Water use and wastewater demand are linked

Read aguanomics http://www.aguanomics.com/ for the world’s best analysis of the politics and economics of water A few years ago (!) Jeremy emailed:

If there was one area you could expand your discussions of the economics of water then it would be how municipal water supply and waste water treatment are interdependent.

I’ve done some efficiency projects at waste water treatment plants (WWTPs) and found the cost to treat waste water is more directly linked to Biological Oxygen Demand (BOD, a measure of how much organic material bacteria need to digest before effluent is discharged) than the volume of water (million gallons per day) treated.

Thus, water conservation that reduces volumes at WWTPs will lead to lower revenues (when tariffs are based on volume) while costs of reducing BOD stay the same. This result will be common, and problematic, when separate entities manage water and wastewater.

As Jeremy notes, these results are indeed common, which means that WWTPs afraid of lower revenues might oppose water conservation.

Why would such a result occur and how can it be prevented?

It would occur when water and waste-water utilities are separate in their corporate form, service area, and financial management. Thus, these problems will not occur (or would be foreseen and avoided) at vertically integrated water managers such as WaterNet in Amsterdam, PUB in Singapore or the San Francisco PUC. In other cases, the problem can be coordinated and managed, but may not be if managers “forget” to talk to each other or pursue opposing strategies and goals.

The result can be prevented by charging consumers based on their contribution to average BOD or (better) integrating BOD-based sewerage costs into water service billing, which will give water suppliers an incentive to include cost impacts in their decisions.

Bottom line: Monopolies that ignore each other risk exchanging short-term gains for long-term costs, and those costs will be present — and persist — as long as they fall on customers rather than water managers.