The Price of Reclaimed Water—Too Much to Stomach?

Vol. 26 No. 4

Ms. Martorana is an associate at Snell & Wilmer LLP, in its Phoenix, Arizona, office.

A curious child swallows a penny—it happens more often than you would think. Parents, in their infinite (and perhaps unrefined) wisdom, advise: “Give it time, and you will see it again.” This wisdom, however, has a twenty-first century nuance. That penny might be worth more at its encore, as part of reclaimed water.

While the topic of reclaimed water (also called treated wastewater) frequently appears in publications and seminars, the coverage there often focuses on the direct reuse of reclaimed water for drinking water—the issue dubbed “toilet to tap.” Such discussions typically begin with the observation that potable water supplies are diminishing due to climate change and development. Purveyors of this discussion then address the issues of public perception and health concerns, broader issues relating to the criticality of future water supplies.

This article approaches the topic from a different perspective—the legal and economic perspectives. How will the increased use of reclaimed water affect the individual, her pocket, and even her golf game? Will the demand for reclaimed water drive up the price of keeping the turf green? And, personal concerns for golf notwithstanding, will the demand raise the reclaimed water price for others?

Aside from golf courses, other users of reclaimed water include farms, public institutions, community associations, and manufacturers. These and other businesses use reclaimed water for a variety of purposes, including crop irrigation, landscape irrigation (cemeteries, freeway embankments, golf courses, playgrounds, schoolyards, and residential landscapes), impoundments (fish hatcheries, decorative fountains, ponds), commerce (flushing sanitary sewers, street sweeping, dust control, soil compaction, carpet dyeing), and power generation (boiler feed, cooling, process water). More innovative uses of reclaimed water include snow-making and mixing concrete. Reclaimed water also serves environmental purposes such as wetland restoration, aquifer recharge, and streamflow augmentation.

The type of reuse depends on the level of treatment, as dictated by state regulations or state guidelines implemented to protect public health. While federal regulations govern the discharge of treated water into streams and water systems through the National Pollution Discharge Elimination System program under the Clean Water Act, there are no federal regulations directly applicable to the reuse of water. The U.S. Environmental Protection Agency (EPA), however, has released guidelines for states to consider when establishing their own regulations or guidelines. EPA, 2004 Guidelines for Water Reuse (Guidelines), available at www.epa.gov/ORD/NRMRL/pubs0402.html. EPA’s Guidelines also list the states that have implemented regulations, guidelines, or neither, and the websites where such guidelines or regulations can be found. As of 2004, 25 states had issued regulations on reuse, 16 states had implemented guidelines, and 9 states had done neither.

Although regulations vary by state, generally, the higher level of treatment that wastewater receives, the more purposes for which it can be used. Texas regulations, for example, distinguish between Type I and Type II reclaimed water. Type I reclaimed water receives more treatment. Specifically, this level of treatment reduces fecal coliform to 20 colony forming units (CFU)/100 ml for a 30-day mean and 5mg/l of biological oxygen demand (five-day test) (BOD5). Texas Admin. Code, Title 30, Part 1, Rule § 210.33. Type I reclaimed water uses include irrigation of food crops, residential irrigation, and irrigation of public parks. Id. On the other hand, Type II reclaimed water is only treated to reach a 30-day mean of 200 CFU/100ml of fecal coliform, 20mg/l of BOD5. Id. at § 210.32. Type II reclaimed water use is limited to uses such as for dust control, industrial cooling, and other applications where human exposure and ingestion is unlikely. Id.

Similarly, in Arizona, the Arizona Department of Environmental Quality categorizes reclaimed water use by giving each treatment level a letter grade: A+ and A class uses include irrigation for food crops and recreational impoundments; B+ and B class uses include golf course irrigation and dust control; and C+ and C class uses include irrigation of non-food crops such as fiber and seed, and pasture of non-dairy animals. Ariz. Admin. Code R18-11-303 to R18-11-309.

