Water Journal July - August 1999

Volume 26 No 4 July/August 1999 Journal Austra lian Water & Wastewater Association

Editorial Board FR Bishop, Chairman B N Anderson, D Deere, P Draayers, W J Dulfer, G Finlayso n, G A H older , P J ohnsto ne, P Nadebaum, J D Parker, M Pascoe, A J Priestley, ] Ri ssman, F Roddick, EA Swinton

J

[ii Warer is a refereed journal. This symbol

CONTENTS

indica tes that a paper has been refereed.

General Editor Margaret Metz PO Box 3191, Tamarama NSW 2026 Tel (02) 9365 5178 Email: mmetz@ihug.com .au

From the Federal President .... .. ........................ ...... ...... ... .. ...... .... ..... .. ... .. ..... . 2 From the Executive Director .. ............ ......... ... ..... .. ...... ........ .. .. ...... .. .......... ... .. 4 MY

Features Editor EA (Bob) Swinton 4 Pleasant View Cres, Wheelers Hill VIC 3150 Tel/Fax (03) 9560 4752 Email: swintonb@c03 1.aone. net.au

POINT

OF

VIEW

Water-The Need For Transparency ........... .... .......... .......... ....... .. ................... 3

P M cLellan, Q C AWWA

18TH FEDERAL CONVENTION

Branch Correspondents ACT - Ian Bergman Tel (02) 6230 1039 Fax (02) 6230 6265

New South Wales - Leonie Huxedurp Tel (02) 9895 5927 Fax (02) 9895 5967

Northern Territory- Mike Lawton

Adelaide Turns It On: AWWA 18th Federal Convention A Stunning Success .... 9

C Allen The Keynote Speakers ...................... .................. ....... ................ .. ... ... ...... ... .. 11

EA (Bob) Swinton

Tel (08) 8924 6411 Fax (08) 8924 6410

Michael Flynn and other Awards ....... ..... ........................ .. .... ... .. ........ ... ... ...... 15

Queensland - Tom Belgrove

EA (Bob) Swinton

Tel (07) 3810 7967 Fax (07) 3810 7964 South Australia - Angela Colliver Tel (08) 8227 11 11 Fax (08) 8227 1100

Next Stop, Sweden! ................ ... .. ... .. ............ .... .. ...... .... ... ..... ....... ... ....... .. ....... 19

A M akris

Tasmania - Ed Kleywegt

Michael Flynn Award For Best Paper: A Very Pleasant Surprise! .... ......... .... 21

Tel (03) 6238 2841 Fax (036) 234 7109

MMetz

Victoria - Mike Muntisov Tel (03) 9278 2200 Fax (03) 9600 1300

Western Australia- Jane Oliver

A Taste Of Australian Nature: Pre-convention Tour to Kangaroo Island .. .... 23

T Flapper

Tel (08) 9380 7454 Fax (08) 9388 1908

Ozwater & Ozwaste: Perhaps It Was The Wine ..................... .. .... ...... .. ... ...... .25

Advertising & Administration

MMetz

AWWA Federal Office PO Box 388, Artannon NSW 1570 Level 2, 44 Hampden Road, Artannon Tel (02) 9413 1288 Fax (02) 9413 1047 Email: info@awwa.asn. au Advertising: Angela Makris Graphic Design: Elizabeth Soo

Water (ISSN 0310 โ ข 0367) is published six times per year: January, March, May , July, September, November by

WATER A Dirty Water Story ............... .. .. ....... ... ... ........ ......... .................... .. .. ... .......... . 28

B W Gould New Leglslatlon: Should Water Really Be Treated As Food? ....... ....... ..... 29

D D eere [!] Blofllms in Drinking Water: Influence of Organic Carbon and Disinfection ..... ............ .. .... ..... ................. ... .......... .................... .. ... ................ 30

Australian Water & Wastewater Association Inc

ML Angles, J Chandy, G Kastl, V J egatheesan, P Cox, I Fisher

ARBN 054 253 066

[Ii Wastewater Reuse: The Feaslblllty of Reusing Wastewater to Irrigate Parks, Gardens and Golf Courses In Perth ............. .. ................. ....... ......... 35 E (Eddy) J W ajon, S Kenway, A M aus

WASTEWATER

Federal President Greg Cawston

Executive Director

BUSINESS

Chris Davis Australian Water & Wastewater Association (AWW A) assumes no responsibility for opinions or statements of facts expressed by contributors or advertisers. Editorials do not necessa rily represe nt offi cia] AWW A policy.

