towards ‘enhanced status’:
Affinity Water’s quest for optimal asset management
by Allan Winkworth, Joseph Sanders, George Heywood & Luke Hart
Process for Investment Portfolio Optimisation - Courtesy of
2014 Price Review in England & Wales, the economic regulator
Ofwat (2013) gave water companies a challenging set of
objectives in preparing their business plans. These included a
major shift towards outcomes-based regulation, with all business
plan investment requirements being justified on the basis of
outcomes for customers and the environment, and with new Outcome
Delivery Incentives required to incentivise delivery. Companies
who exceeded Ofwat expectations in their business plan
submissions would be awarded ‘Enhanced Status’, which would mean
that their business plans would be accepted substantially
unchanged, without the need for further submissions. Of the
nineteen water companies in England & Wales, Affinity Water was
one of only two that achieved Enhanced Status (Ofwat, 2014).
This paper assesses the reasons for their success, with
particular focus on the planning of their investment programme
using a portfolio optimisation approach.
Affinity Water the UK’s
largest water-only company supplying to 3.6 million people in
south-east England. Affinity optimised its production and
network investment options using Servelec Technologies’ PIONEER
optimisation tool. The company area was considered as eight
distinct ‘communities’. The investment plan was optimised to
achieve service targets at least discounted cost both at
community level and for the company as a whole. This resulted in
reduced costs whilst making environmental improvements, tackling
leakage and reducing customer interruptions.
The planning methodology
applied was as follows (Figure 1 above):
1: The service and
cost impacts of asset deterioration were forecast through a
combination of models implemented within PIONEER and external
modelling tools from which results were imported. A wide range
of service impacts were considered such as water quality,
interruptions and leakage.
site-specific asset-related risks were identified and assessed
manually, and quantified within PIONEER using the Asset Risk
Management (ARM) interface.
3: Generic and
site-specific intervention options were defined to address
impacts due to 1 and 2 above.
4: Quality and
supply-demand schemes were defined using the PIONEER Scheme
Builder interface, to allow automatic calculation of capital and
operational costs, and carbon emissions.
5: The PIONEER
optimisation algorithm was applied to select the optimal set of
intervention options and schemes that will meet service measure
targets at least cost.
The PIONEER optimiser
allows multiple service and cost constraints to be applied in
each planning timestep. Discounted costs are minimised across a
user-defined planning horizon, taking account of capital costs,
failure-related costs (e.g. repairs and compensation), other
operational costs where modelled (e.g. pumping energy), and any
modelled social and environmental costs.
The risk model applied
takes account of:
Likelihood of failure
(physical deterioration and performance).
Likelihood and expected
quantity of each consequence, given that a failure has occurred.
Criticality of asset
within the facility, and of the facility within the overall
Figure 2 (above) shows
the wider Affinity Water asset management context within which
this methodology sits.
All principal network and
production asset types were assessed, with asset data arranged
within a hierarchy structure as shown in Figure 3 (below).
This approach represented a significant step forward from the
previous price review (2009) where the frequency of renewal was
assessed individually for each asset type, without any true
optimisation across asset groups.
Figure 3: Asset Hierarchy -
Courtesy of Servelec Technologies
decision-support software for optimal asset management planning.
The software has delivered benefits to clients over many years
Capital cost savings of
over 10% due to optimisation of investment. Improved levels of
service to customers and increased customer satisfaction.
Increased funding through
improved justification of needs.
decision-making leading to more effective planning.
PIONEER is comprised of:
A hierarchical asset data
store that collects together data from a number of sources for
use in service forecasts and optimisations.
A Service and Cost
Forecaster that stores user-configured models for estimating
future values of service and costs, with and without capital and
An Intervention Option
Generator that allows users to configure intervention options to
be considered by the optimiser.
An Optimiser that selects
the interventions required to meet service targets or spending
A Job Scheduler for batch
running of forecasts and optimisations.
Flexible tools for
results presentation and reporting.
The PIONEER ARM module
provides Operational and Asset Managers with the means of
capturing and assessing non-modelled asset-related risks, and of
assessing and comparing the costs and benefits of potential
solutions. PIONEER Scheme Builder provides asset managers with
the means of quickly and easily creating, costing and assessing
complex investment schemes. Both ARM ‘solutions’ and scheme
builder ‘schemes’ can be considered alongside other intervention
options within the PIONEER optimiser.
Affinity Water’s business
plan (Affinity Water, 2013) delivers an integrated package of
benefits, better managed assets by focusing maintenance
investment on service and risk and reduced water use and waste
whilst maintaining the quantity and quality of the water supply.
This results in a better service overall, without extra risk
being incurred by the company, the customer or the environment.
The overall costs of
providing services presented in the plan were lower than those
assessed by the Ofwat econometric modelling. This was at least
partly due to the savings achieved by optimisation of the asset
This optimisation has
enabled the company to achieve an improved balance between
reactive and planned interventions, and between network and
production investments. This reduced the total cost, whilst
achieving the required regulatory performance commitments. Each
of these performance commitments was aligned with the outcomes
desired by Affinity’s customers (Figure 4 below).
Figure 4: Customer Outcomes
- Courtesy of Servelec Technologies
Investment in each
community is optimally balanced, taking into account the
existing asset stock and future service requirements. Bills are
set at the company level, but interventions are planned to
ensure that service does not deteriorate within each community,
taking account of both previous investment and future issues. In
awarding Enhanced Status, Ofwat commended Affinity Water in a
number of areas, including:
evidence that the business plan is efficient.
Presenting an innovative
company plan and vision, including the reporting of performance
at a community level.
Delivery Incentives which provide a plausible and acceptable
basis to incentivise performance.
the major challenges that the company faces (in particular a
supply/demand deficit) and providing solutions that are well
supported by customer engagement.
One of the key success
factors in providing the confidence in the plan was the relative
transparency and openness of PIONEER, enabling audit and board
assurance. Integration of ‘business as usual’ by capturing
operational risks using ARM and Scheme Builder to drive the
investment programmes at concept stage also meant that the
operational teams were engaged. Refurbishment and repair options
as well as replacement options, and the ability to link
individual asset investments to service and customer outcomes,
meant Affinity could demonstrate the link between investments
and what customers said they wanted. Another success factor was
that the plan was deliverable; pipelines were replaced in
sensible schemes and not short sections that had inflated
cost-benefit. This meant that the final plan could easily be
translated into an achievable delivery programme.
Future developments will
and reporting back to each community individually.
Regular and consistent
reviews of investment prioritisation, portfolio-wide.
Further focus on ‘Totex’
solutions, considering operational activity as an investment
choice from the bottom up.
different service and pricing levels for each community if
customers or non-household retailers want this.
Greater integration of
deterioration models for pipelines and production assets, so
that there is less data manipulation and dependency on other
Further exploration of
uncertainties from risk and cost calculations.
Affinity Water. December 2013. Our Business Plan for 2015-2020.
Ofwat. July 2013. Setting price controls for 2015-20 – final
methodology and expectations for companies’ business plans.
Ofwat. December 2014. Setting price controls for 2015-20, Final
price control determination notice: company-specific appendix –
Affinity Water. Birmingham, UK.
was prepared by Allan Winkworth, Asset Specialist
(Portfolio), and Joseph Sanders, Community Intelligence
Manager, both with Affinity Water, and George Heywood,
Technical Director, and Luke Hart, Principal Analyst, both
with Servelec Technologies.