An emerging issue for reclaimed water quality regulators is the presence of residual pharmaceuticals that withstand current treatment techniques. States have not begun to regulate the presence of such constituents in reclaimed water, although the regulation of pharmaceutical waste itself continues to evolve. Studies are currently underway to determine the degree to which these contaminants persist in reclaimed water. King County, Washington, for example, conducted a variety of studies on the content of reclaimed water. King County Resource Recovery, available at www.kingcounty.gov/environment/wastewater/ResourceRecovery/ReWater/WaterResearch.aspx. One such study reviewed the persistence of ibuprofen, triclosan, and three types of estrogen in turf grass and soil samples collected from a publicly owned golf course. The study concluded that the “estrogens, triclosan and ibuprofen did not persist in the soils and were not detected in the plant tissue or the water that drained through the soil.” Id. The King County studies also emphasized that “since each region’s geology and climate are unique, it is important to address local horticulture issues such as how to integrate the use of reclaimed water with existing fertilizer practices and soil conditions.” Id.

The Sale and Purchase of Reclaimed Water

After being treated at plants—which are most often owned and operated by municipalities—the treated wastewater is sold to individual customers and businesses that purchase the reclaimed water for direct use (rather than subsequent distribution). To this end, a fortuitous feature of reclaimed water for both the seller and purchaser is the close physical proximity of the two. Customers frequently, if not inevitably, reside in populated areas, and such populated areas create large quantities of reclaimed water. Not quite serendipity, but close. Also, businesses that purchase reclaimed water make ideal retail customers because of the long-term commitments they make to purchase reclaimed water. Long-term contracts for the purchase and sale of reclaimed water can be as long as 40 years. The contracts guarantee not only a long-term supply of reclaimed water for the purchasers but also a stream of revenue for the sellers.

Reclaimed water customers frequently are motivated to enter into long-term contracts by investments they have made in the necessary infrastructure to use the reclaimed water efficiently and effectively. Indeed, customers often invest in sophisticated distribution and conveyance facilities to deliver the water to them. For example, in Scottsdale, Arizona, golf courses completely funded the construction of the Reclaimed Water Distribution System (RWDS), which includes four primary pumps and about 14.3 miles of primary transmission line. The RWDS system delivers reclaimed water to about 23 golf courses and is operating at its full capacity of 20 million gallons per day.

Reclaimed water suppliers also are frequently able to deal in large quantities. In the San Diego region, for example, 2.2 million residents generate about 175 million gallons of wastewater per day. San Diego, Public Utilities: Wastewater, available at www.sandiego.gov/mwwd/facilities/ptloma.shtml. Such availability is a strong incentive for certain industrial and commercial customers with significant water needs. Power generation, for example, can use more than 50,000 acre-feet of reclaimed water per year. (An acre-foot is about 325,861 gallons.) In short, as often is the case with a good product not afflicted with supply issues, reclaimed water continues to fashion reliable, return customers.

Of the many attributes that make reclaimed water a popular alternative to potable water supplies, the most enticing is reclaimed water’s reliability. Because reclaimed water is available wherever there are showers and toilets, its supply is not affected by drought or shortages. Texas golf courses struggling to stay green in the midst of a relentless drought appreciate reclaimed water’s reliability. In fact, many Texas golf course lakes have gone dry and the turf has become distressed on the golf courses that depend on rain or surface water. Golf courses connected to recycled wastewater systems, however, have been less affected by the drought.

