20070328Reply comments.pdf

McDevitt & Miller LLP
Lawyers
[phone]
[phone] (Fax)
420 W. Bannock Street
O. Box 2564-83701
Boise, Idaho 83702
Chas. F. McDevitt
Dean J. (Joe) Miller
March 28, 2007
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Via Hand Delivery
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington St.
Boise, Idaho 83720
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Re: Case No. UWI-06-
Dear Ms. Jewell:
Enclosed for filing in the above matter please find the original and seven (7) copies of
United Water Idaho Inc s Reply Comments.
An additional copy of the document and this letter is included for return to me with your
file stamp thereon.
Very Truly Yours
~De~tt
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Attach.
ORIGINAL
Dean J. Miller (ISB No. 1968)
MCDEVITT & MILLER LLP
420 West Bannock Street
O. BOX 2564-83701
Boise, Idaho 83702
Tel: [phone]
Fax: [phone]
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF)
UNITED WATER IDAHO INe., FOR APPROVAL OF ITS WATER
CONSERVATION PLAN AND FOR
APPROVAL OF A WATER CONSERVATION
SURCHARGE AND REQUEST FOR MODIFIED PROCEDURE
CASE NO. UWI-06-
REPLY COMMENTS
COMES NOW United Water Idaho Inc.
, ("
United Water , the "Company ) and makes
the following Reply Comments in response to the Comments of Commission Staff dated
February 23 , 2007.
Introduction
Pursuant to Commission Order Nos. 29871 and 29934, United Water, on December
2006, filed with the Commission an Application for approval of an updated Water Conservation
Plan that accompanied the Application.
As part of the Application, United Water also filed Direct Prefiled Testimony of Gregory
P. Wyatt, United Water s General Manager. In his testimony Mr. Wyatt explained the steps the
company took to develop the new Plan. United Water sent requests for proposals to eight (8)
qualified consultants with experience in developing water utility conservation plans. In April of
REPLY COMMENTS- 1
2006 a contract was awarded to Maddaus Water Management to assist in developing the new
Plan at a cost not to exceed $80 000. (Wyatt, Direct, Pg. 1).
Thereafter, a rigorous process, involving interested stakeholders and including the Staff
of the Commission, analyzed potential conservation measures. Ultimately, seven (7) measures
were found to be cost effective and form the basis of the new Plan. When implemented, the
annual cost of the new measures will be approximately $124 200 over current conservation
related expenditures. (Wyatt, Direct, Pg. 2-3). This will bring the total annual conservation
expense to approximately $244 200, taking into account conservation efforts already being
implemented.
Mr. Wyatt's testimony also discussed potential cost recovery methods for the increased
level of conservation expenditures. (Wyatt, Direct, Pg. 3-5).
The Staff Comments, filed in response to the Application, conclude with five (5)
recommendations. They are:
The Company should continue the existing conservation efforts and implement
the measures proposed in the Plan. The Company should work with Staff to
further refine the details of program design and implementation and in the
development of procedures to better evaluate results.
The Company should re-evaluate the more objective program measures using the
full supply side avoided costs to establish the value of savings.
The Company should use informational programs in support of objective
programs. Where appropriate, implement focused pilot programs to refine
program operational details and demonstrate the savings of objective measures.
The Company should pursue water saving code improvements, developer
agreements and hook-up requirements to conserve water.
The Commission should reject the proposed conservation tariff rider, and instead
authorize deferred accounting treatment of the additional costs for later
demonstration of reasonableness.
In these Reply Comments, United Water will discuss each recommendation in sequence.
REPLY COMMENTS- 2
Implement Proposed Measures and Work with Staff to Reime Details
Subject to conditions discussed below, United Water concurs in this recommendation to
implement the programs, but, based on experience in the Plan preparation process, United Water
respectfully suggests that the role of Staff during the implementation phase be clearly defined.
As stated in Staff Comments, a representative of the Commission Staff was invited and
participated in the initial screening meeting of the planning process which ultimately resulted in
the current Conservation Plan. (Staff Comments Pg. 6). Although the Staff representative
actively participated in the initial screening meeting, and frequently took the lead in determining
a particular conservation measure s ranking, he did not participate in any of the subsequent
screening and evaluative meetings. The Staff representative was copied on results of all
meetings and was asked to provide input and feedback as the team further evaluated the potential
measures. However, the Staff representative did not provide any input or feedback throughout
the remaining planning process following the initial screening meeting.
Staff s suggestion for further refinement of implementation details appears to be based on
a criticism that with respect to six of the seven measures the Plan does not contain
implementation details. (Staff Comments, Pgs. 3-6). The Plan identifies in general what each
measure involves, and suggests options as to how the Company could implement each one. This
provides the Company with ideas, options, and the flexibility to choose an appropriate
implementation approach for each measure. The Company fully intends to develop a more
targeted approach for implementation of each measure, but to do so before receiving
Commission approval of the Plan and the measures is both premature and risks wasting
Company resources on developing detailed implementation plans on measures it yet has no
assurance will be approved.
1 Information in this paragraph is provided by Gregory P. Wyatt.
REPLY COMMENTS- 3
With respect to the role of Staff during the implementation phase, United Water suggests
that active participation by Staff in the development of the implementation procedures is not
required. Rather, at least initially, the development of implementation procedures should be the
responsibility and the prerogative of the Company. United Water would provide periodic
updates to Staff as the procedures are developed so that Staff may monitor progress toward
program implementation. This approach would allow for prompt implementation while
preserving the Commission s oversight responsibilities.
