Meeting the totex challenge

Totex requires water companies to consider the whole-life costs and benefits of their investment decisions. Mark Hodgens calls on the water sector to up its game in light of this new way of thinking.

As we move towards 2020, the water industry is coming under increasing pressure to address the challenges it is facing, such as water scarcity and improving service quality for customers. With the population of the UK rising considerably, water resources are being stretched to their limits. Couple this with the issue of climate change, and areas such as the South East of England are beginning to feel the strains, with water resources already severely scarce.  

Alongside this, the water sector is also facing challenges in regards to water quality and efficiency, and customers are now demanding a better quality and value of service.  

According to a survey by the Consumer Council for Water, since 2011, customers have been feeling less satisfied with the value for money they receive with regards to their water services. And in 2013, it was at the lowest it has been for four years at 69 per cent. Since 2014, people have started to feel more satisfied with the service but it is too early to say whether there has been a permanent shift in customers’ opinions.

What is totex?

If challenges of water shortages, climate change, population growth and rising customer expectations are not properly addressed, it could spell serious short and long-term problems for the future of the network. As such, Ofwat is taking steps to encourage water companies to take a longer-term view by considering the future outcomes of their decisions on the whole network.

Simply put, under the totex regime, companies must take into account the total impact of their decisions, including costs now and in the future, any savings that can be made and future-proofing the network. When it comes to selecting solutions, this decision should no longer be based on just price, but the overall impact it will have on the network in the future. Previously, companies would split their expenditure allowance into capital expenditure and operational expenditure.  

Adopting a totex approach encourages companies to focus on what really matters to customers and should help the industry respond to the challenges its facing. For example, the move to a totex way of thinking will incentivise water companies to invest in solutions that deliver greater long-term value and may lead to greater product innovations. In turn, this will allow the industry to meet the needs of its customers and also deal with new challenges in the most efficient and sustainable ways.

As outlined in Talis UK’s latest report, The True Cost of Substandard Valves, by fully embracing the totex approach and making the right decisions when selecting valves, it could yield efficiency gains of over 15 per cent. Not only this, but the regime could significantly reduce the amount of water lost through leakages, currently one of the main concerns for both water companies and customers.  

With our water supplies coming under increasing strain, reducing the amount lost through leaks is of major importance to ensure the public has sustainable access to this vital resource. Selecting the correct valves based on the long-term needs of the network could reduce leakage in the system by around 20 per cent. In turn, this would help to save approximately 227,249 mega litres of water every year.  

Further to this, replacing substandard valves with higher quality solutions would save the network a considerable amount of money. Based on our calculations, replacing substandard valves with higher quality valves that have double the life span would save the entire network £2.1 billion. Using these long-term savings to invest in the future of the network and keep bill prices low would help to provide a more efficient network and also improve the level of service for the paying customer.

Up your game to meet totex  

The totex regime can only be truly effective in overcoming the sector’s long list of challenges if everyone in the industry pulls together.  

Unlocking the benefits of totex requires water companies to make the leap from this being a contractor-led decision based on price, to an engineer-led decision based on the overall system performance. Product suppliers and manufacturers also need to up their game. They need to offer their know-how to water companies to assist in selecting the best valves that will meet the current and future needs of the network.

Given the move to a competitive marketplace for both business and residential users, successfully incorporating the totex way of thinking into the industry is of even greater importance. By doing so, it can help foster a positive reputation and stronger relationships with customers, which will lead to greater trust and loyalty.

Totex has the potential to massively improve the overall efficiencies in UK water supply. The challenges are only going to continue to get worse, unless the entire industry starts thinking about the long-term future of this precious resource. We need to look beyond the here and now and start thinking about how our current decisions will affect the network further down the line. Embracing the totex way of thinking is the most effective way to encourage this way of operating.  

Mark Hodgens, managing director, Talis UK