mains renewal schemes were defined. An outline design was
then undertaken on each to develop a full understanding of scope. This formed the basis of the
cost estimates.
Additional details about the infrastructure assets are captured in the scheme definition form. These
include:
•
•
•
•
Actual nominal diameter of the main;
Length of pipe;
New or Refurbish; and
Designer’s Comments.
Historically, the Company has opportunistically replaced communications pipes as part mains
renewal schemes where age and material warrant replacement. This approach minimises
disruption for customers and is cost effective as installation costs are lower while a contractor is
already mobilised and on site than for one off replacements. The replacement lengths of
communication pipes are not included in the reporting of mains renewal activity, but do count
towards reported communication pipe replacements.
For the AMP5 programme, it is calculated that 50% of communication pipes will be replaced during
mains renewal this is based on:
•
•
•
Replacement of short- side pipes for all categories except MDPE. From the asset inventory
work 20% of communication pipes will be MDPE by 2010, requiring 80% of short side pipes
to be replaced. Assuming the number of short side and long side communication pipes is
equal, this involves replacement of 40% of communication pipes (all short side).
Replacement of long-side pipes where reconnection is not possible due to deterioration and
where replacement is necessary. This has been estimated as being 10% of communication
pipes for mains renewal activity.
Therefore, a total replacement of 50% of communication pipes during mains renewal
activity has been included. The cost of opportunistic replacement during mains renewals is
very little more than the reconnection cost and more cost effective than individual
replacement on failure.
Scheme and Scenario Costs
Using the scheme definition forms described above, cost estimates were prepared for each
scheme using the Company’s unit rates and approach to cost estimating described in Section 3.5.
As most schemes are less than £1m in value, individual risk registers have not been developed for
each solution. Instead, a number of risks common across the programme were identified and
lower, average and upper likelihoods assigned. Risk costs were developed as percentages of the
scheme costs and the data modelled to provide a P80 risk value. This process is described fully in
Section C5.
The schemes were then grouped to provide an overall cost for the replacement strategy. The
capital costs are summarised in Table 21.
Page 66 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Strategy
AMP5
2010/11
2011/12
2012/13
2013/14
2014/15
Total
AMP5
Total
AMP6
Total
AMP7
3km/yr
£673
£1,555
£654
£1,407
£932
£5,221
£5,305
£4,026
5km/yr
£1,631
£1,251
£1,528
£1,970
£1,119
£7,499
£7,053
£6,106
Table 21 CAPEX for each proposed distribution mains renewal strategy
The AMP5 costs are greater than AMP4 for the same level of activity. This is primarily due to two
factors.
•
The PR04 business plan forecast investment costs based on average unit rates and overall
replacement length. This approach ignored scheme specific issues such as crossing of
geographical features and traffic sensitive roads. As demonstrated above, the forecast cost
for the selected mains renewals strategy are based on specific schemes which have been
specifically designed and costed.
•
Unit rates have risen in the AMP4 period. This is demonstrated by the higher tendered
rates the Company has seen from 5.8km of mains renewal work undertaken in the latest
regulatory year. This difference in part recognises that the easier mains renewals have
been completed and those now being prioritised are in more congested urban areas.
Cost Benefit Analysis
The Company is confident that 5km/yr is the right distribution renewal strategy based on risk to
customer service and serviceability and that the strategy selected is cost effective. It has
demonstrated how the selection of this strategy meets the planning objective. As a further test, the
Company has chosen to assess the selected strategy and alternative strategies for cost benefit.
These strategies are scored using the Company’s methodology as described in Section C8. The
assessment and results are summarised below.
Assessment of Benefits
Only the performance measures which are impacted by the intervention have been assessed.
These are described in the following table.
OPM
Intervention
3 Pressure
All scenarios
Data Used for Likelihood and Consequence
This was considered; however, low pressure only occurs at the point
of burst and is, therefore, a very short duration impact. The impact of
loss of supply is covered in OPM 4, therefore, this OPM is not used.
Page 67 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
OPM
Intervention
Data Used for Likelihood and Consequence
4 Supply
Interruptions
All scenarios
The pre intervention position is the forecast burst frequency resulting
from a reactive only - fix on fail approach. This can be seen in Figure
20. A 40 year profile is used.
The burst frequencies for each scenario are also taken from the
forecast modelling as described above. A 40 year profile is used.
The number of properties affected by unplanned interruptions to
supply is on average 42 properties per burst for between 0 and 6
hours and 1.6 properties per burst between 6 and 12 hours. This is
based on historical data. The Company’s historic DG3 for greater than
12 hours is 0 for the last 5 years, therefore, no interruptions greater
than 12 hours have been forecast. The number of properties affected
is the same in all scenarios and for the pre-investment and postinvestment position.
6 Leakage
All scenarios
The volume of water lost per failure was calculated to be 1,916m3,
based on average network pressures and fail to fix run times. This
value, in combination with the failure rates taken from the modelling
were used to generate a pre and post leakage volume in Ml/d.
8 Extra
Reg.
Reporting
All scenarios
A rising burst rate will result in deteriorating assessment of
infrastructure serviceability. This will result in extra regulatory
reporting. The pre-investment position is assessed as 5 months of 1
FTE involved in extra regulatory reporting per AMP period. The post
investment position is that where the burst rate is held stable or
improving no extra regulatory reporting is required, therefore,
generating a benefit when compared to the pre-investment position.
Where the burst rate rises in any single AMP period, the same level of
regulatory as for the pre-investment will be required, therefore,
resulting in no benefit in that AMP period.
10 Personal
Injury
All scenarios
This was considered, however, the forecasting the likelihood of injury
resulting from a distribution mains bursts resulted in such low
probabilities that it was not included in the analysis.
12. Carbon
equivalent
emissions
All scenarios
The cost of carbon for operational and embedded carbon are
calculated automatically from the scheme costs. This is described
more full in Section C8.
14 Traffic
Disruptions
All scenarios
Not applicable as the mains identified for replacement do not cross
significant road or rail networks.
Table 22 OPMs for Distribution Main Replacement Strategy
Four scenarios were assessed for cost benefit using the scoring of OPMs as described above. The
results of this assessment are presented in Table 23. This table shows the contribution of the
relevant OPM to the overall benefit assessment.
The most cost beneficial solution is a replacement rate of 5km/yr. Replacement rates of 3km/yr
and 5km/yr are not beneficial. The proposed strategy of 3km/yr in AMP5 and 5km/yr thereafter is
not cost beneficial, albeit only marginally.
Page 68 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Solution
Ref
INF160MP
Strategy
Whole
Life
Cost,
£k
Whole
Life
Benefit,
£k
Net NPV,
(WLB less
WLC)
£k
Benefit Value per OPM, £k
OPM 4.
Supply
Interruptions
OPM 6.
Leakage
OPM 8.
OPM 12.
Extra
Regulatory
Reporting
Carbon
equivalent
emissions
14,423
12,389
-2,034
13,074
14
2
-700
20,152
19,829
-323
20,849
21
4
-1,025
INF130MP
3km/yr
3km/yr
AMP5
then
5km/yr
5km/yr
20,957
21,085
128
22,083
23
4
-1,045
INF127MP
9km/yr
39,610
37,031
-2,579
38,956
42
4
-1,970
INF125MP
Table 23 Distribution Mains Renewal CBA Results
The results from the two CBA sensitivity scenarios described in Section C8 are:
Net NPV, (WLB less WLC), £k
Solution Ref
Strategy
Sensitivity # 1 – Private
Cost Only
INF160MP
Sensitivity # 2 – Lower
Bound WTP
3km/yr
3km/yr AMP5
then 5km/yr
- 14,394
-
8,849
- 20,105
-
11,191
INF130MP
5km/yr
- 20,907
-
11,383
INF127MP
9km/yr
- 39,522
-
22,884
INF125MP
Table 24 Distribution Mains Renewal CBA Sensitivity Results
This shows all options as not being cost beneficial and shows the sensitivity of the main renewal to
the CBA analysis, in particular the customer valuation of interruptions to suppply.
Selection of Optimal Strategy
The Company has demonstrated that it has applied the common framework approach to the
assessment of its distribution assets and its approach is clearly based on risk to customer service.
The Company has assessed a range of renewal strategies and demonstrated that 5km/yr is the
most cost effective intervention strategy to maintain serviceability as shown in Figure 20.
This strategy strongly links to customers who have expressed strong support for maintaining a
reliable supply of water and the targets the Company has adopted and consulted on in its Strategic
Direction Statement are to maintain a burst rate below 100 bursts per 1000km per year and to
have zero interruptions to supply greater than 6 hours in duration.
The Company has developed a sound definition of the technical scope and costs estimates for the
investment are based on the Company unit costs and investment costing methodology described
in Section C5.
The 5km/y strategy represents an increase over historic activity but he forward looking analysis
demonstrates that a 3km/y renewal rate will not maintain serviceability in the medium to long term.
Page 69 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
As discussed in more detail in Section 4.4, the Company has decided that as part of the overall
approach to the balancing of risk and affordability it is necessary to reduce the mains renewal
programme for the AMP5 period to 3km/year. The decision part of a wider strategy to balance the
risk to service and the bill impact to customers arising from additional lumpy investment in the
AMP5 programme.
The Company recognises that a lower mains renewal rate carries the risk of rising burst rates as
predicted by the forward modelling but that in the AMP5 period the risk can be managed within the
serviceability envelope and without an unacceptable deterioration of customer service.
The results of the cost benefit analysis are important but do not change the selected strategy.
What is clear from the analysis is that the results are sensitive to customer valuations of
interruption to supply.
The expenditure across future planning periods is based on a 3km/yr renewal in AMP5, returning
to a 5km/yr renewal rate in AMP6 and beyond. The forecast expenditure is:
AMP4
3km/y
AMP5
3km/y
AMP6
5km/y
AMP7
5km/y
Capex £m (07/08 pb)
2.803*
5.221
8.046
7.074
Opex change to base
0
0
0
0
Table 25 Expenditure for Distribution Mains Renewal
* FDWS budget for mains renewal based on PR04 determination was £2.1m. The Company’s forecast costs
for AMP4 are shown above
Capitalisation of Leakage Costs
At Pr04 the Company, with support from Ofwat, proposed to capitalise a proportion of its
operational leakage activity. This approach has been followed for AMP4. To maintain stable
leakage levels in AMP5 and as the mains renewal rate in AMP5 will also be the same as AMP4,
the Company forecasts the same level of leakage activity in AMP5 as in AMP4. Forecasting the
costs and applying the same level of leakage capitalisation in AMP5 as is used in AMP4, gives the
expenditure shown in the following table.
AMP4
AMP5
Capex £m (07/08 pb)
0.936
0.936
Opex change to base
0
0
Table 26 Leakage Capitalisation
The Company’s leakage strategy for AMP5 is detailed in Section B5; this projects a continuing
0.1Ml/d reduction per year with an end of AMP5 leakage target of 7.5Ml/d. This is a continuation of
the AMP4 strategy (the AMP4 target was a 0.5Ml/d target with an end of AMP4 leakage target of
8.0Ml/d). The costs to deliver the 0.5Ml/d leakage reduction are in the Supply Demand programme
while the costs detailed above are to maintain leakage stable at the end of AMP4 ie at 8.0Ml/d.
Page 70 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4.1.3
Water Distribution – Communication Pipes
Summary
•
The Planning Objective for communication pipes is to cost effectively maintain stable
serviceability. Failure of communication pipes does not directly impact on serviceability
measures, although they do cause disruption to customers and are a cause of leakage.
Failure rate is used as an indication of serviceability for the asset group.
•
In AMP4 the Company’s policy for communication pipes has been to fix on fail; the AMP4
approach is to repair all failures if possible and to only replace where this is not possible.
This results in about 95% of failures being repaired and 5% of failures being replaced.
•
For AMP5 the Company’s proposed strategy remains similar, however, the Company is
proposing to replace rather than repair black polyethylene, copper and galvanised iron
communication pipes on failure. The cost increase of this strategy over the AMP4 position
is marginal (whole life additional cost of 15-20k over 15 years) and replacing these poor
performing materials with MDPE is calculated to beneficial for customers in the longer term,
as pipes which have failed once are more likely to fail again, whereas replacing with MDPE
results in very low failure rates and therefore less customer disruption.
•
For lead communication pipes, the Company has been monitoring its performance against
the new lead standard which will be applied from 2012. The Company is confident it can
achieve this standard without a change to its communication pipe replacement stragegy.
•
The AMP5 strategy delivers a stable failure rate for its communication pipe assets, as
shown in Figure 22.
•
The Company has applied a modelling methodology in accordance with the Common
Framework; the Company has very good communication pipe data and its forward
forecasting of failure calibrates strongly to historic performance data. A number of future
intervention scenarios have been assessed to arrive at the proposed cost effective strategy.
•
The CAPEX for the proposed strategy in AMP5 is £481k, compared to £378k for continuing
with the currently policy and compared to £285k in AMP4. OPEX costs remain unchanged.
Asset Data and Historic Analysis
The data sources that were utilised to review historical Communication Pipes activity were:
•
Communication Pipes inventory: The Company have very good asset records relating
to communication pipes. It retains asset data in an asset inventory that holds numbers and
materials against street. It was fully updated for this analysis using data from OWMS.
•
Operational Works Management System (OWMS): The Company’s business as usual
work management system was interrogated to determine the number of renewals, new
supplies and separation of common supply jobs undertaken by street since the previous
analysis for PR04.
•
Distribution mains renewal project records: The Company takes the opportunity to
replace a proportion of communication pipes when undertaking mains renewal projects.
The project records were interrogated to determine the numbers of Communication Pipes
replaced by this means since PR04.
The inventory prepared by the Company and used as the basis for forward looking modelling is
presented in Table 27 below.
Page 71 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Category of Communication Pipes
Number in Inventory
Lead
26,518
Galvanised iron
11,903
Copper
197
Black polyethylene (BPE)
7,104
Medium density polyethylene (MDPE)
21,845
Other
4
Total
67,571
Table 27 Communication Pipes Inventory (base data) at November 2007
The Company’s reported communication pipe replacement activity is presented in Figure 21 below.
Historical replacement rates have varied over time driven by policy changes within the Company.
Communication Pipe Replacement
1000
Number of replacements
800
600
400
200
/1
0
20
09
/0
9
/0
8
20
08
/0
7
20
07
20
06
/0
6
/0
4
20
05
/0
3
20
03
/0
2
20
02
/0
1
20
01
/0
0
20
00
19
99
19
98
/9
9
0
Figure 21: Historical Activity - Communication Pipe Replacement *
The bars in purple represent forecast activity for the remainder of AMP4.
Forward Looking Analysis
Forward looking analysis has been undertaken using an approach consistent with the UKWIR
Common Framework. The approach assesses service risk, based upon an analysis of asset data,
in conjunction with recorded failure data. To achieve this goal, a mathematical model has been set
up to replicate the likelihood of current failure events and to forecast future levels up to the year
2050. The approach takes into account the effects of intervention (i.e. repair or replacement) on
Page 72 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
successive assets and their behaviour. An economic model then allows the modelling of different
strategies in terms of the ratio of repair/replacement of failing assets and the proactive renewal of
pipes either in conjunction with distribution mains or in their own right. The output from the model
consists of predicted failures with sets of annual costs for repair and replacement on failure, and
options for proactive renewal in isolation or as opportunistic replacements in conjunction with
distribution mains renewal schemes.
The key data sets used in the forward analysis are the updated asset inventory referred to above
and communication pipe performance data from Veolia datasets. As previously described in the
Trunk Mains and Distribution Mains sections performance data for underground assets is
consistently recorded across the group and based on common environmental data sets so that
cohort characteristics can be confidently applied to the Company’s communication pipe assets. It
would not have been possible to model the Company’s asset performance using Company data
alone.
The GIS contains a recently developed layer linking property address points to the nearest suitable
distribution main. These “logical connections”, together with the asset register by street provide
the opportunity to analyse and use the data in ways that it wasn’t possible to do before. This
allows a spatial analysis to be undertaken and provides a more robust assessment of the number
of common supplies.
The calibration of the model is assessed using an optimisation procedure, which has been
developed to determine the most likely set of deterioration curves for each respective hierarchical
categorisation of material. Due to the volume of data required to achieve a reasonable calibration
for each material and soil risk combination, the Weibull parameters arising from the calibration of
the Three Valleys Water model were used for the Company. A separate exercise was then
undertaken to compare the Company’s failure data with the Three Valleys Water’s results to
corroborate this approach.
The model estimates the number of pipe failures in the year 2010 to be 371, which compares very
favourably with the average number of failures over the last 8 years at 365.
Full details of the modelling approach for Communication Pipes can be found in Appendix 11.
Intervention Options
The following strategies were considered which represent practicable approaches to the issues of
communication pipes capital maintenance.
•
•
•
•
A01 Repair on failure only – baseline for comparison;
A02 Current Policy;
A03 Current Policy plus replacement of black polyethylene, copper and galvanised iron;
and
B02 Current Policy plus proactive zonal replacement of black polyethylene, copper and
galvanised iron.
Activity by material is summarised in the below table.
Page 73 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Option
Ref.
Strategy
Repair
Replace
Repair
Replace
Repair
Replace
100%
0%
95%
5%
95%
5%
Galv’
Iron
100%
0%
10%
90%
10%
90%
Remain
Renew
Repair
Replace
95%
5%
95%
5%
5%
95%
10%
90%
Activity
A01
Repair on failure
only
A02
Current policy
A03
Current policy plus
replace BPE, Fe and
Cu
B02
Replacement by
zone of all but Pb &
MDPE
Lead
100%
0%
10%
90%
10%
90%
Black
Poly
100%
0%
95%
5%
10%
90%
5%
95%
10%
90%
5%
95%
95%
5%
Copper
MDPE
100%
0%
99%
1%
99%
1%
99%
1%
99%
1%
Table 28 Communication Pipe Intervention Options
The performance of the asset stock under for each of the above strategies was forecast using the
forward looking model. The results are shown in Figure 22. The failure rate when undertaking
reactive repair only clearly continues to rise, while the other reactive strategies stabilise the failure
in the short to medium term. Proactive replacement reduces the failure rate once allowing for the
‘infant mortality’ of new MPDE installations (which generate the unusual peak of failure).
Forecast Communication Pipe Failures by Strategy
430
410
390
Number
370
350
330
310
290
270
250
2010
2011 2012 2013
2014 2015
2016 2017 2018 2019 2020 2021
2022 2023 2024
Year
A01 (reactive repair)
A02 (current policy)
A03 (current policy + replace BPE, Fe and CU)
B02 (proactive replacement)
Figure 22 Forecast Communication Pipes Failure Rate by Strategy
The modelling forecasts the number of communication pipe repairs, replacements and proactive
renewals per annum. Using Company’s unit costs for repairs, replacements and renewals, the
whole life cost of each strategy can be calculated. This has been done for two discount rates, as
shown in the following table. The data used in the analysis is taken from historic Company data
and is:
Page 74 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
•
•
•
•
Cost of failure (Opex)
Repair Cost (Opex)
Replacement (Capex)
Analysis period
£220
£353
£506
2010-2025
A03 - Current
B02 - Replacement
policy plus replace by zone of all but
BPE, Fe and Cu
Pb & MDPE
A01 - Reactive
Repairs
A02 - Current
policy
6.6% Discount Rate
2,076
2,185
2,202
12,229
5.6% Discount Rate
2,218
2,331
2,349
12,454
NPV, £k
Table 29 Communication Pipe Strategies – NPV analysis
The lowest cost whole life strategy is a reactive fix on fail strategy, however, as shown in Figure 22
this leads to an increasing rate of failures, which impacts customer service and results in rising
operational costs from repairs and leakage. As this intervention option does not meet the planning
objective it has been rejected. The proactive replacement strategy has a significantly higher whole
life cost then the other strategies and is also rejected.
The current AMP4 policy and the strategy of current policy plus replacement of black polyethylene,
copper and galvanised iron have very similar whole life costs. In moving from the AMP4 policy to a
strategy of black polyethylene, copper and galvanised iron there is a marginal additional whole life
cost of 15-20k over 15 years. The benefits of this approach are the systematic removal of poor
performing communication pipe material from the asset base, which results in less disruption for
customers. This is the strategy the Company proposes for AMP5.
Overlap with Mains Renewal Strategy
As stated in the business case for mains renewal (see Section 4.1.2) the opportunistic replacement
of 50% of communication pipes during mains renewal has been included in the distribution mains
renewal programme. The estimated number of replacements within the mains renewal programme
for AMP5 is 865. In the context of the asset base, which comprises some 67,571 communication
pipes this represents a replacement of 1.3%. These replacements have not been included in the
Communication Pipe modelling due to its insignificance in the context of the overall asset base.
Intervention Costs
Using the same unit costs as the NPV analysis above, the forecast costs and levels of activity for
the selected strategy in AMP5 is:
Number of
replacements
Capital Expenditure,
£k
AMP4
AMP5
AMP6
781
951*
963*
285
481
487
0
0
Change in Opex, £k
Table 30 Communication Pipe Forecast Activity and Cost
* the increased replacements in AMP5 and AMP6 is due to the change in replacement strategy between
AMP4 and AMP5.
Page 75 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Cost Benefit Analysis
The Company is confident that the proposed strategy detailed above is cost effective and delivers .
the stated planning objective. As a further test, the Company has chosen to assess the selected
strategy and alternative strategies for cost benefit. These strategies are scored using the
Company’s methodology as described in Section C8. The assessment and results are summarised
below.
Assessment of Benefits
The intervention options for each of the communication pipe strategies are scored using the output
performance measures (OPM’s). Only the performance measures which have a change between
pre and post-intervention are described below. The baseline position was taken as repair on failure
only.
OPM
Intervention
Data Used for Likelihood and Consequence
6 Leakage
All scenarios
Average leak per failure has been calculated as 0.986Ml. This
amount is multiplied through the annual predicted number of failures
for both the pre and post intervention.
12. Carbon
equivalent
emissions
All scenarios
The cost of carbon for operational and embedded carbon are
calculated automatically from the scheme costs. This is described
more full in Section C8.
Table 31 OPMs for Communication Pipe Strategies
Solution
Ref
INF100MP
INF101MP
INF102MP
Whole
Life Cost,
£k
Strategy
A02 Current Policy
A03 Proposed
Strategy
B02 Proactive
Replacement
Whole
Life
Benefit,
£k
Net NPV,
(WLB less
WLC)
£k
Benefit Value per OPM, £k
OPM 12.
OPM 6.
Carbon
equivalent
emissions
Leakage
1,162
-20
-1,182
38
-58
1,427
-25
-1,452
45
-70
11,675
-215
-11,890
79
-295
Table 32 Communication Pipe Strategies - CBA Results
The cost benefit analysis shows that none of the options are cost beneficial. This is largely as a
result of the benefits being very limited; leakage being the primary benefit.
Selection of Optimal Strategy
The above analysis demonstrates that the Company has selected a communication pipe
replacement strategy which meets the cost effective planning objective and maintains stable level
of service to customers. The results of the cost benefit analysis, while showing the investment to
be marginally non cost beneficial, do not invalidate the selected strategy which demonstrably
meets the requirements of the cost effectiveness planning objective.
The AMP5 strategy is similar to its AMP4 strategy, however, the Company is proposing to replace
black polyethylene, copper and galvanised iron communication pipes on failure, rather than repair.
This whole life cost increase of this strategy over the AMP4 position is £10k - £15k over a 15 year
period and represents a marginal increase in cost. The benefits are that by replacing poor
Page 76 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
performing materials with MDPE customers will experience less disruption from leaks and repair
works as pipes which have failed once are more likely to fail again, whereas replacing with MDPE
results in very low failure rates.
The CAPEX for proposed strategy in AMP5 is £481k, compared to £378k for continuing with the
currently policy and compared to £285k in AMP4. OPEX costs remain unchanged.
At PR04 the Company anticipated a significant number of communication pipe replacements to
arise from the compulsory metering programme initiated in the same period. This has not been
required and no similar expenditure for AMP5 has been proposed.
The following graphs forecast the activity and capital expenditure against historic levels.
Communication Pipe Replacement - Historic and Forecast Activity
1000
Number of replacements
800
600
400
200
19
98
/9
19 9
99
/0
20 0
00
/0
20 1
01
/0
20 2
02
/0
20 3
03
/0
20 4
05
/0
20 6
06
/0
20 7
07
/0
20 8
08
/0
20 9
09
/
20 10
10
_
20 11
11
_
20 12
12
_
20 13
13
_
20 14
14
_
20 15
15
_
20 16
16
_
20 17
17
_
20 18
18
_
20 19
19
_2
0
0
Figure 23 Communication Pipes Replacement – Historic and Forecast Activity
Page 77 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Communication Pipe Replacement - Historic and Forecast Capital Expenditure
125.0
Caital Expenditure, £k
100.0
75.0
50.0
25.0
_2
0
_1
8
_1
7
_1
6
_1
9
20
19
20
18
20
17
20
16
20
15
_1
5
20
14
_1
4
20
13
20
12
_1
3
_1
2
20
11
/1
0
_1
1
20
10
20
09
/0
9
20
08
/0
8
20
07
/0
7
20
06
20
05
/0
6
0.0
Figure 24 Communication Pipes Replacement – Historic and Forecast Capital Expenditure
Page 78 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4.2
Non-Infrastructure Assets
Section 4.2.1
Summary of Non Infrastructure
Section 4.2.2
Water Distribution (non-infrastructure) – Revenue Meters
Summary
•
The planning objective of the revenue meter strategy is to provide the most cost-effective
replacement approach.
•
The proposed strategy is a fix on fail replacement strategy. A number of proactive
replacement strategies based on age were assessed but are not cost effective.
•
Revenue meter failure does not directly impact on serviceability measures, however, meter
failure does result in customers receiving estimated bills which can generate additional
customer contact. Maintaining high quality customer service is a priority for the Company
and the selected replacement strategy aligns with this objective.
•
The Company’s plans to achieve 96% revenue metering by the end of 2012 and its aim to
reduce average daily consumption per person to below 120l/p/d by 2015 as stated in its
Strategic Direction Statement.
•
From this point on all domestic meters will be read quarterly; this will enable more rapid
identification of failed meters; meter replacement will continue to be undertaken by the
Company’s meter reading staff during their regular rounds.
•
The Company wishes to keep its options open regarding automatic meter reading
strategies. The Company is proposing an automated meter reading trial of approximately
6,000 domestic meters under its Supply Demand strategy which will inform future meter
replacement options.
•
The Company has high quality meter performance data and this was analysed to assess
the current asset inventory and the historic failure rates. From this, predicted deterioration
and failure rates of the current asset base plus meter additions from the Company’s
compulsory metering programme and growth was forecast. Replacement costs have been
calculated using the Company’s unit cost data.
•
The forecast AMP5 expenditure is £280k, compared to £73k in AMP4. The increase
reflects the higher failure rate of meters in AMP5 compared to AMP4 as a result of the
Company’s compulsory metering strategy initiated in AMP4.
•
A consultant was commissioned by the Company to undertake the analysis and forward
modelling. The Consultant’s report is contained in Appendix 15.
•
At draft the Company proposed investment on DMA meters and PRV valves. The Company
has decided to manage these assets within the operational envelope as part of balancing
risk and the impact on customer’s bills.
Asset Data and Historical Analysis
•
The Company retains its inventory data for revenue meters within its HIAFFINITY meter
billing database. It contains all meter reading details including meter location references.
The data is of high quality with less than 0.5% of meters being of unknown manufacture.
Page 79 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
•
More than half of the Company’s meter stock is younger than ten years of age and a large
proportion has been installed over the last 3 years. There are very few meters with within
the inventory with ages older than 20 years. A meter’s make is closely associated with the
year of installation depending upon the procurement policy at the time. Present policy is to
use a single make of meter for new and replacement installations. Both these points are
reflected in the age and type profile in Figure 25.
•
Analysis of the HIAFFINITY data enabled the following parameters to be assessed.
o
o
o
o
o
when meters were installed;
when meters were replaced;
their age at failure;
the volume of water passed during the meter’s life, and
failure mode
•
Table 33 shows the numbers of replacement by meter age. Replacement rates have been
largely stable despite increasing levels of metering within the Company. This is in part due
to lower failure rates of the Company’s chosen meter manufacturer compared to higher
rates of failure for previous meters.
•
Failure analysis has been by age, manufacturer and volume passed. The key conclusions
are:
•
o
There is a trend for high reading meters to have a significantly higher failure rate
and that the failure rate increases with the volume recorded (Figure 26). However,
these meters only represent 6% of the meter stock and are mostly classified as nondomestic.
o
For domestic meters, there is no clear relationship between the quantity of water
passed and their probability of failure (Figure 27).
o
Figure 28 shows that for Company meters the failures rate by age is quite irregular.
The average trend line is showing that there is an increase of these failure rates for
the meters older than 13 years. In addition, it is important to notify that the failure
rates are quite low for meters younger than 13 years old, as they are below the
meter stock average failure rate of 1.5%.
o
Higher rates of failure are experienced with the Kent and Schlumberger, although
the failure rates seem to vary independently of the age of the meters for these two
brands. Sensus meters currently have a declining failure rate over the first height
years they have been used by the Company.
In conclusion, while valuable data has been gathered about meter performance, and this is
used in the forecasting of future failure, it has been difficult to identify clear relationship
between meter age, volume passed and failure.
Page 80 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Age
2007
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Total/year
2006
59
47
13
16
23
12
14
11
39
46
38
20
14
7
14
6
10
46
0
0
0
435
52
54
29
23
12
15
13
8
10
40
52
33
25
8
11
5
11
9
36
0
0
446
2005
56
28
19
16
12
15
20
58
66
49
33
18
10
25
12
13
42
3
0
0
0
495
2004
2003
33
25
27
19
17
25
59
76
54
33
13
11
15
17
23
79
1
0
0
0
0
527
2002
21
22
18
17
33
59
78
51
33
13
18
19
25
27
66
0
0
0
0
0
0
500
25
26
22
28
44
54
42
29
13
25
13
23
28
94
0
0
0
0
0
0
0
466
Year of Exchange
2001
2000
1999
23
37
32
19
38
34
28
28
39
29
37
24
43
26
26
44
26
9
28
18
11
13
6
22
9
19
11
20
18
24
19
28
124
25
90
3
73
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
373
372
359
1998
34
110
24
24
12
9
16
23
33
143
4
0
0
0
0
0
0
0
0
0
3
435
1997
137
39
21
9
10
6
10
23
130
8
1
0
0
0
0
0
0
0
0
0
0
394
1996
1995
49
21
14
11
7
20
28
136
1
0
0
0
0
0
0
0
0
0
0
0
0
287
1994
16
23
11
20
19
26
131
3
0
0
0
0
0
0
0
0
0
0
0
0
0
249
20
11
3
6
17
129
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
186
Table 33 Annual Meter Replacements by Age
Meters
6,500
SCHLUMBERGER
KENT
SENSUS / INVENSYS
6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
Age
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Figure 25 Meter Stock By Age and Manufacturer
Page 81 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
19
20
21
22
23
24
1993
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Average failure rate % of meter stock
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0
>1
00
0
90
010
00
10
00
-1
10
0
11
00
-1
20
0
12
00
-1
30
0
13
00
-1
40
0
14
00
-1
50
0
15
00
-1
60
0
16
00
-1
70
0
17
00
-1
80
0
18
00
-1
90
0
19
00
-2
00
0
20
00
-2
10
0
21
00
-2
20
0
22
00
-2
30
0
23
00
-2
40
0
24
00
-2
50
0
25
00
-2
60
0
26
00
-2
70
0
27
00
-2
80
0
28
00
-2
90
0
29
00
-3
00
0
30
00
-3
50
0
35
00
-4
00
0
40
00
-5
00
0
50
00
-6
00
0
60
00
-7
00
0
70
00
-8
00
0
80
00
-9
00
0
90
00
-1
00
00
70
080
0
80
090
0
60
070
0
40
050
0
50
060
0
20
030
0
30
040
0
010
0
10
020
0
0.00%
Reading range m3
Figure 26 Meter Failure Rate by Volume Passed (all Meters)
Average failure rate per reading range
Average failure rate
% of meter stock
Trendline
1.60%
1.40%
1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
0-100
100-200 200-300 300-400 400-500 500-600 600-700 700-800 800-900
9001000
10001100
11001200
12001300
13001400
14001500
15001600
16001700
17001800
18001900
19002000
20002100
Reading ranges m3
3
Figure 27 Meter Failure Rate by Volume Passed (up to 2100m )
Page 82 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
FDWS Meter Stock Average Meter failure rate 2007-2003
Average Failure rate
2.50%
Average 2007 - 2003
Trendline
2.00%
1.50%
.
1.00%
0.50%
0.00%
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Years of installation
Figure 28 The Company’s Revenue Meter Failure Trend
Forward Looking Analysis
The forward forecast of the number of meters that are likely to fail in the future uses the
Company’s historical data to determine failure rates by meter age. Current meter stock details
have been used, with additional meters to be installed being consistent with the Company’s supply
demand metering programme and growth forecasts contained in Section B5. From average meter
failure rates by age, it has been possible to forecasts of the number of reactive meter exchanges
per year, in the period from 2010 to 2029. The average failure rates for meters based on age used
in the analysis are:
Age of the meter
Average of failure rates
between 2007-2004
0
1
1.36% 0.95%
2
3
4
5
0.75%
0.76%
0.73%
0.79%
6
7
1.11% 1.41%
8
9
1.35% 1.35%
10
11
1.06%
0.67%
12
13
1.01% 1.78%
14
15
2.21% 1.38%
Table 34 Average Failure Rates for Revenue Meters by Age
Intervention Options
Four intervention scenarios have been modelled which represent the range of intervention the
Company has considered:
•
•
•
•
Scenario 0 – Reactive fix on fail;
Scenario 1 – Replace proactively those meters older than 10 years of age;
Scenario 2 – Replace proactively those meters older than 15 years of age; and
Scenario 3 – Replace proactively those meters older than 20 years of age.
From the forward modelling, these strategies result in reactive and proactive meter replacements
as shown in Figure 29.
As previously stated there is no impact on serviceability from meter failure, although there is a
customer service impact due to the Company’s policy that customers are billed based on a
domestic assessed tariff when a meter fails and a metered bill cannot be provided. As can be seen
below, while proactive replacement strategies do reduce the numbers of failures when compared
to a reactive only strategy, the impact is limited in the context of the customer base.
Page 83 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
16
1.88%
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Meter Replacements By Strategy
35000
Reactive Meter Exchanges
Proactive Meter Exchanges
30000
25000
20000
15000
10000
5000
0
Scenario Scenario Scenario Scenario Scenario Scenario Scenario Scenario Scenario Scenario Scenario Scenario
1
2
3
0
1
2
3
0
1
2
3
0
AMP5
AMP6
AMP7
Figure 29 Meter Replacements by Intervention Strategy
As the costs of meter renewal are the same for reactive and proactive replacements, the difference
in investment required for the above strategies is in proportion to the replacement activity and is
significant, while the benefits to service and serviceability of proactive replacement are low. The
Company has, therefore, selected option 0 - reactive fix on fail as its proposed AMP5 strategy.
The costs of the reactive replacement forecasts have been calculated using an average unit cost
of replacement of £67 for an external meter excluding boundary box and for internal meter
replacements. This is based on historic cost data and is consistent with the Company’s cost base
submission. The investment costs of this strategy are presented in Table 35. There is no change to
Opex costs resulting from this strategy.
Strategy
AMP5, £k
AMP6, £k
280
354
Option 0 – Reactive Fix on Fail
Table 35 Meter Replacement Forecasts Costs
Cost Benefit Analysis
The above demonstrates the selection of a cost effective strategy. As the proposed AMP5
investment is based on a reactive fix on fail strategy it has not been assessed for cost benefit.
Selection of Optimal Strategy
In conclusion, the Company does not believe the proactive replacement strategies based on age
are cost effective. As the analysis of the historical data shows, there is not a strong relationship
Page 84 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
between age or volume of water passed and failure. Therefore, the effectiveness of the targeting
mechanism for a proactive strategy is not sufficiently robust to justify a proactive replacement
approach. Even if considering the loss of income as a result of under-registration, as the
relationships between failure and possible failure modes are not robustly understood, the ability to
effectively target meters and gain the benefit of recovering the lost income is doubtful. Additionally,
the evidence of under-registration of meters is limited and not robust.
In the context of its supply demand strategy, the Company intends to read meters quarterly to
support customers having accurate information upon which to made decisions about their water
use. Meter reading identifies the most frequent meter failure mode – stopped meters. Quarterly
meter readings will ensure failed meters are quickly identified and replaced as part of the meter
reading rounds.
Consequently, the Company’s selection of a fix on fail approach to meter replacement for AMP5 is
a cost effective strategy. The strategy differs from AMP4 where the Company proposed to
proactively replace meters older than 10 years of age. The present analysis and work within the
industry5, suggests that this approach is overly pessimistic regarding meter performance. The
Company believes that the strategy chosen represents the optimum management of risk in the
present circumstances. The Company recognises that once fully metered, different renewal
strategies may be required, particularly if the Company seeks to adopt automatic meter reading
technologies, which it believes will become significantly more established in the next 5 to 10 years
and which will drive meter replacement strategies for different failure modes.
The following table and graph show the forecast expenditure and replacements against historic
levels. It is important to recognise that the rate of meter installations have been very high in AMP4
due to the Company being awarded Water Scarcity Status and commenced its programme of
compulsory metering. The increase in forecast failures in AMP5 and AMP6 is linked to the high
installation rates in AMP4 and early AMP5.
Strategy
AMP4
AMP5
AMP6
Number of replacements
1,095
4,192
5,305
73
280
354
0
0
Capital Expenditure, £k
Change in Opex, £k
Table 36 Meter Replacement Forecasts Costs
5
CP324 Long Term Performance of Domestic Meters, Ongoing WRC Research Project
Page 85 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
FDWS Meter Replacement Profile (Replace on Fail Option)
2000
Meter Replacements
1800
1600
1400
1200
1000
800
600
400
200
0
1999
2009
2019
2029
2039
2049
Year
Historical Replacements (replace on fail)
Forecast Replacements (replace on fail)
Figure 30 Comparison of Historic and Forecast Replacements for the Chosen Strategy
Section 4.2.3
Water Treatment Works
A Capital Maintenance Planning Common Framework (CMPCF) forward looking analysis of capital
maintenance requirements has been carried out for all company non-infrastructure assets. Water
treatment works, water pumping stations and service reservoirs have been assessed using a
consistent methodology. This section relates to treatment works in particular, but the approach
applies also to pumping stations and service reservoirs.
Summary
•
The Planning Objective for Water Treatment Works is to cost effectively maintain stable
serviceability.
•
The analysis of capital maintenance requirements for non-infrastructure assets is based on
a comprehensive asset survey undertaken in 2007/08, from which data were loaded to the
Company’s newly developed NIAD asset database.
•
The analysis follows a Failure Modes, Effects and Criticality Analysis (FMECA) approach
which is consistent with CMPCF requirements and current best practice.
•
As the Company is small in size many staff have detailed knowledge of company assets
and their historical performance and effects on customer service, enabling them to identify
the failure modes of assets, and their probability/rate, duration and consequences with
greater confidence than in larger companies.
•
Historical work order data have been analysed to provide validation of these judgements
for those failure modes where sufficient suitable data were available.
•
The consequences of failure resulting is loss of service to customers were calculated using
the MISER software, which modelled the impact of loss of throughput at each location in
Page 86 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
the context of the overall supply network. Results were expressed as the number of
customers expected to experience an interruption to supply in each DG3 duration band.
•
Between draft and final business plans the Company has reviewed the analysis in detail,
focusing on those failure mode quantities that sensitivity analysis indicated were most
influential on results. Improvements are summarised in the following section.
•
From this analysis the Company has provided robust justification that its plans will deliver
stable serviceability in the most cost effective way.
•
To maintain stable serviceability a programme of £4.382m is forecast for water treatment
works; a small decrease from the total projected for AMP4. This includes £0.742m for firsttime maintenance of membrane and reverse osmosis plants installed as AMP3 quality
schemes, the maintenance requirements of which cannot be assessed from historical
expenditure.
•
The selected intervention has been subject to cost benefit analysis and is beneficial.
Asset Data and Historical Analysis
This section details how each type of data has been gathered. Since the same sources have been
used for treatment works, pumping stations and service reservoirs, this section applies to all three
asset groups.
•
A full asset survey was undertaken in 2007/08 and a Non-Infrastructure Asset Database
(NIAD) established. The survey was based on a consistent set of assets types within a well
defined hierarchy. Data collected included configurations, capacities, unit counts,
installation dates, condition grades. The asset survey, including details of the data checking
processes, is described in more detail in Section C3 – Asset Inventory. In addition, a more
detailed list of telemetry assets was used to provide more detail.
•
Existing and planned maintenance schemes due to be implemented in the remainder of
AMP4 were taken into account when planning future interventions.
•
Historical serviceability and expenditure data was collated from June returns.
•
Operational activity in response to asset failures and planned maintenance is captured in
the OWMS database. As described below this information has been used as part of the
expert judgment validation process.
Obtaining data on the serviceability impact of historical interventions is difficult. Because the
Company is small the number of failure events has been very low and consequently it is difficult to
discern any correlation between the level of expenditure and activity and the subsequent level of
serviceability. This is demonstrated in Figure 31. In the current AMP period water non
infrastructure serviceability has been stable, with 2005/06 and 2006/07 being classified as
improving by Ofwat.
High consequence failure events, such as the failure of any one of a number of booster stations
that would result in interruptions to hundreds of households, can be identified using the modelling
work carried out using the MISER modelling software. The historical frequency of these events is
low, but such events are known to occur in the industry as a whole.
The Company employs a number of strategies to ensure that high consequence failures are
prevented. This include:
•
Duty / standby arrangements on critical assets;
Page 87 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
•
Network connectivity and storage, allowing customer supplies to be maintained in the event
of loss of treatment works output;
•
On line monitoring of key process parameters (chlorine residual, turbidity) to shut-down a
works before water quality parameters are breached; and
•
Holding of strategic spares so that failure of critical asset can be responded to promptly.
These measures contribute to the Company approach to maintaining stable serviceability and
ensure that a failure which would otherwise result in significant customer impact being kept at a
new low level.
These potential failures contribute to an underlying level of risk that is not shown in the historical
serviceability. The forward looking analysis will take account of this risk and ensure that least-cost
interventions are selected to prevent it from increasing.
1.00
4.50
0.90
4.00
0.80
3.50
0.70
3.00
0.60
2.50
0.50
2.00
0.40
1.50
0.30
0.20
1.00
0.10
0.50
0.00
0.00
Treatment Works
& Facilities Base
Service Provision
WTW with
coliforms
detected
Turbidity 95%ile
Measured Works
5 yr rolling avg
(Base Service
Provision)
19
90
/
19 91
91
/
19 92
92
/
19 93
93
19 /94
94
19 /95
95
19 /96
96
/
19 97
97
19 /98
98
19 /99
99
/
20 00
00
/
20 01
01
20 /02
02
20 /03
03
20 /04
04
/
20 05
05
20 /06
06
20 /07
07
/0
8
Base Service Provision (£M)
FDWS Historic Base Service Provision versus Serviceability
Treatment Works and Resource Facilities
Year
Figure 31 Historic spend versus serviceability for treatment works
Expert Panel Judgements
Available data for Non-Infrastructure assets has been supported by expert opinion regarding the
likelihood and consequence of asset failure. As the Company is small, operational staff have very
detailed knowledge of the assets and their performance. The use of expert knowledge in these
circumstances is a valid approach The expert opinions were validated through the comparison of
a prioritised list of the types of asset predicted to be driving cost and service failures against
historical data. Where possible this validation was undertaken using the Company’s own historical
data, however, where suitable in-house data were not available the results were validated against
sister company data held centrally by Veolia.
Expert Panel meetings were convened during January and February 2008 in order to review and
modify a draft list of failure modes and make judgements relating to the rate/probability, duration,
cost and service consequences of each. In each case the panels consisted of a number of
experienced operational staff from the Company, with facilitators from the consultant Tynemarch.
Page 88 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The attendees at the expert panels were as shown in Table 37 and the process is described in
more detail below.
Name
Chris Taylor
Tony Whitehouse
Chris Eldridge
Gavin McHale
Allan Winkworth
Position
Head of Capital
Delivery and Asset
Management
Operations Manager
Production Manager
until 2008
Head of Operations
Three Valleys Water
22/1/08
05/2/08
07/2/08
Validation
and
review
24/9/08
Initial meetings
Experience
Overall responsibility for
capital delivery and asset
management. New to the
Company in 2007, but
broad industry knowledge
and able to challenge.
Extensive service with the
Company in a variety of
roles. Currently manages
the operations of all water
into supply. Detailed
knowledge of how overall
water supply system
operates.
As Production Manager led
a team of production
technicians. Responsible
for operational
maintenance on all above
ground sites and budgetary
control. Extensive hands
on knowledge on costs and
sites details.
Strategic understanding of
operational business; its
costs, risks and
performance.
Leading TVW’s above
ground asset modelling as
part of Pr09 business plan.
Knowledge and data on
asset performance of
similar assets within TVW.
Table 37 Expert panel attendees
In all cases the Expert Panel was asked to estimate probability of failure or failure rate in the
presence of routine operational maintenance of the asset, assuming repairable failure modes are
repaired according to normal company practice. In most cases a starting point for estimating the
rate was the number of failures that have occurred each year across the company as a whole, to
ensure that the estimates made were consistent with current experience.
When applying failure rates to assets arranged in parallel, the analysis takes into account the
affect of configuration (i.e. duty/standby arrangement) on the overall reliability of the process stage.
Between draft and final business plans the sensitivity of the overall result to each individual
judgment was analysed. Replacement, refurbishment and repair costs, installation dates, failure
rates, durations and consequences were all individually analysed in this way. From this the
judgements with most impact were collated, and these were presented to a further expert panel,
involving additional operational staff, held in September 2008.
Page 89 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
In addition, information captured in the OWMS database has been used where possible to derive
failure rates for certain assets. This information was used to challenge previous judgements in the
September 2008 review. (One factor that makes this more difficult is the lack of a link between the
failure event in OWMS and a specific asset within NIAD. This will be addressed by improvements
to the OWMS system planned for the next period, which will also include improvements to the
capture of data on associated costs and serviceability consequences).
At this meeting the previous judgements were reviewed, starting with those shown to have most
impact on the overall result. In addition, work done on validating the failure rates used in the draft
business plan against OWMS data was presented to the panel.
The review panel also has a representative from Three Valleys Water, who compared failure rate
judgements with those used in that company and challenged the panel judgements where
appropriate.
The details of the validation approach are described in more detail in the section on Forward
Looking Analysis.
MISER consequence model
The Expert Panel judgements regarding the loss of throughput consequences of each failure mode
were converted into interruptions consequences for customer service using a MISER system
model.
MISER is a water allocation optimisation package developed by Tynemarch. The MISER model
has been created based on the Company’s hydraulic modelling and discussions with Company
staff. Considerable testing has taken place to ensure the MISER model aligns with hydraulic model
results and observed network performance. For each local loss of throughput event, MISER uses
optimisation to identify the best possible operational response to minimise the loss of customer
supplies. The output is the resulting number of customers expected to suffer interruptions in each
duration band.
The historical analysis has used the same serviceability indicators for each asset category that is
used in the June returns.
Figure 31 shows the historic expenditure on treatment works, the number of works with Coliforms
detected and the number of works with a turbidity 95%ile greater than or equal to 0.5 NTU. June
return cost figures have been adjusted to 2007/2008 levels using COPI. During this period there
has been no expenditure on the reverse osmosis filters at Denge since they were installed in 2002
as Quality investment. There has also been no significant expenditure on the Continuous
MicroFiltration (CMF) membrane filters since they were installed in 2002-2004, again under a
Quality driver.
Forward Looking Analysis – service and cost forecasting
The company has applied a service modelling approach, with both repairable and non-repairable
failure modes, as identified as being most successful at the 2004 Periodic Review by the UKWIR
Review of the Common Framework. The methodology is based on Failure Modes, Effects and
Criticality Analysis (FMECA) and meets the requirements of the Common Framework, taking
account of subsequent guidance including the aforementioned Review, MD212 and Ofwat PR09
Guidance.
Page 90 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The stages of forecasting are as follows:
•
•
•
•
•
•
Selection of service indicators;
Identification of failure modes;
Probability of failure;
Consequences of failure;
Validation of expert judgements; and
Forecasting service and costs.
Service Indicators
The following service areas were identified as being important for non-infrastructure assets:
•
•
•
•
•
•
•
•
•
•
•
Water quality – coliforms and plate counts;
Water quality – cryptosporidium;
Water quality – other determinands;
Discoloration;
Chlorinous taste;
Non-chlorinous taste;
Discharge compliance;
Throughput / interruptions to supply;
Pressure;
Pollution; and
Health & safety.
For each of these service areas, a set of consequence severity definitions was developed, using
up to five severity levels ranging from ‘Very Low’ to ‘Very High’ with each consequence being
defined in terms of real measurable events. Each severity level was scored to indicate its relative
severity, with the highest level being allocated a score of 10. For example, for coliforms and plate
counts the severity levels were defined as shown in Table 38. In this case the Low and Very Low
severity levels were not used.
Service
Indicator
Failure
Level
Failure Description
Water Quality:
Coliforms +
Plate Counts
V High
High
Medium
Low
V Low
E coli failure
Total coliform failure
Colony plate count > 100/ml
Failure
Severity
Score
10
9
1
Table 38 Severity Levels defined for Coliform & Plate Counts service area
A complete set of service indicators are provided in Appendix 16.
Failure Mode Identification
Draft failure modes were prepared for each facility type, using the Non-Infrastructure Asset
Database (NIAD) and Tynemarch experience in undertaking similar analyses for a number of
Page 91 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
companies. The failure modes were chosen at a granularity that captures the principal
performance and service impacts without introducing unnecessary detail.
Table 39 below shows the numbers of failure modes used in each type of water treatment works,
following review by the expert panels.
WTW
WTW
WTW
WTW
Asset Group
– Marginal chlorination and/or ortho. treatment
– Membrane filtration
– RO
– UV
Failure Modes
39
52
40
54
Table 39 Number of failure modes in each asset group
Failure modes can be classified into one of three types:
•
Repairable – failures where the asset can be repaired to an operational state, for example,
failure of a dosing pump.
•
Non-repairable – failures where the asset cannot be or is generally not repaired, for
example, the failure of a pH instrument.
•
Deterioration to a more expensive intervention state (DTMEIS) – an event in which an asset
deteriorates to a state in which only more expensive interventions are now feasible. This
type of failure mode may justify the refurbishment of a service reservoir to address minor
cracking before further deterioration occurs.
Probability of failure
For each failure mode, failure ‘probabilities’ were estimated by the expert panel:
•
For repairable failure modes as either failure rates (expected numbers of failures per year)
or Mean Time Between Failure (MTBF);
•
For non-repairable failure modes as either survival probabilities (probability of survival to a
given date), or conditional probabilities of failure (probability of failure in year N given
survival to the start of year N); and
•
No failure modes associated with Water Treatment Works or Pumping Stations were
calculated using deterioration of an asset to a more expensive intervention state
(DTMEIS). This was used in the service reservoir analysis only. See Section 4.2.6.
When applying failure rates to assets arranged in parallel, the analysis takes into account the
affect of configuration (i.e. duty/standby arrangement) on the overall reliability of the process stage.
In assessing the reliability of an arrangement of duty and standby assets, the expected duration of
the failure is used to determine the chance of the standby units failing while the duty items are
being repaired.
Where appropriate a ‘tolerable loss’ factor was estimated to represent the proportion of parallel unit
capacity which would need to fail for a service impact to arise.
Page 92 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Consequences of failure
The service consequences expected to result from each failure mode were assessed by the expert
panels against the consequence severity scales for each service area, as listed in Appendix 16.
In order to reflect uncertainties regarding the consequence severity that would result from a failure
mode, a percentage probability was specified for each possible severity level. Where these
probabilities summed to less than 100%, the remainder represented the probability that no service
consequence would result.
By way of example, the selected consequences for a RO filter element are given in Table 40
below. (Some serviceability indicators do not have 5 levels of consequence severity, as shown the
shading of the lower levels).
Serviceability Indicator
Water
Quality Coliforms
Water
Quality Crypto
Throughput
Pressure
Health &
Safety
V High
-
-
100%
20%
-
High
-
-
-
80%
-
Medium
-
-
-
-
-
Low
-
-
-
-
-
V Low
-
-
-
-
-
Consequence
Severity
Table 40 Selected consequences of ‘Failure of RO filter element’
The Expert Panel judgements regarding the loss of throughput consequences of each failure mode
were converted into interruptions consequences using a MISER system model.
The analysis involves:
•
identifying the components affected by a failure and the resulting impact on throughput;
•
identifying the duration for which throughput will be lost;
•
specifying appropriate model scenarios e.g. flow initial conditions, demands;
•
optimising system operation to minimise any demand deficit; and
•
extracting results in terms of numbers of properties interrupted in each DG3 band.
Cost Consequences of Failure
The cost consequences of failure were estimated by the Company’s expert panel members. These
included repair, clean up and other locally-occurring costs associated with the failure (including
man time, parts and consumables). As highlighted in Table 37 the Production Manager has
detailed working knowledge of asset placement costs within the Company.
In order to reflect the variability of failure costs, minimum and maximum costs were estimated,
together with a most likely range. These figures were used to define a trapezoidal cost distribution
for use in the optimisation calculations, as shown in Figure 32. The right-hand-side of the
trapezium has a sculpted profile to reflect the likely shape of the true cost distribution and prevent
overestimation of the mean failure cost.
Page 93 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
1.2
Most likely range
1
Frequency
0.8
0.6
0.4
0.2
Max
Min
0
0
1
2
3
4
5
6
7
8
9
10
Failure cost
Figure 32 Example of a trapezoidal cost distribution
Validation of Expert Judgements
This section describes following four steps taken between draft and final business plans to validate
the expert judgements used within the analysis of maintenance requirements:
(i)
Use of historical failure data to derive failure rate curves
The Company’s Operational Work Management System, OWMS, records work carried out on noninfrastructure assets. A snapshot of the database covering the period February 2005 to January
2008 was analysed, during which period there had been a consistent approach to failure recording.
In total there were 6,017 distinct jobs, including activities such as calibration and routine deliveries.
A process of filtering and selecting jobs on the basis of the various job categories and on key
words and phrases occurring in text description fields yielded 838 repairs of non-infrastructure
assets.
These records were analysed by asset type and in two cases there were found to be sufficient
failure records and assets to develop a failure rate versus age curve.
The resulting curves are applicable to Ultraviolet disinfection equipment and Orthophosphate
dosing equipment, as shown in Figure 33 and Figure 34 respectively. From these graphs it can be
seen that the expert panel judgements correlated well for Ultraviolet equipment but were
marginally pessimistic for Orthophosphate dosing equipment.
The expert panel held between draft and final business plans was challenged with the OWMSderived failure rates and the Orthophosphate dosing equipment failure rate was revised to that
shown in Figure 34.
It has not been possible to validate further failure modes because the work orders in OWMS are
recorded against high level asset groups, rather than at the level of detail shown in the NIAD
Page 94 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
database. In the next period FDW plan to improve the linkage between OWMS and NIAD so that
failure rate data are more easily obtainable.
Ultraviolet equipment failure rate
Numbers of failures per year
7
6
5
4
3
2
1
0
0
1
2
3
4
5
6
7
8
Age (years)
Expert Panel judgements
OWMS work order data
Figure 33 Comparison of expert panel and OWMS failure rates for Ultraviolet equipment
Orthophosphate equipment failure rate
4
Number of failures per year
3.5
3
2.5
2
1.5
1
0.5
0
0
2
4
6
8
10
12
14
Age (years)
Expert Panel judgements
OWMS work order data
Figure 34 Comparison of expert panel and OWMS failure rates for Orthophosphate equipment
Page 95 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
(ii)
Sensitivity analysis to identify most influential judgements for review at a further expert
panel meeting
The draft business plan results were subjected to a sensitivity analysis in which each judgement
was increased and decreased by 10%, and the resulting change in the AMP5 capital expenditure
required for stable serviceability observed. Table 41 shows the 10 largest changes in response to
changes in the failure rate.