The recommendation to develop procedures to better evaluate results appears to be based
on a criticism that the Plan as submitted does not contain adequate evaluation measures. (Staff
Comments, Pgs. 3-6).
In principle, United Water agrees that evaluation can be a sensible component of any
Plan, but notes that evaluation of water conservation measures is not yet a precise science. Staff
appears to concur:
Estimating savings from a conservation program is a difficult and imprecise process
under the best of conditions but especially so for educational and public information
programs. It is difficult to determine the number of real customers exposed to the
information, the number of customers that actually implement a particular conservation
measure, and the amounts of water actually saved..." (Emphasis added). (Staff
Comments, Pg.7).
Staff also acknowledges that the cost of evaluation can exceed the actual benefit obtained from
specific measures:
The most reliable estimates of educational programs are based on surveys of customers
who receive promotional materials and a control group to estimate the percentage of
participants that actually take the actions being promoted. Significant concerns about
these estimates include the accuracy of the survey responses, and the persistence of the
savings from measures that rely upon customer actions rather than hardware. In most
cases, the cost of such an evaluation significantly exceeds the amount spent for the
program...(Emphasis added). (Staff Comments, Pg.7).
REPLY COMMENTS- 4
In light of these admitted deficiencies in customer surveys, United Water does not agree
with Staff s suggestion that the Company be required to conduct surveys of participants in all of
its programs. (Staff Comments Pg. 10). The Company contends that because the estimated
annual program cost of $124 200 for all measures is relatively low (unlike the cost of a new well
which can cost between $400 000 and $700 000), it would be imprudent for the Company to
undertake expensive customer surveys as proposed by Staff when, as Staff acknowledges, the
cost of such evaluations in most cases significantly exceed the amount spent for the program.
Re-Evaluate Measures Using Full Supply Side Avoided Cost
This recommendation appears to be based on a criticism that the screening process was
subjective and eliminated options that should have been more fully considered. (Staff Comments
Pg.6).
As discussed above, the original list of 91 measures included a variety of measures
including objective measures. The measures selected for further evaluation were based on the
screening process described in the 2006 publication of the American Water Works Association:
Water Conservation Programs - A Planning Manual M52 on page 56-59. (Copies are attached as
Exhibit A).3 The manual outlines the criteria and scoring process that was used in the United
Water Idaho Conservation Report to eliminate measures that are not appropriate for the service
area. The panel reviewing the measures was a diverse group of individuals from the Boise area
including a staff member from the Public Utilities Commission. In addition to being in the
2 Information in this section of these Reply Comments was provided by William Maddaus, the Company s retained
consultant and author of the Conservation Plan.3 The American Water Works Association (A WW A) is an international nonprofit scientific and educational society
dedicated to the improvement of water quality and supply. A WW A is the largest association of water professionals
in the world. See www.awwa.or,e-
REPLY COMMENTS- 5
A WW A M52 manual, this method and approach has been peer reviewed and accepted by many
water industry professionals.
The Staff Comments also question whether the cut-off point for further evaluation was
reasonable. (Staff Comments, Pg. 6-7) This cutoff point is also listed in the A WW A M52
Manual on page 59, and has been used in many similar studies for 12 years including San
Francisco, Atlanta, Houston, and Denver. These areas all had diverse water supply conditions
climate, water use patterns, and found this methodology and cutoff of 17 provided a
representative and appropriate list of measures. In the Consultants' experience , this process
eliminated measures (measures that scored lower than 17) that would prove to not save
significant amounts of water, have a low customer implementation rate, and/or not be cost
effective.
Benefit cost analysis has been used by the Consultant and other professionals to evaluate
water conservation projects for more than 30 years. The evaluation process is well established
and based on sound economic principles and experience. This method, including how the
marginal cost of water saved is calculated, is outlined in the A WW A M52 manual on page 73-
80.
In direct reference to the Water Conservation Potential Assessment prepared by the water
utility of the City of Seattle dated May 2006, the comparison of conservation measures is based
on "Utility Average Annual Cost" and "Marginal Cost per CCF "(of water saved). Benefit cost
ratios are not the same as marginal cost ratios and cannot be directly compared (marginal cost
ratios are not typically used in the water industry). The Seattle report did not include a benefit
cost analysis or benefit cost ratios.
REPLY COMMENTS- 6
The benefit cost analysis used by the Consultant evaluated the benefits that could be
realized from implementing water conservation programs. The avoided costs considered are
described in the United Water Conservation Plan on page 53 and match the list of potential
benefits to be considered as shown in A WW A M52 Manual page 70 including:
Reduced water purchases from wholesale water agencies (not applicable - United Water
has its own sources and does not purchase water)
Reduced variable operation and maintenance cost (energy from pumping, production and
treatment and distribution and lower chemical use) estimated at $103.80 per million
gallons for United Water.
Reduced or deferred capital expansion project costs, including new wells and water
treatment and aquifer storage and recovery, etc.
Reduced water storage cost (not applicable - water stored in aquifers)
Reduced wastewater processing cost (not applicable - different agency processes
wastewater)
It is not appropriate to evaluate the benefits based upon the "full cost of water production
facilities . In United Water s service area, many of the water facilities that will be used to
supply the water in the future could not be reduced or deferred based on future water savings
because they already exist and represent a sunk cost. The existing facilities could operate at less
than full capacity, but they remain a fixed cost and therefore are not a potential benefit to the
program.
