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Evaluating Pricing Levels and Structures to Support Reclaimed Water Systems

Project: 05-01
Type: Decision Making Tool
Year Released: 2009

Program: Principal
Funding Partner: Bureau of Reclamation, California State Water Resources Control Board
Total Investment: $150,370 (Cash: $143,870, In-Kind: $65,000)

Principal Investigator: Todd Cristiano, Red Oak Consulting, and Jim Henderson, Stratus Consulting


The pricing for reclaimed water often presents several challenges to utilities. As a result of the gap that often arises between reclaimed-generated revenues and the actual costs of the reclaimed water program, utilities struggle with how to set prices for reclaimed water. They also need to examine whether the subsidies that often arise to cover reclaimed program financial losses are justified by the non-revenue benefits of the reclaimed program.

Goals and Objectives

The project built around the triple bottom line concepts for sustainability. The project includes a technical reference and a computer model that allows utilities to simulate different reclaimed pricing strategies while quantifying the environmental and social impacts of implementing a reclaimed water program.

Research Approach

Task 1: Literature Survey. Reviewed and summarized the various pricing approaches that might be considered. This was accomplished though a review of relevant literature and guidance on rate setting from professional publications including water industry manuals, research studies, and journal articles.

Task 2: Assemble and discuss the issues and objectives utilities should consider when developing their pricing and cost recovery strategy. Based on the findings from Task 1, discussed the issues commonly encountered by the utilities and the approaches used for developing reclaimed water rates. Discussed financial issues and policies that must be addressed when implementing or operating a reclaimed water program. Discussed any best management practices when setting reclaimed water rates.

Task 3: Critically review how the pricing approaches identified under Task 2 address the needs of the utility, customers, and community. This was constructed and presented in a way to assist utility managers in understanding their options for pricing reclaimed water, and understand what the various pricing (rate structures) can and cannot accomplish (pros and cons, and how to overcome the limitations).

Task 4: Develop a comprehensive planning manual for including cost and revenue considerations during the conception, planning, and development of water reclamation projects. EPA’s 2004 Guidelines for Water Reuse delineate a three phase program planning approach: 1) Preliminary Investigation; 2) Screening of Potential Markets; and 3) Detailed Evaluation of Selected Markets. The cost and revenue considerations for each phase were identified with appropriate advice.

Task 5: Research Report. Summarized the findings of the research efforts conducted under this project with a presentation of data, discussion and analyses of results, and recommendations and conclusions in a report.

Findings and Conclusions

This Model is designed to allow utility staff, public officials, and stakeholders to assess the financial solvency of a reclaimed water program. This Model also serves as a mechanism for the organization of key documents required throughout the reclaimed water decision-making process. The Model is a Microsoft Excel 2003–based program that will operate on any Windows XP platform. The download includes a manual and a final report.

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