% change in
original value
Absolute
Change in AMP5
Capex (£k)
Failure of membrane unit
+10%
6.7
Failure of membrane unit
+10%
4.9
Failure of Distribution board
-10%
1.5
Failure of Pump (water submersible)
-10%
1.5
Failure Mode
Failure of MCC / starter panel
-10%
1.5
Deterioration of Building (Enclosing Equipment)
-10%
1.1
Failure of Lighting
+10%
0.9
Failure of Starter/variable speed drive
+10%
0.6
Failure of Control panel / starter panel
+10%
0.5
Failure of RO filter unit
+10%
0.4
Table 41 Failure rate sensitivity - 10 highest failure modes by change in AMP5 Capex
The results of this sensitivity analysis were presented to the review expert panel held in September
2008, at which attention as focused on the most sensitive failure modes and quantities. These
were reviewed, challenged and where appropriate revised.
(iii)
Comparison with Three Valleys Water failure rates
The expert panel referred to above contained a representative from Three Valleys Water who
compared failure rate judgements with those used in that company and challenged the panel
judgements where appropriate.
(iv)
Detailed review of approach to CMF filters.
The sensitivity analysis highlighted the sensitivity of the results to judgements surrounding the
MEMCOR Continuous MicroFiltration (CMF) filters.
Replacement of these units was also the most expensive item in the draft business plan and
therefore the analysis of this item was completely reviewed for the final business plan.
For the draft business plan it was assumed that the units would have to be replaced in their
entirety. However following detailed discussion with operations personnel, it was found that each
unit has individual membrane modules which can be replaced independently at significantly lower
cost. Each module is regularly tested and on failing a test, limited attempts can be made to keep
the module in service, by inserting pins to prevent flow through the damaged part.
Page 96 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Detailed records of historic repairs and replacements are available, but there are no data available
for assets that are more than 6 years old, so the rate of failure beyond this age has had to be
estimated. However the overall expenditure on these units has been greatly reduced, and the
results are now much less sensitive to the judgments surrounding this asset.
Forecasting service and costs
The probability and consequence models were used to forecast the expected number of service
failures in each service area and severity level, over a 40 year horizon. The expected numbers of
service failures were aggregated for each service area by multiplying by the severity scores (given
in Appendix 16) and summing. The resulting risk score across all three asset categories, when no
proactive interventions take place, is shown in Figure 35. Similar graphs can be plotted for each
service indicator.
Risk of interruptions
3
Relative Risk Measure
2.5
2
1.5
1
0.5
0
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
Year
Repair Only
Figure 35 Forecast interruptions with no proactive interventions
Forward looking analysis - intervention analysis
Planning objective
The Common Framework cost-effectiveness objective has been applied. This selects the capital
maintenance and operational interventions which will minimise the total discounted cost to the
Company of maintaining the current level of service to customers and the environment.
Interventions have been selected at the detailed asset level at which capital maintenance is
undertaken within the Company. Water Treatment Works, Pumping Stations and Service
Page 97 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Reservoirs have been considered together within an integrated optimisation that balances risks
between these asset groups.
Identification of intervention options
The replacement, or refurbishment where appropriate, of each asset was considered as a separate
potential intervention for each of the next eight Review periods.
Whether or not refurbishment was a feasible option was guided by Expert Panel judgements. Both
options were considered for long-life assets where maintenance is motivated by concern to avoid
deterioration to a more expensive intervention state (DTMEIS).
Impact of Intervention Options
The impact of each intervention option on service was quantified as an impact on the risk score for
each service indicator and future year.
This was calculated from the improvement in the expected number of consequence events which
would be achieved by replacing or refurbishing the asset, taking account of the number of parallel
units present in each unit process and any standby capacity or ‘tolerable loss’.
Replacement and refurbishment both return the asset to an ‘as new’ equivalent state. This gives a
lower bound on maintenance requirements, with greater maintenance being required if an ‘as new’
state cannot be achieved.
Estimation of Cost of Intervention
As described in Section 3.5, an estimated cost for each intervention option was provided by cost
consultants, including indirect costs and Company overheads. No allowance was made for major
civil requirements, groundworks and buildings or land purchase, since these were considered to be
unlikely for any scheme to maintain the current level of service. Additionally, no risk allowance was
included in these costs as the scope of work is certain - for like for like replacement, and the work
is being undertaken on Company sites which, therefore, largely removes the uncertainty of
external factors.
Between draft and final business plans these costs were reviewed and validated by Franklin &
Andrews. In most cases the original costs were confirmed, and there were only a few minor
adjustments.
Selection of Optimal Interventions
The optimal interventions were selected using the Tynemarch intervention selection software, with
the following selection process:
1. Identify interventions which should be undertaken on economic grounds, where the
discounted failure costs that would be averted by the intervention are sufficient to justify the
intervention costs. Similarly, for DTMEIS failure modes the optimal economic refurbishment
date was calculated, giving the lowest life cycle cost.
2. Re-forecast service in the presence of these interventions, with results illustrated by the
pink line in Figure 36.
Page 98 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
3. Select further interventions, or bring forward economic interventions in time, so that service
is maintained at minimum total discounted cost. This is undertaken in practice by ensuring
that the risk score for all service indicators does not increase from its 2010 level, as shown
by the yellow line in Figure 36. Interventions are selected that are most cost effective in
reducing the relative risk measure to the target level across all service indicators.
Risk of interruptions
3
Relative Risk Measure
2.5
2
1.5
1
0.5
0
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
Year
Repair Only
Economic Grounds
Stable Risk
Stable Target
Figure 36 Forecast of interruptions risk under differing maintenance strategies across all sites
By optimising over all water treatment works, pumping stations and service reservoirs together, the
optimal set of interventions found will have a lower, or at worst the same, cost as if the three asset
groups were considered separately. This is because in the integrated optimisation the optimiser
has the option of rebalancing risk between the three asset groups where this would permit the
whole-company serviceability targets to be met at lower overall cost.
Sensitivity Analysis
These results have been subject to two stages of sensitivity analysis. After the draft business plan
results, each input parameter was individually varied up and down by 10% and the results used to
aid a review expert panel, as previously described.
With the final business plan results, a 95% confidence interval was estimated for each of the major
types of data and judgements within the model. The quantities selected, and the confidence
interval applied in each case, are given in Table 42 below.
Each quantity was varied to the two extremes of the confidence interval and results re-calculated in
each case, with the outcome reported in Table 42. It can be seen that in most cases the given
percentage change in input leads to a much smaller change in the results. The overall sensitivity is
Page 99 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
deemed to be low in comparison with that observed by Tynemarch in similar models for other
companies.
The failure rates were considered to have the largest confidence interval, but even a 15% swing
only gives rise to a change of around 10% in the result.
Installation dates have the greatest impact, but since these have been obtained from a complete
asset survey, the quality of this information is good. Within the NIAD asset database, 20% of
installation dates come from nameplate or written sources, 60% from visual inspection or verbal
information with only 20% being estimated.
In addition, approximately 30% of the change caused by varying the installation dates is due to
large refurbishments of service reservoirs moving from AMP5 to AMP6 and vice versa.
It should be noted that this is an extreme-value sensitivity analysis and that in practice not all
individual judgements would vary in this way. For example, this analysis has reduced all failure
rates by 20%. In practice given a confidence interval of (-20%, 20%) failure rates would be
expected to be subject to a range of errors with only 2.5% of values being subject to an error of
20% or more in this direction.
95% confidence interval
Parameter
% Result sensitivity –
AMP5 cost
(minus)
+
(plus)
(minus)
+
(plus)
Failure mode data
Failure rates
15%
15%
-6.6%
9.9%
Repair durations
10%
10%
0.0%
0.0%
Effects durations
10%
10%
0.0%
0.0%
Consequences probabilities
10%
10%
0.0%
1.3%
Date of installation
5 years (pre-1990);
1 year (post-1990)
5 years (pre-1990);
1 year (post-1990)
11.6%
-15.8%
Date of last refurbishment
5 years (pre-1990);
1 year (post-1990)
5 years (pre-1990);
1 year (post-1990)
0.0%
0.0%
5%
5%
-2.7%
2.5%
Asset data
Costs
Replacement costs
Refurbishment costs
5%
5%
-1.2%
1.2%
Repair costs
10%
10%
-1.1%
5.7%
Capitalisation threshold
10%
10%
2.7%
-2.4%
Discount rate
4%
8%
0.1%
-0.8%
Table 42 Sensitivity analysis results
Overall it can be seen that the model is fundamentally stable, and that even quite large one-sided
variations in the inputs are attenuated to smaller variations in the result; it gives confidence that the
results of this analysis are robust.
Page 100 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Cost Benefit Analysis
The risk based approach described above demonstrates that the strategy selected by the
Company delivers stable service and serviceability in the most cost effective way.
The assessment of the cost benefit of the selected interventions was completed as described in
Section C8. The serviceability indicators described in the above analysis were mapped to the
Output Performance Measures used for the CBA analysis (see Appendix 17) and the results from
the Non Infrastructure modelling were directly translated into CBA analysis on a site by site basis.
The outcome of the cost benefit analysis is presented below for water treatment works.
The baseline for the CBA analysis was a fix on fail maintenance strategy. As described above a
number of the interventions are selected on economic grounds, ie it is more cost effective to
replace before failure than to fix on fail. As can be seen in the results below, a significant
proportion of the benefit comes from cost savings from the selected interventions. The benefits
arising from mitigation of service risk are small. Because of the existing measures in place
(duty/standby, integrated network, on-line water quality monitoring) any one works failure very
rarely results in direct customer service impact.
The results of the analysis show that the selected strategy is clearly cost beneficial.
Finally, as the majority of the benefit is coming from cost savings versus the baseline, the CBA
analysis is insensitive to changes in the WTP. This is clearly shown in the results in Table 43.
Strategy
CBA Scenario
WTWs
Base / Normal
Sensitivity # 1 –
Private Cost only
Sensitivity # 2 –
Lower Bound
WTP
WTWs
WTWs
Whole Life Cost,
£k
Whole Life
Benefit, £k
Net NPV, (WLB
less WLC)
£k
- 10,120
20
10,139
- 10,120
19
10,139
- 10,120
20
10,139
Table 43 Water Treatment Works - CBA Results
Selection of Optimal Intervention Strategy
The Company has implemented a robust ‘bottom-up’ methodology for Capital Investment planning
for the first time in relation to non-infrastructure maintenance. The Company has clearly
demonstrated that the Common Framework cost-effectiveness objective has been applied to
forecast the expenditure required to achieve stable serviceability for Water Treatment Works in
future AMP periods.
The non infrastructure draft business plan submitted by the Company was challenged by Ofwat
with regard to the use of un-validated expert judgement. As described above, the Company has
worked hard to validated the expert judgements through sensitivity testing of the draft results to
provide focus for an expert review challenge workshop; use of Company data from OWMS where
applicable and by cross referencing to Three Valleys Water data. In addition, the intervention costs
were subject to a review by independent cost consultant. Finally, the revised results have been
subject to further sensitivity testing which demonstrates the stability of the modelling and improves
confidence in the results.
Page 101 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The historic expenditure for the last two AMP periods (AMP4 includes the expenditure planned for
2008 and 2009) and forecast expenditure for AMP5, AMP6 and AMP7 is shown in the below table.
Period
Water Treatment
works (£k)
Opex change from
AMP4
AMP3
2,342
AMP4
4,790
AMP5
AMP6
AMP7
4,382
4,547
5,246
0
0
0
Table 44 Water Treatment Works Historic and Forecast Expenditure
It is important to note that the majority of the investment within this strategy is justified on economic
grounds. Further, the incremental investment to achieve stable serviceability is small, while the
incremental benefit is material.
The investment required for AMP5 is roughly similar to that spent (or planned to be spent) in
AMP4, as shown in Figure 37. Also shown as a dashed line is the predicted expenditure excluding
assets which have been introduced recently under quality drivers and are therefore not covered by
any historical maintenance expenditure.
It can be seen that in general the predicted expenditure is in line with historic amounts, especially
when account is taken of assets that have not required capital maintenance expenditure in the
past. In addition the operating expenditure associated with the selected strategy is in line with
historic levels.
The model has been validated as far as possible with existing historical data, and has been shown
to be stable in response to variations of input data. Therefore the Company has a high degree of
confidence in these results.
Page 102 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Treatment works
2500
2000
Historical spend
£k
1500
AMP4 mean
Predicted spend
1000
AMP5 mean
500
(Historical asset
base)
0
1995
2000
2005
2010
2015
2020
2025
2030
-500
Figure 37 Comparison of historic and predicted expenditure on treatment works (including amounts planned for
the remainder of AMP4)
Section 4.2.4
Water Pumping Stations
Summary
•
The Planning Objective for Water Pumping Stations is to cost effectively maintain stable
serviceability.
•
Water Treatment Works, Pumping Stations and Service Reservoirs have been considered
together within an integrated optimisation that balances risks between these asset groups.
•
The methodology used for this asset group is the same as for Water Treatment Works. It
has not been duplicated in this section. The commentary only covers issues material to
Water Pumping Stations.
•
To maintain stable serviceability a programme of £1.233m is forecast for pumping stations.
This is a small decrease from the total projected for AMP4 and is in line with historical
expenditure.
Asset Data and Historical analysis
The same data sources have been used for water pumping stations as were used for water
treatment works.
Figure 38 shows the historic spend on treatment works to compared to the number of DG3
unplanned interruptions lasting for greater than 12 hours. The spike in 2001/02 was due to a water
Page 103 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
main, and was not related to pumping station assets. The historic serviceability performance for
Water Pumping Stations is very good, with DG3 at zero.
As highlighted in the Water Treatment Works section, and particularly in the case of Pumping
Stations which feed particular pressure zones, the consequences of failure for certain installations
is high and these present a risk to customer service and serviceability. This underlying risk is not
evident from the serviceability measures.
From operational experience and knowledge, the Company is aware that the pumping station
asset base is aging and has received relatively small levels of historic investment. For a number of
key pumping stations eg Downsgate, Chalksole and Paddlesworth, failure has a direct impact on
customer services as customers loose supply as soon as these pumping stations fail. For AMP5 it
is key that these critical pumping stations are effectively maintained and existing levels of customer
service continued.
FDWS Historic Base Service Provision versus Serviceability
Pumping Stations
5.00
0.8
4.00
0.6
3.00
0.4
2.00
0.2
1.00
0
0.00
Ratio to average of actuals
6.00
1
Pumping Station
Base Service
Provision
5 year rolling average
DG3 - unplanned
interruptions more
than 12hrs
19
90
19 /91
91
19 /92
92
19 /93
93
19 /94
94
19 /95
95
19 /96
96
19 /97
97
19 /98
98
19 /99
99
20 /00
00
20 /01
01
20 /02
02
20 /03
03
20 /04
04
20 /05
05
20 /06
06
20 /07
07
/0
8
Base Service Provision (£M)
1.2
Year
Figure 38 Historic spend versus serviceability for pumping stations
Forward looking analysis – service and forecasting
Service has been forecast in the same way as for Water Treatment Works.
Forward looking analysis - intervention analysis
Interventions have been selected together with those for Water Treatment Works. Water
Treatment Works, Pumping Stations and Service Reservoirs have been considered together within
an integrated optimisation that balances risks between these asset groups.
By optimising over all water treatment works, pumping stations and service reservoirs together, the
optimal set of interventions found will have a lower, or at worst the same, cost as if the three asset
groups were considered separately. This is because in the integrated optimisation the optimiser
Page 104 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
has the option of rebalancing risk between the three asset groups where this would permit the
whole-company serviceability targets to be met at lower overall cost.
The results were subject to sensitivity analysis as described in the section for Water Treatment
Works.
Cost Benefit Analysis
As for Water Treatment Works, the risk based approach described above demonstrates that the
strategy selected by the Company delivers stable service and serviceability in the most cost
effective way.
The cost benefit analysis has been undertaken in the same way as for WTWs and is presented
below for water pumping stations.
The baseline for the CBA analysis was a fix on fail maintenance strategy. As described above a
number of the interventions have been selected on economic grounds, ie it is more cost effective
to replace before failure than to fix on fail. This contribution can be seen in the below table.
However, unlike water treatment works where little benefit comes for service risk, failure at a
number of water pumping stations directly impacts customer service a significant proportion of the
benefit comes from mitigating supply interruptions. As can be seen from the CBA scenario results,
there is sensitivity to the analysis but the proposed interventions are cost beneficial under all
scenarios.
Strategy
CBA Scenario
WPS
Base / Normal
Sensitivity # 1 –
Private Cost only
Sensitivity # 2 –
Lower Bound
WTP
WPS
WPS
Whole Life
Cost, £k
Whole Life
Benefit, £k
Net NPV,
(WLB less
WLC)
£k
Benefit Value
per OPM, £k
- 1,557
94,498
96,055
OPM4 Supply
Interruptions
94,488
- 1,557
139
1,696
129
- 1,557
45,246
46,803
45,235
Table 45 Water Pumping Stations - CBA Results
Selection of Optimal Intervention Strategy
As for Water Treatment Works, the Company has implemented a robust ‘bottom-up’ methodology
for Capital Investment planning for the first time in relation to non-infrastructure maintenance. The
Company has clearly demonstrated that the Common Framework cost-effectiveness objective has
been applied to forecast the expenditure required to achieve stable serviceability for Water
Pumping Stations in future AMP periods.
The non infrastructure draft business plan submitted by the Company was challenged by Ofwat
with regard to the use of un-validated expert judgement. As described above, the Company has
worked hard to validated the expert judgements through sensitivity testing of the draft results to
provide focus for an expert review challenge workshop; use of Company data from OWMS where
applicable and by cross referencing to Three Valleys Water data. In addition, the intervention costs
were subject to a review by independent cost consultant. Finally, the revised results have been
Page 105 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
subject to further sensitivity testing which demonstrates the stability of the modelling and improves
confidence in the results.
The historic expenditure for the last two AMP periods (AMP4 includes the expenditure planned for
2008 and 2009) and forecast expenditure for AMP5, AMP6 and AMP7 is shown in the below table.
Period
Water Pumping
Stations (£k)
Opex change from
AMP4
AMP3
1,997
AMP4
AMP5
1,657
AMP6
AMP7
1,233
1,251
1,310
0
0
0
Table 46 Water Pumping Stations Historic and Forecast Expenditure
It is important to note that the majority of the investment within this strategy is justified on economic
grounds. Furthermore, the incremental investment to achieve stable serviceability is small, while
the incremental benefit is material.
Figure 39 shows the comparison for pumping stations. Historically pumping station expenditure
has varied sharply from year to year, which is unsurprising for a company of this size. The
predicted expenditure is much less variable, but is at a level around the mean historical value.
The model has been validated as far as possible with existing historical data, and has been shown
to be stable in response to variations of input data. Therefore the Company has a high degree of
confidence in these results.
Pumping stations
1200
1000
800
£k
Historical spend
AMP4 mean
600
Predicted spend
AMP5 mean
400
200
0
1995
2000
2005
2010
2015
2020
2025
2030
Figure 39 Comparison of historic and predicted expenditure on pumping stations (including amounts planned
for the remainder of AMP4)
Page 106 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4.2.5
Service Reservoirs
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 107 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 108 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 109 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 110 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 111 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 112 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 4.2.6
Service Reservoirs - Hills Reservoir Second Cell
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 113 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 114 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 115 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 116 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 117 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 118 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 119 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 120 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 121 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 122 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 4.2.7
Management & General (non-infrastructure)
Section 4.2.7.1 IT
The approach taken to assess the IT asset replacement profile has attempted to follow the
common framework, however this is difficult due to the fact that the IT industry does not tend to
plan beyond a three year horizon, technology is rapidly changing and predicting the appropriate
future interventions required is difficult.
The Company has employed a policy-driven cost effective approach in line with the Common
Framework. It has not been possible to show a direct effect of the IT services to the Company’s
customers, however, it is evident that the policies and procedures being proposed are in the best
interest of the customers, through enabling the Company to operate efficiently and effectively. The
diagram below summarises the process used for the PR09 submission.
Replacing the IT assets based upon the specified policy minimises costs and retains existing IT
service levels at a point were we can best support the customers. This aims to reduce equipment
down time and disrupted IT services, enhancing staff productivity and service provision.
All IT assets are categorised within a Configuration Management Database which links assets to
reactive activities and user requests.
The agreed set of replacement policies has been refined from those agreed within AMP4. These
refinements have been achieved through applying improved experience and knowledge which has
been gained using additional IT reports. Benchmarking has been completed with Gartner during
AMP4 to compare operational performance, including the capital expenditure elements. The
service failures of all individual assets were reviewed in order to confirm the replacement years
required in AMP5, however the number of records and their asset categories were found to be
insufficient to represent a quantitative analysis at this time.
The future cost predictions of replacing/upgrading assets were determined through the analysis of
past projects, internal expert view and semi structured interviews with suppliers. On costs were
added to these to provide a consistent approach with other investment plans of the Company.
Page 123 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Investment costs in AMP5 are £1,024k for maintenance and £555.5k for system enhancements.
An additional amount of £144.5K has been added since the submission of the Draft Business Plan
to allow for the implementation of a Veolia Group Information Management Strategy based on an
approximate 8% contribution.
Figure 40 Overview of IT maintenance and enhancement process
Page 124 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4.2.7.2 Telemetry
Figure 41 Overview of the Telemetry, SCADA & Communications System
The system that supports our Telemetry requirements is called MC2000. MC2000 is a supervisory
control and data acquisition [SCADA] system which comprises principally of data gatherers and a
file server supporting PC based workstations. The system can continually monitor telemetry,
record data graphs and annunciate significant changes, display mimic diagrams and historic data
graphs, and allow plant to be controlled.
Significant improvements have been made during AMP4 to enhance the system as a whole. The
network has been converged to allow the use of more mainstream IT equipment. This has resulted
in efficiency gains both through capital and operational expenditure. Advantages have been gained
in the functionality of the system:
• Data can now be transferred simultaneously rather than in series
• Faster data transfer allowing information through bi-directional data transfer means that
the system now approaches “real time” monitoring
For PR09, asset lives have been taken from published information provided by the MC2000 the
User Group of which the Company is a member. This group uses operational experience from live
operation systems throughout Europe and the world to establish accurate asset lives.
The Company maintains a database inventory of our telemetry equipment and associated software
from which the projected capital expenditure has been calculated. Investment costs in AMP5 are
£297k.
Page 125 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4.2.7.3 Vehicles
The Company’s vehicles are maintained through a Veolia Group Fleet Management system which
is operated at local level but maintained as a Veolia Group facility. The forecast of Capital
expenditure on vehicles is based on our policy of replacement of leased vehicles with capitalised
vehicles as the lease periods end. There are 56 vehicles which are renewed according to company
policy in line with previously established cost effective vehicle renewal periods. Costs have been
forecast using Veolia framework rates and on this basis and are £1,502k for the AMP5 period.
Section 4.2.7.4 M&G Cost Benefit
M&G investment has not been assessed for cost benefit. The benefits are predominately to staff
productivity and are, therefore, largely based on judgements of the impact to staff productivity
when M&G services deteriorate. These have not been explicitly quantified for the business plan.
Section 4.3
Links with Other Parts of the Business Plan
Section C5 describes the assessment the Company has done to consider synergies and overlaps
between different drivers and programme as a whole. These are very limited due the small size of
the programme and that there is little overlap between different parts of the programme.
With regard to the Base programme, there is only one link with other parts of the business plan
and that is between maintaining a stable leakage level proposed within the Base programme and a
proposed leakage reduction of 0.5Ml/d proposed in the Supply Demand Programme. The
Company has clearly separated the cost associated with maintaining stable leakage as part of the
Base position (see Section 4.1.2) from the costs associated with delivering a 0.5Ml/d reduction in
leakage as part of the Supply Demand programme, although the activity to achieve the objective is
common.
Section 4.4
Balance of Risk and Customer Affordability
The development of the final plan has been subject to a series of Board meeting and special Board
meetings. During these meetings the Board has challenged the whole capital programme to
ensure that it correctly balances the customer affordability while ensuring significant risks to
service inherent in the current asset base are addressed and that overall service and serviceability
can be maintained. The challenges made by the Board were set in the context of customer
priorities, as informed by the various sets of customer feedback described in Section C1 and the
Company’s Strategic Direction Statement, which the Company consulted on.
Each business case for the proposed AMP5 interventions (for all drivers not just Base) included in
the draft business plan was discussed with the Board. The risk to customer service and
serviceability of not undertaking the interventions was explored and the investment required to
deliver the intervention detailed. Where intervention options existed these were also explained.
Through a series of Board meetings the Board reviewed and challenged the components of the
final programme. This process was particularly important in the context of a number of significant
interventions being required in AMP5 to mitigate unacceptable risks. This process resulted in a
number of potential investments being excluded from the plan, as the decision was made that the
Page 126 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
risks could be acceptably managed through existing measures. These decisions are summarised
in Table 47 below.
In addition to this, customer affordability was addressed through detailed studies between draft
and final business plans, many of which resulted in lower cost interventions being included in the
final business plan. The changes between draft to final for the Base programme are detailed in
Section 1.1. Similar development work was undertaken in the other programmes and these are
detailed in the opening section of each Section B case. For completeness the key changes in
intervention costs between draft and final are include highlighted here below.
Changes to the plan to balance customer affordability and risk
Change in
investment
Base Programme
•
Reduction in mains renewal rates from preferred strategy of 5km/yr,
necessary to achieve long term stable serviceability, to 3km/yr for AMP5 to
reduce costs to customers. Risk to be managed in AMP5.
-£1.1m
•
Run to waste, UV and turbidity monitoring schemes; risk to be managed
within existing operational capacity
-£0.9m
•
Hills to Paddlesworth network reinforcement solution integrated with solution
to trunk main TP28
-£0.5m
•
Detailed feasibility study of Hills 2nd Cell to improve understanding of scope
and risk and resulting in lower cost estimate
-£4.0m
Quality Programme
•
Detailed feasibility study of Denge WTW iron and manganese solution.
Improved understanding of scope and risk and resulting in lower cost
estimate
-£0.9m
Enhanced Service Level Programme
•
Detailed feasibility study of Denge network cleaning costs. Improved
understanding of scope and risk and resulting in lower cost estimate
-£2.7m
Supply Demand Programme
•
•
Whitfield Development. With economic down turn and uncertainty of timing
for the Whitfield development progressing, the Company has chosen to not
include the costs of this development in AMP5, as it believes customers
should not bear the risk for uncertain future developments. Study cost to
support the development of investment options have remained in the
programme.
-£3.0m
Desalination Study and Hythe Study. Development of demand led strategy
has led to a positive supply demand balance across planning period.
Company has removed these studies as not essential in AMP5.
-£0.7m
Table 47 Summary of Balancing Of Risk and Affordability – Key Decisions and Intervention Changes
These changes demonstrate that the Company has developed a final plan which seeks to correctly
balances customer affordability with the risk to service and serviceability. Board level scrutiny has
been an integral part of the process of arriving at the final plan and the proposals contained in the
Page 127 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
plan are supported by the Board and the Executive Management Team. This is evidenced by the
Board’s final business plan endorsement contained in Section A.
Importantly, the most recent customer survey (see Section C1) still shows customer support for the
areas of investment that are proposed in the final business plan and over 55% are willing to pay
more to maintain the levels of service detailed in the plan.
Section 4.5
Programme Delivery
The Company is confident that it can deliver the capital maintenance programme proposed. It
recognises that the level of expenditure is a step change compared to current investment, but the
detailed feasibility studies complete on key schemes provide a strong starting point for design
development. In addition, the Company has been developing its in house project delivery capability
with the objective if providing a basis for AMP5 delivery. This delivery process is explained below.
Delivery Philosophy:
The Company has undergone a number of changes since PR04 with regard to capital delivery;
firstly the Veolia Water Partnership was dissolved and the project management and technical skills
taken back into the three Veolia water companies. Secondly, the Company sought to utilise the
same delivery partner for AMP4 projects as Three Valleys, which while successful for Three
Valleys was not, on reflection, the most suitable model for the Company’s specific circumstance.
With the appointment of a permanent Head of Capital Delivery and Asset Management, the focus
has been on establishing an internal department with the necessary skills and resources to lead
the capital programme while engaging the supply chain earlier in the delivery process to bring their
knowledge and value to the development of solutions. In simple terms the principles of Capital
Delivery for the Company are:
•
To provide clarity and focus on the Company’s objectives and purpose throughout the
life of all capital projects;
•
For the Company to own the development of the project scope and to clearly define the
Company’s requirements on projects;
•
To engage the supply chain to develop the design sufficiently for a contract;
•
To engage a contractor to deliver the project through to handover.
•
For straight forward projects, the Company would undertake its own project
management and CDM co-ordination.
•
For larger or more complex projects the Company would buy-in project management
and CDM co-ordination capability.
•
To continue to utilise Veolia Procurement support in delivering the Capital programme.
The model the Company is in the process of establishing is summarised in the below diagram; The
* symbol represents internal approval gateways in the process.
The Company has recently recruited a full time asset manager to be responsible for Company
wide asset data, to co-ordinate the analysis of the data and to provide robust information into asset
management decision making.
Page 128 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company has also recruited a senior project engineer, site inspector and health and safety
manager to provide improved management of contractors work. Recruitment is ongoing to appoint
a capital delivery manager, and additional project management and technical staff.
Project Sponsor - Company
Asset
Management
*
Data,
Systems,
Analysis,
Information
Project
Identification
and
Objectives
Project
Definition
Statements
Project
Development
*
Project
Delivery
*
Design,
Estimate,
Contract
Award
Contract,
Delivery,
Commission,
Handover
Project Manager – Company / Third Party
Design, Contract, Commission, Handover – Third Party
Figure 42 Capital Delivery Process
Page 129 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
AMP5 Delivery
Delivery of the AMP5 capital programme has been reviewed and the procurement strategy at this
stage is outlined in the following table. A copy of the AMP5 delivery programme is contained as an
Appendix to Section C5.
Delivery area
Specific Projects
Delivery Approach
Capital Maintenance
Trunk Main TP28,
Trunk Mains
TP03 and TP04
Water
Distribution:
Single Projects: competitive tender, externally project
managed. Outline design complete, detailed design by
external design consultant.
3 km/yr Mains Renewal
Establish framework contractors for delivery; internally
programme managed
Maintenance of leakage
As per AMP4 - internal direct labour resources for reactive
leakage management
Communication Pipes
As per AMP4 - internal direct labour resources for
repair/replace on fail
Water
Distribution
Revenue Meters
As per AMP4 – internal resource to replace on fail
Water
Treatment
Works
Cost effective
maintenance
programme
Water Pumping
Stations
Cost effective
maintenance
programme
Service
Reservoirs
Management &
General (noninfrastructure)
Establish framework contractors for delivery, internally
programme managed
Cost effective
maintenance
programme
Continue with AMP4 inspection and maintenance programme
Hills Second Cell
Single Project: competitive tender, externally project
managed. Detailed feasibility study complete, detailed design
by external design consultant as part of design and build
contract.
IT
SCADA & Telemetry
Internal resources supported by Veolia shared services
Vehicles
Scheme
Delivery Approach
Quality
Denge WTW – iron & manganese removal
Revenue Meters
Single Project: competitive tender, externally project
managed. Detailed feasibility study complete, detailed design
by external design consultant as part of design and build
contract.
SEMD work
Feasibility study undertaken. Requires external project
management and security approved design consultant.
Construction to be awarded by competitive tender
NEP Denge Study
Study work only, appoint consultant to lead.
Page 130 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Scheme
Delivery Approach
Enhanced Service Levels
Denge network cleaning
Revenue Meters
Deliver with operational staff (hiring in to backfill) and
hydraulic modelling / detailed work planning by consultants.
Flood protection
Feasibility study complete. Competitive tender to award single
contract across multiple sites.
Supply Demand
Selective metering
Continue with AMP4 delivery strategy – in-house meter
installation team.
CHOICE tariff
Internal delivery as per Lydd pilot trial
Leakage reduction to 7.5Mld
In-house leakage team, as per AMP4
AMR Trial
In house management, aligned with metering programme
NEP – Little Stour study
As per AMP4, consultant led and project managed by
Southern Water
Whitfield study
Study work only, appoint consultant to lead.
Table 48 Summary of Capital Delivery Strategy
Page 131 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 5
Table Commentaries
Table B.3.1 Water Service – Base Service Output Projections
Block A
Key Output Projections – Reliability and Continuity
The Company currently has two properties reportable under the DG2 Level of Service criteria.
These properties are located close to service reservoirs and fall within the definition of Section 65
of the 1991 Water Industry Act with regard to a duty to supply water at the Level of Service
pressure. The location of these properties and the current configuration of the distribution network
means there is no practical solution to raising the pressure in the main serving the properties, they
will therefore continue to be recorded in the June Return with the caveat regarding section 65.
The current performance under the DG3 Interruption to Supply Level of Service will be maintained,
this leads to an overall performance score of zero.
Block B
Key Output Projections – Water Quality
The Business Plan fully adopts the output projections identified in the Tables 11 and 12 of Ofwat
report “Capital Expenditure 2010-15; Capex Incentive Scheme (CIS) – Draft Baseline Folkestone
and Dover Water Report”
These projections vary from those submitted at Draft by establishing Control Limits for
performance projections where historically the Company’s performance has been zero failures, at
Draft the equation, used in accordance with the Ofwat advice provided, generated a zero Control
Limit.
Block C
Key Output Projections – Customer Services
The Company intends to maintain customer service levels at the current level. This is reflected in
the numbers presented in the table. However, it also shows that the Company expects to see a
deterioration in DG9 percentage calls abandoned during 2008/09. With service improvements that
are intended to make the customer experience easier, the Company hopes to achieve a higher call
handling score.
Block D
Key Output Projections – Serviceability
The Company intends to maintain steady serviceability over the AMP5 and AMP6 periods and has
identified in its Strategic Direction Statement a target maximum burst rate of 100/1000km/year.
The projected Reference Level and Control Points are derived from calculation methods provided
by OFWAT.
Unplanned interruptions to supply exceeding 12-hours are very rare; the Company operates in a
small geographic area with good transport routes; a reasonably accessible network and a direct
labour team familiar with the asset base. The Company’s internal target is less than 6-hours so
our projection for this measure is zero.
Page 132 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company’s size does not warrant the sophistication and complexity of a proprietary work
management system and the potentially significant operating costs associated with it. Over the
past few years the Company has developed an integrated system for monitoring all work; not just
that associated with non-infrastructure assets. The twin aim of our maintenance strategy is to
reduce reactive maintenance to its economic optimum and maximise plant availability. Two
indicators are monitored; the number of reactive tasks raised and the downtime of a plant in hours
taking account of the economies associated with the timing of repairs (i.e. in working hours).
The management of maintenance, the quality of data gather and the refinement of the
maintenance strategy will continue to develop. The nature of maintenance will change as
treatment processes change and the need for a greater understanding of the status of the assets
develops. The introduction of more sophisticated plant and equipment associated with security
considerations will also have an impact.
In light of the future changes and the present maturity of the monitoring systems, there are
degrees of uncertainty around the predictions of performance.
The tables contain two parameters; Line 22 is the projected number of unplanned tasks associated
with non-infrastructure assets. Line 23 is the percentage time available for non-infrastructure in a
calendar month. Further derivatives of these indices could be the proportion of unplanned work as
a percentage of all work undertaken and the average percentage supply capacity available.
Page 133 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table B3.3 Water Service Base Operating Expenditure Projections
Section B
Adjustments to the Base Year
Line 2
The adjustment included here relates to atypical expenditure on recruitment
expenses incurred in 2007/8. This adjustment is consistent with the atypical
expenditure reported in the commentary of Table 21 of June Return 2008. It is also
consistent with line 12 of Table B2.1a
Section C
Adjustments to Post 2010 Projections
Line 4
We have made a number of adjustments to base opex as shown in the table below.
£'000s
Bulk supply
EA charges
Bad debt
Accounting
Separation
CRC
administration
Rates
Pension
Total
2010-11
2011-12
2012-13
2013-14
2014-15
-377
81
103
-377
114
103
-377
150
103
-377
188
103
-377
229
103
95
95
95
95
95
20
20
20
20
20
86
278
86
284
86
290
86
295
86
301
286
325
366
410
457
Bulk Supply standing charges: Included in this line is a reduction of £377k from
year 2010/2011 due to the fact that the annual reservation charge payable to South
East Water (formally Mid Kent Water) for the Barham/Kingston bulk supply import
ceases to be payable.
EA charges: The EA have indicated to us that they expect charges to increase by
10% per annum for the next five years. We have assumed that this level of
increase continues to apply for the rest of AMP5. We have therefore assumed a
year on year 7.5% real terms increase (assuming RPI of 2.5%) on the 2008/9
expense.
Bad Debt: At the time of publication of this plan, our best estimate of the increase
in bad debt charge for 2008/9 over 2007/8 was £83k. We have assumed a further
deterioration of £20k in 2009/10 and that this will persist throughout AMP5. This
deterioration is the result of the recession.
Accounting Separation: Ofwat have strongly signalled an intention to introduce
accounting separation requirements during AMP5. This will be a new obligation
which will incur costs. As we have very little information to go on at the time of
publication we have made the prudent assumption that we will need to hire an extra
accountant at a cost of £45k per year including on costs, and that we will incur an
additional £50k per year in auditing costs. We have assumed that these costs are
incurred from the start of AMP5.
Page 134 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
CRC administration: The introduction of the Carbon Reduction Commitment
(CRC) Obligation introduces aspects of financial management to the use of energy
that don’t currently exist. Revenue recycling and secondary market trading in the
auction of emission rights will require administering. An addition to base opex has
been included to cover this new management obligation. We estimate that this task
will require 0.5 FTE at a cost of £40k per annum including on costs. We therefore
have budgeted £20k per annum for this item.
Business Rates: We have received a draft valuation from the VOA which gives a
rateable value of £4.478m compared to £2.66m in 2005. At this stage this is only a
draft number, and it is difficult to know what the final number will be. In our case we
will be challenging the draft valuation, and we are also currently in the midst of a
rates appeal. The multipliers which will prevail in AMP5 are also unknown. For the
purposes of this plan we have assumed a 20% reduction on the draft valuation and
we have discounted the AMP5 multiplier by 10% to the 2007/8 level. We have
assumed a constant real terms multiplier during AMP5. These assumptions are
included here for indicative purposes only. We assume that Ofwat will adjust these
figures to take account of the latest available information at the draft and final
determinations.
Pensions: The Company is currently enjoying a pension holiday from one of its
final salary pension schemes, so base year pension expenses cannot be
considered a good guide to future expenses. The Company has had a review
conducted by its actuarial advisors. The review has forecast pension expenses for
the Company for AMP5 and these assumptions have been added into Line 4.
The company operates 2 final pension schemes, VWSCPP and VUKPP. Our
triennial valuation as at 31 December 2007 requires an annual contribution for
VWSCPP of 340 in 2009. VUKPP requires an annual contribution of £239k and a
deficit repair payment of £16k per annum. These figures will rise in line with RPI.
The contributions will rise by RPI + 1%. The table below shows how these figures
have been used to calculate the increased cost of these two schemes in AMP5
compared to the base year.
Pension costs in AMP5
deflate
2008/9
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
VUKPP
VWSCPP
RPI
Mar-07
contribution deficit payment contributiondeficit payment
Dec-08
239
16
340
229.5
15.4
326.4
231.8
15.4
329.7
234.1
15.4
333.0
total expense (07/08 prices) expense in 2007/8
Increased cost in AMP5
236.4
15.4
336.3
588.1
310.1
278.0
238.8
15.4
339.7
593.8
310.1
283.7
241.2
15.4
343.1
599.6
310.1
289.5
243.6
15.4
346.5
605.4
310.1
295.4
246.0
15.4
350.0
611.3
310.1
301.3
204.4
212.9
Notes
1 Pension interest income is excluded from the analysis as it is not a component of reported opex
2 NED pension scheme is excluded as 2007/8 cost is considered a reasonable base
Lines 5&6
There is no additional OPEX reported in these lines. Additional OPEX for AMP4 and
AMP5 is reported for Quality Enhancement in table B4.3 section C and Supply
Demand Balance in Tables 5.2 section E. The one exception to this is £17k
anticipated cost in 2013/14 and 2014/15. This accounts for extra pumping costs
Page 135 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
that are anticipated to arise from the proposed solution to the TP28 problem
described in section 4.1.2 of B3. This cost is reported in line 6.
Page 136 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table B3.5 Water service - Base capital Maintenance Expenditure Projections
(infrastructure)
AMP4 Data
Year 07/08
Line 1
Line 2
Line 3
Line 12
07/08: JR08 Table 32 - Line 18 - Water Infra
07/08: JR08 Table 32 - Line 20 - Water Infra
07/08: JR08 Table 32 - Line 23 - Water Infra
07/08: Difference between Infra net and Gross position in JR (Table 35 line 6 less
line 2 for 2007/08)
Year 08/09 & 09/10
Lines 1-3
Data calculated from current year position and forecast to end of 08/09 and 09/10.
Line 12
Forecast based on average for AMP4, see table below.
Gross
Net
Contributions
Yr 1 05/06
0.744
0.733
0.011
Yr 2 06/07
0.816
0.770
0.046
Average of past 3 yrs
Yr 3 07/08
0.879
0.823
0.056
Yr 4 08/09
Yr 5 09/10
0.038
Data source JR08 Table 35
Line 14
Infrastructure Renewals Charge (IRC)
When selecting the 15 year period of IRE to average in the calculation of IRC – the
company elected to select the period which would most closely equate the IRC for
AMP5 to the forecast IRE for AMP5.
The period which most closely matched this criteria was 2004/05 through to
2018/19.
AMP5 – The IRC charge presented is that calculated by the Reservoir model based
on averaging the 2004/05 to 2018/19 IRE.
Post AMP5 – The IRC charges entered are not the result of averaging IRE. They
are equal to the IRE forecast expenditure each year with the exception of 2015/16
(see Line 15)
Line 15
IRE/IRC Closing Balance Sheet Prepayment / Accrual
The projected accrual at the end of AMP5 is £0.366m.
For the purposes of PR09, the company has amended the 2015/16 IRC charge so
as to eliminate the AMP5 closing accrual / prepayment position.
With subsequent years’ IRC’s equated to IRE’s there is no future accrual or
prepayment position reported.
Page 137 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
AMP5, 6 and 7 Data
Lines 1-4
Forecast based on capital programme, categorised as required. AMP6 and AMP7
forecasts for mains renewal activity only; does not include trunk main activity.
Required trunk main activity will be included for final business plan.
Line 9
A catch up efficiency of 0% has been assumed for AMP7.
Line 12
Average used as above for per remained of AMP4.
Page 138 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table B3.6 Water Service - Base Capital Maintenance Expenditure Projections (noninfrastructure)
AMP4 Data
Year 07/08
Line 1
Line 2
Line 3
Line 4
Line 5
Line 6
Line 15
07/08 = JR08 Table 32 - Line 18 - Water Non Infra
07/08 = JR08 Table 32 - Line 20 - Water Non Infra
07/08 = JR08 Table 32 - Line 19 - Water Non Infra
07/08 = JR08 Table 32 - Line 22 - Water Non Infra
07/08 = JR08 Table 32 - Line 21 - Water Non Infra
07/08 = JR08 Table 32 - Line 23 - Water Non Infra
07/08 = JR08 Table 35 - Line 4
Year 08/09 & 09/10
Lines 1-6
Data calculated from current year position and forecast to end of 08/09 and 09/10.
Line 15
Forecast remains zero, in line with historic
AMP5 and 6 Data
Lines 1-6
Forecast based on capital programme, categorised as required.
Line 15
Forecast remains zero, in line with historic
Page 139 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 6
Appendices
1
Willingness to Pay Survey Report
2
Atkins Technical Note Seismic Activity in Folkestone Region
3-1
EMC example quad reports - Levels of Service
3-2
EMC example quad reports - Operational Performance
4
Statement of Need Report
5
Not Used
6
Trunk Main Modelling Report
7
Trunk Main Modelling Report - Additional Information
8
TP28 Hydraulic Modelling Report
9
Distribution Mains PR09 Burst Model Methodology summary
10-1
Burst Model methodology Report, Three valleys Water February 2004
10-2
Burst Modelling Computer Modelling Care W
10-3
Summary Description of Burst Model
11-1
Communication Pipe Overall Modelling Approach
11-2
Communication Pipe FDWS Modelling Approach
12
Trunk Main Scheme Definition Forms - Cost Breakdown
13
Distribution Mains PR09 Data Requirements
14
Trunk Main Feasibility Report
15
Revenue Meters Modelling Report
16
Non Infrastructure Service Indicators
17
Mapping between the Service Indicators and the Output Performance Measures
18
Hills Reservoir Inspection - Halcrow Technical Note
19
Hills 2nd Cell - Akins Feasibility Study
20
Hydraulic Modelling on Hills (also for TP28)
21
Hills 2nd Cell - Scheme Definition Form - Cost Breakdown
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 140 of 140
Section B3 – Maintaining Service & Serviceability
09/11/10, 15:12:36
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B
Key Component
Section B4
Quality Enhancements
Executive Summary ................................................................................................................ 1
Section 1
Changes from Draft to Final..................................................................... 2
Section 1.1
Changes to the Business Plan............................................................... 2
Section 1.2
OFWAT Draft Business Plan Feedback .................................................. 3
Section 1.2.1
Section 1.2.2
Section 1.2.3
Section 1.2.4
Section 1.2.5
Section 1.2.6
Deteriorating Raw Water Treatment and Distribution. ..................... 3
Environmental Impacts......................................................................... 3
Security and Emergency Measures Direction .................................. 3
Costs of Projects ................................................................................... 3
Cost Drivers and Reconciliation with Projects database ................ 3
Misallocations ........................................................................................ 3
Section 2
Denge WTW – Raw Water Deterioration ................................................. 5
Section 2.1
Denge Overview .................................................................................... 6
Section 2.2
Review of Water Quality ........................................................................ 7
Section 2.2.1 Key water quality parameters – iron, manganese and turbidity ................. 7
Section 2.2.3 Secondary water quality parameters......................................................... 8
Section 2.3
Overview of Potential Treatment Options............................................. 10
Section 2.3.1 Oxidant type for physical / chemical iron and manganese removal ......... 11
Section 2.3.2 Waste Disposal....................................................................................... 12
Section 2.4
Potential Treatment Solutions.............................................................. 13
Section 2.4.1 Rapid Granular Media Filtration .............................................................. 13
Section 2.4.2 Membrane microfiltration / ultrafiltraion ................................................... 14
Section 2.4.3
Biological filtration.................................................................................. 15
Section 2.4.4 Reverse osmosis .................................................................................... 17
Section 2.5
Evaluation of Treatment Options.......................................................... 17
Section 2.5.1 Pros and Cons......................................................................................... 18
Section 2.5.2
Scoring of Options with Respect to CAPEX, OPEX and Technical Issues .
............................................................................................................... 21
Section 2.5.3 Selected Options for Further Evaluation .................................................. 26
Section 2.6
Laboratory work................................................................................... 26
Section 2.6.1 Membrane Filtration Option .................................................................... 26
Section 2.6.2 Granular media filtration option............................................................... 29
Section 2.7
Environmental Impact .......................................................................... 30
Section 2.8
Capital Cost Estimate .......................................................................... 30
Section 2.9
Cost Benefit Analysis........................................................................... 31
Section 3
National Environment Programme ....................................................... 36
Section 4
Catchment Management ....................................................................... 41
Section 5
Security and Emergency Measures Direction ..................................... 42
B4 Table Commentaries........................................................................................................ 48
APPENDIX B4.1 DENGE PROVISIONAL PROGRAMME .................................................. 50
APPENDIX B4.2 DENGE PROVISIONAL PROCESS FLOW DIAGRAM............................ 51
APPENDIX B4.3 DENGE DRAFT LAYOUT ........................................................................ 52
APPENDIX B4.4 DENGE COST ESTIMATION ................................................................... 53
Page i
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.5
APPENDIX B4.6
APPENDIX B4.7
APPENDIX B4.8
APPENDIX B4.9
APPENDIX B4.10
FINAL WR PR09 NEP.............................................................................. 54
SEMD COSTS BY ELEMENT .................................................................. 55
SEMD COSTS BY SITE ........................................................................... 56
SEMD SITE SURVEYS (RESTRICTED) .................................................. 57
SEMD SITE EQUIPMENT (RESTRICTED) .............................................. 58
AN10 CONTROL ROOM (RESTRICTED)............................................... 59
List of Tables
Table 1 : Non-RO raw water quality (key parameters relating to turbidity in final water), 5 years
data ............................................................................. Error! Bookmark not defined.
Table 2 : Non-RO raw water quality (secondary parameters relating to treatment of iron,
manganese and turbidity), 5 years data ....................... Error! Bookmark not defined.
Table 3 : Oxidant options for chemical oxidation of soluble iron and manganese ...............Error!
Bookmark not defined.
Table 4 : Outline sizing for granular media filtration .................... Error! Bookmark not defined.
Table 5 : Membrane plant outline sizing ..................................... Error! Bookmark not defined.
Table 6 : Required water parameters for successful biological iron and manganese removal
.................................................................................... Error! Bookmark not defined.
Table 7 : Initial sizing for biological iron and manganese removal ............. Error! Bookmark not
defined.
Table 8 : Pros and cons of treatment options ............................. Error! Bookmark not defined.
Table 9 : Scoring of treatment options with respect to OPEX, CAPEX and treatment / operability
criteria.......................................................................... Error! Bookmark not defined.
Table 10 : Logic behind scoring of treatment options.................. Error! Bookmark not defined.
List of Figures
Figure 1 : Rapid granular media filtration treatment option ......... Error! Bookmark not defined.
Figure 2: Membrane microfiltration/ultrafiltration treatment option ............. Error! Bookmark not
defined.
Figure 3 : Biological filtration treatment option ............................ Error! Bookmark not defined.
Figure 4 : Variation in Mn in filtrate as a function of KMnO4 dose (flocculation time 15 minutes,
no............................................................................................... Error! Bookmark not defined.
Figure 5 : Mn in filtrate as a function of flocculation time, no coagulant (note there were no tests
done using KMnO4 = 0.15 mg/l with a flocculation time of 20/30 minutes, or KMnO4 = 0.2 mg/l
with a flocculation time of 25 minutes) ........................................ Error! Bookmark not defined.
Page ii
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Executive Summary
From the guidance issued it is intended this section should set out a detailed overview of the
Company’s proposed quality enhancement programme for water services.
There are three areas of work, outlined in this Section, that make up the quality enhancement
programme, these are:•
Improvements to the quality of water produced from the Denge Water Treatment Works.
Over recent years the quality of this water has deteriorated with rising levels of soluble
iron and manganese. The proposal is to install treatment facilities to address this failing
aspect. The proposal has the technical support of the Drinking Water Inspectorate.
•
The Company has worked closely with the Environment Agency in developing its
obligations under the National Environment Programme (NEP). This has resulted in the
identification of requirements to implement changes to the Company’s Licence to
abstract water from the Denge Marsh, part of the Dungeness Peninsula, in order to
comply with the Habitats Directive. The necessary investigations are outlined in this
Section.
•
Advice Notes regarding security measures to be undertaken at sites are compiled by the
Centre for the Protection of National Infrastructure (CPNI) and issued by DEFRA. The
Company has employed a specialist Consultant, approved by DEFRA, to evaluate the
security of Company sites and define the work necessary to ensure they are complaint
with the Advice Notes issued. The work identified is associated fully with their surveys
and recommendations.
Significant work has been undertaken between the Draft and Final plan and detailed scheme
specific information is provided on the projects identified. The commentary explains the
justification for the work and sets out the basis of the proposals including the outcome of the
benefits arising from the work. For the Denge Water Treatment works the outcome has been
evaluated using the Cost Benefit Analysis methodology. In accordance with the requirements of
the Business Planning process the DWI have been involved in the development of the proposal
for Denge and provide a formal letter of support for the scheme.
The NEP and SEMD works have not been subject to Cost Benefit Analysis but conform to the
instructions issued by the Environment Agency and Defra
In addition changes to the plan made between the Draft and Final submission have been
highlighted and Ofwat’s request arising from the Draft submission have been recognised.
Page 1
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1
Changes from Draft to Final
Section 1.1
Changes to the Business Plan
This Section of the business plan has been amended following the feedback on the Draft
Business Plan from OFWAT and further guidance from the Environment Agency concerning the
National Environment Programme.
In line with the OFWAT observations of the Draft Plan two changes have been made. In the
Draft the principle investment scheme, addressing the deterioration of the raw water at Denge
and its consequent effect at customer’s taps, was approached in two parts. Partly with a
scheme to arrest the discharge of iron and manganese from the works into the network, and
partly with a scheme to address the consequent discolouration of the water delivered. In their
feedback OFWAT stated they would consider the work associated with addressing the
consequence of discolouration as capital maintenance and hence this investment has been
moved from this Section.
Further OFWAT expressed the view that investment in flooding protection to ensure the
provision of essential water supplies should be considered as an Enhanced Service Level and
not resilience under the Security and Emergency Measures Direction. The investment in
flooding protection has therefore also been moved from this Section.
For the Draft Business Plan the Environment agency, In their letter dated 4th of April 2008,
requested the Company incorporate defined activities associated with the Draft National
Environment Programme (NEP). This was to meet the requirements in DEFRA’s Statement of
Obligations (12/07) and take into account the draft Social and Environmental Guidance to
OFWAT (February 2008). The PR09 period also covers much of the first cycle of the Water
Framework Directive River Basin Management Plans (2009-2015) and thus schemes
associated with this work were also to be included in the Draft Business Plan. The
Environment Agency advised at the time that more detailed information and finalisation of the
NEP programme would not be available until November 2008. Thus the Company included
outline costs for all activities advised in the Draft Business Plan, recognising that these were
likely to change between Draft and Final versions.
The Environment Agency provided the Final National Environment Programme which contained
changes to the Draft version that has resulted in the movement of the Little Stour Investigation
to the Supply Demand area of the Business Plan and confirmed that the Company is not
required to undertake any investigations pertinent to the Water Framework Directive. In their
letter dated 29th October responding to the Draft the Business Plan the Environment Agency
identified catchment and land management schemes being particularly relevant as the
Company is solely reliant on groundwater sources. They believe influencing changes in land
use and agricultural practice can benefit the quality of groundwater and protect future supplies.
In response to this the Company has included costs for land management.
Page 2
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1.2
OFWAT Draft Business Plan Feedback
Section 1.2.1
Deteriorating Raw Water Treatment and Distribution.
Ofwat required caveats attached to the DWI Letters of Support to be addressed, these were
•
•
Confirmation of preferred option with capex and opex costs and delivery/
completion dates
Confirmation of cost benefit calculations
In addition they required
•
•
•
•
•
•
Section 1.2.2
•
Section 1.2.3
•
•
•
•
•
•
•
•
Section 1.2.4
•
Section 1.2.5
•
Section 1.2.6
•
•
Reference to Cost Benefit Analysis
Cost estimates
Solution options considered
Comments on rejected options
Details of chosen option
Volumes and trend analysis.
Environmental Impacts
Final NEP information
Security and Emergency Measures Direction
Separate areas of cost
Clarify compliance with Advice Notes
Schedule of work
Description of problem
Population Served
Estimated costs
Description of benefits
Monetary valuation
Costs of Projects
Cost estimate derivation
Cost Drivers and Reconciliation with Projects database
Table of expenditure and outputs
Misallocations
Flooding Resilience
Denge Network
Page 3
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Significant work has been undertaken following the Draft submission to further define the
investment its drivers and cost. This work has focussed on addressing the issues outlined
above and the Final Business Plan incorporates the information being sought.
