Ofwat consults on changing its leakage-reporting methodology

(by Karma Loveday)

Ofwat is consulting until 9 October on a new methodology for leakage calculation and reporting. This is primarily driven by the growing availability of smart meter data, and the need to make better use of it given leakage calculations currently rely considerably on estimates.

Ofwat explained that today’s approach uses a water balance that compares distribution input with water delivered to customers and other accounted-for uses. This is compared against a bottom-up analysis of flows in district metered areas, and reconciliation of any water balance gap between the two methodologies through a process of Maximum Likelihood Estimation.

The consultation observed: “Whilst this approach has been in place for many years and uses real data where available, it also relies on extrapolation from sample data, estimates and assumptions. In particular, one of the largest components of the water balance is an assessment of unmeasured household consumption which is derived from an extrapolation of sample data.”

In the paper, Ofwat considered international comparators and how the accuracy of many of the components of the water balance could be improved, including: distribution input, measured and unmeasured consumption, upstream and distribution leakage, customer supply pipe leakage, minor components, uncertainty and reconciliation, metering standards, reporting frequency and the scope of application to new appointments and variations.

For each component, it considered options ranging from retaining current arrangements to adopting more standardised and data-led approaches. Ofwat is seeking views on the practicality, cost, timing and benefits of these methodology changes, as well as considering how quickly changes could be introduced and at what cost/benefit. The specific questions posed in the consultation are: 

• What aspects of current leakage-reporting guidance work well and which should be improved?

• Do you agree that the Top-Down Bottom-Up approach in England and Wales remains appropriate for future reporting? What would need to happen to move to Top Down only?

• How can we best incorporate data from customer smart meters into the leakage calculation?

• Do you have any views on whether Bottom-Up leakage should continue to be extrapolated from night flows, or should we move to a 24 hour mass balance?

• Do you agree that upstream leakage should be reported as a mass balance, and do you have any views on whether that be Strategic Upstream Balances or more granular Upstream Flow Monitoring Zones?

• Do we need a metering standard, and how would we incentivise companies to comply with any such standard? 

• How do we incentivise accuracy as well as expecting companies to achieve leakage targets?

• Do you have views on how quickly any changes should be implemented?

• Do you have views on any investment that would be required in order to improve leakage reporting?

• Do you have any views on whether any changes should be a step change or a phased approach, and whether shadow reporting would be required?

The plans do not affect AMP8 leakage reporting, targets or incentives, or long-term leakage targets.