LEGISLATIVE FISCAL ESTIMATE
SENATE, No. 278
STATE OF NEW JERSEY
220th LEGISLATURE
DATED: NOVEMBER 13, 2023
SUMMARY
Synopsis: Requires water purveyors to conduct, and report to DEP, water loss
audits.
Type of Impact: Annual expenditure increase to the State and affected local
governments. Potential expenditure decrease to the State and local
governments. Potential revenue increase to the State and local
governments.
Agencies Affected: Department of Environmental Protection and certain local
governments.
Office of Legislative Services Estimate
Fiscal Impact Year 1-3 Year 4-5 Year 6-15
Cumulative State and Local Water Up to $29.4 Up to $40.8
Purveyor Expenditure Increase million million 0
Potential Annual State & Local Water
Purveyor Expenditure Decrease 0 0 Indeterminate
Potential Annual State & Local Water
Purveyor Revenue Increase 0 0 Indeterminate
Annual State Expenditure Increase $200,000 $200,000 $200,000
 The Office of Legislative Services (OLS) estimates that the preparation and delivery of the
annual water loss audit reports by local governments and the State will cost collectively up to
$970,000 annually. The OLS also assumes that the Department of Environmental Protection
will require at least two additional staff to execute these requirements of the bill, which would
cost the State approximately $200,000 annually.
 The OLS notes that public water systems may be required to develop and implement water loss
reduction programs and estimates the total costs would be up to $65.2 million for locally owned
and $200,000 for State-owned public water systems over a five-year period.
 The OLS further notes these water loss reduction programs would likely result in expenditure
decreases and revenue increases for water purveyors over the long term, which could
potentially offset the costs.
Office of Legislative Services Legislative Budget and Finance Office
State House Annex Phone (609) 847-3105
P.O. Box 068 Fax (609) 777-2442
Trenton, New Jersey 08625 www.njleg.state.nj.us
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BILL DESCRIPTION
This bill would amend and supplement the Water Supply Management Act to require certain
water purveyors to conduct annual water loss audits.
Specifically, beginning no later than 24 months after the bill is enacted into law, every water
purveyor serving at least 3,300 individuals would be required to annually submit a water loss audit
to the Department of Environmental Protection. The bill would direct the department, within 18
months after the bill is enacted into law, to adopt regulations concerning the conduct and validation
of water loss audits based on the most current edition of the American Water Works Association’s
“Water Audits and Loss Control Programs, Manual M36” and its associated Free Water Audit
Software. The regulations would include a requirement to notify the water purveyor’s customers
of the water loss reported in the water audit on or with the water purveyor’s next annual consumer
confidence report or on or with the next bill the customer receives after the water audit is submitted.
In addition, public water utilities regulated by the Board of Public Utilities would be required to
provide the board with a completed and validated water loss audit.
The bill would also require the Department of Environmental Protection to adopt, no sooner
than 36 months and no later than 48 months after the date of enactment of the bill into law,
regulations: (1) specifying a minimum data validity score or a specific level of yearly improvement
in the data validity score of future annual water loss audit reports; and (2) setting forth performance
standards to be met by a water purveyor concerning the volume of water losses.
The bill would require the Department of Environmental Protection, in consultation with the
New Jersey Infrastructure Bank, to establish, in each of the two fiscal years beginning after the
date of enactment of the bill, a grant program to assist water purveyors in procuring water loss
audit report validation under the bill, within the limits of funds appropriated or made available to
the department.
The bill would also require the Department of Environmental Protection to provide technical
assistance to water purveyors concerning: (1) the American Water Works Association’s “Water
Audits and Loss Control Programs, Manual M36” methodology, data tracking, and use of the
associated Free Water Audit Software; and (2) available water loss reduction programs, including,
but not limited to, metering techniques including testing, repair, and replacement, pressure
management techniques, condition-based assessment techniques for transmission and distribution
pipelines, and active leak detection. The department would establish a technical advisory
committee to assist with the implementation of the bill.
Finally, the bill would require a water purveyor that is subject to the requirements of the Water
Quality Accountability Act to consider the findings of its annual water loss audit reports when
determining which projects shall receive highest priority in its asset management plan required
pursuant to State law.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS estimates that the preparation and delivery of the annual water loss audit report to
the Department of Environmental Protection will cost public water systems collectively
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approximately up to $970,000 annually. In addition, the OLS notes that future regulations will be
adopted by the department specifying a minimum data validity score or specific level of yearly
improvement for future water loss audit reports and performance standards for the volume of water
losses. Water purveyors may therefore be required to develop and implement water loss reduction
programs. The OLS estimates the total cost to local governments for water loss reduction programs
would be approximately $65.2 million over a five-year period and the total cost to the State
government would be approximately $200,000 over a five-year period. The OLS also assumes
that the department will require at least two additional staff to execute these requirements of the
bill, which would cost the State approximately $200,000 annually.
Costs to Public Water Purveyors
The OLS notes that, according to Department of Environmental Protection data, there are 192
public water systems owned by local governments, and two public water systems owned by the
State (Stockton University – Main Campus and the New Jersey State Prison – Bayside) that would
be covered under the provisions of the bill. The following paragraphs will discuss: (a) the cost of
producing an annual water loss audit report; (b) the cost of performing a “level one validation;”
(c) the cost of water loss reduction programs; and (d) the potential savings and revenue gains from
the implementation of certain water loss reduction programs and improved billing practices.
(a) Annual Water Loss Audit Report Cost
The OLS estimates that the costs to prepare the annual water loss audit report will involve a
small investment of time by existing staff. The Natural Resources Defense Council notes that
audits using the American Water Works Association Manual, data tracking, and Free Water
Audit Software are typically performed with modest investment of time by existing staff. For
example, utilities regulated by the Delaware River Basin Commission reported that, even
though most existing staff were unfamiliar with the American Water Works Association audit
methodology, most water purveyors completed the audit in one to three days without outside
help. For a water purveyor already familiar with the methodology and with good internal data
collection and reporting systems, an annual audit can be completed by a single staff member
in as little as two hours.
(b) Level One Validation Costs
The bill requires each annual water loss audit report to include a “level one validation” which,
in most cases, will be performed by a third party consultant who has the technical qualifications
required by the Department of Environmental Protection. Based on testimony the Natural
Resources Defense Council provided to the Assembly Environment and Solid Waste
Committee on a substantively similar bill in 2017, independent third party level one validation
by a qualified third party consultant requires approximately 10 to 20 hours, and will cost
between $2,500 and $5,000 for each public water system. This yields a total Statewide cost of
up to $960,000 for local governments and $10,000 for the State, annually. Depending on the
regulations for consultants established by the department, a public water system may be able
to use existing staff to fulfill this requirement of the bill.
(c) Water Loss Reduction Program Costs
If the Department of Environmental Protection required water loss reduction programs, the
OLS estimates the total cost to local governments would be approximately $65.2 million over
a five-year period and the total cost to the State government would be approximately $200,000
over a five-year period. Although the bill does not require that any remedial actions be taken,
the OLS notes that bill requires the department to adopt regulations specifying a minimum data
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validity score or specific level of yearly improvement for future water loss audit reports and
performance standards for the volume of water losses. Water purveyors may therefore be
required to develop and implement water loss reduction programs. Water loss reduction
programs include metering techniques, pressure management techniques, condition-based
assessment techniques, and active leak detection. It is difficult to generalize about the costs
associated with each water loss reduction program onto a water purveyor because they are
dependent on: (a) the size and condition of the public water system; (b) the extent of the follow-
up programs; and (c) whether or not consultants are used. Each water loss reduction program
would be implemented incrementally over the course of several years. The table below shows
the total costs of water loss reduction programs if conducted over a five-year period. The OLS
estimates that the implementation of water loss reduction programs would cost a small-sized
water purveyor approximately $100,000, a medium-sized water purveyor $300,000, and a
large-sized water purveyor $1.5 million.
Cost Impact of Water Loss Reduction Program Over 5 Years
Year 1 Year 2 Year 3 Year 4 Year 5 Total Cost
Small PWS $10,000 $15,000 $20,000 $25,000 $30,000 $100,000
Medium PWS $20,000 $40,000 $60,000 $80,000 $100,000 $300,000
Large PWS $100,000 $200,000 $300,000 $400,000 $500,000 $1,500,000
As mentioned above, there are 192 locally-owned public water systems and two State-owned
public water systems covered under the bill. In performing the analysis below, the OLS makes
the following simplifying assumptions: (a) each public water system will follow a five-year
water loss reduction program implementation plan; (b) they will not incur any additional costs;
(c) there are no existing water loss reduction programs currently operating in the State; and (d)
small water systems are those that serve fewer than 10,000 people, medium water systems are
those that serve between 10,000 and 50,000 people and large water systems are those that serve
more than 50,000 people. This means that there are 70 locally-owned and two State-owned
small public water systems, 104 locally owned medium public water systems, and 18 locally-
owned large public water systems covered under the bill. Multiplying these numbers by the
cost estimates above yields a cost of approximately $65.2 million to local governments and
$200,000 to the State over a five-year period. The OLS notes that these costs may be mitigated
if water purveyors already have some of the aforementioned water loss reduction programs in
place.
(d) Water Purveyor Savings and Revenues
The OLS notes that with implementation of the aforementioned water loss programs and
accompanying cost investment, water purveyors could potentially decrease expenditures by up
to $10 million annually. According to the United States Environmental Protection Agency, up
to 75 percent of water loss is recoverable. According to information the Natural Resources
Defense Council included in its 2017 testimony on a substantively similar bill, in New Jersey,
130 million gallons of treated drinking water are lost each day. Of this, over 50 million gallons
per day of water losses are attributed to leakage, valued at $10 million annually. In addition,
the OLS notes that based on information in the Joint Legislative Task Force on Drinking Water
Infrastructure’s January 2018 final report, water purveyors could potentially gain an additional
$12.5 million in revenue annually through improved water measurement and billing practices
for unauthorized use and under-billing. These estimates included privately-owned public
water systems as well, so the figures for public-owned systems would be reduced.
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Costs to the Department of Environmental Protection
The OLS notes that the bill requires the Department of Environmental Protection to adopt
regulations concerning water loss audits based on the most current edition of the American Water
Works Association Manual and to update these regulations no later than one year after the release
of any subsequent edition of the manual. After reviewing the annual “level one” validated water
loss audits submitted by water purveyors, the department is required to adopt regulations
specifying a minimum data validity score or specific level of yearly improvement for future water
loss audit reports and the performance standards for water loss. The bill also requires the
department to provide technical assistance to water purveyors for: (a) the American Water Works
Association Manual methodology, data tracking, and Water Audit Software; and (b) the
development and implementation of water loss reduction programs. Under the bill, the
department, in consultation with the New Jersey Infrastructure Bank, is required to establish a
grant program to assist water purveyors in procuring water loss report validation. The OLS
estimates that the department will require at least two additional staff to execute these requirements
of the bill, which would cost the State approximately $200,000 annually.
In addition, the Department of Environmental Protection is required to post the validated water
loss audit reports on its website in a manner that allows for comparisons between water purveyors.
The OLS is unfamiliar with the capabilities of the department to develop the software necessary
to implement these requirements of the bill, and thus cannot provide a precise cost estimate for its
development.
Section: Environment, Agriculture, Energy, and Natural Resources
Analyst: Eric Hansen
Senior Research Analyst
Approved: Thomas Koenig
Legislative Budget and Finance Officer
This legislative fiscal estimate has been produced by the Office of Legislative Services due to the
failure of the Executive Branch to respond to our request for a fiscal note.
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).


Statutes affected:
Introduced: 58:1A-3, 58:1A-9, 58:1A-14, 58:1A-15, 58:31-7