This is the first annual report on leakage and water efficiency. It will chart companies' progress towards meeting leakage targets and promoting the efficient use of water by their customers. It replaces our annual report on the cost of water delivered and sewage collected. I will publish a further report later this year detailing the costs of service provision and efficiencies achieved by the water companies. 

Companies have reported that total leakage fell by 475 megalitres a day (Ml/d, 1,000,000 litres/day) from 1995-96 to 1996-97. All companies set themselves leakage targets for 1997-98 which I am currently monitoring and will enforce.

At the Water Summit in May I announced my intention to set annual mandatory leakage targets for all companies. The first set of targets for 1998-99 are published in this report. 

These targets will deliver savings of 700 Ml/d across the industry and will result in targets being 16% below the company targets for 1997-98. These reductions compare very favourably with what has happened in recent years and represent the largest single year reduction in leakage since privatisation.

Targets have been set pragmatically and reflect each company's resource position and leakage level. Ideally these targets would be based on medium term, economically justified levels. I have told companies that they should assess those levels by June 1998. Until they have done so, a year by year approach is needed. I believe the approach I have taken for this year is both tough and justifiable and will move companies' leakage levels significantly in the right direction.

Companies' progress towards these targets will be carefully monitored and published each year in this report. Companies failing to meet targets will face tough regulatory action.

I commend the good progress made by some companies, such as Severn Trent Water and North West Water, in reducing leakage. However, there have been signs of complacency among some of the water only companies and, overall, a great deal more work is needed in order to reduce leakage to acceptable levels.

In the past year, following concerns about leakage levels reported by Thames Water, I have agreed with the company that progress towards its 1997-98 target will be reported to me on a quarterly basis. I remain concerned about the high level of leakage reported by Dwr Cymru (Welsh Water) and I will be exploring the reasons for this with them. I will consider whether it is necessary to investigate other companies later this year.

There are other issues affecting leakage, such as the estimation of household consumption, which require further investigation. I will be progressing this in the next few months and will continue to challenge companies to ensure that their procedures for estimating both leakage and consumption are as rigorous as they can be.

Companies also have a duty to promote the efficient use of water by all their customers, both household and non-household. All companies now have water efficiency plans which bring together the many initiatives they are undertaking in carrying out this duty. These plans will help companies to maximise their existing resources and facilitate the sensible development of new resources.

All companies now offer free leak detection and repair for household customers' supply pipes. Most companies have a freephone leakline number, offer free water audits of customers' houses and offer free cistern devices to customers to help save water when toilet flushing.

I will expect all companies to have in place arrangements to monitor and assess the effectiveness of their strategies. This year it is too early to quantify the level of savings achieved as a result of the various initiatives. However, in future, companies will report annually to me on progress in promoting the efficient use of water and, in particular, on the impact of their strategy on the overall demand for water. Moreover, the Customer Service Committees (CSCs) will report to me on companies' activities in each region. I will expect these strategies to feature at the next price review in companies' plans for balancing the supply and demand for water in their region.

I C R BYATT

Director General of Water Services

SUMMARY AND CONCLUSIONS

Major trends in water use 

Distribution input (the quantity of water put into supply) decreased by 662 Ml/d, or 3.9%, from 1995-96 to 1996-97. Within this total, estimated water delivered to customers decreased by 256 Ml/d. One reason for the decrease in distribution input was the return to more normal weather patterns following the hot, dry summer of 1995, but many companies have also made good progress in reducing leakage. Companies have also been active in promoting the efficient use of water by their customers.

Leakage 

A number of companies have made good progress in reducing their leakage during the report year. Across the industry total leakage has fallen by 475 Ml/d, or nearly 10%, since 1995-96. However, there are signs of complacency amongst some of the water only companies. Thames Water remains a concern, with leakage way above the industry average.

Following companies' pledges at this year's Water Summit to provide free supply pipe repairs, Ofwat expects to see companies making greater reductions in supply pipe leakage in future.