Page 4
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2
Denge WTW – Raw Water Deterioration
(DWI Scheme FLK 206)
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 5
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.1
Denge Overview
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 6
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.2
Review of Water Quality
Section 2.2.1
Key water quality parameters – iron, manganese and turbidity
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 7
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.2.3
Secondary water quality parameters
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 8
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 9
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 10
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.3
Overview of Potential Treatment Options
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.3.1
Oxidant type for physical / chemical iron and manganese removal
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 11
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.3.2
Waste Disposal
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 12
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.4
Potential Treatment Solutions
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.4.1
Rapid Granular Media Filtration
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 13
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.4.2
Membrane microfiltration / ultrafiltraion
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 14
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 15
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.4.3
Biological filtration
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 16
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.4.4
Reverse osmosis
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.5
Evaluation of Treatment Options
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 17
Section B4 - Quality Enhancements
11/11/10, 10:25:32
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.5.1
Pros and Cons
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 18
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 19
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 20
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.5.2
Scoring of Options with Respect to CAPEX, OPEX and Technical Issues
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 21
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 22
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 23
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 24
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 25
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.5.3
Selected Options for Further Evaluation
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.6
Laboratory work
Section 2.6.1
Membrane Filtration Option
SECTION
REMOVED
AND
Page 26
Section B4 - Quality Enhancements
11/11/10, 10:25:40
REPORTED
IN
EXCISION
DOCUMENT
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 27
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 28
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.6.2
Granular media filtration option
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 29
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.7
Environmental Impact
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.8
Capital Cost Estimate
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 30
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 2.9
Cost Benefit Analysis
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 31
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 32
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 33
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 34
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.10
Summary & Recommendations
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 35
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 3
National Environment Programme
The Company has worked closely with the Environment Agency in developing its obligations
under the National Environment Programme. The Programme has been drawn up to meet the
obligations set out in Defra’s Statement of Obligations (December 07) and takes into account
the draft Social and Environmental Guidance to Ofwat (February 2008). The nature
conservation elements of the programme have been drawn up in conjunction with Natural
England.
The Final NEP guidance from the Environment Agency is shown in Appendix B4.5 and
identifies the requirement to implement changes to Licence No 09/40/05/0071/G at Dungeness
in order to comply with the Habitats Directive. This is the Licence for the Denge WTW.
As part of the Habitats Directive Review of Consents process undertaken by the Environment
Agency the Denge abstraction licence has undergone a Medium Priority site Stage 4
assessment in relation to Special Area of Conservation (SAC) and Special Protection Area
(SPA) habitats/species status. The key habitat of concern under the SAC designation in relation
to the company’s abstraction is the ‘perennial vegetation of stony banks’. The features of the
Denge SAC that are at risk of impact from the FDWS Denge source are the wetland
communities of the Open Pits, (these Pits are water bodies created during the evolution of the
Dungeness shingle system over the last 7000 years). The specific wetland communities of
interest are a sub-feature of perennial vegetation of stony banks. The assumption is that if
suitable conditions can be maintained so as to support the presence of Cladium mariscus for
Pits 5,6 and 7 the conditions will be suitable for all of the wetland community species.
At the end of 2007, it became apparent that the Licence used by the Environment Agency at
the stage 4 determination varied significantly from that in the Companies possession as the
issued licence. It has subsequently been agreed that neither versions of the Licence are fit for
purpose. The consequence is that the abstraction Licence for Denge cannot be demonstrated
not to be having an adverse impact on the Denge SAC or SPA and requires further
investigation. This may require changes to the Licence conditions to provide protection for the
protected habitats. The Company is in general agreement with the possibility of a Licence
revision, provided it does not impact on the Deployable Output of the source which in turn
would have ramifications for the Company’s Security of Supply Index and its ability to ensure
the provision of essential water supplies during prolonged periods of below average rainfall.
However if any sustainability reduction were to impact on the Deployable Output, then
alternative measures would need to be put in place to recover this lost volume of water before
the Licence changes could be instigated thus protecting the Security of Supply for the region.
The Company undertook an assessment of the impact on Deployable Output in complying with
a potential changed Licence assumed by the Environment Agency. This assessment
determined that under the present abstraction pattern the Deployable Output of the Denge
sources would be reduced significantly. However the Company has suggested that alternative
abstraction patterns may decrease any impact that currently may exist and thus comply with the
requirements of the Habitats Directive, without reducing the Deployable Output of the source.
Page 36
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
In addition to this arising uncertainty relating to the impact of abstraction under the Habitats
Directive Review of Consents process, potential uncertainty exists in relation to the Denge’s
other environmental designations. Although the Denge also has Ramsar and SSSI
designations, these were not required to be evaluated under the Habitats Directive Review of
Consents process and therefore it has not yet been determined whether or not the abstractions
have an adverse impact on the Ramsar and SSSI designated species/habitats.
As a result of the Review of Consents process, the discrepancy between the Licences and the
current operational regime, the Environment Agency has indicated that it requires the Company
to undertake further work to demonstrate what impact current and possible future operational
abstraction patterns would have on the requirements of the Habitats Directive, and thus Licence
modifications to the operational constraints on a number of abstraction wells.
These requirements are documented in the Environment Agency’s Final WR PR09 National
Environment Programme advice appended to their letter dated 28th November 2008 and
appended here (B4.5).
In accordance with that advice funding is required to improve the conceptualisation of the
behaviour of the aquifer and the impact of individual sources by undertaking the following
activities:
•
infill gaps in the hydrological and environmental data, and undertake a topographical survey
in the vicinity of the Open Pits (the area of interest under the Habitats Directive)
•
undertake environmental surveys of the Open Pits to determine the relationship of the
concerned species to known water level changes
•
determine the extent and pattern of abstraction that provides protection to the designated
habitat/species
•
determine the extent and pattern of abstraction that provides protection against saline
intrusion as far as possible
•
trial alternative operational regimes, with enhanced monitoring to demonstrate that the
revised abstraction pattern does not infringe the ecology of the Open Pits and that the
current deployable output can be maintained
•
evaluate the medium to long-term sustainability of the Denge aquifer as a groundwater
resource in the context of environmental, water quality and climate change considerations
•
to agree licence changes that will protect the key habitats, whilst allowing the company to
meet its obligations as a water supplier
•
identify alternative water resource options in the Denge area to address any loss in
Deployable Output that studies identify may be necessary
•
development and use of a groundwater model to allow alternative strategies to be evaluated
Page 37
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
These investigations would involve the following tasks:
•
Obtain consensus on habitat/ecological concerns
•
Meetings with Environment Agency and Natural England
•
Collation and review of historical data relating to the habitats and ecology of concern
•
Identification of scope of required field investigations
•
Site investigations and monitoring to verify ecological status and dependencies
•
Ecological surveys
•
Installation and instrumentation of monitoring stations
•
Data collection and analysis
•
Evaluation of impact of abstraction on ecological interests on basis of assessment of data
•
Contribution to the development of a groundwater model that will be able to be used as a
management tool
•
Determination of an abstraction regime that provides protection to the designated habitats
and species which will also minimise potential for saline intrusion
•
To support the Environment Agency in developing a management plan for the operation of
the Denge Marsh Sewer to ensure water levels are maintained across the beach
The long-term sustainability of the Denge abstraction needs to be evaluated in the context of
both current and modified abstraction regimes in the face of changes in recharge and
evaporation resulting from climate change. In order to explore the medium to long-term impact
of alternative abstraction regimes and of climate change on the available groundwater
resource, a simulation tool is required. It is proposed that this tool should comprise a three
dimensional groundwater flow and quality model. It is intended that this will facilitate an
assessment of the impact of climate change on the available groundwater resource from both a
volumetric and water quality perspective.
At least two numerical groundwater models of the Denge or part of the Denge have previously
been developed: one for CEMEX the gravel extractors and one for British Energy the nuclear
power station operators. However, the former has been determined not to be of use in relation
to groundwater management and the latter was limited in extent to the vicinity of Dungeness B
power station. Consequently, it is unlikely that either of these models would be suitable for
evaluating the sustainability of Denge aquifer as a whole and although they are likely to provide
valuable information and will be consulted, it has been determined a new ground water model
will be needed.
Should the level of sustainable abstraction identified from the modelling exercises not meet
supply requirements, alternative resource options will need to be identified. Alternative resource
options appraisals will be undertaken in parallel with groundwater model development.
The costs for the study have been generated by a cost estimate from Atkins, based on the
scope identified above. The study cost is £650k. The cost breakdown is provided below. These
costs are inclusive of indirect costs, Company overhead and risk.
Page 38
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Activity
Cost
Obtain consensus on habitat/ecological concerns
• Meetings with Environment Agency, Natural England & other
stakeholders
£10,000
• Collation and review of historical data relating to the habitats
and ecology of concern
£15,000
• Scoping field investigations
£5,000
Site investigations to verify ecological status and dependencies
• Ecological surveys
£30,000
• Installation and instrumentation of monitoring stations
£40,000
• Data collection and analysis
£25,000
Evaluation of impact of abstraction on ecological interests
£15,000
Determination of an abstraction regimes that provides protection
to designated habitats/species
£15,000
Sub Total
£155,000
Develop dual density groundwater model of Denge aquifer (&
possibly West Denge)
• Scope model characteristics and objectives
£10,000
• Data collation & processing
£20,000
• Borehole Drilling
£50,000
• Monitoring borehole drilling to verify underlying
geology/hydrogeology and water quality profiles
£40,000
• Model Conceptualisation
£20,000
• Model build
£50,000
• Calibration
£40,000
• Scenario runs
£20,000
Sub Total
£250,000
Denge investigations
• MoD liaison and scoping
£10,000
• Contaminated land site investigation/monitoring hole drilling
£80,000
• Monitoring equipment
£30,000
• Test pumping
£25,000
• Monitoring, water quality sampling and laboratory analysis
£20,000
• Data analysis and determination of resource
£15,000
Page 39
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Activity
Cost
• Cost/benefit analysis of source development/treatment
Sub Total
£10,000
£190,000
Effluent recharge/deeper aquifer options appraisal
• Assess viability of options
£5,000
• If appropriate, undertake any investigative works to improve
appraisal
£30,000
• Assess potential impact on supply-demand balance
£5,000
• Identify option constraints i.e. environmental and social
£5,000
• Quantify financial costs
£5,000
• Cost/benefit analysis of option development
£5,000
Sub Total
Total Study Cost
Page 40
Section B4 - Quality Enhancements
11/11/10, 10:25:40
£55,000
£650,000
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4
Catchment Management
Catchment management is a way of managing the input of pollutants so that less treatment will
be required in the future and the risk of pollution incidents are decreased. The Water
Framework Directive Article 7 designation of drinking water protected areas will go some way to
achieving this. The Company understands these areas are to be based on current designated
source protection zones by the Environment Agency and thus understand the areas of concern
for almost all of the Company’s sources. Catchment assessment forms an integral part of
drinking water safety plans and these will be refined as more information becomes available.
Managing the input of potential and actual pollutants is a time consuming task, requiring regular
liaison with a wide range of stakeholders, ranging from farmers to petrol stations as well as
industrial premises’. Ensuring that the relevant people are aware they are operating within a
source protection zone is the first step in raising awareness. Water Companies only have
limited powers with regard to entry to premises, and must also rely on the Environment Agency,
who for example undertake farm visits, to assess the pollution potential where the Company
has no right of access.
Almost the entire company area contains unconfined aquifers that feed Company sources with
water, thus they are prone to surface pollution events, both point and diffuse. The Company
already has a good appreciation of activities that have proved problematical in the past and
maintains a good liaison with local land owners and tenant farmers. The proposal is to increase
activity in this area by creating the role of Catchment Management Officer, this role’s
responsibility will be a systematic audit of potentially polluting activities within each sources’
protection zone, liaison with the Environment Agency and other parties by raising awareness
and maintaining updated information for use in the Drinking Water Safety Plans. A full time role
is not justified, but the Company has included a 50% FTE at an additional Opex cost of £22.5k
per annum to deliver the benefits described above.
Page 41
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 5
Security and Emergency Measures Direction
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 42
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 43
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 44
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 45
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 46
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 47
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
B4 Table Commentaries
Table B4.1: Water Service – Quality Enhancement Outputs and Activity
AMP4 Data
Year 07/08
Line 1
No AMP4 Improvements funded, thus =0
Line 2
No AMP4 Improvements funded, thus =0
Line 3
The AMP4 SEMD output was 1 for a combination of activities. This work will be
complete by 2009/10 and is shown accordingly.
Line 4 to 12
Line 13
No AMP4 network improvements funded, thus =0
AMP4 Output was 1 investigation (Little Stour); work is complete 08/09; thus =1
Line 14
FD output was 2 solutions - Bushey Ruff & Buckland Mill; Buckland Mill
delivered. Bushey Ruff is subject to an agreed log down between the company
and Ofwat, thus no delivery shown.
AMP5 Data
Lines 1-2
The quality improvement work at Denge WTW is forecast to be complete in year
2. The non RO process stream has a capacity of 7.2 Ml/d.
Line 3
The SEMD requirements are shown as three deliverables, physical, electronic
and control room improvements.
The Environment Agency has advised a Denge NEP studies for AMP5.
Line 13
Table B4.3: Water Service – Quality Enhancement Expenditure Projections
AMP4 Data
Year 07/08
Line 1
JR08 - Table 37, line 1; however, this was infra spend so has been allocated to
line 9; line 1 thus = 0
Line 2
No environmental studies on-going, thus = 0
Line 3
No drinking water programme funded in AMP4; thus = 0
Line 4
JR08 - Table 37, line 15 & 16
Line 5
Line 9
JR08 - Table 37, line 13
JR08 - Table 37, line 1; this was infra spend so has been allocated to line 9;
Line 10 to 15 No AMP4 Infra/Distribution Quality Funding, thus = 0 for all lines
Line 19
Line 20
No AMP3 schemes resulting in new opex in 07/08; 08/09; 09/10
No AMP3 schemes resulting in new opex in 07/08; 08/09; 09/10
Line 23
No AMP4 Infra/Treatment Quality Funding, thus = 0
Page 48
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Line 24
No AMP4 Infra/Distribution Quality Funding, thus = 0
Line 25
Line 26
JR08 Table 37 line 8; 5k from Buckland Mill
No Opex arising from SEMD expenditure
Year 08/09 – 09/10
Line 1
No AMP3 projects still active, thus = 0
Line 2
No environmental studies on-going, thus = 0
Line 3
No drinking water programme funded in AMP4; thus = 0
Line 4-5
Data calculated from current year position and forecast to end of 08/09 and
09/10.
Line 9
No AMP4 Infra/Distribution Quality Funding, thus = 0 for all lines
Line 10 to 13 No AMP4 Infra/Distribution Quality Funding, thus = 0 for all lines
Line 14
Infrastructure expenditure calculated from current year position and forecast to
end of 08/09 and 09/10.
Line 15
No AMP4 Infra SEMD funding, thus = 0
Line 19
No AMP3 schemes resulting in new opex in 07/08; 08/09; 09/10
Line 20
No AMP3 schemes resulting in new opex in 07/08; 08/09; 09/10
Line 23
No AMP4 Infra/Treatment Quality Funding, thus = 0
Line 24
No AMP4 Infra/Distribution Quality Funding, thus = 0
Line 25
Buckland Mill in operation for all of 2008/09; cost of operation estimated at 26k;
Dover Priory/Cow lane likely to be in operation for 50% of the year at a similar
costs, thus 13k for the year = £0.039m total for 08/09 and £0.052m total in
09/10.
Line 26
No Opex arising from SEMD expenditure
AMP5 Data
Line 1
Line 2
No AMP4 projects still active, thus = 0
No environmental studies expected to be on-going, thus = 0
Line 3
The quality improvement work at Denge WTW is forecast across 2 years.
Line 4
The Environment Agency has advised one NEP studies in AMP5.
Line 5
The SEMD expenditure are included.
Line 23
Additional Opex is from the operation of the modifications to Denge WTW.
Line 25
Additional Opex for Land Management liaison to improve pollution protection.
Line 26
Additional Opex for management of SEMD electronic and control systems.
Page 49
Section B4 - Quality Enhancements
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.1 DENGE PROVISIONAL PROGRAMME
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section B4 - Quality Enhancements – Appendix A
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.2 DENGE PROVISIONAL PROCESS FLOW DIAGRAM
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section B4 - Quality Enhancements – Appendix B
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.3 DENGE DRAFT LAYOUT
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section B4 - Quality Enhancements – Appendix C
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.4 DENGE COST ESTIMATION
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section B4 - Quality Enhancements – Appendix D
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.5 FINAL WR PR09 NEP
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section B4 - Quality Enhancements – Appendix E
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.6 SEMD COSTS BY ELEMENT
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section B4 - Quality Enhancements – Appendix F
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.7 SEMD COSTS BY SITE
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section B4 - Quality Enhancements – Appendix G
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.8 SEMD SITE SURVEYS (RESTRICTED)
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section B4 - Quality Enhancements – Appendix H (RESTRICTED)
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.9 SEMD SITE EQUIPMENT (RESTRICTED)
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section B4 - Quality Enhancements – Appendix I (RESTRICTED)
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B4.10
AN10 CONTROL ROOM (RESTRICTED)
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section B4 - Quality Enhancements – Appendix C
11/11/10, 10:25:40
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B:
Supporting Information
Section B5:
Maintaining the supply/demand balance
Contents
Executive Summary ..................................................................................................... 1
Section 1 Changes between draft and final plans...................................................... 4
Section 2 Water Service Strategy .............................................................................. 9
Section 2.1
General Information..................................................................................... 9
Section 2.1.1 Operating Area........................................................................................ 9
Section 2.1.2 Water Resources Zones........................................................................ 10
Section 2.2
Water Supply............................................................................................. 11
Section 2.2.1 Deployable output ................................................................................. 11
Section 2.2.3 Outage .................................................................................................. 17
Section 2.2.4 Raw and potable water transfers and bulk supplies............................... 21
Section 2.3
Water Demand .......................................................................................... 22
Section 2.3.1 Demand forecasts................................................................................. 22
Section 2.3.2 Metering strategy .................................................................................. 32
Section 2.3.3 Water efficiency strategy....................................................................... 35
Section 2.3.4 Leakage strategy .................................................................................. 38
Section 2.4
Climate Change......................................................................................... 41
Section 2.4.1 Supply side ........................................................................................... 41
Section 2.4.2 Demand side......................................................................................... 45
Section 2.4.3 Impact on supply/demand balance........................................................ 46
Section 2.5
Target Headroom ...................................................................................... 46
Section 2.5.1 Choice of method.................................................................................. 46
Section 2.5.2 Risk and uncertainty in supply and demand .......................................... 47
Section 2.5.3 Results of the Headroom Assessment .................................................. 53
Section 2.6
Baseline supply/demand balance .............................................................. 55
Section 2.7
Options Appraisal ...................................................................................... 57
Section 2.7.1 Approach for option appraisal ............................................................... 57
Section 2.7.2 Unconstrained options list ..................................................................... 57
Section 2.7.3 Feasible options list............................................................................... 57
Section 2.7.4 Economic Appraisal of Options ............................................................. 59
Section 2.7.5 Overall options list................................................................................. 63
Section 2.7.4 Optimisation .......................................................................................... 69
Section 2.8
Final Water Resources Strategy ................................................................ 70
Section 2.8.1 Final supply/demand balance................................................................ 70
Section 2.8.2 Contingency plan / sensitivity analysis .................................................. 73
Section 2.8.3 Regional solutions................................................................................. 74
Section 2.8.4 Carbon emissions ................................................................................. 74
Page i
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 3 Expenditure implications of maintaining the supply / demand balance .... 76
Section 3.2.1
Section 3.2.3
Section 3.2.4
Section 3.2.6
Studies.................................................................................................. 76
Leakage schemes................................................................................. 82
Metering, Tariffs and Water Efficiency................................................... 83
Supply/Demand Expenditure Projections .............................................. 89
Section 4 New Developments and Growth .............................................................. 90
Section 4.1
Whitfield Development............................................................................... 90
Section 4.2
Developer Led Activity ............................................................................... 90
Section 4.3
Costs ......................................................................................................... 91
Section 4.3.1 Whitfield Development .......................................................................... 91
Section 4.3.2 New Connections .................................................................................. 93
Section 4.3.3 New Mains ............................................................................................ 93
Section 5 Cost Benefit Analysis ............................................................................... 94
Section 6 Balance of Risk and Customer Affordability ............................................. 94
Section 7 Programme Delivery ................................................................................ 94
Table Commentaries.................................................................................................. 95
Page ii
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Executive Summary
The Company faces significant challenges in maintaining the supply/demand balance over the
planning period; continued growth, the uncertainty of demand management, the impact of
climate change on existing resources and the complexity of developing new sources of water
are all significant features of the planning period.
In view of the Company’s ‘water scarcity’ status and Governments views on areas designated
as suffering from ‘water stress’, maintaining the focus on demand management is an essential
component of the final Water Resources Management Plan and accordingly the supply/demand
element of the business plan. It is a priority for the Company and the long-term security of
supply that customers are supported in minimising their consumption of water. Demand
management measures are, therefore, a central plank in the investment plan for 2010 to 2015,
and this means the Company will be able to ascertain if substantially reduced consumption is
achievable and sustainable in the longer term. Accelerating the current metering programme is
in direct response to these drivers. Further, introducing a socially-responsible stepped tariff for
water charges is being promoted by the Company for AMP5 as this is a low-cost scheme
compared to the alternative of new resource development. In promoting these demand driven
solutions, the Company recognises the need to be sensitive to any issues of affordability that
may affect customers and the development of the tariff proposals will be undertaken in
consultation with appropriate regulators and stakeholders.
The key components of the plan for AMP5 are described below.
Full metering (96%) by April 2012
Successful in its application for ‘Area of Water Scarcity’ status in March 2006, the Company
has moved from a ‘change of hands’ strategy to a selective metering programme based on
zonal metering. Following Ofwat’s acceptance of the AMP4 metering log-up application, the
Company is accelerating metering delivery to April 2012 rather than 2015 as originally planned.
The accelerated strategy reflects a number of drivers:
• Support from customers who view metering as the fairest way of paying for water;
• The contribution earlier metering provides to the supply/demand balance;
• The benefits arising from reducing the environmental impacts of the Company’s
operation and empowering customers to do the same – an area the willingness to pay
surveys showed strong customer support for;
• Demonstrating the Company’s commitment to metering as part of a wider demand
reduction strategy;
• Establishing full metering to provide a platform from which other water efficient
measures can be delivered, such as stepped-tariff, but also other measures such as
retrofit trials etc.
Implementation of a Company-wide socially responsible stepped tariff from April 2013
As detailed in its SDS, draft WRMP and Business Plan, the Company will roll out the stepped
tariff scheme which will provide the Company and the water industry with valuable experience
and data on how customers respond to tariffs in the short and medium term. This knowledge is
essential for longer term supply and demand planning.
This scheme is key to achieving the Company’s aspirational target of 120 PCC by 2015.
However, there is considerable uncertainty around customers’ response to demand
management measures; therefore, the Company has decided to forecast demand based on a
Page 1 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Per Capita Consumption of 130l/person/day. By modelling revenue based on 130 PCC rather
than 120 PCC, the Company is seeking to appropriately balance the impact on customer bills
against the uncertainty in demand and Company income. This position has been approved by
the Board as part of the overall strategy to achieve the right balancing between Company risk
and the impact on customer bills.
If the target of 120 PCC is not achieved by 2015, the Company has the option to explore
changes to the tariff mechanism to stimulate further customer reductions to achieve the 120
PCC target.
Achieve water efficiency target of 0.07Ml/d per year
The Company has incorporated the 0.07 Ml/day/year Water Efficiency Target set by Ofwat into
its final Business Plan projections. Water efficiency is a key part of the Company’s supply
demand strategy and intrinsically linked with the metering programme, tariff scheme and AMR
trial.
An automated meter reading trial for existing and new internal customers
The Company will undertake an AMR trial as part of its demand management strategy. This will
help develop the future vision of customer service, while keeping the Company abreast of new
technology. The Company will trial AMR technology in advance, in order to properly understand
the benefits before a Company-wide roll out. It also gives the possibility to explore commercial
tariffs, and identify supply pipe leakage.
Leakage reduction to 7.5Ml/d
The Company proposes to follow the same leakage strategy as AMP4. A 0.5Ml/d reduction
from the AMP4 target of 8Ml/d will maintain a downward track with the view of achieving SELL
over 10 years. This is supported by the ‘least cost’ modelling exercise where leakage options
are selected and by customers’ views: ‘96% of customers believe that Folkestone & Dover
should demonstrate their commitment to water conservation by reducing the amount of
leakage’. The AMP5 leakage strategy is consistent with the Company’s SDS and energy
efficiency targets.
Continuation of the AMP4 NEP study for the Little Stour catchment, in combination with
Southern Water and South East Water
Following on from the impact assessment carried out during AMP4, there is a need to evaluate
various options for improving the environmental status of the river. This may be by increasing
flows in the channel or by improving channel conditions such that the ecology benefits within
the current flow regime. Folkestone and Dover Water, South East Water and Southern Water
are seeking joint funding in PR09 for this ‘options appraisal’.
Detailed study of the Whitfield development
The Company has identified the area of Whitfield as requiring a key strategic network
reinforcement in order to be able to accommodate the planned housing growth. However, the
Company thinks it is unlikely that the development will be fully constructed during AMP5 in view
of the current economic climate. The Company has made provision for further detailed design
and network modelling studies to be undertaken during AMP5 to support future funding from
developers, local government and regulators.
The gross costs of the AMP5 Supply/Demand programme are £8.2m of capital investment and
£0.52m of additional Opex by 2015. This is a significant reduction in capital expenditure from
the draft plan, where the supply demand total was £20.7m. The key reductions are reduced
Page 2 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
new development activity resulting in lower new connection and new mains expenditure; the
removal of the Whitfield development from the final plan as described above and a reduced
programme of investment to deliver the supply demand balance as a result of the changes to
the Water Resource plan described above. Further details of the draft to final changes are
provided in the following section and Table 3.
Page 3 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1 Changes between draft and final plans
Following on from the public consultation and additional work on the Water Resources
Management Plan, significant changes have been made to some of the components of the
supply/demand forecast. The following table shows how the draft plan has changed in response
to the comments received. Each component has been graded (none, minor, major) depending
on the degree to which the final strategy and overall plan are affected.
Categories
Deployable Output
Sustainability
Reductions
Water Resource
Zone
WRSE
Outage
Metering
Tariff
Water efficiency
Leakage
Population forecast
Household forecast
Commercial
forecast
Consumption
forecast
Shared resources
Climate Change
Headroom
Options Appraisal
Draft WRMP
Final WRMP
Impact
Average conditions = 51.15Ml/d
Peak conditions = 65.09Ml/d
No loss of DO
Average conditions = 51.15Ml/d
Peak conditions = 65.09Ml/d
No loss of DO
None
2 zones: Denge and Hills
1 zone – whole supply area
Minor
WRSE results not available
Average conditions = 3.6Ml/d
Peak conditions = 2.2Ml/d
Confidence level at 95%
96% metering by end of 2012
Implementation of socially
responsible stepped tariff in 2015
WRSE results taken into account
Average conditions = 1.84Ml/d
Peak conditions = 1.97Ml/d
Confidence level at 95%
96% metering by April 2012
Implementation of socially
responsible stepped tariff by April
2013
Inclusion of water efficiency target
Reduction in supply pipe leakage
Calculation of SELL
Minor
Minor
Baseline activities
Reduction in supply pipe leakage
Implementation of leakage options
Calculation of ELL
Experian most-likely scenario:
15% increase between 2010 and
2035
Experian most-likely scenario:
28% increase between 2010 and
2035
Closure of Dungeness B in 2020
(power station)
130 PCC
Experian policy scenario:
13% increase between 2010 and
2035
Experian policy scenario:
26% increase between 2010 and
2035
Closure of Dungeness B in 2020
(power station)
Aspirational target of 120 PCC
Demand forecast based on 130
PCC in 2015 and 120 PCC by 2020
Renewal of bulk imports
Renewal of bulk imports
agreements with South East Water
agreements with South East Water
and Southern Water.
and Southern Water, included in
baseline.
Drought curve methodology:
UKCIP methodology:
Average conditions = 10.05Ml/d
Average conditions = 4.95Ml/d
Peak conditions = 19.23Ml/d
Peak conditions = 5.57Ml/d
Calculated for 2 zones.
Calculated for 1 zone.
27 feasible options
27 feasible options
Risk included in least cost
Followed Environment Agency
optimisation model
methodology.
Table 1: Summary of the changes
Page 4 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
None
Minor
Minor
Minor
Minor
Minor
Minor
Minor
Minor
Major
Major
Major
Major
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Incorporating the changes referred to in the above table and maintaining the demand led
strategy outlined at draft, the Company has a positive supply/demand position throughout the
period of the plan.
Section 1.1 Material changes
The Company made significant changes between draft and final to the four components listed
below.
Shared resources
The Company has renewed its current bulk supply agreements with South East Water and
Southern Water. The three water companies agreed they would include the transfers in their
supply/demand baseline for the whole of the planning period. This provides an extra 3.33Ml/d
Average Deployable Output of Water Available for Use.
Climate change
The Company commissioned Atkins to develop a climate change model following the UKCIP
methodology for the Company, South East Water and Southern Water. Atkins has completed
the work and the modelling results are included in the final plan. These are based on individual
water level changes at each source, based on the modelled output.
The Atkins model outputs have been produced for low, medium and high impacts. The
Company used the medium impact figures of 4.95Ml/d at average and 5.57Ml/d at peak in its
final plan, and the low and high impact figures for the climate change component in the
headroom calculation.
Climate change
estimates
Final Business Plan
Reduction at Reduction at
average
peak
Atkins – High impact
Atkins – Medium
impact
15.22 Ml/d
14.31 Ml/d
4.95 Ml/d
5.57 Ml/d
Atkins – Low impact
0.97 Ml/d
0 Ml/d
Draft Business Plan
Reduction at
Reduction at
average
peak
10.05 Ml/d
19.23 Ml/d
Table 2: Climate Change estimates
The revised climate change figures are included in the baseline supply/demand balance.
Overall, the revised figures have a significant positive impact on the Water Available for Use.
Headroom
The Company has revised its assessment of target headroom at Company level. The results
show no significant difference with AMP4 from draft headroom values, which means that the
Company is proposing a similar level of risk.
Options Appraisal
The Company followed the Environment Agency guidelines for its EBSD modelling. The
Environment Agency guidelines suggest that the risk of not delivering the estimated volume
should be included in headroom.
Page 5 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1.2 Changes to Supply Demand Investment
Table 3 shows the changes in the Supply/Demand investment programme for AMP5 between
the draft and final Business Plans. The changes in the programme reflect the changes in the
supply/demand forecast, which is in surplus during the AMP5 period.
Schemes
Selective
Metering
632 - CHOICE
Water efficiency
target
Leakage
reduction
Study - AMR
trial
Study - Little
Stour
Whitfield
development
New mains &
connections
638 - BARI
continuation
639 - DEAI
continuation
Draft plan
Final plan
Included in baseline
96% by end of 2012
CAPEX
£5,532k
OPEX
£1,601k
To implement by 2016
Included in baseline
96% by April 2012
CAPEX
£3,550k
OPEX
£801k
To implement in April
2013
CAPEX
£225k
OPEX
£290k
Achieve 0.07Ml/d
reduction per year
CAPEX
£0
OPEX
£209k
0.5Ml/d by 2015
CAPEX
£86k
OPEX
£0k
To complete by 2015
CAPEX
£280k
OPEX
£28k
Moved to SD programme
To complete by 2015
CAPEX
£180k
OPEX
£0
Replaced by study to
complete by 2015
CAPEX
£175k
OPEX
£0
Gross CAPEX £3,669k
Net CAPEX
£535k
Ongoing
CAPEX
£0
OPEX in base
Ongoing
CAPEX
£0
OPEX in base
CAPEX
OPEX
Not included
£123k
£252k
0.1Ml/d by 2015
CAPEX
£25k
OPEX
£0k
To complete by 2015
CAPEX
£503k
OPEX
£32k
In Quality programme
To complete by 2015
To implement by 2015
CAPEX
OPEX
Gross CAPEX
Net CAPEX
Ongoing
CAPEX
OPEX in base
Ongoing
CAPEX
OPEX in base
£3,142k
£0
£7,465k
£3,447k
£0
£0
Study Desalination
To complete by 2015
CAPEX
£615k
OPEX
£0
CAPEX
OPEX
£0
£0
Study - Hythe
Gravels
To complete by 2015
CAPEX
£115k
OPEX
£0
CAPEX
OPEX
£0
£0
301 – BARI
extension
To complete by 2015
CAPEX
£2,800k
OPEX
£0
CAPEX
OPEX
£0
£0
Page 6 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Comments
AMP4 log-metering up
approved, reducing
programme in AMP5
Scope reviewed in light of
Lydd pilot trial
Additional requirement
Full investment removed
from FBP as risk shouldn’t
be paid for by customers
Reduced housing growth
forecast
Included in baseline for
the whole planning period
Included in baseline for
the whole planning period
Excluded, as not
necessary at this stage
given supply demand
balance
Excluded, as not
necessary at this stage
given supply demand
balance
Not required
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
629 – SLYE
362 –
Installation
of new PRVs
379 – New
leakage
technology
To complete by 2015
Not required
CAPEX
£13k
CAPEX
£0
OPEX
£0
OPEX
£0
To complete by 2015
Not required
CAPEX
£40k
CAPEX
£0
OPEX
£0.25
OPEX
£0
To complete by 2015
Not required
CAPEX
£50k
CAPEX
£0
OPEX
£176
OPEX
£0
Table 3: Changes to the supply/demand investment programme
Section 1.3 Response to Ofwat challenges
The Company has taken into account Ofwat’s comments on the draft Business Plan. Table 4
explains how the Company has incorporated the comments in its final plan.
Areas where Ofwat challenged the draft plan
Metering
Company’s
response
Climate change
Company’s
response
Water
efficiency
Company’s
response
Logging up
and down
You have proposed to accelerate your full metering programme for completion
by 2012. Please provide us with an explanation of the reasons for accelerating
this programme, and explain the benefits that it delivers.
The Company has provided explanation of the reasons for accelerating the
metering programme in the log up application, which has been accepted by
Ofwat. The details of the benefits of metering are explained in section 2.3.2.
Climate change is a significant driver of investment. Where climate change has
a significant impact on investment, we expect companies to go beyond the most
basic approach in the Environment Agency's guidance, and follow one of the
more sophisticated approaches that the EA suggests. You will need to consider
the timetable for completing this further analysis.
The Company used the recommended EA’s methodology to assess climate
change in its final pan. This is detailed in section 2.4.
In section 2.3.3 of your report, you outline your water efficiency strategy. You
should ensure that in your final plan, your strategy meets the requirements of
the water efficiency targets we will set this autumn. You should also ensure that
you take into account other pressures to reduce consumption such as, the Code
for Sustainable Homes and Future Water.
The Company has included the Water Efficiency Target set by Ofwat in its final
plan. This is detailed in section 2.3.3.
The Company used the data provided by the Code for Sustainable Homes and
the Market Transformation Programme on appliances’ volumes to derive its Per
Capita Consumption base year estimates and forecasts.
The Company’s strategy is in line with the Government’s strategy outlined in its
Future Water report (p.22),:
- Reducing per capita consumption to an average of 130 l/person/d by
2030, or possibly to 120 l/person/day.
- Encouraging demand management to protect customer and
environmental needs.
- Low leakage levels to meet optimum balance of economic,
environmental and other costs.
- Water efficiency playing a prominent role in achieving a sustainable
supply/demand balance.
We have sent you a query to determine whether you have delivered the
required outputs as detailed in 10W. We will continue to contact you separately
on this issue.
Page 7 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company’s
response
(S)ELL
Company’s
response
Leakage
Company’s
response
Data errors –
table 5.1
Company’s
response
DWRMP
feedback
Company’s
response
The Company has produced a log up paper, which has been approved by
Ofwat.
We do not consider your ELL to be robust, and it is not clear to us how your
future leakage targets have been derived from your ELL. There are a number of
issues which we expect you to include in your SELL with your final business
plan. Examples of these are:
•
Taking into account externalities. Please refer to our guidance in RD
02/08.
•
Undertaking sensitivity testing.
•
Update your base year.
•
Taking account of your expected change in efficiency both of your
leakage management activity, and your production and treatment of water
(including energy). If there is more scope to become efficient in one of these
activities than in the other, then this could change your SELL.
The Company has revised its ELL assessment. The base year has been
updated to 2007/08. The Company has followed the Ofwat guidance on how to
account for leakage externalities and has carried out sensitivity analysis around
the SELL. This is detailed in section C4 of the Business Plan.
We are concerned that you may be reducing leakage in response to a message
from customers that if they are to reduce their consumption, then they expect
the company to reduce leakage. You need to investigate customers’ willingness
to pay for leakage reductions, or ensure that this is a least cost option.
Customers have expressed their support to further leakage reduction through
the survey recently undertaken by the Company. Leakage options have been
proven to be amongst the least cost options via the EBSD modelling.
There are errors in some of the data lines in table 5.1. Your reporter highlights
these in his commentary. You should correct these errors in your final plan.
This has been resolved for the final plan
The feedback given here is in addition to the feedback we provided on your draft
water resource management plan. In your final business plan, you should take
into account both sets of feedback.
The Company has taken account of the representations made on its draft Water
Resources Management Plan; The Company has explained how it has included
the comments in its Statement of Response, published in January 2009.
Table 4: Company’s response to Ofwat comments on the dBP
Page 8 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2 Water Service Strategy
Section 2.1 General Information
Section 2.1.1 Operating Area
Folkestone & Dover Water Services is a water supply company providing a service to the towns
of Folkestone and Dover, together with surrounding rural areas including Romney Marsh and
Dungeness (420 km2). The area has a population of approximately 160,000 people and
supplies 43 mega litres of water a day to more than 71,000 properties. The Company is
bordered by two other water companies Southern Water and South East Water (Mid Kent
Water recently merged with South-East Water).
The Company’s supply area has major rivers or reservoirs from which water can be drawn and
relies on groundwater in local chalk and gravel beds. Boreholes in the chalk of the North Downs
provide a major source of water and additional water is obtained from the gravels in the Denge
peninsula on Romney Marsh. These water sources are of good quality and provide sufficient
water to meet all current customers’ needs.
The Company operates in one of the driest areas of England and in March 2006, was the first
water company in the Country to apply for and be granted “Area of Water Scarcity” status by
the Government. This enabled the Company to introduce compulsory metering and a phased
metering programme is underway with the aim of installing water meters to nearly all customers
by April 2012 (only properties where meters cannot be installed for technical reasons will be
excluded). Metering has the effect of raising awareness of how much water is used and water
savings of 10-15% are made by households with meters. Metering will therefore play a central
role in the drive to improve water efficiency and achieve a sustainable long term supply.
Demand for water is set to rise in an area where there is likely to be significant economic
growth and an increasing population. The Government has approved major housing
development in Ashford and the Thames Gateway and pressure is mounting for further
significant new housing stock in the South-East. Approximately 23,000 new houses have been
allocated to the Company’s area over the next 30 years in the latest South East Plan.
In 2009 the fast rail link from Folkestone to London will open and plans are also being
progressed for the expansion of Dover Port and the regeneration of Folkestone Harbour. All
these activities will inevitably increase demand for water and the Company has a statutory
responsibility to satisfy demand from new housing and support economic prosperity for the area
by meeting the needs of industry.
At the same time, it is important the Company takes into account the impacts of global warming
and climate change to ensure that the plan is robust to reductions in the amount of water
available and the increased demand for water that is likely to result. The Company is also very
conscious of the need to reduce the environmental impacts of its own operations, including the
Company’s carbon footprint.
Page 9 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.1.2 Water Resources Zones
A resource zone is the largest possible area in which all water resources, including imports and
exports, can be shared and hence the zone in which all customers experiences the same risk of
supply failure from a resource shortfall. The Denge Security Main allows the transfer of treated
water from the Hills to the Denge Area and effectively integrates the supply system across the
Company’s area. The Company believes that moving to one resource zone complies with the
Environment Agency’s definition. The Environment Agency agreed to the change, as indicated
to the Company in their letter received on the 29th of October 2008.
The final Water Resources Management Plan and final Business Plan have been prepared on
the basis of a single company-wide water resource zone, as shown in Figure 1.
Figure 1: Map of Supply Area
Page 10 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.2 Water Supply
Section 2.2.1 Deployable output
The current source yield assessment methodology is based on the earlier approaches outlined
by UKWIR in 1995. This methodology is focused on determining deployable outputs under
drought conditions only.
Since the 2002/03 submission, there has been no period during which water levels were lower
in the Company’s supply area than the last minima in 1996. However, there has been an
extended period (autumn 2003 to summer 2006) of low recharge, which has placed a degree of
pressure on source performance. The highest demand was seen in 2003, a year when the
water levels dropped to relatively low levels. The Deployable Output (DO) of sources and
groups of sources has been reviewed and updated where appropriate.
A number of schemes that have been implemented during the current AMP4 period have also
resulted in changes in DO. These include a mixture of licence variations arising from the
Memorandum of Understanding (MOU) signed by the Environment Agency and the Company in
November 2004, outstanding AMP3 schemes and AMP4 projects. Although some new
schemes, implemented as a result of the MOU, have not currently been fully commissioned,
they are in an operational condition, subject only to final quality testing. Hence, they are all
accounted for in the new DO reference year values which are 2007/08 for this DO assessment.
Following the process of adjustment of the current (2007/08) deployable outputs, the results
were compared with those projected for the same year in 2002/03. It was found that there had
been several downward changes to DO.
Source Output and Water Level Data
Since the PR04 submission, there has been no period during which water levels were lower in
the Company’s supply area than the last minima in 1996. However, there has been an
extended period (autumn 2003 to summer 2006) of low recharge, which has placed a degree of
pressure on source performance. The highest demand was seen in 2003, a year when water
levels in the local aquifer dropped to relatively low elevations.
Water level data was available from the Company’s telemetry system (both live and archived).
This data was extracted from the telemetry system and is held locally within the Water
Resources electronic filing system (e.g. Excel workbooks). Excel based tools were developed
to take weekly output and water level data, average it to monthly figures and plot the results in
the form of Summary Diagrams. The reliability of the telemetry data for water levels has been
verified with manual dips where available or by comparison to previous water level data.
Site information, such as pump duty and depth settings are available from the Company’s
Operations Manuals. Asset data and information gaps were filled by direct communication with
Operational staff.
Station Files, Drawings, Notes and Existing SRO Diagrams
A report on the DO of all the Company’s sources was published at the time of or just following
the AMP4 business plan submission. This documentation provides the basis for the current
review. In addition to these files, new information arising from recent project work, downhole
Page 11 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
inspections and other activities have also been utilised in determining the latest DO figures.
During the DO review, if there was insufficient or conflicting information, additional data was
sought. All such correspondence was referenced appropriately. Information acquired via
electronic correspondence was also documented and referenced similarly. All new data
collected were filled as appropriate. This new combined body of data was used to determine
the water level and pumping rate constraints for each source and/or borehole being reviewed.
These assessments confirmed the previous information and no revisions to existing individual
DO’s were made as the pumping water levels were above previous minima.
Climate Change
The impacts of climate change on DO have been the subject of a separate assessment.
DO Uncertainty
It is important that the degree of uncertainty is expressed in both the DO figures and in the
anticipated impacts due to climate change. This work will be conducted as part of the
Headroom assessment of the Supply-Demand Balance.
Splitting of Group Licences
Where the sum of the individual sourcework DOs in a licence group is greater than the
maximum licensed abstraction rate for that group, the individual source DOs of one or more of
the group has been adjusted downwards to ensure compliance with that licence.
Allowances for point source pollution and deteriorating raw water quality
Short-term outages and longer term uncertainty from the impact of pollution incidents have
been taken into account in both Outage and Headroom calculations.
DO changes post AMP4 base year
A number of schemes have been implemented during the current AMP4 period and have
resulted in changes in DO. These include a mixture of licence variations arising from the MOU
signed by the Environment Agency and the Company in November 2004, and outstanding
AMP3 schemes and AMP4 projects. Although some new schemes, implemented as a result of
the MOU, have not currently been fully commissioned, they are in an operational condition,
subject only to final quality testing. Hence they are all accounted for in the new DO reference
year values. Table 5 shows those sources where there has been a decrease in DO and Table 6
shows those where there has been an increase. No further changes are anticipated before the
end of this AMP period.
Page 12 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SOTT
Average
Volume
Change
0.05
Peak
Volume
Change
0.18
SLYE
3.64
3.64
SDRE
0.09
0.14
SDEN
0
1
SSTM
0
0.81
SDNG
0.35
0.42
SBLU
0.45
0.45
Source
works
Notes
Treatment losses from new membrane treatment plant at 6%
New dry year licence restriction under MOU and additional treatment
losses at 4% - AMP4 base year value was 7 Ml/d
Treatment losses at 4% from new membrane treatment plant
Correction to DO where recent operational experience has revealed that
the total output for this Group is restricted at peak by infrastructure
Correction to DO where recent operational experience has revealed that
combined output from the North Dover sources is restricted by
infrastructure at peak
Treatment losses from new membrane treatment plant
Borehole damage by earthquake that affected Folkestone on 28 April
2007 as confirmed by CCTV inspection on 25 June 2007
Table 5: Sources showing decreases in DO
Source
works
Average
Volume
Change
Peak
Volume
Change
SHOL
1.09
1.32
SPRI
1.44
1.82
SBUC
4
4
SCOW
4
4.8
Notes
Network modification to route raw water to new treatment works will
result in removal of previous network constraint
Licence variation under MOU
Licence variation under MOU and consequent development of new
source
Licence variation under MOU and consequent development of new
source. Previous baseline DO was 0Ml/d. Subsequently it was
projected, post commissioning, at 2Ml/d short of licence for drought at
both average and peak, based on the precautionary approach. That
value is now considered too pessimistic and potentially misleading.
The DO is therefore now estimated to be 80% of licence.
Table 6 Sources showing increases in DO
Asset failure and DO
Asset failure was not considered to be relevant to changes in DO. Equipment failures, such as
pump failure, are taken into account via outage and are only short term losses. The status of
the boreholes was taken into account in the asset condition revaluation, and where appropriate,
will lead to capital maintenance for repair/replacement. Asset failure due to changing water
quality is accounted for in headroom.
DO statutory adjustments
No sustainability reductions or statutory adjustments have been made for the 2007/08 DO
Assessment.
Page 13 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Drought abstraction figures
In accordance with the Drought Management Plan 2007, the proposed abstraction figures are
displayed in Table 7.
Drought DO (Ml/d)
Proposed Drought Abstraction (Ml/d)
Average
Peak
Average
Peak
Change
Average
Change
Peak
SDRE
2.26
3.55
4.26
5.55
2
2
SLYE
3.36
3.36
6.86
6.86
3.5
3.5
SBUC
4
4
4
6
0
2
SHOL
2.7
2.7
5.97
5.97
3.27
3.27
SSTO
0
0
6
6
6
6
Total
12.31
13.61
27.09
30.38
14.77
16.77
Source
Comments
Release of restricted
flow constraint
Release of restricted
flow constraint
Restoration of restricted
peak capacity
Release of
restricted yield
Release of
restricted yield
Table 7: Abstraction figures under Drought
Sustainability reductions
Sustainability reductions have taken place with licence changes at SLOW, SDRE and SLYE
implemented in July 2006 as part of the Memorandum of Understanding (MOU) for the River
Dour. The Company also has new licences for SPRI, SCOW and SBUC, as part of the MOU,
which reduces up-catchment abstraction and increases down-catchment abstraction.
PR09 Deployable Output
In the draft Water Resources Management Plan, the DO assessment was reported for two
water resources zones. Following agreement with the Environment Agency, which was certified
with a letter on 29th October 2008, the two resource zones were merged into one company level
zone.
Following the re-evaluation of the base year (2007/08) deployable outputs, the results were
compared with the equivalent AMP4 base year results, as shown in Table 8. It was found that
there have been changes, the reasons of which are detailed in a source by source basis in the
section below.
Equiv.
AMP4
Position:
Ave. DO
Company
Level
45.20
Equiv.
AMP4
Position:
Peak DO
59.80
Current
Position:
Ave. DO
2007/08
51.15
Current
Position:
Peak DO
2007/08
65.09
Differ
ence
Ave.
5.95
Differ
ence
Peak
Comments
5.29
Inclusion of treatment losses,
AMP4 schemes no longer allowed
for under the MOU, borehole
collapse due to earthquake and
correction to DO due to observed
infrastructure restrictions.
Table 8: Summary of DO changes
The changes detailed at individual source level are discussed below.
Page 14 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company is supplied by SOTT, SLYE, SRAK, SSHE and SSEA groups of sources and by
another 13 individual pumping stations.
The DO for the Company has been increased by 5.95Ml/d under average demand conditions
and by 5.29Ml/d under peak demand conditions in comparison with the previous DO
assessment. Seven of the sources had reductions in their DO whereas four of them had
increase DO values.
The SDNG DO has been revised downward by 0.35Ml/d average and 0.42Ml/d peak due to
treatment losses since the commissioning of a new membrane treatment plant.
New licences have caused increased DO values in the case of SPRI, which DO value was
uprated by 1.44Ml/d average and 1.82Ml/d peak, and SHOL, which DO was increased by
1.09Ml/d and 1.32Ml/d average and peak respectively.
New sources have been commissioned resulting in DO uprating. SBUC was commissioned in
2008 with DO of 4Ml/d both average and peak demand. SCOW was also uprated by 4Ml/d and
4.8Ml/d average and peak demand respectively.
Despite the commissioning of new sources during the AMP4 period, there have been several
downward changes to both average and peak DO when comparing current (07/08) DO to the
AMP4 DO assessment. At three sites (SLYE, SDRE and SOTT) this is due to treatment losses
since the commissioning of new membrane treatment plants.
The DO at sites in the SRAK group and the group of North Dover Sources has been revised
following recent operational experience revealing that group output is restricted by the
infrastructure that dominates individual and/or combined flow In each case the reduction in DO
has been nominally shown in the DO of one member of the group, SDEN and SSTM, which
peak demand DO was downrated by 1Ml/d and 0.81Ml/d respectively.
Section 2.2.2 Sustainability reductions
In November 2008, the Environment Agency (EA) advised National Environmental Programme
(NEP) activities relating to the Company. The Environment Agency has identified two sites for
further activities under the initial NEP. These are listed in the tables below (Table 9 and Table
10).
Cost Driver – Supply Demand
Site Name
Little Sour
River Basin
District
AMP
assessment
Current
Lead
Driver
BAPw1
Current
Status
Investigation
Licences
PR09/AMP5 Comment
9/40/04/0273/GR
9/40/04/0377/G
9/40/04/0060/GR
Options appraisal to identify licence
changes or other measures to
protect the environment from
existing extraction. This options
appraisal will be more complex due
to the fact that there are three water
companies involved.
Table 9: EA NEP investigations after letter 28/11/2008 – Supply Demand
There is ongoing investigation on potential sustainability reductions on the Little Stour
catchment.
Page 15 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The costs and scope of the study are detailed in section 3.2.1 of this document.
Cost Driver – Quality Enhancement
Site Name
Dungeness
River Basin
District
Dungeness
SAC
Investigation
Current
Lead
Driver
Hw3
Current
Status
Stage 4
Appraisal
(EA)
Licences
PR09/AMP5 Comment
09/40/05/0071/G
Implementation: PR09 funding is
required to implement licence
changes in order to comply with the
Habitats Directive. The licence
changes which will be implemented
by 2014/15 will insure the
necessary protection to the
environment. The EA has agreed
the Company proposal that this can
be achieved without impacting on
the Deployable Output.
Table 10: EA NEP investigations after letter 28/11/2008 – Quality Enhancement
The packages of work to meet the Environment Agency’s requirements for the National
Environmental Programme are described more fully in Section B4. However, the requirements
of the Habitats Directive at Dungeness are explained below.
Dungeness has been subject to a series of investigations to look at the impact of the
Company’s public water supply abstraction on water levels within the beach. These concluded
in AMP3 that there was no impact on the Blackthorn bushes and their epiphytes (the subject of
the investigations) and thus no funds were sought in AMP4 for further work or options
appraisal. The current version of the Environment Agency table given in the letter states
‘Implementation (Supply/Demand)’, but at this stage no options appraisal has been undertaken
by the Company.
With regard to the Deployable Output assessment for the Denge source, no allowance for a
sustainability reduction was included in the draft plan, and this position is also reflected in the
final plan.
In July 2008, the Environment Agency published the SAC Habitats Regulations Stage 4 Site
Action Plan (SAP) for SDNG, which proposed a change in the groundwater level conditions for
boreholes 7, 8 and 26 of the SDNG wells.
The Company is currently in discussion with the Environment Agency to agree on the revision
of the current licence by 2015, as long as there is no impact on the Company’s current
deployable output, in order to comply with the Habitats Directive obligations. This future licence
review and revision needs to be supported by robust information, and, with the EA support, the
Company proposes to undertake a study at SDNG during AMP5, under the NEP programme, in
order to assess the impact of abstraction on Open Pits 5, 6 & 7.
Page 16 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.2.3 Outage
The outage assessment used the UKWIR 1995 methodology, described in Outage Allowances
for Water Resource Planning.
Assessments were completed for each source works within the two resource zones that
comprise the supply area. Two standard pro-formas were developed for the assessments:
•
•
Groundwater sources
External transfers and imports
For each source, assessments were predominately based on interviews with experienced
operational staff, and historical data was used as an aid to assessing outage.
The standard outage pro-forma for all groundwater and transfers was then applied to a MonteCarlo based model using Crystal Ball software, which was created specifically for this outage
assessment. Monte-Carlo model was created for the company-wide resource zone, with source
outages being summed to give a total outage value for the resource zone. The model gives
total outage values for each resource zone, with specified levels of certainty.
The outage in periods of average water demand was found to be 1.84 Ml/d, whilst at critical
periods of water demand (estimated to be a one month period from mid-July to mid-August) the
outage reduces to 1.97 Ml/d (Table 11).
The results of the Crystal Ball Monte-Carlo modelling process list a number of different
percentiles of certainty for each of the two resource zones. These are then summed to find total
outage at a 95% level of certainty. This approach is consistent with the level of confidence used
for 2002/03 assessment.
Company Level
Average DO (Ml/d)
Average Outage (Ml/d)
51.15
1.84
Peak DO (Ml/d) Peak Outage (Ml/d)
65.09
1.97
Table 11: Outage at 95% level of certainty
Summary of the methodology applied
A summary of the steps used in the outage assessment methodology is set out below and
shown in the flow chart in Figure 2. More detailed descriptions of key points are then discussed
in the following sub-sections of this chapter.
1) Source works definition was conducted.
2) Potential outage events affecting each source works (including transfer between resource
zones) were identified, and a standard pro-forma created.
3) For each source works, an estimate for the return period and duration of each outage event
(where it was applicable) was assessed by interviewing relevant operational staff.
4) The impact of each outage event on the deployable output (DO) of a source works was
assessed during the same interview stage – i.e. the magnitude of the outage was
estimated.
5) Outage assessment pro-formas were submitted to the operational staff for review.
Page 17 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
6) The pro-forma data was entered into the model. Monte-Carlo analysis, using Crystal Ball
software, was adopted as a means of combining the outages from all source works into a
supply area total. This method allows for an overall Company outage value to be stated with
a specified degree of certainty.
Establish source works that are to be
included in the outage assessment
Identify potential outage events & construct standard pro-forma
Collate available historical outage data
Repeat for
each source
works
Interviews with relevant operational staff
to assess frequency and durations of
outage events at source works
Note: Consider
all sources –
GW and SW
Assess impact of event on DO of source,
i.e. define outage magnitude
Use interview data with any relevant
historical data to create final pro-forma
Pro-forma review by operational staff
Input data from each pro-forma
into Crystal Ball model
Run model to forecast company
outage with degree of certainty
Figure 2: Flow chart describing outage assessment process
Flood risk
To assess the impact of proposed flood protection measures on reducing flood risk to assets
and the impact on plant outage, it was necessary to determine the anticipated return period that
the Company’s assets can withstand for two cases:
•
•
The existing situation, without additional flood protection measures
The future situation, after the implementation of any flood protection measures
In addition, it has been necessary to determine the duration of the respective flood events in
order to estimate the impact on outage.
The Company commissioned consultants to undertake the flood risk assessments. Their report
is contained in an appendix to section B6.
Page 18 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
For these flood risk assessments, flood levels were obtained from the Environment Agency
Strategic Flood Risk Mapping (SRFM) studies (where available) covering the following return
events:
•
•
•
1:20 year
1:100 year
1:100 year (with climate change)
In addition, flood levels for the 1:10 year event were derived by logarithmic extrapolation.
The SFRM flood mapping has shown that those assets identified to be at risk from fluvial
flooding would likely be inundated by floods mainly within the range of between 1:10yr and
1:20yr return period (for the case without additional flood protection measures) and it has
therefore been considered conservative to predict a flood return period of 1:10yr for all assets
under this case.
For the case with flood protection, it has been estimated that assets would be designed to be
resilient to floods of return period 1:100yr (including climate change increases) after the
proposed flood protection measures had been implemented.
These flood return periods have been determined for fluvial flooding within those catchments
where SRFM flood modelling and mapping has been carried out. As there is no data available
on flood return periods for those catchments where SRFM modelling has not been carried out
or for pluvial or groundwater flooding; it is considered reasonable (in the absence of any other
data) to use the modelled fluvial return periods as a proxy for these flood types as well.
Coastal flooding affects the Denge peninsular and for this it has been found that the risk of
inundation, from a peak storm surge at high tide, of the Denge aquifer is likely to be of the order
1:20yr. As it is not feasible to construct flood protection measures to protect the Denge aquifer
from saline contamination, the aquifer cannot therefore be protected from flood events.
The estimated flood return periods for fluvial/pluvial/groundwater/coastal flooding for the
Company’s sites are given in Table 12.
Assessment of the duration of any flood event is more difficult to assess and is also dependent
on the time taken to restore a site back into service. Estimates have been made, following
discussion with operations’ staff.
Fluvial
Return Period
(no flood protection)
Return Period
(with flood protection)
Flood Duration
Pluvial
Groundwater
Coastal
1:10 yr
1:10 yr
1:10 yr
1:20 yr
1:100 yr (CC)
1:100 yr (CC)
1:100 yr (CC)
-
2 days
2 days
5 days
14 days
Table 12: Flood Return Period and Durations
Page 19 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Sites at risk of
groundwater flooding
Beachborough Springs
SBUC
CHER Upper Works
SDOV
SOTT
SPRI
Sites at risk of
fluvial flooding
Sites at risk of
coastal flooding
SBRO
SDEN
SLYE
SOTT
SRAN and SRAS
SSHE
STAN and STAS
Sites at risk of
pluvial flooding
SDNG
SWOR
SSTO
SLYE
SSTA
SDEN
SOTT
SKIN
Table 13: List of Sites at Risk of Flooding
Computer modelling
The results of the Crystal Ball Monte-Carlo modelling process list the total outage for the
company at a number of levels of certainty.
The total deployable output is also reported, and hence the outage as a percentage of total DO
can be calculated. Table 14 below shows these results.
Outage - Percentiles
Deployable
output (Ml/d)
50%
75%
90%
95%
97.5%
99.9%
0.62
1.0%
0.90
1.4%
1.41
2.2%
1.97
65.09
3.0%
2.95
4.5%
7.05
10.8%
51.15
0.70
1.4%
0.87
1.7%
1.62
3.2%
1.97
3.9%
3.16
6.2%
Outage Peak
Forecast (Ml/d)
%ge of DO
Outage Average
Forecast (Ml/d)
%ge of DO
1.84
3.6%
Table 14: Outage percentiles and outage as percentage of total DO
Outage assessment
It was estimated that a 95%ile certainty value for outage, based on the Monte-Carlo modelling,
would be the appropriate value to consider, as this implies that 95% of the time outage will
return a value less than the resultant figure.
The outage assessment found a value of 1.97 Ml/d outage in critical periods of peak demand,
and 1.84 Ml/d outage for the Company in periods of average demand. This equates to an
outage value of 3.0% as a percentage of total DO at peak times, and 3.6% as a percentage of
total DO at average.
Page 20 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.2.4 Raw and potable water transfers and bulk supplies
The Company supply area is bounded by the English Channel to the South, the Southern
Water supply area to the north and South-East Water to the north-west. In addition, the
Company shares a short boundary with Southern Water on the Denge Peninsula in the southwest.
The Environment Agency in Water Resources for the Future: a strategy for Southern (March
2001) encouraged the sharing of resources between areas of surplus and deficit through bulk
supply transfers, subject to there being no adverse effects. The Company participated in
regional water resources studies to specifically investigate cross-company transfers in the
context of its supply/demand balance investment plans for business plan 2009 submission.
The Company has bulk supply import arrangements with both of its neighbours, but these are
threatened by the competing demand for water from the forthcoming Sustainable Communities
at Ashford and Thames Gateway South in those companies’ supply areas. The existing
agreements are time limited and both expire in the next ten years.
The Company had had a long standing import from South-East Water (Barham) arising from
the transfer of customers from East Kent Water in the past. This arrangement was put on a
formal footing in 1999 by means of an OFWAT Section 40 Order. The present supply of 2 Ml/d
(throughout the year) was due to expire in 2009/10 but agreement has been reached to extend
to 2014/15, and this forms part of the Company’s Water Resources Management Plan.
Following recent discussions with South East Water, the two companies agreed to extent the
agreement until 2019/20. For planning purposes, this import is included in the supply/demand
baseline until the end of the planning period (2035). This approach is being mirrored by South
East Water. The increase of the bulk supply from 2Ml/d to 4Ml/d is an option which the two
companies are currently discussing.
During AMP3, the Company negotiated a further bulk supply from Southern Water (Deal). The
agreement is due to expire in 2012. This supply provides up to 4Ml/d over four months of the
winter period. Consequently, it was considered as an average demand scheme equivalent to
1.33 Ml/d, although this is dependant on hydrological conditions. For planning purposes, this
import is included in the baseline supply/demand balance until the end of the planning period, ie
2035. This approach is consistent with that of Southern Water. An increase in the volume and
period of availability of the bulk supply is an option under discussion between the two
companies.
Further and/or extended bulk supplies may be available on a short-term basis, but are uncertain
in the times of drought that form the Company’s critical planning case. Reliable bulk supplies
would require the donor companies to develop further resources to enable them to supply the
Company as well as the proposed Sustainable Communities (Thames Gateway and Ashford).
In this context, the Company is active within the Water Resources for the South-East group and
is monitoring the development of regional resources and the potential benefits they may have
for the Company. The Company is currently liaising with its neighbouring companies: South
East Water and Southern Water, in order to identify long-term regional solutions which would
benefit customers of the South East area. SEW and SW have confirmed they would be able to
provide increased bulk imports from 2020. These increased bulk transfers may require resource
developments within SEW and SW supply areas, and the Company will support its neighbours
in doing so (see section 2.8.3).
Page 21 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.3 Water Demand
Section 2.3.1 Demand forecasts
Base Year Demand
The Environment Agency guidelines recommend using 2006/07 as the base year for the
demand forecasts. However, in the Company and South East area, that year was characterised
by hosepipe restrictions and extensive publicity surrounding the drought. Some work has been
done at UKWIR level to attempt to quantify the effects of this, but the results were not
conclusive at water company level. It is therefore difficult to attempt to normalise that year to
derive a base position.
On the other hand, the 2005/06 year was relatively climatically normal in terms of overall rainfall
and sunshine; although the temperature anomaly compared to the 1961-1990, average shows
that the year was warmer than baseline. The Company has, therefore, used the 2005/06 year
as the basis for the dry year forecast, and forecasted forward one year to generate figures for
2006/07 in the Water Resources Management Plan.
To derive the dry year planning scenarios, demand was benchmarked against the 2003/04 hot
dry year. For each component of demand, dry year average and dry year critical, factors have
been applied.
The Company has estimated that commercial consumption increases by 10% at peak and by a
further 1.5% in a dry year.
Metered domestic consumption is predicted to increase 30% less than unmetered both at peak
and in a dry year. Unmetered peak and dry year factors have been adjusted to reconcile to the
benchmark year of 2003/04. This is a departure from the UKWIR methodology, but it is
considered to provide a more robust methodology for the forecasts where a large metering
programme is proposed.
The Maximum Likelihood Method MLE was used to reconcile the water balance and minimise
uncertainty in the base year demand.
Base Year Population and Properties
The number of properties in 2005/06 has been derived from the Company’s billing database for
all of the property categories reported in the June Return. Historical June Return figures have
been analysed to breakdown metered customers per customer type. Where there is no data,
simple assumptions have been used to hind-cast estimated total numbers. The customer base
per property type and population is split as shown in Table 15.
Page 22 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Billing Category
Households
Population
Measured Households
27,920
58,418
Unmeasured Households
39,960
93,439
Void Properties
580
0
Measured Non-households
4,447
4,232
Unmeasured Non-households
851
0
Total No. Billed
73,758
156,089
Table 15: Households and Properties by billing categories
Base year population in unmeasured non households has been determined from census
estimates of communal establishment populations. No estimates have been made for
population in other commercial premises not counted in the census. Calculated metered
occupancy is 1.93 persons per property and unmetered is 2.29. This difference between
measured occupancy and unmeasured occupancy reflects the fact that low occupancy
properties gain most from switching to meters.
Base Year Domestic Consumption
Base year estimates on ownership, frequency of use and water volumes for the different
components of water use were taken from relevant published literature as well as a
comprehensive survey on water use. This was carried out in 2007 and 2,500 households in the
Company area responded.
The information from the survey was also used to calibrate the Southern Area Group
consumption Monitor which measures household demand. The Company uses data from the
Southern Area Group Monitor to derive the base year unmeasured PCC. This monitor complies
with best practice for small area consumption monitors. The PCC is used in conjunction with
Company research data to calibrate the micro-component model in the base year.
The survey strengthens the Company’s specific understanding of base year water use, which
was in turn benchmarked against the existing consumption monitor study. The number of
replies received makes the results both representative and statistically significant for the
Company as a whole.
The measured base year PCC is calculated by dividing the domestic measured billed volume
(minus supply pipe leakage) by the measured domestic population. The measured customer
PCC projection is then forecasted forward from this figure.
Population Forecast
The population served by the Company is set to increase over the next 25 years and beyond.
The Company produces company-specific population forecasts to inform the supply demand
balance and maintain continued security of supply. As discussed in the methodology and from
what has been referenced in the appendix, the material available from which to evidence this
forecast is considerable, although there will always be inherent uncertainties surrounding
forecasts of this nature.
To ensure a consistent methodological approach when determining a company-specific
forecast, Experian were commissioned to undertake a joint housing and population study for
the South East on behalf of a number of water utility companies, including Folkestone & Dover.
Page 23 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
From this work, three company specific forecasts were produced, as shown in Figure 3:
•
The policy scenario forecasts a population increase of 22% (33,016), from 152,090 in
2001 to 185,106 in 2040.
•
The most-likely scenario forecasts a population increase of 30% (45,289) from 152,090
in 2001 to 197,379 in 2040.
•
The trend scenario indicates an increase of 33% (50,453), from 152,090 in 2001 to
202,543 in 2040.
The Water Resources Management Planning Guidelines recommend that each water company
forecasts the population supplied based on a policy-based projection. Recent revisions to the
national population forecast made by the Office of National Statistics (ONS) have been
incorporated into revised Experian forecasts in November 2008. The Policy based projection
has been used for the final Water Resources Management Plan.
The main factors driving the population revision from the 2004 mid-year estimates (used in
Experian’s forecasts for the draft Water Resources Management Plan) to the revised 2006 midyear estimates (used in the final Plan), are the amended birth rate, death rate and migration
estimates. Recent trends have shown that birth rates and migration are higher than previously
forecast with death rates being lower. When these revisions are applied, the resulting forecast
projects a higher than previously envisaged population level by 6.3% above the 2004-based
projections.
Folkestone and Dover Water Services Total Population by Forecast Method
210,000
200,000
190,000
180,000
170,000
160,000
150,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
140,000
Trend
Policy
Most Likely
Figure 3: Total Population by Forecast Method 2001-2040
Page 24 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Housing Forecast
The demand for housing in the South East of England particularly, shows little sign of abating in
the long term, despite a sharp economic downturn started in the autumn of 2008. The growing
population and present housing stock shortfall is resulting in strong ‘top-down’ targets for new
dwellings in order to meet this demand.
The Company produces company-specific housing growth forecasts in order to ensure a
continued level of supply now and in the future. These forecasts use best available information
from a national, regional and local scale.
Often site specific knowledge is also important, for example where planned developments
occur close to a supply boundary. In these circumstances closer inspection is required to
assess the precise housing numbers that fall within the Company’s supply area.
To ensure a consistent methodological approach when calculating the Company’s housing
forecast, Experian were commissioned to undertake a joint housing and population study for
the South East. This study was carried out on behalf of a number of water utility companies,
including Folkestone & Dover Water Services.
The Company also undertook an internal review of housing build rates which further supports
an understanding of expected growth.
From this work four company specific forecasts were produced, as shown in Figure 4:
•
The policy scenario forecasts an increase in housing stock of 42% (27,078
dwellings), from 64,362 in 2001 to 91,440 in 2040. This method aligns the trendbased estimates with the housing allocations, promulgated in the draft regional
plans.
•
The policy scenario with economic downturn. The policy forecast has been
amended to reflect the current economic conditions with a downturn in the
cumulative households built from 2010, and recovering by 2022.
•
The most-likely scenario forecasts a housing increase of 52% (32,254), from 64,362
in 2001 to 97,616 in 2040. There is a divergence between the trend and policy
projections. The most likely scenario is Experian’s subsequent best estimate of
household growth, given all the available information.
•
The trend scenario projects a housing increase of 56% (35,836 dwellings), from a
2001 level of 64,362 to 100,198 in 2040. This methodology utilises 2001 Census
and the most up-to-date sub-national estimates and projections from the Office of
National Statistics.
The forecasts have been updated following recent revisions to the national population forecast
made by the Office of National Statistics (ONS) (which impact on all three scenarios), and
proposed amendments to the South East Plan housing allocations, as described below.
In light of the very rapid changes and latest information on the recession, the Company decided
to reflect the ‘economic downturn’ in its household forecast and created a Policy with economic
downturn scenario. For this scenario, the build rate is reduced, compared to Policy without the
downturn, for the years 2010 – 2013 inclusive, then increases above the Policy rate for the
years 2014 – 2022. The average number of houses built in the last five years has been around
Page 25 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
550 per year. Due to the severity of the economic downturn and the number of applications for
new connections made over the last couple of months, the Company estimates that between
2010 and 2013 250 new properties each year will be connected to the Company’s water supply
network.
The Company predicts a beginning of recovery from 2014 and estimates that 650 new
properties per year would be connected in 2014 and 2015, then increasing to 823 properties
per year between 2016 and 2022. In 2023, the total number of houses built is the same for the
Policy forecasts with and without the economic downturn. From 2023 onwards, the number of
households built every year is the same for the Policy forecast with and without the effect of the
economic downturn.
For the final Plan, the Policy forecast (amended to account for the South East Plan housing
allocations and the economic downturn) has been used as recommended in the Environment
Agency Water Resources Management Planning Guidelines.
FDWS Total Housing Forecast Method 2002-2040
105,000
100,000
95,000
90,000
85,000
80,000
75,000
70,000
65,000
Policy (no economic downturn)
Trend
Policy (with economic downturn)
20
40
20
38
20
36
20
34
20
32
20
30
20
28
20
26
20
24
20
22
20
20
20
18
20
16
20
14
20
12
20
10
20
08
20
06
20
04
20
02
60,000
Most Likely
Figure 4: Total Domestic Household Projections by Forecast Method 2001-2040
PCC Forecast
Forecasting domestic use can be done using a micro-component approach and by
benchmarking the forecast predictions to the base year PCC (per capita consumption). The
micro-component method identifies the components of water use, including their levels of
ownership and how often they are used. Best available data is then used to determine how
projected changes in these factors may effect overall consumption in the future.
The micro-component model is based on a series of Ownership, Frequency and Volume
equations, summed to give a total PCC. This calculation is repeated year on year to produce a
forecast, taking into consideration projected changes in the O, F and V estimates. The model is
Page 26 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
calibrated in the base year (2005/06) with PCC calculated from the water balance, the Southern
Area Study monitor and the known billed metered consumptions.
The model is built around a series of spreadsheets including:
•
•
•
•
Ownership of appliances (measured & unmeasured),
Frequency of use of the appliances (measured & unmeasured),
Volume of use for each appliance. The volume estimates have been kept constant over
the forecast period.
Consumption of water (measured & unmeasured),
Table 16 shows the Central, Low and High forecasts for unmeasured and measured per capita
consumption for the Company.
Metered PCC
Lower
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Central
Upper
Un-Metered PCC
Lower
Central
Upper
136.8
136.8
136.8
164.6
164.6
134.9
136.0
137.3
162.8
164.0
133.4
135.3
137.7
161.1
163.5
132.1
134.5
138.1
160.0
163.0
130.7
133.8
138.6
158.9
162.5
129.6
133.0
139.1
158.0
162.0
128.5
132.3
139.5
157.1
161.5
127.4
131.5
140.0
156.3
161.0
126.3
130.8
140.5
155.4
160.5
125.2
130.1
141.0
154.5
160.0
124.1
129.3
141.5
153.6
159.6
123.0
128.6
142.0
152.7
159.1
121.8
127.9
142.5
151.8
158.7
120.6
127.1
142.9
150.9
158.2
119.4
126.3
143.4
150.0
157.8
118.3
125.7
143.9
149.1
157.4
117.8
125.6
145.1
148.3
157.1
117.3
125.5
146.2
147.7
157.0
116.8
125.5
147.4
147.7
157.5
116.3
125.4
148.6
147.7
158.0
115.8
125.4
149.8
147.6
158.5
115.3
125.4
151.0
147.6
159.0
114.7
125.3
152.1
147.5
159.6
114.0
125.1
153.1
147.4
160.1
113.3
124.9
154.1
147.3
160.6
112.6
124.7
155.1
147.2
161.0
112.5
124.5
156.2
147.7
161.5
112.5
124.3
157.2
148.2
162.0
112.4
124.7
158.2
148.7
163.1
112.4
125.1
159.3
149.2
164.2
Table 16: Per Capita Consumption Forecasts
164.6
165.2
165.8
166.5
167.1
167.8
168.5
169.1
169.8
170.6
171.3
172.0
172.8
173.5
174.3
175.0
175.9
177.0
178.7
180.4
182.1
183.8
185.6
187.3
189.0
190.6
192.3
194.1
195.8
197.5
Page 27 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
PCC of metered customers is expected to fall from 137l/h/d in the base year to 125l/h/d in
2035, in the Central forecast. The Company expects to achieve 130 PCC by 2015 for its
metered customers, which is in line with the Government aspirational target. Unmetered PCC is
forecast to decrease from 165l/h/d in the base year to 157.0 in 2023, and then to rise to
164l/h/d in 2035.
Uncertainty bounds from these estimates indicate that metered PCC may be up to 12.7 l/h/d
less or 34.2 l/h/day greater than the Central forecast by 2035. Unmetered consumption at the
end of the forecast ranges from 149.2 to 197.5 l/h/day – an envelope of 48.3 l/h/day or 29% of
the Central forecast.
The Company considers that given the accuracy of the data used to benchmark the base year,
the Central forecast projects a sound basis from which to consider future demand. The Low and
High forecasts are also considered solid outliers, from which to base the considerable
uncertainty about a forecast of this type. The Central forecast is recognised as the most robust
at this time. The Low and High forecasts use the same base year assumptions as the Central
forecast, but include uncertainties around potential future behavioural changes. These
forecasts are used in the headroom analysis.
The Company has also calculated the combined PCC for the Central forecast, as shown in
Figure 5 below.
Per Capita Consumption forecast
170.00
160.00
PCC (l/person/day)
150.00
140.00
130.00
120.00
110.00
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
100.00
Financial year ending
PCC measured - central forecast
PCC unmeasured - central forecast
Combined PCC
Figure 5: Combined Central PCC forecast
The Central forecast shows a combined PCC in the base year of 150 l/h/d falling to 131 l/h/d in
2015 and 126 l/h/d by 2035.
Page 28 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Commercial Forecast
The forecasting methodology that has been used is a two stage process. Firstly, regression
analyses have been carried out to establish relationships between commercial demand and the
relevant economic explanatory variables based on historic data for a period of 8 years from
1998/99 to 2005/06. Secondly, specific forecasts have been provided for some large users by
the Company, and for the residual demand the economic relationships have been extrapolated
forward to forecast future demand over a 30-year period to 2036/37 based on long-term
forecasts of economic growth.
This proposed methodology follows industry best practice guidance as set out by UKWIR in
“Demand Forecasting Methodology” (1995) and “Forecasting Water Demand Components Best Practice Manual” (1997), and is similar to the methodology used by Atkins for PR04.
Regression analyses have been carried out to explain the Company’s commercial consumption
as a function of UK regional data for both Real Gross Values Added (GVA) and Employment for
the South East Region of the UK. This work has been carried out separately for all categories,
Services, and Industry & Manufacturing.
The best relationships that have been established (based on the R-squared regression values)
have then been used to forecast future demand through 2036/37 based on forecasts for the
underlying economic factors.
The Company has based its commercial demand forecast on 2008/09 consumption, which has
been calculated following the June Return methodology. The forecast used for the final Water
Resources Management Plan also includes the impact of the economic downturn.
Following the derivation of the central economic forecast of GVA growth of 3% per annum, the
impact of changes in the economic outlook for the UK and the South East region in particular,
have been assessed on the following basis:
2008/09
2009/10
2010/11
2011/12
2012/13
GVA
-2%
0%
0%
3%
3%
% change
-5.40%
-6.60%
-4.70%
-0.10%
-0.10%
Table 17: GVA growth assumptions for economic downturn
There are significant step changes in the total consumption forecast over the periods 2006/07
to 2009/10 and 2018/19 to 2021/22. Figure 6 reflects the significant drops in demand at
Dungeness A (2007) and Dungeness B (2020) as a result of projected closure dates, and at
Kent Salads (2010) as a result of the implementation of a more water efficient mode of
operation.
Page 29 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Forecast for Folkestone & Dover Total Commercial
Consumption
16
Consumption (Megalitres per day)
14
12
10
Total
Specified
8
Modelled
6
4
2
2036/37
2034/35
2032/33
2030/31
2028/29
2026/27
2024/25
2022/23
2020/21
2018/19
2016/17
2014/15
2012/13
2010/11
2008/09
2006/07
0
Year
Figure 6: Total Commercial Consumption
Demand Forecast Model
A number of work streams and technical reports form part of the demand forecast.
•
•
•
•
•
Population forecast
Household forecast
Micro-component forecast
Commercial forecast
Sustainable Economic Level of Leakage
Those forecasts are transferred in the demand forecasting model, which comprises three core
spreadsheets: demand forecast drivers, normal year and dry year sheets.
Demand forecast drivers contain the majority of the outputs from the above forecasts. Normal
year contains the water balance for normal year average and peak and the same for dry year is
in the dry year sheet.
Occupancy rates forecast are calculated for the previous year for new properties, optants,
selective meters, un-metered and metered. These occupancy rates are used to calculate the
next years’ population according to the household forecast and metering programme.
Housing numbers influence the numbers of people in each customer category but generally
have little impact on the demand forecast. There is a limited impact as a result of average
supply pipe leakage in metered properties.
Micro-component forecasts give the input numbers for the demand forecast. These are used in
the demand forecast drivers sheet as annual increments in PCC. These are used in the
calculation of water delivered for each customer category. According to a complex interplay of
Page 30 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
population, occupancy rate, metering estimates and the metering programme the PCC’s are
recalculated for each year. As a result the final PCC’s in the demand forecast do not match the
PCC’s in the micro-component report and WRP7 of the WRMP tables.
Metered commercial forecasts are entered directly into the demand forecast drivers sheet. No
change is estimated for un-metered commercial.
Future changes in leakage are modelled against other scheme options in the economic
modelling. Incremental changes in leakage are selected on economic grounds.
Zonal peak and dry year factors have been derived by making an assessment of historic peaks.
A nominal increase has been predicted for commercial customers. Metered domestic
customers are estimated to use 30% less in a dry year and in peak than un-metered customers.
The un-metered factors are used to calibrate to the zonal peak factors. This methodology
allows for savings at peak and dry year as a result of the metering programme to be hard wired
into the demand forecast.
The baseline demand forecast used in the final Plan is shown in Figure 7.
Demand forecasts
60.00
50.00
Ml/d
40.00
30.00
20.00
10.00
4
3
5
20
3
20
3
1
0
9
8
7
2
20
3
20
3
20
3
20
3
20
2
20
2
5
4
3
2
6
20
2
20
2
20
2
20
2
20
2
20
2
0
9
8
7
1
20
2
20
2
20
1
20
1
5
4
3
2
1
0
9
8
6
20
1
20
1
20
1
20
1
20
1
20
1
20
1
20
1
20
0
20
0
20
0
7
0.00
Year
Dry Year Demand
Normal Year Balance
Peak normal year demand
Peak dry year demand
Figure 7: Demand Forecasts (Distribution Input)
For all scenarios, total demand is forecast to reduce to 2022 then increase slightly to the end of
the forecast. Dry year average demand falls from 47.30 Ml/d in 2007/08 to 42.05 Ml/d by
2034/35; demand during the dry year critical period falls from 57.76 Ml/d in 2007/08 to 48.61
Ml/d in 2034/35.
Page 31 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.3.2 Metering strategy
The Company is acutely aware of the need to promote the efficient use of water by its
customers and to conserve water resources. A policy of demand management to achieve this
aim, through compulsory and subsidised optional metering, has been in place since 1993.
In 2000, the Company commenced a free meter option scheme for all households and
introduced a policy of compulsorily metering all customers with swimming pools. All
unmeasured commercial properties were also compulsorily metered.
The Company’s strategy in its 2002/03 submission was to achieve 90% of all domestic
properties paying for water by measured volume by 2015. This required the installation of a
water meter to all unmeasured properties throughout the area of supply in a 10-year
programme. Only properties with complex plumbing arrangements that would require significant
alteration in order to be metered would not have a meter installed. Where meters are not able
to be installed, the property would be transferred from the RV based tariff to the current
Domestic Assessed Tariff that is based on occupancy.
The current strategy has developed from the previous position in the light of experience gained
in the current period. Successful in its application for ‘Area of Water Scarcity’ status on 1st
March 2006 the Company has moved from a change of hands strategy to a compulsory
metering programme based on zonal metering. In addition, the Company is targeting a higher
meter penetration of 96% (all properties excluding only the most complex plumbing
arrangements), compared to 90%; and to accelerate metering delivery to be complete by April
2012 rather than 2015 as originally proposed. The Company consulted with customers on these
changes as part of the development of the Strategic Direction Statement. Positive feedback
was also obtained through responses to the consultation on the draft Water Resources
Management Plan.
The change in strategy reflects a number of drivers:
•
Support from customers who view metering as the fairest way of paying for water;
•
The contribution earlier metering provided to the supply/demand balance;
•
The benefits arising from reducing the environmental impacts of the Company’s
operation and empowering customers to do the same – an area the willingness to pay
surveys showed strong customer support for;
•
Demonstrating the Company’s commitment to metering as part of a wider demand
reduction strategy;
•
Establishing full metering to provide a platform from which other water efficient
measures can be delivered, such as stepped-tariff, but also other measures such as
retrofit trials etc.
The Company metering strategy will be delivered through the following activities:
•
Selective Metering: Operating a compulsory metering policy in line with the Company’s
status as an Area of Water Scarcity to deliver 96% metering by April 2012. Delivery of
metering is on a zonal basis.
•
Change of Hands: The Company no longer operates a change of hands metering policy
as it is less efficient than selective metering.
Page 32 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
•
Meter Optants: the Meter Option scheme will continue to operate as it is a requirement
under the Water Industry Act 1991.
•
New Properties. All new properties will continue to be metered on connection.
The Company is currently ahead of it’s AMP4 metering targets and proposed to Ofwat to outperform the AMP4 position as part of achieving its strategy of full metering by April 2012. A log
up application was approved by Ofwat in January 2009, and the final WRMP and Business Plan
reflect the agreed outcome.
AMP4/AMP5 Metering programme – PR04 forecast
Table 18 and Table 19 show the metering programme for AMP4 and AMP5 as forecast in the
Business Plan 2004.
PR04 forecast
New properties
Optants
Selective programme
Number of meters installed TOTAL
Metering penetration %
2005/06
2006/07
2007/08
2008/09
2009/10
693
1,168
1,672
605
1,016
2,443
619
887
2,567
735
776
2,688
692
681
2,804
Total
AMP4
3,344
4,528
12,174
3,533
4,064
4,073
4,199
4,177
20,046
44%
50%
55%
61%
66%
Table 18: AMP4 metering programme – PR04 forecast
PR04 forecast
New properties
Optants
Selective programme
Number of meters installed TOTAL
Metering penetration %
2010/11
2011/12
2012/13
2013/14
2014/15
765
598
2,926
818
527
3,042
794
466
3,157
741
412
3,023
666
366
2,897
Total
AMP5
3,784
2,369
15,045
4,289
4,387
4,417
4,176
3,929
21,198
71%
76%
81%
86%
90%
Table 19: AMP5 metering programme – PR04 forecast
AMP4/AMP5 Metering programme – Actual & PR09 forecast
Table 20 shows the actual number of meters installed in 2006, 2007 and 2008. For the final
Business plan, the Company is currently planning to meet the overall AMP4 meters installed
target, although the split between new properties, optants and selective may be different to that
anticipated at PR04.
Between draft and final plan, the Company applied for a log-up on selective meters. This was
approved and the final Business Plan reflects the revised position, as shown in Table 20.
PR09 forecast
New properties
Optants
Selective programme
Number of meters installed –
TOTAL
Metering penetration %
2005/06
(actual)
599
1,441
2,115
2006/07
(actual)
414
1,731
3,387
2007/08
(actual)
387*
911
2,883
2008/09
2009/10
741**
591
2,909
250***
592
7,669
Total
AMP4
2,391
5,266
18,963
4,155
5,532
4,181
4,241
8,511
26,620
47%
55%
60%
66%
78%
Table 20: AMP4 metering programme – actual & PR09 forecast
Page 33 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
* The Company highlighted that the figure of 250 reported for JR08 Table 7 excludes some 140 installed meters
which were not yet in charge.
** 682 meters have been installed between 01/04/2008 and 21/01/2009. The Company estimates that around 60
properties will be connected to the supply area in February and March 2009.
*** Due to the current economic situation, the Company expects the number of new properties to be lower than in
previous years.
In AMP5 and beyond, metering will continue to form an integral part of the supply/demand
baseline and the Company will target an accelerated programme of meter installations to a
level of 96% meter penetration of the domestic customer base by April 2012, as detailed in
Table 21.
PR09 forecast
New properties*
Optants
Selective programme
Number of meters installed TOTAL
Metering penetration %
2010/11
2011/12
2012/13
2013/14
2014/15
250
500
6,000
250
250
6,350
250
0
0
650
0
0
650
0
0
Total
AMP5
2,050
750
12,450
6,850
6,850
250
650
650
15,250
87%
96%
96%
96%
96%
Table 21: AMP5 metering programme – PR09 forecast
* New properties forecast reflects the economic downturn. The Company estimates a start of recovery in the housing
market in 2013/14.
The following benefits of the proposed metering strategy are identified:
•
Minimum 1.5Ml/d savings in demand by April 2012.
•
A strong metering policy supports the development of new resource projects required as
part of the business plan. Whilst the savings attributable to the metering programme are
not sufficient to significantly alter the introduction of major new resource schemes, the
timing of such schemes may well be delayed. This ‘twin track approach’, therefore,
provides benefits to the environment and is an essential component in the regulatory
approval process.
•
Metering strongly links to the widening of customers’ awareness of the need for water
conservation.
•
Full metering is necessary for the roll out of the socially responsible stepped tariff
scheme.
AMP4 & AMP5 metering programme
As can be seen from Figure 8 below, the target of 96% metered household base will be
achieved by accelerating the rate of meter penetration to around 6,000 meters per annum over
the first 2 years of the AMP5 period.
Page 34 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Number of meters installed
Metering programme
50,000
100%
45,000
90%
40,000
80%
35,000
70%
30,000
60%
25,000
50%
20,000
40%
15,000
30%
10,000
20%
5,000
10%
-
0%
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
Year
Cumulative numbers of meters installed
Metering penetration
Figure 8: Metering programme AMP4 & AMP5
The detailed costs of the AMP5 metering programme are detailed in Section 3.2.4.
Section 2.3.3 Water efficiency strategy
The Company has incorporated the 0.07 Ml/day/year Water Efficiency Target set by Ofwat into
its final Business Plan projections.
The water efficiency strategy and associated costs to achieve the annual target are detailed in
the tables in this section and represent the Company’s current plans at the time of final plan’s
submission. They are all based on the information given by Ofwat at that time.
The Company plans to carry out a variety of water efficiency activities during AMP5 with both
commercial and domestic customers, with savings estimated for each activity in line with
Ofwat's allowance table.
Table 22 identifies in each activity the number of devices that would be needed in order to
achieve the target using just that one activity. This was the starting point for planning the water
efficiency programme to achieve the target.
Page 35 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table 22: Number of items to be installed to meet the Water Efficiency target
according to Ofwat savings
The cost of each form of activity was then evaluated and the potential limits on each form of
activity derived taking account of previous similar activities to ensure no double counting of
potential savings.
From the activity lists and taking on board limits on potential for each activity, the above activity
list was created to minimise costs and maximise savings.
Table 23 identifies the specific activities and level of activity that will achieve the total annual
Ofwat target for each year of AMP5.
Page 36 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table 23: Company’s water efficiency activities required to meet WE target
In reality, unforeseen opportunities may arise to make additional savings over and above those
listed above and in that event the balance of water efficiency activities in that and subsequent
years will be reviewed and adjusted to suit.
The Company is part of the WaterUK Water Efficiency Practitioners Group and is looking at
optimising savings by using industry best practice wherever possible.
In addition, the Company is working with the Environment Agency and SEEDA on their
“Ensuring Water For All” initiative. Although this covers much of the same ground as has been
covered before, it is an alternative view on the topic and may provide some innovative solutions
that can be introduced to gain more reliable savings from lower cost solutions.
Table 24 shows the relative level of water savings each of the various water efficiency initiatives
proposed will achieve using the Ofwat estimates.
Page 37 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table 24: Estimated savings per water efficiency activity
Again it is important to stress that this is only theoretical activity schedule and the actual water
efficiency activities will be dependent on opportunities that arise during the period. This list is a
fall back position that we have identified can achieve the target in the absence of a more cost
effective solution.
The costs of the Water Efficiency strategy are detailed in section 3.2.4.
Section 2.3.4 Leakage strategy
The development of the Company’s current leakage strategy is fully described in Section C4,
and includes the calculation of the SELL according to Ofwat’s guidance.
In summary the Company’s strategy is to reduce leakage levels in order to achieve the
sustainable economic level of leakage over a 10-year period. The Company has also
considered leakage reduction options as a part of the overall Economic Balance of
Supply/Demand and least cost planning objective.
Current leakage strategy
The Company’s current strategy consists of two parts: pressure reduction and find and fix. With
regard to the latter, the Company has invested in new technology and supplemented Leakage
Technicians with additional resource if leakage breakouts cannot be controlled. There is an
element the Company hasn’t yet introduced, but has planned to do so, which is more efficient
monitoring of the DMA nightlines to enhance the awareness of changes from a weekly
Page 38 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
assessment to a daily assessment. This will allow more effective targeting and reduce run times
of the larger breakout areas.
Currently, the Company is divided into 14 hydraulic zones, which in some cases are made up of
a number of sub-zones. The Company currently produce a weekly leakage report which is a
mixture of flow measurements from zones e.g. reservoir outlet meter (via SCADA) and flow
from DMA meters (via telemetered loggers). This is consistent with the baseline demand
forecast.
Approximately half of the properties in the Company’s supply area are subject to pressure
control. There are 124 PRVs, mainly Claval and JRG, installed across the supply area.
Approximately, 2/3 of these are operating in order to reduce pressure to properties. The rest
are used as control at zonal transfer points or emergency transfers.
Economic appraisal
The economic analysis has been carried out using the WRc APLE™ model (version 5.04).
Detailed company data on leakage levels, leakage costs, repair rates, and externalities values
for 2007-08 were entered into the model. The APLE™ model has been configured to reflect the
Company’s water resource zone structure (one zone).
The APLE™ model uses the ‘Method A’ as detailed in the Tripartite report. It uses steady state
costs and transitional costs, cost data is derived from company systems, it includes all costs
associated with leakage control and it models the cost leakage relationship using fixed and
variable costs.
This analysis uses the Marginal Operating Cost of Water approach. This approach compares
the marginal cost of active leakage control with the marginal cost of water. The marginal cost of
water is calculated by considering the cost of providing additional capacity from
resource/treatment investment. The ELL is the point at which the marginal cost of active
leakage control equals the marginal operating cost of water.
A key part of the analysis is the assessment of steady state conditions. The APLE™ model
determines both the active leakage control (ALC) costs to maintain leakage at current levels
and the costs associated with reducing leakage (or savings associated with allowing leakage to
increase).
By incorporating leakage and leakage management externalities it is possible to produce a
short run leakage assessment that may be regarded as the sustainable economic level of
leakage (SELL).
Externalities values were evaluated according to the Best Practice Guidance on the Inclusion of
externalities in the ELL calculation (Ofwat, 2008). They were provided for use in the Company’s
calculation of SELL using the Marginal Social Operating Cost of Water approach using the
APLE software1.
1
Calculation of the sustainable economic level of leakage, RPS Report, November 2008
Page 39 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The results of the assessment are displayed in Table 25 below:
Marginal Operating
Cost of Water (p/m3)
Short-run Economic
Level of Leakage (Ml/d)
7.07
8.1
Marginal Social
Operating Cost of
Water (p/m3)
27.67
Short-run Sustainable
Economic Level of
Leakage (Ml/d)
6.9
Table 25: ELL and SELL results
In 2007/08 the Company annual average level of leakage was 7.9Ml/d which is 1Ml/d (with
rounding) above the MSOC-SELL of 6.9Ml/d and therefore further reductions in the short term
would be socially economic.
APLE has been used to profile the level of leakage and associated social operating costs in
order to achieve the short-run SELL of 6.9Ml/d by 2017. The results of the APLE modelling are
shown below in Table 26.
Leakage Level
(Ml/d)
CAPEX (£)
7.8
7.7
7.6
7.5
7.4
7.3
7.2
7.1
7.0
6.9
15,546
16,248
17,100
18,072
19,255
20,769
22,601
24,808
27,976
32,070
CAPEX
0.5Ml/d reduction
CAPEX
1Ml/d reduction
£86,221
£214,445
Table 26: Leakage reduction costs
Sensitivity analysis
RPS have highlighted in their report that the Company was found to have relatively high
marginal environmental costs. This is due to a combination of the following:
• Significant costs associated with angling on reaches of the river Dour affected by
Company abstraction (game fishing).
• Significant costs associated with biodiversity and non use at river reaches affected by
abstraction sites (Denge).
Dungeness is of international conservation importance for its geomorphology, plant and
invertebrate communities and birdlife. This is recognised and protected mostly through its
conservation designations as a National Nature Reserve (NNR), a Special Protection Area
(SPA), a Special Area of Conservation (SAC) and part of the Site of Special Scientific Interest
(SSSI).
The marginal environmental costs associated to the abstraction at Denge are estimated to be
£175.89/Ml, which is equivalent to 17.59p/m3.
The APLE model was run using a marginal social operating cost of water of:
- 7.07p/m3, the private MOC of water for the most appropriate source to use: Rakeshole
North.
- 3.02p/m3, the external (carbon and environmental) MOC of water for FDWS sources
excluding Denge.
Page 40 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The MSOC-SELL using a marginal operating cost of water of 10.09p/m3 is 7.8Ml/d.
As part of the Habitats Directive Review of Consents process undertaken by the Environment
Agency, Denge abstraction licence has recently undergone a Medium Priority site Stage 4
assessment in relation to Special Area of Conservation (SAC) and Special Protection Area
(SPA) habitats/species. As a result of the Review of Consents process, the Environment
Agency has indicated that it requires the Company to undertake further work to demonstrate
what impact current and possible future operational abstraction patterns would have on the
requirements of the Habitats Directive, and thus licence modification to the operational
constraints on a number of abstraction wells. It is not expected at this point in time that there
will be significant reductions in the Company’s abstraction from Denge arising from this study
(details in Section B4).
AMP5 leakage strategy
As long-term abstraction at Denge is uncertain, the Company proposes to adopt the same
leakage strategy as in the AMP4 period which consists of reducing leakage by 0.1 Ml/d every
year, over the 5-year period. The leakage level to achieve by 2015 would be of 7.5Ml/d. This
target would be well below the ELL and the SELL excluding Denge. At the end of AMP5, the
outcome of the NEP Denge study can be known and the SELL will be reassessed.
The Company is proposing a 0.5Ml/d reduction over the AMP5 period (leakage target at
7.5Ml/d), which has been estimated to cost £86k above the current CAPEX leakage costs.
The full description of the AMP5 leakage strategy is detailed in Section C4 of the Business
Plan.
Section 2.4 Climate Change
Section 2.4.1 Supply side
The Company has no surface water resources, thus none needs to be evaluated for impacts of
climate change.
The Company also imports water from Southern Water and South-East Water (previously Mid
Kent Water). Both imports are based on groundwater sources. It has been assumed that the
agreed import volumes will be upheld for the duration of the current agreements. The Company
estimates that they will be entitled to take up to their full allowance, and that the other water
companies will manage their other resources to enable this.
The impact of climate change on groundwater is a complex issue and does not lend itself to
easy solution. Of critical importance is the amount of effective rainfall that occurs over the
recharge period from September to April. Generally, summer rainfall does not contribute in
significant volumes to recharge; therefore drier summers have little impact on recharge
volumes, although rainfall may support water levels, allowing them to decline less rapidly.
As most climate models indicate wetter winters and drier summers, there should be more winter
recharge, thus more groundwater availability than at present. However, variability is also a
significant feature of climate change, and not all winters will be higher than average, and
intense summer storms may provide significant summer recharge, as has happened in recent
Page 41 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
years. The increase in variability will make it more likely that an extended sequence of dry
winters could occur.
From experience, we know that the Company groundwater sources are robust to one dry winter
(dry being 75-80% of long term average rainfall). Two such dry winters result in significantly
lower groundwater levels, reduced river flows and reduced outputs from vulnerable sources and
the imposition of flow constraints/augmentation requirements. This is what the current drought
Deployable Output (DO) scenario is based on. Three dry winters has not been experienced
within the available records for groundwater levels, but has been recorded in rainfall terms in
the 1890’s.
Recovery of groundwater levels following a drought is totally dependant on the volume of
rainfall during the recharge period. Historically, periods of very low groundwater levels have
recovered to above average levels within one year (eg 1992, 1998), thus re-setting levels for
the next summer recession period, but these have been above average rainfall events. With
average winter rainfall, it may take several years for water levels to fully recover.
East Kent Groundwater Model
The Company, in association with Southern Water and South East Water commissioned Atkins
to undertake a study of the possible impact of climate change on their groundwater sources in
the East Kent area. This study focused on the implications of changes to their deployable
outputs.
Atkins used guidance from the UKWIR CL/04/C study (ENTEC 2007), and the Environment
Agency (2007) and the East Kent Groundwater model, which had been recently developed by
the Mott MacDonald for the Environment Agency and is considered to be the most suitable
model for this area.
Forecasts of climate for the 2020s were made from a suite of general circulation models by
perturbing the rainfall and evaporation sequences from the global circulation models, scaled
down for the East Kent area. These revised meteorological sequences were then run through
the recharge element of the East Kent model to produce new recharge inputs to the model. As
the model was repeatedly run with the different climate sequences, a succession of water level
fluctuations resulted for the entire modelled area. These water levels were then compared with
the calibrated base line historic water levels in nodes where public water supply sources were
present to look for additional declines in modelled water levels over those seen in the past. In
turn, these water level changes were then applied to the source reliable output diagrams, by
downshifting the drought response curve and re-evaluating any constraints, particularly the
deepest advisable pumping water level, allowing a revised deployable output to be calculated
both at peak and average conditions.
Whilst there are some uncertainties in elements of this analysis, it provides a good guide to
potential future deployable outputs and highlights the vulnerability of individual sources to
deeper pumping water levels.
Generally, nodal drought water levels in the mid range were reduced by between 0.1 and
1.78m. In the high impact scenario, the range was 0.3 to 7.35m. The low impact scenario
actually produced rises in groundwater levels above those seen historically. The lowest level
changes were observed at the costal sources, and are probably artificially low values due to the
Page 42 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
way the model boundary conditions with the sea have been set. Nevertheless, these values
have been used in the subsequent analysis.
Equally, no allowance of saline intrusion has been made, as the model does not simulate water
quality variations, only level and flows.
In the case of Lye Oak, Atkins did not allow for known process losses in their report, and this
has been changed by 0.14Ml/d to reflect this. As the East Kent Model only covers the Chalk
sources, Atkins did not evaluate water level changes for the Greensand sources. Only
Shearway has a deployable output greater than zero and previous reports state this source is
relatively unaffected by historic droughts, thus its deployable output has not been changed.
In the case of the Denge gravel aquifer, where no suitable model is available and where
drought bounding curves for the individual sources do not exist, a different approach has been
adopted. The Denge aquifer is sensitive to both decreases in rainfall (both summer and winter)
and saline intrusion/sea level rise. In the case of this aquifer, summer rainfall does contribute
to recharge as there is very little soil and the large cobbles have only a small capillary flux
capability, thus once into the system, rainfall can only leave by lateral transfer to either the sea
or the lakes or the Denge Marsh sewer. The exact change in DO cannot be calculated, but it
was considered to be very sensitive. Thus by careful manipulation of the well field, sufficient
abstraction to meet the demand of one of the Reverse Osmosis skids could be met, even with
modest increases in salinity. This has been set as at 2Ml/d for average DO and 2.5Ml/d for
peak DO.
The revised deployable outputs for all the Company’s sources are shown in Table 27.
Page 43 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Atkins
Atkins
Atkins
Atkins
Atkins
Atkins
final
final
final
final
final
final
Analysis
Analysis
Analysis
Analysis
Analysis
Analysis
Average,
Average, Peak, mid Average, Peak, low
Peak, high
mid range
range
low range
range
high
impact
impact
impact
impact
impact
impact
Aquifer Type
Avg. Ann.
Licence
Ml/d
Max Daily
Licence
Ml/d
2007
Average
DO Ml/d
2007
Peak DO
Ml/d
Denge
Gravel
9.04
15.00
4.65
5.58
2.00
2.50
2.00
2.50
2.00
2.50
4.65
5.58
2.00
2.50
2.00
2.50
2.00
2.50
Ottinge
Skeete
World's Wonder
Chalk
Chalk
Chalk
4.55
1.13
4.55
13.64
1.14
4.55
0.85
0.15
1.50
2.82
0.23
2.64
0.03
0.02
0.70
1.25
0.02
2.64
0.65
0.12
1.25
2.82
0.18
2.64
0.85
0.26
2.00
2.82
0.38
2.64
4.55
13.64
2.50
5.69
0.75
3.91
2.02
5.64
3.11
5.84
Source
Ottinge Group
Lye Oak
Chalk
3.50
3.50
3.36
3.36
3.36
3.36
3.36
3.36
3.36
3.36
Drellingore
Lower Standen
Chalk
Chalk
8.00
-
8.00
-
2.26
0.00
3.55
0.00
0.00
0.00
0.00
0.00
1.10
0.00
2.30
0.00
3.00
0.00
5.40
0.00
11.50
11.50
5.62
6.91
3.36
3.36
4.46
5.66
6.36
8.76
-
-
1.89
4.80
2.40
2.10
4.80
2.40
0.07
2.50
2.40
1.20
2.75
2.40
1.89
4.80
2.40
2.10
4.80
2.40
1.89
4.80
2.40
2.10
4.80
2.40
9.09
13.64
9.09
9.30
4.97
6.35
9.09
9.30
9.09
9.30
5.48
2.28
8.20
6.03
2.06
3.17
3.00
0.82
2.27
2.88
4.00
5.00
6.00
4.54
10.80
6.85
2.50
3.70
4.00
2.18
2.50
2.88
4.00
6.00
0.00
2.28
4.10
1.13
2.05
3.00
3.00
0.08
2.27
2.88
4.00
4.00
0.00
2.69
7.00
2.89
2.06
3.00
4.00
0.11
2.50
2.88
4.00
4.80
0.00
2.28
3.30
0.09
1.85
2.60
1.25
0.06
2.27
2.65
4.00
4.00
0.00
2.69
5.15
1.80
2.06
3.00
4.00
0.10
2.50
2.88
4.00
4.80
0.00
2.28
3.70
1.10
2.00
2.85
3.00
0.08
2.27
2.85
4.00
4.00
0.00
2.69
6.20
2.50
2.06
3.00
4.00
0.11
2.50
2.88
4.00
4.80
0.00
2.28
4.30
1.25
2.06
3.00
3.00
0.08
2.27
2.88
4.00
4.00
0.00
2.69
8.00
5.84
2.06
3.00
4.00
0.11
2.50
2.88
4.00
4.80
45.19
55.95
28.79
35.93
24.35
32.98
28.13
34.74
29.12
39.88
Lye Oak Group
Denton
Tappington North
Rakeshole North
Chalk
Chalk
Chalk
Rakeshole Group
Stonehall
Broome
Connaught
St Margarets
Lighthouse
Kingsdown
Primrose
Poulton
Holmestone
Dover Priory
Buckland Mill**
Cow Lane**
Chalk
Chalk
Chalk
Chalk
Chalk
Chalk
Chalk
Chalk
Chalk
Chalk
Chalk
Chalk
Individual
Shearway
LGS
4.55
9.09
0.50
1.68
0.50
1.68
0.50
1.68
0.50
1.68
Cherry Gardens
Terlingham Tunnel
LGS
Chalk
2.93
2.93
6.82
6.82
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
4.55
4.55
0.50
1.68
0.50
1.68
0.50
1.68
0.50
1.68
LGS
LGS
LGS
LGS
LGS
LGS
1.00
0.60
0.41
0.32
0.23
0.45
2.27
2.73
0.45
0.33
0.23
0.45
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Seabrook Group
2.01
6.46
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
COMPANY TOTALS
85.93
120.74
51.15
65.09
2007 Assessment
35.93
50.78
46.20
59.52
50.18
67.96
Sherway Group
Seabrook Springs
Bluehouse
Saltwood
Postling
Hythe Town Spring
Blackrock Spring
Difference between two Avearge DO
Difference between two Peak DO
15.22 Ml/d
14.31 Ml/d
4.95 Ml/d
5.57 Ml/d
0.97 Ml/d
-2.87 Ml/d
Table 27: Revised deployable outputs
The above figures focus on the ability to maintain output from the Company’s sources. If
significant additional lowering of groundwater levels were to occur, there would be additional
impacts on lowering river flows and other groundwater related wetlands, and even possibly
some saline intrusion. The Agency may find that these impacts on the environment are so
Page 44 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
severe that they would either wish the Company to reduce or cease abstraction from some
sources, or for additional river support to be made available. No such comments have been
received from the Environment Agency, but could significantly impact on the availability of water
to meet customer demands should such reductions be required at a later date.
The high and low deployable output figures were used in the calculation of uncertainty in the
headroom assessment, whilst the mid range values were used in the baseline supply
demand/balance to predict future deployable outputs (Table 28).
Climate change
estimates
Reduction at
average
Reduction at
peak
Atkins – High impact
Atkins – Medium
impact
15.22 Ml/d
14.31 Ml/d
4.95 Ml/d
5.57 Ml/d
Atkins – Low impact
0.97 Ml/d
0 Ml/d
Table 28: Climate change estimates
The impact of climate change on the overall final supply/demand balance is shown in Figure 9.
Impact of Climate Change on WAFU
60.00
50.00
Ml/d
40.00
30.00
20.00
10.00
4
3
2
1
0
9
5
20
3
20
3
20
3
20
3
20
3
20
3
8
20
2
6
5
4
3
7
20
2
20
2
20
2
20
2
20
2
1
2
20
2
20
2
9
8
7
6
5
4
3
2
1
0
20
2
20
2
20
1
20
1
20
1
20
1
20
1
20
1
20
1
20
1
20
1
9
8
0
20
1
20
0
20
0
20
0
7
0.00
Year
WAFU without CC
WAFU with CC
Demand + headroom
Figure 9: Impact of climate change on WAFU
Section 2.4.2 Demand side
Uncertainty of climate change on demand has been assessed by applying the demand
increases outlined in the DEFRA funded Climate Change: Demand for Water (2003) project.
This project forecasts a 1.45% increase in household consumption by 2020 and a 2.7%
Page 45 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
increase in industrial/commercial consumption by 2030. The impact of climate change on
demand is included in the Headroom assessment.
Section 2.4.3 Impact on supply/demand balance
Climate change impacts have been assessed using guidance from the UKWIR CL/04/C study
(ENTEC 2007) and the Environment Agency (2007) and the East Kent Groundwater model,
which had been recently developed by the Mott MacDonald for the Environment Agency and is
considered to be the most suitable model for this area.
The Company’s DO is reduced in 2035 by 10% for average conditions and 9% for peak
conditions. Climate change has been included explicitly in the forecasts of deployable output in
the Plan. The headroom appraisal includes for the uncertainty around the climate change
forecasts.
Section 2.5 Target Headroom
Headroom is the safety margin that is maintained between supply (minus outage and allowing
for imports and exports) and demand to cater for uncertainties in the overall supply/demand
balance.
Headroom has been determined for the single company-wide resource zone, as agreed with
the Environment Agency. The Denge Security main allows transfer of treated water from the
Hills to the Denge supply areas, effectively merging these two areas into one integrated zone.
There are two recognised methods for examining headroom:
•
•
A practical method for converting uncertainty into headroom (UKWIR, 1998).
An improved methodology for assessing headroom – final report (UKWIR 2003).
Section 2.5.1 Choice of method
For the final business plan, the Company has undertaken a target headroom calculation using
the 2003 methodology. A review of the 2002/03 headroom submission was undertaken and
used as a base position, upon which changes could be evaluated.
The 2003 methodology determines a likely range of values for headroom, for selected years
within the planning period. It requires the uncertainty for each headroom component to be
defined as a probability distribution, and then combines these using Monte Carlo simulations.
The result is a range of possible values for headroom uncertainty at given probability. The
Company then has to determine which level of uncertainty to adopt as Target Headroom. The
key components of the headroom calculation are:
•
•
•
•
•
S1
S2
S3
S4
S5
Vulnerable surface water licences
Vulnerable groundwater licences
Time limited licences
Bulk transfers
Gradual pollution causing a reduction in abstraction
Page 46 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
•
•
•
•
•
•
•
•
S6
S7
S8
S9
D1
D2
D3
D4
Accuracy of supply side data
Single source dominance and critical periods (old method only)
Uncertainty of climate change on yield
Uncertain output from new resource developments (new method only)
Accuracy of sub component data
Demand forecast variation
Uncertainty of climate change on demand
Uncertain outcome from demand management methods (new method only)
Of these categories the Environment Agency has advised that S1, S2 and S3 should not be
included in headroom uncertainty, because:
i)
There is a presumption of renewal of time limited licences so no uncertainty need be
estimated.
ii)
Where licences are vulnerable as a consequence of the National Environment
Programme (NEP) for example the Habitats Directive Review of Consents, the
Environment Agency will give sufficient notice of any amendments to licences, so
that Water Companies can include supply reductions in their Plans.
Section 2.5.2 Risk and uncertainty in supply and demand
Supply side
S1
Vulnerable surface water licences
The Company currently has no surface water licensed abstractions.
S2
Vulnerable groundwater licences
No uncertainty was included for vulnerable groundwater licences following Environment Agency
guidance, as described in the Section 3.1.
S3
Time limited licences
These are licences that either are now, or could at some time in the future be time limited. The
EA can renew, revoke or modify a time limited licence and there is therefore inherent
uncertainty in time limited licences. No uncertainty was included for this category following EA
guidance as described in Section 3.1.
S4
Bulk imports
This category relates to the reliability of the imports, as discussed in Section 2. No uncertainty
has been applied to bulk imports as these are dealt with explicitly in the supply demand
balance.
S5
Gradual pollution
Data required:
•
•
Magnitude of potential loss of DO (at average and peak conditions)
The probability distribution of the potential loss
The risk of any of the groundwater sources being polluted from activities within each of the
source catchment areas was considered. Risks identified were from petrol stations, salt
intrusion and general urban pollution.
Page 47 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Dover Sources
The Dover Sources are Primrose, Cow Lane, Poulton, Holmestone, Dover Priory and Buckland
Mill.
Of these, the Buckland Mill source is very close to a petrol station and therefore, at risk from a
possible petrol spillage. If a major spillage were to occur the source would be likely to be out of
commission for several years while remediation solutions are considered and implemented.
