We reflect on the past 10 years of regulated asset investment planning in the UK from 3 key sectors, Water, Road and Rail. Each highlights a different path taken with positives and negative results. At one end is UK regulated water industry which was one of the earliest, and still may be the largest, user of a strong regulated asset management framework with strong links from prices through to levels of service.We consider how the latest focus on Totex / Output Delivery Incentives will work. More recently the UK government has change its approach to asset management governance on the strategic roads network, an asset base valued as one of the top ten largest in the world. By introduction of a roads regulator and setting a new government owned company does this signal the intention to fully privatise the roads network and could this be a model adopted elsewhere?

1. What has the UK Asset Management
Industry Learned Over the Past 10
Years?
Jon Greensill
SEAMS Ltd (UK)

2. • Reflecting on Regulated Asset Management in the UK
• Lessons learned and latest thinking
• Water – Output Delivery Incentives & Totex
• Roads & Rail – Could do Better?
• Electrical Distribution – A Common Approach

4. Of all the privatisations of the
Thatcher government, perhaps
the most controversial was the
privatisation of water…

6. Mythe Treatment Works
350,000 people without clean water
supplies for 17 days
(Cost to protect $10M)

8. What’s the challenge?
• Each company has a set of industry wide and company specific outcomes
that they must deliver – hard, measurable targets
• Companies could choose from a ‘menu’ but had to prove it was choosing
items relevant to its own customer base - (Customer Willingness To Pay)
• There is serious money at stake. The incentives for the timely completion
of major capital projects are high-impact, as minor delays can result in
large penalties.
• The incentives to reduce water leakage expose companies to penalties in
excess of $1.1Bn and rewards of up to $450M.

11. The regime prompts questions about the companies’ investment programmes…
• What contribution – if any – does each project make towards achieving specific
outcomes, or to the outcomes as a whole?
• How can we get a clear view of our performance against achieving our
outcomes on time and on budget?
• How can we better link our capital & operational programmes to outcomes
across the business?
These questions are hard to answer because individual projects may affect
multiple outcomes set by the regulator, or none of them.
It adds to the need to have a combined asset/finance view of the world

15. • Retail Services
• From April 2017, 1.2 million businesses and other non-household will be
able to choose their water and wastewater service Retailer
• Retail services includes meter-reading, billing and customer services.
• Ofwat consulting on cost/benefits of allowing domestic households to
choose suppliers
• Security of Supply
• Implications of leaving the EU – less water quality regulation?
• Climate Change - Flooding

16. Now Water Industry generally accepted as very successful
…what next?
‘’Why is it that other infrastructure
- for example water - is funded by
private sector capital through
privately owned, independently
regulated utilities... but roads in
Britain call on the public finances
for funding?’’
- Prime Minister David Cameron
(2014)

17. A government review concluded that … ‘’the institutional framework for the management of the
strategic road by the Highways Agency (HA) creates cost-inefficiencies for the taxpayer and does not
deliver the best outcome for road users. Reasons include a lack of long-term certainty on investment
in the network, a working culture dominated by the processes of wider government and no continuous
external pressure for efficiency’’
Became
Became

18. • Key Impacts
• A 5 year funding cycle rather than
• Agreed with and monitored by the
Regulator
• Bring in-house the asset planning / decision
making resources that were previously
outsourced with 14 maintenance
contractors
• But simultaneously allow more regional
decision making rather than centralised
• More action to connect asset decisions to
customer preferences (via ‘Passenger
Focus)
• More or less roadworks?

20. 20

21. Total population served ~70M

22. – The UK and Ireland have recently
adopted a standard approach for
assessing and reporting
• Asset Health
• Asset Criticality
– Developed over an 8 year period
• Combined best practice from all
groups
• So far covers 63 asset types
– Quantifies the risk of condition based
failure of the network assets
– Default values provided for all the
required parameters
– When in a model can forecast future
health/risk/cost of failures based on
different investment scenarios

24. – Natural fit for Dashboard views
– Convert the ‘complex’
methodology to a simple
communication tool
– Supports the investment planning
decision making process
– A common measure for Risk
– Allows common comparison of
• Different asset types within the same
business
• Different companies (which is what
the regulator wants)
– Gas networks about to start the
same approach

26. Summary of Key Points on UK Experience

27. Questions? Contact Me:
Jon Greensill
SEAMS Ltd (UK)
j.greensill@seamsltd.com
SEAMSBuilding Analytic Capability