Presentation is loading. Please wait.

Presentation is loading. Please wait.

Recycled Water – Economic and Financial Quandaries 21 November 2011 Recycled Water Rulemaking Workshop II CPUC, San Francisco, California Richard A. Mills.

Similar presentations


Presentation on theme: "Recycled Water – Economic and Financial Quandaries 21 November 2011 Recycled Water Rulemaking Workshop II CPUC, San Francisco, California Richard A. Mills."— Presentation transcript:

1 Recycled Water – Economic and Financial Quandaries 21 November 2011 Recycled Water Rulemaking Workshop II CPUC, San Francisco, California Richard A. Mills Water Recycling and Desalination Section California Department of Water Resources

2 Perceived cost (price) ≠ Marginal costPerceived cost (price) ≠ Marginal cost Agency marginal cost ≠ Social marginal costAgency marginal cost ≠ Social marginal cost Poorly planned project ≠ Water savingsPoorly planned project ≠ Water savings Reclaimed water user ≠ Reclaimed water beneficiaryReclaimed water user ≠ Reclaimed water beneficiary

3 Presentation Overview Water reclamation project componentsWater reclamation project components Institutional relationships and economic implicationsInstitutional relationships and economic implications Water reclamation project planning context and cost impactsWater reclamation project planning context and cost impacts Beneficiary discussionBeneficiary discussion Pricing and cost recoveryPricing and cost recovery

4 I Recycled Water: What is it? How does it get to point of use?

5 Recycled Water Water Code Section 13050(n):Water Code Section 13050(n): “Recycled water” means water which, as a result of treatment of waste, is suitable for a direct beneficial use or a controlled use that would not otherwise occur and is therefor considered a valuable resource. Also called “reclaimed water” (WC Section 26)Also called “reclaimed water” (WC Section 26)

6 Recycled Water – Key Characteristics Origin: WastewaterOrigin: Wastewater TreatedTreated Suitable for eitherSuitable for either  Direct beneficial use (piped to a point of use)  Controlled use (indirect but planned use, e.g., groundwater recharge) (based on legislative history)

7 Recycled Water – CPUC Policy Focus Assume source is treated municipal wastewaterAssume source is treated municipal wastewater

8 Water Recycling Not defined in lawNot defined in law Involves any beneficial use of treated wastewaterInvolves any beneficial use of treated wastewater Involves treatment, storage, distribution, and actual use of reclaimed waterInvolves treatment, storage, distribution, and actual use of reclaimed water Also called “wastewater reclamation”, “water reclamation”, or “wastewater reclamation and reuse”Also called “wastewater reclamation”, “water reclamation”, or “wastewater reclamation and reuse”

9 Los Angeles County 2009 Water Recycling LA County Public Works LA City, Bureau of Sanitation County Sanitation Districts of LA County 1,822 AF (Alamitos) 47,555 AF (Montebello Forebay GW Recharge) WRD 347 AF Long Beach WD 2,169 AF 4,645 AF Pomona, Walnut Valley, and Rowland WDs Cities of Bellflower, Cerritos, Industry, and Lakewood Upper San Gabriel Valley MWD 3,439 AF 6,467 AF Central Basin MWD 1,054 AF 3,429 AF 4,077 AF 18 AF 1,246 AF 2,176 AF 401 AF 933 AF 63 AF 1,504 AF 2,032 AF Various Cities 112,684 AF LA City, Dept. of Water & Power 2,365 AF (Dominguez Gap) 35,574 AF 37,939 AF City of Glendale 1,419 AF 3,429 AF Burbank Water and Power Las Virgenes MWD 148 AF 2,090 AF 5,174 AF ? AF West Basin MWD 6,268 AF (West Coast Barrier) 28,768 AF 6,163 AF 15,780 AF Cities of Manhattan Beach, El Segundo, & Torrance Golden State WC and Cal Water 559 AF 2 Collection and treatment Collection, treatment, and distribution Supplemental treatment and distribution Distribution Injection barrier and recharge management Brine Direct retail customers

10 Institutional Relationships Wastewater and water supply agenciesWastewater and water supply agencies Wholesale and retail agenciesWholesale and retail agencies Reclaimed water suppliers and purveyorsReclaimed water suppliers and purveyors Agencies representing multiple service areasAgencies representing multiple service areas

11 Infrastructure of Recycled Water Sewage collection systemsSewage collection systems Wastewater treatment for disposal and reuseWastewater treatment for disposal and reuse Additional wastewater treatment for reuse (often not required)Additional wastewater treatment for reuse (often not required) Recycled water storage (daily operational or seasonal)Recycled water storage (daily operational or seasonal) Distribution system pump stationsDistribution system pump stations Pipeline distribution systemPipeline distribution system Customer meters and valvesCustomer meters and valves On-site facilities (not public infrastructure)On-site facilities (not public infrastructure)

12 On-site Facilities Separate purple pipe plumbingSeparate purple pipe plumbing Retrofit of existing sites to convert to reclaimed waterRetrofit of existing sites to convert to reclaimed water On-site reclaimed water treatmentOn-site reclaimed water treatment Backflow prevention and cross- connection controlsBackflow prevention and cross- connection controls  To protect public potable water system  To protect potable system on site

13 Cost Elements Planning & designPlanning & design Capital costs (construction, land)Capital costs (construction, land) Operation, maintenance, replacementOperation, maintenance, replacement Debt service (financial analysis, not economic analysis)Debt service (financial analysis, not economic analysis)

14 Who Will Pay? Sewer usersSewer users Reclaimed water usersReclaimed water users Potable water customersPotable water customers Regional, state, or federal governmentsRegional, state, or federal governments

15 II Perceived vs Real Marginal Cost

16 Potable Water System Structure Serving Walnut Valley Water District

17 Institutional Relationships for Walnut Valley Water District Water Reclamation Project

18 Who Develops Projects? New freshwater suppliesNew freshwater supplies  Developed at regional and state levels Reclaimed water suppliesReclaimed water supplies  Developed at local levels (wholesale and retail agencies)

19 Disconnect in Cost Perception Recycled water developerRecycled water developer  does not perceive the marginal costs of alternative new freshwater supplies  compares recycled water to wholesale price of freshwater

20 Perceived cost (price) ≠ Marginal cost Price = Melded average of past and current projectsPrice = Melded average of past and current projects Price ≠ Marginal cost of existing or new water suppliesPrice ≠ Marginal cost of existing or new water supplies

21 Agency marginal cost ≠ Social marginal cost Agency marginal cost = marginal cost ofAgency marginal cost = marginal cost of  Either its own sources of supply or  Wholesale price of purchased supply Local agency marginal cost ≠ True social marginal cost of ultimate source of supplyLocal agency marginal cost ≠ True social marginal cost of ultimate source of supply

22 Viewpoint Sponsoring agency -Sponsoring agency -  considers only consequences affecting this entity Public (statewide or “societal”) -Public (statewide or “societal”) -  incorporates all costs and benefits to whomsoever they may accrue  considers externalities

23 Rational Cost Decisions in Ideal World Seek alternatives that have the highest net benefit (or lowest net cost) to society as a wholeSeek alternatives that have the highest net benefit (or lowest net cost) to society as a whole Avoid alternatives that benefit only particular segments of society (e.g., agencies, customers)Avoid alternatives that benefit only particular segments of society (e.g., agencies, customers) Role of economic analysisRole of economic analysis

24 III Planning Issues and Cost Implications

25 Seven Feasibility Criteria Engineering feasibilityEngineering feasibility Economic feasibilityEconomic feasibility Financial feasibilityFinancial feasibility Institutional feasibilityInstitutional feasibility Environmental impactEnvironmental impact Social impact and public acceptanceSocial impact and public acceptance Market feasibilityMarket feasibility

26 Engineering Issues Water qualityWater quality Public health protectionPublic health protection Wastewater treatment alternativesWastewater treatment alternatives Storage and distribution system siting and designStorage and distribution system siting and design On-site conversions at water use sitesOn-site conversions at water use sites Matching supply and demand for reclaimed waterMatching supply and demand for reclaimed water Supplemental and backup water suppliesSupplemental and backup water supplies

27 Water Quality User requirementsUser requirements Health regulationsHealth regulations

28 Market Assessment & Market Assurances Assessment – Identifying potential reclaimed water users and feasibility of serving themAssessment – Identifying potential reclaimed water users and feasibility of serving them Assurances – Mechanisms to ensure users will participate in water reclamation projectAssurances – Mechanisms to ensure users will participate in water reclamation project

29 Reclaimed Water Market Assessment Identify & characterise potential reclaimed water usersIdentify & characterise potential reclaimed water users Analyze feasibility of service (including pricing and on-site cost issues)Analyze feasibility of service (including pricing and on-site cost issues)

30 Market Assurances - Firm Commitments District owns land of use siteDistrict owns land of use site District leases land of use siteDistrict leases land of use site User contractUser contract Mandatory reclaimed water use ordinance (must be at retail level)Mandatory reclaimed water use ordinance (must be at retail level)  Not effective for self-supplied users

31 Market Assurances - Other Forms (not recommended) Broad water rights authority (Water Code Sec )Broad water rights authority (Water Code Sec )  Only enforceable by cumbersome water rights process Sale by reclaimed water use permit or informal agreement without long-term obligationSale by reclaimed water use permit or informal agreement without long-term obligation