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~ Valuing Options In Water Supply Strategies ....... ... .. ...... .. .. ... ......... ........ 39

P Gerrans ENVIRONMENT Phytoplankton Monitoring Manual for Australian Rivers ......................... 44

G Hotze!, R Croome DEPARTMENTS Aquaphemera .. .... ...... ....... ... .. ..................... ............. ... ..... ....... ... ........ .. ......... ... 4 International Afflllates ... ......... .......... ........... ...... ... .......... ... .. ............... .. ..... 5, 7 Meetings .. ..... ... ..... ...... ........ .. ... ... ..... .. .. .... ... ... .... .... ...... .... ................. ...... .... ... 48 OUR COVER: Turning water into wine is a miraculous feat being accomplished on th e North ern Adelaide Plains. Delega tes at the A WWA Federal Convention held in Adelaide sampled some of the fare as part of a technical tour to look at Australia 's largest BOOT reclaimed water distribution system. Photo courtesy of Clive Palmer, Photographer, Jamestown, SA

WATER

l

DIRTY WATER

STORY

B W Gould The Czyptosporidium and Giardia contamination of Sydney's water supply last year prompted me to reminisce abo ut my early experience with pollution in a town supply.

Soon after starting as engineer to the Horsham Waterworks Trust 42 years ago , I noti ced that the only water supply quality checks were the quarterly ones done by the Victorian Government Department of Health. Being a newly appointed officer, I did not want to rock the boat, but felt that for a town of 9,000 population with neither trea tment nor disinfection, more frequent testing wo uld be desirable.

The hospital pathologist agreed to test hospital tap water for coliforms on a weekly basis, as a community service.

Tests for such things as Giardia, however, had never crossed anyone's mind. Looking back with the benefi t of 20/20 hindsight , it had been noticed that visitors, una ccustomed to the local water supply, often had gastric upsets , and that locals were possibly immune through frequent contact.

The wa ter came from a large water supply/irrigation storage dam , then travelled 10 km thro ugh bu shland and a tourist picnic area, then 30 km of unfenced open channel through bu sh and grazing areas to a small dam co nnected to the town with a 20 km pip elin e. At that time, the dams , channel and trunk main were under government control.

Storm runoff from grazing areas was not bypassed. Sheep and cattle, kangaroos and emu s drank from the channel, leaving calling cards on the bank.

Occasionally a sheep fell in and drowned.

For so me time after starting the coli form tests all went well , with coliform counts below the magic 10 per 100 mL that was considered sa tisfactory from an untrea ted supply. Then one day came the shock report -coliforms 'too numberous (sic] to count. ' What to do ? See the Council' s M edical Officer. H e agreed that it was necessary to put out a ' boil water' warning until things cleared up. Repeat the tests to rule out laboratory contamination . But the numb ers persisted.

Investigate to find the cause , and rectify matters if possible.

28

WATER JULY/ AUGUST 1999

In an attempt to localise the tro uble, microbiological samples were taken from the channel at all readily accessible spots, such as road crossings . The results indicated some sections in w hich there was a marked increase in pollution during transit. These sec tions were tagged for closer examination.

To avoid unnecessary footslogging, a public-spirited Tiger M o th owner loaned his plane and his services as pilot to fly a brave draftsman in a low pass along the su sp ec t sec tions of the channel. Areas needing closer inspection were identified, and a foot inspection found some dead sheep in the channel, and drag marks w here hide and w ool had parted from decomposed sheep bodies as they were pulled out. In other places there were emu and sheep droppings in the backwaters of tributaries. After a clean-up , a few days pa ssed before coliform numb ers dropped to 'normal' and all seem ed to be well .

But the real explanation did not surface until some time later. A damaged culvert on the channel had to be repaired so it would be able to carry the peak summ er flows. The channel flow was cut off fo r a few days, while the pipe to the town was fed from the small dam. There was an unseasonal spell of ho t wea ther, triggering increased garden wa tering, and emptying the dam fas ter than anticipated. The repair was hastened, and then as mu ch water as po ssible was sent through the channel to restore the dam level.

The result of thi s was that the channel flo wed fuller than it had for a long time, collec ting things which had ga thered along its banks. When the wa ter from the channel reached the dam , instead of merging quietly into a full dam , it raced down the dam floor , sco uring out the accumulation of years , and carrying the polluted wa ter toward the pipe inlet, with tastes, odours, and the record number of coliforms.

As the years went by there were more incidents with high coliform counts. It appeared n ecessary to at least disinfect the water. Equipp ed with photo s of problem s and records of coliform counts, a deputation from the Watenvorks Trust visited the State

Rivers and Water Supply Commissio n to seek approval for funding to chlorinate. Approval was not forthcoming because the coliforms were not considered a problem, as the water did not come from a heavily populated area, and would be mostly of animal or soil origin and therefore not pose a threa t to human health!

After some years, chlorination was installed, but with the wide range of seasonal and diurnal flo ws, dosing accuracy was poor. The equipment suppliers were of little help , saying that I was 'too fussy' and that we would want portholes in our coffins.

During this time , there was also a problem with intermittent turbidity .

