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Enhancement expenditure: WINEP - Phosphorus and sanitary determinants Chapter 7: Supplementary document

Document Reference: S6027

This document sets out the service enhancement expenditure and activity that we will undertake, through our 2020-2025 business plan, to improve or add phosphorus control to treatment works as well as improving BOD and ammonia performance in order to meet more onerous Environmental Permit requirements set out in the Water Industry National Environment Programme (WINEP).

United Utilities Water Limited

Copyright © United Utilities Water Limited 2018 2

Chapter 7: Supplementary Document - S6027 unitedutilties.com

Enhancement summary form

Name of enhancement area WINEP - Phosphorus and sanitary determinants

Price control(s) the enhancement relates to Wastewater Network+

Total value of enhancement for AMP7 £445.093m

Total opex of enhancement for AMP7 £20.156m

(Note: Table WwS2 includes £28.243m of AMP6 Opex carried forward)

Total capex of enhancement for AMP7 £424.937m

Remaining capex required after 31 March 2025 to complete construction

£0m

Is the enhancement likely to feature a Direct Procurement for Customers (DPC) scheme? (please tick)

Yes No

X

Brief summary of evidence to support enhancement requirements Page

Need for investment/ expenditure

Our base cost only covers the cost of meeting current Environmental Permit requirements. The expenditure covered by this document is to meet needs included as either green or amber certainty in the WINEP. This sets out where the Environment Agency require us to enhance service standards in order to deliver environmental benefits which they will enforce through by varying our Environmental Permits.

This enhancement investment is driven by the following statutory drivers:

• Water Framework Directive • Urban Wastewater Treatment Directive

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Outside management control

We have worked closer than ever before with the Environment Agency to challenge and shape the content of the Water Industry National Environment Plan 3 (WINEP3) for the North West in order to ensure it will deliver significant environmental improvements as efficiently as possible. The engagement process with the Environment Agency that was used to develop the WINEP has three key elements – water quality planning, solution development and economic appraisal All measures included in our plan are classed as either green or amber on the WINEP and therefore there is a high degree of confidence that they must be addressed in AMP7.

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Best option for customers

We have undertaken a significant exercise to identify the most cost effective way of meeting the future permit requirements we are required to comply with.

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Robustness and efficiency of costs

As set out in Chapter 7 of our PR19 business plan, we have undertaken significant improvements in our delivery of efficient totex solutions:

• We have embraced the totex and outcomes approach, delivering significant improvements from innovative approaches and technologies;

• Through our Market Engagement Methodology (MEM), we have improved the sophistication with which we engage with markets to deliver more efficient solutions and services; and

• We have improved our approach to totex, by better challenging both needs and solutions.

The introduction of a risk and value (R&V) assessment across all our major projects has supported better challenge of our expenditure requirements, including enhancements. This ensures that when we decide projects are necessary, we only do what we need to do, that our decisions are based on strong evidence, and the value of both business and customers is clear. The process ensures that we keep challenging and validating both the need for our projects and the way we deliver them.

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Customer protection

Customers are protected from non-delivery through the following ODIs:

Improving river quality ODI – If we are late in delivering Water Framework Directive improvement schemes (WFD_IMPg and WFD_IMPm) we will incur an under performance payment through this ODI.

Treatment works compliance ODI - If we fail to deliver improvements to our discharges on time we would expect the Environment Agency to issue the revised permit which we would be at high risk of failing to achieve.

WINEP cost adjustment mechanism – All WINEP schemes are included in this mechanism so customers will be compensated if a need is not required.

Additional consequences of non-delivery include:

• Prosecution and fines due to non compliance with permits • Reputational impact of losing 4* Environmental Performance • Loss of trust with customers and stakeholders • Loss of trust with the Environment Agency leading to less support for innovative approaches to

delivering environmental improvement

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Affordability Through research customers have shown a strong preference to protect the environment from deterioration and 60% surveyed also support improvements in service to enhance river quality, the highest of any service area in our choice experiment (Willingness to Pay June 2017). Also, 82% of customers considered that our overall proposed package of service improvements and bills

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Board assurance The development of the cost proposals within our United Utilities business plan 2020-2025, including enhancement expenditure, has been subject to robust ‘three lines of defence’ assurance as defined within the UUW PR19 Assurance Framework (see section 10.3 of our business plan).

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Wastewater Network Plus – WINEP phosphorus and sanitary determinants at Wastewater treatment works

Table and line no(s): WwS2 lines 18, 19, 20, 33, 65, 66, 67 and 80. For a detailed breakdown of the projects underpinning these lines see supplementary document S6004 AMP7 Totex enhancement project list and in Table 11 in Appendix 2 of this document.

Executive Summary

• This document summarises the investment required to improve or add phosphorus control to treatment works serving a population equivalent (PE) of 3.6 million. Additionally the business plan includes investment relating to the need to improve BOD and ammonia performance at treatment works serving 778,000 PE in order to meet more onerous permit requirements set out in the Water Industry National Environment Programme (WINEP). A detailed list of the requirements included in this enhancement programme is included in the appendix.

• The business plan includes a gross totex of £445.093m to meet these requirements.

• The need for investment is predominately driven by the Water Framework Directive with a smaller element driven by the Urban Wastewater Treatment Directive. In line with guidance we have included WINEP drivers within our plan which have either green or amber certainty ratings (see appendix for Environment Agency definition of WINEP certainty ratings)

• We have worked closer than ever before with the Environment Agency to not only review and agree the most appropriate permit standards to meet the environmental need but also to review and update the cost benefit analysis which underpins the ministerial decision on Water Framework Directive requirements which is due to happen in 2021. This gives us a high degree of confidence that the needs will receive ministerial approval.

