Water Treatment Plant 4 Claims get a Zebra


The Chamber of Commerce is for.  They argue that without the plant, there will be risk of water service disruption.  They are also for additional water conservation and reclamation.

The Statesman Editorial Board hedges its bets and argues for the selection of a general contractor but doesn’t offer a full-throated argument for building now.  They like conservation, too.

Save Our Springs is against.  They argue the plant does not need to really be started until 2014 to meet demand, conservation is a better investment, and the project would be expensive.  They want a Pecan Street Project for water conservation.

Wells Dunbar highlights the importance of the demand estimate, as well as the difficulty in getting consensus on it.

So, let’s go through the points and do some refereeing.

DEMAND.  As my previous post on this indicates, Austin Water’s publicly communicated estimate is problematic.  It has a high starting point, it’s path does not resemble actual recent history, and it obviously does not include additional aggressive conservation steps such as price increases and outright bans.  So at the moment, I score this one for Save our Springs.  There is no extreme urgency in building this facility, especially if we assume a political willingness to impose real constraints on water use through pricing and regulation in the event that population growth or per capita water use is much higher than the recent past.

RATEPAYERS.  It will be around $3.20 to $4 per month for the average ratepayer, according to Austin Water’s presentation.  No one disagrees that the City has the bonding capacity and rating to issue the debt favorably.  That amount of rate change does not seem catastrophic if indeed we had serious demand needs; moreover, the water utility could create a hardship program to address truly hard hit working poor payers.  There is an argument to be made for the fact that building costs are relatively low right now, but given the multi-year and ongoing costs associated, which will takes us past this current recession, this isn’t a powerful enough economic point.  Overall, WTP4 is not going to devastate ratepayers and it is definitely not a horrible time to start construction.  Proponents win this one.

CONSERVATION ONLY.  This is a frustrating one.  What do people mean by “conservation?”  Pricing a gallon at $10 definitely would have an impact! Draconian watering restrictions and mandating xeriscaping would significantly impact water use. But as Austin Contrarian points out, not all status quo conservation programs appear effective.  In theory, Austin could implement policies that further delay the need for WTP4.  Personally, I support many of the more aggressive measures.  But it is unclear that there is either a widespread willingness to do the harder, high-impact policies, or a more effective portfolio of voluntary measures. If these are not implemented, Austin Water’s demand scenario grows more reasonable.  This is a non-call.

RISK.  One of the more subtle arguments is that we need the additional capacity from this plant in case the others fail or fall victim to some type of terrorist attack or Act of God.  Now, I know Black Swan thinking is in vogue at the moment, but proponents of the risk argument provide no evidence that failures are commonplace; terrorist attacks and Acts of God definitely are not.  The consequences of failure were estimated by the director of Austin Water to be hundreds of thousands of Austinites without water service for weeks, even months.  Some insurance against a black swan should be found.  But it is not altogether clear that building a whole new plant immediately is the best move.   For example, It might be more cost-effective to improve maintenance of those components that are most likely to fail, improve security at the plants, and reinforce the installations against wind damage.  Not to mention that there is a slippery-slope feel to black swan arguments.  Proponents fail on this argument.

To summarize, opponents appear to be correct about the lack of demand urgency but wrong about the financial catastrophe.  A conservation only argument is too tough to call because it means different things to different people and it is unclear if we will bend the water demand curve enough to perpetually delay.  The risk argument has merits, but not enough strength to justify a new plant.  Presently, building the plant is not an absolute necessity and might be inefficient given the more aggressive conservation measures available, but it will not be a financial disaster for ratepayers or our bond rating.


1 Response to Water Treatment Plant 4 Claims get a Zebra

  1. Tim says:

    I liked Black Swan. That said I think he repeatedly pointed out that Black Swan disaster planning is a somewhat pointless exercise. The question is how do we position ourselves to take advantage of a bad situation, not how do we keep the bad situation from happening. Because bad situations happen.

    An example black swan (just an example, not suggesting it) approach would be to build the plant with the intention of selling bottled water to pay off the price of the plant, while keeping the ability to immediately switch the plant over to providing water for the city at a moment’s notice. If both plants got taken out the city would at least have more cash on hand to build a new one.

    Just having an idle treatment plant is not really a good reaction to a potential black swan.

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