Leakage targets

Leakage targets for 1997-98 were published in Leakage in England and Wales (May 1996), and companies' progress towards meeting these targets is good. Tough new mandatory targets for 1998-99 are published in this report. These mean that companies will, overall, need to reduce leakage by 700 Ml/d, or 16%, compared with their 1997-98 targets. Performance against these targets will be closely monitored and will be published. Companies which fail to meet their targets will be asked for detailed explanations. Where the Director is not satisfied with an explanation, he will take action under Section 18 of the Water Industry Act.

Economics of leakage

Companies should base their leakage strategy on sound economic analysis. As part of the build up to the next Periodic Review, companies are required to provide Ofwat with a supply/demand balance submission. This will include an appraisal of their economic level for 2002-03 in the light of environmental objectives, and an action plan to reach this level.

Yorkshire Water recently submitted a report on the economic level of leakage in its supply area and this has been welcomed by the Director. This report should not, however, be seen as a template for the rest of the industry.

Promoting the efficient use of water by customers 

Companies have had a duty to promote the efficient use of water by their customers since February 1996. However, most companies did not develop co-ordinated strategies until spring 1997. The Water Summit provided a positive impetus to companies' policies and gave water efficiency issues a much higher profile.

Particular initiatives introduced by many companies as a result of the Government's ten point plan include the provision of a freephone leakline number, free supply pipe repairs for household customers, free water audits and free cistern devices to reduce toilet flushing volumes. All companies have made good progress in implementing their strategies to encourage efficient use of water by their customers.

This is the first year that companies have had to monitor and report to Ofwat on their progress against their strategies. Although companies were able to describe the level of activity undertaken to date, they were generally unable to estimate or provide the level of water savings, if any, achieved as a result of their strategies. This is not perhaps surprising since many of their initiatives have only recently been introduced. Ofwat expects companies to be able to do so in future years.

Companies should continue to actively promote water efficiency; to monitor the effectiveness of their initiatives in terms of savings achieved and to report fully to Ofwat on their progress. Ofwat will write to companies setting out the reporting requirements for 1997-98.

It is also important that there are mechanisms for sharing experience so that individual companies can learn quickly of successful initiatives and practices elsewhere. This depends on robust analytical research. Ofwat and the Environment Agency National Water Demand Management Centre are working together to ensure good practice is promoted throughout the industry.

LEAKAGE LEVELS AND TARGETS

	Total leakage Ml / d		Leakage Targets Ml / d
	1995 - 96	1996 - 97	1997 - 98	1998 - 99
Water & sewerage companies
Anglian	236	213	211	186
Dwr Cymru	413	357	354	308
North West	789	666	705	515
Northumbrian	190	192	187	173
Severn Trent	632	479	410	348
South West	142	129	110	96
Southern	120	113	100	95
Thames	1,109	1,083	962	781
Wessex	133	129	124	103
Yorkshire	485	420	434	363
WaSC total	4,248	3,780	3,597	2,968
Water only companies
Bournemouth & W Hants	27.5	28.5	28	24.3
Bristol	65.5	64.8	60	56.5
Cambridge	16.0	15.9	16	14.7
Chester	7.2	5.2	6	5.2
Essex & Suffolk	90.3	84.8	84	76.6
Folkestone & Dover	12.7	11.6	10	9.3
Hartlepool	6.1	6.0	6	5.0
Mid Kent	39.7	38.2	33	26.8
Mid Southern	54.7	58.0	55	50.0
North Surrey	31.4	27.5	25	23.5
Portsmouth	30.3	30.5	29	26.2
South East	39.5	40.9	39	35.9
South Staffs	92.9	90.1	92	80.1
Sutton & East Surrey	26.1	27.2	26	25.2
Tendring Hundred	6.4	6.3	6	5.5
Three Valleys	168.1	171.9	155	136.3
Wrexham	7.4	7.8	8	7.0
York	9.9	9.8	10	9.2
WoC total	731.6	724.9	688	617.3
Industry total	4,980	4,505	4,285	3,585.3