Select Committee on Public Accounts Twenty-Fourth Report

2  Data Reliability and Adequacy

13. To determine the price limits that enable water companies to deliver the required outputs, Ofwat needs reliable information on the characteristics of supply and demand and the amount that consumers are willing to pay for a specified level of service.[18] There are currently weaknesses and inconsistencies in these data.

Leakage data

14. To produce a reliable estimate of the water lost from its water system, a company needs to know how much water it puts into the system and how much water has been consumed. The difference between these two amounts is leakage.[19] The Committee raised concerns in its 2002 report over the lack of reliable leakage data. Ofwat has made progress in improving measurements of leakage and now requires companies to use two separate approaches to measurement, which then need to be reconciled to within 5% of each other.[20] However, leakage estimations rely on consumption data which themselves lack consistency and precision.

15. The economic level of leakage is the point at which the cost of saving one unit of water through fixing a leak is the same as the cost of providing one unit of water through a new supply.[21] Calculations of the economic level of leakage do not yet fully reflect the costs of environmental or social issues, such as the consequence of digging up a road, despite concerns raised by the Committee in 2002.[22]

Consumption data

16. Consumption data underpin Ofwat's regulation of security of supply and its setting of price limits. Accurate and reliable consumption data are particularly important in areas of the country where there is predicted housing growth, such as the south east and east of England. But only 28% of households are metered, and most of the consumption data rely on estimates of unmetered water use meaning that they are unreliable.[23]

17. Estimates of water consumption vary widely between water companies even within the same region (Figure 2). Three Valleys Water estimates that each individual within the region uses 177 litres of water per day, while nearby Tendring Hundred estimates that its consumers use 124 litres of water per day. Tendring Hundred has the highest proportion—64%—of metered customers of any of the water companies. Furthermore, Ofwat believes that, as one of the smallest companies, it may have a closer relationship with its customers and therefore be better able to promote water efficiency.[24]

18. The difference between estimated and measured consumption also varies widely between companies. South East Water, for example, estimates that unmetered customers use the same amount of water as metered customers. By contrast, Sutton and East Surrey Water estimates that unmetered customers use 32% more than those with meters.[25]

19. Companies have different methods for estimating consumption levels for the 72% of unmetered consumers.[26] Independent reporters are responsible for ensuring data quality but they do not assess whether a company's approach is comparable to that of the other companies.

20. A study in 1999 by UKWIR found that 60% of the variation in per capita consumption was due to socio-economic and climate factors. Ofwat cannot explain the remaining 40% nor has it commissioned any updates to the 1999 research.[27] Consequently, it is not clear how much of this remaining variation is due to differences in the methodologies used by companies for calculating per capita consumption, or to the unreliability of demographic data available.[28]

Figure 2: Average household consumption for water companies in the South East 2005-06

Source: Ofwat, Security of Supply report 2005-6

Pricing information

21. All the water companies are monopolies in their regions.[29] There is therefore no market to determine the price that consumers are willing to pay for a particular standard of service. Ofwat does not know whether consumers will pay more for better service, for example, to fund a new reservoir to reduce the probability of hosepipe bans.

22. Prior to the last price control in 2004, Ofwat co-ordinated two national surveys to establish the security of supply level required by consumers. However, there has been little co-ordinated research on how much consumers are willing to pay for a particular level of security.[30]

18   C&AG's Report, para 2.1 Back

19   C&AG's Report, para 2.3, Q 6 Back

20   Q 81 Back

21   C&AG's Report, para 3.11 Back

22   Q 72 Back

23   Q 5  Back

24   Q 123 Back

25   Q 90 Back

26   Qq 85, 88 Back

27   Qq 1-2 Back

28   C&AG's Report, para 2.7; Q 5 Back

29   Qq 37-39, 48 Back

30   C&AG's Report, para 2.15 Back

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