When David Elliott applied for his first water industry job as a drainage engineer, he thought it was going to be about ditches in fields and getting out into the countryside. Imagine his disappointment to be faced with urban sewers instead.
As director of environment and assets at Wessex Water, Elliott still has a fair amount of concrete to contend with. But the industry is increasingly embracing a catchment-based approach to water and wastewater management, in partnership with landowners. Elliot is one of its keenest advocates.
Hard engineering is always going to be a core plank of the company’s resilience strategy, says Elliott. The difference now is that it gives equal weight to making customers and communities more resilient. That means valuing the soft skills involved in influencing behaviour.
Catchment management is widely accepted to be a cheaper and less carbon-intensive way to improve water quality than end-of-pipe treatment. Farmers can be encouraged, with grants and subsidies, to prevent pesticides getting into watercourses at a fraction of the cost of technology to remove pollutants downstream. In one area, Wessex Water was considering a new treatment works at a cost of £80 million; the catchment management alternative cost less than £1 million.
However, it leaves the water company with no kit to clean the water up for supply in the event of a pollution incident. To help mitigate that risk, Wessex is investing in interconnectors to make sure every community can be supplied from at least two sources. Strategic links are also helping to relieve pressure on over-abstracted rivers and create routes to sell more water to neighbouring companies Sembcorp Bournemouth and Southern Water.
Elliott is now seeking to extend the catchment management philosophy to all elements of the business, not just raw water quality. It might be cost-effective to pay farmers to allow parts of their land to flood and prevent sewers further downstream from flooding, for example. Business parks are springing up near anaerobic digestion plants to take advantage of waste heat from biogas generation, at a reasonable price. And Wessex is looking to pay developers to build in water-efficient infrastructure such as rainwater harvesting. “The way new development is going,” says Elliott, “it’s likely we are going to have to pay for the assets anyway, so we might as well pay for something that is going to have a public benefit.”
Another element of the strategy that is low cost but has uncertain outcomes is demand reduction. Wessex is preparing for a smart meter trial that will look at a range of ways to encourage consumers to be more water efficient (see box).
This new way of doing business involves spending less money on capital projects and more on operational solutions. Traditionally, regulation has been perceived to favour capital expenditure. “Water companies have done catchment management in spite of regulation, not because of it,” says Elliott. Ofwat is now seeking to change that by moving to a total expenditure, or totex, approach.
However, with much of the detail yet to be worked out, Elliott warns “they are running out of time to get in the next five-year cycle”. And he explains that the incentives for opex would have to be radically increased to do away with the capex bias completely. “I can’t believe that they are going to create such an incentive for opex that it outweighs the incentive for investment in capex.”
In common with the rest of the sector, Wessex is concerned that certain political and regulatory reforms could put up the cost of capital and consequently customer bills. There has been a lot of alarm around Ofwat proposals to give itself flexibility to change the number and nature of price controls. The industry has also mounted strong opposition to plans in the government’s draft Water Bill to enable upstream competition, which it says will hamper collaboration and strategic planning.
However, Wessex is “at the less pessimistic end of the scale”, says Elliott. While nobody wants to “kill the golden goose” of the regulated asset value model, he says there are opportunities for the sector to develop other sources of income. He admits it is hard to put a cost on increased uncertainty. “I don’t think any of us really knows where the line in the sand is for investors, and we won’t find out until we’ve crossed it.”
Finding the right incentives to cut household consumption
Over three years, Wessex Water has carried out metering trials involving around 3,000 people on a number of different tariffs. The trials aimed to find out how price incentives would change the way people used water.
The most successful approach in terms of saving water was to install a meter on change of occupancy. On average, customers cut consumption by 15 per cent. People found it more acceptable than having a meter foisted on their existing home – they were prepared for things to be different when they moved. It was also catching people at a time they might be buying new appliances and before they had formed habits in their changed environment.
Different tariffs, on the other hand, resulted in only marginal benefits. Participants in the trial were placed either on a rising block, seasonal or hybrid tariff. The last took a customer’s winter usage as a baseline and charged at a higher rate for summer consumption above that level. The idea was that people could be expected to pay a bit more to water their gardens or fill paddling pools. However, customers simply did not like them – “mostly down to mistrust”, says Elliott. The company had set all three tariffs in such a way that they expected to collect the same revenue overall, yet people were suspicious that they were being ripped off.
Next year, Wessex will conduct a smart meter trial in Dorchester, subject to development of the right software. It will focus on rewards for saving water rather than penalties for using more. The experiment will test a range of incentives, financial and otherwise. Customers could get money off their bills or a donation to a community project. There will be an attempt to appeal to people’s competitive sides, by showing how their consumption measures up against similar households. Others could be motivated by information about the environmental status of local rivers.
This article first appeared in Utility Week’s print edition of 9th November 2012.
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