Written evidence submitted by Thames Water
Thank you for your letter of 28 March following the Committee’s oral evidence session on CNI and climate adaptation. I very much welcomed the opportunity to explain our approach at Thames Water and am glad that you found the discussion valuable.
You raised two questions in your letter and I provide brief answers here with a more detailed response in Appendix 1.
Firstly, I can confirm that we continually embrace the latest technological innovations to improve understanding of the vulnerabilities in our systems. For example;
Secondly, I have provided further information on the percentage of a customer water bill that is currently spent on resilience, and how that is likely to change in future. In summary;
Strategic Resources and London Operations Director
19 April 2022
Appendix 1: Joint Committee on the National Security Strategy on CNI and climate adaptation
Questions to Thames Water, April 2022
We have significantly improved our understanding of and capability to monitor our operational systems. Historically, while we have had a good understanding of individual components of our water supply system, extending this to a regional level has been more challenging. We have applied systems thinking to our approach of managing supply, demand, and storage across 49 component hydraulic systems.
We have developed a Supply Demand System Risk (SDSR) tool, which allows us to use existing data to visualise our supply, demand and storage position at the system level and use almost real-time actions to make sure our customers are always in supply.
The tool provides near to real-time updates on supply capability to identify any emerging issues and mitigate the consequences of any supply interruptions. It also allows us to make more informed operational decisions using actual and forecast supply data.
Demand forecasts were previously only recorded once a day, but the tool now provides near real-time updates. The SDSR tool provides an overview of each of the 49 hydraulic systems across London and the Thames Valley to identify where expected demand is changing. It also generates automatic email alerts where demand forecasts are exceeded in three consecutive 15-minute periods in the same hydraulic system, which ensures issues are flagged and responded to.
The storage component of the tool provides storage information at either the entire system or component system level. The tool updates every 15 minutes to provide near real-time data that can be used by operators in conjunction with supply and demand data to minimise the impact of supply interruptions on customers.
A ‘Time to Impact’ tool allows us to undertake ‘what if’ analysis to determine impacts on storage capability. This is useful when, for example, there is an interruption to supply or to determine how long before a reservoir reaches its critical storage level or time to impact.
The tool also has a ‘headroom tracker’ component to view historic, current and forecast levels of system ‘headroom’ to determine the expected availability of water at a regional area level. The tool uses our demand forecaster which is based on weather predictions and historical observed demands.
We are investing heavily in the technological capability of our Wastewater Management Centre (WWMC), where we manage our Wastewater networks. We have upgraded the centre to include our Central Geographical Information Systems (GIS) Room and to serve as the central repository for storing and managing the data from around 2.2 million sensors.
Our Central GIS Room contains hardware used to assimilate and visualise the data collected by sensors in real-time. This level of GIS capability allows the ‘blending’ of incomplete datasets to maximise the value of this enhanced monitoring programme.
Ultimately, the system will allow us to better understand where the stresses are in our networks and how these systems change over time. Climate change is the potential root cause of a number of the pressures the business faces, and this improved monitoring system will help us manage its impacts in a similar manner.
A key step-change in our approach to monitoring was the decision to combine hundreds of individual wastewater assets into just 78 systems, based on catchment geography. For each of the 78 systems, we will be able to integrate management of pollution, flooding, and customer service.
We have enhanced the capability of the WWMC by setting up an ‘Intelligence Hub’ (or iHub) which links the WWMC to our ‘SCADA’ (Supervisory Control and Data Acquisition) systems.
The iHub helps collect validated operational data that can be used for investment planning and storing it consistently across our business. This data collection will continue through the current investment period to prepare for the next cycle, ensuring we are planning investment with a much-improved level of understanding of weather and climate impacts.
We have introduced an innovative approach that uses a digital twin to help us understand and prepare for the forecast impacts of the severe weather that climate change is making more likely.
We use Met Office warnings for incoming severe weather to understand and prepare for their impacts on business operations. Warnings are received by a team of analysts, trained to identify severe weather, and to understand their implications for service.
