Select Committee on Public Accounts Thirtieth Report

3  Information on the performance of sewer networks

19. For companies to make the right investments at the right time, there must be consistent and reliable information on the condition of the sewer network they own. Before privatisation, there was incomplete and inconsistent information on the performance and condition of networks. Ofwat described the records maintained by water authorities before privatisation as patchy.[26]

20. The companies and Ofwat have improved the quality of information. Since 2000, the industry and its regulators have worked together to develop a "common framework" allowing companies to obtain a better understanding of network capital maintenance needs, founded on risk-based principles.

21. There remain, however, problems of consistency between and within companies. There can be difficulties in comparing asset condition over time, in particular with the interpretation of grades assessing condition. The water industry has produced five versions of its guidance on grading in their Sewer Rehabilitation Manuals and companies use different versions.[27]

22. Some companies consider that Ofwat should give more weighting to trends in the condition of sewers. At present, companies report on asset condition on a sample basis as part of a five-yearly asset inventory exercise. There is however no long-term programme of surveys of the same sample, or cohort, of sewer - so it is rare for the same sewer to be surveyed from one assessment to the next.[28] Companies do not have a cohort of sewers which they continue to look at every five years in order to detect whether there is a systematic rate of deterioration.[29]

23. Ofwat uses backward-looking indicators, based on past performance, to monitor the condition of each company's sewer network. The indicators do not provide robust information on the likelihood of asset failure (for example, a sewer collapse) or the need for investment in the future. Ofwat acknowledged the weaknesses in the backward-looking approach and confirmed its determination, alongside the companies, to develop a more forward looking element in the analysis of the performance and condition of sewer networks.[30]

24. The investment cycle appears to be driven less by the information obtained by companies and Ofwat than by the regulatory cycle. Figure 4 below shows how companies tend to incur low expenditure immediately after Ofwat has set price controls, while expenditure tends to increase towards the middle of the price review period, before falling away at the end.

Figure 4: Profile of investment spending on sewer networks

Source: C&AG's Report, Figure 7

25. Ofwat did not think this was an acceptable profile, but the investment cycle was more stable than it had been in the past, when sewer assets had been owned by water authorities subject to annual public sector expenditure controls. Ofwat have sought to address the uneven cycle by confirming in advance the investment programme for the first year of the next price control period.[31]

26. There is only a limited longer-term framework for planning investment in sewer networks. By contrast, the licences issued to water companies require them to prepare water resource plans, which consider the balance of supply and demand over a 25 year period.[32] There are two issues that may increase the pressure on water companies as they attempt to run effective networks. Firstly, climate change may lead to more intense rainstorms, which in turn may lead to more incidents when the existing sewer capacity is insufficient for the expected water flow. Ofwat consider that there is already evidence of climate change in the increasing intensity of rainstorms.[33] Secondly, expected increases in the number of houses in the South East may increase the risk that existing sewer networks have insufficient capacity. Ofwat acknowledged the potential impact on the design of water and sewerage systems of the pressure of new housing development in the South East.[34]

26   Q 19 Back

27   C&AG's Report, para 3.16 Back

28   ibid Back

29   Q 20 Back

30   Q 10 Back

31   Q 53 Back

32   C&AG's Report, paras 3.30-3.31 Back

33   Q 12 Back

34   Q 12 Back

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