The only facilities that can be downsized or deferred are the 19 projects listed on page 53
of the Company Conservation Plan and considered in the Consultant analysis. The savings can
only be generated from avoiding or deferring building future projects. The projects used in the
REPLY COMMENTS- 7
Plan are from the United Water s Capital Improvement Plan to meet the future demands. The
mix of projects is based on supply availability and anticipated future growth patterns. It is
important to base conservation benefits on the actual mix of planned projects instead of the most
expensive supplyoption(s). The future water savings will be spread across the entire service
area because the programs cover the entire service area and will not be targeted to those parts of
the Company s service area that the most expensive supply option(s) are Planned to serve.
For these reasons, United Water does not believe re-evaluation of program measures is
warranted.
Use Informational Programs and Focused Pilot Programs
This recommendation appears consistent with the approach suggested by the Plan, and
United Water therefore concurs. The Plan provides:
It is recommended that as each new program is rolled out that part of the program design
be devoted to assessing how well the program is working. For programs where there is
uncertainty about how well the program will work, pilot programs are normally run to
assess the success rate of the program." (Plan, Pg. 83).
The Company intends to develop "pilot programs" where appropriate as it implements the
proposed Plan if it is approved by the Commission.
Pursue Code Improvements, Agreements and Hook-Up Requirements
Staff Comments acknowledge that these recommendations pertain to areas over which
United Water does not have legal authority and United Water cannot mandate implementation of
any of the suggested conservation improvements.
United Water has, and will, support sensible conservation efforts when proposed by
others. 4
4 As discussed below, United Water s performance in this area should not be a criteria for determining whether
deferred conservation expenses may be amortized.
REPLY COMMENTS- 8
Reject Conservation Rider, Authorized Deferred Accounting Treatment
As explained by Mr. Wyatt in his Direct Testimony the Company s position on this issue
IS:
Should the Commission determine that a water conservation surcharge is not advisable
and that recovery should be through the historical inclusion in base rates approach, The
Company would suggest that it be allowed to accumulate the costs for implementing the
new Plan measures in a deferred account. Since the Plan recommends implementing the
measures in a phased approach, it would likely take two to three years before the costs
reach a stable annual level. The Company believes that a deferral of these "start-up" costs
and subsequent allowance of a reasonable amortization period, in conjunction with
inclusion of annual Plan costs in base rates, is an appropriate means to protect customers
while not requiring the Company to subsidize the Conservation Plan implementation
between general rate cases." (Wyatt, Direct, Pg. 5).
United Water, however, is concerned with the open-ended nature of the recommendation
that the costs be deferred for "later demonstration of reasonableness." (Staff Comments, Pg. 14).
Understandably, United Water does not desire to find itself in its next case having to litigate
whether its implementation efforts were sufficient under a vague standard of "reasonableness.
United Water would appreciate clarification in the Commission s Final Order of the proof that
will be required to permit amortization of deferred costs. United Water suggests order language
along the following lines:
In the ordinary course of events, in a subsequent rate case United Water may expect to
receive approval for amortization of deferred conservation expense upon a demonstration
that:
a). The program measures identified in the Plan were implemented consistent with the
Plan and
b). The expenses of implementation were recorded on the Company s books so as to
permit audit and verification.
REPLY COMMENTS- 9
Conclusion
United Water looks forward to implementation of the 2006 Water Conservation Plan and
the realization of the accompanying benefits to customers. United Water respectfully suggests
that the Commission enter its order approving the Plan, consistent with the clarifications and
suggestions contained in these Reply Comments.
DATED this.:LL day of March, 2007
UN ED WATER IDAHO INC.
By: U1Q~
Dean J. Miller
Attorney for United Water Idaho Inc.
REPLY COMMENTS-
CERTIFICATE OF SERVICE
I hereby certify that on the ~ay of March, 2007, I caused to be served, via the
method(s) indicated below, true an~rr~ct copies of the foregoing document, upon:
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
O. Box 83720
Boise, ID 83720-0074
11 ewell0)puc. state.id. us
Weldon B. Stutzman
Idaho Public Utilities Commission
472 West Washington Street
O. Box 83720
Boise, ID 83720-0074
Kevin L. Lewis
Conservation Director
Idaho Rivers United
O. Box 633
Boise, ID 83701
Kevinal2idahori verso org
REPLY COMMENTS- 11
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WATER CONSERVATION PROGRAMS-A PLANNING MANUAL
PREPARE LIST OF POTENTIAL CONSERVATION MEASURES
As part of the evaluation of appropriate measures, a list of potential measures that
may be appropriate for the area should be compiled. This process generally yields
over 100 potential conservation measures in the typical customer categories of
Residential
Commercial
Industrial
Public
Irrigation
Sources of information on conservation measures include the Handbook of WaterUse and Conservation: Homes, Landscapes, Businesses, Industries, Farms CaliforniaUrban Water Conservation Council's Memorandum of Understanding that contains a
list of Best Management Practices9 (see chapter 2), the Arizona Department of Water
Resources list of Reasonable Conservation Measures 10, and various other states that
have conservation guidelines.
SCREENING OF CONSERVATION MEASURES
The first step in any screening is the development of a menu of measures. A typicallist of potential measures is provided in the matrix shown in Table 3-6. This tableshould include all measures being considered. Many of the measures overlap in water
savings, i., they target the same areas for water conservation. This potentialoverlap can be accounted for, where necessary, during the combination of measures
into alternative programs.
Screening Process
The following terms are used in the screening process:
Device. A physical item of hardware, such as a new toilet, or specific action byindividuals, such as commercial audits, that would save water if the recommenda-tions are implemented or carried out by the water utility or some other group.