• We have taken a number of steps to ensure that we are delivering maximum value to customers through the use of markets which we have set out in our Market Engagement Methodology (MEM). Due to the scale of expenditure on phosphorus removal, we undertook proactive market testing in this area that focused on challenging internal knowledge and assumptions, as well as listening to the market place on issues such as best practice and innovation.

• Through multiple pieces of research customers have shown a strong preference to protect the environment from deterioration and 60% surveyed also support improvements in service to enhance river quality, the highest of any service area in our choice experiment (Willingness to Pay June 2017). Also, 82% of customers considered that our overall proposed package of service improvements and bills is acceptable.

• All our Wastewater Network+ WINEP driven enhancement expenditure is included in our WINEP cost adjustment mechanism (see S3001 Performance commitments technical document, C07-CF) so money can be returned to customers if schemes are subsequently not required.

Introduction

This enhancement supplementary document sets out the scope of enhancements required to meet more onerous Environmental Permit requirements for phosphorus and sanitary determinants as a result of needs included within the third version of the Water Industry National Environment Programme (WINEP3). It also covers why these requirements are outside of management control, our approach to solution development



and how we have ensured that costs are robust. A total of 75 wastewater treatment works require upgrade to meet new or more onerous phosphorus limits. Additionally, 19 of these wastewater treatment works also require upgrade to meet more onerous sanitary determinants. Our cost estimate for this programme in AMP7 is a gross totex value of £445.093m.

The new requirements associated with the expenditure set out in WwS2 lines 18, 19 and 20 are listed in the appendix to this document. Of the 113 individual drivers, 46 relate to the need to meet phosphorus limits below 1mg/l which requires a step change in technology compared with schemes that have been delivered historically to meet the phosphorus requirements of the Urban Wastewater Treatment Directive. This means it is not appropriate to use historic costs when considering an efficient cost for these schemes. The following document sets out how we have determined the efficient cost of meeting these new requirements. We have included sanitary determinants in this document alongside phosphorus as these requirements all co-exist on treatment works that also require upgrade to meet new or more onerous phosphorus standards. The only stand-alone sanitary determinant WINEP requirements are for Hyndburn wastewater treatment works where we are not seeking enhancement expenditure as our solution identification has identified that operation and maintenance of the existing assets should allow us to meet the new permit standard

Business plan enhancement expenditure Our cost estimate for this programme in AMP7 is a gross totex value of £445.093m.

This expenditure covers the enhancement costs associated with meeting the new requirements set out in WINEP3 for wastewater treatment works (phosphorus, ammonia and BOD). As these are all new or more onerous permit requirements they are not covered by our base expenditure. The AMP7 totex estimate is comprised of £424.937m capex and £20.156m opex. The breakdown of the capex is shown in Table 1.

Table 1: Breakdown of capex and explanatory factors for Phosphorus removal and sanitary determinants WwS2 category Capex £m Population

equivalent 000s No of WwTW

Average size of WwTW PE 000s

£ per PE

Sanitary determinants* £40.879 778 19 41 £52.52

Phosphorus removal at trickling filters

£237.302 1064 54 20 £223.02

Phosphorus removal at activated sludge plants

£146.755 2537 21 121 £57.85

Total £424.937

*does include the Blackburn AMP6 carry over project

The options selection process has considered all investment drivers so that whole life costs may include base expenditure or expenditure to meet other enhancement drivers however the costs included in lines 18, 19 and 20 of WwS2 only include the enhancement expenditure for the drivers described in this document.

Management Control The Environment Agency set the requirements through environmental permitting. In this sense the need for the investment is outside management control. However, we have worked closer than ever before with the Environment Agency to challenge and shape the content of the Water Industry National Environment Plan 3 (WINEP3) for the North West in order to ensure it will deliver significant environmental improvements as efficiently as possible. The engagement process with the Environment Agency that was used to develop the



WINEP has three key elements – water quality planning, solution development and economic appraisal (see Figure 1).

We have played a very active role in water quality planning with the Environment Agency which we have supported by using our extensive modelling capability. By doing this we ensure we understand the role our discharges play in achieving environmental standards. Only through having this understanding can we take a systems thinking approach to finding efficient solutions to improve water quality. We believe this is essential in order to ensure our programme addresses proven issues and identifies the most cost effective way of achieving environmental improvements. The extent of change in requirements triggered by our collaborative review was significant with 39 limits changing between when we started our review in early 2017 and WINEP3.

Through use of SAGIS-SIMCAT water quality models we have reached agreement with the Environment Agency that 98 of our wastewater treatment works require more onerous permits to meet environmental objectives such as Water Framework Directive standards. For all 98 of these treatment works either a new or more onerous phosphorus limit is required and for a subset of treatment works either BOD and/or ammonia limits need to be more onerous.

The cost benefit analysis for Water Framework Directive schemes in River Basin Management Plan 3 (RBMP3) is not due to be fully updated by the Environment Agency until 2020/21. To mitigate the risk of including inappropriate schemes in our plan we have worked with the Agency to review and update key aspects of their

Figure 1: Process used with the Environment Agency to ensure that requirements included in the WINEP are appropriately justified



economic appraisal using costs from our solution development. By doing this work there should be a strong likelihood of approval by the Minister in December 2021. The updated economic appraisal supports the need for £498m 1of improvements to our discharges in order to meet either good or moderate status under the Water Framework Directive. Without economic appraisal the scale of our investment to get all rivers to good status would be in the region of £1.1bn.

