E PA-600/5-77-015a
November 1977
THE COST OF WATER SUPPLY AND
WATER UTILITY MANAGEMENT
Volume I
by
Robert M. Clark
Water Supply Research Division
Municipal Environmental Research Laboratory
Cincinnati, Ohio 45268
James I. Gillean
W. Kyle Adams
ACT Systems, Inc.
Winter Park, Florida 32789
Contract No. 68-03-2071
Project Officer
Robert M. Clark
Water Supply Research Division
Municipal Environmental Research Laboratory
Cincinnati, Ohio 45268
MUNICIPAL ENVIRONMENTAL RESEARCH LABORATORY
OFFICE OF RESEARCH AND DEVELOPMENT
U. S. ENVIRONMENTAL PROTECTION AGENCY
CINCINNATI, OHIO 45268
-------
DISCLAIMER
This report has been reviewed by the Municipal Environ-
mental Research Laboratory, U.S. Environmental Protection
Agency, and approved for publication. Approval does not
signify that the contents necessarily reflect the views and
policies of the U.S. Environmental Protection Agency, nor
does mention of trade names or commercial products constitute
endorsement or recommendation for use.
ii
-------
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, foul water, and spoiled
land are tragic testimonies to the deterioration of our natural, environment.
The complexity of that environment and interplay among its components require
a concentrated and integrated attack on the problem.
Research and development is that first step in problem solution, and it
involves defining the problem, measuring its impact, and searching for solu-
tions. The Municipal Environmental Research Laboratory develops new and
improved technology and systems (1) to prevent, treat, and manage wastewater,
solid and hazardous waste, and pollutant discharges from municipal and com-
munity sources, (2) to preserve and treat public drinking water supplies,
and (3) to minimize the adverse economic, social, health, and aesthetic
effects of pollution. This publication is a product of that research and is
a most vital communications link between the researcher and user community.
The Safe Drinking Water Act of 1974 establishes primary, health-related
standards and secondary, aesthetic-related but nonenforceable guidelines for
drinking water supplies. These standards will bring about fundamental changes
in the way water is handled before it is delivered to the consumer. Many of
these changes will have an economic impact on the affected water utilities.
This report provides detailed information on the current costs of water supply
for 12 selected water utilities. In addition to providing information on the
individual supplies, data are aggregated to provide projections of the
relative impact of various strategies that might be undertaken to satisfy
the Act's requirements. These data and associated analyses are presented in
two volumes. Volume I is a summary of selected data from the study together
with its analysis. Volume II contains detailed, in-depth information for
each utility studied.
Francis T. Mayo
Director
Municipal Environmental Research Laboratory
iii
-------
ABSTRACT
A study of 12 selected water utilities was undertaken to determine the
economics of water delivery. Data were collected from at least one class A
water utility (revenues greater than $500,OOO/year) in each of the U.S.
Environmental Protection Agency's 10 regions. Volume I provides summary
information and in-depth analyses of five of the 12 utilities studied. All
the utilities are analyzed in aggregate, and factors affecting the cost of
water supply are examined. Also provided is an evaluation of the hypothetical
impact of the Safe Drinking Water Act in 1980.
Volume II contains the basic data from each of the 12 utilities studied.
Services of each utility were divided into five functional areas common to
all water supply delivery systems — support services, acquisition, treatment
or purification, distribution, and power and pumping. These areas provided
a common basis for collecting and comparing data. Costs were categorized as
operating or capital expenditures.
This report was submitted in fulfillment of Contract No. 68-03-2071 by
ACT Systems, Inc., under the sponsorship of the U. S. Environmental Protection
Agency. The report covers the period July 1974 to July 1976, and work was
completed as of September 1977.
iv
-------
CONTENTS
FOREWORD iii
ABSTRACT iv
FIGURES vi
TABLES x
METRIC CONVERSION TABLE xii
ACKNOWLEDGEMENTS xiii
1. EXECUTIVE SUMMARY 1
2. INTRODUCTION 6
3. CONCLUSIONS 9
4. DATA ANALYSIS FROM SELECTED WATER UTILITIES .... 10
Kansas City, Missouri 10
Cincinnati Water Works 25
Dallas Water Utility 42
Elizabethtown Water Company 64
Fairfax County Water Authority 75
Summary 75
5. UTILITY COST COMPARISONS 87
6. AGGREGATE ANALYSIS 100
7. MODEL DEVELOPMENT . 118
8. COST OF IMPLEMENTING THE SAFE DRINKING WATER ACT . 129
Trends in Water Supply 129
Impact of the Safe Drinking Water Act .... 129
APPENDIX 149
v
-------
FIGURES
Number page
1 Location of Water Utilities Studied 7
2 Treated and Revenue Producing Water for Kansas City Water Utility 11
3 Operating Costs for Kansas City Water Utility 14
4 Operating Costs in $/mil gal for Kansas City Water Utility ... 15
5 Operating Costs as Percent of Total Cost for Kansas City Water
Utility 16
6 Captial and Operating Costs for Kansas City Water Utility .... 18
7 Operating and Capital Expenditures for Kansas City Water Utility 19
8 Total Expenditures Versus Time for Kansas City Water Utility:
Historical and Modified Costs 20
9 Unit Costs for Kansas City Water Utility: Historical and Modified 21
10 Schematic Diagram of Kansas City Service Area 22
11 Costs by Service Zones 26
12 Cost in Existing Northern Service Zones Plus Hypothetical Zone . 27
13 Treated and Revenue Producing Water for Cincinnati Water Utility 29
14 Operating Costs for Cincinnati Water Works 32
15 Operating Costs $/mil. gal. for Cincinnati Water Utility .... 33
16 Operating Cost as Percent of Total Cost for Cincinnati Water Utility 34
17 Operating and Capital Costs for Cincinnati Water Works 35
18 Operating and Capital Expenditures for Cincinnati Water Works . . 37
19 Total Expenditures Versus Time for Cincinnati Water Works:
Historical and Modified 38
20 Unit Costs for Cincinnati Water Works: Historical and Modified . 39
21 Schematic Diagram of Facility Costs in Cincinnati Water Works
System 43
22 Schematic Diagram of Incremental Costs for and B£ Service Areas 44
23 Step Function Cost Curve for B^ and B2 Service Areas 45
24 Major Users in Cincinnati Water Works Service Area 46
vi
-------
FIGURES (continued)
Number Page
25 Treatment Plants and Pump Stations in Dallas Utilities Service
Area 49
26 Treated and Revenue Producing Water for Dallas Water Utility . . 50
27 Operating Costs for Dallas Water Utility 53
28 Operating Costs in $/mil gal for Dallas Water Utility 54
29 Operating Cost as Percent of Total Cost for Dallas Water Utility 55
30 Operating and Capital Costs for Dallas Water Utility 57
31 Operating and Capital Expenditures for Dallas Water Utility ... 58
32 Total Expenditures for Dallas Water Utility: Historical and
Modified 59
33 Total Unit Costs for Dallas Water Utility: Historical and Modified 60
34 Allocation of Capital and Operating Expenses to Water System
Components for Dallas Water Utility 61
35 Cost of Service Over Pathway 1 63
36 Treated and Revenue Producing Water for Elizabethtown Water Company 65
37 Operating Costs for Elizabethtown Water Utility 68
38 Operating Cost in $/mil gal for Elizabethtown Water Utility ... 69
39 Operating Cost as Percent of Total Cost for Elizabethtown Water
Utility 70
40 Operating and Capital Costs for Elizabethtown Water Utility ... 71
41 Operating and Capital Expenditures for Elizabethtown Water Company 72
42 Total Expenditures for Elizabethtown Water Company: Historical
and Modified 73
43 Unit Costs for Elizabethtown Water Company: Historical and
Corrected 74
44 Treated and Revenue Producing Water for Fairfax County Water
Authority 76
45 Operating Costs for Fairfax County Water Utility 79
46 Operating Cost in $/mil gal for Fairfax Water Utility 80
47 Operating Cost as a Percent of Total Cost for Fairfax Water Utility 81
48 Operating and Capital Costs for Fairfax Water Utility 82
49 Operating and Capital Expenditures for Fairfax Water Authority . 83
50 Total Expenditures for Fairfax Water Authority: Historical and
Modified 84
51 Unit Cost for Fairfax Water Authority: Historical and Modified . 85
vii
-------
FIGURES (continued)
Number Page
52 Revenue Producing Water for Five Utilities 88
53 Total Unit Cost for Five Utilities 89
54 Operating Cost as a Percent of Total Cost for Five Utilities . . 90
55 Unit Treatment Costs for Five Utilities 92
56 Payroll in Dollars/Man Hour for Five Utilities 93
57 Manhours/mil gal for Five Utilities 94
58 Payroll/mil gal for Five Utilities 95
59 Support Services Cost as a Percent of Total Operating Costs for
Five Utilities 96
60 Average Operating Costs for Five Utilities: by Category .... 97
61 Utility Operating Costs: Percent of Total 98
62 Average Revenue Producing Water 103
63 Average Total Operating and Capital Expenditures 104
64 Average Operating Expenditures for Support Services, Acquisition,
and Treatment 105
65 Average Operating Expenditures for Transmission and Distribution
and Power and Pumping 106
66 Average Operating Expenditures for Energy and Chemicals Versus Time 107
67 Average Operating Expenditures for Energy and Chemicals Versus
Revenue Producing Water 108
68 Average Expenditure for Operating and Payroll Costs 110
69 Manhours per mil gal and Dollars per Man Hour Ill
70 Average Total Unit Operating and Capital Costs Versus Time . . . 113
71 Average Total Unit Operating and Capital Cost Versus Revenue
Producing Water 114
72 Average Total Unit Cost Versus Time: Historical and Modified . . 115
73 Average Total Unit Cost Versus Revenue Producing Water:
Historical and Modified 116
74 Revenue Producing Water Extrapolated Over Time 130
75 Support Services Operating and Capital Costs Extrapolated Over Time 131
76 Acquisition Operating and Capital Costs Extrapolated Over Time . 132
77 Treatment Operating and Capital Costs Extrapolated Over Time . . 133
78 Transmission and Distribution Operating and Capital Costs
Extrapolated Over Time 134
viii
-------
FIGURES (continued)
Number Page
79 CPI Extrapolated Over Time 138
80 Treatment Operating Costs Extrapolated to Include Control
Technology 139
81 Treatment Capital Costs Extrapolated to Include Control
Technology 140
82 Total Operating Cost Extrapolated to Include Control Technology
Options 141
83 Total Capital Cost Extrapolated to Include Control Technology
Options 142
84 Total Cost Extrapolated to Include Control Technology Options . . 143
85 Total Unit Cost Extrapolated to Include Control Technology Options 144
86 Total Cost Extrapolated to Include Control Technology Options:
High Estimate 146
87 Total Unit Cost Extrapolated to Include Control Technology:
High Estimates 147
ix
-------
TABLES
Number Page
1 Cost Analysis Summary for Latest Year of Record (1974) 3
2 Expected Increase in Costs for 1980 5
3 Operating and Capital Costs for Kansas City, Missouri 12
4 Transmission Costs Between Facilities in Service Area 23
5 Incremental Cost for Service Zones 24
6 Operating and Capital Costs for Cincinnati Water Works 30
7 Manpower Costs for Cincinnati Water Works 40
8 Historical and Reproduction Costs of Plant-in-Service for
Cincinnati Water Works 41
9 Actual Charge Versus Real Cost for Ten Major Users in Cincinnati 47
10 Summary of Operating and Capital Expenditures for 1965-74 for
Dallas Water Utility . 51
11 Cost Elements for Service Zones 62
12 Summary of Operating and Capital Expenditures for Elizabethtown
Water Utility 66
13 Operating and Capital Expenditures for Fairfax County Water
Authority 77
14 Average Operating and Capital Costs for All Five Utilities Over
the 10-Year Study Period 101
15 Manpower Costs and Productivity 109
16 0 & M and Capital Costs for All Utilities 117
17 Partial Derivatives for Equation 5 120
18 Partial Derivatives for Equation 10 121
19 Utility Costs by Category 122
20 Relationship Between Annual Cost and Revenue-Producing Water . 123
21 Incremental Costs and Associated Statistics for Cincinnati
Water Works Service Area 126
22 Partials for Natural Log Transform of Equation 127
23 Current and Projected Average Expenses for All 12 Utilities . . 135
x
-------
TABLES (continued)
Number Page
24 Unit Costs for Control Technology at 150 mgd 137
25 Expected Costs in 1980 for an Average Utility 145
A-l Annual Operating Cost Versus Time 150
A-2 Annual Capital Cost Versus Time 151
A-3 Revenue-Producing Water Versus Time 152
A-4 Man-Hours/mil gal Versus Time 153
A-5 Dollars/Man-Hour Versus Time 154
A-6 Annual Support Services Costs Versus Time (Operating) 155
A-7 Annual Acquisition Costs Versus Time (Operating) 156
A-8 Annual Treatment Cost Versus Time (Operating) 157
A-9 Annual Power and Pumping Cost Versus Time (Operating) 158
A-10 Annual Transmission and Distribution Cost Versus Time (Operating) 159
A-ll Annual Total Expenditures Versus Time 160
A-12 Unit Costs 161
xi
-------
METRIC CONVERSION TABLE
English Units
1 foot
1 mile
1 square mile
1 million gallons
1 $/million gallons
1 c/1000 gallons
Metric Equivalents
0.305 meters
1.61 kilometers
2.59 square kilometers
3.79 thousand cubic meters
0.26 $/thousand cubic meters
0.2 6
-------
ACKNOWLEDGEMENTS
The cooperation, active support, and sustained interest of many people
made the study described in this report possible. In particular, the
following individuals should be acknowledged.
From the regional offices of the U. S. Environmental Protection Agency:
Floyd Taylor and Charles Larsen of Region I
Everett L. MacLeman, formerly of Region II
James Manwaring, formerly of Region III
Gary D. Hutchinson and Curt Fehn of Region IV
Joseph Harrison of Region V
Charles Sever and Warren Norris of Region VI
Otmar 0. Olson and Aleck Alexander of Region VII
Albert V. Soukop, formerly of Region VIII
Robert' Scott of Region IX
William A. Mullen of Region X
From the participating water utilities:
Henry J. Graeser, Director, Robert G. Ford, Assistant Director,
and Larry Shaw, Accountant, Dallas Water Utilities
Henry S. Patterson, President, Chester A. Ring, Vice President
(Operations), Bob Palasits, Director of Planning, Elizabethtown
Water Company
James F. Corbalis, Jr., Director, Vincent Bryne, Fairfax County
Water Authority
Donald R. Boyd, Director, H. E. Snider, Assistant Director,
J. R. Popalisky, Chief, Water Supply Division, Kansas City
Missouri Water Department
Victor C. Fender, General Manager, Mai Connett Office Manager,
Kenton County Kentucky Water District No. 1
Charles E. Woods, President, Richard P. McHugh, Vice President for
Engineering, New Haven Water Company
Ted Pope, Manager Water Operations, Bob Savarese, Applications
Engineer, Orlando Water Utility
Art F. Vondrick, Director, Philip S. Slagel, Assistant Director,
Phoenix Water Department
xiii
-------
Larry C. Fountaine, Director, Craig A. Olsen, Engineer, Pueblo
Board of Water Works
R. W. King, Director, Ernie Clay, Assistant Director, San Diego
Water Utilities Department
Kenneth M. Lowthian, Superintendent, James T. Rice, Assistant
Superintendent, Seattle Water Department
Charles Bolton, former Superintendent, Dan Merwin, former Special
Assistant to the Superintendent, and William F. Reeves, Chief
Engineer, Cincinnati Water Works
Special acknowledgements are extended to Mr. Ted Pope, Manager of
Water Operations, Orlando Water Utility, for his review in the formative
stages of this study, and for the continuing assistance of Messrs. John N.
English, Leland J. McCabe, and Gregory D. Trygg, and Drs. James M. Symons
and Richard G. Stevie of the EPA in Cincinnati.
Dr. Billy P. Helms, Assistant Professor of Finance, University of Alabama,
Mr. Nolan Reed, President of Nolan Reed Associates, Orlando, Florida, Dr. Carl
Kessler of EPA's Office of Water Supply, provided in-depth reviews of the
final report from this project. Mrs. Louise Fischer of EPA in Cincinnati
typed and Mrs. Ann Hamilton edited this manuscript.
xiv
-------
SECTION 1
EXECUTIVE SUMMARY
A two-year study of 12 selected water utilities was undertaken to
determine the economics of water delivery. Data were collected from at least
one class A water utility (revenues greater than $500,000/year) in each of
U. S. Environmental Protection Agency's (EPA) 10 regions. The finished water
from all utilities selected meets the 1962 Public Health Service Drinking
Water Standards. Volume I of this report provides in-depth analyses for five
of the 12 utilities studied: Cincinnati, Ohio; Kansas City, Missouri;
Fairfax County Water Authority in Fairfax, Virginia; Dallas, Texas; and the
Elizabethtown Water Company in Elizabeth, New Jersey. Aggregate analysis of
data from all the utilities is also provided in Volume I, along with an
evaluation of factors affecting the cost of water supply and a consideration
of the impact of technologies that might be used to satisfy requirements of
the Safe Drinking Water Act.
Volume II contains the basic data from each of the 12 utilities studied.
They represent many institutional arrangements, physically different water
supply systems, and different conditions faced by water utilities across the
United States. For example, Cincinnati and Kansas City are single-source
utilities distributing water to far-flung distribution areas. Others, such
as the Dallas Water Utility and the Fairfax County Water Authority, are in
rapidly growing areas with capital costs distributed over a fast-growing,
revenue-producing base that keeps water costs low. Two investor-owned utili-
ties, Elizabethtown Water Company and New Haven Water Company, were included
in the sample to demonstrate problems associated with investor-owned utili-
ties. The San Diego and Phoenix utilities operate in water-short areas.
Pueblo and Kenton County were the smallest utilities studied. Seattle has
made extensive investments in controlled source protection, and Orlando uses
groundwater from a deep aquifer.
Data were collected for 10 years in five operating cost categories and
two capital cost categories. The operating cost categories are support
services, acquisition, treatment, power and pumping, and transmission and
distribution. Capital costs were divided into interest and depreciation.
Each operating cost category was examined as to total expenditures, unit
costs, and percent of total cost. Revenue-producing water was used for all
cost calculations because it represents the basis on which utilities
obtain their operating revenues, and provides the real basis for comparing
productivity and costs between systems. Systems vary in the proportion of
water sold, meaning that uncertainties are introduced in the comparison of
unit cost and productivity over time for a single utility. To convert to a
1
-------
basis of water produced, a simple conversion based on the ratio of water sold
to water produced can be used. The impact of operating expenditures, increas-
ing labor costs, and increasing labor productivity on total water production
costs were examined.
A systems evaluation was made for each utility in which the service area
was divided into its components. Schematic diagrams of the system components
have been developed for each of the utilities studied. For some utilities,
these diagrams are very detailed, and for others, because of the complexity
of the system, the diagram is somewhat superficial. By using the systems
diagram and the previous cost categorizations, it was possible to evaluate
the costs associated with delivering water to various subsections of the dis-
tribution system and to make some estimates as to how the costs of water vary
throughout the distribution area.
Individual and comparative analyses reveal certain trends. Labor cost is
a significant part of the annual operating costs for all utilities and has
nearly doubled in some cases over the period of analysis. More and more
dollars are being shifted into support service activities. Examination of
water delivery costs shows that they increase with the distance from the
treatment plant; thus there are definite limits to the efficient size of water
utility service areas.
Mathematical models have been developed that relate labor cost ($/man-
hour), productivity (man-hours/million gallons (MG), and production (revenue-
producing water) to annual operating costs. Another model has been developed
for annual capital costs incorporating revenue-producing water and deprecia-
tion.