There was a cyclical demand for water trea tment w hich went like this: A group of ratepayers in the pub impress a W ater\lvorks Trust commissioner with the need for eliminating the muddiness of the water.

At the next Waterworks Tru st ~ meeting, the commissioner convinces the Tru st of the need for trea tment.

A The Trust asks the Engineer to 1!.11 prepare a report on technical feasibility and cost, and the Secretary to prepare a report on financing. . . The reports are presented, and_ an Iii excited newspaper reporter w ntes an article extolling the Trust's decision, and includes a resum e of the reports, and the effect on rates.

Another group of ratepayers nags a l!I commissioner in the pub pointing out that wa ter treatment would be an exorbitant waste of ratepayers' money. ('W e've put up with this water fo r years-why all the fus s now?') f!I The Trust ' receives' the Engineer's l!I and Secretary's reports, but decides to take no action at this stage. Staff are thankful that they did not was te time going into too much detail. Reports are filed for future reference .

Go back to step 1.

D r.,

R

fJ

Author Bern Gould is an AWWA m ember and a retired Associate Professo r of Publi c H ealth Enginee ring at the University of N ew South W ales .

WATER

NEW LEGISLATION Should Water Really Be Treated As Food?

D Deere A new draft bill that co uld have major implications for wa ter suppliers is currently being considered by Australian and N ew Zealand food . authorities . It is a national bill that will dramatically affect water quality regulations in both Australia and New Zealand.

Currently the safety of tap wa ter is regulated separately from other foodstuffs like soft drinks and bottled water. Major changes have bee n propo sed to food safety regulation under th e Exposure Draft Food Bill 1999. Submissions will be considered and the final Food Act presented by the Au stralian New Zealand Food Authority (ANZFA) for approval by the Au stralian New Zealand Food Standards Council (ANZFSC). The bill will then be presented to the Council of Australian Governments (COAG) for signature inJuly 1999 .

This bill will require the enactment of uniform Food Acts for all states and territories of Au stralia and N ew Zealand. As part of thi s dri ve for uniformity, the scope of Food Acts would be extended to cover suppliers of potable tap water and water companies would be classified as food bu siness under the Act. Furthermore, the legislation would 'bind the Crown,' or apply to state and federal departments and businesses .

M any of the details of the regulations have ye t to be determined. For example, the priority cla ssification for tap water bu sinesses affe cts the deadline for compliance which could be from two years (high priority) to six years (low priority) from the date of gaze ttal.

It may be just three years until water companies are required to mee t the propo sed legislation, so water businesses will need to keep abreast of the bill's progress through the legislative process.

In co nsultation with water law experts , a submissio n has been put to ANZFA giving comments on a number of aspects of the bill and how they may affect water companies . The submission rai ses a number of points and the main ones are noted here for Water readers w hose bu siness may be affected.

• Potable water supply compani es

represent a special case because of their This is not the case with foods tuffs that role as heavily regulated monopoly are intended only for con sumption. utilities . Specifically, they must operate Special provisions are needed to address in an enviro nment of co mmercial this scenario. prudence and manage the conflicting • Water supply companies may have obliga tions of least communi ty cost and limited control over th e extremes of the least bu siness risk. They are unable to sou e to tap pathway. The appropriate simply raise prices as they see fit to authorities must be made liable fo r match requirem ents, legal or otherwise. contamination resulting from plumbing Companies producing food pro- or ca tchment activities outside the ducts will have to use po table wa ter fo r control of water companies.

The closing date for submissions was all activities that use wa ter unless they can demonstrate th at another wa ter 31 M ay 1999 but copies of the Draft quality will not affect produ ct safety. Food Bill are still available from Food businesses and authorised officers ANZFA by calling (02) 6271 2241 may u se the National H ealth and (Australia) or (04) 473 9942 (New M edical R esearch Council/Agriculture Zealand). For details of quality manageand R esource M anagement Council of m en t sys tems and HACCP contac t Australia and N ew Zealand (NHMRC/ Qu ality Assurance Services in eac h ARMCANZ) 1996 Australian Drink- Capital C ity (M elbourne H ead Office, ing W ater Guidelines (as amended) for tel. (03) 9693 3535) or SGS or NATA. guidance as to w hat constitu tes potable wate r. Water co mpanies '··· the scope of Food Acts supplying water to lesser guidelines may fa ce press ure to move to would be extended to cover the Australian Drinking Water suppliers of potable tap water' Guidelines. Where they are unable to do so, this could have water treatm ent cost implica tions for the receiving A HAC CP-based QA system would food bu sinesses. ordinarily involve impl eme nting Companies produ cing food pro- HACCP in the context of an ISO 9000 ducts must introduce a qu ality assu rance quali ty management system . The risk (QA) system (or extend their existing management components of HACCP QA system) to include a food produ ct are ordinarily implemented through the safety plan based on the H azard Analysis Ri sk M anage ment Standard. The and C riti cal Control Point (HACCP) followi ng are available from Standards principles . This is consistent with the Australia (tel. 1300 65 46 46) to guide approach being proposed and tenta- the process: tively adopted by the water industry.