Whilst working with the Environment Agency to develop the WINEP we identified a small number of circumstances where there were multiple enhancement drivers for a treatment works some of which were classed as amber certainty in WINEP2 and others red. We worked with the Agency to ensure that where drivers were split up this made sense in terms of the long term asset plan for the treatment works to avoid piecemeal solutions which offered poor value to customers. Wigan wastewater treatment works (WwTW) is a good example of this. WINEP2 indicated an ammonia driver which would have led to an inefficient solution as there are also multiple non-cost beneficial drivers for Wigan, which if delivered altogether would require fundamental change to the assets. We used this example when we wrote to the Environment Agency with evidence to support the benefits of phasing investment. 2 This resulted in the Agency agreeing that the drivers should be treated as a whole. As the cost of this scheme is in excess of £100m at this point in time it is non-cost beneficial. This position could however change in future as we understand about issues such as priority substances and experience of delivering and operating biological phosphorus removal plants leads to efficiencies. Further detail on the long term planning approach taken is shown in a case study included in the appendix to this document.

By rigorously following the process described in Figure 1 we have a high level of confidence that our Water Framework Directive interventions have been appropriately represented in the appraisal and as a package of measures across a catchment they deliver benefits at least as high as the cost. Once non monetised benefits are considered these are likely to be significantly greater. By working in partnership with the Agency to do this we have a high level of confidence that the requirements are appropriately justified.

1This value is net of the cost of meeting statutory drivers eg. no deterioration under the WFD and UWWTD 2 Letter to Anne Dacey, Deputy Director Integrated Water Planning, Environment Agency 19th January 2018

Impact of 568 WwTW on achievement of statutory water quality drivers reviewed using water quality models

98 WwTW confirmed as requiring more onerous permits to meet environmental objectives

75 WwTW confirmed as having cost beneficial interventions and therefore included in our AMP7 plan



Need for investment The need for investment to achieve either new or tighter phosphorus permit limits in AMP7 is driven by both the Water Framework Directive and the Urban Wastewater Treatment Directive. The majority of the investment is driven by the Water Framework Directive standards to meet either good or moderate status in water bodies. We have confirmed the needs for these schemes using the process described in Figure 1

There are also six river stretches in the North West that are awaiting a ministerial decision on whether they should be designated as sensitive areas under the Urban Wastewater Treatment Directive (see Table 2: Phosphorus removal requirements resulting from proposed sensitive area designations). We understand these designations are very likely to occur and therefore a new phosphorus removal requirement for 10 wastewater treatment works has been included in the WINEP with an amber certainty rating (see appendix 1 for definition of ratings). It is also worth noting that 7 of these treatment works also have more onerous requirements to meet Water Framework Directive standards in AMP7. One treatment works in a stretch of river already designated as sensitive will see its population rise above 10,000 during AMP7 triggering the need for phosphorus removal for the first time (see Table 3). As the standards under this directive are emission limits that must be met if the water course is designated as sensitive the permit requirement is confirmed as soon as designation occurs. Phosphorus removal to 2mg/l is required for all treatment works serving over 10,000 people which discharge either directly or indirectly to a sensitive water. Where the population exceeds 100,000 the standards becomes more onerous (1mg/l)

Table 2: Phosphorus removal requirements resulting from proposed sensitive area designations River proposed for designation No of treatment works impacted No of treatment works with tighter

WFD standards also included in WINEP3

River Etherow 1 1

River Goyt 2 1

Sankey Brook 1 (serves over 100,000) 0

River Bollin 4 4

Manchester Ship Canal u/s Mode Wheel Lock

1 (serves over 100,000) 0

River Medlock 1 1

Table 3: Phosphorus removal requirement arising from population growth exceeding an UWWTD threshold Designated river with WwTW exceeding population thresholds

No of treatment works impacted No of treatment works with tighter WFD standards

River Alt 1 0



All investment included under these expenditure lines is required in order to deliver schemes with either a green or amber certainty rating in WINEP3 and is classed as either statutory or statutory plus. The definition of the traffic light colours used to denote the level of certainty is shown in Table 9, Appendix 1.

There are 19 wastewater treatment works included in our AMP7 plan which require tighter limits for sanitary determinants. In all but one case these requirements co-exist with the need for a phosphorus removal scheme. The one standalone requirement is for Hyndburn WwTW which requires both a tighter BOD and ammonia limit but phosphorus removal is not cost beneficial so this has been excluded from our plan. We have reviewed each of these limits using the process described in Figure 1. In some cases we identified using our sewer and river quality modelling capability that we could not satisfactorily address the impact of overflow discharges without improving the BOD and ammonia performance of the wastewater treatment works in the catchment. By having our in house capability we have been able to balance the requirement for improving overflows with that to address final effluent discharge quality of treatment works. This systems thinking approach means we can identify a workable and cost effective solution to improve river water quality.