Extrapolations have been made with historical data for future water costs.
Estimates for meeting the Safe Drinking Water Act's organic standards have
been superimposed on these costs. Between 1975 and 1980, and using data
from this study, it is estimated that the price of water will have increased
by 36% as a result of normal inflation and increased demands. For those few
utilities required by the Safe Drinking Water Act to install the most expen-
sive control technology (granular activated carbon), costs will increase an
additional 24% above the expected 1980 levels.
Total costs for each of the 12 utilities during the latest year of
data collection are shown in Table 1. Taxes for the investor-owned utili-
ties are reported separately. Table 1 also contains the name and average
distribution for the utilities studied so that in using this document one can
examine the data for a specific utility as contained in Volume II.
We hope these data will provide useful information on water supply costs
from various utility systems and an example of the means by which data can be
collected from water supplies to provide comparative information. With the
advent of the Safe Drinking Water Act, regulatory agencies, utility managers,
and the public should be able to isolate and understand various cost impacts
on utilities of inflation and expansion demand versus regulatory impacts.
2
-------
TABLE 1. COST ANALYSIS SUMMARY FOR LATEST YEAR OF RECORD (1974)
Utility
Revenue-producing
water
(mil gal/day)
Cost
c a t e
g o r i e s
($/mil gal)
Support
services
Acquisition
Treatment
Distribution Interest
Total
Kansas City
26,855
$ 145
$ 15
$ 82
$ 138
$ 50
$ 430
Dallas
63,030
83
25
52
120
58
338
San Diego
47,192
96
277
28
106
7
514
New Haven
17,714
113
29
15
106
117
560*
Fairfax Co.
19,232
88
35
56
134
209
522
Phoenix
63,661
91
17
47
112
53
320
Kenton Co.
2,259
82
12
103
124
73
394
Orlando
12,522
110
42
22
135
85
394
Elizabeth
38,256
89
67
33
144
113
492 +
Pueblo
6, 793
99
38
84
232
164
617
Seattle
45,967
109
37
13
7 7
27
263
Cincinnati
38,104
85
17
36
139
18
295
* Includes $179 taxes.
+ Includes $7 6 taxes.
-------
The approach suggested here will allow the utility manager to pinpoint areas
where costs are spiraling out of control and allow him to take corrective
action. Table 2 summarizes some of the expected cost increases resulting from
inflation and demand, as well as the effects of add-on technologies.
4
-------
TABLE 2. EXPECTED INCREASE IN COSTS FOR 1980
Based on Data from Study
Item
Expected
Cost cost
in 1975 in 1980
1980 costs
with add-on technologies
GAC -
contactors
GAC - media
replacement
Chlorine
dioxide
Treatment operating cost
($/yr in millions)
1.10
1.50
2.97
4.17
2.17
Treatment capital cost
($/yr in millions)
0.48
0.60
3.34
1.33
0.73
Total operating cost
($/yr in millions)
Total capital cost
($/yr in millions)
8.85 12.40
3.:
4.95
13.87
7.69
15.07
5.i
13.07
5.(
Total production cost
($/yr in millions)
12.75 17.35
21.56
20.75
18.25
Total unit cost
($/mil gal)
412.00 480.00
596.47
574.06
504.90
-------
SECTION 2
INTRODUCTION
The Safe Drinking Water Act of 1974 will bring about a fundamental exami-
nation of the way drinking water is handled before it is delivered to
consumers. The Act establishes primary health-related standards and secondary
or aesthetic-related, but nonenforceable, guidelines for drinking water sup-
plies. Throughout the Act, emphasis is placed on the need to consider the
economics of water delivery.
In response to this need, a two-year study of selected water utilities
was undertaken in which data were collected from at least one class A water
utility (revenues greater than $500,000/yr) in each of the U. S. Environ-
mental Protection Agency's (EPA) 10 regions. 3 Figure 1 shows the locations of
utilities studied. Twelve utilities were selected for investigation — one
in regions I, II, III, V, VI, VII, VIII, and X, and two in regions IV and IX.
The study, which ran from 1974 through 1976, was conducted in two phases, with
a special study in Cincinnati, Ohio. Data were collected so that costs could
be easily compared among utilities.
Each utility's services were divided into the functional areas of
acquisition, treatment or purification, and distribution. These functional
areas or subsystems are common to all water supply delivery systems and can
therefore provide a common basis for data collection. Another category
common to all water utilities is the management or administrative function,
which completes the framework of the institution for insuring an adequate
supply of safe drinking water. This institution is most commonly called a
water supply utility.
Costs were categorized as either operating or capital expenditures.
Operating costs have been assigned to the following functional areas: acquis-
ition, treatment, power and pumping, transmission and distribution (including
storage), and support services. The first four functional areas are related
to the physical delivery of water, and the fifth, support services, is
related to the overall integrative responsibility of utility management.
Operating costs include operating labor, maintenance, and materials. For
example, if the utility has a treatment division, laboratory personnel costs
are included in the treatment cost category, but management costs for the
division are included in the support services category. Support services
include, therefore, all of the administrative and customer services that are
required to manage the water utility and collect revenues but that are not
directly related to the physical process of delivering water.
6
-------
•SEATTLE
y* NEW HAVEN
ELIZABETH
CINCINNATI
FAIRFAX CO
PUEBLO
KENTON CO
KANSAS CITY
SAN DIEGO
Z—L •
PHOENIX
• DALLAS
• ORLANDO
FIG. 1 LOCATION OF WATER UTILITIES STUDIED
-------
Capital costs are assumed as depreciation and interest for the plant-in-
service. Depreciation is based on the historic cost of the facility divided
by its useful life, and not on the costs required to reproduce the facility.
Lower costs will therefore be associated with older utilities. Most of the
utilities analyzed constructed the major portion of their facilities in the
1930s and 40s. Interest costs are the dollars the utilities must pay for
their bonds or other money-raising mechanisms.
Revenues were not considered in this report. All of the data reported
are strictly related to the cost of water supply and do not include some of
the broader aspects of elasticity of demand and optimal pricing policies of
water supply.^ All costs reported are based on revenue-producing water
pumped by the utilities for a 10-year period from 1965 through 1974.
Revenue-producing water was used for all cost calculations because it represents
the basis on which utilities obtain their operating revenues and provides the
real basis for comparing productivity and costs between systems. Systems
vary in the proportion of water sold, meaning that uncertainties are introduced
in the comparison of unit cost and productivity over time for a single utility.
To convert to a basis of water produced, a simple conversion based on the ratio
of water sold to water produced can be used.
The finished water from all of the utilities selected for the study meets
the 1962 Public Health Service Drinking Water Standards. Although efficiency
of removal and the raw water source quality influence the cost of treatment,
these factors were not explicitly considered as part of the data collection
effort. An equation has been developed, however, that relates chemical costs
to the quality of source water. Because all of the utilities meet with 1962
standards it can be assumed that any changes required to meet SDWA standards
will be incremental and will not involve construction of an entirely new
treatment complex.
The report has been prepared in two volumes. Volume I contains summary
information and an analysis of the factors that affect the cost of water
supply, and Volume II contains the basic data from each of the selected
utilities.
8
-------
SECTION 3
CONCLUSIONS
In Volume I of this report, five of 12 utilities have been selected for
in-depth analysis. System and cost data have been summarized for each
utility individually, and some individual comparisons have been made. These
data indicate a general increasing trend in demand for revenue-producing
water, increasing labor wage rates, and the other operating and capital expen-
ses associated with water supply. The systems evaluations for Kansas City
and Cincinnati indicate increasing unit costs with increasing distance from
the treatment plant. This analysis implies that there are definite limita-
tions to the efficient size of a water supply system. Using a ratio of unit
costs to the Consumer Price Index, however, it is shown that if not for infla-
tion unit costs would have risen less rapidly or perhaps declined over time.
A mathematical model has been developed that relates operating cost to
labor wage rate, labor productivity, and revenue-producing water. Other
models have been developed to relate capital cost to unit depreciation and
revenue-producing water and to demonstrate decreasing returns to distance of
transmission. A relationship between interest and depreciation has also been
developed.
Finally, the data and associated analyses presented here are used to
evaluate the hypothetical impact of the safe Drinking Water Act in 1980.
These data show the cost of water will increase by 36% between 1975 and
1980 as a result of normal demand and inflationary pressures. If expensive
add-on technology, such as granular activated carbon, is required by the Safe
Drinking Water Act, water costs will increase by another 24%.
These data will be useful for planners, designers, and decision makers
in planning for the implementation of the Safe Drinking Water Act. Appendix A
summarizes the slopes of the various cost curves for each utility and for the
average of all utilities, and will provide useful information on the variations
in costs associated with each utility.
9
-------
SECTION 4
DATA ANALYSIS FROM SELECTED WATER UTILITIES
Data from five selected utilities will be analyzed in detail in this
section. Each featured utility has some aspect that makes it representative
of many other utilities across the country. The Kansas City water system,
which will be examined first, is relatively simple and provides some useful
insights i^to the cost of distributing water; it represents a no-growth
situation. The Cincinnati water supply system is similar to that of Kansas
City, but somewhat more complex. A depreciation analysis has been made of
Cincinnati's total system. The Dallas, Texas, water utility is supplying
water to a rapidly growing area. Its distribution system is complex, includ-
ing reservoirs and three treatment plants. Fairfax County Water Authority is
a regional water utility of recent origin that illustrates the economies of
scale that might result from a group of utilities banding together. The
Elizabethtown Water Company is a private utility that demonstrates some of
the problems associated with private sector water supplies.
KANSAS CITY, MISSOURI
The Kansas City Water Utility serves its metropolitan area with a popu-
lation of nearly 500,000 and a land area of 400 square miles. The utility's
total service population is approximately 600,000, which includes several
smaller surrounding cities. The total population of the metropolitan area is
greater than 1 million.
Figure 2 shows the total revenue-producing water pumped by the utility
during the 10 years of analysis. Note that the abscissa is in integer
number of years. This was done to facilitate later comparisons Year 1 is
1965 and year 10 is 1974. Table 3 contains the cost data collected during
the 10-year period. The analysis for unit costs has been based on revenue-
producing water rather than on total water pumped. Because the utility draws
its water from a free-flowing river and little pumping is required, acquisi-
tion costs are small. It can be seen that the total operating cost of water
supply has increased during the period of analysis from $6.7 million to
$11.6 million. Support services has increased from $1.8 million to $3.8
million (Figure 3). The unit operating cost of water supply increased from
$176.56/million gallons (mil gal) to $331.45/mil gal, with the greatest
increase occurring under support services -- from $70.11/mil gal to $140.99/
mil gal (Figure 4). Figure 5 shows that as a percent of total cost, support
services increased from 39.71% to 42.54%.
10
-------
36
35
34
33
32
31
30
29
28
27
26
25
TREATED
REVENUE PRODUCING
_L
1
5 6
YEAR
8
1<
MED AND REVENUE PRODUCING WATI
* KANSAS CITY WATER UTILITY
li
-------
TABLE 3. OPERATING AND CAPITAL COSTS FOR KANSAS CITY, MISSOURI
Year
Item 123456789 10
OPERATING COSTS:
Support services:
$, in millions
% of total
$/mil gal
Acquisition:
$, in millions
% of total
$/mil gal
Treatment:
$, in millions
% of total
$/mil gal
Power and pumping:
$, in millions
% of total
$/mil gal
1.837 2.062 2.145 2.651 3.148
39.71 41.63 40.10 43.96 45.74
70.11 76.43 76.43 97.68 113.09
0.233
5.04
8.90
1.018
22.00
36.84
0.955
20.64
36.44
0.230
4.64
8.52
1.086
21.92
40.25
0.946
19.10
35.07
0.251
4.69
8.94
1.195
22.33
42.57
1.030
19.26
36.71
0.277
4.59
10.20
1.196
19.84
44.08
1.138
18.87
41.93
0.307
4.46
11.03
1.291
18.74
46.33
1.260
18.31
45.27
3.417 3.566 3.580 3.815 3.786
44.92 44.78 43.24 43.78 42.54
118.29 129.99 124.61 135.43 140.99
0.318
4.16
10.97
1.535
19.70
51.87
1.306
17.09
45.05
0.337
4.23
12.28
1.562
19. 62
56.96
1.384
17.38
50.45
0.350
4.23
12.19
1.716
20.73
59.73
1.438
17.38
50.09
0.365
4.19
12.96
1.883
21.61
66.84
1.500
17.21
53.24
0.374
4.20
13.92
1.999
22.45
74.42
1.537
17.27
57.24
Transmission and
distribution:
$, in millions 0.584 0.629 0.729 0.769 0.878
% of total 12.61 12.71 13.63 12.75 12.76
$/mil gal 22.27 23.33 25.98 28.32 31.55
Total operating costs:
$, in millions 4.627 4.954 5.349 6.031 6.883
$/mil gal 176.56 183.60 190.61 222.20 247.23
1.068
14.03
36.95
1.113
13.98
40.58
1.196
14.44
41.62
1.152
13.21
40.88
1.205
13.54
44.87
7.644 7.962 8.280 8.716 8.902
263.61 290.27 288.18 309.37 331.45
-------
TABLE 3 (Continued) . OPERATING AND CAPITAL COSTS FOR KANSAS CITY, MISSOURI
Year
Item 1 2 3 4 5 6 7 8 9 10
CAPITAL COSTS:
Depreciation
($, in millions) 1.009
Interest
($, in millions) 1.064
Total capital costs
($, in millions) 2.073
TOTAL OPERATING AND CAPITAL
COSTS:
$, in millions 6.700
$/mil gal 255.65
1.043 1.056 1.065
1.067 0.981 0.940
2.110 2.037 2.006
7.064 7.386 8.037
241.15 263.21 296.10
1.098 1.118 1.157
1.061 1.207 1.519
2.159 2.325 2.676
9.042 9.968 10.639
324.84 345.03 387.82
1.202 1.264 1.315
1.456 1.407 1.351
2.658 2.671 2.666
10.938 11.387 11.567
380.71 404.18 430.74
-------
MILLIONS OF DOLLARS
> - 10 w *
\——i 1—n i 1 1 1
SUPPORT SERVICES
TREATMENT
POWER AND PUMPING
TRANSMISSION AND DISTRIBUTION
¦
SUPPORT SERVICES
TREATMENT
POWER AND PUMPING
TRANSMISSION AND DISTRIBUTION
-------
o
* o
> -0
z m
c/> 7J
> >
C/> H
oz
H °
^ O
§ °
|h
m w
73 -
o
>
$/MIL GAL
fO
o
o
o
o
CO
o
o
o
to
o
>
73
>
73
SUPPORT SERVICES
TREATMENT
T
¦*»
O
-i—
o
o
—\
POWER AND PLUMPING
TRANSMISSION AND DISTRIBUTION
I
SUPPORT SERVICES
TREATMENT
POWER AND PUMPING
TRANSMISSION AND DISTRIBUTION
O
73
-------
o
oi
OOO
h "n "0
S2>
m o
"o.
cO"
H 0) O
— —| C/)
~ H
—| Tl C/)
^ 0)
^ m
Sg o
«5
% OF TOTAL COST
hO
o
CO
o
o
Ul
o
o*
o
>
>
70
SUPPORT SERVICES
T
T
V|
o
T~
00
O
n
TREATMENT |
POWER AND PUMPING
1 1
TRANSMISSION AND DISTRIBUTION
I
SUPPORT SERVICES
TREATMENT
r
POWER AND PUMPING
TRANSMISSION AND DISTRIBUTION
l
-------
Figure 6 shows the shift in operating expenditures relative to capital
expenditures. The utility is becoming less capital intensive on a historical
cost basis over the 10-year period.
Figure 7 shows the total operating and capital expenditures over time.
The slope of the operating cost curve is much steeper than capital cost.
Figures 8 and 9 show total and unit costs, respectively. Each expendi-
ture category has been corrected by the CPI assuming 1965 as the base year.
The slopes of the total and unit costs are much flatter than for the historical
costs. Corrected unit costs have increased slightly over time.
The data presented in the previous section can be used to develop
insights intq. ^he ways that the cost of water varies throughout the distribu-
tion system. ' Figure 10 is a schematic diagram of the utility service area.
Water is taken into the system at the intake (denoted by I in the diagram),
passed through the Treatment plant (T) , and pumped north through a high head
system (v and south by a low head system (Pg)• To the south, the water
passed through a tunnel/flow line to a set of" reservoirs and repumping
stations and and then to another set of reservoirs and repumping
stations (RPS^ and TCP3 ,*) . Stations RPS^ and KPS2 serve the distribution area
denoted as zone 3 on the schematic diagram, and stations RPS^ and RPS^ serve
zone 4. The high head pumping station PN is designed so that it can serve
zone 2 directly as well as pump water to the reservoir and pumping station
denoted by RPN.
The costs shown in Figure 10 were derived from the current depreciation
and operating cost for each component. Once derived, the costs can be
divided by the amount of revenue-producing water passing through the facility
or transmission line , yielding a cost for that given component in dollars per
million gallons ($/mil gal). Transmission costs shown in Table 4 are derived
this way. As water moves from one facility to another, the unit costs are
added. Table 4 shows the cost per million gallons for water transmitted from
T to RSP^ and is $9.12/mil gal.
1
-------
o
Q
ll.
o
to
16.
14
12
to
c*
<
=1 10
8
<~>
"O
u
O
<
ex.
LU
Q_
o
<
M (/)
Ijy LLI
az oc
CL
in
to
o
u
o
<
cz
yj
<
V
LLI
to
LLI
Q£
|Q4 ¦
YEAR 1
YEAR 10
FIG. 6 CAPITAL AND OPERATING COSTS
FOR KANSAS CITY WATER UTILITY
18
-------
TOTAL OPERATING
COST
TOTAL CAPITAL COST
YEARS
FIG 7 OPERATING AND CAPITAL EXPENDITURES FOR KANSAS CITY WATER
UTILITY
-------
«/)
at
<
O
a
TOTAL COST
O
w
Z
o
TOTAL COST MODIFIED BY CPI
YEARS
FIG. 8 TOTAL EXPENDITURES VERSUS TIME FOR KANSAS CITY WATER UTILITY:
HISTORICAL AND MODIFIED COSTS
-------
600
500
400
_i
<
0
i
TOTAL UNIT COST
300
TOTAL UNIT COST MODIFIED BY CPI
200
100
YEAR
FIGURE 9 UNIT COSTS FOR KANSAS CITY WATER UTILITY: HISTORICAL AND MODIFIED
-------
f ZONE 1
|RPN
(45.83)*
(38.41)
I
PN
ZONE 2
(15.87) (81.98)
I
PS (15.28)
j TUNNEL/lH:53)
FLOW LINE
ZONE 3
(38.41)
RPS-|
(31.99)
RPS2
(38.41)
RPS3
T
rps4
I
(31.99)
ZONE 4
FIG. 10 SCHEMATIC DIAGRAM OF KANSAS CITY
SERVICE AREA
(COSTS IN $/MIL GAL OF REVENUE PRODUCING WATER)
22
-------
TABLE 4. TRANSMISSION COSTS BETWEEN FACILITIES IN SERVICE
AREA ($/mil gal)
To
RPS1 RPS3
and and
From RPN RPS. RPS.
N 2 4
T 10.69 — 9.12
P„ 13.21
N
RPS^ and
RPS2 — — — 13.27
Each zone represents a consumer service area and a demand point for
delivered water. For purposes of this analysis, an attempt was made to
discriminate between the water transmitted from one distribution area to
another.
Using data for the most recent year, the capital and operating costs for
each facility were computed as shown in Figure 10. When a unit of water
moves through one facility to another distribution zone, the unit costs of
moving the water from one facility to another are added, thereby creating the
unit costs for distribution interest, and overhead to yield a total average
unit cost to serve each zone.
Distribution costs are obtained by dividing the total operating and
capital (depreciation) costs associated with the distribution system by the
total revenue-producing water, and the assumption is made that the cost of a
distribution system is essentially constant throughout the system.
Costs for interest and support services are calculated in this same
manner. Some argument could be made that the interest cost should be propor-
tional to the capital cost for a facility and that support services costs
will vary, depending on consumption. However, the burden and difficulty of
making these allocations proved to beyond the scope of the study.
To illustrate how the costs in Table 5 are obtained, we can work through
the following example. Incremental costs for zone 3 are obtained by adding
the costs in $/mil gal for the intake facility, the treatment plant, the
facility costs for the pumping station (Pg)• the facility costs for the
23
-------
TABLE 5. INCREMENTAL COST FOR SERVICE ZONES
($/mil gal)
Zone Incremental Distribution Interest Support services Total Metered Revenue
number cost costs costs costs costs consumption recovered
(mil gal/yr)
1 205.40 61.05 50.32 144.52 461.33 458 211,289
2 146.36 61.05 50.32 144.52 402.25 2,072 833,462
3 163.19 61.05 50.32 144.52 419.43 17,383 7,290,952
4 208.45 61.05 50.32 144.52 464.34 6,942 3,223,448
-------
tunnel/flow line, the facility costs for RPS^ and anc* ^he transmission
costs from T to RPS.. and RPS^. To this incremental cost we add the constant
distribution cost, Interest cost, and support services cost, yielding a total
of $419.43/mil gal. Table 5 gives the cost for each zone in $/mil gal and
the metered consumption in each zone (mil gal/year). The last column in
Table 5 is revenue generated from each zone. The total revenue calculated in
this manner is close to the revenue required to cover costs for the latest
water year (Table 3) .
The costs for each zone, plotted in Figure 11, are described by a step
function. As water is pumped and moved to a new zone, the costs take a
definable jump. This step function suggests that diseconomies of scale may
result as the network for delivering water increases in size. Dajani and
Gemmell confirm this observation in their study of the cost of treatment and
transportation systems for wastewater. They believe that a number of
smaller and simpler networks may be more economical than a large enveloping
system, and that a multiple plant treatment system may be called for. Follow-
ing this logic, we might hypothesize a situation in which an extension of the
service area beyond zone 1 (to the north) is contemplated, thereby creating
a new zone, la. Figure 12 shows the costs for zones 1 and 2 north of the
treatment plant and the assumed cost for the new zone la, given that addition-
al pumping and storage facilities and possibly expanded plant capacity are
required to service the area. This cost curve is represented by a dotted
line and assumes that the additional cost to serve zone la is approximately
$32/mil gal.
If the option of building another plant were available (and in this study
area it is), and if the plant could be operated in such a way as to achieve
reasonable economies of scale, then the cost curve for zone la might look
like the solid line in Figure 12. In this case, the cost savings resulting
from the new plant's construction would be represented by the area formed by
the dotted and solid lines in zone la, as shown in Figure 12.
The step functions that represent the cost curves are only approximations
to the actual costs. However, the curves serve a useful purpose for approxi-
mating the costs to a given service zone, and they illustrate the difference
in costs as a function of distance for transporting water to the consumer's
tap.
Because of the simplicity of the Kansas City distribution system (one
treatment plant), it represents an ideal case study area for relating the
cost of water supply to distance transported.
CINCINNATI WATER WORKS
The Cincinnati Water Works' service area lies almost entirely within
Hamilton County, Ohio, 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. 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.
25
-------
500.00
400.00
<
o
300.00
N>
£ 200.00
100.00
I-
z
<
_l
0.
ID
s
H
<
LD
cc
l-
H
<
K-
(/>
O
O
ZONE 1
ZONE 2
ZONE 3
ZONE 4
DISTANCE FROM TREATMENT PLANT
FIG. 11 COSTS BY SERVICE ZONES
-------
500.OOr
N>
400.00
^ 300.00
O
200.00
100.00-
I-
Z.
<
-J
Q.
UJ
s
I-
<
UJ
cc
I-
o
I—
CO
X
UJ
I-
<
I-
(0
o
o
^ ZONE 2
ZONE 1
5±E
ZONE 1a
I-
z
<
I-
z
UJ
2
i-
<
UJ
CC
<
o
H
Ul
X
H
O
CL
>"
X
DISTANCE FROM TREATMENT PLANT
FIG. 12 COST IN EXISTING NORTHERN SERVICE ZONES
PLUS HYPOTHETICAL ZONE
-------
The current source of supply is the Ohio River. Water is pumped from
the river to two presettling reservoirs on a municipal golf course near the
river, and is then pumped to a single treatment plant with a capacity of 235
million gallons per day (MGD). In 1974 the plant treated an average of 136
MGD. To the north and west, water passes through two gravity tunnels and two
pump stations into a large reservoir; it is then repumped into outlying
service areas.
Cost Analysis
Figure 13 shows the treated water and metered (revenue-producing) water
pumped by the utility during the period of analysis. All cost data are based
on revenue-producing water. Figure 13 shows the total water pumped exceeded
revenue-producing water by nearly 13 billion gallons during the final year of
analysis.
Table 6 contains the total operating cost for each of the previously
mentioned categories. Support services includes all operating costs that
support but are not directly chargeable to the production of water —
general administration, accounting and collection, and meter reading, for
example. Treatment includes costs related to operating the laboratory,
labor involved in the treatment function, chemicals for purifying the water,
and maintenance of the treatment plant. Power and pumping includes costs
related to operating labor, maintenance, and power and 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.
Costs for support services have more than doubled in the 10-year period
(see Table 6 and Figure 14) . Although all of the other cost categories
increased during this period, their rate of increase was less than that of
support services. Total operating costs increased by about 65%.
Table 6 also contains the average unit operating costs for each major
category based on the number of revenue-producing gallons pumped in a given
year. As shown, all cost categories ($/mil gal) increased by a factor of
less than two. Unit operating costs increased by about 40% (Figure 15).
Each cost category is presented as a percent of total operating cost.
Support services accounted for a significant portion of the utility's budget,
increasing from approximately 26% to 31.5%. The other cost categories either
decreased or remained constant (Figure 16) .
Depreciation and interest are defined as the capital expenses for the
water works system. These capital expenses remained essentially constant,
but operating expenses increased by approximately 65% (Figure 17). Table 6
shows the percent of expenditures allocated to capital decreased from approx-
imately 27% to 22% during the period of analysis.
28
-------
56
TREATED
REVENUE PRODUCING
YEAR
FIG. 13 TREATED AND REVENUE PRODUCING WATER FOR CINCINNATI
WATER UTILITY.
-------
TABLE 6. OPERATING AND CAPITAL COSTS FOR CINCINNATI WATER WORKS
Year
Item 1 2 3 4 5 6 7 8 9 10
OPERATING COSTS:
Support services:
$, in millions
% of total
$/mil gal
1.360
25.6
42.41
1.331
25.2
40.24
1.413
25.2
41.90
1.499
24.9
43.87
1.616
26.1
46.55
2.109
29.9
58.25
2.081
28.6
56.06
2.371
29.1
62.20
2.633
30.7
69.43
2.766
31.5
72.60
Acquisition:
$ in millions
% of total
$/mil gal
0.395 0.369 0.3724 0.372 0.380 0.405 0.427 0.496 0.480 0.485
7.4 7.0 6.7 6.2 6.1 5.8 5.9 6.1 5.6 5.5
12.25 11.15 11.10 10.90 10.94 11.19 11.50 13.02 12.66 12.73
Treatment:
$, in millions
% of total
$/mil gal
0.913
17.2
28.48
0.906
17.2
27.42
0.934
16.6
27.69
1.005
16.7
29.41
1.012
16.4
29.14
1.041
14.8
28.76
1.065
14.6
28.69
1.165
14.3
30.54
1.240
14.4
32.70
1.210
13.8
31.75
Power and pumping:
$, in millions
% of total
$/mil gal
1.086
20.5
33.88
1.115
21.1
33.74
1.182
21.0
35.07
1.256
20.9
36.77
1.247
20.2
35.92
1.412
20.0
39.01
1.382
19.0
37.23
1.638
20.0
42.97
1.635
19.0
43.10
1.667
19.0
43.75
Transmission and
distribution:
$ in millions
% of total
$/mil gal
1.558
29.3
48.60
1.554
29.5
47.00
1.711
30.5
50.74
1.885
31.3
55.19
1.928
31.2
55.52
2.084
29.5
57.57
2.323
31.9
62.58
2.487
30.5
65.23
2.606
30.3
68.72
2.654
30.2
69.65
Total operaing costs:
$, in millions
$/mil gal
5.310 5.275 5.615 6.017 6.183 7.051 7.277 8.158 8.595 8.782
165.62 159.55 166.50 176.14 178.07 194.78 196.06 213.96 226.61 230.48
-------
TABLE 6 (Continued) . OPERATING AND CAPITAL COSTS FOR CINCINNATI WATER WORKS
Year
1 2 3 4 5 6 7 8 9 10
CAPITAL COSTS:
Depreciation
($, in millions) 1.177
Interest
($, in millions) 0.826
Total capital costs
($, in millions) 2.003
TOTAL OPERATING AND CAPITAL
COSTS:
$, in millions 7.314
$/mil gal 228.10
1.230 1.422 1.550
0.947 0.927 0.877
2.177 2.349 2.427
7.452 7.964 8.444
225.41 236.14 247.19
1.605 1.634 1.632
0.887 0.887 0.793
2.492 2.521 2.425
8.665 9.571 9.702
249.56 264.41 261.39
1.657 1.699 1.771
0.802 0.711 0.669
2.459 2.410 2.440
10.617 11.005 11.223
278.45 290.14 294.54
-------
MILLIONS OF DOLLARS
1
SUPPORT SERVICES
1
ACQUISITION
¦
TREATMENT
POWER AND PUMPING
TRANSMISSION AND DISTRIBUTION
1 1—l 1 1 1
SUPPORT SERVICES
, 1
ACQUISITION
1 .
TREATMENT
1—i
POWER AND PUMPING
—-—i ,
TRANS MISSION AND DISTRIBUTION
-------
o
01
5°
o rn
z 5
z *3
> =!
h z
- O
> °
3 H
73 (/)
C
O
$/MIL. GAL
to
o
w
o
4^
O
o
>
70
-<
m
>
, 1 r
SUPPORT SERVICES
T
ACQUISITION
TREATMENT
POWER AND PUMPING
L
1
TRANSMISSION AND DISTRIBUTION
SUPPORT SERVICES
ACQUISITION
TREATMENT
POWER AND PUMPING
i
TRANSMISSION AND DISTRIBUTION
o
o
SJ
o
—r~
-------
% OF TOTAL COST
_,»OW4^tn(>NOO
oooooooo
T 1 1 1 1 I 1 I '
SUPPORT SERVICES
ACQUISITION
1
TREATMENT
1—I
POWER AND PUMPING
¦
TRANSMISSION~AND DISTRIBUTION
SUPPORT SERVICES
ACQUISITION
1 !
TREATMENT
i i
POWER AND PUMPING
4
TRANSMISSION AND DISTRIBUTION
¦
-------
o
Q o
z -o
o E5
15
3 o
* >
S >
73 |—
* ^
C/> O
o
C/)
H
CO
MILLIONS OF DOLLARS
-<
m
>
XJ
O K5 -U
OPERATING COST
-<
m
>
70
DEPRECIATION
INTEREST
o
—T-"
00
-r
O
-r-
S3
—I"
c>
OPERATING COST
DEPRECIATION
j
T
INTEREST
O
73
-------
Figure 18 depicts the expenditures for capital and operations and
maintenance over the 10-year period. Figure 19 shows the total expenditures
(historical and corrected) over the period of analysis. The corrected values
have been computed using the CPI, assuming 1965 as the base year. On a
corrected basis, expenditures remained constant. Figure 20 shows the actual
and corrected expenditures, based on time. Figure 20 shows that the unit
cost of water supply (corrected) has actually decreased in Cincinnati.
Operating expenditures are always reported in inflated or current
dollars, whereas capital expenditures are depreciated in historical dollars
over a long period of time. Problems related to the depreciation of capital
will be discussed later. Since the support services category, which is labor
intensive, plays an important role in the cost of water supply, labor and
manpower costs will be analyzed in the following section.
Labor Cost Analysis --
One means of evaluating the impact of labor costs on operation costs for
water supply is to examine the payroll of the water utility (Table 7).
Labor costs accounted for 64% of the utility's operating costs in year 1, and
the number of man-hours/mil gal of metered consumption decreased by 23%. 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 make up a large portion of
the cost of water supply. Depreciation reflects historical costs and not
the current cost of replacing a capital facility. Historical costs refer to
the original construction cost of a capital facility, whereas 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. A comparison between
historical and reproduction costs indicates the impact of inflation.
Using historical costs, a reproduction cost was calculated using the
Engineering News Record (ENR) Building Cost Index (1913 = 100) for buildings
and equ^gment 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.) After weighing these capital expenditures with the proper indices,
a reproduction cost of $459 million was found for the current plant-in-service,
which represents a 311% increase over the historical value. These capital
expenditures do not include the capital investment in a new treatment plant
(Great Miami), which is operational. Derivation of a reproduction value
illustrates the impact of inflation on capital cost and the current worth of
capital's contribution to output. The computations discussed in this section
are summarized in Table 8.
36
-------
TOTAL OPERATING COST
O
a
u-
O
CO
Z
o
—J
-J
TOTAL CAPITAL COST
4
9
2
5
6
7
10
1
8
3
YEAR
FIG, 18 OPERATING AND CAPITAL EXPENDITURES
FOR CINCINNATI WATER WORKS
-------
13
12 .
to
CXI
11 -
to
oe
< 10
—J
O
Q
«/>
Z
o
TOTAL COST
TOTAL COST MODIFIED BY CPI
1 1 1 1 1 1
2 3 4 5 6 7
TIME (YEARS)
FIG. 19 TOTAL EXPENDITURES VERSUS TIME FOR CINCINNATI WATER WORKS:
HISTORICAL AND MODIFIED
T~
8
T"
9
-T-
10
-------
400
300
_i
<
o
TOTAL UNIT COST
2
200
TOTAL UNIT COST MODIFIED BY CPI
100
YEAR
FIG. 20 UNIT COSTS FOR CINCINNATI WATER WORKS: HISTORICAL AND MODIFIED
-------
TABLE 7. MANPOWER COSTS FOR CINCINNATI WATER WORKS
Year
Item
1
2
3
4
5
6
7
8
9
10
Total payroll ($)
3,393,575
3, 399, 082
3,664,567
3,946,864
4,085,948
4,446,863
4,467,360
4 , 97 9, 657
5,261,055
5,474,585
Total hours
on payroll
1,110,032
1,116,220
1,102,892
1,120,980
1,148,588
1,141,448
1,115,744
1,094,229
1,071,476
1,046,824
Metered consump-
tion (mil gal)
32,063
33,061
33,725
34,160
34,722
36,199
37,117
38,128
37,928
38,104
Total payroll
($/mi1 gal)
105.84
102.81
108.66
115.54
117.68
122.84
120.36
130.60
138.71
143.68
Total hours/
mil gal
34.62
33.76
32.70
32.81
33.08
31.53
30.06
28.70
28.25
27.47
Average cost/
man hour
3.06
3.04
3.32
3.52
3.56
3.89
4.00
4.55
4.91
5.23
Capital/labor
cost ratio
0.60
0.64
0.64
0.61
0.61
0.57
0.54
0.49
0.46
0.45
-------
TABLE 8. HISTORICAL AND REPRODUCTION COSTS OF PLANT-IN-SERVICE FOR
CINCINNATI WATER WORKS
Capital
Historical
Reproduction
facility
cost
cost (1974 dollars)
Plant
$ 42,649,160
$ 146,981,272
Pipe
54,848,943
296,771,626
Misc, plant*
14,202,213
15,237,389
Total
111,700,315
458,990,286
* Capital expenditures that are not specifically identified.
41
-------
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 (Figure 21) . A general cost was determined for
distribution, interest, and overhead.
The facilities in the schematic diagram (Figure 21) can be related to
cost zones, as in Kansas City. For example, the acquisition cost of 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 one
facility to another, the unit cost of moving water through the first is
added to the cost of getting water to the second, thereby creating incremental
costs. The facility and transmission costs are added to the costs of distri-
bution, 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 the distribution cost 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 how cost changes from one service area to another, we can
examine the B1 and B2 cost areas (Figure 22). The cost/mil gal for area B1
is composed of acquisition cost ($16.70), treatment cost ($60.26), distribu-
tion cost ($50.52), interest cost ($17.57), and overhead 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 B1 costs, which yield $477.60/mil gal. These values are plotted in
Figure 23. The costs in each zone are described by a step function. The
cost of water pumped from the treatment plant through the B1 is assumed
constant; however, as water is repumped into the B2 zone, the costs take a
definable jump, yielding a step function.
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. A comparison of this cost analysis to
the prices actually charged in the utility service area is useful. Figure 24
shows all of the cost zones listed in Figure 21 that make up the Cincinnati
Water Works service area. Table 9 compares revenues received from the 10
largest users in the service area and the actual cost of service.
The cost column was calculated as shown in Figure 22. Adjusted cost was
figured by allocating support services on a service per customer basis.
Table 9 shows that in many cases, the major users have not met the cost of
supplying water to them.
DALLAS WATER UTILITY
The Dallas Water Utility serves ^he city of Dallas, which lies within
Dallas County in north central Texas. The city has a population of
942,467, and the county's population is 1.5 million, based on the 1970 census.
Dallas' annual growth rate of 3.1% has many implications for urban services
42
-------
(80.48)
(55.37
(36.86)
(68.29)
(120.30)
(37.50)
(0.31)
(31.43)
(46.88)
(65.01)
(33.21)
(36.05)
(16.70)
Acquisition
Treatment
C2
C4b
Clb
C3b
C3a
C4a
CI a
Gravity
Tunnel
B2
FIG. 21 SCHEMATIC DIAGRAM OF FACILITY COSTS IN CINCINNATI WATER
WORKS SYSTEM. *
* (COSTS IN $/MIL GAL OF REVENUE PRODUCING WATER)
-------
B1
SERVICE AREA
B2
SERVICE AREA
(55.37) (80.48)
(75.43)
(60.26)
(36.05)
TREATMENT
PLANT
B2
PUMP
& TANK
ACQUISITION
PUMPS
& TANK
(16.70) '
FIG. 22 SCHEMATIC DIAGRAM OF INCREMENTAL COSTS FOR B1 AND
B2 SERVICE AREAS *
*(COST IN $/MIL GAL OF REVENUE PRODUCING WATER)
-------
COST CURVE
gj $477.50
O
¦
$336.86 j
£ I
I
I
L
Bt
SERVICE AREA
B2
SERVICE AREA
FIG. 23 Step function cost curve for B1 and B2 service areas.
-------
¦>
On
TEN LARGEST USERS
CITY OF NORWOOD
HILTON DAVIS
SUN CHEMICAL
PRACTOR AND GAMBLE
DAVISON CHEMICAL
METROPOLITAN SEWER DISTRICT
CINCINNATI M1LACRON
KROGER COMPANYKSUBURB (SUBURB)
KROGER COMPANY
E. KAHN'S AND SON'S
*
¦a
V
FIG. 24 MAJOR USERS IN CINCINNATI WATER WORKS SERVICE AREA
-------
TABLE 9. ACTUAL CHARGE VERSUS REAL COST FOR TEN MAJOR USERS IN CINCINNATI
WATER WORKS
($/mil gal)
User
Revenue*
Cost
+
Adjusted cost
Norwood
Hilton Davis
Sun Chemical
Procter & Gamble
Davison Chemical
Metropolitan Sewer
Cincinnati Milacron
Kroger Coripany
(Suburb) 3-
Kroger Company
E. Kahn's Sons
$ 294.12
168.83
175.67
169.87
175.44
308.70
321.12
87.54
180.26
175.19
185.44
175.07
187.95
313.54
328.26
181.90
197.73
181.67
195.17
$ 272.80
262.99
275.54
275.54
272.80
264.56
272.80
262.99
264.56
264.56
$ 243.52
233.71
246.26
246.26
243.57
235.28
243.52
233.71
235.28
235.28
* Wherever two values are presented, one represents the high and the other
the low bill in $/mil gal for 1973-74.
+ These values were calculated on an average cost basis and as such do not
reflect potential economies of scale that result from having large users
in the system.
1- Suburban users are charged at a higher rate to allow for expansion into
Hamilton County.
47
-------
such as water supply. The Dallas Water Utility provides water on a retail
basis to all classes of customers within the city of Dallas, and provides
wholesale water to 16 other communities within the county.
Organizationally, the Dallas Water Utility combines both water supply
and wastewater treatment functions. It is composed of three sections:
engineering and planning, operations, and business.
Raw water comes from five major reservoirs and is treated in three
separate treatment plants in the northwest, central, and southeastern
sections of the city. The treatment plants are generally located in the low-
lying areas of the city, thus requiring that water be pumped up to residences
and businesses at higher elevations.
The placement of the treatment plants represents an interesting example
of decentralization to minimize the cost of delivering water to the consumer.
Figure 25 shows the locations of plants and pumping facilities relative to
the service area. The Elm Fork, Bachman, and East Side treatment plants ring
the service area, thereby reducing the incremental cost of supplying water to
the service area.
Figure 2 6 illustrates the substantial growth in consumer demand for water
over the 10-year period of analysis.
Cost Analysis
Operating costs were categorized as follows: acquisition, treatment,
transmission and distribution, power and pumping, and support services.
Table 10 summarizes the historic costs in these areas for the study period.
During these 10 years, the actual accounting system changed three times, mak-
ing it difficult to track some of the specific cost items.
Table 10 shows that the total operating cost of water has increased from
$5.7 million to $12.5 million (see also Figure 27). The cost of support
services has increased at a faster rate, from $1.4 million to $4.7 million.
On a unit basis, the total operating cost of water supply has increased from
$144.80/mil gal to $198.76/mil gal, with the greatest increase occurring in
support services — from $34.51/mil gal to $74.57/mil gal in 1973-74 (Fig-
ure 28). Table 10 also shows each operating cost category as a percent of
total operating cost, thus making it possible to identify where shifts have
occurred in the proportion of money committed to a given task. Figure 29
gives a graphic representation of these shifts.
The unit operating cost in Dallas has not increased as fast as total
cost over the 10-year period. Also, the cost/mil gal fluctuates based on the
actual amount of water required in any given year. This fluctuation results
from the ability of a given work force to produce a variable amount of water.
Thus, if the demand is heavier during the year because of an unusual drought,
water consumption will be higher without a proportional increase in cost.
The reverse is also true. If the water usage is low because of unusual
48
-------
~ Treatment Plants
EF Elm Fork (458 ft.)
B Bachman (456 ft.)
ES East Side (480 ft.)
o Pump Stations
B Beltwood (622 ft.)
CW Camp Wisdom (693 ft.)
CC Cosa Crest (620 ft.)
G Greenville (609 ft.)
JM Jim Miller (521 ft.)
U Lake June (504 ft.)
SC Southcliff (586 ft.)
S Sunset (607 ft.)
WC Wa I crest (627 ft.)
CV Casa View (562 ft.)
WH Walnut Hill
o
/?
//
FIG. 25 TREATMENT PLANTS AND PUMP STATIONS IN
DALLAS UTILITIES SERVICE AREA
49
-------
70
65
60
55
50
45
40
35
30
25
20
26
TREATED
REVENUE PRODUCING
J I I 1 I
I
5 6 7
YEAR
8
10
rREATED AND REVENUE PRODUCING
WATER FOR DALLAS WATER UTILITY
50
-------
TABLE 10. SUMMARY OF OPERATING AND CAPITAL EXPENDITURES FOR 1965-74 FOR DALLAS WATER UTILITY
Year
Item 1 2 3 4 5 6 7 8 9 10
OPERATING COSTS:
Support services:
$, in millions
% of total
$/mil gal
1.355
23.83
34.51
1.450
24.13
36.82
1.664
25.61
38.57
1.873
27.19
41.27
2.285
29.16
42.76
2.670
30.86
47.29
3.492
35.28
61.75
3.764
34.67
62.02
4.403
35.53
78.63
4.700
37.54
74.57
Acquisition:
$, in millions
% of total
$/mil gal
.524
9.22
13.35
.538
8.95
13.65
.597
9.20
13.85
.515
7.48
11.35
.495
6.32
9.26
.501
5.79
8.87
.578
5.83
10.21
.533
4.91
8.79
.756
6.10
13.50
.688
5.49
10.92
Treatment:
$, in millions
% of total
$/mil gal
1.377
24.23
35.07
1.449
24.09
36.76
1.448
22.29
33.57
1.510
21.92
33.27
1.759
22.44
32.90
1.902
21.97
33.67
2.206
22.27
39.01
2.307
21.24
38.01
2.573
20.76
45.95
2.788
22.25
44.24
Power and pumping:
$, in millions
% of total
$/mil gal
.999
17.57
25.44
1.003
16.69
25.46
1.094
16.84
25.36
1.143
16.59
25.19
1.336
17.04
24.98
1.404
16.22
24.86
1.521
15.36
26.89
1.781
16.40
29.34
1.908
15.40
34.07
1.806
14.41
28.66
Transmission and
distribution:
$ in millions
% of total
$/mil gal
1.431
25.16
36.43
1.572
26.15
39.90
1.692
26.05
39.24
1.847
26.81
40.70
1.963
25.04
36.71
2.179
25.17
38.57
2.104
21.24
37.20
2.473
22.77
40.73
2.751
22.20
49.13
2.545
20.32
40.37
Total operating costs:
in millions 5.686 6.012 6.496 6.887
$'/mil gal 144.80 152.59 150.29 151.78
7.838 8.656 9.901 10.859 12.390 12.528
146.61 153.26 175.06 178.89 221.28 198.76
-------
TABLE 10 (Continued) . SUMMARY OF OPERATING AND CAPITAL EXPENDITURES FOR 1965-74 FOR DALLAS WATER
UTILITY
Year
Item 1 2 3 4 5 6 / 8 9 10
CAPITAL COSTS:
Depreciation
($, in millions) 2.979 3.176 3.339 3.494 3.688 3.815 3.986 4.407 4.752 5.135
Interest
($, in millions) 1.918 1.951 2.088 2.246 2.196 2.804 2.193 2.509 3.425 3.638
Total capital costs
($, in millions) 4.397 5.127 5.427 5.740 5.884 5.899 6.179 6.916 8.176 8.773
TOTAL OPERATING AND
CAPITAL COSTS:
$, in millions 10.583 11.140 11.924 12.627 13.722 14.555 16.079 17.775 20.567 21.301
$/mil gal 269.46 282.70 276.42 278.30 256.72 257.72 284.31 292.83 367.29 337.94
-------
o
lO
-J
o
¦0
m
O
o
O
CO
H
CO
~n
O
73
D
>
>
CO
m
73
m
>
TO
-<
m
>
70
MILLIONS OF DOLLARS
N5
CO
Ui
SUPPORT SERVICES
—1 1
ACQUISITION
¦
o
T~
N
T—
00
-1
TREATMENT
J
r
POWER AND PUMPING
L
1
TRANSMISSION AND DISTRIBUTION
SUPPORT SERVICES
ACQUISITION
TREATMENT
POWER AND PUMPING
TRANSMISSION AND DISTRIBUTION
¦mhhhhmmmmmmhmmmwotmI
-------
O
ro
CO
O
¦0
m
7J
>
o
o
O
C/>
H
C/>
o
>
o
7J
D
>
I-
I-
>
C/>
$/MIL GAL
to
o
CO
o
o
Cn
O
o
o
-<
m
>
70
-<
m
>
TO
SUPPORT SERVICES
>4
O
T—
00
o
-»
ACQUISITION
I
TREATMENT
POWER AND PUMPING
¦
TRANSMISSION AND DISTRIBUTION
SUPPORT SERVICES
ACQUISITION
l
TREATMENT
POWER AND PUMPING
¦
TRANSMISSION AND DISTRIBUTION
i
m
7J
-------
% OF TOTAL COST
O
¦
IO
CO
O O
° 5
co ~
O
73
D
>
|-
|-
>
C/>
m
73
G)
O
O
C/>
>
C/)
m
73
o
m
>
>
xj
to
D O O
SUPPORT SERVICES
. »
ACQUISITION
oo
o
o
Ui
o
o
Nl
o
T—
00
0
1
TREATMENT
POWER AND PUMPING
1 1
TRANSMISSION AND DISTRIBUTION
¦
SUPPORT SERVICES
ACQUISITION
TREATMENT
POWER AND PUMPING
1 1
TRANSMISSION AND DISTRIBUTION
-------
conditions, such as excessive rain, the water consumption will be reduced
without a corresponding reduction in operating cost. This principle was
illustrated in the latest study year when the water consumption significantly
decreased and caused an increase in unit operating costs.
The total cost for support services has significantly increased.
Table 10 shows that the proportion of the total operating cost devoted to
support services increased from 24% in 1964 to 38% in 1973. Cost in each year
must total 100%, therefore this increase in the support services category
must reflect a decrease in some of the other operating cost categories. For
acquisition, which is primarily associated with the operation of reservoirs,
the cost as a percent of total cost decreased from 9.2% to 5.4%.
To determine the total cost of producing water, it is necessary to
calculate capital expenditures. As discussed earlier in this report, the
method chosen is to depreciate the net plant in service, based on original
purchase price, on a straight line basis, over the estimated life of the
facility. The cost of borrowing money is considered to be the actual
interest paid by the utility when money is borrowed.
For the purpose of this report, the total cost of producing water is
considered to be operating expenses plus depreciation of capital equipment
and facilities, plus the interest paid on borrowed money. The total cost in
Dallas for producing water increased from approximately $10.5 million in
year 1 to approximately $21.3 million in year 10 — an increase of 102% in
total expenditures (Figure 30). During that same time period, however, the
cost of producing a mil gal of water increased only 25%. Table 10 shows that
in the latest year of record, the Dallas Water Utility expended $337.94 for
each million gallons sold that year.
As with the Kansas City and Cincinnati water supplies, the capital costs,
operating costs, and total expenditures over time are illustrated (Figures
31 through 33) . Unit costs have decreased on a corrected basis using the
Consumer Price Index with 1965 as the base year.
System Evaluation
Figure 25 shows the locations of treatment facilities in the Dallas
service area. Because the facilities ring the service area, relating cost
to distance is difficult. Figure 34 is a schematic diagram of the Dallas
treatment facilities and the capital and operating expenses they incur.
Costs assigned to the facilities and to the other cost categories that make
up the total cost for each service zone are shown in Table 11. Figure 35
illustrates the cost increases that are incurred from the East Fork treat-
ment plant to the Cosa Crest service area. This is simply another illustra-
tion of the way in which costs can be seen to vary with distance from the
treatment plant.
56
-------
G)
CO
o
T| O
° 2
73 2
73
D >
> —I
li
W >
> o
"J o
>
m ^
73 >
o
o
c/>
>
73
lo
MILLIONS OF DOLLARS
o* 00 o to
>
OPERATING COST
DEPRECIATION
INTEREST
I
OPERATING COST
DEPRECIATION
INTEREST
C/>
-------
18 i—
16
14
V)
on
<
O 12
o
LL.
o
V)
S 10
8
TOTAL OPERATING COST
TOTAL CAPITAL COST
6
YEAR
8
10
FIG. 31 OPERATING AND CAPITAL EXPENDITURES FOR DALLAS WATER UTILITY
-------
24
22
20
CO
at
<
o
O
u-
o
TOTAL COST
to
Z
o
TOTAL COST MODIFIED BY CPI
FIG. 32 TOTAL EXPENDITURES FOR DALLAS WATER UTILITY:
HISTORICAL AND MODIFIED
-------
500
400
<
o
s
TOTAL UNIT COST
300
TOTAL UNIT COST MODIFIED BY CPI
200
YEAR
FIG. 33 TOTAL UNIT COSTS FOR DALLAS WATER UTILITY:
HISTORICAL AND MODIFIED
-------
ACQUISITION
1
13.75
2
13.75
3
48.08
ZONE
TREATMENT
PUMPING
43.80
43.80
TRANSMISSION
43.80
21.28
PUMPING
21.28,
21.28
$43.80
43.80
TRANSMISSION
PUMPING
WH >s
21.28
SC^
21.28
JM ^
21.28,
CW^
21.28,
WC >
21.28
CV ^
21.28
LJ >
21.28
CC^
21.28
EF
44.07
21.28
52.47
21.28
ES
64.89
PURCHASED
WATER
108.68
l^cvN
-( 21.28)
D
B
FIG. 34 ALLOCATION OF CAPITAL AND OPERATING EXPENSES TO
WATER SYSTEM COMPONENTS FOR DALLAS WATER UTILITY
(COSTS IN $/MIL GAL OF REVENUE PRODUCING WATER)
-------
TABLE 11. COST ELEMENTS FOR SERVICE ZONES
Cost
zone
Incremental
cost
($/mil aal)
Distribution
cost
($/mil gal)
Interest Overhead Total
cost cost cost
($/mil gal) ($/mil gal) ($/mil gal)
Metered
consumption
(mil gal)
Revenue
1 A
B
C
2 A
B
3 A
B
C
3 D
$ 70.90
132.25
193.60
104.66
166.01
153.04
214.39
275.74
129.96
$ 67.33
67.33
67.33
67.33
67.33
67.33
67.33
67.33
67.33
$ 57.72
57.72
57.72
57.72
57.72
57.72
57.72
57.72
57.72
$ 83.46
83.46
83.46
83.46
83.46
83.46
83.46
83.46
83.46
$279.41
340.76
402.11
313.16
374.52
361.55
422.90
484.25
333.88
337.96
16,766 $ 4,684,588.06
16,323 5,562,225.48
334 89.670,.53
872 2,465,274.24
854 2,566,960.08
4,212 1,522,848.60
5,936 2,933,234.40
87 623,299.75
557 853,731.16
63,030 21,301,762.30
-------
300.001-
200.00
<
o
N
w
100.00
EAST FORK WALCREST
COSA CREST
FIG. 35 COST OF SERVICE OVER PATHWAY 1
63
-------
ELIZABETHTOWN WATER COMPANY
The Elizabethtown Water Company provides water to five counties in New
Jersey -- Union, Summerset, Mercer, Middlesex, and Hunterden. The service
population, which was 507,836 in the last year of analysis, has remained
relatively stable, but water consumption has increased by 30% over the last
three years.
This utility is investor-owned and as such has some different character-
istics compared to the publicly-owned utilities mentioned earlier. One
difference is a liability for real estate tax incurred by the Elizabethtown
Water Company but not by public utilities.
Organizationally, the utility is controlled by a board of directors and
consists of four organizational entities: operations, controller, business,
and legal. The president reports directly to the chairperson of the board.
Raw water comes from both surface and ground sources. Approximately
77% of the source water is from surface water, and 23% is from the ground.
Figure 36 illustrates consumer demand for water over the 10-year period.
Treated water is that pumped from wells, treated in one of the four treatment
plants, or purchased. Revenue-producing water is that water that is metered
and paid for by wholesale and retail customers of the Elizabethtown Water
Company.
Cost Evaluation
Operating costs were categorized into acquisition, treatment, trans-
mission and distribution, power and pumping, and support services. Table 12
summarizes historic costs for 10 years.
Operating costs were divided by millions of gallons of revenue-producing
water to provide unit operating costs. The patterns of expenditure are
similar to those of other utilities discussed. Table 12 shows that the
utility's tax burden is significant. Taxes have increased from $2,646 million
in 1965 to $3,935 million in 1974.
Figures 37 through 40 show the changes that have occurred in operating
costs with respect to total cost, unit cost, percentage of total cost, and
changes in O&M and capital cost. Total operating and capital costs over time,
corrected by the CPI assuming 1965 as the base year are shown in Figures 41
through 43.
System Evaluation
The water distribution and treatment system for the Elizabethtown Water
Company is complex because of the different acquisition points for water
supply. Volume II contains a detailed evaluation of the system.
64
-------
65
60
55
50
45
40
35
30
25
20
36
TREATED
REVENUE PRODUCING
1
5 6 7
YEAR
8
10
REATED AND REVENUE PRODUCING WATER
:OR ELIZABETHTOWN WATER COMPANY
65
-------
TABLE 12. SUMMARY OF OPERATING AND CAPITAL EXPENDITURES FOR ELIZABETHTOWN WATER UTILITY
Year
Item
1
2
3
4
5
6
7
8
9
10
OPERATING COSTS:
Support Services:
$, in millions
% of total
$/mil gal
1.192
32.15
40.61
1.305
30.07
37.77
1.392
30.74
43.89
1.449
30.08
45.11
1.766
32.24
52.17
2.108
35.57
61.26
2.277
34.39
65.38
2.351
33.59
68.57
2.677
34.18
73.19
3.028
31.38
79.18
Acquisition:
$ in millions
% of total
$/mil gal
0.485
13.08
16.52
0.748
17.23
21.64
0.979
21.63
30.88
1.048
21.05
31.55
1.093
19.94
32.27
1.175
19.83
34.15
1.226
18.52
35.21
1.492
21.32
43.52
1.478
18.88
40.42
1.502
15.56
39.28
Power and Pumping:
$, in millions
% of total
$/mil gal
0.964
26.00
32.85
1.079
24.86
31.23
1.043
23.02
32.87
1.104
22.16
33.23
1.161
21.20
34.30
1.132
19.09
32.89
1.408
21.28
40.44
1.412
20.18
41.19
1.818
23.21
49.73
2.710
28.09
70.89
Transmission and
Distribution:
$, in millions
% of total
$/mil gal
0.619
16.70
21.09
0.644
14.83
18.63
0.703
15.51
22.15
0.813
16.31
24.46
0.879
16.04
25.96
0.918
15.49
26.68
1.017
15.37
29.21
1.020
14.56
29.73
1.069
13.65
29.23
1.294
13.41
33.84
Treatment:
$, in millions
% of total
$/mil gal
0.448
12.07
15.25
0.565
13.01
16.34
0.412
09.10
13.00
0.519
10.40
15.60
0.579
10.58
17.11
0.593
10.02
17.25
0.691
10.44
19.85
0.725
10.35
21.14
0.790
10.08
21.59
I.116
II.56
29.18
Total Operating Costs:
in millions
$/mil gal
3.707
126.32
4.341
125.61
4.529
142.79
4.983
149.95
5.479
161.81
5.927
172.23
6.619
190.09
7.001
204.15
7.832
214.16
9.649
252.37
-------
TABLE 12 (Continued) . SUMMARY OF OPERATING AND CAPITAL EXPENDITURES FOR ELIZABETHTOWN WATER UTILITY
Year
Item 1 2 3 4 5 6 / 8 9 10
CAPITAL COSTS:
Depreciation:
($, in millions)
Interest:
($, in millions)
Total capital cost:
($, in millions)
Total operating and
capital cost:
$, in millions
$/mil gal
Taxes ($, in millions
Total Cost:
$, in millions
$/mil gal
0.915 1.004
1.039 1.345
1.954 2.349
5.661 6.690
192.89 193.55
2.646 2.658
8.307 9.348
283.04 270.45
1.079 1.145
1.577 1.872
2.656 3.017
7.185 8.000
226.58 240.70
2.324 2.559
9.509 10.559
299.86 317.70
1.200 1.297
2.508 2.927
3.708 4.224
9.187 10.187
271.31 296.05
3.561 3.392
12.748 13.543
376.47 393.58
1.352 1.418
2.819 2.908
4.171 4.326
10.790 11.327
309.86 330.32
3.210 3.030
14.000 14.357
402.04 418.68
1.521 1.693
3.373 4.327
4.894 6.020
12.726 15.669
347.97 409.81
4.617 3.935
17.343 19.604
474.22 512.72
-------
MILLIONS OF DOLLARS
O
CO
-vi
H O
O -0
is
> z
H O
m
7J o
o
c c/>
H H
F C/>
j ¦!
¦< o
73
m
n
N
>
CD
m
IO
o
>
TO
T
>
X3
SUPPORT SERVICES
1
ACQUISITION
TREATMENT
POWER AND PUMPING
j 1
TRANSMISSION AND DISTRIBUTION
CO
o
¦t*
o
n
SUPPORT SERVICES
ACQUISITION
TREATMENT
POWER AND PUMPING
TRANSMISSION AND DISTRIBUTION
-------
$/MIL GAL
10 co 4^ tn o* nj oo
O O O O O O °
riii
¦ 1 1 1 1
SUPPORT SERVICES
]
ACQUISITION
¦
TREATMENT
i -j
POWER AND PUMPING
TRANSMISSION AND DISTRIBUTION
SUPPORT SERVICES |
ACQUISITION
TREATMENT |
POWER AND PUMPING |
TRANSMISSION AND DISTRIBUTION
>
73
•<
m
>
-------
% OF TOTAL COST
O
O
CO
o
73
m
~
£
CD
m
G)
CO
CO
O
"0
m
>
XJ
O
O
O
C/>
o
co m
m
33
¦o
m
73
O
m
O
T|
H
o
CO
CO
>
= >
IO
o
CO
o
-r*.
o
T
m
o
o>
o
T
N
O
SUPPORT SERVICES
T
00
o
ACQUISITION
-i
TREATMENT
POWER AND PUMPING
1 1
TRANSMISSION AND DISTRIBUTION
SUPPORT SERVICES
ACQUISITION
1
TREATMENT
'
POWER AND
TRANSMISSION
1
PUMPING
I
AND DISTRIBUTION
-------
o
¦
o
rr m
si
io
o>
§o
l>
|8
jH
-
~n
O
73
MILLIONS OF DOLLARS
10
00
>
73
-<
m
>
73
OPERATING COST
to
T-
4^
1—
0
1
g
DEPRECIATION
INTEREST
OPERATING COST
DEPRECIATION
INTEREST
-------
14 r~
12
10 -
-------
18
16
14
TOTAL COST
12
10
TOTAL COST MODIFIED BY CPI
8
6
4
5
6
4
7
2
3
9
10
YEAR
FIG. 42 TOTAL EXPENDITURES FOR ELIZABETHTOWN WATER COMPANY:
HISTORICAL AND MODIFIED
-------
400
TOTAL UNIT COST
300
_i
<
0
TOTAL UNIT COST MODIFIED BY CPI
200
100
VC A D
FIG. 43 UNIT COSTS FOR ELIZABETHTOWN WATER COMPANY:
HISTORICAL AND CORRECTED
-------
FAIRFAX COUNTY AUTHORITY
The Fairfax County Water Authority, headquartered in Annandale, Virginia,
was created under the Virginia Water and Sewage Authority Act of 1950 to
supply and distribute water to Fairfax County. The Authority's charter was
amended to allow it to provide sewerage services both in and outside of the
county, but it cannot levy any taxes or assessments, nor do the obligations
of the Authority become obligations of Fairfax County.
Beginning in 1959, the Authority acquired 15 water companies and 22
separate water systems. The Alexandria Water Company, acquired in 1967,
serves 70 percent of the Authority's customers -- nearly two-thirds of the
population of Fairfax County (364,000), including small areas adjacent to the
county. The service area encompasses approximately 4 00 square miles.
Cost Analysis
Figure 44 illustrates the growth in consumer demand for water over the
10-year period. Rapid growth in billed consumption resulted from the acquis-
ition of new customers. Because accounting problems make it difficult to
identify costs according to the functional cost categories mentioned earlier,
expenses for the first four years are reported on a total cost basis. From
the fifth through the tenth year, costs are identified according to the
standardized categories shown in Table 13. Figures 45 through 48 show the
changes that have taken place in the operating and capital costs over the
period of analysis. Total operating and capital costs over time, corrected
by the CPI, are shown in Figures 49 through 51.
Note that unit costs dropped significantly in 1968 with the addition of
the Alexandria Water Company to the Authority. This drop in cost reflects
some of the economies of scale that may take place when water supplies exist-
ing in close proximity band together in a regional water system. The
decline in unit prices associated with the addition of Alexander Water Company
is due to the averaging into the total cost a system whose operating costs are
relatively low due to higher population density.
Systems Analysis
As with the Elizabethtown Water Company, the Fairfax County Water Auth-
ority is extremely complex. The system is described in detail in Volume II.
SUMMARY
The five utilities that were selected for analysis are unique, but
they illustrate trends or conditions that are typical of many municipal water
systems. Kansas City is a classic water system, drawing its water from the
river, pumping it through one treatment plant, and distributing it to a wide-
spread service area. Because of the system configuration, it is possible to
study cost changes as they occur from the treatment plant to the ends of the
system. Kansas City is also fairly stable in water production, with very
little increase in revenue-producing water over the 10-year period.
75
-------
24
22
20
18
16
14
12
10
8
6
4
2
44 1
TREATED
REVENUE PRODUCING
J L
J L
5 6
YEAR
8
10
SEATED AND REVENUE PRODUCING WATE
OR FAIRFAX COUNTY WATER AUTHORIT
6
-------
TABLE 13. OPERATING AND CAPITAL EXPENDITURES FOR FAIRFAX COUNTY WATER AUTHORITY
Year
Item
1 2 3
4
5
6
7
8
§
10
OPERATING COSTS:
Support services:
$ in millions
% of total
$/mil gal
_
-
0.673
29.05
45.29
1.000
34.60
62.43
1.253
38.82
73.51
1.232
35.66
70.03
1.406
35.72
76.00
1.548
34.94
80.53
Acquisition:
$, in millions
% of total
$/mil gal
-
-
0.150
6.48
10.11
0.206
7.11
12.84
0.250
7.73
14.64
0.289
8.36
16.42
0.243
6.19
13.15
0.387
8.74
10.15
Power and pumping:
$ in millions
% of total
$/mil gal
-
-
0.330
14.23
22.18
0.384
13.28
23.97
0.409
12.65
23.97
0.463
13.39
26.29
0.528
13.41
28.53
0.526
11.87
27.36
Transmission and
distribution:
$ in millions
% of total
$/mil gal
_
-
0.702
30.29
47.22
0.737
25.49
46.00
0.743
23.01
43.57
0.918
26.55
52.16
1.174
29.82
63.45
1.386
31.26
72.05
Treatment:
$, in millions
% of total
$/mil gal
_
-
0.462
19.93
31.07
0.564
19.51
35.21
0.574
17.79
33.69
0.555
16.04
31.51
0.586
14.89
31.67
0.584
13.18
30.37
Total Operating Costs:
in millions
$/mil gal
0.708 0.834 1.096
397.92 402.22 451.57
1.345
340.57
2.317
155.87
2.891
180.45
3.229
189.38
3.456
196.38
3.938
212.80
4.432
230 .46
-------
TABLE 13 (Continued). OPERATING AND CAPITAL EXPENDITURES FOR FAIRFAX COUNTY WATER AUTHORITY
Year
Item 123456789 10
CAPITAL COSTS:
Depreciation
($, in millions) 0.234 0.234 0.241 0.912 1.584 1.584 1.584 1.584 1.584 1.587
Interest
($, in millions) 0.608 0.663 0.663 0.663 4.800 3.401 4.935 4.105 4.060 4.011
Total capital cost
($, in millions) 0.842 0.897 0.904 1.575 6.384 4.985 6.519 5.689 5.644 5.598
Total operating and
capital cost:
$, in millions 1.550 1.782 2.000 2.921 8.701 7.876 9.748 9.146 9.581 10.030
$/mil gal 871.48 810.36 823.90 739.41 585.29 491.64 571.73 516.74 517.79 521.55
-------
MILLIONS OF DOLLARS
o
fO
en
O
In
O
O
l/i
O
O
S3
Ui
Ui
O
O
¦U
cn
>m
cz
HO
c/)
H
C/>
o
-n
>
7J
>
TO
Cn
>
T1 °
>
X
o
o
SUPPORT SERVICES
ACQUISITION
TREATMENT
POWER AND PUMPING
TRANSMISSION AND DISTRIBUTION
SUPPORT SERVICES
,
ACQUISITION
i
TREATMENT
r
POWER AND PUMPING
TRANSMISSION AND DISTRIBUTION
-------
$/MIL GAL
>
73
~n
>
X
m
73
O
¦&.
o>
O
¦o
m
73
>
O
O
O
CO
O
>
~o
o
CO
o
4*.
o
-<
m
>
70
m
>
70
SUPPORT SERVICES
ACQUISITION
in
o
N
00
O
o
O
o
i
1
1
1
TREATMENT
POWER AND PUMPING
I
TRANSMISSION AND DISTRIBUTION
¦
SUPPORT SERVICES
ACQUISITION
« ¦
TREATMENT
POWER AND PUMPING
i
TRANSMISSION AND DISTRIBUTION
O
73
-------
G)
% OF TOTAL COST
-1
o
—1
>
1-
O
m
-<
m
o
73
>
o
>
XJ
c/>
H
—t
—1
Z
T|
G)
o
73
O
O
T|
C/>
>
H
73
>
T|
>
C/)
X
>
S
>
m
m
—i
>
m
O
73
m
z
O
c
H
H
|-
O
—1
T|
-<
to
o
o o
SUPPORT SERVICES
CO
4*
in
0*
N
00
o
O
O
o
O
o
1
1
1
1
1
1
ACQUISITION
TREATMENT
POWER AND PUMPING
i
TRANSMISSION AND DISTRIBUTION
i
SUPPORT SERVICES
ACQUISITION
' I
TREATMENT
POWER AND PUMPING
1 1
TRANSMISSION AND DISTRIBUTION
¦
-------
G)
¦
oo
O O
o -~
c/> m
H 73
CO >
T, l!
O Z
73 O
2 >
> Z
73 CI
Tl
> 2
X 5
S H
> >
H r
m
73
MILLIONS OF DOLLARS
IO 00 ^ Ui
>
>
I I 1
OPERATING COST
T
T
T
o>
T
00
DEPRECIATION
i
INTEREST
i
OPERATING COST
DEPRECIATION
INTEREST
-------
TOTAL CAPITAL COST
~J
O
Q
Li.
O
to
z
o
TOTAL OPERATING COST
_i
t.
YEAR
FIG. 49 OPERATING AND CAPITAL EXPENDITURES FOR FAIRFAX WATER AUTHORITY
-------
TOTAL COST
LL.
CO
TOTAL COST MODIFIED BY CPI
TIME (YEARS)
FIG. 50 TOTAL EXPENDITURES FOR FAIRFAX WATER AUTHORITY:
HISTORICAL AND MODIFIED
-------
1400,
1200
1000
< 800
0
•J
600
TOTAL UNIT COST
400
TOTAL UNIT COST MODIFIED BY CPI
200
5
1
2
3
4
6
7
YEAR
FIG. 51 UNIT COST FOR FAIRFAX WATER AUTHORITY: HISTORICAL AND MODIFIED
-------
Inflationary pressures have caused the unit costs, even when corrected for
time by the CPI, to exhibit steady increases.
Cincinnati's distribution system is similar to Kansas City's and allows
for a cost versus distance analysis. In Cincinnati, water production has
increased steadily, resulting in stabilized unit costs for water. Corrected
costs have even decreased slightly. The utility has extensive records for
capital investment, and a reproduction cost can be calculated for the water-
works facilities. Results of this analysis demonstrate that over the life of
the utility, the value of its capital facilities have increased fivefold.
A labor cost and productivity analysis reflects that the increase in labor
costs has not been completely balanced by increases in labor productivity.
Dallas is a rapidly growing community with an extensive reservoir system.
By continuously expanding the acquisition system and ringing the city with
treatment facilities, water shortages have been eliminated, and water costs
have been held down.
The Elizabethtown Water Company is an investor-owned utility and as
such has a totally different set of problems as compared to publicly-owned
utilities. For example, in the last year of analysis, the Elizabethtown
utility paid $4.6 million in real property taxes, or 27% of its total costs.
The Fairfax County Water Authority is rapidly growing by acquiring new
customers through the purchase of existing utilities. It represents extreme
economies of scale in its capital investments program. Interest costs are
much more significant for Fairfax County than for the other utilities because
of their recent acquisition of facilities. In the following section, compar-
isons of these items will be made in more detail.
86
-------
SECTION 5
UTILITY COST COMPARISONS
In this section, cost trends among the various utilities are examined
simultaneously.
Figure 52 illustrates the steady increase in revenue-producing water
over the 10-year period for the five utilities. The average yearly increase
was approximately 5%. Consumption for the Cincinnati, Elizabethtown Water
Company, and Kansas City utilities had a lower growth rate than did the
consumption for Dallas and the Fairfax County Water Authority.
Dallas' growth is due to demand by the small communities located within
Dallas County but outside the city. Should this demand level off, Dallas'
water production will probably be similar to that of the Cincinnati, Elizabeth-
town, and Kansas City utilities.
Water production by the Fairfax County Water Authority has had four-
and five-year periods of slightly greater than average growth, separated by
a one-year period of very rapid growth because of acquisition of the
Alexandria Water Company's source of supply, treatment facilities on
Occoquan Creek, and the associated service area. This acquisition occurred
during the fourth year of the data analysis period. Growth during the other
years is due to smaller additions to the system.
cost of Supply
Figure 53 shows unit costs for five utilities. Four of the utilities
(Cincinnati, Elizabethtown Water Co., Dallas, and Kansas City) exhibit
increases in cost of about 5% a year because of increased prices for power,
labor, chemicals, and other items. The Fairfax County Authority unit costs
have decreased as a result of the rapid expansion in consumption (Figure 52).
Heavy investments in capital in a short time span combined with a rapid
expansion in production has reduced costs sharply. Despite these reductions,
the cost of Fairfax County water is higher than that of any of the other
four utilities.
Figure 54 shows that Elizabethtown Water Co., Cincinnati, and Kansas City
have relatively constant operating expenditures as a percent of total cost.
For the entire 10-year period, operating cost has been 75% to 85% of total
cost. Dallas and Fairfax have maintained lower percentages. In Dallas, 60%
to 65% of the costs are operating expenses. In Fairfax, 32% of the expendi-
tures are operating costs. These wide variations occurred as a result of
8
-------
75
70,
65
60
55.
50
45
40,
35.
30,
25.
20.
15
10
5
a CINCINNATI
¦ ELIZABETHTOWN WATER CO.
a DALLAS
o FAIRFAX COUNTY
* KANSAS CITY
7
\
-A-
YEAR
NUE PRODUCING WATER FOR FIVE UTILITIES
88
-------
950
900,
850,
800,
750
700
650.
600.
550
500
450.
400,
350.
300,
250
a CINCINNATI
¦ ELIZABETHTOWN WATER CO.
~ DALLAS
o FAIRFAX COUNTY
* KANSAS CITY
s
_L
J.
JL
JL
J.
8
J.
J
10
2 3 4 5 6 7
YEAR
FIG. 53 TOTAL UNIT COST FOR FIVE UTILITIES
89
-------
a CINCINNATI
¦ ELIZABETHTOWN WATER CO.
95-,
~ DALLAS
° FAIRFAX COUNTY
a KANSAS CITY
90.
85.
80. ¦
75.
h- 70.
in
65.
O 60.
~
u_
50.)
45.
40.
35-
30.
25.
l
I
i.
x
12 345 6789 10
YEARS
FIG. 54 OPERATING COST AS A PERCENT
OF TOTAL COST FOR FIVE UTILITIES
90
-------
the different characteristics of the utilities studied. Elizabethtown Water
Co., Cincinnati, and Kansas City are stable utilities with either no increase
or small steady increases in demand for water. Capital investment is
primarily utilized for capital improvements of the existing system with
limited investment in new facilities. Dallas is a more rapidly growing
utility, and Fairfax is a smaller utility that has dramatically increased its
water production in 10 years. In order to increase water production at these
rates, rapid investment in capital is required thereby reducing the operating
expenditures as a percent of total cost. As Dallas and Fairfax County util-
ities achieve stabilization, their expenditure patterns will be similar to
those of the other older utilities.
Figure 55 shows unit costs for treatment. Kansas City, with the highest
treatment cost, has also experienced the most rapid increase in unit cost
over the 10-year period. Kansas City's treatment plant draws water from the
Missouri River. Details of the treatment process, including lime softening,
are described in Volume II. Most of the rapid rise in cost is due to
increases in chemical and labor costs. Figure 55 shows that Dallas and Eliza-
abethtown have also had substantial increases in treatment costs.
Labor-Related Costs
Figures 56, 57, and 58 illustrate labor cost trends for the five water
utilities. Labor rates (Figure 56) have increased by about 8% a year. The
number of man-hours/mil gal of revenue-producing water (Figure 57) has
decreased about 2% a year. Productivity rates vary widely; the Elizabethtown
Water Company produces water with fewer than 15 man-hours/mil gal, and the
Fairfax County Authority produces water with 22 to 27 man-hours/mil gal;
the other utilities require more total man-hours/mil gal.
Figure 58, total payroll costs/mil gal, is a function of the labor rate
and productivity. Cincinnati, Elizabethtown, Dallas, and Kansas City show an
increase of approximately 6%/year. Fairfax County experienced a sharp
decrease during the two years when revenue-producing water increased drasti-
cally.
Figure 59 shows support services as a percent of total operating cost,
including all administrative, accounting, meter reading and billing, and
engineering functions. These costs range from 23% to 45%.
First and Last Year Cost Comparisons
Figures 60 and 61 show sharp contrasts in allocation of costs to support
services, acquisition, treatment, power and pumping, and transmission and
distribution. Fairfax County is not included in these figures because cost
data were not available for the full 10-year period.
Figure 60 shows the total dollars increased in every category, with the
greatest increase occurring in support services. Figure 61 shows the same
breakdown of operating cost categories as a percent of total operating cost.
Support services increased as a percent of total, acquisition remained the
91
-------
85.
80.
75.
70.
65
60
55
< 50
O
I 45
•w-
40
35
30
25
20
15
1C
i. 55
a CINCINNATI
¦ ELIZABETHTOWN WATER CO.
~ DALLAS
o FAIRFAX COUNTY
A KANSAS CITY
• I 1 1 1 »
234 56789 10
YEARS
TREATMENT COSTS FOR FIVE UTILITIES
92
-------
VO
co
o
X
Z
<
s
a CINCINNATI
YEARS
FIG. 56 PAYROLL IN DOLLARS/MAN HOUR FOR FIVE UTILITIES
-------
vo
•P-
<
CD
w
ac
3
o
x
z
<
S
a CINCINNATI
¦ ELIZABETHTOWN WATER CO.
° DALLAS
o FAIRFAX COUNTY
a KANSAS CITY
YEARS
FIG. 57 MANHOURS/MIL GAL FOR FIVE UTILITIES
-------
210.
200.
190.
180.
170,
160,
150,
140.
130
120
110,
100.
90.
80.
70
60.
50
IG. f
A CINCINNATI
¦ ELIZABETHTOWN WATER CO.
~ DALLAS
o FAIRFAX COUNTY
a KANSAS CITY
9 10
4
7
5
3
6
8
YEARS
PAYROLL/MIL GAL FOR FIVE UTILITIES
95
-------
55
50
45
40.