Measure. A device(s) .plus a distribution method and possibly an incentive
such as a rebate, targeted ata particular type of end user that, when implementedwill save water.
Program. A set of one or more measures targeted at one or more customerclasses that would be managed by the Water Utility as a separate project.
Plan. A set of one or more programs together with an estimated budget
schedule, and staffing plan.
Screening Criteria
Cost-effectiveness. In some states or regions, a list of which measures are
considered cost-effective for most utilities may already be compiled:) For the purposesof a first screen of measures, only those that are more than ten times the cost of autility's alternative next source of supply should be eliminate~As a general guidethe measures other utilities believe are cost-effective should be used, or the list inTable 3-6 can be used. Chapter 4 covers evaluation of detailed costs and benefits. Ifinformation is available on what the next least costly source of alternative watersupply is for the utility, this should be used to avoid spending a lot of time on
measures ten times or more costly.
EXHIBIT A
PAGE 1 OF 13
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ANALYSIS OF WATER USE AND WATER SAVINGS . 57
Table 3-Example of potential conservation measures
Device or Program
Distribution
Method &
Incentive
Measure
Description
Require low-
consumption toilets
to be installed at the
time of sale
Rebates for 6/3 dual-
flush or 4-liter toilets
Rebates for high-
efficiency clothes
washers
Low-income home
leak detection and
repair
Distribute retrofit
kits w/low-flow
showerheads
Increase school
education programs
Incentives for out-
door use reductions
-new homes
Require high-
efficiency clothes
washing machines
Single Family Residential-Existing Accounts
Water
Provider
requirement at
time of sale
Water
Provider
rebate
Water
Provider
rebate
Water
Provider
promotes
Water
Provider
requirement
Water
Provider
promotes
City County-
requirement
Work with the real estate industry to require a certificate of
compliance be submitted to the Water Provider that verifies that
plumber has inspected the property and efficient fixtures were
either already there or were installed at the time of sale, before
close of escrow. (Model after City of Los Angeles and San Diego.
Provide a rebate or voucher for the retrofit of a 6/3 dual flush
liter or equivalent very low water use toilet. Rebate amounts
would reflect the incremental purchase cost and would be in the
range of $50 to $100 per toilet replaced.
Together with local energy companies, if possible, offer rebates for
purchase of water-efficient machines. Rebates would be scaled to
water efficiency as rated by the Consortium for Energy Efficiency
Inc.
Use leak detection equipmen,t to determine whether and where
leaks are occurring on the premises. The Water Provider would
then provide a plumber to the customer to repair leaks for free to
qualifying households (low income).
During an audit or through direct mail solicitation, a free retrofit
kit would be provided to existing older single-family residential
homes. The kit could contain a low-flow showerhead; toilet leak-
detection dye tablets, displacement device, or early closure device;
a faucet aerator, faucet washers to fIX leaky faucets; and a
pamphlet on how to conserve water.
The Water Provider would provide school conservation programs
with workbooks, presentations, and teaching materials and other
educational tools to teach the students the importance of
conserving water,
Irrigation system upgrades, soaker hoses, mulch and soil amend-
ments, new plant materials, landscape design, turf reduction
water allocation for landscapes
The Water Provider would educate its customers through bill
collection brochures, displays at points of purchase, the media, on
the latest clothes washer water conserving technology, Building
departments would be responsible to ensure that an efficient
washer was installed before new home occupancy.
Table contimled next page,
EXHIBIT A
PAGE 2 OF 13
WATER CONSERVATION PROGRAJ.'\1S-A PLANNING MANUAL
Table 3-Example of potential conservation measures--continued
Measure
Device or Program
Insulate hot water
piping
Distribution
Method &
Incentive Description
Change building codes as necessary to require installation of hot
water pipe insulation on new residences.
City County-
requirement
Rebates for 6/3 dual
flush or 4-liter toilets
Water
Provider
rebate
City County-
requirement
Water Provider offers a coupon or rebate to replace an existing
toilet with a 6/3 dual flush toilet.
Require 6/3 dual
flush or 4-liter toilets
in new homes
Building departments would be responsible to ensure that a 6/3
dual flush or 4-liter toilet was installed before new home
occupancy.
Landscape wat.er use
improvements
Incentives and regulations
Technology/market maturity. This screening criterion indicates whether
the necessary technology is available commercially and supported by the local service
industry. For example, a device may be screened out if it is not yet commercially
available in the region.
Service area match. This screening criterion seeks to distinguish the tech-
nology that is appropriate for the areas climate, building stock, or lifestyle. For
example, low water-use landscape measures for commercial sites may not
appropriate where water use analysis indicates there is little outdoor irrigation.
Customer acceptance/equity. Customers must be willing to implement
measures or else the market penetration rates (and thus the water savings) would be
too low to be significant. Customer acceptance may be based on
Convenience
Economics
Perceived fairness
Aesthetics
Environmental values
Measures should also be equitable in the sense that one category of customers
should not benefit while another pays the costs without receiving benefits.
Better measure available. If a choice must be made between two or more
measures of equal effectiveness for the same targeted end use, where one is obviously
more appropriate (i., ease of implementation or unit cost), the more appropriate
measure will pass the screening. Measures obviously not cost-effective can be
screened out.
The criteria can be scored on a scale of 1 to 5, with 5 being the most acceptable.
Measures with low scores can be eliminated from further consideration, while those
with high scores pass into the next phase-water savings analysis.