Deployable output at Buckland Mill is 4Ml/d at average and peak conditions. For the headroom
assessment, it was predicted that there was a 5% risk in any year that this would be reduced to
zero, with a 95% likelihood that DO would be unaffected. A discrete distribution was used.
The remaining sources are located close to, or within the urban area of Dover, and a general
risk of urban pollution is present. The prediction made is that the most likely reduction in DO
due to gradual pollution is zero, with a possible maximum reduction of 4% of DO. An
exponential distribution was used. The total DO of these sources is 12.23 Ml/d at average and
14.29Ml/d at peak.
Denge Sources
Several linked sources close to the coast on the Denge Peninsula are at risk of inundation by a
high storm surge. These sources have a DO of 4.65 Ml/d average and 5.58 Ml/d in the critical
period. The sources supply the surrounding villages and the Dungeness Power Station (around
1.68Ml/d). The water abstracted from the sources is treated via a reverse osmosis plant in order
to remove arsenic. However, the plant has the capability to remove salts if the sources were
polluted with saline water. The plant would not be able to throughput more than the water
supplied to the Power Station, so the DO would be reduced to 1.68 Ml/d at average and peak.
A study2 commissioned by the Company to assess the risk of storm surge inundation estimated
a 1 in 20 year risk i.e. a 5% probability that DO is reduced to 1.68 Ml/d and a 95% probability
that no impact occurs. A discrete distribution was used.
No further risks of gradual pollution were identified.
S6
Accuracy of supply side data
There is a risk that data inaccuracy or paucity renders any estimates of DO unreliable. This
could for example cover the extrapolation of drought bounding curves where no flow/level data
exists for a recognised drought period.
Data required:
•
•
Most likely error in DO, in Ml/d
Maximum possible error (positive and negative)
An assumption of +/- 2% of DO has been applied as the maximum possible uncertainty in DO,
with the most likely uncertainty equal to zero.
2
Jacobs Flood Risk Assessment, Final Report, January 2009
Page 48 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
S8 Uncertainty of climate change impact on DO
There is a risk that the impact of climate change on water levels will alter any estimate of DO.
Assessments for PR09 indicate a significant net effect for climate change on source output. The
recent UKCIP02 scenarios have updated the precipitation forecasts. In the 1998 scenarios
spring and autumn became wetter, but the UKCIP02 scenarios suggest the seasons may
become slightly drier. This reduction in rainfall in the recharge seasons is likely to change the
balance of supply and demand.
Atkins were commissioned by Folkestone and Dover Water, Southern Water and South East
Water to assess the potential impact of climate change on yields of groundwater sources in the
east Kent area, using guidelines produced by Entec in 20073 and the EA WRMP guidelines4. In
Atkins’ report (5) they produced results for high, mid and low climate change scenarios. The
potential impacts on DO at 2035 were interpolated linearly from zero at 2006/07. The central or
mid climate change impacts were included as an adjustment to WAFU in the Water Resources
Management Plan The high and low scenario impacts relative to the mid scenario impacts have
been applied as upper and lower uncertainty bounds in the headroom assessment. A triangular
distribution was used. The impacts for the three scenarios are shown in Figure 10.
Potential Climate Change Impact on Supply
18
Reduction in Deployable Output (Ml/d)
16
dry year "high" impact
14
dry year "medium" impact
12
dry year "low" impact
10
8
critical period "high" impact
critical period "medium" impact
critical period "low" impact
6
4
2
0
2005
-2
2010
2015
2020
2025
2030
2035
-4
Figure 10: Potential impact of climate change on water supply
3
Entec, 2007. Effects of Climate Change on River Flows and Groundwater Recharge: A Practical
Methodology. Draft Guidelines for Groundwater Impact Assessment.
4
Environment Agency, 2007. Draft Climate Change Guidance – Supplement to Water Resources
Planning Guidelines.
5
Atkins, 2008. East Kent Climate Change Impact Assessment, Final Report.
Page 49 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Demand side
For the demand side, the assessment of uncertainty occurs at resource zone level. The UKWIR
project “Uncertainty and Risk in the Supply/Demand Balance6” describes a methodology for
assessing uncertainty in the demand forecasts.
D1
Accuracy of sub component data
Accuracy of sub component demand data is assessed with reference to the closure error in the
water balance of the base year for the demand forecast. Within the MLE process rebalancing
takes place to redistribute errors in the water balance to other components. The sum of sub
components was greater than the measured distribution input by 0.74 Ml/d for the Company
area, and would therefore tend to overestimate demand by this amount.
Uncertainty was therefore modelled as a triangular distribution with a most likely value of 0.74Ml/d (implying a reduction in headroom) and a maximum possible value of zero. The same
value was used for dry year and critical period.
D2
Demand forecast variation
This component is a measure of the uncertainty around the demand forecast, which tends to
increase over the planning period. The headroom methodology suggests that the sensitivity of
assumptions in the demand forecast can be tested to produce an upper and lower forecast, and
hence an envelope of uncertainty.
The demand forecast spreadsheet developed for the Water Resources Management Plan was
used. The assumptions which varied to produce the upper and lower scenarios are described
below.
Population and household Forecasts
Experian produced household and population forecasts for the Company and this work is
described in separate reports for the Water Resources Management Plan. For the Final Plan,
figures have been revised (from those used in the draft Plan, 2008) to account for the current
and projected economic downturn. Three forecasts were produced – called “trend”, “policybased”, and “most likely”. The central demand forecast for the final WRMP used the “policy
based” population and household forecasts. For the upper demand forecast for headroom the
higher household and population figures from the “trend” based forecasts were used. These
forecasts are shown in Figure 11.
6
UKWIR 2003, Uncertainty and Risk in Supply/Demand Forecasting, 03/CL/09/1
Page 50 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Household and Population Forecasts
250,000
200,000
150,000
100,000
50,000
2005
2010
2015
2020
2025
2030
2035
2040
Trend based population (upper bound)
Policy based population (central and low er bound)
Trend based households (upper bound)
Policy based households (central and low er bound)
Figure 11: Household and Population Forecasts used for Demand Uncertainty
Per capita consumption
The Company developed a micro component model to determine forecasts of measured and
unmeasured per capita consumption over the planning period. Upper and lower bounds were
produced by altering the assumptions on frequency of use, and rates of change, for: bath and
shower use, dish washing and clothes washing (manual and machine). The upper and lower
forecasts used for the headroom assessment are shown in
Figure 12.
Per Capita Consumption Forecasts
220
l/head/day
200
180
160
140
120
100
2005
2010
2015
2020
2025
2030
2035
high pcc measured
high pcc unmeasured
central pcc measured
central pcc unmeasured
low pcc measured
low pcc unmeasured
Page 51 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
2040
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Figure 12: PCC Forecasts used for Demand Uncertainty
Non household demand
The Company commissioned Jacobs to derive a non-household demand forecast. For the final
Plan, this was revised to reflect the current economic downturn (non household demand is 8%
lower from 2011 to the end of the forecast), and these revised figures are used in the central
demand forecast. For the upper bound of demand uncertainty used for headroom assessment,
the pre-revision forecast was used i.e. reflecting an optimistic forecast and greater demand.
The upper and lower bounds of PCC, household and population figures and the non household
demand were input to the Company demand forecast model and upper and lower bounds
derived for Distribution Input. These are shown with the central forecast in Figure 13. A
triangular distribution of uncertainty was used with the most likely value equal to zero and the
maximum and minimum values as defined by the upper and lower bounds of DI.
Distribution Input Forecasts (household and non household)
70
60
Ml/d
50
40
30
20
10
0
2005
2010
2015
2020
2025
2030
2035
2040
dry year average lower
dry year average central
dry year average upper
critical period lower
critical period central
critical period upper
Figure 13: Envelopes of Demand Forecasts for D2 Uncertainty
D3
Uncertainty of climate change on demand
Uncertainty in the impact of climate change on demand was applied based on guidance in the
CCDeW report, Climate Change and the Demand for Water7. Separate factors were applied to
household and non household demand, taken from Table 3.9 and Table 4.1 of the report
respectively, for the EA Southern Region. These figures are shown in Table 29 below, and are
the percentage impacts relative to baseline demand in the mid 2020s.
7
Downing, T.E, Butterfield, R.E., Edmonds, B., Knox, J.W., Moss, S., Piper, B.S. and Weatherhead, E.K.
(and the CCDeW project team), 2003. Climate Change and the Demand for Water, Research Report,
Stockholm Environment Institute Oxford Office, Oxford.
Page 52 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Impact on demand at 2025 (%)
Min
Max
Household demand
0.99%
1.45%
Non household demand
2.40%
2.80%
Table 29: Climate Change Impact on Demand
The factors were interpolated from zero at the start of the forecast to 2025 and extrapolated
using the same trend to 2035, as outlined in the EA WRMP guidelines. They were applied to
the central household and non household Distribution Input forecasts from the Company
demand model. A triangular distribution was applied with the central value taken as the mid
point between the values in Table 29.
Section 2.5.3 Results of the Headroom Assessment
Headroom values were derived for the dry year average and critical period cases. Crystal Ball
software (version 7.2) was used to apply the Monte Carlo sampling, and a distribution of target
headroom across the planning period was produced. As the new methodology is based on
defining probability distributions, there are a range of outputs which relate to different
percentiles, or probabilities of occurrence, as shown in Figure 14 and Figure 15.
Target Headroom
18
16
14
Target Headroom Ml/day
12
Mean
5%
10%
25%
50%
60%
70%
75%
85%
95%
99%
Risk Profile
10
8
6
4
2
0
2005
2010
2015
2020
2025
2030
2035
-2
-4
Year
Figure 14: Headroom uncertainty – Dry year average
Page 53 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
2040
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Target Headroom
18
16
14
Target Headroom Ml/day
12
Mean
5%
10%
25%
50%
60%
70%
75%
85%
95%
99%
Risk Profile
10
8
6
4
2
0
2005
2010
2015
2020
2025
2030
2035
2040
-2
Year
Figure 15: Headroom Uncertainty – Critical Period
The level of risk the business is willing to adopt is fundamentally a Company decision. Ofwat
views headroom as “an implicit estimate of the costs associated with increased security of
supply and the valuation placed by society on the benefits of supply security (i.e. avoidance of
supply interruptions).” The final headroom assessment presented below has been discussed
and agreed at executive management and board level. In arriving at a decision, consideration
was given to the influencing factors and the range of potential levels of target headroom from
Figures 13 and 14.
The Company has adopted a risk profile which accepts a greater risk to security of supply
towards the end of the forecast period. That is on the basis that future uncertainties in supply
and demand will be reduced over time and reflected in the next cycles of water resource
planning.
FDWS Target Headroom Profile: 99% confidence from 2006/07
95% confidence from 2011/12
85% confidence from 2016/17
75% from 2021/22 to end of the planning period.
The final target headroom numbers used in the plan are shown in Table 30.
Headroom (Ml/d)
2006/07
2011/12
2016/17
2021/22
2026/27
2031/32
2034/35
Average conditions
4.06
4.41
4.74
4.81
6.20
7.23
7.95
Critical periods
4.39
4.86
5.95
6.20
7.71
8.62
9.25
Table 30: Target Headroom results
Page 54 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.6 Baseline supply/demand balance
The baseline supply/demand forecast is based on the following position:
•
•
•
•
•
•
•
•
The completion of the compulsory metering programme, which will bring nearly all
domestic customers (96%) on to meters by the end of 2012.
The renewal of bulk imports from South East Water and Southern Water until 2035.
The revised outage allowance including flood risk.
The revised climate change forecasted impact on DO.
The revised Experian ‘policy’ forecasts for population and households (including
allowance for economic downturn).
The revised commercial forecast (including allowance for economic downturn).
The consumption forecast of 130PCC by 2015.
The revised headroom figures.
The supply/demand balance is showed in Table 31. Overall, there is no supply/demand balance
deficit under average conditions, except for the last 4 years of the planning period. There is no
supply/demand balance deficit under peak conditions.
WAFU - (demand +
headroom)
Company Average (Ml/d)
Company Peak (Ml/d)
2007/08
2009/10
2014/15
2019/20
2024/25
2029/30
2034/35
0.9
3.2
5.4
4.9
3.6
0.6
-2.4
4.6
7.7
10.7
9.6
8.0
Table 31: Baseline supply/demand balance
4.8
1.6
Figure 16 and Figure 17 show the supply/demand balance throughout the 25-year period.
Page 55 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Baseline Supply/Demand Balance DYAA
60.00
50.00
Ml/d
40.00
30.00
20.00
10.00
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
0.00
Year
Normal (130 PCC by 2015)
Dry
Demand Plus Headroom
WAFU
Figure 16: supply/demand balance – average conditions
Baseline Supply/Demand balance DYCP
70.00
60.00
Ml/d
50.00
40.00
30.00
20.00
10.00
Dry
Demand Plus Headroom
WAFU
Figure 17: supply/demand balance – critical period conditions
Page 56 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
4
3
2
5
20
3
20
3
20
3
1
Year
Normal
20
3
20
3
9
0
20
3
20
2
7
8
20
2
20
2
5
4
6
20
2
20
2
20
2
2
3
20
2
20
2
0
9
1
20
2
20
2
7
6
5
4
3
2
8
20
1
20
1
20
1
20
1
20
1
20
1
20
1
20
1
0
1
20
1
20
1
8
9
20
0
20
0
20
0
7
0.00
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.7 Options Appraisal
Section 2.7.1 Approach for option appraisal
The Company is committed to the “twin track” approach of developing new sources in parallel
with active management of customers’ demand. A programme of supply/demand schemes is
proposed to enable levels of service to be restored and maintained over the planning period
2010 to 2035.
The approach was guided by the Economics of balancing supply and demand (EA and UKWIR,
2002). The process comprises the following steps:
•
•
•
•
Development of the unconstrained options list
Development of the feasible options list
Economic appraisal of options
Development of the preferred options list through least-cost optimisation
Section 2.7.2 Unconstrained options list
A range of options were identified and classified into the following categories drawing on the
work from PR04 as well as new options developed during the subsequent operational period:
•
•
•
•
Resource management
Demand management
Production management
Customer side management
Section 2.7.3 Feasible options list
The feasible options list was produced by applying a “screening tool” to the unconstrained list,
and by screening out high risk schemes on the basis of a consistent and mutually agreed set of
criteria. The screening tool enabled the consideration of technical and financial criteria, in
conjunction with environmental and social criteria. In doing so, the tool ensured the feasible list
of schemes will:
•
•
•
Be capable of enhancing security of supply.
Be technically feasible.
Provide environmentally preferred outcomes.
The tool was applied in two stages:
Stage 1 involved the transparent and quick application of pass/fail indicators to measure the
performance of a scheme against set criteria. This first stage proved to be a straightforward,
complete and efficient way of identifying and separating those schemes considered for the
business plan 2009 that could go forward for funding under the supply/demand programme
(note: being screened out at this stage does not mean that the scheme will be abandoned but
merely that it will not be considered for funding under supply/demand).
A few examples that illustrate the use of the criteria could include, for instance: a scheme that is
technically infeasible or will not add to the volume of the water supply is immediately screened
Page 57 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
out; a scheme that carries significant commercial as well as yield uncertainty is screened out;
however a scheme whose only uncertainty lies in the area of public unacceptability will not be
excluded on the grounds of this criterion alone.
The types of schemes considered were:
•
•
•
•
•
•
•
Bulk Transfer (including Local Distribution and Security of Supply)
Demand Management (including Reuse)
Environmental Protection
Leakage
Metering
Resource Development (including Treatment)
Tariffs
Stage 2 involved the application of a more detailed set of indicators for an expanded set of
criteria to the schemes that successfully passed the stage 1 screening.
Stage 2 is not a pass/fail but rather a scoring process. For each of the selected 26
technical/social/environmental criteria, a score was assigned on a range of -2 to +2 according
to the relative impact of the schemes on the component examined.
Stage 2 was completed during a workshop with the Head of Capital Investment and Asset
Management, where it was agreed that only the schemes with a score above 0 would constitute
the Feasible Options List.
The final number of feasible schemes is 27 schemes. The screening results are presented in
Table 32.
CATEGORY
Unconstrained List
Feasible List
% screened
Bulk Transfer
Demand Management
Environmental Protection
Leakage
Metering
Resource Development
10
8
1
8
1
20
8
5
0
4
1
8
20%
38%
100%
50%
0%
60%
Tariffs
1
1
0%
49
27
45%
TOTAL
Table 32: Results from the screening process
The unconstrained water efficiency schemes which were put forward are wide ranging, covering
the different activity strands that make up the Company water efficiency strategy. The feasible
list of water efficiency schemes compiled as a result of the screening process included both
domestic and non domestic schemes, broadening the Company’s current level of activities and
incorporating a number of initiatives taken from the Ofwat good practice register for water
efficiency.
The feasible list of options is distinct from the activities included in the baseline. All of the
feasible schemes would result in new activities or a significant change to a current activity,
setting them aside from the current baseline.
Page 58 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.7.4 Economic Appraisal of Options
Each option description was reviewed in detail, and the information recorded was refined and
updated throughout the process.
The risk of schemes was assessed, based on the interaction of the volume of yield/savings
available and the uncertainty (% risk in achieving the benefit) associated with a given option.
The following two factors combine the benefit incorporating risk for a particular scheme:
•
Volume of water (yield or savings) per mega litre benefit per day.
•
Percentage of Confidence in achieving the benefit, which is produced by assessing the
political and technical risks associated with the project. The assessment accounts for
both the risk of obtaining required permits or licences and also the technical feasibility of
obtaining the deployable outputs.
The assessed risk of schemes is used in the economic appraisal of the least cost solution.
Using individual scheme risks allows the Company to consider specific attributes of each
scheme, rather than the more limited approach of applying an overall assessment of risk in
headroom. This issue is discussed more fully below.
The options with the highest environmental and social impacts were screened out during the
first stage. However, feasible options were reviewed and any opportunities for environmental
enhancement and energy efficiency were looked at. The potential impact of each option against
meeting the environmental objectives of the Water Framework Directive was also identified. For
any option, which involves taking more water from a water resource management unit currently
defined as over-abstracted or over-licenced, considered the potential impact it may have on
Water Framework Directive ecological status, was considered.
The delivery costs were produced using the Company’s Infrastructure and Non-infrastructure
unit costs (CAPEX, OPEX and AIC master spreadsheets) produced for the business plan 2004.
Following discussions with principal engineers, suppliers and/or potential contractors, the scope
was developed in greater detail, and the cost of each scheme was calculated using 2002-03
unit cost, uplifted with Construction Industry Price Indices (COPI) value.
Schemes, such as leakage, metering and water efficiency were examined in details, with
tailored costs identified to meet specific requirements and identified as ‘bespoke costing’.
Social and environmental costs were established for the 27 schemes using an approach
developed by the consultants Jacobs. The approach used to quantify and value the social and
environmental costs was based on the Environment Agency’s latest (2003) guidance
documents entitled “Assessment of benefits for water quality and water resources schemes in
the 02/03 Environment Programme”. This process involved completion of five excels
spreadsheet tables for each scheme examined.
The approach developed by Jacobs to quantify the carbon footprint of the feasible schemes
was based on their experience of doing the same for construction projects and for industrial
processes. There was no explicit guidance on the calculation of carbon footprint from the
Environment Agency or Defra, except for that on applying a shadow price of carbon. Carbon
accounting was carried out for both Capex and Opex elements of the schemes.
Page 59 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Bulk Transfer
• The Company has had the benefit of a long standing bulk supply from a South-East
Water source in the Barham area. This was terminated in 1992 following difficulties with
source yields on South-East Water’s behalf and only reinstated as a 2Ml/d continual
supply in 1998. The terms of the bulk supply agreement were the subject of an Ofwat
determination that is due to expire in 1st April 2009. The Company has agreed with
South-East Water to extend the agreement a further 5 years to 2014.
Following recent discussion with South East Water, both companies have agreed to
renew the existing agreement until 2021. It has also been agree to include the current
bulk transfer in the baseline supply/demand balance for the 25-year planning period.
The Company is also looking at increasing the Barham import from 2 to 4Ml/d, as
detailed in scheme 301. This scheme would be available from 2020.
•
During AMP3, the Company invested in the necessary infrastructure to commission a
new bulk supply arrangement with Southern Water (Deal High Level Reservoir). This is
available at a rate of 4 Ml/d for four months from September to December. Clearly this is
not available to meet peak (critical period) demands but it is available at an important
time for the company to allow existing sources to be used more fully the rest of the year.
In assessing the deployable output a prudent view has been taken, giving 1.33 Ml/d (the
annual equivalent) at average and nothing available at peak.
The agreement expires in 2012 and the Company proposes to continue the agreement
with Southern Water. Both companies agreed to include the current bulk transfer in the
baseline supply/demand balance for the 25-year planning period.
With scheme 450, the Company is looking at the potential extension of the existing
agreement from 1.33Ml/d to 2.67Ml/d over a year at average and from 0 to 2Ml/d at
peak. This scheme would be available from 2020.
The two options put forward by the Company have all been discussed with the appropriate
water companies (i.e. South East Water and Southern Water), and both companies have made
provision for the extension of those bulk transfers.
Demand Management
Water efficiency options have been considered by the Company to build upon activity in AMP5.
These are:
•
•
•
Region school projects in partnership with Environment Agency (scheme 433)
Proactive water efficiency retrofits trial (scheme 437)
Join water efficiency promotions in partnership with Local Authorities (scheme 439)
Leakage
The leakage policy is based on monitoring district meter zones by telemetry, with sub zones
monitored via SMS text loggers. Best available technology is employed in leakage with
dedicated leakage detection and contract staff.
Between draft and final Business Plan, the Company has commissioned Halcrow to review the
current state of the network and identify any potential improvements. The findings have been
used to update the scope and cost of each scheme. Each scheme (except from scheme 441)
has now a specific location.
Page 60 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The leakage control options are:
•
•
•
•
Optimisation of Enbrook Way DMA (scheme 361)
Installation of new PRV at Guildhall Shellon DMA (scheme 362)
Installation of new PRV at Cheriton High DMA (scheme 379)
Service reservoirs (scheme 441)
Local Distribution
Three options have been proposed in order to remove network constraints. This would allow
sources to be pumped, treated and fed into the network at the same time, or to pump sources
up to licence. The schemes are:
•
SBRO network improvement: remove network constraint which prevents SBRO and
BARI to be discharged into the network at the same time (scheme 626). Peak scheme
only.
•
SWOR network improvement: the benefits of the scheme has been reviewed and the
output has been revised to 0 (scheme 627).
•
SRAK network improvement: The proposal is to install a new pump at SDEN in order to
achieve licence output (scheme 628). Peak scheme only.
Metering
Scheme 637 would be to implement a SMART metering trial on internal and new meters with
the benefit of:
•
Develop vision for future customer service (internet, data..)
•
Gaining a better understanding of smart metering technology and the opportunities it
presents (potential Company-wide roll out);
•
Understanding the technical issues involved in integration of smart metering with
existing company systems;
•
To assess customer reaction to smart metering, in particular any behavioural change
resulting from improved access to consumption data;
•
Exploring commercial tariff options which could arise from smart metering;
•
Providing better data to support a more robust life cost benefit analysis on a company
wide implementation.
This would see the installation of 3,286 smart meters between 2010 and 2015.
Resource Development
The Company has identified 7 feasible schemes. These are:
•
SLYE licence recovery: this scheme is about negotiating with the Environment Agency
the recovery of water loss to treatment through licence variation (scheme 629).
•
Sources optimisation: the scheme is to relieve the existing network constraint
downstream of the bulk import from Southern Water and SSTM, SKIN, SLIG sources
towards DOWR. A new pipeline would be lay in order to increase the network capacity
Page 61 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
(scheme 314). This scheme is part of scheme 043, which means only one of them can
be implemented (either 314 or 043).
•
DOVN sources: remove DAPWL constraint on DO to able additional groundwater
resource to be deployed and therefore increase output from existing boreholes (scheme
043). This scheme is part of AMP4 resource study work.
•
Folkestone covered storage: construction of a 300Ml covered reservoir for long term
storage of winter surplus for dry year peak. The new reservoir will be gravity fed from
PADR at a daily rate of 1Ml/d. A booster pumping station will discharge stored water
back to PADR at a daily rate of 5Ml/d.
•
BROK regional reservoir: a new reservoir would be built at Broad Oak as a three-way
venture by Southern Water, South-East Water and Folkestone and Dover Water. It is
estimated that the Company would have 20% stake in reservoir, and that the scheme
would be available in 2023. Currently, the Company has assessed costs for 20% of total
costs and for a direct raw water transfer pipeline from SEW new Ashford reservoir site to
PADR (scheme 046).
•
HYTW: the Company has investigated the use and the treatment of the brackish water
pumped from the Beach Wells. The water will be treated by a RO plant and delivered to
SALR (scheme 008).
•
Full desalination scheme: the Company has investigated the use and the treatment of
sea water. The water will be treated by a RO plant and delivered to SALR (scheme
309).
Reuse
The Company has considered the use of sewage effluent, which preferred use is in conjunction
with an environmental protection scheme to maintain river flows. The Company has put forward
2 feasible options:
•
BROB effluent reclamation: the effluent from BROB waste water treatment plant would
be treated and delivered to the River Dour, in order to provide low flow compensation.
The implementation of this option would require an agreement to be reached between
Southern Water and the Company to have access to the effluent (scheme 294).
•
HYWW effluent reuse: the effluent from HYWW waste water treatment plant would be
treated to tertiary standard and injected into the Hythe Ranges. This will provide a
barrier for saline intrusion into the shallow aquifer. The implementation of this option
would require an agreement to be reached between Southern Water and the Company
to have access to the effluent (scheme 605).
Security of Supply
Under scheme 459, the Company would build a new reservoir in addition to Hills reservoir, to
ensure peak demand is dealt with.
Tariffs
The Company is progressively metering all its customers to secure a long term sustainable
water supply in the area. Metered customers are more aware of their water usage, and the
Company believes that alternative charges will provide an additional incentive for customers to
use water wisely.
Page 62 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Under this new stepped charging structure an initial allowance of water to cover everyday
household use will be charged at a rate below the current standard rate. Any water that is used
in excess of this allowance will be charged at a higher than standard rate.
The essential use allowance is being set at 219 litres per property per day (equivalent to 80
cubic meters per property each year), and this is designed to cover day to day household
needs including cooking, washing and laundry requirements. This allowance is based on a
careful assessment of water needed in the average home for everyday living with non essential
water use excluded. To further improve the equity of the level of household allowance provided
under the stepped charges, larger families will be able to claim an additional volume of water to
be charged at the low rate, as well as those with special medical requirements.
New Smart bills will replace standard bills and will show customers their water usage in detail,
and allow them to compare this easily against average use. Meters will be read and bills sent
out on a quarterly basis to allow customers to check regularly on their water use. This option
would be implemented to the whole supply area in 2013.
Treatment
The Company has identified SDNG re-mineralisation of RO stream (scheme 630) as a feasible
option. The SDNG water treatment plant consists of 2 streams:
•
•
RO stream with a capacity of 3.6Ml/d
Traditional stream (filtration) with a capacity of 7.2Ml/d.
The water from the RO stream is supplied to British Energy (1.8Ml/d at average, 2.4Ml/d at
peak). The public water supply is a blend of the 2 streams with a ratio of 30% from RO stream
and 70% from traditional stream.
The scheme proposes to upgrade the traditional stream with a RO plant of a capacity of
7.2Ml/d.
Section 2.7.5 Overall options list
Table 33 gives the following information for each feasible scheme:
•
•
•
•
•
•
Output at average and peak,
Confidence in achieving output (%),
Construction period,
Total Capex (at 07/08 prices),
Total Opex (at 07/08 prices),
Annual and one-off Social and Environmental costs.
Page 63 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Scheme
number
Scheme name
Type of
scheme
8
HYTW
Resource
Development
43
DOVN sources
Resource
Development
46
BROK
Resource
Development
293
Folkestone
covered
storage
Resource
Development
294
BROB effluent
reclamation
Reuse
301
BARI increase
Bulk Transfer
309
Full
desalination
scheme
Resource
Development
Description
Abstraction of brackish water
with treatment through reverse
osmosis plant. The water will be
delivered to SALR.
Additional groundwater resource
to be deployed from actual
boreholes by removing DAPWL
constraint on DO.
A new reservoir to be built as a 3
way venture with Southern
Water, South East Water and the
Company. Scheme based on
SEW information for MRF 160
Ml/d and 41.5m AOD. Assume
FDWS 20% stake in reservoir.
Scheme available in 2023.
Construction of a 300Ml covered
storage reservoir for long term
storage of winter surplus water
for dry year critical period.
Effluent from BROB is treated to
enable it to be delivered to the
River Dour in order to provide
low flow compensation.
Option to increase import from
SEW from 2Ml/d to 4Ml/d.
Scheme available in 2020.
Treatment of sea water via
reverse osmosis plant.
Page 64 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Output
at
average
(Ml/d)
5
5
Confidence
in output
being
achieved
25%
Construction
period
(years)
4
12,218
Total
Opex per
annum
(000's £)
994
S&E
costs one-off
(000's £)
39.72
S&E
costs annual
(000's £)
142.72
4.9
4.19
53%
2
1,445
138
10.19
19.53
5.52
11.08
45%
5
38,720
413
49.56
542.14
0
5
35%
4
19,232
5.98
4.44
9.70
0
5
18%
4
15,953
444
35.02
57.21
2
2
68%
2
2,271
182
33.81
0.00
5
5
35%
4
11,144
1,618
46.34
344.74
Output
at peak
(Ml/d)
Total
Capex
(000's £)
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Scheme
number
Scheme name
Type of
scheme
314
Sources
optimisation
Resource
Development
361
Optimisation of
Enbrook Way
DMA
Installation of
new PRV
Installation of
new PRV
Region School
Projects
Leakage
Proactive
Water
Efficiency
retrofit trial
Join Water
Efficiency
Demand
Management
Service
Reservoirs
Leakage
362
379
433
437
439
441
Leakage
Leakage
Demand
Management
Demand
Management
Description
Relieve existing network
constraint downstream of the
bulk import from SWS and
SSTM, SLIG and SKIN sources
towards DOWR.
Redesign DMA by installing
meter, booster and telemetry.
Install a PRV at Guildhall Shellon
DMA.
Install a PRV at Cheriton High
DMA.
Joint project with EA and other
water companies to carry out
school audits and promote water
efficiency measures.
Promote the use of retrofit dual
flush systems within house
through the installation of a
number of subsidised devices.
Work jointly with Local
Authorities to promote water
efficiency within LA buildings and
to their customers
Drop tests will be carried out at
reservoirs on a regular basis (2
per annum) resulting in a
reduction in reservoir leakage.
Page 65 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Output
at
average
(Ml/d)
0
0.81
Confidence
in output
being
achieved
53%
Construction
period
(years)
1
442
Total
Opex per
annum
(000's £)
0
S&E
costs one-off
(000's £)
9.64
S&E
costs annual
(000's £)
0.00
0.1
0.1
53%
1
30
0.65
83.53
-0.08
0.1
0.1
53%
1
86
0.26
0.36
-0.28
0.1
0.1
53%
1
8
0.26
0.36
-0.28
0.01
0.01
25%
1
3
23
16.00
-0.01
0.2
0.2
25%
1
0
345
0.00
-0.54
0.04
0.04
25%
1
0
178
0.00
-0.09
0.01
0.01
75%
1
0
14.5
0.00
-0.03
Output
at peak
(Ml/d)
Total
Capex
(000's £)
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Scheme
number
Scheme name
Type of
scheme
450
DEAI
extension
Bulk Transfer
459
NEHI
Security of
Supply
605
HYWW
effluent reuse
Reuse
626
SBRO network
improvement
Local
Distribution
Description
The actual import agreement
with SWS provides 4Ml/d over 4
months only (Sept-Dec), which is
equivalent of 1.33Ml/d over a
year. The scheme is to uprate
the import for 1Ml/d for 2/3 of
year (Jan-Aug) and for 4Ml/d for
1/3 of year (Sept-Dec), which is
equivalent of 2Ml/d over a year.
Scheme available in 2020.
Ensure peak demand is dealt
with at the critical pinch point in
network: HIRE (150years old
reservoir) by building a new
reservoir in addition to the actual
reservoir.
Effluent from HYWW is treated to
tertiary standard and injected into
the HYTW Hythe Ranges. This
will provide a barrier for saline
intrusion into this shallow aquifer.
BARI import and SBRO
discharging together are
constrained by the network
downstream of SBRO. The
scheme is to change the location
where SBRO feeds into the
network.
Page 66 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Output
at
average
(Ml/d)
1.34
2
Confidence
in output
being
achieved
68%
Construction
period
(years)
1
0
0.86
45%
5
5
0
1.85
Output
at peak
(Ml/d)
208
Total
Opex per
annum
(000's £)
204
S&E
costs one-off
(000's £)
0.00
S&E
costs annual
(000's £)
0.00
3
4,642
0
14.55
0.00
25%
4
14,943
1,063
75.89
116.05
70%
1
945
8.7
11.75
8.40
Total
Capex
(000's £)
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Scheme
number
Scheme name
Type of
scheme
627
SWOR
network
improvement
Local
Distribution
628
SRAK network
improvement
Local
Distribution
629
SLYE licence
recovery
Resource
Development
630
SDNG remineralisation
of RO stream
Treatment
Description
Network restriction is caused
when SWOR works in
conjunction SOTT supplying
PADR. The scheme network
improvement by laying a new
pipeline to connect the existing
main from SWOR to SRAKPADR main. A new borehole
pump and upgrading treatment
process will also be introduced at
SWOR.
The group of borehole sources
(SDEN STAN STAS SRAN and
SRAS) and is not achieving the
licence output due to the wrong
pump sizes. The proposal is to
install a new pump at SDEN.
Negotiation with the EA to
recover the water lost to
treatment through variation of the
licence.
SDNG treatment works consists
of 2 streams: RO stream with
capacity of 3.6Ml/d and a
traditional stream (filtration) with
a capacity of 7.2Ml/d. Upgrade is
required to replace traditional
stream with RO plant (capacity
7.2Ml/d). This would reduce the
outage at SDNG treatment
works.
Page 67 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Output
at
average
(Ml/d)
0
0
Confidence
in output
being
achieved
0
Construction
period
(years)
0
0
3.1
70%
0.14
0.14
0.02
0.06
Output
at peak
(Ml/d)
0
Total
Opex per
annum
(000's £)
0
S&E
costs one-off
(000's £)
0
S&E
costs annual
(000's £)
0
1
287
7.6
0.00
1.10
50%
1
13
0
0.00
1.10
53%
3
6,531
1,219
127.87
134.78
Total
Capex
(000's £)
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Scheme
number
Scheme name
Type of
scheme
632
CHOICE
Tariffs
637
Smart
metering
Metering
638
BARI
continuation
after 2014/15
Bulk Transfer
639
DEAI
extension after
2012
Bulk Transfer
Description
New stepped charging structure
where an initial allowance of
water to cover everyday
household use will be charged at
a rate below the current standard
rate. Any water that is used in
excess of this allowance will be
charged at a higher than
standard rate. Scheme available
from 2013.
Implement Smart metering trial
with the benefit of gaining better
understanding of Smart metering
technology.
The Company has an export
agreement with SEW and this
agreement expires in 2014/15.
This option is for the continuation
of this existing agreement.
The Company has an export
agreement with SWS and this
agreement expires in 2012. This
option is for the continuation of
this existing agreement.
Output
at
average
(Ml/d)
1.4
1.4
Confidence
in output
being
achieved
45%
Construction
period
(years)
1
0.04
0.04
53%
2
2
1.33
1.33
Output
at peak
(Ml/d)
224.5
Total
Opex per
annum
(000's £)
145
S&E
costs one-off
(000's £)
0.00
S&E
costs annual
(000's £)
-1.29
5
280
5.7
2.83
0.00
In baseline
0
0
Base opex
0.00
0.00
In baseline
0
0
Base opex
0.00
0.00
Table 33: Description of the feasible schemes
Page 68 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Total
Capex
(000's £)
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.7.4 Optimisation
The Company used the “least-cost optimisation” Dynamic Model developed by the consultants
Jacobs, to define the preferred options list. The model has been designed to pull together the
various components of the Water Resources Management Plan to produce an optimised leastcost development scenario for each water resource zone and allow the plan to be updated
rapidly to respond to changes in demand forecasts, deployable outputs, risk and headroom etc;
and take account of alternative climate change scenarios and sustainability reductions as these
may become available.
The methodology adopted follows the procedures outlined in the Economics of Balancing
Supply and Demand (EBSD). The optimisation routine chosen is the dynamic programming
(DP), which is probably one of the most robust optimisation techniques for determining a global
optimum solution for a staged process such as the Water Resources Management Plan.
The ‘least-cost optimisation’ model includes provision for calculating the following economic
costs:
•
AIC - for each option is defined as the Net Present Value (NPV) of the combined CAPEX
and OPEX, at a given discount rate, divided by the NPV of the expected output (yield) for
that option.
•
AISC - for each option is defined as the NPV of the combined CAPEX and OPEX,
together with the estimated environmental and social costs added in, divided by the NPV
of the expected output (yield) for that option.
•
NPV – Net Present Value, of the range of options in a given scenario is the combined
CAPEX and OPEX cost streams, together with estimated social and environmental costs
(over time), discounted at a given discount rate, of all options included in that scenario.
The model calculates these economic costs for the feasible options list to arrive at an optimum
selection of schemes and implementation sequence, that meets the projected supply/demand
balance (including allowance for headroom) at a minimum NPV, for a given target level-ofservice.
The Company’s preferred methodology for the optimising calculation is to use individual scheme
risk benefit values, as the Company consider this more effective and accurate when using a
modelling approach that considers a large number of combinations of scheme options. The
outcome of this approach has been used for the proposed investment strategy. The Company
has also considered the alternative outcome of modelling scheme risk in headroom and the
results and commentary on this approach are included in Section 2.10.
Page 69 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.8 Final Water Resources Strategy
The Company has taken full account of the views of stakeholders and customers in formulating
its final water resources strategy.
In view of the Company’s ‘water scarcity’ status and Governments views on ‘water stress’,
maintaining the focus on demand management is an essential component of the plan. It is a
priority for the Company and the long-term security of supply of customers that customers are
supported in minimising their demand for water. Demand management measures are, therefore,
a central plank in the investment plan for 2010 to 2015, and this means the Company will be
able to ascertain if reduced consumption is sustainable in the longer term. Accelerating the
current metering programme is in direct response to these drivers. Further, introducing a
socially-responsible stepped tariff for water charges as a low-cost scheme compared to the
alternative of new resource development is being promoted by the Company for AMP5. In
promoting these demand driven solutions, the Company recognises the need to be sensitive to
any issues of affordability that may affect customers, and appropriate safeguards are built into
the plan.
With this strategy, the Company does not have a supply/demand deficit and therefore does not
need to implement schemes over the 25-year period.
Section 2.8.1 Final supply/demand balance
The Company proposes to follow the strategy defined in its Strategic Direction Statement (SDS)
and include it in its supply/demand strategy:
•
As detailed in its SDS, draft WRMP and Business Plan, the Company will roll out the
stepped tariff scheme (currently trialled in the town of Lydd) to the whole supply area in April
2013. The tariff scheme will provide the Company and the water industry with valuable
experience and data on how customers respond to tariffs in the short and medium term.
This scheme is key to achieving the Company’s aspirational target of 120 PCC by 2015.
However, there is considerable uncertainty around customers’ response to demand
management measures; therefore, the Company has decided to forecast demand based on a
Per Capita Consumption of 130l/person/day. By modelling revenue based on 130 PCC rather
than 120 PCC, the Company is seeking to appropriately balance the impact on customer bills
against the uncertainty in demand and Company income. This position has been approved by
the Board as part of the overall strategy to achieve the right balancing between Company risk
and the impact on customer bills.
If the target of 120 PCC is not achieved by 2015, the Company has the option to explore
changes to the tariff mechanism to stimulate further customer reductions to achieve the 120
PCC target.
•
The Company will continue its AMP4 leakage strategy, which aims to reduce leakage
by 0.5Ml/d over the 5-year period. This will reduce the leakage level to 7.5Ml/d by 2015 and
progress towards achieving the Sustainable Economic Level of Leakage over a 10-year period.
This is consistent with the Company’s SDS and energy efficiency target. The ‘willingness to pay’
survey highlighted strong support from customers for carbon reduction. Customers have also
Page 70 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
made it clear that leakage should be reduced further, if they are expected to reduce their
consumption, and the Company is responding to that message by lowering leakage by a further
0.5Ml/d.
•
The Company will also undertake three studies during AMP5.
The AMR trial will strengthen its position towards customer service and new technology by
installing AMR meters in internal properties.
The Company is responding proactively to growth challenges around Dover, by undertaking
further detailed design and network analysis for the Whitfield development. The Company will
be in a position to propose detailed network solutions to the developers at the end of AMP5.
The Company continues to work with the Environment Agency and neighbouring companies on
the Little Stour catchment.
•
The Company has incorporated the 0.07Ml/d per year Water Efficiency Target set by
Ofwat into its final Business Plan projections. The Company plans to carry out a variety of water
efficiency activities during AMP5 with both commercial and domestic customers, with savings
estimated for each activity in line with the information provided by Ofwat.
The Company’s water resources strategy is made of a small number of schemes which are
required to maintain a satisfactory supply/demand balance over the planning period. The
schemes and studies to be implemented over the AMP5 period are shown in Table 34 below.
Scheme name
96% metering
CHOICE
0.5 Ml/d leakage
reduction
AMR study
Little Stour NEP
study
Whitfield study
Water efficiency
target
Implementation
date
April 2012
April 2013
Output at
average (Ml/d)
Baseline
1.4
Output at
peak (Ml/d)
Baseline
1.4
5-year
CAPEX (£k)
3,549
225
5- year
OPEX (£k)
802
290
2010-2015
0.5
0.5
86
0
2010-2015
280
28
2010-2015
181
0
2010-2015
175
0
0
209
2010-2015
Baseline
Baseline
Table 34: Investment programme
The result of the proposed investment programme is shown in Figure 18 and Figure 19 and
demonstrates that the Company is able to maintain security of supply throughout the planning
period.
Page 71 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Final Supply/Demand Balance DYAA
60.00
50.00
Ml/d
40.00
30.00
20.00
10.00
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
0.00
Year
Normal (130 PCC by 2015 / 120 PCC by 2020)
Dry
Demand Plus Headroom
WAFU
Figure 18: Final supply/demand balance – average conditions
Final Supply/Demand balance DYCP
70.00
60.00
50.00
Ml/d
40.00
30.00
20.00
10.00
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
0.00
Year
Normal
Dry
Demand Plus Headroom
WAFU
Figure 19: Final supply/demand balance – critical period conditions
Page 72 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.8.2 Contingency plan / sensitivity analysis
The Company has run different scenarios to test the robustness of its supply/demand forecast.
These scenarios are:
- High outage
- Loss of Denge DO from 2015
- Loss of licences through WFD
- High Climate Change impact
- High PCC
- Supply Pipe Leakage
- Commercial forecast based on 2007 consumption
While various sensitivity scenarios bring forward the supply/demand deficit in the planning
period, none result in a deficit during AMP5.
The Company has identified from the sensitivity analysis which schemes would be implemented
if the demand management strategy does not result in customers reducing their consumption as
forecasted.
Indeed, it is customers who decide how much water they should use (in the light of the cost, if
they are metered), and the Company has a statutory duty to supply domestic customers with the
water they wish to use. It is, therefore, possible that demand may rise more quickly than
predicted in the plan. To cope with this uncertainty, preparing for new resource schemes is
important. The Company continues to explore with the Environment Agency and other water
companies in the South-East the best ways of sharing resources. In this way, the Company’s
Plan will remain flexible and the Company can bring forward schemes if demand rises beyond
that currently predicted. Further, uncertainty over whether reduced demand will continue in the
longer term remains, and the Company expects to work with Ofwat to ensure that this risk can
be reflected in the financing of the Company.
The Company proposes to bring forward the following schemes if demand was rising faster than
predicted in the plan. These would be:
•
Regional solutions - The Company has considered the results from the Water Resources
in the South East modelling work and is closely working with its two neighbouring companies:
South East Water and Southern Water, to secure augmented bulk imports. These bulk imports
would provide an additional 3.34Ml/d at average and 4Ml/d at peak.
Scheme 301 – BARI increase from 2Ml/d to 4Ml/d at both average and peak
conditions.
Scheme 450 – DEAI increase from 1.33Ml/d to 2.67Ml/d at average and from 0Ml/d
to 2 Ml/d at peak. From recent conversation with SWS, it is understood that the
increased bulk supply will not be available before 2020.
•
Optimisation of output from existing sources - The Company is currently investigating the
possible optimisation of the outputs from its operating DOVN sources by removing DAPWL
constraint on DO. If the investigations are proved successful, the Company would have the
possibility to use the additional water from 2013. This scheme would provide at best an extra
4.9Ml/d at average and 4.19Ml/d at peak.
Page 73 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2.8.3 Regional solutions
The Company is part of the Water Resources in the South-East Group and is liaising with its
neighbouring companies to develop joint regional solutions for the South East of England.
The Company has met regularly in the past few months with South East Water (SEW) and
Southern Water (SW) to discuss the possible increase of its two bulk imports: Barham from
SEW and Deal from SW.
Both SEW and SW have agreed to augment those supplies to Folkestone and Dover but have
highlighted that:
The increased bulk supplies will not be available before 2020;
In order to provide the Company with extra supplies, SEW and SW would require
developing new resources in their own supply area.
Although the Company’s would be a minor stakeholder in the development of these schemes,
the Company will support SEW and SW in the implementation of their preferred options which
would benefit the Company in the future.
The Company will continue to work closely with its customers, local stakeholders and
neighbouring companies in order to ensure availability of water through demand management
savings and regional resource developments.
Section 2.8.4 Carbon emissions
The carbon footprint resulting from investment has been calculated for the planning period
2010-2035 based on the emissions required to meet the dry year annual average forecast
demand in each of the next 25 years. Included in this calculation is the carbon impact resulting
from the baseline metering strategy which is to reach 96% by 2012, and the implementation of
the stepped tariff scheme.
Figure 20 illustrates that the resulting CO2 emissions from the Plan decrease steadily between
2008 and 2020 due to the implementation of demand management measures, which is in line
with the Company’s commitment to reduce 1% annually energy carbon use until 2020 (as
included in the Strategic Direction Statement). The Company forecasts a positive
supply/demand balance until the end of the planning period. Therefore, no resource
development schemes are required, and consequently, the level of CO2 emissions will remain
constant between 2020 and 2035.
Page 74 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
CO2 emissions
7,000
Actual Distribution Input (June
6,000
Forecast Dry Year
Distribution Input
Return / Corporate Responsability)
tC02 per year
5,000
4,000
3,000
2,000
1,000
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
0
Year
Final Water Resources Strategy
Figure 20: Carbon Footprint for 2010-2025
Section 2.9 Security of Supply Index
The security of supply index at Company level is estimated at:
SOSI – DYAA
(company LOS)
SOSI –DYCP
(company LOS)
2007-08*
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
-29
100
100
100
100
100
100
100
77
100
100
100
100
100
100
100
Table 35: Security of Supply Index
* The 2007-08 figures are as per the response to the Ofwat JR08 query of 04/07/2008.
The figures improved in 2008/09 following the commissioning of Cow Lane and Dover Priory
sources.
Page 75 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 3 Expenditure implications of maintaining the supply /
demand balance
Section 3.1 AMP5 Scheme Details and Costs
The Company’s water resources strategy is made of a small number of schemes which are
required to maintain a satisfactory supply/demand balance over the planning period. The
schemes and studies to be implemented over the AMP5 period are shown in Table 36.
Scheme name
96% metering
CHOICE
0.5Ml/d leakage
reduction
AMR study
Little Stour NEP
study
Whitfield study
Water efficiency
target
Implementation
date
April 2012
April 2013
Output at
average (Ml/d)
Baseline
1.4
Output at
peak (Ml/d)
Baseline
1.4
5-year
CAPEX (£k)
3,549
225
5- year
OPEX (£k)
802
290
2010-2015
0.5
0.5
86
0
2010-2015
280
28
2010-2015
181
0
2010-2015
175
0
0
209
2010-2015
Baseline
Baseline
Table 36: Investment programme
The Company is seeking funding for the preferred schemes, which will have to be implemented
during AMP5.
Section 3.2.1 Studies
Study 1: NEP Little Stour
Investigations into the impact of abstractions on flows in the Little Stour have been undertaken
during AMP3 and AMP4 in relation to the Alleviation of Low Flows project. These investigations
are ongoing and conclusions from the investigation will not be finalised until 2010. The outcome
of the current studies will be an assessment of the impact of water company abstractions on
flows in the Little Stour.
Following on from the impact assessment, there will be a need to evaluate various options for
improving the environmental status of the river. This may be by increasing flows in the channel
or by improving channel conditions such that the ecology benefits within the current flow regime
(or a combination of the two). The water companies are seeking funding in PR09 for this
“options appraisal”.
Folkestone and Dover Water and South East Water as well as Southern Water abstract in the
Little Stour catchment. The three water companies have worked together successfully in AMP4
and the majority of the AMP5 work will also be run in partnership. (It is assumed that all three
companies have been provided with the same Stage Plan by the EA).
The appraisal should review the options for improving the environmental condition of the Little
Stour in terms of enhancements to the physical structure of the river and/or modifying
Page 76 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
abstractions in order to increase flows at critical times. Whether it is appropriate to consider
abstraction changes will depend on the outcome of the current impact assessment study.
The practicality of implementing the options must be considered. For abstraction changes this
may mean setting trigger flows or levels which are environmentally meaningful but also
workable for water company operations. Any channel improvement solutions should consider
the need for ongoing maintenance and are dependent on the cooperation of local land owners.
In considering any modifications to water company abstraction licences which impact on
deployable output, some thought should be given to how this loss will be compensated so that
the supply / demand balance is maintained. The EA Stage Plan specifically notes that a detailed
assessment of alternative sources should not be included in the AMP5 programme. However, in
making an informed assessment of how best to address problems in the Little Stour catchment
an initial look at where else water for public supply might come from is needed to ensure wider
sustainability issues are considered.
Broadly, the AMP5 options appraisal work should cover the following tasks:
S1. River rehabilitation options (design and costing of restoration schemes for specific
reaches, initial discussions with land owners, targeted geomorphology and ecology surveys)
S2. Define target flow regimes (review latest EA work on silt deposition, LIFE, Baysian
Belief model, fish requirements etc. including EA definition of thresholds for Good Ecological
Status and Environmental Flow Indicators under the WFD, include non-ALF reaches and
potential effects of habitat restoration)
S3. Identify ways to achieve target flows (which abstractions? magnitude and timing of
changes, alternatives to abstraction reduction (e.g. bed relining, flow augmentation), include
update and test runs using EKGM, potential impacts of climate change will be considered)
S4. Management of any abstraction changes (detail of implementation e.g. setting
triggers and protocol, may include pilot testing of proposed mechanism)
S5. Alternative supply options (initial review of potential alternatives if abstraction
reductions required, separately for each company e.g. SW to include test runs in MISER)
S6. Propose preferred approach and plan implementation (compare costs / benefits /
risks,/ sustainability (incl. carbon cost), select appropriate river rehabilitation and / or
abstraction modification options, propose phased implementation of schemes) (Note this will
not include options appraisal for alternative supply of water.)
S7. Project management and liaison (at all stages in the options appraisal close
cooperation between the water companies, EA and local stakeholders will be maintained,
which will involve the formation of a Steering Group that will include all interest parties.
Budget costs for these tasks are given in Table 38. The three water companies would work
together as for AMP4 with coordinated management of the work and costs split along an agreed
formula. However, “alternative supply options” is not included in this split: for this task each
water company may have quite different situations to review and so it is suggested that this task
is run separately by each company.
Page 77 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
In developing the scope of work for the AMP5 study, it is assumed the EA will continue with
other activities in the catchment, including:
•
Addressing other factors which have an influence on the environmental status of the Little
Stour (e.g. vegetation management, land management, head-loss at mills) but which may
have to be augmented by a water company-led programme.
• Assessing the impact of non-water company abstractions and modifying where
appropriate.
• Maintain (and if needed enhance) the hydrological and biological monitoring in the
catchment; the lack of historic data for the Little Stour has been identified as an issue in
previous phases. Availability of reliable, continuous data records will be important in validating
the current assessments and quantifying benefits of any improvements.
As for the Little Stour, the Wingham River has been subject to investigation in AMP4 because of
the potential impact of groundwater abstraction on baseflow. The driver for work on the
Wingham is Biodiversity Action Plan designations.
Work in AMP4 has taken the Little Stour and Wingham schemes as one: the focus has been on
defining the impact of water company abstractions on flows in both rivers and as such all
abstractions in the catchment needed to be considered together.
However, only Southern Water is directed to seek funding to address the specific problems on
the Wingham River.
As on the Little Stour, following on from the AMP4 impact assessment, there will be a need to
evaluate various options for improving the environmental status of the river. This may be by
increasing flows in the channel or by improving channel conditions such that the ecology
benefits within the current flow regime (or a combination of the two). Funding is sought in PR09
for this “options appraisal”.
It is proposed that the options appraisal would again run jointly with the Little Stour scheme, at
the very least for all aspects addressing flow quantity and abstraction modification, allowing
issues to be addressed at a catchment scale. However there are a number of additional issues
on the Wingham River arising in part from the different nature of the river and in part from the
much lower baseline of understanding of the river.
Running the Wingham and Little Stour investigations together, as a joint project between the
three water companies is considered the only efficient way to proceed. Costs are therefore
presented for the two schemes together.
• For all technical tasks, the total cost will be divided between the companies according to a
funding formula
•
Project management costs will be met by Southern Water
• The initial review of alternative supply options (S5/W7) will be carried out (and funded)
separately for each company
Page 78 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The same funding formula as used at AMP 4 is proposed. This is based on the relative sizes (in
terms of ADO) of the abstractions operated by each company in the Little Stour catchment as
shown in Table 37.
Company
Total ADO/MDO*
% of catchment total
Agreed funding %
Southern
31.09 Ml/d
59%
60%
Folkestone and Dover
13.92 Ml/d
26%
25%
8 Ml/d
15%
15%
South East
Total
53.01 Ml/d
Table 37: Agreed funding between the 3 water companies
* Note that these figures are based on Deployable Outputs as at PR04 – any recent amendments to DO
are not taken into account.
The costs of the study are detailed in Table 38.
Task
S1
S2
S3
S4
S5
S6
S7
W1
W2
W3
W4
W5
W6
W7
W8
W9
Little Stour
River rehabilitation options
Define target flow regimes
Identify ways to achieve target flows
Management of any abstraction
changes
Alternative supply options (initial
review only, full assessment if needed
would be in AMP6)
Propose preferred approach and plan
implementation
Project management / liaison
Wingham
River rehabilitation options
Water quality pressures
Define flow requirements
Identify ways to achieve flow
requirements
Identify impacts of options on Preston
Marshes SSSI
Management of any abstraction
changes
Alternative supply options (initial
review only, full assessment if needed
would be in AMP6)
Propose preferred approach and plan
implementation
Project management / liaison
Technical task total (3 water
Joint cost
(technical tasks)
SW cost
FDWS cost
SEW cost
£20,000
£20,000
£20,000
£100,000
£50,000
£100,000
£60,000
£50,000
£40,000
£60,000
£40,000
£40,000
£20,000
£20,000
-
£20,000
£20,000
£560,000
Page 79 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
companies)
Company component (60:25:15% split)
Individual water company activities
(S5)
£336,000
£80,000
Water company total
£416,000
£140,000
£20,000 +
£20,480*
£180,480
£84,000
£20,000
£104,000
Table 38: Little Stour Study costs
* 12.8% FDWS overhead
Study 2: Automated Metering Reading metering trial
Scheme 637 would be to implement a SMART metering trial on internal and new meters with
the benefit of:
•
•
•
•
•
•
Developing a vision for future customer service (internet, data..)
Gaining a better understanding of smart metering technology and the opportunities it
presents (potential Company-wide roll out);
Understanding the technical issues involved in integration of smart metering with existing
company systems;
To assess customer reaction to smart metering, in particular any behavioural change
resulting from improved access to consumption data;
Exploring commercial tariff options which could arise from smart metering;
Providing better data to support a more robust life cost benefit analysis on a company
wide implementation.
