In Douglas Adams’ The Hitchhiker’s Guide to the Galaxy, the fictional computer Deep Thought took seven-and-a-half billion years to come up with the answer to “the ultimate question of life, the universe and everything”. The answer was “42”, but nobody knew what the question was.
It hasn’t taken as long to come up with the answer 440 – £440 million of transition expenditure in the final year of AMP5 – but it has taken too long. Many of the water companies, their suppliers and representative bodies have focused their efforts through the Cyclicality Working Group to push for a mechanism that would let water companies spend extra money at the end of AMP5 without incurring regulatory penalties. This would enable a smoothing of the peaks-and-troughs capital expenditure profile at the AMP5/AMP6 transition compared with that seen at previous AMP transitions. The reason, from my point of view, is simple: to protect the wellbeing, efficiency and sustainability of our water industry supply chain. Some 40,000 fewer people were employed in the supply chain at the start and end of the last AMP than at its peak, the arguments for change were compelling and well versed; leading ultimately to a better deal for customers.
The recognition of transition expenditure was seen as a major step forward by members of the Cyclicality Steering Group. There would be extra expenditure for planning and design, which would benefit some parts of the supply chain, but it would, in turn, let procurement and construction start promptly at the start of AMP6, to the benefit of the wider supply chain.
The mechanism put in place by Ofwat required water companies to identify transition expenditure in their business plans, to be submitted to Ofwat in December 2013.
But knowing that there may be transition expenditure without knowing how much has done little to reassure the supply chain or to motivate suppliers to prepare for or react to the forthcoming AMP transition differently.
We now know the answer is £440 million – disclosed in April by Dan Rogerson from Defra in response to a parliamentary written question. If transition expenditure is to have the beneficial impact we have hoped for, the time has come to put some flesh on the bones and for individual water companies to say what transition expenditure means for them, how much it adds up to and what they plan to spend it on and when.
Paul Mullord, director, British Water, writing in a personal capacity