Screening process. The measures can be rated in the table such as shown in
Table 3-7 and Figure 3~5. As shown in the table, each measure has been scored on a
EXHIBIT A
PAGE 3 OF 13
Ai"lALYSIS OF WATER USE AND WATER SAVINGS
Table 3-Example of screening potential conservation measures and results of screening
Measure Criteria Pass
Device Distribution Technology Service Customer Better Score
Method &Market Area Acceptancel Measure Yes or
Program Incentive Maturity Match Equity Available
Single Family Residential-Indoor
Existing Accounts
Require 1.6 gal/flush Water Retailers
toilet to be installed requirement at Yes
at the time of sale time of sale
Rebates for 6/3 dual-Water Retailers rebate
flush or 4-liter toilets
Rebat.es for high-Water Retailers rebate
efficiency clothes Yes
washers
Low-income home leak Water Retailers
detection and repair promote
Distribute retrofit Water Retailers
kits w/low-flow requirement Yes
showerheads
Increase school Water Retailers
education programs sponsor Yes
New Homes
Require high Water Retailers
efficiency clothes City I County
washing machines requirement
Insulate hot water Water Retailers
piping City I County
requirement
Rebates for 6/3 dual-Water Retailers rebate
flush or 4-liter toilets
Require 6/3 dual-flush Water Retailers
or 4-liter toilets for City I County
new homes requirement
scale of 1 to 5, with 5 being a high rating. Generally measures were eliminated that
scored mostly l's and 2's with a few 5's. The screening is qualitative and subjective
and can be done by a group that is likely to interpret and score measures differently.
The goal was to reduce the list..to about 20 to 30 measures that pass the screen , i.
have relatively high scores. In general, a measure has to have 17 or more total
ratings or points in order to pass this screen.
EXHIBIT A
PAGE 4 OF 13
EVALUATION OF BENEFITS AND COSTS . 73
Water Saver Home Web Site, www.h2ouse.org developed by the California
Urban Water Conservation Council and funded by the US Environmental
Protection Agency and US Bureau of Reclamation.
Fun program savings assessments and pilot test results that are published
in AWWA Journals and Annual and AWWA Water Sources Conference
Proceedings.
Data from other nearby water utilities or the state agency tasked with
overseeing urban water demand (e., California Department of Water
Resources).
Data from USGS Water Use Survey, (http:/water/usgs.gov/pubs/cird2004/
circ12681). ,
Evaluating Urban Water Conservation Programs: A Procedures Manual
AWWA, 1993.
HOW TO DETERMINE THE BENEFITS OF EFFICIENCY MEASURES
Savings to the utility result from avoided costs (the benefits from implementing
efficiency measures that achieve water savings). The following section describes the
three principal ways that avoided costs accrue: 0) reduced water purchases (if the
utility is a wholesale customer of another water purveyor); (2) lowered O&M
expenses; and (3) delayed, downsized, or eliminated capital facilities.
Cost Savings From the Reduced Purchase of Water
A straightforward calculation results in the average annual unit cost of purchased
water from a wholesaler using the following expression:
A we UPW UCPW (4-
Where:
AWC
UPW
UCPW
annual water cost
units purchased annually
unit cost of purchased water
The planner can calculate the amount of cost savings by multiplying the unit
cost of purchased water by the units of water savings estimated from efficiency
measures. An added level of detail can be used if a higher cost is charged in peak-use
period (e., high irrigation season). Then, the average cost during this period
(typically a few months time) is divided by the units of purchased water over the
same time span. This unit cost of peak-period purchased water is multiplied by the
water savings from efficiency measures targeting water reductions during that period
(commonly outdoor irrigation efficiency measures).
Cost Savings From Reduced Operation and Maintenance
(0 &. M) Expenses
Because lowering demand results in less water produced, efficiency measures can
reduce expenses dependent on amount of water produced or variable costs for utility
operations, such as energy and chemical costs. In addition, some fixed costs may be
associated with these variable costs of energy and chemical usage and may be
EXHIBIT A
PAGE 5 OF 13
WATER CONSERVATION PROGRAMS-A PLANNING MANUAL
included, if warranted. Only the variable costs that are attributed to water efficiency
activities are included in the calculation of avoided costs shown here.
To estimate the variable cost of energy ($/unit of water), use the following
formula:
VUCE (AEC - (12 x MFEC) (ECNP)) UWU (4- 7)
Where:
VUCE
AEC
MFEC
ECNP
variable unit cost of energy
annual energy bill (cost)
monthly fIXed charges for energy
energy costs not related to water production are those costs
independent of actual water production, such as building heating,
cooling; lighting, and process equipment use. These costs should
be included unless the water production is lowered to the extent
that facilities (e., certain buildings or pieces of equipment) are
not used, which would rarely be the case.
annual units of water usedUWU
Cost savings are calculated by multiplying the variable unit cost of energy
the units of water saved per year as a result of an efficiency measure.
In most cases, costs associated with chemicals are variable because the
chemicals are added based on flow with very few fixed costs. To calculate the variable
cost of chemicals ($/unit of water), use the following formula:
vuee (ACe CCNP) UWU (4-
Where:
vuec
ACC
CCNP
UWU
variable unit cost of chemicals
annual chemical bill (cost)
chemical costs not related to productions (e., delivery charges
unless reduced)
annual units of water used
Cost savings are calculated by multiplying the unit cost of chemicals by the
units of water saved per year as a result of a conservation measure. The benefits
derived from wastewater operations for energy and chemical savings can be
calculated in a similar manner.
Cost Savings From Delayed, Downsized. or
Eliminated Capital Facilities
Water efficiency can affect both the requirements for current operations, expansion of
existing facilities, and planned new facilities. Most capital facilities are designed to
meet peak demands in some future year. Typical design horizons are 10 to 20 years.
