Water resources planning guideline

Water resources planning guideline The technical methods and instructions Developed by Environment Agency, Ofwat, Defra and the Welsh Government

Environment Agency Horizon house, Deanery Road Bristol BS1 5AH Ofwat Centre City Tower 7 Hill Street Birmingham B5 4UA Defra Water Resources Policy Area 2C, Ergon House Horseferry Road London SW1P 2AL Welsh Government Cathays Park Cardiff CF10 3NQ GEHO0612BWPE-E-E

Contents Contents... i 1.0 Overview... 1 1.1 Introduction and structure... 2 1.2 Government... 3 1.3 Designed for water companies... 3 1.4 Developing the guideline... 3 1.5 Why should a water company follow this guideline?... 5 1.6 What is not within this document?... 6 1.7 Using the technical guideline... 6 1.8 Risked-based approach to producing a water resources management plan... 7 1.9 History of the water resources planning guideline... 9 1.10 Navigation tool for smaller water companies... 10 2.0 Building your plan the basics... 11 2.1 The basics what the plan should look like... 12 2.2 What are the regulators looking for?... 14 2.3 How to build a plan?... 15 2.4 How long should a water company plan for?... 17 2.4.1 The base year for supply/demand data... 18 2.4.2 Whole life costs and incremental costs... 18 2.5 What area should water companies plan for?... 18 2.5.1 Defining a water resource zone... 18 2.5.2 Method for confirming a water resource zone... 19 2.5.3 What is expected from water companies?... 19 2.5.4 How will regulators scrutinise resource zones?... 20 2.6 What planning scenario should a water company use?... 21 2.6.1 Dry year (annual average) forecast... 22 2.6.2 Weighted annual average demand forecast... 22 2.6.3 Utilisation (annual average) forecast... 23 2.6.4 Dry year (critical period) scenario... 24 2.6.5 Weighted average critical period demand forecast... 25 2.6.6 Utilisation (critical period)... 25 2.7 Links to other plans and Government policy and aspirations... 25 2.7.1 Ofwat business plan... 25 2.7.2 Strategic Environmental Assessment and Habitats Regulations..... 27 2.7.3 Government policies and aspirations... 28 2.8 National security and commercial confidentiality... 28 2.9 Level of service... 28 2.9.1 Level of service and deployable output assessment... 29 2.9.2 Levels of service and options appraisal... 32 2.9.3 Assessing and reporting actual levels of service... 32 2.9.4 What is expected from water companies?... 33 Water resources planning guideline interim update i

2.9.5 How will the regulators scrutinise this work?... 33 2.10 Assessment of climate change on the water resources management plan... 34 3.0 How much water is available for supply?... 35 3.1 Deployable output... 35 3.1.1 Deployable Output Assessment... 36 3.1.2 When to update Deployable Output... 36 3.1.3 Methods water companies should use to calculate deployable output... 37 3.1.4 Data requirements for deployable output assessment... 38 3.1.5 What is expected from water companies... 39 3.2 Reductions in deployable output... 40 3.2.1 Sustainability changes... 40 3.2.2 Investigations and options appraisal... 41 3.2.3 What sustainability change information will the Environment Agency provide?... 42 3.2.4 How should a company account for sustainability changes?... 43 3.2.5 What is expected of a water company which has sustainability changes?... 44 3.2.6 How will the regulator scrutinise sustainability changes?... 45 3.2.7 Abstraction Incentive Mechanism... 45 3.3 Impacts of climate change on water supply... 45 3.3.1 Assessment of the impacts of climate change on water supply 46 3.3.2 Methods water companies should use to determine climate change impacts on water supply... 46 3.3.3 Vulnerability assessment... 47 3.3.4 Identifying the most appropriate level of climate change assessment... 49 3.3.5 How to estimate deployable output under climate change... 53 3.3.6 Detailed description of each stage... 53 3.3.7 Use of climate change methodology in scoping feasible options..... 60 3.3.8 What do we expect from water companies?... 60 3.3.9 Other reductions in deployable output... 61 3.4 Outage allowance... 61 3.4.1 Determine outage allowance... 61 3.4.2 How will regulators assess the plans?... 63 3.5 Sharing and transferring resources including raw and potable water transfers / bulk supplies... 64 3.5.1 What is a water company expected to do?... 65 3.6 Treatment works... 65 4.0 What is the demand for water?... 66 4.1 What do the regulators expect from a demand forecast... 67 4.2 Defining a normal year and dry year base demand... 68 4.2.1 Peak forecasting... 69 4.2.2 Step 1 - Base year population and properties... 70 Water resources planning guideline interim update ii

4.2.2.1 Base year population... 71 4.2.2.2 Base year non-household population... 73 4.2.2.3 Base year properties... 74 4.2.2.4 Property breakdown... 74 4.2.3 Step 2 - Forecasting population and property numbers... 75 4.2.3.1 Guidance for England and Wales... 75 4.2.3.2 Guidance for England... 76 4.2.3.3 Guidance for Wales... 78 4.2.3.4 Sub-divisions of household projections... 78 4.2.4 Step 3 - Base year household demand... 79 4.2.4.1 What should a water company produce?... 79 4.2.4.2 How to produce the base dry year demand?... 80 4.2.5 Step 4 - Forecast household consumption... 82 4.2.5.1 What should a water company produce?... 82 4.2.5.2 How should a company carry out this work?... 83 4.3 Non-household consumption... 88 4.3.1 What should a water company produce?... 88 4.3.2 What methods should a company follow?... 88 4.4 Leakage forecast... 90 4.4.1 Determining base year leakage... 90 4.4.2 Determining baseline leakage forecast... 90 4.4.3 What do the regulators expect to see?... 91 4.5 Other components of demand... 92 5.0 A buffer on the supply and demand forecast calculating target headroom... 93 5.1 Defining target headroom... 94 5.2 Risk and uncertainty in supply and demand... 94 5.3 Risks associated with a revocation of a licence or time limited licences... 95 5.4 Choice of method... 96 5.5 Companies that use the 2003 methodology... 97 5.6 Presenting the results of headroom assessment... 98 6.0 The balancing act and will a water company need investment?.. 99 6.1 What option to implement in the final plan? The principles... 101 6.2 Methods to find the preferred option.... 102 6.3 Completing an option appraisal process to determine a preferred solution.... 104 6.4 Stage one unconstrained list of options... 105 6.5 Stage two Create a list of feasible options... 108 6.5.1 Feasible options list... 109 6.5.2 Describing feasible options... 110 6.5.3 Costs and outputs of feasible options... 110 6.5.4 Feasibility of options, including impacts of climate change and associated risk and uncertainty... 116 6.5.5 Inter-dependencies, links and synergies... 116 6.5.6 Interconnection... 117 Water resources planning guideline interim update iii

6.5.7 Commercially confidential cost information... 117 6.6 Stage two continued - Economic appraisal of feasible options to determine the least cost solution... 117 6.7 Stage three Programme appraisal, Strategic Environment Assessment and Habitats Regulation Assessment consideration of non-monetary costs and benefits.... 119 6.7.1 Programme appraisal... 120 6.7.2 Strategic Environment Assessment and Habitats Regulation Assessment... 120 6.7.3 Applying Strategic Environmental Assessment to water resources management plans... 123 6.7.4 SEA screening... 124 6.7.5 Integrating the SEA into water resources management plan options appraisal... 124 6.7.6 SEA scoping... 124 6.7.7 Refining options and programme appraisal through SEA... 125 6.7.8 Using SEA outputs to develop the preferred solution... 126 6.7.9 The environmental report... 127 6.7.10 Post-SEA outputs and adoption... 127 6.8 Stage four A preferred programme of options and a final water resources management planning solution... 127 6.9 What will the regulators scrutinise in relation to option appraisal?... 128 7.0 Final planning supply-demand balance... 131 7.1 Production of a final plan and justifying the final planning solutions... 131 7.2 Checklist of water resource management plan tables that the company should complete... 134 8.0 Testing your plan... 135 8.1 Scenario testing... 135 8.2 Choosing scenarios... 135 8.3 Using scenario testing... 136 8.4 Alternative plans... 137 8.5 What do the regulators expect to see within the plan?... 138 Appendices... 139 Appendix 1 Water resource zone integrity... 140 Appendix 2 - Detailed WRZ assessment pro-forma... 153 Appendix 3 Weighted annual average demand... 155 Appendix 4 Utilisation... 157 Appendix 5 Assessing a solution to a supply demand balance using the utilisation forecast... 159 Appendix 6 final planning weighted annual average demand... 163 Appendix 7 Outage definitions... 164 Appendix 8 Demand terms... 166 Water resources planning guideline interim update iv

Appendix 9 Generic list of options... 169 Appendix 10 - Water efficiency and metering... 175 Appendix 11 - Leakage reduction... 177 Appendix 12 - Resource sharing (including bulk supplies, transfers of water, shared assets and water trading)... 180 Appendix 13 - Options proposed by third parties... 185 Appendix 14 Environmental and social impacts of an option... 187 Water Framework Directive... 188 Environmental and social impacts... 188 Habitats Regulations Assessment... 190 Appendix 15 - Feasible options cost confidence grades... 192 Appendix 16 References... 194 Water resources planning guideline interim update v

1.0 Overview Quick reference for this section Description of structure of the guideline How the guideline has been developed Why should a company follow this guideline What is not covered in this section of the guideline A risk based approach to water resources planning History of the guideline What is covered in this section? This section gives an overview of the guideline and how water companies should develop a water resources management plan. The section describes how a water company can apply a risk-based approach and the level of scrutiny it will receive from the regulators. Water resources planning guideline interim update 1 of 202

1.1 Introduction and structure The water resources planning guideline provides a framework for water companies to follow when developing and presenting their water resources plans. It helps them show how they intend to maintain the balance between demand for water and its supply. It sets out good practice in developing a plan, the various approaches to follow and the information that a plan should contain. Companies should follow this guideline to make sure that their plans cover the requirements specified by the Water Industry Act 1991 1. There is guidance covering these requirements for smaller water companies as not all the requirements maybe necessary for them. This is the third document in the water resources planning guideline series 2 : Water resources management plans have your say - general public document outlining what WRMPs are, who is involved and why and when customers should get involved. Audience - non technical stakeholders, short document, easy to read, signpost to all documents The guiding principles for developing a water resources management plan - Provides details of relevant legislation including Directions, Government policy and aspirations, roles and responsibilities, guidance on national security, the WRMP development process, links to the business planning process and drought plans and timelines. This document is referred to the as the Guiding Principles throughout this technical guideline. Audience - water companies, stakeholders and regulators Technical guidelines - This is the detail of the guideline, presenting the good practice methods and requirements for the water resources management plan. Audience - water companies, regulators WRP tables, instructions and audit checklists - The tables provide a blank table for water companies to use to present the data of the water resources management plans, and are accompanied by instructions defining each data requirement. An audit checklist is available to help water companies ensure they have completed everything. This may also help provide consultees with an easy reference guide of what has been included in the plan. Audience - water companies, regulators 1 Water Industry Act 1991 Section 37 A to D, as amended by Section 62 of the Water Act 2003 2 All the documents in the series are available to view or download at www.environmentagency.gov.uk/waterplans Water resources planning guideline interim update 2 of 202

1.2 Government In this technical guideline, the term Government is used to cover the Department for Environment, Food and Rural Affairs (Defra) and the Welsh Government in relation to England and Wales. It is important for water companies operating in Wales to note that in May 2012, the Minister for Environment and Sustainable Development, John Griffiths announced that a single body will be created to bring together the Forestry Commission Wales (FCW), Countryside Council for Wales (CCW) and the Environment Agency Wales (EAW). This new organisation will begin operating in April 2013. Until there are more details of how this new organisation will work, the guideline will continue to refer to the separate organisations. 1.3 Designed for water companies This technical guideline has been designed for water companies. While the document is open to all, it has been written and structured for a water company audience. However, the design should not preclude other parties who wish to provide schemes for incorporation in a water resources management plan. For details on how the process of water resources planning works and how to get involved, please refer to Water resources management plans you re your say and the guiding principles for developing a water resources management plan (known as the guiding principles throughout this document). 1.4 Developing the guideline The Environment Agency has continued to revise and update the water resources planning guideline since it was first produced in the late nineties. For a detailed history of the guideline, please refer to section 1.9. This latest guideline has been developed following recommendations made by an independent review 3. The Environment Agency has acted as the main co-ordinator in bringing the guideline together, working with Defra, Welsh Government, Ofwat and water companies. Water companies have been involved in developing the guideline, providing advice, information and developing new methods. The table below summarises how they have been involved. 3 Review of water resources management plan process, Defra, June 2011 Water resources planning guideline interim update 3 of 202

Table 1.0 Details of external groups that have been involved in the development of the new water resources planning guideline Group Description Further information Water company liaison panel Implementation of the Water Resources Management Planning Review Project Board UKWIR technical projects and collaborations This group was set up to provide advice and information, and to test the new guideline as it developed. The group commented on early versions of the guideline and helped steer its development. This group oversaw the changes to the water resources management process as recommended by IHPR. This includes several recommendations for changes to the guideline. A number of technical projects were run by the water industry research group with input from the Environment Agency and Ofwat. Group members include representatives from: Thames Water, Yorkshire Water, Anglian Water, Severn Trent Water, Portsmouth Water, Dŵr Cymru Welsh Water, Southern Water, Environment Agency, Ofwat, Defra, Welsh Government. Defra, Welsh Government, Environment Agency, Ofwat, Consumer Council for Water, Water UK. 12/WR/27/6 - Water Resources Planning Tools 2012. 12/CU/02/11.A good practice manual and roadmap for household consumption forecasting (2012) 12/WR/02/7 Strategic Environmental Assessment and Habitats Regulations Assessment - Guidance for Water Resources Management Plans and Drought Plans Water resources planning guideline interim update 4 of 202

1.5 Why should a water company follow this guideline? A water company must develop a water resources management plan by law. The guiding principles provides details on what a company must do when preparing, consulting and publishing its plan. To achieve this, a water company should follow good practice offered in this guideline. The guideline has been developed between the Government and their regulators (Environment Agency, Ofwat, Natural England and the Countryside Council for Wales), together with the input of Water UK and water companies. The guideline, therefore, has significant weight and, consequently, there is good reason for companies to follow the methods contained within it. The Government expect water companies to follow the methods/framework outlined here unless they have got a good reason not to. This approach is outlined in Table 1.1 below. A water company will find requirements to follow methods/approaches described as should, rather than a compulsory must. A must indicates a legal status, either within the legislation or regulation or is a definite requirement of the Government. A company that ignores a 'must' is at high risk of producing a plan that is not valid, unless it can provide a very strong reason for not doing so. Table 1.1 Explanation of compliance approach Category Complied with should and followed the guideline Has complied with a should but has used a different method or approach Has not complied and not provided any additional information Result This will provide confidence that a company has produced a well balanced plan that will be understood by consultees and regulators. The guideline does not prevent a company using a different method or approach. However, the water company should provide information to explain why it has chosen a different method/approach, how the results or decisions have been made, and how it differs from the guideline approach. A water company would need to provide a very strong case to have not complied with the approach or method. Without strongly defending its position, further information would be required and this may delay a decision on publishing the plan. If a company decides that it has a better method to develop its water resources management plan, it can use this alternative approach as long it fully explains and justifies its reasons. The company should discuss its approach at the pre-consultation phase (or earlier) with statutory consultees. Water resources planning guideline interim update 5 of 202

This could avoid delays in the water resources management plan process if there is disagreement with the proposed approach. 1.6 What is not within this document? This technical guideline forms part of the overall water resources planning guideline. See diagram 1.0 below. The following information is not included in this technical document but can be found in the guiding principles for developing a water resources management plan : Government policy or aspiration; pre-consultation requirements; details and timetable of the process of submission, consultations, representation, final publishing of a plan; involving customers in the development of the plan, displaying and providing information; explanation of legislation and Directions covering water resources management planning. Diagram 1.0 Illustration of the concept of the guideline 1.7 Using the technical guideline This technical guideline is structured into the following sections: Water resources planning guideline interim update 6 of 202

Basics of building a water resources management plan How much water is available for supply? What is the demand for water? The balancing act and what investments a company may require? Testing a plan To help water companies understand the requirements of the methods within the guideline, the guideline aims to cover the following: Why carry out this work and what are you aiming for? What methods do you need to use to produce the plan? How to apply the methods? The link with other planning processes such as the periodic review and business plans. How will the regulators scrutinise the plan? 1.8 Risked-based approach to producing a water resources management plan All water companies have to produce a water resources management plan. The Environment Agency and Ofwat and other statutory and non-statutory consultees will examine these plans closely to make sure they provide a secure water supply and a protected environment. The bigger the risk or problem, the more work a water company will be expected to do to make sure it is planning for a secure supply of water, and the more scrutiny it will receive from the regulators. Recent water industry projects 4 have updated existing methods. These projects allow water companies to choose and use techniques of different levels of sophistication, proportionate to individual needs, planning issues and available data sets. Table 1.2 provides an indication of the level of scrutiny a company will receive depending on the issues they face. All water companies will have to describe the position they will be in and explain how they arrived at this position. While this table provides an overview of how the regulators will assess plans, the regulators reserve the right to change this approach. The assessment will be at resource zone level, rather than company level to reflect the local issues. 4 UKWIR projects; WR27 Water Resources Planning Tools 2012 and 12/CU/02/11.A good practice manual and roadmap for household consumption forecasting (2012) Water resources planning guideline interim update 7 of 202

Table 1.2 An indication of scrutiny for a water resources management plan Category Criteria Scrutiny Small company Company in baseline surplus Company with a small baseline deficit Company with a large baseline deficit Water available for use is <5Ml/d Receives water from a bulk supply and does not operate its own source. No supply demand deficit, including target headroom across the entire planning period. Small deficit up to 5% of demand and target headroom after first 10 years Large deficit (>5% of demand and target headroom) driven by one or more factors. Deficit occurring at any time across the planning period. A A B C Table 1.3 below provides an outline of the types of scrutiny that will be applied to the plans. This does not display all the scrutiny that will be applied and regulators have the right to change this. The table provides an indication of an increasing level of scrutiny and shows how this accumulates. For example the regulators will have scrutinised at levels A and B before applying level C. Table 1.3 A description of the different scrutiny levels Scrutiny level Description of compliance tiers Core compliance tier Legal and Directions Core calculation checks Agreement with supplydemand balance assumptions Demonstrate a secure supply of water Compliance with WRPG General compliance tier Compare plans with other companies Question assumptions Further investigation of sections of plans Detailed compliance test Each component will be analysed Alternative options maybe tested A B C Water resources planning guideline interim update 8 of 202

1.9 History of the water resources planning guideline In 1996, the Department of the Environment (which then became Department for Environment, Transport and Regions) asked the Environment Agency to ensure water companies produced water resources plans as part of the follow up to Agenda for Action (1996), and in line with the Environment Agency s role to manage water resources and secure their proper use. To help water companies to produce consistent plans and share good practice techniques, the Environment Agency issued the first guideline in August 1997 and a final guideline in early 1998 following consultation with Government, the water companies and Ofwat. Water companies used this to produce their first draft water resources plans in 1999. The guideline was updated and re-issued in time for companies to use when preparing their plans in 2004. A version was published in February 2003 and revised in December 2004. In developing this guideline, the Environment Agency again consulted with Government, the water industry and Ofwat. The introduction of statutory plans meant the guideline was completely reviewed during 2006 and a new version was published in April 2007. This version was developed closely with the water industry using a specific group organised through Water UK who contributed to developing new text and tables. Again Ofwat, Government and Natural England were all involved in developing the new guideline. This has ensured a continued balance of interests and acceptance of the guideline. The guideline was widely consulted on during a ten week public consultation phase that started in February 2007. One major change was that the guideline became a good practice manual of how plans should be developed and not just a steer on content. The 2007 version of the guideline included details of the new statutory process, but did not include details on Government policy or compliance with the Directions. There were a number of small updates through 2007, with a larger revision in November 2008 that brought the latest climate change guidance into the main guideline. The last update to this version of the guideline was in April 2011 when a number of small updates were made to keep the guideline current. Defra commissioned the In House Policy Resource (IHPR) to undertake an independent review of the first round of the water resources management plans process and this was published in June 2011. There are 14 recommendations in the report, with a common theme of joint working between the regulators and between the regulators and the water companies. The report notes that, for real improvements to be achieved, all parties will need to commit to implementing them, with the three regulators having particular responsibilities. Those recommendations have been incorporated within this guideline. Water resources planning guideline interim update 9 of 202

In December 2011, the UK Government published its Water White Paper Water for Life 5. This set out a number of requirements for water companies to consider in the next round of water resources management plans. These include the importance of water companies considering cross-boundary solutions (working with neighbouring companies) and water trading, and an emphasis on demand management. These have been incorporated in the guideline. The Welsh Government s Programme for Government 2011 2016 sets a commitment to develop a Natural Environment Framework which was consulted on in the Green Paper Sustaining a Living Wales in 2012. The aim is to ensure that Wales has increasingly resilient and diverse ecosystems that deliver economic, environmental and social benefits. In addition, the forthcoming Welsh Government Water Strategy Consultation will set out clear actions to deliver and manage water resources in Wales now and in the future. The Welsh Government expect Welsh water companies to produce water resources management plans which reflect current climate change projections and are informed by Strategic Environmental Assessment and Appropriate Assessment of their impact, where appropriate. The Welsh Government expects water companies operating wholly or mainly in Wales to consider all available demand and supply options in their plans to achieve the best value for their customers, which includes considering water trading where it would not be detrimental to the incumbent company. The guideline is widely accepted by all those involved in water resources planning, having been developed as a fair and consistent reference manual of good practice that all water companies should follow. It has enabled the water industry to see that common standards and approaches will be applied, both by neighbouring companies and regulators, in an industry that is subject to comparative regulation. 1.10 Navigation tool for smaller water companies We have also developed a navigation tool 6 to accompany this technical guideline. It is designed to help smaller water companies focus on the key elements of a WRMP that are relevant to them, but it does not replace the Water Resources Planning Guideline. This tool should be used alongside the guideline, and companies should follow the guideline to make sure that their plans cover the requirements specified by the Water Industry Act 1991. 5 http://www.defra.gov.uk/environment/quality/water/legislation/whitepaper/ 6 http://www.environmentagency.gov.uk/static/documents/business/smaller_water_undertaker_navigation_tool_12100 1_FINAL.pdf Water resources planning guideline interim update 10 of 202

2.0 Building your plan the basics Quick reference for this section Basic requirements of a water resources management plan. Outline of what the regulators require What should a water company plan for timescales Defining a water resource zone What planning scenario should a water company use Details of level of service and the impacts on a plan. What is covered in this section? This section provides some of the basics water companies will need to have in place before carrying out any further work on their plans. Water resources planning guideline interim update 11 of 202

2.1 The basics what the plan should look like Most water companies have previously produced a water resources management plan. However, if a water company is new to the process, this section details what the plan should look like. Diagram 2.0 provides an overview of the processes involved. To build a water resources management plan, a water company must test its ability to supply enough water when there are many pressures on it. A water company should test its system by showing it can supply water during a drought and at a point where demand is at its highest during dry weather just before the company imposes restrictions on its customers. To form its water resources management plan, a water company will have to: work out how much water it has available to supply its customers each year over a 25 year period; work out how much demand there is for water over the same 25 year period; allow for some uncertainty around calculations and forecast (of both supply and demand forecasts) and add this onto the demand forecast as a buffer (known as target headroom); compare the two figures and see if there is a surplus (more water than demand) or a deficit. If there is a deficit, the company must balance this out and should identify a series of options to choose from. Those options can be provided by the water company itself or another party; provide this information at a resource zone level. All companies should produce a plan that shows dry year annual average figures. Some companies have enough supply to meet demand on average over the year. But, during a period of high demand (such as hot weather or very cold weather when leakage occurs) they may suffer from a temporary shortfall in supply. In this case, the water company will have to include within its water resources management plan options to deal with dry year critical periods 7. It should describe what drives a critical period. More details are provided in section 2.5 What should water companies plan for? 7 Dry year critical period - The period during which water resource zone supply demand balances are at their lowest. Critical period does not necessarily occur in the period of peak demand. Companies might consider critical period scenarios where a water resource zone is supplied only by groundwater or run-of-river abstractions and limited storage. UKWIR Definition, 2012 Water resources planning guideline interim update 12 of 202

Diagram 2.0 Building a water resources management plan Water resources planning guideline interim update 13 of 202

2.2 What are the regulators looking for? When a water company publishes its plan for consultation, the regulators will scrutinise the plan following the principles outlined in section 1.8. The regulators will be looking to make sure a water company has clearly demonstrated it has: complied with the law, Directions, regulations and policy/aspirations from Government; planned for a secure supply of water that protects the environment and demonstrates it is best value for customers. A water company should have explored all options to remove a deficit and clearly explained how it decided on the options it has selected; provided evidence of a twin track approach to managing its supply and demand for water. Where a water company has proposed a new source of supply, it should demonstrate that it has thoroughly explored and tested all demand management options and fully considered and presented costs of water trading with other water companies (neighbouring or not) and other parties with supplies to ensure best value for its customers; involved statutory consultees; involved customers and taken into account their views in the development of its plan; investigated whether a Strategic Environment Assessment (SEA) is relevant 8 if options are required to balance a supply-demand deficit; carried out a Habitats Regulations Assessment (HRA) and other appropriate assessments if an option could affect any designated European sites. These sites include Special Areas of Conservation (SACs), candidate Special Areas of Conservation (csacs), Special Protection Areas (SPAs), potential Special Protection Area (pspa), pramsars (proposed Ramsars) and Ramsars 9 sites; incorporated all the relevant environmental and social costs and benefits, even if it has not had to carry out a SEA or HRA; chosen the best solution, clearly justifying why it has made this choice, demonstrating that it has taken account of customers' views and the options costs, benefits and value to the environment and society; explained clearly how it has made its decisions. Rather than just presenting a final answer, the regulators will be looking for the detail of the journey the company has gone through to make that decision. 8 Water companies operating wholly or mainly in Wales are required to carry out a SEA. 9 Water companies can find out further information within regulation 8 of the Conservation of Habitats and Species Regulations 2010 (Habitats Regulations) (in respect of csacs) and paragraph 118 of the new National Planning Policy Framework (NPPF) (in respect of pspas, psacs, Ramsars, pramsars and compensatory measures for those sites) Water resources planning guideline interim update 14 of 202

2.3 How to build a plan? The table below lists and describes the parts of a plan that a water company will have to calculate. These parts will need to be calculated at resource zone level (see section 2.5 for details on defining a resource zone). Table 2.0 Components of a water resources management plan Section Baseline supply forecast Baseline demand forecast Description A forecast of the company's supply, providing an assessment of water available for use based on the annual deployable output determined for its proposed level of service and for a critical period, if applicable. This forecast should take into account climate change, sustainability reductions and any other changes including any transfers. A forecast of water demand for a dry year annual average and critical period scenarios, if applicable. Ofwat also requires a forecast of weighted annual average demand which will be used: as the basis of the company s revenue forecast where no supply demand deficit exists, or to determine a final planning forecast, taking account of the company s preferred solution, again for the purpose of revenue forecasting. This is a weighted annual average of annual average demand, reflecting a mix of demand under dry years and normal years, as well as other types of year such as wet years, etc, should the company deem these appropriate. Weighted annual average demand represents the company s view of the demand that it is most likely to face over the planning period on average, and therefore will be used to determine the company s revenue forecast for setting price limits. The baseline demand forecast should be adjusted to take account of climate change, population growth, changes in household size, changes in property Water resources planning guideline interim update 15 of 202

Target headroom (a buffer for uncertainty) relating to supply and demand forecasts) numbers, the inclusion of the company s demand management policy 10 that provides details on current leakage and water efficiency measures. A company should define the level of risk and uncertainty that it is including allowance for in its plan and what steps it will take to reduce this. The company should show how risk and uncertainty has influenced its final choice of options. The allowance for uncertainty and risk a company uses within its supply demand balance is known as target headroom. Options if a company has a deficit in its water supply and demand balance A company should provide details of its preferred programme of options to restore its supply demand balance under a dry year (annual average) scenario (and a dry year (critical period) scenario if applicable). In doing so the company should demonstrate it has incorporated the views of Government and its regulators that are expressed in the Guiding Principles. In doing so it is expected the company will demonstrate its preferred solution is best value for water company customers and the environment. It is also best practice for the company to investigate whether new options can reduce the overall financial cost, and the environmental, social and carbon impact of its existing operations. The preferred programme of options should provide details of the costs and savings to existing sources if this assessment has been made, and the impact on existing operations. A water company with a deficit should contact neighbouring water companies and third parties when putting together its unconstrained options list (see appendix 9) to see if they have water available that could be provided by a bulk supply, the opportunity to develop joint resources, or other options to restore the supply demand balance. The company should appraise these options consistently with its own options to reduce any deficits that have been identified. 10 As a minimum, achievement of the savings associated with water efficiency, leakage reduction and metering activities assumed in price limits up to 2015. Beyond that, companies should assume continuation of existing metering polices, (only optional and agreed universal metering to be included), maintain leakage at the forecast 2015 level, (or include any leakage reduction associated with the continuation of existing metering policies), and include any savings associated with water efficiency requirements that Ofwat will set out in its price review methodology, a draft of which is due to be published for consultation in Autumn 2012. All savings assumed in price limits were expressed in Ml/d. Water resources planning guideline interim update 16 of 202

Options if a company has a surplus in its water supply and demand balance For a water company in surplus, it is best practice for it to assess whether it can reduce the overall financial cost, and the environmental, social and carbon impact of its existing operations by implementing new options. New options may also help to achieve Government aspirations. Any water company in surplus must contact other water companies (neighbouring or not) to discuss possible water trading/sharing. The company should also consider contacting any third parties who might also be interested in purchasing surplus water resource. This is optional for water companies operating wholly or mainly in Wales. However, the policy direction for Wales will be set in the forthcoming Water Strategy for Wales. Water companies operating wholly or mainly in Wales must refer to the Water Strategy for Wales when it is published and incorporate any changes in policy direction into their plans. Final supply demand balance The final planning solution will show the actions a company proposes to take to manage the supply and demand of its water resource zones. The final supply demand balance must not show any deficits. A company will produce a final planning dry year (annual average) demand forecast (and a dry year critical period demand forecast if applicable) to demonstrate the impact of its preferred solution (the options it has selected to use) on its supply demand balance. A company will also have to produce a final planning weighted annual average demand forecast, taking account of any demand management measures included in the preferred solution, to be used for Ofwat revenue forecasting. 2.4 How long should a water company plan for? A water company should plan for a 25-year period from 2015 to 2040 and report on financial years (April to March). The starting year will be April 2015 to March 2016, concluding in March 2040. There is no formal or legal requirement for a water company to extend its planning beyond 25 years. However, a company faced with impacts towards the end (within the last two to three years) of the planning period or just after may decide to extend the planning period to explain why it has made certain Water resources planning guideline interim update 17 of 202

decisions within the statutory 25-year period. A water company would need to explain the risks and uncertainties of extending the planning period and acknowledge that it was its own decision. A company may also wish to consider longer term impacts of climate change beyond the 25 year plan, as indicated in the Government Policy section of the Guiding Principles. 2.4.1 The base year for supply/demand data The plan will need to include a base year for supply and demand data. This should be based on outturn data for the latest year available which is then adjusted for a dry year forecast. The company should clearly explain how it has done this. The latest base year data for the next round of plans will be 2011-12. Whilst some companies have imposed restrictions on customers in April 2012 due to drought, this should not have affected the base year. However, if a company wishes to use a different year or an average of multiple years, it can do so providing it gives a clear explanation. If a company changes its base year between the draft and final plan, the company should explain its reasons and detail the impacts on the plan. The expectation is that the effect of differences between recent years will be minimal. 2.4.2 Whole life costs and incremental costs When determining its preferred solution to address a supply demand imbalance, a water company should take account of the whole life costs of all schemes that are required in the 25-year planning period. For example, a scheme required in year 25 should not just contribute a single year s costs to the assessment of a solution, but its whole life costs typically, this is 80 years. An example of this can be found within the UKWIR WR27 Water resources planning tools EBSD report Table 8 and 9 on page 17 and 18 of the report. Incremental costs should be calculated with reference to 2014-15 as the base year. The price base for costs should be the latest available, ideally 2012-13. 2.5 What area should water companies plan for? 2.5.1 Defining a water resource zone A water resources management plan is built up of assessments undertaken at the water resource zone (WRZ) level. A WRZ provides a water company with a strategic framework for managing water resources supply and demand management and investment. The WRZ describes an area within which the management of supply and demand is largely self-contained (apart from agreed bulk transfers of water). Water resources planning guideline interim update 18 of 202

