DWR CYMRU WELSH WATER REPORTING REPORTER S REPORT Periodic Review Final Business Plan C6 - SEWER FLOODING CONTENTS

Transcription

1 DWR CYMRU WELSH WATER REPORTING REPORTER S REPORT Periodic Review Final Business Plan C6 - SEWER FLOODING CONTENTS C6.1 Introduction 1 C6.2 Summary of the Company s Final Business Plan Proposals (HO flooding) 1 C6.3 Methodology 2 C6.4 Response to Questions Raised in the Reporter Guidance 8 C6

2 C6 SEWER FLOODING C6.1 Introduction The Company s Draft Business Plan (DBP) proposed an investment of 37.0M over the AMP5 period to reduce the risk of flooding from sewers due to hydraulic overload. The programme has been extensively reviewed and changed for the FBP submission. In Table 1 of the investment case, the total expenditure associated with flooding issues is shown as 46M: 34M for hydraulic overload and 12M for other cause flooding. The FBP programme also includes 23.3M for SWEAR, the DCWW programme for removal of surface water from sewers. Our commentary here is directed at the hydraulic overload issues, now worth 34M. This includes 22.2M for dealing with new flooding problems (allocated to SDB) and 11.8M for dealing with known problems (allocated to ESL). Through its AMP4 programme the Company had a monitoring plan target to reduce the number of properties on its internal At Risk Registers (ARR) to 36. The Company is now forecasting that this target will not be achieved. The projection for the end of AMP4 is that there will now be 9 properties on the 2 in 10 ARR and 210 on the 1 in 10 ARR. The allocations between the ARRs assume that a considerable number of the properties currently on the 2 in 10 register will receive some kind of mitigation. The Company s objectives for AMP5 are to: Provide solutions or mitigation for new properties emerging onto the ARR to maintain the ARR at AMP4 levels. Provide solutions for properties on the ARR not resolved in AMP4 where the cost of the solutions is now judged to be cost beneficial. Address selected areas of severe external flooding. The objectives are in line with the Company s Strategic Direction Statement. C6.2 Summary of the Company s Final Business Plan Proposals (HO flooding) The Company proposes to invest 22.2 million over the AMP5 period to reduce the risk of flooding due to hydraulic overload at emerging properties at risk. The prediction is that about 40 properties a year will be added to the ARR of which 4 will be subsequently removed under the heading better information following a full investigation. The net addition is therefore 36 or 180 for the whole of the AMP5 period. The Company has then assumed that it will not be possible to find cost effective solutions for 20 properties, 10 will receive a form of mitigation but 10 will remain at risk. The key change from the DBP is that the unit cost calculation has been revised. The cost has been increased from 128k to 136k per ARR property. The ESL programme is now focussed on existing ARR problems that will not be resolved in AMP4 plus serious external problems. The programme is estimated to cost 11.8m. The outputs are as shown in the Company s report. Number of ARR outputs Number of internal 1in20 Number of external Cost ( M) Total cost All the projects included to deliver these outputs have been assessed as being cost beneficial. C6-1

3 Where specific scheme information was not available DCWW has allocated the capex expenditure into 90% infrastructure and 10% non-infrastructure (Section 12.2). The increase in Opex where considered appropriate has then been estimated to be 3% of the non-infrastructure expenditure, With this investment, the Company projects that the numbers of properties which will be reported in the various internal at risk categories during AMP5 will be as shown below Classification DG5 2 in DG5 1 in ARR 1 in DCWW are proposing to provide temporary mitigation at any properties which are allocated to the 2 in 10 register during 2009/10 and 2014/15. This will move the properties to the 1 in 10 register. We believe that it will not be possible to mitigate the AMP4 year 5 additions to the 2 in 10 register within the year. This will give a minimum start number of eleven 2 in 10 properties. For similar reasons we suggest there will also be at least 2 properties on the 2 in 10 register at the end of the AMP period due to additions in 20014/15. C6.3 Methodology Assessing Outputs The Company has provided a summary of the AMP5 programme outputs in Part 12 of Part C6 of its FBP submission. The Company s statement of additions and outputs for the AMP5 period is summarised as follows: Internal External Classification 2 in 10 1 in 10 1 in 20 2 in 10 1 in 10 1 in 20 ARR Programme Additions to ARR Added 1 in 20 and external Removals from ARR including 1 in 20 &externals ESL Programme Removals ARR & linked outputs in 20 Internal (linked to external programme) External only Total For the base ARR programme it should be noted that the linked 1 in 20 internals and externals are not necessarily new additions; they may be existing properties. For example there may be two adjoining properties on the external register, one may flood internally next year becoming an ARR new addition, the scheme to resolve the ARR new addition may also resolve the existing linked external. From our review we can confirm that the assessment of outputs is consistent with the Company s DG5 registers and other flooding records. We have not audited changes made in 2008/09. C6-2