Best option for customers We have undertaken a significant exercise to identify the most cost effective way of meeting the future permit requirements we are required to comply with. The outputs of this exercise are included in an appendix to this document. When the options were considered for each site the following generic high level solutions were considered:

• Do nothing • Operations and Maintenance • Optimise Asset • Partnership/catchment solution • Refurbish asset • New asset

In the case of 52 treatment works included in our AMP7 programme there is no existing phosphorus removal technology and therefore this rules out many of the options as there is no existing treatment capability which can be optimised or refurbished. The remaining 23 treatment works have some phosphorus control however the standards we are required to meet in AMP7 due to the Water Framework Directive mean that additional treatment is required. If we did nothing there would be a very high risk that 75 wastewater treatment works would fail to comply with their Environmental Permits which would lead us to breach our statutory obligations resulting in damage to the environment, a significant number of prosecutions and loss of trust with customers and regulators. Under our treatment works compliance performance commitment 75 failing treatment works in 2025 would give us a performance of only 80% compliance assuming all other works comply with their permits. This is substantially worse that the industry performance over the last 10 years. In order to get back on track to achieve our ambition of 100% compliance we would then need to invest in additional treatment in a hurried timeframe which would lead to inefficient costs.

This then leads to the consideration of the most appropriate new asset or catchment solution. Where the phosphorus permit standard is above 1mg/l the preferred solution is generally chemical dosing as this is a proven technology. The relatively low capital costs of this technology make exploring biological phosphorus removal uneconomic as it would require significant changes to civil structures.

Where phosphorus limits are below 1mg/l we have explored a number of innovative technology options which combine dosing with iron salts and a tertiary process to remove solids in order to meet both the phosphorus and iron permit limits. The phosphorus removal technology trials undertaken as part of the industry wide



Chemical Investigations Programme 2 (CIP2)3 provide the best source of evidence around the effectiveness of a range of phosphorus removal technologies which are aiming to achieve the low standards required to meet Water Framework Directive. There are two technologies we have a good degree of confidence in following trial work under CIP2 and also elsewhere. These technologies are Mecana which is a fine cloth filter and BluPro which is based on a sand filter design. Mecana is generally the most cost effective solution as it is less likely to require significant pumping to get flows through the process. In the case of BluPro a significant pumping station is usually required to lift flows into the process. We have some existing sites with existing Continuously Upward Flow Filters (COUFs) which are designed to remove solids but have not been set up with chemical dosing and therefore do not remove a significant amount of phosphorus. We have identified 4 sites where the preferred option is to convert the existing COUFs into a BluPro type process through refurbishment and the addition of facilities to allow for dosing iron salts.

Table 4: Confidence in phosphorus removal technologies trialled under the CIP2 programme to meet low phosphorus limits. Technology Comments Confidence in performance to meet

low phosphorus limits

Filter clear Only 1 trial under CIP2 so limited data

BluePro Process well established, especially in USA. CIP2 trial results showed removal of phosphorus down to low levels.

Steel slag There are a number of trials looking at this media for phosphorus removal and confidence in the performance is increasing.

Mecana Four trials were conducted under CIP2 so confidence is high. We are also installing some in AMP6 eg. Windermere

Biomag CIP2 was the first trial in the UK and further work is needed to gain more confidence in the process.

Comag Two trials performed. Further work required to gain confidence in the performance and reliability of the process, especially in the requirement for polymer.

Dynasand Oxy Only one trial performed so more work required to gain confidence in performance.

3 UKWIR, The National Chemical Investigations Programme 2015-2020, Volume 3 Wastewater Treatment Technology Trials.



Iron dosing into COUF4 with specialist sand

Only one trial performed so more work required to gain more confidence but results were positive.

COUF with ferric dosing Only one trial performed so more work required to gain more confidence but results were positive.

RGF5 with ferric dosing Only one trial so further work required to gain confidence in results.

In addition to removing phosphorus chemically it is also possible to do it biologically by creating the right conditions for bacteria to take up the phosphorus. Biological removal offers some key opportunities in terms of long term sustainability however it is not a solution that is appropriate everywhere. They key advantages and disadvantages are summarised in Table 5. Table 5: Advantages and disadvantages of biological phosphorus removal over chemical processes Advantages Disadvantages

Enables future phosphorus recovery as the phosphorus is not chemically bound up and therefore inaccessible

High capital cost

Minimises reliance on chemicals with the associated long term opex impact

Chemical dosing trim and tertiary solids capture still required to meet low limits.

Lower sludge production compared with chemical dosing thereby offering lower sludge treatment costs

Historically we have not had any biological phosphorus removal plants as they have not been well suited to the conditions in the North West where sewage can become rather dilute in the winter months and temperatures also drop, which slows biological activity. Having carried out significant trial work at a number of our treatment works we are now in the process of building four Nereda granular activated sludge plants, one of which at Blackburn wastewater treatment works, will be the largest in the country. This process offers the opportunity for much more resilient biological phosphorus removal than other biological processes. The process was originally developed in the Netherlands where sewer systems are largely separate however working with Royal Haskoning the proprietors of the technology and Delft University the inventors, we have pushed the boundaries in terms of the conditions the process can successfully operate under and proven the weak combined sewage is not an barrier to its use. Further information on this can be found in supplementary S5009 - Innovation Technology Trends with case studies.