Within the WRZ, supply infrastructure and demand centres are generally integrated to the extent that customers in the WRZ should experience the same risk of supply failure. Consequently all customers share the same level of service. There will be limitations in achieving these requirements within a distribution network but significant numbers of customers should not experience different risks of supply failure within a single WRZ. The UKWIR/Environment Agency definition of a WRZ (UKWIR/Environment Agency Definitions of Key Terms for Water Resources Practitioners) is: "The largest possible zone in which all resources, including external transfers, can be shared and, hence, the zone in which all customers will experience the same risk of supply failure from a resource shortfall." It is the water companies' responsibility to make sure that their WRZs meet this definition and clearly explain this within their water resources management plan. While companies plan at the WRZ level, they should still consider cross-border solutions that would help to achieve supply-demand balance within the WRZ. 2.5.2 Method for confirming a water resource zone A water company is advised to follow the WRZ assessment method (stage 1) outlined in appendix 1 to confirm its WRZ meets with the UKWIR/Environment Agency definition given above. As part of the assessment, a water company should consult with its local Environment Agency team either during or before the pre-consultation phase. A water company should clearly demonstrate that it has confirmed with the Environment Agency the status of the WRZs on which its water resources management plan is based. Where WRZ integrity issues have been identified, the company should provide details. If the assessment identifies an integrity issue with one or more WRZs or where investment is driven by sub zonal deficits, the Environment Agency will expect a company to outline its plans to review its WRZ boundaries and supply demand balance. Further details are provided in stage 2 of appendix 1. 2.5.3 What is expected from water companies? A water company should present its assessment of its WRZs as a separate section within its plan. This should include: further details and a high level schematic of the WRZ boundaries (not so detailed that they cause security concerns); an overview of the evidence to show that the company s WRZs meet with the definition; Water resources planning guideline interim update 19 of 202

a summary of the high-level discussions the company has had with the Environment Agency, any recommendations that have been made and any issues of WRZ integrity that the company or Environment Agency have identified; Details of any plans the company has to review its WRZs, when and how it intends to carry out the review and a summary of any work already undertaken. On a risk-based approach, those resource zones that have deficits will be scrutinised in more detail. If a company has identified it requires new sources of water, even though its zone is in surplus and that it is not sharing this water with another company, the Environment Agency will expect to see further evidence that the resource zone meets the definition of a WRZ. If a company has a known issue with a WRZ but there are no sub-zonal deficits, the company will not need to split the WRZ, but should highlight the issue and the long-term plan to resolve the WRZ integrity issues. A water company should follow the guidance produced by Government to cover national security issues and commercial confidentiality as the WRZ information is likely to be sensitive. Only high level/summary information should be published within the water resources management plan. Where there are no issues of commercial confidentiality or national security, a water company should present its detailed, supporting information relating to WRZ integrity within a technical appendix. However, a more detailed version should be available to the Environment Agency, Ofwat and Government. A company will have to decide how it deals with requests for information from non-government organisations. 2.5.4 How will regulators scrutinise resource zones? A water company should speak with its local Environment Agency team either during or before the pre-consultation phase. The Environment Agency will expect a water company to clearly demonstrate that it has confirmed the status of the WRZs that it will be basing its water resources management plan on. The Environment Agency will expect that these discussions are clearly represented within the water resources management plan and that where issues have been identified, a company has provided details. If a company fails to describe its WRZ, has a deficit or is requesting supply side options while the WRZ is in surplus, the Environment Agency will closely scrutinise a water resources management plan. Water resources planning guideline interim update 20 of 202

2.6 What planning scenario should a water company use? The linking of the water resources management plans process and the business plan process has meant some work has been transferred from the business plan process to reduce duplication. This section summarises what work companies will have to undertake to fulfil both processes. Table 2.1 - Summary of the scenarios a water company will have to calculate and publish Scenario Calculate Publish in the plan Dry year annual average Yes Yes Dry year critical period Optional company dependant Optional only if there is a deficit Normal year Yes No Weighted annual Yes Yes average demand Utilisation Yes only if an option is required Yes only if an option is required Determining the supply demand balance All companies should forecast supply and demand under the dry year (annual average) daily demand planning scenario, also known as the dry year scenario. By showing the actions they will take to balance supply and demand in a dry year, companies will be able to reassure people and organisations that they will meet their level of service. For some companies, the dry year (critical period) scenario may also be relevant, should there be a potential supply demand deficit at a point during the year where demand is unusually high or deployable output at a minimum, which is not picked up by the annual average scenario. Utilisation for use in options appraisal The company should plan for the dry year (annual average) scenario to determine whether there is a potential supply demand deficit and when a solution is required. However, the company should use a utilisation forecast, which reflects how much the company is most likely to use the solution on average over the whole planning period, to assess the variable costs of feasible options in order to determine its preferred solution. The costs of the solution, which will inform the company s business plan, must be based on utilisation. Water resources planning guideline interim update 21 of 202

Determining revenue forecast for price limits The weighted annual average demand forecast will form the basis of the companies revenue forecast when Ofwat sets price limits. 2.6.1 Dry year (annual average) forecast The dry year, a period of low rainfall and unconstrained demand, is the basis of a company s water resources management plan. A water company should submit water resource planning tables showing its baseline and final planning forecasts under the dry year forecast. The dry year forecast should be developed from base year figures and the company should explain any assumptions or adjustments it has made due to weather patterns experienced that year (see section 2.4). A company should set out the dry year demand as a continuous profile over a year at monthly or weekly intervals. It is expected to analyse historical supply and climate data to produce this profile. Examples of actual demand should be shown against the profile used for planning. Where a company uses sub-resource zone demand patterns, it should also present the average for the zone. See demand forecasting, section 4 for further details. The company should detail its baseline dry year (annual average) demand forecast in table WRP2 BL Demand, and its final planning forecast in table WRP6 FP Demand. 2.6.2 Weighted annual average demand forecast The weighted annual average demand forecast is required as the basis of the company s revenue forecast when Ofwat sets price limits. A water company should submit both a baseline and a final planning weighted annual average demand forecast, where there is a supply demand deficit. Not all years in the planning horizon will actually turn out to be dry and using dry year (annual average) demand to forecast revenue would overstate the company s likely revenue, leading to price limits that are lower than they should be. Similarly, not all years will turn out to be normal in the planning horizon. Assuming normal year (annual average) demand as the basis of the company s revenue forecast would understate the company s likely revenue and lead to price limits that are higher than they need to be. In reality, the demand that the company is most likely to face on average in the planning horizon will reflect a mix of demand in normal years, dry years, wet years, etc. The company should produce a weighted annual average demand forecast, reflecting the company s view of the demand associated with each type of year and the likely frequency of each type of year in the planning horizon. Water resources planning guideline interim update 22 of 202

Appendix 3 sets out how a company could calculate weighted annual average demand. The company should calculate the components of its baseline weighted annual average demand (water delivered, water taken unbilled, distribution system use, and leakage) which it should set out in table WRP2b Weighted BL Demand. It should explain the weighting it has used in the commentary to that table with reference to its experience of the different types of years it has assumed. During pre-consultation the company may wish to discuss its development proposals for this forecast with Ofwat. Ofwat requires a final planning weighted annual average demand forecast (water delivered, water taken unbilled, distribution system use, and leakage) to use as the basis of the company s revenue forecast when it sets price limits. The final planning weighted annual average demand forecast is calculated automatically in table WRP6b Weighted FP Demand, taking into account the impact of any demand management measures that form part of the company s preferred solution. 2.6.3 Utilisation (annual average) forecast A dry year (annual average) supply demand deficit indicates when a solution may be needed and the potential scale of that deficit. But not all years in the planning horizon will turn out to be dry, and the actual supply demand deficit that the company is likely to face will not be the same as the dry year deficit in all years. For certain options, in particular supply side options, output can be varied depending upon the size of the deficit, and this will affect the variable costs of those options. In order to assess the variable costs of such feasible options to determine an initial solution that is least cost, the company needs to understand how much, on average, it is likely to use that solution. The company should therefore provide a forecast of utilisation over the 25 year planning period. If the company assumes that all years in the planning horizon will be dry, then the amount that it is likely to use any solution would be the same as the size of the dry year (annual average) supply demand deficit. But this is unlikely to occur and assessing the variable costs of feasible options on this basis would overstate variable costs and introduce bias into the optimisation process that could lead to the selection of an initial solution that is not least cost. In reality, the forecast period will turn out to be a mix of years (normal years, dry years, wet years, etc) each with its own demand and supply characteristics. Just as demand varies with each type of year, so does water available for use. For example, water available for use is likely to be lower in a dry year than it is in a normal year. Water resources planning guideline interim update 23 of 202

The company should set out a forecast of utilisation for each water resource zone with a supply demand deficit in table WRP2b Weighted BL Demand, taking account of these factors. A suggested approach to determining utilisation is set out in Appendix 4, but the company may develop and use its own approach. Whatever method the company uses, it should explain the basis of its forecast in the commentary to this table. During the pre-consultation phase, the company may wish to discuss its proposals for this forecast with Ofwat. The company should use the utilisation forecast to determine the variable costs of feasible options during the optimisation process to determine its least cost / preferred solution. The utilisation forecast, reflecting how much a company is likely to use any solution on average, will also determine the variable costs of that solution which, together with fixed costs, should directly inform the company s business plan proposals. 2.6.4 Dry year (critical period) scenario As well as the dry year (annual average) scenario, companies may need to explore forecasts under dry year (critical period) scenarios. If a critical period forecast is likely to be significant and is driving the need to implement water resources management options, a company should explain this in its plan. The company should identify the driver for the critical period, for example peak demand or resource constraints and explain why it cannot remove the critical period issue for example by greater connectivity or demand management. Companies might consider critical period scenarios where a resource zone is supplied only by groundwater or direct river abstractions and limited storage, or where resource zone supply-demand balances are judged to be particularly sensitive to peak demands and where resource management rather than operational measures are required. Alternatively, the critical period scenario may be a period during a dry year when water available for use is at a minimum. A company should identify the critical period for each of its WRZs. It should explore and define the period appropriate to its resource zones in its plan, explaining the main reasons why it is a critical period. This should involve considering several periods, to make sure that the critical one is identified. If a company presents a critical period forecast, it should explain the assumptions behind the demand forecast, deployable output, outage and headroom. The company should consider the relationship between these different factors and compare these relationships with the equivalent relationships for the dry year forecast. The seasonal demand pattern should be used to support this discussion. Water resources planning guideline interim update 24 of 202

A water company should submit water resource planning tables showing its baseline and final planning forecasts under the dry year forecast in tables WRP2 BL Demand and WRP6 FP Demand respectively. The company should explain how the preferred options or final planning solution will deliver under both dry year and critical period supply-demand conditions. 2.6.5 Weighted average critical period demand forecast There is no need for the company to produce a weighted average critical period demand forecast. The critical period demand is already taken into account in the weighted average demand forecast for the (annual average) scenario. 2.6.6 Utilisation (critical period) Where relevant, the company must provide in table WRP2b Weighted BL Demand a forecast of utilisation to illustrate how much it is likely to use, on average over the 25 year planning period, any solution to a critical period deficit. This should reflect the duration and frequency of critical periods and the company should explain the basis of its forecast, and assumptions it has made, in the commentary to this table. The company should use this forecast to assess the variable costs of feasible options during the optimisation process to determine the least cost / preferred solution. The utilisation forecast, reflecting how much a company is likely to use any solution on average, will also determine the variable costs of that solution which, together with fixed costs, should directly inform the company s business plan proposals. During pre-consultation the company may wish to discuss its proposals for this forecast with Ofwat in advance of publishing its draft plan. 2.7 Links to other plans and Government policy and aspirations A water company water resources management plan is not produced in isolation. The plan will be influenced by and linked to a number of different plans. These include the following: 2.7.1 Ofwat business plan Ofwat will next review price limits in 2014. The review will take account of the cost implications of water companies meeting their objectives (in terms of services that must be provided and any improvements that need to be made, including investment to balance supply and demand) and their forecast of Water resources planning guideline interim update 25 of 202

future revenue, to determine whether changes to price limits are required. Water companies detail their view of price limits in their strategic business plans. The water company s water resources management plan is used to determine the investment that the company needs in order to balance supply and demand. These investment requirements will directly inform the company s business plan proposals. Ofwat will use the water resources management plan as the basis of its assessment of the supply-demand balance element of the strategic business plan as part of the process for reviewing water company price limits. Ofwat s view of the robustness of the company s water resources management plan will inform the level of further analysis that it will carry out on the strategic business plan. Where Ofwat agrees with the proposals contained within a company s final water resources management plan, there will be minimal further challenge to its business plan if that accurately reflects those proposals. However, where Ofwat has concerns with a company s draft water resources management plan, and these concerns are not addressed in the company s final water resources management plan, then there will potentially be further challenge to its business plan. The extent of the challenge will be determined by the scale of the concerns. For the 2014 review of price limits, the water resources management plan and business plan are explicitly linked by the company s forecasts of demand and utilisation. Specifically: the baseline forecast of dry year (annual average and / or critical period) demand in the water resources management plan will determine whether there is a potential supply demand deficit and when it occurs. The baseline weighted annual average demand forecast, based on the dry year demand forecast, will be used as the basis of the company s revenue forecast in its business plan where there is no forecast supply demand deficit. utilisation, the company s view of how much it will need to use any solution, where there is a supply demand deficit,will determine the variable costs of feasible options during the options appraisal process to determine a least cost / preferred solution. the costs underpinning the options appraisal of the company s preferred solution, determined in the water resources management Water resources planning guideline interim update 26 of 202

plan, will directly inform the costs of any supply demand investment proposed in the business plan. the final planning forecast of weighted annual average demand in the water resources management plan will take account of any demand management options that form part of the company s preferred solution. For companies with a forecast supply/demand deficit, it will also form the basis of the company s revenue forecast in its business plan. 2.7.2 Strategic Environmental Assessment and Habitats Regulations Government expects a water company to produce water resource management plans that are informed by Strategic Environmental Assessment (SEA) and appropriate assessment of the environmental impact of options, where appropriate. The findings from these assessments should be used to help inform a company s decision on selection of options. More detail is provided within Section 6.7. The Habitats Regulations require competent authorities to carry out appropriate assessments in certain circumstances where a plan or project is likely to have a significant affect on a European site. With a water resources management plan, the water company is the competent authority and carries out an Appropriate Assessment of a Habitats Regulations Assessment (HRA). The HRA refers to the whole process, including the appropriate assessment step. Appropriate assessment is required when a plan or project affecting a European site is: not connected with managing the site for nature conservation; likely to have a significant effect on the site (either alone or in combination with other plans or projects). This applies to any plan or project that could potentially affect a European site, no matter how far away from that site that plan or project is. An appropriate assessment should focus exclusively on the qualifying interests of the European site affected and must consider any impacts on the conservation objectives of the site. A competent authority must not authorise a plan or project unless, through an appropriate assessment, it can ascertain that it will not adversely affect the integrity of a European site. If the competent authority cannot determine if a plan or project will not have an adverse affect on the integrity of a European site, consideration will have to be made as to whether there are alternative solutions or whether the plan or project must be carried due to overriding public interest (as required pursuant to regulation 62 of the Habitats Regulations). If the plan or project passes these tests, compensation will be required (as required pursuant to regulation 66 of the Habitats Regulations). Water resources planning guideline interim update 27 of 202

There is scope that the SEA and HRA will overlap the processes within a water resources management plan. Section 6.7 provides further guidance on potential overlaps of the processes and guidance on how to integrate the SEA and HRA assessment processes into the water resources management plan option appraisal process. Where possible and relevant, the water company should identify information that applies to both the HRA and SEA processes to minimise overlap and avoid duplicating effort and information. UKWIR have produced guidance (UKWIR Project WR02, Water Resources in the Environment 11 ) that shows how these different assessment processes interact with each other throughout the development of the water resources management plan. 2.7.3 Government policies and aspirations This technical guideline does not contain policy instructions from Government and a water company is directed to the guiding principles for this information. A water company should explain how it has followed Government policies within its baseline forecast and should provide a breakdown of costs the company has incurred by complying with Government policy/aspirations. 2.8 National security and commercial confidentiality See the section in the guiding principles for further details on national security and commercial confidentiality. 2.9 Level of service Levels of service are a contract between a water company and its customers, setting out the standard of service that customers can expect to receive from a water company. Historically, a water company has decided its own level of service and explained it to its customers. In the future the company should engage customers in key decisions when formulating its plan, and find out what levels of service customers expect through research and communication with its customers. The company's research should be clearly presented within its water resources management plan. In water resources planning, levels of service describe the average frequency that a company will apply restrictions on water use to its customers. Levels of service will vary with different types of restrictions, as more severe restrictions are needed less often. For example, customer temporary use restrictions may have a level of service average frequency of 1 in 10 or 1 in 20 years, and a drought order restricting non-essential uses of 1 in 40 years. A company 11 http://www.ukwir.org/ukwirlibrary/94834 Water resources planning guideline interim update 28 of 202

should carry out customer research to establish its customers priorities for restrictions on use in the context of the impact on bills and the environment. As part of this research, a company should consider a change in levels of service as a means of managing the supply-demand balance. For some companies, levels of service include the requirement for rota cuts and standpipes in response to droughts. Companies should test their customers attitudes towards such actions in the context of bills and environmental impact when they carry out their research. When conducting this research a company should follow good practice taking account of reports and guidance published by Ofwat, UKWIR, and the Equalities and Human Rights Commission. A company should not seek simply to establish support for a plan that it has already designed. Results of this research will need to be clearly presented in a company s water resources management plan. It should identify the levels of service it plans to offer based on the evidence it has gathered from customers (using willingness to pay surveys or other similar methods), the impact on the environment and cost implications. A water company s planned levels of service has implications for several elements of its water resources management plan, and should be assessed using consistent assumptions and methodologies throughout both the water resources management plan and, where appropriate, the drought plan. Where a company proposes to change its planned levels of service, this should be explained and justified within the water resources management plan and the new level of service must be taken into account throughout the water resources management plan. The company must also update its drought plan to include the new levels of service. The level of service that a company identifies as part of its water resources management plan should be the minimum that it plans to deliver every year. Delivering high levels of service on this basis can be expensive. Each company should consider whether it can deliver a given level of service more efficiently by taking a flexible approach, bringing forward investment or increasing operating expenditure (for example, to reduce leakage) when the risk of exceptionally dry weather becomes a reality. A company s water resources management plan need not identify how a company would achieve this, but it should explain the company s broad strategy for responding to changing conditions. This should include links to its drought plan and actions such as drought permits and orders. 2.9.1 Level of service and deployable output assessment The impacts of customer levels of service are quantified within the calculation of deployable output. This is assessed by applying temporary restricted demand patterns which conserve resources in a reservoir or aquifer, allowing Water resources planning guideline interim update 29 of 202

a higher deployable output to be obtained. This deployable output should be used in the supply demand balance in comparison with the unrestricted demand forecast which remains the basis for demand within the supply demand balance. A water company should demonstrate and provide full evidence to show that it can reliably supply the company planned levels of service in all its water resource zones. A company should also show how its deployable output relates to levels of service and demonstrate the sensitivity of the relationship. This is to help identify where there may be scope for a water company to vary its levels of service in order to help address any deficits, or to demonstrate the cost implications of any enhanced level of service for customers. As a minimum, the water company should assess baseline deployable output (without climate change) for the following levels of service scenarios 12 : 1 No Restrictions the constant rate of supply that can be maintained from the resource zone throughout the entire period of assessment, with no customer restrictions or other drought actions applied. 2 Water company planned levels of service the rate of supply that can be maintained from the resource zone when the system is operated to meet the water company levels of service. The assessment should include the application of demand restrictions as outlined above and other measures identified by a water company to meet its levels of service. 3 Reference scenario levels of service the rate of supply that can be maintained from the resource zone throughout the entire period of assessment when the system is operated to meet specified levels of service. These are for temporary customer use restrictions of 1 in 10 years and non-essential use restrictions of 1 in 40 years. No rota cuts or standpipes should be used within the period of record. Companies are not required to model water saving campaigns explicitly within this scenario. In each of the above, the rate of supply should be consistent with the planning scenario under consideration e.g. dry year (annual average) or other critical period. A water company may also model a wider range of levels of service through advanced methods, or explore its own specific choice of alternative levels of service. 12 These Levels of Service scenarios are those originally requested in the Reassessment of Yields (1997) and reflect a range of standards which will allow regulators to determine the impacts of varying changing levels of service. Water resources planning guideline interim update 30 of 202

A summary of the differences in the assumptions between the three scenarios 13 should be provided to allow regulators to understand the resulting changes in deployable output. By presenting the results of these assessments a water company will be able to clearly demonstrate the effect its levels of service have on baseline deployable output. It will also provide both customers and regulators with an informed understanding of what levels of service, and any possible changes to them, will mean for water resource availability. A water company should use the deployable output derived from the water company planned levels of service (scenario 2) to develop its baseline supply demand balance. Whilst the impact of levels of service are readily assessed within behavioural analysis for reservoir sources / systems, further assumptions need to be made in order to determine the impact of levels of service on groundwater sources. The UKWIR WR27 water resources planning tools provides guidance on how to develop the groundwater assumptions. The Environment Agency will provide further advice to companies as required to enable all companies to make progress in quantifying the impact of levels of service on deployable output. Where a company has previously done work linking groundwater deployable output to levels of service, it should continue to develop its existing methods. Companies that have not previously tried to link levels of service with groundwater deployable output should undertake an initial assessment as a minimum. For some supplies, a source output assessment may be sufficient whilst for others assessments may need to be supported by further analysis or modelling studies. For the latter case, where models exist but a company does not believe it can link groundwater deployable output to levels of service, it should discuss this with the Environment Agency. Within the discussion and in presentation of this work, the company should consider categorising its groundwater (and other) sources into one of the following three categories: 1. Current or alternative level of service will have no effect on deployable output as the source output is not constrained by resource but by licence or infrastructure constraint. 2. Resource constrains deployable output but the effect of levels of service implementation is mainly increased stream or spring flow. There may be a discernable effect of level of service implementation on deployable output. 13 The description of different assumptions between scenarios should include (but not be limited to) methods, control lines, emergency storage, measures to restrict demand (type, duration and magnitude of restriction) and use of any drought orders/permits. Companies should also identify constraining years for each scenario Water resources planning guideline interim update 31 of 202

3. Resource constrains deployable output. There will be a discernable effect of level of service implementation on groundwater availability from which an increase in deployable output should result. In each case the company should also consider whether any future circumstance could change the conclusion. This can then form the basis for further discussion with the Environment Agency of appropriate further work, or focusing of work already in progress. 2.9.2 Levels of service and options appraisal If a company forecasts a deficit at any point in the planning period, it can consider changing its levels of service as an option to remove or reduce the deficit. By reducing the level of service, resources may be conserved during dry years which could help the company meet its supply/demand deficit. A company should identify from its analysis of levels of service and deployable output whether a change in levels of service is a feasible option for consideration in the options appraisal process. Section 6 gives further details on the approach to option appraisal. 2.9.3 Assessing and reporting actual levels of service A water company should identify and report the actual level of service its customers are likely to experience under both the baseline and the final planning scenarios. The actual level of service a water company s customers experience is determined by demonstrating the likely frequency of customer restrictions under the baseline and final planning scenario. Where a resource zone is in deficit, the actual level of service customers are likely to experience will be below a water company s planned level of service. Where a resource zone is in surplus, then the actual level of service will exceed the planned level of service. Where a water company has identified significant differences across the planning period between its actual and planned levels of service, it should explain the difference. Where customers may experience a lower than planned level of service the company should clearly set out the actions it will take to reconcile the actual levels of service towards the planned. Water resources planning guideline interim update 32 of 202

2.9.4 What is expected from water companies? A water company should: propose the levels of service it believes are appropriate for its customers, while also considering alternative levels of service as a means of managing the supply-demand balance; justify its choice of level of service with reference to customer preferences (using willingness to pay survey or other similar methods), the impact on the environment and cost implications; fully justify the reasons and assumptions for adopting a no restrictions level of service; consider changing levels of service in order to help meet any deficits; specifically identify any proposed changes to its planned levels of service and explain and justify these changes; report actual levels of service for baseline and final planning scenarios. A company should justify any significant differences across the final planning period between actual and planned levels of service, or clearly set out the actions the company will take to reconcile the actual levels of service towards the planned; summarise levels of service restrictions that customers have recently experienced and where applicable, provide brief explanatory comments where these are not consistent with planned levels of service; ensure levels of service are consistent with those in the water company drought plan. If not, provide a plan to align levels of service in both documents; confirm how the assumptions within the demand forecasts used in the supply-demand balance relate to the water use restrictions included in the company s planned levels of service. Further levels of service requirements specific to the calculation of deployable output are included under section 3.1. 2.9.5 How will the regulators scrutinise this work? The Environment Agency will: comment on levels of service during pre-consultation and when it makes representations on plans; identify where it believes that a company is not planning for an appropriate balance between the needs of customers and the needs of the environment; consider whether a company with a no restrictions level of service is making best use of resources and providing good value for its customers. consider the planned level of service alongside the preferred options identified for managing the supply-demand balance given in the plan. Water resources planning guideline interim update 33 of 202

2.10 Assessment of climate change on the water resources management plan A water resources management plan must include an assessment of climate change and its effects on the supply-demand balance. A water company should include a direct assessment of climate change on both sources and demand. The uncertainties associated with estimating the impact of climate change on both supply and demand should be included in the assessment of headroom uncertainty. Where companies opt to assess climate change during peak periods, regulators will scrutinise the impacts carefully due to the scale of the uncertainties involved. A water company should initially develop a resource zone baseline forecast without climate change, reporting its baseline deployable output without the effect of climate change in WRP1 BL Supply and baseline demand without the effect of climate change in WRP2 BL Demand. It should then carry out the assessment of the effects of climate change on the supply demand balance using the guidance set out in this document, and report the results of these assessments on the appropriate lines in the planning tables. A water company should include commentary within its main water resources management plan clearly setting out: the vulnerability of its system to climate change; the impacts of climate change on the supply-demand balance; how it calculated these impacts and the confidence levels associated with them; what options have been driven by climate change alone and how resilient these options are to the effects of climate change, specifically in terms of sensitivity to a different climate change outcome to that planned for; any future modelling proposals to improve the assessments carried out. The details of how to assess the impacts of climate change in supply and demand are given in section 3 and 4 respectively (including deriving uncertainty for input into target headroom). Further guidance for the impact of climate change on the selection of options and supply demand balance are given in section 6. Water resources planning guideline interim update 34 of 202

3.0 How much water is available for supply? Quick reference for this section. Calculating deployable output. How sustainability reductions should be included within a plan? Impacts of climate change on supply. What should a company include in outage? What is covered in this section? Within the water resource management plan, a water company must display: the sources of water, and state whether the sources are used, if it transfers water in or out of its water resources zones possible changes due to climate change, protection of the environment or other reasons. This section looks at assessments of water sources. It gives guidance about the methods a water company should follow when calculating water available for use and the level of detail required in a company s plan. It points out where a company should discuss assumptions and information with the Environment Agency and gain agreement before using them within a water resources management plan. 3.1 Deployable output Deployable output is a building block in determining water supplies available for use by a company and is defined as: The output for specified conditions and demands of a commissioned source, group of sources or water resources system as constrained by; hydrological yield; licensed quantities; environment (represented through licence constraints); pumping plant and/or well/aquifer properties; raw water mains and/or aqueducts; transfer and/or output main; treatment; water quality; levels of service. How to account for water company levels of service within a water resources management plan is discussed in detail in section 2.9. How to account for bulk supplies is covered in section 3.5 Water resources planning guideline interim update 35 of 202

3.1.1 Deployable Output Assessment A water company should present what water it has available from its own sources using the methods outlined below. Within its plan, a water company should: explain how it has assessed deployable output; demonstrate how deployable output incorporates the company s planned level of service; describe any recent changes to deployable outputs. A company should include its deployable output assessment in its planning tables. A water company should quantify the effect of its levels of service on its deployable outputs to give both its customers and the regulators an understanding of the effect level of service has on deployable output, and ultimately on the water available for use (WAFU). The water resources management plan should be based on a water company s planned levels of service. A water company should gain agreement with the Environment Agency on the assumptions included in its deployable output assessments and on the deployable outputs used in before consulting on its water resources management plan. 3.1.2 When to update Deployable Output A water company may not need to review its deployable output if there has been no significant change in its sources or supply system and if there has been no changes to its planned level of service since its previous water resources management plan. A new assessment of a company s deployable output will be required if one or more the following list of criteria applies: a) a company was instructed by Defra or the Welsh Government to review its deployable output from its last water resources management plan; b) a company has implemented new resource schemes or significantly changed its supply system since it made previous deployable output estimates; c) a company has undertaken new work on the deployable output of existing sources, including any changes in output connected with environmental or other obligations; Water resources planning guideline interim update 36 of 202

d) a company has changed its planned level of service; e) a company has revised data that it has used in previous deployable output assessments; f) a company has experienced a drought which may either be critical when viewed in the context of the existing record on which deployable output has been assessed, or the performance of resource(s) were different from what was expected/modelled; g) a company is proposing further supply side resource development within the water resource zone; h) the previous assessment method is inadequate to determine the impacts of levels of service on deployable output as outlined in section 2.9. Even if the above criteria do not apply, a water company should consult with the Environment Agency during the pre-consultation phase in order to assess to what extent its calculations for deployable output in its previous (2009) water resources management plan are still valid and can be carried forward into the new plan. Where previous deployable output assessments are still valid, the Environment Agency will still expect the company to undertake deployable output assessments for both the no restrictions and reference levels of service scenarios identified in section 2.9 if these have not already been provided. Where deployable output assessments require updating, a water company should analyse and report any revisions at least as thoroughly as the yield assessment work carried out in 1997 (following UKWIR guidance) and subsequent updates. A water company should discuss any revised estimates with the Environment Agency before starting to prepare the water resources management plan. 3.1.3 Methods water companies should use to calculate deployable output The methods used for calculating deployable output have been reviewed as part of the UKWIR WR27 water resources planning tools project (WR27). Drawing on previous methodologies, WR27 provides a framework which allows the level of analysis in assessing deployable outputs to be proportionate to the nature of the supply system and the risks to both supplies and the environment. While source output assessments may be suitable methods of assessing deployable output for some supplies, such an approach alone may be inadequate for other sources. For example, groundwater source output assessments based on a relatively short period of operational data alone may not include notable dry years to properly test the reliability of a source. Alternatively, a groundwater source calculation by an over simplified source Water resources planning guideline interim update 37 of 202

output assessment may underestimate the output of a source when used conjunctively. In such cases, a behavioural approach supported by catchment / aquifer assessments as presented in the Unified Methodology 14 (UKWIR/Environment Agency, 2000) and developed in WR27 may be appropriate. Determining the correct level of investigation for deployable output as proposed in the WR27 framework could be an iterative procedure and may require additional analysis and/or modelling to support investigations. Consequently for draft plans, companies should review existing methods for the calculation of deployable output, progress with incorporating levels of service into deployable output assessments (as outlined in section 2.9), and set out how they will further improve deployable output assessments where necessary. Where companies have already implemented an appropriate assessment method, this also should be reported in the draft plan. The Environment Agency will use table WRP1a BL Licences information on description of constraints, impact of climate change, vulnerability to climate change, WR27 confidence rating, and the period of record, along with local knowledge to inform its view of the deployable output assessment method for the plan. Companies should seek further clarity on assessment of deployable output and on the implementation of the findings of WR27 from the Environment Agency if necessary. The methods allow some flexibility around what is included within deployable output. A water company should clearly state what it has included and excluded in its deployable output calculations. For example, deployable output assessments may include all or some process losses, raw water operational use and raw water losses. 3.1.4 Data requirements for deployable output assessment A water company should assess its deployable output (DO) against a reliable, long-term record of resource conditions, using records that date back to at least 1920. Companies should use rainfall and other data to model the period back to 1920 if direct river flow or groundwater level records are not available. This period covers a range of different conditions including most of the known severe droughts in the last hundred years. Companies with concerns about hindcasting should discuss this with local Environment Agency teams. 14 UKWIR/Environment Agency, 2000, Unified Methodology for the determination of deployable output from water sources volume 1 (00/WR/18/1) Water resources planning guideline interim update 38 of 202

Where a water company believes that droughts prior 1920 could affect deployable output, it may carry out further work to assess the likely impact of these events. In doing so, the company should consider the relationship with level of service, and whether any reduction in DO could be offset by a change to customer level of service. The Environment Agency will closely scrutinise the impacts of a significantly extended record length on the plans. In some instances, it may be appropriate to use records which commence after 1920. The decision to use shorter records will depend on the nature of the source and supply system, the impact of levels of service on deployable output and the availability of data. Where this is the case, the company should provide a clear justification of its choice in record length. A company should determine the confidence rating for its source DO s as proposed by WR27, and should explain the reasons where it cannot obtain the highest confidence rating. Historic and naturalised time series data used for deployable output assessment should be kept up to date, especially where 2011/12 may have been a significant dry year. Since the full reassessment of yields report in 1997 15, different areas of England and Wales have experienced significant droughts. Companies should undertake sensitivity checking of results, especially for assessments based on shorter records, by comparing modelled outputs with periods of known droughts. This will help give confidence that the DO assessment is robust. 3.1.5 What is expected from water companies A water company s deployable output assessment should: report deployable output for each of its sources or conjunctive use schemes in the accompanying planning tables. Companies should ensure WRP1 BL Licences is fully completed including presenting details of all unused licences; describe where the sum of deployable outputs does not aggregate to the water resource zone and the reasons for this. Where sources are operated conjunctively, provide an explanation of the conjunctive use benefits and system constraints; describe any changes to its supply system / deployable output calculation since the 2009 plans and summarise where these have led to a revised deployable output; present the data sources that have been used in the deployable output assessment, distinguishing between recorded and simulated data; describe the length of data record used for the assessment of deployable output and a brief description of critical event(s) which define deployable output; 15 Environment Agency (1997): Reassessment of water company yields. Water resources planning guideline interim update 39 of 202

justify the choice of period of data if it does not extend back to at least 1920 and include recent drought events; fully describe the assumptions used in the deployable output assessment and identify areas of significant uncertainty; where deployable outputs are resource constrained, present a clear understanding of the event(s) which constrain it and a comparison against known drought events; clearly identify non-hydrological constraints and where appropriate, identify options to remove constraints for inclusion within the company s options appraisal; report the length of data record used and the worst event deployable output has been based on; demonstrate that deployable output is capable of meeting the company s proposed levels of service; report on progress and proposed future work on linking levels of service to groundwater deployable outputs including categorisation of its sources into the 3 cases outlined in section 2.9.1 present deployable output for the three levels of service scenarios described in section 2.9 and summarise any differences in assumptions between the scenarios; where appropriate, present a graph showing relationship between levels of service and deployable output ensure that where appropriate, the impacts of alternative levels of service have been carried forward to the company s options appraisal; provide further information and assessments as necessary to support the deployable output figure used in the supply-demand balance. 3.2 Reductions in deployable output Temporary short-term losses in deployable output that a water company plans to deal with should be included in outage (see Section 3.4). Medium-term and longer-term loss of deployable output from sources should be considered as reductions in deployable output. 3.2.1 Sustainability changes Some current water company abstractions are thought to have a detrimental effect on the environment. Either the water company or the Environment Agency will investigate abstractions which are suspected of causing harm to the environment. Where abstractions are confirmed to be causing a problem, the Environment Agency requires water companies to find and implement solutions to those problems and will work with companies to find workable solutions including alternatives to licence changes. The Environment Agency will formally notify water companies what changes are required to their abstraction licences to make them more sustainable. Water companies should calculate the impact of these changes on deployable output and express the impacts as sustainability reductions. Water resources planning guideline interim update 40 of 202