Attractive features like reliability, as well as low cost, have led to an increase in the supply of reclaimed water available for purchase and reuse. Florida has an extensive tracking system of its reuse facilities that highlights this increase. According to Florida’s 2010 Water Reuse Facilities Summary Report, in 1986, when Florida first began inventorying reuse facilities, there were 118 facilities. By the year 2000, there were 457. Now there are 482 facilities. Florida Department of Environmental Protection, 2010 Reuse Inventory Water Reuse Program (May 2011) (2010 Reuse Inventory), available at www.dep.state.fl.us/water/reuse/inventory.htm. Similarly, the Washoe County Department of Water Resources in Nevada recently reported that it will expand its capacity to treat wastewater from 4.1 million gallons per day to 6 million gallons per day. This expansion will reduce the costs associated with treating groundwater or purchasing wholesale potable water.

Currently, the supply of reclaimed water is quenching users’ thirst for it. In 2010, in Florida, 281,781 residences, 525 golf courses, 877 parks, and 324 schools used reclaimed water; and more than 13,110 acres of crops, mostly citrus, were irrigated with reclaimed water. 2010 Reuse Inventory. As suggested above, golf courses also contribute to the demand for reclaimed water. Many golf courses rely on reclaimed water to water their turf and fill their lakes. There are about 16,000 golf courses in the United States. It is most common for golf courses in the dry Southwest to use reclaimed water, but the use of reclaimed water is by no means geographically limited. The Experience at Koele Golf Course on the Hawaiian island of Lanai has used reclaimed water since 1994. EPA Water Recycling, available at www.epa.gov/region9/water/recycling. Of course, golf courses in the drier Southwest climate use more water. While a golf course’s water usage varies based on the turf acreage, turf type, evapotranspiration, and soil characteristics, Arizona golf courses can use about 150 million gallons per year as compared with a golf course in Iowa, for example, which only requires 30–35 million gallons per year.

Demand for reclaimed water can be expected to remain high in areas where water availability otherwise is physically constrained. In fact, where water supplies are scarce, reclaimed water may be as valuable as fresh water. Prescott Valley, Arizona, has limited water resources. There, in 2007, reclaimed water credits were sold at auction for $24,650 per acre-foot. This price reflects the scarcity of water in the region as well as the extreme demand for reclaimed water in water-parched areas. Prescott Valley’s Water Rights Auction is Innovative, Profitable, available at http://ag.arizona.edu/azwater/awr/janfeb08/feature1.html. Demand for reclaimed water also is being supported by (1) the encouragement of reclaimed water use—directly and indirectly—through state and local regulation; and (2) the lower price of reclaimed water, as compared with other water supplies.

In many jurisdictions, state or local restrictions prohibit the use of potable water for certain uses, or otherwise mandate the use of reclaimed water. For example, Arizona law prohibits the filling of new lakes, such as golf course lakes, with potable water (although one lake considered integral to a golf course is typically allowed). The body of water must be filled with reclaimed water, or other types of non-potable water like poor quality groundwater or storm water. A.R.S. § 45-132. In addition, in the populated areas of Arizona (called Active Management Areas), new golf courses in developments must follow conservation requirements. These conservation requirements include an incentive for using treated water. Third Management Plan for Phoenix AMA, available at www.azwater.gov/AzDWR/WaterManagement/AMAs/ThirdManagementPlan3.htm. As such, many of the new golf courses implement the use of reclaimed water to water their turf and fill their lakes.

Regulations promoting the use of reclaimed water also come in the form of restrictions on the discharge of wastewater. If wastewater cannot be discharged, it must be reused. For example, wastewater discharge from the San Jose/Santa Clara Water Pollution Control Plant into the South San Francisco Bay threatened the area’s natural salt water marsh. To preserve the natural habitat, a reuse facility was built to treat the water and make it available for reuse. EPA Water Recycling, available at www.epa.gov/region9/water/recycling/#diversion.

Less Expensive Alternative

Municipalities often sell reclaimed water for less than potable water. But this pricing does not cover the price of treating the water. Municipalities sell the reclaimed water at a loss to, among other reasons, encourage conservation of potable water. As such, businesses that purchase reclaimed water receive the benefit of incentive pricing. According to a golf course maintenance manager, in 2005, reclaimed water cost an average of $1.00 per 748 gallons as compared with groundwater, which cost $1.25 per 748 gallons. Assuming the golf course uses 500 acre-feet per year, it saves almost $55,000 per year by using reclaimed water.

However, it is not just the price that municipalities should consider when setting the price point for reclaimed water; reclaimed water users also have indirect costs. Indirect costs may include costs related to poor water quality of reclaimed water. For example, reclaimed water in certain parts of the country can contain high salt levels. Golf course managers must spend more on operations and maintenance to prevent the water from harming the turf. Other minerals and elements in reclaimed water also require increased maintenance practices, including additional fertilizer applications, sod work, and soil amendments. Reclaimed water presents other challenges in golf course management: algae can clog irrigation heads and reclaimed water can create odors that disturb neighbors.

Indirect costs also include transportation costs. Where potable water is available at the faucet, reclaimed water requires separate infrastructure. The cost of such infrastructure is often carried by the purchasers of reclaimed water, as described in Scottsdale’s Reclaimed Water Distribution System above.

On a smaller scale, for communities and homes that use reclaimed water for lawn maintenance and yards, the retrofitting of pipelines or the installation of new pipelines dedicated to the delivery of reclaimed water, known as “purple-piping,” is required. Retrofitting old pipelines is more expensive than building the necessary infrastructure at the outset. This is why much of the residential use of reclaimed water occurs in new developments. Regardless, using reclaimed water includes upfront costs that must be considered when deciding whether to depend on treated water to fulfill water supply needs.

Price Increases of Reclaimed Water

Whether because it is an inexpensive alternative, or because it is the only alternative, demand for reclaimed water persists and prices for reclaimed water are paralleling the upward demand trend. Under the basic principles of economics, when demand increases, price increases. While the economics is far more complicated than that, the users of reclaimed water have seen prices increase.

In Lake Havasu City, Arizona, reclaimed water rates for golf courses increased in the fall of 2010 from $52 to $144 per acre-foot. By 2014, the rates are expected to have increased to $330 per acre-foot. These costs, like all operating costs, need to be recovered, and the most likely source for such recovery for these courses is the green fees.

Arizona Public Service Company (APS) also recently experienced a price increase in the reclaimed water used in its cooling towers at the Palo Verde Nuclear Power Plant, the nation’s largest energy producer. In 1973, APS entered into an agreement to purchase reclaimed water from a wastewater treatment plant owned by five nearby cities, including Phoenix, Arizona. APS News Release, available at www.aps.com/main/news/releases/release_586.html. APS and the cities recently renegotiated the contract. The new agreement raised the price of reclaimed water 10.5 percent per year. At this rate, the price will eventually reach $300 per acre-foot before inflation is taken into account. The quantity of reclaimed water available to APS under the contract also changed. The previous agreement called for 105,000 acre-feet of reclaimed water to remain available for the use of APS. The new agreement calls for only 80,000 acre-feet. Not only does the reduced quantity better reflect the plant’s needs but it also allows the cities to maximize the profit of the 25,000 acre-feet no longer reserved for APS. 5 Cities Cash-in on Wastewater Deal with Palo Verde, available at www.azcentral.com/business/articles/2010/04/01/20100401water-paloverde0401.html.

The consequences of increased prices for reclaimed water vary. A likely inevitable consequence, however, is that price increases will be passed down to customers. But because these price increases have been overshadowed by the “toilet to tap” issue that focuses on treated wastewater returned to the drinking water supply, few have considered whether the rising cost of reclaimed water might be what is too much to stomach. But in relation to the alternatives, higher prices for potable water or limited water supplies, the cost increases are the least likely issue to make stomachs churn. Additionally, some may even consider reclaimed water underpriced given that the prices may not fully reflect the valuable role reclaimed water plays in conserving potable water supplies. As such, despite the increased costs, perhaps reclaimed water may be worth every penny (encore or not).

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