EPA-600/2-76-179
July 1976
Environmental Protection Technology Series
t»E Wl Of
-v:."- SK-X^J^I^,- !;-4<; ;'i>;:
, ,-
'" '"
E
-------
RESEARCH REPORTING SERIES
Research reports of the Office of Research and Development, U S Environmental
Protection Agency, have been grouped into five series. These five broad
categories were established to facilitate further development and application of
environmental technology. Elimination of traditional grouping was consciously
planned to foster technology transfer and a maximum interface in related fields.
The five series are:
1. Environmental Health Effects Research
2. Environmental Protection Technology
3. Ecological Research
4. Environmental Monitoring
5. Socioeconomic Environmental Studies
This report has been assigned to the ENVIRONMENTAL PROTECTION
TECHNOLOGY series. This series describes research performed to develop and
demonstrate instrumentation, equipment, and methodology to repair or prevent
environmental degradation from point and non-point sources of pollution. This
work provides the new or improved technology required for the control and
treatment of pollution sources to meet environmental quality standards.
This document is available to the public through the National Technical Informa-
tion Service, Springfield, Virginia 22161
-------
EPA-600/2-76-179
July 1976
THE COST OF MUNICIPAL WATER SUPPLY:
A CASE STUDY
By
Robert M. Clark
Richard Stevie
Greg Trygg
Water Supply Research Division
Municipal Environmental Research Laboratory
Cincinnati, Ohio 45268
U. S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF RESEARCH AND DEVELOPMENT
MUNICIPAL ENVIRONMENTAL RESEARCH LABORATORY
CINCINNATI, OHIO 45268
. ,, J.
-------
DISCLAIMER
This report has been reviewed by the Municipal Environmental
Research Laboratory, U. S. Environmental Protection Agency, and approved
for publication. Mention of trade names or commercial products does
not constitute endorsement or recommendation for use.
11
-------
FOREWORD
The Environmental Protection Agency was created because of increasing
public and government concern about the dangers of pollution to the health
and welfare of the American people. Noxious air, four water, and spoiled
land are tragic testimony to the deterioration of our natural environment.
The complexity of that environment and the interplay between its components
require a concentrated and integrated attack on the problem.
Research and development is that necessary first step in problem
solution and it involves defining the problem, measuring its impact, and
searching for solutions. The Municipal Environmental Research Laboratory
develops new and improved technology and systems for the prevention, treat-
ment, and management of wastewater and solid and hazardous waste pollutant
discharges from municipal and community sources, for the preservation and
treatment of public drinking water supplies, and to minimize the adverse
economic, social, health, and aesthetic effects of pollution. This publi-
cation is one of the products of that research; a most vital communications
link between the researcher and the user community.
The Safe Drinking Water Act of 1974 has focused a growing awareness on
problems related to water supply and water supply utility management.
A major portion of the Act concerns itself with the economics of water
supply as does this report. Data from a municipal water supply have been
analyzed in a comprehensive and standardized manner, categorized into
functional costing categories and reaggregated, so that the cost of water
as delivered to the consumer's tap can be defined.
Francis T. Mayo, Director
Municipal Environmental Research Laboratory
iii
-------
ABSTRACT
Problems related to water supply have become increasingly important
in recent years. Spreading urban boundaries force many potential water
supply customers to locate farther and farther away from available water
sources, thereby increasing the costs which must be incurred in order to
provide adequate service. Therefore, it is important to systematically
and objectively study the factors which affect the costs of water supply
management.
This report utilizes the Cincinnati Water Works of Cincinnati, Ohio,
for a case study to examine these factors and to document the application
of a functional approach to the analysis of water supply costs. Such an
approach can provide the basis for determining the cost of service for any
given consumer within the Water Works service area. Ultimately the functional
costing approach outlined in this report, or one similar in nature, will of
necessity be used to analyze the impact of regional water supply systems.
Data for 10 years are analyzed for each of the functional categories
of: Support Services; Acquisition; Purification; Power and Pumping; and,
Transmission. Operating and Maintenance costs, Capital costs, and Labor
costs are evaluated. A system evaluation is performed, in which the above
costs are aggregated in such a way as to develop "cost zones" for the
Water Works service area. Cost comparisons are made between actual charges
and constructed costs for the Water Works' 10 largest water users.
iv
-------
CONTENTS
Page
INTRODUCTION , 1
DATA GATHERING PROCEDURES ,.,,.., 4
SERVICE AREA , . . , 7
COST ANALYSIS , 9
Labor Cost Analysis 15
Depreciation Analysis 15
SYSTEM EVALUATION 20
Pricing Analysis 26
SUMMARY AND CONCLUSIONS 32
REFERENCES 33
-------
LIST OF TABLES
Table Page
1 Cost Categories 6
2 Total Operating Costs for Major Functional
Categories in Cincinnati Water Works (Dollars) 11
3 Operating Costs for Major Functional Areas in
Cincinnati Water Works ($/mil gal metered
consumption) 12
4 Operating Costs for Functional Areas in Cincinnati
Water Works (Cost as a percent of total cost) 13
5 Capital and Operating Costs for Cincinnati
Water Works (Dollars) 14
6 Operating and Capital Expenditure Ratios
for Cincinnati Water Works 17
7 Manpower Costs for Cincinnati Water Works ... 18
8 Historical and Reproduction Costs of Plant-in-
Service for Cincinnati Water Works (Dollars) . . 19
9 Transmission Costs Between Service Areas .... 22
10 Cost, Consumption, and Revenue Data by Cincinnati
Water Works Service Area (1973) 23
11 Ten Major Users of Water from Cincinnati Water
Works ' 27
12 Cincinnati Water Works Water Rates Effective
April 1, 1969 29
13 Actual Charge Versus Cost Comparisons for Ten
Major Users in Cincinnati Water Works ..... 30
vi
-------
LIST OF FIGURES
Figure Page
1 Cincinnati Water Works Service Area ..... 2
2 Schematic Diagram of Acquisition, Treatment
and Distribution Functions for a Typical Water
Supply System .... 5
Major Facilities in Cincinnati Water Works
Service Area
Pumped and Metered Water for Cincinnati Water
Works (1964-1973) 10
Schematic Diagram of Facility Costs in Cincinnati
Water Works System ..... ..... 21
Schematic Diagram of Incremental Costs for
Bl and B2 Service Areas 24
Step Function Cost Curve for Bl and B2 Service
Areas 25
Major Facilities in Cincinnati Water Works
Service Area 28
Vll
-------
ACKNOWLEDGEMENTS
The writers would like to acknowledge the assistance of Mr. Charles
Bolton, Superintendent, and Mr. William F. Reeves, Chief Engineer, of the
Cincinnati Water Works, and the other members of Mr. Bolton's staff for
their review and suggestions regarding the preparation of this report.
viii
-------
INTRODUCTION
Problems related to water supply have become increasingly important in
recent years. In the past, supplying water to the consumer was considered
to be a routine matter, and water itself seemed to be available in almost
unlimited quantities. But this is no longer the case in most parts of the
United States today. Perhaps water itself is not a scarce resource, but the
problems of supplying water of acceptable quality to an increasingly urban
population is no longer a simple matter,^ Spreading urban boundaries force
many potential water supply customers to locate farther and farther away
from available water sources. Some areas which are inherently water limited
have attracted significant population growth, thereby straining the avail-
able water resource. A scarcity of the land, labor, and capital resources
needed to convey water to places of useful application have contributed to
these problems.
Therefore, it is important to systematically and objectively study
the factors which affect the costs of water supply management. This report
examines these factors for the Cincinnati Water Works of Cincinnati, Ohio,
and documents the application of a functional approach to the analysis of
water supply costs, which provides the basis for determining the cost of
service for any given consumer within the Water Works service area.
Ultimately the functional costing approach outlined in this report, or
one similar in nature, will of necessity be used to analyze the impact of
regional water supply systems.
The Cincinnati Water Works, owned and operated by the City of Cincinnati,
is a self-sustaining public utility. It is metropolitan in both nature and
scope since water is served to areas outside the city limits.
In 1955 the City of Cincinnati and Hamilton County joined in a contract
which stipulated that the Cincinnati Water Works would serve approximately
80 percent of Hamilton County for a period of 30 years (Figure 1). In 1961
the Water Works contracted to serve a portion of Butler County and in 1967
a portion of Warren County was added.
The Cincinnati Water Works currently serves over 186,000 accounts
through more than 3,785 miles of water mains.1 It has been expanding at the
rate of 3,000 accounts and 35 miles of mains each year. In 1974, the Water
Works supplied approximately 840,000 people at a daily rate of 132.9 mil
gal (almost 158 gal/cap/day). The amount of water supplied might be greater
except for the large amount of well water available in the area to consumers
who wish to develop their own supplies. One private water purveyor supplies
approximately 17 mil gal per day for industrial use.
-------
R>
0)
Q
Z
LU
0
LJLJ
__J
»
o
>.
>
'~
o
c
c
U
c
(J
k_
o
o
0)
t_
V)
o
10
a>
0
'>
^
a>
(0
M
J£
< s £
o »
* 71
*~ »-
0)
ID *.
^
: «
: « « 0
*-
0)
to
1
o ~c
.^ c
< J:
II
I
; T"
UJ
1 ^
3
a
<
LU
Of
>
at
LU
l/>
P
Z
Z
0
D
a>
0
6
X
01
.c
U
<
°
c
-c
1
i
eo
D
j I
i5 C
O V
0 U
U Q
X.
1
O
Uj
LU
c
o
s
OQ
U.
O
£
c
V
I
o
£
£
c
_o
a)
I
LU
.£ 1 s
I «3 c
U c §
-s i I
sis
CN en TT
0.
LU
Q
io o N. oo
« 9 -£ -fi >
o ,* o J jo
O O ^ CN
-------
To properly evaluate the factors which affect the costs of a complex
urban activity, such as the Cincinnati Water Works, it is important to
develop flexible and incisive data-gathering techniques. The approach taken
in gathering the utility data is described in the following section.
-------
DATA GATHERING PROCEDURES
Water supply systems are generally composed of (1) collection works,
(2) purification systems, where needed, and (3) transportation and distribu-
tion systems. The collection works either tap a source of water that can
satisfy present and reasonable future demand on a continuous basis, or they
convert an intermittent source into a continuous supply by storing surplus
water for use during periods of low flows. If the water is not of satis-
factory quality at the point of collection, it is treated to make it
esthetically attractive and palatable.
Water containing iron or manganese is subjected to deferrization or
demanganization; corrosive water is stabilized chemically; and excessively
hard water is softened. The transportation and distribution works convey
the collected and treated water to the community, where it is distributed to
the consumers.
Because large operating and capital investments are involved, it is
important to be able to compare costs between utilities to understand the
components which make up the operation^. To make these kinds of comparisons
it is necessary to collect the data in a standardized manner. One approach,
and the one which will be utilized in this report, is to define the utility's
operations in such a manner that they can be categorized into functional
areas. Figure 2 illustrates a typical utility in which the operations have
been defined as being composed of the functions of acquisition, treatment,
and distribution. This is an oversimplified categorization but serves as
a useful beginning point. One important area not included is the manage-
ment function. By collecting data that describe these functional categories
it is (in theory) possible to compare the costs of one water supply with
those of another. This is the principle that has been used to gather data
on the Cincinnati Water Works, although the functional categorizations are
much more detailed than presented in the example.
The Cincinnati Water Works operations have been defined as follows:
acquisition, purification, transmission and distribution, power and pumping,
and support services. These functional categories are common to all water
utility operations although the specific costs assigned to each functional
category may vary depending on the utility. All of the costs, with the
exception of the support services category, are those which make that specific
activity operational. Support services includes management, customer
services, and all of those costs which do not relate to specific operating
activities, For example, laboratory personnel costs are included in the
purification activity, but the management costs of the purification treatment
division are included in the support services category. Maintenance and
repair costs are allocated to each category where appropriate.
-------
Q
Z
LU
IE
o
<
< o
cc z
O D
< u_
o2«2
LU r- o.
1 5 °-
O £ ID
(0 O (0
-------
In addition to the Operating Costs, one must also include Capital Costs
in the analysis in order to be complete. For the purposes of this analysis,
Capital Costs are defined as the depreciation on the utility fvs existing
plant in service, and the interest on any types of borrowing mechanisms which
the utility may use to raise money for capital investment. Depreciation as
reported here is based on the actual cost of the facility divided by its
useful life, and not on reproduction cost. The data as reported for depreci-
ation, therefore, will reflect lower costs for older utilities. This is true
in the case of the Cincinnati Water Works, since most of its facilities were
built from 1930 to 1940. In order to understand the magnitude of the bias
which such an assumption introduces, an analysis of the replacement cost for
the utilities facilities has been made. Using a standardized construction
cost index, the original cost of each facility currently in use has been
inflated to a 1974 cost base^. The analysis is contained in a section which
will follow. The interest costs are those which the utility has historically
paid for money.
Table 1 summarizes the cost categories utilized in this analysis.
TABLE 1
COST CATEGORIES USED IN ANALYSIS
Operating Costs
Overhead
Acquisition
Purification
Transmission and Distribution
Power and Pumping
Capital Costs
Depreciation
Interest
All of the cost analysis which will be discussed in this paper is based
on revenue-producing water. The unit costs presented will be calculated
using the revenue-producing water pumped by each utility during the water year
from 1964 through 1973.
-------
SERVICE AREA
The present service area lies almost entirely within Hamilton County
with fringe extensions into three adjoining counties. Although for the most
part they are surrounded by the Cincinnati Water Works service area, a
number of communities maintain their own systems (Figure 1). Emergency
service is provided to most of them, but, as long as their source of supply
can be maintained, most of the communities will not change their present
status. The distribution area and the facilities used are shown in Figure 3.
One city has its own distribution system, but is served by the Cincinnati
Water Works.
The current source of supply is the Ohio River, from which water is
pumped to the treatment plant. It has a capacity of 235 million gallons
per day (mgd); in 1973 it treated an average of 136 mgd. Water is distrib-
uted to the east through a series of pumping stations and tanks. To the
north and west, water passes through two gravity tunnels and through two
pump stations into a large reservoir and is then repumped into outlying
service areas.
-------
Y
~/~T
\
"1 S
^
U-^x
CJ
z
LU
0
LU
"?
(D
O)
I
-*
c
o
i
D
<0
O)
1
k.
Reserve!
o
O)
c
0
'^
o
IO
Q.
E
3
Q.
C
o
Q.
f
Trea tmei
0
C
0
\
S
X
~-S"
*
D
.-v\
D»
I
,-'
'-,
I
-J-.
\-/
D
-"V/
\
/
\
"^./'
-------
COST ANALYSIS
Figure 4 shows the total water pumped by the utility during calendar
years 1964 through 1973 as well as metered (revenues-producing) water and
water which was accounted for but did not produce revenue. All cost data are
based on revenue-producing water, for example, purification costs in dollars
per million gallons ($/mil gal) are based on revenue^producing water and not
on the total number of gallons of water pumped by the utility. As can be
seen from Figure 4, the total water pumped exceeds revenue-producing water
by nearly 13,000 mil gal in 1973.
Table 2 contains the total operating cost for each of the previously
mentioned categories. The Support Services category includes all of those
operating costs that support but are not directly chargeable to the produc-
tion of water. It includes such items as general administration, accounting
and collection, and meter reading. Subcategory "Other" includes pensions,
workman's compensation, charges by other city departments, and security.
The security costs increased sharply between 1968 and 1969 when fulltime
guards were added to the Water Works staff. The Purification category
includes those costs related to the cost of operating the laboratory, labor
involved in the treatment function, chemicals for purifying the water, and
maintenance of the treatment plant. Power and Pumping includes those costs
related to operating labor, maintenance, and power for pumping water through-
out the service area. The Transmission and Distribution category includes
the operating labor and maintenance costs associated with supplying water
to the consumer.
It can be seen from the table that the Support Services costs more
than doubled between 1964 and 1973. Although all of the other cost categories
increased during this period, their rate of increase was less than that of
this category. Total operating costs increased by about 65 percent.
Table 3 contains the total average unit operating costs for each major
category based on the number of revenue-producing gallons pumped in a given
year. As can be seen, all the cost categories increased by a factor of
less than two, and the total operating cost increased by about 40 percent.
Table 4 shows each cost category as a percent of total operating cost.
It is obvious that Support Services accounted for a significant and increas-
ing portion of the utility's budget, from approximately 26 percent in 1964
to 31.5 percent in 1973. The other cost categories either decreased or
remained constant.
Table 5 contains the operating and capital expenses, as defined earlier,
for the period. Depreciation and Interest Expense are defined as the capital
-------
Q £ Q <;
T>
a
E
3
a.
^
£C
o
*
o
0
(-
o
*
o
-o
} c <;
3
o
w
U
1
) (
)
>.
£
o
^
^
) "°
^
»
0)
5
I
o
Irt
r
"^
n
00
o
m
o
(SUOffOQ JO SUOJUJflj
CO
r^
o>
(0
.x
».
o
k.
Q)
+*
(0
£
(0
o
c
O
V.
o
«^
k.
0)
+4
(U
u
0
s
0)
o
c
(0
o
0)
a
E
LU
OC
3
G
u.