32 Consequences of Market Shortfall Stranded costs in form of unused or under-used facilitiesStranded costs in form of unused or under-used facilities Costs borne by potable and reclaimed water ratepayersCosts borne by potable and reclaimed water ratepayers

33 Reasons for Deficiencies in Use Original estimate of water demand too highOriginal estimate of water demand too high Undeveloped users never constructedUndeveloped users never constructed Developments occurred later than expectedDevelopments occurred later than expected Difficulties meeting permitting and reporting requirementsDifficulties meeting permitting and reporting requirements Users never reached final agreementUsers never reached final agreement  Quality concerns  Reclaimed water price concerns  On-site conversion (retrofit) costs  Inconvenience, etc

34 Reasons for Deficiencies in Use (continued) Distribution pipelines never added as plannedDistribution pipelines never added as planned  Cost  Lack of users Interagency agreements never securedInteragency agreements never secured  Wastewater agency-Water purveyor  Water purveyor-Water purveyor Reclaimed water supply inadequate to meet peak demandsReclaimed water supply inadequate to meet peak demands Public opposition (esp. indirect potable use)Public opposition (esp. indirect potable use)

35 Institutional Issues Duplication of service restrictions (Public Utilities Code)Duplication of service restrictions (Public Utilities Code) Contractual agreements betweenContractual agreements between  potable retailer & reclaimed retailer  reclaimed supplier & reclaimed distributor Allocation of responsibilitiesAllocation of responsibilities  construction, operation  meter reading and billing customers  sharing of costs and revenues

36 IV Who is the Beneficiary of Recycled Water?

37 Why Reclaim Water? We should not reclaim water for the sake of reclaiming water: Reclaiming water is not a hobby We reclaim water to meet a fundamental need

38 Purposes for Reclaiming Water Fundamental   Reliable water supply   Public health protection   Environmental protection and restoration   Regional economic development (developing countries)

39 Purposes for Reclaiming Water Secondary   Generate income for wastewater agency by sale of effluent (mostly in areas adjacent to agriculture)   Satisfy need or request of a specific water user for water

40 Beneficiaries Wastewater agency and its ratepayers Water suppliers and all their ratepayers collectively General public receiving protection from water pollution (public health or environmental) Rarely: Only the users of reclaimed water

41 Potable Water Ratepayers as Beneficiaries Reclaimed water   Augments water supply for community development   Improves reliability of supply during shortages   Delays need for new freshwater supply   May be cheaper than alternative freshwater supplies

42 Reclaimed Water Users as Beneficiaries Same shared benefits as for potable water users Greater ensured supply during water shortages However   On-site costs, restrictions, cautionary practices, worker or other exposure liability, potential supply interruptions during wastewater upsets, periodic cross-connection testing

43 Reclaimed Water User Perspective Doing the community more of a favour than helping themselves Expect to pay no more than would have paid for potable water Expect compensation for added on-site costs

44 V Reclaimed Water System Cost Recovery & Pricing Concepts

45 Concepts Both potable and reclaimed water ratepayers have comparable shared benefits Both potable and reclaimed water system costs should have shared cost recovery Potable and reclaimed water systems’ revenue shared Reclaimed water prices tied to potable prices On-site costs should be considered

46 Reclaimed Water System Revenue Connection feesConnection fees Fixed (monthly) chargesFixed (monthly) charges Variable chargesVariable charges  Uniform, declining block, increasing block rates SubsidiesSubsidies  Potable ratepayers or regional, state, or federal assistance  Rationale: Potable cost savings or shared benefits

47 Pricing Considerations Minimum rates (based on cost recovery)Minimum rates (based on cost recovery) Maximum rates (based on customer alternative water sources)Maximum rates (based on customer alternative water sources)  Customers may be in different retail water service areas  Customers may be currently self- supplied

48 Self-Supplied Customers Potential for exchanging reclaimed water for water rights or groundwater allocations

49 Integrated Pricing Reclaimed and potable rates tiedReclaimed and potable rates tied Fixed differential or ratioFixed differential or ratio Consider other avoided costs or lost revenues in service area, e.g., due to displacing delivery of fresh waterConsider other avoided costs or lost revenues in service area, e.g., due to displacing delivery of fresh water Consider on-site costsConsider on-site costs

50 DWR Information Water Recycling and Desalination Section  Rich Mills   (916)

51 End


Download ppt "Recycled Water – Economic and Financial Quandaries 21 November 2011 Recycled Water Rulemaking Workshop II CPUC, San Francisco, California Richard A. Mills."

Similar presentations


Ads by Google