4 The Sewerage Project Database identifies the following outputs relating to flooding hydraulic overload. Description Output Internal properties - sewer flooding (Nr at-risk - 2 in 10) 19 Internal properties - sewer flooding (Nr at-risk - 1 in 10) 184 Internal properties - sewer flooding (Nr at-risk - 1 in 20) 55 External problems - sewer flooding (Nr - properties curtilage flooding) 203 The numbers of internal outputs included in the Company s plan are determined by three criteria: The number of properties on the at risk registers at the end of AMP4. The Company s estimate of additional properties emerging onto the at risk registers during AMP5. The Company s objectives and resulting targets for AMP5. The number of properties on the at-risk registers at the end of AMP4 is consistent with the Company s current at risk registers and the Company s investment plans for the remainder of the AMP4 period. Assessment of additions to ARR Internal Outputs The Company has estimated that there will be 219 properties on the 2 in 10 and 1 in 10 internal at risk registers at the end of AMP4. This takes account of the planned investment programme and assumptions regarding the number of emerging properties over the remainder of the AMP4 period. The breakdown of these properties is shown in Table 5 of the Investment case Category Number of properties Mitigated Properties 89 Non Cost Beneficial Schemes Mitigated 8 Non Cost Beneficial Schemes (unable to mitigate) 21 Late Additions 49 Carry Over Schemes /10 New Additions 44 The number and extent of investigations/assessments undertaken during AMP4 has generated a high number of new additions due to better information. This should begin to reduce in 09/10 but is expected to be higher than the base level of 36 (predicted for AMP5) once all historical problems have been investigated. The Company has presented information on historic numbers of ARR additions in Section of its FBP submission. There is a wide variation in the number of emerging properties and the Company accepts that there a degree of judgement in the figure of 36 emerging ARR properties per annum on which the FBP is based. It should be noted that properties to be removed in year 1 of AMP5 are additions to the registers made in year 5 of AMP4. The methodology for allocating properties to the ARR was subject to revision by the Company in 2006/07. In 2006/07 the Company undertook a review of its historic flooding incident data and re-categorised the flood risk for all properties using a consistent methodology that was discussed and agreed with Ofwat. Properties subject to flooding were initially categorised on the basis of the number of flooding incidents and the return period of the associated storm event where available. Going forward, the Company C6-3

5 continues to apply this approach, obtaining storm return analysis for all events. The Company is undertaking further investigations including hydraulic analysis for all properties on the 1 in 10 year at risk register and all properties subject to a second flooding incident attributed to hydraulic overload. These investigations and analysis will be sufficient to define the hydraulic capacity of the sewerage system and allow the Company to begin to develop appropriate solutions. They may result in the initial at risk classification based on flooding incidents and storm return period being revised due to better information. The numbers of additions to the ARR presented in Section 6 Figure 2 were developed by applying the latest at risk categorisation rules to the Company s historic flooding records. It includes properties that have been added within existing clusters as a result of further investigations including hydraulic analysis. It includes properties added to the ARR from the 1 in 20 register under the latest categorisation rules. Further investigations may result in properties being removed from the ARR due to better information. Despite a significant increase in recent yearly new additions numbers the Company has not changed the estimated average number of emerging properties from the 36 per year derived for the DBP. We have challenged the Company on this figure and we believe that there is some risk that this is an underestimate of future numbers. The additions in 2007/08 and provisional figures for 2008/09 are shown in the table below New Additions due to flooding incidents New Additions due to modelling exercise Total New Additions The additions for 2008/09 include three areas that are considered to be exceptional; these are Britton Ferry, Coleford and Llanelli. There are about 50 properties included in these areas, two of which previously had a cause code of consequential flooding. There are also a number of other areas, which contain high number of properties, which have previously flooded, and while the current understanding indicates that they should not be on the ARR, there is a risk (albeit a low risk) that better knowledge or another flooding incident will lead to one or more of these areas being reclassified. For the DBP, we considered data on emerging properties across England & Wales. The net number of additions to the ARR over the to for England & Wales (excluding Thames Water where some major changes to the ARR has occurred) was per 000 connected properties. Applying this average to DCWW customer base would suggest an average rate of emerging properties of 33 per annum. On this basis the suggested rate of emerging properties is not unreasonable. However, any estimate remains uncertain due to significant variation in historical new additions figures. Assessment of 1 in 20 internal additions The Company has estimated that there will be 266 properties on the 1 in 20 at risk register at the end of AMP4. This takes account of the planned investment programme and assumptions regarding the number of emerging properties over the remainder of the AMP4 period. The numbers of additions to the 1 in 20 at risk category presented in Section Figure 3 were developed by applying the latest at risk categorisation rules to the Company s historic flooding records. The prediction is that 32 properties a year will be added to the register. Section Table 12 shows that about 40 of the total 160 added during AMP5 will be associated with ARR additions. As with the ARR, there are significant variations in yearly new additions number, which generate uncertainty when predicting AMP5 new additions, but we accept the estimates as being reasonable. Any reductions to the 1 in 20 register during AMP5 are due to properties being linked to ARR problems. One project included in the ESL programme has one 1 in 20 property linked to eleven externals. The total outputs for AMP5 are 55, 40 emerging properties plus 15 known problems. C6-4