10
-------
t-
ON
H
H
S
H
H
^
^
H
H
S
IEGORIES
FUNCTIONAL CA
-d-co c-co t- CM
o co co UN co o
-d" OJ t- t- OJ rH
H UN t H VO IfN
UNCO O OJ VO CO
-d" UN j- CO C -3"
H OJ
VD UN CO UN ON O
COCO OJ O -d" OJ
H OJ t H OJ O
UN co O -j- co O
VO CO t^-VD CO CO
-dr U\ CO OJ VO -d"
rH OJ
VO O Vp ON H -d;
UNCO ON O -d~ -d"
cnvo UN H t-- CO
J- O rH UN H vO
CO CO UN UN f ON
cn-? co H co -d-
H OJ
&H -d- UN t- CO
CM rH VO O -=t
COCM OJ H ON t-
ON oj O ON o vo
tr\ oj o ON cp oj
CM
vo t- H ON co ON
CO OJ r-| UN CO -d-
OJ -d" VO CO VO rH
VO O OJ ON cp IfN
CO rH O UN O O
CO-d" CO O rH -d"
H CM
CO OJ CO C- O CO
CO C~--=F -3" UN OJ
UNCOC^-VO CO ON
O ON UN IfN rH t
CO CO OJ VO VO CO
H
J-VO OJ OJ UN CO
UN-d- ON ON CO OJ
ON oj _d- CM ON c*-
CM CO OJ VO J- CO
H
-d- vO OJ ON H ON
C*- IfN UN UN _d" OJ
t--VO UN O O CM
O OJ UN-d" CO -d"
UN O\^f CM rH C*-
OJ OJ OJ VO _d~ CO
rT
O CO ON r-l CO OJ
t-CQ COrH O VO
CO ON ITN rH UN Er
COCO CO J- O CO
-d" C CO [-- CO VO
CM CM CM UN CO CO
r-T
J- COCO t- OJ -d/
onvp vo t>- .d- -d-
CO ON C^ H C*- CO
UN OJ IfN UN ON -d-
coco OJ H UN ON
OJ oj oj \o co en
H
S
EH co
O P4
U W
CO
iii i i
-3" UN ONVO rH \O
ON t--\D t-- ON O
*-D CM -^ -H; O O
H CO CO OJ OJ
H
J" CO ^O t~- ~J" ON
UN O CO OJ -d" H
H vO UN H t-- OJ
OJ t~--d" CO OJ O
-* VJD CM OJ CO J-
rH -d- CO OJ OJ
rH
H CO t-CO -HT CO
CO CO VO -J/ OJ O
COCOVO D Jt vO
CO CO CO UN CO J-
CO J- OJ rH-d- \£«
H-a- cn oj H
H
H O CO t- IfN rH
O UN.3F ON J- J-
CO H OJ \Q H O
ONCO vO co t1*- ifN
COCO CM OJ CO VO
rH J" CM H O
rH
-d" _d" CM O OJ CM
cn c-- t- oj cn cn
ON UN H OJ H O
t- O O VO \O H
cnco H-=f\o 3
H J" OJ H O
H
UN O CO OJ C C--
rH UN-d" -3" VO H
Cn C-- rH-3^ OJ ON
CM ON H VO OJ H
mv£) H H CO rH
H-d- OJ H O
r-T
ONCO QCO ON J-
H t>- O ON ON ON
OJ [v t^vD OJ VO
H-* OVD H -3:
-3" VO rH i 1 t~- O
H -3" OJ H O
H
vp co oj ON t- t
o co cnvo oj vo
t^vO H UNCO CO
oj oj UN t- tfN cn
-3" UN t-CO t CO
H CO H H ON
CO t^-d" ON CM UN
ON c cn H u~\ f-
-d- OJ OJ H cn ^t
CO J" t-^ O M?
rO_d" vo ONVO o
rH cnH H ON
-d~ vo cn o o cn
COOJVOCO H H
J- -=J- J- r-t C- OJ
H Q\ ON O CM CO
CO_3" O t- UN H
H _* H H ON
o
5
E
mo SB
^3 g G g
S W O CQ {2! S 5
O t~- ON UN CO
CO CO CO UN H
co ON cn UN [
cn o O H vo
oj cn ON OJ vo
H
O vp Q ON UN
CO ON ON t J-
oj cn t -d- ON
OJ O OJ ON-d"
CO CM O t- CO
OJ rn ON H vo
H
t-- IfN C OJ ^t
ONVO o H co
cn-d- t--co cn
CM coco H vo
H
UN ON ON i-t J-
COVD UN O VO
oj -d- co o O
t^- UN ONVO CO
OJ CAJ vo H co
H
8S3S&;
CO t UNCO CO
LfN-d- VO J" H
LfN O OS UN r-j
OJ COvf_) rH _j-
H
H UNVJD UN t--
vp -d- Q CM co
O OJ Ch ON rH
CO CO ON O C-
OJ CO OJ UN J-
OJ OJ VO H OJ
H
UN t OJ CO f-
-d: O VD ON Q
CO CO CO J- O
CO CM J- UN LA
OJ OJ VO rH OJ
rH
UN CO rH UN J-
C~~-d~ ON UN t~
cnvo cnco CM
OJ H H OJ CO
OJ CM VO rH H
H
CM ^t VO VO CO
CM H D- CO -3F
cnco H o cn
CM CM VO -3- UN
O CO O CM H
CM H VO rH rH
r-T
8 UN CO O\ OJ
H CO COVO
VO ON UN O H
ON OJ H OJ VO
ONCO CO CM CO
H H UN rH O
H
g
O EH
g f i
(!»! i
ON H C co
t UN IfN CO
CM co oj cn
UNVO CO tf\
-t OJ
H J- O UN
rH: CO -3^ CO
UN O CO _^-
t* VO OJ VJD
VO CO rH VO
H OJ
ON UN CO C
J^J-ON H
rH-d- O t>-
H ONCO co
VO t- -5f
H OJ
UN UNVO VO
O CO -
£&3 8j
UN UN H CO
H CM
ON_d- rH ^J-
CO^t CO rH
O VO t ^f
t CO t CO
UN J- O
H CM
CM OJ H UN
8J?8 S
-d- ON-d- [>-
cn oj ^o CM
UN CO ON
H" H*1
OJ -d- co j-
t- O -d" CM
rH VO C~~ UN
ON UN CO CO
H H
co o ON oj
VO UN UN t
c vo ON co
UNCO vp H
t- OJ O H
-d" H H t
t-- C-- OJ VO
CO rH ON ON
cnvo c t
O t UN co
UN CM t UN
-3: O UN
« ,
rH H
VO O ON UN
CO CMCO ON
ON OJ ON H
CM CO rH CO
vO O ON UN
-d~ O UN
H H
M
Q
^ ^
w te
t« 0
CO H
K CO
O [XH co
3g g
H W
o S o 8
t-
-3
1
11
-------
3
pj}
DZ
w
H
hH
H
<
z
O
Z*
O C
o
Z -H
H^ -W
a
[S §
H CO
Pi C
Cf\
U
c. o
w
o
Oe3
C
o
i-H
i-3 rt
r?^
g
<
Pf
£r
H
cc
O
v~"
i
1
CO
r
ON
rH
CM
o">
rH
rH
ON
i-H
0
ON
rH
ON
vO
rH
00
vO
rH
fs^
VO
ON
rH
vO
vO
rH
in
vo
ON
rH
^.