35.
30.
25.
20
A CINCINNATI
¦ ELIZABETHTOWN WATER CO.
~ DALLAS
o FAIRFAX COUNTY
a KANSAS CITY
15-
TL
5
YEARS
8
10
FIG. 59 SUPPORT SERVICES COST AS A PERCENT OF TOTAL OPERATING COSTS FOR FIVE UTILITIES
-------
L 6
o
b)
o
>
<
m
7J
>
o
m
O
¦o
m
7J
>
O
o
o
c/>
H
(/)
o
7J
<
m
m
9?
UJ
<
o
>
H
m
O
o
7J
¦<
MILLIONS OF DOLLARS
-< —
m
>
» _
O
Cn
O
_L
J
SUPPORT
SERVICES
]
ACQUISITION
TREATMENT
POWER
AND
PUMPING
TRANSMISSION
AND
DISTRIBUTION
-------
% OF TOTAL COST
so
o
CO
o
o
J
SUPPORT
SERVICES
ACQUISITION
TREATMENT
POWER
AND
PUMPING
TRANSMISSION
AND
DISTRIBUTION
-------
same, and the other three categories (treatment, power and pumping, and
transmission and distribution) decreased over the 10-year period.
Summary of Results
As the data from these five utilities show, water supply costs are
increasing as a result of labor and material cost increases. A moderating
effect is due to increased productivity. Many of the increases are related
to increased demand for water. The following section analyzes these costs in
aggregate.
99
-------
SECTION 6
AGGREGATE ANALYSIS
As the previous limited data analysis shows, certain key variables
exhibit trends that can and should be analyzed. Therefore, averages of the
data from all 12 utilities for specific variables have been constructed.
The variables considered are as follows: revenue-producing water in billions
of gallons, total operating cost, total capital cost, interest paid/year,
depreciation/year, support services, acquisition, treatment, power and pump-
ing, distribution, chemical cost, man-hours, man-hours/mil gal, payroll,
dollars/man-hour, unit operating costs, unit capital cost, and total unit
cost for production of water.
Table 14 summarizes the average costs associated with operating and
capital expenditures over the 10-year period for all the utilities studied.
Average expenditures increased by 110% over the period, but unit costs
increased by only 25%.
Figure 62 shows the average revenue-producing water over the 10-year
period. There has been a continuous upward trend in revenue-producing water,
increasing from 23 billion gallons in 1965 to 32.1 billion gallons in 1974.
Figure 63 shows that the average operating expenditures have increased
more rapidly than have capital expenditures. Operating costs increased by
127%, while capital costs increased by 78%.
Figure 64 shows the increases that have taken place in support services,
acquisition, and treatment costs. Figure 65 shows the cost increases for
transmission and distribution, and power and pumping over the period of
analysis. Support services costs are obviously increasing at a much faster
rate than other categories, although the increases in cost for power and
pumping from 1972 through 1974 have been dramatic.
Figure 66 shows the increases over time for energy and chemical costs,
and Figure 67 shows the same variables versus revenue-producing water. The
relationship assumed in these two figures is linear, but it can be seen that
energy costs are going up at a nearly exponential rate in recent years.
Energy costs are increasing faster than chemical costs. Because support
services is labor intensive, it is worthwhile to examine the labor portion
of the costs. Manpower costs and labor productivity are therefore summarized
in Table 15. The relationship between payroll and operating costs is shown
in Figure 68. Figure 69 shows the relationship between labor wage rate and
100
-------
TABLE 14. AVERAGE OPERATING AND CAPITAL COSTS FOR ALL FIVE UTILITIES OVER THE 10-YEAR STUDY PERIOD
Years
Item
10
OPERATING COSTS:
Support services:
$, in millions
% of total
$/mil gal
1.126
26.0
55.29
1.198
26.4
54.60
1.474
29.7
62.51
1.560
30.2
61.89
1.837
31.6
71.66
2.031
32.4
76.19
2.268
31.6
79.35
2.437
31.5
83.49
2.705
31.7
91.72
3.127
31.1
Acquisition:
$, in millions
% of total
$/mil gal
0.981
22.7
48.27
1.007
22.2
45.91
0.978
19.7
41.46
1.062
20.6
42.22
1.231
21.2
48.08
1.289
20.5
48.20
1.537
21.4
53.75
1.770
22.9
60.69
1.990
23.3
67.42
2.356
23.5
67.43
Treatment:
$, in millions
% of total
$/mil gal
0.539
12.5
26.58
0.577
12.7
26.27
0.617
12.4
26.10
0.630
12.2
25.0
0.701
12.1
27.44
0.783
12.5
29.39
1.013
14.1
35.41
0.913
11.8
29.63
0.998
11.7
33.85
1.212
12.1
35.01
Power and pumping:
$, in millions
% of total
$/mil gal
0.789
18.2
38.70
0.830
18.3
37.85
0.922
18.5
38.94
0.870
16.8
34.43
0.933
16.1
36.51
0.955
15.2
35.74
1.042
14.5
36.42
1.172
15.2
40.29
1.294
15.2
43.98
1.805
18.0
52.08
Transmission and
distribution:
$, in millions
% of total
$/mil gal
0.890
20.6
43.81
0.927
20.4
42.19
0.978
19.7
41.46
1.044
20.2
41.40
1.108
19.1
43.32
1.213
19.3
45.38
1.320
18.4
46.21
1.439
18.6
49.30
1.548
18.1
52.37
1.541
15.3
44.27
Total operating cost:
$, in millions
$/mil gal
4.074 4.272 4.579 5.030 5.830 6.285 6.934 7.593 8.431 9.262
212.65 206.82 210.47 204.95 226.78 235.14 251.15 265.04 289.34 286.95
-------
TABLE 14 (Continued) . AVERAGE OPERATING AND CAPITAL COSTS FOR ALL FIVE UTILITIES OVER THE 10-YEAR
STUDY PERIOD
Years
Item 123 4 5 6 7 8 9 10
CAPITAL COSTS:
Depreciation
($, in millions)
Interest
($, in millions)
Total capital costs
($, in millions)
TOTAL OPERATING AND
CAPITAL COSTS:
$, in millions
$/mil gal
1.241 1.296
0.996 0.920
2.238 2.217
6.313 6.490
332.88 322.45
1.430 1.547
0.948 1.286
2.378 2.833
6.958 7.864
328.39 327.37
1.604 1.661
1.267 1.428
2.871 3.090
8.702 9.375
340.26 354.23
1.693 1.828
1.411 1.488
3.104 3.316
10.039 10.915
370.57 387.88
1.904 2.145
1.707 1.848
3.612 3.993
12.044 13.256
425.93 416.74
-------
36 r
34
32
u.
O
-------
14
12
10
8
TOTAL OPERATING COST
O 6
4
TOTAL CAPITAL COST
2
0
73
64
66
67
69
70
74
65
68
71
72
TIME (YEARS)
FIG. 63 AVERAGE TOTAL OPERATING AND CAPITAL EXPENDITURES
-------
V
SUPPORT SERVICES
ACQUISITION
H
O
Ln
to
TREATMENT
64
66
65
68
67
69
TIME (YEARS)
70
72
73
74
FIG. 64 AVERAGE OPERATING EXPENDITURES FOR SUPPORT SERVICES, ACQUISITION,
AND TREATMENT
-------
3 r
v»
u.
TRANSMISSION AND DISTRIBUTION
• POWER AND PUMPING
74
72
73
69
TIME (YEARS)
70
68
67
65
66
FIG. 65 AVERAGE OPERATING EXPENDITURES FOR TRANSMISSION AND DISTRIBUTION
AND POWER AND PUMPING
-------
700
600
500
400
300
200
100
0
G. 6
o
ENERGY COSTS
CHEMICAL COSTS •
I I I _L_ I I 1 1 1 1
\ 65 66 67 68 69 70 71 72 73 74
TIME (YEARS)
AVERAGE OPERATING EXPENDITURES FOR ENERGY AND CHEMICALS VERSUS TIME
-------
700
600
500
m
o
oo
i/i
06
<
O
o 400
i/i
a
< 300
t/>
3
0
1
200
100
0
ENERGY COSTS
CHEMICAL COSTS
JL
-I-
_L
JL
JL
22 24 26 28 30 32 34 36 38
REVENUE PRODUCING WATER (BILLIONS OF GALLONS)
40
FIG. 67 AVERAGE OPERATING EXPENDITURES FOR ENERGY AND CHEMICALS VERSUS
REVENUE PRODUCING WATER
-------
TABLE 15. MANPOWER COSTS AND PRODUCTIVITY
Isax
Cost i tern ] 2 2 & 5 6 I 8 3 IH
Total payroll 1, 713, 806 1, 825, 217 2, 006, 525 2, 237, 453 2, 525, 527 2, 724, 751 3, 040, 661 3,392,529 3, 665.588 3, 857, 361
Total hours on payroll
659,156
683,602
716,616
743,340
756, 145
754,778
787,736
794,507
816,389
813,789
Metered consumption
(mil gal)
22,193
23,930
24,619
25, 864
27,456
28,736
28,904
30,159
29, 857
34,169
Total payroll metered
($/mil gal)
77.22
76.27
81.50
86.51
91.98
94.82
105.20
112.49
122.77
112.89
Total hours metered
consumption (hrs/mil gal)
33.75
32.50
30.42
29.85
31.17
29.70
30.32
29.83
30.50
28.32
Average Cost per man-hour
2.60
2.67
2.80
3.01
3.34
3.61
3.86
4.27
4.49
4.74
Capital/labor cost ratio
1.31
1.21
1.18
1.27
1.14
1.13
1.02
0.98
0.99
1.04
-------
TOTAL OPERATING COST
to
TOTAL PAYROLL
64
66
65
67
68
69
TIME (YEARS)
70
72
74
73
FIG. 68 AVERAGE EXPENDITURE FOR OPERATING AND PAYROLL COSTS
-------
35
30
25
MANHOURS PER MILLION GALLONS
<
O
ci 20
I rt-
1 U1
<"¦
38
Z>
o
X
15
<
S
10
DOLLARS PER MAN HOUR
x
JL
_I_
64 65 66 67 68 69 70
TIME(YEARS)
71
72
73
74
FIG. 69 MANHOURS PER MIL GAL AND DOLLARS PER MAN HOUR
-------
productivity. Figures 70 and 71 summarize unit operating and capital costs
as they relate to time and revenue-producing water.
Figures 72 and 73 show average unit costs for the five utilities versus
time and revenue-producing water, both historical and corrected by the CPI,
assuming 1965 as the base year.
Table 16 contains the best fit equation for soge^f the major items
mentioned in this section. The relationship C = aQ e is used to show
st
dependency of cost with both production quantity (Q) and time (e ) . By
virtue of this analysis, one can see the way in which time influences the
cost of some of these cost categories.
Figures 63 through 73 and Tables 14, 15, and 16 show that water costs
are affected by the same inflationary costs as the general economy, but that
economies of scale and increases in productivity have managed to keep unit
costs down. The unit cost of water has actually decreased when corrected by
the CPI.
Figure 68 and Table 15 show that payroll costs account for approximately
42% of the total operating cost for the 12 utilities. Labor accounts for
only 27% of the operating cost in San Diego so that when San Diego figures
are removed, labor costs are 52% of the operating costs for the remaining 11
utilities.
Another factor not included in total payroll is fringe benefits. Using
data from all 12 utilities, it is estimated that fringe benefits would add
approximately 20% to the total payroll costs. Therefore, labor related costs
might represent between 50% and 60% of the operating and maintenance costs.
112
-------
300
TOTAL UNIT OPERATING COST
200
TOTAL UNIT CAPITAL COST
100
65
67
68
66
64
69
70
74
71
72
73
TIME(YEARS)
FIG. 70 AVERAGE TOTAL UNIT OPERATING AND CAPITAL COSTS VERSUS TIME
-------
300
TOTAL UNIT OPERATING COST
200
<
O
TOTAL UNIT CAPITAL COST
100
22
24
40
36
42
30
34
32
26
28
REVENUE PRODUCING WATER (BILLIONS OF GAL.)
38
FIG. 71 AVERAGE TOTAL UNIT OPERATING, AND CAPITAL COST VERSUS REVENUE
PRODUCING WATER
-------
700
600
500
<
O 400
TOTAL UNIT COST
** 300
TOTAL UNIT COST MODIFIED BY CPI
200
100
73
74
70
66
69
TIME (YEARS)
68
64
65
67
FIG. 72 AVERAGE TOTAL UNIT COST VERSUS TIME: HISTORICAL AND MODIFIED
-------
700
600
500
TOTAL UNIT COST
< 400
O
TOTAL UNIT COST MODIFIED BY CPI
300
200
100
42
36
40
38
28 30 32 34
REVENUE PRODUCING WATER (BILLIONS OF GALLONS)
26
22
24
OF
FIG. 73 AVERAGE TOTAL UNIT COST VERSUS REVENUE PRODUCING WATER: HISTORICAL AND
MODIFIED
-------
TABLE 16. 0 & M AND CAPITAL COSTS FOR ALL UTILITIES
Operating Cost
n - rv*5 St*
C - aQ e
Capital Cost
h St*
C - aQ e
Item
a
b
S
2
r
a
b
S
2
r
Acquisition
1.4
1.23
0 .043
. 64
2xl0~8
2.94
0.000
0.67
Treatment
2379.1
0.52
0.063
0.56
32.8
0.82
0.066
0.40
Transmission and
Distribution
211.0
0.82
0.052
0.92
178.0
0.89
0.036
0.86
Support Services
78.43
0.95
0.073
. 95
24.35
0.88
0.044
0.66
Total
360.4
0.91
0.056
0.93
193.8
0.91
0.043
0.86
* t is relative time, starting with year 1 as the first year of data.
Q is revenue-producing water in mil gal per year.
C is annualized cost in dollars (exclusive of interest).
117
-------
SECTION 7
MODEL DEVELOPMENT
Annual Operating and Capital Costs
With data developed in the previous sections, a set of equations can be
derived that relates a selected set of variables to the cost of water supply.
The first relationship to be developed using regression analysis is as follows:
AOC = 20.13 (Dmh)°*69 (Mmg)°*54 Q°'96 (*2 = °'96> ID
where AOC = annual operating cost
D , = $/man-hour
mh
M = man-hr/mil gal
mg
q = revenue-producing water for a given year in mil gal/year
Equation 1 demonstrates the important relationship that exists between the
variables that describe labor cost (S/man-hr), productivity (man-hr/mil gal),
revenue-producing water, and annual operating cost (AOC). As can be seen
from Equation 1, AOC increases nearly linearly with respect to increases in
revenue-producing water if labor cost and productivity are constant. The
previous section indicates that labor cost has been rising at a faster rate
than productivity, but the increase in productivity (decreasing man-hr/mil
gal) has tended to keep operating costs down. The partial derivatives for
Equation 1 with respect to the independent variables are as follows:
= 13-89 (i[V~0'31 (V0'54 (Q)0'96 (2)
mh °
9A0C
3M = 10.87 (D )°'69 (M )~0*46 Q0-96
mg mh mg
*w = 19*32 (D*h)0'69 (V0*54 Q"0'04
118
-------
Equations 2, 3, and 4 demonstrate the relative changes in cost that would
take place with changes in labor cost, productivity, and revenue-producing
water, assuming all other variables are constant.
Taking the natural log of Equation 1 yields:
In AOC = 3.00+0.69 In D , + 0.54 In M + 0.96 In Q (5)
mn mg
It is possible to study the effect of holding the rate of change for
Equation 5 constant.
For example, if 3(In AOC)/8(In D^) = 0 (6)
then 9 (In M )
*g. = -1.28 (7)
9(ln V
Therefore, if D , increases, then M must decrease for Equation 6 to hold.
' mh mg
If (M D , and (M D , ^) :represent two sets of data points,
v mg ' mh J mg mh
then M <»/* (2) - (D "W2*)'1'28 (8)
mg mg mh mn
If = 28 man-hours/mil gal and D , = $4.8/hour and if D
mg mn mn
$9.6/hour, then the following relationship must hold:
M (2) - (M (("J"' (9)
mg mg Tsr—
-------
TABLE 17. PARTIAL DERIVATIVES FOR EQUATION 5
N. X =
Sx/3y
y
In D .
mh
In M
mg
In Q
111 D ,
mh
- 1.28
- 0.72
In M
mg
- 0.78
- 0.56
In Q
- 1.39
- 1.78
The Annual Capital Cost is given by the following relationship:
ACC = 25.7 (D/Q)0*74 Q°*84
(r = 0.92)
where ACC = Annual capital cost
D = Annual depreciation
q = Annual revenue-producing water
If, in Equation 10, D/Q = U, then the natural log transform
is as follows:
In ACC = 3.25 + 0.74 In U + 0.84 In Q
The partials for Equation 11 are shown in Table 18.
(10)
(11)
120
-------
TABLE 18. PARTIAL DERIVATIVES FOR EQUATION 10
N. x =
9x/9y
y-
In U
In Q
In U
- 0.88
111 Q
= 1.14
If one wished to know the relationship between the unit depreciation
and Q, one could formulate the following relationship:
0(2) , Dd) (Q(1)/q
-------
Equations 1, 10, and 14 give annual operating, capital, and total costs
for the utilities studied and Table 19 provides a mechanism for assigning
cost by individual cost category. For example, line 1 of Table 19 shows that
31% of the operating costs are associated with support services. Assuming
that this percentage stays constant with changes in the independent variables,
it can be used to estimate the proportion of annual cost that can be assigned
to support services. Line 2 of Table 19 contains the percentages by cost
category for capital costs.
TABLE 19. UTILITY COSTS BY CATEGORY
Percent of Cost by Category
Support Power & Transmission &
Item Services Acquisition Treatment Pumping Distribution
Operating
cost 31 22 8 16 19
Capital
cost 9.8 12.6 10.3 - 67.3
Production Related Costs
Another important cost relationship is between annual operating and
capital costs and revenue-producing water. Table 20 summarizes these costs
for acquisition, treatment, transmission and distribution, and support
services, using the equation form
y = aq (15)
The operating cost data are the annual operating expenditures for a given
cost category corrected to 1974, using the CPI. Capital costs are given as
annual depreciation, also corrected to 1974. For example, it can be seen
that both annual capital and operating costs for the utilities studied are
increasing at an increasing rate for acquisition. This result implies that
as the amount of revenue-producing water increases the utility must seek
sources farther and farther away from the treatment plant, resulting in costs
increasing at an increasing rate with Q. The results in Table 20 for treat-
ment capital costs are somewhat different than might be expected from
intuition. It is normally assumed that economies of scale exist with
respect to treatment capacity (b < 1) .
122
-------
TABLE 20. RELATIONSHIP BETWEEN ANNUAL COST AND REVENUE-PRODUCING WATER*
(Corrected to 1974)
Operating Cost1"
C = aQb
Capital Cost**
C = aQb
Item
Support services 141 0.95 0.94
3.61 1.06 0.76
Acquisition
2.1 1.23 0.64 2.4x10
2.89 0.67
Treatment
4202 0.53 0.53
5.2 1.01 0.52
Transmission and
Distribution
358 0.82
0.91
25.7 1.06 0.
Total
621 0.91
0.93
28.7
1.09 0.!
* Power and pumping costs have been allocated into other cost categories.
** c = annual cost in dollars, a = constant, b = rate of change, Q = revenue-
producing water in mil gal/yr.
The results reported in Table 20 are the annualized cost of capital
(exclusive of interest) corrected to 1974, using the CPI. These costs include
the effects of inflation over time. In Table 16 these effects are accounted
for by the term e . Results from Table 20 confirm by their linearity that
the unit cost of water has remained fairly constant when inflation has been
removed. Two other factors influence the unexpected value for b. One is that
the independent variable is revenue-producing water which is always less than
design capacity. The second is that these costs include capital improvements
and system add-on which may be more nearly linear in cost as compared to
initial investments. As demand increased, it is often met by the addition of
a relatively small facility, building block fashion. Adding increments of
capacity in this manner over time no doubt eliminates soipe economies of scale
in initial construction.
