Impact of water commercial losses on operators' unit costs and price of services António Filipe Ruivo e Maria João Moinante 9.º Congresso Mundial da Água Lisboa, 21-26 de setembro de 2014

1. -The Water and Waste Services Regulation Authority -
PORTUGAL

2. 9th IWA World Water Congress & Exhibition
Lisbon, 24 September 2014
• A. Filipe Ruivo Maria J. Moinante Economic and Financial Analysis Department at ERSAR Engineering Department at ERSAR

3. INDEX
1
METHODOLOGY
INTRODUCTION
2
RESULTS AND DISCUSSION
3
CONCLUSIONS AND RECOMENDATIONS
4

4. 1. INTRODUCTION
Real losses
Apparent losses
Unbilled Authorized consumption
Physical water losses
Inaccuracies associated with production metering and customer metering
Unauthorised consumption
(theft or illegal use)
Fire fighting and training
Watering of municipal gardens
Street cleaning…
What is Non-Revenue Water?

5. WWaateter rinintatakkee
Treatment operational
consumption and losses TTrereaatmtmeennt t
M
M
M
M M M
M
M M M
M
TTrarannsmsmisissisoionn
Transmission
consumption and losses
SStotoraraggee Storage tanks operational
consumption and losses
District
metering
M
Imported treated
water (**)
M
Exported treated
water (**)
M
Water abstracted
M
Water produced
M
Distribution input
Point of measurement for water balance
purposes
M
M
Imported raw water (*)
M
Transmission input
M
Water supplied
M
Treatment input
(*) - can be located anywhere between the water intake and the treatment
(**) - can be located anywhere downstream treatment
RRaaww w waateter rm maaininss
Raw water consumption
and losses
Distribution
consumption and losses DDisitsrtirbibuutitoionn
M
Exported raw water (*)
1. INTRODUCTION
DISTRIBUTION AND
COMMERCIALIZATION
ABSTRACTION
AND TREATMENT
Components of the water balance
RETAIL
OPERATORS
Where can appear Non-Revenue Water ?
Since Until
 Municipalities
 Local-owned
companies
 Public partnerships
between the State
and municipalities
 Private
concessionaires of
municipal systems
 State-owned
company
 Multimunicipal
concessionaire
(Participation of State
and municipalities in
the share capital of the
concessions)
STATE OWNED
SYSTEMS
MUNICIPAL OR
INTERMUNICIPAL
OWNED SYSTEMS:
Different ways of fixing prices,
accounting, and calculation the costs
of the service. !
BULK
OPERATORS
≅ ≅

6. 1. INTRODUCTION
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Bulk Operators (15) Retail operators (248)
5%
Limi t of technical efficiency (good service)
20%
Diagram of extremes and quartiles
BULK
OPERATORS
RETAIL
OPERATORS
Outlier
17,4%
78%
3%
0,4%
39,3% (median)
4.1% (median)
 Non-Revenue Water (2011) ≅
5% of water intake (612
million cubic meters)
 Low amplitude [0.4%,17.4%]
 50% of the operators
present loss levels below
4.1%
 Losses located at the inter-quartile
range [Q1, Q3] =
[2.4%, 9.2%] are more
concentrated in the bottom
half.
 Non-Revenue Water (2011)
≅ 30% of water intake (868
million cubic meters)
 Strong amplitude [3%,78%]
 50% of the operators
present loss levels below
39,3%
 Losses located at the inter-quartile
range [Q1,Q3] =
[29.2%;51.1%] are more
concentrated in the bottom
half
Limit of technical Limit of technical efficiency (Good Service) = 5% efficiency (Good Service) = 20%
The problem is mainly in the retail systems operators!
Since about 90% of them have a degree of Non-revenue water above the good level of quality of service
(or the technical efficiency threshold)

7. 1. INTRODUCTION
0%
20%
40%
60%
80%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Real losses average (72,6%)
(%)
0%
20%
40%
60%
80%
100%
1
7
13
19
25
31
37
43
49
55
61
67
73
79
85
91
97
103
109
115
121
127
133
139
145
151
157
163
169
175
181
Real losses average (71,8%)
(%)
BULK
OPERATORS
RETAIL
OPERATORS
Total Non-Revenue Water (2011) ≅ 300 million cubic meters
( About 10% of Useful capacity of the lake Alqueva 3.150 million m3 - The largest artificial lake in Western Europe )
Different dimensions in both types of operators but the main problem are the REAL LOSSES:
Real losses 72,6%
Aparent losses 5,1%
Unbilled authorized consumption 22,3%
Average (15 operators):
Real losses 71,8%
Aparent losses 13,5%
Unbilled authorized consumption 14,7%
Average (186 operators):