• AS/ NZS ISO 9001: 1994 and Some compani es are already going AS/NZS ISO 9002 : 1994 (note: ISO through the process of extending QA 9000:2000 is due out next year) system s to include HACCP implemen• AS/ NZS 3905.13 :1 998 Qu ality tation. ANZFA needs to be aware that System Guidelines . Guide to AS/NZS to date no wa ter company has attained ISO 900 1: 1994 for th e food processing full National Sanitation Foundation indu stry (NSF) HACCP Certification and that • SAA/SNZ HB 78 :1998 Correlation the timelines and community cost between AS/NZS ISO 9002: 1994 and impli cations required for doing so have the HACCP Principles • AS/NZS 4360:1999 Risk Manageyet to be established.

• R eti culated tap water represents a ment Standard . special case in that it is required for very many processes, not just as a foodstuff. Author Dr Danlel Deere is Manager, W ater ANZFA needs to be awa re th at it may be in the public interest that water Quality with South East Water, PO companies continue to supply tap water Box 1382, Moorabbin , Vic 3189, email even in the event of contamination. daniel.deere@sewl.com.au.

WATER JULY/ AUGUST 1999

29

m

WATER ·

BIOFILMS IN DRINKING WATER Influence of organic carbon and disinfection M L Angles, J Chandy, G Kastl, V Jegatheesan, P Cox, I Fisher Abstract Biofilm formation arises from the inevitable coloni sation of surfaces by microorgani sms w henever a solid surface is in contact with an aqueous phase. Biofilms influence the quality of drinking wa ter by affecting the efficiency of disinfection processes and assisting in the pro tection and regrowth of microorganisms in reticulation syste m s. Traditionally, bacterial regrowth in distribution systems has been inhibited by the use of disinfectants (m ainly chlorine and chloramine).

Alternative treatm ent methods are required , however, to control bacterial regrowth and biofilm formation when the u se of disinfectant is reduced. This reduction aims to minimise the development of potentially hazardous disinfection by-products and the capital and maintenance cos ts associated w ith di sinfection. One m ethod is to use biological treatment of drinking water to reduce nutrient levels. Of the three main nutrients , carbon , nitrogen and phosphorus, carbon is considered to be limiting in drinking water as it is essential for bacterial growth . Little is known abo ut nutrient levels in Australian ddnking water, or w hat effects they have on biofilm development.

This paper reports an initial laboratory study of the effects of o rganic matter on biofilm growth in Sydney drinking water. Direct cell counts were used to assess biofilm development on a number of plastic slides. The measurement of aqueou s phase total organic ca rbon (TOC) was inadequate to describe the utilisatio n of organic for biofilm formation. carbon Biological regrowth potential (BRP) was a more sensitive assay and provided information on the levels of organic ca rbon as well as the grow th rates of bac teria present in the water.

N evertheless, more sensitive m ethods, such as assimilable organic carbon and biodegradable dissolved organic carbon , 30

WATER JULY/ AUGUST 1999

are required to determine the low levels of carbon w hich contribut to biofilm growth.

The effects of chloramine on biofilm development and the contribution of biofilms to chlorine decay were also assessed . T he development of biofilms in treated Sydney tapwater occurred quite rapidly (within 45 days) in the presence of chloramine, but was greatest w hen chloramine concentrations fell below 0.1 mg L-1 . Complete removal of chloramine stress facilitated the establishment of biofilms within three days .

Further, it was shown that biofilms contributed to chloramine decay in reac tors fed with chloraminated Sydney drinking water.

Key Words N atural organic matter (NOM), TOC , BRP , biofilms, chlorine, drinking water

Introduction Blofllms

Biofilms are ubiquitous in flowing aqueous environments (Marshall et al., 1994) and form w herever a solid surface interfac es w ith an aqu eo u s phase .

Biofilm formation is dependent on the flow rate in the system , the nutrient levels in the water, the physiological state of the colonising bacteria and the surface type (Characklis et al. , 1990).

Formation of mature biofilms can be considered a four- stage process (Power and M arshall, 1988) involving: • conditioning film formation • attachment of bacteria • growth and production of exopolysaccharides • detachment.

Primary colonising bacteria may use the surface-bound substrate to grow, divide and produce extracellular polym er that increases the biofilm biomass. The primary colonisers may also .condition the surface, making it

suitable for furth er colonisation by other bacteria and higher organisms.

It is n ow widely accepted that biofilms are an integral part of the problem of bacterial growth in water di stribution systems (LeChevallier et al. , 1987; H erson et al. , 1987; van der W ende et al. , 1989) . There is increasing eviden ce that biofilms are direc tly involved in the: • corrosion of iron pipes • growth of microorganisms in distribution systems • pro tec tion of microorganisms from disinfectants · • decrease in disinfectant residuals • nitrification of chloramines • provision of food for macroinvertebrates.

