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EXAMPLE 9.1 Water Treatment Facility #3 Case
The situation with the location and construction of the new WTF3 and associated transmission
mains described in the chapter's introduction has reached a serious level because of recent
questions posed by some city council members and citizen groups. Before going public to the
city council with the analysis performed last year, the director of Allen Water Utilities has
asked an engineering management consultant to review it and determine if it was an acceptable
analysis and correct economic decision, then and now. The lead consultant, Joel Whiterson,
took engineering economy as a part of his B.S. education and has previously worked on
economic studies in the government sector, but never as the lead person.
Within the first hour of checking background notes, Joel found several initial estimates
(shown below) from last year for expected consequences if WTF3 were built. He realized that
no viewpoint of the study was defined, and, in fact, the estimates were never classified as costs,
benefits, or disbenefits. He did determine that disbenefits were considered at some point in the
analysis, though the estimates for them are very sketchy.
Joel defined two viewpoints: a citizen of Allen and the Allen Water Utilities budget. He
wants to identify each of the estimates as a cost, benefit, or disbenefit from each viewpoint.
Please help with this classification.
Economic Dimension
1. Cost of water: 10% annual increase to Allen
households
2. Bonds: Annual debt service at 3% per year on
$540 million
3. Use of land: Payment to Parks and Recreation
for shaft sites and construction areas
4. Property values: Loss in value, sales price,
and property taxes
5. Water sales: Increases in sales to surrounding
communities
6. M&O: Annual maintenance and operations
costs
7. Peak load purchases: Savings in purchases of
treated water from secondary sources
Monetary Estimate
Average of $29.7 million (years 1-5, steady
thereafter)
$16.2 million (years 1-19); $516.2 million (year 20)
$300,000 (years 1-4)
$4 million (years 1-5)
$5 million (year 4) plus 5% per year (years 5-20)
$300,000 plus 4% per year increase (years 1-20)
$500,000 (years 5-20)
