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SUMMARY OF RESULTS

PART 1: DENSITY AND CONVEYANCE COSTS

  • Most water and wastewater systems perform two major functions: production of treated water (either potable drinking water or discharge-quality wastewater) and conveyance (potable water distribution or wastewater collection).

  • These two functions correspond to cost centers for which operation and maintenance (O&M) and capital costs are incurred.

  • For treatment, the single most influential variable affecting unit O&M and capital costs for similar processes is the size of the treatment plant. Favorable economies of scale make larger treatment plants more economical to operate on a unit cost basis than smaller ones.

  • For conveyance, the most influential variables found to affect unit costs are the number of persons and jobs per mile of pipe (service units per mile of pipe), combined with pipe miles per square mile of the service area. Per unit costs associated with the lowest service densities are significant higher - in some cases more than twice as high - as those associated with the highest service densities.

  • The number of service units per mile of pipe alone was found to explain about 32% of the variation in unit wastewater conveyance O&M costs for ten suburban collection systems located in the Cleveland, Ohio and Chicago, Illinois areas. Together with pipe miles per square mile, these two variables were found to explain about 54% of the variation in observed unit O&M costs.

  • Although it was not possible to quantify the nature of this relationship for water distribution costs with the resources available for this study, others have noted the influence of these density variables on water utility conveyance costs.

  • Spatial cost differentials have been recognized as an appropriate consideration in rate design for utilities with core and satellite areas. Most large and medium-size urban areas in the United States are served by regional water or wastewater systems that provide service to both core and satellite (urban, suburban, and/or exurban) areas.

  • When significant service cost differentials resulting from land use, spatial or geographic features are not reflected in user rates, some customers will subsidize the costs of providing utility service to other system customers.


PART 2: GEOGRAPHICALLY-SENSITIVE USER RATES - THE CLEVELAND EXPERIENCE

  • Only a few water or wastewater systems in the United States charge rates which reflect geographic, spatial, or land use-related differences in service costs.

  • Elevation, distance from the treatment plant, and land use are among the most significant factors that affect utility conveyance costs.

  • Size of the treatment plant has been found to be one of the major determinants of treatment costs.

  • The Cleveland Division of Water (CDOW), which is the regional water purveyor for much of the Cleveland metropolitan area, is one of the few systems in the U.S. with spatially variable user rates.

  • It appears that CDOW's spatial rates recover the excess pumping and pressure-related costs for its higher pressure zones from users located in these zones, but do not reflect cost differentials due to either density or economies of scale.

  • Densities vary widely within CDOW's's distribution area. Its 13 highest density direct service communities exhibit an average service density 5 times greater than its 13 lowest density communities.

  • Favorable economies of scale for CDOW's treatment costs are due to the concentration of water usage by customers within the City of Cleveland who account for about 40% of CDOW's water usage, more than 9 times greater than the next largest community.

  • Lack of density and economy of scale variables in CDOW's rate structure likely exacerbates regional income disparities, as it can cause communities with lower per capita incomes and higher poverty rates to subsidize service to communities with higher incomes and lower poverty rates. In 1989 CDOW's 13 highest density direct service communities had an average poverty status that was six times greater than its thirteen lowest density communities. Average per capita income in the 13 highest density direct service communities was only 60 percent of that in the 13 lowest density communities.

  • Intra-regional subsidies could be greater still in water and wastewater utility systems elsewhere in the U.S. since, unlike CDOW, most large and medium-size utility systems do not incorporate geographic cost differentials in their user rates.

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