Water Loss Performance Standards: Where Should the States be Headed?

Every water system leaks, and billions of gallons of drinking water are lost each day in the US alone. Fortunately, water losses are receiving welcome new attention, by individual utilities, the water industry generally, and state regulators, as shown on NRDC's water loss landing page. The question of what form a state water loss standard might take was a topic of conversation at a December meeting of the Water Loss Committee of the American Water Works Association (AWWA). There is no committee recommendation (AWWA doesn't actually advocate regulation), but with more states considering a water loss audit reporting requirement, this topic is likely to receive more attention in 2016.

Some regulators may be looking for a single metric to replace the old "% unaccounted" approach. Meanwhile, most utilities are phobic about a single metric, afraid that they'll be forced to overinvest in costly efforts to reduce losses that are not economical.

I see a hybrid approach evolving over time.

Economic Level of Losses

An ideal standard would be to require losses to be reduced by each water supplier to the level that no further cost-effective loss reductions are identifiable. Another way of putting this is that water suppliers have the responsibility to reduce all leakage that is cost-effective to prevent or eliminate. In the illustration below from the AWWA's new water loss manual, this is called the Economic Level of Real Losses (ELRL). With this concept, no water supplier is expected to make investments in water loss reduction that are not cost effective for its own system and customers. (This, by the way, is the approach that is already written into a voluntary best management practice in California, but which is not likely to be widely implemented as water suppliers there continue to drift away from BMP implementation.) Presumably, a regulation would allow some period of time, perhaps 5 years, to reach the ELRL, and then require it to be maintained at that level in subsequent years. Shifts in technology and economics are sure to take place over time, so the cost-effective level of intervention is likely to shift a bit as well.

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The two requirements for making this operational, however, are for there to be good information available on both the costs and the benefits of intervention strategies to reduce losses. Regarding the costs of potential intervention, this requires a good "component analysis" - the next step beyond the water loss audit -- that will effectively characterize the type and location of losses, as well as current cost information on various loss reduction techniques (leak detection surveys, data logging, pressure-reducing valves, full pipe replacement, etc.). The second has to do with benefits - an accurate assessment of the value of water loss reduction, especially the value of saved water, aka the "avoided cost" of water. (Other benefits need to be quantified as well, including avoided street repairs, property damages, insurance premiums, service disruptions, etc.)

The most challenging part of determining the avoided cost of water is to account for savings of long-run capital costs, and not just short-run operating costs. The latter is the easy part, and the type of costs that the AWWA audit process defaults to. However, for the many utilities with a growing customer base, a value of water that does not include the avoided costs of capacity expansion will be far too low. Add to this the reality that most water suppliers are publicly owned, and not subject to consistent rate regulation and financial reporting that comes with state PUC regulation. So a regulator attempting to set a water loss performance standard based on the Economic Level of Real Losses would have to identify an avoided cost methodology and get all water suppliers familiar enough with it to use in a regulation -- a potentially tall order.

Avoided cost is not likely to change so frequently that it would have to be updated every year, but whenever a new capital improvement plan is adopted, a new avoided cost number should be recalculated. It could take the better part of a decade to put such a water loss regulatory framework in place. But this would be the ideal. Regulators might start with requiring the ELRL to be reported annually, and see what they get.

Loss Reduction Performance Indicators

Recognizing that few states will be ready to adopt a water loss standard based on the Economic Level of Real Losses any time soon, the AWWA water audit performance indicators for real losses and apparent losses can be used judiciously to make progress toward the elimination of economically recoverable losses of both types. The AWWA water audit software automatically calculates the volume of real losses and apparent losses, normalized for the size and configuration of the utility. For most urban utilities, real losses per service connection per day and apparent losses per service connection per day are the key indicators to work with.

Two or three years of validated water audits should give regulators enough performance data to design a performance standard. But rather than taking one number and applying it to all utilities, the scatter of utility performance can be used to establish reasonable expectations. For example, in the recent EPA-funded review of mostly unvalidated water audit data sets by WSO and published by the Water Research Foundation, real losses were found to have a median value of 40 gallons per service connection per day and an average value of 52 gallons per service connection per day, suggesting a disproportionate distribution toward higher losses. It would be logical for regulators to examine such a distribution of performance for validated reports under their jurisdiction, and call upon the worst performers to improve or to show why they shouldn't. The regulation could be written to establish a specific level of performance, say twice the reported median, as the basis for a rebuttable presumption that losses are excessive and that cost-effective reductions are possible and required. Water suppliers above this level could have the option to rebut the contention that reductions would be cost-effective, but if the bar is set high enough, most of those so identified will have few grounds to make a plausible claim that they have no cost-effective opportunities to reduce losses. The top group could be identified as the top quintile, top quartile, or some multiple of the median value itself. Over the years, should overall reported losses decline, the numeric volume of losses at the top quintile would edge downward as well, potentially reaching a different group of water suppliers.

A similar stratification (say bottom quintile) could identify water systems on the low end of the spectrum whose losses would potentially be close to the economic level of leakage. For the majority of water suppliers between these two groups on the ends of the spectrum, an approach of continuous improvement could be taken. Water suppliers in this group could be required to improve their three-year rolling average of reported losses by a specific volume, again drawing upon the data set of validated audit reports to help establish what is reasonable. These requirements could also be expressed as a rebuttable presumption, with the regulator taking care to make sure that the targets are obtainable enough so as to avoid wholesale appeals rather than actual loss reduction efforts.


It is quite possible that investor-owned utilities and their state regulatory commissions might actually lead the way toward a standard based directly on the Economic Level of Losses, and that would be most welcome. Perhaps the state controllers who are beginning to look at the financial implications of water loss might also lead the way. But it is likely to be very challenging for a state water resource agency without direct financial oversight over municipal water suppliers to make much progress on a standard based on Economic Levels. That's why I think we have to make meaningful use of the AWWA performance indicators that we have on hand, at least for the next several years.

While not involving a single metric applied across the board, a standard based on the judicious use of water loss performance indicators offers a fairly simple framework that would lay out a clear roadmap and allow each water supplier to anticipate and understand its responsibilities for water loss reduction. And if state financial assistance for water loss reduction were prioritized on a "worst first" basis, this could further encourage accuracy and candor in water loss reporting, as well as highly cost-effective water savings.