There are inherent problems , however, with examining biofilm formation in drinking water supply pipes. The difficulty is access and the lack of adequate control over water parameters. The use of experimental reactor system s that simulate events in drinking water pipes , toge ther with improved m ethods for assessing biofilm development, aid in the examination of distribution pipe biofilm formation and the subsequent effects they have on drinking water quality. The current project inves tigated the growth of biofilms in drinking and source waters , in annular reactors.

Natural Organic Matter (NOM) NOM primarily comprises the dissolved fraction of organic carbon in natural waters. Originally NOM was thought to contribute only to the production of coloured water. More recently, it has been implicated in the increased demand for coagulants and disinfectants, the formation of biofilms and corrosion of pipes , the production of taste and odour, and in the formation of disinfection by-products Gacangelo et al., 1995) . NOM can be divided into the humic fraction (humic and fulvic

WATER acids) and the non-humic fraction (hydrophili c acids, proteins , amino acids and carbohydrates) (Owen et al. , 1995). The hurnic fraction is considered the more important fraction due to its contribution to colour, taste and odour problems. Recently it was shown, however, that the non-humic fraction can contribute significantly to disinfection by-product formation and, more importantly, to biodegradable organic m atter (BOM) , which is linked to bacterial regrowth m di stribution systems (Owen et al. , 1995).

Study Objectives Currently, there is very little information available on the effects of nutrients and disinfectants on biofilm forma'tion in Australian drinking water. In the present study, variations in biofilm formation due to different concentrations of nutri ents and disinfectants were exami ned by growing biofilms in laboratory reactors , on three distinct water types. The consumption of nutrients and disinfec tants by biofilms, over the length of a distribution main, was investigated by connecting the reactors in series to simulate plug-flow conditions. Two assays, TOC and BRP , were compared to determine which more accurately describes organic carbon use during biofilm formation. The proj ect aimed to further the understanding of the formation of biofilms in drinking water system s, and more specifically, on the effects of nutrients , for the development of managem ent strategy models.

Experimental Methods Reactor System

Biofilms were formed on the surface of polycarbonate slides (17 .5 x 201 mm 2 ) m airtight RotoTorqu e TM annular reactors (771.5 mL volume) .

Each slide was cut into three equal parts (17 .5 x 67 mm 2) to facilitate handling.

The reactors have an outer cylinder with 12 slides and a rotating inner cylinder which provides both mixing and shear forces. The inner cylinder was rotated at 45 rpm which simulated the shear stress produced by a flow rate of 0.35 m s- 1 in a 150 mm pipe and is con sistent with flow rates in distribution system pipes. Three reactors were connected in series to simulate plug flow conditions in distribution pipes.

The water supplied was either treated Sydney drinking water (SDW), dechlorinated drinking water (DDW) or source water from Lake Burragorang (SW), at a flow rate of3 mL min-1 . This flow rate provided a residence time in each reac tor of 4 h 17 min, or 12 h 51 min over the whole reactor system.

Reactors were run predominantly in the dark . The aqueous phase and

biofilms were sampled after 3, 10, 22 and 45 days of con tinu o us fl ow.

Temperature in the reactors was kept constant at 25° C. Aqueous Phase Analysis

TOC and the BRP were used to determine the use of aqueous phase organic carbon during biofilm developm ent in the reactors . The TOC levels in the inlet water and the aqueous phase of each reactor were determined using a Sievers Portable Total Organic Carbon Analyser M odel 820 . The BRP of sample waters was determined at the Australian Water Quality Centre (AWQC), B olivar, South Au strali a u sing the m ethod of Werner and H ambsch (1986). Samples of inlet water to the first reactor and outlet wa ter from the third reactor were taken on each of the biofilm sampling days and transported to AWQ C on ice. M ean values fo r growth rate (µ ) and acetate carbon equivalents (µg C L- 1) were calculated for inlet and outlet waters by averaging results over the duration of the experiment for each water type.

The con centrati o ns of soluble reactive phosphate and NH 3-N were determined using standard m ethods at Australian Water Technologies (AWT) Environment, Science and Technology at W est R yde, N ew South W ales.

Total chlorine residuals of chloraminated Sydney drinking wa ter were determined colorimetri cally using HACH® DPD (total chlorine) reagent.

In order to determine whether large molecular weight organic carbon molecules, such as humic and fulvic acids, contributed to biofilm developm ent , the absorbance at 25 4 nm (UV 254 ) of inlet water and aqueous phase from each of the reactors was determined at the time of biofilm sampling.