Although indoor conservation measures will reduce average day and peak day
demands, savings in landscape, cooling water, and other summer uses will have
greater effects on reducing the peak. In cities with hot or arid climates, peak to
average day ratios of 2.0 to 3.0 are common. In humid or colder climates, peak day
ratios of 1.2 to 1.7 are common. The peak-day ratio can be determined by comparing,
utility water production records using the following formula:
EXHIBIT A
PAGE 6 OF 13
T7'------ '
..,':'
EVALUATION OF BENEFITS AND COSTS
Peak-day ratio = highest day production average day production (4-
The timing of capital facilities depends on the rate of growth in peak demand
and the capacity of existing facilities. If the planned facilities are dependent on the
growth of water demand, reduction in future water use can affect the timing of
construction of these facilitates. Figure 4-2 illustrates an example of how water
conservation could affect the timing of capital facilities. In this case, a water
treatment facility needed in 2020 could be delayed about 7 years. In the example
shown, demand reduction would reduce peak-day demands by about 20 percent. The
resultant dollar savings to the utility are the difference in the present value of the
costs associated with building the facility in 2027 instead of 2020.
A utility s efficiency program would reduce peak-day water use by 15 percent.
Cost savings to the utility are the difference between building the plant at two
different points in time (less debt service), plus the elimination of operating expenses
for the years of delayed construction.
If demand is leveling off as growth slows down, reducing demand may reduce
the need for the last expansion. In this case, the last expansion can be downsized.
The capital cost savings associated with a smaller facility can be converted to present
worth and added to other conservation benefits.
Information on the timing and sizing of capital facilities can often be found in
the utility's capital facility plan , water supply plan, and/or water master plan.
Unfortunately, sometimes the capital facilities are only identified a few years in
advance, and projections of needed facilities must be made using demand projections
and the design criteria.
To evaluate the impacts of efficiency, both peak-day and average-day water use
must be considered. Peak-day water use usually occurs on or near the warmest day
of the year for the community when outdoor irrigation has the highest demand ofthe
season.
25 r - - - - - - - - - - - - - - - - - - - - - - - - - - -
..,
20 i:0 OJ E..
i' 15 a:s
a:s:a
cO 10 1
r3
.::.::
a:sQ) a... 5:
Existi ng Capacity
Required Capacity Before Conservation
~.9~~~I~~ - -
- - - - ~
DELAY -+I ~
-----
-.,l..-
,............
I .-
0 i
- - - - - - - - - - - - - - - - - - - -- -. - - - - - _
2000 2010 2020 2030 2040
Year
.- "............""'"..........",....
Baseline
Demand After
Conservation
Figure 4-Example of delaying and/or downsizing a capital facility
EXHIBIT A
PAGE 7 OF 13
WATER CONSERVATION PROGRAMS-A PLANNING MANUAL
Water System Design Criteria
New water facilities present an opportunity to downsize or postpone expansions. This
can occur if the design of the facility is dependent on water flows. Table 4-1 shows
typical design criteria for water facilities that may be affected by reduced
consumption. Reduction in average day demand affects how much water must be
developed, or imported and stored, prior to treatment and use. Reduction in peak day
demand affects the sizing and timing of water treatment pln.nt expansions and
treated water storage. Water pipelines and pumping stations are affected by peak
hour pumping. Peak hour is dependent on customer peak hour demands plus
required fire flows. The latter is based on the type of land use to be protected.
Wastewater System Design Criteria
Table 4-2 shows the impacts of conservation (wastewater flow reduction) on design of
new facilities. Design criteria for land disposal systems are volume dependent. Most
facilities are based on peak wet weather flow, which can benefit from infiltration!
inflow (III) control programs but are little affected by conservation programs, which
save much less water than III contributes.
Table 4- t Water system elements affected by conservation
Design Criteria Based On
System Element
Source Water Acquisition
Raw Water Storage
Water Pipelines
Water Treatment Plants
Pumping Stations
Treated Water Storage
Average Day
-.j
Peak Day Peak Hour Fire Flow
-.j -.j*
-.J ..J
..J
'\)
-.J
-.j
"'Source and transmission pipelines
Source: O. Maddaus Estimating the Benefits for Water Conservation AWWA Conserv
Conference Proceedings, 1999
Table 4-Wastewater system elements affected by conservation
Design Criteria Based On
System Elements
Collection Systems
Average Dry
Weather Flow
Solids
Loading
Peak Wet
Weather Flow
-.J
-.J
-.J
Interceptors
Treatment Plants
Disposal to Receiving Water
Land Disposal
..J
..J
-.j '\)
Source: O. Maddaus, Estimating the Benefits for Water Conservation, AWWA Conserv
Conference Proceedings, 1999
EXHIBIT A
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EVALUATION OF BENEFITS AND COSTS , 77
Other Benefits
Other benefits that sometimes are significant and possibly can be quantified:
Lower withdrawals from supply sources (more water remains in rivers and
aquifers)
Lower discharges of treated wastewater to receiving waters
Lessened construction environmental impacts
Creation of water conservation jobs
Customer savings in utility bills
In-depth descriptions of the methodology for calculating the economic benefits
that the utility will realize from the delay, downsizing, or elimination of capital
facilities is available in the American Water Works Association Research Foundation
(AwwaRF) publication Economic Impacts from Water Demand Reductions (AwwaRF
1996).
