Combatting Losses in Energy and Water Utilities: A Guide to Efficiency and Revenue Protection

July 24, 2023 | Performance Improvement & Loss Reduction

Many electricity and water utilities globally struggle from losses. While financial losses do occur, the bulk of the losses are not attributed to the financial management of the utility. In electric utilities, energy losses represent the major challenge, while in water utilities, it is water loss that has a major impact on the health of the utility. Both sectors require robust and tailored strategies to mitigate these losses, which directly impact the operational efficiency, financial health, and sustainability of the utilities.

This article will explore the main types of losses in detail and provide a comprehensive guide on effectively addressing these issues. From baselining and root cause analysis to investment and management plans, and the energy-water nexus, we will delve into tried and tested strategies that can lead to substantial improvements in utilities' operational and financial performance.

Dissecting Energy Losses: Technical vs. Commercial Factors

Losses occur due to multiple reasons and have different root causes. They can largely be divided into technical and non-technical nature. In electric utilities, technical losses are attributed to the heating of the resistive components of the grid, as well as system configuration issues. Such losses are inherent in all network conditions and cannot be avoided, only minimized. However, the percentage of such losses is higher in aged, poorly maintained, or overused network components – their minimization requires further investments and restructuring of the network to lessen their financial burden on the companies. Non-technical or commercial losses occur due to the inability to account fully for the delivered electricity to the customers. While technical losses can be estimated based on the technical parameters of the network, non-technical losses are difficult to predict and prevent as their cause might vary. Some reasons may be (i) technical – such as a lack of metering infrastructure or lack of access, faulty or tampered meters; (ii) user related - theft and other forms of unauthorized electricity consumption; or (iii) social – the inability to disconnect certain group of users and low levels of enforcement.

Decoding Non-Revenue Water (NRW): Physical and Commercial Losses in Water Utilities

Losses in water utilities are called Non-Revenue Water (NRW). NRW refers to water that is produced and lost within a water supply system and does not generate any revenue for the water utility. It represents the difference between the total volume of water supplied to a distribution network and the volume of water that is billed and paid for by customers. Physical losses occur due to leaks, bursts, or other forms of water loss within the distribution network. These losses can happen in pipes, fittings, valves, or storage reservoirs. Physical losses are typically attributed to aging infrastructure, inadequate maintenance, and poor water management practices. Commercial losses refer to the water that is supplied but not accurately measured or billed. It includes unauthorized water connections, metering inaccuracies, tampering, and billing errors. Commercial losses can occur due to administrative issues, inadequate metering systems, or lack of proper monitoring and enforcement.

The Controversy Around Collection Losses: A Matter of Jurisdiction and Practicality

Some jurisdictions also consider the inability to collect the billed electricity or water payments as a non-technical, collection loss. Other jurisdictions do not consider collection losses because, in theory, all legitimately billed energy or water to the consumer can be recovered at some point through different measures. Although, in practice, it is common that a substantial portion of such billings never get recovered and are written off eventually.

Technical and non-technical losses undermine the utility business’s economic viability because the operators cannot recover the cost of serving the customers and invest in the maintenance and upgrade of the networks, modern technologies, and improving customer experience.

A Proactive Approach to Minimize Losses in Utilities

Tackling the losses at utilities is a difficult task and requires a robust approach. While electricity and water utilities differ in many ways, their approaches to loss reduction are very similar. The following sections present a systematic step-by-step guide that offers proven strategies to address these losses effectively:

1. Starting Point: The Importance of Baselining

Knowing the starting point is imperative to properly assessing and tackling the issue with losses. Sometimes, utilities do not have an accurate figure of their actual losses, or different methods of calculating losses may exist within the same jurisdiction. This initial step is to establish this baseline. It includes reviewing the energy loss/non-revenue water (NRW) calculation methodologies and processes, establishing energy or water balance, and a loss baseline. This baseline will then be the starting point for monitoring any subsequent loss reduction.

2. The Power of Root Cause Analysis in Loss Reduction

Once the baseline is already established, the next step is to identify the type of losses – technical vs. non-technical and their root causes, including metering, billing errors, equipment ratios in electric networks, water leaks in pipes, and pressure levels in water networks. The cause could be a combination of many issues. This is accomplished by analyzing billing and customer data and undertaking field verification.

