Under pressure: the failure of utilities to tackle water loss

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By James Workman

Shortly after arriving in the Philippines in his role as project manager with water consultants Miya, Roland Liemberger took an unnecessary risk that could have threatened his professional reputation. He stood before water professionals and bluntly stated their failures.

He knew the stakes. Liemberger’s role at Miya was to help utility clients improve water loss management. Each day, he witnessed how Asian cities were hemorrhaging a third to a half of all treated water, which meant 60 million cubic metres, or enough to supply 230 million people. Public Filipino water utilities could provide only half the population with a reliable and safe supply. This left the poorer half in slums to suffer nonexistent or intermittent service, forced to pay vendors exorbitant fees for water of dubious quality, and at risk of contracting waterborne diseases as off-hour pressure shifts sucked pollution and sewage into leaky pipes.

Liemberger found this to be inefficient, inequitable and infuriating. Yet as he addressed the assembled utility managers, giving another slide presentation on the clear steps and high benefits of recovering lost water, he found something else: “Nobody saw any need to change anything.”

And something snapped. He stopped describing lost water in the abstract, passive tense, and pointed fingers at those in the room.

Roland Liemberger, NRW Management Specialist, Miya ©AWWA
Roland Liemberger, NRW Management Specialist, Miya ©Liemberger

“I told them that they are the problem and that I’m getting tired of having to do technical presentations and train their staff and then nothing at all happens,” says Liemberger.
Tempers rose. But Liemberger continued to rail against their shameful lack of political will. Discomfort simmered to resentment, then boiled to rage, until, as Liemberger recalls: “I had to escape the room.”

Managers may ignore it but there is no escape from accounting for water loss.
It is a wicked problem, and it confounds all utilities. Each year the planet’s cities lose US$14 billion worth of non-revenue water (NRW). [See: Counting what’s invisible, below.] And that’s not mainly in developing nations; half of the world’s losses are from utilities in the US and Europe.

The route back to health through interventions, while possible, is uncomfortable. And progress is slow, or nonexistent. “Nothing’s changed,” says Arjun Thapan, of WaterLinks. “Local governments in developing Asia remain apathetic to the water loss issue.”

Yet signs suggest incremental change may at last be underway. A handful of urban exceptions–in Brazil; the Bahamas; Palembang, Indonesia; Siem Reap, Cambodia; and Da Nang, Vietnam–have shown how to succeed in managing non-revenue water. If utilities previously relied on a lack of funds, knowledge, or rationale to fix non-revenue water, says Andrew Chastain-Howley, of Black & Veatch, “we are seeing an uptick in interest in the subject”.

Counting what’s invisible

The Source Iss2 v9 Single (dragged) 1Tracking down non-revenue water involves a complex process that continues to evolve. But non-revenue water represents a mix of not only leaks in the distribution system but also leaks of data and information from challenges with meter reading and billing, as well as theft from illegal connections.
And it’s not just water that vanishes; with every drop leaked or lost, you also see disappear the expensive chemicals, energy, carbon footprint and labour that went into treating the water in the first place. To prepare for an outside audit, or conduct one internally, the American Water Works Association and the International Water Association help break down all water into three categories:
• Unbilled Authorised Consumption: water consumption that public policy exempts from paying rates. Think water used for fire-fighting, drinking fountains or water used to flush mains.
• Apparent or ‘Commercial’ Losses: water theft, data errors and metering inaccuracies. Think slow, inaccurate or misread meters, and unreported, unauthorised usage from hydrants and mains.
• Real or Physical Losses: leaks in the system, everywhere from storage tanks to transmission and distribution mains, to pre-meter leaks in service connections.
The goal of an audit and proactive steps that follow “is not to get to zero water loss,” explains Steve Cavanaugh, Chair of the Outreach Subcommittee of the American Water Works Association Committee on Water Loss Control. “Rather, it is to get to the economic level of water loss considering the current circumstances.” That level is not static. “Environmental, political, regulatory, public relations and other drivers are constantly evolving so the utility develops business practices that are sustaining,” adds Cavanaugh.

Interest appears contagious. On 4 December, Washington DC hosted a high level NRW workshop, jointly organised by the World Bank and the Inter-American Development Bank, sharing lessons from Vietnam to Jamaica. The following week Atlanta, Georgia, hosted North America’s first ever conference on non-revenue water, which attracted 500 attendees from 37 states and 15 countries. Next month India is linking non- revenue water to intermittent provision [See article on page 38: The value of 24/7 water], as more than 95 percent of all cities in South Asia have only a few hours’ daily supply.
“Water utilities are under game-changing pressures today from internal and external forces,” says Steve Cavanaugh. “Most managers don’t know what they don’t know, but across the industry, people are starting to wake up and decide how to get their hands around this issue. We are finally reaching a tipping point.”

Ten reasons why utilities resist non-revenue water (NRW)

MADickinsonIf the cost benefits of addressing apparent and real losses in a water system are so immense and irrefutable, why don’t utilities flock to examine NRW? Mary Ann Dickinson, head of the Alliance for Water Efficiency, explains the vexing nature of the challenge in the US
1. North Americans have a historical tradition of ignoring water loss. The assumption has always been that our modern utilities are ‘system tight’ and have no need of further detailed analysis. In fact, most utilities have largely fabricated numbers in the past on their unaccounted-for water percentages, and they have a history of sticking to those numbers.

“Distribution system managers are now embarrassed to admit that their prior numbers were actually wrong
Mary Ann Dickinson, head of the Alliance for Water Efficiency

2. Distribution system managers are now embarrassed to admit that their prior numbers were actually wrong. This is a political as well as a human resources (HR) problem. Admitting the true state of the water utility system is a negative message to a water utility board, as well as an HR performance problem for distribution system managers. No one wants to now come clean–for fear of reprisals.
3. Employee performance appraisals don’t encourage improved accuracy in water-loss reporting. There are no incentives for distribution system managers to work hard on NRW. Upper utility managers need to encourage and even reward this brave behaviour. Adopting water loss policies within the utility would help this tremendously.
4. General Managers and Board Members assume that NRW solutions are too costly and unaffordable, and therefore better evaluation of NRW is pointless. Water sales revenues are down in most utilities because of declines in per capita consumption, and there is no easy discretionary money anymore. There is a fear on the part of many finance directors that implementing non-revenue water solutions will be extremely costly (new metres, new pipes etc) and thus unaffordable. So why go and look for NRW and let Pandora out of the box?
5. There is fear of letting ratepayers know the truth. As many utilities are facing drought and asking their consumers to reduce their water use, they are reluctant to now admit that their leakage might be excessive. It is a utility messaging problem to its own customers. If leakage was really so serious, the beleaguered consumer might legitimately ask: ‘Why didn’t the utility do this first?’
6. Lack of dedicated utility funding for NRW is a perceived barrier to progress. The irony is that NRW reduction actions don’t have to be funded out of stressed operating budgets where funds may be already tight; they can be funded out of capital improvement programmes (capex) or performance based loans. The payback is excellent: money saved by recovering and selling lost water more than pays for the cost of its recovery.
7. There is little perceived connection of NRW management to overall sustainability/climate change resiliency goals that the utility may have. Nothing makes a utility system more resilient than controlling its wanton leakage. Being in control of all of its assets enables a better response when water shortages occur due to climate chance and other factors. Being sustainable means managing water resources responsibly, and controlling NRW should be part of that needed response but so far is not.
8. There is a scant government regulation of water loss in most US states. Where state policies do exist, they are based on the antiquated ‘unaccounted for water’ percentages, which are not often accurate (see point 1) and can mask the true impact of leakage in different-sized water systems. Managing NRW should be a matter of government and regulatory concern. Bond rating agencies are now starting to look at NRW as a way to measure utility system efficiency, but so far government policies and guidance are mostly nonexistent.
9. A true business case analysis of NRW is not a prevalent practice nor even perceived as a necessary undertaking. Thus, the benefits of reducing leakage in a utility system are not even examined. Clear payback on NRW reduction investment is not analysed, which is an antiquated way of managing a business, let alone a precious natural resource.
10. The value of water is taken for granted, both by the utility system managers and the consumers that they serve. The ‘value’ of water is not what the utility might have paid back in 1910 when they acquired the water supply, it is the marginal cost of acquiring new water, so recovering water from leaks then becomes the cheapest source of new supply. And when a customer is willing to pay 10,000 times more for water in a bottle versus from the tap, we clearly have a problem with the customer not valuing the incredible investment in drinking water that they now enjoy for very little money. Until we change this fundamental perception problem at both the utility and customer levels, NRW management will not reach the priority that it should.

