The Economic Feasibility and Sustainability Implications

of Water Reuse (and Desal)

Bob Raucher, PhDStratus Consulting Inc.

Boulder, Colorado, USA

Presented atTexas Innovative Water 2010

Texas Water Development Board12 October 2010

Background

“Economic Feasibility” => Net Economic Value Going beyond financial viability (cash flow) Focus on full range of benefits, compared to

costs “Sustainability” Implications

Triple Bottom Line perspective Includes financial implications, but also social

and environmental impacts Case study illustration (Chino Basin, Southern CA)

Motivation

Reuse (& desal) are considered relatively expensive water supply options, raising the question: Revenues rarely cover full cost of service (financial) Is reuse worth the investment for a community?

A full perspective of the benefits and costs of reuse and desal is needed to answer that question … Cost effectiveness relative to other water supply

alternatives (good) Factoring in the benefits of reuse or desal (better) In the broader context of regional water resource

management needs and objectives (best!)

Reuse or Desal from a Relative Cost of Water Supply Perspective

1,000

800

600

400

200

$/AF(2007$)

Chinodesal

(full cost)

Chinodesal

(subsidized cost)

$900

$477

MWD Tier 2(untreated

2007)

MWDreplenish

water recharge

$437

$360

Stormwaterrecharge

Local GWpump

$144$130

Reuse (and desal) from Benefit-Cost Perspective, as a Water Supply Option

The relative cost of reuse or desal is not the only relevant consideration

There are benefits that reuse and desal provide that most other alternatives may not

Need to identify and consider the full range of benefits (and costs), relative to other water supply alternatives

Counting All the Benefits(not necessarily to scale)

Enhanced wetlands quality and habitatImproved in-stream flows and water qualityStorage and distribution

costs Increased local control

Increased water supply reliability

On-site retrofit costs Avoided and deferred water supply costs

Treatment costs Avoided and deferred wastewater costs

Costs Benefits

$

Counting All the Benefits (cont.)

Costs Benefits

$ Enhanced wetlands quality and habitatImproved in-stream flows and water quality

Storage and distribution costs Increased local control

Increased water supply reliability

On-site retrofit costs Avoided and deferred water supply costs

Treatment costs Avoided and deferred wastewater costs

Counting All the Benefits (cont.)

Costs Benefits

$ Enhanced wetlands quality and habitatImproved in-stream flows and water qualityStorage and distribution

costs Increased local control

Increased water supply reliability

On-site retrofit costs Avoided and deferred water supply costs

Treatment costs Avoided and deferred wastewater costs

Two Basic Approaches to Assess the Economics of Reliability

1. Portfolio Theory (drawn from financial sector) Diversifying a portfolio Used to scale the size of water supply options needed to

meet a given reliability target

2. Stated Preference (scientifically designed surveys) Aimed directly at the valuevalue people hold for reliability Based on “Willingness To Pay” (WTP) Already a body of US empirical research (but outdated) We currently are are conducting new empirical work in US

Smarter Use of Water

Desalination

Groundwater

Surface WaterWater Trading

CatchmentManagement

Water ReuseSecurity through Diversity

(copied from Ross Young, WSAA)

Value of Reliability Study: Example Water Supply Restriction Scenarios

Trend over the past 20 years Expected water use restrictions over next 20 years if nothing

more is done

16 summers

4 summers

Stage 1 restrictions in 16 out of 20 summersStage 2 restrictions in 4 out of 20 summersStage 3 restrictions in 0 out of 20 summers

8 summers

8 summers

4 summers

Stage 1 restrictions in 8 out of 20 summersStage 2 restrictions in 8 out of 20 summers

Stage 3 restrictions in 4 out of 20 summers

Example Choice Experiment for Reliability Values Study

Empirical Results to Date

Over 800 households surveyed so far:Denver and Austin (400+ in each) 400 households to add in each: Southern CA

(Long Beach), San Francisco, AZ (Phoenix?) Willingness to Pay per household

$0 to $7 per year to avoid 1 year of low-level use restrictions

$20 to $34 per year to avoid 1 year of more severe water use restrictions

$130 - $136 per year to avoid all future water use restrictions over next 20 years

Opinions on Top Three Options for Supply Augmentation Options (Austin)

Top Five Options for Dealing with Future Water Shortages

6%5%

10%

12%

17%18%

15%

5%

12%0%

Increasing available supplies of water by importing more water from outside the Lower Colorado River basinIncreasing available supplies of water by transferring more water from agricultural usesIncreasing the use of non-local groundwater sourcesIncreasing the price of water to residential, commercial, and industrial users so that they will use lessRequiring low-water landscaping in new homesIncreasing available supplies of water by expanding storage reservoirsIncreasing the use of local groundwater sourcesExpanding water recycling for outdoor irrigation and industrial usesPromoting voluntary water conservation through education and incentives (e.g., rebates)Expanding water recycling to replenish groundwater reservoir supplies