Sustainability reductions may be required to protect international or national designated conservation sites (Habitats Directive, Sites of Special Scientific Interest (SSSI) or Biodiversity 2020 sites), to protect locally important sites (undesignated sites) or to deliver Water Framework Directive (WFD) objectives. The cost and benefits of sustainability reductions must be considered. Solutions to protect the objectives and requirements of the Habitats Directive, Wildlife and Countryside Act and WFD must be cost-effective. Solutions to meet other drivers must be cost-beneficial, taking account of the need for customer support. The Environment Agency and Ofwat will work with water companies to understand the costs and benefits of individual sustainability change proposals. Solutions to meet WFD objectives should be affordable for the sector implementing them and not disproportionately costly. The Environment Agency will give Defra and the Welsh Government information on the anticipated overall cost of solutions to deliver WFD objectives. Defra and the Welsh Government will advise on what they each consider to be affordable for the water industry sector. This could mean that some non-statutory costbeneficial sustainability changes are not implemented if Government decides that they are too expensive. In time, the Environment Agency will make changes to the conditions of individual licences to implement the sustainability changes. The Environment Agency will do this in close consultation with the individual water companies to maintain security of public supplies. 3.2.2 Investigations and options appraisal Water companies are leading, or closely involved in, water resources investigations into their abstractions, including some WFD investigations. Where appropriate, they are also developing solutions to resolve identified issues. The Environment Agency is also leading a large number of WFD investigations into abstraction related issues. Not all investigations will be complete by the time that water companies prepare their draft water resources management plans. Many investigations should be complete by the time that water companies prepare final water resources management plans. However, in some cases they will find that the solution is not clear and that further investigation is required. Lead Environment Agency contacts will keep companies updated with progress on investigations through the Restoring Sustainable Abstraction (RSA) site listings where there is a water company interest, including any additions brought about by the Water Framework Directive. Water companies should ensure that their investigations and options appraisals proceed to plan, and are completed in time to inform final water resources management plans. Water resources planning guideline interim update 41 of 202

3.2.3 What sustainability change information will the Environment Agency provide? In order to progress draft plan development where there is incomplete evidence on the exact sustainability changes that will be required, the Environment Agency will provide companies with both confirmed and likely sustainability changes, by driver, as changes to licence conditions. Likely sustainability changes will only include changes under statutory drivers. This approach is intended to allow for incomplete knowledge on exactly what sustainability changes will be required so that companies can plan to meet government expectations. Confirmed and likely changes will be based on water company and Environment Agency investigations and options appraisal, as appropriate. A confirmed change will show the actual change required to a licence to protect the environment following completion of both an environmental investigation and an options appraisal. A likely change will show the proposed change required to a licence under statutory drivers that the Environment Agency believes is necessary to protect the environment. Likely changes will be based on the best available information on environmental impact. The Environment Agency will formally notify water companies of the sustainability changes required for inclusion in draft and final water resources management plan in August 2012 and August 2013, respectively. This will include both confirmed and likely sustainability changes. The Environment Agency will also provide details of ongoing investigations where there is insufficient evidence to determine a sustainability change to a licence. As water resources investigations progress, the Environment Agency and water companies will know more about environmental requirements in August 2013 than in August 2012. Thus, we expect that the number and volume of confirmed sustainability changes will be greater in August 2013 as likely changes are confirmed or modified. Our aim is that the total volume of confirmed and likely sustainability changes should not change markedly between August 2012 and August 2013. The Environment Agency will seek to avoid providing such different sustainability change figures in August 2013 that this could cause a material change to a company s plan. The Environment Agency will continue to work with water companies to progress investigations and options appraisals, including non-licence change solutions, to increase certainty around future sustainability changes required. The Environment Agency will work with water companies as they implement sustainability changes. It will provide companies with regular updates to the confirmed and likely sustainability changes as investigations continue. The Environment Agency provided water companies with its initial assessment of the confirmed and likely sustainability changes required in July Water resources planning guideline interim update 42 of 202

2012. The Environment Agency provided water companies with formal notification of confirmed and likely sustainability changes in August 2012 as part of phase 1 NEP. The Environment Agency will formally notify water companies of the sustainability changes required for inclusion in final water resources management plans in August 2013 as part of phase 3 NEP. 3.2.4 How should a company account for sustainability changes? Companies will have to convert both confirmed and likely sustainability changes to changes in deployable output. Companies should explain how sustainability changes are converted in to sustainability reductions and hence, their effect on deployable output. Companies should enter both confirmed and likely sustainability reductions in the appropriate resource zones in the baseline supply-demand balance. This will result in a reduction in the water available for use (WAFU) in those zones. Companies should then use the usual supply-demand balance approach to assess whether this causes, or increases, a deficit during the planning period. If it does, they should follow the usual options appraisal process to determine the preferred options set to maintain their supply-demand balance. Companies should clearly list all sustainability reductions in the water resources planning tables. When referring to a particular sustainability reduction, a water company should use a name or scheme identification that it has agreed with the Environment Agency. Scheme names shown in water resources management plans must match those shown in the water company s business plan. Companies should not make any allowance for sustainability reductions in headroom. Although the headroom methodologies make allowances for uncertainty due to these, we do not expect companies to include such figures. Defra s White Paper, Water for Life explained that Defra, Ofwat and the Environment Agency were working to identify how best the water resource management planning and price review processes could work together as a means of identifying and financing sustainability reductions under the Restoring Sustainable Abstractions (RSA) programme. In particular, government and regulators want to make sure that such an approach will achieve better outcomes for consumers than under the existing compensation process, and provide the right incentives for water companies. Subject to a satisfactory conclusion to that work, companies forecasts of deployable output should take account of sustainability reductions under the RSA programme. The Welsh Government also wants to ensure that water company forecasts take account of any sustainability reductions under the RSA Programme. Water resources planning guideline interim update 43 of 202

3.2.5 What is expected of a water company which has sustainability changes? Water companies should assess the costs and benefits of implementing sustainability changes, both individually and in combination. Regulators expect water companies to perform scenario analysis to show the potential impact of sustainability changes on their plans. As a minimum, this should assess the following scenarios: only confirmed statutory sustainability changes and likely sustainability changes (which will be under statutory drivers); confirmed, likely and where appropriate and agreed, pragmatic estimate of additional changes. Water companies should agree appropriate scenarios with local Environment Agency teams. In particular, a company s scenario analysis should indicate at what point changes to the scale of sustainability changes would change the options set required. Companies should also explore the sensitivity of their plans to these scenarios in combination with other uncertainties such as climate change and population growth. This approach should help companies to decide on an appropriate and flexible set of options. Scenario testing will be particularly critical when drafting the water resources management plan as it will allow water companies and their stakeholders to understand the impact of future sustainability changes on companies plans, the solutions required, the cost of the solutions and the impact on bills. More details can be found in Section 8.0. Water companies must have customer support for any proposed solutions to non-statutory sustainability reductions. This could take the form of willingness to pay evidence or other support for specific solutions. Customer support can only be used as a factor to justify solutions to non-statutory sustainability reductions where the reduction is confirmed by the Environment Agency. For each sustainability change scenario assessed, water companies should clearly set out the licence change(s) assumed, the impact on deployable output, the date(s) effective and the options set required (including dates options would need to be implemented and costs). Water companies should show how the options required for these scenarios compare to the proposed solution for the confirmed plus likely changes. Water companies should work with the Environment Agency on environmental investigations to increase certainty around future sustainability reductions. Companies should plan to implement large likely sustainability changes from 2020. A large change is one that would trigger a major or contentious scheme. Companies should plan to implement all other licence changes as soon as reasonably practical and discuss implementation plans with the Environment Agency. Companies should continue to assess the Water resources planning guideline interim update 44 of 202

consequences of sustainability reductions after they have published their final plans. A water company can make voluntary reductions in deployable output for environmental benefits, even if the Environment Agency has not specified a reduction is required. In these cases water companies should list the reduction in table WRP1 BL Supply as a voluntary sustainability reduction. Any schemes that are required as solutions to such voluntary reductions will need to be financed by the company s shareholders. All sustainability changes should be listed: Within the main report, the company should provide the detail behind the reduction, including the reason for it, the benefit from it and the impact on the supply-demand balance. Scheme names should be agreed with the Environment Agency to ensure transparency. Within the water resources planning tables, showing how each change will affect the deployable output. 3.2.6 How will the regulator scrutinise sustainability changes? The Environment Agency will check that water companies have included the confirmed and likely sustainability changes that they were notified of by the Environment Agency. The Environment Agency will evaluate how the water company has assessed the impact of sustainability changes on deployable output. Ofwat will work with the Environment Agency to decide if the sustainability changes the company has proposed are correct and will be involved in scrutinising options the company has identified to solve any deficits to ensure that they are cost effective and cost beneficial where appropriate. 3.2.7 Abstraction Incentive Mechanism Ofwat is developing an Abstraction Incentive Mechanism (AIM) to incentivise companies to reduce damaging abstraction in areas not yet covered by the Environment Agency s Restoring Sustainable Abstraction programme. AIM is an incentive, and not a requirement, for companies to reduce environmentally unsustainable abstractions.. Companies should only take into account sustainability reductions that they have agreed with the Environment Agency in their plans, and should not factor any implications of the AIM into their forecast of deployable output 3.3 Impacts of climate change on water supply A water company must assess the likely impact of climate change on its plan and report the likely implications for deployable output. A water company should agree the vulnerability of the sources to climate change with the Water resources planning guideline interim update 45 of 202

Environment Agency before undertaking the climate change impact assessment, and should include the findings of the assessed impacts of climate change when forming its plan. Where a company believes that climate change is having an immediate impact upon its deployable output, it should present the evidence for this in its plan. 3.3.1 Assessment of the impacts of climate change on water supply In summer 2009, Defra published revised climate change projections known as the UKCP09 scenarios 16. The Environment Agency has worked with the water industry to research and develop suitable methods to use these new projections for water resources management plan assessments. The following guidance builds on the methods developed through the joint UKWIR and Environment Agency project Climate change in water supply planning 17 with particular reference to using the detailed tools and probabilistic climate data available from the UKCP09 climate change projections. A water company should assess the effects of climate change on resource zone deployable output by assessing the implications of climate change on river flows and groundwater recharge. A water company should also assess the impact of climate change on any future supply options through its options appraisal process. The following sections outline the methods that a water company should use to assess the effects of climate change on deployable output. This guidance represents the minimum analysis that is required A water company can carry out further and more detailed analysis, and should discuss its approach with the Environment Agency and Ofwat during the pre-consultation stage. 3.3.2 Methods water companies should use to determine climate change impacts on water supply The methods a water company uses to assess the effect of climate change on deployable output should be proportionate to the risks presented by climate change to each water resource zone. A water company should undertake an initial vulnerability assessment in order to determine how vulnerable a water resource zone is to the effects of climate 16 Defra, June 2009, Adapting to climate change - UK climate projections 2009 http://www.defra.gov.uk/publications/files/pb13274-uk-climate-projections-090617.pdf 17 Environment Agency (final, 2012) Climate change approaches in water resources planning Overview of new methods (EA report SC090017/SR3) Water resources planning guideline interim update 46 of 202

change. The outcome of this assessment will help identify the appropriate level of climate change assessment. 3.3.3 Vulnerability assessment A water company should carry out a basic climate change vulnerability assessment for each of its water resource zones. A vulnerability assessment is based on current knowledge of the water resource zone from the preparation of water company drought plans and from analysis undertaken for water resources management plans. A vulnerability assessment should provide a summary of the information available to determine water resource zone vulnerability to climate change, and provide references and links to more detailed information as appropriate. A company should summarise its vulnerability assessment and should include; a magnitude versus sensitivity plot of deployable output change from previous climate change assessments; a table summarising the information which will be used to determine the final vulnerability of a resource zone to climate change; a justification for the derivation of the vulnerability assessment from the above sources of information. An example of further work companies may choose to do includes the use of the intermediate vulnerability assessment methods using UKCP09 projections as described in the Environment Agency/UKWIR report Climate Change in Water Supply Planning 18. Magnitude Sensitivity plot of deployable output due to climate change An example of the magnitude versus sensitivity plot is provided in figure 3.0 below. The plot should use the latest information from a water company s assessment of climate change impacts on deployable output produced for the previous water resources management plan. It should show the change in deployable output for the mid climate change scenario plotted against the uncertainty range, calculated as the difference between the wet and dry scenarios. The results for each of a water company s water resource zones should be displayed on the same plot. Figure 3.0 - Climate change mid scenarios % change in deployable output versus uncertainty range (deployable output change %) for water resource zones 19 18 Environment Agency (final 2012) Climate change approaches in water resources planning Overview of new methods (EA report SC090017/SR3) 19 Taken from - Environment Agency (final, 2012) Climate change approaches in water resources planning Overview of new methods (EA report SC090017/SR3)) Water resources planning guideline interim update 47 of 202

A water company should use the results from the magnitude versus sensitivity plot to identify the vulnerability classification for each water resource zone using the vulnerability scoring matrix below. Uncertainty range (% change wet to dry) Mid Scenario (% reduction in deployable output) < 5% > 5% > 10% <5% Low Medium High 6 to10% Medium Medium High 11 to15% High High High >15% High High High The vulnerability classification result should be included in a table in the plan summarising the vulnerability assessment information. Water Resource Zone Climate Change Vulnerability Assessment Requirements The information required to inform the vulnerability assessment is presented below in Table 3.0 of these guidelines and includes the results of the vulnerability classification. Water resources planning guideline interim update 48 of 202

3.3.4 Identifying the most appropriate level of climate change assessment A water company should discuss the appropriate level of climate change analysis (i.e. low vulnerability or medium/high vulnerability) for a water resource zone with the Environment Agency during the pre-consultation phase of the water resources planning process. The discussions should be informed by the results of the vulnerability assessment, and include the resulting climate change analysis proposed for the water resource zone. Ofwat will need to understand what is agreed at this stage of the process to ensure that it is aware of the key issues, discussions and decisions which are made; however this will not be through direct attendance at meetings. Water companies should provide Ofwat with key outputs from meetings with the Environment Agency. The decision tree in figure 3.1 shows the climate change analysis options recommended for the two different levels of water resource zone vulnerability and represents the minimum required for a water resource zone of the specified vulnerability. Figure 3.1 has been adapted from figure 4.1 in the Climate change approaches in water resources planning Overview of new methods report. A water company can carry out additional climate change analysis to improve its understanding of the response of its water resource zones to climate change if it wishes to do so. Any climate change assessment work that is outside of the methods recommended in this guidance should be discussed during the pre-consultation stage with both the Environment Agency and Ofwat Companies should make a robust assessment of the impacts on climate change for schemes which are driven by non climate change factors and where the water resource zone is considered to have a low vulnerability to climate change. Water resources planning guideline interim update 49 of 202

Table 3.0 - Information required for the water resource zone climate change vulnerability assessment Description Source Comments Presentation Critical drought years (top three) Period used for analysis (historic flow or groundwater level record) Sources Supply-demand balance (base year) Security of water supply and/or water scarcity indicators Critical climate variables (e.g. summer rain, winter recharge etc.) Climate change deployable outputs (dry, mid, wet scenarios from 2009 water resources management plan s) water resources management plan/ drought plan water resources management plan/ drought plan water resources management plan water resources management plan June return (or equivalent) or adaptation reporting power reports Drought plan/ water resources modelling work. water resources management plan Need to state if different for surface water and groundwater sources. Important to help understand the return periods of droughts considered. Sources of water and key characteristics (surface water, groundwater and transfers etc) This should clearly state the current water resources position and outline the key assumptions. Information can include security of supply and/or volume of licences at risk. Need to identify if this is different for surface water and groundwater and comment on the importance of each/ the split between the two in the resource zone. State methods used to identify the effects of climate change rainfall runoff modelling, flow factors etc. List in a table List in a table Tables or maps Tables Tables or a map Tables and/or illustrative graphs showing climate and critical flows/groundwater levels at key locations/sources. List in tables and present graphically Water resources planning guideline interim update 50 of 202

Description Source Comments Presentation Adaptive capacity (list of available sources and drought measures) Sensitivity (Low medium or high) Vulnerability classification Identify overall vulnerability and proposed climate change assessment method. Drought plan 2009 water resources management plan climate change assessment results or later assessments if available Comment on sources and potential for long term usage including performance during dry periods. Information on whether the source is licence constrained or resource constrained. How sensitive is the resource zone to changes? Are any of the sources particularly affected by drought? Does a change in climate change scenario have a significant effect on resource availability? Based on magnitude versus sensitivity plot for % change in deployable output. Taking the above information into consideration, identify the vulnerability of the resource zone, and make a proposal as to the methodology to be used for climate change assessment in the 2014 water resources management plan. List in table. List in table Report Low/Medium/High from the vulnerability scoring matrix. Report justification Water resources planning guideline interim update 51 of 202

Figure 3.1 - Decision tree showing the climate change analysis options Water resources planning guideline interim update 52 of 202

3.3.5 How to estimate deployable output under climate change Once a water company has carried out its vulnerability assessment and agreed the appropriate level of climate change analysis required with the Environment Agency, it should estimate the impact of climate change on deployable output using a four stage approach; Stage 1 calculate river flows and/or groundwater recharge/levels for a water resource zone in the 2030 s, under the number of climate projections appropriate to the level of assessment being carried out. Stage 2 calculate deployable output for the water resource zone in the 2030 s under each climate projection being assessed. Stage 3 scale the impacts of climate change by determining the change in deployable output for each year of the planning period and input these figures into the water resources planning tables (WRP1 BL supply). Stage 4 determine the uncertainty associated with climate change for inclusion in target headroom. 3.3.6 Detailed description of each stage Stage 1 Calculate river flows and/or groundwater recharge levels A water company should use the methods listed below to calculate the effects of climate change on river flows and/or groundwater recharge/levels. The vulnerability assessment for a water resource zone will determine which methods are used. Low vulnerability water resource zones A resource zone that has been identified as having low vulnerability can, as a minimum, use approach 1.1, 1.2, 1.3 or 1.4 from the decision tree in figure 3.1 to perturb the historic time series sequence. Approaches 1.1 and 1.2 respectively draw on the 20 sets of climate and flow factors derived within the UKWIR (2009) 20 study. These factors were sampled from the full set of UKCP09 climate projections using Latin Hypercube sampling (LHS) for 70 river basins across the UK. 20 UKWIR (2009) Assessment of the significance to water resource management plans of the UK climate projections 2009 (Report reference no. 09/CL/04/11). Water resources planning guideline interim update 53 of 202

Approaches 1.3 and 1.4 respectively use the 11 sets of climate and flow factors from the Future Flows study 21. These factors are derived from eleven regional climate models (HadRCMs) developed by the UK Met Office s Hadley Climate Centre. Approach 1.1 uses a sub sample of up to 20 projections of UKCP09 climate factors (precipitation and PET) for each major river basin district across the UK to represent possible climate scenarios for the 2030 s. Factors for the 2030 s time slice (currently under development) will be available in November 2012 and will replace the 2020 s factors published in the UKWIR (2009) study. Once available, these climate factors should be used to perturb the historic climate sequence for use in rainfall-runoff and/or groundwater modelling to develop time series representing possible conditions in the 2030 s. Approach 1.2 uses flow factors derived from analysis of five climate projections sampled from the set of 20 within the UKWIR (2009) 22 study. These factors were derived at the major river basin level for the 2020 s. These factors can be applied to the entire historic flow sequence to create a perturbed record characteristic of conditions in the 2020 s. As these flow factors have not been updated to the 2030 s, companies will need to extrapolate the impact of climate change on deployable output with care. Approach 1.3 uses the climate factors (precipitation and PET) for the 2030 s derived from the 11 regional climate models. These factors can be used to perturb historic time series to create perturbed climate records, each representing possible conditions in the 2030 s. These climate records can be used in rainfall-runoff and/or groundwater modelling to develop 11 flow/level sequences. Approach 1.4 uses flow and groundwater level factors derived from the 11 regional climate models to create perturbed flow / level records representing possible conditions in the 2030 s. 21 Future flows and groundwater levels is a jointly funded project by CEH Wallingford, the British Geological Survey, Wallingford HydroSolutions, Defra, UKWIR and the Environment Agency. http://www.ceh.ac.uk/sci_programmes/water/futureflowsandgroundwaterlevels.html 22 UKWIR (2009) Assessment of the significance to water resource management plans of the UK climate projections 2009 (Report reference no. 09/CL/04/11). Water resources planning guideline interim update 54 of 202

When choosing between the alternative approaches, the water company should consider the geographical extent and resolution at which the factors have been derived. If the use of these simplified approaches indicates a risk of more significant effects on the water resource zone from climate change than previously identified through the vulnerability assessment, then a water company should implement one of the more detailed approaches for climate change assessment, reflecting the revised vulnerability status. The level of assessment required, based on the new information available, should be discussed and agreed with the Environment Agency and Ofwat. Medium and high vulnerability water resource zones From a water resource zone that has been identified having either medium or high vulnerability to the effect of climate change a company can, as a minimum, use approach 2.1, 2.2, 2.3 or 2.4 from the decision tree in figure 3.1. Approaches 2.1 and 2.2 use climate factors sampled from the UKCP09 data set. Approaches 2.3 and 2.4 respectively use the 11 transient climate and flow sequences from the Future Flows study. Approach 2.1 uses the UKCP09 data set, taking a Latin Hypercube sample of 100 projections from the full 10,000 population of projections. This sample size increases the confidence in the results obtained compared to the smaller sample size used for approaches 1.1 and 1.2. The 100 LHS sub-sample of the UKCP09 data should be used to produce sets of UKCP09 climate factors (precipitation and PET) to represent possible climate conditions in the 2030 s. These climate factors can be used to perturb an historic climate sequence which can then be used in rainfall-runoff and/or groundwater modelling to develop 100 flow/level sequences. Approach 2.2 uses a targeted sample of the UKCP09 data set, based on drought indicator analysis. This is a two staged process that involves undertaking a drought indicator analysis to determine the sensitivity of the system to water availability in drought conditions and then using the drought indicator to sample climate change projections. Details of the drought indicator analysis methodology are available in section 3.3 of the Environment Agency (2012) 23 report. A water company should only use this approach where a good correlation can be identified between the drought indicator analysis and supplies. The company 23 Environment Agency (final, 2012) Climate change approaches in water resources planning Overview of new methods (EA report SC090017/SR3) Water resources planning guideline interim update 55 of 202

should agree with the Environment Agency and Ofwat during the preconsultation phase of the water resources management planning process that it can use this approach. Where a water resource zone is confirmed as being sensitive to drought, then the UKCP09 data set should be sampled in two stages; First using LHS sampling to develop a minimum of 100 climate projections; Secondly, creating a sub-sample of this data set of a minimum of 20 scenarios, based on the drought indicator that selects sufficient dry samples in addition to achieving a representative spread of projections across the full sample. This approach avoids running a large number of projections that are not the focus of interest for water resources planning. The targeted subsample of the UKCP09 data should be used to produce sets of UKCP09 climate factors (precipitation and PET) for use in hydrological modelling which represent likely future climate conditions for the 2030 s. The perturbed climate data can then be used in rainfall-runoff and/or groundwater modelling to develop a minimum of 20 flow/groundwater level sequences representing possible conditions. Approach 2.3 uses the 11 transient climate data scenarios from the Future Flows project which can be used to carry out rainfall-runoff modelling to generate transient sequences for the river catchments or groundwater bodies of interest. These sequences can then be used in water resources modelling to test the resilience of a water resource zone to the changing flow/recharge conditions. Resource resilience can be tested in many ways, and will depend on the nature of the sources within the resource zone as to the most suitable method to use for this assessment. When applying this approach, the time period assessed should extend from the baseline through to the end of the period of interest. Where a company plans to use this approach, it should discuss with the Environment Agency its proposed methods of assessment. Where a water company chooses this approach, it should also use climate or flow/groundwater level factors developed from the Future Flows work to estimate the resource zone deployable output in the 2030 s (approaches 1.3 or 1.4 respectively). This is because it is not valid to calculate relative changes to deployable output using the Future Flows transient data as that is a data set with a synthetic climatic variability which is not directly comparable to the historic time series used in deployable output calculation. The assessment work carried out using the transient data in this approach will provide additional understanding of the likely effects climate change will have on a resource zone to support the deployable output assessment. Water resources planning guideline interim update 56 of 202

Approach 2.4 uses the 11 scenarios of transient flow and groundwater level data from the Future Flows project for direct input into a water resources model/groundwater model. Not all catchments will have been modelled for the Future Flows work and this approach will be restricted to use by water companies with an interest in the rivers and groundwater bodies modelled. This approach may provide a suitable methodology for any water companies which are still unable to conduct their own rainfallrunoff modelling. As with approach 2.3, the flow sequences should be used to test the resilience of the resource zone to changing flow conditions. When applying this approach, the time period assessed should extend from the baseline through to the end of the period of interest. Water companies with medium to high vulnerability water resource zones using approach 2.4 should discuss with the Environment Agency how they will move to develop rainfall-runoff/groundwater modelling assessment capability in the future. As with approach 2.3, if a water company is using this approach, it should also use flow factors developed from the Future Flows work to estimate the resource zone deployable output in the 2030 s. When choosing between the alternative approaches, the water company should consider the geographical location and the extent and resolution at which the factors have been derived. Where flow factors have been used, companies should explain why these have been used in preference to rainfall runoff-modelling. Water companies should also refer to the further considerations and case studies that are presented in the Environment Agency report (2012). For all levels of vulnerability of water resource zones, there may be practical limitations to the number of climate change projections that can be applied to detailed groundwater models and the most complex water resources systems models. In such cases sufficient climate and hydrological analysis should be completed to place a reduced number of runs in the full context of UKCP09 and Future Flows. Stage 2 Calculate deployable output for 2030 s Where a water company has developed perturbed flow, recharge or groundwater level series using one of the approaches outlined above (1.1, 1.2, 1.3, 1.4, 2.1, or 2.2), it should use the perturbed sequences to calculate deployable output for the 2030 s. The same period of record should be used for this assessment as was used to determine the baseline deployable output of the water resource zone or source. For example, if the current deployable output is estimated using data over the period 1920 to 2010, use the perturbed 1920 to 2010 series to calculate deployable output for the 2030 s. Water resources planning guideline interim update 57 of 202

For some supply systems, simplified modelling approaches may be sufficient and that companies should consider using models that emulate the performance of their more complicated systems models. A water company should identify and justify its choice of the modelled climate projection that it has selected to represent the best estimate of the impacts of climate change on baseline deployable output. This decision should be discussed with the Environment Agency and Ofwat during the pre-consultation phase of the planning process. In selecting the modelled projection to use for the planned deployable output, the company should consider the distribution of the modelled projections and the most likely climate change outcome, taking account of the impact of any sub-sampling. This selected value is used in stage 3 of the climate change assessment process to develop the data required for use in the planning tables. The other modelled outputs will be used to develop the climate change uncertainty distribution used in the headroom uncertainty assessment. Stage 3 Scale the impacts of climate change from the base year to 2040 A water company should scale the change in deployable output calculated in stage 2, for each year of the planning period. The water company should determine the scaled change to base year deployable output by using Equation 1 to extrapolate from 2030/31 onwards. In the equation Year is the year of interest. 24 Scale factor = Year 1975 2035 1975 (Equation 1) To avoid a step change in 2012/13 between baseline deployable output and the underlying trend, a water company should interpolate linearly between 2013/14 and 2029/30 (inclusive). This can be done by scaling the change in deployable output using Equation 2. Scale factor = Year 2012 2031 2012 (Equation 2) 24 This formula is based on the fact that the scenarios represent changes by the 2030 s (2035) relative to 1961-1990 (1975). Note that in these equations Year is the first year of the financial year for example, results for 2012 should be entered in planning tables against the year annotated 2012-13 Water resources planning guideline interim update 58 of 202

The scaled change in deployable output across the planning period as a result of best estimate of climate change impacts should be recorded in the water resources planning tables (WRP1 BL supply). Stage 4 Determine the uncertainty associated with climate change for inclusion in target headroom The impact of climate change is uncertain. The possible variation in deployable output can be estimated by modelling multiple projections form the climate data available. This represents the uncertainty in the climate change projections and is accounted for in water resources management plans though incorporation in target headroom. Water companies can include this uncertainty in two ways, depending on how they have calculated headroom. If companies use the 1998 UKWIR headroom methodology, we expect companies to use S8 for climate change uncertainty. Companies should calculate the range in deployable output from the modelled distributions and express these as percentages of the best estimate deployable output used directly within the tables. Companies should estimate the headroom point score assuming "Case 1" (scenarios distributed either side of the mean). If companies use the 2002 UKWIR headroom methodology, we expect companies to reflect uncertainty in S8 using the resulting deployable output distribution from the multiple scenarios run in stage 2. The estimate of deployable output ranges for use in target headroom will depend on the number and distribution of modelled projections around the best estimate climate change projection selected to estimate deployable output for the 2030 s for entry in the planning tables the level of risk the company is willing to take regarding the likely effect climate change will have on the water resource zone deployable output. The S8 headroom probability distribution for individual years can be derived by using the scaling equations from stage 3 above. A water company should report the effects of the climate change component in the target headroom assessment separately to the other components. This will allow the regulators and other interested parties to see the magnitude of climate change uncertainty included in the plan and compare it with other sources of uncertainty. Water resources planning guideline interim update 59 of 202

3.3.7 Use of climate change methodology in scoping feasible options Simplified approaches with a reduced number of climate projections may be used for options screening and appraisal. When assessing the impacts of climate change on options, companies should use the same approach to that adopted in assessing baseline deployable output. However, companies may use the distribution of the baseline deployable outputs to identify climate projections which best represent the likely uncertainty. For groundwater sources without operational data, it may not be possible to determine the impact of climate change on deployable output, in which case the company should be clear about the assumptions it has used. 3.3.8 What do we expect from water companies? A water company should: ensure impacts of climate change on deployable output are excluded from the baseline forecast and that the best estimate of the impacts of climate change on supplies should be reported separately in row 8.1BL of planning table 'WRP BL Supply'; undertake and present a basic climate vulnerability assessment for all resources zones; determine and agree the appropriate resource zone vulnerability level with the Environment Agency during the pre-consultation phase of the planning process; select an appropriate climate change approach and justify its choice; undertake the four stage climate change assessment in line with guidance or as agreed in discussions with the Environment Agency and/or Ofwat and report on its application including any assumptions made, identifying the climate / flow/ groundwater factors used; tabulate and summarise the results of the climate change analysis; detail further analysis undertaken to determine climate change impacts on deployable output; ensure selected schemes have been robustly tested against the impacts of climate change for zones where climate change vulnerability is low; describe and justify the selection of the best estimate climate projection for assessment of direct impact on the baseline deployable output and describe and justify how climate change results have been included within target headroom. Water resources planning guideline interim update 60 of 202

3.3.9 Other reductions in deployable output A company may also have to consider reductions in deployable output as a result of other causes. These include operational decline or loss of source due to long term pollution, build up of nitrates, pesticides or other water quality issues. A water company should explain in detail the need for any reductions, and provide supporting information in its plan. It should describe the reason and appropriate driver, for example drinking water standards, for any reduction. The company should consider whether options to restore capacity through treatment or other measures are appropriate, as part of wider options appraisal. 3.4 Outage allowance Outage is a temporary short-term loss in deployable output. A water company must determine if it will incorporate an outage allowance within its water resources management plan. 3.4.1 Determine outage allowance The outage allowance that a company can use within its water resources management plan can be developed by following the principles within the UKWIR report Outage allowances for water resources planning (UKWIR, 1995). In figure 3.2, a water company can view what components are required to build and justify an outage allowance. Water resources planning guideline interim update 61 of 202

Figure 3.2 - Summary of outage assessment Actual outage events observed/perceived by the company. These can be unplanned or planned. Outage Events Unplanned Planned Legitimate Outage Events Unplanned Planned The company process the outage event data it has collected to identify legitimate outages which cause a reduction in deployable output The legitimate outages are analysed to derive an outage allowance for inclusion in the water resources management plan Outage allowance within water resources management plan Water resources planning guideline interim update 62 of 202

