Tue | Jul 17, 2018

OUR: Non-revenue water flowing in wrong direction

Published:Friday | January 13, 2017 | 12:00 AMMcPherse Thompson
The Mona Reservior in Kingston owned and operated by National Water Commmission.

The Office of Utilities Regulation (OUR) has indicated that National Water Commission (NWC) is falling short on its efforts reduce non-revenue water, a position the regulator pegs to available data.

In its 2015-16 annual report released last week, the OUR noted that whereas the NWC's tariff determination notice of October 2013 required the water utility to achieve non-revenue water of 55 per cent by 2018, it was at 71.44 per cent at the end of March 2016.

"This figure was decidedly headed in the wrong direction," the OUR said.

Non-revenue water is produced and distributed but earns no income for the utility. The loss may be attributed to leaks, theft and/or metering inaccuracies; and it also may include a category known as 'social water', which is distributed freely to some end users, for example, low-income or rural communities through standpipes.

Asked for comment on the OUR report, the water commission reaffirmed its commitment to reducing non-revenue water.

"NWC is committed to significantly reducing its non-revenue water as is demonstrated by our increased activity under the Kingston and St Andrew non-revenue water programme launched last year," said Charles Buchanan, NWC corporate public relations manager.

NWC is in the second year of a five-year agreement with Miya Water, an Israeli company, to reduce its levels of non-revenue water. In July 2015, NWC awarded the company a US$42.5-million contract to reduce system losses of water.

The project is funded by the Inter-American Development Bank and includes performance-based fees, which will be paid "only if contract targets are achieved," Miya said back then.

According to the OUR annual report, total potable water produced from April 2015 to March 2016 totalled 64.79 million gallons, as reported by the NWC, while total consumption or revenue-generating water amounted to 18.45 million gallons.

This suggests that 46.34 million gallons of the water produced, or just over two-thirds, could be classified as non-revenue water.

NWC's customer base as at March 2016 was 475,303, of which 359,304 were reported as active customers, while 115,999 were inactive.

In the December 2016 midterm determination of NWC tariffs, the OUR indicated that one reason the water utility cited for its accumulated adverse revenue was aggressive treatment of delinquent customers through disconnection of services.

The NWC explained that those disconnected customers became inactive, which meant they no longer produced revenue for the utility.

The X-Factor

According to the determination, the NWC further argued that the challenging economic conditions have had an adverse effect on a number of Jamaicans, and many of those persons whose services were disconnected have found it difficult to settle their arrears.

As a result, there was an overall 15 per cent increase in the number of inactive accounts at the end of fiscal year 2015-16 compared with 2012-13. NWC cited potential loss in revenue over the period, as a result of the increase in the number of inactive accounts, of $1.8 billion.

The NWC had therefore requested that the OUR set the efficiency factor or X-Factor - representing the efficiency gains made by the NWC that are passed on to customers by way of a rate reduction - to zero per cent. Instead, the OUR kept it at 5.5 per cent for the remainder of the tariff period.

At the same time, the OUR said it was of the view that the X-Factor mechanism should be modified to ensure that it sufficiently incentivises non-revenue water-loss reduction.

The modification of the incentive mechanism, outlined in the determination, penalises the NWC's failure to reduce non-revenue water by further reducing revenues.

On the other hand, it rewards positive performance by increasing rates as an investment in further improvements.

On those bases, the OUR, using 68.5 per cent as a reference point, determined that for every one per cent reduction in non-revenue water losses in a given year, the applied X-Factor will be reduced by one per cent in the following year.

Alternatively, for every one per cent increase in non-revenue water losses in a given year, the X-Factor will be increased by one per cent in the following year.

"However, this is a radical short-run measure aimed at changing the commission's orientation to efficiency. The ultimate aim is to claw back the efficiency dividends for consumers in a later period," the OUR said.

In the midterm determination, the utilities regulator said that while the data provided by the NWC in support of its request for the zeroing of the X-Factor does not rigorously account for the adverse variance in its non-electricity operating and maintenance costs, the persistent increase in overtime payments is a cause for concern.

It said that whereas overtime cost for fortnightly employees represented 42.7 per cent of their normal pay in 2013, it moved to 50 per cent and 55.6 per cent in 2014 and 2015, respectively. Over the period, annual fortnightly overtime expenses ranged between $522 million and $654 million, the OUR said.

In the application, the NWC proposed to reduce non-revenue water losses to 70 per cent in 2017, 68 per cent in 2018 and 65 per cent in 2019.