Local Water Forum. Stephen Kay and Steve Morley Cambridge Water. 12 July 2012
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1 Local Water Forum Stephen Kay and Steve Morley Cambridge Water 12 July 2012
2 Agenda 1. Cambridge Water who we are 2. The Regulators Environment Agency - quantity Drinking Water Inspectorate - quality OFWAT price CCWater service 3. The economic regime and its development for PR14 4. Nitrates and water supply
3 Water Industry in the UK Water & Sewerage Companies Water Supply only Companies Cambridge Water Supply Area
4 Cambridge Water s area in detail Thetford Sources RAMSEY ST IVES KEY PUMPING STATION BOOSTER STATION GAMLINGAY CAMBRIDGE WATER TOWER RESERVOIR MELBOURN LINTON
5 1853 To supply clean water to Cambridge University and Town Dry rural East Anglian area First works commissioned 1855 By customers Following typhoid scare research into sterilisation by chlorination
6 2012 1,175 sq. km 130k customers 83k metered Average demand 75 Ml/d Peak demand 95 Ml/d Leakage 12.4 Ml/d Ground water sourced Owned by South Staffordshire Plc
7 Section 37: Water Industry Act 1991 It shall be the duty of every water undertaker to develop and maintain an efficient and economical system of water supply within its area and to ensure that all such arrangements have been made for providing supplies of water to premises in that area and for making such supplies available to persons who demand them Industry regulators Environment Agency (EA) Drinking Water Inspectorate (DWI) Water Services Regulation Authority (OFWAT) Consumer Council for Water (CCWater)
8 Environment Agency - Quantity The Environment Agency manage the use of water to maintain supplies and protect the environment. Cambridge Water is in the dry East of England, with significant growth in new connections. We have worked with the Environment Agency to meet increasing demands in our area The Company developed its Thetford sources and undertook an extensive domestic metering programme in the 1990s The key issue we have for the future is in meeting expected growth in the area
9 Drinking Water Inspectorate - Quality The Drinking Water Inspectorate check that water companies in England & Wales supply water that is safe to drink and meets the standards set out in the Water Quality Regulations Standards have universally increased reflecting specific capital solutions We have worked with the DWI to improve the quality of water in respect of lead The key issue we have now and the for the future is that of increasing nitrates in the raw water
10 Water Services Regulation Authority (OFWAT) - Price Ofwat set annual price limits for each company which allow efficient companies to finance their functions. The current price limits were set in 2009 for the period covering OFWAT do not control profits or dividends. If companies exceed efficiency assumptions they will be more profitable. The price limits for each company is based on demanding efficiency assumptions. These encourage the poorer performing companies to catch up with the more efficient ones. OFWAT provide companies with incentives to keep their operating costs and the costs of maintaining their assets to the minimum necessary and to adopt cost-efficient solutions to achieve their outputs
11 Consumer Council for Water - Service The consumer watchdog was set up to represent customers of water and sewerage companies in England and Wales and provide a strong national voice for customers. Its priorities are: Value for money - a fair, affordable price and charging system Right first time - problems sorted out quickly without hassle Water on tap - a safe, secure, reliable supply of water used wisely Flush and go - responsible removal of sewage, preventing sewer flooding and reduction in persistent smells from sewage treatment works Speaking up for water consumers - influential in achieving improvements for consumers
12 How are customer s prices set? Prices adjust (by the K factor), such that the expected revenue (from customers) matches the allowed costs of the company each of the 5 years. Required Revenue = Operating Costs + Infrastructure Renewals Charge + Current Cost Depreciation + Profit Profit = Regulatory Capital Value * Cost of Capital
13 Comparative Efficiency Ofwat compare all companies from an OPEX and CAPEX point of view to assess who is the industry leader and allow the more expensive companies less than they traditionally have spent to encourage them to catch up Band Distance from frontier Companies Annual % catch up A+ 0 Southern, Yorkshire, Portsmouth, South Staffs. 0.0 A- 0-5% Anglian, South East, Sutton & East Surrey 0.6 B+ 5-10% Northumbrian, Severn Trent, Thames, United Utilities, Wessex, Bournemouth, Bristol, Dee Valley, Tendring Hundred B % South West, 1.8 C % Cambridge, Folkestone & Dover 2.4 C % Dwr Cymru, Three Valleys
14 250 Household bills ( ) 2012/
15 What has Cambridge Water achieved? 1995/ /12 DG2 Customers receiving low pressure 2,249 (1.9%) 0 (0.00%) DG3 Unplanned interruptions 2,164 (1.8%) 41 (0.03%) DG6 Billing contacts dealt with in 5 days 61,195 (97.5%) 91,202 (100.0%) DG7 Response to written complaints in 10 days 342 (98.6%) 323 (99.4%) DG8 Bills based on actual reads 19,332 (99.2%) 85,489 (99.8%) DG9 Calls answered 69,359 (94.0%) 101,290 (97.4%) Leakage 16.0 Ml/d (20.7%) 12.4 Ml/d (16.6%) Water into supply 77.3 Ml/d 74.7 Ml/d Metered domestic customers 11,460 (11.4%) 76,952 (64.7%) Gross Capital programme ( m) Maintenance Enhancement
16 Drivers for Change Water Resource / management challenges Population growth Water use rising Rising bills Climate change Better regulation challenges Proportionate and targeted regulation Customer, not regulator focused Rising customer expectations Efficient and effective incentives Challenges from Government Market reform (Cave) Review of PR09 (Gray) Affordability (Walker) Flooding (Pitt )
17 Objectives of Ofwat s Future Price Limits Right response to Government Policy Right level of customer engagement Right incentives to make sustainable choices
18 And more specifically the development of markets. Customers at the heart of plans From Outputs to Outcomes Introducing split price limits Water trading between companies A new approach to funding - Totex
19 Customer Engagement its structure Independently chaired Including statutory regulators, DWI, EA, Natural England Relevant local stakeholders reflecting demographics relevant groups * for us includes CCWater, house-builders, environmental groups, CAB, Chambers of Commerce, local academic guardians of drinking water quality
20 Customer Engagement its purpose 1. Advise and challenge company engagement and research plans 2. Challenge the interpretation of the customer research 3. Ensure approach is proportionate to the issues 4. Report to Ofwat on the effectiveness of the engagement process
21 Outcomes A different approach than before Outcomes will simplify the review process No longer will we be monitored on outputs (say a new treatment works) but on outcomes (compliant water) This will give companies scope to manage their businesses rather than the regulator Innovate Deliver long term sustainable solutions
22 Split Price Limits A retail market Incentivise provision of the services that customers need want and are willing to pay for Incentivise retailing efficiency Protect customers in non-contestable part of the market Provide safeguard for those in contestable
23 Split Price Limits The wholesale market To incentivise the use of resources and operation of the network To support the development of market mechanisms The capital value of the business remains in this element
24 Water trading Encourage sustainable use of water Ensure the right water is used Does drought = Market failure? Abstraction incentive mechanism
25 Totex What is totex? What are the drivers of a move to totex? Solution to the capex bias? Equalisation of incentives Other regulators recent determinations? Customer impacts on a move to totex? Not much clarity on how the mechanism will work
26 Websites
27 Babraham Nitrate Plant 27
28 Groundwater Recharge June Team Briefing 28
29 The Nitrogen Cycle June Team Briefing 29
30 Impact on Water Quality June Team Briefing 30
31 Water Treatment Blending High nitrate sources with low nitrate sources Nitrate Removal Treatment Options Biological Membrane Reverse Osmosis Ion Exchange (IX) June Team Briefing 31
32 What is Ion Exchange Similar process to water softener Resin bed charged with chloride ions Water passes over the resin bed The nitrate and chloride ions exchange Beds become exhausted of chloride ions require regeneration with salt solution to recharge resin bed with chloride ions Target 40 mg/l into supply June Team Briefing 32
33 Babraham Ion Exchange Plant Vessels inlet outlet June Team Briefing 33
34 Treatment Plant Key Facts Construction June 2011 to March 2012 Design life = 25 years Maximum treated output from works is 500 m 3 /h (= 9 Million litres per 40 mg/l Nitrate waste disposal = 44 m 3 (44 tonnes) of liquid waste per day = 1 petrol tanker size lorry every day taken to an AW treatment works out of our water supply area. Discharge pipe with consent to AW sewer built and ready in June Salt Consumption = 2100 kg (2.1 tonnes) per day (= 1 petrol tanker sized lorry delivery every 2 weeks) June Team Briefing 34
35 Headroom above rest level trigger for hosepipe ban (m) Recharge Deficit (mm) Water resources situation at drought indicator sites, Melbourn RWL Fowlmere RWL Babraham RWL Gt Wilbraham RWL Lowerfield RWL Fleam Dyke RWL recharge deficit threshold for consideration of Jan 09 Mar May Jul Sep Nov Jan 10 Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov
36 Supply/demand projection
37 Water Re-use Rainwater Harvesting For All year savings of 30% Simple technology Cheap to operate Against Unreliable in drought Hard to retrofit Initial capital cost Grey water reuse Reliable in drought Saving on wastewater Retrofit possible Complex technology Expensive to run Higher health risks Black water reuse As grey water but a more of everything Application at a catchment scale as effluent reuse Direct non potable use and resource augmentation
38
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