Any warning we receive is reviewed along with the Met Office risk assessment and the expected impacts, coupled with likelihood of occurrence, are assigned a minimum ‘Weather State,’ linked to the anticipated impact on our operations. These ‘States’ trigger communications and ensure consistent mitigations are put in place – such as making additional staff available in critical areas to manage the impacts of heavy rainfall on our sewer network.
Our Weather Team also uses models from the Met Office and DTN to establish timings of severe weather events and regions most at risk. These models are also used to identify potential impacts to short and longer-term supply capability, captured through an internal demand forecasting tool.
In rainfall events, a digital twin known as ICM Live sends catchment and site-specific email alerts to local teams so they can prepare for potential flooding. As a severe weather event nears, warnings are issued or updated and as confidence in models and therefore available tools increases, the Weather State will reflect the anticipated impact.
Thames Water’s annual performance report for 2020-2021 – the last full financial year for which audited data is available – included a chart explaining how we spend the revenue we receive. You can see this on page eight of the report here, and as in Appendix 2 of this letter.
Our expenditure is categorised and recorded in a number of ways to meet regulatory and financial reporting requirements but does not include a category specifically to capture resilience. The chart includes an overall figure of 32p in the pound for investment in our infrastructure and explains that this investment increases the long-term resilience of our services.
You asked how that is likely to change in future. As part of the five-year investment cycle in the sector, water companies are currently preparing business plans for the period from 2025-2030, ahead of the price review in 2024 (‘PR24’). While we are at a relatively early stage in this process, it is clear that a range of upward pressures on investment mean that current levels of investment will at the least need to be sustained if we are to ensure our infrastructure is sufficiently resilient to future challenges. These challenges include:
At the same time, the infrastructure we rely on to serve our customers in the face of these challenges is, on average, getting older. Our average mains age is 71 years, rising to 83 years in London. London’s trunk mains average 100 years old, with 14% over 150 years old. By 2030 an additional 1,500km of our network will be over 150 years old, including a further 179km of trunk mains. The current rate of trunk main replacement would require c.450 years to renew the network.
Levels of future investment in our infrastructure will be determined through the price review in 2024. Arguably the single most important evolution in policy and regulation that can support the water sector in managing its assets, particularly as the effects of climate change increase, is a move to a longer-term approach when making decisions about future investment programmes.
Thames - and the water sector more widely - will need over the period to 2050 to deliver a few key programmes (such as water supply network renewal in London and the elimination of sewage overflows across the country) that take multiple investment cycles to complete. Agreeing longer-term investment programmes in these areas would provide important benefits, including opening up a more realistic suite of investment options, considering not just what takes place in the next five-year cycle, but what happens during that period and beyond.
The longer-term view of cost recovery and risk allocation under this approach would reduce regulatory risk and enable more efficient financing of some of the major investments that will be needed. It would also avoid the costly inefficiency of ramping up and winding down programmes at the start and end of each five-year cycle, providing better value for customers.
It would also support the development of skills and jobs in infrastructure providers and their wider supply chains and provide more opportunities to innovate in the knowledge that the risks and potential benefits are weighed against a much more significant opportunity and create greater certainty for investors.
This approach relies on infrastructure providers like Thames taking a longer-term view but will need to be facilitated by government and regulators providing a framework that helps realise the benefits of looking beyond the relatively short horizons of the five-year price review process.
The government made clear the importance of a long-term approach in its strategic priorities for Ofwat, published in March of this year:
“The government has committed to taking a long-term approach to investment, recognising that a system that works in the enduring interests of consumers does not simply mean lower prices in the short-term at the expense of future generations. Ofwat should promote efficient investment, ensuring it is made in a way that secures long-term resilience and protects and enhances the environment, whilst delivering value for money for customers, society, and the environment over the long-term.”
We strongly welcome this clear guidance and look forward to making an investment case at PR24 that will set out the long-term approach needed to manage the risks to infrastructure from climate change the Committee is exploring.
Appendix 2: breakdown of revenue expenditure
Source: Thames Water’s Annual Performance Report, 2020-2021
 Water Resources in the South East
 London Sustainable Drainage Action Plan