This would see the installation of 3,286 smart meters between 2010 and 2015.
AMR trial on all internal meters
The assumptions are:
•
•
•
•
•
•
•
•
•
•
•
5% of Experian “most likely scenario” figures for new household numbers are internals.
13 monthly total consumptions and current meter reading sufficient for future tariffs.
To date internal meters are correctly recorded on Hi-Affinity database.
Reasonable access to fit new AMR meters.
Adopt a system compatible with that chosen by TVW for their AMR roll out.
Price for AMR unit and supporting IT is similar to that obtained by TVW.
Walk by system sufficient.
System adopted is upgradeable to fixed network AMR at a later date.
Any required new billing database costs are borne elsewhere in the capital programme.
The Company will adopt same new billing system as TVW.
The replacement billing system will be able to bill all customers based on any tariff
including, seasonal, rising block, time of day, etc.
Page 80 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
AMR trial on some commercial meters
The assumptions are:
• Only applied to top 50 non-household water consumers.
• System will be independent of standard Company meter reading & billing systems.
• System will provide continuous access to meter consumption.
• Web based consumption information for the Company and customer.
• £20,000 estimated for billing system to enable trial.
• Future replacement billing system will be able to bill all customers based on any tariff
including, rising block, time of day, etc.
• The Company will adopt same new billing system as the Veolia Group.
• Any required new billing database costs are borne elsewhere in the capital programme.
The costs breakdown of the AMR programme is detailed in Table 39 below.
AMR – internal meters
Capex/Opex
Capex
Opex
AMR – commercial meters
Capex/Opex
Capex
Asset
Asset Life
Purchase
year
Number
20
2010/11
2,672
£67.00
20
2010/11
240
£67.00
20
2011/12
246
£67.00
20
2012/13
13
£67.00
20
2013/14
33
£67.00
20
2014/15
33
£67.00
5
2010/11
4
£1,500.00
5
2010/11
1
£5,000.00
5
2010/11
1
£10,000.00
5
2010/11
1
3,236
£2,500.00
2010/11
2,912
£1.00
2011/12
291
£1.00
2012/13
13
£1.00
2013/14
33
£1.00
2014/15
33
£1.00
Asset Life
Purchase
year
Number
10
2010/11
50
£250.00
5
2010/11
1
£20,000.00
Replacement of all internal
meters with AMR
AMR unit for new internal
meters
AMR unit for new internal
meters
AMR unit for new internal
meters
AMR unit for new internal
meters
AMR unit for new internal
meters
Upgrade/replacement of
MTS handheld DCU
Upgrade of data transfer to
Hi-Affinity software
Data storage upgrade dedicated server
Training
Total AMR meters
Maintenance of radio read
units
Maintenance of radio read
units
Maintenance of radio read
units
Maintenance of radio read
units
Maintenance of radio read
units
Asset
New SMS data loggers on
top 50 meters
Software to enable time of
day billing
Page 81 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Unit Rate
Unit Rate
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Training
Implementation Project
Management
Maintenance of radio read
units
Customer support
manager
Opex
5
2010/11
1
£2,000.00
5
2010/11
1
£5,000.00
2010/11
1
£500.00
2010/11
1
£2,000.00
Table 39: Costs breakdown
The overall costs are detailed in Table 40 below.
Capex/Opex
Sum of
2010/11
Asset Life
Capex - internal
Capex - commercial
5
£23,500
15
£195,135
5
£39,500
Sum of
2011/12
Sum of
2012/13
Sum of
2013/14
Sum of
2014/15
£16,513
£838
£2,178
£2,178
AMP5
£23,500
£216,841
£39,500
Capex total (£)
£258,135
£16,513
£838
£2,178
£2,178
£279,841
Opex – internal
£2,912
£3,203
£3,216
£3,248
£3,281
£15,861
Opex - commercial
£2,000
£2,500
£2,500
£2,500
£2,500
£12,000
Opex total (£)
TOTAL (£)
£4,912
£5,703
£5,716
£5,748
£5,781
£27,861
£263,048
£22,217
£6,553
£7,926
£7,958
£307,703
Table 40: Costs of AMR trial
The total cost of the AMR trial for the next 5-year period is £307.7k.
Section 3.2.3 Leakage schemes
Leakage Reduction of 0.5Ml/d
In 2007/08 the Company annual average level of leakage was 7.9Ml/d which is 1Ml/d (with
rounding) above the MSOC-SELL of 6.9Ml/d (see section 2.3.4) and therefore further reductions
in the short term would be socially economic.
APLE has been used to profile the level of leakage and associated social operating costs in
order to achieve the short-run SELL of 6.9Ml/d by 2017. The results of the APLE modelling are
shown below in Table 41.
Leakage Level
(Ml/d)
CAPEX (£)
CAPEX
0.5Ml/d reduction
CAPEX
1Ml/d reduction
7.8
7.7
7.6
7.5
7.4
7.3
7.2
7.1
7.0
6.9
15,546
16,248
17,100
18,072
19,255
20,769
22,601
24,808
27,976
32,070
£86,221
£214,445
Table 41: Leakage reduction costs
The total capital cost to reduce leakage by 0.5Ml/d is £86k for AMP5. The costs of maintaining
current leakage level are detailed in B3. There are no additional Opex costs.
Page 82 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 3.2.4 Metering, Tariffs and Water Efficiency
Acceleration of metering programme to achieve 96% by 2012
The objective is to accelerate the metering programme to achieve 96% metering penetration by
the end of 2012. The number of meters to be installed during AMP5 is detailed in Table 42.
PR09 forecast
New properties*
Optants
Selective programme
Number of meters installed TOTAL
Metering penetration %
2010/11
2011/12
2012/13
2013/14
2014/15
250
500
6,000
250
250
6,350
250
0
0
650
0
0
650
0
0
Total
AMP5
2,050
750
12,450
6,850
6,850
250
650
650
15,250
87%
96%
96%
96%
96%
Table 42: AMP5 metering programme – PR09 forecast
* New properties forecast reflects the economic downturn. The Company estimates a start of recovery in the housing
market in 2013/14.
The assumptions are:
• Meters are read twice a year
• The Cost Base submission unit cost for a meter installation of £202.45 is applied to all
meters fitted onto unmeasured supplies assuming standard installation techniques apply
i.e. this is a composite rate that covers, boundary box install, screw-in and internally
fitted installations
• From experience to-date it is know that a number of properties which so far have been
surveyed and recorded as “Unable to Meter” or “No Contact” will need to be metered to
achieve 96% penetration. Meters fitted to these properties will require more complex
techniques at a higher unit cost of £ 401.74 calculated as shown below.
An assessment has been carried out of the cost of undertaking more difficult to meter
properties, based on analysis of those properties to date where an installation has not been
complete. From reviewing this data four main categories arise for no installation having been
made. These are;
• Shared tank supplies;
• Unable to locate internal isolation /stop tap;
• Existing fixtures and fittings prevent installation; and
• No Contact.
Using current labour and material costs and a bottom up approach the total cost for each of
these types of install including materials, labour and risk has been calculated.
Risks included are :
• Customer no show on appointment – a significant issue given the likely need to obtain
access for most of these installations
• Legal process
• Dealing with enquiries and complaints
• Resolving leakages
Page 83 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
•
Insurance claims
The likely number of successful installations of each type was also taken into account to arrive
at an all in price of £ 401.74
Without this higher level of funding to resolve these difficult to meter properties, the
Company will not be able to meet its 96% target.
The costs breakdown and number of each type of install included in the Final Business Plan
Tables is as detailed in
Table 43 below.
Page 84 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Capex/Opex
Capex
Opex
Asset
Meter in B/box on existing properties
Meter in B/box on existing properties
B/Boxes on existing properties
B/Boxes on existing properties
Internal meter installation
Internal meter installation
Screw-in meter installation
Screw-in meter installation
Additional meters on "Unables" to
96%
Additional meters on "Unables" to
96%
TOTAL meters
Meter reading costs
Meter reading costs
Additional call agent in Customer
Services
Additional meter reader
Purchase
year
2010/11
2011/12
2010/11
2011/12
2010/11
2011/12
2010/11
2011/12
Unit Rate
2,184
2,324
2,184
2,324
234
249
1,482
1,577
£20.00
£20.00
£182.45
£182.45
£202.45
£202.45
£202.45
£202.45
2010/11
2,201
£401.74
2011/12
£401.74
2010/11
2011/12
2,201
16,957
6,100
6,350
2010/11
2010/11
1
1
Table 43: Costs breakdown
Page 85 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Number
£9.54
£9.54
£20,000.00
£27,000.00
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The overall costs of the metering programme for AMP5 are detailed in Table 44 below.
Capex/Opex
Capex selective (£)
Capex optant (£)
Capex total (£)
Sum of
2010/11
1,673,483
Sum of
2011/12
1,724,095
Sum of
2012/13
Sum of
2013/14
Sum of
2014/15
101,225
50,613
0
0
0
151,838
1,774,708
1,774,708
0
0
0
3,549,415
AMP5
3,397,578
105,194
165,773
165,773
165,773
165,773
768,286
Opex optant (£)
4,770
7,155
7,155
7,155
7,155
33,390
Opex total * (£)
109,964
172,928
172,928
172,928
172,928
801,676
1,884,672
1,947,636
172,928
172,928
172,928
4,351,091
Opex selective (£)
TOTAL (£)
Table 44: Cost of metering programme
* This does not include the OPEX costs resulting from years 4 and 5 of the AMP4 metering programme.
The total cost of the metering programme for the next 5-year period is £4.3m.
Scheme 632: Socially responsible stepped tariff scheme - CHOICE (Customer Having
Optimal Information Concerning Efficiency)
The key components of the tariff scheme are based on the Lydd trial:
•
•
•
•
•
An essential use allowance currently set at 219 litres per property per day (equivalent to
80 cubic meters per property each year).
The essential use allowance to be charged at a rate below the current standard rate.
Any water that is used in excess of this allowance will be charged at a higher than
standard rate.
Larger families and those with special medical requirements will be able to claim an
increase in the essential use allowance.
New Smart bills to replace standard bills and provide customers with better information
of their water usage based on quarterly reads and bills.
The development of the final components for CHOICE scheme will be based on the findings
from the Lydd trial, which will be published in the next coming months.
The implementation of the stepped tariff to the whole Company is key to achieving the
Company’s aspirational target of 120 PCC by 2015. There is considerable uncertainty around
customers’ response to demand management measures, and this will provide the Company and
the water industry with valuable experience and data on how customers respond to tariffs in the
short and medium term.
The assumptions are:
•
•
•
It will be necessary to promote the scheme and provide robust positive PR support at the
start of the roll out.
Stepped tariff will only apply to household properties – not commercials.
96% of household properties will be metered at the start of the roll out.
Page 86 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
•
•
•
•
•
•
•
•
All meters are dumb meters.
It is necessary to read all meters four times a year in order to successfully implement the
stepped tariff.
Amendment of current billing system will enable roll out of stepped tariff, and produce
the new Smart Bill.
The cost of modifying the billing system is included in the total cost of the tariff scheme,
but the upgrade of the whole billing system is covered in the M&G programme in B3.
The replacement billing system will be able to bill all customers based on any tariff
including, rising block, time of day, etc.
Meter reading of most meters continues to be a manual exercise but efficiency of the
meter readers is similar to that achieved in Lydd during 2007/08.
Full household meter penetration will improve meter reading performance:
All commercials will continue to be read at the same frequency and rate as at present.
The costs breakdown is detailed in the Table 45 below.
Capex/Opex
Capex
Opex
Asset
Asset Life
Modification of Billing system
3 additional handheld Data
Capture Units
Promotional material to
introduce the scheme
3 new meter readers for
quarterly reading
Additional software licences
2 additional call agents in
Customer Services
Multi colour printing 4 times a
year
5
Purchase
year
2013/14
5
5
Number
Unit Rate
1
£200,000
2013/14
3
£1,500
2013/14
1
£20,000
2013/14
3
£30,000
2013/14
3
£1,000
2013/14
2
£25,000
2013/14
4
£500
Table 45: Costs breakdown
The overall costs of the tariff scheme are detailed in the Table 46 below.
Capex/Opex
Capex (£)
Capex total (£)
Asset Life
5
Sum of
2010/11
Sum of
2011/12
Sum of
2012/13
Sum of
2013/14
Sum of
2014/15
AMP5
224,500
224,500
224,500
224,500
Opex (£)
145,000
145,000
Opex total (£)
145,000
145,000
252,000
145,000
145,000
476,500
TOTAL (£)
224,500
Table 46: Costs of tariff programme
The total cost of the tariff programme for the next 5-year period is £476.5k.
Page 87 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Water Efficiency strategy
The Company has incorporated the 0.07 Ml/day/year Water Efficiency Target set by Ofwat into
its final Business Plan projections.
The water efficiency strategy and associated costs to achieve the annual target are detailed in
the tables in this section and represent the Company’s current plans at the time of final plan’s
submission. They are all based on the information given by Ofwat at that time.
The Company plans to carry out a variety of water efficiency activities during AMP5 with both
commercial and domestic customers, with savings estimated for each activity in line with
Ofwat's recommendations.
From the activity lists and taking on board limits on potential for each activity, the activity list was
created to minimise costs and maximise savings. Table 47 identifies the specific activities and
level of activity that will achieve the total annual Ofwat target for each year of AMP5.
Table 47: Company’s water efficiency activities required to meet WE target
In reality, unforeseen opportunities may arise to make additional savings over and above those
listed above and in that event the balance of water efficiency activities in that and subsequent
years will be reviewed and adjusted to suit.
Page 88 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company is part of the WaterUK Water Efficiency Practitioners Group and is looking at
optimising savings by using industry best practice wherever possible.
In addition, the Company is working with the Environment Agency and SEEDA on their
“Ensuring Water For All” initiative. Although this covers much of the same ground as has been
covered before, it is an alternative view on the topic and may provide some innovative solutions
that can be introduced to gain more reliable savings from lower cost solutions.
Table 48 shows the costs associated to each activity. The costs have been based on a blend of
quotations, internal costs and engineering judgement to arrive at a best estimate of the costs of
the programme.
Table 48: OPEX costs per year to achieve WE target
The AMP5 OPEX costs to achieve the Water Efficiency target are £209k.
Page 89 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 3.2.6 Supply/Demand Expenditure Projections
CAPEX expenditure (£)
Option
Option
No.
Acceleration of
metering
96% by April 2012
In
baseline
CHOICE 632
available in April 2013
632
Leakage reduction of
0.5Ml/d by 2015
Total AMP5
2010/11
2011/12
2012/13
2013/14
2014/15
£3,549,416
£1,774,708
£1,774,708
0
0
0
£224,500
0
0
£224,500
0
0
£86,221
£15,546
£16,248
£17,100
£18,072
£19,255
Little Stour study
complete by 2014/15
Study
£180,480
£36,096
£36,096
£36,096
£36,096
£36,096
AMR trial
complete by 2014/15
Study
£279,842
£258,135
£16,513
£838
£2,178
£2,178
Whitfield study
complete by 2014/15
Study
£175,000
£35,000
£35,000
£35,000
£35,000
£35,000
0
0
0
0
0
0
£4,495,459
£2,119,485
£1,878,565
£313,534
£91,346
£92,529
Total AMP5
2010/11
2011/12
2012/13
2013/14
2014/15
In
baseline
£801,676
£109,964
£172,928
£172,928
£172,928
£172,928
632
£290,000
0
0
0
£145,000
£145,000
0
0
0
0
0
0
Study
0
0
0
0
0
0
Study
£27,860
£4,912
£5,703
£5,716
£5,748
£5,781
Study
0
0
0
0
0
0
£209,180
£34,470
£34,670
£46,680
£46,680
£46,680
£1,328,716
£149,346
£213,301
£225,324
£370,356
£370,389
Water efficiency target
0.07Ml/d reduction per
year
CAPEX TOTAL
In
baseline
OPEX Expenditure (£)
Option
Acceleration of
metering
96% by April 2012
CHOICE 632
available in April 2013
Leakage reduction of
0.5Ml/d by 2015
Little Stour study
complete by 2014/15
AMR trial
complete by 2014/15
Whitfield study
complete by 2014/15
Water efficiency target
0.07Ml/d reduction per
year
OPEX TOTAL
Option
No.
In
baseline
The OPEX costs for AMP5 do not include the additional OPEX costs resulting from years 4 and 5 of the
AMP4 metering programme.
Page 90 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4 New Developments and Growth
Section 4.1 Whitfield Development
The Local Development Framework (LDF) produced by Dover District Council has identified
potential development land around the area of Whitfield. The plan estimates that an additional
5,790 domestic dwellings could be created in the local area and the Company needs to make
provision for these new houses. Additionally, in July 2008, proposed changes to the South East
Plan were published for consultation by the Secretary of State. The main outcome with direct
impact on the Company’s plans is the proposal to define Dover as a growth point and housing
growth numbers being increased from 6,000 to 10,000. These dwellings are planned to be
delivered before 2026.
The proposed development would be built on the outskirts of Whitfield, which is currently
supplied by the Downsgate Booster Zone. The existing mains infrastructure is not capable of
supporting such a large development and the Downsgate Booster has already been identified
as operating close to its maximum capacity.
The Company has reviewed its position since the draft business plan regarding this key
development and given the economic changes is no longer seeking funding in AMP5 for the
development. The Company has included for detailed study work to develop both technical
solutions and work with Dover District Council to establish robust developer funding mechanism
and thereby minimise customer funding and risk.
Section 4.2 Developer Led Activity
Experian policy housing forecasts (including economic downturn) predict a total of 2,050
properties to be connected to the Company water supply network during the AMP5 period.
The analysis of Company data shows that on average:
•
45% of new connections are property conversions,
•
2m of distribution mains are laid for every new connection (assumption is 150mm
pipe in sub-urban ground type).
Based on Company data, the length of new distribution mains to be laid is estimated to be 4kms
over the AMP5 period.
Number of new connections
Number of conversions
Number of new properties
Length of new mains (km)
2010-11
2011-12
2012-13
2013-14
2014-15
250
112
138
0.5
250
112
138
0.5
250
112
138
0.5
650
292
358
1.25
650
292
358
1.25
Page 91 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
TOTAL AMP5
2,050
920
1,130
4
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4.3 Costs
Section 4.3.1 Whitfield Development
With the proposal of a new development on the Whitfield area, the Company, in combination
with HydroCo consultants, undertook an investigation into short and long-term supply strategies.
In this context, a scheme is included in the final Business Plan which will assess how to best
augment supplies in the area to supply the proposed development.
Subsequently, the Company commissioned Atkins to further investigate the technical and
financial aspects of this scheme with the primary objective of producing a more robust costing
for the final Business Plan.
Atkins completed a technical pre-feasibility assessment of the preferred bulk water
augmentation solutions to support the Business Plan submission. These solutions consist of:
1. Upgrade Downsgate pumping station to 8.64Ml/day.
2. Replace the bulk transfer main between Downsgate Reservoir and the Whitfield
Development area with a 300mm Ductile Iron (DI) main 3.7km long.
3. Construct a new bulk water storage tank of 2.6 Megalitre capacity capable of supplying
24-hour demand for the ultimate development level of the Whitfield area.
4. Construct a new 5.2 kilometre long DI trunk main from Martin Transfer bulk main into the
proposed 2.4 Megalitre ground storage tank at Whitfield. The main should be capable of
conveying a flow of 45l/sec or 2.6Ml over 16 hours.
The key conclusions of the pre-feasibility study into the proposed Whitfield development bulk
water augmentation upgrades included:
•
A 2.6 megalitre ground reservoir should be constructed as the preferred storage reservoir
within the Whitfield township to cater for future growth and demand requirements.
•
Further hydraulic assessment into the 5.2km long 300mm diameter Martin transfer main
should be completed to identify whether any cost savings can be recouped through
optimisation of the trunk main size and associated headworks pumping station at
Kingsdown.
•
Project constraints identification for the Downsgate rising main and Martin transfer
pipeline:
- Planning – private land crossings and construction within residential areas;
- Sixteen road crossings between the two trunk main projects;
- Construction constraints: Access to private property, buried services (gas mains,
BT services and existing water and sewerage asset crossings).
•
Further project constraints identification for the Downsgate pumping station upgrade and
new Whitfield Reservoir/pump station construction:
- Power supply connection or upgrade application and approvals for the
new/upgraded pumping stations.
- Possible geotechnical constraints or difficulties constructing the new Whitfield
reservoir.
Page 92 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Land acquisition and planning approvals required to acquire the land required to
construct the new Whitfield reservoir and pumping station.
Construction constraints: Access to private property and buried services.
• As a minimum, all of the stakeholders responsible for the above constraints will need to be
notified of the proposed works, and formal approval will be required from many to precede
projects. The formal approval process may incorporate liaison with stakeholders,
application fees and possible compensation payments.
• The preferred solution is a combination of options 3 & 4 (listed above). The total cost of
these proposed bulk water augmentation schemes is estimated at £7.2 million. With a
25% developer input into the three schemes, the estimated financial investment required
by the Company would be £5.4 million.
-
However, the global economic downturn has increasingly weakened the market over the last
months for new residential and commercial development in the UK. As a direct result of this, the
full extent of the proposed developments at Whitfield is currently uncertain.
In that context, the Company proposes to proceed with the study and outline design of the
proposed Whitfield Residential and Commercial developments as the first priority in order to
fully understand the nature and extent of any reduced scope.
The main tasks and the estimated cost of undertaking this study during AMP5 are as follows.
TASK
BUDGET COSTS
Study
Data collection, processing and analysis
Meetings with Dover District Council
Meetings with Developers, Land Agents, Environment
Agency, Natural England & other stakeholders
Land Agent, Planning and other Fees
Site Visits, Route Reconnaissance and Field
investigations
Topographic Survey
Geotechnical Investigation
Hydraulic Analysis
Study Report
£15,000
£30,000
£15,000
£15,000
£10,000
£10,000
£15,000
£10,000
£5,000
Outline Design
Engineering
Drawings
Outline Design Report
TOTAL COST
The total capital costs of the Whitfield study is £175k.
Page 93 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
£25,000
£15,000
£10,000
£175,000
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4.3.2 New Connections
Based on Company data and Experian forecast, the costs associated to new connections are
detailed in the tables below.
Number of new connections
Total costs (£k)
Average cost per connection
including infrastructure charges (£)
Number of new connections
Number of conversions
Number of new properties
CAPEX associated with new
connections (£k)
OPEX associated with new
connections(£k)
2005-06
(actual)
2006-07
(actual)
2007-08
(actual)
2008-09
(forecast)
Average
217
374.4
253
473.0
762
749.6
550
560.0
446
539.3
1,725.5
1,869.4
983.8
1,018.2
1,399.2
2010-11
250
112
138
2011-12
250
112
138
2012-13
250
112
138
2013-14
650
292
358
2014-15
650
292
358
TOTAL AMP5
2,050
920
1,130
349.81
349.81
349.81
909.50
909.50
2,868.42
3.75
3.75
3.75
9.75
9.75
30.75
The developer is liable to pay the full amount associated with the connection of the property.
Section 4.3.3 New Mains
Based on Company data and Experian forecast, the costs associated to new mains are detailed
in the tables below.
Number of new connections
Total new mains paid (£k)
Developers Contributions new mains (£k)
Average cost per connection (£)
2005-06
(actual)
217
19.65
19.65
90.6
2010-11
Number of new connections
Number of conversions
Number of new properties
Costs associated with new mains (£k)
Developers Contributions 33% (£k)
Length of mains to be laid (km)*
250
112
138
97.71
32.40
0.5
2006-07
(actual)
253
188.01
56.40
743.1
2011-12
250
112
138
97.71
32.40
0.5
2007-08
(actual)
762
258.22
78.43
338.9
2012-13
250
112
138
97.71
32.40
0.5
2013-14
650
292
358
254.05
84.24
1.25
Average
441
155.29
51.49
390.9
2014-15
650
292
358
254.05
84.24
1.25
100%
33%
TOTAL AMP5
2,050
920
1,130
801.25
265.69
4
*It has been estimated that the new mains would be 150mm pipes laid in sub-urban ground type.
Historically, the Company sees developers contributing 33% of the total costs for new mains
and this has been estimated to continue for the next AMP period.
Page 94 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 5 Cost Benefit Analysis
As the Company’s supply demand balance is in surplus for the planning period, no interventions
have been proposed as part of the Company’s supply demand plan. Therefore there are no
interventions to assesses for cost benefit.
The Company’s metering strategy is based on the Company’s successful application for Water
Scarcity Status.
Section 6 Balance of Risk and Customer Affordability
Section 4.4 of Section B3 describes how the Company has balanced the overall programme to
reflect customer priorities, but also to balance the risks to customer service and the impact on
customer bills.
Section 7 Programme Delivery
The Company’s programme delivery strategy for AMP5 is detailed in Section 4.5 of Section B3
of the final business plan.
Page 95 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table Commentaries
Table B5.1
Water service demand forecasts
Block A - Properties
Line 1
Line 2
Line 3
Line 4
Line 5
06/07 & 07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP4FP line 19fp
Figures include both internal and external meters
06/07 & 07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP4FP line 22fp
06/07 & 07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP4FP line 25fp
06/07 & 07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP4FP line 27fp
Figures include both households and non households
06/07 & 07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP4FP line 29fp+30fp
Block B - Population
Line 6
Line 7
Line 8
Line 9
07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP4FP line 18fp
07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP4FP line 21fp
07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP4FP line 24fp
07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP4FP line 26fp
Block C – Water delivered (volume)
normal year
Line 11 06/07 & 07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP9 line 33n
Line 12 06/07 & 07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP9 line 37n
Line 13 06/07 & 07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP9 line 41n
Line 14 06/07 & 07/08: From JR08 Table 10b
08/09 – 14/15: From fWRMP tables - WRP9 line 44n
Block D – water service output measures
Line 15
Line 16
07/08: From JR08 Table 10
08/09 – 14/15: From SOSI calculation
07/08: From JR08 Table 10
08/09 – 14/15: From SOSI calculation
Page 96 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Line 17
Line 18
Line 19
07/08: From JR08 Table 10
08/09 – 14/15: From fWRMP tables - WRP4FP line 48fp
07/08: From JR08 Table 10
08/09 – 14/15: From fWRMP tables - WRP4FP line 15fp
07/08: From JR08 Table 1 Line 1
08/09 – 09/10: Assumed savings will be similar to the savings achieved in 2007/08 as there is no
change in the water efficiency strategy for the remaining AMP4
10/11-14/15: The numbers presented are in line with recent objective agreed with Ofwat and the
Company assumes it will achieve the voluntary target of savings 0.07Ml/d every year.
Table B5.2
Supply demand balance expenditure projections
Block B - Water service SDB capital expenditure infrastructure
Line 6
Line 7
Line 8-10
07/08: From JR08 Table 35 line 13 - PR09 tables have no Security of Supply Line, so the JR08
Table 35 Line 16 (Capex Security of Supply) which is all INF has been assigned to line 6 £0.022m
08/09 - 09/10: Forecast from AMP4 programme
AMP5: None
07/08: New Development; similarly as line 6; all new dev is infra; thus line 7 £0.675m
08/09 - 09/10: Forecast from AMP4 programme
AMP5: Costs associated with new mains and new connections (gross) + leakage strategy
AMP4: There were no sustainability reductions funded in AMP4; [Bushey Ruff + Buckland Mill
were Quality Funded]
AMP5: None
Block C - Water service SDB capital expenditure non-infrastructure
Line 13
Line 14
07/08: From JR08 Table 35 line 13 - reviewing JR08 Table 35 build up can ascertain that the
JR08 figure is all NON-INF; thus Line 13 £0.196m
08/09 - 09/10: Forecast from AMP4 programme
AMP5:none
07/08: Selective and optional metering = JR08 Table 35 Line 14 £0.546m; costs have been split
proportionally between optional (911 installed in 07/08 and 2,882 installed Selective (incl. Change
of Hands) (JR Table); Thus 31.6% of overall cost optional.
08/09 - 09/10: Selective metering forecast
AMP5: Cost of selective metering to achieve 96% by April 2012
Line 15
AMP4: No demand management activity being capitalised associated with growth; thus 0
AMP5: Cost of tariff scheme + cost of AMR study
Line 16
07/08: New Development; similarly as line 13; all new dev is infra; thus line 16 is 0.
08/09 – 09/10: No New Development NON INF expenditure, as per previous years
AMP5: Costs associated with Whitfield Development study
Line 17
07/08: Selective & optional metering; JR08 Table 35 Line 14 £0.546m; costs have been split
proportionally between optional (911 installed in 07/08 and 2,882 installed Selective (inc Change
of Hands) (JR Table); Thus 31.6% of overall cost optional.
08/09 - 09/10: Optional metering forecast
AMP5: Optional metering forecast (ends in April 2012)
Page 97 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Line 18 -20
AMP4: There were no sustainability reductions funded in AMP4; [Bushey Ruff + Buckland Mill
were Quality Funded]
AMP5: Cost of Little Stour NEP study
Block D – Water service SDB capital contributions
Line 23
07/08: From JR08 Table 35 Line 21; £0.260m; Grants = 0
08/09 – 09/10: Forecast at average of previous 3 years; £0.172m.
AMP5: Contributions associated with new connections (total cost less Infrastructure charge) and
new mains (33% of total costs)
Line 24
07/08: From JR08 Table 35 Line 21; £0.260m;
08/09 – 09/10: Grants assumed to be zero
AMP5: None
Line 25
07/08: From JR08 Table 35 Line 20
08/09 – 09/10: Forecast based on number of forecast new connections in C4.1 multiplied by the
2007/08 infra charge
AMP5: Forecast based on number of forecast new connections in C4.1 multiplied by the 2007/08
infra charge
Line 26
No Compensation allocated for AMP4 or AMP5; thus 0
Block E – Water service SDB changes in operating expenditure
Line 27
AMP4 & AMP5: None – the OPEX costs for the bulk imports (Barham and Deal continuation) are
included in Base OPEX
Line 28
07/08: As 07/08 is the base year for Opex, assumed that there is no new Opex associated with
selective meters in this year
08/09 – 09/10: Costs associated with selective meters (base year 07/08 = 0) equals number of
selective meters multiplied by unit cost of £9.54
AMP5: Cumulative costs of selective metering to achieve 96% by April 2012 (base year 07/08 = 0)
Line 29
Line 30
Line 31
AMP4: Growth other demand mgt; no new Opex
AMP5: Cost of tariff scheme +cost of AMR study
AMP4 & AMP5: Cumulative costs associated with new connections (base year 07/08 = 0) is
number of new properties connected multiplied by unit cost of £15.
The OPEX cost for Whitfield Development will be assessed between draft and final BP
07/08: As 07/08 is the base year for Opex, assumed that there is no new Opex associated with
selective meters in this year
08/09 – 09/10 + AMP5: Cumulative costs associated with optant meters (base year 07/08 = 0) is
number of optant meters multiplied by unit cost of £15.
Line 32 - 34
AMP4 : There were no sustainability reductions funded in AMP4; [Bushey Ruff + Buckland Mill
were Quality Funded]
AMP5 : None
Block F – Enhanced service levels capital expenditure infrastructure
Page 98 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Line 37 & 38
No changes to levels of service in AMP4 and AMP5, thus = 0
Block G - Enhanced service levels capital expenditure non-infrastructure
Line 39 & 40
No changes to levels of service in AMP4 and AMP5, thus = 0
Block H - Enhanced service levels changes in operating expenditure
Line 41 & 42
No changes to levels of service in AMP4 and AMP5, thus = 0
Table B5.3
Water service supply demand balance (average)
Block A – Baseline supply forecasts
Line 1
Line 2
Line 3
Line 4
Line 5
Line 6
Line 7:
From fWRMP tables - WRP1-BL (line 1bl - line 2bl)
none
none
From fWRMP tables - WRP1-BL line 3bl
From fWRMP tables - WRP1-BL line 4bl
07/08 From JR08 Table 10a (i)
08/09 – 14/15: From fWRMP tables - WRP1-BL line 13bl
07/08 From JR08 Table 10a (i)
08/09 – 14/15: From fWRMP tables - WRP1-BL line 12bl
Block B – Baseline demand forecast
Line 9
From fWRMP tables - WRP1-BL line 14bl
Block C – Baseline supply demand balance (average)
Line 11
From fWRMP tables - WRP1-BL line 52bl
Block D – Final planning solution
Line 13
Line 14
Line 15
Line 16
leakage reduction + tariff savings
none
none
none
Block E – Final planning supply demand balance
Line 17
Line 18
Line 19
Line 20
Line 7
Line 17 - line 9 + sum (lines 13 to 16)
From fWRMP tables - WRP4-FP line 52fp
Line 18- Line 19
Page 99 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table B5.3a
Water service supply demand balance
Block A – Baseline supply forecasts
Line 1
Line 2
Line 3
Line 4
Line 5
Line 6
Line 7
From fWRMP tables - WRP1-BL (line 1bl - line 2bl)
none
none
From fWRMP tables - WRP1-BL line 3bl
From fWRMP tables - WRP1-BL line 4bl
07/08 from JR08 Table 10a (iii)
08/09 – 14/15: From fWRMP tables - WRP1-BL line 13bl
07/08 from JR08 Table 10a (iii)
08/09 – 14/15: From fWRMP tables - WRP1-BL line 12bl
Block B – Baseline demand forecast
Line 9
From fWRMP tables - WRP1-BL line 14bl
Block C - Baseline supply demand balance (peak)
Line 11
From fWRMP tables - WRP1-BL line 52bl
Block D - Final planning solution
Line 13
Line 14
Line 15
Line 16
leakage reduction + tariff savings
none
none
none
Block E - Final planning supply demand balance
Line 17
Line 18
Line 19
Line 20
Line 7
Line 17 - line 9 + sum (lines 13 to 16)
From fWRMP tables - WRP4-FP line 52fp
Line 18- Line 19
Page 100 of 98
Section B5 – Maintaining Supply/Demand Balance
11/11/10, 09:05:25
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B
Key Component
Section B6
Consumer Service Strategy and Changes in Services
Contents
Executive Summary ................................................................................................................ 1
Section 1
Changes from Draft to Final..................................................................... 2
Section 2
Introduction .............................................................................................. 3
Section 3:
Section 3.1:
Section 3.2:
Section 3.3:
Section 3.4:
Section 3.5:
Section 3.6:
Section 3.7
Consumer Service Strategy..................................................................... 4
Achieving a Sustainable Use of Water.................................................... 4
Safeguarding Drinking Water Quality ..................................................... 5
Ensuring a Reliable Supply of Water ...................................................... 5
Mitigating Climate Change Impacts ........................................................ 7
Enhancing Customer Services ................................................................ 7
Financing our Future................................................................................ 9
Proposed Changes to Customer Services............................................ 10
Section 4:
Section 4.1:
Section 4.2:
Section 4.3:
Section 4.4:
Section 4.5:
Section 4.6:
Proposed Changes in Service – Denge Network Cleaning.................. 11
Description of Denge Zone (FD21) ........................................................ 11
Hazards and Assessment of Risks........................................................ 14
Discussion .............................................................................................. 21
Costs ....................................................................................................... 25
Cost Benefit Analysis............................................................................. 26
Conclusion.............................................................................................. 29
Section 5:
Section 5.1:
Section 5.2:
Section 5.3:
Section 5.4:
Section 5.5:
Section 5.6:
Section 5.7:
Flood Protection and Resilience ........................................................... 30
Background ............................................................................................ 30
Overall Approach and Methodology ..................................................... 30
Desk-Top Flood Risk Analysis .............................................................. 30
Quantification of Flood Risk .................................................................. 32
Site Surveys, Scope and Cost Estimates.............................................. 34
Cost Benefit Analysis............................................................................. 37
Conclusions............................................................................................ 39
Table Commentaries ............................................................................................................. 40
Page i
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B6.1
APPENDIX B6.2
APPENDIX B6.3
APPENDIX B6.4
APPENDIX B6.5
APPENDIX B6.6
OVERVIEW OF WATER SUPPLY ZONE F21 DENGE............................ 41
INTERNAL PROTECTION OF WATER MAINS ....................................... 42
CUSTOMER CONTACT RECORD FOR 2007 – FD21 AESTHETIC
ISSUES .................................................................................................... 43
DENGE PEAK FLOW ANALYSIS ........................................................... 44
MAINS SUBJECT TO FLOW REVERSAL UNDER NORMAL
CONDITIONS........................................................................................... 45
FLOOD RISK ASSESSMENT REPORT .................................................. 46
Tab
List of Tables
Table 1 Inventory of Water Mains.............................................................. Error! Bookmark not defined.
Table 2 Ranking of zones by aesthetic serviceability measures (excludes customer contacts resulting
from disruptions)........................................................................... Error! Bookmark not defined.
Table 3 Ranking of zones by aesthetic serviceability measures (includes all customer contacts) ... Error!
Bookmark not defined.
Table 4 Analysis of customer contacts % per zone per year ...................................................................15
Table 5 Location of customer contacts for aesthetic issues in 2007........................................................15
Table 6 Compliance results for iron 2004 to 2007.....................................................................................16
Table 7 Compliance and operational samples for iron 2004 to 2007........................................................17
Table 8 Compliance results for manganese 2004 to 2007........................................................................17
Table 9 Compliance and operational results for manganese 2004 to 2007..............................................18
Table 10 Compliance results for turbidity 2004 to 2007 .............................................................................19
Table 11 Compliance and operational results for turbidity 2004 to 2007 ...................................................20
Table 12 Mains bursts for Denge 2003 to 2007 .........................................................................................21
Table 13 Company Sites to be Surveyed and Desk Top Flood Risk Assessment Results .......................32
Table 14 Rye, Dover and Denge coastal flood levels by return period ......................................................33
Table 15 Sites at risk of flooding following site investigations....................................................................34
Table 16 Cost Estimates for Flood Protection Measures ...........................................................................36
Table 17 CBA Results for flood protection investment...............................................................................38
Table 18 CBA Sensitivity Results for flood protection investment..............................................................39
List of Figures
Figure 1
Figure 2
Figure 3
Figure 4
Figure 5
Figure 6
Pipe Materials............................................................................... Error! Bookmark not defined.
Iron compliance results ...............................................................................................................16
Manganese compliance results...................................................................................................18
Turbidity compliance 2004 to 2007 .............................................................................................19
DOMS Risk Matrix .......................................................................................................................23
MISER Modelling results for Interruptions to Supply from loss of Ottinge, Rakesole, Broome
and Lye Oak WTWs ....................................................................................................................38
Page ii
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Executive Summary
The following Section picks up two distinct areas, the Company’s longer term Consumer
service Strategies and short term changes in service as a consequence of investment being
made.
Section 1 outlines the Companies desire to continuously improve the customer experience
based around the structure of the Strategic Direction Statement published in December 2007.
Sections 2 and 3 reflect a request by OFWAT in the Draft Business Plan feedback that this
section should include investment schemes that relate to changes in service. Those schemes
are the addressing of water quality issues in the Company’s Denge Zone and the protection of
a number of Water Treatment Works from flooding thus ensuring the supply of water.
The Denge Zone works are interlinked with the proposal to address the discharge of iron and
manganese from the Denge Water Treatment works described in Section B4. It is the
concentration of these materials in the raw water that passes through the current treatment
process that causes the Denge Zone to significantly underperform when compared with the
Companies other water treatment zones. The risk to water quality, water aesthetics and
prosecution is significant and providing a sustainable long term solution to the risk is a high
priority for the Company. Customer support for this investment is also strong, as highlighted in
the Willingness to Pay survey results and from customer responses to Company questionnaires
(see Section C1 for details). The long term benefits to customers can only be provided through
the delivery of both the Denge WTW investment presented in B4 and the Denge network
cleaning investment described in this business case.
The proposal for protecting a number of treatment works from the risk of flooding stems from
OFWATS PR09 methodology paper “Setting Price Limits for 2010-15: Framework and
Approach.” which required a review of the risks to critical assets from flooding.
Both investment schemes have been subjected to cost benefit analysis and both provide
positive outcomes from these evaluations.
Page 1
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1
Changes from Draft to Final
In line with the OFWAT observations of the Draft Business Plan two changes have been made
to this Section.
In the Draft Business Plan the principle investment scheme in the Quality section is addressing
the deterioration of the raw water at Denge, part of the Dungeness peninsula, and its
consequent effect at customer’s taps. This is being approached in two parts. Partly with a
scheme to arrest the discharge of iron and manganese from the works into the network, and
partly with a scheme to address the consequent discolouration of the water delivered. In their
feedback OFWAT stated they would consider the work associated with addressing the
consequence of discolouration as Enhanced Service Levels and hence the definition of this
investment and its benefit has been moved to this Section. Furthermore, through a detailed
review of the scope of this intervention between draft and final business plan and from market
testing of this scope, the Company has significantly reduced the cost estimate for this
intervention from £3.7m at draft to £1.0m for final.
The second change reflects a reallocation of driver advised by Ofwat in its draft feedback for
the flood protection investment, which is now contained in this investment case. The scope and
cost estimates for this work remain the same as for the draft business plan, however, the
business case has been developed and include a cost benefit analysis.
Page 2
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2
Introduction
The Company makes regular use of customer surveys to identify their satisfaction, views on
future services and willingness to pay. Extensive consultation proceeded and contributed to the
development of the Company’s Strategic Direction Statement (SDS) which was published in
December 2007 and sets out the strategy for the next 25 years.
The analysis of consumer feedback confirms that their overriding priority is to receive “a reliable
supply of good quality drinking water”. There is also increasing evidence that they require this
to be achieved in an environmentally friendly manner. This is best demonstrated by the
Willingness to Pay conclusions that indicate consumers are prepared to pay most for a
reduction in CO2 emissions, protection of river water levels and water savings measures. The
feedback also indicates that there is a reluctance, or lower priority, to invest in improving
service levels of normal activity, such as customer service. This indicates that in general the
majority of consumers are satisfied with the service they are receiving.
The conclusions about customer priorities have been used in the development of the six
themes detailed in the Strategic Direction Statement and their respective targets. They are:
Theme 1 – Achieving a Sustainable Use of Water
Theme 2 – Safeguarding Drinking Water Quality
Theme 3 – Ensuring a Reliable Supply of Water
Theme 4 – Mitigating Climate Change Impacts
Theme 5 – Enhancing Customer Service
Theme 6 – Financing our Future
The various consumer surveys are summarised in Section C1 of this Business Plan, and
detailed in its appendices.
Page 3
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 3:
Consumer Service Strategy
This section of the submission details the Company’s proposed service levels for the period,
linking this to customer’s views, and areas of service improvement. Underlying all of this
however, will be a desire to continuously improve the consumer experience in all that relates to
the Company.
Section 3.1:
Achieving a Sustainable Use of Water
The objective is to maintain a small surplus of available water, such that in a dry year the
Company will be able to meet customers’ demand for water. This will be achieved through the
continuation of the Company’s “twin track” approach of developing new water resources in
parallel with managing demand.
The Company operates in one of the driest parts of England and has limited access to goodquality raw water. Studies undertaken for the Water Resource Management Plan indicate that
the next significant new water resources will come from the development of a new desalination
plant, or in the much longer term a regional reservoir. Consequently, the emphasis during this
period will be on demand management activities because they are more cost effective.
Desalination is currently an expensive energy-intensive solution.
Accordingly, the key targets are:
•
Achieve a Security of Supply Index (SoSI) score of 100 by 2010 and maintain it
thereafter – this will require access to sufficient water to maintain supply, even in dry
periods, across the whole area. This was achieved in 2008/09.
•
Meter all customers’ supplies that can be by 2012 – estimated to be 96%. The
acceleration in 2009/10 has been approved by Ofwat as a ‘log up’ in the current period.
•
Reduce average daily consumption per person to 120 litres by 2015 – currently 140
litres for metered households
The Company proposes to introduce in 2013 a socially-responsible stepped tariff for all
customers as a low-cost way to incentivise customers to avoid unnecessary use of water,
thereby reducing overall demand; this is currently being trialled in Lydd. In doing this the
Company recognises the need to be sensitive to issues of affordability that may affect some
customers and will work to ensure appropriate safeguards are built into services offered.
Demand management through the period will include a continuation of the leakage strategy for
this current AMP4 period. This is part of a 10-year plan to achieve a Sustainable Economic
Level of Leakage (SELL) and is supported by “least cost” modelling and by customers.
The Company will seek to extend beyond 2015 its current right to receive regional water
resources through the existing bulk supply agreements with South East Water and Southern
Water.
Page 4
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
During the period, the Company will continue to identify and develop longer term water
resources options and will participate in further studies with South East and Southern Water to
identify options for improving the environmental status of the Little Stour river. However, no
allowance has been made for any reduction of abstraction licences under the Water Framework
Directive, Habitats Directive or Alleviation of Low Flows project, as these are not yet known.
The Company’s strategy is innovative and sustainable, promotes least-cost solutions and
reduces carbon emissions. Significantly, it aligns with the views of customers that water
conservation is important and that metering is the fairest way of paying for water.
Section 3.2:
Safeguarding Drinking Water Quality
The Company has a good track record of providing customers with high quality drinking water.
In order to continue to provide water that meets the standards set down in the Water Supply
Regulations, the Company has agreed two projects with the Drinking Water Inspectorate for the
2010-2015 period.
The first is the provision of additional treatment at the Denge Water Treatment Works, where
there is deteriorating raw water quality (attributable to iron, manganese and turbidity). The
second is for a systematic mains-flushing programme in the Denge water supply zone. Both
are necessary to avoid major discolouration events.
The Company is also proposing a series of measures to ensure that its sites comply with the
various Advice Notes issued by DEFRA under the Security and Emergency Measures
Directive.
Following the summer floods of 2007, in common with other water companies, the Company
has reviewed the resilience of its infrastructure to extreme weather events. Its sites are
generally well located or protected, but the Company has identified six sites where further
reinforcement work is necessary to protect them from flooding. The Company proposes to deal
with these sites during the 2010-2015 period.
Further details of the proposed quality programme are given in Section B4.
Section 3.3:
Ensuring a Reliable Supply of Water
Consumers are very clear in their desire for an uninterrupted and reliable supply of high quality
drinking water through their taps. In the willingness to pay survey, they indicated that they
would be prepared to pay more to maintain the current level of unplanned interruptions.
Unplanned interruptions are a consequence of deteriorating assets (i.e. pipes and treatment
works). Currently both pipes and treatment works are considered “stable” in Ofwat's
serviceability assessment.
Page 5
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The rate at which the Company is currently renewing pipes is the lowest in the water industry at
in excess of 300 years and the burst frequency is also among the lowest. However, the
detailed assessments undertaken by the Company suggest that, unless the renewal rate is
increased, there will be deterioration, with more frequent bursts and therefore more unplanned
interruptions.
The draft Business Plan included an increase in the replacement rate to 1 in 200 years for the
pipe network. This level of renewal is still among the slowest in the water industry. The
Company considers that in the longer term an accelerated rate is essential to maintaining
stable condition. However, in recognition of the low likelihood of immediate rapid deterioration
and the financial pressures facing many customers over the next few years, the Company has
decided to continue with current rates of renewal for the next five year period. It believes
however that it will be essential to increase the renewal rate in 2015-20 and thereafter to a
sustained 5Km/year.
The Company has undertaken an assessment of all of its trunk mains on the basis of the
likelihood and consequence of failure. This identified the need to replace or duplicate three
trunk mains and these costs were included in the draft Business Plan. Failure of these trunk
mains would lead to a very significant number of customers being without water.
Following submission of the draft
Business Plan, further investigations
have been carried out. These have
identified an alternative, lower cost,
solution for one of the mains (TP28).
This
solution
removes
the
considerable risk to service that the
loss of this main would have,
recognising that it sits in a
geological fault plane which has
been subject to two earth tremors in
the last two years (i.e. April 2007
and March 2009). The location of
these are shown in the Figure A.
Figure A
In 2000-2005, the Company invested significantly in membrane filtration water treatment
technology to treat all water at risk of water quality failure due to cryptosporidium.
Approximately 70% of water put into supply now undergoes this form of treatment. These
membranes have a short life and will need to be replaced during the period. The maintenance
of these and other above-ground assets is essential to ensure reliability of supply and maintain
levels of service.
Page 6
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company has assessed the risk and consequence of failure of its other key infrastructure.
This has highlighted the need to duplicate the Hills Reservoir. This project was included in the
Company’s last price limits submission, but rejected by Ofwat due to insufficient supporting
evidence. The project is again included with more robust evidence in support of it. In the event
of a failure of the Hills Reservoir a significant number of properties would be without water for
an extended period.
Section 3.4:
Mitigating Climate Change Impacts
The Company is working with its customers and suppliers to reduce emissions and help reduce
the severity of its climate change impacts.
Government is setting longer term targets for cutting CO2 emissions in the UK (60% by 2050).
However, in line with customers’ stated preferences, the Company has set its own targets of:
•
a 1% per annum reduction in energy use from carbon sources up to 2020; and
•
use of a minimum of 20% renewable energy by 2020.
The Company’s strategy over the next five years is consistent with this. Through demand
management activity, the Company expects to reduce energy requirements by pumping less
water into supply. The capital maintenance programme will continuously look at the efficiency
of existing assets and the opportunities to replace inefficient plant with new more energyefficient plant and technology.
Customer engagement and socially responsible tariffs will also contribute towards achieving
these targets during the period. As customers use less water in response to the Company’s
encouragement, they are likely to make consequential reductions in their own energy use.
These savings have not been included in the Company’s calculations.
Section 3.5:
Enhancing Customer Services
The Company has continued to deliver a good quality customer service in this quinquennium,
as measured by Ofwat’s DG service indicators. The only exception to this being DG4
(Restrictions to Water Supply) where the Company introduced hosepipe restrictions to all of its
customers between 2 April 2006 and 1 October 2006, during what is now known to have been
the worst drought since the 1930’s. This was the first time since 1995/6 that the Company has
had to impose such measures.
The level of customer satisfaction is borne out by what they are saying. The various consumer
surveys are summarised in Section C1 of this Business Plan, and detailed in its appendices. In
these surveys, customers rate “how satisfied are you overall with the service provided by your
water company”, using a scale from 1 meaning not at all satisfied to 5 meaning highly satisfied.
The most recent survey rated the overall service level at 4.3.
Page 7
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Unfortunately, this is not reflected in Ofwat’s Overall Performance Assessment (OPA) ranking,
where the Company’s position has deteriorated from being the highest ranked in 2003/4 and
2004/5 to equal 7th (2005/6) and 12th (2006/7).
This is very disappointing for the Company, especially given the financial incentive in the price
review associated with its ranking and the causes of the deterioration. The causes have been
highlighted in the Company’s June Return in recent years, but relate to the disproportionate
impact of the failures (i.e. points allocation) and the scalability of the performance measure test
across all companies leading to a greater impact of failure on smaller companies.
Specifically, the Company has seen the following impacts:
Year
Performance Failure
2005/6
Downgrading of CCW complaints audit to Acceptable
2006/7
Single iron failure at customers tap
2006/7
6-month hosepipe restriction
2007/8
Failure to achieve SoSI of 100
OPA Impact
-4 points
-10 points
-3 points
-30 points
It is therefore imperative that Ofwat consider the following issues when determining the OPA
ranking and its impact on price limits ‘k’ if this is to truly reflect the level of service delivered by
the Company to its customers:
i)
If a company has a Water Resource Management Plan that is agreed by the EA and
funded in price limits, which includes as a measure the use of hosepipe restrictions
every 10 years, is it fair to penalise the company for utilising this measure?
ii)
The severity of the OPA impact is disproportionate to the performance failure. Is a
single iron failure at one customers tap, or a reduction in CCW’s complaint audit
from good to acceptable, a greater customer service failing than a 6-month hosepipe
restriction for all customers
iii)
How will Ofwat reconcile the unfairness of a CCW complaints audit that uses the
same sample size for each company, regardless of the number of complaints
received? For example in 2005/6 the sample size represented 18.9% of all
complaints received by the Company compared to 0.8% for Southern Water
Services. Clearly, the greater the sample size as a proportion of the total, the
greater the probability that the poorer quality responses will be included. This is not
a fair or relative comparison.
iv)
How will Ofwat reconcile the unfairness of the OPI performance measure which is
directly related to the number and size of water supply zones? Analysis shows that
as the Company gets larger it is likely to have more zones and bigger zones, which
leads to a significant dilution of the impact of a single failure.
Page 8
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
v)
How will Ofwat reconcile the impact of the retrospective (2007/8) introduction, a
measure which all parties knew would have the consequence of moving the
Company from what would otherwise have been 2nd place in the ranking to 19th?
Firstly, the Company’s strategy was set in 2003/04 as part of the “early start”
programme. Secondly, the Company’s strategy was founded on a 3Ml/d yield from
a new source at Bushy Ruff, agreed in 2003/4 with the Environment Agency. In
2006 the EA notified the Company that any gain would be required to be offset by
an equal reduction at another source in the same zone. Therefore, the development
was not progressed and the Company had to explore alternative options to address
the SoSI score; these were completed in 2008/09. Both of these factors were
outside the Company’s control and yet it has suffered significantly as a
consequence.
The Company’s strategy follows from customer survey responses that indicate a high level of
satisfaction currently with the overall service levels being delivered. The Company will continue
to provide customers with a service that exceeds expectations at a cost which they are willing
to pay.
Section 3.6:
Financing our Future
The Company has a very clear strategy on charging. It believes that the fairest way for
customers to pay is for the amount they use. In the recent customer surveys over 82% agreed
with this. The Company’s pro-active approach to balancing supply and demand requires every
customer to be metered, this is also a prerequisite of charging by volume, or amount used.
Accelerating the compulsory metering programme from 90% of customers metered in 2015, to
96% by 2012 will address this issue.
Customer debt has been increasing in recent years and particularly since the removal of the
right to disconnect domestic customers in 1999. The current economic climate this is likely to
worsen. However, there are two groups of customers here; those who choose not to pay and
those who cannot afford to pay.
Where there is genuine hardship, the Company will continue to offer support as it does
currently through the WaterSure scheme, EOS charitable trust and other mechanisms. The
Company does not at this stage propose to introduce new social tariffs. This is consistent with
CCW national customer research findings that suggest customers largely do not wish there to
be any cross-subsidy to assist those less able to pay. Their research also supports the
Company’s position that it will continue to lobby government to deal with this issue through the
social benefits and taxation systems.
The Company will also continue to lobby government for legislative change to provide the tools
to ensure that all customers pay for the water they use. This could include the use of trickle
flow meters to encourage those that choose not to pay to do so.
Page 9
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 3.7
Proposed Changes to Customer Services
Consumers have not indicated a willingness to pay more for improved customer levels of
service. This does not come as a surprise given the consistently high standard delivered by the
Company. Accordingly, there are not significant improvements proposed. For details of current
customer service levels and those proposed for the future refer to tables B3.1 and A2.
There are no significant changes proposed although there are some areas that the Company
will focus upon in order to improve the customer experience. These include:
•
Billing Literature – the Company occasionally receives contact from customers in
connection with the clarity of bills and usefulness of the information provided. It is
proposed to improve the layout of the bill and provide additional information that will
enable the customers to understand their consumption, the amount of water they use
compared to previous years and that of others, the link to energy use and how much
they owe.
•
Provision of Actual Use Information – currently the Company provides quarterly bills to
measured domestic customers which will include at least one actual meter reading but
normally two. In order to provide customers with more information concerning their use
the Company is proposing more frequent quarterly meter readings.
•
Ease of Contact for Customers – whilst customers do not have problems with contacting
the Company, the Company will be reviewing both its telephony and internet facilities to
ensure they are effective both in terms of access and use.
•
Avoidable Contact – the Company is aware of Ofwat's proposed OPA customer
experience measure, which supports the existing ‘right first time’ approach. A review of
the Company’s approach to customer facing activity will be undertaken and areas for
improvement identified and actions taken to address them.
•
Non-Domestic Customers – the Company is aware that it does not have formal policy
for commercial and business customers. This will be developed over the remainder of
AMP4 alongside a review of the services offered by the Company.
Page 10
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4: Proposed Changes in Service – Denge Network Cleaning
Over the past years the Company has seen deterioration in the quality of the raw water it
abstracts to supply the Denge Zone. The Denge Water Treatment Works is not equipped with
the appropriate treatment to deal with this deterioration and as a consequence the network
supplying the customers in the Denge zone has become “contaminated” with deposits of Iron
and manganese that has affected the level of service, in the form of discoloured water, received
by customers in this area.