Expand reservoirs

Use local groundwater

Mandate xeriscape for new homes

Top Five Options for Dealing with Future Water Shortages

Increasing available supplies of water by importing more water from outside the Lower Colorado River basinIncreasing available supplies of water by transferring more water from agricultural usesIncreasing the use of non-local groundwater sourcesIncreasing the price of water to residential, commercial, and industrial users so that they will use lessRequiring low-water landscaping in new homesIncreasing available supplies of water by expanding storage reservoirsIncreasing the use of local groundwater sourcesExpanding water recycling for outdoor irrigation and industrial usesPromoting voluntary water conservation through education and incentives (e.g., rebates)Expanding water recycling to replenish groundwater reservoir supplies

29%

14%

5%

31%

7%

10%

2%

2%

0%

Opinions on Least Preferred Supply Augmentation Option (Austin)

Raise price

Add imported water

Transfer water from agriculture

The Triple Bottom Line (TBL): Economics of Sustainability

TBL began as an enterprise-level reporting Also useful for portraying the broad array of all benefits

(and costs) of a project or program Three bottom lines, to reflect:

Financial results (cash flow, revenues & costs) Social outcomes (e.g., reliability, equity/fairness) Environmental (e.g., instream flows, energy use)

In essence, TBL = a comprehensive benefit-cost analysis Identifying and portraying all benefits & costs Internal and external, market and nonmarket goods

TBL Graphic: Choosing the Least Cost Option May Not Deliver Social and

Environmental Values to the Community

Social

Environmental Financial1

Options that Meet Broader Goals May Increase Financial Costs to a Utility, but

Yield Larger Net Benefits to the Community

Social

Environmental Financial1

2

ENVIRONMENTAL (> $400M)

SOCIAL (>$2.3B)

FINANCIAL

TBL Demonstrated the Benefit of Philadelphia’s Green Stormwater Control

• Recreation ($525M)• Property values/aesthetics ($575 M)• Green Jobs ($125 M)• Public health: Heat stress ($1.1 B)• Energy cost savings ($36M)

• Cost of Green = cost of Grey CSO control

• Air Quality ($222 M)• Water quality ($147 M)• Carbon footprint ($27 M)• Ecosystems (+)

==

ENVIRONMENTAL (++)

SOCIAL (++)

FINANCIAL

TBL off a Non-Revenue Swap of Reclaimed Water to Retire Surface Rights

• Increase ag production• Preserve lands in ag uses • Support minority/ethnic farmers

(currently lacking access to water)• Improve aesthetics (flows) in

Sammamish River

• Cost to provide Reclaim Water not recovered through revenues

• Enhance summer instream flows for critical spawning and nursery habitat for endangered salmon population

=

Chino Basin, and IEUA Service Area

Evaluating Reuse in Context of Integrated Water Resource Management

Adjudication of the Chino Basin Local groundwater extractions not sustainable Contamination (nitrates, salts, VOCs, etc.)

Impacted local groundwater users Precluded reuse for irrigation or recharge

(regulatory permits not approvable) Impacted Santa Ana River, Orange County

Optimum Basin Management Program (OBMP) implemented as a broad water resource management strategy for the Chino Basin

The Comprehensive Nature of the OBMP

OBMP Includes a range of water supply elements Desal, direct nonpotable reuse, indirect potable

reuse (IPR), stormwater harvest, conservation Aquifer storage and dry year yields (DYY)

Regional scope: large groundwater basin Multiple jurisdictions included Benefits (and some costs) extend beyond the

Basin’s boundaries Addresses a broad range of water quality and

quantity concerns in (and beyond) the Chino Basin

ENVIRONMENTAL (> $100M)

SOCIAL ($??M)

FINANCIAL ($1.9B)

TBL for Chino Basin Identified $2 Billion Savings and other Benefits

• Supply reliability (+) and local control (+)• Energy savings (5.8 billion kWh)• Import water availability for other MWD

users (+)• Reduced volume but higher quality Santa

Ana River flows to Orange County (+/-)

• Cost saving to supply water in Chino Basin

• Carbon footprint ($22M)• Air quality ($84M)• Groundwater quality (+)• Surface water quality (+)

Percent of OBMP Yields and Costs by Component

40

30

20

10

Percent ofOBMP

Desal Nonpotablereuse

Indirectpotablereuse

Stormwaterrecharge

19.4%

40.0%

27.2%

39.2%

11.2%

4.0%

11.2%

3.6%

13.3%

5.2% 9.5%4.0% 8.4% 4.4%

% yield % cost

Addedgroundwater

Conservation DYY

Chino Basin Water Supply Portfolio with OBMP

Preliminary estimates (October 2008)