Where a site has multiple drivers for example, a need to tighten the BOD and/or ammonia permit as well as phosphorus or the site needs an increase in capacity to treat additional flow we have considered whether the best option for customers would be to rebuild the main biological treatment stage to allow for biological phosphorus removal. Whilst the capital costs of this technology are high in the short run, if there are significant investment needs for the site, it can offer either a lower or similar whole life cost to chemical processes whilst being more capable of achieving future (tighter) permits at a lower cost to customers. This process also helps to address future scarcity of this key nutrient by enabling future phosphorus recovery, thus

4 COUF - Continuous Upward Flow Filter 5 RGF – Rapid Gravity Filter



providing additional natural capital benefits. Our preferred solution for Macclesfield WwTW is to rebuild the existing trickling filter works as a Nereda granular activated sludge process which will allow for biological phosphorus removal (see case study). As the phosphorus permit requirement for this site is low at 0.4mg/l there is also a need for a tertiary chemical removal process. The chemical usage for this solution will be lower than that required if chemical removal was added to the existing plant as the biological removal will bring the effluent down below 1mg/l. We will also consider whether biological phosphorus removal is suitable for Burnley WwTW (see case study) which has significant investment needs arising from the WINEP which include tighter BOD, ammonia and phosphorus limits as well as a need to increase the amount of flow we treat and increasing storm tank capacity. The cost of biological phosphorus removal is likely to be similar to the preferred solution however we are not certain that biological phosphorus removal will be viable for Burnley as there are very high and fluctuating concentrations of phosphorus in the crude sewage due to trade effluent inputs.

Where appropriate we have taken an integrated catchment approach to identify alternative solutions to confirmed needs. This approach is most appropriate where there are multiple sources of pollutant load. Some of the largest schemes in our programme are at wastewater treatment works which are serving towns located near the top of river systems e.g. Burnley and Macclesfield. In these scenarios catchment solutions are rarely viable as the effluent discharge is the dominant source of pollutant load in the river. An example of where we have identified a sizeable catchment solution is to prevent deterioration in the levels of phosphorus in the Manchester Ship Canal. The options considered including the costs and benefits are discussed in a case study in this document.

This was viable because there are many upstream sources of load from the point at which deterioration is occurring. We have also set out the options appraisal carried out for the two largest schemes – Burnley WwTW and Macclesfield WwTW.

The chosen solution to prevent deterioration in the Manchester Ship Canal delivers a net benefit to society that is over 20 times greater than if we had taken the original need from the Environment Agency at face value and delivered a solution at Davyhulme WwTW alone.



Further examples of catchment solutions are also included in S4004 Ecosystems Resilience. []

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Factors driving costs for phosphorus removal Through assessment of the costs of individual schemes arising from our solution development we have identified two key factors that explain variation in the cost of phosphorus removal which are

• the size of the WwTW requiring phosphorus removal • whether the permit is above or below 1mg/l.

Historically most phosphorus removal schemes across the industry have been driven by the Urban Wastewater Treatment Directive which has comparatively relaxed limits of either 1 or 2mg/l. This means that historic costs are a poor indicator of the cost of many Water Framework Directive schemes as achieving lower permits requires a change in technology/process. Figure 2: Distribution of phosphorus permit standards currently compared with AMP7 permit limits.) shows the step change in permit limits for UU from those we currently hold which are usually 1 or 2mg/l to 46 permits below 1mg/l. The key difference in terms of capital cost of meeting these much lower standards is that discharge of particulate matter must be kept to an absolute minimum as phosphorus will be associated with the solids and thus it is necessary to have a tertiary solids capture process in place. This solids capture is also important in order to avoid excessive quantities of iron passing over into the final effluent. Whilst iron salts are often used to chemically precipitate phosphorus the quantities required to meet standards below 1mg/l are significantly higher than for standards of 1 and above thus the risk of iron carrying over into the effluent is higher. By minimising the amount of solids in the effluent, the level of iron can be better controlled. Figure 2: Distribution of phosphorus permit standards currently compared with AMP7 permit limits.

Around half of the phosphorus removal included in our AMP7 programme is to standards of 1 or above when considered on the basis of PE served. The unit rate of phosphorus removal to standards below 1mg/l is significantly higher than that for removal to standards above 1mg/l (see Table 7: Unit rate (capital cost only)by permit standard for phosphorous removal). As the vast majority of historic schemes have been to standards of 1mg/l or above this demonstrates the extent to which historic costs are not representative. The higher unit rate for schemes below 1mg/l is also partly explained by the lower average size of treatment works in this group of projects; they serve on average 39,000 population equivalent compared with 63,000 for projects with permit limits above 1mg/l.



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Table 7: []

The operating cost increase associated with phosphorus removal is also more significant when phosphorus standards below 1mg/l need to be met. This is for two key reasons

• More load needs to be removed and therefore more iron salts are required to precipitate it • A greater quantity of iron salts is required to remove each quantity of phosphorus below 1mg/l than

is required above 1mg/l

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Impact of size of treatment works on cost In addition to low phosphorus standards another factor driving higher costs is the size of the wastewater treatment works requiring phosphorus removal. The majority of phosphorus removal to date across the industry has been driven by the UWWTD which only requires treatment at wastewater treatment works serving more than 10,000 population equivalent and thus historic costs will not adequately account for the disproportionate cost of providing phosphorus removal on small WwTW. Figure 2 shows that small wastewater treatment works with populations below 1000 are particularly expensive to address per population equivalent served. Whilst these costs are very high, treatment works with populations below 1000 make up only 0.17% of the PE our AMP7 programme will address. We are carrying out trials to find more cost effective ways of achieving phosphorus removal for these small wastewater treatment works in order to work towards closing the gap in providing phosphorus removal for these small treatment works. A key part of this is our demonstration trials which are taking place from 2018 to 2021 as part of our River Weaver Demonstration Catchment. These trials are seeking to test out a range of integrated catchment management approaches with the aim of proving their effectiveness in meeting water quality standards in a more sustainable and cost effective way. Further information on these trials and the wider River Weaver Demonstration Catchment can be found in S4004 Ecosystem Resilience section 3.2.3.

