MONITORING LEAKAGE AND WATER EFFICIENCY PLANS

1
WATER CONSERVATION AND DEMAND MANAGEMENT
MONITORING LEAKAGE AND WATER EFFICIENCY PLANS
IAN STEPHENSOffice of Water Services
NEWCASTLE UNIVERSITY, 4 JUNE 2003
2
AGENDA

• Percentages - how to mislead people
• The role of Ofwat
• History of leakage regulation
• Approach to leakage measurement
• Target setting
• Tripartite study
• Thames Water
• Regulatory powers
• Stakeholder interaction - political influence
• The efficient use of water

3
PERCENTAGES - HOW TO MISLEAD PEOPLE

• What do you think the average level of leakage is
  in England and Wales?

4

• In 2001-02 the answer could have been
• 3414.3 Ml/d
• 22
• 16
• 145.6 l/p/d
• 10.3 m3/km/d
• 107.7 l/p/d
• Depending on what you measure and how you do it

5

• Why we dont use percentages
• Example
• Compare Sydney Water with average England and
  Wales company
• Sydney Water, Losses/Input 11
• England Wales, Losses/Input 16

6

• Example cont
• BUT losses are independent of input
• Input depends largely on customer demand
• Swapping the input figures between the two gives
• Sydney Water 19
• England Wales 9

7

• Therefore s unhelpful for comparisons
• 1996 House of Commons Environment Committee on
  Water conservation and supply, stated...
• Water companies should not present leakage in
  percentages
• Losses should be shown in Megalitres per day
  (Ml/d), Litres per property per day (l/p/d)
  cubic metres per kilometre of mains per day
  (m3/km/d)
• Allows for comparisons between companies to be
  made
• More later.

8
THE ROLE OF OFWAT

• Economic regulator
• Responsible for setting price limits
• 22 companies providing clean water services
• To 23 million connected properties
• With a population of 53 million
• Companies operate in regional monopolies
• Has overseen 25 above inflation price rises
  since 1989 (12.3 decrease in 2000)
• To fund 50 billion pound investment programme to
  2005

9

• Ofwat is the office of the Director General of
  Water Services
• Philip Fletcher
• Director General

• His primary duties as economic regulator for the
  water industry of England and Wales are laid down
  by national government in the Water Industry Act
  1991

10

• Director Generals primary duties
• To ensure that the funtions of a water and
  sewerage company, as specified in the Act, are
  properly carried out
• To ensure that companies are able to finance
  their funtions, in particular by securing a
  reasonable rate of return on their capital
• Leakage duties
• Director General has a duty to promote economy
  and efficiency by the companies (throughout their
  business)
• The companies have a duy to develop and maintain
  an efficient and economical system of water
  supply

11
HISTORY OF LEAKAGE REGULATION

• Leakage has always been reported to Ofwat
  annually in JR
• Focus on water delivered rather than
  unaccounted for water (report 26)
• First public statements in June 1992

12

• Water delivered report 1990-91 (published Jun 92)
• Explained Ofwat policy
• League tables (anonymised results)
• Regionally grouped
• Focus on methodology and data quality

13

• In the report the Director General indicated that
  water delivered to customers would form a key
  output measure for monitoring performance of
  customers
• Previously water into supply had been key measure

14

• Data quality in 1991
• 18 companies were unable to assign a confidence
  grade to water delivered, 5 more assessed it as
  needs improvement or worse
• probably an over optimistic assessment

15

• By the next year we had moved from drawing
  attention to data quality and were discussing the
  best way to express leakage
• We decided that per unit length was better than
  of distribution input but explained that this
  favoured rural companies

16

• Later in 1992 published Cost of water delivered
  to customers 1991-92
• No league tables but attributable results on
  leakage

17

• Made some comment about leakage economics
• ...would not be in the interest of customers to
  attempt to push leakage control beyond the point
  where additional costs of control equal the extra
  benefits that result

18

• And
• Companies should have due regard to the costs of
  water lost and make an appropriate decision about
  the spending required to control leakage
• principles founded in report 26 issued in 1980

19

• In 1993 report on cost of water delivered started
  to draw attention to the water delivered
  components and the variation inherent
• PCC
• unmeasured non household use
• supply pipe leakage
• meter under registration