The need for an audit

Several forces are converging to nudge reform. Rapidly growing cities need to combat scarcity. Heads of state push for water security. Industry groups demand comparable accountability standards. Civic groups sue utilities for casual or creative bookkeeping. Bond rating agencies punish dithering. And contractors offer fees based on proven recovery.

Steve Cavanaugh, chair of the American Water Works Association Committee on Water Loss Control ©AWWA
Steve Cavanaugh, Chair of the Outreach Subcommittee of the Water Loss Control Committee ©Cavanaugh

“Due to the confluence of these pressures, water utilities, today, cannot continue to operate as they have in the past,” says Cavanaugh.
To be sure, NRW denial remains high. But the first step to recovery is recognising the problem. That starts with an audit, which utility managers typically seek as eagerly as a colonoscopy.

It’s always easier to reprimand others than to confess. As freshwater grows scarce or costly, utilities turn first outward, to demand management. They warn of leaky pipes–on the customer side of the meter–and impose fines or ‘name and shame’ campaigns until clients fix them. But just try to ask those same utilities to confess how much water is leaking on the district’s side of the meter. Many have no idea. Fewer may even keep track. Those who do tend to use an old, random and flawed metric–a percentage of total supply–that makes little sense now, if ever it did [see box: Abolish the paradox of percentages].
But you can only manage what’s accurately measured, so the second step is to quantify the damage. In the 1990s, as Britain’s ancient infrastructure creaked under the strain, Allan Lambert led a National Leakage Initiative to introduce more rigorous metrics. This new methodology found that, on average, 90 percent of all leaks occurred before pipes ever reached the client’s metres. A thorough audit, or assessment, helps utilities identify and reduce wastage–and most annually lose 100,000 litres and US$35 of water per connection.
The third step is to seek outside help for your problem. Recovering loss need not be lonely; those affected can help stop the bleeding. Potential allies include environmental, social and civic advocates, who welcome the chance to ease pressure on water, energy, carbon and costs to each account. True, these human and natural communities have been picking up the bill for NRW losses, often without even knowing it. This accounting trick is among utility managers’ best kept secrets. In low voices, some may discuss internally how they absorb non-revenue water in a balance sheet. Few publicly disclose it. But Liemberger’s flight from angry utility managers shows their discomfort at charging consumers for water that they never, in fact, consumed.
Crossing this threshold is the key to recovery. Water loss reduction is not merely unsexy, according to Mary Ann Dickinson, president of the Alliance for Water Efficiency, it offers no political gains. Officials cut no ribbons, enjoy no legacy dam or get credit for a desalination plant. Tackling the issue of non-revenue water, says Dickinson, stokes fears of “admitting system leakage, falsifying water accounting records… and inherent mistrust of anyone outside the utility examining their system”.

To save millions of litres of water a day you must publicly acknowledge years of wasting it

To save millions of litres of water a day you must publicly acknowledge years of wasting it. But if managers don’t raise NRW proactively, outsiders will. “For those who continue to ignore the signs or postpone programmes,the costs of inaction include natural resource depletion, increased regulatory mandates (both funded and unfunded), and, eventually, public pressure from concerned consumers,” said Cavanaugh. “The old business model simply doesn’t work in the face of today’s business, environmental and regulatory climate.”