8. Application of some statistical methods of data analysis collected and validated by ERSAR in assessing the quality of public water supply in mainland Portugal for the year 2011, and accountability.
The indicators under analysis were:
2. METHODOLOGY
Type
Fórmula
Variables
Unaccounted Water (%)
UW = dAA17ab / dAA14ab x 100
dAA17ab - Non-revenue water (m3/year)
dAA14ab - Water entering the system (m3/year)
Average price of the service (€/m3)
APS = Tariff income/ dAA16ab
dAA16ab - Billed water (m3/year)
Unit costs or Average costs (€/m3)
AC = dAA51ab/ dAA14ab
dAA51ab - Total costs (€/year)
dAA14ab - Water entering the system (m3/year)
15 BULK OPERATORS
186* RETAIL OPERATORS
*Operators with available data for all variables used in 2011

9. 3. RESULTS AND DISCUSSION
y = -0,2877x + 0,5032 R² = 0,1152
0,0
0,2
0,4
0,6
0,8
1,0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Tariffs and non-revenue water
Y = Tariffs (Euro/ m3)
X = Non-revenue water (%)
BULK OPERATORS
y = -0,5524x + 0,5951 R² = 0,1385
0,0
0,2
0,4
0,6
0,8
1,0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Total unit costs and non-revenue water
Y = Total unit cost (Euro/ m3)
X = Non-revenue water (%)
The total unit costs and tariffs have a strong positive correlation (ρ=0.81) BUT
The variability of these variables is less explained by non-revenue water (Coefficient of Determination R2 ≈0.1). Only 10% of the variability values are explained by NRW! THESE ARE THE EXPECTED RESULTS !!
AND WHY…?

10. 3. RESULTS AND DISCUSSION
BULK OPERATORS
Low level of Non-Revenue water (5% of Water intake)
The tariff review cycle (annual or multiannual) involves a critical analysis of all costs (Legal framework and intervention of ERSAR in recent years) – consequently, the amount of the tariff reflects the cost in some cases.
Therefore, there are several operators that charge tariffs below the total unit costs (the highest) and do not reflect the actual cost in the Tariffs - not recovering the costs - consequently, the amount of the tariff don´t reflects the total cost in another cases.
REASONS:

11. 3. RESULTS AND DISCUSSION
y = -0,9994x + 1,3214 R² = 0,1194
0,0
0,5
1,0
1,5
2,0
2,5
3,0
0%
20%
40%
60%
80%
100%
Total unit costs and non-revenue water
X = Non-revenue water (%)
Y = Total unit costs (Euro/
Good service
y = -1,2649x + 1,8033 R² = 0,1337
0,0
0,5
1,0
1,5
2,0
2,5
3,0
0%
20%
40%
60%
80%
100%
Price of service and non-revenue water
Y = Price of service (Euro/
X = Non-revenue water (%)
Good service
RETAIL
OPERATORS
The total unit costs and the average price of the service have a moderate positive correlation (ρ=0.62) BUT
The variability of these variables is also less explained by non-revenue water (Coefficient of Determination R2≈0.1), despite their higher levels. Only 10% of the variability values are explained by NRW! THESE ARE ALSO THE EXPECTED RESULTS !!
AND WHY…?

12. 3. RESULTS AND DISCUSSION
RETAIL
OPERATORS
Physical Losses not detected don`t originate repair costs.
Higher levels of NRW (30% of Water in take), are little reflected in costs and prices of service.
Most operators do not have cost accounting systems in place to ascertain accurately the real cost of the service (Municipalities) .
The price charged for services is set administratively, for political reasons, with little relation to costs -The power of municipalities pricing due to local autonomy regime.
REASONS:

13. 4. CONCLUSIONS AND RECOMENDATIONS
3.
EMPIRICAL EVIDENCE: NRW has a very significant expression in retail systems, but the variability of unit costs and price of services is less explained by this variable. In most operators of retail systems, the price is set administratively and the total costs are not counted.
2.
We all know that NRW has impact on the efficiency of operators: UNBILLED COSTS; INCREASING REPAIR COSTS and, consequently, the PRICE OF THE SERVICE.
1.
In PORTUGAL, non-revenue water (NRW) has DIFFERENT DIMENSIONS; in both types of operators the main problem are the REAL LOSSES, and the problem is mainly in the RETAIL OPERATORS.
4.
So, given the results we saw, what should be OUR GOAL?
- To implement a BETTER PRINCING METHODOLOY that can effectively reflect the real costs of the services and set standards for EFFICIENCY, which should be considered commercial losses.
- In TARIFF REGULATION UNDER CONSTRUCTION!

14. We only able to know the true impact of water commercial losses with better ways of accounting, for determining their total costs separately, and the PART RECOVERD in the PRICE OF THE SERVICE, in ALL OPERATORS !!!
THE TRUE IMPACT…?

15. Thank you for your attention!
Contacts:
Telefone: +351 210 052 200
Fax: +351 210 052 259
E-mail: geral@ersar.pt
Site: www.ersar.pt
filipe.ruivo@ersar.pt
maria.moinante@ersar.pt