Total cell counts in the aqueous phase were performed by staining a 1 mL sample for five minutes with 4 ,6-diamino-2-phenylindole (DAPI), a fluorescent dye w hich specifically stains DNA. The stained sample was filtered onto a 0.2 µm polycarbonate filter (¢ = 25 mm) and cells were counted u sing a

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Biofilms were sampled by removing slides from each reactor at each sampling time (3, 10, 22 and 45 days).

Slides were replaced after sampling to maintain the hydra ulic regime in the reactors. Total cell c unts on the slide surface were performed by staining with DAPI for five minutes , rinsing by immersion in MilliQ water, followed by mounting the stained reactor slides on mi croscope slides . Cells were counted as described previou sly.

Results Aqueous Phase

The results for the total chlorine residual in reactors run on SDW are presented in Figure 1. There was an obvious decrease in chlorine residuals over the three reactors. Chlorine residuals <O .1 mg L- 1 were recorded in reactor 3 after ten days . When the total reaction rate of chlorine was compared to the reaction rate of chlorine in the bulk aqueous phase for each reactor, the greatest increase of the total reaction rate over the bulk reaction rate was in reactor 3 (see Fi gure 2). This was attributed to biological chlorine removal.

TOC valu es were generally higher in SW (4 .0-4.2 mg L- 1) than in SDW (3.3-3.8 mg L-1 ) and DDW (3.1-3 .3 mg L- 1) . There were no observable differen ces in TOC co n centrations between the three reactors or between the inlet water and the reactors over the duration of biofilm development in either SDW, SW or DDW (data not show n). Values ofUV254 were typically low in each of the water types SW and SDW (range 0.05-0.06 and 0.05-0.07, respectively) and DDW (range 0.03-0.04). There were no measurable differences in UV254 between each of the reactors or between the inlet water

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Zeiss epifluorescence microscope fitted with a Neofluar lOOX objective, a 100 x 100 µm 2 graticule and filter set for UV excitation . Ce lls in a total of 15 randornly chosen graticule areas were counted .

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Figure 1 Total chlorine residua l in reactors run on drinking water (SDW) (+ inlet, D reactor 1, A reactor 2 & o reactor 3).

Figure 2 Ratio of total react ion rate to bulk reaction rate for chlorine decay in reactors run on drinking water (SDW) (D reactor 1, A reactor 2 & o reactor 3).

WATER JULY/ AUGUST 1999

31

WATER and th e reactors over the wo rk th rough th e C RC for duration of biofilm development · Water Quality and Treatment in eac h of the water types (data (CRCWQT) will ascertain if 1.0E+06 phosphate is an important factor not shown).

T here was an observab le in bi ofilm development in 8.0E+ 05 drinking water. differe nce in mean growth rates 6.0E+05 The development of biofilms and the m ea n co ncentration of SW and DDW was more rapid acetate-C equivalents in each of nd reached a higher cell den sity the water types (see Table 1).

W h en ex-pressed as a percentage T icJav> an those fo rmed in SDW. It is not clear w hether the absence of of m ean TOC values, there was a disinfec tant or the availabili ty grea ter proportion of acetate-C [ [ of n utrients (NH 3-N , reac tive equivalents in DDW (11 %) than "'.... a: e. e.

I;: phosphoru s and organic carbon) ....'"a: ;: "' in SDW (8.5%) or SW (6.5 %). .... '" .... a: a: a: con tributed mo st to biofilm M ean outlet acetate- C equiva development in the SW and lents an d growth rates were Figure 3 Total cell counts of biofilms grown in SW, SDW DDW wa ters. Certainly, the co nsistently higher than those and DDW in RotoTorque™ annular reactors. eleva ted co ncentration of fo und in inlet waters (Table 1). ace tate- C equivalents in DDW As expected, the concentra. tion ofNH 3-N was grea ter in SDW and and w hat effect wa ter quality parame ters (345 µ g 1- 1) compared to SW and DDW (0 .15-0 .26 mg 1 -1), du e to the such as di sinfec tion residu als and SDW, may have made a significa nt additi on of ammonia during chlorami- organic carbon may have on their devel- contribution to the process of bacterial nation, than in the SW (<0.01 mg 1 - 1). op m ent. In thi s preliminary set of recovery and growth. In addition, th e There was no reactive phosp horus experiments, biofilms were formed on high biofilm cell co unts observed in detected in SDW. Concentrations of th e surface of polycarbonate slides in DDW, compared to SDW, by day 3 reactive phosphorus in SW and DDW three differe nt wa ter types (SW , SDW sugges ted that the removal of chloramine stress fac ilitated rapid were comparable (mean inlet reactive-P and DDW).