6 Assessment of External additions The Company has estimated that there will be 3747 properties on the external at risk registers at the end of AMP4. This takes account of the planned investment programme and assumptions regarding the number of emerging properties over the remainder of the AMP4 period. To allow for the change in the reporting requirements the predicted number of external new additions has been based on the provisional additions in 2008/09, which to date are 248 properties with an estimated 75 to 175 more new additions to be made by the yearend. Reductions to the external registers during AMP5 are due to properties being linked to ARR problems and to projects included in the ESL programme addressed as dealing with severe external problems. The outputs for AMP5 are 106 externals linked to the ARR new additions plus 44 external only known problems and 53 externals outputs linked to the internal ESL programme, giving a total of 203. Assessing CAPEX Investment Assessing CAPEX Investment for ARR additions The unit costs for emerging properties on the ARR are shown in Section of the Company s FBP. The costs are based on the AMP4 programme. The Company has reanalysed the AMP4 data in the light of changing costs since PR04. The Company has set a limit of 250k per at risk property as an upper limit. These projects have been excluded from the data used to calculate the unit cost for new additions. The cost associated with AMP4 year 1 and 2 schemes has been inflated using the COPI index. A new AMP5 unit cost was then applied to all schemes, which had an AMP4 unit cost, so that the Company could have a large enough data set to calculate the average numbers of linked 1 in 20 and external problems associated with an ARR property. This data was used to compile Table 9 in the business case. The Table 9 data was then used to calculate the cost of the new additions programme. This sum is then divided by the total number of outputs to give a unit cost per output of 68k and by the number of ARR properties to give a unit rate per ARR property of 136k. This is higher than the DBP figure of 128k. We had some concerns about including the estimated cost schemes and reviewed the completed schemes only. We found the resulting unit rate to be similar and on this basis we accept the unit cost per output. The scheme for the resolution of new additions to the ARR is a generic project to address properties emerging as at risk so that no specific solutions can be proposed. Assessing CAPEX Investment for the ESL programme The Company has produced the ESL programme by entering all the schemes carried over from AMP4 plus a number of schemes addressing external only problems into SIPS. The schemes have then been subjected to CBA and a list of 24 projects selected for AMP5 on the basis of being cost beneficial. From the data supplied for audit, there are 62 properties on the ARR included in the carry over schemes that have been deemed not to be cost beneficial. Some of the projects are clearly very expensive but if schemes where the unit cost exceeds 250k are excluded there about 21 projects covering 47 ARR properties with an estimated cost of 7.22M The CBA process is discussed below but the results of the CBA are that 10 of the 21 projects that would resolve problems for 14 ARR properties have a unit cost per ARR property of less than 136k (the average cost per property for new additions). The total estimated cost of these projects is 1.56M. The decision making process as applied in the FBP has the result therefore of providing funding to address new problems but not for some existing problems even when the unit cost is lower. The ESL programme comprises 24 projects with a total cost of 11.8M as shown in Table 3 and Appendix A of the business plan. 8 projects will prevent flooding at 43 ARR properties plus linked 1 in 20 and external properties, 1 project is for one property on the1 in 20 register that is associated with 11 external properties and there are 15 schemes addressing external only problems for 44 properties. A number of the estimated costs are C6-5

