Part 4: Forecasting the demand for drinking water

4.1
In this Part, we discuss:

• the information local authorities were using to forecast demand for drinking water;
• the risks and assumptions in the forecasts;
• the methods local authorities were using to calculate their forecasts; and
• the effectiveness of the local authorities' forecasting for drinking water.

4.2
We expected the eight local authorities to have effective methods for forecasting the demand for drinking water that:

• used relevant information and showed an understanding of the main factors that influence demand;
• stated assumptions about factors that might affect future water demand;
• identified and documented risks associated with the forecasts; and
• were appropriate to the size of the community being supplied.³

Our overall findings

4.3
Five local authorities used a forecasting method that would be considered the minimum in terms of industry standards. This may be enough for local authorities with very little growth, or those operating well within the capacity of their water supplies. However, it is problematic for local authorities needing to build or upgrade infrastructure, or facing restrictions on access to water. The forecasting method could result in infrastructure that is not the right size for the community's needs. Local authorities risk under-spending or over-spending, and could put more pressure on water sources than is necessary.

4.4
The ability of some of the local authorities to prepare reliable forecasts was limited by the quality of information they had on factors that influence the demand for water, particularly information about water use.

4.5
Few of the local authorities dealt explicitly with uncertainty in their forecasts. We did not see many instances of forecast verification or peer review.

Information used to forecast demand

The ability of five of the local authorities to prepare reliable forecasts was limited by the quality of information they had, particularly information about water use.

4.6
The main factors that can influence future demand for drinking water are set out in Figure 4. To forecast demand, a local authority needs information about these factors relevant to its particular district. The extent to which these factors are relevant to an individual local authority depends on the nature of its water consumers. For example, some local authorities do not have a large industrial sector, while others supply rural water schemes.

Figure 4
Main factors influencing the future demand for drinking water

4.7
Our analysis showed that the main sources of information the local authorities used to understand the factors affecting demand were:

• historical water use data;
• population growth estimates provided by Statistics New Zealand;
• household dwelling growth derived from building and resource consent numbers;
• research into growth expectations in the industrial and commercial sectors; and
• research into growth expectations in the rural sector (only two of the local authorities supply large rural drinking water systems).

4.8
Three of the local authorities had detailed information (Tauranga City Council, Tasman District Council, and Nelson City Council) that enabled more reliable demand forecasting. That is, they had detailed sets of data on all of the relevant matters covered in paragraph 4.2 and in Figure 4. For example, Tauranga City Council had analysed its water use data sufficiently to confirm that the main factor influencing an increase in water use was a lack of rain on preceding days, particularly during summer.

4.9
Five of the selected local authorities had incomplete data sets (Central Otago District Council, Christchurch City Council, Kapiti Coast District Council, South Taranaki District Council, and Opotiki District Council). In our view, this creates doubt about the reliability of the forecasting. A common limitation was incomplete asset management information (for example, incomplete asset registers and incomplete information about the condition of assets).

4.10
Another limitation was the use of water production data as a proxy for water use (Central Otago District Council, Christchurch City Council, Kapiti Coast District Council, and South Taranaki District Council). The likely outcome of this is an over-estimation of demand, mainly because leaks are not accounted for. All four local authorities were taking steps to improve their data.

4.11
Our finding about data limitations is generally consistent with other research on this matter. An industry-led initiative, the Ingenium Water Information Management Steering Group, has been set up to improve water data.

4.12
The types of information that the local authorities used are discussed further in the next sections.

Measuring how much drinking water is used

4.13
The eight local authorities used different methods for measuring how much drinking water was used. Four measured water use at the point of production (the volume of treated water produced) and used this as a proxy for water use. The other four measured drinking water use at the point of consumption (that is, on individual properties using data from water meters). This provided more accurate data on actual water use.

4.14
All eight local authorities had information on peak and average daily demand for drinking water (see Figure 5). This information is important because it indicates the size of the water supply infrastructure required and the amount of water needed. Peak per person water use varied among the local authorities but reached as high as 4000 litres per person per day in one Central Otago water supply. Central Otago District Council attributed this to high demand for irrigating gardens during summer in an area with very low summer rainfall. Average daily demand also varied widely among the eight local authorities.