How to Calculate Avoided Costs From Downsizing,
Delaying, or Eliminating a Water Supply Capital Project
The basic methodology below illustrates the economic benefit from the following
simplified formulas:
If the project is downsized:
Cost savings = (Cost at original size) - (Cost at reduced size)(4-10 )
Cost in the above equation includes both capital and life-cycle operations and
maintenance costs.
If the project is delayed:
(Cost in original year) (Cost in delayed year)os saVIn s = (i+l)m (i+1)n (4-11)
Where:
number of years until the original project is built
number of years until the delayed project is built
discount rate used in present value calculation
Note: n-m is the delay in years.
Cost in the above equation includes both capital and life-cycle operations and
maintenance costs.
If the project is eliminated:
Cost savings -= capital cost (in net present value (today s) dollars)(4-12)
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WATER CONSERVATION PROGRAMS-A PLANNING MANUAL
HOW TO DETERMINE THE COSTS OF
CONSERVATION MEASURES
This section describes the following two principal types of costs to the utility for
undertaking efficiency programs: (1) direct utility costs for implementation, such as
in-house staff costs and any contracted costs (where a private contractor performs
some of the work); and (2) cost of decreased water revenues.
Direct Utility Costs are the sum of in-house staff costs and contracted costs (if
work is contracted out) and can be calculated as:
Direct utility costs = In-House costs + contract costs (4-13)
Where:
In-House costs = Administrative costs + (field labor hours x hourly rate (including
overhead)) + (unit costs x number of efficiency measures or
devices! + publicity costs + evaluation (or follow-up costs)
Contract costs = Administrative costs + (number of events (or sites) x unit cost per
event (including program unit costs)) + publicity costs +
evaluation (or follow-up costs)
Administrative costs include the staff time required to oversee field staff
contractors, consultants, or contracted field labor. Administrative costs will be higher
when launching a new program or with large consultant contracts. Administrative
costs are typically 5 to 15 percent of total program costs.
Field labor costs include staff time to conduct efficiency program work in the
field, such as water audits/surveys, leak repair, and fixture installation, follow-up site
visits, and door-~door canvasing.
Unit costs are based on cost per device or measure basis or as a cost perparticipant. Examples include retrofit kits, water audit programs, and rebate
programs. Small programs typically have higher unit costs than larger programs
because of bulk purchase discounts and a smaller number of participants.
Publicity costs are the costs of a public outreach to educate customers through
local media, including radio and television spots, local newspaper advertisements,
flyers, bill inserts, billboard and bus advertising, theater slides, customer workshops
and seminars, and special demonstrations (booths at community events). Larger
utilities often employ public relations professionals to handle this aspect of their
efficiency program for maximum effect, but this is not necessary for smaller
programs. Costs will be roughly proportional to the number of customers contacted.
Evaluation and follow-up cost includes two types of follow-up: (1) the utility
must keep records oftbe impact of the conservation measure(s) is having (to quantify
the water savings from these activities); and (2) monitoring how well the measures
are performing through follow-up contact with participants to assess if program goals
are being achieved. Costs from these follow-up activities may include staff time
conducting public surveys assess customer participation and satisfaction (including
changes from a baseline survey on attitudes and also market penetration studies
(more common among larger utilities) to assess future means for better targeting
implementation of the measure),
The best sources of information are from the experience of other utilities that
have conducted similar programs. Costs can be expressed on a unit basis (for
example, $ per dwelling unit, or $ per survey/audit) and then transferred to another
EXHIBIT A
PAGE 10 OF 13
EVALUATION OF BENEFITS AND COSTS
utility's service area, accounting for economies of scale (e., any bulk purchase
discount or larger number of participants that would drive costs down) for different
size programs.
Costs of Decreased Water Revenues
Less revenue is a primary concern of utility decision makers and should be assessed
carefully and explained fully. Decreased water revenues can mean less funding for
new capital facilities operation and maintenance, but these costs are often offset by a
reduced need to build, operate, and maintain future facilities.
There is a direct correlation between lower water use and less revenue. The cost
of decreased water revenue is the cost per unit of water multiplied by the units of
water conserved. Generally, this revenue reduction is small and occurs over a long
period of time, allowing for the utility to incorporate these changes into budget
forecasts and redesign rate structures. Typically, cost-effective (benefit-eost ratio
above 1.0) efficiency programs save 112 to 2 percent of annual water use, and by the
same accord, reductions in water revenues per year are the same over the life of the
program. This amount has historically been less than inflation in other utility costs.
The short-term savings from efficiency measures that reduce production costs
(energy, chemical, and treatment costs) help to offset revenue decreases. Periodic rate
adjustments can recover the inflation in utility costs in addition to recovering any
less revenue, thus the actual economic impact is insignificant. The primary concern
of utility decision makers over reduced revenue can frequently be avoided by
incorporating estimated conservation program savings into future demand forecasts
and rates prior to program implementation.
HOW TO PERFORM A BENEFIT -COST ANALYSIS
Up to this point, the planner has gathered information on how to calculate benefits
and costs. The goal now is to combine this information into a formal benefit-cost
analysis from the perspective of the water utility. For guidance, Tables 4-3 through 4-
provide an actual example of how to perform a benefit-cost analysis for a residential
water survey efficiency measure.
Benefit-cost analysis will tell the planner, decision makers, and the public
whether the proposed measures are economically efficient, or if the benefits are
greater than the costs. The larger the water savings and the smaller the costs of the
measures, the more economically attractive the measures are to the water utility.
Later in this chapter, immediately following determination of benefit-to-cost ratio
from a utility perspective, is a more detailed discussion of other perspectives and
considerations.