The UKWIR methodology provides an assessment of outage risks and the opportunities to minimise them. A water company should use this method, but if a company decides not to it should: discuss its alternative approach with the Environment Agency and statutory consultees during the pre-consultation phase (or earlier); clearly explain within its water resources management plan why it has chosen a different approach and the risks of doing so. A water company should justify its outage allowances in relation to the likelihood of events recurring, given the magnitude, duration and timing of actual outages. This should be supported by recorded data. Where a water company does not collate data to support outage assessments, it should provide a plan to implement the collection of outage data and report on progress in its annual reviews. Outage allowance should be reassessed across the planning period where significant changes to the supply system are planned. A company should also include specific ways of addressing its particular supplydemand balance problem in its assessment of all its water management options. Where appropriate, this should include options to reduce the outage allowance. The company should justify the determined outage allowances and provide a clear audit trail in its water resources management plan. Definitions for technical outage terms have been clarified since previous guidelines and companies should use these technical terms (outage, planned and unplanned outage, legitimate outage, allowable outage and outage allowance) where applicable. Outage should be considered separately from target headroom. 3.4.2 How will regulators assess the plans? A water company should: include an outage allowance for each time step of the plan, assessed for each planning scenario and reflecting significant planned changes to a supply system; describe current data sources and data collection system, including perceived outage risks. Where a data collation system is not in place, the company should identify how it plans to improve data collection for future outage assessments; describe how legitimate outages have been identified from the outage data for a given planning scenario; summarise outages sufficiently to provide an overview of the risks to the resource zone; present all input data used in the analysis of outage allowance; Water resources planning guideline interim update 63 of 202

identify if the outage allowance has been developed following the principles within the UKWIR 'Outage allowances for water resources planning' 1995. If an alternative method has been used then: o provide evidence that the alternative has been discussed with the Environment Agency and statutory consultees during the pre-consultation phase, o justify the use of the alternative approach; where it has used the UKWIR (1995) method: o demonstrate the repeatability of the Monte-Carlo modelling results and report the number of modelled iterations, o describe any interdependencies within the Monte-Carlo modelling process, o justify the risk percentile adopted and describe and justify how the output of the modelling has been interpreted to select an outage allowance; summarise results of outage assessment by outage type and by sourceworks, where appropriate; explain differences in outage allowance between planning scenarios and with previous assessments; where appropriate, identify potential options for reduction in outage allowance for inclusion in options analysis. See appendix 7 for definitions. 3.5 Sharing and transferring resources including raw and potable water transfers / bulk supplies This section covers existing raw and potable water transfers and bulk supplies. For new details of potential new transfers and bulk supplies as an option to remove deficits please see section 6. Existing imports and exports should be shown as planned transfers for each time step across the planning period. For the baseline data, the volume used should be within the existing physical and operational transfer capacities and agreed between donor and recipient companies where it is an inter-company transfer. The existing maximum transfer capacity and its limiting factors should be declared and explained in the plan report. Companies should also explain any variation in capacity with the direction of transfer. Companies should ensure that the values used by a transfer donor match those used by the transfer recipient. Both donor and recipient companies should also explain how such supplies will be managed under a dry year scenario. Each company should set out any assumptions or conditions Water resources planning guideline interim update 64 of 202

that affect the reliable supply provided through the agreement and hence influence the water resources management plan. Where an agreement cannot be reached on the value to be used for an inter-company transfer, both companies concerned should clearly state the assumptions they have used in the plan and highlight the lack of agreement. The plan should include a list of any occasions when the full transfer was requested but has not been made including reasons agreed with the other company. 3.5.1 What is a water company expected to do? A water company should: provide details of existing transfers between its resource zones (and if a large transfer, show within a resource zone) and between it and neighbouring companies or other parties in its commentary. Transfers between zones should be presented in the WRP tables (WRP1 BL and WRP5 FP); state the maximum capacity of any transfers and explain any limiting factors currently in place and requirements. The company should also include a comment on the potential for the direction of transfer to be reversed; explain how transfers will be managed under a dry year scenario; explain the assumptions it has used about the reliability of those transfers and, in the case of inter-company transfers, information on agreements between the companies; detail any future transfers included in the preferred options set; liaise with other companies with which resources are shared to make sure reporting within each plan is consistent. 3.6 Treatment works Ofwat and the Environment Agency expect a water company to: describe treatment works losses within each water resource zone and show these have been calculated; where appropriate, provide diagrams and other supporting evidence for complex major works that can be used in preconsultation discussions with Ofwat and the Environment Agency. It is not expected that these will be published within the plan given potential security concerns; consider options to reduce losses where there is a supply demand balance deficit; ensure it has been consistent in its approach across all water resource zones. Water resources planning guideline interim update 65 of 202

4.0 What is the demand for water? Quick reference for this section Defining a normal and dry year demand. Forecasting population and property numbers. Understanding water company customer use of water. Reporting non-household demand. Leakage forecasts. What is covered in this section? All companies must develop robust demand forecasts based on assumptions about how water demands will change over the next 25 years, including an assessment of the impacts of climate change. When a water company is developing its model for demand, the company must consider Government water efficiency and demand management policies and aspirations. The water company should use the summary of current policies and aspirations presented in the guiding principles and explain in its plan how it has incorporated these into its forecast of demand. This section covers demand forecasting for both baseline and final planning scenarios depending on the options introduced. Companies should produce forecasts for the dry year (annual average) and for the dry year (critical period) where appropriate, along with a forecast of weighted annual average demand and a forecast of utilisation where a company has identified a supply-demand deficit. This section covers all parts of demand including: household consumption; non-household consumption; leakage; other minor areas of demand; calculating target headroom. The section outlines how a company can produce a population and property forecast and how to forecast consumption including the microcomponent approach. A company should provide a dry year (annual average) demand forecast and where it considers the dry year (critical period) is also relevant, it should also assess this. For each of these planning scenarios, the company should also provide forecasts of utilisation (where a supply demand deficit exists) and weighted annual average demand over the Water resources planning guideline interim update 66 of 202

planning period for the respective purposes of assessing the variable costs of feasible options and revenue forecasting. Water companies will be expected to provide data at an appropriate level of detail and confidence to justify the options they are considering in their plans. 4.1 What do the regulators expect from a demand forecast A water company must provide a clear audit trail to show how it has developed its forecast of dry year demand, critical period demand (if required), and weighted annual average demand. The following demand forecasts are required: For the dry year annual average) scenario: baseline dry year; o baseline weighted annual average; o baseline utilisation (where a deficit exists); o final planning dry year; o final planning weighted annual average. For the dry year (critical period) scenario, if relevant : o baseline dry year (critical period); o baseline utilisation; o final planning dry year (critical period); The baseline forecast should show how demands are expected to change in a dry year assuming existing management (including leakage detection) and water efficiency policies continue 25. The plan should describe the assumptions made about how aspects of demand will change through the planning period. The baseline forecast should take account of the demands of any customers in the company s appointed area served by retail licensees under the Water Supply Licensing regime. 25 As a minimum, achievement of the savings associated with water efficiency, leakage reduction and metering activities assumed in price limits up to 2015. Beyond that, companies should assume continuation of optional metering and agreed programmes of universal metering, maintain leakage at the forecast 2015 level (or include any leakage reduction associated with the optional and agreed universal metering programmes), and include any savings associated with water efficiency requirements that Ofwat will set out in its price review methodology, a draft of which is due to be published for consultation in Autumn 2012. All savings assumed in price limits were expressed in Ml/d. Water resources planning guideline interim update 67 of 202

Where a company predicts a deficit in its supply-demand balance, or its supply-demand balance is likely to differ from the baseline for any other reason, the company should also submit a final planning demand forecast. This will show forecast demand in a dry year after the options identified in the plan have been introduced. A company that has deficits in its supply-demand balance driven by a critical period should submit baseline and final planning forecasts of critical period demand. A water company can decide how to determine the critical period. If it is led by a factor other than demand, then this should be explained. The company should clearly describe the assumptions and supporting information it has used to develop its plan. As a minimum, the company s plan should: clearly describe the assumptions behind the base year and forecasts; explain how the current best estimates of demand have been reconciled with other parts of the water balance; describe the method used to develop the demand forecasts; confirm the use of dry year unrestricted/unconstrained demand in developing its demand forecast. The demand forecasts are a critical step in developing a water resources management plan and will enable the most appropriate solutions to be developed to balance the supply-demand balance. Companies should discuss these with the regulators at an early stage in the process. The company should confirm that it has used a dry year (a period of low rainfall) unconstrained/unrestricted demand for its demand forecast. 4.2 Defining a normal year and dry year base demand The water company has to define its base year demand to help forecast future demand. The base year demand should represent a dry year demand but it is very unlikely that actual out-turn demand would represent this. To be able to achieve the base year demand the water company should: Step 1 Collate out-turn data for base year. The water company should identify what factors may have influenced demand. For example, it could have been a wet year or if it was dry, customers may have faced restrictions. The water company should state what type of year it was. Water resources planning guideline interim update 68 of 202

Step 2 Adjust base year demand. The company can adjust the water balance estimates to produce an average weather base year. A clear justification and audit trail should be provided for any such adjustments and must be based on clear and detailed historical weather records. Step 3 Determine dry year demand. A company can either use an average weather base year or use out turn data and apply dry year factors to produce a base dry year demand. A company should define dry year conditions through analysis of historical trends of climatic and demand data. Within its water resources management plan, a water company should clearly show how it has produced the dry year base demand estimate. The company should describe the assumptions and adjustment factors it has used and support this with appropriate historical data. Water companies should use the 1995 reports Demand Forecasting Methodology and Forecasting Water Demand Components (NRA and UKWIR, 1995). 4.2.1 Peak forecasting A company that has deficits in its supply-demand balance driven by a critical period should submit baseline and final planning forecasts of critical period demand. Companies that submit a critical period scenario should: describe the type and duration of the critical period demand including when this demand typically occurs; describe the operational constraints that occur in the resource zone and how they affect managing the critical period demand; detail the assumptions made in developing the critical period scenario. The published Peak Water Demand Forecasting Methodology UKWIR 06/WR/01/7 provides a framework for companies to use. The main recommendations are: the need to link peak forecasts to the levels of service, incorporating a return period analysis; the need to assess peak demand in relation to a representative average demand, rather than average of each particular year; understanding and forecasting of peak demand and its constituents should be based on what is known about the combination of components at the time of peak total demand, rather than adding together peak values for each of the components; Water resources planning guideline interim update 69 of 202

rebasing is a key element allowing companies to estimate how the historic peaks would have looked if applied to the current customer base (metering levels, new properties etc); validation should be carried out at each stage to make the forecasts robust; the methodology identifies the key uncertainties and suggests methods to take them into account and incorporate into headroom. 4.2.2 Step 1 - Base year population and properties What is expected? The water company is expected to estimate population and property numbers for its base year per resource zone and provide a total for its company area. The base year will then be used to forecast population and property numbers into the future. Companies should use the methods outlined in: Methods of Estimating Population and Household Projections (Environment Agency, updated in 2012 26 ) Customer behaviour and water use - a good practice manual and roadmap for household consumption forecasting (UKWIR project 12/CU/02/11 27 ); Plus (in conjunction with the above) the reports of Demand Forecasting Methodology and Forecasting Water Demand Components (NRA and UKWIR, 1995). Applying these methods The main source of information for projecting current and future population and household numbers in England must be local authorities and local planning documents. In Wales, water companies should use the Welsh Government local authority population and household projections (see section 4.2.3.3 for further information). Companies should use information from the local authorities in Wales to determine the uncertainty associated with the projections in headroom. Water companies should work with their local authorities and use data that is included in local plans. An approach for doing this in England is set out in the revised report Methods of Estimating Population and Household Projections. 26 http://publications.environment-agency.gov.uk/pdf/geho0612bwsa-e-e.pdf 27 Customer behaviour and water use - a good practice manual and roadmap for household consumption forecasting http://www.ukwir.org/web/ukwirlibrary/94911 Water resources planning guideline interim update 70 of 202

The approach set out in the above report includes a spreadsheet that can be used to gather local planning data from local authorities. This is for current and forecasts of population and properties. Although local authorities are at different stages in producing their plans, we expect that all will have some planning information that can inform the planning process and companies should use it. If local authorities do not have any information available, a water company can use trend-based data instead, together with information gathered from discussions with local authorities, but should clearly indicate where this approach has been taken. Government expects the water company to keep in close contact with the local authority and provide an update as part of the annual review progress when the information becomes available. Companies should clearly describe the assumptions, modelling approaches and supporting information they have used to develop their population, property and household data and how they have produced data in areas where local planning data may not be available. They should record their discussions with local authorities and show the source of the data they have used for their forecasts. Where water companies have used a method that is different from the approach set out in the reports shown above, they must explain this. Where companies have amended local authority based figures by using their own data or by trend analysis, they must also clearly explain what they have done and why. Engagement with local authorities is an essential part of developing a water resources management plan. Water companies must set out the engagement they have had with local authorities in their plans. If water companies use a third party to develop their population and property forecasts, they must explain this and set out the engagement they have had with their local authorities. Government expects a water company to develop and maintain a close working relationship with local authorities to ensure future sustainable development that does not impede growth. 4.2.2.1 Base year population Companies are likely to estimate household population from company property billing data and customer survey occupancy information. They should explain how this information is derived in the plan. The estimates should account for the different occupancy rates of sub-categories of customers (for example, unmeasured, new build, optant etc.). Companies can assume that void, zero consumption or holiday home properties have no allocated resident population. Water resources planning guideline interim update 71 of 202

Companies should reconcile their resource zone population estimates with the latest published population data from local plans and the Office for National Statistics (ONS) and explain how they have done this. Allocation to resource zones Some local authority boundaries span more than one zone, so companies should describe how they have allocated the local authority populations to their resource zones. The report Methods of Estimating Population and Household Projections (Environment Agency, 2012) sets out a method to allocate the population to resource zones. One way to do this would be to include a table such as the one below, showing the proportion of each local authority population in each zone: Resource zone 1 Resource zone 2 Resource zone 3 Total Local authority 1 Local authority 2 Local authority 3 Local authority 4 20% 70% 10% 100% 5% 95% 0% 100% 10% 65% 5% 80% 2% 0% 5% 7% Smaller areas such as super output areas and output areas can provide better resolution population and household data. The approach in Methods of Estimating Population and Household Projections sets out how these can be used. Water companies should consider how best to use the available data to produce their figures. This should depend on the supply-demand balance in the water resource zone. Where a zone is in deficit then a company should consider whether data derived at output area level should be used to improve the results. For the draft plan, companies may need to project the population data forward by one year to obtain the base year population. To do this, companies can use any available and applicable, local data, or can assume current growth trends continue for one year if local data is not available. They should only use trend-based data as the basis for population forecasts where it is clear that local authority data is not available. The plans should explain any additional adjustments, such as: deductions for population associated with properties that are not connected to the public water supply network; adjustments based on trends; water company opinions or policies and population not fully reflected in official Water resources planning guideline interim update 72 of 202

plans and statistics. If a water company believes there is a large unaccounted for population, it will need to provide details on how it has worked with the local authority to consider this population and derive the information. It should show how it has included demand of this sector in its forecasts. The expectation is that water use will be very different to any other group. Holiday homes should also be counted with nonhousehold category unless they are on long term lets. A water company should present a resource zone breakdown of the measured and unmeasured household population, properties, assumed occupancy rate and PCC (see tables WRP2a BL Customers and WRP6a FP Customers). The total connected population data for a resource zone should agree with the sum of the household and non-household population estimates. Companies should provide information from occupancy rate surveys or other approaches they have taken to explain the breakdown, including size of sample, response rate and breakdown by customer groups. 4.2.2.2 Base year non-household population Non-household population is made up of people living in farms and communal establishments (for example, hospitals, prisons, educational establishments etc.). Companies should allocate a proportion of the total resource zone population to the non-household category to allow for this population. Buildings with a communal metered supply can also be included in non-household population but where the exact use is known then they should be included in the household population. Water companies should decide the most effective way to account for these properties and make the approach they have used clear in their plans. Companies could use the data on institutional population from the Department for Communities and Local Government (DCLG) household projections. Using local knowledge, companies should show the distribution of non-household population within water resource zones. A method for doing this is recommended in Methods of Estimating Population and Household Projections (Environment Agency, 2012). Companies plans should justify and describe any adjustments made to the base year communal population. Data from the 2011 census may be available to use in time for the final water resources management plans and may be used to supplement the data produced by the above method. The plan should describe the method used to estimate the remaining non-household population, such as those living on farms. This can be derived from company billing information and estimated occupancy rates. Water resources planning guideline interim update 73 of 202

Companies plans should justify and describe any population allocated to the unmeasured non-household category. 4.2.2.3 Base year properties The total number of billed properties, household and non-household, can be obtained from billing records. It should be possible to allocate the properties to resource zones using company billing system information (for example, post-codes). Local authorities should also provide information on the number of households. A company should compare and reconcile the total number of properties with the latest DCLG and Welsh Government household data, taking account of properties that are not connected to the public water supply. Both DCLG and Welsh Government have produced household projections for local authorities from 2008 to 2033 which can be used for the base year comparison: The DCLG published household projections in November 2010, for the English local authority areas for the years 2008 2033. DCLG plans to continue to produce these data. The most up to date projections available when the plans are being written should be used; updates to the DCLG household forecasts are likely to be available in early 2013. It may be necessary to update the projections using new information between draft and final plans. Companies should check their household figures against the figures produced by the DCLG household forecasts and explain any adjustments they have made. The Welsh Government has published household projections for local authority areas in Wales for 2008-2033. 4.2.2.4 Property breakdown Companies should divide the total number of properties into categories: measured households, unmeasured households and void households, and measured non-households, unmeasured non-households and void non-households. To develop forecasts, companies should understand base year demand so they should know how the customer base is made up. Companies should split the measured household properties into categories, each with its own PCC rate. These categories include new properties built in the year, change in occupancy, meter optants, compulsory metered, selectively metered and other changes to existing metering and customer Water resources planning guideline interim update 74 of 202

base. Each category should have a population produced using occupancy estimates from occupancy rate surveys (or other identified sources). Companies should use these categories. If companies use different categories, they must fully explain and justify why they have used them. Water companies may estimate the number of measured non-households from billing records. The number of billed unmeasured and void properties, both household and non-household, may also be taken from the company s billing data. If the company does not hold detailed billing records, it is expected to justify how it has arrived at the numbers. A water company should: allocate household data to resource zones using information from its billing system; determine the numbers of measured, unmeasured and void households and non-households from billing records; include a breakdown of measured households into more detailed categories (see table WRP2a BL Customers); justify any adjustments made for non-connected properties; explain how it has reconciled the resource zone property data with property and household size data provided by local authorities and other sources recommended in the revised report on Methods of Estimating Population and Household Projections. 4.2.3 Step 2 - Forecasting population and property numbers Having derived the base year, the water company should use this to forecast future population and property numbers. 4.2.3.1 Guidance for England and Wales The Government approach to spatial planning has changed in England. The Localism Act and revocation of Regional Strategies means that, except for London and in Wales, there are no longer regional housing targets, and local authorities are reassessing their housing forecasts. Separately, the Office of National Statistics also produces updated trendbased population projections which are used to derive household projections at a local level. In the context of these changes, the approach to forecasting used by water companies in England has been reviewed and updated for this round of water resources management plans to enable a consistent approach to be developed based on local authority plans. Water resources planning guideline interim update 75 of 202

ONS population at super output area level from the 2011 census is likely to be made available between November 2012 and February 2013. This means that it may not be available for water companies to use in their draft water resources management plans. When this does become available, the water company can decide whether to use it to update its final plan or update it at an annual review stage. If the company does use this information, it should clearly describe any adjustments it makes to it in the plan. 4.2.3.2 Guidance for England The approach to forecasting future population, households and occupancy is focussed on using information produced by local authorities. DCLG expects active engagement between water companies and local authorities. A water company should follow a hierarchy of information/data to be used if local authority information is not available. The most recent local authority plan based forecasts should be used to produce population forecasts. If no data is available from local authorities, trend-based data may be used instead. We recognise that whilst plan based property numbers will be available from most local authorities, population data may not be available. In this case companies could refer to DCLG trend based projections. An approach to this is set out in Methods of Estimating Population and Household Projections; Trend data can be used to check and validate the plan based forecasts. Where a water company uses trend data to develop or modify its forecasts, the method and results must be clearly explained. Allocation to resource zones Some local authority boundaries span more than one zone, so companies should describe how they have allocated the local authority populations to their resource zones. There are various approaches to this. One way to do this would be to include a table such as the one below, showing the proportion of each local authority population in each zone: Water resources planning guideline interim update 76 of 202

Local authority 1 Local authority 2 Local authority 3 Local authority 4 Resource zone 1 Resource zone 2 Resource zone 3 Total 20% 70% 10% 100% 5% 95% 0% 100% 10% 65% 5% 80% 2% 0% 5% 7% Smaller areas such as super output areas and output areas can provide better resolution population and household data. The approach in Methods of Estimating Population and Household Projections sets out how these can be used. Water companies should consider how best to use the available data to produce their forecasts. This should depend on the supply-demand balance in the water resources zone. Where a zone is in deficit then a company should consider whether data derived at output area level should be used to improve the results. Water companies should allocate the local authority projections to the appropriate resource zones associated with the locations for local developments, as identified from local development plans. Companies should consider local development information in more detail in resource zones forecast to be in deficit over the planning period. They should consider any available property pipeline information, indicating the location and size of new build activity when a zone is sensitive to short duration (five to ten years) projections. The information may also be useful when companies assess the geographical suitability of proposed new schemes. Engagement with local authorities as part of the water resources management plan process should help inform decisions. Population estimates of larger areas, such as those published for local authority areas, are more accurate than smaller areas. A water company should take account of the population distribution and local plans to allocate the projected data to resource zones. Companies should reconcile resource zone population and household forecasts with the published projections and describe and justify any adjustments to the totals in the plan. Water companies should update their forecasts between the draft and final water resources management plans if there is a change in the current available information i.e. a local authority produces a new set of plans. Water resources planning guideline interim update 77 of 202

4.2.3.3 Guidance for Wales The Wales Spatial Plan identifies key settlements for development to meet the future needs of people in Wales over the next 20 years together with other planning matters. The Wales Spatial Plan was adopted by the Welsh Government in 2004 and was last updated in 2008. The Welsh Government publishes the latest local authority population projections for Wales and ONS publishes the latest national population projections. The Welsh Government also publishes the latest local authority and national household projections for Wales. The local authority population and household projections are trend-based and use the ONS population estimates as their base. The data is available on the 28 Welsh Government s website. A water company supplying water to customers in Wales should: use the latest local authority population and household projections published by the Welsh Government; note that when looking at the projected population of Wales as a whole the national population projection for Wales produced by ONS should be used. A guidance leaflet 29 on using local authority population projections is available on the Welsh Government s website; Engage with the local planning authorities to consider and inform the Local Development Plans in their supply area. 4.2.3.4 Sub-divisions of household projections Companies should divide the final resource zone projections for household properties into measured and unmeasured categories according to the company s planned metering programme. The number of unmeasured households should decline and the number of metered customers to increase. Companies should also separate new build housing from existing housing stock and justify the differences in terms of population and occupancy. 28 2008 local authority population projections: http://wales.gov.uk/topics/statistics/publications/localauthority/?lang=en 2008 local authority household projections: http://wales.gov.uk/topics/statistics/publications/hseholdsummary08/?lang=en 29 Local authority population projections (2008-based) guidance leaflet http://wales.gov.uk/topics/statistics/publications/popprojectionsguidance08/?lang=en Water resources planning guideline interim update 78 of 202

How will the regulators scrutinise this work? The Environment Agency and Ofwat will look for clear indications that companies have: taken a logical and robust approach to determining the current population, household and occupancy in resource zones for the base year; followed the method for developing population, household and occupancy forecasts shown in the report Methods of Estimating Population and Household Projections has been followed or any alternative approaches have been explained and are justified; in Wales, fully explained how the latest local authority population and household projections published by the Welsh Government have been used; shown a clear link to local planning information and demonstration of engagement with local authorities; fully explained and justified any changes or adjustments made to the information that has been based on local; effectively used billing and survey data to differentiate household and property types (metered, un-metered etc.); understood and explained significant variations from existing forecasts; provided a high-level check against independently derived population forecasts. 4.2.4 Step 3 - Base year household demand 4.2.4.1 What should a water company produce? Water companies should produce a base year household demand. This should be produced from outturn data from the base year, with dry year factors applied. The company will then use data derived from population and property figures to help understand consumption. The base year should include agreed water efficiency and leakage targets as well as metering programmes. Companies should clearly describe and present the method they have used to arrive at base year demand and justify their approach. If a company has used a year with demand restrictions to develop its base year forecasts then it should explain any adjustments that have been made to normalise the figures. A company should also present information to show it understands how its customers use water. Water resources planning guideline interim update 79 of 202

4.2.4.2 How to produce the base dry year demand? Water companies should use outturn data from the base year, with dry year factors applied or demonstrate that no adjustments were required as the outturn year was a dry year. To check the base year demand, water companies should check the figures using consumption monitors either alone or with other companies that have a similar customer base. Guidance for developing consumption monitors is set out in Best practice unmeasured per capita consumption (UKWIR, 1999). Unmeasured per capita consumption Companies should derive average unmeasured PCC (and occupancy rates) using observed data from their consumption monitors. Using statistical techniques (for example, regression analysis) companies should extrapolate average PCC across each resource zone and explain the sources of data and how they have done this in the plan. The plan should describe the method used and explain how and why unmeasured PCC varies across the consumption monitor. This should include assessments of how geographical and socio-economic factors influence the range of PCC values. Companies with consumption monitors that show a considerable range of PCC values should investigate the reasons for high variability in PCC. They should reconcile the difference in PCC against different housing types and socio-economic factors across the consumption monitor and investigate the influence of other factors such as occupancy, mains pressure, monitor type, etc. This is important because companies should understand the reasons for variation in base year PCC to allow them to forecast PCC properly. Companies should describe their approach in the plan and explain the reasons for the variability in PCC. Those companies that identify issues with their consumption monitors following investigations should explain in their plan how they will address these. Measured per capita consumption Companies should use their billing data for metered households to calculate measured per capita consumption for the base year. If the company does not have enough billing information, it should follow the approach described for un-measured PCC above to produce average measured PCC (and occupancy rates) either from observed data or a measured consumption monitor or survey. If consumption monitor or survey data is not available, companies should apply a metering-effect factor to the observed unmeasured consumption data. Companies that use this approach should describe where the data came from, the method Water resources planning guideline interim update 80 of 202

they have used and justify the factors applied - in their plan. Companies that do not currently have their own measured domestic consumption monitor or survey should explain their plans for developing one or using others' data. Baseline micro-component per capita consumption A water company should understand its customers use of water. The use of micro-components should be used to justify a water company s current and forecast household consumption. Micro-components can be used to build bottom up forecasts as well as to check on a top down forecasts. It is very important for a water company to understand its customers. This will help to determine trends for future use and identify areas where demand savings could be made. In turn this will lead to effective targets for water saving campaigns which are very important when a company is in deficit. This concept is not new and a requirement to establish microcomponents has been in water resources planning guidance for over twenty years. A water company should provide a breakdown of unmeasured and measured household consumption into micro-component categories at water company level or by resource zone depending on the supplydemand balance. The level of analysis and detail should be appropriate to the resources situation at the resource zone level. Where a company or resource zone indicates a deficit in the supply-demand balance or a company is planning to develop water resources it should carry out a separate and detailed micro-component analysis for all zones. Water companies should set out the assumptions behind the demand forecasts, including details of consumption monitors and consumption monitoring results. A water company should decide at what level to provide data depending on its water resources situation. The UKWIR project 12/CU/02/11 A good practice manual and roadmap for household consumption forecasting, shows different tiered approaches to producing the analysis of consumption in different situations relating to data availability and the supply demand balance. Water companies should use these as appropriate to the level of data available and the supply-demand situation in individual resource zones. If there is not enough data available to complete an analysis of microcomponents at an appropriate level, then a water company should set out in its plans how it will obtain sufficient information to support its forecasts of demand in the next planning period. This could include working with other companies in similar areas or that have similar consumption characteristics. Water resources planning guideline interim update 81 of 202

The following micro-components should be used as a minimum and these are set out in WRP2 BL Demand: WC flushing Clothes washing Personal washing Dishwashing External use Miscellaneous (internal) use A water company can develop its own sub-components that fit into the categories above. For this round of plans, plumbing losses should be included in the miscellaneous category. The 12/CU/02/11 states that plumbing losses can make up a significant part of consumption and this is likely to be different between metered and un-metered customers. Where a company has data on plumbing losses, it should identify these separately within the miscellaneous category. A water company is should explain clearly how it has produced and used micro-components in its current data and forecasts of consumption including the sources of data. A water company should state the assumptions that underpin the base year estimates of unmeasured and measured PCC. It should explain how socio-economic and geographical factors influence the pattern of water use across the water company area and in each resource zone where information is provided. Where there are differences in the data, the water company should justify and explain this, providing enough evidence to give confidence in the results. If a water company chooses not to use the categories developed, it should explain why, so regulators and other interested groups can understand how the figures have been produced and be satisfied that they are correct. If the categories are too broad or a large volume of water is in a miscellaneous category the plan will be challenged. 4.2.5 Step 4 - Forecast household consumption 4.2.5.1 What should a water company produce? Using the base year demand, water companies should forecast demand over the 25 year period. The baseline demand forecast should show how demands are expected to change assuming, as a minimum, achievement of the savings associated with water efficiency, leakage reduction and Water resources planning guideline interim update 82 of 202

metering activities included in price limits up to 2015. Beyond that, companies should assume: continuation of existing metering polices for optional and agreed universal metering; maintain leakage at the 2015 level (or include any further savings associated with metering beyond 2015); savings associated with any water efficiency requirements that Ofwat will set out in its price review methodology. The plan should describe how the drivers of demand will change through the planning period. 4.2.5.2 How should a company carry out this work? Forecast micro-component per capita consumption The Environment Agency believes that the micro-component approach to forecasting demand is the best way for companies to understand their customers' demand for water and to identify the scope for changing water use. Using this approach, companies should consider how advances in technology, changes in society and the role of regulation will influence growth or decline in water use over the next 25 years. This approach considers how socio-economic characteristics influence patterns of water use and affect appliance ownership. Detailed examination of the components of demand will help the industry understand the variability in consumption between individuals and across different sectors. It also allows companies to test the implications of factors such as climate change. Water companies should ideally use micro-components to produce bottom up forecasts of demand, but many do not take this approach. If this is the case, they should use micro-components to check the top down approach and explain this in the plan. A water company should include a breakdown of forecast microcomponent PCC for unmeasured and measured households at water company level or for each resource zone for both the baseline and final planning scenarios. The level of analysis and detail should be appropriate to the resources situation at the resource zone level. Reduced analysis will be acceptable where limited issues arise. A company should undertake a full micro-component analysis where it expects a resource zone to show a deficit in the supply-demand balance, the planning process indicates a deficit in the supply-demand balance or Water resources planning guideline interim update 83 of 202

it is planning a water resources development. The Environment Agency expects the categories outlined in section 4.2.4 to be used as a minimum. The UKWIR project 12/CU/02/11 A good practice manual and roadmap for household consumption forecasting (2012), provides guidance on how to produce forecasts of consumption in different situations. Decisions should be taken at water company level on the likely changes to forecasts in consumption in future. Where the level of data available to a water company does not allow it to build a forecast of consumption at an appropriate level, then the company should show how it will obtain this data in future. Section 4.2.4.2 lists the typical micro-component categories that companies should use. Some residual or miscellaneous demand will remain. A company s plan should clearly describe the assumptions made about the make-up of miscellaneous use. Companies should clearly describe the assumptions that underpin each micro-component category. If companies choose to use alternative categories, they should clearly explain what each category includes. For this round of plans, plumbing losses should be included in the miscellaneous category. The CU02 project has stated that plumbing losses can make up a significant part of consumption and is likely to differ between metered and un-metered customers. Where a company has data on plumbing losses, these should be identified separately within the miscellaneous category. Water companies should consider how to collect and analyse plumbing loss data to improve their plans in future. Water companies should: describe the sources of data and the method used to forecast consumption, including the top down and bottom up approach ; describe the assumptions that underpin the demand forecasts with information about the growth factors used; for each metering category (optants, new property, change in occupancy, selected and compulsory metering) explain how the pattern of water use changes from baseline to forecast and justify the assumptions that underpin the growth factors. The impact of water metering and water efficiency Defra s Water White Paper set the expectation that companies should place an emphasis on managing demand in their water resources management plans and that further action will be needed to tackle demand pressures. All demand management measures must be thoroughly explored and tested as part of the options appraisal. Further detail on Government policy expectations are given in the guiding principles. Water resources planning guideline interim update 84 of 202

On 12 December 2011, the Welsh Government Minister for Environment and Sustainable Development, John Griffiths published a Written Statement which highlighted the Welsh Government believe it is imperative to take a long term approach to water resources planning to ensure that appropriate measures are being taken to consider the impacts of future demands and climate change on our water resources. Water companies should provide information on current and future planned demand management options and how these can be used to help manage the supply-demand balance. The Environment Agency expects to see evidence showing the cost of both baseline and future planning options. These could be over and above the measures taken to meet Ofwat s water efficiency requirements. A company s water efficiency policy should provide a framework to achieve its statutory duty to promote the efficient use of water. This will include delivery of the company s current metering programme and implementation of current demand management initiatives. A company s baseline forecasts should include savings that arise from its existing water efficiency policies up to 2015. Beyond that companies should factor in savings associated with continuing to meet their statutory duty to promote water efficiency. The plan should clearly describe the current and future water efficiency policies and the measures that a company has included in baseline household and non-household demand forecasts. A water company which provides just broad policies and numbers will not enable stakeholders to understand what measures are being carried out or planned. This will also make it easier for the company to identify and take remaining measures into the option appraisal. The plan should provide details of the expected water savings that have been assumed for each aspect/implementation measure of the policy. Companies should set out the assumptions they have made about the predicted water savings from undertaking water efficiency policies that are included in the options appraisal. Companies should comment on whether the predicted water savings will be sustained over time or whether they gradually change (for example savings from cistern displacement devices may decrease as households replace toilets). When creating demand forecasts, water companies should clearly set out how they have taken account of: the Code for Sustainable Homes; the introduction of water efficiency standards into Part G of the Building Regulations. The changes came into force in April 2010 and require that the estimated average water use of new homes is no more than 125 l/h/d; Water resources planning guideline interim update 85 of 202

Building Regulations have now been devolved to Wales and it is possible, therefore, that future changes could lead to differences between water efficiency provisions in England and Wales; local government regulations relating to future water use within homes such as those in the Greater London Authority; available evidence on water saving devices, as demonstrated by studies such as those undertaken by Waterwise; the UKWIR report 12/CU/02/11 accounting for water saving for different categories of water saving devices. What metering to assume in baseline demand forecast? Water metering can reduce water consumption, especially when combined with other measures such as customer education, promoting awareness of water use and tariff structures. The impact of a water company s metering policy should be included in its forecast of future consumption. The UKWIR project 12/CU/02/11 A good practice manual and roadmap for household consumption forecasting (2012) highlights the impacts that transition to metering can have and presents options for adjusting forecasts of consumption to take account of metering. Water companies should use these or other approaches to adjust for the impact of metering on consumption, and should clearly set out the methods and assumptions they have used for the adjustment. The baseline demand forecast should include the impact of metering programmes included in price limits up to 2015. Beyond that the company should only assume the impact on demand of continuation of optional metering and agreed universal metering programmes. The plan should clearly describe the metering policies that a company has included in the baseline household demand forecast. The plan should provide: a breakdown of metering by category optants, new build, compulsory, change of occupancy; details of the cost associated with their current metering policy. Companies should develop a set of forecast assumptions that show how forecast meter penetration rates will change the pattern of water use in each resource zone. Companies should quantify the water savings they expect to achieve over the next 25 years and build them into the measured PCC forecast. Companies should also consider further metering beyond the baseline as a supply-demand option. This could also include different tariffs as a demand management tool. Water resources planning guideline interim update 86 of 202