NO
rH
EGORIES
H
i
r^H
o
M
B
1
CO
w
0
i
CO
s
o
PL!
D
CO
-3- I** O ON O CO
00 CO r*^ vO vO f^
rH in O * t-^
rH -3- rH 00 f» CM
rH CO
rH rH 00 00 -3-
O f~ rH CM CO in
rH CO rH 00 VO O
rH CO
"** l*^ 00 CO f ON
O O -3- O O VO
rH in rH vO in 00
rH CM
in ON CO O ON vO
CD ON co oo in P^
rH -3- rH vO 3- rH in in r-«
rH CM
vo r I-H co m CM
rH CO rH ON 00 3^ CM m o o S
Z CA CJ CO Z I-H 5
O O 55 H--4 ^C pt| PL-
M H M < Z I-l
liliils I
PL, H PL,
t-~ CM rH m m
CM rH r~ vo r--
vo oo co in co
CM 3- 00 I-. rH
vO OO CO -3- CO
CM -3-
ON O ^ in 1
CM ON CO -** ON
vO ON CM -3- CM
CM -3-
CO O rH ON CO
co oo r~ co CM
I*** vo oo ^T r*^
rH CO
f- CM -* 00 rH
O ! r\ . (_|
^") £ PM O ^Ci Z
E-t ^
o g
co vt oo in oo
rH O ^f VO . CM co vo
O O rH CM ON
vo r CM in co
i-H
i^
H
ft
-H
-P
g
s"
.
o
o
O
0
rH
O
convert t
o
*
12
-------
CO
ON
rH
CM
ON
rH
rH
ON
rH
X o
O ON
* rH
PA
H
H
IX ON
M O>
^ P ^
Z co
Z O
M CJ
o
Z rJ 00
OH ON
0 rH
Z EH
M
CO O
rH EH r-
O W ON
O O rH
W f*i
-a H W
< fit
W CJ
rJ «!
PQ H NO
^C CO CO ^O
EH O <5 ON
O rH
H
z 8
rH in
H^fi
su
CJ ON
Z f""'
g
g
ft< -a-
H ON
CO rH
O
O
0
g
1
1
W
M
«
O
O
g
CJ
1
M
H
O
»
P&t
i-i N. p» o m m
m *o * o m
rx ON CO CM rH rH
-* m -* -a- CTN NO
rH CM
O 00 rH r- NO ON
m m st co oo m
iH CM
00 OO CO O ON 00
-a- in -a1 in ON in
rH CM
ON VI- CM NO rH rH
* NO -a- o NO NO
rH CM
ON -a- rH in ON CM
W D M
f& S CJ pi 03 CO CO
O Q O W H H
Pi < < CO O rJ 3
^ "* °
CO O <
fH
in o -a- co rH oo
CM
-------
s s
3
S
s§
OS
I
14
-------
expenses for the waterworks system. These capital expenses remained
essentially constant but operating expenses increased by approximately 65
percent. As can be seen from Table 6, the percent of expenditures allocated
to capital decreased from approximately 27 percent to 22 percent during the
period. Operating expenditures are always reported in inflated or current
dollars, while capital expenditures are depreciated in historical dollars
over a long period of time. The problems related to the depreciation of
capital will be discussed later. Since the Support Services category, which
is labor intensive, played an increasingly important role in the cost of
water supply, labor and manpower costs will be analyzed in the following
section.
Labor Cost Analysis
To evaluate the impact of labor costs on operating costs for water
supply, it is necessary to examine the payroll of the water utility (Table 7).
It can be seen that labor costs accounted for 64 percent of the utility's
operating costs in 1964 and for 62 percent in 1973. The average cost per
man-hour increased 71 percent, while the number of man-hours/mil gal of
metered consumption decreased by 23 percent. The bottom line in the table
shows a decreasing capital/labor cost ratio. Although economies of scale
were achieved with respect to the number of man-hours used to produce water,
the effect on cost was nullified by wage increases. The table, therefore,
illustrates the importance of labor in what is typically presumed to be a
capital intensive industry.
Depreciation Analysis
As mentioned earlier, capital expenditures comprise a large portion of
the cost of water supply. Depreciation reflects historical costs and not
the cost of replacing a capital facility based on current costs. Historical
costs refer to the original construction cost of a capital facility, while
reproduction costs reflect the capital expenditures necessary to build an
identical plant today. Historical cost is exact, but reproduction cost is
based on the original investment modified by an appropriate index.
The records of the Cincinnati Water Works show the historical value of
the plant-in-service to be $111,700,315. The value of pipelines, plant, or
equipment previously replaced or fully depreciated is excluded.