Benefit beyond the bottom line

The fourth step in solving the NRW issue goes beyond fuzzy economics. Giving up cigarettes saves US$5-10 a day, but that’s hardly a rationale to quit smoking any more than it was a deterrent to start. Fixing leaks to recover non-revenue water is less expensive than investing in centralised projects that augment supply. But utility managers still find these shiny new supply options more attractive, says Thapan, as they allow more room for kickbacks and corruption. “I have yet to see an Asian water utility assess the economics of an NRW management investment vis-a-vis other capital projects.”
The US Environmental Protection Agency estimates that 75 percent of water loss in a system is economically recoverable, with payback earned in weeks, rather than years.
NRW recovery even costs less than soft approaches. Reinhard Sturm and Julian Thornton found that saving distribution- side water costs less (US$400 per 1,000 cubic metres) than on the customer side of the meter (US$225-US$550 per 1,000 cubic metres), amortised over time. Experts told The Source how, with NRW “utilities are sitting on a gold mine” or “there’s money to be made in testing” or “leakage is valued at what you could sell it for” or “recapturing NRW is a still great business case with fast payback”.

Abolish the paradox of percentages

Let’s assume a utility manager with 10,000 accounts annually treats and pumps 1 billion litres of water to customers, but only collects revenues on 825 million litres. So she flips over an envelope, pulls out her pencil, subtracts bills paid from flows provided, divides total volume by the difference, and voila, jots down “17.5 percent NRW”.
That’s a fast calculation. It’s also a meaningless metric.
Every water loss specialist The Source spoke with regards the percentage figure with contempt. Most want governments to ban, censor or expunge it from all discourse. They see the non-revenue water (NRW) percentage as: “misleading”, “flattering”, “physically inconsistent”, “mathematically flawed”, and even “institutionally dangerous”.
Why such scorn? For starters, it actually masks losses. The above utility could grow 5 percent each year (annually adding 500 new accounts and 5 million more litres), and after 10 years push its NRW figure down to 11.6 percent without fixing one leak. Far from integrity, it merely increases the denominator.
There’s also the problem of shifting ratios. The NRW percentage figure will vary dramatically by season, weather conditions, or time of day. After midnight, in a wet year or during winter overall systemic demand falls. As a result, the NRW percentage will appear to have increased as pressure forces water out of joints, pinholes and cracks more intensively. Conversely, on hot summer afternoons in a dry year, percentages will appear to decrease when demand rises. Both mask the actual impact of the physical leaks.
Not only do leaks linger, the losses may increase due to a third paradox: pressure As a growing utility adds 50 percent more accounts and water each decade, the utility may increase pressure from 10m (1 bar) to 20m (2 bar) and thus increase leakage through the same holes by 100 percent.
“We are finally making headway in eliminating the percentage of system input volume parameter,” says Cavanaugh. Like others, he advances a new “comprehensive methodology with a suite of metrics that matter with water loss shown in terms of volume, value and validity”.
The new industry standard offers a more exacting and revealing water balance methodology, with a custom-tailored Infrastructure Leakage Index (ILI). This metric takes into account each system’s unique length and size of plumbing, storage, accounts, climate, usage and geography, to develop the optimal level that is technically achievable by each utility.
“The ILI is the ratio between the minimum achievable leakage and the actual level of leakage,” said Liemberger. “A perfect system therefore has an ILI of 1 (actual=minimum) but in low and middle income countries systems have ILIs of 50, 100 or even more!”
This water balance metric adds up in dramatic ways. When Reinhard Sturm’s team audited 17 California water utilities, it found non-revenue water to be 1.6 to 6.6 times higher than optimum levels, and projected that an economic recovery of just 40 percent would annually save half a trillion litres per year.