Thousands of AF(2001-2030)

5,000

10,000

12,500

With OBMP

Chino Basin GW(4,570)

)

Imported MWD(5,100)

Stormwater recharge

Conservation

OBMP components

• Desal• Water reuse• Dry year yield• Enhanced GW• Conservation

(4,750)

Chino Basin GW(4,570)

Imported MWD(1,550)

Other local SW andGW (1,550)

Chino Basin Water Supply Portfolio with and without OBMP

Preliminary estimates (October 2008)

Thousands of AF(2001-2030)

5,000

10,000

12,500

With OBMP Without OBMP

Chino Basin GW(4,570)

Other local SW andGW (1,550)

Imported MWD(5,100)

Stormwater rechargeNon-potable reuse

Conservation

OBMP components

• Desal• Water reuse• Dry year yield• Enhanced GW• Conservation

(4,750)

Chino Basin GW(4,570)

Imported MWD(1,550)

Other local SW andGW (1,550)

OBMP Reducing Basin-wide Water Supply Costs by over 40%

Preliminary estimates (October 2008)

Thousands of AF(2001-2030)

5,000

10,000

12,500

$1.0B

$3.0B

$4.0B

$5.0B

PV Full Cost(billions 2007$)

With OBMP Without OBMP

$2.0B

$2.7B

$4.6B(all borne locally)

Chino Basin GW(4,570)

Other local SW andGW (1,550)

Imported MWD(5,100)

Stormwater rechargeNon-potable reuse

Conservation

$2.1B(locally borne)

$0.6B(outside grantsand subsidies)

OBMP components

• Desal• Water reuse• Dry year yield• Enhanced GW• Conservation

(4,750)

Chino Basin GW(4,570)

Imported MWD(1,550)

Other local SW andGW (1,550)

OBMP Reducing Basin-wide Water Supply Costs by over 40%

Preliminary estimates (October 2008)

Thousands of AF(2001-2030)

5,000

10,000

12,500

$1.0B

$3.0B

$4.0B

$5.0B

PV Full Cost(billions 2007$)

With OBMP Without OBMP

$2.0B

$2.7B

$4.6B(all borne locally)

Chino Basin GW(4,570)

Other local SW andGW (1,550)

Imported MWD(5,100)

Stormwater rechargeNon-potable reuse

Conservation

$2.1B(locally borne)

$0.6B(outside grantsand subsidies)

OBMP components

• Desal• Water reuse• Dry year yield• Enhanced GW• Conservation

(4,750)

Chino Basin GW(4,570)

Imported MWD(1,550)

Other local SW andGW (1,550)

Benefit-Cost Results: OBMP as a Whole

OBMP Costs ~ $1.25 Billion in total (PV, 2000 - 2030)

OBMP Benefits (financial only): ~ $1.9 Billion

(PV water supply cost savings, ‘00 – ‘30) Additional benefits both within and beyond the Basin

Net Benefits of OBMP: Benefits > costs ~ $0.65 Billion (~53% rate of return) Local net benefit ~ $1.2 Billion (~160% rate of return)

400

9501,050

1,700

2,000

2,500

3,200

4,400

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

KW

H/A

F

Recycling GroundwaterPumping

Ion Exchange ChinoDesalter

ColoradoRiver

Aqueduct

West BranchState Project

Water

East BranchState Project

Water

OceanDesalter

Energy Use by Source

The Energy Intensity of IEUA’s Water Supplies

Reuse-Related Benefits and Costs (OBMP Context)

Cost of reuse PV of ~$540 Million ~43% of total OBMP costs

Benefit of reuse Allocating 43% of OBMP benefits to reuse ~$820 Million benefit (PV)

Net benefit: >$280 Million ($820 - $540) 53% rate of return ($280 / $540)

Conclusions Based solely on cost ($/AF), reuse or desal may not

appear to be cost-effective water supply choice However, benefits associated with reuse or desal may

well show the added expense is well warranted When viewed within the TBL context of broader,

integrated regional water resource management: Obtain a much more meaningful sense of benefits

In Chino Basin, reuse and desal enable the realization of significant benefits

>$1.9 B over 30 yrs (53% Rate of Return)

Acknowledgements

WateReuse Research Foundation California DWR Water Research Foundation Rich Atwater & Martha Davis (IEUA) Howard Neukrug, Philadelphia Water

Department

Thank you!

Bob Raucher

braucher@stratusconsulting.com+ 1-303-381-8000 (ext 216)------------------------Stratus Consulting Inc.

PO Box 4059(1881 Ninth Street, Suite 201)Boulder, CO 80306-4059USA