Water and Effluent Treatment Magazine
Issue link: https://read.utilityweek.co.uk/i/468709
Totex needs a change in mindset AMP6 is less than a month away, and its arrival will herald a new era in project costing – a total expenditure (totex) approach. But is the water industry ready? Maureen Gaines • nds out. T he industry is shi ing to- wards a total expenditure (totex) culture. This has been one of the initiatives pushed by regulator Ofwat in the PR14 price review for deliv- ering wholesale business plans, and address perceived bias towards capital expenditure (capex). With all but one water com- pany having accepted their nal determinations from Ofwat, spending plans are now in place for the next ve years. And what has been even more interesting in this price review is that the majority of water companies are thinking longer-term – AMP7 and 8 at least. However, is the water sector ready to adopt a totex approach? According to Ernst & Young, other sectors such as retail are already advanced in the way they make whole-life investment through their asset management processes and systems. This is because they have invested in collecting the information and have carried out the necessary modelling for accurate invest- ment decision-making. Asset investment "In order to run their assets most e' ciently, water compa- nies need to understand asset running rates, costs and condi- tions to allow planned mainte- nance to be carried out instead of more expensive and disrup- tive reactive maintenance," it says. "Maintaining and improv- ing the operational information upon which totex decisions are based can give water companies a competitive advantage. Under- standing where to prioritise asset investment to gain the greatest totex return, and being able to demonstrate to regula- tors that investment is clearly justi ed in best serving the pub- lic interest, is of paramount importance." EC Harris believes many infrastructure owners are facing uncertainty about what the challenges of totex mean for them and how they can be addressed. There are still signi - cant challenges when designing and implementing Totex-based asset management. Lack of asset condition information and data for cost models constrain decision making. Alignment is also required from asset man- agement, operations, work delivery and supply chain part- ners to operate Totex within end-to-end processes. Partnering Thomas Faulkner, managing director, civil engineer, at Skan- ska UK, it is all about changing people's mindset. He explains: says: "The totex approach is going to be a really interesting challenge. Capital delivery has been opening to partnering, and a bit more open to a collabora- tive approach sooner than the operational side and the main- tenance side for the water sec- tor. Engaging with them and getting the operational teams to realise that they aren't the client for us – they've always seen themselves as a client – but need to be working with us in the capital delivery team to really get the best solution for the customers, the bill payers at the end of the day." Faulkner continues: Chang- ing that mindset is the " rst key hurdle" in terms of working towards a totex approach, because then we will begin to develop solutions that don't just minimise the impact on people during the delivery of the project." He says understanding how you get reward for totex is a challenge and one that he thinks the industry has not yet cracked. "Ofwat has stated a declared intent that that is the way we should be moving and we see diœ erent approaches from diœ er- ent companies." Faulkner cites Thames Water's move towards putting managing directors in charge of capital delivery and asset man- agement and the operational costs for the diœ erent streams as "a very positive move". He says: "They have account- ability throughout the lifecycle, and they're then motivated to actually develop a totex approach to their solutions." Drivers Imtech Water, Waste & Energy managing director Duncan Atkins: "Conceptually it's very easy to understand totex and looking at the total cost of a pro- ject in terms of making your investment decision and then making your award decision linked in with those totex drivers. I think from an Imtech per- spective, because of our process understanding and knowledge of the way both new and existing assets work and the kind of operational costs associ- ated with the treatment process, I think we feel we are well placed to oœ er and respond NEWS+ Water companies need to understand their asset running rates, costs and conditions to allow planned maintenance to be carried out. "The totex approach is going to be a really interesting challenge. Changing that mindset is the first key hurdle in terms of working towards a totex approach, because then we will begin to develop solutions that don't just minimise the impact on people during the delivery of the project" Thomas Faulkner, Skanska to totex challenges." However, he said that what is "still slightly unclear" is exactly how totex is working from a water company perspec- tive. "I guess that will be a natu- ral evolution and output of their investment plans, business plans moving forward, and then the implications of what's being signed up to. That will start to Ÿ esh out how each of the water companies is applying totex in terms of its investment pro- gramme and decision-making moving forward." ■ ■ 'Making totex work' will be among the topics discussed at this year's Utility Week Live, incorporat- ing Iwex, being held at the NEC on April 21-23. The session takes place on April 21 with speakers including EC Harris' Greg Brad- ley, the National Grid's Chris Bennett, and Southern Water's Mel Karam. It will explore water companies' experience so far, as well as the regula- tor's expectations and lessons from other sectors that already operate in this way. MARCH 2015 WET NEWS 7