The company must explain and highlight where supply-side resource options have been offset or avoided as a result of water efficiency measures. Impact of climate change on the demand for water The impact of climate change on baseline demand should be considered at a resource zone or water company level depending on the water resources situation in the water company. Environment Agency investigations have shown that the impact of climate change on water consumption is uncertain at the present time and that other factors are likely to have a bigger effect in most situations. Water companies should, therefore, make an allowance for the impact of climate change on the demand for water based on the current methods available. This is expected to be a small percentage of the consumption for both household and non-household use. The Environment Agency expects water companies to consider the components of consumption that will be affected by the changing climate but does not expect companies to identify these separately in the water resources planning tables. However a company should show the total impact of climate change on demand within an independent row in table WRP2 BL Demand. This is the sum of the impacts but will not be linked into the totals for this particular work sheet. The impacts of climate change on peak demand are not clear from current research. It is not anticipated that companies will factor changes to peak demands because of climate change. If a company decides that climate change does impact on peak demands, that these are significant to the supply demand balance and cause investment, then a case backed up by detailed micro-component analysis evidence would be required. This should show clearly that peak demand would change with a different climate and that a range of options to manage it have been considered. Climate Change and the Demand for Water 30 provides some guidance for demand in different industrial sectors. Companies can use this but should describe their assumptions clearly. Companies may assume that there will be no impact on industrial demand unless they have evidence of impacts. Agricultural demand for most water companies is small but in some areas this may increase in the future. Climate Change and the Demand for Water provides estimates of unconstrained future irrigation demand. The 30 http://cfpm.org/ccdew/climate_change_and_demand_for_water-2003.pdf Water resources planning guideline interim update 87 of 202

benefits and likelihood of meeting such demand should be considered carefully to produce an estimate of the total agricultural demand for which the company should plan. Water companies should be careful to separate the impacts of climate change from changing agricultural practices. Water companies should only include an estimate of the impact of climate change on agriculture if they can demonstrate the proportion of their nonhousehold water use that is used in agriculture for irrigation purposes. Assumptions should be stated clearly. A water company should provide details of assumptions made about how metering and increased water efficiency will help to adapt to climate change. 4.3 Non-household consumption 4.3.1 What should a water company produce? Companies must provide a base year and forecast assessment for nonhousehold demand in each resource zone within table WRP2 BL demand. The baseline should take account of planned water efficiency measures and in the final plan should account for any planned options to further manage demand. 4.3.2 What methods should a company follow? Guidance on the standard approach for forecasting non-household demand can be found in the UKWIR/NRA reports on Demand forecasting methodology (NRA and UKWIR, 1995) and Forecasting water demand components (UKWIR, 1997). A company s plan should describe the method used to derive the base year estimate of non-household consumption. A company should clearly describe the makeup of non-household demand in the different sectors. Companies can decide how they separate non-household demand by either using the main SIC categories published by the ONS or into simply service and non-service split, identifying key sectors. The company will not have to complete a dedicated WR planning table showing the detailed breakdown by SIC categories but it is recommended that the company presents this information within its main plan. At a high level, a water company could present the service and non-service sector Water resources planning guideline interim update 88 of 202

split, then identify key sub-sectors that may cause a change in demand patterns or result in increased pressure on resources for example agricultural use and irrigation using mains water. A company should present sufficient detail to explain changes in demand that are attributed to changes in non household use of water. Changes could lead to an increase or a decrease in consumption and these changes should be clearly explained. The company should develop and present a detailed set of forecast assumptions that consider how socio-economic growth, emergence of more efficient technology and the impact of regulation will influence nonhousehold demand over the next 25 years. A company s plan should describe the assumptions that underpin its forecast assessments and describe how socio-economic growth, advances in technology and regulatory changes will influence the pattern of water use in nonhousehold demand. The company should be aware of the reforms set out in the white paper Water for Life (December 2011) which will make it easier for nonhousehold customers to switch water supplier in England. Subject to the legislative timetable, these reforms will come into effect during the period covered by the next water resource management plans. It is hard to predict how the market will develop but the company should consider the risks around its forecast from retail and upstream water market entry. How will the regulators scrutinise demand forecasts? The Environment Agency and Ofwat will compare information between water companies to identify significant variations and to challenge companies on their demand forecasts. They will also use expert judgement and refer to commentaries submitted. If a large volume of water is in a miscellaneous category, they will challenge the plan, and also consider other parts of the water balance such as leakage. Regulators acknowledge that values of micro-components do vary across England and Wales, but they will challenge them if they are widely different to those from neighbouring companies or there are discrepancies which are not clearly explained and justified. They will check whether plans are in place to improve microcomponent analysis where there is not enough data to justify water resources developments. They will review how water companies are planning to use demand management and metering to help balance supply and Water resources planning guideline interim update 89 of 202

demand, and will decide whether there is enough emphasis on demand side measures. Regulators will review the allowance for the impact of climate change on consumption of water and will challenge the plans if there is an increase of more than three per cent of dry year (annual average) demand (in accordance with advice from the Environment Agency s climate change experts) and if there is not enough explanation about how the allowance has been produced and applied. They will check that the impacts of companies metering plans are reflected in the forecasts of demand. 4.4 Leakage forecast Leakage of water from a company distribution network is a significant component of demand for water. As part of its demand forecast, a water company must estimate its baseline leakage over the next 25 years. Proposed options to alter leakage must be considered as part of the options appraisal process. Guidance on this is in section 6. 4.4.1 Determining base year leakage The recent publication, Managing leakage, UKWIR (2011) will provide a good reference for assisting companies to determine leakage (Report 4 - Estimating, Understanding and Interpreting Leakage, Managing leakage 2011). Leakage should be considered as an integral part of the demand forecast. The water company should first determine its base year leakage taking account of current leakage reported within the out turn data (this may need adjusting due to weather conditions) and using the methods outlined above plus targets set out by Ofwat. The water company should ensure it has clearly described how it has formed its baseline leakage figure. 4.4.2 Determining baseline leakage forecast The water company should demonstrate how baseline leakage is forecast across the 25 year planning period. The company is required to set out its current policy with regard to leakage detection and control. This should include quantified descriptions of the contribution of each element of its current policy (and practice) to achieving the current and forecast Water resources planning guideline interim update 90 of 202

baseline leakage. For example, its supply pipe leakage policy, methods to detect service reservoir and trunk mains leakage, together with an indication of the frequency of inspection. For other parts of the network descriptions of the find and fix methodologies must be provided. As a minimum the company should not allow baseline total leakage (Ml/d) to increase from the Sustainable Economic Level of Leakage (SELL) identified for the end of the current pricing period (2014/15). The Guiding Principles sets out Government policy and aspirations for future leakage management. A company should factor in any further leakage reduction associated with the continuation of existing metering policies beyond that date. For example, a company may have successfully made the case for universal metering at the 2009 periodic review and that metering programme is not due to complete until sometime in AMP6. In that case, the company should factor in any reductions to leakage that it forecasts as a result of the completion of that metering programme. In constructing the baseline leakage forecast the company should also take into account other factors that may influence future leakage such as technological progress, asset replacement and minimising leakage from new connections. A review of the Sustainable Economic Level of Leakage (SELL) 31 methodology has recently been published, with the final report being published on 15. This review was commissioned by the Environment Agency, Ofwat and Defra and supported by Welsh Government. Companies should consider the recommendations of this report in establishing both the baseline and final planning leakage forecasts. 4.4.3 What do the regulators expect to see? The regulators expect to see a baseline leakage forecast as part of the baseline demand forecast. Companies are expected to follow the guidance within the report Providing Best Practice Guidance on the Inclusion of Externalities in the ELL Calculation published in September 2008 and the recent publication, Managing Leakage 2011 (Report 4 Estimating, Understanding and Interpreting Leakage). The expectation is that the baseline leakage forecast will be set, described and quantified based on the outcome of the previous planning round. The baseline will be produced in isolation to the development of the further leakage reduction which may be included in the final planning forecast. 31 Review of the calculation of sustainable economic level of leakage and its integration with water resource management planning,. http://www.ofwat.gov.uk/sustainability/waterresources/leakage/rpt_com121012smcsell.p df Water resources planning guideline interim update 91 of 202

Any changes to baseline leakage arising form the final planning solution should then be assessed as described above. The water company should clearly show within the baseline forecast the level of leakage from the distribution network and from supply pipes. The water company should provide a: clear statement in its plan about how it intends to keep a control on leakage in its current operations. how it has devised its baseline forecast and what factors it has incorporated. how it has incorporated Government and water company policy within the baseline forecast. expected changes in leakage over the planning period Once the leakage measures included in the baseline forecast are clearly understood, the company should identify its options for further leakage reduction and include these in its options appraisal. The water company should appraise options to reduce leakage and include these within the final plan forecast if they are part of the preferred options to reduce the supply demand deficit. Further details can be found in section 6. The regulators expect to see an audit trail for the appraisal of these further leakage reduction options and justification for why they have or have not been selected in the final planning solution. Overall, regulators expect to see a final planning leakage forecast has been developed within the plan, rather than as a separate consideration outside the planning process. A water company should ensure the approach taken is clear from its plan. 4.5 Other components of demand A water company should provide details about how it has calculated and made decisions on other components of demand. The regulators expect to see a clear audit trail detailing the sources of data used. Water resources planning guideline interim update 92 of 202

5.0 A buffer on the supply and demand forecast calculating target headroom Quick reference for this section Define target headroom Dealing with risk and uncertainties What is covered in this section? This section will help companies present their calculation of target headroom in a consistent and clear way in their water resources management plans. It covers both the 1998 and 2003 headroom methodologies (UKWIR, 1998; UKWIR, 2002) and all companies should refer to this guidance Water resources planning guideline interim update 93 of 202

5.1 Defining target headroom Target headroom is a buffer between supply and demand designed to cater for specified uncertainties. Water companies should adopt a wellinformed approach to determining target headroom. This should balance the costs and risks to customers and the environment of a low headroom allowance against those of a high headroom allowance. Uncertainties are inevitable in planning but it is important to reduce them as far as possible. The headroom assessment in a company s plan should identify the greatest sources of uncertainty and consider options for reducing this uncertainty. For example, it may be possible to collect additional data to reduce questions of data accuracy. Over time data uncertainty should reduce and companies should plan to improve this component of headroom over the 2009 2014 period. The company s forecasts should reflect a realistic estimate of supply and demand in the baseline scenario, so that there is equal probability that out-turn values adjusted to the planning scenario would be higher or lower. The target headroom allowance will then focus on factors that worsen the supply demand balance. This approach follows the existing principles of headroom assessment. 5.2 Risk and uncertainty in supply and demand Water companies should document and justify their assumptions of risk and state very clearly what they have and have not included in their calculations. In most cases a comparison with the previous level of target headroom will be appropriate, explaining what elements of risk remain the same, and what elements have changed and why. Water companies should plan to resolve and reduce risk. On this basis, uncertainty and risk should not be calculated in a simple cumulative way over the planning period. It is neither practical nor affordable to plan for 100 per cent certainty and the Environment Agency and Ofwat will not expect to see companies producing headroom calculations that provide such a level of certainty. However, water companies should not take unnecessary risks by applying too low a target headroom. Water companies should accept a higher level of risk in future than at present. This is because, over time, the uncertainties for which headroom allows will become smaller. Companies should provide evidence to justify the level of risk they have adopted. This is particularly important for companies that have assigned differing risks within their company area or Water resources planning guideline interim update 94 of 202

for those that have assumed the same level of risk over the 25-year planning period. 5.3 Risks associated with a revocation of a licence or time limited licences Companies should not make allowances in their headroom calculations for the risk of time-limited licences not being renewed or a licence revoked because of a sustainability reduction. Although the headroom methods allow for uncertainty due to these risks, companies are not expected to include these in their calculations. Ministers have instructed the Environment Agency to make sure that time-limited licences do not present a risk to security of supply. This means that any notice given will provide enough time to restore the supply-demand balance based on the accepted level of service. Where time-limited licences have a definite or likely effect on the environment, companies should enter this as a sustainability reduction in table WRP1 Supply. Headroom uncertainty should not be significantly influenced by the headroom components accuracy of supply-side data and accuracy of sub-component data. For some sources, quality of data may be an issue, but this should not lead to a general adjustment for data quality driving investment to correct a supply-demand imbalance. Uncertainty and Risk in Supply/Demand Forecasting (UKWIR, 2003) 32 contains a review of risks and uncertainties associated with water resources planning, and their implications in terms of resource management and the associated costs to society. It explores techniques for evaluating these risks and uncertainties, their influence on the supplydemand balance, and proposes a framework for their systematic evaluation. The methodology is not intended to replace existing methods but to provide additional information about the risks and uncertainties associated with different elements of the supply-demand balance. It is not necessary for water companies to follow this methodology for their water resources plans. A company may wish to provide additional information on uncertainty and risk and their management, using approaches set out in Uncertainty and 32 UKWIR, Uncertainty & Risk in Supply/Demand Forecasting 03/CL/09/1 http://ukwir.co.uk/ukwirlibrary/80610 Water resources planning guideline interim update 95 of 202

Risk in Supply/Demand Forecasting (UKWIR, 2003). If a company has used any information based on these methods in a EBSD framework (The economics of balancing supply and demand (Environment Agency and UKWIR, 2002 33 )) or in the headroom methodology, it should explain how it is derived and indicate the effect of using this approach. As in the case of assessing headroom, companies that use the methods set out in Uncertainty and Risk in Supply/Demand Forecasting (UKWIR, 2003) should provide clear justification of their treatment of interdependencies, correlation, and mutual exclusion, between the different sources of uncertainty that feed into their assessment. Water companies should also describe the reasons and the empirical basis for their choice of probability distribution attached to each source of uncertainty. These assumptions should be consistent with those used in the headroom assessment. In interpreting the results of any methods set out in Uncertainty and Risk in Supply/Demand Forecasting (UKWIR, 2003), water companies should also indicate how the level of risk that they are prepared to accept reflects their target level of service. 5.4 Choice of method There are two methods for the calculation of target headroom available. The 1998 methodology, A Practical Method for Converting Uncertainty into Headroom (UKWIR, 1998), is a pragmatic approach that attempts to quantify the uncertainty in the supply-demand balance. It produces an estimate of target headroom that is useful for planning purposes but does not provide sufficient evidence to justify the development of new resources to meet the calculated target headroom. The 1998 methodology may be appropriate in resource zones where there is no immediate supply-demand balance issue, or in small resource zones where collating and analysing of the data would be disproportionately difficult. However, it is important to note that the 1998 methodology is unsuitable for justifying significant expenditure to meet target headroom. If such expenditure appears necessary it should be supported by further analysis. The 2003 methodology, An Improved Methodology for Assessing Headroom Final Report (UKWIR, 2002), addresses the shortcomings in the 1998 methodology by taking a more rigorous approach to determining 33 The economics of balancing supply and demand 02/WR/27/3 (Environment Agency and UKWIR, 2002) http://ukwir.co.uk/ukwirlibrary/80557 Water resources planning guideline interim update 96 of 202

headroom uncertainty through probabilistic simulation. The uncertainties of each headroom component are defined as probability distributions and combined using probabilistic simulation techniques (sometimes called Monte Carlo simulation). Much more work is required to apply this approach but it can be used to justify developing new resources. The 2003 methodology report identifies two different approaches to using headroom uncertainty to define target headroom. The simpler approach compares available headroom with headroom uncertainty to provide a rough guide to whether there is sufficient headroom available. The more complex approach combines probability distributions of deployable output, demand, outage and headroom uncertainty to provide a probability distribution of the balance of supply. This is a more sophisticated approach and allows a good assessment of the probability of supply failure at any time, as well as an evaluation of the success of any planned changes to the supply-demand balance. Either version of the 2003 methodology may be used in zones where there is a supply-demand balance deficit. The more complex approach will result in a clearer justification and will be particularly valuable where significant investment is necessary. Companies should not use a combination of methods in a single resource zone but it may be appropriate for a company to use different methods in different zones. Companies should take care if individual options affect more than one zone and different headroom methods have been used. The target headroom methodology is applicable to the dry year scenario but should be used sensibly in relation to critical period scenarios. The main need for a headroom allowance arises from water resources planning requirements that would normally be related to longer-term critical periods and annual average. The headroom methodology suggests that the focus for water resources planning should be on critical periods spanning between a week and several months (tending more toward the latter). Managing supplies for critical periods of a week or less would normally rely on operational rather than resource development measures. Companies should have a reasonable understanding of the issues driving critical period supply-demand issues over the shorter-term; uncertainty (or the required headroom) should, therefore, be low for the early years of the plan but rise over the planning period. 5.5 Companies that use the 2003 methodology The 2003 methodology produces an assessment of headroom uncertainty. Companies have to interpret this to produce an estimate of Water resources planning guideline interim update 97 of 202

target headroom. The approach taken should be clearly set out in the plan. Using this methodology allows companies to consider the probability that they are planning for sufficient headroom. Companies plans should present a clear discussion of the way that they have used the probability distribution of headroom uncertainty to develop target headroom. This should include a discussion of how exceedence percentiles have been used. Water companies that apply the approach should justify their treatment of inter-dependencies, correlation, and mutual exclusion, between the different sources of uncertainty that feed into their headroom assessment. Companies should also describe the reasons and the empirical basis for their choice of probability distribution and level of variance attached to each of the headroom sources. These issues are crucial to the effective application of the 2003 headroom methodology. 5.6 Presenting the results of headroom assessment Target headroom is an important part of the supply-demand balance. It is important that a company s plan presents sufficient information to allow an understanding of the approach used. The plan should provide a clear justification and an audit trail of the assumptions used in determining the target headroom. It should also set out information on the components making up the target headroom and their relative contribution so consultees can clearly see what is driving headroom in a zone. Companies should state clearly which headroom assessment methodology they have used for each resource zone. Water resources planning guideline interim update 98 of 202

6.0 The balancing act and will a water company need investment? Quick reference for this section The principles a water company should follow to help decide on which option to take forward into a final plan. Ensuring a complete list of unconstrained options What are feasible options? Economic appraisal of feasible options to determine the best value solution. Undertaking programme appraisal, Strategic Environment Assessment and Habitats Regulation Assessment, including consideration of non-monetised costs and benefits. Using all the information to provide a preferred programme of options and a final water resources management planning solution. What is covered in this section? Having developed a baseline forecast for both water supply and demand (including target headroom), the water company should assess if demand outstrips supply at any point during its 25 years. There are three possible results: 1. No further action. There is enough supply to meet demand, including target headroom. The water company does not need to take any further action apart from continuing its current policies 34. 2. Do the right thing. There is enough supply to meet demand, including target headroom. However the company wishes to implement a series of measures to become more efficient, better for the environment, maintain its positive supply-demand balance beyond the 25 years and achieve Government aspirations. 34 As a minimum, achievement of the savings associated with water efficiency, leakage reduction and metering activities assumed in price limits up to 2015. Beyond that, companies should assume continuation of optional and agreed universal metering programmes, maintain leakage at the 2015 level (or include any leakage reduction associated with the continuation of existing metering policies), and savings associated with water efficiency requirements that Ofwat will set out in its price review methodology, a draft of which is due to be published for consultation in Autumn 2012. All savings assumed in price limits were expressed in Ml/d. Water resources planning guideline interim update 99 of 202

3. Remove the deficit. There is not enough supply to meet demand, including target headroom. The company should investigate all options, decide on the best option (for customers and the environment) and present that in a final plan. In all three of these situations, it is good practice for a water company to investigate whether there are any ways to lower the overall costs (financial, environmental, social and carbon) of its existing operations. Any schemes that are required as a result of this review should be reported in the company s plan, where it should justify them with reference to costs and savings. In relation to 2 and 3, a water company should decide on the best option for its customers (on the basis of cost and what customers would like) and for the environment (local and global). Deciding which option to choose is known as 'option appraisal' and must include both monetary and non-monetary costs and benefits. A company in situation 1, with neighbouring companies in situation 2 or 3, should provide evidence of bulk supply exports it has considered to help manage the supply-demand balance in those neighbouring companies. This section of the document provides: the general approach to options appraisal; developing the unconstrained and feasible options sets; determining the least cost solution that later takes into account wider non-monetary considerations; describing, assessing and making the final decision on a solution; how the SEA process will work with the option appraisal matrix and how the SEA process has influenced the plan; how this information will inform the business plans submitted to Ofwat. Water resources planning guideline interim update 100 of 202

6.1 What option to implement in the final plan? The principles A water company should make sure when considering a new option 35 that: 1. The option can be implemented to ensure there is a secure supply of water and a protected environment, at a cost to the customer that is acceptable. 2. The decision making process is clear and transparent, so that both customers, interested parties and regulators can understand how a water company has arrived at its final decision on its preferred option. 3. The decision is only made once all options have been identified, screened, investigated for synergies, links and a final set undergoes a programme appraisal to reach a preferred option. This should include undertaking a Strategic Environment Assessment (SEA) to make sure non-monetised costs and benefits are included when deciding the preferred option that is best value for customers and the environment. 4. It has appraised certain options that Government specifically wants for example demand management, interconnection, water trading, and resource sharing. The Welsh Government will be setting the policy direction for Wales in the forthcoming Water Strategy for Wales. Water companies operating wholly or mainly in Wales must refer to the Water Strategy for Wales when it is published and incorporate any changes in policy direction into their plans. If companies have any enquiries prior to publication they must contact the Welsh Government directly. 5. It has investigated and taken into account the flexibility of the final solution. For example if a company faces an uncertain resource situation in the future, a number of small options might allow more flexibility than one large option. A company should use details from its headroom analysis, sensitivity and scenarios to help explore this aspect of its plan. 6. It has sought customers views on their preferences (for 35 The word option to mean one or a range of options Water resources planning guideline interim update 101 of 202

example through willingness to pay surveys) and taken these into account in its appraisal of the cost effectiveness of the option, if the willingness to pay survey applies to specific options and not generic improvements. 7. The benefits of implementing the option are greater than its costs, if a company does not have a deficit and is carrying out a new option as it considers it is doing the right thing. For such options to be included in price limits they must be cost beneficial and have the support of customers. The company should detail separately for such options the benefits (including demonstrating the value of adhering to a Government policy) and the value of any customers willingness to pay, as well as the costs. 8. It has provided an opportunity for neighbouring water companies or third parties to bid into its plan, including providing sufficient information to enable neighbouring companies or third party to put together realistic bids. Within this section there are a number of standard terms used. These can be found in appendix 8. 6.2 Methods to find the preferred option. A water company should use the following methods when determining its preferred option. Title Description Published The economics of balancing supply and demand Benefits assessment guidance This provides a detailed guide to assessing options and choosing a preferred solution. It focuses particularly on the economic assessment of individual options and combinations of options. This guidance sets out a structured approach for assessing and valuing a range of environmental and social impacts associated with water resource schemes. It is a decision making tool based on the principles of cost-benefit analysis, enabling a consistent comparison of the costs and benefits of an option in monetary terms. UKWIR and Environment Agency, 2002 Environment Agency, 2012 Water resources planning guideline interim update 102 of 202

Guidance on Strategic Environmental Assessment and Habitats Regulations Assessment of Water Resources Management plans Involving customers in price setting Ofwat s customer engagement policy statement Carrying out Willingness to Pay Surveys Provides a method to follow to carry out a SEA and how to include this within water resources management plans. This process will ensure nonmonetary costs and benefits are identified and considered in the decision on the preferred option. This report describes Ofwat s expectations for how companies will engage with their customers to help them shape their plans for PR14. Customer views are very important in making decisions about preferred options. This guidance provides details of how a water company undertakes a willingness to pay surveys and engages with customers to determine their views. UKWIR, 2012 Ofwat, August 2011 UKWIR, 2012 Applying these methods to find the preferred solution The methods outlined above provide a base requirement for a water to company to follow. These do not prevent a company from using an alternative method that it believes is more advanced or provides a more detailed audit trail. However in that case, a water company would be expected to detail the differences from the above methods and show the benefits of the alternative approach. Customers views are very important in shaping the water resources management plan. Ofwat expects companies to use the full range of information at its disposal and to carry out robust new customer research where appropriate to establish its customers priorities for services and their views on bills, which will be influenced by the proposals contained within the plan. The company should use good practice taking account of reports and guidance published by Ofwat, UKWIR, and the Equalities and Human Rights Commission and should not seek simply to establish support for a plan that it has already designed. Instead, it should genuinely seek to shape its plan to reflect the needs of current and future customers. The company should follow a consistent approach to the appraisal and cost estimates for all of the options in the plan so that the results are comparable. Water resources planning guideline interim update 103 of 202

The company should adopt an approach to the appraisal of options submitted by neighbouring water companies or third parties which is consistent with how it treats its own options and seek to ensure, as far as reasonably possible, that the cost estimates are comparable. 6.3 Completing an option appraisal process to determine a preferred solution. Figure 6.0 below shows the approach a water company should follow to determine a preferred solution. There are four main stages to the process that allows a water company to narrow down its list of possible options to a final preferred option that will be entered into the water resources management plan and then implemented. The steps in figure 6.0 are generic and a company should tailor its approach to option appraisal to reflect the deficit it is addressing. Figure 6.0 The stages of an option appraisal process Water resources planning guideline interim update 104 of 202

6.4 Stage one unconstrained list of options Sometimes a solution to a problem is not obvious. This is why a water company should develop a list of all possible options referred to as unconstrained options. The unconstrained list should be developed from a generic list of options. The UKWIR WR27 Water resources tools project has produced a comprehensive list of water management options to consider that builds on the original list provided in the earlier Economics of Balancing Supply and Demand report. This has been reproduced in appendix 9 for convenience. A water company is encouraged to use this list as a base to which it can add and subtract from. An unconstrained option may not be completely free from restrictions such as environmental or planning issues but should be technically feasible to the water company, for example, an option for desalination should not be included if no coastal water is present. The water company should discuss this list, at an early pre-consultation stage, with the regulators and consult with other neighbouring water companies and interested third parties to ensure a complete list has been identified. Due to issues of commercial confidentiality it might be necessary for the plan owner to use an independent party to evaluate fully a neighbouring company or third party s proposal. Once a company has a general list of options, it should tailor it to fit its own circumstances as one general option may be divided up into more specific options. For example, leakage reduction as a general option could be split into different components of leakage reduction activity. A company should consider options from each of the following four categories. When considering the categories, a company should appraise how the options may complement each other and consider whether integrating options is more suitable than considering them separately. The categories are: customer management (options affecting customer use and supply pipe losses); distribution management (options targeted at activities between distribution and the point of consumption); production management (options targeted at activities between abstraction and distribution input); resource management (options affecting deployable output, such as new reservoirs or resource transfers). Water resources planning guideline interim update 105 of 202

Some options will be the result of a single action but others will have a number of different components, each of which the water company should consider separately when developing the option. For example, in leakage control, the predicted overall saving is likely to consist of individual contributions from pressure reduction, enhanced active leakage control, free or subsidised supply pipe repairs and mains replacement. In these cases, a company s plan should clearly state the assumptions made about the components of the options. Pre-consultation discussions of unconstrained list of options As outlined in section 1, a water company is encouraged to discuss possible options during the pre-consultation phase of the water resources management plan process. A water company should seek to discuss this with the regulators in advance of a draft plan being submitted to ensure there is a shared understanding of decision making. When making decisions on the unconstrained list of options, a company is expected to demonstrate a clear and transparent decision process. Table 6.0 - Specific options that should be considered in the unconstrained list Option Demand management - Water efficiency Demand management - Leakage Description In developing the unconstrained options list, each company should consider options to manage demand for both household and nonhousehold customers. A water company can determine the amount of water lost via leakage through intervention measures such as find and fix activities, mains renewal and pressure management. However work to reduce leakage further will cost money and a company should assess the cost of reducing leakage further as a demand management option to allow comparison with other approaches and address the supply demand deficit. Appendix 6 sets out more detail on this. Further information Appendix 10 Appendix 11 Water resources planning guideline interim update 106 of 202

Resource sharing (including bulk supplies and transfers of water) Options proposed by third parties A review of the Sustainable Economic Level of Leakage (SELL) 36 methodology was commissioned by the Environment Agency, Ofwat and Defra and supported by Welsh Government. This review outlines how water companies have incorporated social and environmental costs and benefits in leakage calculations in the past. Companies should consider the recommendations of this report in establishing the range and scale of leakage management options that are appraised. A sufficient range of leakage management options should be considered in the unconstrained options list. A company should consider all options to share resource(s) with companies (neighbouring or not) in the form of bulk supply contracts and shared asset ownership. In the water resources management plan, the company should state how it has fully investigated sharing resources (this applies to both a company in surplus which could act as a donor or a company in deficit which could act as a recipient). Third parties, whether appointed water companies or other organisations, can bid in options for customer, production, distribution or resource management measures. A company should state how it has sought and fully investigated bids by third parties in its assessment of unconstrained options. Appendix 12 Appendix 13 36 Review of the calculation of sustainable economic level of leakage and its integration with water resource management planning,. http://www.ofwat.gov.uk/sustainability/waterresources/leakage/rpt_com121012smcsell.p df Water resources planning guideline interim update 107 of 202

6.5 Stage two Create a list of feasible options A water company should identify feasible options from the unconstrained options to investigate further. The feasible list is a set of options that a company considers to be suitable for taking forward for assessment as part of the preferred programme. It is a subset of the unconstrained list. The feasible list should contain options which have a reasonable chance of implementation and therefore should not include options with unalterable constraints or which have a high risk of failure. A company will need to find a balance in its feasible options list between having a manageable number of options and having the greatest choice for assessment. The feasible options list should include sufficient options to allow real choices when assessing the preferred programme. A company should screen the unconstrained option list. Stage 4 of The economics of balancing supply and demand Environment Agency and UKWIR, 2002 can be used to do this. The following criteria are suggested by the EBSD methodology as possible screening criteria: Screening criteria The option does not address the problem The option breaches unalterable planning constraints Description If a deficit is only at critical period but the option delivers no benefit at critical period, it should be removed. If the option could have a negative impact due to: planning & environmental restrictions/regulati ons: health & safety regulations; Further information N/A if a proposed scheme would cause more than a specified (critical) amount of environmental damage, it would be considered inappropriate. This could cause deterioration of WFD status or harm a Habitats Directive site. However if a company is unsure, it should progress the option and investigate further through the options appraisal and SEA and HRA processes. Appendix 14 gives more information on Water resources planning guideline interim update 108 of 202

Is not promotable Has a high risk of failure An option maybe removed that is likely to meet overwhelming public resistance or contravenes a Government policy. If the option is likely to fail before being implemented it should be removed. Environmental and Social impacts A company would be expected to provide evidence for options being removed on this basis. If there is a lack of evidence, then the option should be progressed to the next round and undertake further investigations. N/A A company should publish in its plan: the screening criteria it has used to select the feasible options list; a simple table giving the reason for not progressing unconstrained options which demonstrate a clear and transparent decision making process. Where a rejected option is from a neighbouring company or a third party the company should also provide the reasons for rejection in writing directly to that party. If a company believes that its feasible list is too large and therefore not manageable, it may consider a further level of screening. This is covered in Stage 4.4 of the EBSD guideline. A company should avoid the use of unit costs as criteria for screening. But where a company has used these, it should base its assessments on expected utilisation, and not capacity, of the option. 6.5.1 Feasible options list A company should produce a feasible option list and display this within table WRP 3a Feasible Options Detailed. It should present the same level of information for all types of options. If it is not possible to provide precisely the same level of information for options provided by neighbouring companies or third parties the company should make reasonable adjustments to allow them to be evaluated consistently with its own options. Each option should be presented in WRP 3a Feasible Options Detailed on a comparable basis, assuming a common start date of year 1 in the Water resources planning guideline interim update 109 of 202

table, including planning, construction, commissioning, etc. The costs and outputs presented for each option should be based on its capacity. The feasible options list should include sufficient options to allow real choices when moving to the preferred options set and to make sure alternative solutions can be formed. 6.5.2 Describing feasible options Companies should provide a description of each feasible option with supporting information including: a schematic map illustrating the scale, source of supply and areas over which the option is to be implemented; a conceptual diagram showing the main operational features; a schematic showing any links or dependencies to other options; for leakage reduction, water efficiency or metering options, a description of how the option being described differs from the baseline leakage management savings or demand savings; for options provided by neighbouring companies or third parties the company should make clear what information is required for the description. If the other party cannot provide precisely the description required the company should make reasonable allowances so that they can be evaluated consistently with its own options. 6.5.3 Costs and outputs of feasible options For each feasible option, a company (or neighbouring company or third party) should set out a profile showing the estimated capital, operating, carbon costs and monetary social and environmental costs and benefits over the period of assessment, which is set as 80 years. The price base for costs should be 2011-12. Costs (or benefits) should be split into: capital, including initial costs as well as maintenance / replacement; operating (fixed and variable); environmental and social (fixed / variable)*; carbon (fixed / variable)*willingness to pay (where this is applicable to specific options* ) *Further information in section 6.2 For supply side options, a company must include any supplementary costs that may be required in order to distribute the water into supply. Specifically this covers: Water resources planning guideline interim update 110 of 202

options to increase raw water abstractions; options to increase raw imports; options to increase potable imports; other options to increase Deployable Output. These costs would cover any upgrades to the company s network (for example, raw water mains, trunk mains, distribution mains) and associated assets (for example, service reservoirs, pumping stations). But these costs should exclude the usual costs associated with local infrastructure enhancements that are required when connecting new properties, where demand can be met from existing operations. Where local distribution network upgrade costs are unknown, for example because the exact locations of future demands within a water resource zone are unknown, the company should include an estimate of the cost. Any company developing options to export water should also include such ancillary costs in the options costs. If companies need to proportionally allocate costs, for example because elements of the option are required to meet purposes other than maintaining or restoring the supply demand balance, the company should follow guidance set out in Ofwat s Regulatory Accounting Guideline 2.03. Where several options are dependent upon the same network and asset upgrades, this could lead to double counting of the associated costs of those upgrades if more than one of these options is selected to form part of the company s solution. In such cases, the company should make an adjustment to the costs of its proposed solution to ensure that any upgrade costs are not double counted. In addition the company should set out the profile of water available for use or water savings based on the capacity of the option. These details should be set out in WRP 3a Feasible Options Detailed (a confidential table that calculates Average Incremental Social Costs (AISCs) for use by Ofwat and not part of the public domain plan. A company initially develops schemes in outline and assign costs on that basis for the purposes of long-term planning. As a result there is some uncertainty associated with that information, and a company should assign confidence grades to its estimates. For options provided by neighbouring companies or third parties, the company should work with the other parties to make an assessment of the cost confidence grades. The final decision on the confidence grade lies with the company, but it should provide its reasons in the plan where there is a difference of opinion between the water company and the other party. Guidance on confidence grades is found in the appendix 15. Water resources planning guideline interim update 111 of 202