Figure 3: Unit rate of phosphorus removal across AMP7 programme split by size of WwTW and permit standard

Whilst economies of scale explain much of this difference some of the additional expense of meeting phosphorus standards on treatment works in size bands 1-3 and in particular those with populations of less than 1000 is because their existing permits for other determinants such as suspends solids are relatively relaxed and thus their baseline performance is worse than larger wastewater treatment works (see Figure 4) Suspended solids performance is particularly important when it comes to meeting phosphorus limits as phosphorus will associate with solids and if iron salts are used for phosphorus removal they may also carry over into the final effluent leading to non-compliance with the permit. Additionally, we have three wastewater treatment works in our programme that currently only have descriptive permits but will require numeric phosphorus limits as a result of the Water Framework Directive. This leads to a step change in the level of treatment required.



Figure 4: Relationship between population equivalent of wastewater treatment works and the suspended solids performance.

In addition to smaller wastewater treatment works starting from a worse position in terms of performance there are a number of additional costs they often bear which include:

• More civils work in order to bring the infrastructure around site up to an acceptable standard for chemical deliveries and access e.g. roads and bunding for tanker deliveries

• A larger degree of decommissioning/demolition work and replacement with new major process units as a result of them being completely inadequate for the new permit requirement

• Instrumentation costs which are similar irrespective of the size of treatment works Sanitary determinants The total capital expenditure to enhance treatment works to meet tighter sanitary standards is relatively small compared with phosphorus removal at just £29.014m (not including Blackburn AMP6 carryover). The extent of work required to meet the tighter BOD and ammonia limits at the 19 wastewater treatment works in our programme varies much more significantly than for phosphorus. This is because all the treatment works have existing BOD and ammonia control but it may not be capable of meeting the tighter permit limits, this means that more of the generic high level solutions are applicable than for phosphorus. For example, we have included no enhancement costs in our plan for Hyndburn WwTW as the preferred option to secure the new permit is operation and maintenance. In other scenarios we are able to improve control systems at relatively low cost and thereby optimise BOD and ammonia performance. It should be noted that the costs included under sanitary determinants also include the AMP6 carryover expenditure for Blackburn wastewater treatment works which is undergoing a multi AMP project due to complete in 2021. Operating costs The primary driver for increasing opex for phosphorus removal is the addition of iron salts to precipitate the phosphorus and other chemicals to adjust the alkalinity which is adversely affected by the addition of iron salts. The implementation of solutions to meet phosphorus limits below 1mg/l in particular leads to a significant increase in operating costs. This is for three key reasons

• More load needs to be removed and therefore more iron is required to precipitate it • A greater quantity of iron is required to remove each mole of phosphorus below 1mg/l than is

required above 1mg/l • The more iron salts are dosed the more alkalinity correction is required, particularly where waters are

soft.



If we fail to sustain alkalinity at adequate levels it leads to a risk of an adverse impact on the ammonia performance of the treatment works and/or degradation of the concrete structures on the treatment works. The need for alkalinity correction is heavily influenced by whether the water is soft and the amount of iron salts used. As we have a predominance of soft waters in the North West and low phosphorus limits which require significant amounts of iron to be used the extent of alkalinity correction is significant. Where permits limits are greater than or equal to 1mg/l, the amount of iron salts required was determined based on standardised molar ratios of iron to phosphorus from our Asset Standards. These have been developed based on our experience of phosphorus removal over time. For phosphorus limits below 1mg/l we need a secondary dosing point for iron salts. We have derived the required molar ratio of iron to phosphorus from review of the Chemicals Investigation Programme 2 (CIP2) trials and discussions with suppliers, as we have no operational experience of low phosphorus permit limits. Both the CIP2 trials and suppliers indicate that the secondary iron salt dose requires a higher molar ratio than the primary dose. This means that meeting phosphorus limits below 1mg/l requires significant more iron salts than meeting limits that are more relaxed. Through our optioneering process we have reviewed whether there are options for biological phosphorus removal which would reduce the need for iron salts but not remove them completely. This has identified one treatment works (Macclesfield) where the preferred option is to install the granular activated sludge process which allows for biological phosphorus removal as well as pile cloth filters and ferric dosing. The pile cloth filters and ferric dosing are needed for tertiary treatment as the biological removal that occurs in the granular activated sludge processes is only guaranteed to achieve a phosphorus limit of 1mg/l. This option has only been viable because there are multiple investment drivers for this site including phosphorus, ammonia, maintenance needs and supply demand. This aligns with our experience in AMP6 where we have only been able to justify rebuilding the main treatment process to allow for biological phosphorus removal where there are either multiple drivers or there is no other option to fit in the footprint of the treatment works. We have also considered whether there are non-chemical solutions, particularly for our smaller treatment works which are included in our programme. This has resulted in the identification of the use of reactive media and reed beds on a small number of treatment works as the preferred option.

