chapter 7. water conservation: cost effectiveness - … · 159 chapter 7. water conservation: cost...

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Chapter 7. Water Conservation: Cost Effectiveness

Introduction

This chapter focuses on the cost-effectiveness of conservation strategies. The State of

California's Water Conservation Plan of 2009 set a mandate that water districts must reduce their

per capita water consumption 20% by 2020. Further, the 2009 Conservation Plan identifies a set

of water conservation best management practices to achieve this mandate. The best management

practices are based on state wide studies. While the 14 BMPs that the state of California

recommends were evaluated to be cost-efficient on a state-wide level, no measurement of cost-

efficiency was completed on a district by district basis. A BMP that is cost-efficient on a state-

wide level might not be cost-efficient for a specific water district based on characteristics of the

district: its water supply mix of local and imported sources, the unique cost of implementing a

BMP in a district, and the costs of a district’s planned future water supply addition. The

objectives of the cost-effectiveness study we conducted were to assess if the 14 state

recommended BMPs are cost-efficient for two water districts we studied, to identify which

BMPs provide the most value to each agency in the short and the long term in reducing water

consumption, as well as to determine and compare the differences in the cost-effectiveness of the

strategies among districts.

Methodology for the Cost-Effectiveness Analysis

This report applies a methodology developed by the California Urban Water

Conservation Council to assess which of these conservation measures are the most cost-efficient

in reducing local water districts per capita water use. In this chapter, we present the methodology

and apply it to Los Angeles DWP and to Cucamonga Valley Water District/IEUA. In the analysis,

we focus on water conserving appliances and devices where costs have been quantified.

The cost-efficiency calculations involve a two-step process. First, the marginal cost of

water delivery for the district is calculated. This is the cost to the district of the “last unit” of

water delivered, and is the most expensive unit of water delivered. Finding this marginal cost

gives the district an avoided costs value and is the value to the district of lowering water demand

by one unit.

Second, the cost to the district of each water conservation measure is found by unit of

water demand reduction. Comparing the avoided costs value with conservation measures’ costs

per unit of demand reduction allows the assessment of cost-efficiency. For example, if a district

has an avoided cost value of $100 dollars per unit of reduction then any conservation measure

that cost less than $100 dollars per unit of water savings is considered cost-efficient. The district

will recoup the cost of the measure with its savings from lowered water delivery.

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One of the most important aspects of this methodology is assessing not only short-run

avoided costs but also long-run avoided costs to the district. Currently, many districts evaluate

the costs and benefits of water conservation measures based on short-run avoided costs only.

This under-values conservation measures because it does not take into account future cost

savings for the districts from deferring or downsizing future water system upgrades because of

lowered water demand.

The cost-efficiency methodology is applied to the Los Angeles Department of Water and

Power (LADWP) in Southern California and the Cucamonga Valley Water District (CVWD). An

excel model developed by the California Urban Water Conservation Council (CUWCC) is used

to estimate the district’s avoided costs values. The inputs for the CUWCC’s model include the

future water demand estimates for LADWP and CUWCC, their water system components and

their variable operating costs, the “on-margin” probabilities of the water system components, and

the planned water system additions. Using these inputs the model forecasts the LADWP’s and

CVWD short-run, long-run, and total avoided costs values of reduced water demand for each

year up to 2035.

The data used for the model’s inputs is drawn from various sources including the

LADWP’s and the CVWP’s Urban Water Management Plans (UWMP), annual budgets, and

reports to other agencies. Because there was no direct access to the districts’ internal planning

documents, some of the model’s input values needed to be estimated. When this occurred, the

most conservative values possible were used to ensure the model’s output does not lead to an

overestimation of the value of conservation measures to the district.

An important note for the model is the difference between average costs and marginal

costs. The CUWCC model’s avoided costs estimates represent the marginal costs of supplying

water. Taking all the district’s costs and dividing by its total water delivered would give the

district’s average costs. This would not give an accurate value of avoided costs because many

costs are fixed costs—they are incurred whether or not demand is decreased. For this reason the

CUWCC’s model calculates the marginal costs of water delivery, or the costs of delivering the

last unit of water to the district’s customers.

The Cost-Effectiveness of LADWP’s Best Management Practices

The analysis of LADWP’s BMPs is organized into four sections. First, the spreadsheets

within the CUWCC’s model are presented and discussed. The inputs and outputs are described as

well as the sources and justifications for input values. Next, the report provides information on

the costs of LADWP’s water conservation measures. Additionally, the cost-efficiency

methodology is applied to compare the conservation measures’ costs and benefits in specific time

periods and benefit-cost ratios are calculated.

Common Assumptions

The CUWCC model’s first spreadsheet (Figure 7.1) requires inputs on common

assumptions about the LADWP:

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Figure 7.1 Common Assumptions Spreadsheet, CUWCC Model

Source: CUWCC (2006) Spreadsheet Model

Analysis Start Year: 2010 is the starting period.

Planning Horizon: The model requires the district’s estimates of future water demand from its

UWMP. The most recent 2010 LADWP UWMP’s future demand estimates end in 2035 limiting

the model’s timeline (2010 UWMP).

Cost Reference Year: The model’s default value is 2005.Updating the cost reference year to 2010

dollars increases the relevance of monetary estimates.

Lost and Unaccounted for Water: This input value is derived from the district’s 2010 UWMP

which provides information on “Water Demand Forecast” for the district. In 2010 the district’s

“Non-Revenue Demand” was estimated to be 33,515 AF per year. The district defines non-

revenue water as system loss. The total water use in 2010 is estimated to be 554,556 AF.

Dividing the 33,515 AF loss by the 554,556 AF total water demand gives a value of .0604 which

rounds to 6 percent—the estimated water loss percent for the district (2010 UWMP).

Peak-Season Start and End Date: Determining the peak-season is important for calculating the

district’s marginal costs. In the peak season water demand is significantly higher than in the off-

peak season. Conservation programs that lower peak-season demand, such as water conservation

landscaping, will have a higher avoided cost value associated with their water savings. The

district's peak season is estimated to begin on June 1st and end on October 30th

, based on its

monthly average water use.

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Projected Interest Rate: The projected interest rate allows the CUWCC’s model to estimate the

future cost savings from downsized or deferred water system component additions—capital

projects that require district borrowing. The model’s default value of 6% is used for LAWDP.

Inflation Rate: The model’s default value of 2% inflation per year was used.

Units of Measure: LADWP reports it’s measurements in U.S. units (Figure 7.2). The system

volume is in acre-feet (AF) because LADWP reports its water demand and supply data in AF.

Figure 7.2 : Units of Measure for Model

Forecasted Demands: The model’s next input spreadsheet requires projections of future water

demand from the district’s 2010 UWMP, which gives the district’s demand estimates in five

years intervals. Because the LADWP’s model requires estimates for each year, using the five

year UWMP estimates the values for each year are interpolated. The district’s interpolated water

demand projections are displayed in Table 7.1.

Table 7.1 Future Water Demand Projections (2010 UWMP) Year Total Demand in AF Year Total Demand in AF

2010 554,556.0 2023 666,167.2

2011 566,603.6 2024 670,885.6

2012 578,651.2 2025 675,604.0

2013 590,698.8 2026 680,716.0

2014 602,746.4 2027 685,828.0

2015 614,794.0 2028 690,940.0

2016 622,237.6 2029 696,052.0

2017 629,681.2 2030 701,164.0

2018 637,124.8 2031 703,083.2

2019 644,568.4 2032 705,002.4

2020 652,012.0 2033 706,921.6

2021 656,730.4 2034 708,840.8

2022 661,448.8 2035 710,760.0

The model’s spreadsheet for “Forecasted Demands” is displayed in Figure 7.3. The first

column of the spreadsheet displays the future year. The next two columns require data on future

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peak and off-peak demand projections. The next three columns display model outputs on annual

demand growth and deferral periods.

Figure 7.3 Forecasted Demands Spreadsheet

The model requires total demand to be split between peak and off-peak seasonal use

(column 2 and 4).To split the data one needs to calculate peak and off-peak multiplier factors

derived from monthly water use data. The LADWP has provided monthly water use data from

2001 to present. The calculated monthly averages are shown in Table 7.2.

Figure 7.4 displays the average monthly water use graphically. The red dashed lines

outline the peak period for the district from June 1st to October 30

th.As the graph demonstrates,

average water use is significantly higher during the peak period. Table 7.3 displays the peak and

off-peak averages as well as the yearly average water use. To find the peak factor, the peak

average of 56045.48 is divided by the yearly average of 43732.23 which gives a peak factor of

1.15. The same method is used to find the off-peak factor of 0.89.

Demand Data Entry Units: Flow

Peak Season

Peak Off-Peak Peak-Season Off-Peak Season 1 mgd

Year (mgd) (mgd) (mgd) (mgd)

Deferral Periods

(years)

2010 267326.3786 286667.4687 5807.6 6227.8 0.000

2011 273133.982 292895.2527 5807.6 6227.8 0.000

2012 278941.5853 299123.0368 5807.6 6227.8 0.000

2013 284749.1887 305350.8208 5807.6 6227.8 0.000

2014 290556.792 311578.6048 5807.6 6227.8 0.000

2015 296364.3953 317806.3888 3588.2 3847.8 0.000

2016 299952.6184 321654.2202 3588.2 3847.8 0.000

2017 303540.8415 325502.0516 3588.2 3847.8 0.000

2018 307129.0645 329349.8829 3588.2 3847.8 0.000

2019 310717.2876 333197.7143 3588.2 3847.8 0.000

2020 314305.5107 337045.5456 2274.5 2439.1 0.000

2021 316580.038 339484.6353 2274.5 2439.1 0.000

2022 318854.5654 341923.7249 2274.5 2439.1 0.000

2023 321129.0927 344362.8145 2274.5 2439.1 0.000

2024 323403.6201 346801.9041 2274.5 2439.1 0.000

2025 325678.1474 349240.9938 2464.3 2642.6 0.000

2026 328142.4115 351883.5476 2464.3 2642.6 0.000

2027 330606.6756 354526.1015 2464.3 2642.6 0.000

2028 333070.9397 357168.6553 2464.3 2642.6 0.000

2029 335535.2038 359811.2092 2464.3 2642.6 0.000

2030 337999.4679 362453.7631 925.2 992.1 0.001

2031 338924.6275 363445.858 925.2 992.1 0.001

2032 339849.7871 364437.953 925.2 992.1 0.001

2033 340774.9466 365430.0479 925.2 992.1 0.001

2034 341700.1062 366422.1429 925.2 992.1 0.001

2035 342625.2658 367414.2378 925.2 992.1 0.001

Seasonal Demand Annual Demand Growth

Forecasted Demands

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Table 7. 2 Monthly AF Average LADWP Water Use

Month Average Water Use in AF

January 45,132.00

February 39,688.56

March 39,592.63

April 41,034.49

May 45,402.98

June 51,730.16

July 55,867.58

August 57,841.29

September 58,945.47

October 55,847.91

November 50,142.77

December 45,132.16

Figure 7.4 Monthly Average Water Use

Table 7.3 Peak and Off-Peak Factors

Peak Average June - October Peak Factor

56046.48 1.15

Off-Peak Average November –

May Off-Peak Factor

43732.23 0.89

Yearly Average

48863.17

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Given the peak and off-peak factors, the following steps are taken to find the peak and

off-peak demand values which are inputted into the “forecasted demand” spreadsheet (Table

7.4):

Divide yearly demand by 365 to find the average daily demand (column 2)

Calculate number of peak and off-peak days in a year (153 and 212)

To calculate total peak water demand per year, average daily demand is

multiplied by days of peak demand and then multiply by the peak factor (column 3)

To calculate total off-peak water demand per year, average daily use is multiplied

by days of off-peak demand and then multiply by off-peak factor (column 4)

Table7. 4 Peak and off -peak yearly water demand calculations

Year Average Daily

Demand

Peak Demand Off-Peak

2010 1,519.33 267,326.4 286,667.5 Days-Peak 153

2011 1,552.34 273,134.0 292,895.3 Days Off-Peak 212

2012 1,585.35 278,941.6 299,123.0 Peak Factor 1.15

2013 1,618.35 284,749.2 305,350.8 Off-Peak factor 0.89

2014 1,651.36 290,556.8 311,578.6 Days Year 365

2015 1,684.37 296,364.4 317,806.4

2016 1,704.76 299,952.6 321,654.2

2017 1,725.15 303,540.8 325,502.1

2018 1,745.55 307,129.1 329,349.9

2019 1,765.94 310,717.3 333,197.7

2020 1,786.33 314,305.5 337,045.5

2021 1,799.26 316,580.0 339,484.6

2022 1,812.19 318,854.6 341,923.7

2023 1,825.12 321,129.1 344,362.8

2024 1,838.04 323,403.6 346,801.9

2025 1,850.97 325,678.1 349,241.0

2026 1,864.98 328,142.4 351,883.5

2027 1,878.98 330,606.7 354,526.1

2028 1,892.99 333,070.9 357,168.7

2029 1,906.99 335,535.2 359,811.2

2030 1,921.00 337,999.5 362,453.8

2031 1,926.26 338,924.6 363,445.9

2032 1,931.51 339,849.8 364,438.0

2033 1,936.77 340,774.9 365,430.0

2034 1,942.03 341,700.1 366,422.1

2035 1,947.29 342,625.3 367,414.2

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For example, to find the off-peak demand in 2025, multiply the average daily demand of

1850.97 by days of off-peak demand per year of 212, and then multiply this value by the off-

peak demand factor of 0.77 to find a value of 325687.1. This is the estimated yearly off-peak

demand in 2025 in AF.

Variable Operating Costs

The next spreadsheet requires data on the system components which have costs that vary

with total water production. System components that do not have variable costs are not included.

All estimates are derived from 2010 data because this is the last year all necessary data has been

made publically available by the LADWP. Of the five components added to the model, only

marginal costs for the MWD and Water Transfer component was possible to calculate. Because

currently available public data is limited, the average costs for the components of Groundwater

and Los Angeles Aqueduct were inputted into the model. The average costs give a close

approximation to marginal costs and as more information becomes available from the LADWP

these values will be updated with marginal costs data. Each water source will be described in

detail:

MWD. LAWDP’s 2010 UWMP provides data on the unit costs of LADWP’s water supplies in

dollars per AF. The MWD uses a two-tiered pricing system to encourage water districts to

develop their own sources of supply. LADWP is allocated 304,970 AF of water at a tier-one rate

of $527 and any water purchases above this amount is charged the tier-two rate of $869

(LADWP, 2010a). From 2006 to 2010 LADWP averaged 326,012 AF of water imported from the

MWD. Further, they expected their MWD imports to decline to 168,027 AF by 2034-35 as local

sources of water are developed (LADWP 2010a). In future periods LADWP will primarily

import MWD water at tier-one rates and the tier-one rate of $527 will be used for this analysis

for the MWD purchase cost.

Groundwater. LADWP sources groundwater from the San Fernando, Sylmar, Eagle Rock,

Central, and West Coast water basins (2010 UWMP).From 2006 to 2010 LADWP averaged

71,087 AF of groundwater production per year at an average cost of $215 per AF (LADWP

2010a). The costs incurred by the district are primarily associated with operations and

maintenance costs and it was not possible to derive marginal costs.

LA Aqueduct. LADWP imports water from the eastern Sierra Nevada using the LA Aqueduct

system, which starts in the Mono Basin and extends 340 miles to Los Angeles. From 2006 to

2010 LADWP averaged 221,289 AF of imported water using the LA Aqueduct at an average cost

of $563 per AF. The costs incurred by the district are primarily associated with operations and

maintenance costs and it was not possible to derive marginal costs (LADWP 2010a).

Water Transfers.LADWP is currently developing the ability to increase its water supplies with

the use of water transfers from other agencies. A portion of the LA Aqueduct supply of water is

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being set aside for environmental enhancements in the Sierra Nevada and water transfers will

help compensate for this loss of water supply. Transfers are estimated to begin in the year 2020

when the Neenach Pumping facility will finish construction. Cost estimates range from $440 to

$540 and the average of $490 will be used for this report.

Recycled Water. The LADWP’s recycled water infrastructure is currently being expanded with

over $500 million dollars planned for recycled water projects over the next 10 years (Water

System Capital Improvements Program). The cost of recycled water is estimated to be between

$600 and $1,500 per AF. These values include recycled water’s capital, operation, and

maintenance costs. It is difficult to estimate exactly what proportion is the variable cost

component and the lower end range of $600 will be used for the variable cost estimate to be

conservative.

The model sets default rates for “Annual Real Escalation Rates” which reflect real price

increases beyond inflation. The “Power Costs” value of 1.00% is based on forecasts by

the California Energy Commission for future energy cost increases. The default rate for

“Purchase Costs” is 2.00% representing CUWCC’s estimate of the increasing price of

water supply based on historic trends.

Figure 6: Variable Operating Costs Spreadsheet

On-Margin probabilities

The model’s next input spreadsheet requires data on the district’s “On-Margin

Probabilities”. A system component is considered to be “on-margin” if its operation would be

scaled back in response to conservation efforts leading to demand reductions. If a component’s

operation would not be scaled back due to reduced demand its “on-margin” probability is zero.

If a unit of demand reduction always caused a system component to reduce output by the same

amount, its “on-margin” probability would be 100%.

The “on-margin” probabilities for the district’s system components are determined by

many factors including economic, operational, and regulatory.It is difficult to determine precise

values based on the district’s public documents but estimates can be made from studying their

operational strategy.

Component

TypeComponent Name

Existing

or

Planned?

On-Line

Year (for

Planned)

Loss

Rate

Power

Costs (2010

dollars)

Chemical

Costs

(2010

dollars)

Purchase

Costs

(2010

dollars)

Other

Costs

(2010

dollars)

Revenues

(2010

dollars)

($/AF) ($/AF) ($/AF) ($/AF) ($/AF)

Su Los Angeles Aqueduct e $563

Su Groundwater e $215

Su MWD e $527

Su Water Transfer e $490

Su Recycled Water p 2015 $600

1.00% 0.00% 2.00% 0.00% 0.00%


Annual Real

Escalation Rates:

Number of Components?

168

The LADWP is attempting to lower their reliance on water imported from the MWD and

increase its use of local supplies. The higher tier-two rate for MWD water of $869 represents the

highest water supply cost for LADWP. The 2010 UWMP displays their current water supply mix

and their expected supply mix in the year 2034-35 (Figure 7.5, LADWP 2011a ):

Figure 7.5 LADWP Water Supply

As Figure 7.5 displays, the amount of imported MWD water is expected to fall

significantly from 52% to 24% of total supply. The development of local water supplies such as

local groundwater water and water transfers will make up this difference.

From the current period to the model’s timeline end of 2035 the “on-margin”

probabilities of imported MWD is 100% (Figure 7.6).Any conservation led efforts that lead to an

amount of demand reduction will lead to a corresponding reduction in the amount of water

imported from the MWD.

LADWP’s amounts of water supplied from Groundwater, LA Aqueduct, and Water

Transfers are all estimated to remain constant or increase. Therefore, their “on-margin”

probabilities are all estimated to be zero (Figure 7.6). A unit of water conservation created

demand reduction will not have an affect on the amount of water supplied from Groundwater,

Los Angeles Aqueduct, and Water Transfers.

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Figure 7.6 “On-Margin” Probabilities Spreadsheet

Short-Run Avoided Costs

Figure 7.7, below, displays the model’s output values for short-run avoided costs based

on the data added to the model in the previous spreadsheets.

Los Angeles

Aquaduct

Groundwate

rMWD

Water

Transfer

On-line dates: 2020

Year Season Type: Su Su Su SU

2010 Peak 0% 0% 100% 0%

to 2014 Off-Peak 0% 0% 100% 0%

2015 Peak 0% 0% 100% 0%

to 2019 Off-Peak 0% 0% 100% 0%

2020 Peak 0% 0% 100% 0%

to 2024 Off-Peak 0% 0% 100% 0%

2025 Peak 0% 0% 100% 0%

to 2029 Off-Peak 0% 0% 100% 0%

2030 Peak 0% 0% 100% 0%

to 2034 Off-Peak 0% 0% 100% 0%

2035 Peak 0% 0% 100% 0%

to 2039 Off-Peak 0% 0% 100% 0%

System Components:

On-Margin Probabilities

170

Figure 7.7 Short-Run Avoided Costs Spreadsheet

The model outputs both nominal values and real 2010 monetary values. It gives the

amount of money the district will save per AF of demand reduction in future periods. For

example, in the year 2020 an AF of lowered demand in the peak season will save the district

$833.08 nominal dollars and $683.41 real 2010 dollars. The model assumes a 2.00% real

escalation rate for water supply costs beyond inflation based on historical trends leading to the

increase in value of short-run avoided costs in real 2010 dollars. Further, the nominal values for

avoided cost savings increase at a higher rate than real cost values because of inflation, estimated

in the model to be 2.00%.

Planned System Additions

The model’s next input spreadsheet represents the water district’s planned system

additions which are used to calculate long-run avoided costs (Figure 7.8).The only system

additions included are those that would be deferred or downsized due to future reduced water

demand.

YearPeak-

Season

Off-Peak

SeasonYear

Peak-

Season

Off-Peak

Season

2010 $560.64 $560.64 2010 $560.64 $560.64

2011 $583.29 $583.29 2011 $571.85 $571.85

2012 $606.85 $606.85 2012 $583.29 $583.29

2013 $631.37 $631.37 2013 $594.95 $594.95

2014 $656.88 $656.88 2014 $606.85 $606.85

2015 $683.41 $683.41 2015 $618.99 $618.99

2016 $711.02 $711.02 2016 $631.37 $631.37

2017 $739.75 $739.75 2017 $644.00 $644.00

2018 $769.64 $769.64 2018 $656.88 $656.88

2019 $800.73 $800.73 2019 $670.01 $670.01

2020 $833.08 $833.08 2020 $683.41 $683.41

2021 $866.74 $866.74 2021 $697.08 $697.08

2022 $901.75 $901.75 2022 $711.02 $711.02

2023 $938.18 $938.18 2023 $725.25 $725.25

2024 $976.08 $976.08 2024 $739.75 $739.75

2025 $1,015.52 $1,015.52 2025 $754.55 $754.55

2026 $1,056.55 $1,056.55 2026 $769.64 $769.64

2027 $1,099.23 $1,099.23 2027 $785.03 $785.03

2028 $1,143.64 $1,143.64 2028 $800.73 $800.73

2029 $1,189.84 $1,189.84 2029 $816.74 $816.74

2030 $1,237.91 $1,237.91 2030 $833.08 $833.08

2031 $1,287.92 $1,287.92 2031 $849.74 $849.74

2032 $1,339.96 $1,339.96 2032 $866.74 $866.74

2033 $1,394.09 $1,394.09 2033 $884.07 $884.07

2034 $1,450.41 $1,450.41 2034 $901.75 $901.75

2035 $1,509.01 $1,509.01 2035 $919.79 $919.79

Annual Short-Run

Avoided Costs by Season

Nominal Dollars

Short-Run Avoided Costs

($/AF)

2010 Dollars

Avoided Costs by Season

Annual Short-Run

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Figure 7.8 Planned System Additions

LADWP is planning to develop an extensive water recycling infrastructure to help lower

its demand of imported water. It will increase by six fold the amount of recycled water used,

from 1% to 6% of annual water demand by the year 2019. Recycled water projects include

increasing the amount of recycled water used for irrigation and industry (Securing LA’s Water

Supply). Further, upgrades of wastewater treatment plants will allow the use of recycled water in

replenishing groundwater basins (Securing LA’s Water Supply).

LADWP estimates that from 2009 to 2019 $510,402,000 will be spent on recycled water

projects (Water System Capital Improvements Program). This value is inputted into the planned

system additions spreadsheet as a possible deferred cost.

Total Direct Utility Avoided Costs

The model’s final output spreadsheets give the total avoided costs to the district by

combining the short-run avoided costs with the long-run avoided costs. Total avoided costs are

given in nominal values, Figure 7.9, and 2010 dollars, Figure 7.10.

The spreadsheets estimates how much the district will save per AF of demand reduction

until 2035 and demonstrates that adding the ability to defer future water system additions has a

significant effect on avoided costs. For example, in the year 2020 peak season short-run avoided

costs in 2010 dollars are estimated to be $683 dollars. Taking into account the ability to defer

system additions, the long-run avoided cost of $685 brings the total avoided costs value to

$1,368 dollars—significantly higher than the short-run cost estimates.

Figure 7.9 Total Direct Utility Avoided Costs in Nominal Dollars

Project NameOn-line

Year

Capital

Cost

Fixed O&M

Cost

De fer/

Do wnsize?

Downsize

Factor

Flow/

Volume?

Size

Units

Size

(Peak

Season)

($million) ($/yr)

Year 2010

Dollars

Year 2010

Dollars

Recycled Water 2015 $510 de

Annual Real Escalation Rates: 1% 1%

Financing Term (yrs): 20

If Downsize, then:

Planned System AdditionsNumber of Projects?

172

Figure 7.10 Total Direct Utility Avoided Costs in 2010 dollars

Deriving the total avoided cost values is the conclusion to the first step of the cost-

efficiency methodology.

Year

Short-Run Long-Run Total Short-Run Long-Run Total

2010 $561 $0 $561 $561 $0 $561

2011 $583 $0 $583 $583 $0 $583

2012 $607 $0 $607 $607 $0 $607

2013 $631 $0 $631 $631 $0 $631

2014 $657 $0 $657 $657 $0 $657

2015 $683 $835 $1,518 $683 $0 $683

2016 $711 $835 $1,546 $711 $0 $711

2017 $740 $835 $1,574 $740 $0 $740

2018 $770 $835 $1,604 $770 $0 $770

2019 $801 $835 $1,635 $801 $0 $801

2020 $833 $835 $1,668 $833 $0 $833

2021 $867 $835 $1,701 $867 $0 $867

2022 $902 $835 $1,736 $902 $0 $902

2023 $938 $835 $1,773 $938 $0 $938

2024 $976 $835 $1,811 $976 $0 $976

2025 $1,016 $835 $1,850 $1,016 $0 $1,016

2026 $1,057 $835 $1,891 $1,057 $0 $1,057

2027 $1,099 $835 $1,934 $1,099 $0 $1,099

2028 $1,144 $835 $1,978 $1,144 $0 $1,144

2029 $1,190 $835 $2,025 $1,190 $0 $1,190

2030 $1,238 $835 $2,073 $1,238 $0 $1,238

2031 $1,288 $835 $2,123 $1,288 $0 $1,288

2032 $1,340 $835 $2,175 $1,340 $0 $1,340

2033 $1,394 $835 $2,229 $1,394 $0 $1,394

2034 $1,450 $835 $2,285 $1,450 $0 $1,450

2035 $1,509 $0 $1,509 $1,509 $0 $1,509

Peak Season Off-Peak Season

Total Direct Utility Avoided Costs: Nominal Dollars($/AF)

Year

Short-Run Long-Run Total Short-Run Long-Run Total

2010 $561 $0 $561 $561 $0 $561

2011 $572 $0 $572 $572 $0 $572

2012 $583 $0 $583 $583 $0 $583

2013 $595 $0 $595 $595 $0 $595

2014 $607 $0 $607 $607 $0 $607

2015 $619 $756 $1,375 $619 $0 $619

2016 $631 $741 $1,373 $631 $0 $631

2017 $644 $727 $1,371 $644 $0 $644

2018 $657 $712 $1,369 $657 $0 $657

2019 $670 $698 $1,368 $670 $0 $670

2020 $683 $685 $1,368 $683 $0 $683

2021 $697 $671 $1,368 $697 $0 $697

2022 $711 $658 $1,369 $711 $0 $711

2023 $725 $645 $1,370 $725 $0 $725

2024 $740 $633 $1,372 $740 $0 $740

2025 $755 $620 $1,375 $755 $0 $755

2026 $770 $608 $1,378 $770 $0 $770

2027 $785 $596 $1,381 $785 $0 $785

2028 $801 $584 $1,385 $801 $0 $801

2029 $817 $573 $1,390 $817 $0 $817

2030 $833 $562 $1,395 $833 $0 $833

2031 $850 $551 $1,400 $850 $0 $850

2032 $867 $540 $1,407 $867 $0 $867

2033 $884 $529 $1,413 $884 $0 $884

2034 $902 $519 $1,421 $902 $0 $902

2035 $920 $0 $920 $920 $0 $920

Peak Season Off-Peak Season

Total Direct Utility Avoided Costs: 2010 Dollars($/AF)

173

Conservation

This next conservation section of the report completes step two of the cost-efficiency

methodology. It uses publicly available data on the LADWP’s conservation measures to analyze

their costs per unit of water savings. The available data is not complete but gives a good

overview of the district’s programs and will be compared with the CUWCC model’s avoided cost

estimates to assess cost-efficiency.