3. Data Clean-up: Why It Matters and How to Do It

Sometimes the customer and network data are incomplete or not structured in a way that would allow the utility to undertake an effective loss reduction initiative. Cleaning up the data is a crucial prerequisite to localizing the losses to a particular network segment. Even if a GIS system is already in place, the key question is whether the customer segments are tied to distribution transformers and feeders at electric utilities, or the main supply pipes, water reservoirs, or municipal storage tanks at water utilities. Subject to a thorough customer and network inventory, consumers need to be indexed to the network segments, and such records should be reflected in the billing systems.

4. Loss Localization & Zoning: A Strategic Approach

This is the step where metering infrastructure should be installed on bulk supply points, such as distribution transformers and feeders at the electric utilities, and the reservoirs or water tanks and main supply pipes at the water utilities so that the total consumption on that bulk point, or a zone, can be compared to the retail supply on that particular segment of the electricity or the water network. The higher the difference between bulk and retail consumption, the higher the loss in that particular network segment. This allows a more focused approach to locating losses and prioritizing the highest loss areas. Revamping bulk metering and analysis to localize losses and establish periodic energy or water balancing practices are key to quickly finding the sources of the loss.

5. Implementing a Robust Meter-to-Cash Framework

Many utilities focus on technological solutions and overlook management practices in the field. Robust meter-to-cash practices are instrumental to loss reduction. These practices include adequate monitoring of the metering integrity, taking the readings, accurate and timely billing, timely collections, disconnections, and reconnections. A robust meter-to-cash framework is essential to correct electricity and water balancing. If the balancing is not done monthly, or at least quarterly, the utility cannot determine if the losses are decreasing from one period to another.

6. Performance Management: Setting Clear Points of Accountability

Revamping the performance management framework and processes is important, especially in setting points of accountability. It is common to see a utility struggling with losses yet not having defined the responsible or accountable persons for identifying and reducing the losses. Such revamp is about the internal organization of the utility’s commercial operations. It is important to ensure that the specific persons are made responsible and held accountable for the loss reduction. At the same time, it is essential to adequately empower and equip these people to do their job well. Often the organization is misaligned in this regard.

7. Revenue Protection & Internal Control: Securing Your Utility's Finances

Revenue protection, or revenue assurance, is often overlooked by the utilities. Utilities struggling with stubborn losses need specialized and dedicated teams that inspect and audit the connections and metering points on a regular basis, ensuring that there are no illegal taps. Residential units, industries, and other commercial entities sometimes resort to illicit taps, meter tampering, or meter bypasses. Dedicated revenue protection teams should be integrated as part of the meter-to-cash processes and should carry out regular inspections and respond to the reports of suspicious connections reported by the meter readers or the alerts sent by smart metering infrastructure.

The teams should also be trained in gathering and documenting adequate evidence so that potential prosecution and loss recovery can be possible. Robust internal audit and internal control practices should also be activated to ensure compliance within the internal ranks of the utility. Relaxed internal control may lead to inertia in the fight against utility losses.

8. Investment and Management Plans: The Backbone of Efficient Utilities

To address technical losses, as well as commercial losses, designing and implementing tailored network and metering investment and maintenance plans is important, but only after adequate control of the utility is established. Such initiatives include investments to replace cables or upgrade transformers in the electric utilities or fix leaks or upgrade pumps in water networks and install meters and monitoring devices to address losses.

9. Energy and Water Nexus: An Underexplored Approach to Minimize Losses

There can be a correlation between water and electricity, and there are ways to decrease some portion of the losses by taking certain steps. These include the design and implementation of efficiency measures to drive down the costs and losses when consuming energy to supply water or using water to produce energy. For example, power consumption is a major cost contributor to supplying water. Often the equipment is old or inefficient, which consumes too much power, adding to the financial losses of the utility.


How NEOS Can Help: Reducing Losses at Energy and Water Utilities

NEOS specializes in reducing losses at energy and water utilities. We provide a full range of services to reduce losses – from baselining all the way to full implementation, including operating utilities under management contracts. Our specialists have successfully worked with over a hundred utilities globally, achieving unprecedented loss reduction results where others have failed. Reach out to learn more about how NEOS can help.


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