BEECHER - NAWC

Water ComparedIndustries ComparedEconomies of scale in the water industry also can be detected within the investor-owned waterindustry, as measured by revenues per gallon sold and assets per gallon sold. In combination,the capital intensity of the industry and the substantial economies of scale have a directbearing on capital facility planning. Generally, it is more cost-effective to add largerincrements of capacity at once (in one "lump") as compared with smaller increments. In theutility business, the line between "surplus capacity" (for foreseeable needs) and "excesscapacity" (the cost of which is not recoverable) can be a fme one. A certain amount ofsurplus capacity is needed by water utilities in order to provide a margin of safety (includingthe "safe yield" from supply resources).Water utilities continually must balance construction and operation economies with thepressure to conserve water and to build only facilities that will be used and useful toratepayers. Larger, regional water systems could help water utilities achieve least-cost goalsEconomies of Scale in Water Supply:Operations and Maintenance Expense(NAWC 1996)$6,000 ,------~ $5,000 -;-- ---·-----"' U>.§ $4,000 +-----:.c-~----------·----··-roE• • •$3,000 ~K_~...... ·--_--E (i; $2,ooo ••• ~ --;'.;;;·:..:·-~· • • • ; =-~-;=~..::·~::;::==~~~====• • • •~ $1,000 . _!~~ : _..,__•..:.•·c..·_.__•___._.__•• _~--------~- ----•$0 +----- --,_.. . . .--------~--------~----~0 5,000 10,000 15,000 20,000Annual gallons sold (millions)Economies of Scale in Water Supply:Total Assets (NAWC 1996)$60,000 ,----~ $50.000 1.:"'"'.§ $40,000Cii~ $30,000 - •• ••- -------.--•t $20,000 ~ ·--~-------0; -:~----:·1·:··:·:-:-.:..·_:.·_--=-_...______-=~ $10,000 .......:·:·· --~-- --.----------• • •••$0+----~-··-~-···---~0 5,000 10,000 15,000 20,000Annual gallons sold (millions)NAWC13 September 1998