The LADWP’s 2010 UWMP provides data on their residential and commercial water

conservation measures. Using the data the costs per AF of each conservation measure is

calculated and displayed graphically (See Appendix 1 for calculations). Figure 13 displays the

costs per AF for residential conservation measures and Figure 14 for commercial measures.

Figure 7.11 Residential Water Conservation Measure’s Average Costs

Cost-Efficiency

With the CUWCC model’s estimates for total avoided cost derived and the data on the

LADWP’s conservation measures used to find their costs per AF, the cost-efficiency of each

conservation measure can be calculated. Two methods will be used to examine cost-efficiency.

First, the costs and benefits of conservation measures in specific years will be compared.

Second, benefit-cost ratios for each conservation measure will be calculated.

174

The first cost-efficiency method is comparing the cost of measures in each year with their

benefits in each year. Calculating the costs of conservation measures in future years is the first

step. Using the model’s assumption of a 2% inflation rate (Common Assumptions Spreadsheet),

the future costs of the programs are found based on their 2010 values (Appendix 2). These

calculations are completed using the future costs equation of F = P(1+i)^n, where F is future

cost, P is the present or 2010 value, i is inflation rate, and n is periods from current period. Future

values were calculated up to 2020.Then, the values for each year were compared graphically to

the avoided cost values for each year to 2020 (Figure 7.12, 7.13).

Figure 7.12: Residential Conservation Costs and Benefits Comparison

Figure 7.12 displays the costs in each year of each residential conservation measure and

the short-run and total avoided costs in each year. In the year 2012, for example, the only

measure that is not cost-efficient is “High-Efficiency Clothes Washers.” In the year 2015 total

avoided costs increase over short-run avoided costs—this is the first year a planned system

addition can be deferred by water demand reduction. All the residential conservation measures

are cost-efficient when considering both short-run and long-run avoided costs (total avoided

costs).

175

Figure 7.13 displays the same comparison but with the LADWP’s commercial measures. Again,

when including both short-run and long-run avoided costs, all the commercial conservation

measures are cost-efficient.

Figure 7.13 Commercial Conservation Costs and Benefits Comparison

Benefit-Cost Ratios

The last step in the cost-efficiency analysis is calculating the benefit-cost ratio for each

conservation measure. A benefit-cost ratio gives the value of the benefits of a measure divided by

the measure's costs. Any measure with a ratio greater than one is considered a cost-efficient

investment because the monetary benefits from the measure have a higher value than the

measure's costs. Further, the greater the benefit-cost ratio value of a measure the more cost-

efficient the measure is for the district. For example, a measure with a benefit-cost ratio of two

indicates the financial benefits of the measure are double its costs.

The following methodology is used to find the benefit-cost ratios for the district's

measures. For the years 2010 and 2015, the total avoided cost value of an AF of water savings in

each year —the benefit—is divided by the cost of implementing the measure for an AF of water

savings (See Appendix 3 for data). The resulting values are displayed in Table 7.5, below. For

example, to find the benefit-cost ratio of “High Efficiency Toilets” in 2015, the total avoided cost

value in 2015 of an AF of water savings of $1,375 is divided by the cost to the district of an AF

savings for “High Efficiency Toilets” of $131.1 to find a benefit-cost ratio of 10.49. This value of

176

10.49 indicates that “High Efficiency Toilets” are cost-efficient for the district to implement in

the year 2015 and for every dollar invested the district can expect a return of over ten dollars.

Only two conservation measures were found not to be cost-efficient for the district, "High

Efficiency Clothes Washers" in 2010 with a benefit-cost ratio less than one of 0.70 and

“Waterless Urinals” in 2010 with a benefit-cost ratio less than one of 0.92.Starting in 2015 the

total avoided cost values for the district increase significantly over the 2010 value because the

long-term savings of deferred water system components is taken into account and both measures

become cost-efficient for the district with a benefit-cost ratio of 1.55 for "High Efficiency

Clothes Washers" and 2.05 for “Waterless Urinals”. These calculations demonstrate that

LADWP’s conservation measures are all cost-efficient when considering both short-run and

long-run avoided cost (Table 7.5).

Table 7.5 Benefit-Cost Ratios of Conservation Measures

Conservation Measure 2010 Benefit/Cost 2015 Benefit/Cost

Residential:

High Efficiency Toilets 4.72 10.49

High Efficiency Clothes Washers 0.70 1.55

Rotating Nozzles for Pop-up Spray

Heads 24.76 54.96

Weather Based Irrigation Controllers 4.29 9.53

Commercial:


Waterless Urinals 0.92 2.05



Heads 3.08 6.85

To help visualize the calculated benefit-cost ratios the 2010 and 2015 values have been graphed

in Figure 7.14, below. Every conservation measure in 2015 is cost-efficient for the district. The

graph clearly demonstrates which measures have the highest cost-efficiency for the district—the

measures that reach the farthest to the right of the graph. The district should place highest

priority on expanding these measures, such as “Weather Based Irrigation Controllers” and

“Rotating Nozzles for Pop-up Spray Heads.”

Figure 7.14 Benefit-Cost Ratio Graph

177

Benefit-Cost Analysis for Cucamonga Valley Water District

The same cost-efficiency methodology applied above to the LADWP was applied to the

Cucamonga Valley Water District (CVWD) in Southern California, including the use of the

excel model developed by the California Urban Water Conservation Council (CUWCC).

Inputs for CVWD

The CUWCC model’s inputs include the CVWD’s future water demand estimates, its

water system components and their variable operating costs, the “on-margin” probabilities of the

water system components, and the planned water system additions. Using these inputs the model

forecasts the CVWD’s short-run, long-run, and total avoided costs values of reduced water

demand for each year up to 2035. Table 7.6 identifies the inputs used for running the model.

0 10 20 30 40 50 60 70 80 90 100

High Efficiency Toilets Residential

High Efficiency Washers - Residential

Rotating Nozzles for Pop-Up Spray Heads

Residential

Weather Based Irrigation Controllers

Residential

High Efficiency Toilets Commercial

Waterless Urinals Commercial


Commercial

Rotating Nozzles for Pop-Up Spray Heads

Commercial

2015 Benefit/Cost

2010 Benefit/Cost

160.95

178

The projected interest rate of 6% was based on two recent bond issues, a 2006 bond issue

of $21M with interest rates ranging from 3.42% to 5%, and a 2009 bond issue of $28M with

interest ranging from 2% to 5.625%.

The forecasted demand was interpolated for each year using the 5-year UWMP estimates

beginning in 2010. Note that CVWD expects demand to decline from 2015-2020. The CUWCC

model, however, requires demands to be increasing over the planned period. The model’s user

manual explains, “the model’s long-run avoided cost calculation requires demands to be

increasing over the planned period” (Report, p. 39). To take this problem with the model into

account, starting in 2016 and until the projections increase to pre-2016 levels, the input values

were increased by one unit in each period to satisfy this requirement.

On peak factors, note that the peak factor for CVWD’s service area (1.32) is much higher

than LADWP’s (1.15). This is most likely due to the higher temperatures, larger lots, and greater

outdoor water use in CVWD’s service area. Also note that of the four variable cost components

added to the model, only marginal costs for the MWD was calculated. Currently available data

was limited, and the average costs for the components of Groundwater, Water Treatment and

Transmission were calculated and included as inputs to the model.

“On-margin” probabilities are determined by many factors including economic,

operational and regulatory. It was difficult to determine precise values based on the district’s

public documents but estimates were made based on an examination of CVWD’s operational

strategy.

The CVWD draws water from two main sources, imported water from the MWD and

water pumped from local groundwater basins. In the district’s 2012 Annual Budget their

reasoning for moving away from imported MWD water was outlined:

In our formative years, our water supply planning strategy was to secure an outside water

supply that would supplement local resources and allow the region to grow. As the cost

of imported water began to increase due to a number of outside influences, including

environmental degradation in the Sacramento-San Joaquin Delta, it caused our

organization to focus on the development of local supplies in an effort to become less

reliant on imported water. (Budget pg. 6)

The district is responding to the increasing costs of MWD imported water by further

developing its ability to draw water from local sources. Unfortunately, recent multiple dry-year

conditions are affecting the district’s ability to increase water supply from local sources and

decrease supply from imported sources:

The availability of replenishment water is critical for the sustainability of our local

groundwater basins and helps the District maintain a diverse water supply portfolio.

Typically, in wet years, when supplemental supplies of imported water are available,

Metropolitan Water District of Southern California (MWD) has made this water available

at a discounted price to create an incentive for groundwater agencies to use local supplies

during dry years. [Because of drought] Replenishment supplies have not been available

for nearly four years. (Budget pg. 12)

179

Table 7.6. CVWD Input Variables for Benefit-Cost Analysis

Variables Inputs Notes

Projected Interest Rate 6% Based on recent bond issues

Forecasted Demand Year

2010

2015

2020

2025

2030

2035

Acre Feet

48,591

57,600

56,300

58,100

60,100

61,900

Annual figures were

interpolated using 5-year

UWMP estimates beginning

in 2010. Note the estimated

decline between 2015 and

2010.

Peak and Off-Peak Factors Peak Average

June-Oct

Peak Factor

Off-Peak

Average Nov-

May

Off-Peak

Factor

Monthly

Average

5,674.90 AF

1.32

3,296.01 AF

0.77

4,287.24 AF


for 4 Water Components of

CVWD

MWD

Groundwater

Water Treatment

Transmission

Annual Escalation

Rate

Power

Costs

($/AF)

$54

1.00%

Chemical

Costs

($/AF)

$51

0.00%

Purchase

Costs

($/AF)

$539

$211

2.00%

Spreadsheet model requires

data on the district’s water

system components that have

operating costs that vary with

total water production. All

estimates are based on 2010

data. It was assumed that

CVWD water demand for

MWD imports would not

increase through 2035 to

require Tier 2 imports. Cost

estimates are based on

CVWD’s 2012 Annual

Budget reports.

180

On-Margin Probabilities of

System Components

Scaling Back Due to

Conservation Efforts

Assume a split between MWD

and Groundwater components

being scaled back:

2010-2014 MWD 60%;

Groundwater 40% with an

increasing percentage attributed

to MWD imports over time

projected to 2039: 2035-2039

MWD 75%; Groundwater 25%

Based on CVWD 2012

Annual Budget statements

regarding plans to increase

groundwater sources

motivated by reducing MWD

imports due to increasing

costs of imports.

Short-Run Avoided Costs Year

2010

2015

2020

2025

2030

2035

Nominal

Dollars

$449

$564.15

$708.63

$889.80

$1,080.66

$1,312.84

2010

Dollars

$449.

$510.97

$581.32

$661.13

$727.26

$800.22

This variable estimates the

amount of money that the

District will save per AF of

demand reduction in future

periods. As on-margin

probability of MWD offsets

increases over time (from

60% to 75%), savings will

increase; in addition, the

assumption of 2% escalation

rate for MWD imports also

increases savings.

Planned System Additions

New Well # 48

New Well # 49

New Reservoir

On-line

Year

2015

2020

2015

Capital

Costs

($Millions

and 2010

Dollars)

$3

$3

$6

Fixed O

& M cost

($/yr

2010

Dollars

$0

$0

$0

CVWD 2012 Annual Budget

reports three planned system

components. It also indicates

that the new wells and

reservoirs will have no

operational impact on

expenses (Budget pp. 99-

100)

Further, the district states:

…two conditions have impacted the way we manage our portfolio of water resources:

prolonged natural and man-made drought, and the increased cost of groundwater

production due to the inability to find cost-effective, reliable and sustainable

replenishment supplies. The increased cost of assessments on groundwater pumping and

the challenges associated with securing replenishment water have severe implications

related to the sustainability of groundwater as an alternative to imported water. (Budget

pg. 6)

181

It is not clear from these and other statements exactly which system component would

lower production because of conservation created demand reductions. The district’s goal is to

move away from more expensive imported water sources but challenges in sustaining their local

groundwater supply has kept imported water as a significant portion of their supply portfolio.

To increase production of local water supplies, the district is spending millions of dollars

building new pumping wells and a reservoir that will “help reduce the District’s reliance on

imported water.” (Budget pg. 109) As these capital improvement projects come on-line, the

district will be able to lower their yearly demand for imported water. Because of this the “on-

margin” probabilities of imported MWD water are estimated to increase over time. This

reasoning led us to estimate that the MWD “on-margin” probability begin at 60% in 2010 and

increase to 75% by 2025. The Groundwater probabilities decrease in the same time-frame from

40% to 25%.

The model outputs both nominal values and real 2010 monetary values for short-run

avoided costs. It gives the amount of money the district will save per AF of demand reduction in

future periods. For example, in the year 2020 an acre-foot of lowered demand in the peak season

will save the district $708.63 nominal dollars and $581.32 real 2010 dollars. The real cost values

are increasing because of several factors. As the “on-margin” probability percentages for

imported MWD water increase, there will be increased savings from reducing demand, because

imported water is more expensive than locally sourced water. Further, the model assumes a

2.00% real escalation rate for water supply costs beyond inflation based on historical trends. The

nominal values for avoided cost savings increase at a higher rate than real cost values because of

inflation, estimated in the model to be 2.00%.

Inputs for the planned system components were obtained from the district’s 2012 Annual

Budget reports. The reports identify three planned system components designed to increase water

supply production, two wells and one reservoir. Their construction costs are estimated to be $3

million each for the wells and $6 million for the reservoir (Budget pg. 85-86). The wells are

being created specifically to “…help reduce District's reliance on imported water,” (Budget pg.

109) and the reservoir to “improve storage capacity” (Budget pg. 111) of local water supplies.

To determine whether these planned system components would be deferred or downsized

due to water conservation measures the following methodology was used. The district’s 2005

UWMP lists well #48’s completion date to be in 2008 but as of 2012 the well had still not been

completed (2005 UWMD Table 17) (Budget pg. 85). Further, 2007 – 2008 was the first year the

district experienced its current unexpected downward trajectory of water demand (Appendix 5).

It is assumed the district deferred construction of the well because of this unexpected drop in

demand. This indicates the district will defer its planned water system additions in response to

reductions in water demand, allowing water system additions to be added to the spreadsheet as

deferred system components.

The 2012 Annual Budget states that new wells and reservoir will have no “operational

impact” on expenses leading to values of zero in the “Fixed O&M Cost” column. (Budget pg. 99,

100)

182

Conservation

The conservation section of the CVWD study completes step two of the cost-efficiency

methodology. It used publicly available data on the CVWD’s conservation measures to analyze

their costs per unit of water savings. The available data is not complete but gives a good

overview of the district’s programs and will be compared with the CUWCC’s avoided cost

estimates to assess cost-efficiency.

Figure 7.15 graphically displays data on the costs per AF of the district’s residential

water conservation measures from 2004 to 2010 (See Appendix 7 for data). Figure 7.16

graphically displays data on the costs per AF of the district’s commercial water conservation

measures from 2004 to 2010 (See Appendix 8 for data).

The data is taken from the Inland Empire Utilities Agency’s (IEUA) annual conservation

report which includes a section on CVWD’s water conservation programs (Conservation Section

6). The values are the direct costs to the CVWD and do not include costs to society as a whole.

As the graphs demonstrate, not all yearly cost values were available.

Figure 7.15 Residential Water Conservation Measures Cost Per AF of Savings

$0

$100

$200

$300

$400

$500

$600

2004 2005 2006 2007 2008 2009 2010

Co

st p

er

Acr

e-F

oo

t

Year

Residential Water Conservation Measures

High Effeciency Toilets

Ultra Low Flush Toilets

Rotating Nozzles for Pop-up Spray Heads

High Effeciency Clothes Washers


Synthetic turf

IEUA Multi-Family Direct Install Prog.

183

Figure 7.16 Commercial Water Conservation Measures Cost Per AF of Savings

From this data the average costs of each conservation measures were calculated and

displayed graphically in figures 7.17 and 7.18.

Figure 7.17 Residential Water Conservation Measure’s Average Costs

$0

$50

$100

$150

$200

$250

$300

$350

$400

2004 2005 2006 2007 2008 2009 2010

Co

st p

er

Acr

e-F

oo

t

Year

Commercial Water Conservation Measures

High Efficiency Toilets

Waterless Urinals


ULFT Tank

Rotating Nozzles for Pop-up Spray Heads

184

Figure 7.18 Commercial Water Conservation Measure’s Average Costs

Cost-Efficiency

With the CUWCC model’s estimates for total avoided cost derived and the data on the

CVWD’s conservation measures used to find their average costs, the cost-efficiency of each

conservation measure can be calculated. Two methods will be used to examine cost-efficiency.

First, the costs and benefits of conservation measures in specific years will be compared.

Second, benefit-cost ratios for each conservation measure will be calculated.

The first cost-efficiency method is comparing the cost of measures in each year with their

benefits in each year. Calculating the costs of conservation measures in future years is the first

step. Using the model’s assumption of a 2% inflation rate (Common Assumptions Spreadsheet),

the future costs of the programs are found based on their 2010 values (Appendix 10). These

calculations are completed using the future costs equation of F = P(1+i)^n, where F is future

cost, P is the present or 2010 value, i is inflation rate, and n is periods from current period.

Future values were calculated up to 2020. Then, the values for each year were compared

graphically to the avoided cost values for each year to 2020 (Figures 7.19, 7.20).

185

Figure 7.19 Residential Conservation Costs and Benefits Comparison

Figure 7.19 displays the costs in each year of each residential conservation measure and the

short-run and total avoided costs in each year. In the year 2012, for example, the only measure

that is not cost-efficient is “Synthetic Turf.” In the year 2015 total avoided costs increase over

short-run avoided costs—this is the first year a planned system addition can be deferred by water

demand reduction. All the residential conservation measures are cost-efficient when considering

both short-run and long-run avoided costs (total avoided costs).

