Since privatisation in 1989, the UK water industry has undertaken it’s business
planning in 5 year cycles, each referred to as an Asset Management Plan (AMP). Prior
to each AMP cycle the water companies are required to submit a medium term business
plan to the industry regulator (OFWAT).

The business plan sets out the company’s estimates
of its costs and OFWAT uses this to determine the maximum charges that the company can
make to its customers over each year of the AMP. This is OFWAT’s Periodic Review of Prices.
Prices are thus set at levels which ensure that revenues are sufficient to cover the direct costs of the works which will take place.

The fourth AMP cycle, AMP4, began in April this year and one of its principal elements is the structural upgrading of water mains and sewers. The Water Utilities’ business plans include in the region of £3 billion of works of this nature over the next 5 years. There are many established trenchless techniques available to minimise the extent of excavation and, hence, the disruption caused during underground pipe rehabilitation, but the extensive programmes of work will still entail digging a great number of holes. So, though the direct costs of the work are covered by revenue, there will be significant indirect costs which are borne by society at large.

What the customers have to bear

Recently there has been growing interest, from the Government, the media and the public, in the disruption caused by streetworks. There are many effects that can result from streetworks that impinge on the local community and businesses, and on those persons passing through. These effects can potentially result in costs for which the utilities are not legally responsible -indirect costs.

These indirect costs can be grouped within the following classifications:

  • road users, e.g. delays due to traffic lights or traffic diversions;
  • road structure, e.g. deterioration of the fabric of the road due to a ‘patchwork quilt’ of reinstatement;
  • adjacent community, e.g. noise, vibration, dust, dirt, visual intrusion, inconvenience, loss of parking space or other amenity;
  • business loss, e.g. loss of revenue due to streetworks, and;
  • environmental damage, e.g. air pollution due to vehicle delays.

    Research from a number of organisations has indicated that the costs associated with vehicle disruption are the largest tangible element, although less tangible costs such as potential climate change due to air pollution, resulting in part from vehicle emissions may in future, turn out to be significant.

    Whilst producing widely varying estimates for the total cost of disruption, almost all the research has indicated that the indirect costs are greater than the direct costs.

    What is being done to improve the situation ? – new legislation

    Of course, a discussion of streetworks and AMP4 could not exclude legislation, especially the Traffic Management Act 2004 (TMA). The main objective of the TMA is to improve traffic flow and it will have profound implications for anyone who carries out work within, or adjacent to, the public highway. The TMA will not only affect regulatory targets but also internal service and declared customer service levels which will affect virtually every part of the utility companies’ business.

    The TMA contains a broad range of measures aimed at tackling congestion and improving traffic flows on the existing road network. More specifically, in relation to utility works, the TMA addresses the need to reduce disruption to road users, improve safety, protect the structure of roads and improve the aesthetic quality of public spaces.

    The TMA applies in England and Wales and became law on 22 July 2004. Whilst some elements are already in force, others are being implemented in stages over the next few years. The TMA has major implications for water companies (other utilities, highway authorities and any contractors working on the highway) which will require fundamental changes to working practices; the main impacts can be summarised as follows:

  • minimum notice periods are significantly increased;
  • changes will potentially lead to a significant increase in the number of ‘traffic sensitive’ streets;
  • many more activities will be registrable, e.g. valve operations, leakage surveys, accessing data loggers, etc.;
  • Local Authorities will be able to apply to the Secretary of State for Transport (or, in Wales, the National Assembly) to operate a permit scheme – conditions can be attached to each permit and there will be a permit fee;
  • more information will be required about the works with notices and permit applications than is required under the existing system, including increased resource requirements for pre-surveying of jobs;
  • power for Local Authorities to direct timing of works, not only the time of day that works can take place but also which day(s), e.g. night and weekend working;
  • option to impose an embargo after “substantial” street works have been carried out by a utility;
  • higher fines, including the creation of new offences and the introduction of fixed penalty notices for certain offences, and;
  • higher costs for inspection and resurfacing.

    Whilst the TMA should reduce congestion caused by streetworks, and hence reduce indirect costs, the direct costs for utilities will surely increase.

    Implications of the TMA for water companies and customers

    The works proposed in the AMP4 determinations, and implicitly agreed by OFWAT, will result in a large number of excavations being conducted over the next five years. The constraints on the timing of works imposed by the TMA (including potential delays in agreeing permit conditions, etc.) could have a very significant impact on companies’ ability to meet customer service standards (e.g. leakage targets) and the delivery of capital programmes. The TMA therefore has major implications for both companies’ operational and asset management strategies.

    When the AMP4 business plans were being developed, the provisions of the TMA, and thus its impacts, were not known. OFWAT has included a notified item within its programme to enable water companies to seek revisions to price limits if the impact of the TMA on efficient companies is significant. This may result in water companies being granted an interim determination which could result in increased customer bills. Ultimately, the TMA is likely to mean higher costs for utilities and higher charges to customers, together with delays in carrying out repairs to the infrastructure and installing new services.

    Due to the potentially extreme impacts of the TMA on utilities, both financially and on working practises, research is currently being conducted to quantify the implications of the TMA for water companies and develop a mechanism to understand the full implications. It remains to be seen whether an adequate balance between reducing indirect costs and minimising direct cost increases will be reached.

    For further information contact Andy Russell: [email protected]

    WRc Group

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