Figure 5
Average and peak drinking water consumption per person per day for the eight local authorities

Note: Each local authority collects water use data in different ways, so comparisons need to be made with caution.
* Some supplies are partially metered.
** Data not included here because it was not calculated in litres per person per day and therefore was not comparable.
*** Excludes system leakage.

Growth expectations

4.15
All of the eight local authorities had population forecasts based on population growth estimates provided by Statistics New Zealand. Statistics New Zealand provides high, medium, and low population growth scenarios at five-year intervals up to 2031. Generally, the local authorities based their forecasting on a scenario of medium growth. We consider this reasonable. The exception was Opotiki District Council, which based its forecasting on the high-growth scenario despite a recent decline in population growth.

4.16
Some of the eight local authorities commissioned research to better understand the likely population growth in their districts, such as where growth was likely to occur and the potential implications for infrastructure (see Figure 6). We support this approach, especially for those local authorities facing relatively high rates of population growth, because it enables the local authorities to test the appropriateness of the scenarios from Statistics New Zealand.

Figure 6
Tasman District Council's growth demand and supply model 2008

4.17
Five of the eight local authorities also incorporated information on predicted growth in household numbers (Kapiti Coast District Council, Nelson City Council, South Taranaki District Council, Tauranga City Council, and Tasman District Council). This information can be important because new connections to the water supply affect the level of demand.

4.18
Those local authorities with large commercial or industrial sectors had prepared growth predictions for those sectors (Tauranga City Council and Nelson City Council).

4.19
Of the eight local authorities, only South Taranaki District Council and Tasman District Council had rural water schemes of a significant size. South Taranaki District Council has carried out some useful research to help it form predictions about increased water demand and growth in the rural sector.

Demand forecast risks and assumptions

We found little documented evidence that forecasts were verified or checked using historical data to confirm their reliability. The eight local authorities had outlined the assumptions associated with their forecasts.

4.20
The eight local authorities had outlined the assumptions associated with their forecasts for drinking water. Some used a limited set of assumptions. For example, they used only estimated population growth and projected water use. Others used a more detailed set of assumptions.

4.21
We saw very little evidence that the eight local authorities verified their forecasts or checked their forecasts using historical data (that is, put historical data through the forecasting model to see whether the resulting forecast is close to actual current water use). We also saw little evidence that forecasts were peer reviewed.

4.22
Only Tauranga City Council provided evidence of some verification of its forecasts. The Smart Growth programme⁴ provides for regular and timely monitoring and review to ensure that actual growth circumstances are evaluated, and that the strategy is modified when necessary. It aims to ensure that planning decisions are based on the best information.

Methods used to calculate demand forecasts

Three of the eight local authorities relied on forecasts based solely on a linear relationship between population growth and historical water use. Two used forecasts that used additional information on factors influencing demand. Three had forecasts using yet more detailed analysis of demand factors and more accurate data about actual water consumption.

4.23
Demand forecasts can vary from simple linear trends (for example, assuming a direct linear relationship between water use and population growth) to regression models based on historical trends in a number of factors that may influence demand. Given the different circumstances of local authorities, a range of forecast methods is acceptable. For example, a linear trend method would be acceptable for a small local authority with an abundant water source. However, a large local authority or one with supply issues would need to use a more sophisticated approach.

4.24
Three of the eight local authorities (Central Otago District Council, Christchurch City Council, and Opotiki District Council) used demand forecasts based on an assumed linear relationship between predicted population growth and historical water production. However, Christchurch City Council has a strategy for improving the sophistication of its forecasting. It has prepared a demand forecasting model that it will use in future.

4.25
Two of the eight local authorities (Kapiti Coast District Council and South Taranaki District Council) used a linear model but showed a more complex understanding of demand factors. For example, they had identified more demand factors, analysed water consumption patterns for different sectors, and improved the quality of their data as a result of research. These local authorities were not yet able to model the potential effect of any strategies on future demand.