Robustness and efficiency of costs As set out in Chapter 7 of our PR19 business plan, we have undertaken significant improvements in our delivery of efficient totex solutions:

• We have embraced the totex and outcomes approach, delivering significant improvements from innovative approaches and technologies;

• Through our Market Engagement Methodology (MEM), we have improved the sophistication with which we engage with markets to deliver more efficient solutions and services; and

• We have improved our approach to totex, by better challenging both needs and solutions.

The introduction of a risk and value (R&V) assessment across all our major projects has supported better challenge of our expenditure requirements, including enhancements. This ensures that when we decide projects are necessary, we only do what we need to do, that our decisions are based on strong evidence, and the value of both business and customers is clear. The process ensures that we keep challenging and validating both the need for our projects and the way we deliver them. Innovation We are committed to delivering customer, environmental and economic benefits through innovation and we are implementing a number of initiatives and have a range of plans for AMP7. In addition to the broader Wholesale initiatives detailed in Chapter 7 of this price review submission, we plan to deliver some specific technologies which contribute key efficiency savings against our enhancement expenditure. These include the



use of our Integrated Catchment approach which uses systems thinking to identify the best value solution at a catchment scale. We have worked hard to create and sustain an innovation culture within the Wholesale business and this is reflected of our delivery of four Nereda granular activated sludge plants in AMP6 following successful innovation trials. Based on our track record for delivering innovation benefits in AMP6, we anticipate we will deliver a further savings in AMP7. Through our innovation investment we are confident that we can improve performance levels without incurring additional costs We are forecasting to deliver over £400m of savings from our committed focus on gaining benefits from innovation, in particular our adoption of Systems Thinking as a long term strategy – this has been supported and encouraged by the opportunities provided by the outcomes and totex regime. We have continued to make significant progress in addressing challenges by delivering a step change in our cost base. This step change has been achieved through our ability to embrace innovation.

Market Testing We are committed to improving our engagement with markets in procuring services. This includes comprehensive market testing of our costs via our Market Engagement Methodology (MEM) and Direct Procurement where appropriate, as detailed in Chapter 6 (tests 5.2 & 5.7) of this price review submission. Through the adoption of our industry leading MEM, we are able to strive for a better supply chain and procurement strategy to leverage maximum value from the market to ensure best value for customers. We have identified multi-AMP savings of £359m, of which the majority have been embedded into AMP7 programme. These savings have been appropriately allocated across the Wholesale programme, including our enhancement programmes – most notably the wastewater environmental and supply and demand programmes.

Customers are protected There are a range of ways in which customers are protected from non-delivery of the enhancements covered by lines 18, 19 and 20 which means there is a very strong level of customer protection. These include:

Improving river quality ODI (S3001, C05-WWN) – If we are late in delivering water quality improvements we will incur an under performance payment through the Improving river quality ODI. This ODI is weighted so the more expensive schemes carry a higher weighting to ensure that there is a strong incentive to deliver all outcomes.

Treatment works compliance ODI (S3001, C02-CF) - If we fail to deliver improvements to our discharges on time we would expect the Environment Agency to issue the revised permit unless we had agreed a suitable exchange for another scheme. Once the permit comes into force it is very likely we will fail to meet the standards without investment. This will lead to the treatment works being classed as non-compliant under our ODI. As we have an ambition to reach 100% treatment compliance and we will incur under performance payments if we have less than 99% compliance it is very likely that non delivery of outcomes under this line would lead to financial impacts.

Prosecution and fines - If a scheme is not delivered it is very likely that the treatment works would fail to achieve its permit and this could be by a significant margin. As a result prosecution by the Environment Agency is a significant threat. If non delivery is through deliberate actions by the company this is likely to influence the scale of any fines issued.



Reputational impact of losing 4* Environmental Performance Assessment status- We have received a leading 4* rating under the Agency’s Environmental Performance Assessment for the last 3 years. This assessment consists of seven metrics of which one is treatment works compliance. Only one out of the seven metrics can be amber and the remainder must be green to achieve this status. We recognise that treatment works compliance is the only area of the EPA that we have been classed as amber on in these last three years and therefore our ambition is to improve our performance reach over 99%. Non delivery of schemes would seriously jeopardise this.

WINEP cost adjustment mechanism (S3001, C07-CF) – We have included a cost adjustment mechanism in our business plan which will cover all phosphorus removal schemes whether they are coded as green or amber certainty in the WINEP. This means that if the outcome is no longer required to be delivered, there is a mechanism to remunerate customers.

Affordability

We presented proposed AMP7 bill impacts to residential customers, alongside a description of proposed service improvements. The substantial majority, 82% of customers, have told us that they believe service and bill proposals are acceptable. This is a 6 percentage point increase from equivalent AMP6 acceptability results, and a substantial indication of customer support.

Through multiple pieces of research customers have shown a strong preference to protect the environment from deterioration and 60% surveyed also support improvements in service to enhance river quality, the highest of any service area in our choice experiment (Willingness to Pay June 2017). As part of this research customers stated that of ten attributes which dictate their service priority choices, the cleanliness of rivers and lakes and the cleanliness of the sea ranked 3rd and 4th respectively. Additionally, when we conducted immersive research with customers discussing ecosystem services within the River Irwell catchment (August 2017), one of the most popular service areas for improvement was ‘A heathy river to support wildlife’ with 57% selecting a desire for improvements.

