Reuse – Great Idea, But How Do We Pay for It?

Amy Kaarlela

Reuse has been widely implemented in recent years, but many times capital cost is a barrier to implementing reuse systems. Even after overcoming capital cost, water suppliers are sometimes at a loss when determining appropriate rate structures for reuse customers that will benefit both the customers and the supplier.

American Water Works Association (AWWA) Manual M1 Principles of Water Rates, Fees, and Charges has long been the gold standard for water suppliers in determining what rates to charge their potable water customers. In 2017, AWWA released the Seventh Edition of this manual with a new chapter discussing Water Reuse Rates. Here are a few of the highlights of the new chapter:

It’s no secret that reuse projects can require significant infrastructure investment such as advanced treatment, separate distribution systems, pumping facilities, etc. Consequently, when evaluated strictly from a financial standpoint, these reuse projects tend to be more expensive than existing supplies and often drop out as options for water suppliers. The manual elaborates on the concept of also evaluating reuse projects from an “economic” standpoint by considering factors unrelated to the cost of the reuse project, such as:

  • What other costs can be avoided (new wells, new reservoirs, pumping costs of remote supplies, etc.) by using reuse sources?
  • How will reuse enhance the system’s drought resistance?
  • What are the benefits/costs from an environmental sustainability standpoint?
  • What are the benefits/costs from an energy use efficiency standpoint?
  • What are the benefits/costs from an economic develop and societal perspective?

Answering these “triple bottom line” type of questions gives a better understanding of the non-monetary benefits the reuse project may bring to the water supply system. Those benefits potentially justify subsidies from the water fund to the reuse fund, which will affect both the potable and reuse water rates.

The manual also discusses the three types of customers (non-potable, indirect potable, and direct potable) served by reuse projects and the specific issues related to each type of user. Upfront financial planning provides a road map to assessing and developing a reuse project. Issues discussed are:

  • Assessing what customers to target first
  • Once customers are targeted, developing policies that make reuse beneficial to those customers as well as the water supplier.
  • Funding options including debt, grants, developer-contributed assets, impact fees, and special assessments.
  • Assessing negative impacts to water/wastewater fund revenue due to customers substituting reuse water for potable water.

Cost allocation of water reuse rates is typically like the cost-of-service analyses for water/wastewater systems. However, reuse analyses may vary based on the type and purpose of reuse, whether reuse is a stand-alone fund or combined with water/wastewater fund, public policy, and how subsidies are treated.

For more information about reuse rates contact your FNI project manager or Professional Hydrologist, Amy Kaarlela