4.26
Three of the eight local authorities (Nelson City Council, Tasman District Council, and Tauranga City Council) had prepared forecasts that used more detailed analysis of demand factors and more accurate data about water use (because all households have water meters). Nelson City Council and Tauranga City Council have a modelling capacity that enables them to examine the potential effect of any strategies on future demand.

4.27
Figure 7 summarises the results of the forecasts prepared by the eight local authorities. It shows the forecast increased demand in terms of the additional amount of water likely to be needed (expressed as a percentage increase on current consumption).

Figure 7
Increased demand for drinking water forecast by the eight local authorities

Note: Figures are based on our approximation of the forecast demand and rounded to the nearest 5%.
* This figure is based on an assumption that demand management strategies will be effective.

Effectiveness of forecasting

Five of the eight local authorities used demand forecasting that would be considered the minimum in terms of industry standards. This is problematic for local authorities needing to build new infrastructure or facing restrictions on their access to water. They could spend money on infrastructure that is not the right size for their needs, and could put more pressure on water sources than they need to.

4.28
Five of the eight local authorities used demand forecasting that does not fully meet the core asset management planning criteria in the International Infrastructure Management Manual (2006) (see Figure 8). This would be considered the minimum in terms of industry standards. In our view, the other three local authorities are at an intermediate level because they have met the core criteria but not all of the advanced criteria.

Figure 8
Comparing the asset management planning of the eight local authorities with the criteria set out in the International Infrastructure Management Manual (2006)

* We devised these size groups to help with the 2006 LTCCP audit process. We used six variables. Three relate to external constraints (population, rates to median income, and population to area) and three relate to internal constraints (full-time equivalent staff, debt to equity, and other council income). Broadly, 1 indicates a small local authority and 6 indicates a large local authority.

** There was not enough data available for us to form a view.

4.29
There was some correlation between the size of the local authority and how detailed its forecasting was. With the exception of Christchurch City Council, the larger local authorities had more sophisticated forecasts.

4.30
However, the context in which the eight local authorities operated also seemed to be a strong influence on how detailed their forecasting was.

4.31
Unsurprisingly, those local authorities that have experienced population growth for some time and/or were operating near the capacity of their drinking water supplies (for example, Tauranga City Council and Tasman District Council) have prepared a more complex analysis of the variables they need to consider.

4.32
Those local authorities with low rates of population growth and/or operating well within the capacity of their drinking water supplies (for example, with access to abundant water), such as Opotiki District Council and Christchurch City Council, did not have highly detailed forecasts. They had taken into account only predicted population growth and historical water consumption and assumed a linear relationship between the two. These local authorities estimated that they had enough supply capacity and water sources to accommodate more future growth than was predicted, by a large margin.

4.33
Four of the local authorities used water production data as a proxy for water use (South Taranaki District Council, Central Otago District Council, Kapiti Coast District Council, and Christchurch City Council). Estimating water use in this way is likely to produce water demand forecasts that are higher than actual demand, because the forecasts include water lost to leaks before reaching consumers as well as the water that is actually used. These local authorities did not take into account any possible water savings (through leak detection and repair, system efficiencies, or conservation).

4.34
This approach may be acceptable for local authorities that have very little growth or are operating well within the capacity of their supply systems (for example, Opotiki District Council or Christchurch City Council). The underlying assumption is that current water use will continue and there is little risk of running out of water in the circumstances outlined above.

4.35
However, relying on a high estimate may result in infrastructure that is larger than it needs to be. This places an additional and unnecessary financial burden on ratepayers. It may also mean that more pressure is put on water sources than there needs to be. This approach is more problematic for local authorities needing to upgrade existing infrastructure or build new infrastructure, or facing restrictions on their access to water (such as South Taranaki District Council, Central Otago District Council, and Kapiti Coast District Council).

3: We used the International Infrastructure Management Manual (2006) for guidance when we set these expectations. (National Asset Management Steering (NAMS) Group, Association of Local Government Engineering NZ Inc (INGENIUM) (2006) 3rd edition (Version 3.0), Wellington.

4: The Smart Growth programme (led by Environment Bay of Plenty, Tauranga City Council, Western Bay of Plenty District Council, and t ngata whenua) facilitates integration between district planning and infrastructure provision to manage growth in the Western Bay of Plenty district.