Using the historical costs, a reproduction cost was calculated using
the ENR Building Cost Index (1913 = 100) for buildings and equipment and the
ENR Construction Cost Index (1903 = 100) for pipes and valves. (A skilled
labor cost factor is used to compute the Building Cost Index, and a common
labor cost factor is used to compute the Construction Cost Index.) Having
weighted these capital expenditures with the proper indices, a reproduction
cost of $458,990,287 was found for the current plantain-service, which repre-
sents a 311 percent increase over the historical value. These capital expen-
ditures do include capital investment in a new treatment plant (Great Miami)
which is expected to be operational soon. Derivation of a reproduction value
facilitates examining the impact of inflation on capital cost and the current
15
-------
worth of capitals contribution to output. The computations discussed in
this section are summarized in Table 8.
16
-------
17
-------
§ S3
>< &
< O
i a
o o
H H
18
-------
TABLE 8
HISTORICAL AND REPRODUCTION COSTS OF PLANT-IN-SERVICE
FOR CINCINNATI WATER WORKS (DOLLARS)
Capital
Facility
Plant
Pipe
Misc. Plant*
Historical
Cost
lj.2,6U9,l60
5*^8,9^3
13,202,213
Reproduction
Cost (1973-7^ Dollars)
1U6, 981, 2?2
296,771,626
15,237,389
Total 110,700,315 ^58,990,286
* Capital expenditures which are not specifically identified.
19
-------
SYSTEM EVALUATION
Using the cost data for the various functional areas discussed earlier,
costs were allocated to specific treatment, transmission, storage, and pump-
ing facilities in the system. A general cost was determined for distribution,
interest, and overhead. Using costs based on 1973 $/mil gal and assuming a
linear allocation of costs for a given area against capacity required to
serve it, the facility costs associated with each service area, such as pump-
ing and storage, were established as shown in parentheses in Figure 5.
The codes in the schematic diagram (Figure 5) can be related to the
cost values in Tables 9 and 10. For example, the acquisition cost for water
from the Ohio River, including depreciation of the facility and operating
costs, is $16.70/mil gal. As a unit of water (mil gal) moves through each
facility to another service area, the unit cost of moving water through that
area is added to the cost of getting water to that area, thereby creating the
incremental costs shown in Table 10. The facility and transmission costs are
added to the costs of distribution, interest, and overhead to yield an
average unit cost to serve that area. A service zone represents a customer
service area and a demand point for water. For purposes of this analysis an
attempt was made to discriminate between the water demanded in a given
distribution area and the water transmitted through the area into the next
service zone.
To illustrate the way in which cost changes from one service area to
another, we can examine the Bl and B2 cost areas (Figure 6). The costs for
each zone are taken from Table 10, as shown in the schematic diagram. The
cost per million gallons for area Bl is composed of acquisition cost ($16.70),
treatment cost ($36.05), pumping and storage cost ($55.37), transmission
cost ($75.43), distribution cost ($50.52), interest cost ($17.57), and over-
head cost ($85.22). This yields a total cost of $336.86/mil gal. For the
B2 area, the pumping and storage costs ($80.45) and the transmission costs
($60.26) must be added to the Bl, and this yields a cost of $477.60/mil gal.
These values are plotted in Figure 7. The costs in each zone are described
by a step function. As water is pumped from the treatment plant through the
Bl zone, the average cost per million gallons (using this analysis) remains
constant, however, as water is repumped into the B2 zone, the costs take a
definable jump to a higher level.
The step function suggests the possibility that as additional service
zones are added to the periphery of the utility service area the cost
functions will continually increase. It is revealing to compare this cost-
ing analysis to the prices actually charged in the utility service area.
20
-------
o
00
CM
CO
.J
K
co
in
O
co
6
CM
1
£
'>
o
O
"5
e
3
i-
n"
q
CO
«£
c
£
k»
t
IT
w
co
6
E E
CM
o
CO
u
o
*
u
CO
o
CO
o
in
k
co
oo
oo
O
CN
co
CO
CO
u
Jl
u
o»
CM
00*
c
CO
CO
q
in
O
21
-------
to
c
o
CO
K
ivi _i_
HH +
CO
a-
s^
W H
O\ W a3
3 M
BO EH
t3 W H
^ S>
c^ -trj-
CO-
o
o
s
0
H
w
CO
s
g
En
,Q
J-
O
ffS
J-
o
rQ
00
o
cd
OO
O
OJ
0
0 S
EH O
H
nn
o
OJ
pq
S
<
!H
S
oo
0
1 1 1 i
O
ir\
oo
ON
»
-i
CO
a)
CJ
iH
>
^1
0)
to
oj c
01
o I
£ 3
^
!>.
H a.
ft -Jj
53 »
H C
d o
s -H
4-1
r^
s 2
3 M
0 0
M-l
o _
o »
3 ^
^^ c
-69- W
O '^
4J
^ CO
4j a>
p i_i
^-t £
1 1
§ S
0
-------
s
9
OJ
s
c
CJ "O
4)
«
S3
O
d -H
-
j-
ON
CM
J-
CM
OO
CM
FP
O
OO
on
ON
t-^
OO
t-
rT
H
H
oo
VD
ON
[-
VO
ON
ON
CM
VD
CM
CO
VD
ON
O
H
eS
rH
0
OO
vO
VD
t-
OO
ON
CM
H
VD
O
00
O
ON
OJ
ON
CO
J-
J-
CO
LTN
rH
ON
OJ
^0
H
O
o
ON
O
o
OJ
t^
oo
vO
CM
ON
LfN
H
t-
vO
vO
ON
O
CO
OJ
t-
C\J
ON
J-
ON
rH
rH
OJ
o
o
oo
H
ON
vo
CM
.4-
O
H"
-4-
t-
H
-4
CO
t--
oo
-4
LfN
ITS
t^-
CM
OO
CM
CM
CM
i-H
a
OO
o
o
LTN
O
t^
t^
r-?
.4-
oo
r-T
CO
J-
CM
OO
b-
CO
OO
OJ
J-
VD
-4-
OO
rH
rH
CO
ON
rH
,12
OO
0
o
r-
VD
OJ
oo
r-T
OJ
0
CvJ
-4-
oo
OO
0
-4-
VD
t^
VO
LTN
_4
VD
CM
LTN
CM
H
rH
rH
03
J-
O
o , !
