1. Water Reliability, Conservation and Recycling Quantifying The Value of Diversification Gary Wolff, P.E., Ph.D. 7 April 2006

2. Yield Reliability: Acknowledgments and Disclaimers This Work Was Funded by the Bureau of Reclamation; Thanks to Steve Kasower and Kevin Price Thanks Also to Mark Buehler, Tom Chesnutt, Michael Hanemann, Michael Kiparsky, Bob Raucher, and Bob Wilkinson, for Sharing Their Thinking on This Topic Disclaimer: The Following Results Are A Mix of Fact and Fiction

3. A Fictional Water Supply Problem Water and Financial Managers Face A Similar Problem: How To Deliver Water or Pension Checks Year After Year, Reliably, Despite Weather or Stock Market Uncertainty

4. Satisfying Growth In Demand: The Old Math DTDT DEDE 2 S.D. Annual Reservoir Releases Available For Use (units per year) % of Years SNSN

5. Satisfying Growth in Demand: Portfolio Math On Previous Slide, S N = ( D T – D E ) Leaves Out Uncertainty in Supply Sources Should Write: S N = ( D T – D E ) + S R Where S R Is Insurance Against Uncertainty And S R Depends On: –Variability of Existing (E) and New (N) –Correlation Between E and N Sources

6. Comparing Some Fictional Options Source of S N S.D. of N Correlation Of E & N S N / Unit of Growth Desalinated or Recycled Water 0% 0.01.00 Import X10% 1.01.25 Import Y20% 0.81.55 Landscape Use Efficiency 10%0.85

7. Adjusting To Achieve Constant-Reliability Can Change Decisions

8. How Can We Compare “Equally Reliable” Options? The Energy Intensity of Options Varies For Example, Recycled Water Is Far Less Energy Intensive Than Desalinated Seawater Consequently, Energy Price Increases And Volatility Affect The Cost of Recycled Water Less Than The Cost of Desalinated Water This Reduced Exposure to Energy Price Increases And Volatility Is A Quantifiable Advantage

9. Recycled Water Is NOT Very Energy Intensive (SDCWA Data)

10. Impact of Energy Price Changes on Water Cost Over Time (LA Area)

11. Impact of Energy Price Changes on Water Cost Over Time (SF Area)

12. Conclusions We Can Quantify the Value of Diversification However, We Need Case Studies to Fully Do So Gary Wolff, P.E., Ph.D. gwolff@pacinst.org