nathan burley, josue medellin-azuara, sachi de souza, jay lund, richard howitt university of...
Post on 21-Dec-2015
214 views
TRANSCRIPT
Economic Analysis for Water Recycling in California
Nathan Burley, Josue Medellin-Azuara, Sachi De Souza, Jay Lund, Richard Howitt
University of California, Davis
OutlineEATF and Guidance
DocumentEconomic AnalysisFinancial AnalysisAllocation of costs
2
Economic Analysis Task Force (EATF)Process to discuss economic analysis in water
recycling and draft EATF productsProducts
Economic Analysis Guidance DocumentBeneficiary Pays AnalysisSpreadsheets for
Screening level project analysis Economic analysis Financial analysis Beneficiary pays (SCRB methods)
3
Economic Analysis GuidanceDocument Structure
Integrated water resources planning Economic AnalysisFinancial AnalysisBeneficiary PaysWorked ExamplesAppendix
Discount rate Data verification and cost estimations
Least Cost Planning Model (reliability) CALVIN, SWAP (water supply, agricultural production) Reference benefits and costs
Formulae, glossary and resources 4
Integrated Water Resources Planning
5
Economic Analysis Outline
6
Financial Analysis Outline
7
Identify and Estimate Costs
Develop Capital Financing
Mechanisms
Design Revenue Scheme
Allocate Financial Costs
Purpose A
User
Purpose B
User
User
User
Bonds
Loans
Economic vs Financial Analysis
ECONOMIC ANALYSIS FINANCIAL ANALYSIS
Do project benefits exceed its costs for California?
Purpose – compare alternatives based on benefits and costs
Broader perspective, numerous points-of-view
Will project make money? Is it affordable?
Purpose – determine project’s financial feasibility
Cash flow and debt payments
Water and wastewater rates Narrower perspective,
project proponent only
8
Cost Allocation - Beneficiary PaysSeparable Costs, Remaining Benefits Approach
9
10
Establish Baseline
Specify project alternatives
Recommend Projectand Plan Implementation
Assess Financial and Other Feasibility
EconomicAnalysis(Chapter 3)
Define project objectives
Feasible
Assess Economic Feasibility
Non Feasible
Chapter 2
Conduct Economic Analysis
Conduct Financial Analysis
Planning Process
Allocation of benefits and costs is determined from the economic analysis
Economic Analysis
11
Economic Analysisselect accounting perspective (state-wide, regional...)
Complete for Each Alternative...
Complete for Each Point of View...Identify Benefits and CostsQuantify Benefits and Costs Evaluate ProjectComplete Sensitivity Analysis
Summarize Net Benefits
Compare Alternatives and Select Alternative
Economic Analysis• Accounting
Perspective How wide of
a net do you cast? • Alternatives• Points-of-View
– Water Supply– Wastewater – Customers– Economy/State– Environment– Recreation
12
Economic Analysis – Identify Benefits and Costs
EnvironmentRestorationDownstream habitatSource water
protectionAir quality (GHGs)
RecreationGW
balance/protection
13
Economic Analysis – Quantify Benefits and Costs
Market PricesNon-market valuation
Expressed PreferenceRevealed preferenceBenefits transfer
Constant dollars – corrected for inflation
14
Economic Analysis – EvaluationExpected Net Present Value (ENPV)
= ∑ Pi ∑ ∑ (Bi,j,t – Ci,j,t) (1 +d)-t
15
Where: • Pi = probability of event i• Bi jt = monetized benefit for item j at time t, for event i• Ci jt = monetized cost for item j at time t, for event i• d = discount rate (corrected for inflation• t = time
event item time
16
Economic Analysis – Summarize Net Benefits, Compare Alternatives
Comparison of Project AlternativesRank Alternative Net Benefit
1Water Transfers $230,000,000
2Recycling $191,280,000
3Additional Conservation $150,000,000
4Addition Purchases $30,000,000
5Desalination Plant -$50,000,000
6Surface Water Storage -$70,000,000
7 Without Project -$450,000,000
Summary of Net Benefits (for each user and purpose) - WATER RECYCLINGPoint of View Net Benefit Water Supply A $131,800,000
Waste Water A $50,000,000
Waste Water B $10,000,000
Industrial Customers -$520,000
Non-Participant Agency -$185,000
Total $191,280,000
17
Establish Baseline
Specify project alternatives
Recommend Projectand Plan Implementation
Assess Financial and Other Feasibility
EconomicAnalysis(Chapter 3)
Define project objectives
Feasible
Assess Economic Feasibility
Non Feasible
Chapter 2
Conduct Economic Analysis
Conduct Financial Analysis
Planning Process
Financial Analysis
18
Identify and Estimate Costs
Develop Capital Financing
Mechanisms
Design Revenue Scheme
Allocate Financial Costs
Purpose A
User
Purpose B
User
User
User
Bonds
Loans
SCRB Approach from Economic Analysis
Cost Allocation (SCRB)
Separable Cost Remaining Benefits
Based on benefits of each purpose and user (estimated in the economic analysis)
19
Total Project Cost
Total Cost Per User
Joint CostsProportional to
remaining benefits for each
user/purpose
Separable Costspaid by each
user, calculate by excluding each
purpose
20
Allocation of Costs Agency A Agency B Agency C Total
Net Benefits $40,000,000 $20,000,000 $10,000,000 70,000,000Alternative Cost (Least Cost Alternative) 30,000,000 9,000,000 15,000,000
Justifiable Cost (lesser of benefits and alternative cost) 30,000,000 9,000,000 10,000,000
Separable Costs (must be less than Justifiable costs) 5,000,000 4,000,000 3,000,000 12,000,000
Remaining Justifiable Cost 25,000,000 5,000,000 7,000,000 37,000,000
Percent (distribution of remaining justifiable costs) 68% 14% 18% 100%
Allocated Joint Costs 22,440,000 4,620,000 5,940,000 33,000,000
Total Allocated Costs (separable costs plus allocated joint costs) 27,440,000 8,620,000 8,940,000 45,000,000
Percent of Total Costs 61% 19% 20% 100%
ex: total project cost = $45M
Summary and ConclusionsEconomic Analysis
Time consumingNot as widely used Broader perspective
Financial AnalysisTraditional project analysis
approachLimited perspective
Best when used together
21
PUC Rulemaking Issues & Questions“Issues Related to Inter-agency
Coordination”Common analysis approach leads to easier
communication & negotiations“Issues Regarding Environmental Matters”
Good reason to use EATF approach
22
END