J- ON 1
CM CO
H vD
IT\ LTN 1
^ ^ i
-4- LfN
-4 LTN
CO OJ
r-T H"
H
LfN CO
ON H
0 CC
ON O
LfN [~-
CO O
-4" CO
OO
o
VD
ON
b-
oo
ON
OJ
vO
CM
OJ
rH
cd
fl -P
% 0
0 EH
VD
OJ
O
r5^
,-Q
>>
H
ft
H
-P
3
e
*s
6
P
o
O
8
{-j
H
-69-
O
-p
-P
fn
a)
S3
0
o
o
EH
*
CM
OJ
LTN
CO
d
aJ
(D
X!
f-i
0)
>
d
a
rrl
tu
-------
(A
(D
0)
0)
o
UJ
cc
00
cc
UJ
V)
CO
in
to
v>
a.
00
00
UJ
cc
UJ
o
>
cc
UJ
V)
(0
O)
I
co
Tf
in
r>-
«»
TREATMENT
PLANT
"5
q>
I
o
(O
co
w
ACQUISITION
n
CD
I
o
i^
(O
w
DD Q.
i_ S
£ 3
a E
(0 C
o =
" 3
Is
11
o "5
E ro
I-
« i
1 =
E o
o> u
v> b
(O
UJ
cc
3
g
LL
24
-------
HI
>
oc
Z)
o
o
o
CM
CO
LU
OC
<
HI
oc
LU
CO
LU
OC
oc
iij
CO
(O
CO
CD
CO
CO
(/>
(Q
0)
i_
(0
0)
o
'>
0)
(/)
CM
CD
o
c
Ml
Cw
5
h_
o
«*-
0)
>
^
3
0
4-1
(A
0
o
c
o
y
o
c
3
«fr»
Q.
(U
%
(/>
1^
UJ
CC
(O
CM
O
>»
o
AJ
>i
Q.
j*5
3
E
»\
3
O
O
0
o
<*
o
+rf
"(5
O)
^_
E
tft
^* »
e
0)
>
c
o
0
o
K
O
25
-------
Pricing Analysis
Table 11 contains the price in dollars per million gallons for the
top 10 users for 1973 in the Cincinnati Water Works service area. It can
be seen from Table 11 and Figure 8 that in the city the Davison Chemical
Company paid from a low of $87.54/mil gal to a high of $180.26/mil gal per
month. These data are based on utilization of water for 1973, and on the
rates shown in Table 12.
However, the lowest cost for water delivered to a service area is for
the water to area Cla ($262.99/mil gal). Figure 8 is a map which compares
the cost areas defined in this report and also depicts the 10 major users
for the area. It allows for an easy visual comparison between the data in
Figure 5 and Table 11. These data are summarized in Table 13, which compares
the cost and revenues from various levels of water used for the 10 major users
in the water works billing area. It can be seen that many of the major users
are not meeting the costs of supplying water to them.
Table 13 (column 3) presents a cost comparison based on the assumption
that each of the costs in the Acquisition, Treatment, Transmission and Dis-
tribution, Power and Pumping, Support Services, and Capital cateogry can be
based on a cost per million gallons basis. Such an assumption might be
questioned, particularly as it relates to Support Services.
An alternate means of cost allocation to the 10 largest users may be
generated through adjustment of Support Services cost per million gallons
to overhead cost per customer.
Total Support Services is $2,766,237 which, when divided by total
metered water, gives a Support Services cost of $72.60/mil gal. The
remaining $12.62/mil gal included in the $85.22 Support Services cost refers
to miscellaneous capital and operating expenditures not counted in the
incremental costs for each service area.
The $72.60/mil gal cost can be reallocated on a per customer basis,
since there are 186,910 quarterly accounts and 1,533 monthly accounts.
Monthly billed customers require three times as many meter readings, yield-
ing a total number of equivalent quarterly accounts of 191,509. Therefore,
Support Services cost per quarterly customer is $14.44.
For the 10 largest users, which are monthly accounts, the Support
Services cost is $43.32 per customer (three times that for the quarterly
customers). Adding this adjusted overhead cost to the incremental, interest,
acquisition, treatment, distribution, transmission, and miscellaneous Support
Services cost for each zone results, the total costs to supply the 10
largest customers are shown in column 4 of Table 13.
It can be seen by comparing columns 3 and 4 of Table 13 that the
adjusted cost approach lowers the costs for the 10 major users but it will
raise the proportion of Support Services which the other users must bear.
26
-------
g
I
CJ
J5
I
s
co
@
co
P3
g
§
H
CO
c_j
s «
Z PC O
0 U H
J z 8
f/
_
£H
M
O
«d" VO
m CM
rv o
00 00
rH
O vD
Z 0
O M
>H bH
EH §H
O co rv rv
ON rv VO rH
rH rv rH in
OO ON OO ON
rH rH rH rH
CM CM OO -*
rH fv vD *d"
rv rv o oo
vo O ro rv
rH VO CN IV
-3- CM H CO
Z Z
5 0
Of CO
O CO
0
os PC
w 33
o »i2
g ClJ
vO
CM
a
o
o
o
o
(U
O
O
O
H
27
-------
vl LARGEST USERS
City of Norwood
tn
>
0
Q
c
O
X
Sun Chemical
Proctor and Gamble
Davison Chem ical
Metropolitan Sewer [
c
O
u
O
5
a
c
c
W
C
'o
Kroger Company
Kroger Company
trt
C.