Figure 7.20 displays the same comparison but with the CVWD’s commercial measures. In each

year the costs from commercial measures are less than the avoided cost benefits to the district in

the short-run and short-run plus long-run (total avoided costs).

186

Figure 7.20 Commercial Conservation Costs and Benefits Comparison

Benefit-Cost Ratios

The last step in the cost-efficiency analysis is calculating the benefit-cost ratio for each

conservation measure. A benefit-cost ratio gives the value of the benefits of a measure divided

by the measure's costs. Any measure with a ratio greater than one is considered a cost-efficient

investment because the monetary benefits from the measure have a higher value than the

measure's costs. Further, the greater the benefit-cost ratio value of a measure the more cost-

efficient the measure is for the district. For example, a measure with a benefit-cost ratio of two

indicates the financial benefits of the measure are double its costs.

The following methodology is used to find the benefit-cost ratios for the district's

measures. For the years 2010 and 2015, the total avoided cost value of an AF of water savings in

each year —the benefit—is divided by the cost of implementing the measure for an AF of water

savings (See Appendix 10 for data). The resulting values are displayed in Table 7.7, below. For

example, to find the benefit-cost ratio of “Ultra Low Flush Toilets” in 2015, the total avoided

cost value in 2015 of an AF of water savings of $606 is divided by the cost to the district of an

AF savings for “Ultra Low Flush Toilets” of $86.9 to find a benefit-cost ratio of 6.97. This value

187

of 6.97 indicates that “Ultra Low Flush Toilets” are cost-efficient for the district to implement in

the year 2015 and for every dollar invested the district can expect a return of almost seven

dollars.

The only conservation measure found not to be cost-efficient for the district is "Synthetic

Turf" in 2010 with a benefit-cost ratio less than one at .96. Starting in 2015 the total avoided

cost values for the district increase significantly over the 2010 value because the long-term

savings of deferred water system components is taken into account and "Synthetic Turf"

becomes cost-efficient for the district with a benefit-cost ratio of 1.17. These calculations

demonstrate that the CVWD’s conservation measures are all cost-efficient when considering

both short-run and long-run avoided cost.

Table 7.7 Benefit-Cost Ratios of Conservation Measures

Conservation Measure 2010 Benefit-Cost Ratio 2015 Benefit-Cost

Ratio

Residential:

Ultra Low Flush Toilets 5.70 6.97



Rotating Nozzles for Pop-up Spray Heads 2.00 2.44


Synthetic Turf 0.96 1.17

IEUA Multi-Family Direct Install Program 1.92 2.35

Commercial:




Rotating Nozzles for Pop-up Spray Heads 2.25 2.74

To help visualize the calculated benefit-cost ratios the 2010 and 2015 values have been graphed

in Figure 7.21, below. The red vertical line represents the benefit-cost ratio break-even point for

the district of one. Every conservation measure to the right of this red line is cost-efficient for the

district. The graph clearly demonstrates which measures have the highest cost-efficiency for the

district—the measures that reach the farthest to the right of the graph. The district should place

highest priority on expanding these measures, such as “Weather Based Irrigation Controllers”

and “Ultra Low Flush Toilets.”

188

Figure 7.21 Benefit-Cost Ratio Graph

Limitations of the Analysis

There are specific steps that can be taken to increase the accuracy of this analysis. First, a

sensitivity analysis should be completed of CUWCC model's inputs. These include increased and

decreased values for projected future water demand, "on-margin" probabilities, variable

operating costs, and future water system additions. For example, how would avoided cost

estimates for LADWP be affected if the "on-margin" probability of MWD imported water is not

100% in each period? Or if for CVWD the “on-margin probability of MWD imported water is

100% in each period? Also, how would avoided cost estimates be affected if future water

demand increased faster or slower than currently projected?

Further, the accuracy of the data used for model inputs and conservation estimates could

be increased by access to agency data that were not available to the research team. Specifically,

more accurate data would allow the calculation of the marginal costs of water treatment and

transmission which would replace the average costs used currently.

In addition, a possible flaw in the CUWCC's model was found. The model would not

accept any periods of declining projected water demand. Declining demand is predicted for the

CVWD in the years 2016 through 2020. Allowing the model to accept declining demand would

possibly increase the accuracy of the model's output estimates of avoided costs and make the

model more useful to the many water districts estimating future periods of declining demand.

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Ultra Low Flush Toilets Residential

High Efficiency Toilets Residential

High Efficiency Washers - Residential

Rotating Nozzles Residential

Weather Based Irr. Controllers Residential

Synthetic Turf Residential

IEUA Direct Install Program Residential

High Efficiency Toilets CII

Waterless Urinals CII

Weather Based Irr. Controllers CII

Rotating Nozzles CII

2015 Benefit-Cost Ratio

2010 Benefit-Cost Ratio

189

Finally, the question of the district’s motivation to reduce water demand beyond state

mandates should be addressed. The CVWD’s revenues are currently based on its amount of

water supplied. Its 2012 budget discusses the effect of lowered water demand:

A reduction in water sales of nearly 10,000 acre feet in three years has challenged our

ability to accurately project future revenues... In 2009 we instituted a workforce reduction

for the first time in our history. (Budget pg. 5)

Because of lowered water demand the district is dealing with reduced revenues and is

forced to layoff employees. This might create a situation in which the district avoids efforts to

reduce water demand beyond state mandates. Conservation measures add volatility to water

agency revenues, which may drive agencies away from conservation efforts and towards

investment in water supply initiatives, as discussed in Chapter 6.

Comparison of LADWP and CVWD Cost-Efficiency Analyses

The methodology used in the analysis takes into account many variables from the interest

rate on bonds to peak season, to projected demand and purchase cost of water supply sources.

Table 8 compares the benefit-cost ratios between the two districts.

Table 7.8 Comparison of LADWP’s and CVWD’s Benefit-Cost Ratios of Conservation BMPs

Conservation Measure LADWP CVWD

2010 Benefit-

Cost Ratio

2015 Benefit-

Cost Ratio

2010 Benefit-

Cost Ratio

2015 Benefit-

Cost Ratio

Residential:


High Efficiency Toilets 4.72 10.49 2.24 2.74

High Efficiency Clothes

Washers

0.70 1.55 1.57 1.92

Rotating Nozzles for Pop-

up Spray Heads

24.76 54.96 2.00 2.44

Weather Based Irrigation

Controllers

4.29 9.53 11.11 13.58

Synthetic Turf 0.96 1.17

IEUA Multi-Family Direct

Install Program

1.92 2.35

Commercial:

High Efficiency Toilets 3.08 6.84 1.55 1.89

Waterless Urinals 0.92 2.05 2.75 3.37


Controllers

72.95 161.95 2.01 2.45

Rotating Nozzles for Pop-

up Spray Heads

3.08 6.85 2.25 2.74

190

As evident, although most of the BMPs have positive benefit-cost ratios, the ratios for the

same BMPs vary, in some cases, dramatically. For 2015, the benefit-cost ratio of high-efficiency

toilets for LADWP is close to 4 times the benefit-cost ratio for CVWD. Also, the benefit-cost

ratio for weather-based irrigation controllers is higher for CVWD than for LADWP.

Table 7.9 Comparison of Input Variables for LADWP and CVWD for Benefit-Cost Ratio

Analysis of Conservation BMPs

Variables in CUWCC

Model

LADWP CVWD

Projected Increase of

Demand 2010-2035

From 554,556 AF to 710,760 AF From 48,591 to 61,900 AF

Peak Factor

Off-Peak Factor

1.15

0.89

1.32

0.77

Purchase Costs of Water

Supply Sources ($/AF in

2010 dollars)

LAA $563

Groundwater $215

MWD $527

Water Transfer $490

Recycled Water $600

Groundwater $211

MWD $539

On Margin Probabilities of

Water Conservation

Savings to Offset MWD

Imported Water

100% Increasing from 60% for MWD and

40% for Groundwater in 2010 to

75% by 2035 for MWD, 25% for

Groundwater

Annual Short Run Avoided

Costs per Acre/Foot in

2010 dollars

2010 $560

2015 $619

2020 $683

2035 $$920

2010 $449

2015 $511

2020 $581

2035 $800

Planned System Additions Recycling Infrastructure $510 M

investment; Online in 2015

2015 $3M new well online

2015 $6M new reservoir online

2020 $3M new well online

Total Utility Avoided Costs

in 2010 Dollars

2010 Peak Season $561

Off-Peak $561

2015 Peak Season $1,375

Off-Peak $619


Off-Peak $449


Off-Peak $511

Costs of Residential Water

Conservation Measures per

Acre/Foot

High Efficiency Toilets $118.75

High Efficiency Washers $801.63

Sprinklerhead Rotating Nozzle

$22.66

Weather-Based Irrigation

Controller $130.64

High Efficiency Toilets $100

High Efficiency Washers $386.60

Sprinklerhead Rotating Nozzle $300.

Weather Based Irrigation Controller

$22.8

Synthetic Turf $535.6

191

Table 7.9 provides a comparison of the input variables included in the analysis for the

two districts. Some of these variables can throw light on the different results for the two districts.

First, notice that the 2015 benefit-cost ratios are always higher than the 2010 values for

both districts. To a large extent, this is due to the model’s taking into account how the savings

from the conservation measures can defer the capital costs of the planned system additions. The

assumption that investment in conservation measures can defer infrastructure investments in

2015 explains how the high efficiency clothes washer for LADWP or the synthetic turf for

CVWD changes from a negative benefit-cost ratio to a positive one. This assumption, however,

that the economic argument for conservation is based on the avoided costs of capital investment

for new water supply, is weakened in the case of Southern California water agencies. For these

agencies, in order to reduce the uncertainty of imported water supplies, are simultaneously

investing in increasing their own sources of supply.

The magnitude of the difference between LADWP’s planned investment ($500M in

recycling infrastructure) and CVWD’s planned investment ($9 M in 2 wells and a reservoir) to

some extent explains the doubling of the benefit-cost ratios for LADWP. But also, LADWP’s

annual short-run avoided costs are higher than CVWD, and part of this is explained by the

assumption that every AF saved through conservation by LADWP will offset imported water

from MWD, while in the case of CVWD, acre-feet saved through conservation is assumed to be

split between MWD and groundwater sources, and the cost of groundwater is lower. The

tremendous difference between the benefit-cost ratios for rotating nozzles for pop-up spray heads

for LADWP and the modest ones for CVWD can be explained by the relative cost of the rebate

per acre foot saved. The larger the agency rebate, the lower the benefit-cost ratio. In general, the

methodology used in the analysis is sensitive to planned infrastructure investments, the mix and

cost of different water sources, the cost of conservation rebates, as well as other relevant

variables. In effect, it demonstrates that developing a conservation strategy can be tailored to the

characteristics of the agency to obtain the targeted water savings.

Findings

Analysis Followed a Two-Step Methodology: Finding the Avoided Cost Value of Lowered

Water Demand, and Comparing this to Agency’s Conservation Costs and Water Savings. The

methodology applied to find the cost-efficiency of LADWP’s and CVWD’s conservation

measures for which costs have been quantified required two steps; finding the avoided cost value

to the districts of lowered water demand by completing the California Urban Water Conservation

Council’s (CUWCC) model and comparing this value to the agencies’ costs and water savings of

their conservation measures. The methodology described and used for the LADWP and CVWD

can be applied to other districts to find which of their conservation measures are the most cost-

efficient.

192

CUWCC’s methodology is a useful and relatively simple analytic tool for water agencies to

calculate the avoided cost value of lowered water demand. CUWCC’s methodology is a useful

and relatively simple analytic tool to enable agencies to develop benefit-cost and cost-efficiency

analyses of conservation measures. The methodology does have a flaw that should be corrected.

At this time, it assumes ongoing growth in demand.

Methodology in Analysis Incorporates Infrastructure Investment, Cost of Water Sources and

Conservation Programs. In general, the methodology used in the analysis is sensitive to planned

infrastructure investments, the mix and cost of different water sources, the cost of conservation

rebates, as well as other relevant variables.

Methodology’s Assumption that Water Savings from Conservation Are Used to Defer Capital

Facilities May Not Hold, Reducing the Longer-term Benefit-Cost Ratio of Conservation

BMPs. The methodology makes an important assumption, that is, that water savings from BMPs

will be used to defer capital facilities for increasing own water supply sources. If water districts

pursue both new water supply and conservation, then the greater economic benefits of

conservation, which this methodology assumes, are not realized.

For LADWP, Almost All the State Recommended BMPs being Implemented are Cost-efficient

with Benefit-cost ratios of One or Greater. Further, the benefit-cost ratios of the conservation

measures vary greatly; some measures have ratios barely above one while others have ratios

above 20. For LADWP, because of its great reliance on costly MWD imported water, many

conservation BMPs have very high benefit-cost ratios. For example, outdoor water use

conservation devices for LADWP have exceptionally high benefit-cost ratios. This confirms

LADWP’s emphasis on outdoor water use conservation devices. The very high benefit-cost ratios

in 2015 are based on the assumption that the water savings from the conservation strategies will

be used to defer the agency’s capital investment plans for recycling facilities and other water

supply infrastructure. All other factors being equal, the differences in benefit-cost ratios can be

used by the district as an investment guideline for future implementation of conservation

measures.

For the CVWD, Almost All the State Recommended BMPs being Implemented are Cost-

efficient with Benefit-cost Ratios of One or Greater. As in the case of LADWP, the benefit-cost

ratios of the conservation measures vary greatly; some measures have ratios barely above one

while others have ratios above 10. All other factors being equal, the differences in benefit-cost

ratios can be used by the district as an investment guideline for future implementation of

conservation measures. For CVWD, conservation BMPs have positive benefit-cost ratios

averaging about 2, with some exceptions. Ultra-low flush toilets for the residential sector have

benefit-cost ratios above 5, and weather-based irrigation controllers have a benefit-cost ratio

above 11. These two conservation measures can be prioritized by the district. Synthetic turf is

the one BMP with a benefit-cost ratio of .96 that, in the short-run, is borderline for the agency. If

the water savings from these BMPs can be used to defer capital investments for water supply

193

initiatives, the benefit-cost ratios increase for all the BMPs, and even synthetic turf has a positive

benefit-cost ratio under these circumstances.

194

References:

Babich, H, D L Davis, and G Stotzky. 1981. “Dibromochloropropane (DBCP): a Review.” The

Science of the Total Environment 17 (3) (March): 207–221.

California Urban Water Conservation Council (CUWCC). Best Management Practices Report

Filing. Web. 5 August 2010. http://bmp.cuwcc.org/bmp/read_only/list.lasso

California Urban Water Conservation Council. 2006. Water Utility Direct Avoided Costs Model.

Available at: http://www.cuwcc.org/resource-center/technical-resources/bmp-tools/direct-

utility-ac-eb-models.aspx

Cucamonga Valley Water District (CVWD) (2005) Urban Water Management Plan (UWMP).

Rancho Cucamonga. Available at http://www.cvwdwater.com/index.aspx?page=54

Cucamonga Valley Water District (CVWD) (2009) Comprehensive Annual Financial Report

(CAFR) FY 2009. Rancho Cucamonga. Available at

http://www.cvwdwater.com/index.aspx?page=135

Cucamonga Valley Water District (CVWD) (2011a) Comprehensive Annual Financial Report

(CAFR) FY 2011. Rancho Cucamonga. Available at


Cucamonga Valley Water District (CVWD) (2010a) Ordinance No. 30-G: Fees, Rates, Rules and

Regulations for Water Services.

Cucamonga Valley Water District (CVWD) (2010b) Ordinance No. 2010 – 4-2: An Ordinance of

the Cucamonga Valley Water District Establishing Rates and Charges for Recycled

Water Services.

Cucamonga Valley Water District. (CVWD) (2011b) Annual Operating & Capital Improvement

Budget FY 2011. Rancho Cucamonga. Available at

www.cvwdwater.com/Modules/ShowDocument.aspx?documentid=856

Cucamonga Valley Water District (CVWD) (2011c) Urban Water Management Plan (UWMP).

Rancho Cucamonga. Available at

http://www.cvwdwater.com/Modules/ShowDocument.aspx?documentid=1399

Cucamonga Valley Water District. Annual Operating & Capital Improvement Budget (Budget)

FY 2012. http://www.cvwdwater.com/index.aspx?page=134

Cucamonga Valley Water District. “Conservation.”


Inland Empire Utilities Agency. 2009. Annual Water Conservation Programs Report FY 2009-

2010 (Conservation)

http://www.ieua.org/news_reports/docs/2010/Reports_Presentaions/FY09_10_AnnualWa

terC onservationProgramsReport/index.html

Inland Empire Utilities Agency (IEUA). 2010a. Water Use Efficiency Business Plan, Chino.

Available at http://www.ieua.org/news_reports/reports.html

Inland Empire Utilities Agency (IEUA). 2011. FY 2010 – 2011 Regional Water Use Efficiency

Program annual Report, IEUA, Chino. Available at

http://www.ieua.org/news_reports/reports.html

Moody’s Investors Service (2011) New Issue: Moody's assigns aa3 rating to Cucamonga Valley

Water District's water revenue bonds. (Moody’s Ratings).

http://bmp.cuwcc.org/bmp/read_only/list.lasso








http://www.ieua.org/news_reports/docs/2010/Reports_Presentaions/FY09_10_AnnualWaterC%20onservationProgramsReport/index.html

http://www.ieua.org/news_reports/docs/2010/Reports_Presentaions/FY09_10_AnnualWaterC%20onservationProgramsReport/index.html



195

http://www.moodys.com/research/MOODYS-ASSIGNS-Aa3-RATING-TO-

CUCAMONGA-VALLEY-WATER-DISTRICTS-WATER-New-Issue--NIR_16966426

Los Angeles Department of Water and Power. Securing L.A.’s Water Supply. 2008. (Securing

LA’s Water Supply) http://www.ladwp.com/ladwp/cms/ladwp010587.pdf

Los Angeles Department of Water and Power. Urban Water Management Plan. 2010. (2010

UWMP) http://www.ladwp.com/ladwp/cms/ladwp014334.pdf

Los Angeles Department of Water and Power. Water System Ten-Year Capital Improvement

Program. 2010. (Water System Capital Improvements Program).

http://www.ladifferentiated.com/wp-

content/uploads/2011/02/DWP_Water_System_10Y_Capital_Improvement_Program.pdf

RAND. 2008. Estimating the Value of Water-Use Efficiency in the Intermountain West.

