Ofwat takes ‘tougher line’ on leakage

Regulator expects companies to “look much harder” at ways of reducing leakage

Ofwat has signalled a tougher line on leakage at PR19, and said it expects water companies to “look much harder” at how they can reduce it.

Senior director of Water2020 David Black told Utility Week the regulator’s PR19 draft methodology, published today, “definitely signals a tougher line on leakage”.

In its document, Ofwat said leakage targets and performance commitments have historically been set in relation to the sustainable economic level of leakage (SELL). However, it added: “We, the Environment Agency and Natural Resources Wales are concerned that SELL is not driving companies to become more efficient in how they tackle leakage.”

Black said Ofwat wants the sector to look “much harder” at how it can innovate, to reduce leakage in a more cost-efficient way. 

The industry reduced leakage considerably in the late 1990s. However, since 2000, leakage levels have declined at a much slower rate in Wales and have stabilised in England.

Total leakage in England and Wales, 1994-95 to 2019-20

Source: Ofwat

NB: projected performance for 2016-17 to 2019-20

In 2015-16, all companies achieved or outperformed their leakage performance commitments, which Ofwat said “might suggest they were not sufficiently stretching”.

The regulator has, therefore, proposed companies set more stretching performance commitment levels than at PR14.

“We expect companies to justify their proposals against options including a 15 per cent reduction by 2025 or upper quartile performance on leakage per property per day,” it stated.

Black said: “We’re not saying companies have to deliver the 15 per cent but if they’ve not gone as far as that, they have to explain why.”