7 based on preliminary appraisals and are considered to be uncertain. However, no additional risk has been assigned to these schemes. Proposed Solutions The Company has considered a number of solutions to resolve flooding problems. The projects included in the programme include new sewers, upsizing, storage and cut and pump. Generally, initial designs have been produced and used to select and size key design elements but further investigations and hydraulic modelling will be required to finalise the design. We have reviewed three specific projects. A-WW-FHO Briton Ferry - Victoria Street flooding scheme. ( 4.75M) This relates to an area where flooding had been reported four times in the past, although previous flooding may have gone unrecorded due to disputed responsibility.. At the end of 2007/08 only two reports of external flooding had been recorded on the at-risk registers. Reports of internal property flooding had been recorded for 34 properties that had been classified as consequential flooding related to the capacity of local land drainage. Further investigation has shown that the upstream land drainage has always been connected into the sewerage network and is therefore DCWW s responsibility, In addition, in view of the high frequency of flooding the Company has undertaken hydraulic analysis, which would indicate that without the connection of the land drainage the properties are still at risk from sewer flooding. The Company has added 26 properties to the 1 in 10 ARR in 2008/09 but we have not at this time audited the revised ARR. An outline design has been produced and costed using UCD. The proposed solution includes the construction of a new 900 mm diameter surface water sewer to facilitate the removal of the Ynysmaerdy Stream flow from the combined system and convey flows to the River Neath. A new storm pumping station to pump surface water flows to the River Neath. Upsizing 160m (approx) of combined sewer and upgrading and storage at the existing Briton Ferry SPS. We have reviewed that Company s scoring and overall believe it to be reasonable..a-ww-fho-n-p-46 Cardiff (Waun-y-groes Road). ( 245k) The outputs for this project are 1nr 1 in 20 internal and 11nr 1 in 10 externals. The problem is due to a flat gradient sewer that is under capacity but also suffers from siltation. The proposed solution is to lay four lengths of new sewer and the scheme has been costed on this design. There is a risk that the downstream sewers do not have sufficient capacity and further hydraulic modelling is required to confirm that the proposed solution is sound. The cost estimate appears reasonable. A-WW-FHO-N-P-516: Pontypridd (Broadway) ( 200k). This is a single property that has been flooded a number of times. The fitting of a NRV has not resolved the problem. The solution being considered is effectively a cut and pump, but the Company has explained that the solution is not as straightforward as a flip pump type arrangement. The property is a hotel located in a terrace, on the main road through Pontypridd. Being a terraced valley location there is a lack of available space, and an element of storage has been proposed due to incapacity in the receiving trunk sewer. The cost has been based on AMP4 schemes costs for similar installations. We consider that generally the solutions proposed are fit for purpose and the cost estimate appears reasonable. Allocation of CAPEX The Company has allocated capital expenditure on non-defined flooding schemes as 90% infrastructure and 10% non-infrastructure. The non-infrastructure allocation is an allowance for pumping stations and pumped storage included in flood alleviation projects. The Company has allocated the costs of the projects addressing new additions to the ARR to growth. The Company has allocated all investment to deliver projects carried over from AMP4 and the external only outputs to ESL. Assessing OPEX Investment The Company report that in the last year it has installed a higher number of package pumping stations where feasible in an attempt to reduce the costs of schemes. It has C6-6