123
-------
Equation 16 is a relationship between total chemical costs, and revenue-
producing water and source quality:
Cc = 25.50 Q°'91 (1.91)X (r2 = 0.71) (16)
where Cc = Annual chemical costs corrected to 1974 dollars
Q = Revenue-producing water
X = 1 for poor quality surface source water; 0 for high
quality ground or protected surface source water.
if X = 1, then
Cc = 48.6 Q0-91 (17)
if X = 0, then
Cc = 25.5 Q0*91 (18)
Equation 19 shows the relationship between annual power cost and
revenue-producting water and head:
X X
Cp - 154.3 Q0*77 (1.34) 1 (1.23) 2 (r2 = 0.90) (19)
where Cp = Annual power cost in 1974 dollars
Q = Revenue-producing water
X1
and
x2 = :
For example,
if = 1
CP
=
349.2
if Xx
=
i, x2
CP
=
283.9
the conditions for high head pumping above 700 ft.;
Xx = 1, X2 = 0 are conditions for medium elevation
pumping 300 - 700 ft; X1 = 0, X2 = 0 are the condi-
tions for low head pumping 0 - 300 ft.
2
.0.78
.0.78
(20)
(21)
124
-------
and if
= 0, X2 = ® then
C = 154,3 Q
P
0.78
(22)
Cincinnati, Ohio, might provide an example of how the equation might be
used. Cincinnati draws water from the Ohio River which is a poor quality
surface source and water is pumped to high elevations. Therefore equations 17
and 20 would be used to estimate chemical and power costs.
Costs as a function of spatial and demographic variables -- A relation-
ship that might be useful to many water works managers is one between unit
cost and selected physical and/or demographic variables. Column 2 of Table 21
contains the incremental costs for the Cincinnati cost zones shown in Fig-
ure 24, Treatment, acquisition interest, and support services costs have
been removed. Column 3 is the straight line distance from the treatment plant
to the centroid of each zone, Column 4 contains the elevation at the centroid
relative to the treatment plant, and Column 5 is the population density in
each zone, Eq 23 expresses the relationship between unit incremental cost,
population density, and distance. The equation is as follows:
C = 122.0 P °'65 D.0,20
d l
u
(r = 0.76)
(23)
where
C = Unit incremental cost in $/mil gal
u
P^ = Population density in thousand people/sq mi
= Distance to the cost zone centroid in mi
If P^ were constant at P^ then the rate of change of incremental cost is
given as shown below: '
where
^ - K D "0.80
3 D1 " K1 Di
K = 24.4 P~0-65
1 d
(24)
As can be seen from Eq 24, unit cost increases at a decreasing rate
with distance^ assuming constant population density. If distance were held
constant at D., then the rate of change of cost with respect to P is as
follows: 1
9Cu _ K V1'65 (25)
ypd" 2 d
where = -79.3 (D^)^*2^
125
-------
TABLE 21. INCREMENTAL COSTS AND ASSOCIATED STATISTICS FOR CINCINNATI
WATER WORKS SERVICE AREA
Zone
Incremental
Cost
($/mil gal)*
Distance to
Zone Centroid
(mi) **
Elevation Population
of Centroid Density
(ft)+ (thou people/sq mi)**
A
B1
B2
Cla
Clb
C2
C3a
C3b
C4a
C4b
198.44
130.80
271.54
56.98
238.83
66.74
69.48
140.36
58.50
173.54
0.5
3.7
6.2
9.7
17.3
12.7
9.6
16.5
10.3
13.9
0.0
221.7
325.8
174.9
338.9
140.2
168.5
339.1
11.5
310.7
,384
1.324
.839
2.656
.674
4.697
6.730
1.896
5.358
2.736
-9 3
* 1 $/mil gal = 0.26 x 10 $/m
** 1 mile = 1610.4 meters
+ 1 ft = 0.91 meters
_7 2
++ 1 person/sq mi = 3.874 x 10 ' thou people/m
126
-------
As can be seen from Eq 25, the unit cost decreases at a decreasing rate
with increasing population density. Taking the natural log transform of
Eq 22 and differentiating and setting each partial differential equal to zero
yields that data in Table 22.
TABLE 22. PARTIALS FOR NATURAL LOG TRANSFORM OF EQUATION (22)
3C 30
From Table 22 we see that for the cost to stay constant ( u = u = o)
3dT "spT
the following relationship must hold: 1 d
« 1 pi 0.31
Di = (*d ) (26)
2 2
D. P.
2 x d _
If D. is farther away from the treatment plant than D. , then population
.. 9 Cn
density must increase in accordance with Eq 26 for S to remain constant.
Generally, population density decreases with distance from the treatment
plant leading to increases in unit cost due to decreasing density and
increasing distance.
Another relationship that can be developed from the data in Table 21
is shown below:
E = 1.8 Dj1'4 (r2 = 0.60) (27)
where E = Elevation of the cost zone in feet above the treatment plant
127
-------
and D. = Radial distance to the centroid of a cost zone in mi
from treatment plant.
The general topography of the Cincinnati service area verifies the accuracy
of Eg 26
Eq 26 demonstrates that the incremental cost of transporting increases with
distance. Assume the following:
C = total cost for transporting water (28)
= K (a constant) (29)
Q = aD^ (water transmitted increases with distance) (30)
r _C
L - t (31)
u — Ui)
r _ C
or u ~ ——
cDi (32)
Substituting eq 29 and 32 into eq 23 and collecting terms yield
Ct = 122aK D.1'20 (33)
Since 122aK is constant, then C increases with D^.
It can also been seen from Eq 26 that, for the Cincinnati utility, unit
cost increases with distance from the treatment plant and decreases with
population density. Neither of the conclusions is surprising, but Eq 22
quantifies this relationship. Eq 27 shows that, for the Cincinnati utility,
elevation tends to increase fairly regularly with distance from the treatment
plant. Eq 23 through 33 lead to the conclusion that there may be definite
limitations of the economically efficient size of a utility service area.
Recognized economies of scale are offset by diseconomies of scale due to the
distance water must be transported. The equations developed herein may be
useful to define the most efficient system size. Once costs exceed a given
value, managers and planners should consider establishing a new treatment
plant if an adequate source is available. These kinds of relationships might
also prove useful to the manager when making pricing decisions.
128
-------
SECTION 8
COST OF IMPLEMENTING THE SAFE DRINKING WATER ACT
The previous analysis shows that water supply costs are increasing
(see Figures 62 through 73) . Some of these increases are due to pressure
from increased consumption, and others are the results of inflationary effects.
Equation 1 establishes a relationship between $/man-hour (D,), man-hours/
mil gal (^g)? and production of revenue-producing water (Q) Costs for
are heavily dependent on inflation, while costs resulting from increases
in Q are more nearly related to increases in demand. Productivity in man-
hours/mil gal is dependent to a large degree on management policy.
By studying the trends in water supply costs, it is possible to under-
stand some of the economic impacts of the Safe Drinking Water Act. In the
following section, historic trends will be utilized to estimate expected
increases in cost. Hypothetical requirements for the proposed organic regu-
lations in the Safe Drinking Water Act will be superimposed on these expected
increases. It will be possible to separate the expected cost increases from
those associated with the Safe Drinking Water Act.
TRENDS IN WATER SUPPLY
The trends established in the previous sections for a 10-year time
period will be assumed in this analysis. For example, Figure 74 shows the
average revenue-producing water pumped for all 12 utilities for a 10-year
period ending 1974. This trend has been extrapolated through 1985.
Revenue-producing water in 1974 was 32.8 billion gallons and, according to
the extrapolation, will be 45.0 billion gallons in 1985 — a 30% increase.
This means an increase from a 93 mil gal/day system to a 121 mil gal/day
system. Figures 75 through 78 show trends in operating and capital costs for
the functional cost areas discussed earlier.
Table 23 summarizes average 1974 costs and projected average 1984 costs
for all 12 utilities. The changes shown are expected changes, based on demand
and inflationary pressures. Incremental costs above these expected costs
resulting from the Safe Drinking Water Act will be analyzed in the following
section.
IMPACT OF THE SAFE DRINKING WATER ACT
Calculations are based on the assumption that Safe Drinking Water Act
control technologies will be installed by 1980. Three types of technology
will be considered: granular activated carbon (GAC) with contactors, GAC
129
-------
/u
60
50
to
2 40
O
—i
<
0
REVENUE PRODUCING WATER
o 30
to
Z
o
20
co
85
75
65
79
81
69
77
73
83
67
71
TIME (YEARS)
FIG. 74 REVENUE PRODUCING WATER EXTRAPOLATED OVER TIME
-------
7
w
to
u
<
z*
to
O 3
2 -
65
OPERATING COST
X
CAPITAL COST .
X
67
69
-S_L
71
_L
±.
79
81
83
85
73 75 77
TIME (YEARS)
FIG. 75 SUPPORT SERVICES OPERATING AND CAPITAL COSTS EXTRAPOLATED OVER TIME
-------
7
6
to
5
4
3
OPERATING COST
2
1
CAPITAL COST
69
85
67
73
75
TIME (YEARS)
79
83
65
77
FIG. 76 ACQUISITION OPERATING AND CAPITAL COSTS EXTRAPOLATED OVER TIME
-------
to
UL
in
OPERATING COST
CAPITAL COST
65
69
67
73
75
TIME (YEARS)
77
79
85
83
FIG. 77 TREATMENT OPERATING AND CAPITAL COSTS EXTRAPOLATED OVER TIME
-------
CAPITAL COST
u_
OPERATING COST
83
85
79
75
TIME (YEARS)
73
77
69
65
67
FIG. 78 TRANSMISSION AND DISTRIBUTION OPERATING AND CAPITAL COSTS
EXTRAPOLATED OVER TIME.
-------
TABLE 23. CURRENT AND PROJECTED AVERAGE EXPENSES FOR ALL 12 UTILITIES
Cost
Item
1974
1984
Change
Ln
Total operating cost
($, millions/year)
Total capital cost
($, millions/year)
Total production cost
($, millions/year)
Total unit cost
($/mil gal)
Man-hours/mil gal
$/Man-hour
Depreciation
$/mil gal)
8.81
3.8
12.6
430
29.0
4.7
63.0
14.8
5.7
20.5
560
24.8
7.2
67.5
+ 68
+ 50
+ 63
+ 30
- 15
+ 53
+ 7
-------
replacing sand in the filter shell, and chlorine dioxide. From the previous
analysis we learned that by the year 1984 our average utility will produce
120 MGD. It will therefore be assumed that any new treatment processes will
be designed for a peak capacity of 150 MGD. Unit costs for each of the three
technologies are shown in Table 24.
Figure 79 shows the CPI for the 10 years of analysis and for an addi-
tional 10 years, extrapolated in two ways. Based on conservative or
straight line assumption, the CPI in 1980 is 1.9 (1965 = 1.0). Direct appli-
cation of the conservative CPI to the 1975 unit costs yields the unit costs
shown in the last two columns of Table 24. The new unit costs have been
converted to annual costs and added to the expected treatment operating and
capital costs in 1980, as shown in Figures 80 and 81. Beyond 1980 it is
assumed that these incremental costs will be additive and at the same slope
as the expected operating and capital costs. Figures 80 and 81 show that
the adoption of GAC technologies will substantially increase treatment costs
for the average water supply utility. Aggregating treatment costs with total
capital and operating costs for the composite utility yields Figures 82 and
83. The percent increase in operating costs is much less than the percent
increase in treatment cost alone. The impact on total production cost is
shown in Figure 84, and the effect on unit cost is shown in Figure 85.
Table 25 summarizes these cost increases.
Table 25 shows that the total production cost of water will increase by
36% between 1974 and 1980 without add-on technology. With the most expensive
technology, total production costs will increase by 24% over those expected
as a result of other pressures. Unit costs will increase by 24%.
The less conservative assumption regarding the increase in CPI would
increase the add-on technology costs as shown in Figures 86 and 87. The
increase in total water production cost, for example is 32%, and there is a
29% increase in unit cost. 1
The Effect of Time on Rate Structure - Without SDWA
As can be seen from the previous analysis, operating and maintenance
costs will tend to dominate the cost of water supply over time due to the
effects of inflation. Using data from all 12 utilities, we can formulate
the following relationships for O&M and capital cost (Table 16) :
CC
oc
(r2 = 0.93)
(r2 = 0.86)
(34)
where OC = Annual operating cost in dollars
CC = Annual capital cost in dollars
q = Annual revenue-producing water in mil gal/yr
t = Relative time starting with year 1
136
-------
13
TABLE 24. UNIT COSTS FOR CONTROL TECHNOLOGY AT 150 MGD*
Unit cost, 1975 unit cost, 1980
($/l,000 gallons) ($/l,000 gallons)
Treatment Technology Capital Operating Capital Operating
Chlorine dioxide 0.2 1.0 0.24 1.22
Granular activated carbon
(contactors) 4.1 2.2 5.00 2.68
Granular activated carbon
(Media replacement) 1.1 4.0 1.34 4.88
* Costs are calculated at 70% of capacity.
-------
3
HIGH ESTIMATE /
/
/
2
LOW ESTIMATE
to
1
65
83
85
67
79
69
71
77
81
73
75
TIME (YEARS)
FIG. 79 CPI EXTRAPOLATED OVER TIME
-------
7
6
5
MEDIA REPLACEMENT
-J 4
GAC - I CONTACTORS
3
GAC —I CHLORINE DIOXIDE
2
1
OPERATING COST
85
79
83
65
67
69
73
75
77
TIME(YEARS)
FIG. 80 TREATMENT OPERATING COSTS EXTRAPOLATED TO INCLUDE CONTROL TECHNOLOGY
-------
7 r-
w
0£
<
54
Q
i/>
z 3
O J
T
I
X
_L
X
GAC- CONTACTORS
GAC-j MEDIA REPLACEMENT
CHLORINE DIOXIDE
X
X
X
65 67 69 71 73 75 77 79 81 83 85
TIME (YEARS)
FIG. 81 TREATMENT CAPITAL COSTS EXTRAPOLATED TO INCLUDE CONTROL TECHNOLOGY
-------
18
16
14
12
10
8
6
4
I
5. I
GAC - MEDIA REPLACEMENT S
I
GAC - CONTACTORSK
CHLORINE DIOXIDE!"'
y
y
OPERATING COST
±
_L
±
JL
_L
_L
_L
5
67
69
71
79
81
83
85
73 75 77
TIME (YEARS)
2 TOTAL OPERATING COST EXTRAPOLATED TO INCLUDE CONTROL TECHNOLOGY
OPTIONS
-------
GAC — CONTACTORS
LL.
MEDIA REPLACEMENT
CHLORINE DIOXIDE
GAC
CAPITAL COST
65
69
67
73
75
TIME (YEARS)
77
79
85
83
FIG. 83 TOTAL CAPITAL COST EXTRAPOLATED TO INCLUDE CONTROL TECHNOLOGY OPTIONS
-------
28
24
GAC — CONTACTORS
GAC- MEDIA REPLACEMENT |
CHLORINE DIOXIDE
i ^
i-* -
20
O
O
u.
o
to
z
o
TOTAL COST
75
TIME (YEARS)
77
85
73
79
83
69
65
67
FIG. 84 TOTAL COST EXTRAPOLATED TO INCLUDE CONTROL TECHNOLOGY OPTIONS
-------
700 r
600
GAC — CONTACTORS—^
GAC-MEDIA REPLACEMENT J-"
CHLORINE DIOXIDE
500
_i 400
TOTAL UNIT COST
300
200
100
67
65
69
71
85
73
77
83
75
79
81
TIME(YEARS)
FIG. 85 TOTAL UNIT COST EXTRAPOLATED TO INCLUDE CONTROL TECHNOLOGY OPTIONS
-------
TABLE 25. EXPECTED COSTS IN 1980 FOR AN AVERAGE UTILITY
Item
Expected
Cost cost
in 1975 in 1980
Expected 1980 costs
with add-on technologies
GAC -- GAC -- media Chlorine
contactors replacement dioxide
Treatment operating cost
(($/millions/year)
1.10
1.50
2.97
4.17
2.17
Treatment capital cost
($, millions/year)
0.48
0. 60
3.34
1.33
0.73
Total operating cost
($, millions/year)
8.85 12.40
13.87
15.07
13.07
Total capital cost
($, millions/year)
3.80
4.95
7.69
5.
5.(
Total production cost
($, millions/year)
12.75 17.35
21.56
20.75
18.25
Total unit cost
($/mil gal)
412.00 480.00
596.47
574.06
504.90
-------
28
24
GAC - CONTACTORS <
GAC - MEDIA REPLACEMENT!""
20
CHLORINE DIOXIDE Y'
16
12
TOTAL COST
65
69
67
71
73
77
75
79
83
85
81
TIME(YEARS)
FIG. 86 TOTAL COST EXTRAPOLATED TO INCLUDE CONTROL TECHNOLOGY OPTIONS:
HIGH ESTIMATE
-------
700
GAC - CONTACTORS r—
GAC - MEDIA REPLACEMENT j-"*
600
CHLORINE DIOXIDE
500
-------
By formulating the ratio between operating cost and capital cost
(Equations 34 and 35) we see the following:
OC , 0, 0.013t
= 1-86 e (36)
CC
From Equation 36 it can be seen that in terms of cost and ultimately the rate
structure, water supply costs will be increasingly dominated by operating
expenditures.
The Effect of Time on Rate Structure - With SDWA
Assume Equations 31 and 32 are the new capital cost equation and opera-
ting cost equation as shown below:
OC = 427.25 Q0-91 ^-056t (37)
n
,,,,, r, „0.91 0.043t
CC^ = 219.64 Q e (38)
Forming the ratio of Equation 37 to Equation 38 yields
0Cn , 0.013t
= 1.95 e (39)
CC
n
As can be seen from Equations 39 and 36, in a short period of time the new
capital requirements resulting from the Safe Drinking Water Act will be
insignificant when compared to total operating expenditures.
148
-------
APPENDIX
The appendix contains regression equations for items of interest for
each of the utilities studied. Time in the equations is in calendar years
rather than in relative time.
149
-------
APPENDIX
Cost equations are given for individual utilities over time. Both
linear and exponential equations are presented.
TABLE A-l. ANNUAL OPERATING COST VERSUS TIME
c
Linear*
= b + m t
Exponent ial*"
C = Kebt
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
- 2.94
X
io7
464000
0.96
1.3
0.21
0.86
Elizabethtown
- 4.40
x
io7
765000
0.86
29000.
0.08
0.92
Kansas City
- 2.93
X
io7
521000
0.95
29000.
0.08
0.92
Pueblo
- 6.32
X
io6
114000
0.76
13000.
0.07
0.86
New Haven
- 1.43
X
io7
252000
0.97
10400.
0.08
0.97
Cincinnati
- 2.56
X
io7
472000
0.96
62500.
0.07
0.97
San Diego
- 9.38
X
io7
1.56 x IO6
0.88
7700.
0.11
0.92
Orlando
- 1.34
X
107
219000
0.90
370.
0.12
0.97
Dallas
- 4.94
X
io7
836000
0.94
10200.
0.10
0.97
Kenton Co.
- 1.93
X
io6
33900
0.92
1742.
0.08
0.97
Seattle
- 2.96
X
io7
517000
0.97
18300.
0.08
0.97
Phoenix
- 4.68
X
IO7
791000
0.91
9712.