O
-------
29
-------
TABLE 13
ACTUAL CHARGE VERSUS COST COMPARISONS FOR TEN MAJOR USERS
IN CINCINNATI WATER WORKS
($/tnil gal)*
User
Norwood
Hilton Davis
Sun Chemical
Procter & Gamble
Davison Chemical
Metropolitan Sewer
Cincinnati Milacron
Kroger Company
(Suburb)
Kroger Company
E. Kahn's Sons
-f. i 1
Revenue Co«t
294.12 272.80
168.83 262.99
175.67
169.87 275.54
175.44
308.70 275.54
321.12
87.54 272.80
180.26
175.19 264.56
185.44
175.07 272.80
187.95
313.54 262.99
328.26
181.90 264.56
197.73
181.67 264.56
195.17
Adjusted**
Coat
243.52
233.71
246.26
246.26
243.57
235.28
243.52
233.71
235.28
235.28
* To convert to $/1000 cu m, multiply by 0.26.
Wherever two values are presented, one represents the high and the
other the low bill in $/mil gal for 1973-74.
H- These values were calculated on an average cost oasis ana as such
do not reflect potential economies of scale which result from having
large users in the system.
Note: Suburban users are charged at a higher rate to allow for expansion
into Hamilton County.
30
-------
Nevertheless, the same users that pay less than cost, as shown in column 3
of Table 13, also pay less than cost, as shown In column 4. Both approaches
to cost allocation reveal an interesting picture of costs and the way they
vary throughout the Cincinnati Water Works service area.
31
-------
SUMMARY AND CONCLUSIONS
This report documents the application of a functional approach to the
analysis of water supply utility management costs. Functionally, these costs
have been defined in the following manner; Support Services; Acquisition;
Purification; Transmission; and, Power and Pumping. Having defined these
costs in a functional manner, they can be reaggregated into capital and oper-
ating costs for the various physical components which make up the water
delivery system. It is apparent from the first analysis that manpower costs
are a significant part of water supply operating costs and that this factor
is playing an increasingly important role in the total cost of water as
delivered to the consumer. As water is pumped from treatment plant to con-
sumer, costs are added, and they increase with respect to distance from the
central supply. By using a specific utility as an example, this kind of
analysis can be related to "real world" costs. However, it is obvious that
the basic principles discussed apply to all water supplies -and that they must
be considered in planning and design of water systems. The functional analy-
sis is extremely important for regional considerations. Perhaps the major
choice facing most small to medium water supplies will be to join a larger
water system or to develop and improve their own water supply systems.
The approach taken in this analysis should materially assist planners and
policy makers in making these types of decisions.
32
-------
REFERENCES
1. Cincinnati Water Works, Annual Report 1973.
2. Clark, Robert M., Cost and Pricing for Water Supply Management,
accepted for publication in the Journal of the Environmental Engineer-
ing Division of the American Society of Civil Engineers.
3. Clark, Robert M., and Goddard, Haynes C., Pricing for Water Supply:
Its Impact on Systems Management, EPA-670/1-74-001, April 1974,
National Environmental Research Center, Office of Research and Develop-
ment, U. S. Environmental Protection Agency, Cincinnati, Ohio 45268.
4. Engineering News Record, McGraw Hill Publishing Co., March 20, 1975, p.63.
5. S.433, Public Law 93-523, Safe Drinking Water Act, 93rd Congress,
Washington, D. C. (Dec. 16, 1974).
33
-------
TECHNICAL REPORT DATA
(Please read Instructions on the reverse before completing)
1. REPORT NO.
EPA-600/2-76-179
2.
3. RECIPIENT'S ACCESSION-NO.
4. TITLE AND SUBTITLE
The Cost of Municipal Water Supply: A Case Study
5. REPORT DATE
July 1976 (Issuing Date)
6. PERFORMING ORGANIZATION CODE
7. AUTHOR(S)
Robert M. Clark, Richard Stevie and Greg Trygg
8. PERFORMING ORGANIZATION REPORT NO.
9. PERFORMING ORGANIZATION NAME AND ADDRESS
Municipal Environmental Research Laboratory
Office of Research and Development
U.S. Environmental Protection Agency
Cincinnati, Ohio 45268
10. PROGRAM ELEMENT NO.
PE 1CC614
11. CONTRACT/GRANT NO.
12. SPONSORING AGENCY NAME AND ADDRESS
Same as above
13. TYPE OF REPORT AND PERIOD COVERED
14. SPONSORING AGENCY CODE
EPA-ORD
15. SUPPLEMENTARY NOTES
16. ABSTRACT problems related to water supply have become increasingly important in
recent years. Spreading urban boundaries force many potential water supply customers
to locate farther and farther away from available water sources, thereby increasing
the costs which must be incurred in order to provide adequate service. Therefore,
it is important to systematically and objectively study the factors which affect the
costs of water supply management.
This report utilizes the Cincinnati Water Works of Cincinnati, Ohio, for a
case study to examine these factors and to document the application of a. functional
approach to the analysis of water supply costs. Such an approach can provide the
basis for determining the cost of service for any given consumer within the Water
Works service area. Ultimately the functional costing approach outlined in this
report, or one similar in nature, will of necessity be used to analyze the impact of
regional water supply systems.
Data for 10 years are analyzed for each of the functional categories of:
Support Services, Acquisition; Purification; Power and Pumping; and Transmission.
Operating and Maintenance costs, Capital costs, and Labor costs are evaluated.
A system evaluation is performed, in which the above costs are aggregated in such a
way as to develop "cost zones" for the Water Works service area. Cost comparisons
are made between actual charges and constructed costs for the Water Works' 10 largest
17.
KEY WORDS AND DOCUMENT ANALYSIS
DESCRIPTORS
b.lDENTIFIERS/OPEN ENDED TERMS C. COS AT I Field/Group
Urban planning; cost analysis; economic
analysis; economics; management; plan-
ning; regional planning; research;
systems engineering; utilities; water
supply
13-B
18. DISTRIBUTION STATEMENT
Release to public
19. SECURITY CLASS (This Report)
Unclassified
21. NO. OF PAGES
42
20. SECURITY CLASS (This page)
Unclassified
22. PRICE
EPA Form 2220-1 (9-73)
34
S GOVERNMENT PRINTING OFFICE 1976-657-659/5<459 Region No. 5-11
------- |