8 assumed that this practice will increase in AMP5 and has therefore increased the predicted OPEX costs accordingly. The infra to non infrastructure allocation for non defined schemes has been estimated as 90%-10%. The increased operational expenditure has been calculated as 3% of non-infrastructure investment. The reasoning behind this split is shown in Table 24 of the investment case. We have insufficient data to challenge these assumptions and therefore accept the figures. Prioritisation methodology The Company has set out its approach to prioritisation in section 11.7 of Section C6 of its FBP submission. The Company has identified its approach to prioritisation for AMP4 and the proposed development of this approach for AMP5. The Company has developed the ESL programme based on the severity and frequency of flooding and where the schemes are judged to be cost beneficial. For example, the external only schemes address known high priority problems. Prioritisation has not been used on the Company s proposals in the FBP for: The ARR outputs relate to emerging properties. The intention is to provide solutions to all emerging properties with the exception of 20 properties subject to mitigation with no cost effective solution. This cannot be subject to prioritisation. The timing of the specific schemes to deliver enhanced service to at risk properties has not been prioritised. Cost Benefit Analysis The Company has assessed the cost benefit of sewer flooding schemes following its standard methodology embedded in SIPS. The Company has assessed the cost benefit of all the carryover projects from AMP4. The analysis suggests that only about 20% of the projects for properties on the internal ARR are cost beneficial. All the ESL schemes included in the flooding programme are cost beneficial. We have commented on the Company s approach to CBA in Section C8. The CBA as applied to HO flooding includes the following factors. Number of re-actives reduced per year. Only two projects where mitigation measures are known to be installed have costs included in the CBA. A consequential cost, i.e. the cost of cleaning up or compensation after a flooding event. Internal events can be assigned to five categories, minor to very high. At present a default value of high is used for all internal flooding incidents. The Company records external incidents as serious SEF, other serious OSF and other OF. These descriptions are used to classify external incidents. The monetary values for the events are shown in Tables 17 and 18 of the FBP. A nuisance cost is included. This is the cost to the Company of dealing with complaints or adverse press publicity. We note that for two customers, where the cost of a solution is identical this could lead to one being judged cost beneficial on the basis that one customer complained and the other did not. Details of pollution incidents associated with a flooding event are included. The costs are assigned based on the category assigned to the pollution incident. A cost of carbon element is included as a dis-benefit based on the capital cost of the project The flooding CBA also includes a WTP factor. These are described in sections 11.1 and 11.2 of the business plan. We have commented on the WTP data in section C1 of our report. We have reviewed the SIPS input data and believe that the probabilities are consistent with the risk register and that the right consequences have been chosen for each situation. C6-7

9 C6.4 Response to Questions Raised in the Reporter Guidance The data used is consistent with that held on the Company s DG5 register. There have been some changes for the year 2008/09 that we have not yet audited. The Company has based its assessment of flooding risk on either flooding incident data or more detailed investigation supported by hydraulic analysis. Local knowledge does not play a significant factor in prioritisation. For the ESL programme, the Company has identified that there is no link to maintaining the base service or the environmental quality programmes. The cost driver for the projects is to deal with flooding. Table 25 of the business plan shows that about 40% of the expenditure on sewers will result in upsizing or rehabilitation. New additions are all allocated to supply/demand. The Company s programme either addresses emerging properties or known problems judged to be cost beneficial. DCWW states that the timing of the enhancement programme has been considered in the context of delivery and affordability. We believe that it has been prioritised by CBA. The Company has undertaken a study of WTP. The qualitative research revealed a WTP to reduce sewer flooding consistent with previous national studies. Commentary on the WTP research is included in Section C1 of our report. We believe that individual schemes have been properly assessed in accordance with the methodology applied. The Company has based its assessment of additions to the flooding registers on a reassessment of historic flooding records using its current at risk categorisation methodology. The Company has recognised that the impact of extreme events and a higher level of investigation and hydraulic analysis in recent years may have resulted in a higher number of properties being added to the registers at a higher rate than will be sustained in the future. In view of this the Company has taken a cautious approach and based its plans on a number of additions at the lower end of the range that could be supported by the data. The number of additions to the ARR used in the plan is consistent with the net average rate of additions across England & Wales (excluding Thames Water) over the last five years. We believe that the Company has taken a reasonable approach. The Company has set out the basis of the cost of dealing with forecast additions. Additions to the ARR are costed on the basis of the average historic cost of removing properties from the ARR. The scheme estimates draw on the same general sources of data used to develop the cost base. Much of the Company s proposed investment is based on average unit costs for emerging properties that have yet to be identified and it is not possible for the Company to make any detailed assessment regarding the proposed solution. For the specific schemes identified for the enhancement programme the Company has been able to identify known problems and has based its FBP on outline proposals based on specific investigations including hydraulic analysis. During our audits we reviewed a sample of these assessments that we found to be at various stages of development. The confidence in the proposed solutions and the associated estimates reflect the stage of development. During our audits we challenged the Company on the need and technical assessment of individual schemes and were generally satisfied. We have commented on the Company s assessment of benefits in our report on Part C8. In general we believe that the proposed programme of works is practicable in the timescales proposed, including the phasing of the programme. The overall level of activity will be appreciably less than the last three years of AMP4. C6-8