Some options might have the potential to supply more than one resource zone and the cost of doing this should clearly be displayed. Where this is the case, companies should allocate the cost and yields of the option proportionally between those resource zones. The company should clearly set out how it has allocated these costs and yields in its plan. The company should use the total cost of an option where it is not possible to split the cost; for example a large resource development may cost the same no matter how many resource zones benefit. The company should calculate both the AISC and Average Incremental Cost (AIC) values for each feasible option based on the net present value of maximum capacity costs and outputs of the scheme. These should be set out in table WRP3a Feasible Options Detailed. The profile of costs and outputs should reflect the timing of achievement of full operation of the scheme. The company should also include the AISC rank of the option in this section; for instance, is it the first / second / third option if the options are sorted by ascending AISC. By using capacity in determining feasible options it will allow companies to compare options on a level basis and these costs should be easier to obtain. The company should explain how it has calculated the AISC and AIC, using The economics of balancing supply and demand (Environment Agency and UKWIR, 2002) definitions for AISC, AIC and other costs. The plan should confirm whether this is the approach adopted or explain the approach taken if an alternative has been used. The company should use a discount rate of 4.5 per cent when calculating the AISC of its water resource plan options. This assumption is without prejudice to Ofwat's decision on the cost of capital for PR14. The company may contact the Environment Agency or Ofwat for latest information on discount rate values if required. Table 6.1 Further detailed information on costs Further information on environmental and social costs The company must take account of any monetary environmental and social costs and benefits in its economic appraisal of feasible options. The economics of balancing supply and demand (Environment Agency and UKWIR, 2002) recognises the need to take these into account when evaluating costs of different options. Environmental impacts can be valued in monetary terms so that they can be added to, or subtracted from other items with monetary value such as capital and operating costs. A number of techniques exist for Water resources planning guideline interim update 112 of 202

estimating the value that society has placed on the environment. These are summarised in The economics of balancing supply and demand (Environment Agency and UKWIR, 2002), which also recognises that not all factors can be given a monetary value. A company must provide details of the costs and benefits of options on the environmental and society. These costs and benefits play an important part in supporting the selection of schemes. However calculating these costs can be difficult. In 2002, the Environment Agency commissioned the development of a revised methodology and associated guidance for assessing water resource (and water quality management) schemes. This methodology is reported in the Benefits Assessment Guidance (Environment Agency, 2002), which has been updated and tailored to water resources management planning. The Environment Agency has produced a new user guidance and example in 2012 to assist a company with these costs and benefits. This guidance: has been developed for both Environment Agency and water company planners to use to ensure consistency across different areas where decisions are made; builds on existing methodologies (The Environmental Costs and Benefits of Water Resources 1998) and expands or revises these as appropriate, drawing on new data sources and approaches; provides a means of evaluating environmental and social costs and benefits of schemes, that can be applied at a desk-top level; is based on cost-benefit analysis, where as many of the impacts (positive as well as negative) as possible are measured in monetary terms; also requires the non-monetary assessment of benefits and disadvantages of using qualitative and quantitative descriptions. The Benefits assessment guidance (Environment Agency, 2002) sets out standardised approaches to Water resources planning guideline interim update 113 of 202

assessment and uses data that are readily available. It was subject to a peer review and testing process by relevant policy stakeholders (the Environment Agency, Defra, Welsh Government, Ofwat, Natural England/Countryside Council for Wales), academics and water company economists. Further information on cost of carbon The Climate Change Act 2008 sets out legally binding commitments to cut greenhouse gas emissions in order to reduce the effects of climate change. Water companies have a part to play in this overall ambition, and accounting for the cost of carbon in decision making is a key way of achieving this. Water companies have a statutory requirement to assess greenhouse gas emissions associated with their current water supply activities and with the selection of an option to resolve a deficit in the supplydemand balance (and it is expected a water company apply this to options provided by neighbouring companies or third parties as well). Companies should estimate the emissions of their water supply activities in tonnes of carbon dioxide equivalent and present this for each year, ideally broken down further by activity. Further guidance on carbon accounting is provided in the UKWIR embodied carbon accounting framework 37 that was updated in 2012. To ascertain carbon costs associated with the projected emissions, the company should use the latest government guidance on the cost of carbon. Currently this is found in Carbon Valuation in UK Policy Appraisal: A Revised Approach, published by Department of Energy and Climate Change in July 2009 38 this sets the valuation of carbon at a level consistent with the UK short and long-term targets. Prices are due to be revised every five years, in line with the carbon budget setting process. Two carbon prices have been developed; a traded price of carbon for emissions covered by the EU Emissions Trading Scheme (which includes grid electricity use), and a 37 A framework for accounting for embodied carbon in water industry assets (12/CL/01/15) UKWIR, 2012 http://ukwir.co.uk/ukwirlibrary/95134 38 Carbon Valuation in UK Policy Appraisal: A Revised Approach http://www.decc.gov.uk/en/content/cms/emissions/valuation/valuation.aspx Water resources planning guideline interim update 114 of 202

non-traded price of carbon for emissions outside of the EUETS. Companies should use the appropriate carbon price depending on the origin of the emissions. Further practical guidance on how to carry out carbon valuation is provided in Valuation of energy use and greenhouse gas emissions for appraisal and evaluation 39 published jointly by HM Treasury and DECC in October 2011. Carbon costs should be quantified for scope 1 and 2 operational emissions. Scope 3 emissions should be included where the company retains management responsibility (including embedded emissions) for the emissions. They should also be included were the environmental damage associated with the scope 3 emissions are not reflected in financial costs borne by the actual emitter. These costs should be integrated into the AISC of options. Taking account of wider costs Further information on Willingness to pay The Environment Agency, Ofwat and Defra commissioned a review 40 of how water companies have incorporated social and environmental costs and benefits in leakage calculations in the past. The findings of this review should help companies improve the way that they incorporate these wider costs and benefits in the future. A company should demonstrate in its draft plan that it has taken into account the recommendations from chapter 8 of this review. The Willingness to Pay (WTP) survey is important within option appraisal to understand customers preferences. The company should take account of customers support for options, through willingness to pay surveys. The company should provide reliable evidence from willingness to pay surveys to support its findings, and detail the impact that customers preferences have had on the costs of those schemes affected. 39 Valuation of energy use and greenhouse gas emissions for appraisal and evaluation: www.decc.gov.uk/assets/.../122-valuationenergyuseggemissions.pdf 40 Review of the calculation of sustainable economic level of leakage and its integration with water resource management planning,. http://www.ofwat.gov.uk/sustainability/waterresources/leakage/rpt_com121012smcsell.p df Water resources planning guideline interim update 115 of 202

For example, WTP surveys might be used to support leakage reduction or metering options. 6.5.4 Feasibility of options, including impacts of climate change and associated risk and uncertainty For each feasible option, the company (or neighbouring company or third party) should describe the following in the water resources management plan: sources of risks and uncertainty associated with each feasible option; assessment of the option against impacts from climate change; the flexibility of the option to adapt to future changes in uncertainty. A company could include a non-monetised value for an option that is flexible but this should be clearly highlighted with its final decision on a preferred option; an estimate of the time needed to investigate and implement the option and provide an earliest start date; any factors or constraints specific to the option. 6.5.5 Inter-dependencies, links and synergies A company should explain if a feasible option depends or may depend on the implementation, timing or yield of other existing or proposed schemes. Where this is the case, a company should explain the impact of combining the options. This might include efficiencies, a change in energy demands or the cost of the option. A company should describe and explain any links between options and should make any exclusivity clear, for example, if one option is selected it means another can t be. It should also describe and explain any links between its option and those involving neighbouring companies and third parties and should make any exclusivity clear. A company should consider whether feasible options might meet a range of objectives. A company should explain and justify those objectives, and proportionally allocate the costs of the proposed option between those objectives. For example, if an option removes a supply demand deficit and improves resilience, the company should allocate the option s costs between these objectives when it assesses the cost effectiveness of that option. Water resources planning guideline interim update 116 of 202

6.5.6 Interconnection In the White Paper Water for Life 41 Defra said that it expects water companies in England to consider all options for meeting their supply and demand balance when preparing water resource management plans, including interconnectivity across company boundaries, opportunities for trading water, or other cross boundary solutions (page 49). Defra went on to say that in view of the importance of increased interconnectivity to future resilience, we will expect to see clear evidence that any company in England proposing to develop a new source of supply has fully considered and costed water trading with neighbouring companies, and robustly challenge companies on their approach throughout the planning process. If this approach fails, the UK Government will consider directing companies in England to take forward water trading (pages 49-50). The Welsh Government expects Welsh companies to consider water trading and demand or supply options proposed by third parties as part of their plans to ensure best value for Welsh customers, whilst avoiding detriment to the incumbent company and its customers. Companies should provide clear evidence of how they have considered such options in their plans. 6.5.7 Commercially confidential cost information Any aspects of describing and assessing an option that may be commercially confidential such as detailed cost information should be summarised within the main water resources management plan and detailed fully in an appendix to the plan which can be removed, if agreed, by the Secretary of State or Welsh Ministers. There will be a separate table WRP 3a which will be used by Ofwat. 6.6 Stage two continued - Economic appraisal of feasible options to determine the least cost solution The water company should assess its feasible options in order to identify the least cost solution. Regulators expect the company to determine its least cost solution through analysis of the relative cost effectiveness of all feasible options, and to treat its own options and those proposed by neighbouring companies or third parties consistently. No aspects of the least cost solution, such as the sustainable economic level of leakage or 41 HM Government (2011) Water for Life, 8 December 2011 Water resources planning guideline interim update 117 of 202

water efficiency, should be determined outside of the options appraisal process and then set as fixed inputs to a solution. When determining its least cost solution, the company should take into account the interaction of that solution with its existing portfolio of water resources assets in order to minimise total costs (financial, environmental, social and carbon) to the business. Some feasible options may have the potential to deliver better value water than is provided by existing assets and could therefore lead to savings in existing operating costs (including financial, environmental, social and carbon costs). The company should consider this potential when justifying its least cost solution, and describe the savings that arise. Economic appraisal should be carried out for all options on the feasible options list. Approaches to this appraisal are summarised in The economics of balancing supply and demand (Environment Agency and UKWIR, 2002 update), which proposes approaches that are appropriate for the complexity of the supply demand balance problem, from simple AISC comparisons through linear / integer programming to stochastic techniques. The company should identify and justify the appropriate approach to assess the least cost solution when planning the options needed to meet demand plus headroom. The company should appraise feasible options to identify the initial least cost solution that should: be capable of removing the supply demand deficit identified for the scenario under consideration (annual average and / or critical period), as set out in table WRP1 BL Supply. consist of schemes with the lowest net present value of costs. The variable cost elements of schemes (including financial, environmental, social and carbon costs) should be determined using a forecast of utilisation (as set out in table WRP2b Weighted BL Demand), and not the maximum supply demand deficit that would occur if the company assumes that every year is dry. include the whole - life (80 years) costs of assets that are required in the 25 year planning horizon. For example, the whole life costs of an asset that is required in the 25th year should be included in the assessment of net present costs, not just the single year s costs in year 25. In such cases, the net present value calculation will look over a period of 105 years. For most demand management options, the output is fixed and cannot be varied with utilisation in the same way that the output of certain supply side options can vary. Therefore, the costs of such options will also not vary with utilisation. For example, a meter installation will cost the same regardless of water used, a fixed leak will deliver the same savings at the same cost and likewise a mains replacement will always cost the same Water resources planning guideline interim update 118 of 202

regardless of flow. These options should be assessed on the basis that demand management options do not vary with utilisation. Section 2.6 describes the planning scenarios in more detail and appendix 5 sets out how this approach works for the dry year (annual average) scenario. The costs of feasible options should be calculated over a period of 80 years. In order to assess the variable costs of options using utilisation over this 80 year period, the company must forecast utilisation beyond the 25 year planning horizon (2040) of the water resources management plan. To simplify this forecast, the company should assume that utilisation is maintained at the 2040 value. Each option of the least cost solution should be set out in table WRP3b reflecting the timing of when each scheme is required and the amount it will be used, as determined by the utilisation forecast. The company should also detail the profile of fixed and variable costs for each option, consistent with the profile of usage. The total usage for all schemes should be consistent with the utilisation forecast set out in table WRP2 BL Demand. Some schemes of the least cost solution will not be used under the utilisation approach, but will be needed as standby to meet the maximum potential supply demand deficit in a dry year. For those schemes the company may include minimum operating costs in Table WRP3b, to reflect the costs of keeping those assets operational. For the dry year (critical period) scenario the company should use the same principles as used for the dry year (annual average) scenario. However, the company does not need to produce a baseline or final planning weighted average demand forecast for the critical period scenario, and therefore does not need to complete some elements of Table WRP2b Weighted FP Demand or table WRP6b Weighted FP Demand. 6.7 Stage three Programme appraisal, Strategic Environment Assessment and Habitats Regulation Assessment consideration of non-monetary costs and benefits. Once a water company has identified its least cost solution, it should assess alternative combinations of options that may help meet wider objectives for the plan identified by the SEA or arising from sensitivity testing. This information should be incorporated into options appraisal process and lead to the preferred solution. Water resources planning guideline interim update 119 of 202

6.7.1 Programme appraisal The optimum programme of options for a company may not necessarily be the combination of the least cost options required to match the supplydemand deficit at the company level. The least cost programme should be reviewed, and where appropriate re-iterated for: any significant non-monetised impacts identified by the SEA (See section 6.7.2); any significant additional risks that have not been captured by the options appraisal process; any uncertainties that have not been captured by the options appraisal process. It is likely that for complex supply-demand balance problems a company will need to run a series of iterations of its least-cost programme to compile a final preferred programme. The final preferred programme will be the optimum balance of financial, environmental and social costs. A water company will need to be clear and transparent about how the decisions have been made when deciding on a preferred solution. The company should also explain how it has treated its own options and those proposed by neighbouring companies or third parties consistently. 6.7.2 Strategic Environment Assessment and Habitats Regulation Assessment Impacts on the environment of a proposed option can be difficult to cost but should be incorporated into how a water company decides on its preferred programme of options. There are two specific processes that ensure the environmental requirements of a proposed plan are correctly assessed. These are Habitats Regulations Assessment (HRA) and Strategic Environmental Assessment (SEA). As good practice it is recommended that water companies show clearly how they have accounted for potential impacts on the environment in the option appraisal process. A company may find it does not meet the criteria to require a SEA or HRA but it should aim to apply the principles to demonstrate good practice in developing its plan. Both processes have been set up to ensure the environment is considered when developing a plan. The water resources management plan process does cover many aspects but as the two processes have legal standings, they must be applied. However the processes can be integrated to reduce duplication. Table 6.2 below provides details on what a water company should consider. Water resources planning guideline interim update 120 of 202

Table 6.2 Details concerning Habitats Regulations Appraisal (HRA) and Strategic Environmental Assessment (SEA) Strategic Environmental Assessment The Strategic Environmental Assessment Directive (2001/42/EC) requires a formal environmental assessment of certain categories of plans and programmes which are likely to have significant effects on the environment. Government has transposed the Directive into appropriate Regulations. In England and Wales these are: The Environmental Assessment of Plans and Programmes Regulations 2004; The Environmental Assessment of Plans and Programmes (Wales) Regulations 2004. The plans and programmes that are subject to the SEA Directive are defined by the Directive and are based on multiple factors. The water company is the responsible authority and must determine if its water resources management plan falls within the scope of the SEA Directive. Responsible authorities that prepare and/or adopt a plan or programme that is subject to the SEA Directive need to prepare a report on the likely significant environmental effects of implementing the plan or programme, and of reasonable alternatives. Once the SEA process is complete, the resulting environmental report should be published for consultation in parallel with the period of representation of the draft water resources management plan. There are two key sources of guidance available to water companies on SEA: 1. Strategic Environmental Assessment and Habitats Regulations Assessment of Water Resources Management Plans (12/WR/02/7, UKWIR, 2012) http://www.ukwir.org/ukwirlibrary/94834 This UKWIR guidance provides detailed information on all aspects of the SEA and HRA process relating to water resources management plans. Companies should consult this guidance when determining SEA and HRA applicability, aligning and integrating assessment processes and for producing outputs of the assessment. This guidance has been developed alongside this guideline. 2. Practical Guide to the Strategic Environmental Assessment Directive (ODPM, 2005). http://www.communities.gov.uk/documents/planningandbuildin Water resources planning guideline interim update 121 of 202

g/pdf/practicalguidesea.pdf. This Government guidance represents good practice and sets out an SEA process with which many consultees and partners are familiar. Companies should consult this guidance when determining SEA applicability. Habitats Regulations Assessment A water company must make sure that its plan meets the requirements of the Conservation of Habitats and Species Regulations 2010. All companies that propose options must determine if there will be likely significant effect on the integrity of any European sites and should confirm how they made this decision within the WRMP. The recent UKWIR SEA and HRA guidance provides a screening tool for HRA. If after this, the conclusion is that there will be no likely significant effects, then the HRA finishes at this point. HRA assesses the likely significant effect of a plan or project on one or more European Sites, including Special Areas of Conservation (SACs), candidate Special Areas of Conservation (csacs), Special Protection Areas (SPAs), potential Special Protection Area (pspa), pramsars (proposed Ramsars) and Ramsars 42 ; If these effects are likely to be significant, or if a company cannot determine that a significant effect will not occur, an Appropriate Assessment of the plan must be carried out. The HRA should conclude whether or not actions in a water resources management plan would adversely affect the integrity of a European site and should be carried out by the water company. Natural England/Countryside Council for Wales are statutory consultees for this process and should be consulted at an early stage, along with the Environment Agency where appropriate. Information from the HRA process should be used to inform the Strategic Environmental Assessment determination, as described in section 6.7.3 below. A company should confirm whether it considers that its water resources management plan will be subject to HRA when it consults the Environment Agency prior to preparation of its draft water resources 42 Water companies can find out further information within regulation 8 of the Conservation of Habitats and Species Regulations 2010 (Habitats Regulations) (in respect of csacs) and paragraph 118 of the new National Planning Policy Framework (NPPF) (in respect of pspas, psacs, Ramsars, pramsars and compensatory measures for those sites) Water resources planning guideline interim update 122 of 202

management plan. HRA encompasses all the steps to be taken under regulations 61 to 66 of the Habitats Regulations. This is different to an appropriate assessment, which is a discrete part of the HRA which may need to be carried out by the competent authority in accordance with regulation 61 of the Habitats Regulations.. 6.7.3 Applying Strategic Environmental Assessment to water resources management plans Plans and programmes that are subject to the SEA Directive will satisfy particular criteria. Where these criteria are met, a water company is required to carry out an SEA of its draft water resources management plan. In all cases a company should use the information within the UKWIR guidance (section 2.2) and ODPM guidance (figure 2) when determining whether its water resources management plan falls under the scope of the SEA Directive. A water company is responsible for deciding whether SEA is applicable but should seek guidance from Government where appropriate. Criteria that are relevant to whether water resources management plans should be subject to SEA include, but are not limited to: the plan sets a framework for future development consent of projects (Art. 3.2(a) and/or Art. 3.4 of the Directive); the plan requires an Appropriate Assessment under Article 6 or 7 of the Habitats Directive (Art. 3.2(b) of the SEA Directive); the plan is likely to cause significant environmental impacts (Art 3.5 of the SEA Directive). The definition of "setting the framework" is subject to legal interpretation and a water company is encouraged to consider whether its draft water resources management plan contains actions or policies which may set the framework for future development consent of projects as described in the Directive. In all cases, a water company must determine SEA applicability at an early stage of the water resources management plan s development. This will enable the SEA process to be carried out alongside the development of the draft plan, gaining maximum benefit from the SEA process. A company should confirm whether it considers that its water resources management plan will be subject to the SEA Directive during the pre- Water resources planning guideline interim update 123 of 202

consultation phase with regulators and stakeholders. This will allow for early comments to be incorporated. 6.7.4 SEA screening Where a plan has been determined to be subject to the SEA Directive from the criteria outlined above, it may be necessary for the responsible authority to make a screening determination on whether an SEA is or is not required. Such screening should determine whether options within the water resources management plan will result in significant environmental effects. The responsible authority can obtain a screening opinion from regulators and statutory consultation bodies. 6.7.5 Integrating the SEA into water resources management plan options appraisal A water company is required to assess environmental and social impacts of options for its water resources management plan, as well as the additional requirements of SEA, and include monetised environmental and social impacts in the calculation of AISCs. SEA is undertaken at both scheme and programme level and is intended to help inform and determine the optimal planning solution. It is recognised that the SEA process overlaps with some aspects of the options appraisal processes, and the following sections are intended to help minimise duplication of effort and gain maximum benefit from the three environmental reporting regulations of SEA, HRA and water resources management plans. Figure 3.1 of the UKWIR report (12/WR/02/7) is a useful presentation of how these processes interact. 6.7.6 SEA scoping This stage of the SEA process aims to set a realistic context and approach for the SEA. If an environmental report is required under the SEA Directive, the responsible authority must consult the required statutory bodies, including the Environment Agency, on the scope of the assessment. SEA scoping should: establish an environmental baseline for which impacts can be assessed look at the key environmental issues in the relevant area review the objectives of other plans and programmes relevant to the water resources management plan Water resources planning guideline interim update 124 of 202

The output of this scoping should be used to set the objectives or criteria for the SEA process against which the environmental performance of the water resources management plan will be assessed. The SEA scoping report should set out these objectives and be consulted on. Typically, a scoping report is submitted to the statutory bodies to facilitate consultation, for a statutory 5-week period established by the England and Wales SEA Regulations. A company should consider the time required to undertake consultation of the scoping phase of an SEA and build this into the time allowed for preparation of the draft water resources management plan. It is a useful exercise to screen out low impact schemes, allowing them to go forward in the feasible options list and review in detail those that have a negative impact as identified by the SEA. This will also assist companies with determining feasible options from the unconstrained list (see section 6.4). A company should provide justification as to why schemes do not need to be considered further. More information on SEA scoping can be found in stage A (section 4.1) of the UKWIR guidance (12/WR/02/7). 6.7.7 Refining options and programme appraisal through SEA The SEA process can add value to the options appraisal process a water company is carrying out as part of the development of the draft water resources management plan. Once a feasible list has been prepared, the next stage of the SEA process is to refine these feasible options through programme appraisal. Section 4.2 of the UKWIR guidance (12/WR/02/7) provides further details on this stage. The environmental and social impacts of each individual scheme should be assessed using the SEA objectives and framework identified at the scoping stage. The assessment of environmental impacts for each scheme must consider (as listed in Annex II of the Directive): magnitude and scale of effects; the time period over which the effects may occur; whether the effects are permanent or temporary; whether the effects are positive or negative; the likely probability and frequency of effects; any secondary, cumulative and/or synergistic effects; Water resources planning guideline interim update 125 of 202

o this should include the interactions and cumulative effects between other options and plans, option combinations and mutual exclusivity. A water company could use a framework approach to assess these effects for each option. The results from the assessment of these factors through SEA can help to inform the preferred programme. 6.7.8 Using SEA outputs to develop the preferred solution As part of the water resources management plan programme appraisal process, the initial solution will be modelled according to least cost using the EBSD methodology as detailed earlier in the section. This produces a monetised solution. The SEA process allows non-monetised impacts to have an influence in the decision of the preferred solution. The environmental and social impacts identified through the SEA process, including those above, should also be considered as part of the programme appraisal to help define the preferred options set.. Non-monetised impacts must be disaggregated from monetised impacts to avoid double counting and considered separately. If non-monetised impacts are identified that cause an unacceptable impact, these schemes can be removed from the selection pool of options. A water company should clearly describe how the non-monetised outputs from the SEA have influenced the decision of a preferred option. A company may need to refine or optimise its option as a result. A company may decide to model alternative programmes, including one optimised to minimise environmental and social impact. Care needs to be taken to avoid double counting in programme appraisal using SEA. The least cost solution will already consider certain environmental and social impacts through incorporation of AISC. Using similar criteria to assess impacts for both the least cost solution and any optimised scheme may result in a programme in which certain scheme impacts have been double counted, skewing perceived costs and benefits. To avoid this, any closely related or overlapping criteria could be excluded from the optimisation model. A key principle throughout the SEA process is the consideration of reasonable and practical alternatives to less favourable options. Alternatives could be other identified feasible options or a revision of an existing option. Water resources planning guideline interim update 126 of 202

6.7.9 The environmental report The environmental report is the main written output of the SEA process, and should present information on the likely significant effects for the water resources management plan, containing all the information referred to in Annex 1 of the Directive. The report should clearly and concisely explain: who was consulted during the SEA process; the approach a company has taken to carry out its SEA on its draft water resources management plan; what sources of information the company has used; the likely significant impacts of the feasible list of schemes; what changes the company has made to the draft water resources management plan as a result of carrying out the SEA. The environmental report is intended to be a public consultation document and should be made available alongside the draft water resources management plan or as part of the water resources management plan (i.e. supplementary part) to avoid duplication of material. 6.7.10 Post-SEA outputs and adoption After the adoption of the final water resources management plan, companies are required to publish the Environmental Report and SEA statement. Details of what to include in the SEA statement are detailed in the UKWIR report (WR/02/A). 6.8 Stage four A preferred programme of options and a final water resources management planning solution Once a water company has identified its least cost solution, it should determine its preferred solution. The preferred solution should be based on a number of factors. The economic appraisal may provide a least cost solution but the water company may decide on different options based on non-monetised factors from an outcome of SEA and/or HRA. A water company will need to be clear and transparent about how the decisions have been made when deciding on its preferred solution. The company should also explain how it has treated its own options and those proposed by neighbouring companies or third parties consistently. Each scheme of the final planning solution should be set out in table WRP3c Preferred (utilisation) showing the details of costs and outputs Water resources planning guideline interim update 127 of 202

(based on utilisation), and reflecting the timing of when each scheme is required. While table WRP3c summarises the costs of the preferred solution at resource zone level, the company should provide a summary of these costs at company level within water company total tables. The company level operating and capital costs, based on utilisation, set out in WCWRP will be used as the basis of the investment proposals of the supply demand balance element of the company s business plan. Table WRP3c Preferred (utilisation) will check that the sum of the utilisation of the schemes is equal to the utilisation forecast set out in table WRP2b weighted BL Demand. The company should use Table WRP4 to set out each of the options of its preferred solution and the capacity savings / gains (as opposed to those to meet utilisation) across the planning period. This table will be used to calculate the final planning supply demand balance in tables WRP5 and WRP6 for the dry year (annual average or critical period) scenario. 6.9 What will the regulators scrutinise in relation to option appraisal? The regulators will expect a company to provide a very clear and transparent audit trail describing and justifying the decisions it made as it moved through the different stages of option appraisal. A company which has included an option, without explaining part or parts of how it decided on the option should expect to be strongly challenged by the regulators. The regulators will scrutinise the following areas: Unconstrained list A company has presented a list of all possible options in the unconstrained list. The regulators will expect to see evidence of a company which has engaged with regulators and stakeholders (including neighbouring companies and potential third party suppliers) during the pre-consultation phase to help develop a comprehensive unconstrained list. The unconstrained list must include resource sharing options and any bids submitted by third parties (where these are available) and options to manage demand. Water resources planning guideline interim update 128 of 202

Feasible list A company has provided a clear and transparent audit trail of why it has rejected options that are not considered as realistic. A water company should provide a simple table to demonstrate with evidence why options have not progressed. This would help the regulators and stakeholders understand the decisions. A company should explain in the plan why it has rejected any options, including providing an explanation to any neighbouring company or third party which has submitted a bid that is rejected. A company should understand that its costs will be compared to other water companies and those with higher costs than other companies will be challenged by the regulators. The correct application of the economic assessment of feasible options in accordance with guidance. The impacts of climate change have been assessed on potential options. A company has demonstrated it has considered whether different combinations of options will provide a better solution and consider the links, dependencies and exclusivities between options. A true programme appraisal has been undertaken where appropriate. Environmental costs and benefits - this will also include compliance with SEA and HRA Water companies are expected to incorporate monetised and non-monetised costs and benefits to the environment. For many companies this is covered when an SEA and HRA has been undertaken (where appropriate) and that the company can demonstrate non-monetised impacts on the feasible options. For companies who do not qualify to undertake an SEA or HRA, companies should use the information to provide such information as good practice. An environmental report has been produced and updated if the feasible options change through the water resources management plan process. Water resources planning guideline interim update 129 of 202

Preferred options A company has provided details on the lead-in time needed to promote and implement the options A company has considered the wider issues that are not taken into account in the economic appraisal of options as their impacts could not be monetised, (such as environmental, social and political plus aspects of risk, uncertainty, sustainability and resilience). A company s own options and those proposed by neighbouring companies or third parties have been assessed consistently. A company has provided a justification for the preferred programme solution. Any do the right thing investment proposals are cost beneficial. Robust evidence must demonstrate that the costs of carrying out this discretionary investment are less than the benefits that it will deliver in order for the proposals to be taken forward into price limits at PR14. The overall process should allow iteration across its steps and revision of assumptions where appropriate. Water resources planning guideline interim update 130 of 202

7.0 Final planning supply-demand balance The final planning scenario should reflect the change to supply and demand of implementing the company s preferred options set. Target headroom for the final scenario should also reflect the implementation of the company s preferred options set. Companies should present the solution to the supply-demand problem that they have identified in Table WRP4 Preferred. A company s plan should contain a final planning demand forecast at the resource zone level that shows the implications of the preferred options set on forecast demand, which it should set out in Table WRP6 FP Demand. The final planning supply forecast at the resource zone level, showing the implications of the preferred options set on forecast supply should be set out in Table WRP5 FP Supply. Where the problem was found within the critical period scenario, the company should explain how the solution affects both the dry year scenario and the critical period. For example does a solution to a critical period scenario lead to spare water for the rest of the year? Solutions for critical period driven resource zones should be worked back through the dry year scenario to show whether they provide a surplus of water. Therefore, a company that has resource zones with critical period problems needs to submit data for both dry year and critical period in its plan. For the (annual average) scenario, Ofwat requires a summary of the final planning weighted annual average demand forecast (water delivered, water taken unbilled, distribution system use, and leakage) to use as the basis of the company s revenue forecast when it sets price limits in 2014. The final planning weighted annual average demand forecast is calculated automatically in table WRP6b Weighted FP Demand, taking into account the impact of any demand management measures that form part of the company s preferred solution as set out in table WRP3c Preferred (utilisation). Appendix 6 illustrates how this approach works for the dry year (annual average) scenario. 7.1 Production of a final plan and justifying the final planning solutions The most important part of a water resources plan is the final planning solution; what companies propose to do to manage the resources in their Water resources planning guideline interim update 131 of 202

water resource zones. Water companies should first set out the strategic aims of the water resources management plan. Water companies should set out the water resources planning problems clearly. For example, a company should state whether there is a deficit or surplus and whether this occurs in the dry year scenario, the critical period scenario or both. They should do this for resource zones and possibly for the company level too. Companies should then set out the solution. This is likely to be made up of a series of water management options for the resource zone and possibly company level too. The optimum solution may not necessarily be the combination of the least cost options required to match the supply-demand deficit at the company level. Companies optimum solution should be: in line with industry good practice; robust and flexible to the range of risks and uncertainties identified; selected to make a positive contribution to sustainable development. In considering its final planning solution, a company should consider the risks and costs that it is prepared to accept and present this in its water resources management plan. The final decision is a business decision that rests with the company s board. The final options set should be justified economically, socially, and environmentally. A company should provide a clearly reasoned justification for how the decision on a preferred solution set has been reached. This should take account of all the factors detailed in the option description and assessment. It should explain how the options selected performed against the various aspects of the appraisal and why this options set has been chosen over the alternatives. The company should include a summary comparison of net present cost, combined yield, main risks and opportunities for the various options sets it considers. In particular, a company should explain why an option has been selected if it does not appear to be the optimum solution for any element of the assessment. A company should also explain how it has treated its own options and those proposed by neighbouring companies or third parties consistently. The justification should include: whether the preferred options set will resolve the forecast deficit; how much headroom the preferred options set provides; the reasons why the preferred options set has been chosen over the alternatives; Water resources planning guideline interim update 132 of 202

a summary of the likely social and environmental impact of the options including the potential effect on water framework directive ecological status; the confidence that the company has in its ability to deliver the preferred options set; whether the preferred option(s) will work in combination with existing or proposed schemes; the timing of scheme implementation; the risks and uncertainties associated with the preferred option(s) and overall programme; the alternatives that the company plans should the preferred option set fail to deliver the expected yield on time. More than one alternative solution can be included. However a significant failure of an option will mean a company will have to form a new water resources management plan where constitutes a material change. Water companies should make the case for further investigations of supply-demand options where appropriate, within their water resources management plan. A water resources management plan should also show how a water company has complied with Government (Defra and Welsh Government) Directions. The company should provide a clear list of Directions and show the evidence of compliance. If a company has any questions with regard to compliance with Directions, it should seek clarification from either legal representatives or direct from Defra or Welsh Government. Further information on Directions is included in the Guiding Principles. Water resources planning guideline interim update 133 of 202

7.2 Checklist of water resource management plan tables that the company should complete Table 7.0 Summary of the WRP tables the company should complete for each scenario Table Dry year (annual average) scenario Dry year (critical period) scenario Title Page Resource Zone Summary Draft Q&A Summary WRP1a BL Licences WRP1 BL Supply WRP2 BL Demand WRP2a BL Customers WRP2b BL Weighted BL Demand 43 WRP3a Feasible Options Detailed WRP3b Least Cost (weighted) WRP3c Preferred (weighted) WRP4 Preferred WRP5 FP Supply WRP6 FP Demand WRP6b Weighted FP Demand 43 Excluding the weighted annual average demand elements. Water resources planning guideline interim update 134 of 202

8.0 Testing your plan A water resources management plan should provide a robust basis for a water company to make decisions and plan for the future. However the future is uncertain and will be affected by many variables. The inclusion of headroom provides a buffer to cover the possible uncertainty within the forecast but to ensure the plan is robust, a water company should test its plan. A company should also test its plan to help determine and justify its chosen target headroom risk profile. 8.1 Scenario testing A water company should undertake a series of scenario testing to demonstrate: The plan is robust to allow for minor changes to supply and demand forecasts in the near future and moderate changes as the plan progresses. It has considered the main risks (this could be population changes, impact of climate change and sustainability reductions) appropriate to its own circumstances when developing its plan. This will show how robust the plan is. It has not planned for an uncertain worst case scenario that is unlikely. For example, scenario testing can help the company determine the range of uncertainty in its estimation of the impact of climate change on supply to be included in target headroom in its chosen planning scenario. It has identified what factors have a large effect on the plan and possible timings of these impacts. This should allow a water company to either introduce measures to mitigate the potential impacts or alternative options that are more flexible and adaptive to potential changes. 8.2 Choosing scenarios The level of risk and uncertainty will vary between companies and this will influence the way a company decides to test its plan. As a first step, a company should use the results of its headroom analysis to explore the sensitivity of its plan. It can show to what extent varying the risk percentile that the company plans for affects the supply/demand balance and timing or need for early investment, as well as effects on the later stages of the plan. It can also show which are the main drivers of Water resources planning guideline interim update 135 of 202

uncertainty from the headroom analysis. For companies with a simple plan, few sustainability changes and limited or no need for new options this may be sufficient. Where there are significant uncertainties from sustainability changes companies should consider scenarios for these using information provided by the Environment Agency. The decision on what scenarios to choose from will be a decision for the water company as it should identify the biggest risks to the plans. A water company should clearly describe: the factors that could have the biggest influence on the plan; how the company has decided on what factors to include; the level of possible impact the factors have on the plan and any estimation of likelihood (i.e. a 50% change in household would be very unlikely, however a 5% change might be highly possible); whether the scenarios include factors that are already covered in headroom, and if so what additional impact they have. A water company should decide on the number of scenario tests it conducts. However, it is recommended that a company undertakes at least five scenarios. This would form a maximum impact scenario and a least impact scenario, with three further scenarios between these ranges. 8.3 Using scenario testing A company should use scenario testing to help validate its plan and choice of options. The scenario testing could help to: justify an adaptive planning/flexible approach - A large range between maximum and minimum scenarios would help to promote a more adaptive planning/flexible approach to its options selection. An adaptive planning/flexible approach would be to select options that have flexibility to respond to a range of possible futures. For example, delaying the decision on large infrastructure projects in favour of smaller incremental ones that can respond to emerging uncertainties. However the testing would show when a decision has to be made to ensure a secure supply of water. justify a more rigid set of options A narrow range between maximum and minimum scenarios would help to validate that the chosen option(s) are the most appropriate and the plan is robust. demonstrate key decision milestones to identify when important decisions should be made. support a choice of options that are appropriate to managing the sources of uncertainty, for example further interconnections to Water resources planning guideline interim update 136 of 202

reduce single source reliance or metering and water efficiency schemes to manage peak demands clarify what the company will monitor to manage risk and uncertainty, and how it will manage and if needed modify its plan or details of implementation as new information becomes available Show clearly how the plan might have to change in future in response to new pressures or new evidence, and how the company will monitor and identify when a tipping point or decision milestone is reached If a company finds from its scenario testing that a tipping point may be reached within the 5 year cycle before the next plan is due to start, it should explain how it would act if monitoring showed that point was reached. There are three approaches a company could take: consult on an alternative plan that sets out clear information on the potential changes in advance, showing clearly what would trigger them and how the company will monitor and decide to act on the new information provide limited information on alternatives and explain clearly that it would reconsult on a new plan as a material change if the trigger point is reached defer further changes to the next 5 yearly cycle and consult fully then; provided this will not cause undue risk to the environment or security of public supplies 8.4 Alternative plans Where a company chooses to consult on the alternative plan as part of this round, it should be clear that it is consulting on the alternate as well as the preferred plan. The evidence and supporting information on the alternate plan should be sufficient for customers and other interested parties to see the consequences. This would include details of costs, options appraisal, environmental impacts and the supply/demand changes. Whilst not necessarily a whole alternative plan it does have to show how the plan would alter. Further assessment under the SEA regulations may be necessary. The company should clearly describe why it is consulting on an alternative plan, what the main drivers of the tipping point are and how it would determine when that point has been reached. Whilst not every element of an alternative plan would differ from the preferred plan, the company should clearly set out which parts of the plan would alter. An example of reaching a tipping point could be where new information confirms a sustainability change that triggers a different choice of options. Water resources planning guideline interim update 137 of 202

Whilst the focus is on a tipping point and impacts in the first five years of the plan, this can include decision points and early work for longer term options such as major transfers or reservoirs. If a company is considering consulting on an alternative plan in this planning round, it should discuss this with the Environment Agency in the pre-consultation phase. 8.5 What do the regulators expect to see within the plan? The regulators expect to see a clearly defined set of scenarios and reasons for choosing them based on risk and likelihood. If the impact is unlikely, then the regulators would not expect to see it within the plan. While scenario testing is useful to highlight strengths and weakness of a plan, a water company should use the results carefully. Large scale infrastructure projects should not be driven by the scenario testing, but it should highlight when important decisions need to be made. Final review of the plan and scenario testing should identify the further work that will be prioritised in order to reduce the uncertainties as much as possible and ensure decisions are taken at the right time, with sufficient evidence to make a good decision. The regulators will expect to see a schedule of this further work linked to the planned timing of future implementation decisions. Water resources planning guideline interim update 138 of 202

Appendices Water resources planning guideline interim update 139 of 202

Appendix 1 Water resource zone integrity Resource zones are the building block of a water resources management plan. A resource zone provides water companies with a strategic framework for water resources supply-demand management and investment. The water resource zone (WRZ) describes an area within which, managing supply and demand for water is largely self-contained (apart from defined bulk transfers of water); where the resource units, supply infrastructure and demand centres are linked such that customers in the WRZ experience the same risk of supply failure. Perfect integration is not possible, as there will always be limitations to a supply network. However, the main factor is that significant numbers of customers should not be experiencing different risks of supply failure. It is the water companies' responsibility to make sure that their WRZs meet this definition. The UKWIR/Environment Agency definition of a WRZ (UKWIR/Environment Agency Definitions of Key Terms for Water Resources Practitioners) is as follows: The largest possible zone in which all resources, including external transfers, can be shared and, hence, the zone in which all customers will experience the same risk of supply failure from a resource shortfall. Main features of a water resource zone Water resource zones tend to have the following features: They represent the largest area in which all resources can be shared effectively. Customers within the WRZ receive the same overall risk to public supply so there is no significant number of people at a higher risk of supply failure. They are essentially self-contained - defined by infrastructure connectivity, and geographic or physical boundaries. They are built up from smaller water balance units used for supply management. These will vary from company to company but could comprise, for example District Metered Areas, Water Quality Zones, Control Groups, Accountability Zones or Planning Zones. They contain an integrated supply network, providing secure supplies to meet demand under defined levels of service. The aim of this section is to provide clear guidance for water companies to demonstrate that their WRZs meet the WRZ definition. By following this guidance, water companies will demonstrate that their main water resources planning units (WRZs) are fit for purpose. This will provide Water resources planning guideline interim update 140 of 202

greater confidence in regulators' decisions regarding the investment proposals that companies put forward. A company will only need to review its WRZ boundaries when there is sound evidence and clear benefits to justify this. The majority of companies will not need to review their WRZ boundaries. Scope and benefits of this approach The WRZ definition should be based on the dry year annual average or critical period supply-demand balance. This guidance does not deal with the need to provide greater resilience to short-term supply losses caused by unforeseen events. Consequently, short-term emergencies (for example, temporary transfers of water to meet short-term supply deficits, risks of asset failure, low pressure and supply interruptions) should not be considered as part of this process. These should be addressed by outage and resilience planning. By following this guidance, companies should experience the following benefits: They can demonstrate that all customers within a WRZ are experiencing the same risk of supply failure. They may benefit from a better understanding of the strengths and weaknesses of their supply network. It may help to present clearer evidence to regulators of the supplydemand investment needed for future investment. Figure 10.0 below shows, in very simple terms, a fully integrated WRZ where available supply can be shared between the demand centres. Water resources planning guideline interim update 141 of 202

Fig. A10.0 - Schematic diagram showing a simple model of an integrated WRZ Source Demand Network link Illustration of a WRZ integrity issue Within a WRZ, under a defined minimum frequency of demand restrictions (level of service), the supply to that zone will equal the demand from that zone. Where there is a supply-demand deficit, water companies will assess a number of options and put forward the most cost-effective (including the environmental and social costs and benefits) supply or demand management measure that will ensure the planned minimum level of service is met. This measure(s) will usually involve investment. Figure 10.1 below shows an example of a WRZ supply-demand balance (based on the dry year annual average final planning scenario). It helps to illustrate a potential issue of WRZ integrity. In a fully integrated WRZ, where no group of customers experience a significantly different risk to their water supply from any other group within the zone, investment in schemes that did not match a demand need would not be expected. In the case below, a new supply is planned from around 2015 and another around 2024. At a WRZ scale, the first scheme appears to be much larger than is needed for several years and the second, not needed at all. This is due to a local deficit that cannot be addressed by sharing water from within the WRZ. By looking at the sub-zones, within the WRZ (Fig. 10.2) and their supply-demand balances (Figures 10.3 to 10.5), it is clear that the new supply schemes are needed to maintain the balance at a sub-zonal scale, showing a WRZ that is not integrated and customers Water resources planning guideline interim update 142 of 202

Quantity (Ml/d) that could be experiencing different risks to their water supply within the zone. Figure A10.1 - Supply-demand balance for an example WRZ Dry year annual average final planning supply-demand balance 160 140 120 100 80 60 40 Planned new supplies Supply Demand + Target Headroom 20 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 0 Year Figure A10.2 - Showing a WRZ subdivided into three distinct subzones Subzone 1 Subzone 2 Planned Subzone supplies new 3 Water resources planning guideline interim update 143 of 202

Quantity (Ml/d) Quantity (Ml/d) Figure A10.3 - Dry year annual average supply-demand balance for Sub-zone 1 Sub-zone 2 60 50 40 30 20 10 0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Figure A10.4 - Dry year annual average supply-demand balance for Sub-zone 2 2021-22 Year 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 Sub-zone 3 50 45 40 35 30 25 20 15 10 5 0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Year 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 Water resources planning guideline interim update 144 of 202

Quantity (Ml/d) Figure A10.5 - Dry year annual average supply-demand balance for Sub-zone 3 Sub-zone 1 60 50 40 30 20 10 0 WRZ assessment process 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Year 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 The flow diagram below (Figure 10.6) summarises the proposed key tasks for the WRZ assessment and review process. The Environment Agency expects to complete this process with water companies before each statutory review of water resource management plans, including where a material change to a company's plan means it has to re-submit its draft plan. Companies can also use the annual review process to highlight issues of WRZ integrity or report on progress towards improving WRZ integrity. Stage 1: WRZ assessment Overall approach The Environment Agency recommends water companies speak with the organisation at an early stage in the planning process as WRZs have a fundamental role to play. If water companies decide to review their WRZs, this would have a significant impact on their water resources management plan. For this reason, it is important that the detailed WRZ assessment takes place as early as possible within the WRMP planning process. This will make sure that companies are fully prepared for the possibility of presenting plans based on revised WRZ boundaries. Water resources planning guideline interim update 145 of 202

De-minimus threshold This guidance applies to all WRZs where the population is greater than 5,000 and/or where over 1 Ml/d of Total Water Available for Use (Wafu) is supplied. This de-minimus threshold also applies to sub-zones, within WRZs, with limited connectivity to the main WRZ supply network. In this way, isolated rural communities with less than one per cent of the WRZ customers, or less than 5,000 customers (whichever is the smallest), or where the demand from the sub-zone is <1 Ml/d of Total Wafu, are exempt from the assessment. They should report this in their water resources management plans. For some rural communities, cost-effectiveness may justify a higher threshold. In these cases, water companies may wish to propose a higher threshold. They should include their reasoning for this in their WRZ assessment and water resources management plan. Planned investments It is reasonable to assume that investments to improve WRZ connectivity that have already been funded but not implemented should be included as part of the WRZ. Water resources planning guideline interim update 146 of 202

Figure A10.6 - WRZ integrity guidance process diagram Stage 1 Tasks Step 1. Confirm WRZs meet the definition and provide proportionate evidence to support this view Who Water company Step 2. Clarify where more detailed evidence is needed Environment Agency Step 3. Complete pro-forma and provide more detailed evidence as requested Water company Step 4. Meeting to discuss pro-forma and supporting evidence. Do the WRZs meet the definition? Water company and Environment Agency Yes No No further action. Summarise conclusions within water resources management plan Step 5. Is it high risk i.e. is a sub-zonal deficit driving an investment? Water company and Environment Agency Yes No Proceed to Stage 2: Review WRZs, redefine WRZ boundaries and remodel the supplydemand balance Recognise risk to customers from WRZ not meeting the definition. Risk is not significant enough to warrant a full WRZ review Water company and Environment Agency Water resources planning guideline interim update 147 of 202

Step 1 As early as possible in the pre-consultation phase of the planning process, water companies should confirm with local Environment Agency planners that their WRZs meet the definition of a WRZ. Companies should provide appropriate evidence to support this. For example highlevel schematics of the WRZ. Step 2 Local Environment Agency water resources planners will clarify with water companies, whether more detailed evidence and discussions are needed. This will be based on an internal assessment of: the risk to public water supply; the risk of failing the WRZ definition; WRZ integrity issues that the Environment Agency is already aware of or that it has raised with companies in the past. If no further evidence is needed, water companies should not take any further action beyond reporting in their water resources management plans that they have demonstrated their WRZs meet the definition. Step 3 Where the Environment Agency has recommended that companies provide more detailed evidence for it to determine if their WRZs meet the definition, companies should answer a series of questions and provide evidence to support them. Local Environment Agency planners will provide water companies with a pro-forma. The pro-forma will list a series of questions and provide the opportunity for water companies to respond to those questions and reference additional evidence (for example schematic maps) to support their responses which has already been distributed. The template of this pro-forma is available in appendix 2 of this guideline. As a guideline, the following questions should be used, however local Environment Agency planners are free to amend these questions or include additional questions relating to specific WRZs. (Please note: these questions refer to dry year annual average or critical period scenarios): 1 Are there any isolated sources and demand centres that are not connected to the supply network? What is the population estimate for these demand centres? What constraints are there to supply (for example, peak demands, capacity of service reservoirs)? How are these constraints managed (for example, tankering supplies into service reservoirs). Water resources planning guideline interim update 148 of 202

2 How do the sources of supply (including transfers) link to the demand centres? 3 What internal transfers of water take place within the WRZ? 4 How has the water company developed its WRZ boundaries? What, if any, smaller water balance units have companies combined to produce WRZs? 5 What are the network constraints within the system that affect deployable output (for example, pipe diameter, pump capacity etc)? Where are the absolute infrastructure connectivity limits and what are the constraints (for example, end of pipe run)? 6 Are there groups of customers within the WRZ that could, given drought impacts/hydrological stress be at a different supply risk compared to the rest of the WRZ? Where these groups exist, how significant is the difference to the risks of supply failure? What is the constraining factor(s) that causes these differences? Companies should provide evidence to support the pro-forma questions, including schematics showing the supply network of the WRZ(s). The schematics should also show further information if the local Environment Agency planners request this. This request should be reasonable and focused and could include (but is not limited to): GIS layers showing the WRZ boundary; key sources of supply, treatment works and demand centres; constraints and connectivity limitations (for example, pumping constraints, one way transfers); key connections between sources of supply and demand centres, including internal (within-wrz) transfers; WRZ boundaries and boundaries of any smaller operational or planning water units that fall within the WRZ, whether they contribute to the water balance or not; sources of supply that cannot be used throughout the zone (for example, if a source has a limited supply area, this should be highlighted); groups of customers/demand centres at risk of a different level of service within the WRZ; transfers and/or bulk supplies into or out of the WRZ. Water resources planning guideline interim update 149 of 202

Step 4 Water companies should hold a meeting with local Environment Agency planners to present the pro-forma and more detailed evidence. The aim of this meeting is to find out if the WRZ(s) meet the definition? The Environment Agency may need to do further analysis and/or hold further discussions with the company to answer this question. If the WRZ(s) meet(s) the definition, then no further action is needed. The water company should summarise the discussions and conclusions within its water resources management plan. If the WRZ(s) do(es) not meet the definition, then discussions between the water company and local Environment Agency planners should proceed to Step 5. Step 5 Where the evidence shows that a water company's WRZ(s) do(es) not meet the WRZ definition, discussions should focus on the risk to customers' supply. These discussions should answer the following question: Do sub-zonal deficits exist within a WRZ that are driving a supply (or demand management) investment within the 25-year planning horizon? If sub-zonal deficits are not driving investment, then there is a low risk to customers' supply. In this case, water companies should recognise this risk within their water resources management plans but conclude that the risk is not great enough to warrant a full review of WRZs, If sub-zonal deficits are driving investment within the 25-year planning period, the Environment Agency may recommend that the company completes a review of its WRZ(s) and proceeds to Stage 2. The Environment Agency may make further recommendations on a caseby-case basis. Stage 2: WRZ review Where the Environment Agency has recommended that companies should review one or more of their WRZs, it hopes that companies act on this. Companies should complete this review according to their own requirements. However, the Environment Agency has provided the following advice as guidance. For an example of how Severn Trent Water approached its WRZ review, companies may like to refer to the report entitled "Severn Trent Water WRZ definition - summary report", available from Severn Trent Water. Water resources planning guideline interim update 150 of 202

Preliminary review The Environment Agency recommends that companies hold internal workshops involving key staff to test and challenge the preliminary conceptual understanding of the WRZ boundaries obtained during Stage 1. Companies may find it useful to involve staff from across the business in this process. Water companies should consider the scale of the review. For example, where a company has identified that only one or a few WRZs need reviewing, it should consider the most appropriate scale on which to carry out this review (for example, the whole company area or the combined area of a number of WRZs). During the workshops, as well as scrutinising system operation under dry year annual average or critical period conditions, it may help companies to consider the scenario of an extended hot, dry season such as the summer and autumn of 2003. When re-defining WRZs, companies should consider the water balance units they use for other operational and/or reporting purposes. These may comprise water quality zones, district metered areas or leakage management zones. In some cases, companies may find that combining these zones could help them identify appropriate new WRZ boundaries, and may also present reporting efficiencies. When re-defining WRZ boundaries, companies should consider the risks of climate change affecting the sustainability of water-dependent environmental sites (for example SSSIs). They should also consider catchment and aquifer boundaries when identifying their new WRZ boundaries. Companies should carry out further tests to confirm that any forecast increases in demand due to growth within the WRZ can be met from sources within the WRZ boundary and that customers within the zone share the same risk of resource shortfall. This will make sure that the WRZ boundaries meet future challenges. Finalising WRZ boundaries Following the workshops, water companies should either confirm or further revise the preliminary WRZ boundaries. Companies should refer back to the pro-forma questions each time new boundaries are proposed. Companies should work with the Environment Agency to agree their final proposed WRZ definitions. They should present a similar level of detail for each re-defined WRZ as provided in the Stage 1 assessment. Water resources planning guideline interim update 151 of 202

Modelling new WRZs Once the company has agreed its re-defined WRZ(s) with the Environment Agency, it should carry out the process of rebuilding the models it relies on for water resources planning. These may include, but are not limited to: deployable output; demand; outage; headroom. Companies should provide a summary of the work they have done to review their WRZ(s) in their water resources management plan. Water resources planning guideline interim update 152 of 202

Appendix 2 - Detailed WRZ assessment pro-forma Water companies should use the pro-forma below as a starting point and prompt for discussions with the Environment Agency on the more detailed WRZ assessment in Stage 1. Please note, this pro-forma is a suggested guideline for local Environment Agency planners to provide to water companies, however local planners are free to use different/additional questions should they wish. Water company name WRZ name Date of Stage 1 assessment WRZ integrity criterion/question What are the network constraints that limit connectivity within the system (e.g. pipe diameter, pump capacity etc)? Where are the absolute infrastructure connectivity limits and what is the constraint? What are the sources (including transfers) that supply the WRZ? How do they link to the demand centres? What internal transfers of water take place within the WRZ? Are there any isolated sources and demand centres that are not connected to the supply network? What is the population estimate for these demand centres? Explanation/Comments Supporting evidence reference Water resources planning guideline interim update 153 of 202

What constraints are there to supply (e.g. peak demands, capacity of service reservoirs)? How are these constraints managed (e.g. tankering supplies into service reservoirs). How has the water company developed its WRZ boundaries? What, if any, smaller water balance units have companies aggregated to produce WRZs? Are there groups of customers/demand centres within the WRZ that experience a significantly different risk to supply, compared with the rest of the WRZ? Where these groups exist, how significant is the difference to the risks of supply failure? What is the constraining factor(s) that causes these differences? Conclusion and recommendation Water companies should detail their conclusion and recommendation regarding the WRZ here Water resources planning guideline interim update 154 of 202

Appendix 3 Weighted annual average demand The weighted annual average demand should reflect a mix of demand under dry years and normal years, as well as other types of year such as wet years, etc, should the company deem these appropriate. Weighted average demand represents the company s view of the demand that it is most likely to face over the planning period on average, and therefore will be used to determine the company s revenue forecast for setting price limits. Weighted average demand will not be used for any other purpose. Using a simple example where a company considers only dry year and normal year demands, it might assume that 7 in every 10 years are normal and 3 are dry. The company would choose a weighting of 30% dry, 70% normal to reflect this. Figure A3.1 and Table A3.2 below illustrate this approach. Figure A3.1 - Example of a weighted annual average demand Water resources planning guideline interim update 155 of 202

Table A3.2 - Example of a weighted annual average demand Normal year (annual average) demand 2015 2020 2025 2030 2035 2040 475 504 527 551 575 599 Dry year (annual average) demand 500 530 555 580 605 630 Weighted annual average demand (0.7*nyaa+0.3*dya a) 483 511 536 560 584 608 Water resources planning guideline interim update 156 of 202

Appendix 4 Utilisation Utilisation is the amount, on average, that a company is most likely to use any solution to a supply demand deficit. This could reflect a weighted average of the supply demand deficit that the company will face in the different types of year that underpin the company s forecast (eg normal, dry). A suggested approach that the company could use to estimate its utilisation forecast would be to consider the supply demand balance in each of the types of years that it has used to determine its weighted annual average demand forecast. Using these supply demand balance forecasts, and the relative frequency of each type of year, the company could estimate a weighted average deficit. Using the simplified example given for weighted annual average demand set out in appendix 3, this approach is illustrated in table A4.1 below. The company continues to assume a weighting of 70% for normal years and 30% for dry years. Table A4.1 Example of a utilisation forecast Normal year WAFU Normal year (annual average) demand Normal year deficit (excluding TH) Dry year WAFU Dry year (annual average) demand Dry year deficit (excluding TH) 2015 2020 2025 2030 2035 2040 545 545 545 545 545 545 475 504 527 551 575 599 0 0 0-6 -30-54 525 525 525 525 525 525 500 530 555 580 605 630 0-5 -30-55 -80-105 Utilisation 0 2 9 21 45 69 Water resources planning guideline interim update 157 of 202

foreast - (0.7*nyaa deficit + 0.3*dyaa deficit) When calculating utilisation, the company should make no allowance for target headroom. The company s forecasts should reflect a realistic estimate of supply and demand in the baseline scenario, so that there is equal probability that out-turn values adjusted to the planning scenario would be higher or lower. Therefore the most likely supply demand balance (and deficit where appropriate) has been identified, based only on baseline supply and demand forecasts. See section 5.1 for more information on target headroom. Water resources planning guideline interim update 158 of 202

Appendix 5 Assessing a solution to a supply demand balance using the utilisation forecast In order to do this for the dry year (annual average) scenario, the company should: 1. Assess the supply demand balance (set out in WRP1 BL Supply) Dry year WAFU (Ml/d) Dry year (annual average) demand (Ml/d) Target headroom (Ml/d) Dry year supply demand balance (Ml/d) 2015 2020 2025 2030 2035 2040 525 525 525 525 525 525 500 530 555 580 605 630 20 21 20 20 19 18 0-26 -50-75 -99-123 2. Plan a solution that is capable of addressing a potential deficit from the point in time when the deficit occurs (point 1 in figure A5.1) Water resources planning guideline interim update 159 of 202

Figure A5.1 3. Assess the variable costs of feasible options using the utilisation forecast (which the company should set out in WRP2b Weighted BL Demand). Continuing with the example set out in appendix 4, utilisation is: 2015 2020 2025 2030 2035 2040 Utilisation forecast 0 2 9 21 45 69 Water resources planning guideline interim update 160 of 202

This is also illustrated graphically: 4. Bypassing the optimisation process, which is for the company to determine, the following table sets out the company s solution. This consists of demand and supply side measures, which are capable of meeting the supply demand deficit identified for the planning scenario. The proposed solution shows 5Ml/d of demand side measures are required in the period up to 2020, while 21Ml/d of supply side measures are required. 2015 2020 2025 2030 2035 2040 Demand side (Ml/d) 0 5 8 18 30 50 Supply side (Ml/d) 0 21 42 57 69 73 Total (Ml/d) (equal to the SDB deficit) 0 26 50 75 99 123 Water resources planning guideline interim update 161 of 202

5. The outputs of the solution that the company assumed for the purposes of assessing variable costs during optimisation and that underpin the costs of the proposed solution are set out in table A5.2. These are limited by utilisation the amount, on average, that the company is most likely to use any solution to meet a supply demand deficit. The company has determined that 5 Ml/d of demand management measures form part of its least cost solution up to 2020 to meet the potential supply demand deficit of 26 Ml/d in that year. The output of these measures cannot be varied to meet utilisation. Given this, the output is sufficient to meet utilisation up to 2020, which is forecast to be 2 Ml/d. As a result, the supply side measures selected are assumed to be required as stand-by, with minimal variable costs associated with them 44. The proposed costs of the company s solution should reflect this. Table A5.2 outputs assumed for supply and demand side options of the least cost / preferred solution 2015 2020 2025 2030 2035 2040 Demand side (Ml/d) 0 5 8 18 30 50 Supply side (Ml/d) 0 0 1 3 15 19 Utilisation forecast 0 2 9 21 45 69 The output of supply side measures set out in table A5.2 above is limited by the utilisation forecast based on the assumption that existing sources provide better value water than the new sources that form part of the solution. But some feasible options may have the potential to deliver better value water than is provided by existing assets and could therefore lead to savings in existing operating costs (including financial, environmental, social and carbon costs). The company should consider this potential when justifying its least cost solution, and describe the savings that arise. 44 Any variable costs should reflect the operating costs of keeping those assets operational and on stand-by. Water resources planning guideline interim update 162 of 202

Appendix 6 final planning weighted annual average demand To determine the final planning weighted annual average demand forecast, the demand side measures of the company s preferred solution are subtracted from the baseline weighted average demand forecast. This will form the basis of the company s revenue forecast in its business plan. Assuming that there is no difference between the company s least cost solution and its preferred solution, table A6 illustrates the impact. Table A6 final planning weighted annual average demand Baseline weighted annual average demand (Ml/d) (See appendix 2) Demand side measures (Ml/d) (see appendix 12) Final planning weighted annual average demand (Ml/d) 483 511 536 560 584 608 0 5 8 18 30 50 483 506 528 542 554 558 Water resources planning guideline interim update 163 of 202

Appendix 7 Outage definitions Table A7 - The definitions expressed here should also be used in conjunction with definitions provided within UKWIR WR27 Water resources planning tools, 2012. Term Definition Commentary Outage Unplanned outage General reference to any outage impacting on a sourceworks. An outage caused by an unforeseen or unavoidable outage event affecting any part of the sourceworks and which occurs regularly enough that the probability of occurrence and severity of effect may be predicted from previous events or perceived risk. Outage events are always temporary (up to 3 months) and include: observed events and perceived risks; result in either partially reduced output or complete closure; and include both legitimate outages and those which are not considered to be legitimate. If an outage lasts longer than 3 months, the cause of the problem would need analysing to satisfy the regulating authority that the outage is recoverable. The definitive list of unplanned outage events is: pollution of source turbidity nitrate algae power failure system failure Extreme events should not be considered in the methodology. Extreme events are occasional, unpredictable events that cannot reasonably be foreseen, but which reduce the deployable output. Utilities would not normally plan investment to prevent outages for such extreme events. Water resources planning guideline interim update 164 of 202

Planned outage Legitimate outage Allowable outage A foreseen pre-planned outage resulting from a requirement to maintain sourceworks asset serviceability. An outage event is legitimate if it affects the "water available for use" to the extent that it contributes to a supply shortfall. (For example, during dry year annual average, peak week or other critical resource planning period). The allowable outage collectively describes the combined risks of the legitimate unplanned and legitimate planned outages. Planned outages must result directly from programmes declared by Utilities under the general headings of maintenance, capital or revenue in accordance with a utility's policy Whether an individual outage is legitimate or not will often depend on the wider resource zone infrastructure and any constraints on the supply system. Where outage assessments have been undertaken using Monte- Carlo analysis, the allowable outage describes the resulting probability distribution. Outage allowance The value of allowable outage expressed in Ml/d: Where outage assessments have been undertaken using Monte- Carlo analysis, the outage allowance is determined by the adopted level of risk. Water resources planning guideline interim update 165 of 202

Appendix 8 Demand terms The definitions expressed here should also be used in conjunction with definitions provided within UKWIR WR27 Water resources planning tools, 2012. Term Supply-demand deficit Weighted annual average demand Definition An identified deficit between water available for use and (dry year or critical period) demand (including target headroom). A forecast of the demand that a company is most likely to face, on average, reflecting the demand in the different types of years (normal, dry, wet, etc) that underpin its forecast, and the likely frequency of those years. The final planning weighted annual average demand forecast provides the basis of the company s revenue forecast. Utilisation The most likely amount, on average, that a company will need to use a solution to a supply-demand deficit. One approach is that utilisation reflects the supply demand deficit that the company is most likely to face. It is used to determine the variable costs of feasible options. Utilisation underpins the variable costs of the company s preferred solution, which, together with fixed costs, will be used to inform price limits. Unconstrained options Feasible options Least cost options / solution The complete list of all technically feasible options that could be used to address the planning problem. Options that satisfy the screening criteria and are further analysed for capability to address the planning problem. An option or combination of options that have been selected from the economic appraisal of feasible options with the lowest net present value of fixed and variable capital, operating, carbon and monetary social and environmental costs based on expected utilisation of the assets in the planning period to address the planning problem. This should include carbon costs. Water resources planning guideline interim update 166 of 202

Do the right thing and Discretionary investment Companies with no supply demand deficit may wish to implement options, such as further leakage reduction or metering, to achieve objectives such as improving the sustainability of their operations or meeting customers preferences. Companies should justify these schemes with analysis of their costs and benefits and customers support for them through willingness to pay surveys. For example, a company may decide to reduce leakage further, as a result of customers desire to see lower leakage levels and a new company policy to improve the sustainability of the company s operationsin such a case the company should carry out an option appraisal to make sure the costs and benefits of the proposal are clearly shown. Any willingness to pay must be demonstrated through reliable customer survey evidence, and the company should demonstrate how this evidence translates into allowance for additional investment. Robust evidence must demonstrate that the costs of carrying out discretionary investment are less than the benefits that it will deliver in order for the proposals to be taken forward into price limits at PR14. Preferred /final planning options / solution Cross-border solutions Third party The best solution to a company s identified planning problem, taking account of monetary (least cost), nonmonetised costs/benefits (including social and environmental), customer wishes (through willingness to pay surveys), wider issues of risk, uncertainty, Government policy/aspirations, sustainability and climate change that cannot be factored into the economic appraisal of options. This can consist of one option or a combination of several options. The decision of why a water company has made its final choice must be clearly presented. Solutions which require water company A (whose plan it is) to share resources with a neighbouring water company B for example via a bulk supply or shared-resource development. A party which is not water company A (whose plan it is) or another neighbouring water company B. For example, a third party could be: 1. a firm offering to provide leakage reduction or water efficiency services to water company A 2. a firm with its own source of water which it could provide to water company A, subject to any Water resources planning guideline interim update 167 of 202

necessary amendments to its abstraction licence 3. a firm with water which it can provide via the network of an intermediate water company or alternative transportation infrastructure to water company A. Water resources planning guideline interim update 168 of 202

Appendix 9 Generic list of options Table A9 - The following tables have been reproduced from UKWIR WR27 Water resources planning tools report, 2012. Scheme Type Scheme Sub-Categories/Sub-Components Resource-side Schemes Direct river abstraction New reservoir storage On-stream reservoirs Pumped-storage reservoirs Flood storage Reservoir raising Groundwater wells (boreholes) Infiltration galleries Artificial Storage and Recovery wells (or Aquifer Storage and Recharge ) (ASR) Aquifer Recharge (AR) Desalination Membrane separation (electrodialysis reversal, reverse osmosis) Thermal processes (multistage flash distillation, multiple effect distillation, mechanical vapour compression) Reclaimed water Reclaimed domestic wastewater Reclaimed industrial and commercial wastewater (for domestic, commercial and industrial users) Bulk transfers (including changes to existing transfers, and transfers from sources both inside and outside the company s own supply area) By canal By river By pipeline Water resources planning guideline interim update 169 of 202

Tankering of water Improved/sophisticated conjunctive management Customer-side Schemes Water use audit and inspection (and identification of household and nonhousehold water efficiency opportunities) Targeted water conservation information (advice on appliance water usage) Domestic property water use audit and retrofit stand alone Domestic property water use - audit and retrofit Integrated Demand Management Domestic property water use - self audit packs Commercial property water use - audit integrated with Water Regulations Inspection Commercial property water use audit Institutional property water use audit and retrofit. Industrial customers/bodies Commercial customers Households Public sector (e.g. schools, hospitals, community groups), Recreation facilities (parks and gardens, golf courses) Designers of hot water systems taps and water using appliances Purchasers of water-using appliances (i.e. in showrooms) Labelling water consumption of appliances. Promotion of water saving devices Appliance exchange programmes: washing machine dishwasher water closets WCs Company subsidy to appliance manufacturers Company subsidy to consumers for the purchase of water saving appliances. Water resources planning guideline interim update 170 of 202

Encouraging or requiring greater use of water saving technology in new and/or existing buildings (industrial, commercial, public sector and household) fitting of showers low volume shower heads limited purchase/use of power showers low flush toilets dual flush toilets fitting new toilets composting toilets waterless urinals retrofitting existing toilets shallow trap toilets flush controller for urinals timing devices 'people detectors' self closing taps i.e. push operation taps that cut off this supply after a short time spray taps toilet bag cistern dams (by displacing part of the cistern volume, reduce the flush volume) hose activated by a spring loaded trigger mechanism limited purchase/use of instantaneous water heaters/boilers research and development into water saving technology Water recycling Encouraging or requiring water recycling (i.e. direct use of untreated 'grey water') o industrial, commercial and public sector o households (e.g. using water from baths/showers/basin for toilet use) o fitting recycling systems in new houses o fitting recycling systems to existing houses Water resources planning guideline interim update 171 of 202

Water efficiency enabling activities Advice and Information on direct abstraction and irrigation techniques Sponsoring 'waste minimisation' projects Tradable delivery entitlements Water butts Targeting gardeners for rainwater harvesting Programme of re-washing customers' taps Lobbying for tighter or company-specific water regulations Improving the enforcement of water regulations Implement water efficiency research (Waterwise) outcomes Planning restrictions preventing new development Drip vs. spray irrigation Direct abstraction Other techniques for reducing evaporation Advice and information on leakage detection and fixing techniques Change in Level of Service to enhance water available for use (WAFU) Industrial Commercial and public sector Household Agricultural Compulsory metering Industrial premises Commercial and public sector premises Swimming pool owners Sprinkler/hose pipe users Households with an outside tap Households in serious water-stressed areas in England Households where a meter or meter box already exists Enhanced metering, Smart metering Targeted installation of water meters and a promotional campaign to increase optant rates and change of occupancy switchers. Meter Installation policy Installation when premises change ownership Industrial Commercial and public sector Households Water resources planning guideline interim update 172 of 202

Metering of sewerage flow (to manage water consumption and water wastage) Optional scheme Compulsory scheme Introduction of special fees Introduction of separate additional fees for sprinkler users, hose pipe users, outside tap users, swimming pools. Changes to existing measured tariffs Introduction of special tariffs for specific users Discontinued declining block rate tariffs discontinued neutral charges increasing the volumetric charges introducing rising block volumetric charges introducing summer/winter or other seasonal tariffs introducing daily/peak/off-peak tariffs for at least some seasons charge only above a defined subsistence level of use (to protect low income families) flow restrictor charging (tariff reduction for a restriction in domestic supply water pressure) domestic user tariffs and/or commercial user tariffs. Introducing interruptible industrial supplies Introducing lower charges for major users with significant storage Introducing higher cost ban-free sprinkler or hose pipe licences Introducing spot pricing for selected customers. Other Sponsoring waste-minimisation projects (e.g. Aire & Calder) Tradable delivery entitlements Use of non-potable water (e.g. sea water, rainfall) Programme of re-washering customers taps Lobbying for tighter or company-specific water regulations Improving the enforcement of water regulations Water resources planning guideline interim update 173 of 202

Distribution Management Options Customer supply pipe leakage reduction Identification of Major Supply Pipe Leaks Fixing Major Supply Pipe Leaks o At water company expense o At customers expense Leakage reduction Fixing of reported leaks Find and fix o Trunk mains o Distribution mains o Communication pipes Leak detection Telemetry District metering Pressure reduction programmes (installation of pressure reducing valves) Advanced replacement of infrastructure for leakage reasons Distribution capacity expansion Production Management Options Diagnostic studies Improved leakage detection and reduction on raw water mains Reduce treatment work losses Trunk mains Distribution mains Other Water resources planning guideline interim update 174 of 202

Appendix 10 - Water efficiency and metering In developing the unconstrained options list, each company should consider options to manage demand for both household and nonhousehold customers. This should include assessment of water efficiency and metering. Those water efficiency or metering options considered in the unconstrained options list should be in addition to those already being implemented, as the impact of these should be included in the baseline forecast of demand. The plan should make it clear how these options differ from the activities already underway or planned. Ofwat will set out any water efficiency requirements for the period from 2015-16 to 2019-20 in a draft methodology for the 2014 price review, which it will publish for consultation in Autumn 2012. When developing any metering and water efficiency options the company should take account of the wider benefits that such measures can bring. For example, companies should consider the scope for metering and water efficiency to improve affordability for vulnerable customers. By helping such customers to manage their bills, metering and water efficiency might also help to reduce household debt. As with all options, the company should take account of its customers preferences, for example through willingness to pay surveys. The company should also look for benefits from combining different options and/or working jointly with other organisations, including other water companies. For example, increasing metering increases customers interest in water efficiency, and provides opportunities to introduce innovative tariffs to further manage demand. By integrating water efficiency activities with other activities and working collaboratively with other water companies, costs can be lowered. For example a water efficiency campaign could be run over several neighbouring companies. This joint work could have benefits including a delivering a stronger message as well as lowering costs. As with all options, the company should take account of its customers preferences, for example through willingness to pay surveys when it considers metering and water efficiency options. The company must outline how the water efficiency options for nonhousehold customers are being included in the plan. These options should be explicitly considered as part of the options appraisal process. The company should detail and justify the savings assumed for demand management options and whether these will be sustained over time. If they are assumed not to be sustained, clear reasoning or evidence should be provided in the plan. Water resources planning guideline interim update 175 of 202

Sources of information on costs and savings include the database developed for UKWIR project WR 25C Cost effectiveness of demand management, and the Waterwise reports Evidence base for large-scale water efficiency. The company should explain how it has taken account of these sources of information in compiling its unconstrained options list. If the company does not progress demand management options to the feasible options list, it should explain why. If the company selects a compulsory metering programme as part of its preferred solution, it must demonstrate that it has considered the customer impacts of its plans. For example, this should include some preliminary work to estimate the range of bill impacts across different socio-economic groups. It must also show that it has a strategy for managing those impacts, which takes account of its customers views. Water resources planning guideline interim update 176 of 202

Appendix 11 - Leakage reduction A water company can manage the amount of water lost via leakage through intervention measures such as find and fix activities, mains renewal and pressure management. Work to reduce leakage further will carry financial and non-financial costs, but also generate benefits. A company should investigate where it is worth reducing leakage further as an option to reduce demand and therefore address any supply demand deficit. A company should also take account of the Government s view that leakage should not be allowed to increase, and companies should work hard to identify the sustainable, economic level of leakage. The company should describe and quantify the factors influencing final planning leakage forecast to the end of the planning period. Factors could include: current water company policy on leakage and operational practices; customers willingness to pay for further reductions in leakage; changes in the distribution network: o how the company s meter penetration programme will impact on customer supply pipe leakage levels o responses to changes in the natural rate of rise of leakage brought about by asset management and/or ageing of the network o asset management, such as changes to pipe material, pipe laying technology and asset replacement rates. The water company should assess and explain how asset replacement and technological change will influence leakage o change in property numbers and connections. The company should detail how it will ensure any new connections and increase in the size of the network will be made as leak proof as possible. change in efficiency of leakage management approaches over time. The water company should provide an assessment of possible improvements in how leakage will be managed in the future. The recent UKWIR report, Long Term Leakage Goals (2011), provides a reference for such an assessment 45. 45 Long term leakage goals, UKWIR (2011) Water resources planning guideline interim update 177 of 202

Leakage reduction as an option when there is a deficit A water company should appraise reducing leakage as an option within its water resources management plans if there is a forecast deficit. If a company is in surplus, it could reduce leakage further to provide more water for sharing or transferring. This should be included within its feasible options set. A company should look at the synergies of a programme of leakage management activities and other demand measures (such as increasing metering) and how they would work beneficially as a set, rather as individual options (for example if a company increases mains renewal, it may reduce costs on find and fix). Further leakage reduction but not driven by a deficit A water company may decide that it is in its customers best interests to reduce leakage further. This could be for example to reflect customers willingness to pay to reduce leakage further, or as a means of making water available economically to a neighbouring company. A water company should clearly describe its reasoning, and undertake an option appraisal to ensure that it identifies the costs and benefits clearly. The company should take into account customer views through willingness to pay surveys. In doing this a company should re-appraise its current leakage activities/operations to ensure what is the best approach. Consideration of all leakage options within feasible list All leakage options should be considered in the feasible options set. The company will have to ensure it is clear on the differences between what it has included in its baseline forecast and how other demand management activities could benefit from leakage options. The company should consider a range of options to reduce leakage. For example: reduction in supply pipe leakage, specifically providing details on how increases in metering will help reduce supply pipe leakage. pressure management; improved information through telemetry or enhanced DMA coverage; accelerated mains renewal (driven by leakage and asset management); improved find and fix technologies or approaches. A water company should appraise leakage looking at the synergies of combining different leakage activities, as well as combining leakage control with other demand management activities (such as increased metering), to identify whether total activity costs are lower or savings are higher, when compared with the individual options to reduce leakage. Water resources planning guideline interim update 178 of 202

Leakage options must be presented so that they can be compared and considered alongside other options. Companies should use appropriate and comparable assumptions and demonstrate that leakage options have been properly assessed at the feasible stage. As with all other options, if leakage reduction options are not preferred, a water company should explain the reasons with sufficient justification. Regulators expect the company to detail its preferred leakage strategy and to justify it, as well as clearly setting out how this varies from its current activities. Regulators encourage companies to trial innovative and flexible approaches to reducing leakage. These should be presented alongside other supply and demand side measures with sufficient justification and transparency. Water resources planning guideline interim update 179 of 202

Appendix 12 - Resource sharing (including bulk supplies, transfers of water, shared assets and water trading) A company should consider all options to: Share resource(s) with another water company(ies) (neighbouring or not) in the form of bulk supply contracts and shared asset ownership ; Share, trade or transfer water with non-water company providers or users of water. In the water resources management plan, the company should state how it has fully investigated sharing resources. This applies to a company in surplus which could act as a donor (optional for water companies operating wholly or mainly in Wales) or a company in deficit which could act as a recipient and includes water trading within a catchment. The Welsh Government expects water companies operating wholly or mainly in Wales to only agree to sharing resources and water trading where it would not be detrimental to the incumbent company. Table A12 - Examples of what a company should investigate as part of its options Category to investigate Existing arrangements New bulk supplies or transfers Description A company could alter an existing bulk supply or transfer agreement with a company (neighbouring or not). A company which is in surplus should look to see if a neighbouring company would be interested in developing a new contract for establish a new bulk supply. This is optional for water companies operating wholly or mainly in Wales. However, the policy direction for Wales will be set in the forthcoming Water Strategy for Wales. Water companies operating wholly or mainly in Wales must refer to the Water Strategy for Wales when it is published and incorporate any changes in policy direction into their plans. A company in deficit should ask neighbouring Water resources planning guideline interim update 180 of 202

companies about the possibility of sharing resources. New resource (sole) New resource jointly developed Water trading A company could develop a new resource that will supply a number of companies. A company could jointly develop a new resource that will be shared between a number of companies. Trading water with a water company or a non water company. A water company can approach other abstractors within the catchment to see if there are possibilities of trading water. A company in deficit should contact neighbouring water companies when putting together its unconstrained options list to see if they have water available that could be provided by a bulk supply or develop joint resources. The company should appraise these options consistently with its own options to reduce any deficits that have been identified. The company should provide an audit trail to show it has entered into these discussions with neighbouring companies. Due to issues of commercial confidentiality it might be necessary for the plan owner to use an independent party to evaluate fully the neighbouring company s proposal. How does a company know another company has a surplus? The company should put together and operate a plan for how it will contact its neighbouring companies. The regulators will use the neighbour contact plan as part of its assessment of whether a company has provided clear evidence of how it has considered and costed water trading with neighbouring companies. The neighbour contact plan is for the water company to design. A good plan would include details of: when and how a company will contact its neighbours and how this fits with the development of its unconstrained options list; the information it will require from its neighbouring companies, balancing the information needs of the company and the commercial information it can reasonably request from its neighbours; Water resources planning guideline interim update 181 of 202

the information the company will provide to its neighbours in order for the neighbour to put together an option that would meet the company s requirements; how and over what time period the company will assess any bulk supply options proposed by its neighbours and how the assessment compares to the assessment of its own options; how and when feedback on any bulk supply options proposed by its neighbours will be provided and how any changes required to be included in the feasible list will be communicated. The contact plan is required during the pre-consultation phase. By the end of September 2012 it is expected that water companies will publish a view of need and availability. For example, when a company considers a resource development option, it should explore opportunities to develop that option to the scale in tune with its own needs, but also to larger scale that could facilitate sharing with a neighbour. Companies should also be alert to the possibility that, though an option might not be preferred for its own plan, that option may be better (in some way financially, environmentally, etc) than the options directly available to a neighbouring company. There is no requirement for companies to publish the neighbour contact plan, but it would be good practice to do so as part of the pre-consultation phase so that neighbouring companies can see what information is required from them and how their proposal will be assessed. A company in surplus should identify if it is feasible to export any surplus water from its resource zone. The company will need to state how it came to its conclusion within its water resources management plan. This is optional for water companies operating wholly or mainly in Wales (see table 10.2 above for further information). If the company is contacted by a neighbouring company with a supply demand deficit it should provide details of its potential bulk supply exports. A company should identify and demonstrate: The infrastructure requirements for sharing resources. Distinguish the infrastructure to transfer and the infrastructure to create a resource. If the company rejects providing a bulk export option, it must explain why to the requesting company. The reasons for rejection will also be considered by the regulators as part of the clear evidence required as to how cross border solutions have been considered by water companies. Water resources planning guideline interim update 182 of 202

As a minimum:- a company with a forecast supply demand surplus (whether based on existing resources or future resource development) in any water resource zone should determine whether it can feasibly provide a bulk export (or other arrangements for sharing) of this water to neighbouring water companies and carry out a preliminary assessment of the costs of doing so, for consideration by the neighbouring company. This is optional for water companies operating wholly or mainly in Wales. a company with a current or forecast supply demand deficit should produce and operate a neighbour contact plan that demonstrates how it has proactively considered bulk supply imports (or other arrangements for sharing) of water, where these are available, in its options appraisal. Where bulk import or export options (or other options of resource sharing) are not progressed to the feasible options list, the company should explain why. Water Trading The text above covers water companies trading abstracted water with each other. Another possible option for water companies to investigate is whether they can trade abstraction licences formally with other abstractors. This should include investigating possible trading within a catchment as a solution to a deficit. The Environment Agency recognises that the process is not as simple as it could be and is taking action to improve the process and information available. There is already a process in place to trade water rights and water companies should explore this. A water company can investigate possible trades itself or look to see if a broker exists that could bring a seller and buyer together. However, there are currently few brokers who have entered this market. A water company can investigate whether licence holders would be willing to trade water. The information a water company needs can be accessed from the public register that the Environment Agency holds. This contains details of who holds a licence and the annual and daily licence quantities. Due to commercial confidentiality and security issues there is currently no electronic information about licence holders within a catchment that can be made available to water companies. A company or its broker would have to view the details of the public register at a local Environment Agency office. For more information see How to trade abstraction licences on our website. Water resources planning guideline interim update 183 of 202

The Environment Agency hopes to improve the access to this information in the future and Defra s Water White Paper included a series of commitments for improvements in accessibility to data. However the investigations and subsequent proposals for improvements will not be ready in time for development of a draft water resources management plan. A water company should investigate both a permanent or temporary (short term) trade of water. A temporary trade could mean an option to solve a deficit while a longer term solution is being investigated. An example of a temporary trade could be with a power station that is being decommissioned but a new plant is due to be built on the site in future. During the years the power station is planned to be closed, the water company could trade with the power company to have its abstraction licence for a short period of time. The Environment Agency cannot publish details of licences that have been unused to aid trading. The Environment Agency can revoke abstraction licences that have been totally unused for four years or more without compensation, however the rules behind this are complex and for any revocation there needs to be a link to environmental damage or risk. As these licences would be in an area of significant water stress, if a license was revoked by the Environment Agency it is unlikely that the water would be available for reissue. Water resources planning guideline interim update 184 of 202

Appendix 13 - Options proposed by third parties During the pre-consultation stage, a water company should investigate possible options and solutions by third parties. Involving such parties maybe cost beneficial and help a company implement its plan. Any options proposed by third parties must contain sufficient information and be robust to withstand challenges by the company and regulators. Third parties, whether appointed water companies or other organisations, can bid in options for customer-side, production-side, distribution-side or resource management measures. The company should consider these options consistently with its own options in the unconstrained list. The company should put together a plan for how it will contact third parties. The regulators will use the third party contact plan as part of the assessment of whether a company has provided clear evidence of how it has considered and costed all options. Due to issues of commercial confidentiality it might be necessary for the plan owner to use an independent party to evaluate fully the third party s proposal. The third party contact plan is for the water company to design. A good plan would include details of: when and how a company will contact third parties and how this fits with the development of its unconstrained options list; the information it will require from third parties, balancing the information needs of the company and the commercial information it can reasonably request from third parties; the information the company will provide to third parties in order for the third party to put together an option that would meet the company s requirements; how and over what time period the company will assess any options proposed by its third parties and how the assessment compares to the assessment of its own options; how and when feedback on any options proposed by third parties will be provided and how any changes required to be included in the feasible list will be communicated. Where third party options are not progressed to the feasible options list, the company should explain why. The third party contact plan should also apply to options which are proposed by third parties which have not been solicited through the company making the initial contact. Where third party bids are not Water resources planning guideline interim update 185 of 202

progressed to the feasible options list, the company should explain why both in its draft plan and directly to the third party. The contact plan is required during the pre-consultation phase. By the end of September 2012 it is expected that water companies will publish a view of need. For example, the company should, as a minimum, publish indicative supply demand balances for each of its water resource zones that are in deficit, making clear the geographic boundaries of those zones. The information should be useful for potential third parties to consider whether they can propose options to resolve the supply demand deficit. There is no requirement for companies to publish the third party contact plan, but it would be good practice to do so as part of the pre-consultation phase so that third parties can see what information is required from them and how their proposals will be assessed. Water resources planning guideline interim update 186 of 202

Appendix 14 Environmental and social impacts of an option Environmental and social impacts can sometimes be regarded as a constraint. For example, if a proposed scheme would cause more than a specified (critical) amount of environmental damage, it would be considered inappropriate. If enough information is available, companies can exclude these options when moving from the unconstrained to the feasible options set. If this is not possible, companies should undertake further appraisal at a later stage to assess whether the environmental and social impacts mean the option should be excluded from the feasible options set. The economics of balancing supply and demand (Environment Agency and UKWIR, 2002) provides a framework for screening options, to filter out those where the risks of environmental, economic or social impacts would be unacceptably high and focus on those options that should be taken forward for more detailed assessment. Companies should cross-reference this part of the assessment to stages five and eight of The economics of balancing supply and demand. The assessment could take the form of matrices to score the degree of impact, for instance high/low, positive/negative, short/long term impact or reversible/irreversible damage. Companies should also have regard to the recommendations from the recent review of the Sustainable Economic Level of Leakage (SELL) 46 many of which are generally applicable, and not specific to leakage. The plan should set out: the impacts of the construction, operation and decommissioning of the option; any opportunities for environmental enhancement and meeting the needs of other interested groups or water users; wider environmental issues such as biodiversity, cultural heritage, soil and geology, air quality, landscape, recreation, and human health and well-being; opportunities for addressing environmental inequalities; mitigation measures, where appropriate; the operational energy needs of options 46 Review of the calculation of sustainable economic level of leakage and its integration with water resource management planning,. ttp://www.ofwat.gov.uk/sustainability/waterresources/leakage/rpt_com121012smcsell.pdf Water resources planning guideline interim update 187 of 202

Water Framework Directive Water companies should assess the impact of both changes in operation of their existing sources and new abstraction on water body status (for options provided by neighbouring companies, the neighbouring company should provide the assessment). It is recommended that water companies should assess the net impact of changes to their operations at a catchment and WRZ level and demonstrate no deterioration against water body status. If forecast demand growth cannot be accommodated without a deterioration in water body status the water company should set out the set of options that causes the least net environmental impact, and produce a justification for deterioration of water body status under Article 4.7 of the WFD. Environmental and social impacts The company must take account of any monetised environmental and social costs and benefits in its economic appraisal of feasible options. The economics of balancing supply and demand (Environment Agency and UKWIR, 2002) recognises the need to take these into account when evaluating costs of different options. Environmental impacts can be valued in monetary terms so that they can be added to, or subtracted from other items with monetary value such as capital and operating costs. A number of techniques exist for estimating the value that society has placed on the environment. These are summarised in The economics of balancing supply and demand (Environment Agency and UKWIR, 2002 update), which also recognises that not all factors can be given a monetary value. The development of a SEA (see section 6.7.3) enables factors that cannot be fully monetised to be taken into account. Sound assessments of environmental and social costs and benefits should play an important part in supporting the selection of schemes. In 2002, the Environment Agency commissioned the development of a revised methodology and associated guidance for assessing water resource (and water quality management) schemes. This methodology is reported in the Benefits Assessment Guidance (Environment Agency, 2002), which has been developed for use by both Environment Agency and water company planners to help ensure consistency across the different areas in which we make decisions; builds on existing methodologies (The Environmental Costs and Benefits of Water Resources 1998) and expands or revises these as appropriate, drawing on new data sources and approaches; Water resources planning guideline interim update 188 of 202

provides a means of evaluating environmental and social costs and benefits of schemes proposed in a manner that can be applied at a desk-top level; is based on cost-benefit analysis, where as many of the impacts (positive as well as negative) as possible are measured in monetary terms; also requires the non-monetary assessment of benefits and disadvantages of using qualitative and quantitative descriptions. The Benefits assessment guidance (BAG) (Environment Agency, 2012) sets out standardised approaches to assessment and uses data that are readily available. It was subject to a peer review and testing process by relevant policy stakeholders (the Environment Agency, Defra, Welsh Government, Ofwat, Natural England/Countryside Council for Wales), academics and water company economists. In 2011, the Environment Agency commissioned a user guide and two worked examples to be referred to alongside BAG to increase clarity of the process and promote consistent use. These guides have been designed as linking documents that draw together the BAG and more recent value transfer guidance provided by Defra 47. The core processes of BAG 48 remain unchanged. The main areas covered by the user guide are: when and where to use BAG and the level of detail required consideration of recently developed value transfer guidelines to ensure application of BAG meets good practice categorisation of environmental and social impacts guidance on valuing greenhouse gas emissions recent studies and results that might be appropriate for value transfer updating transfer value to a 2011 price base guidance with respect to discounting future costs and benefits highlighting the most relevant parts of BAG for water resources planning. The worked examples are stylised representations of the assessment of the environmental and social impacts of an effluent re-use scheme and a 47 Valuing Environmental Impacts: Practical Guidelines for the Use of Value Transfer in Policy and Project Appraisal, Defra 2010 http://www.defra.gov.uk/environment/natural/ecosystems-services/valuing-ecosystemservices/ 48 BAG user guide and worked examples: http://www.environmentagency.gov.uk/business/sectors/37305.aspx Water resources planning guideline interim update 189 of 202

household water efficiency scheme. They are intended as a practical demonstration of the BAG and should be helpful for any scheme, whether demand management or supply. When assessing the environmental costs and benefits of feasible options, users will need to check that there is no double-counting. For example carbon accounting should not be included both in the BAG outputs and then duplicated in the main options appraisal process. Water companies should make clear in the results how any perceived double counting of issues has been dealt with. Water companies can also seek further information from the following references about valuing natural capital and ecosystem services. These can be found at: http://www.hmtreasury.gov.uk/green_book_guidance_environment.htm (in particular the first two links from this page); Value transfer guidelines http://www.defra.gov.uk/environment/natural/ecosystemsservices/valuing-ecosystem-services/ Environment Agency guidance on the economic valuation of the environmental effects of flood and coastal erosion risk management may also be relevant (http://publications.environmentagency.gov.uk/pdf/geho0310bsfh-e-e.pdf). UKWIR WR27, Water resources planning tools, 2012 has presented different decision frameworks. The expectation is that all companies will follow at least the basic decision framework. Habitats Regulations Assessment The Conservation of Habitats and Species Regulations 2010 describe a sequence of steps to be taken by the competent authority in respect of a European site, when deciding whether to authorise a plan or project. Those steps are: Step 1 - Under regulation 61(1)(b), consider whether the project is directly connected with or necessary to the management of the site? If not Step 2 - Under regulation 61(1)(a) consider whether the project is likely to have a significant effect on the site, either alone or in combination with other plans or projects. If Yes Step 3 - Under regulation 61(1), make an appropriate assessment of the implications for the site in view of its current conservation objectives. In so doing, it is mandatory under regulation 61(3) to Water resources planning guideline interim update 190 of 202

consult Natural England and have regard to its representations, and optional under regulation 61(4) to take the opinion of the general public. Regulation 61(2) empowers the competent authority to require the applicant to provide information for the purposes of the appropriate assessment, or to enable the authority to determine whether such an assessment is required. Step 4 - Pursuant to regulation 61(5) and (6), consider whether the project will adversely affect the integrity of the site, having regard to the manner in which it is proposed to be carried out, and any conditions or restrictions subject to which that authorisation might be given (the Integrity Test ). Step 5 - In accordance with regulation 61(5), but subject to regulation 62, reject the project, unless it is ascertained that the project will not adversely affect the integrity of the site. Step 6 - If the project fails the Integrity Test in respect of the site, consider, in accordance with regulation 62(1), whether one is satisfied that there is no alternative solution; if not so satisfied, reject the project; but if so satisfied, proceed to steps 7 and 8. Step 7 - Consider, in accordance with regulation 62(1), but subject to Step 6, whether one is satisfied that the project must be carried out for imperative reasons of overriding public interest. Step 8 - Consider in accordance with regulation 66 whether one can secure that compensatory measures are taken which would be necessary to secure that the overall coherence of Natura 2000 is protected. Water resources planning guideline interim update 191 of 202

Appendix 15 - Feasible options cost confidence grades For the purposes of long-term planning, companies initially develop schemes in outline and assign costs on that basis. As a result there is some uncertainty associated with that information. But as a company develops its plans to the feasible options stage, regulators expect the robustness of estimates of costs to improve so that there is sufficient confidence in the company s ability to implement its preferred solution as described. The company should score the robustness of its estimates of feasible options costs based on the key principles relating to estimating best practice, set out in table 10.3 below. Any bulk supplies or other options proposed by market entrants should also be assessed using these key principles. These scores will be used by regulators to assess the robustness of the source data for each feasible scheme. We would normally expect a score of 3 or better in each category for feasible options, but where scores are below this level, the company should provide an explanation. For example, lack of (recent) experience in such projects. Water resources planning guideline interim update 192 of 202

Criteria Table A15 - estimating best practice 1. Scope Company has no previous experience of this type of activity. 2. Cost Cost data is from noncompany sources. Used industry parametric data (e.g. TR61). Score 1 2 3 4 5 Company Company Company has had has carried has prior some out similar experience experience projects but in similar of delivering of projects, with similar significantly similar scale. projects, but different not within scale. last 8 years. Significant use of noncompany sources, costs from dissimilar projects or costs from projects completed more than 8 years in the past. Company has some company specific data. And some noncompany source data. (eg contractors' estimates with limited or no company specific input). Company has standard solution/s for this type of activity which has been assessed as providing the least whole life cost solution. Cost represents activity where reliable company specific cost data is available (a few data points). Company has considerable experience in similar projects with similar scale. Company has standard solutions for this type of activity and a process for updating them. It has been assessed as providing the least whole life cost solution. Cost represents activity where reliable company specific cost data is available (reasonable number of data points). Water resources planning guideline interim update 193 of 202

Appendix 16 References CEH Wallingford, British Geological Society, Wallingford Hydro Solutions, Defra, UKWIR, Environment Agency, 2012, Future Flows and Groundwater Levels. http://www.ceh.ac.uk/sci_programmes/water/futureflowsandgroundwat erlevels.html Defra, June 2009, Adapting to climate change - UK climate projections 2009 http://www.defra.gov.uk/publications/files/pb13274-uk-climate-projections- 090617.pdf Defra, 2009, Valuing Environmental Impacts: Practical Guidelines for the Use of Value Transfer in Policy and Project Appraisal, Main Guidelines http://www.defra.gov.uk/environment/natural/ecosystemsservices/valuing-ecosystem-services/ Defra, 2010, Valuing Environmental Impacts: Practical Guidelines for the Use of Value Transfer in Policy and Project Appraisal http://www.defra.gov.uk/environment/natural/ecosystemsservices/valuing-ecosystem-services/ Defra, 2011, Review of water resources management plan process, final report http://www.defra.gov.uk/publications/2011/09/30/pb13653-waterresources Defra, 2012, Water White Paper Water for Life http://www.defra.gov.uk/environment/quality/water/legislation/whitepaper/ Department of Energy and Climate Change (DECC), 2009, Carbon Valuation in UK Policy Appraisal: A Revised Approach http://www.decc.gov.uk/en/content/cms/emissions/valuation/valuation.asp x Department of Energy and Climate Change (DECC), 2012, Valuation of energy use and greenhouse gas emissions for appraisal and evaluation www.decc.gov.uk/assets/.../122-valuationenergyuseggemissions.pdf Downing, T.E, Butterfield, R.E., Edmonds, B., Knox, J.W., Moss, S., Piper, B.S. and Weatherhead, E.K. (and the CCDeW project team), 2003, Climate Change and the Demand for Water http://cfpm.org/ccdew/climate_change_and_demand_for_water- 2003.pdf Water resources planning guideline interim update 194 of 202

Environment Agency, 2012, Water resources planning guideline navigation tool for smaller water companies http://www.environmentagency.gov.uk/static/documents/business/smaller_water_undertaker_nav igation_tool_121001_final.pdf Environment Agency, 1997, Reassessment of water company yields. Environment Agency, 2010, guidance on the economic valuation of the environmental effects of flood and coastal erosion risk management http://publications.environment-agency.gov.uk/pdf/geho0310bsfh-e- E.pdf Environment Agency (final, 2012), Climate change approaches in water resources planning Overview of new methods (EA report SC090017/SR3) Environment Agency, 2012, Methods of Estimating Population and Household Projections: Update 2012 http://publications.environment-agency.gov.uk/pdf/geho0612bwsa-e- E.pdf Environment Agency, 2012, How to trade abstraction licences (web page) http://ww.environment-agency.gov.uk/business/topics/water/104167.aspx Environment Agency, 2012, Benefits Assessment Guidance (BAG) user guide http://www.environment-agency.gov.uk/business/sectors/37305.aspx Environment Agency and UKWIR, 2002, The economics of balancing supply and demand (02/WR/27/3) http://ukwir.co.uk/ukwirlibrary/80557 HM Government, 2003, Water Industry Act 1991 Section 37 A to D, as amended by Section 62 of the Water Act 2003 http://www.legislation.gov.uk/ukpga/1991/56/contents HM Government, 2010, Conservation of Habitats and Species Regulations 2010 (Habitats Regulations) http://www.legislation.gov.uk/uksi/2010/490/contents/made HM Treasury, 2012 http://www.hm-treasury.gov.uk/green_book_guidance_environment.htm Office of the Deputy Prime Minister, 2005, Practical Guide to the Strategic Environmental Assessment Directive http://www.communities.gov.uk/documents/planningandbuilding/pdf/practi calguidesea.pdf. Water resources planning guideline interim update 195 of 202

Ofwat, Environment Agency and Defra, 2012, Review of the calculation of sustainable economic level of leakage and its integration with water resource management planning http://www.ofwat.gov.uk/sustainability/waterresources/leakage/rpt_com12 1012smcsell.pdf UKWIR, 2009, Assessment of the significance to water resource management plans of the UK climate projections 2009 (09/CL/04/11) http://ukwir.co.uk/ukwirlibrary/93224 UKWIR, 2011, Long Term Leakage Goals (11/WM/08/44) http://ukwir.co.uk/ukwirlibrary/93784 UKWIR, 2012, A good practice manual and roadmap for household consumption forecasting (12/CU/02/11) http://ukwir.co.uk/ukwirlibrary/94911 UKWIR, 2012, Customer behaviour and water use - a good practice manual and roadmap for household consumption forecasting (12/CU/02/11)) http://ukwir.co.uk/ukwirlibrary/94911 UKWIR, 2012, Strategic Environmental Assessment and Habitats Regulations Assessment - Guidance for Water Resources Management Plans and Drought Plans (12/WR/02/7) http://ukwir.co.uk/ukwirlibrary/94834 UKWIR, 2012, Water Resources Planning Tools 2012. (12/WR/27/6) UKWIR, 2003, Uncertainty & Risk in Supply/Demand Forecasting (03/CL/09/1) http://ukwir.co.uk/ukwirlibrary/80610 UKWIR, 2012, A framework for accounting for embodied carbon in water industry assets (12/CL/01/15) http://ukwir.co.uk/ukwirlibrary/95134 Welsh Government, 2008, Local Authority population projections for Wales (2008-based) Local Authority Report http://wales.gov.uk/topics/statistics/publications/localauthority/?lang=en Welsh Government 2008, Local Authority household projections for Wales (2008-based)Summary Report http://wales.gov.uk/topics/statistics/publications/hseholdsummary08/?lang =en Water resources planning guideline interim update 196 of 202

Welsh Government, 2008, Local Authority population projections for Wales (2008-based) guidance leaflet http://wales.gov.uk/topics/statistics/publications/popprojectionsguidance0 8/?lang=en Water resources planning guideline interim update 197 of 202