Board assurance The development of the cost proposals within our United Utilities business plan 2020-2025, including enhancement expenditure, has been subject to robust ‘three lines of defence’ assurance as defined within the UUW PR19 Assurance Framework (see section 10.3 of our business plan). This includes broad and deep reviews by independent assurance partners of the processes and governance over the development of the cost and efficiency proposals. Deloitte has also conducted a specific review of the enhancement expenditure proposals. The UUW Board Statement confirms that the business plan includes well evidenced, efficient and challenging cost forecasts



Appendix 1 Table 8: Environment Agency WINEP traffic light definitions

Traffic light Evidence Certainty Status of measure Justification

Green

Available and confirmed

High Certain Evidence that water company action is needed, there is clarity on the required measure, the measure is considered cost beneficial and affordable (where this assessment is applicable).

Affordability is a ministerial decision.

Amber Medium Indicative In the business plan 2015-2020 this was called the uncertainty programme. Evidence that water company action is needed, there is a clarity of a developing clarity on the required measure, the measure is considered cost beneficial, but awaiting ministerial decision on affordability (2021 River Basin Management Plan sign off). Schemes may move to green during the business plan period 2020-2025.

Red Low Unconfirmed Evidence that water company action is needed but the measure is not yet clarified, may turn amber or green during the business plan period 2020-2025.

Purple Needs gathering Minimal Provides a direction of travel

The Environment Agency know that the water company will need to do work in the future.



Appendix 2 Strategic planning case study – Wigan WwTW within the context of the River Douglas catchment

Summary Prior to our collaborative work with the Environment Agency to develop the WINEP, the Agency had identified that a tighter ammonia permit requirement at Wigan WwTW was cost beneficial. A number of other drivers for Wigan had also been identified that needed assessment through cost benefit analysis (CBA) or water quality investigations (see table below). This led to a significant risk of piecemeal investment at our 4th largest WwTW, over a prolonged period of time if each driver was addressed in isolation. Through a collaborative approach to assessing the technical needs requirements to meet Water Framework Directive and updating the CBA we have worked with the EA to address the complex needs of the wider Douglas catchment and more specifically Wigan WwTW with the aim of finding sustainable long term improvements. Table 9: Summary of investment needs at Wigan WwTW Known investment needs (subject to CBA) Potential investment needs

Ammonia removal at Wigan WwTW to 1mg/l Priority substances removal for cypermethrin and hexabromocyclododecane (HBCDD)

Phosphorus removal at Wigan WwTW to 0.25mg/l Phosphorus removal to 0.1mg/l (subject to advances in the technically achievable limit)

Shellfish water improvements to meet 10 spills per annum from Wigan storm tanks

Reduction in storm spills from Hindley pumping station to address phosphorus levels in Pennington Flash

Reduction in storm spills from Hindley pumping station (in Wigan drainage area) to address BOD and ammonia in the Glaze catchment

Potential need to address tributyl tin if source control is not effective

Forecast £56m maintenance investment needs for Wigan WwTW 2020-2045

Lack of network and treatment capacity for any additional flows.

Multi AMP approach The Douglas catchment lends itself to a multi AMP approach in order to avoid abortive expenditure and to maximise the opportunity to deliver additional benefits such as enabling phosphorus stewardship which is a corner stone of the Water Industry Strategic Environmental Requirements (WISER). Importantly we can learn lessons from delivering solutions for phosphorus down to low standards in AMP7 which may help to improve the efficiency of future solutions at sites like Wigan. We have identified that rebuilding the treatment works at Wigan as a biological phosphorus removal plant with tertiary polishing and an increased flow to full treatment would target all the identified investment needs. If all the needs in the catchment are fully understood the cost benefit assessment could look at them holistically which would maximise the potential for cost beneficial options to be found. The multi AMP approach the EA accepted for this catchment was to:

AMP7 • Implement WFD good status schemes for Horwich WwTW (including overflows) and Westhead

WwTW so that upstream stretches of the Douglas meet WFD in line with the Agency’s preference for starting upstream and ensuring some benefits are delivered.

• Carry out a water quality modelling study to investigate the impact of Hindley pumping station on the phosphorus load in Pennington Flash

• Investigate the sewer catchment sources of HBCDD and Cypermethrin in the Wigan network to determine if source control is viable

• Develop a long term Drainage and Wastewater Management Plan for the Wigan network which takes account of the water quality issues arising from the operation of Hindley pumping station

• Review long term solution for Wigan/Skelmersdale WwTWs in light of the investigations and the experience of building and operating biological phosphorus removal plants currently under construction at Kendal, Failsworth, Morecambe and Blackburn



• Monitor the impact of the AMP6 investment aimed at improving the Ribble shellfish beds to determine if further work at Wigan WwTW is justified.

AMP8 • If cost beneficial commence with delivering long term strategy for Wigan and Skelmersdale WwTW • Commence interventions in network

Benefits for customers

• Sustainable water bills over the long term as significant quantities of chemical dosing are avoided • Enhanced sustainability and resilience of the service as resource recovery will be enabled and

chemical use minimised Environmental benefits

• Increases the likelihood that a biological phosphorus removal solution is cost effective which will facilitate phosphorus recovery

• A rebuilt treatment plant is likely to provide enhanced performance for several key priority substances as a long sludge age activated sludge type process is likely to be used. CIP2 data indicates that a 5 fold improvement in cypermethrin and HBCDD concentrations may occur by moving to a treatment process with a long sludge age.

• Enables delivery of shellfish improvements which wouldn’t be possible otherwise • Delivers 29km of river to good status in AMP7



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enhancement expenditure: winep - phosphorus and sanitary ... · through our 2020-2025 business...

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