Alternatives for Managing Drought: A Comparative Cost Analysis

Abstract

e question addressed by this study is how a large urban water district can best respond to a drought. Using a computer model of a representative district, we find that a combination of conjunctive use and water marketing is well over an order of magnitude cheaper than the traditional alternative of construction of new storage capacity. The indicated cost saving can be explained by the intermittent nature of the transfer, corresponding to the intermittent demand. Comparing costs to benefits, the consumer-surplus loss otherwise entailed by raising prices to cut -back on consumption in the event of a drought, we find that construction of new storage does not pass a benefit/cost test, but introduction of conjunctive use/water marketing doe

Optimal conjunctive‐use operations and plans

“…This value seems reasonable given the elasticities estimated by other authors [Billings and Agthe, 1980;Danielson, 1979;Martin and Thomas, 1986;Mercer and Morgan, 1989;Moncur, 1987Moncur, , 1989. A nominal price of $200/ac ft is also assumed on the basis of recent California water prices [California Urban Water Agencies, 1991;East Bay Municipal Utility District, 1992;Fisher et al, 1995;Howitt, 1994;Jercich, 1997;McClurg, 1992a, b]. Using a nominal annual supply of u 1 max ϭ 600 TAF, the shortage cost for an annual supply of u 1 is shortage cost ϭ $60,000,000͓͑u 1 /u 1 max ͒ Ϫ2 Ϫ 1͔ (9) Shortage cost is the sum of the incremental costs for each unit of rationing below u 1 max .…”

“…We consider a hypothetical system model similar to that discussed by Buras [1963Buras [ , 1972 and summarized by Yakowitz [1982] while also using characteristics of the East Bay Municipal Utilities District (EBMUD) system of Oakland, California [East Bay Municipal Utility District, 1992;Fisher et al, 1995]. Increasing demands for water in the district and for more senior appropriators have prompted EBMUD to consider several options to prevent deterioration of its water supply reliability.…”

“…As a result, few reservoir management studies attempt to estimate actual shortage costs despite the important impact that these costs have on hedging. For example , Fisher et al [1995] compare the impact of various capacity-expansion alternatives for the EBMUD system by evaluating only the capital and operating costs of the various alternatives. Surrogate indices [Fiering, 1982;Hashimoto et al, 1982;Hsu, 1995] and other methods [Fontane et al, 1997;Owen et al, 1997] have been developed, though these still require implicit or explicit estimates of water use impacts.…”

“…The resulting shortage cost in a yearlong stage is pumping cost ϭ $4,000,000͑u 2 /u 2 max ͓͒1 ϩ 0.5͑u 2 /u 2 max ͔͒ (10) Equation (10) specifies only the variable cost of system operation and does not include the capital costs for the installation and development of a well field. For example , Fisher et al [1995] estimate the costs of drilling and pump installation to be about $25,000 per well. The current model does not consider the impact that recharging and pumping decisions have on future pumping lifts since this impact is highly variable, depending on the well distribution and on the aquifer characteristics.…”

“…Conjunctive use of groundwater and surface water can enhance the reliability of water supplies by providing independent sources that have distinctly different costs and constraints [Fisher et al, 1995;Lettenmaier and Burges, 1979]. Groundwater's role in stabilizing supplies (through improving reliability and reducing the impact of drought) can be of even greater value than its role in adding to total quantity [Tsur, 1990;Tsur and Graham-Tomasi, 1991].…”