Water regulators at odds over "economic" leakage levels

Water industry regulator Ofwat and the Environment Agency were at loggerheads in July over a report on economic levels of water leakage published by Yorkshire Water.1 The report is the opening shot in a vital debate about environmental economics and its role in guiding investment decisions in the water industry and beyond.

Yorkshire Water was asked by Ofwat to produce the report after its inquiry into the company's performance during the 1995 drought found "serious failures" in its leakage control activities. Only a massive tankering operation involving 700 trucks prevented customers in West Yorkshire from having their water supplies cut off.

The new report, the first of its kind, seeks to calculate full financial, environmental and social costs of the new water resources Yorkshire Water believes it needs. It prepared the report with input on environmental economics from the Centre for Social and Economic Research on the Global Environment (CSERGE) and another consultancy, EFTEC - but the report does not include full details of this work.

The study's conclusions are highly specific to Yorkshire's situation and cannot readily be extrapolated to other companies. In addition, the report admits there is insufficient information available on some key environmental costs and that its conclusions are therefore tentative.

An example is the issue of the "value" of leaving a given volume of water in a river rather than abstracting it. The report uses a "sensitivity analysis" in which an arbitrary value for the water is assumed and then varied to see whether a different assumption would change the study's conclusion. Most values considered are in the range £0-100 per 1000m3, which is 0-50% of the financial cost of water resources considered viable in the study.

The report concludes that the environmental "costs" it has been able to identify are small relative to financial costs. It suggests that this is "not surprising", because schemes with negative environmental effects were "eliminated at the pre-selection stage". It believes the most important factor is the level of customer service required. Citing a 1996 customer survey, the company argues that its customers want a higher level of service than the industry norm. The study targets hosepipe bans once in 16 years - half the industry standard - and rota cuts every 250 years instead of the standard of 100.

The report concludes that the company's total economic leakage rate for 1999/2000 is 363 million litres per day - equivalent to about 27% of distribution input. This compares with a 31% leakage rate achieved in 1996/97.

To reduce leakage, the report proposes increased detection and repair work, a pressure reduction plan, selected mains replacement schemes and cutting leaks from service reservoirs. The measures should save 91Ml/d by 1999/2000.

Ofwat welcomed the report, saying that Yorkshire Water "had fulfilled its undertaking" on leakage and was ahead of the industry in analysing leakage "in a convincing way".

However, the Environment Agency found the leakage target "unacceptable", pointing out that levels of around 10% were being achieved in other areas. Director of Water Management Geoff Mance said: "We remain to be convinced that Yorkshire Water has adequately assessed the environmental costs and we will be arguing strenuously with both Ofwat and the company that these need to be taken into account when setting leakage targets."

David Rooke, the Agency's regional water manager, told ENDS that the Agency would review the report in detail. "We want to stimulate a debate with academics, environmental groups and with English Nature", he said.

Mr Rooke questioned the report's assumption that a temporary licence to abstract from the river Ouse will be made permanent. The licence was granted to help the company through its supply crisis. "We cannot say at this stage if the licence will be renewed. One question will be, does the company have a need for that water?" he said.

He also questioned the assumption that a transfer of water from the Tees into Yorkshire rivers would be allowed early in the next century. Although almost in place, the link will not go ahead until environmental effects have been considered.

The assumption that Yorkshire customers want the reliability of their water supply to be above the industry standard is also likely to be contested. An inquiry commissioned by the company found it had failed to achieve industry supply standards prior to the 1995 drought.

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