Examination of Witnesses (Questions 60-79)
WEDNESDAY 7 FEBRUARY 2001
MR PHILIP FLETCHER, MR MIKE SAUNDERS AND DR BILL EMERY
60. Is that taken into account when you are costing the possible value of mending a leak?
(Mr Fletcher) That will be part of the overall pattern. Perhaps if I can turn to my Chief Engineer colleague.
(Dr Emery) The companies would record the cost of repairing leaks and it is part and parcel of its leaks costs benefit analysis for its economic level of leakage. How quickly it responds to a leak, how quickly it gets information to know where a leak is and if they are able to find it are all factors in determining its response and the economic level of leakage. One of the main things is getting better information to enable the company to find leaks faster and repair them quicker.
61. I may have missed something but I do not think you are answering the question I asked which was that leaks on the whole will very often tend to get worse and therefore presumably cost more in future both in terms of water leaked and also it may cost more to repair them later. Are those factors taken into account in trying to justify whether a leak should be repaired or not?
(Mr Fletcher) A company will try and take that into account. They tend to go for leaks which have the biggest impact first and the likeliest cost saving and repair them when they are relatively cheap to repair rather than dealing with them when there has been quite a lot of ground erosion or in the pipe. It could get bigger and you have got a much bigger job to sort out. Their objective is to have systems in place to find the leaks fast. That is what district metered areas is about and analysing that data so they can get them, find them, sort them out quickly, and that is what the best companies do.
62. Thank you. If you can turn to Figure 7 on Page 20 which indicates there are clearly very different estimates of average household consumption in unmetered households. What factors do companies use to calculate the average usage per head?
(Mr Fletcher) They use the little algorithm on the bottom of the previous page, this business of identifying the various elements including the amounts used by unmetered customers. I entirely take your point, there is a very wide variation here. It is not as big—
63. Sorry, I did not understand the first part of your answer. I was asking which factors they use to calculate the average unmetered usage per head. Which is the algorithm you were talking about?
(Mr Fletcher) Figure 6 which includes estimated unmetered usage by customers which is likely to include an element for per capita consumption. It includes a mixture of household consumption and per capita consumption and the variation on per capita consumption for unmetered customers is 31 per cent which is an awful lot.
64. It is, so to speak, a fixed overhead for a household and also an amount per person. The total unmetered usage is calculated in that way.
(Mr Fletcher) I am liable to lead us off again. One of the factors going on in water use is the fact that household size is declining. You have got more and more one-person households and that tends to mean per capita consumption is increasing. It helps in this rather uncertain world if we attempt to look at both household consumption and consumption per head.
65. So in Figure 6 you have got estimated unmetered usage by customers at 6.8 million cubic metres per day.
(Mr Fletcher) That isn't an absolute, of course.
66. That figure is the result of two figures, is it? One is the number of households and the other is the expected average usage per person?
(Mr Fletcher) The company will be expected to look at both elements as it is working out this simplified diagram.
67. Do you know how each company takes those limits and measures into one figure?
(Mr Fletcher) We know how each company is approaching this because part of our job is to ensure that they are looking at best practice.
68. Are they all doing it in the same way?
(Mr Fletcher) No, they are not. We are encouraging them to pursue best practice. We had a study by the UK Water Industry Research Group a couple of years ago and that is being used to promote best practice across the industry.
69. In the best practice what factors are included in the calculation of average consumption per head?
(Dr Emery) It is the geographical variation in the company size, the types of properties in it, so they use the Acorn classification on properties. They look at the night-time use and various aspects on that, the pressure in the systems. All factors are picked up within the domestic consumption monitors which each company use or buy access into to take data from household use monitors to translated those into the particular circumstances of their customers in their area which relate to the properties, the types of property and the pressures they have got in the systems and those types of factors.
(Mr Fletcher) Acorn may or may not be familiar to you. This is about the social make-up of a particular group which obviously has a particular effect in a particular area.
70. Absolutely. What I was interested in was what those factors are. For example, is it age-related? Do you take account of how many young children there are in each area?
(Mr Fletcher) That would be very much part of the household size so when you are looking at the control group, children in the family is a very important factor in overall water usage. It is one of the factors we are concerned about when we are looking at the efficiency side of things.
71. That is what I would assume, so in Figure 7 can I assume somewhere in there is included by each water company a measure of the number of children under 5 say?
(Dr Emery) I doubt they go to that level of detail.
72. Why not?
(Dr Emery) The question is where they get all of the information from. They have tended to stay at slightly higher aggregate levels in terms of the characteristics of their customer base linked to the characteristics of the monitor they are using.