This deterioration has led to the need for investment to permanently address the removal of
Iron and Manganese from the water abstracted at Denge and to clean the distribution network
to remove the build up of deposits. The work in the network involves the flushing of the
distribution pipework at a cost of £982.4k. It is this investment that is described in this Section
of the Business Plan. The cost benefit analysis shows the scheme is cost beneficial.
The investment to address the deterioration of the raw water quality at the treatment works is
identified in Section B4.
In January 2008 the Drinking Water Inspectorate issued guidance regarding submissions for
water quality driven schemes to be included in companies’ PR09 business plans. The following
commentary presents information in the form specified in that guidance regarding distribution
main interventions to remedy water quality service failures in Denge Water Supply Zone
(FD21). The principles of the Common Framework for Capital maintenance have been
adopted.
Section 4.1:
Description of Denge Zone (FD21)
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 11
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 12
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 13
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Section 4.2:
Hazards and Assessment of Risks
The approach to the evaluation of this customer service performance has been driven by the
Company’s DOMS and follows closely the principles of the Common Framework for Capital
Maintenance Planning. The following commentary deals with the historical analysis and service
forecasting aspects of the Common Framework.
Historical Analysis
The historical analysis uses the performance indicators developed for the Company’s DOMS
namely:
•
•
•
•
Customer contacts for aesthetic issues (discolouration, particles and animalcules)
Iron as Fe
Manganese as Mn
Turbidity
The analysis also examines the effectiveness of control measures deployed in the past to
resolve discolouration issues.
Customer Contacts
Table 1 presents the analysis of customer contacts for aesthetic issues (primarily
discolouration) expressed as a percentage of zone population per year:
2004
2005
2006
2007
Zone Reference
% of customer contacts for aesthetic issues
FD21
0.45
0.6
1.99
0.51
FD22
0.01
0.02
0.03
0.03
FD23
0.02
0.01
0.02
0.04
FD24
0.54
0.01
0.00
0.07
FD25
0.03
0.05
1.45
0.02
FD26
0.00
0.00
0.00
0.15
Page 14
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table 1 Analysis of customer contacts % per zone per year
It can be clearly seen that FD21, Denge, consistently performs very poorly in comparison
with the Company’s other zones.
An analysis of the location of customer contacts was possible for 2007 and the results are
presented in Table 2. The great majority of these complaints are for dirty water and Appendix
B6.3 provides an extract from the customer contact record. A number of the complaints are
associated with minor flow disruptions within the zone and it is clear that New Romney appears
to be the most problematic within the zone.
In 2007 Denge zone generated 54% of all aesthetic customer complaints for the
Company from a population representing only 10% of the total.
Location
Contacts
% Contacts
Lydd
12
15.4%
New Romney
55
70.5%
St Marys Bay
9
11.5%
Littlestone
1
1.3%
Greatstone
1
1.3%
Grand Total
78
Table 2 Location of customer contacts for aesthetic issues in 2007
Iron Results
Table 3 and Table 4 present the historic data for iron. The first table presents compliance
sample results while the second presents the same information with the addition of
opportunistic operational samples from customers’ taps. These have been taken for
operational purposes often in the wake of flow disturbances in the zone. This data gives a
clearer picture of the extent and severity of the transient problems customers’ experience.
Samples taken specifically at customers’ request as a result of discolouration complaints have
been excluded.
Page 15
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Location
Average
Max
Count
µg/l
µg/l
GREATSTONE
26.1
26.1
1
LITTLESTONE
15.0
15.0
2
LYDD
19.0
382.0
7
LYDD ON SEA
15.0
15.0
2
NEW ROMNEY
39.1
318
18
ST. MARYS BAY
15.0
15.0
3
Table 3 Compliance results for iron 2004 to 2007
Note: 15.0 µg/l is the level of detection
The PCV for Iron is 200 µg/l
Figure 1 presents the results in graphical form
Compliance Results for Iron 2004 to 2007
350
300
Iron (ug/l)
250
200
150
100
50
08/11/2007
08/09/2007
08/07/2007
08/05/2007
08/03/2007
08/01/2007
08/11/2006
08/09/2006
08/07/2006
08/05/2006
08/03/2006
08/01/2006
08/11/2005
08/09/2005
08/07/2005
08/05/2005
08/03/2005
08/01/2005
08/11/2004
08/09/2004
08/07/2004
08/05/2004
08/03/2004
08/01/2004
0
Date
Figure 1 Iron compliance results
A single PCV failure was reported in late 2006 and half of the 10 results obtained above the
level of detection have occurred in 2007.
Page 16
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Location
Average
Max
Count
µg/l
µg/l
DUNGENESS
80.8
88.7
2
GREATSTONE
117.0
1,310.0
53
LITTLESTONE
97.5
560.0
39
LYDD
85.4
534.0
23
LYDD ON SEA
140.8
986.0
11
NEW ROMNEY
147.0
1,630.0
107
ST. MARYS BAY
15.4
16.8
5
Table 4 Compliance and operational samples for iron 2004 to 2007
The operational samples show a significant and severe water quality issue with nearly 20% of
the results exceeding the PVC and averages in Greatstone, Lydd on Sea and New Romney
exceeding 50% of the PCV. The spread of numbers of samples reflects operational activity
rather than strict population density as with compliance sampling.
•
Two thirds of the worst 50 sample results were taken in 2006 and 2007.
Manganese Results
Table 5 and Table 6 present the historic data for manganese. The first table presents
compliance sample results while the second presents the same information with the addition of
opportunistic operational samples from customers’ taps. These have been taken for
operational purposes often in the wake of flow disturbances in the zone. This data gives a
clearer picture of the extent and severity of the transient problems experienced by customers.
Samples taken specifically at customers’ request as a result of discolouration complaints have
been excluded.
Location
Average
Max
Count
µg/l
µg/l
GREATSTONE
5.90
5.90
1
LITTLESTONE
2.00
2.00
2
LYDD
5.79
22.30
7
LYDD ON SEA
2.48
2.95
2
NEW ROMNEY
4.48
13.90
18
ST. MARYS BAY
2.00
2.00
3
Table 5 Compliance results for manganese 2004 to 2007
Note: 2.0 µg/l is the level of detection
The PCV for manganese is 50 µg/l
Page 17
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Compliance Results for Manganese 2004 to 2007
25.00
Manganese (ug/l)
20.00
15.00
10.00
5.00
08/11/2007
08/09/2007
08/07/2007
08/05/2007
08/03/2007
08/01/2007
08/11/2006
08/09/2006
08/07/2006
08/05/2006
08/03/2006
08/01/2006
08/11/2005
08/09/2005
08/07/2005
08/05/2005
08/03/2005
08/01/2005
08/11/2004
08/09/2004
08/07/2004
08/05/2004
08/03/2004
08/01/2004
0.00
Date
Figure 2 Manganese compliance results
No PCV failures have been reported for the zone since 2004.
•
60% of the 14 results obtained above the level of detection have occurred in 2006
and 2007.
A clear rising trend in compliance results for manganese can be observed in Figure 2.
Location
Average
Max
Count
µg/l
µg/l
DUNGENESS
40.91
79.00
2
GREATSTONE
50.02
784.00
53
LITTLESTONE
28.38
229.00
39
LYDD
39.65
399.00
23
LYDD ON SEA
14.53
59.70
11
NEW ROMNEY
35.51
294.00
107
ST. MARYS BAY
2.00
2.00
5
Table 6 Compliance and operational results for manganese 2004 to 2007
•
•
19% of all samples exceeded the PCV.
70% of the worst 50 results have been obtained in 2006 and 2007
Page 18
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Turbidity Results
Table 7 and Table 8 present the historic data for turbidity. The first table presents compliance
sample results while the second presents the same information with the addition of
opportunistic operational samples from customers’ taps. Samples taken specifically at
customers’ request as a result of discolouration complaints have been excluded; these are not
necessarily representative.
Location
Average
Max
Count
NTU
NTU
DUNGENESS
0.20
0.20
1
GREATSTONE
0.20
0.31
8
LITTLESTONE
0.20
0.23
5
LYDD
0.22
0.81
24
LYDD ON SEA
0.28
1.00
7
NEW ROMNEY
0.20
0.82
44
ST. MARYS BAY 0.18
ST.MARY IN THE
0.19
MARSH
0.27
7
0.19
1
Table 7 Compliance results for turbidity 2004 to 2007
Note: The PCV for turbidity is 4.0 NTU
Compliance Results for Turbidity 2004 to 2007
1.2
Trubidity (NTU)
1
0.8
0.6
0.4
0.2
Date
Figure 3 Turbidity compliance 2004 to 2007
Page 19
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
08/11/2007
08/09/2007
08/07/2007
08/05/2007
08/03/2007
08/01/2007
08/11/2006
08/09/2006
08/07/2006
08/05/2006
08/03/2006
08/01/2006
08/11/2005
08/09/2005
08/07/2005
08/05/2005
08/03/2005
08/01/2005
08/11/2004
08/09/2004
08/07/2004
08/05/2004
08/03/2004
08/01/2004
0
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Turbidity results are consistent with those for in iron and manganese results but with no PCV
failures. This is to be expected as turbidity failures for iron and manganese would reflect in
gross failures for the metals.
•
•
21 of the worst 25 results have been obtained in 2006 & 2007
19 of the best 25 results were obtained in 2004 and 2005
Figure 3 shows evidence of a deteriorating trend in turbidity results.
Location
Average
Max
Count
NTU
NTU
DUNGENESS
0.55
0.88
4
GREATSTONE
1.04
14.70
67
LITTLESTONE
0.94
7.00
53
LYDD
0.32
5.15
76
LYDD ON SEA
0.59
4.50
23
NEW ROMNEY
ST. MARYS
BAY
ST.MARY IN
THE MARSH
1.24
23.00
164
0.18
0.40
21
0.16
0.19
6
Table 8 Compliance and operational results for turbidity 2004 to 2007
These results reflect the poor operational sample performance for the metals.
•
•
70 out of the worst 100 results have been obtained in 2006 & 2007
60 of the best 100 turbidity results were obtained in 2004 and 2005
Control measures and existing Interventions
The Company has taken great care in operating the Denge distribution system so as to
minimise the risks of widespread discolouration events. These measures are documented in
the Company’s DOMS. The Company has also undertaken ad-hoc flushing operations in Lydd
(2005), Lydd on Sea (2006), Dungeness (2006) and Greatstone (2006) in response to customer
complaints of dirty water. Further reactive interventions in New Romney have been prevented
by the mains configuration which makes ad-hoc cleaning difficult without causing discolouration
issues.
Flows
Deposition
Appendix B6.4 presents the results of recent updated analysis of peak flows across all District
Metered Areas within the zone. It can be observed that maximum flows at peak demand
conditions are generally less than 0.2m/s and can be considered to be low enough for
widespread deposition of any suspended matter to occur in the great majority of mains within
Page 20
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
the zone. The issue is exacerbated by the rural nature of parts of the network which comprise
long lengths of pipe terminating at a dead-ends.
Re-suspension
The stable and very static flow regime of the zone is subject to some disruption under normal
circumstances; the hydraulic model has been used to identify those mains subject to flow
reversals under normal flow conditions. Analysis of flow reversals under normal operating
circumstances reveals a single main subject to these conditions
Appendix 6 and highlights the 250mm main supplying Lydd.
When the operating regime changes for some reason, for example treatment works outages or
pumping failures, the zone is supplied from the east. This causes flow reversals within principle
mains and leads to widespread discolouration events. One such event is the cause of the
customer complaint cluster in December 2007.
Bursts
The burst rate within the Company and particularly within the Denge zone is very low; the
reported rate for the Company 2007 was 70bursts per 1,000km. Table 9 presents the bursts
recorded for the zone over the last five years.
Mains Bursts
2003
2
2004
10
2005
7
2006
14
2007
5
Table 9 Mains bursts for Denge 2003 to 2007
The Company maintains a “water mains at risk register” that identifies mains for future
replacement due to high failure rates; of the 50 or so mains on the register only two are within
the Denge Zone.
Section 4.3:
Discussion
Overview
The annual update of the Company’s DOMS historical analysis has clearly highlighted Denge
as the principal concern regarding risk of service failure for water quality. Customers are
unhappy with the quality of water they receive but problems are mostly transient, often
generated by changes to flow regime. Analysis of water sample results supports this view;
water compliance is good but operational samples reveal significant problems across the zone
with New Romney appearing to be the worst performing.
Operational staff operate the zone with great care as it is highly sensitive to any disruption to
flows. Ad-hoc flushing interventions were undertaken in 2005 and 2006 to remove deposits
from the main but these areas cleaned less than 3 years ago are again exhibiting problems of
dirty water. It is instructive to note that the mains in New Romney have not been cleaned in
recent years and its these that appear to produce the most dirty water. The single compliance
failure from the zone occurred in New Romney.
Page 21
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Trends
All the indicators examined in the historical analysis point to a deteriorating trend in water
quality. Figure 1, Figure 2 and Figure 3 all show a worsening trend over the recent past and
Table 4, Table 6 and Table 8 show that failures of the standards for iron, manganese and
turbidity are commonplace within the zone. This trend will continue without systematic
intervention to remedy the situation.
Hazard and Risk (Service Forecast)
Hazard
The zone was renovated using in-situ lining techniques in the 1990s and can be considered as
non-ferrous for the purposes of this study (mains under 75mm diameter will not have been
renovated but the great majority of these are plastic pipe). Internal corrosion is therefore not
considered an issue and can be discounted as a driver for the water quality issues observed.
Deposition of iron and manganese across the zone due to pass-through at the treatment
works is the most likely hazard and cause of the water quality problems within the zone.
Risk Assessment
The following expresses the risks to service in the terms set out in the Company’s DOMS and
also the principles outlined in the DWI Information Letter 02/2008. The Company has
considered the risk at zone level as it believes that it has demonstrated significant issues
across the entire zone supplied by Denge water treatment works. The risk is assessed as the
likelihood of customers receiving water that fails the regulatory standards for turbidity, iron and
manganese; the Company believes that it has demonstrated above that this is occurring
frequently at present and that the situation is deteriorating despite the Company’s control
measures. Figure 4 illustrates the risk matrix used by the Company within its DOMS:
Page 22
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
RISK SCORE: Associated with hazardous event
SEVERITY
1 off PCV Failure
and /or a single
customer cluster
WSZ
Multiple PCV
failures and/or
multiple customer
complaint clusters
in a WSZ. DWI
notifiable event.
Precautionary
advice to 100
properties or less.
DWI incident
Precautionary
advice to more than
> 100 < 5,000
properties. Supply
of unfit water (no
not use) to 100 or
less properties
Precautionary
advice to more than
5,000 properties.
Supply of unfit
water (do not use)
to more than 100
properties
1
2
3
4
5
1
2
3
4
5
6
Possible in long
term (likely to
occur in next 5
years)
2
3
4
5
6
7
Possible medium
term (likely to
occur in next 3
years)
3
4
5
6
7
8
Possible short
term (likely to
occur this year)
4
5
6
7
8
9
LIKELIHOOD
Highly unlikely
Figure 4 DOMS Risk Matrix
The assessment of the present risk to customers is:
Present
Likelihood:
Severity:
Risk Score:
4 (likely to occur at least once per year)
2 (Multiple PCV failures and complaint clusters)
6
Near Future
Likelihood:
Consequence:
Risk Score:
4 (likely to occur several times per year)
4 (Precautionary advice to up to 500 properties)
8
These scores are very poor in the context of the Company’s size and performance in all other
zones
Service Forecast
There is presently a significant risk of service failure within the zone (PCV failures for
iron. manganese and turbidity). If no interventions are made both at the water treatment
works and in the zone then these will increase in frequency and severity.
These levels of iron and manganese will continue to settle out within the mains, forming loose
deposits. These deposits are disturbed by sudden flow changes or high flows/demands. This
subsequently causes customers to experience discoloured water, which the majority find
unacceptable and creates a breach of the Water Supply (Water Quality) Regulations
Page 23
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Flushing is needed to clear the discoloured water from the system and to support this process
on occasions it is necessary to inform the customers of the deterioration in water quality and
ask them to run their taps to assist with clearing the discoloured water from the system and
from within their own domestic systems. This involvement of the customers has the effect of
informing them the water is not fit to use, and once the discolouration had been resolved the
customers would be further notified that the water was back to an acceptable standard. Such
an event has to be notified to the DWI, as it would be of widespread concern to customers.
Once notified the DWI would monitor the situation with a view to potential prosecution if they
considered that water unfit for consumption was supplied to customers.
This is particularly significant for the Denge zone as the Denge works has had 4 samples in
2007 fail the treatment works turbidity standard and 3 samples in 2008 fail the same; the DWI
have not closed their investigation into these failures and at a liaison meeting on 11 February
2009 informed FDWS that this could still potentially result in a legal instrument being used.
Discoloration events in the zone would almost certainly therefore lead to the sample failures
being reconsidered as evidence of an ongoing, and as yet unresolved, concern. If one event
occurred but did not result in a prosecution attempt, then if a second event of the same nature
occurred a prosecution attempt would then be expected, as this would be regarded by the DWI
as a failure to learn from previous incidents and a failure to prevent the same problem
happening within the same area.
Eight compliance samples per year are taken from the Denge zone for Iron, Manganese and
turbidity, the parameters of concern for this zone. Any failures of these have to be fully
investigated, to determine the cause of, and extent of, the problem, and the results of the
sample and the resulting investigation have to be reported to the DWI. They will then
determine if the failure is trivial, i.e. of no concern to the customer and unlikely to recur, or if the
failure is significant. If the latter, they will expect an action plan to be developed to prevent
reoccurrences. If a plan is not developed, or they consider it to be insufficient, then
enforcement action can be taken.
If a regulatory sample failed then flushing of the mains would almost certainly be required, to try
to clear deposits that are causing the elevation of the failing parameter. If the investigations
showed that more than one property was affected it may then become necessary to ask
customers within a local area to run their taps to assist in resolving the issue.
As for aesthetic problems as described above, this would result in customers considering their
water not fit for use for a period of time until it could be confirmed to them that the water quality
had been returned to the appropriate standards.
In addition to the eight regulatory samples for these parameters, 200 operational samples are
taken for the same parameters (i.e. two samples of each parameter are taken every week,
either for operational or regulatory purposes). These operational samples show an overall
deteriorating trend, therefore regulatory sample failures will be expected to occur in future.
A possible future concern if the problem is not addressed is bacterial re-growth in the
extremities of the system as the water quality in the distribution system deteriorates from the
Page 24
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
constant deposition of iron and manganese. Deposits within the system form an ideal media for
bacteria to develop into biofilms. This then forms a cycle whereby the presence of the deposits
causes the chlorine levels to decay faster, which can allow bacterial growth to occur. This
could result in bacterial failures across the system in future, though this has not been identified
as a problem, currently the water across the Denge zone has a higher chlorine demand
reflecting this mechanism.
Investigations into such failures would show a widespread area
being affected and could potentially lead to Boil Notices being imposed on customers
depending on the type and levels of bacterial detections.
The foregoing considerations have driven the evaluation of cost/ benefit analysis supporting the
capital proposals in the business plan.
Proposed Action
It is clearly evident that water supply zone F21 Denge requires systematic cleaning to mitigate
the increasing risk of water quality failures and gross customer complaints.
The most cost effective intervention action is to resolve the water treatment issues at the
works then undertake a one-off systematic cleaning of the network.
Having identified Iron and Manganese deposits accumulated within the distribution system as a
cause of deteriorating water quality and discolouration incidents as a result of process failures
at the treatment works. Upgrading the treatment works to more effectively remove Iron and
Manganese is part of the Business Plan and has the support of the DWI. This will be followed
by a one off distribution mains cleaning programme to resolve the current Service problems this
proposal also received the support of the DWI.
Section 4.4:
Costs
The Company does not have recent historic mains cleaning costs and also recognised that the
cost estimate used for the draft business plan needed further refinement. Therefore, following
the draft submission the Company commissioned Atkins to review the scope and cost estimate
for this interventions.
A detailed scope was developed, identifying the material, diameter and length of all mains to be
cleaned in the zone. Also, the scope of the enabling activity required for the work to be
undertaken was developed. This included work such as customer communications, hydraulic
modelling, site investigations, modifications to network valves and washouts and water quality
sampling . From this scope a brief was prepared two external contractors asked to quote for the
work. A third cost estimate was prepared based on costs and working method that Atkins were
employing for an other water industry client in the southern England.
Risk costs were assessed against each diameter of main to be cleaned, then using the these
three separate cost estimates, an average all in rate per meter was developed for each a range
of pipe diameters. This all in rate included direct, indirect costs and risk.
The cost estimate for the final business plan was based on these average rates, as per the
table below. The risk allowance included in this cost is low, at 3%. This is due to uncertainties
Page 25
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4.5:
Ductile iron
HPPE/MDPE
UPVC
Asbestos
cement
Total Length
75mm ≤ D
≤100mm
100mm < D
≤150mm
150mm < D
≤200mm**
200mm < D
≤250mm**
D = 300mm
300mm < D
≤400mm
D = 450mm
Sub Total
Company
overhead 12.8%
Total
Spun iron
Pipeline
Diameter
Cast iron
associated with mains being in the road rather than the footpath and the additional traffic
management requirements where this is the case.
Composite
Cleaning
Rate*
(direct+
indirect)
m
m
m
m
m
m
m
£/m
22,104
26,388
6,104
3,802
928
0
59,326
2.64
£156.9
16,137
9,223
2,219
2,245
0
0
29,824
2.70
£80.6
1,874
2,313
72
563
0
130
4,952
2.94
£14.6
4,383
113
82
0
2,295
0
6,873
3.11
£21.4
0
2,438
787
0
3,409
108
6,742
36.54
£246.4
0
12
5
0
6,935
0
6,952
49.21
£342.1
0
72
0
0
0
0
72
125.70
£9.1
£870.9
Costs
£k
£111.5
44,498
40,559
9,269
6,610
13,566
238
114,740
Cost Benefit Analysis
Prior to the compilation of the Business Plan two significant studies were undertaken
associated with water quality. These were the preparation of Drinking Water Safety Plans,
arising as a consequence of changes to the Water Supply (Quality) Regulations as Amended,
and the establishment of a Distribution and Operating and Maintenance Strategy for the
network. The latter following the principles of the Common Framework for Capital Maintenance.
Both of these documents highlighted significant issues associated with the abstraction and
treatment of water from the Denge Marsh, part of the Dungeness Peninsula and the distribution
network serving the Denge zone and the communities of Lydd, Greatstone, Littlestone, New
Romney and St Marys Bay.
The water quality issues are associated with the high content of iron and manganese in the
water that manifests itself with turbidity problems at the treatment works and discoloration of
water at the customers taps. These studies have formed the foundation of the proposed quality
and service enhancements identified in this Business plan.
Cost benefit analysis has been undertaken on the proposals and shows them to be cost
beneficial. The Company has applied the cost benefit analysis as per the approach described in
Section C8. The following commentary covers the application of Company’s approach to the
identified Denge water quality failings and the effect on customers before and after investment.
Page 26
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
£982.4
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
As identified in Section B4 the current treatment process does not address high levels of iron
and manganese in the raw water, this in turn leads to turbidity and PCV failures at the treatment
works plus the contamination of the distribution network that inevitably leads to the supply of
discoloured water at the customers tap that can also breach the prescribed PCV for Iron and
manganese as previously explained.
Four output performance measures have been evaluated in the cost benefit analysis to assess
the benefit of making the investment, these are;
•
•
•
•
OPM1 – Biological and Chemical water quality
OPM2 – Aesthetics of the water supplied
OPM9 – Prosecution for failing to comply with the Water Supply (Quality) Regulations
OPM12 – Carbon. This is assessed as per the overall approach applied by the
Company as described in C8.
Analysis of historic performance has identified the potential frequency of failure if no proactive
interventions are undertaken at the Denge treatment works or the Denge distribution network.
The nature of the issue is one of continuing deterioration, the more untreated water abstracted
and distributed constantly increases the risk of the works failing on turbidity and constantly
increases the risk of the customers receiving discoloured water as a consequence of increasing
levels of deposition of iron and manganese in the network. The Business plan proposal is to
install treatment at the works and systematically flush the distribution network to remove the
build up of deposited material.
Three potential options were evaluated for cost benefit:o
o
o
QAL005 - Investment in treatment only
ESL002 - Investment in mains cleaning only
QAL002 - Investment in treatment and mains cleaning
It is obvious that with the first two scenarios there will be residual risks following the
intervention. If only additional treatment is provided the currently deposited material in the
distribution network will continue to cause service issues, with discoloured water, for years to
come until effectively it has been flushed out through customer taps.
If only the mains are flushed, as has been previously done, the constant discharge of iron and
manganese from the treatment plant only leads to reoccurrences. Experience is showing this
has a cycle of approximately 5 years. In reality the customer experience is one of continuing
deterioration because their second and third experiences over a long period of time will be
represented by greater levels of dissatisfaction on each occasion. This aspect of customer
experience is not reflected in cost benefit analysis.
The data used in the cost benefit analysis is summarised in the following table.
Page 27
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
OPM
Intervention
Data Used for Likelihood and Consequence
OPM1
Chemical &
Biological
Water
Quality
Baseline / Pre
investment
position
Historical water quality data collated for the Drinking Water
Safety Plan and projected forward for future deterioration.
QAL005 –
treatment only
Risk stabilises at current levels and no not deteriorate
further.
ESL002 –
network
cleaning only
Risk reduced to zero following investment, but increases
over 5 year period until network cleaned again. Cycle
repeats.
QAL002 –
treatment and
network
cleaning
No risk of failure.
Baseline / Pre
investment
position
Historical water quality and customer contact data collated
for the Distribution Operating and Maintenance Strategy
and projected forward for future deterioration.
QAL005 –
treatment only
Risk stabilises at current levels and no not deteriorate
further.
ESL002 –
network
cleaning only
Risk reduced to zero following investment, but increases
over 5 year period until network cleaned again. Cycle
repeats.
QAL002 –
treatment and
network
cleaning
No risk of failure.
OPM9
Prosecution
All
Based on above data and frequency of reportable failures
and predicted action by Regulator.
OPM 12
Carbon
All
Carbon costs based on cost of investment as per approach
described in C8.
OPM2
Water
Quality
Aesthetics
Using the approach described above, the result of the cost benefit analysis for the options are:
CBA /
Solution Ref
Scheme Title
ESL002
Denge
Network
Cleaning for
WQ
Improvements
Whole
Life Cost,
£k
Whole
Life
Benefit,
£k
Net NPV,
(WLB
less
WLC)
£k
OPM 1.
Water
Quality (Bio
& Chem)
OPM 2.
Water
Quality
(Aesthetic)
OPM 9.
Prosecution
OPM 12.
Carbon
equivalent
emissions
2,662
9,039
6,377
3,826
2,914
2,306
-7
Page 28
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Benefit Value per OPM, £k
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Denge
Treatment
Solution
GMFilter Only
Denge
Treatment
Solution
GMFilter and
Mains cleaning
QAL005
QAL002
4,801
5,162
360
1,815
2,121
1,603
- 376
5,621
10,163
4,542
4,572
3,286
2,676
- 371
The results of the analysis shows that of the options, ESL002 - systematic network cleaning is a
more cost beneficial solution than QAL002 the combined treatment and network solution.
However, there are two material factors which are not represented in the cost benefit analysis.
These are:
o
o
The customer disruption and risk of water aesthetic service failure from repeating a
systematic network cleaning programme every five years is not reflected in the cost
benefit approach.
As described above, in reality the customer experience is one of continuing deterioration
because their second and third experiences over a long period of time will be
represented by greater levels of dissatisfaction on each occasion. This is not reflected in
the cost benefit approach.
Given that customers stated preferences for water quality and water aesthetics are consistently
high, the Company believes that the objective in address this risk should be to deliver a long
term and sustainable solution to the water quality issues at Denge. This approach fully aligns to
the Company’s strategic direction statement. Furthermore, this approach will ensure that
customers are no longer at risk of water quality and aesthetic failures and that they are also not
subject to on-going disruption from repeated mains cleaning. These long term and sustainable
benefits can only be delivered if both the Denge WTW and the network cleaning interventions
are progressed in AMP5 and it is on this basis that the Company has selected both
interventions as being the right strategy for customers and the Company in the final business
plan.
Section 4.6:
Conclusion
For the preparation of the Business plan guidance was issued by the Drinking Water
Inspectorate identifying how investment proposals should be presented, this guidance has been
followed and at the draft stage the proposals had the formal support of the DWI subject to
caveats regarding cost benefit, detail and timing. These caveats have been fully satisfied by the
work carried out and detailed in this final Business Plan.
In undertaking the work customers in the Denge zone will benefit from a level of service
comparable with the excellent service received by all of our other customers.
For this full benefit to be accrued both the investment in the treatment works and the network
must be undertaken, the cost benefit analysis has demonstrated in financial terms the positivity
of the benefits for all scenarios considered.
Page 29
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 5:
Flood Protection and Resilience
Section 5.1:
Background
In Ofwat’s PR09 methodology paper, 'Setting price limits for 2010-15: Framework and
approach' companies were asked to review the risk to their critical assets from flooding and to
identify whether further investment is necessary.
Ofwat also commissioned Halcrow to develop an approach to flood risk assessment and the
approach outlined in the report 'Asset resilience to flood hazards: Development of an analytical
framework'.
The Company commissioned the consultants Jacobs to undertake a flood risk assessment of
the Company critical assets from which this business case has been developed. A copy of their
report is contained in Appendix B.6.
Section 5.2:
Overall Approach and Methodology
The approach to identifying flood risk at key Company sites is outlined in the following steps:
1.
2.
3.
4.
5.
Desk top analysis of sites at risk: This considered fluvial, groundwater, coastal and
pluvial flooding mechanisms. From this a list of sites potentially “at risk” was
developed.
From the desk top analysis the quantification of flood risk probabilities was
undertake for at risk sites.
Site surveys were undertaken for at risk sites to assess the site specific conditions in
more detail and to identify the scope of flood protection measures required.
Detailing of investment scope and cost estimates on a site by site basis.
Cost benefit analysis of investment options.
Each of these steps is detailed in the following sections.
Section 5.3:
Desk-Top Flood Risk Analysis
All of the Company’s sites were assessed against four flooding mechanisms, fluvial,
groundwater, coastal, and pluvial. The approach for each type of flooding is presented below.
Fluvial
Identification of sites, and associated structures, exposed to flood risk from fluvial flooding was
assessed as a two stage process:
Page 30
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
o
An initial assessment was carried out by overlaying the Environment Agency 1:100yr
and 1:1000yr published flood extents over GIS layers showing the range of Company’s
water supply structures across the catchment, based on the earlier J-Flow preliminary
modelling studies carried out at national level, using the IFSAR digital terrain model.
From this screening process a shortlist was drawn up that identified those sites (and
associated structures) that warranted further more detailed survey in order to produce a
more accurate assessment of flood risk.
o
It was then intended to identify sites that fall within the water surface flood profiles
based on water surface levels obtained from the recent EA modelling studies using the
ISIS hydrodynamic model and more accurate LiDAR digital terrain model (DTM). For
these flood studies return periods of 1:20yr, 1:100yr and 1:100yr+20% were generally
available, however it was found that no IYSIS modelling data was available for those
catchments where the Company’s structures are located and thus this approach could
not be adopted.
It is understood from the Environment Agency that it is not their policy to carry out detailed ISIS
modelling of the upland chalk catchments of the South Downs due to the unreliability of
modelling such catchments and that even the approximate JFLOW modelling cannot be relied
upon at all for estimating potential flood levels.
Nevertheless, the 1:100yr and 1:1000yr JFLOW flood outlines can still be useful in identifying
sites located within these outlines that could potentially be at risk. Thus, as no detailed flood
modelling data was available from the EA for these catchments, an approximate assessment
was made on-site to identify structures that could be potentially at risk of flooding, including
those structures with a known history of past flooding.
Groundwater Flood Risk Assessment
Sites potentially at risk from groundwater flooding were identified by overlying the Company’s
assets GIS layer over the Defra Groundwater Emergence Maps (GEMs). This series of maps
identifies those areas where groundwater is predicted to rise to within 2 m of the ground surface
in an unusually wet winter.
Coastal Flood Risk Assessment
Sites potentially at risk from coastal flooding were identified by overlying the Company’s assets
GIS layer over the EA 1:1000yr undefended coastal flood extents. This flood extent indicates
the predicted inundated area assuming no flood defences are in place.
Pluvial Flood Risk Assessment
Sites at risk from Pluvial flooding were assessed from historical operational information, from
desk top site assessments and the site visits. This focused on the potential for flooding as a
result of run-off from large catchments or adjacent roads in event of significant localised rainfall,
which was not shown on flood mapping.
Page 31
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
From the above analysis the following site survey list was developed, based on flood risk
potential.
Flood
Level
Data
Available
Recent
Flood
History
1:20 yr
coastal
flood risk
Denge WTW
Yes
No
Yes
Ottinge WTW
No
Worlds Wonder
WTW
1:100
fluvial
flood risk
Groundwater
flood risk
Yes
Yes
Yes
No
No
Yes
Rakesole WTW
No
Yes
Yes
Tappington
Borehole
No
No
Yes
Denton Borhole
No
No
Yes
Broome WTW
No
Yes
Yes
Lye Oak WTW
No
Yes
Yes
Standen WPS
No
No
Yes
Stonehall WTW
No
No
Yes
Kingsdown WTW
No
No
Yes
Elms Vale WPS
No
No
Yes
George Gurr
WPS
No
No
Yes
Fairways control
No
No
Sites Selected
for Survey
Yes
Pluvial
flood risk
Yes
Table 10 Company Sites to be Surveyed and Desk Top Flood Risk Assessment Results
Section 5.4:
Quantification of Flood Risk
The coastal flooding risk at Denge has been interpolated from Environment Agency costal
surge data at Dover and Rye. This is presented in the following table:
Page 32
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table 11 Rye, Dover and Denge coastal flood levels by return period
The site and Denge peninsular is protected to some extent by existing sea defences which are
maintained by British Energy to protect the existing nuclear power stations on the site.
However, as described in the following section, protection of the freshwater aquifer from saline
inundation in a sea storm event which breaches the sea defences is impossible.
For assessing fluvial flood risk, the normal process would be to obtain from the EA Strategic
Flood Risk Mapping (SRFM) studies covering the 1:20yr, 1:100yr and 1:100yr+20% (climate
change) flood events. From these, flood levels for the 1:10 year event could then be derived by
logarithmic extrapolation. However, for the reasons given in above, no flood level data is
available from the SRFM modelling studies for the Folkestone & Dover catchments and thus
the only fluvial flood data available is the approximate flood outlines for the 1:100yr and
1:1000yr events from the earlier JFLOW modelling studies.
The GIS analysis showed that those sites within the 1:1000yr flood extents were also within the
1:100yr flood extents and many of those were well inside the latter, indicating that they would
likely be inundated by floods of a lower return period than 1:100yr. Analyses of other Veolia
catchments where SRFM modelling has been carried out (e.g. Colne valley for Three Valleys
Water) has shown that where structures are located well within the 1:100yr flood extent, such
structures are also potentially susceptible to flooding from lower return periods such as 1:20yr
or even 1:10yr event (for the case without additional flood protection measures). It is therefore
considered conservative to assume a flood return period of 1:10yr for those assets under this
case.
As there is also no data available for pluvial or groundwater flooding, it is thus conservative (in
the absence of any other data) to assume the fluvial return periods as a proxy for these flood
categories as well.
As described below, the design of flood protection measures has been to be resilient to floods
of return period of 1:100yr +20% which represents the increased 1:100yr event, due to climate
change, predicted to occur by 2115 as per Environment Agency guidance.
Page 33
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 5.5:
Site Surveys, Scope and Cost Estimates
The surveys enables the local site specific conditions to be reviewed against the desk top data
from this an assessment was made as to whether each site would in reality be exposed to
flooding. The surveys also detailed the scope of works required to provide flood protection from
the identified flooding mechanism.
The details of the site surveys are contained in Appendix A. The table below identifies the sites
which are at risk of flooding following the survey work (grey indicates not at risk, red indicates at
risk).
Flood
Level
Data
Available
Recent
Flood
History
1:20 yr
coastal
flood
risk
1:100
fluvial
flood
risk
Groundwater
flood
risk
1. Denge WTW
Yes
No
Yes
2. Ottinge WTW
No
Yes
Yes
Yes
Worlds Wonder WTW
No
No
Yes
3. Rakesole WTW
No
Yes
Yes
4. Tappington Borehole
No
No
Yes
5. Denton Borhole
No
No
Yes
6. Broome WTW
No
Yes
Yes
7. Lye Oak WTW
No
Yes
Yes
Standen WPS
No
No
Yes
Stonehall WTW
No
No
Yes
8. Kingsdown WTW
No
No
Yes
Elms Vale WPS
No
No
Yes
George Gurr WPS
No
No
Yes
Fairways control
No
No
Sites Selected for
Survey
Yes
Pluvial
flood
risk
Yes
Table 12 Sites at risk of flooding following site investigations
For the eight sites identified above, the site survey identified the scope necessary to protect the
site from the flooding mechanisms identified. For the majority of sites, this was to provide
protection from 1:100 fluvial level as provided by the EA JFLOW data, plus a 20% increase to
reflect the predicted increase from climate change due to occur by 2115.
Page 34
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Denge WTW and the well-field of abstraction boreholes are exposed to coastal flooding in
the event that the existing sea defences are breached. In this event, the freshwater aquifer
“lens” in the gravel would become contaminated and be unsuitable for potable water treatment.
Due to the nature of the gravel aquifer, it is not possible to protect the source from saline
contamination. This risk has been well understood by the Company, and in AMP4 the Company
constructed the Denge Security Main to provide the Denge zone with a reliable alternative
supply of water in the event of loss of output from Denge. This is the primary means of
protecting the security of supply for customers. Therefore, further protection of the source,
boreholes and treatment facility is not proposed.
The scope for flood protection at the remaining seven sites investigated the following options:
o
o
o
Raising mechanical and electrical equipment such that it is above the maximum flood level.
Preventing ingress of water into individual facilities
Protecting a number of facilities or an entire site using bunds or flood protection walls.
The first solution considered was to raise any item of equipment which might be at risk from
flooding. Whilst this was initially thought to be the easiest and cheapest solution it became
apparent that this was not necessarily the best choice.
Whilst it was relatively easy to relocate small items of electrical equipment, when it came to
items of mechanical equipment such as pumps it became quite an expensive exercise.
Technically it was also problematic as pumps in particular were located in chambers or
basements to ensure that they were self priming and often to ensure that there was adequate
NPSH available.
Pumps are not seriously affected by immersion. Should it occur, grease in bearings would
become contaminated which would require as a minimum the bearing to be stripped and
cleaned before putting back into service. In some instances, where the ingress of flood water
cannot be prevented without a major design change, then this option has to be proposed.
Where electric motors or electrical panels are involved, immersion would generally involve the
equipment having to be removed and properly dried, and insulation checked prior to returning
to service, a process which would take some time to undertake. This is therefore not an option.
Preventing the ingress of water into buildings has been considered as the best option on many
of the sites where individual buildings are at risk. It is suggested that stop plates be installed at
entrance doors. These can either be of aluminium or a composite material located in a steel
frame mounted in the entrance and fixed and sealed to the brickwork. It is expected that such a
plate could be used for water depths of up to 400mm. The plate would be provided with rubber
seals. The only problem with using this method of flood prevention is that some warning is
required of impending floods, in order that the plates could be fitted. For facilities where regular
access is not required then the plates could be left in place.
Page 35
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Where stop plates are fitted, particularly where there are basements or chambers involved then
higher capacity drainage pumps and flood alarms are recommended to deal with any leakage
past the stop plates. Where flood levels of less than 150mm are expected, then permanent
kerbs or up-stands are proposed. In some locations where surface water flooding might
threaten sites, then walls or bunds have been considered to divert potential flood waters away
from the site. These may be subject to local planning approval or EA approval.
Cost Estimates
As the Company does not have historic costs for flood protection equipment, therefore, the
costs for the work were developed as part of the consultants study. Costs were taken from
Spon’s Civil Engineering and Highways Works Price book 2008, or Spon’s Mechanical
installations costs. This approach developed the Direct Cost estimates for each site.
The application of indirect costs, Company overhead and risk allowance is as per the
Company’s overall approach to cost estimating as described in Section C5. The application of
a risk allowance is appropriate for the flood protection investment as the scope of works, while
developed on a site specific basis, has only been generated from a visual site inspection.
Detailed scope definition is yet to be done and it is likely that when this is done additional scope
will be identified. The risk allowance is 13.2%.
The direct costs and final cost estimate for each site are provided in the following table. The
direct costs are taken from Table 5.1 of the consultants report in Appendix A.
Sites
Direct Cost, £k
Total Cost, £k
1. Denge WTW
0.0
0.0
2. Ottinge WTW
32.5
59.2
3. Rakesole WTW
11.5
21.0
4. Tappington Borehole
4.0
7.3
5. Denton Borhole
29.5
53.8
6. Broome WTW
6.5
11.9
7. Lye Oak WTW
29.0
52.9
8. Kingsdown WTW
13.0
23.7
TOTAL
126.0
229.9
Table 13 Cost Estimates for Flood Protection Measures
Given the relatively small investment cost and the limited flood mapping data for the Company’s
area, the Company has not sought to develop a range of solutions for each site to give varying
degrees of flood protection as this was not believes to be a valuable exercise given the data
available.
Page 36
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 5.6:
Cost Benefit Analysis
The cost benefit analysis approach is consistent with that undertaken by the Company for other
business cases. The overall approach is described in Section C8.
With regard to the flood protection investment, the Company has considered three scenarios,
which reflect the uncertainty in the existing flood risk due to limited flood modelling data
discussed in previous sections. These three scenarios are:
o
o
o
Flood risk of 1:10 years, as per the conservative interpretation of flood risk
contained in the consultants report;
Flood risk of 1:20 years; and
Flood risk of 1:50 years.
For all scenarios, the level of resilience provided by the investment is 1:100 years +20% which
represents the increased 1:100yr event, due to climate change, predicted to occur by 2115.
The consequences of flooding have been assessed as loss of works output. The impact of the
loss of output for customers has been assessed using the MISER model, used in the NonInfrastructure Capital Maintenance business case. The use of MISER enables the loss of output
at specific treatment works to be modelled and the number of properties experiencing loss of
supply.
Assessing the loss of any one site on its own, did not result in customers experiencing
interruption to supply, however, as the Company’s operating area is relatively small and given
the proximity of four key sites in relation to each other, the impact of losing all four sites was
considered. The results are provided in the below graph. While considering the loss of all sites
from the same flooding event may be considered less likely, at a 1 in 20 and 1 in 50 year flood
event, the impact on multiple sites become much more likely.
From the MISER analysis the number of properties affected by loss of 4 sites, Ottinge WTW,
Rakesole WTW, Broome WTW and Lye Oak WTW was assessed as 6,780 which is the impact
after 48 hours. Tappington Borehole and Denton boreholes both feed the Rakesole treatment
works, thus loss of the treatment works means that neither borehole can be used. Kingsdown
WTW is not located close to the other sites and has therefore no been included in this analysis.
The duration of the impact was assessed at greater than 24 hours due to the severity of the
events and reflected the likelihood that staff would have significant difficulty attending site to dry
out equipment and recover operational outputs.
Page 37
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Number of properties interrupted after losing Ottinge, Rakeshole,
Broome and Lye Oak WTWs, [Normal demand]
Number of properties experiencing loss of supply
12000
10000
8000
6000
4000
2000
234
225
216
207
198
189
180
171
162
153
144
135
126
117
108
99
90
81
72
63
54
45
36
27
18
9
0
0
Hours since loss of sites
Figure 5 MISER Modelling results for Interruptions to Supply from loss of Ottinge, Rakesole, Broome
and Lye Oak WTWs
Using the above data to populate the Output Performance Measure 4 – interruption to supply
and undertaking the cost benefit analysis calculation provided the following results. The
benefits coming from assuming that all sites are exposed to a 1 in 10 risk of flooding are very
high (£162m) which is overstating the existing risk. However, even when this is scaled down to
1 in 50 year event the proposed investment is still shown to be cost beneficial to £10m.
Benefit Value per
OPM, £k
Solution
Ref
ESL001
ESL001v2
ESL001v3
Scheme Title
Flood risk at 1
in 10
Flood risk at 1
in 20
Flood risk at 1
in 50
Whole
Life Cost,
£k
Whole
Life
Benefit,
£k
Net NPV,
(WLB less
WLC)
£k
OPM 4.
Supply
Interruptions
OPM 12.
Carbon
equivalen
t
emission
s
267
162,798
162,531
162,802
-4
267
41,670
41,403
41,674
-4
267
10,414
10,148
10,419
-4
Table 14 CBA Results for flood protection investment
Page 38
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The values in blue are those used in the business plan tables and projects database.
The results from the two CBA sensitivity scenarios described in Section C8 are as follows.
Net NPV, (WLB less WLC)£k
Solution
Ref
ESL001
ESL001v
2
ESL001v
3
Flood risk at 1 in 10
389
Sensitivity # 2 –
Lower Bound WTP
(95%ile)
77,912
Flood risk at 1 in 20
- 99
19,742
Flood risk at 1 in 50
- 225
4,732
Scheme Title
Sensitivity # 1 –
Private Cost Only
Table 15 CBA Sensitivity Results for flood protection investment
These above results show that even when customer valuations for interruptions to supply are
excluded (sensitivity#1), the investment is cost neutral rather than becoming not cost beneficial.
Also, when the lower bound 95%ile results from the willingness to pay results are used, the
proposed investment remains cost beneficial.
Section 5.7:
Conclusions
The Company is confident that the proposed solution, based on site specific survey of the sites
at risk provide a robust assessment of risk and also project scope, and that the cost estimates
are reliable.
The CBA results and sensitivity analysis provide clear evidence that the proposed flood
protection investment is cost beneficial. Also, the proposed investment in small when
considered against the programme as a whole, however, the benefits to customers from
providing reliable supplies of water even during extreme flood events is significant. Therefore,
the Company is confident the these proposals represent value for money for customers.
Page 39
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table Commentaries
Table B6.1 Water Services
Enhancements
–
Improvements
and
Proposed
Service
Section A Lines 1 Nil
9 Service enhancement reflects proposals for flushing Denge Zone
Table B6.3
Water Services – Improvements and Service Enhancements
Outputs and Expenditure
Section A Line
1 Nil
Section B Line
9 Performance extrapolated from previous years and reflects investment.
Section C Line
16 This is the capital investment for the Denge network cleaning project, split
over years 3 and 4.
Section D Line
20 This the capital investment for the flood protection work.
Page 40
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B6.1 OVERVIEW OF WATER SUPPLY ZONE F21 DENGE
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 41
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B6.2 INTERNAL PROTECTION OF WATER MAINS
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 42
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B6.3 CUSTOMER CONTACT RECORD FOR 2007 – FD21
AESTHETIC ISSUES
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 43
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B6.4 DENGE PEAK FLOW ANALYSIS
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 44
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B6.5 MAINS SUBJECT TO FLOW REVERSAL UNDER
NORMAL CONDITIONS
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 45
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
APPENDIX B6.6 FLOOD RISK ASSESSMENT REPORT
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 46
Section B6 – Consumer Service Strategy
11/11/10, 09:12:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B
Key Component
Section B7
Financial Projections
Contents
Executive Summary ................................................................................................................ 1
Section 2
The Financing Plan.................................................................................. 3
Section 3
Depreciation and IRC ............................................................................. 6
Section 4
Taxation ................................................................................................... 7
Table Commentaries ............................................................................................................... 9
Section 1.1
M&G ........................................................................................................ 22
Section 1.2
Assets other than M&G............................................................................ 23
Appendix B7.1
NERA Report - Cost of Capital for PR09 – Draft Final Report for Water
UK ........................................................................................................... 36
Appendix B7.2
NERA Report – Recent Evidence on the Small Company Cost of
Capital Premium .................................................................................... 37
Page i
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Executive Summary
This section sets out the key financial assumptions that have been used in the preparation of
this Business Plan. It provides details of assumptions for financeability, dividend, RCV, cost of
capital, depreciation and IRC, and taxation.
The key assumption is that WACC will be higher and based upon outputs from the NERA report
the Company has calculated that it requires a WACC of 6.76%.
The company has achieved broad equivalence of MNI and CCD as defined by Ofwat. The
company believes that the plan is financeable under the assumptions that it has adopted. The
company strongly believes that Ofwat should use the lower of actual gearing or 60% when
determining the tax requirement and set out its reasons why this should be.
Page 1
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1
Changes from Draft to Final
Section 1.1
Materials Changes
There are two material changes made by the Company between draft and final Business Plan
submissions.
The first is that the Company has increased WACC from 6.18% to 6.76%. this decision has
been taken following further work by NERA on both the cost of capital and small company
premium. The difference is primarily based on an increase in the cost of debt which better
reflects the current market.
The second is that the Company has used a gearing of 40% for its WACC calculation, which is
more reflective of its actual situation, compared to the 60% in its draft Business Plan.
Page 2
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 2
The Financing Plan
The company is debt financed by its majority shareholder, Veolia. All financing arrangements
are benchmarked such that the company pays the same rates to Veolia that it could have
negotiated on the open market. The company does not anticipate any problems in continuing
to raise debt finance in this way through Veolia. At the time of writing the company is not aware
of any plans by Veolia, or other shareholders, to change its equity investment in the company.
However, it should be noted that if Ofwat does not accept the arguments set out in Section 3
below, the company may be forced to pay a special dividend, in order to increase its gearing to
the level assumed by Ofwat for tax purposes. The company does not consider this to be a
desirable outcome.
Financeability
The company believes that the plan, as presented is financeable. However if Ofwat make
major changes to our assumptions on a number of factors, this assessment may not hold true.
If Ofwat does make major changes at draft or final determination, we believe that he matter of
financeability should be reconsidered, and financeablity adjustments made as appropriate. The
particularly critical assumptions are: changes in demand; capex programme; base opex
changes; efficiency assessments (particularly with regard to special opex factors) and WACC.
Dividend Policy
The company’s current appointed dividend policy is to apply 0% per annum real growth to the
allowed rate of return at the start of the AMP. We have therefore taken the closing RCV for
2010/11 in reservoir (£66.223m) and subtracted the projected net debt at the same point
(£34.693m). This gives an equity element of RCV of £31.530m. We then take the cost of
equity element of the WACC calculation above (7.6%) and multiply it by the equity element of
the RCV. This gives us an appointed dividend for 2010/11 of £2.396m in 2007/8 prices. This
compares to our 2007/8 dividend of £3.438m. Under this dividend policy The 2010/11 dividend
will not change during AMP5.
Regulatory Capital Value
We project that our regulatory capital value will increase from £66.99m closing value at 31
March 2008 to £68.18m by 31 March 2015.
Cost of Capital
We have used a Weighted Average Cost of Capital (WACC) of 6.76% for this business plan.
This value has been derived as shown in the table below.
Component
Risk-free rate
Debt premium
Small company premium on cost of debt
Pre-tax cost of debt
Value
2.5%
2.5%
0.5%
5.5%
Risk-free rate
2.5%
Page 3
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Equity risk premium
Unlevered beta
Equity beta (40% gearing)
Small company premium on cost of equity
Cost of equity
5.4%
0.4
0.67
1.5%
7.6%
Tax Rate
Gearing
28%
40%
Fully Post tax WACC
‘Vanilla’ weighted average cost of capital
6.20%
6.76%
These figures are based on the NERA reports on the cost of capital and the small company
premium that were commissioned on behalf of the industry by Water UK. These reports are
attached as Appendices B7.1 and B7.2.
In addition to these reports the company has made the following judgements:
1. Debt premium: NERA’s report discusses the uncertainty surrounding the cost of debt.
It is presumed that the costs of debt currently being seen on the market is higher than
the average that will prevail during AMP5. However, the longer that the current level of
costs persists for, the more likely it seems that we are seeing a permanent or semipermanent change in the cost of debt. Ofwat will be able to take a longer view on this
subject closer to the draft and final determinations. Our judgement is that a debt
premium of 2.5% is appropriate in the light of current conditions and this is what we
have used.
2. Gearing: The company has used a gearing of 40% in this calculation. This is
consistent with our current level of gearing. In section 3 below we argue that the
gearing level assumed for taxation purposes should be our actual gearing. In order to
be consistent we believe that we should apply a 40% gearing to our WACC calculation
as well. The effect of applying a 60% gearing to our WACC calculation would be to
increase the WACC to 7.06%. This occurs because the effect of the gearing on the
beta is greater than the reduction in WACC resulting from giving a higher weighting to
the cost of debt.
3. Small Company equity premium: The NERA report attached as Appendix B7.2
recommends an equity premium for small companies of 3.6%. 2.1% of this is to allow
for a premium which relates to the relative risks faced by smaller water only companies
relative to WaSCs. The rationale for this premium is that investors need to be
compensated for the increased vulnerability to shocks of the water only companies
relative to the WaSCs. At the time of publication of this business plan, this was a new
argument to us. Because we have not had time to digest or evaluate this argument we
have decided to use an equity premium of 1.5% rather than 3.6%. However, we do
believe that the premium evaluated by NERA is a genuine effect. We therefore do
expect that Ofwat, and the Competition Commission where appropriate, will wish to
consider and evaluate the arguments put forward by NERA on this subject in arriving at
their final decisions.
Page 4
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Small Company Premium
For a number of other reasons, the Company believes that the small company premium is
appropriate for Folkestone and Dover Water Services:
i)
The Company understands the derivation of Regulatory Capital Values (RCV’s)
within the industry and the important part played by the small company premium in
their calculation for water only companies (WOC’s). Water and Sewerage
Companies (WASC’s) were valued by reference to their market capitalisation
immediately post privatisation. Such good evidence for WOC’s was unavailable so
their RCV’s were set at a proportion of the indicative values used in the first price
limit calculations represented comparable values to the WASC’s. Clearly, that
proportion of indicative value, being a proxy for market value, was influenced by the
existence of a small company premium. It would transgress all principles of good
regulation to disrespect, retrospectively, the fundamental basis of valuation for
WOC’s by failing to preserve the existence of a small company premium.
ii)
Despite having a single shareholder owning 74% of the equity, the Company is
licensed to operate independently. This ensures that the Company has only “arms
length” relationships with other companies operated by both the majority and
minority shareholders, thereby maintaining its independence as a small company.
iii)
Returns from smaller companies are more volatile due to the greater impact that
operational risk can have. This Company carries significant risks associated with
almost every activity (scarcity of water resources, size of capital programme,
vulnerability to competition, loss of industrial customers, meter penetration, etc.
etc.). Accordingly, a higher return is expected by investors.
All of these issues are current and will remain in the foreseeable future. Therefore, the
Company is clear that it should continue to receive the small company premium.
Page 5
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 3
Depreciation and IRC
IRC
Ofwat has recommended that companies should calculate the IRC by averaging the next 15
years of Infrastructure Renewal Expenditure (IRE). If the Company were to apply Ofwat’s IRC
methodology this would result in an IRC substantially greater than IRE during 2010-2015. The
company has taken the view that this would be unfair to customers. Because IRC is a
component of required revenue, this approach would result in customers paying in AMP5 for
work that would not be conducted by the company until AMP6 or AMP7.
The company has therefore chosen to take the average of IRE in the 15 year period 2003/04 to
2017/18. This choice gives us a total IRC for AMP5 that is roughly equivalent to the IRE in the
period. The company believes that this pragmatic approach is the fairest way to balance the
interest of the company and the interest of our customers.
Broad Equivalence
The broad equivalence test tests that the cost of replacing and maintaining the noninfrastructure asset over a long time period is broadly equivalent to the depreciation charges on
those assets (at current prices). The company reports a reconciliation of the variance to an
NPV of £0.348m which represents 1.98% of base year revenue, and therefore satisfies this
test.
Asset Lives
Standard asset lives are detailed in the company’s Fixed Assets Procedures Manual. Regular
reviews of asset lives take place to ensure they are in line with their operational lives. No
specific review was undertaken in preparation for PR09.
MEAv
The company engaged Jacobs engineering consultants to carry out a 100% survey of the
above ground assets. As part of this survey they reviewed the condition of each individual
asset and assessed its replacement value. Section C3 gives a detailed analysis of the
methodology for the calculation of the MEAvs. The table commentary for B7.13 below gives
detail of the changes to the MEAv.
