WORLD WATER WEEK REGULATING ECONOMIC LEVELS OF LEAKAGE IN ENGLAND AND WALES IAN STEPHENS Office of Water Services WASHINGTON, DC, 4th, 5th and 6th, March, 2003
AGENDA Water industry in England and Wales Approach to leakage measurement Why leakage became an issue Economic levels of leakage - defined Economic levels of leakage - best practice Target setting - results Regulatory powers Stakeholder interaction - political influence The future
WATER INDUSTRY IN ENGLAND AND WALES Director General s 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
About the industry 23 million connected properties 53 million population Privatisation in 1989 Companies operate regional monopolies Competition restricted to large industrial users Prices have risen 25% above inflation since privatisation (12.3% decrease in 2000) To pay for 50 billion investment programme to upgrade infrastructure and meet new quality standards
About the companies 10 water and sewerage companies Plus 12 water only companies
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
The water balance
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?
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%
WHY LEAKAGE BECAME AN ISSUE Since privatisation in 1989, until 1995, leakage rose in England and Wales Leakage performance 1992-93 to 1994-95
Leakage performance 1992-93 to 1994-95
Summer 1995 = Drought Severe supply problems at Yorkshire Water And press revelations that leakage was over 30% of distribution input Yorkshire Water
1997 - Newly elected Labour Government held Water Summit which required Ofwat to set mandatory leakage targets for all companies Ofwat has set targets since 1997 Based on ELL analyses
ECONOMIC LEVELS OF LEAKAGE - DEFINED Ofwat s 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
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
ECONOMIC LEVELS OF LEAKAGE - BEST PRACTICE Best practice defined in Ofwat commissioned study, Future approaches to leakage targets etting for water companies in England and Wales - Published March 2002 (www.ofwat.co.uk)
ELL target setting process map
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
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
Leakage performance 1994-95 to 2001-02
Leakage performance 1994-95 to 2001-02
REGULATORY POWERS Actions taken by Ofwat - the regulatory escalator Pragmatic targets Extra reporting Specific investigations Voluntary undertakings Enforcement orders Special administration
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
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
Tripartite study Ofwat THE FUTURE Department for Environment, Food & Rural Affairs Environment Agency Considered future approaches to leakage target setting Recommended continuing use of ELL Set out ELL best practice Long term approach - 25 to 30 year planning
Leakage performance 1992-93 to 2003-04?
Leakage performance 1992-93 to 2003-04?
Handing back responsibility to companies Ensuring leakage remains an intergral part of a holistic approach to supply/demand Introduction of Security of Supply Index Not expecting big gains on same scale as before But not allowing hard work by companies to be wasted
ANY QUESTIONS?