(RAND)

Standard and Poor’s Ratings Services (2011) Issue. (S&P Ratings). 2011.

http://www.standardandpoors.com/ratings/public-finance/ratings-

list/en/us/?entityID=290993&issueID=34850992

State of California, Department of Finance (DOF) (2011) E-4 Population Estimates for Cities,

Counties and the State, 2001-2010, with 2000 & 2010 Census Counts, Sacramento,

California, September 2011, available at

http://www.dof.ca.gov/research/demographic/reports/estimates/e-4/2001-10/view.php,

downloaded on June 10th

2012

http://www.moodys.com/research/MOODYS-ASSIGNS-Aa3-RATING-TO-CUCAMONGA-VALLEY-WATER-DISTRICTS-WATER-New-Issue--NIR_16966426

http://www.moodys.com/research/MOODYS-ASSIGNS-Aa3-RATING-TO-CUCAMONGA-VALLEY-WATER-DISTRICTS-WATER-New-Issue--NIR_16966426

http://www.ladwp.com/ladwp/cms/ladwp010587.pdf

http://www.ladwp.com/ladwp/cms/ladwp014334.pdf

http://www.ladifferentiated.com/wp-content/uploads/2011/02/DWP_Water_System_10Y_Capital_Improvement_Program.pdf

http://www.ladifferentiated.com/wp-content/uploads/2011/02/DWP_Water_System_10Y_Capital_Improvement_Program.pdf

http://www.standardandpoors.com/ratings/public-finance/ratings-list/en/us/?entityID=290993&issueID=34850992

http://www.standardandpoors.com/ratings/public-finance/ratings-list/en/us/?entityID=290993&issueID=34850992

http://www.dof.ca.gov/research/demographic/reports/estimates/e-4/2001-10/view.php

196

Appendix 1. LADWP Data on Conservation Measures

The LADWP’s UWMP provides specific data on four on the district’s residential conservation

measures, high-efficiency toilets, high-efficiency washers, sprinklerhead rotating nozzles, and

weather-based irrigation controllers (2010 UWMP Chapter Three—Water Conservation) . For

each measure data is given on the value of the rebate given by LADWP, the number of units

installed, and the estimated AF per year water savings. Further, a report by the Pacific Institute

on urban water conservation in California gives the average lifespans of each conservation

measure (Waste Not, Want Not). The data for residential measures is displayed in Table X:

LADWP’s total cost for each measure is found by multiplying the rebate amount by the number

of units installed. Each measure’s costs per AF is found by dividing the total cost by the AF year

savings times the lifespan of the measure. For example, for high-efficiency toilets, the total cost

of 190,000 is divided by the AF year savings of 80 times the lifespan of 20 years:

190,000/(80*20) = 118.75

The same methodology is used the costs per AF of the LADWP’s commercial water conservation

measures, Table X:

Conservation Measure Year Costs (Rebate) Units Installed AF Year Savings Lifespan Total Cost Cost Per AF

High-Efficiency Toilets 2009-2010 100 1900 80 20 190,000 118.75

High-Efficiency Washers 2009-2010 300 66,100 386 12 3,540,000 801.63

Sprinklerhead

Rotating Nozzle 2009-2010 8 2878 12.7 10 23,024 22.66

Weather-Based

Irrigation Controllers 2009-2010 200 81 6.2 20 16,200 130.64

Conservation Measure Year Costs (Rebate) Units Installed AF Year Savings Lifespan Total Cost Cost Per AF

High Efficiency Toilets 2007-2010 150 58,432 2,408.60 20 8,764,800 181.95

Zero and Ultra

Low Water Urinals 2007-2010 500 58,432 2,408.60 20 29,216,000 606.49

Weather Based

Irrigation Controllers 2007-2010 50 391 127.1 20 19,550 7.69

Rotating Nozzles

for Pop-up Spray Heads 2007-2010 8 22,534 99.1 10 180,272 181.91

High Efficiency Spray

Nozzles for Large

Rotary Sprinklers 2007-2010 13 8,558 308.1 10 111,254 36.11

197

Appendix 2 LADWP Data displaying the estimated future cost of conservation measures

based on a 2 percent inflation rate

Appendix 3 LADWP Data used in benefit-cost analysis

2010 2015

Avoided Costs

2010

561

High Efficiency Toilets 118.75 131.1096 1375

High EfficiencyClothes Washers 801.63 885.0643


Heads 22.66 25.01847


Commercial





Heads 181.91 200.8433

Inflation Rate 2%

year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

n 0 1 2 3 4 5 6 7 8 9 10

Residential

High Efficiency Toilets 118.75 121.125 123.5475 126.0185 128.5388 131.1096 133.7318 136.4064 139.1346 141.9172 144.7556

High Efficiency

Clothes Washers 801.63 817.6626 834.0159 850.6962 867.7101 885.0643 902.7656 920.8209 939.2373 958.0221 977.1825

Rotating Nozzles for

Pop-up Spray Heads 22.66 23.1132 23.57546 24.04697 24.52791 25.01847 25.51884 26.02922 26.5498 27.0808 27.62241

Weather Based

Irrigation Controllers 130.64 133.2528 135.9179 138.6362 141.4089 144.2371 147.1219 150.0643 153.0656 156.1269 159.2494

Commercial


Waterless Urinals 606.49 618.6198 630.9922 643.612 656.4843 669.614 683.0062 696.6664 710.5997 724.8117 739.3079

Weather Based



Pop-up Spray Heads 181.91 185.5482 189.2592 193.0443 196.9052 200.8433 204.8602 208.9574 213.1366 217.3993 221.7473

High Efficiency Spray

Nozzles for Large Rotary

Sprinklers 36.11 36.8322 37.56884 38.32022 39.08663 39.86836 40.66572 41.47904 42.30862 43.15479 44.01789

198

Appendix 4: CVWD Operating expenses

(Budget pg. 57)

199

Appendix 5: CVWD Total water supplied

Source: CVWD, 2011 (pg. 71)

200

Appendix 6: CVWD Water production by source

(Budget pg. 18)

Appendix 7: CVWD Residential water conservation measures data, costs per acre foot per

year

residential

year 2004 2005 2006 2007 2008 2009 2010

High Efficiency Toilets 311.7 194.8 194.11 100

Ultra Low Flush Toilets 86.46 79.15 70.48


Heads 200 200 200 300

High Efficiency Clothes Washers 268.1 268.1 268.1 277.0 265.7 265.7 386.6


Controllers 73.8 24.6 22.8

Synthetic turf 438.0 428.5 535.6

IEUA Multi-Family Direct Install

Prog. 135.4 237.8 237.8 243.5 223.0 272* 322.4

*interpolated (Conservation Section 6)

201

Appendix 8: CVWD Commercial water conservation measures data, costs per acre foot per

year

Commercial

year 2004 2005 2006 2007 2008 2009 2010

High Efficiency

Toilets 163.3 92.5 78.9 352.9

Waterless Urinals 163.0 163.0 163.0

Weather Based

Irrigation Controllers 193.8 205. 271.8

ULFT Tank 78.9


Pop-up Spray Heads 200* 200

*interpolated

(Conservation Section 6)

Appendix 9: CVWD Average costs data

residential

CVWD Average

Cost per Acre-Foot ($)

IEUA Average Cost

per Acre-Foot ($)

Ultra Low Flush Toilets 78.7 135

High Efficiency Toilets 200.2 293

High Efficiency Clothes Washers 285.6 307


Heads 225 208


Controllers 40.4 81

Synthetic turf 467.4 468


Prog. 233.3

Commercial

High Efficiency Toilets 289.7 423

Waterless Urinals 163.0 195

Weather Based

Irrigation Controllers 223.8 173


Pop-up Spray Heads 200 208

Source: IEUA 2009

202

Appendix 10: CVWD Future costs of conservation measures calculations

(Conservation Section 6)

Appendix 11: CVWD Data used for benefit-cost analysis

2010 2015

Avoided

Costs

2010

Avoided

Costs 2015

449 606





Heads 225 248.4


Synthetic turf 467.4 516.0


Prog. 233.3 257.6

Commercial




Rotating Nozzles forPop-up Spray

Heads 200.0 220.8

Inflation Rate 2%

year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

n 0 1 2 3 4 5 6 7 8 9 10

Residential

Ultra Low Flush Toilets 78.70292 80.27697 81.88251 83.52016 85.19057 86.89438 88.63227 90.40491 92.21301 94.05727 95.93842


High Efficiency

Clothes Washers 285.6314 291.344 297.1709 303.1143 309.1766 315.3601 321.6673 328.1007 334.6627 341.356 348.1831


Pop-up Spray Heads 225 229.5 234.09 238.7718 243.5472 248.4182 253.3865 258.4543 263.6234 268.8958 274.2737

Weather Based


Synthetic turf 467.4102 476.7584 486.2936 496.0195 505.9399 516.0587 526.3798 536.9074 547.6456 558.5985 569.7705

IEUA Multi-Family

Direct

Install Prog. 233.2976 237.9636 242.7229 247.5773 252.5289 257.5794 262.731 267.9857 273.3454 278.8123 284.3885

Commercial


Waterless Urinals 162.9987 166.2587 169.5839 172.9756 176.4351 179.9638 183.563 187.2343 190.979 194.7986 198.6945

Weather Based



Pop-up Spray Heads 200 204 208.08 212.2416 216.4864 220.8162 225.2325 229.7371 234.3319 239.0185 243.7989

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