ECONOMIC LEVELS OF LEAKAGE

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ECONOMIC LEVELS OF LEAKAGE
INTERNATIONAL CONFERENCE ON WATER LOSS REDUCTION
AND CONTROL PROGRAMS IN WATER SUPPLY SYSTEMS
IAN STEPHENSOffice of Water Services
RECIFE / PE, 02nd, 03rd and 04th, December, 2002
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AGENDA

• Water industry in England and Wales
• Approach to leakage measurement
• Economic levels of leakage - defined
• Economic levels of leakage - best practice
• Inclusion of environmental costs and benefits
• Target setting and results

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WATER INDUSTRY IN ENGLAND AND WALES

• 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

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• 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

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• 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

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• About the companies

• 10 water and sewerage companies
• Plus 12 water only companies

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• 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
• To pay for 50 billion investment programme to
  upgrade infrastructure and meet new quality
  standards

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• About Ofwat

• Undertakes comparative competition to set
  efficiency targets
• Sets price limits for companies for 5 year
  periods
• Ensure companies carry out their responsibilities
  under the Water Industry Act 1991
• Protect the standard of service customers receive
• Encourage competition where appropriate

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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

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• The water balance

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• 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?

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• 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

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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

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• 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
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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)

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• ELL target setting process map

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• Define area basis

• Best practice recommendation was to use a zonal
  not company basis to calculate ELL

• e.g. water resource zone or operational area for
  leakage control
• A company target can be aggregated from zonal work

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• Establish current position

• Calculate current leakage level

• i.e minimum night flows

• Current policy minimum

• Each district meter area (DMA) has a minimum
  level of leakage - using current policy
  (technology and detection methods)
• Consisting of small leaks and seepages
• It can vary across DMAs
• At policy minimun additional expenditure on
  leakage control will not achieve further
  reductions in leakage unless there is a change in
  policy
• It is a key input in the development of leakage
  cost curve

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• Establish leakage detection repair costs

• Used to predict cost of maintaining different
  levels of leakage
• Allows the transitional cost of moving to a new
  level of leakage to be assessed
• The relationship is developed for the current
  policy
• Cost analysis should include operating costs,
  including capital maintenance, of monitoring,
  detecting, locating and repairing leaks

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• Analysis of leakage control and costs

• Two possible methods

• Split current costs into steady state and
  transitional costs
• or
• Estimate the cost of reducing leakage and
  determine a natural rate of rise

• Actual company costs should be used

• Consistent with leakage budgets over a number of
  years
• Include all costs associated with leakage control
• Exclude one off capital projects

• The model should give the current expenditure at
  the current level of leakage

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• Leakage cost relationships

• Different methods of establishing relationship

• Theoretical models of leak run times and fixed
  and variable cost components
• Regression analysis through historical data using
  total costs for a single area
• Regression analysis through data points for
  different areas for the same year using marginal
  cost

• Form of the relationship is less crucial than the
  use of reliable input data, specific for each
  area
• All aproaches rely on the concept of policy
  minimum leakage and are asymptotic to this point

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• Active leakage control cost curve

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• New policy and technology options

• Current policy gives a baseline
• Other options for consideration include

• additional DMAs
• smaller DMAs
• pressure management
• alternative leak survey technology
• impact of household metering
• mains replacement

• Each option should be assessed in terms of

• operating and capital expenditure
• impact on leak location costs
• impact on level of leakage and policy minimum
  leakage

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• Alternative policies should be ranked by their
  cost effectiveness
• Interactions between policies should be
  considered to avoid double counting of costs
  and/or benefits
• The final leakage cost curve for use in the the
  ELL calculation should should be based on the
  least cost leakage control policy

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• 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

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• Least cost planning

• 25-30 year plan for managing supply/demand
• Aims to minimise net present cost of all
  supply/demand related investment
• Leakage is considered one of the supply/demand
  options, others include

• resource development
• water efficency
• metering policy

• Allows a like-for-like comparison of all options
• Requires supply/demand forecasts

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• Least cost planning - typical curve

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• Marginal cost (MC) of water

• MC of additional reductions in leakage versus MC
  of water from developing the next resource scheme

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INCLUSION OF ENVIRONMENTAL COSTS AND BENEFITS

• Generally external costs to the company
• Including these costs may result in a higher ELL
• Recommend calculating these costs seperately
• A developing area
• Recommend the use of benefit transfer
• Site specific schemes if required
• Results in a socially efficient level of leakage

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TARGET SETTING AND RESULTS

• Ofwat has set targets since 1997
• Based on ELL analyses
• Results.
• Enough water saved to meet daily needs of over
  12.5 million domestic customers
• Benefit for the environment

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• Leakage reduction - results

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• Leakage performance 1992-93 to 2003-04?

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ANY QUESTIONS?