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American Water audit finds savings amid rate hike investigation

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(The Center Square) — Pennsylvania’s largest water company could save millions annually with improved monitoring and material management, according to a recent analysis.

The state Public Utility Commission’s audit of the Pennsylvania-American Water Company, which serves about 2.4 million people across 37 counties, gave more than 30 recommendations for operations, monitoring and management of the company. If the changes are made, the commission argued more than $3 million could be saved annually, in addition to a one-time $4 million cost reduction.

The findings were released after the commission voted unanimously to suspend American Water’s proposed 25% rate increase for seven months while it further investigates their request. In a November press release, the company said it would use the extra money to invest $1 billion back into its water and wastewater system.

The commission expects that most of its recommendations would take up to a year to apply, with change for many of them within six months.

The biggest money-saving suggestion is for the company to change how it measures the water it loses from production to consumption.

The current “unaccounted-for water” methodology counts leaks, thefts and other losses. Changing that to a “non-revenue water” approach pushed offers two benefits: it accounts for water used by firefighters and emergency services that is not billed for and can also measure system performance.

The commission also dinged the water company for mixing two methods of measuring unaccounted-for water. 2022 the company reported about 13 billion gallons uncounted, but commission corrections estimated the actual figure at almost 19 billion gallons.

The claimed amount put the water company under the state threshold in four of the last five years, but commission-calculated levels pushed it above that same threshold for all five years.

“The average amount of water lost in excess of the Commission’s 20% UFW for 2018 – 2022 is approximately 5.1 billion gallons,” the commission noted. “By using the company’s average variable production cost (in $/Million gallons) from 2018 – 2022, the company could save $2.53 million annually.

Another significant source of savings could come from drawing down the company’s high material inventory. When supply chains were tightened and materials were difficult to get, the company stockpiled some to avoid issues.

The commission said returning to pre-pandemic inventory levels could bring a one-time $4 million inventory reduction and $600,000 in annual savings.

“Not all industries have returned to normal so it may be prudent to retain higher levels of certain materials still facing constraints,” the report noted. “Therefore, this drawdown may be done over the next two to three years.”

Beyond the fiscal impact, the commission also recommended administrative changes, such as improving annual reviews of the water company’s policies and documents. The company tracks them manually, according to the audit, in a spreadsheet.

“The manual process, together with the lack of version control, increases the potential for outdated and inaccurate policies and procedures,” the report noted. “Failure to maintain current documentation increases the risk for operations and practices to deviate from management’s control or fail to provide adequate direction to employees to perform their duties.”

The problem extends to tracking staff performance, too, with the reports to company management found lacking. Management received general targets or statements instead of “more granular goals” that could reveal efficiency problems.

“Lack of defined and clearly communicated goals that align with key performance metrics could hinder PAWC’s effectiveness in communicating tangible standards for performance to staff,” the audit noted.

In its response, the water company accepted most recommendations, in full or in part, saying it strives to reduce its unaccounted-for water to below the 20% threshold. It will also implement an improved consumption methodology.

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