From Regulation to Revenue: How Senate Bill 555 Might Positively Impact California Water Loss Practices

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By Graham Symmonds

In October 2015, California was deep in the grasp of an intense drought. At that time, more than 92 percent of California was in severe, extreme or exceptional drought, affecting more than 36 million people. Today, California is wading in a relative abundance of water, with no area in California categorized as being in a dire drought condition. Despite that relief, there remains a high level of anxiety about future water security which is prompting continued efforts at the State level to ensure water sustainability.

One of those efforts, Senate Bill No. 555 (SB 555) approved in October 2015, takes direct aim at water loss, requiring for the first time that water suppliers audit and report water loss performance. The first regulatory report was required to be submitted by Oct. 1, 2017.

Specifically, SB 555 added Section 10608.34 to California’s Water Code requiring “each urban retail water supplier, on or before Oct. 1, 2017, and on or before Oct. 1 of each year thereafter, to submit a completed and validated water loss audit report for the previous calendar year or previous fiscal year.” In conjunction with Gov. Jerry Brown’s April 2015 Executive Order on water conservation (B-29-15) and the State Water Resources Control Board resolution from May 2015 adopting an Emergency Regulation for Statewide Urban Water Conservation (Resolution No. 2015-0032), SB 555 represented another step in increasing the oversight of water resources in the state to ensure continued preparedness for drought conditions going forward.

Plugging the Data Leaks

Water loss, non-revenue water, unaccounted for water – whatever term used – is a significant drain on utilities, literally from the perspective of the physical resource, but also financially. The U.S. Environmental Protection Agency (EPA) estimates that the average system-level water loss in the United States is 16 percent, but can often be substantially higher, particularly in chronically under-resourced small to mid-sized utilities. And with studies showing that as much as two-thirds of non-revenue water being the result of errors in the data versus physical leaks, the antiquity of many utility data information systems looms as a large factor in water loss elimination.

Taking the view that apparent water loss in utility data is key to complying with SB 555 reporting can be an unanticipated opportunity for water suppliers to turn leaking data into substantial financial gain.

Prescriptive Commandments

In contrast to other water-related regulatory vehicles implemented in California, rather than providing guiding principles for urban water suppliers to demonstrate and report on conservation activities, SB 555 requires that water suppliers use a specific analysis tool. Under the new code, urban water suppliers must conduct standardized audits of water loss for their systems “in accordance with the method adopted by the American Water Works Association (AWWA) in the third edition of Water Audits and Loss Control Programs, Manual M36 and in the Free Water Audit Software, version 5.0.”

The goal here is to ensure that all water suppliers are using standardized definitions, methods and practices such that meaningful comparisons and contrasts can be developed. While there is no water loss standard proposed in SB 555, the State Water Resources Control Board (SWRCB) is required to adopt rules by July 1, 2020, that will require urban retail water suppliers to meet performance standards for the volume of water loss. Senate Bill 555 is the mechanism to collect consistent and comparable information from which performance standards can be developed.

Increasing Utility Costs

Notwithstanding the water resource benefits associated with the implementation of water loss control programs, there are also costs. And these costs are hitting California’s urban water suppliers right at the time when they are suffering from the negative financial impacts of the State’s potable water conservation requirements. Despite the recent easing of those conservation restrictions, many urban water agencies have seen the gallons per capita per day (GPCD) reductions mandated in 2015 become baked-in, directly and permanently destroying utility revenue.

Adding to the costs of this program, SB 555 requires that the data used to populate the water loss report be validated by a “a technical expert to confirm the basis of all data entries in the urban retail water supplier’s water loss audit report and to appropriately characterize the quality of the reported data.” While some large utilities will have access to their own staff with the technical expertise to validate their water loss audit report, many water suppliers will be required to seek outside or consultant support for these services.

SB 555 sought to offset some of the costs associated with water loss reporting through a $400,000 appropriation of the available FY 2016-17 SWRCB funds, and funding additional resources such as the California-Nevada Section AWWA Water Loss Control Collaborative project to provide technical assistance to water agencies in meeting their reporting obligations. These funding mechanisms (an average of less than $1,000 per supplier to fund the validation services for the state’s 414 urban water suppliers) are minimal in the context of the real costs of water loss program operations.

Making Regulation Rain Revenue

As a result, urban water suppliers will be on the hook for the increased costs of these programs in the face of continued depression of utility revenue. Fortunately, while SB 555 is often characterized as a water saving and conservation tool, employed correctly and with the right supporting architecture, data and systems, SB 555 can actually serve as a revenue recovery tool, and form the foundation of a program designed to capture lost revenue from leaking data.

The key is to transform the data used to comply with SB 555 into revenue by eliminating “non-revenue data,” or data that is either missing or incorrect in a utility’s billing and information systems, which corrupts water use data, reduces revenue and prevents meaningful conversations with customers about water.

Perhaps surprisingly, it is very common for the utility’s in-service physical infrastructure (those assets in the ground) to diverge immediately and continually from the logical infrastructure (those assets in the utility’s data systems) resulting in lost revenue. Forcing and maintaining the convergence of this data is critical to the resource and financial well-being of our utilities, and SB 555 can be used as the springboard for this effort.

By combining the reporting requirements of SB 555 with updated data management systems – geospatial meter data management, meter accuracy and warranty management, customer information and revenue assurance systems, and customer engagement tools – utilities can continuously electronically align physical and logical billing assets, generating sustained revenue increases of 8 to 10 percent. This revenue can go a long way to funding the regulatory reporting requirements, financing the acquisition of better data and systems (eg. advanced metering infrastructure) and reducing the need for increased rates.

The reporting requirements of SB 555 soon to be faced by California’s urban water suppliers is a hidden opportunity. Used with thoughtful data management techniques and systems, the process can be turned into a revenue finding and protection scheme, giving suppliers the funds to meet any future water security issues.

Graham Symmonds
Chief Knowledge Officer & Senior Vice President | FATHOM

Graham Symmonds joined FATHOM in 2003 as the senior vice president for regulatory and compliance. Prior to joining FATHOM, he worked for Algonquin Water Resources of America in 2001, where he was utility manager for Arizona and Texas, responsible for all business, technical and regulatory operations. In 1995, Symmonds was director of operations at Hill, Murray & Associates and developed the firm’s formal design control practices for membrane bioreactor water reclamation facilities.

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