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Costing water reliability

It was a great pleasure to deliver a presentation on Costing Water present at OzWater 2017, where I outlined how water utilities and regulators can accurately quantify the short run marginal costs in a water supply system. By examining the worst case scenarios, running out of water, you can put an upper limit on social losses associated with reservoir failure.

This is critically important to inform water supply system operation and augmentation.

I firmly believe that the method outlined in the attached paper is critical to improving the efficiency of the water supply sector and value it delivers to the community. It does so by putting a line under hydrological uncertainty and allowing water to be compared between different water sources.

Based on the assumptions, outlined in the attached paper, the SRMC varies enormously with the level of initial storage as described in this image.

AL Curves_base case

And small changes to the regulatory framework can radically change the augmentation liability (defined in the paper!) to which a water supply system is subject. If the level of acceptable social risk is doubled,

AL Curves_different reliabilities

Importantly, this augmentation liability sits outside the regulatory framework.  It is a socialised cost. Hence it needs to be incorporated in water supply system operation and management to be operated with economic efficiency.

The paper is accessible from here:Costing water reliability_Ozwater2017_Technical Paper.

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