Benefit-cost analysis requires careful attention to detail and is a central
responsibility of plapners at medium-sized and large utilities. Planners perform
benefit cost analysis to justify significant budgets or as part of an effective water
supply planning process. Smaller utilities may elect to calculate the cost of water
saved, as described below, and select measures based on only costs.
A positive benefit cost ratio will not always be the final deciding factor. Some
measures are implemented independent of an economic evaluation. A good example
is public education programs, which are often thought of as the "glue" that holds the
efficiency program together. When performing a financial assessment, public
education is difficult to quantify in terms of direct water savings and as a result
rarely has a positive benefit-cost ratio. However, public information and education
programs are critical to assist with the success of all measures by building the
conservation ethic in customers. In general, most utilities will ramp up their efficiency
EXHIBIT A
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WATER CONSERVATION PROGRAMS-A PLANNING MANUAL
program over time and package education costs with other cost effective measures so
that the total combined conservation program has a positive benefit to cost ratio.
How to Determine the Benefit-to-Cost Ratio
This is a standard means of analyzing different alternatives, and numerous
economics textbooks present several methods for estimating the costs and benefits of
a potential alternative, in this case an efficiency measure. One resource is the Cost
Effectiveness Guidelines for Evaluation Urban Water Conservation Best Management
Practices (California Urban Water Conservation Council, 1998).
As an overview, the method calculates the ratio of the present value (today's
dollars) of benefits to the present value of costs. Present value of a future cost or
benefit (payment) is the amount of money needed today to make that payment in
future year, given that today s money will earn interest between today and when the
payment must be made. It is a similar concept to buying a US Savings bond today at
a discounted amount that will mature to the face value in some specified future year.
If the ratio is greater than 1.0, the benefits outweigh the costs and the measure
is considered feasible (or economically efficient). The following formula shows the
basis for benefit to cost ratio:
Benefit-cost ratio =
sum of benefits ($) in year (t)
(1+i)t
sum of costs ($) in year (t)
(1 + i)t
(4-14)
Where:
selected discount rate, as a decimal (5% = 0.05)
year in evaluation period
Simplified Approach-Estimating the Cost of Water Saved
The cost of water saved is a useful number that is relatively easy to calculate. It is
commonly expressed as dollars per million gallons, cents per 1 000 gallons, or dollars
per acre-feet. These are common denominations of new water supply, and it is
simple comparison to see if efficiency measures are less expensive than new sources
of supply. Although somewhat simple, the reader is cautioned that the lifetime of
each conservation measure and the lifetime of a water supply project are usually
different, and thus these should be normalized prior to comparison. This can often be
done by renewing the shorter lifetime measure until it approximately equals the
lifetime of the longer one. There is no standardized formula for calculating the unit
cost of water saved, but the following is suggested:
Unit cost of water saved ($/unit of water) = TC/V (4-15)
Where:
present value of the total efficiency program costs over planning
period (dollars)
total volume of water saved (units) over the planning period (e.
acre-ft or 1 000 gal)
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WATER CONSERVATION PROGRAMS-A PLANNING MANUAL
TYPICAL BENEFITS AND COSTS
The following section summarizes the major types of benefits and costs from water
efficiency to the water utility, whose perspective is the focus of this manual. However
some utilities may also wish to consider customer and society benefit-cost discussed
later in the section, "Other Perspectives on Benefits and Costs." If the measure has a
positive (greater than 1.0) benefit-cost ratio for the customer, the customer may be
more likelyc to implement the measure. In addition, benefits accrue from reduced
wastewater flows (e.g., lower cost of treatment and delayed facility construction).
While these impacts need not be included in the benefit-cost analysis for the water
utility, they can be counted for utilities that provide both water and wastewater
services. Many water conservation measures also save energy and/or have other
benefits. All benefits should be recognized and discussed during the public review
phase of efficiency planning. Partnering with wastewater and energy agencies may
assist with funding efficiency.programs.
Important factors to consider besides a formal benefit-cost analysis are other
noneconomic impacts (e., water quality improvements caused by less runoff from
irrigated landscapes that carry pesticides and fertilizers through stormwater
systems, which discharge these contaminants directly to streams and rivers).
Quantifying social and environmental benefits so they can be included. in the
quantitative benefit-cost analysis has long been problematical. They should be
considered at least qualitatively. Reduced water production will allow the utility to
save costs from
reduced water purchases from wholesale water agencies;
reduced O&M costs (energy from pumping (production, treatment, and
distribution) and lower chemical use);
reduced or deferred treatment plant capital expansion costs;
reduced water storage costs; and
reduced wastewater processing costs.
Water utility cost savings can be significant. The cost of water depends on
source and necessary treatment, however costs commonly range between $1.00 to
$4.50 per 1 000 gallons. These benefits (cost savings) are based on combined short-
term. and long-term water savings.
Short-term savings are those that are not related to capital facilities and tend to
result immediately from efficiency activities. These include the reduced costs of
treatment chemicals, energy, and labor and materials required to handle reduced
water production.
Long~term savings are those associated with capital facilities (i.e., deferred,
downsized, or avoided water and wastewater facilities because of reduced demand) or
reduced water purchases. These facilities savings include not only the obvious new
sources of supply, but also distribution improvements needed for increments of that
new supply (e., replacement requirements to increase size of distribution system
pipelines).
Cost of efficiency programs fall into three broad categories:
Implementation costs (paid by the utility) such as staff time, hardware
costs, and public and school education materials, and the cost of any
monetary incentives that may be offered.
EXHIBIT A
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