The Impacts of Apparent Losses

Because apparent losses under-record the volume of customer consumption, they generate two major impacts on water resources management:

• Apparent losses induce a degree of error into the quantification of customer water demand, thereby impacting the decision-making processes used to determine needed source water withdrawals, calculate the appropriate capacities of water supply infrastructure, and evaluate conservation and water loss control practices.

• Apparent losses cause water utilities to underbill a portion of the water consumed by customers, thus a portion of the potential revenue is not recovered.

Both of these impacts can be significant. If a high level of apparent loss exists in a water utility, its recorded volume of customer consumption could be subject to a significant degree of error. Consider a water utility that documents customer consumption of 3.65 billion gal of water in a year [10 million gals per day (mgd)]. If routine water auditing found apparent losses equal to 1 mil gal/d (10% of consumption) then actual customer consumption during the year being audited was 4.015 billion gal, an additional 365 mil gal. Such a loss creates a distortion of the true customer consumption volume; in this case under-stating it by 365 mil gal. Activities that rely on accurate customer data are compromised by this degree of error. These can include efforts to evaluate the success of water conservation programs, using consumption data to assign demands in hydraulic models and evaluation of community drinking water requirements needed for regional water resource plans. Apparent losses therefore represent a degree of error that is interjected into a wide range of analytical and decision-making processes regarding water resource management. Given that the water industry in the United States is highly fragmented, with many different sized water utilities existing in any given region, the degree of error from apparent losses can be compounded by the varying errors existing in many disparate water utilities. Gauging true customer needs on a regional basis can be difficult without a reasonable assessment of the apparent losses existing in the region's water utilities.

From a financial perspective, apparent losses can exert a tremendous impact on the water utility's bottom line. Apparent losses cost utilities revenue, and can account for over 5% of a utility's annual billing for water and wastewater service rendered to individual customers. Many water utilities are confronted with increasing financial pressures from a variety of forces and stand to gain from the revenue recovery potential of apparent losses. Since apparent losses are quantified by the amount of water improperly recorded at the customer's delivery point, this water is valued at the retail cost that is charged to the customer. Water rates frequently also include a waste water charge that is also based upon the volume of consumption. The cost impact of apparent losses is frequently higher than the impact of real losses, which are typically valued at the variable production costs to treat and deliver the water. When water resources are greatly limited, real losses can also be valued at the retail rate based upon the theory that any water saved by real loss reduction can be sold to customers. Since the retail rates usually include fixed and administrative costs, infrastructure improvement, and debt repayment, this cost is typically much greater than the variable production costs that water utilities incur to treat and deliver water. Therefore apparent losses can have a dramatic financial impact to the water utility's revenue stream.

Apparent losses also create a problem of payment inequity for the community. Apparent losses occur when the actual amount of water delivered is understated. Hence, a portion of the customer population obtains discounted or free water service. This means that the paying customer population effectively subsidizes those customers who are underpaying or not paying. This situation is particularly troubling as water utilities encounter pressure to raise water rates, with the paying customers shouldering an even greater financial burden for the entire water-using community. Reducing apparent losses and recovering missed revenue can reduce the frequency of, or defer the need for, water rate increases by identifying underpaying and nonpaying customers and adding them to the active billing roles.

Apparent loss recovery can create a direct financial improvement to the water utility, and many apparent loss occurrences can be recovered with relatively little cost. This is important in terms of seeking early success and payback to the water loss control program. Funds recovered early in the program in this manner can serve to seed further activities in the long-term water loss control effort.

In summary, water utility managers can obtain a more realistic quantification of the actual customer demand by identifying apparent losses. Controlling apparent losses can result in the capture of significant missing revenue for the water utility. Hence, the assessment of apparent losses has bearing on all quantitative aspects of accountability and the water loss control program.

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