Total expenditure was introduced into the water sector in the last price review – giving water companies a single pot of money to spend from, rather than one each for capital projects and operational expenditure.
In the Utility Week Live Wipro Water Theatre, this cropped up as the topic when the regulatory shift from outputs to outcomes – another shift for AMP6 – was debated.
The panel, featuring Ofwat principal for analytics Ynon Gablinger, United Utilities supply chain and commercial director Martin Gee, and Arcadis head of asset management Luke Dirou, all agreed that totex, in combination with the shift to outcomes, has given the water companies greater freedom and flexibility to innovate and operate their systems – but also greater responsibility for the service they deliver to customers.
Gee told delegates that the excuse some water companies have previously used – “we want to but Ofwat won’t let us” – has now gone. “Totex gives us flexibility and the ability to take ownership or our delivery plans,” he said.
The panel agreed there has been a shift in attitude from the companies, who are all beginning to adopt a different way of working. Gee stated UU is embracing the totex regime by working with its partners to come up with solutions, rather than providing them with designs for capital projects to execute.
Dirou agreed that innovative ways of working are required and that research “is an area for improvement” within the sector. “I’m an advocate of utilising small data to provide big solutions,” he added.
From the Ofwat viewpoint, Gablinger stated the shift will help drive the rate of efficiencies that can be found – something that has been getting progressively harder in previous price controls – by giving the companies the ability to utilise the most appropriate and favoured solutions. “Totex allows companies to focus on the whole life cost of an asset – leading to improved thinking and improved solutions,” he said.
So totex, in combination with a supportive regulatory environment, is giving the companies the ability to innovate to find better value and more effective solutions, rather than just pouring concrete to gain regulatory approval.