20

• Explained that we were interested in leakage
  because
• Ofwat has responsibility to ensure that companies
  are efficient in their use of water
• Comparative efficiency studies depend on
  realistic estimates of supply pipe leakage
• An equitable tariff balance can rely on estimates
  of supply pipe leakage

21

• Went on to use the term Economic Level of
  Leakage
• Then said that because ELL varied with local
  costs and system condition we did not set leakage
  targets
• Report moved away from per Km measure to litres
  per property

22

• Report did not comment on comparative performance
  on leakage but raised some concerns about pcc
  variance
• The next years report (1993-94) carried on in
  the same theme - encouraging the adoption of MLE
  methodology on leakage

23

• By the following year it was clear that there
  were public concerns about leakage levels
• Ofwat said that it would not expect to push
  companies below ELL as this would impose costs
  and looked to other methods of conserving water

24

• Ofwat was now encouraging companies to develop
  consumption monitors (like Severn Trent)
• Recommended reconciliation of night flow and
  integrated flow leakage results
• Pointed to some reasons for differences in
  leakage figures - but still no naming and shaming

25

• At the same time as all this the hot summer of
  1995 was causing problems
• Yorkshire was tankering water
• Companies were using drought orders to obtain
  more resources
• Hosepipe bans and drought orders were used to
  restrict consumption

26

• Summer 1995 Drought

• Severe supply problems at Yorkshire Water
• And press revelations that leakage was over 30
  of distribution input

Yorkshire Water
27

• Since privatisation in 1989, until 1995, leakage
  rose in England and Wales

Leakage performance 1992-93 to 1994-95
28

• The traumatic events of the summer resulted in
  Ofwat publishing a special report Leakage of
  Water in England and Wales in May 1996
• For the first time there was direct criticism of
  specific companies
• Companies were told that they should set and
  publish leakage targets that were acceptable to
  Ofwat

29

• In the following year (October 1997) Ofwat
  published its first annual report specifically on
  leakage and water efficiency
• More use of league tables
• More specific criticism of individual company
  performance
• Leakage targets published for the current and
  following years

30

• During the same year (May 1997) the new
  government convened the water summit
• Stressed the importance of reducing leakage and
  improving the efficient use of water
• Ten point plan

31

• DG will set tough mandatory leakage targets
• Free leakage detection and repair for domestic
  supply pipes
• Companies to get statutory duty to conserve water
  in carrying out their functions
• Companies to promote water efficiency with
  vigour, imagination and enthusiasm
• Companies to consider role in Government
  Environment Task Force
• New water regulations will take water efficiency
  into account

32

• Government will review RV charging, disconnection
  policy and metering policy
• Companies to accept licence amendment to allow
  drought related compensation
• Companies should publish data on leakage and
  water efficiency performance
• Government will review abstraction charging
  regime to ensure environment given full weight

33

• Since 1995 progress has been more obvious - some
  debate over the reasons for the enhanced
  performance
• Drought brought home to most companies the
  inertia of leakage improvements
• New era of economic and political realism
  combined with enhanced technology

34
Political comment

• This is great news for customers
• This is impressive progress. I want to go
  further, helped by more innovation and better
  technology. I look forward very much to working
  with the regulator, the water industry and
  customers to achieve this.
• John Prescott - August 2000

35

• Continue to monitor leakage through June Returns
• Publish out-turn in a press notice issued in
  early July
• Contains results and current targets
• Details of regulatory action

36
APPROACH TO LEAKAGE MEASUREMENT

• A definition of leakage
• the loss of water from the supply network,
  which escapes other than through a controlled
  action

• Total leakage
• Drinking water
• From the water treatment works to the customers
  internal stop tap
• NOT untreated water or losses on customers
  internal plumbing

37

• The water balance

38

• Top down

• 79 of domestic customers in England and Wales
  are not metered
• Other unmeasured components of the water balance
• e.g. water taken legally but not billed for,
  water taken illegally, operational use,
  unmeasured non-households
• Distribution input - (measured components
  estimates of unmeasured components) leakage?
• Scope for overstating estimated components and
  therefore underestimating leakage!
• Another way?

39

• Bottom up

• Allows for independent estimation of leakage
• Using measured minimum nightlines
• In districts of 1000-3000 properties (DMA)
• Principal flow will be leakage (allow for
  legitimate use)
• Gives measurement and independent estimates of
  all water balance components
• Summing these should equal distribution input,
  BUT
• Because of uncertainty in estimates this will not
  be exact
• Companies use statistical techniques to
  redistribute imbalance
• Range of imbalances 0.1 to 4.2 in 2001-02
• Average 1.5

40
TARGET SETTING

• Closely linked to ELL analysis and SDB situation
• 2001-02 targets now in place are no longer
  mandatory where a robust ELL exists
• Maintain incentive to produce robust ELL

41

• First targets published in May 1996
• Mandatory targets set out for the first time in
  October 1997 for the 1998-99 year - a 16
  reduction overall
• Targets based on supply position and actual
  leakage level

42
Process for target setting is to discuss the
Ofwat proposals with EA and DETR before sending
them in draft to companies 1996 saw first
robust Economic Level of Leakage appraisal
(Yorkshire Water) Ofwat began to set targets
with reference to robust ELLs
43
Aim was to get Companies to ELL by end of
2002-03 After this expect general downward trend
because of Technology improvements Reducing
costs Growth in demand
44
TARGET SETTING - RESULTS

• Results.
• Targets set since 1997
• Enough water saved to meet daily needs of over
  12.5 million domestic customers
• Obvious benefit for the environment

45

• Leakage performance 1994-95 to 2001-02

46

• Leakage performance 1994-95 to 2001-02

47
Aim was to get Companies to ELL by end of
2002-03. Progress so far...
48
More on Thames later.
49
What happens post 2002-03?
Ofwat would like to leave leakage management
to the companies - incentive regulation Taking
a medium to long term view Need a solution that
satisfies all stakeholders Companies Regulato
rs- Economic and Environmental Politicians Cus
tomers
50
The Tripartite Study
Jointly funded by Ofwat, DEFRA and EA Let to
WRc Main objective to consider how companies
should undertake a fully integrated appraisal of
the financial, social and environmental aspects
of their leakage reduction and other operations
to ensure the efficient use of water resources
now and in the future by all abstractors. Indus
try participation has been important
51
Tripartite study outcomes

• Published March 2002
• Recommendation of how to produce a best practice
  ELL
• Recommended list of Leakage performance
  indicators
• A discussion of alternative target setting option

52
Approach for PR04

• Results of consultation published in this years
  leakage report (having a new focus on supply /
  demand)
• PR04 treatment of leakage will be based on the
  Tripartite study results
• Leakage economics will be focused at the zonal
  level
• Consistent with a holistic supply demand approach
• ELL guidance will appear in the draft Business
  Plan

53
Summary

• Tripartite study conclusions will feed into PR04
  in terms of supply/demand and leakage assessments
• Leakage and supply/demand are indisputably linked
• Company submission on both issues must be wholly
  consistent

54
ECONOMIC LEVELS OF LEAKAGE - DEFINED

• Ofwats annual leakage report (www.ofwat.co.uk)
  states
• The water companies of England and Wales manage
  water distribution networks with a total length
  of more than 300,000km. In addition there are
  more than 23million connections to properties,
  which all have the capacity to leak. Reducing
  leakage to zero would be virtually impossible and
  enormously expensive
• So the aim in England and Wales has been to
  achieve economic levels of leakage

55
The Economic level of leakage (ELL) - a
definition
The level of leakage at which it would cost more
to make further reductions than to produce the
water from another source, is known as the
ELL Operating at ELL means that the total cost
to the customer of supplying water is minimised
and companies are operating efficiently
56
ECONOMIC LEVELS OF LEAKAGE - BEST PRACTICE

• Best practice defined in Ofwat commissioned
  study,
• Future approaches to leakage target setting for
  water companies in England and Wales
• - Published March 2002 (www.ofwat.co.uk)

57

• ELL target setting process map

58

• Calculating the ELL

• ELL is set within the context of the supply
  demand balance for water
• Reduction on leakage reduction in water treated
  for supply
• May reduce capital expenditure in the planning
  period
• Potential environmental benefits
• Two options
• Least cost planning
• Marginal cost of water

59
REGULATORY POWERS

• Actions taken by Ofwat - the regulatory
  escalator
• Pragmatic targets
• Extra reporting
• Specific investigations
• Voluntary undertakings
• Enforcement orders
• Special administration

