Ofwat prods companies on asset health

As Ofwat published its Resilience in the round report last week, it also took the opportunity to urge companies to consider carefully their approach to asset health in the context of resilience, and to identify areas where they may be falling short.

The call accompanied the publication on Thursday of a second Ofwat report – A targeted review of asset health, conducted by CH2M. The regulator said the objective of the study was to better understand how water and wastewater companies in England and Wales are approaching the measurement and management of asset health and how this contributes to their wider approach to resilience.

CH2M acknowledged the work companies have already done to improve their understanding of asset health and to help plan investment. For instance, it found all companies have assurance processes in place relating to data, tools and systems as well as emergency response and the commissioning of new assets.

However, the regulator said the study also pointed to “several long-standing issues of concern to Ofwat”, including the need for:

  • More innovation – efforts so far have not led to “a clear step-change in either asset performance or understanding of risks to service”.

  • A long-term mindset – some companies focus on performance within the review period and monitor asset health by considering current failure rates, rather than using leading indicators of long-term risks.

  • A stronger understanding of how asset health affects service, particularly for high consequence infrastructure assets – “Companies should consider developing further their understanding of the location of these assets, how the health of these assets will impact service, and consider whether capital maintenance needs to keep pace with asset deterioration.”

  • Better engagement with customers on how asset health affects resilience.

  • Responsibility for delivery all the way through the supply chain – “Some water companies rely heavily on delivery partners, contractors and suppliers. CH2M suggested that these relationships may merit further scrutiny. In particular, there is not always evidence of an independent view and assurance when new assets (in particular, complex ones) are put into service.”

Ofwat reminded companies they have “clear legal duties to maintain and manage their water supply and public sewer system assets, as well as to improve and extend them, in order to provide a good level of service to customers on a sustainable basis”.

It concluded: “Companies can meet these challenges. The UK is a mature market, and the stability of our regulatory regime supports companies taking a long-term approach to managing long-term assets. Moreover, technological developments and innovations provide many new opportunities to address these issues, and the sector has well established access to capital markets. We believe it is vital that companies address these issues now, in order to provide protection for current and future customers and to avoid damage to the environment.”