73. That is precisely the point I am trying to get at and what worries me. I would have thought best practice ought to go down at least to that level and it must make quite a significant difference to the average consumption per person exactly how many children there are under five, which for example means more mothers stay at home. I would have thought it might well be possible, perhaps by looking at your metered customers, to work out what difference it makes if there are more men or more women, how many people there are employed, after all if you are employed you are usually at your work place all day and you are not using water at home, all sorts of factors. If you are saying that all that sort of thing is not taken into account that worries me a bit.
(Mr Fletcher) We are looking at big aggregates here. We are looking company wide. For what it is worth measured per capita consumption has an even bigger variation, 75 per cent company to company, than unmeasured consumption. There are wide variations here. Social make up is a very important part of the picture. Children in households is another part of it obviously. We are looking at broad aggregates to get at a company wide picture.
74. How is the usage of these metered households—you say you have 75 per cent variation—made use of in order to work out what the likely unmetered usage is?
(Mr Fletcher) Yes. The characteristics will be used by the companies when they are looking at their unmeasured per capita consumption. Some companies, of course, now have much bigger than 20 per cent figures. Anglian is not far off. Half their domestic customers now are metered.
75. When you are working out best practice, are you looking at, for example, what difference it might make to have more men than women in a particular area or more young children in a particular area on the meters, for instance?
(Mr Fletcher) Even for the smallest companies, the sample is going to be big enough to mean that some of those differences will just even out. Where I think your point particularly comes in to play is when a company is doing a pilot study in a fairly small area and looking to aggregate that up for its company area and perhaps for wider application as a whole. That is a research context and we are very insistent that companies when they are doing that should use best practice in the research to produce reliable results.
76. I understand their methods of estimating usage for those unmetered households have been changing over the years. How has that affected the calculations of leakage?
(Mr Fletcher) If I took Thames as an example again. We have seen there a significant increase appearing at the moment in demand. Part of the work they need to do is to be sure exactly what is happening there. Again, this trade-off between the uncertainty of the unmeasured consumption and the uncertainty around leakage needs to be worked on from both ends to come up with a reliable picture. Part of the problem for Yorkshire, back in the early 1990s, was that they had wrongly thought that increasing demand was the problem whereas actually most of the problem was in leakage. Now, a lot has been learnt from that, not just by Yorkshire but by OFWAT and by other companies, to concentrate on both ends and to make sure we have an understanding on both sides.
77. You are also trying to increase efficiency of usage by the customers. Are you taking that into account when you are monitoring the companies own estimates of usage and leakage?
(Mr Fletcher) As yet we are not very far down the track in establishing precise patterns of usage and saving by customers. It is cheering that 88 per cent of customers say they are working on saving water. Getting consistent patterns is quite hard. Again, pilot areas are often the best way of doing it. You take a control area, you take an area where the company carries out—this is very much the company's responsibility—proper audits. It does all the normal things, cuts out leaking taps, instals fittings that do not create more mess than they need, puts things in the systems and educates the household on what not to do if you are going to save water. The trouble is it is like the famous Hawthorne experiments, if you focus attention for a year or so on a particular customer or set of customers they will respond and save a lot of water. The difficult bit is whether that will be maintained for two years, three years, four years into the future and whether you can then push it out at much less cost over a much wider area. So it is part of the picture but we are not there yet.
78. As far as long term costs are concerned, there seems to me to be considerable variation on how to calculate long term costs between companies. What are you doing to specify how the companies ought to calculate their long term costs?
(Mr Fletcher) This is particularly looking at the long run marginal costs of the company where the step change involved in increasing supply is a very important part of the picture. For example, we have not had a major new reservoir in this country for very many years. It does not look as if we shall get one or need one for a good many more years, though eventually it might be necessary. Building a new reservoir is a huge investment and any company that can save money by encouraging metering, by greater water efficiency, by cutting leakage, particularly those companies found in the water scarce part of the company in the South East, will have built the cost of avoiding the big step change into account. That is one of the reasons why we see big variations in the long run marginal cost calculations of the companies. There may also be less than good practice involved in some companies. That is part of our job, working with the industry, working with the Environment Agency to ensure that practice improves overall.
79. You said earlier, I think, I forget in answer to whom, that the environmental costs you are trying to build into the calculation are not currently expected by this three party group to make very much difference to the cost effectiveness of reducing leakage. What factors are you including in the environmental costs and how do you price them?
(Mr Fletcher) This is part of a study that we are doing at the moment which will be concluded in the summer of this year. I cannot give you a complete answer at the moment. It will include things like the environmental and energy costs involved in new investments in water infrastructure. It will include the environmental costs of low flow rivers not being properly supplied, the Darent running dry in the summer, that sort of thing.