60
Thames Water

• Concern about leakage at Thames for many years
• Highest leakage in industry and now rising
• Thames could not explain 7.2 of its water put
  into supply
• Thames also has security of supply problems in
  London

61
Thames Water cont...

• Thames argue it has a uniquely tough operating
  environment
• Leakage control is not necessarily the most
  efficient way to deal with its security of supply
  problem
• The increasing water balance imbalance is due to
  increased demand not just rising leakage

62
Thames Water... The Agreed Steps

• Develop a robust ELL assessment and achieve it by
  2003-04
• Establish a robust water balance for the whole
  company
• Implement an acceptable resource plan to achieve
  target headroom by 2003-04 (and maintain it)
• All of these are inextricably linked

63
STAKEHOLDER INTERACTION - POLITICAL INFLUENCE

• Ofwat must be aware of current political thinking
• New Ministers can have different views
• Ministers view leakage as bad
• Working under guidance that leakage should not be
  allowed to rise
• Considering new powers for Ministers to set
  targets
• Other policies can influence leakage - ie street
  works
• Ofwat try to influence Government thinking

64

• Close interation with environmental regulator -
  The Environment Agency
• Responsible for abstarction licensing and water
  resources
• Can also influence Government
• Media portrayal important
• Other intested parties can influence debate
• i.e leaks water trees!
• Ofwat look to balance all views with objective of
  minimising costs to customers

65
Leakage summary

• Evolution of current regulatory practice
• Origins of leakage targets
• Regulatory process now
• Future of targets

66
The Efficient Use of Water
67
History

• Duty to promote efficient use of water introduced
  in 1996
• We approved companies initial strategies in
  April 1997
• Annual monitoring of companies through the June
  return process
• Analysis published annually in security of
  supply, leakage and efficient use of water report

68
History (Contd)

• Companies submitted five-year water efficiency
  plans in July 2000
• We published assessment in RD7/01, may 2001
• NAO report on leakage and efficient use of water,
  December 2000 concluded that
• Progress made in offering advice, free metering,
  free supply pipe repairs and water saving devices

69
History (Contd)

• Noted uncertainties over savings
• Need for sharing of information/research
• PAC report indicated that
• Ofwat should identify the most effective
  efficient use of water measures

70
Five Year Plans

• We advised that plans should specifically set out
  strategies on
• Cistern device provision and use
• Household information, especially self-audit
• Advice for institutions and schools
• Long-term educational strategies

71
Compliance Criteria

• We use four criteria in assessing companies
  compliance with statutory duty
• Is there an efficient pricing framework?
• Is there a long-term education programme?
• Is company activity economic?
• Is promotion directed to those customers who
  benefit most?

72
Five Year Plans (Contd)

• Overall satisfied - all companies meet acceptable
  minimum
• Only some have really taken a strategic approach
• Want companies to set efficient use of water in
  context of overall supply/demand balance
• Different levels of activity appropriate for
  different companies

73
RD7/01 - Main Points

• Emphasised that efficient use of water is a
  long-term activity
• Attitudes may take time to change
• Further work is necessary to clarify costs and
  benefits of efficient use of water
• UKWIR project on best practice in measuring
  savings
• Companies also expected to do their own research

74
RD7/01 - Assessment of Plans

• EA and Watervoice regions (previously CSCs) given
  opportunity to comment
• Assessment took into account
• Supply/demand balance
• Scope for further leakage reduction
• Level of activity in recent years
• Different levels of activity appropriate for
  different companies

75
2001-02 Report

• Published 23 October 2002
• Key messages
• We focus on water companies activity
• We expect a minimum level of activity from all
  companies
• We expect companies to focus on what works best

76
Twin Track

• Key element in maintaining SD balance
• Demand management options need to be equitable
  with supply options
• Reproducible, transferable, accurate, robust,
  cost comparable and sustainable

77
What Are We Doing Now?

• Working with the industry to improve
  understanding of cost-effectiveness
• UKWIR study
• EA water efficiency awards
• Revising JR03 guidance

78
UKWIR - Best Practice in Measuring the Effects of
Efficient Use of Water Measures

• Phase 1 Framework for best practice, 10
  criterion
• 1 Project management
• 2 Study approach
• 3 Monitoring period
• 4 Sample size
• 5 Sample composition
• 6 Control sample
• 7 Data collection
• 8 Data analysis
• 9 Audibility
• 10 Statistical analysis