Perhaps. But that’s not always obvious to non-experts. As creaky infrastructure allows water to seep through gaps and holes, water managers ask: “Why repair them?” A new US$500 smart meter may annually capture 5 percent more or US$10 worth of treated water which the old meter missed, but that will need half a century to pay for itself. To detect, track and fix a leak, one may incur fixed US$50-200 costs in labour, instruments and materials. Yet heroic efforts may rescue water and energy that was free or subsidised, saving only US$40.
Fear of a negative return on investment deters action. In a landmark study, McKinsey, a consulting firm, cited how South Africa reduced NRW by 5.5 million cubic metres but that endeavour cost US$4 million to save US$3.5 million worth of water and energy. Few CEOs could justify that investment without incurring the wrath of shareholders.
Yet water utilities are categorically different beasts. They are political. They manage the public trust. It may sound naïve, but all the case studies show there’s a currency more valuable than money at stake.
As water corrodes physical assets like pipes and pumps, it also tests the integrity of the natural monopolies that run them under a social contract. If benefits from reducing losses are not easily quantified in cash, they are no less real. Gains include public health, institutional credibility, economic veracity, social equity, ecological resilience, customer satisfaction and political faith.
Besides, today’s denial will intensify tomorrow’s pain.
Which brings us to the fifth and final step: utilities need to spread the risks and rewards of recovery to larger political interests. In 2014, the World Bank’s Caroline van den Berg analysed a large sample from 68 countries over a five-year span. “Some of the most important drivers are beyond the control of the utility,” she concluded.
Few deny this. Yet far from exonerating utility managers, this reality can galvanise action. Progress has come when water professionals have been enlisted by public officials to prioritise non-revenue water. By elevating the cost/benefit of local operations to long-term water security, those with initiative have discovered funds and support readily at hand.
Consider the Bahamas. There, Glen Laville, general manager of the Water and Sewerage Corporation (WSC) could not single handedly have stopped the loss of almost half of each day’s 46 million litres produced by the desalination plants. That loss came from an estimated 6,000 leaks which were due to the usual suspects: age, pressure, poor service connections, corrosive substances and a high saline water table. But the island nation’s cabinet borrowed US$81 million from the Inter-American Development Bank and turned to Miya/ Veritec to reduce NRW, achieve financial and operational sustainability, and strengthen institutional integrity.
The effort sought to cut non-revenue water in half, saving 38 billion litres over the 10 year contract. Desalinated water is expensive to lose, and even gaining it back boiled down to a whopping US$2.20 per thousand litres. Laville argues that recovery not only pays for itself; it also avoids supply shortages, pressure reductions, and construction of new plants. Yet what really set the effort apart was that it became the latest example of a holistic, political agenda focused not on inputs, but rather on durable outcomes.
A third of the NRW contract was tied to performance. Miya lost money if it failed to bring WSC leakage down to or below 7.6 million litres per day and maintain it. That meant just four Miya consultants helped transfer technology and train a local Bahamian workforce to use it long after they had gone.

A utility leaking 100,000 litres a day from 15 kilometres of pipes in the summer may have an Infrastructure Leakage Index of 3, or three times worse than optimal ©Alliance for Water Efficiency
A utility leaking 100,000 litres a day from 15 kilometres of pipes in the summer may have an Infrastructure Leakage Index of 3, or three times worse than optimal
©Alliance for Water Efficiency

Training involved a painstaking effort. Experts divided the system into discrete ‘district metered areas’, calibrating pressure to avoid flux, systematic analysis with computer using algorithms to sift through reams of data and determine which leaky pipes can be fixed to recover the most water with the least effort. Each customised ‘performance based contract’ spreads financial risks to maximise the value of investments.
The example of the Philippines shows how much these contracts can achieve. Liemberger continues to push the painful truth, now as Miya’s global NRW management advisor. And in the western zone of the capital, his firm helped Manila slash non- revenue water in half (from 1.5 billion to 750 million litres per day), improve pressure, double revenues, provide water to an additional three million people, and deliver 24/7 service to almost 97 percent up from two-thirds.
“We know what to do about the NRW problem,” says Liemberger, echoing several others, because, as he says, the necessary funds, equipment, and technology are available. The lack of political will may be understandable or inherent, but then again, as Liemberger adds: “If utilities can’t do the job, why don’t they outsource it?”