Accounting for the Social Benefits of Recycled Water Workshop 3: CPUC Recycled Water Order Instituting Rulemaking (R ) Eric Rosenblum, PE Envirospectives, Inc. January 19, 2012

Guidelines for Preparing Economic Analysis for Water Recycling Projects Prepared for the State Water Resources Control Board By the Economic Analysis Task Force for Water Recycling in California Technical Authors: Sachi De Souza Josué Medellín-Azuara* Nathan Burley Jay R. Lund Richard E. Howitt UNIVERSITY OF CALIFORNIA, DAVIS CENTER FOR WATERSHED SCIENCES APRIL docs/econ_tskfrce/eagd.pdf

Economic vs Financial Analysis ECONOMIC ANALYSIS FINANCIAL ANALYSIS Do project benefits exceed its costs for California? Purpose – compare alternatives based on benefits and costs Broader perspective, numerous points-of-view Will project make money? Is it affordable? Purpose – determine project’s financial feasibility Cash flow and debt payments Water and wastewater rates Narrower perspective, project proponent only 5 Guidelines for Preparing Economic Analysis for Water Recycling Projects, Economic Analysis Task Force for Water Recycling in California (State Water Resources Control Board, 2011)

Direct Benefits and Costs Direct Benefits Additional Water Supply Reliability Local Control Avoided Cost of Other Projects Diversion of Effluent Discharge Regulatory Certainty Indirect Benefits Environmental Changes Recreation Nutrient Value Property Values Resilience Greenhouse Gas Reduction/Energy Conservation Integrated Resource Management Based on Guidelines for Preparing Economic Analysis for Water Recycling Projects, Economic Analysis Task Force for Water Recycling in California (State Water Resources Control Board, 2011)

Economic Analysis – Identify Benefits and Costs Environment – Restoration – Downstream habitat – Source water protection – Air quality (GHGs) Recreation GW balance/protection 7 from Presentation on Guidelines for Preparing Economic Analysis for Water Recycling Projects, Economic Analysis Task Force for Water Recycling in California (State Water Resources Control Board, 2011)

Financial Analysis 8 Identify and Estimate Costs Develop Capital Financing Mechanisms Design Revenue Scheme Allocate Financial Costs Purpose A User Purpose B User Bonds Loans SCRB Approach from Economic Analysis from presetnation on Guidelines for Preparing Economic Analysis for Water Recycling Projects, Economic Analysis Task Force for Water Recycling in California (State Water Resources Control Board, 2011)

Water Reuse: Expanding the Nation's Water Supply Through Reuse of Municipal Wastewater Committee on the Assessment of Water Reuse as an Approach for Meeting Future Water Supply Needs COMMITTEE ON THE ASSESSMENT OF WATER REUSE AS AN APPROACH TO MEETING FUTURE WATER SUPPLY NEEDS RHODES R. TRUSSELL, Chair, Trussell Technologies, Pasadena, California HENRY A. ANDERSON, Wisconsin Division of Public Health, Madison, Wisconsin EDMUND G. ARCHULETA, El Paso Water Utilities PSB, El Paso, Texas JAMES CROOK, Environmental Engineering Consultant, Norwell, Massachusetts JÖRG E. DREWES, Colorado School of Mines, Golden, Colorado DENISE D. FORT, University of New Mexico, Albuquerque, New Mexico CHARLES N. HAAS, Drexel University, Philadelphia, Pennsylvania BRENT M. HADDAD, University of California, Santa Cruz, California DUANE B. HUGGETT, University of North Texas, Denton, Texas SUNNY JIANG, University of California, Irvine, California DAVID L. SEDLAK, University of California, Berkeley, California SHANE A. SNYDER, University of Arizona, Tucson, Arizona MARGARET H. WHITTAKER, ToxServices LLC, Washington, D.C. DALE WHITTINGTON, University of North Carolina, Chapel Hill, North Carolina NRC Staff STEPHANIE E. JOHNSON, Study Director, Water Science and Technology Board SARAH E. BRENNAN, Program Assistant, Water Science and Technology Board