0.10
0.97
* C
b
m
t
annual cost in $/year
constant
slope
calendar year
C = annual cost in $/year
K = constant
b = rate of change
t = calendar year
150
-------
TABLE A-2. ANNUAL CAPITAL COST VERSUS TIME
Linear*
Exponential"1"
C = b H
mt
o
II
w
r+
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
- 4.33 x 107
690000
0.39
0.07
0.26
0.46
Elizabethtown
- 2.44 x 107
404000
0.91
1285.
0.11
0.92
Kansas City
- 3.97 x 106
88000
0.66
171000.
0.04
0.66
Pueblo
c.
- 6.54 x 10
108000
0.51
701.
0.10
0.66
New Haven
- 2.68 x 107
447200
0.91
1695.
0.11
0.94
Cincinnati
994000
20500
0.10
1.31 x 106
0.01
0.10
San Diego
4.38 x 106
18200
0.06
4.70 x 106
0.01
0.06
Orlando
5.05 x 106
90759
0.53
11400.
0.07
0.53
Dallas
- 2.52 x 107
448000
0.40
34200.
0.07
0.23
Kenton Co.
604000
10900
0.30
2037.
0.06
0.41
Seattle
- 3.60 x 106
95900
0.91
353000.
0.03
0.93
Phoenix
1.18 x 107
18100
0.92
38300.
0.06
0.97
* C = annual cost in $/year
b = constant
m = slope
t = calendar year.
+ C = annual cost in $/year
K = constant
b = rate of change
t = calendar year.
151
-------
TABLE A-3. REVENUE-PRODUCING WATER VERSUS TIME
Linear*
Exponential"*"
C = b
+ mt
C = Kebt
Utility
b
m
2
r
K
r
2
r
Fairfax Co.
150000
2352
0.74
0
0.31
0.69
Elizabethtown
13200
680
0.52
8395.
0.02
0.50
Kansas City
19400
118
0.03
20500.
0.00
0.03
Pueblo
5902
4.65
0.00
5931.
0.00
0.00
New Haven
7970
135
0.03
9761.
0.01
0.04
Cincinnati
- 13674
718
0.90
8951.
0.02
0.90
San Diego
94800
1920
0.94
1166.
0.05
0.95
Orlando
28000
544
0.82
197.
0.05
0.80
Dallas
140000
2750
0.81
1080.
0.05
0.80
Kenton Co.
7090
126
1.00
7.98
0.08
1.00
Seattle
22800
338
0.01
26600.
0.01
0.02
Phoenix
141000
2690
0.76
854.
0.06
0.81
* C = annual cost in $/year
b = constant
m = slope
t = calendar year.
C = annual cost in $/year
K = constant
b = rate of change
t = calendar year.
152
-------
TABLE A-4. MAN-HOURS/MIL GAL VERSUS TIME
Linear*
Exponential*
C = b
+ mt
C = Kebt
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
- 37.39
0.88
0.24
2.01
0.04
0.20
Elizabethtown
30.22
- 0.23
0.46
44.28
0.03
0.20
Kansas City
77.70
0.48
0.03
96.04
- 0.01
0.03
Pueblo
14.74
0.39
0.04
22.10
0.01
0.04
New Haven
79.38
0.56
0.23
106.30
0.01
0.23
Cincinnati
88.14
0.83
0.86
200.35
0.03
0.85
San Diego
45.65
0.30
0.02
54.14
- 0.01
0.01
Orlando
39.48
0.03
0.00
38.01
- 0.00
0.00
Dallas
97.55
0.86
0.11
169.04
- 0.02
0.09
Kenton Co.
165.03
1.91
0.75
1849.39
- 0.06
0.77
Seattle
14.70
0.09
0.00
15.40
0.00
0.00
Phoenix
D
CO
D
0.68
0.60
201.30
- 0.03
0.62
* C = annual cost in $/year
b = constant
m = slope
t = calendar year.
C = annual cost in $/year
K = constant
b = rate of change
t = calendar year.
153
-------
TABLE A-5. DOLLARS/MAN-HOUR VERSUS TIME
Linear*
Exponential
+
C = b
+ mt
C - Kebt
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
- 20.55
0.35
0.85
0.01
0.08
0.81
Elizabethtown
- 18.25
0.33
0.87
0.03
0.07
0.87
Kansas City
- 14.67
0.26
0.96
0.01
0.08
0.98
Pueblo
- 8.16
0.16
0.83
0.08
0.50
0.84
New Haven
- 20.94
0.35
0.97
0.01
0.09
0.96
Cincinnati
- 14.47
0.27
0.86
0.04
0.07
0.90
San Diego
- 20.17
0.35
0.78
0.01
0.08
0.86
Orlando
- 10.41
0.18
0.71
0.01
0.08
0.77
Dallas
- 10.91
0.19
0.85
0.00
0.10
0.74
Kenton Co.
- 7.19
0.16
0.34
0.20
0.04
0.34
Seattle
- 15.82
0.29
0.93
0.04
0.06
0.96
Phoenix
- 19.01
0.32
0.85
0.01
0.09
0.90
* C = annual cost in $/year
b = constant
m = slope
t = calendar year.
C = annual cost in $/year
K = constant
b = rate of change
t = calendar year.
154
-------
TABLE A-6. ANNUAL SUPPORT SERVICES COSTS VERSUS TIME (Operating)
Linear*
C = b + mt
Exp onent ial+
C - Kebt
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
- 9.99
159000
0.84
35.
0.15
0.73
Elizabethtown
- 1.22 x 107
204000
0.93
1138.
0.11
0.96
Kansas City
- 1.38 x 107
242000
0.86
6894.
0.09
0.82
Pueblo
- 2.50 x 106
43200
0.91
1289.
0.08
0.95
New Haven
- 9.09 x 106
153000
0.96
1173.
0.10
0.99
Cincinnati
- 1.14 x 107
149000
0.93
2006.
0.10
0.94
San Diego
- 1.78 x 107
296000
0.93
1404.
0.11
0.97
Orlando
- 5.64 x 106
91500
0.92
52.
0.14
0.92
Dallas
- 2.52 x 107
403000
0.93
65.
0.15
0.97
Kenton Co.
- 586000
10200
0.84
355.
0.08
0.87
Seattle
- 1.87 x 107
317000
0.98
3688.
0.10
0.97
Phoenix
- 2.14 x 107
360000
0.97
5704.
0.09
0.99
* C = annual cost in $/year
b = constant
m = slope
t = calendar year.
C = annual cost in $/year
K = constant
b = rate of change
t = calendar year.
155
-------
TABLE A-7. ANNUAL ACQUISITION COSTS VERSUS TIME (Operating)
_ +
Linear*
Exponential
C = b +
mt
C
tr bt
= Ke
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
- 2.44 x 106
38200
0.63
4.7
0.15
0.67
Elizabethtown
- 6.24 x 106
106000
0.86
638.
0.11
0.71
Kansas City
Pueblo
- 934000
14200
0.35
0.00
0.23
0.58
New Haven
- 592000
14200
0.76
32000.
0.04
0.77
Cincinnati
- 818000
18000
0.74
22700.
0.04
0.76
San Diego
- 6.8 x 107
(1.1 x 106)
0.83
1136.
0.13
0.88
Orlando
Dallas
- 639000
17400
0.14
81000.
0.03
0.13
Kenton Co.
- 107000
1818
0.57
27.70
0.09
0.67
Seattle
- 1.13 x 106
22000
0.61
7277.
0.06
0.61
Phoenix
- 4.64 x 106
72000
0.95
1.03
0.18
0.88
* C = annual cost in $/year
b = constant
m = slope
t = calendar year.
C = annual cost in $/year
K - constant
b = rate of change
t = calendar year.
156
-------
TABLE A-8. ANNUAL TREATMENT COST VERSUS TIME (Operating)
Linear*
Exponential"*"
C = b + mt
C = Kebt
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
- 771000
18800
0.32
44144
0.04
0.30
Elizabethtown
£
- 3.43 x 10
58700
0.58
1515
0.09
0.66
Kansas City
- 6.28 x 106
111000
0.94
6684
0.08
0.96
Pueblo
£
- 1.29 x 10
24186
0.86
4839
0.06
0.92
New Haven
- 744000
14000
0.78
3300
0.06
0.70
Cincinnati
- 1.8 x 106
41800
0.89
70700
0.04
0.91
San Diego
- 3.4 x 106
59000
0.81
2135
0.08
0.85
Orlando
- 4.5 x 106
73100
0.89
66
0.13
1.0
Dallas
- 9.5 x 106
164000
0.90
5336
0.08
0.93
Kenton Co.
- 587000
10800
0.94
1584
0.07
0.97
Seattle
- 2.9 x 106
47200
0.82
79
0.12
0.81
Phoenix
- 7.3 x 106
121000
0.95
1138
0.10
0.93
* C = annual cost in $/year
b = constant
m = slope
t = calendar year.
C = annual cost in $/year
K = constant
b = rate of change
t = calendar year
157
-------
TABLE A-9. ANNUAL POWER AND PUMPING COST VERSUS TIME (Operating)
Linear*
Exponential^
C = b + mt
C
= Kebt
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
- 2.5 xlO6
42000
0.93
445
0.10
0.92
Elizabethtown
- 8.6 x 106
143000
0.45
2202
0.09
0.61
Kansas City
- 4.7 xlO6
90000
0.96
24700
0.06
0.93
Pueblo
- 13500
6470
0.52
75900
0.02
0.53
New Haven
- 232000
6606
0.11
30800
0.03
0.11
Cincinnati
- 3.7 x 106
74000
0.87
34000
0.05
0.89
San Diego
Orlando
Dallas
- 6.3 x 106
110000
0.89
5299
0.08
0.92
Kenton Co.
Seattle
Phoenix
- 9.1 x 106
151000
0.63
1910
0.09
0.61
* C = annual cost in $/year
b = constant
m = slope
t = calendar year.
C = annual cost in $/year
K = constant
b = rate of change
t = calendar year.
158
-------
TABLE A-10. ANNUAL TRANSMISSION AND DISTRIBUTION COST VERSUS TIME
(Operating)
Linear*
Exponent ial+
C = b +
mt
C = Kebt
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
- 8 . 9 x 106
140000
0.77
37.9
0.14
0.83
Elizabethtown
- 3.9 xlO6
68400
0.91
4047.
0.08
0.94
Kansas City
- 4.5 x 106
77600
0.89
1977.
0.09
0.87
Pueblo
- 7.1 xlO6
125700
0.79
8629.
0.07
0.89
New Haven
- 2.7 x 106
50600
0.88
7729.
0.07
0.87
Cincinnati
- 7.8 x 106
145000
0.97
17900.
0.07
0.96
San Diego
- 4.7 x 106
101000
0.84
119000.
0.04
0.86
Orlando
- 3.1 x 106
52800
0.70
740.
0.09
0.82
Dallas
- 7.7 x 106
140000
0.89
15900.
0.07
0.91
Kenton Co.
- 648000
11100
0.91
257.
0.09
0.95
Seattle
- 6.9 x 106
130000
0.83
29400.
0.06
0.82
Phoenix
- 1.4 x 106
219000
0.95
164.
0.13
0.99
* C = annual cost in S/year
b = constant
m = slope
t = calendar year.
C = annual cost in $/year
K = constant
b = rate of change
t = calendar year.
159
-------
TABLE A-ll. ANNUAL TOTAL EXPENDITURES VERSUS TIME
Linear*
+
Exponential
C = b
+ mt
C
V bt
= Ke
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
- 7.28 x 107
1.15 x 106
0.63
0.57
0.23
0.58
Kansas City
- 3.48 x 107
6.33 x 105
0.93
7 x 10"3
4.95
0.91
Cincinnati
- 3.75 x 107
6.7 6 x 105
0.63
2.44 x 104
0.086
0.46
Pueblo
- 1.20 x 107
2.078 x 105
0.50
1.17 x 104
0.077
0.61
Dallas
- 7.04 x 107
1.23 x 106
0.91
1 x 10 -3
5.61
0.96
Elizabethtown
- 6.84 x 107
1.17 x 106
0.90
2.23 x 104
0.091
0.94
Kenton Co.
- 2.53 x 106
4.48 x 104
0.80
3.16 x 103
0.075
0.90
Seattle
- 3.32 x 107
6.13 x 105
0.97
9.41 x 104
0.066
0.98
Orlando
- 1.86 x 107
3.13 x 105
0.86
2.90 x 103
0.10
0.94
San Diego
- 8.94 x 107
1.54 x 106
0.88
4.04 x 104
0.087
0.92
New Haven
- 4.67 x 107
7.97 x 105
0.95
9.13 x 103
0.098
0.96
Phoenix
, 7
, 6
-3
- 6.07 x 10
1.07 x 10
0.87
3 x 10
5.24
0.94
* C = annual cost in $/year
b = constant
m = slope
t = calendar year.
C = annual cost in $/year
K = constant
b = rate of change
t = calendar year.
160
-------
TABLE A-12. UNIT COSTS ($/mil gal)
Linear*
Exponential
C
=
b + mt
C
„ bt
= Ke
Utility
b
m
2
r
K
b
2
r
Fairfax Co.
3.53
X
io3
- 42.2
0.56
5.37 x
io4
- 0.065
0.56
Kansas City
- 1.18
X
io3
21.8
0.93
3.14
0.067
0.91
Cincinnati
- 3.29
X
103
8.55
0.95
26.9
0.033
0.95
Pueblo
- 1.97 6 x 103
34.3
0.74
1.38
0.081
0.81
Dallas
- 2.61
X
io2
7.94
0.21
48.6
0.026
0.21
Elizabethtown
- 1.46
X
io3
26.4
0.92
2.66
0.071
0.93
Kenton Co.
3.87
X
io2
0.59
0.00
3 97.
- 0.002
0.00
Seattle
- 6.33
X
102
12.0
0.74
3.53
0.058
0.74
Orlando
- 6.46
X
102
13.7
0.60
14.7
0.044
0.58
San Diego
- 7.29
X
102
17.0
0.59
34.7
0.037
0.62
New Haven
- 2.25
X
io3
39.67
0.92
1.66
0.082
0.94
Phoenix
- 9.46
X
io1
5.68
0.41
79.7
0.019
0.40
* C = annual cost in $/year
b = constant
m = slope
t = calendar year.
C = annual cost in $/year
b = constant
m = slope
t = calendar year.
161
-------
REFERENCES
1. Quarles, John R., "Impact of the Safe Drinking Water Act," Journal of
the American Water Works Association, Vol. 68, No. 2, Feb. 1976,
pp. 69-70.
2. "Safe Drinking Water Act," Public Law 93-523.
3. Clark, Robert M., and Gillean, James I., "The Cost of Water Utility
Management." Proceedings of the Conference on Environmental Modeling
and Simulation, April 19-22, 1976, Cincinnati, Ohio, EPA 600/9-67-016.
4. Hanke, Steve H., "The Theory of User Fees and Its Application to Water."
Public Prices for Public Products (S. D. Mashkin, Editor). The Urban
Inst., Washington, D. C. 1971.
5. Clark, Robert M., "Water Supply Economics," Journal of the Urban
Planning and Development Division, ASCE, Vol. 102, No. UP1, Proc. Paper
12357, August 1976, pp. 213-224.
6. Clark, Robert M., Stevie, R., and Trygg, G., "The Cost of Municipal
Water: A Case Study," Water Supply Research Division, Municipal Environ-
mental Research Laboratory, U. S. Environmental Protection Agency,
Cincinnati, Ohio 45268.
7. Clark, Robert M., Gillean, James I., Adams, W. Kyle, "Renovated Waste-
water As A Supplementary Source for Municipal Water Supply: An Economic
Evaluation," Municipal Environmental Research Laboratory, Office of
Research and Development, U. S. Environmental Protection Agency,
Cincinnati, Ohio 45268.
8. Clark, Robert M., "Cost and Pricing Relationships in Water Supply,"
Journal of the Environmental Engineering Division; ASCE, Vol. 102,
No. EE2, Proc. Paper 12025, April 1976, pp. 361-373.
9. Dajani, J. S., and Gemmill, R. S., "Economic Guidelines for Public
Utilities Planning," Journal of the Urban Planning and Development
Division, ASCE, Vol. 99, No. UP2, Proc. Paper 9977, September 1973,
pp. 171-182.
162
-------
10. Engineering News Record, McGraw Hill Publishing Co., March 20, 1975,
p. 63.
11. Orlob, Gerald T., and Lindorf, Marvin R., "Cost of Water Treatment in
California," Journal of the American Water Works Association, Jan. 1958,
pp. 45-55.
12. Clark, Robert M., and Goddard, Haynes G., "Cost and Quality of Water
Supply," Journal of the American Water Works Association, Vol. 69,
No. 1, Jan. 1977, pp. 13-15.
13. Clark, Robert M., Guttman, Daniel L., Crawford, John L., and Machisko,
John A., "The Cost of Removing Chloroform and Other Trihalomethanes
from Drinking Water Supplies," Municipal Environmental Research Labora-
tory, Office of Research and Development, U. S. Environmental Protection
Agency, Cincinnati, Ohio 45268, EPA-600/1-77-008, March 1977.
163
-------
TECHNICAL REPORT DATA
(Please read Instructions on the reverse before completing)
1. REPORT NO. 2.
EPA-600/5-77-015a
3. RECIPIENT'S ACCESSION NO.
4. TITLE AND SUBTITLE
THE COST OF WATER SUPPLY AND WATER UTILITY MANAGEMENT
Volume I
5. REPORT DATE
November 1977 (Issuing Dat
6. PERFORMING ORGANIZATION CODE
7. AUTHOR(S)
Robert M. Clark, James I. Gillean, and
W. Kyle Adams
8. PERFORMING ORGANIZATION REPOR
9. PERFORMING ORGANIZATION NAME AND ADDRESS
ACT Systems, Inc.
807 West Morse Blvd.
Winter Park, Florida 32789
10. PROGRAM ELEMENT NO.
1CC614, SOS 1
11. CONTRACT/OH*HT NO.
68-03-2071
12. SPONSORING AGENCY NAME AND ADDRESS
Municipal Environmental Research Laboratory—Cin.,0H
Office of Research and Development
U.S. Environmental Protection Agency
Cincinnati, Ohio 45268
13. TYPE OF REPORT AND PERIOD COVE
Extramural
14. SPONSORING AGENCY CODE
EPA/600/14
15. SUPPLEMENTARY NOTES
See also Volume II, EPA-600/5-77-015b
Project Officer: Robert M. Clark, WSRD, Cincinnati, Ohio 45268, 513/684-7209
16. ABSTRACT
A Study of 12 selected water utilities was undertaken to determine the economics
of water delivery. Data were collected from at least one Class A water
utility (Revenues greater than $500,000/year) in each of the U.S. Environmental
Protection Agency's 10 regions. These data are presented in a two volume report.
Volume I provides summary information and in-depth analysis of the 12 utilities
studied. All the uilities are analyzed in aggregate, and factors affecting
the cost of water supply are examined. Also provided is an evaluation of the
hypothetical impact of a proposed organic regulation, promulgated under the
Safe Drinking Water Act, in 1980.
17. KEY WORDS AND DOCUMENT ANALYSIS
a. DESCRIPTORS
b.IDENTIFIERS/OPEN ENDEDTERMS
c. cos AT I Field/Gro
Benefit Cost Analysis; Cost Analysis;
Economic Analysis; Forecasting;
Mathematical Models; Regional Planning;
Systems Analysis; Urban Planning; Water
Distribution; Water Supply
Organic Standards;
Standardized Cost
Categories; Trends—
Water Supply Costs;
Water Production Costs;
Water Utility Management
13 B
14 A
18. DISTRIBUTION STATEMENT
Release to Public
19. SECURITY CLASS (This Report)
TTnnT aoci f-J or\
21. NO. OF PAGES
178
20. SECURITY CLASS (This page)
Unclassified
22. PRICE
EPA Form 2220-1 (Rev. 4-77) 164 «u.s. government printihgoffice: 1977— 757-
------- |