Page 6
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 4
Taxation
Gearing and Taxation
In October 2007, as part of the Ofwat’s consultation on changes in their approach and
methodologies with price setting in PR09, Ofwat explained its proposal to change the approach
taken on gearing when determining the level of corporation tax in the revenue requirement.
Three Valleys Water has on the company’s behalf, on a number of occasions, explained to
Ofwat our concerns with their proposed change which would lead to price limits at PR09 underfunding the Appointee’s annual tax charge by up to £0.2m.
During the most recent meeting, on the subject, with Keith Mason on 30th January 2009, the
reasoning for proposed change in methodology was explained. The company understands that
Ofwat’s intent with this change in approach was to remove the tax advantage that could be
gained by an Appointee and its parent company deliberately switching gearing from the
Appointee to the parent company and then benefiting from additional price limits as a result of
the higher taxation charge arising at the Appointee.
Although the company can understand the concern expressed by Ofwat, the change in
approach and methodology has had the effect of penalising this Company inadvertently. The
company has explained to Ofwat that the Company and its parent company, Veolia Water UK
do not fit this situation. The level of debt in the Company is currently £42.6m (or 40.1% net
debt to RAV) whereas Veolia Water UK has no debt. The company would therefore suffer from
a proposed change to Ofwat’s methodology even though it doesn’t fit the scenario that the
change was meant to tackle.
The company is pleased that in correspondence Ofwat has confirmed that they believe it is for
the Appointee’s Board, shareholders and management to determine the most efficient financing
structure to meet their circumstances within the price setting package. This is a principle to
which the company’s Board attaches great importance. The Board considers the Company’s
actual gearing and projected level of gearing, of 40% to 55%, are appropriate and in the best
interests of the Company.
However, Ofwat’s change in approach on gearing when determining the level of corporation tax
in the revenue requirement is then inconsistent with its belief that gearing should be determined
by the Appointee’s Board, shareholders and management. With this change in approach, Ofwat
are providing onerous financial disincentives for the Company to maintain its desired level of
gearing. Ofwat are encouraging the Company to increase its gearing, at a time when additional
debt is difficult and expensive to access, and when the national economy is suffering from
excessive over-leveraging.
It is irresponsible and inappropriate that Ofwat is dictating this change of approach during the
current global financial crisis, a crisis predicated on excessive leverage by corporates as well
as households. The Board, in discharging their statutory duties, believe that their view of
gearing is sensible and not overly cautious.
Page 7
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
A 40% net debt to RAV gearing level has been assumed within the company’s assumption for
the allowed Weighted Average Cost of Capital (WACC). The company notes that a 40%
gearing level within the WACC provides a lower rate of return than the WACC at levels of 55%
or 60% which are promoted by NERA for the industry. This reduction arises as a result of the
lower levered beta required at lower levels of gearing which reduces the return on equity in the
WACC calculation.
The company’s proposal will lead to any outperformance of corporation tax. Where some
companies in the industry have outperformed in the past is when they have geared up
subsequently to a price review. For clarity, the company supports Ofwat’s proposal in PR09 to
claw back the tax benefits resulting from a company gearing up as a result of capital
restructuring during the forthcoming price review period, and is prepared to commit to a
voluntary abatement of k in these circumstances, in order that no outperformance can be
gained from this situation.
This request is therefore a relatively narrow amendment to Ofwat’s PR09 proposals and one
that would affect very few water companies. In the context of the current state of the global
credit markets it would be particularly timely for Ofwat to adjust their proposal, which otherwise
might be seen as forcing water companies imprudently to increase their level of borrowing and
reduce their equity capitalisation. This change would also have the benefit of consistency with
Ofwat’s policy that it is for the boards of companies to determine the most efficient financing
structure.
In summary, the company strongly urges Ofwat not to change its approach to gearing when
determining the level of corporation tax in the revenue requirement since:
•
•
•
It will lead to price limits at PR09 under-funding the Appointee’s annual tax charge by up
to £0.2m despite the Company not being in the situation that Ofwat aimed to penalise
and deter;
this change in approach would be inconsistent with Ofwat’s belief that gearing should be
determined by the Appointee’s Board, shareholders and management;
Ofwat are encouraging the Company to increase its gearing, at a time when additional
debt is difficult and expensive to access, and when the national economy is suffering
from excessive over-leveraging.
FRED29
The adoption of FRED29 will increase substantially the amount of corporation tax payable by
the Company, well beyond the levels expected to be allowed under Ofwat’s current approach to
setting of allowed tax. As noted in Section A, a notified item should be allowed should adoption
of international accounting standards result in large changes to actual tax after 2010.
Page 8
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table Commentaries
Table B7.1 Financial Projections
The company has explained and exposed all the key assumptions that have a material impact
on the financial projections as far as possible within the limitations of the Reservoir model. We
have used our own models, which we believe replicate the workings of Reservoir, to verify as
far as possible, that our understanding of Reservoir is correct.
However, Reservoir is a complex and lightly documented model, that is often very difficult to
follow. A small company such as Folkestone and Dover does not have the resources to verify
every aspect of the model, and we are therefore not able to guarantee its outputs. We note that
the Ofwat Board has also declined the opportunity to verify the accuracy of the model, despite
twice being invited to do so by Water UK.
Line 1
We have used the k figures as determined at PR04.
Line 19
We confirm that the opening value of the RCV used in the financial model at 31
March 2008 is as provided by Ofwat in the letter sent to Tim Charlesworth dated
9 December 2008.
Table B7.2 Cash Flow Projections
Section F
Working Capital Assumptions
Line 24
The figure for 2007/8 has been derived by taking the measured debtor figures
from Table 6A of JR2008 (lines: 1+3+29) and dividing it by the measured
turnover reported in Table 23 of JR2008 (line 6). The proportion is then
multiplied by 365 in order to convert it to days.
At the time of publication it is clear that debtor days are increasing, but not by
exactly how much. We have assumed that at 31 March 2009 debtor days will be
10% higher than at 31 March 2008, which is in line with our management
accounts so far during the year. The following profile is then used for
subsequent years:
Increase in
debtor days
(over 07/08)
Line 25
200809
200910
201011
201112
201213
201314
201415
110%
110%
105%
105%
100%
100%
100%
The figure for 2007/8 has been derived by taking the measured debtor figures
from Table 6A of JR2008 (lines: 151+17) and dividing it by the measured
turnover reported in Table 23 of JR2008 (line 3). The proportion is then
multiplied by 365 in order to convert it to days.
Page 9
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The same profiles of future changes in debtor days that were applied to line 24
have been applied to this line as well.
Line 26
This figure has been derived by taking the trade creditors figure from Table 26 of
JR2008 (line 9) and dividing it by Operating Expenditure (T21, L22, JR2008).
The proportion is then multiplied by 365 in order to convert it to days. We
assume no changes to this figure in AMP5.
Line 27
This figure has been derived by taking the Capex creditors figures from JR2008
(Table 26, Line 11), and diving it by reported capex in JR2008. The proportion is
then multiplied by 365 in order to convert it to days. We assume no changes to
this figure in AMP5.
Lines 28 & 29 We do not report advanced receipts in our regulatory statements, so 0s have
been entered into these lines.
Table B7.3 Commentary
For all calculations the methodology is the same as for JR08. There has been no change to the
Company’s asset life definitions since JR 2008.
AMP4
07/08
Line 10 - 14
Data from JR08 , Table 34 lines 9-14 is in £m plus total; converting to % is as
per table below.
£m
1.090
0.166
0.875
0.000
0.061
2.191
%
49.73%
7.56%
39.92%
0.00%
2.80%
100.00%
Lines 15 - 19 Data from JR08, Table 34 lines 15-19.
Lines 20 – 31 Data from JR08, Table 33, line 10.
08/09 – 09/10
Lines 10 - 14 Calculated based on current year position and forecast to end of 08/09 and
09/10.
Lines 15 - 19 Calculated based on current year position and forecast to end of 08/09 and
09/10 for all non infrastructure expenditure, base and enhancement.
Page 10
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Lines 20 – 31 Calculated based on current net MEAv’s divided by the remaining number of
years life for each asset, and for new investments, on forecasts of the
percentage split by asset life category applied to the average asset lives.
The company does not account for depreciation on an asset until it is in use. No
entry has been made for lines 21,23,27 or 29.
The company is not anticipating contributions towards its non-infrastructure
expenditure. This results in sections F and G having the same figures.
AMP5, 6, 7
It should be noted that the Company has corrected the error at draft, and that is
depreciation based on the Ofwat asset life bands.
Lines 10 - 14 Percentage splits calculations based on programme forecast to end of AMP7.
Lines 15 - 19 Average asset lives calculated from programme forecast to end of AMP7 for all
non infrastructure expenditure, base and enhancement.
Lines 20 – 31 Figures for AMP5 and AMP6 are calculated on the same basis as the final two
years of AMP4.
Table B7.4 Commentary
For all calculations the methodology is the same as for JR08. There has been no change to the
Company’s asset life definitions since JR 2008.
AMP4
07/08
Lines 1 - 5
Data from JR08 is only summarised for all enhancement categories. Calculation
Lines 7 - 11 re-done from JR08 calculation to separate Q, SD and metering separately Lines 18 - 22
Lines 6 & 12 No land purchases included.
Lines 13 -17 No ESL programme in AMP4.
08/09 – 09/10
Lines 1 - 5
Calculated based on current year position and forecast to end of 08/09 and
Lines 7 - 11 09/10.
Lines 18 - 22
Lines 6 & 12 No land purchases included.
Lines 13 -17 No ESL programme in AMP4.
Page 11
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
AMP5
It should be noted that the Company has corrected the error at draft, and that is
depreciation based on the Ofwat asset life bands.
Lines 1 - 22
Percentage splits calculations based on programme forecast to end of AMP7.
Table B7.7 Historic Cost Depreciation & Amortisation (HCA)
Assumptions
The company is a water supply company and therefore has no assets applicable to sewerage.
Calculations are based on the assumption that an asset will be retained in use and depreciated
to the end of its useful projected life as recorded in the database. This implies no adjustment is
required to depreciation forecasts for early write off of assets.
Depreciation for asset additions are excluded as these are dealt with under the current cost
depreciation calculations derived from the capital expenditure program.
There is no depreciation forecast for freehold land in accordance with company policy.
There are no assets considered as work in progress at 31st March 2008.
Method
The historic cost, date of capitalisation, projected asset life and net book value for each asset
are extracted from the company’s asset database to produce a detailed asset listing as at 31st
March 2008. The totals and asset groupings are reconciled to the company’s annual records at
this date to ensure completeness and consistency.
Assets are grouped between infrastructure and non-infrastructure assets with depreciation
calculated for non-infrastructure assets only.
The annual depreciation charge for each asset is calculated as the recorded gross capitalised
value (cost) divided by the projected life of the asset in years. This is in accordance with the
company’s straight line depreciation policy.
The annual charge is projected forward for each asset from 2008-9 as an annual deduction
from the 31st March 2008 net book value until full write off of its book value is achieved.
Results are collated to produce a total depreciation charge for each year.
The capitalised date of each asset is used as the basis for determining the division of assets
and their associated depreciation charges between pre and post 1998 acquisition.
Page 12
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Table B7.8 Grants and contributions - amortisation
Section A
Water service: Existing grants and contributions
Line 1
The Company reported amortisation of £38,000 in JR2008. At 31 March 2008,
£272,000 remained in the grants and contributions account. The Company
expects to continue amortisation at the current rate, and do not expect any new
grants or contributions for non-infrastructure assets. Therefore amortisation will
continue at its current rate until month 2 of 2015-16, at which point it will be 0
going forward.
Section B
Water service: Grants and contributions - enhancements
Line 8
We don’t expect any non-infrastructure grants and contributions in AMP5.
Table B7.9 Depreciation of Assets, Non-infrastructure Lives
Standard asset lives are detailed in the company’s Fixed Assets Procedures Manual and are
applied to all asset additions. Deviations from these standard lives have to be authorised by
the Head of Finance.
Regular reviews of asset lives take place to ensure they are in line with their operational lives.
In the case of long life assets e.g. reservoirs exceeding their allocated lives the outstanding net
book value plus any additional capital expenditure is depreciated over the additional years
allocated to the asset.
Table B7.10 & B7.11
B7.10 Comparison of CCD and MNI Expenditure for the period 1997-98 to 2009-10
B7.11 Comparison of CCD and MNI Expenditure for the period 2010-11 to 2024-25
Please note that Line references in the commentary are not stated in line number
sequence. This has enabled the logic of the commentary to be progressive and bring the
relationship between specific lines together.
CCD
MNI
NPV
FDWS
- Current Cost Depreciation
- Expenditure for the Maintenance of Non-Infrastructure assets
- Net Present Value
- Folkestone & Dover Water Services
Assumptions
All calculations exclude grants and efficiency adjustments.
Current Costs are stated at 31st March 2008 prices with the base year stated as 2007-08.
The assumptions and basis for the calculations for CCD are separately stated within this
section. For clarity, any other assumptions made will be stated at the relevant point in the
commentary.
Page 13
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The detailed proposals for MNI expenditure have been separately stated in Section B3.
The NPV is calculated using a discount rate of 7.29%. This rate is drawn by the model from
Table C9.1 (Additional Financial Model Inputs) being the stated post tax rate of return for assets
in the base year 2007-08.
Overview of the Broad Equivalence Reconciliation
The assumption under test is that the cost of replacing and maintaining the non-infrastructure
asset over a long time period is broadly equivalent to the depreciation charges on those assets
(at current prices).
The company understands that table B7.10 and B7.11 try to broadly reconcile the levels of MNI
expenditure to the CCD calculations over this extended period of time. The plan data spans a
28 year period.
The Scenario Finance Model reduces the differences between MNI and CCD, together with
their respective reconciling items, to a Net Present Value (NPV). The results of the calculations
are then written back to tables B7.10 and B7.11 of the business plan. FDWS understands that
MNI and CCD are considered broadly equivalent if the calculated NPV is within a 5% variance
of the base year revenue.
Analysis of the underlying equations indicates that at its simplest level Line 1 (MNI) is
reconciled against Line 19 (CCD). This produced an initial NPV variance (before inclusion of
any reconciling items) of £5.019m which equates to 28.51% of revenue.
FDWS reports a reconciliation of the variance to an NPV of £0.348m which represents 1.98% of
base year revenue.
Line 1
MNI expenditure
Data is drawn from June Returns, Table B3.6 Line 7 and B7.11 Line 1–
expenditure incurred to maintain base level assets and therefore excludes
enhancement expenditure. The June return data is re-indexed to 31st March
2008 prices using the following formula.
June Return Expenditure (year x) x Year End Index (base year)
Average Index (year x).
It is noted that re-indexation was overlooked at draft submission.
Calculated CCD charges are reported across three input lines as follows:
Line 19
CCD Assets Existing 31/03/08
FDWS have populated Line 19 with the CCD calculated for the base assets
existing at 31st March 1998. It therefore excludes CCD on MNI expenditure on
replacement assets which were acquired post this date. The values of CCD
recorded in this line therefore reduces year on year as the base asset values
deteriorate.
Page 14
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Line 20
CCD on MNI expenditure after 01/04//08
CCD on assets acquired post 31st March 1998 as replacement of the base
assets populates Line 20.
Line 21
CCD on Enhancement Assets
This line reports CCD on assets used to enhance the base assets since 1st April
1998.
Reconciliation Lines
Line 9
Other CCD reconciling items
Line 19 has been populated with the CCD on assets existing at 31st March 1998
and therefore excludes the CCD relating to any replacement assets. (The CCD
charge steadily diminishes as asset lives run down).
However, Line 1 MNI expenditure represents the cost of replacing some of those
assets since that date. The model is therefore not comparing “like with like”.
For the reconciliation of MNI and CCD to be logical, FDWS believes the CCD for
assets reported in Line 20 should be grouped with those of Line 19. To maintain
visibility FDWS has therefore inserted the Line 20 data as an “OTHER” CCD
reconciling item in Line 9.
Line 5
Assets Not Replaced In The Period
The company applied the following criteria to the asset data base to identify
assets not replaced in the period. The asset had to meet all the following criteria
to be included:
a.
b.
c.
d.
Line 6
Include if asset is a non-infrastructure asset;
Include if asset was acquired pre 1997/1998;
Include if asset is subject to a depreciation charge;
Include if the CCD charge in 2024/25 was equal to the charge for 1997/98.
Fully Depreciated Assets Still In Use
The company applied the following criteria to the asset data base to identify
assets that were fully depreciated yet still in use. The assets had to meet the
following criteria:
a. Include if asset is a non-infrastructure asset;
b. Include if the useful life of the asset terminated prior to 2007/2008;
c. Include if there is a CCD charge from 2007/8 onward;
No assets met all the above criteria.
Line 7
Atypical CCD
Page 15
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Line 11
Atypical MNI Expenditure
FDWS has identified two proposed projects of exceptional MNI expenditure
• Trunk Main TP28 Please see Section B3 - 4.1.1
• Hills Reservoir
Please see Section B3 - 4.2.6
PROJECT
Capital Expenditure
Trunk Main TP28
Hills Reservoir
Line 11 Atypical MNI
2010-2011
£m
0.260
0.696
0.956
2011-2012
£m
1.042
2.553
3.595
Line 7 CCD thereon *
0.136
0.467
*AMP5 only shown as depreciation extends for 40years
2012-2013
£m
1.302
1.393
2.695
2013-2014
£m
Nil
Nil
Nil
2014-2015
£m
Nil
Nil
Nil
0.741
0.638
0.412
The atypical MNI expenditure and associated CCD is therefore included in the reconciliation on
Lines 5 and 11. No contra has been made to offset the “normal” level of expenditure which
would otherwise have been incurred.
Comparison to Draft Presentation
FDWS experienced difficulties in understanding and operating the Reservoir model for these
tables when lodging the draft plan. It was therefore unable to adequately complete and report
on these schedules at draft.
Since submission of the draft plan, FDWS has studied the detailed calculations behind this
reconciliation. We were eventually able to identify that some critical fields had not been
populated in the model which prevented calculation. Once this problem had been verified Ofwat
were quickly able to provide the necessary data patch to correct the problem.
Table B7.10 & B7.11
Current Cost Depreciation (CCD)
Assumptions
Calculations are based upon:
1.
2.
Existing Assets: Modern equivalent asset values (MEAv) of the company assets as revalued at 31st March 2008.
New Assets: The forecast capital expenditure program commencing 1st April 2008
projected at 2008 prices.
The company is a water supply company and therefore will have no assets applicable to
sewerage.
Calculations are based on the assumption that assets will be retained in use and depreciated to
the end of their useful projected lives. This implies no adjustment is required to depreciation
forecasts for early write off of assets.
There are no assets considered as work in progress at 31st March 2008.
Page 16
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Depreciation is calculated for non-infrastructure assets only.
All calculations exclude efficiency assumptions against expenditure.
Method: Existing Assets as at 31/03/08
Assets are grouped between infrastructure and non-infrastructure assets with CCD calculated
for non-infrastructure assets only.
The annual CCD charge for each asset is calculated as the gross MEAv (cost) divided by the
projected life of the asset in years. In the event that the remaining useful life has been reassessed, the basis for the calculation of annual CCD is net MEAv (net book value) divided by
the remaining useful life of the asset in years. This is in accordance with the company’s straight
line depreciation policy.
The annual charge is projected forward for each asset from 2008-9 as an annual deduction
from the 31st March 2008 net MEAv value until full write off of the net value is achieved.
The components are summed to produce a depreciation total for each year of forecast.
Method: New Assets Forecast Expenditure from 01/04/08
The detailed capital expenditure program summarises information into the business plan such
that each year’s total spend may be apportioned on a percentage basis to determine the life of
the assets acquired (see example below).
Having split the forecast expenditure against asset life, a depreciation charge may then be
calculated so as to write off the cost on a straight line basis.
This is repeated for each year of capital expenditure and then the component depreciation
charges summed to produce a total depreciation charge for each year of forecast.
Example:
Apportionment of Forecast Capital Expenditure 2008-2009;
To determine asset life;
To determine depreciation charge.
Year
Capitalised:
Table Ref
2008-2009
Asset
Life
Group
B7.3 Line 10
& 15
Very Short
B7.3 Line 11
& 16
Short
B7.3 Line 12
& 17
Medium
20082009
20082009
Assets
Depn
Percentage Capital
Asset
Split
CAPEX
Expenditure Life
%
£m
Years
Charge
£m / Year
60.62%
1.485
5
0.297
0.79%
0.019
10
0.002
27.30%
0.669
20
0.033
Page 17
Section B7 – Financial Projections
11/11/10, 09:15:12
for
5
years
for
10
years
for
20
years
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Year
Capitalised:
Asset
Life
Group
Table Ref
B7.3 Line 13 Medium
& 18
Long
B7.3 Line 14
& 19
Long
2008-2009
20082009
Percentage Capital
Asset
Split
CAPEX
Expenditure Life
20082009
Assets
Depn
Charge
0.00%
0.000
0
0.000
11.29%
0.276
82
0.003
100.00%
2.449
for
0
years
for
82
years
Note: Existing Assets as at 31/03/08 – Mobile Plant
The detailed asset revaluation carried out by an external party omitted a small group of assets
collectively described as “Mobile Plant”. These assets were therefore added to the initial
external valuation listing to ensure the total asset base was complete.
Mobile plant consists of a large quantity of small value items of tooling and equipment. It is not
viable to identify the assets with the same level of detail recorded for the external valuation. It
was therefore necessary to treat mobile plant as a composite asset for the purposes of the
CCD calculations.
The company records detail total additions and disposals at cost over recent years together
with a running annual reconciliation to a current cost revaluation for each year.
The net MEAv valuation of this class of assets at 31/03/08 is £0.3m so the effects of any
assumptions drawn will be immaterial on the total asset calculations.
The following assumptions were therefore used to simplify the CCD calculations for these
assets:
The oldest items of plant are disposed of first.
By comparing purchases over recent years to the total cost value of assets at 31/03/08 we draw
the conclusion that the cost value of £1.009m at 31/03/08 represents just over 4 years of
purchases.
The age of the assets and the CCD provision brought forward infers that the adoption of a 4
year straight line depreciation policy is reasonable.
Any revaluation adjustment of the assets to current cost (Gross MEAv) is applied to the brought
forward GMEAv from the 31st March of the previous year.
Purchases in any year are assumed to be at the latest cost price and therefore do not need
revaluing in the year of purchase.
Page 18
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Disposals are drawn first from old assets and are therefore written off after the previous 31st
March revaluation has been applied.
Summary of 31/03/2008 Gross and Net MEAv’s for Mobile Plant
2003 2004 2005 2006 2007 -
2004
2005
2006
2007
2008
Purchases
Historic
£m
0.311
0.295
0.288
0.262
0.057
1.213
Historic
Cost
£m
0.108
0.295
0.288
0.262
0.057
1.009
Index
Adjust
£m
0.022
0.058
0.055
0.048
0.000
0.181
Gross
MEAv
31/3/08
£m
0.129
0.353
0.343
0.309
0.057
1.191
CCD
Provn
31/3/08
£m
( 0.129)
( 0.312)
( 0.257)
( 0.155)
( 0.014)
( 0.867)
Net
MEAV
31/3/08
£m
0.000
0.041
0.086
0.155
0.042
0.324
Written
Down by
100%
88%
75%
50%
25%
Table B7.12 Corporation tax
We confirm that the opening tax creditor is equal to that shown in the regulatory accounts for
year ended 31 March 2008, £601k. Of the total creditor a prior year adjustment of £537k,
credit, was accounted for in period ended 31 March 2008 in respect of settlement of earlier year
tax computations.
An amount of £116k is carried in respect of issues still under enquiry with HMRC. This
primarily relates to tax treatment of contributions received to infrastructure by third party
developers. For the avoidance of doubt, FDWS treat capital contributions as netting off against
the capital projects to which they relate for both accounting and tax purposes.
The percentage allocations of capital expenditure to the individual capital allowance pools as
shown in Table B7.12 have been derived by analysing prior year tax computations and the
nature and asset lives included in the capital expenditure programme.
The opening tax written down values of the capital allowance pools are consistent with the
closing position as at 31 March 2008. These computations have been updated slightly since
the table B7.12 was prepared and these computations and returns have now been filed with
HMRC.
The abolishment of Industrial Building allowances has affected the split of expenditure
qualifying for tax allowances and the reduction in such tax allowances over the AMP5 period.
Specifically; capital expenditure has been reported in the following lines as follows:
Line 2
Assets that qualify for first year allowances. At present there is no significant expenditure on
assets that qualify for this accelerated allowance.
Page 19
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Line 3
This is the total of all non infrastructure assets qualifying for capital allowances that have a life
of less than 25 years.
Line 4
This is the total of all non infrastructure assets qualifying for capital allowances that have a life
of more than 25 years.
Line 5
Assets qualifying for Industrial Building Allowances.
Line 6
Assets purchased under finance lease arrangements.
Line 7
This is infrastructure assets that qualify for a year one tax deduction, IRE.
Line 8
This relates to items of a revenue nature for tax purposes that are capitalised in the accounts.
Line 9
This relates to items of a revenue nature that are capitalised in the accounts as infrastructure
renewals expenditure.
Line 10
This relates to items of a revenue nature that are capitalised in the accounts and not subject to
a depreciation charge.
Line 11
This line includes the percentage capital expenditure not qualifying for capital allowances or a
revenue deduction.
Line 12
This line includes the percentage of capital grants and contributions that are taxable on receipt.
Line 18
This is the average asset life of capitalised revenue expenditure as per the statutory tax
computation.
Page 20
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Line 28
This relates to non-deductible expenditure for tax purposes, timing differences.
Line 29
This relates to non-deductible expenditure for tax purposes, permanent differences.
Line 30
This relates to profit not subject to tax as trading income.
Line 31
This relates to increase or decrease in general provisions.
Line 33
This relates to adjustments to tax payment. For FDWS this is solely tax payable in respect of
capital gains. We confirm that no chargeable gains are projected within the period to 2014/15.
Block E
We confirm that the deferred tax provision stated is consistent with the undiscounted value
reported in the notes to the 2007/8 regulatory accounts.
Gearing
We have interpreted Ofwat’s guidance on gearing to mean that Ofwat seeks to increase the
level of gearing of all companies to at least its notional assumed level. This is completely
contradictory to Ofwat’s intentions not to interfere with the Company’s affairs and allow
companies to finance their functions according to their own preferred gearing level.
The difference between the interest reported here in line 27 and that reported in table B7.1 is
£0k and reflects the adjustment you have requested to the tax calculation.
Abolition of Capital Allowances / Tax Notified Item
During the current regulatory period, with no prior consultation on the matter, the Government
abolished industrial buildings allowances. Whilst the abolition was included as part of a
package of reform, the adverse impact of the changes on the Water Industry was far more
severe than other business sectors in view of the Water Industry’s high levels of effected capital
expenditure.
The latest date for calling the next General election is May / June 2010. Following its
sponsoring of the report of the Tax Reform Commission (“Tax Matters; Reforming the Tax
System”) in October 2006, the Conservative party is also now advocating a future simplification
of the tax system involving a broad replacement of the existing capital allowance regime with a
system based on accounting depreciation.
Page 21
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
In view of the above backdrop, together with the atypical profile of expenditure within the Water
Industry where material amounts of its capital expenditure are currently eligible for accelerated
tax allowances, we believe that a specific tax notified item should be included for PR09 in
relation to this area – and we would welcome the opportunity to discuss the matter with you, via
the Water UK direct tax group.
Impact of adoption of FRED 29/convergence of UKGAAP and IFRS/ Tax notified item
It is noted that we should not reflect the impact of financial reporting exposure draft 29,
“property plant and equipment” in the business plan although this may be significant in the price
review period.
Following the withdrawal of renewals accounting, infrastructure assets will be depreciated over
their useful lives, which may be in the region of 80 years. Tax relief on these assets in future
will therefore be based on the P&L charge for such depreciation and this relief will be
significantly reduced.
We estimate that the reduction in tax relief in the price review period is £1.6M In addition on
adoption of any new accounting standard there will be an adjustment to reserves equal to the
IRC over the previous 6 years less any depreciation charge that would be chargeable on the
revised basis. This would potentially be taxable in the year of adoption and result in an
additional tax charge in the region of £1.1m.
Table B7.13 Water Service: MEA Revaluation Reconciliation
Section 1
Disaggregation of JR08 Table 25
Table 25 of the June Return gives total gross MEAv for Infrastructure and total gross and nett
MEAvs for Operational and “other” assets. these totals have been disaggregated into rows
defined in PR09 Table B7.13 as follows:
Section 1.1 M&G
For the rows in the M&G group, the gross MEAv was taken from the data used to compile June
Return 2008 Table 25.
In the case of vehicles, telemetry, computers and ‘other’ the categorisations matched exactly
(NB ‘other’ relates to assets such as leakage detection equipment, bowsers etc.)
In the case of ‘offices & laboratories’ and ‘depots & workshops’ the Table 25 data did not give
the breakdown between these two categories. The breakdown was therefore made pro-rata to
the PR09 gross valuation.
Whilst Table 25 gives the total net MEAv in high-level categories, it was not possible to obtain
directly the Net MEAV breakdown into the rows required in Table B7.13.
In the case of vehicles, telemetry, computers and ‘other’ the total net from Table 25 was
apportioned pro-rata to the gross from Table 25.
Page 22
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
In the case of ‘offices & laboratories’ and ‘depots & workshops’, a total net MEAv for these two
categories combined had first to be calculated. This was done by apportioning the Table 25
operational assets net pro-rata to the PR09 valuation net. The further breakdown between the
two categories was then made pro-rata to the PR09 valuation net for the two rows.
Section 1.2 Assets other than M&G
In overview, the approach taken has been to adjust the PR04 MEA valuation (available at the
required row level) according to known changes as follows.
Section 1.2.1 PR04 data
Where rows have been subdivided for PR09 (communication pipes and customer meters;
potable mains <320mm and > 320mm) the original PR04 source data have been used to
allocate the appropriate value to each new row.
Section 1.2.2 Impact of 5 year period
Like-for-like replacements do not affect the gross MEAv. ‘First time’ assets and abandoned
assets are considered further below.
In order to evaluate the impact of depreciation on nett MEAv over the five year period the
original PR04 data were used.
Section 1.2.3 COPI
These revised values for PR04 assets were then adjusted to 2008 prices using the COPI
“infrastructure “ measure.
Section 1.2.4 Analysis of projects carried out over the 5 year period
The projects carried out over the period have been allocated to B7.13 row, base/enhancement
etc, to site and asset (cost function) type for analysis.
This has allowed specific items of expenditure, for example ‘first time’ assets, to be identified for
addition to the PR04 asset set.
The following items have been accounted for specifically:
•
Communication pipes: known number of additional connections valued by PR04 cost
function (for consistency with the cost function update in Table B7.13)
•
Customer meters: known number of additional meters valued by PR04 cost function (for
consistency with the cost function update in Table B7.13)
•
Mains: value of additional assets taken from projects
•
New ultra-filtration plant at Drellingore: valued by PR04 cost function (for consistency
with the cost function update in Table B7.13)
•
New WTW at Buckland Mill: PR09 valuation
•
New booster PSs at Granville Road and Swiss Way: PR09 valuation
•
Movement of St Margaret’s WTW from SD to W4 and Primrose from W2 to W4 due to
addition of UV: movement of PR09 valuation between rows
Page 23
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 1.2.5 Proportional Allocation of JR08 Table 25 totals
The JR08 Table 25 total gross and nett MEAvs were allocated to each PR09 Table B7.13 row
proportionately according to the final valuations for each row calculated as above.
Section 2
Changes in Replacement Cost
Entries have been made in the ‘reduction’ or ‘increase’ columns as appropriate for key asset
types for which the cost function at PR09 is significantly different from that at PR04. The
change in land valuation has similarly been entered.
The adjustment has been expressed relative to the PR04 cost function or land valuation inflated
by RPI, in order to be consistent with JR Table 25.
The rows and cost functions are shown below:
Row
Row Description
1
Dams and impounding
reservoirs
2
Raw water aqueducts
3
5
7
8
11
SD treatment works
W2 treatment works
W4 treatment works
Service reservoirs
Source pumping stations
Booster pumping
stations
Potable mains (up to
320mm)
Potable mains (greater
than 320mm)
Ancillaries - customer
(infrastructure)
Ancillaries - customer
(non-infrastructure)
12
13
14
16
17
21
Telemetry systems
22
Computers
Section 3
Land
valuation
Treatment of Leased Vehicles
Page 24
Section B7 – Financial Projections
11/11/10, 09:15:12
Fence
cost
function
Other cost function
No asset changes: entire
difference
due
to
asset
revaluation
Mains cost function (greater
costs;
reflection
of
grass/rural/urban category and
surface type; greater variation
with diameter)
Ultrafiltration cost function
Service reservoir cost function
Mains (as for raw water)
As above
Communication
pipe
cost
function
Customer meter cost function
Owing to changes in technology
costs for MEA are known to
have fallen significantly: Entire
difference attributed to this
Entire difference in gross
attributed to fall in costs
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
At PR09 leased vehicles have been included in the asset stock, on the basis that they
represent assets employed by the company. It is also noted that the policy is to purchase
replacement vehicles upon expiry of the current lease.
The value of the leased vehicles has been entered into the columns ‘Increase/decrease in MEA
due to changes in depreciation policy / asset lives’ as the most appropriate, in order that the
columns ‘Other’ remain related to intangibles as described later.
Section 4
Assets not written down but no longer in use
An entry has been made under Source PSs to take account of a number of boreholes included
in the PR04 MEA valuation that are no longer in use and which are not expected to return to
service. It was not considered appropriate to include these in the PR09 MEA valuation. (There
are some recently disused boreholes retained in the gross valuation at PR09.)
Section 5
Telemetry
Please note that whilst the costs for telemetry have reduced since PR04 owing to modern
technology, the current assets have been commissioned since the PR04 valuation owing to
their short life. (Vehicles and computers similarly have short lives and are valued as the current
asset base.)
Section 6
Other Adjustments
There are a large number of different factors that give rise to the requirement for an adjustment
at the time of the MEA revaluation. The most significant individual factors have been described
above and are evaluated specifically in Table B7.13. However, it is not practical to evaluate
each of the more minor factors individually, for example:
•
•
•
each cost function where smaller changes have occurred;
additions during the five year period where the project value will have been at neither;
the PR04 nor the PR09 cost function rate when adjusted for RPI;
each asset not in use at PR09 and given a zero nett value but which was not thus
assigned at the PR04 valuation.
Section 7
Effects on CCD Charges through changes in GMEA and net MEA
Quantitative & Qualitative – When reviewing Table 25 in the June 2008 report and table 7.13 in
PR09 it can be seen there is an increase in replacement costs. This is the main cause for ross
MEAv to rise by approx. 14% and net MEAv by the larger figure of approx. 12%. The CCD will
accordingly be higher as a result.
Section 8
Key drivers for changes in Net MEAV
The principle drivers for change in Net MEAV are:
• Changes in Replacement Cost
• Reduction of Net MEAV due to assets not now in use not yet been fully written down
Page 25
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Section 9
Commentary to the Lines of Table C7.13
Line 1
Dams and Impounding Reservoirs
The GMEA value from the 2008 June Return
The entry is derived directly from the 2008 June Return, Table 25 breakdown.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
Null entry.
Increase in MEA due to an increase in replacement cost
The assets within this category have been revalued and the increase in value of £1.218m
entered into this column.
The “Other” column
Null entry.
Confidence Grade
The data source is the company’s Non-Infra Asset Database (NIAD) that contains recently
surveyed details of all above ground assets valued using latest audited unit cost or actual cost
information and is therefore an A1 confidence grade.
Line 2
Raw water Aqueducts:
The GMEA value from the 2008 June Return
The entry is derived directly from the 2008 June Return, Table 25 breakdown.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Page 26
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Reduction in MEA due to a reduction in replacement cost
Null entry.
Increase in MEA due to an increase in replacement cost
The assets within this category have been revalued and the increase in value £824k entered
into this column.
The “Other” column
There is a nominal balancing entry of £134k under the category “Other” due to the
methodology used to split out raw and treated water mains into the three categories of this table
from the previously combined total value of mains. There are entries in Lines 2, 13 and 14 for
this same reason.
Confidence Grade
The data source is the company’s Underground Asset Database (GIS) that contains details of
all underground assets valued using latest audited unit cost or actual cost information and is
therefore an A1 confidence grade.
Lines 3 to 7
Water Treatment Works:
The GMEA value from the 2008 June Return
The entries are derived directly from the 2008 June Return, Table 25 breakdown.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
There are reductions relating to SD and W4 category water treatment works.
Both reductions are due to the land revaluation that identified values -£76k and -£1.605m less
respectively.
Increase in MEA due to an increase in replacement cost
GMEA values have increased slightly on lines 3, 5 and 7 due to the impact of latest unit costs
for these treatment types.
The most significant change is on line 7, W4 treatment works and this represents the significant
difference between the PR04 and PR09 cost function for Ultra-Filtration.
Page 27
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The “Other” column
Values on these lines are all balancing items that arise from the variance between PR04 +
additions – disposals inflated (COPI versus RPI) against the latest PR09 assessment that are
not able to be categorised in the other columns of this table.
Confidence Grade
The data source is the company’s Non-Infra Asset Database (NIAD) that contains recently
surveyed details of all above ground assets valued using latest audited unit cost or actual cost
information and is therefore an A1 confidence grade.
Lines 8 & 9
Water Storage
The GMEA value from the 2008 June Return
The entry is derived directly from the 2008 June Return, Table 25 breakdown.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
Line 8 entry is due to a revision of the land value of -£374k.
Increase in MEA due to an increase in replacement cost
The £2.822m variance entered into this column is the result of the use of latest unit costs.
The “Other” column
Values on these lines are all balancing items that arise from the variance between PR04 +
additions – disposals inflated (COPI versus RPI) against the latest PR09 assessment that are
not able to be categorised in the other columns of this table.
Confidence Grade
The data source is the company’s Non-Infra Asset Database (NIAD) that contains recently
surveyed details of all above ground assets valued using latest audited unit cost or actual cost
information and is therefore an A1 confidence grade.
Lines 10- 12 Pumping Stations
The GMEA value from the 2008 June Return
The entry is derived directly from the 2008 June Return, Table 25 breakdown.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Page 28
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
Lines 11 and 12 both include an adjustment for revised land valuations of -£561k and -£67k
respectively.
The remaining difference in line 11 is due to the decrease in the value of the company’s
boreholes using the latest unit costs against the PR04 value inflated by RPI.
Increase in MEA due to an increase in replacement cost
The GMEA value increases on lines 11 and 12 are due to the increase in the Unit Cost values
for Source and Booster Pumping Stations.
The “Other” column
Values on these lines are all balancing items that arise from the variance between PR04 +
additions – disposals inflated (COPI versus RPI) against the latest PR09 assessment that are
not able to be categorised in the other columns of this table.
Confidence Grade
The data source is the company’s Non-Infra Asset Database (NIAD) that contains recently
surveyed details of all above ground assets valued using latest audited unit cost or actual cost
information and is therefore an A1 confidence grade.
Line 13
Potable Mains (up to 320mm)
The GMEA value from the 2008 June Return
The entry is derived directly from the 2008 June Return, Table 25 breakdown.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
Null entry.
Page 29
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Reduction in MEA due to a reduction in replacement cost
Null entry.
Increase in MEA due to an increase in replacement cost
The change in unit costs for mains replacement has caused an increase of £36.922m for
potable mains in this category.
The “Other” column
There is an entry of - £866k under the category “Other” due to the methodology used to split out
raw and treated water mains into the three categories of this table from the previously
generated total value of mains. There is an entry under Lines 2, 13 and 14 for this same
reason.
Confidence Grade
The data source is the company’s Underground Asset Database (GIS) that contains details of
all underground assets valued using latest audited unit cost or actual cost information and is
therefore an A1 confidence grade.
Line 14
Potable Mains (greater than 320mm)
The GMEA value from the 2008 June Return
The entry is derived directly from the 2008 June Return, Table 25 breakdown.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
Null entry.
Increase in MEA due to an increase in replacement cost
The change in unit costs for mains replacement has caused an increase of £2.789m for potable
mains in this category.
The “Other” column
There is an entry of - £1.543m under the category “Other” due to the methodology used to split
out raw and treated water mains into the three categories of this table from the previously
generated total value of mains. There is an entry under Lines 2, 13 and 14 for this same
reason.
Page 30
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Confidence Grade
The data source is the company’s Underground Asset Database (GIS) that contains details of
all underground assets valued using latest audited unit cost or actual cost information and is
therefore an A1 confidence grade.
Line 15
Other Mains
There are no entries under this category.
Line 16
Ancillaries – Customers (infrastructure) – Communication pipes
The GMEA value from the 2008 June Return
The entry is derived directly from the 2008 June Return, Table 25 breakdown.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
Null entry.
Increase in MEA due to an increase in replacement cost
The £5.125m increase is due to increase in Unit Costs for these items.
The “Other” column
Null entry.
Confidence Grade
The data source is the company’s Underground Asset Database (GIS) that contains details of
all underground assets valued using latest audited unit cost or actual cost information and is
therefore an A1 confidence grade.
Line 17
Ancillaries – Customer (non-infrastructure) - Meters
The GMEA value from the 2008 June Return
The entry is derived directly from the 2008 June Return, Table 25 breakdown.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Page 31
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
A reduction of £3.824m is shown on this line because the cost function for PR09 for customer
meter replacement is less than the PR04 cost function inflated by COPI.
Increase in MEA due to an increase in replacement cost
Null entry.
The “Other” column
Null entry.
Confidence Grade
The data source is the company’s Non-Infra Asset Database (NIAD) that contains recently
surveyed details of all above ground assets valued using latest audited unit cost or actual cost
information and is therefore an A1 confidence grade.
Lines 18 and 19
Offices, Laboratories, Workshops and Depots
The GMEA value from the 2008 June Return
The value entered comes from analysis carried out on PR04 and subsequent Table 25 audit
trails where all Management and General expenditure has been broken out of the total values
entered into the PR04 asset table.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
Null entry.
Increase in MEA due to an increase in replacement cost
Null entry.
The “Other” column
Nominal £45k and £34k entries have been included under this heading that represents the
difference between PR04 and annual Table 25 adjustments against PR09 revaluation of this
category.
Page 32
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Confidence Grade
The data source is the company’s Non-Infra Asset Database (NIAD) that contains recently
surveyed details of all above ground assets valued using latest audited unit cost or actual cost
information and is therefore an A1 confidence grade.
Line 20
Vehicles (including Road Legal Plant)
The GMEA value from the 2008 June Return
The value entered comes from analysis carried out on PR04 and subsequent Table 25 audit
trails where all Management and General expenditure has been broken out of the total values
entered into the PR04 asset table.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
An entry of £656k has been made to reflect the change in policy in respect of leased vehicles.
The GMEAV is equivalent to the purchase value of the vehicles and the NMEAV is calculated in
the normal way based on the vehicles remaining asset life.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
Null entry.
Increase in MEA due to an increase in replacement cost
Null entry.
The “Other” column
A £205k entry (13.6%) has been included under this heading that represents the difference
between PR04 and annual Table 25 adjustments against PR09 revaluation of this category.
Confidence Grade
The data source is the company’s Non-Infra Asset Database (NIAD) that contains recently
surveyed details of all above ground assets, including leased vehicles, valued using latest
audited unit cost or actual cost information and is therefore an A1 confidence grade.
Line 21
Telemetry Systems
The GMEA value from the 2008 June Return
The value entered comes from analysis carried out on PR04 and subsequent Table 25 audit
trails where all Management and General expenditure has been broken out of the total values
entered into the PR04 asset table.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Page 33
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
The reduction in replacement costs is driven by lower IT costs generally giving an entry of
-£853k on this line.
Increase in MEA due to an increase in replacement cost
Null entry.
The “Other” column
No balancing figure is needed on this line.
Confidence Grade
The data source is the company’s Non-Infra Asset Database (NIAD) that contains recently
surveyed details of all above ground assets, including telemetry systems, valued using latest
audited unit cost or actual cost information and is therefore an A1 confidence grade.
Line 22
Computers
The GMEA value from the 2008 June Return
The value entered comes from analysis carried out on PR04 and subsequent Table 25 audit
trails where all Management and General expenditure has been broken out of the total values
entered into the PR04 asset table.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
The reduction in replacement costs is driven by lower IT costs generally giving an entry of
-£413k on this line.
Increase in MEA due to an increase in replacement cost
Null entry.
Page 34
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The “Other” column
Null entry.
Confidence Grade
The data source is the company’s Non-Infra Asset Database (NIAD) that contains recently
surveyed details of all above ground assets valued using latest audited unit cost or actual cost
information and is therefore an A1 confidence grade.
Line 23
Other – Land and Roadways
The GMEA value from the 2008 June Return
The value entered comes from analysis carried out on PR04 and subsequent Table 25 audit
trails where all Management and General expenditure has been broken out of the total values
entered into the PR04 asset table category.
Reduction in MEA for assets not yet fully written down but no longer in use
Null entry.
Increase in MEA for assets previously fully written down but still in use
Null entry.
Increase/decrease in MEA due to changes in depreciation policy / asset lives
Null entry.
Reduction in gross MEA for assets fully written down
Null entry.
Reduction in MEA due to a reduction in replacement cost
Null entry.
Increase in MEA due to an increase in replacement cost
Null entry.
The “Other” column
Null entry.
Confidence Grade
The data source is a report and valuation by the company’s Land Agent, Dalcour Mclaren that
contains recently surveyed details of all land and roadways valued using latest audited unit cost
or actual cost information and is therefore an A1 confidence grade.
Page 35
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Appendix B7.1 NERA Report - Cost of Capital for PR09 – Draft Final
Report for Water UK
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 36
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Appendix B7.2
NERA Report – Recent Evidence on the Small
Company Cost of Capital Premium
SECTION REMOVED AND REPORTED IN EXCISION DOCUMENT
Page 37
Section B7 – Financial Projections
11/11/10, 09:15:12
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B
Section B8
Key Components
Customer Bills / Tariffs
Contents
Section 1.1
Section 1.2
Section 1.3
Metering and Tariff Policies ............................................................... 1
Household Revenues and Bills .......................................................... 1
Non-household Revenues And Bills .................................................. 1
Tables Commentaries .................................................................................................. 2
Page i
Section B8 – Revenue Projections
11/11/10, 09:23:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B
Key Components
Section 8
Customer Bills / Tariffs
Section 1.1 Metering and Tariff Policies
The metering strategy is fully explained in part B5 sections 2.3.2 and 3.2.4.
The socially responsible stepped tariff that the Company is intending to introduce in AMP5 is
explained in Section C7 section 1.4 and B5 section 3.2.4.
Section 1.2 Household Revenues and Bills
The Company is proposing the following K profile:
2010-11
Proposed K
2011-12
12.5%
5.9%
2012-13
2.4%
2013-14
6.0%
2014-15
-0.80%
The Company Strategy reflects the views of key stakeholders and customers, but will result in
increased prices. This need to provide “a reliable and continuous supply” is driving an increase
with significant investment required to address the supply demand balance deficit, ensure
security of supply and maintain an ageing infrastructure.
Section 1.3 Non-household Revenues And Bills
The standard volumetric tariff for measured customers and rateable value charge for
unmeasured customers is applied consistently to domestic and commercial customers.
Similarly, there is a single unmeasured standing charge applicable to both household and nonhousehold customers.
Page 1 of 3
Section B8 – Revenue Projections
11/11/10, 09:23:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Tables Commentaries
Table B8.1
Both Services - Revenue Forecasts
Non-tariff basket revenue streams have been assumed to be 0 as in JR08, with the exception of
Line 10 rechargeable works and line 11 revenue from bulk supplies. The Company reported a
revenue of £164,000 from rechargeable works in JR08 and £3,000 from bulk supplies.
The rechargeable works revenue is largely driven by third party demand over which the
company has little control. The equivalent figures in JR07 and JR06 were £117,000 and
£184,000, so £164,000 seems like a reasonable estimate of average future revenue.
For revenue from bulk supplies, £3,000 is considered to be a reasonable estimate for future
revenue.
Page 2 of 3
Section B8 – Revenue Projections
11/11/10, 09:23:55
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B:
Key Component
Section B9:
Overlap programme
With reference to the submission guidance, the Company has no enhancement projects that
meet the criteria of the overlap programme. Accordingly, the table B9.1 is a nil return.
Page 1 of 1
Section B9 – Overlap Programme
06/04/09, 10:36:11
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B:
Key Components
Section B10:
Large Projects
With reference to the submission guidance, the Company has no projects that meet the criteria
of large projects. Accordingly, table B10 is a nil return.
Page 1 of 1
Section B10 – Large Projects
06/04/09, 10:37:00
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Company Commentary
Part B
Key Component
Section B11
Section 1
Capital Expenditure Incentive Scheme
Introduction
The Company has made significant changes to the detail of its plan between draft and final and
to the proposed capital expenditure, as summarised in the tables at the end of this
commentary.
The changes made to the plan result from a number of drivers:
•
Challenges and feedback to the Company’s plan from customers, stakeholder and
regulators;
•
A Board led review of risks and proposed interventions to ensure the plan reflects
an appropriate balance between customer affordability and service risk, which has
resulted in a number of capital interventions in the draft business plan being
managed operationally for the final plan; and
•
Further design development of interventions leading to improved cost estimates,
which in many cases have reduced the cost of the proposed interventions.
The changes in capital investment are reconciled in the tables below. Section B3, B4, B5 and
B6 of the business plan all contain an executive summary plus a summary of the material
changes in the business case between draft to final changes; these details are not repeated
here. Finally, each of these sections identify the key Ofwat challenges from the draft plan and
explain how the Company has responded to them.
The approach the Company has adopted to balance customer affordability and service risk
across the plan and how this has changed the plan since draft are described in Section 4.4 of
Section B3.
With regard to Ofwat’s draft baseline and the Company’s proposed baseline, the primary
change between draft and final is the significant reduction in capital investment proposed by the
Company, which has reduced by £27.6m. As described above, this is the result of further
design development and cost estimating for proposed interventions and arises from decision to
manage risks operationally rather than through capital investment.
Where Ofwat have reduced the investment in the draft baseline as a result of challenges to
individual business cases, the business cases have either not been included in the final plan, or
have been further developed and re-presented more robustly. In particular, the cases for the
capital maintenance of trunk mains and the Hills 2nd Cell, both contained in B3, have been
significantly developed since draft.
Page 1 of 4
Section B11 – Capital Expenditure Incentive Scheme
06/04/09, 11:25:34
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
The Company has reviewed the AMA feedback provided by Ofwat on its draft submission and
B3 has been fully re-written to present the Company’s asset management approach more
clearly. In addition, the Company has proposed that the trunk main investment, the 2nd Hills
reservoir cell and the meter renewal expenditure all be classified as Exceptional Items. Ofwat’s
draft baseline proposed the 2nd Hills reservoir and meter renewals as being exceptional, the
addition of the trunk mains investment as Exceptional is justified in B3.
As a consequence of the work undertaken to improve the presentation of the Company’s asset
management approach and business cases in B3, the draft to final changes to the capital
maintenance plan and the addition of the trunk mains investment to the Exceptional Items
category, the Company has re assessed its AMA score and the value of the expected AMA
challenge. This is significantly lower than at draft, as can be seen in the table showing the
reconciliation between draft and final for Capital Maintenance and is the primary reason for the
increase in the Company’s proposed baseline.
With regard to efficiency, the Company has proposed a 0% on-going efficiency in its final plan,
as opposed to 1% per year increase at draft; Ofwat’s draft baseline proposed -0.25%. The
reasons for the Company’s position is explained in Section B2. The Company has also
reviewed the catch-up efficiency proposed in Ofwat’s draft baseline, which was 4% for
infrastructure and 10% for non-infrastructure. For the Company proposed baseline the
Company has used values of 0% for infrastructure and 4% for non-infrastructure. These values
represent the Company’s assessment of the catch-up efficiency from its revised Cost Base
submission.
The Company’s CIS ratio used in the final plan is 1.05. This reflects an AMA challenge of 10%
for both infrastructure and non infrastructure on the proposed capital maintenance investment
with trunk main investment, the 2nd Hills reservoir cell and the meter renewal expenditure all
classified as Exceptional Items. It also reflects the Company’s position on catch-up efficiency
described above.
The following tables present the reconciliation of the business plan expenditure and baselines
between draft and final by investment driver. The net investment for the final plan and Company
baseline is also shown, which is used to calculate the Company’s CIS ratio.
Total capital water expenditure (gross contributions)
£m
Business plan reconciliation
Changes in CIS baseline
07/08p
Company DBP
73.0 Ofwat draft CIS baseline
Company FBP
45.4 Co. view of final baseline
Difference
-27.6 Difference
Reconciliation
Reconciliation
- change in expenditure
(reduction)
-27.6
- increase expenditure
- Balanced view of risk
For details see following tables
challenge
- changes to efficiency
assessment
Page 2 of 4
Section B11 – Capital Expenditure Incentive Scheme
06/04/09, 11:25:34
£m 07/08p
45.8
43.7
-2.0
-27.5
22.6
2.9
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
CIS Baseline
Ofwat draft CIS baseline (gross)
Co. view of final baseline (gross)
Company grants and contributions
Ofwat draft CIS baseline (net)
Co. view of final baseline (net)
Company CIS Ratio
Total capital maintenance water expenditure
£m
Business plan reconciliation
07/08p
Company DBP
41.4
Company FBP
28.6
Difference
-12.8
Reconciliation
- trunk mains
1.5
- distribution mains
-1.1
- leakage maintenance
0.9
- Hills to Paddlesworth
-0.5
- Run to waste schemes
-0.9
- PRVs and DMA meters
-0.1
-7.7
- WTWs
-1.16
- WPS
nd
-4.0
- Hills 2 Cell
- M&G
0.1
Total change in expenditure
-12.8
£m
45.8
43.7
3.5
42.3
40.2
1.05
Changes in CIS baseline
Ofwat draft CIS baseline
Co. view of final baseline
Difference
Reconciliation
- increase expenditure
- new evidence / AMA justification
- changes to efficiency assessment
£m
07/08p
19.9
27.4
7.4
-12.8
19.0
1.3
Total quality enhancement expenditure
Business plan reconciliation
Company DBP
Company FBP
Difference
Reconciliation
- Denge WTW
- SEMD
- NEP
Total change in expenditure
£m
07/08p
6.9
7.5
0.6
-0.9
2.1
-0.6
0.6
Changes in CIS baseline
Ofwat draft CIS baseline
Co. view of final baseline
Difference
Reconciliation
- increase expenditure
- Balanced view of risk challenge
- changes to efficiency assessment
Page 3 of 4
Section B11 – Capital Expenditure Incentive Scheme
06/04/09, 11:25:34
£m
07/08p
5.7
7.2
1.5
0.5
0.7
0.3
Folkestone and Dover Water Services
Periodic Review 2009 – Final Business Plan
Total supply demand expenditure
Business plan reconciliation
Company DBP
Company FBP
Difference
Reconciliation
- Metering
- AMP5 studies and trials
- Barham Import 2ML/d increase
- CHOICE Tariff
- New connections & mains
- Whitfield development
Total change in expenditure
£m
07/08p
20.7
8.2
-12.6
Changes in CIS baseline
Ofwat draft CIS baseline
Co. view of final baseline
Difference
-2.0
-1.1
-2.8
0.1
-3.8
-3.0
-12.6
- increase expenditure
- Balanced view of risk challenge
- changes to efficiency assessment
£m
07/08p
16.7
8.0
-8.7
-12.6
2.8
1.1
Total enhanced service level expenditure
Business plan reconciliation
Company DBP
Company FBP
Difference
Reconciliation
- Denge network cleaning
- Flood protection
Total change in expenditure
£m
07/08p
3.9
1.2
-2.7
-2.7
0
-2.7
Changes in CIS baseline
Ofwat draft CIS baseline
Co. view of final baseline
Difference
Reconciliation
- increase expenditure
- Balanced view of risk challenge
- changes to efficiency assessment
Page 4 of 4
Section B11 – Capital Expenditure Incentive Scheme
06/04/09, 11:25:34
£m
07/08p
3.4
1.2
-2.2
-2.7
0.2
0.3