DRA Perspective on What Recycled Water Applications from Investor- Owned Utilities Should Contain and How They Should be Evaluated CPUC Water Recycling Rulemaking: Workshop #2 November 21, 2011

Two Types of Recycled Water Applications Non-potable Use Irrigation, industrial, commercial Potable Use Indirect (groundwater replenishment, or reservoir augmentation) or Direct (under study per SB 918)

DRA Supports Full Social Cost Accounting The Guidelines approach is valuable for developing comprehensive cost-benefit project evaluations A comprehensive evaluation approach is appropriate for the more complex water recycling projects DRA proposes a threshold level of project cost and scope for requiring a comprehensive evaluation.

Establishing a Threshold Project cost should be substantial (>$5 million) IOU and other utilities are coordinating on a project The project involves a significant amount of water (>250 acre feet)

Applying the Threshold to Recent IOU Applications SJWC Main Extension (D ) – $18 million; 777 acre feet “SJWC is on notice that as part of its next GRC application it should substantiate the process and results of the process it undertook to obtain partners to share in the costs and to obtain and receive public grant and tax exempt funding for its reclaimed water projects. We expect SJWC to make all efforts big and small to mitigate the costs.” (p. 28) CWS Pump Station (D ) – $1.2 million pump station; 226 acre feet San Gabriel (Fontana) Distribution System (A ) – $5.7 million; 1,732 acre feet

Assumptions and Sensitivity Analysis are Critical Guidelines 2.1: “The baseline should contain assumptions about the future that is generally understood by the community.” – Assumptions should be consistent across planning documents (e.g. UWMP, IRWMP, GRC applications, recycled water master plans, etc.) – Baselines should include sensitivity analysis about population growth, usage patterns, and key cost drivers (i.e. imported water cost)

Policy Questions Not Addressed in the Guidelines Allocation of costs and benefits beyond the IOU –Is it reasonable for IOU ratepayers to underwrite regional or statewide environmental and social benefits? Which projects or activities should be part of the opportunity cost analysis? –Conservation and efficiency –System management (e.g. leak detection, pressure reduction) –Other supply options

Assessing Benefits Future or projected benefits may be uncertain – What evaluation, measurement, and verification (EMV) is necessary to confirm future benefits are realized? We should distinguish between actual and potential avoided costs – Reducing pumping and fees are actual benefits (once verified) – Reducing the need for additional supply sources is less certain

Assessing Benefits Greenhouse gas (GHG) emissions reductions will be realized only if there is a net decrease in energy consumption due to a recycled water project. Likewise, water supply reliability is realized only if there is a net decrease in unreliable (imported) supply due to a recycled water project.

An Illustrative Example Municipal water and wastewater agencies engage with IOU(s) in Integrated Water Resource Management Planning; Together, they identify a groundwater replenishment project and conduct a comprehensive analysis like that recommended in the Guidelines; The analysis yields a positive benefit-cost ratio; The agencies and IOU(s) reach an agreement to partner on the project; Concurrently, the partners begin permitting and finance seeking applications and the IOU files an application at the CPUC; DRA and other parties evaluate both the overall benefit-cost analysis and the IOU role and ratemaking proposals; The CPUC issues a decision approving the project but making modifications to the IOU’s participation; The project partners move ahead with the project pursuant to the CPUC’s decision; The IOU files a status application for the Commission to assess whether projected benefits were realized.

Questions? Picture from Orange County Groundwater Replenishment System Website: