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“GREAT Water” analysis explained
It\’s Your Backyard Ventura County
By Larry Stein
Editor’s note: Mr. Steins’s analysis shows that water rates will increase greatly and the costs may be imposed unequally on various constituencies. On the good side, the city had the foresight to help ensure that future water needs in this very dry state will be met in Oxnard.
20 years ago, a few people in the city of Oxnard were concerned about the long term availability of local groundwater. Some felt that if local wastewater could be cleaned, it could be recycled back into the local water system, thus the GREAT (Ground water Recovery Enhancement And Treatment) Program was conceived and is currently being implemented. The GREAT Program will have the capacity of generating 28,000 acre feet of recycled water every year. Capacity or production is being built in 7,000 acre feet increments. Each increment is referred to as a skid. The current capacity is 1 skid, capacity for the second skid is currently under construction. The assumption at the time of the GREAT program was started is that there would be a demand for GREAT Water. Demand is driven by cost. There are several cost components to the GREAT Water; construction, finance, production and delivery being the major cost components. Demand is also driven by alternative economic choices; why would someone pay $1,300 for a unit of water if they are currently paying $100.00 the only reason – $100.00 per unit water may not be available.
Local farmers would easily pay $100.00 for a unit of water to irrigate. It does not have to be drinkable water (potable). It costs the city of Oxnard about $600.00 to produce a unit of potable water. Due to over-drafting of the local aquifers by cities and farmers, there is not a sufficient amount of local potable water, so the city has to import water at $1,100 per unit and then mixes that with local water to assure that there is a sufficient supply. It is expected that the cost of imported water will increase to $2,000 per unit within 10 years, as the cost to develop and deliver new water goes up along with the expense of The Delta Project in Northern California..
Editor’s jargon translator:
HCF= 100 cubic feet
unit = acre foot = 435.6 HCF
acre feet= unit comprising the amount of water to fill one acre one foot deep
skid = 7000 acre feet
One of the purposes of the GREAT program is to supply sufficient non-potable water that can be used for irrigation and non-drinking purposes so that potable water will be readily available to the public. The GREAT Water has to be delivered in order for it to be used. A major user, Proctor and Gamble, needs clean water. It uses imported water that is not mixed with city water, yet pays for its supply at local rates, not the imported rate. The difference is subsidized by all the other users. GREAT Water is priced to be 85% of the rate charged for industrial users. It is my understanding that Proctor and Gamble is willing to use GREAT Water rather than imported water, because the GREAT Water is cleaner than what is imported. The GREAT Water needs to be delivered to them, but it will cost several million dollars to build a pipeline from Ormond Beach, where the GREAT Water is being generated, to Proctor and Gamble on Rice Avenue. It is conceivable to build a GREAT Water line up Rose Avenue, similar to the GREAT Water line now transversing Ventura Avenue. The GREAT Water can also be delivered with laterals installed next to existing lines, to provide non-potable water to irrigate the landscape at schools, parks, and street medians. These lateral lines will also be capable of delivering non-potable water to industrial parks to service companies whose needs are similar to that of Procter and Gamble.
Sample Data- from Phase I of III:
I estimate that if 18,000 units (less than 3 skids) of GREAT Water can be sold at the rate set by Oxnard City Council in the Summer of 2012, the unit cost of the GREAT Water would be close to $1,300 per unit; a break even opportunity. The cost would be less than the $2,000 per unit of future expected costs of imported water. I estimate that if 2 skids of GREAT Water were sold, the unit cost of that water would be close to $1,600 per unit.
There is a proposed contract to sell a total of 5,000 units of GREAT Water at $350.00 per unit to 3 local farms. Current rate payers, not the farmers, will be paying for the construction of the water line to the farming operations. 5,000 units of GREAT Water are expected to cost $8,000,000 at $1,600 per unit, but the farmers will only be paying $1,750,000. The rate payers will be subsidizing $6,250,000 per year for 10 years. The city needs to increase production to 3 skids of water, and provide a delivery system for the water. Pricing may have to be increased to cover to costs to deliver the water to users. Factoring in the monthly meter rate, a single family residential user of water who uses 15 Hundred Cubic Feet (1 HCF = 1/435.6 unit) per month pays 33% more for water than one who will be using GREAT Water. Residential water is drinkable, but less clean than GREAT Water which is not drinkable. Go figure, I did.
Supporting calculations/assumptions:
from Phase II:
from Phase II:
Much More: Accounting/policy geeks: download and play with source Excel workbook!
Larry Stein is an accountant who has been following City of Oxnard financial issues for over 20 years.
Source: http://citizensjournal.us/great-water-analysis-explained/
