Workshop Stakeholder Workshop 6: Capital Maintenance Strategic - - PowerPoint PPT Presentation

฀ Stakeholder Workshop 6: Capital Maintenance

Strategic Review of Charges 2010-14: 2009 workshops Stirling, 30th April 2009

Workshop

• The scale of historic investment in Scotland;
• Defining capital maintenance;
• Establishing the allowance for capital maintenance;
• Some key questions for stakeholders; and
• Your views

Workshop 6: 30th April 2009 Strategic Review of Charges 2010-14

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Programme for the morning…

Scottish Water is currently tasked with delivering a very large capital programme….

Workshop 6: 30th April 2009

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200 400 600 800 £ m 100 200 300 £

Total investment per year 2005-10 (2007-08 prices) Investment per property per year (2007-08 prices)

Strategic Review of Charges 2010-14

Levels of investment in Scotland have generally been higher than those in England and Wales in recent years

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100 100 200 200 300 300 1996 1996-97 97 1998 1998-99 99 2000 2000-01 01 2002 2002-03 03 2004 2004-05 05 2006 2006-07 07

Capital investment per property (2007-08 prices)

£

Scottish Water (including PPP) England and Wales

Even after adjustments for relative efficiency, the level of spending in Scotland has been relatively high.

Strategic Review of Charges 2010-14

In their draft statement, Ministers have set Scottish Water objectives in the following areas...

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• Capital maintenance and service standards
• Strategic capacity for new developments
• Drinking water quality and water resources
• Environmental protection

The totality of capital investment identified in Scottish Water‟s business plan is £2.2 billion (07-08 prices)

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It comprises:

• £1,047m for capital enhancement
• £928m

928m of capita tal l mainte tenanc ance e (including “exceptional items” of around £103 million)

• Overhang from Q&S2 & 3a of £169m
• Q&S4 ‘early start’ of £74m

Scottish Water have proposed £88m of ‘early start’ investment prior to the Q&S3b period and £140m after, leaving £2.2 billion to be financed in 2010-14.

So what is „capital maintenance‟ ?

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It is the investment needed to replace or refurbish existing water and waste-water assets (and the associated support systems) so that they continue to function and perform as intended. The aim of this capital maintenance investment is to provide customers with a broadly stable level of service.

.

Our challenge is setting the right of capital maintenance by taking account of

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• past historical capital maintenance investment in

Scotland;

• how this compares with what is allowed for in

England & Wales companies;

• the natural deterioration of asset performance with

age and use; and

• the steady uplift in capital maintenance as more

assets are built to fulfil higher standards, meet growth etc.

.

There are three key considerations in reaching our initial conclusions on the correct level of investment for Capital Maintenance

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What is the appropriate, baseline level

• f service?

. What additional account, if any, is required for any step changes in capital maintenance requirements? What is the scope for efficiency in delivering this baseline?

We establish the right amount of capital maintenance by reviewing the programme from two perspectives

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high level ‘top down’ approaches £ x million detailed ‘bottom up’ approaches

Water r Non-Inf nf, , 112.9 112.9 Water r Inf, 317.8 317.8 W/Water r Non-Inf nf, , 230.7 230.7 W/Water r Inf, 107.0 Suppo port rt (M&G) G), , 159.5 159.5

For the „bottom up‟ assessment we will examine every element of the £928m Capital Maintenance proposal

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Strategic Review of Charges 2010-14

(£m)

• Water Infrastructure
• Water Non-Infrastructure
• Wastewater

Infrastructure

• Wastewater Non-

Infrastructure

• Support Services

(management & general)

When considering how much capital maintenance (CM) to allow for in prices „bottom up‟ we consider

• the views of the Reporter;
• the views of the environmental and drinking water regulators;
• the views of other stakeholders;
• the current asset performance for customers; and
• the quality of Scottish Water’s information underpinning its

proposals, and its knowledge of the asset base (‘asset intelligence’)

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Strategic Review of Charges 2010-14

Summary of Capital Maintenance

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Capita ital Inve vestmen ment t Catego egorie ries Base Exce cepti tion

• nal

al (£millions) Water Non-Infrastructure 92.1 20.8 Water Infrastructure 246.9 70.9 Wastewater Non-Infrastructure 223.8 6.9 Wastewater Infrastructure 102.3 4.7 Support Services 159.5 0.0 Sub Total 824.6 .6 103.3 .3 TOTAL 927.9 .9

‘Base maintenance’ will, in many cases, be asset specific (targeted)

• r left undefined. Most of this will be driven by pro-active (planned)

maintenance requirements with some reactive (emergency) work.

For the „top down‟ assessment we are likely to use an array of comparison tools including econometrics to compare the levels of CM activity in Scotland with England & Wales. This is similar in approach to the 2006-10 Price Review.

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Strategic Review of Charges 2010-14

At the last price review we allowed for £240m per year (in 2007-08 prices) of capital maintenance based on this form of assessment, taking account of the „bottom up‟ view.

These allowances compared favourably with those made by Ofwat

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£ 10 20 30 40 50 60

2005-10 Allowance for annual capital maintenance expenditure per head of population (2007-08 prices)

Strategic Review of Charges 2010-14

Going forward, for the 2010-14 Price Review, we will need to consider whether the historic level of capital maintenance is appropriate taking account of the scope for further efficiencies and consideration of any step-changes in requirements

Some key questions for stakeholders with regard to the 2010-14 investment period. We invite your views on the following?

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(1) What do other stakeholders see as the Capital Maintenance priorities ? (2) What are stakeholder views about the importance of the “exceptional items” (disinfection, network monitors accelerated maintenance, leakage)? (3) What are the residual concerns, if any, of stakeholders in our determination of the capital maintenance allowance for 2010-14?

www.watercommission.co.uk/view_future_prices.aspx

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For more information on the price review please go to: