WTP4mania!!! Who won the big WTP4 debate?

WTP4mania!

There were hundreds of people at Palmer Center’s freezing Exhibit Hall No.2 on Thursday night, all waiting for a bigtime policy rumble between proponents and opponents of WTP4’s existing development schedule.

Let’s look at the highlights…

Demand Projection

Stephen Coonan of Alan Plummer Associates and the author of the original 2006 projection memo, presented the proponent’s demand case.  He argued that the American Water Works Association suggests a 20-year sample.  He pointed out the high r-squared and low p-values (discussed in this previous post) of his one independent variable model.

In an interesting sleight of hand, he tried to explain the fact that his model stops being accurate in the most recent years by pointing out that there was significant rainfall in those years.  This is problematic because if he wants to introduce independent variables beyond population (his sole independent variable) he can’t just do it selectively to explain when his model runs into rough spots.  As panelist Colin Clark from Save Our Springs pointed out, there have also been significant drought years in the recent years where his model misses.  At a different point he answered criticism that he should have used only that last five years of data.  Readers of this blog know that I think that argument makes no sense.  Unfortunately for Mr. Coonan, in making the case against the five-year model, he also pointed out that exclusively looking at population growth in the last five years reveals no relationship between population and peak demand.  It did not seem he was aware that he had undercut the validity of his own model.

Amy Hardberger of the Environmental Defense Fund of Texas refuted Coonan’s presentation.  She focused on pointing out how assuming the full 32 MGD conservation goal that is the City Council’s policy would delay the need for the plant.  Her presentation did not offer a full assault of the Plummer memo nor did it point out the most important contradictions in Coonan’s presentation.

In the question and answer period, Austin Water Director Greg Meszaros pointed out that the population growth assumption was only 1.8% a year, and  that if it turned out to be higher, then demand would blow past capacity sooner.

Eventhough I personally think the Plummer estimate is very problematic, its many statistical issues were not confronted.  Hardberger’s presentation still left the assumption on the table that eventually the plant would be needed without additional conservation or regulatory interventions.  And no one refuted Meszaros’ risk assessment based on higher than projected population growth.  It was disappointing to me, but I feel a lay person would have walked away thinking a plant was eventually going to be needed.

Reliability

This was by far the most nebulous area of arguments.  WTP4 opponents pointed out that on average 1.7 plants were the norm for a city of Austin’s size, that the alarmist pictures of decay at facilities were incredibly selective since the main facilities were 100% reliable and constantly modernized, and that the examples of failure were anecdotal.

Proponents basically responded by reiterating anecdotes.  I counted a total of 5 examples of significant “failures” since 2000 that proponents could point to, as well as about 2 problems per Austin Water plant in the last few years.  However, none of the failures or plant issues were quantified in terms of specific impacts.  The impact of not having enough capacity were described as lower pressure, outages, lack of flow for fire-fighting. The time to address these issues was described as hours or days. Not weeks or months.

I was expecting to hear horrifying consequences to exceeding capacity.  But the Austin Water staff and proponents just did not come prepared with truly concrete explanations of the probability of failure and impact.  I certainly walked away thinking there were some risks, but not being terrified.   It’s a draw, but given the importance of this to the proponents, it’s really a win for the opponents.

Environmental Impact

Darryl Slusher of Austin Water gave the proponent’s side.  Basically, because WTP4 will be at a higher altitude and closer to planned population growth, it will use less electric energy moving water around.  According to Slusher, this will cut AW’s Greenhouse gases by 13.5%.

Luke Metzger of Environment Texas refuted Slusher’s claim by pointing out that his estimation did not take into consideration the emissions created by construction.  Additionally, he argued that the reduction in water levels at Lake Travis from WTP4 would potentially affect hydropower generation by LCRA. He also argued that the Bull Creek area would be adversely impacted.  Finally, he made a convoluted argument that the additional bonding would require additional water sales and that additional water use would require more electricity.  However, it’s more likely that instead of more water sold, rates will go up, since that is Austin Water’s explicit position to pay for the debt, and higher prices will likely induce conservation.

Metzger also made a point of indicating that there were cheaper ways of getting capacity through conservation and efficiency.  For example, he talked about replacing leaky pipes or installing smart water meters.  However, he did not provide any figures indicating how this was a cheaper way to buy capacity.  This is a key area of disagreement, but neither side provided clear evidence with cost estimates that their approach was better at producing MGD capacity.

Slusher refuted these points by indicating that the emissions from construction were not significant and that while his consultant had not looked at LCRA’s hydropower impact, he did not believe it would be significant.  He spoke about awareness by the utility of Bull Creek and a plan to protect the area and strip development rights.

Overall, Slusher effectively navigated the charges made against him and I believe the layperson would have walked away believing that the new plant would be energy efficient in supplying the northwest of Austin relative to existing facilities.

Fiscal Impact

David Anders of Austin Water presented an net present value analysis of the WTP4 project.  The core contrast was between a $526 million NPV if the project was built as planned, or a $731 million NPV if there was a five year delay.  The core difference has to do with Austin Water’s belief that they can get a +20% discount on the construction in the current market.  This is based on results of 23 bids AW has done on construction since June of 2008, as well as a Brushy Creek’s experience with a smaller water infrastructure bidding process.

Bill Bunch of Save Our Springs did not attack the assumptions of the NPV analysis head on, but instead invoked the possibility of cost over-runs.  He made a populist argument attacking rate increases during tough economic times.  He also pitched the importance of considering more effective alternatives, including a new facility focused on groundwater in the Eastside of Austin.  Implicit in the opponents’ case is the idea that WTP4 will be so massive as to exclude other more efficient projects being funded at the optimal level.

None of the proponents defended Austin Water’s ability to avoid cost over-runs.   However, several Austin Water staff pointed out that many of the alternatives proposed by Save Our Springs had been considered and discarded due to feasibility issues.  For example, Aquifer storage was deemed not feasible due to Austin’s water Ph levels. Slusher confronted Bunch about the substantial emissions that would be created by an Eastside plant focused on groundwater.

Anders also pointed out that in the present AW Capital Improvement Plan, WTP4 is only 30% of the planned budget, leaving plenty of capacity for the many other projects they have planned along the conservation and efficiency lines suggested by opponents.  Anders also pointed out that many of the projects were coming under budget.  Opponents could have jumped on that to get a commitment to use capital expenditure capacity left-over from savings towards efficiency and conservations projects.

No one seemed to contest that it’s a good time to issue debt and AW didn’t even put up a fight on the likelihood of cost over-runs.  The real disagreement is about what is the optimal way of investing to generate capacity.  Again, even though this is technically a draw because neither side proved their approach is optimal on the capacity-generation front, the proponents got the better of this discussion by creating a sense of urgency around the savings.

Odds and Ends

I was concerned that at times Austin Water’s staff seemed to be selling WTP4 to the Council instead of just providing data and how they made decisions.

I was extremely disappointed that opponents didn’t get a quant to go after the demand projection in a methodical fashion.

I was surprised that the opponents also kept hammering higher rates.  Most American water conservationists think water is too cheap.  Higher rates would induce conservation.  Instead of opposing higher rates, they should say that instead of higher rates going to debt service, those rates should fund efficiency and conservation programs or go to the general fund to cover costs for valuable city services.

I also think the opponents lacked a coherent alternative.  Originally, they were for delay of the plant to go through the upcoming planning process and thus agnostic on WTP4.  But at times it sounded like they wanted AW to immediately launch a water efficiency and conservation version of the Pecan Street Project first and then maybe WTP4 some day.  Other times, it seemed like they just didn’t think the plant should be built ever.  I think the lack of a coherent message on the alternative allowed AW staff to wiggle in there and indicate that WTP4 and massive spending on conservation and efficiency were not mutually exclusive since the new plant would only be about 30% of their capital budget.

The City Council needs to ask staff to develop estimates of the type of capacity generated by either WTP4 or conservation or efficiency programs to determine an optimal portfolio.  This quantified efficiency was not evidenced by either side even though it is at the most important comparison in this discussion.

So Who Won?

I think opponents made a lot of good arguments that will give them leverage for conservation and efficiency investments if they choose to use it.  However, I did not see any game changing arguments that would derail the strong WTP4 advocacy of the Mayor or Council member Martinez.  And there wasn’t anything new that might force lukewarm Council members like Spelman, Morrison, and Riley into adamant opposition.  I think the median Austin voter would have walked out of that debate feeling that a plant would eventually be needed and this was a good time to build, that there was a tiny risk of something bad happening, and that we should do more on conservation and efficiency regardless since other places like San Antonio seem to be better at it.

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6 Responses to WTP4mania!!! Who won the big WTP4 debate?

  1. M1EK says:

    “However, it’s more likely that instead of more water sold, rates will go up, since that is Austin Water’s explicit position to pay for the debt, and higher prices will likely induce conservation.”

    The problem is that the AWU will likely recover this cost via customer charges rather than via water charges. (IE, the fixed monthly charge will probably go up). This doesn’t actually encourage conservation; it actually works as a mild DISincentive to conserve, if you think about it.

    • Julio Gonzalez Altamirano says:

      Interesting point. I understand the business reason for doing the fixed charge – predictable revenue. Did you catch AW saying the rate change would be on fixed charges? If that is the case, that’s an outrage from a fairness point of view, which I personally care about. From an economics standpoint: don’t you think that a lot of customers will still experience the sticker shock (or mild displeasure) the same way regardless of the source and cut down use? I hope opponents and policy makers provide clear direction to Austin Water that additional revenue should be made up by putting the cost on the variable water charge in order to encourage conservation and not be as regressive.

      • M1EK says:

        Yes, customers will react the same way initially – but over time the variable incentives would work, while the fixed price hike wouldn’t.

        I’m operating under the assumption that if they don’t say otherwise, they’d be increasing the fixed fee – because they have previously funded stuff like this that way (justifying it as system-wide investment which everybody should pay for equally).

  2. Julio Gonzalez Altamirano says:

    M1EK,

    I’ve emailed CM Spelman’s office to figure out the rates that will be impacted.

    Also, everybody should checkout his alternative projection. He address a lot of the issues raised on this blog in the past and is a real good-faith effort at figuring out what’s the best policy. Will write a more detailed post soon.

    http://www.cityofaustin.org/council/downloads/Improved_forecast.pdf

  3. trza says:

    Great summary. Thanks very much for posting this.

  4. Hope Morrison says:

    I am not well-informed about this issue and wasn’t able to attend the presentation. One of those things I know I should educate myself about but never find the time for…and thanks to your post, I now know that some of the information I would want in order to draw a conclusion is not yet on the table. Thanks so much for your summary and analysis.

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