In trea ted Sydney drinking water, recovery and proliferation of the = 0.004 mg 1- 1 and 0.003 mg 1- 1, respectively) . T here was no evidence of biofilm formation occurred after only microbes in the system. The occurrence the consumption of nitrogen or 45 days of continu ous water flow and of disinfectant decay in the distribution phosphorus in the reactors (data not caused an ac tive redu ction in chlorine system (e.g. dead ends), w here bacterial residual. The greatest biofi lm develop- growth and biofilm formati on can shown). ment was fo und w hen chlorine residu- progress within a short period, sho uld Biofilm Results als fell below O.1 mg 1 - 1. H owever, a be considered more, carefully in water Total cell counts on the slide surfaces measurable increase in cell biomass was quality management strategies. showed that biofilm development detected in water with to tal chlorine The upward tre nds in biofilm cell occurred within 45 days in the presence residuals as high as 0.4 mg 1- 1 . This is counts in SDW indicate that only the of chloramine in SDW (see Figure 3) . not surprising, as the resistance of distri- early stage of biofilm development was The greatest slide cell counts in SDW bution system microorganism s to disin- m easured. Co nversely, biofilm cell were obtained in reac tor 3 by day 45 fec tion has bee n shown , particularly counts in SW and DDW were seen to (see Figure 3). This corresponded with w hen associated with biofilms at the decrease after day 22. It is not clear w hy low chlorine residuals in thi s reactor pipe surface (1 eChevallier et al. , 1988). this decrease was observed, but it may and the greatest total chlorine reaction Nevertheless, compared to biofilm have been due to cyclic sloughing of the rate over bulk reaction rate (see Figures formation in SW and DDW, the biofilm. The results also suggest that 1 and 2 respectively) . presence of chloramine in SDW future work wo uld require longer Biofilm developmen t in SW was reactors probably led to the observed lag periods of biofilm formation to determore rapid and slide cell counts grea ter period before biofilm development. mine w hen biomass production at the The development of biofilms in each surface reac hes steady state. than in SDW (see Figure 3). Slide cell co unts increased with time in each of of the drinking water reactors indicates It was not possible to determine the the SW reactors up to Day 22, after that there is sufficient organic carbon contributi on of orga ni c ca rbon to which time counts from Reactors 1 and and , although undetectable, sufficient biofilm development in the reac tor phosphate to support bac terial growth systems . The effect ofTOC on biofilm 3 decreased (see Figure 3).

T he grea te st level of biofilm forma- at surfaces. T h e imp o rtance of development was measured rather than tion was observed in the DDW reac tors ph osphate for limiting bac terial growth DOC to ascertain if particulate matter (see Figure 3). Sub stantially grea ter in distribution wa ter has recently been was used by the biofilms. While there biofilm development was observed shown (Miettinen et al. , 1997). Future was an overall difference in the TOC within three days levels in the water types, co mpared to biofilms no obvio us trends were Table 1 Bacterial regrowth potential (BRP) results for the grown in the other water seen over the reac tor aqueous phase of reactors types. Cell co unts were systems.

Clea rly the Meanµ Mean C greater than in all other amount of carbon used to Source water (SW) Inlet 0 .14 reactors by 22 days but, 260 produ ce biofilm biomass similar to biofilms grown was below the detec tion Outlet 0.16 280 in SW, co unts decreased limit of the1total organic Sydney drinking water (SDW) Inlet 0 .10 320 by 45 days . ca rbon analyser in the Outlet 0 .13 400 presence of such a high Dechlorinated drinking water (DDW) Discussion Inlet 0.16 345 orgamc ca rbon ba ck0 .17 430 Outlet At present very little is gro und (approximately known abo ut biofilms in 4 mg 1 -1). The BRP test µ =growth rate (h·1 ); C = µgL·1 acetate-C equivalents Australian drinking water enabled the detection of 32

WATER JULY/ AUGUST 1999

WATER small varia tions in BOM concentrations.

The difference between inlet and outlet concentrations of ace tate-C equivalents indicated , however, that organic carbon was being added to the system from reactor materials. N ew reactors have been designed that will enable the study of the contribution of low levels of organic carbon to the development ofbiofilms by minimising organic carbon addition from reactor materials. R esults from the BRP tests also revealed that SW, SDW and DDW were of high quality (M Drikas, pers. comm.). Certainly, the percentage of BOM (compared to TOC) in SDW (8 .5%) and DDW (11 %) was comparable to those reported by LeChevallier et -al. (1991) in a US drinking wa ter system.

Of interest is the increase in grow th rates of bacteria in reactor 3 outlet wa ter compared to inlet water for reactor 1, for each of the water types. There may be variou s reasons for this observation.

It is possible that a percentage of the bacteria isolated from the outlet waters was from the biofilms where m etabolic activity and hence grow th rate is higher (Costerton et al. , 1995 , Geesey et al. , 1978) . Alternatively, there may have been a shift from larger organic carbon molec ules to smaller, more readily usable species by the end of the reactor system . Further work is required to determine which is the more likely.