A New Paradigm for Water Supply “As the world enters the 21st century, the human community finds itself searching for new paradigms for water supply and management in light of expanding populations, sprawling development, climate change, and the limits of existing conventional supplies.” Water Reuse: Expanding the Nation's Water Supply Through Reuse of Municipal Wastewater National Academy of Science, 2012

Financial v. Economic Costs Financial costs involve how much the utility has to pay to construct and operate the project, including interest costs. Economic costs account for all of the costs to whomever they may accrue. These include the financial costs of carrying out the project, as well as costs that take the form of impositions on or losses to anyone who is affected by the project. Water Reuse: Expanding the Nation's Water Supply Through Reuse of Municipal Wastewater National Academy of Science, 2012

Nonmonetized BenefitsDescription Improved reliability Wastewater reuse provides a reliable, local supply of water during regional shortages. By diversifying a utility’s water supply portfolio, acommunity is better able to meet the needs of its water users and the environment in both wet and dry periods and under other stresses. Enhanced reputation for environmental stewardship By embracing water reuse, communities can gain positive recognition for their environmental stewardship. Enhanced regional economic vitality By meeting increased water demands with new sources, communities may enhance local economic growth. Enhanced self-sufficiency By reducing dependence on water imports and providing a local water supply, water reuse can increase a community’s self-sufficiency. Increased water for the environment If some existing surface or groundwater supplies are replaced by water reuse, more water can be made available to meet environmental needs (e.g., instream flows for environmental restoration, reducing withdrawals of overtapped aquifers). Improved surface water quality By diverting discharge of nutrient-laden waters from sensitive surface waters or estuaries to landscape or agricultural irrigation, the net discharge of nutrients to surface water can be reduced. Irrigation with reclaimed water may also reduce the need for additional fertilizers. Possible Nonmonetized Costs and Benefits of Reuse Table 9.3, Water Reuse: Expanding the Nation's Water Supply Through Reuse of Municipal Wastewater National Academy of Science, 2012

Nonmonetized CostsDescription Effects on the overall carbon footprint of water supplies Unless offset by low-carbon energy sources, some water reuse approaches may increase the overall carbon footprint of a water supply compared to existing supplies. Public health effects Poor cross-connection control or inadequate protections against equipment failures could expose the public to pathogens causing acute gastrointestinal illness or low levels of hazardous chemicals. Public perception of reduced quality Public concern over the perceived lower quality of the drinking water supply could lead to increased stress among some individuals and increased expenditures on bottled water. Effects on downstream flows If reclaimed water is used for irrigation or other consumptive uses, water reuse will reduce downstream flows, with potential adverse ecological effects (such as in surface water or estuarine ecosystems) and reduced supply to downstream water users. Where “return flow credits” are offered, as in the Colorado River, water reuse can reduce these credits. Water quality impacts If reclaimed water irrigation rates exceed the capacity for the plants to take up the nutrients, groundwater and surface water can become nutrient-enriched, which can lead to human health effects and environmental impacts, such as eutrophication and algal blooms. Multiple cycles of nonconsumptive water reuse can increase the salinity and contaminant load in the water unless treatment is designed to remove it. Effects on soils and plants Excess salinity can be detrimental to plant growth and high levels of sodium can adversely impact soil structure. Possible Nonmonetized Costs and Benefits of Reuse Table 9.3, Water Reuse: Expanding the Nation's Water Supply Through Reuse of Municipal Wastewater National Academy of Science, 2012

Types of Water Reuse Projects that Maximize Benefits, Minimize Costs Nonpotable reuse by large water customers – Industrial reuse – Collocation of industries Decentralized treatment and reuse – Design of subdivisions, neighborhoods to maximize local reuse Indirect potable reuse Potable water reuse

Questions For consumer advocates and environmentally concerned parties, please discuss your concerns with the cost, pricing, customer classes, regional markets, and other arenas, circumscribing the wholesale and retail sale of recycled water to and by IOU water customers.