Ofwat urged to clamp down on asset management failings

The National Infrastructure Commission (NIC) has called on the water regulator to clamp down on asset management failings across the sector.

The Commission has urged the water regulator to enforce a more consistent approach to underground asset management and pipe replacement to boost replacement rates of ageing infrastructure.

The NIC said the current 0.4% annual asset replacement rate for water mains is currently too low, in a letter to Ofwat.

Within the sector, doubts have been expressed that even this rate is met with some industry insiders claiming replacement rates are closer to 0.04%.

The NIC said the low replacement rates across the sector were due to inconsistencies in approaches to asset management and replacement.

James Heath, chief executive of the NIC urged Ofwat to take a lead on asset health by developing consistent forward-looking metrics for defining and measuring asset health.

He recommended making changes to water company licence requirements or introducing price control incentives to encourage companies to develop more in-depth asset management plans.

Information received by the Commission from water companies suggested asset replacement rates “need to be significantly higher”. However, it said the various approaches companies used to estimate asset lives limited the NIC’s ability to recommend a suitable rate of replacement.

While age of assets alone is not a reliable indicator of renewal needs, the NIC said Ofwat needed to reconsider its metrics for calculating how to incentivise maintenance, which it said are based on “lagging indicators”.

The Commission noted Ofwat’s base cost model uses mains repairs, unplanned outages and sewer collapses but needs to be broader as they only give information about current, not future, conditions because their only data point is the point of failure.

“At present there does not appear to be a comprehensive and consistent understanding of asset condition across the sector and how this may change in the future,” Heath said in his letter to Ofwat chief executive David Black. “A more complete view of asset health in the sector would support a multi-AMP view of the investment required to maintain asset health and, consequently, service performance and reliability.”

In 2021, Ofwat published its Asset Management Maturity Assessment. Its overarching recommendation was for collaboration to improve asset management maturity through industry forums and action plans.