While the BRP m ethod provided the most information in terms of organic carbon levels and bacterial growth rates, more sensitive m ethods are required to detect w hat is clearly a very small use of organic carbon by developing biofilms.

M ethods such as the determination of assimilable organic carbon (AOC) and biodegradable dissolved organic carbon (BDOC) are currently being developed at AWT Environment , Scien ce and Technology for use in Australian wa ters and in studies ofbiofilm development.

Conclusions The results from the present study have important consequences for the managem ent of reticulation systems.

While chloramine was unable to prevent the development of biofilms, the lag period before mature biofilm development w as increased. Biofilm formation , however, was greatest w hen di sinfec tant stress was remove d , as might be found in areas of low flow in di stribution sys tems. Indee d , the prese nce of biofilms can clearly contribute to the decay of water disinfectant, m aking conditions more suitable for bacterial growth. The increase of biofilm biomass in dechlorinated drinking water indica ted that a co mbination of the absenc e of

chloramine and high er nutrient concentration s may have contributed to this increase . A management strategy therefore may be to combine the effects of disinfec tant and nutrient limitation to control biofilm formation. The present proj ect is a predecessor to the CRCWQT proj ec t Fac tors affectm g Biofilm D evelopment Under Controlled Laboratory Conditions as such , the present study was an initial investigation to determine the range and significance of key parameters. The C RCWQT project aims to broaden the experimental data base and to design experiments to provide answers about specific biofilm processes .

In order to determine the potential of drinking wa ter to support biofilm development, more sensitive, routine methods are required to assess organic carbon levels. To this end , the inclusion of BOM determination in the BRP m ethod provided useful inform ation on the concentrations of organic carbon as well as growth rates of bacteria in the water. The CRCWQT project is addressing the findings of this study by utili sing redesign ed biofilm reactors w hich limit carbon addition and disinfection decay. In addition , the reactors are being run for a longer time, other organic carbon measurement methods such as the AO C and BDOC assays are being developed to be used in conjunction w ith the BRP m e thod , and investigations on the effects of limiting nutrients on biofilm development in drinking wa ter under different disinfectant regimes are being conducted .

Acknowledgements The authors thank Naomi Withers and Mary Drikas (AWQ C) for performing the BRP analysis and their invaluable assistance in interpreting the data. This research was funded by a D epartment of Industry Science and Technology grant as part of the Au stralia/Germany Collaboration o n Water and Environment Research and D evelopment.

References C haracklis W G, McFeters GA and Marshall K C (1990) Physiological Ecology in Biofilm Systems, pp. 341- 394. In W G C harackli s and K C Marshall (eds.) , Biofi.lms, John Wiley and Sons, New York.

CostertonJ W, Lewandowski Z, Caldwell D E, Korber D R and Lappin-Scott H M (1995) Microbial Biofilms. Annu. R ev.

Microbial., 49:711-745.

Geesey G G, Mutch R, Costerton J Wand Green R B (1978) Sessile Bacteria: an Important Component of the Microbial Population in a Small Mountain Stream.

Limnol. Oceanogr., 23 :1214-1 223.

H erson D S, M cGonigle B, Payer M A and Baker K H (1987) Attachment as a Factor

in the Protection of Enterobacter cloacae from Chlorinati on. Appl. Environ.

Microbial., 53:11 78-11 80 .

Jacangelo J G, DeMarco J , Owen D M and Randtke SJ (1995) Selected Processes fo r Removing NOM: An Overview. ]. Am. Wat. Works Assoc., 87: 64-77 .

LeChevallier MW, Babcock TM and Lee R G (1987) Examination and C haracteriza tion of Distribution System Biofilms.

Appl. Environ. Microbial. , 53:2714-2724.

LeChevallier MW, Cawthon CD and Lee R G (1988) Factors P romoting Survival of Bacteria in C hlorinated Wa ter Supplies.

Appl. Environ. Mici.;obiol., 54: 649-654.

LeChevallier M W, Schulz W and Lee R G (199 1) Bacterial N utrients in Drinking Water. Appl. Environ. Microbial., 57:857-862.

Marshall K C, Power K N , Angles M L, Schneider R P and Goodman A E (1994) Analysis of Bacteria.I Behaviour during Biofouling of Surfaces, pp. 15-26. In G G Geesey Z Lewa ndowski and H-C Flemming (eds.), Biofouling and Biocorrosion 111 Indu strial Water Systems, Lewis Publishers, Chelsea , Michigan.

Miettinen I T, Vartiainen T and Martikainen P J (1997) Phosphorus and Bacterial Growth in Drinking Water. Appl.

Environ. Microbial. , 63: 3242-3245.

Owen D M, Amy G L, C howdhury Z K, Paode R , McCoy G an d Viscosi! K (1995) NOM C haracterization and T reatabili.ty. ]. Am. Wat. Works A ssoc., 87:46-63.

Power K and Marshall k. C (1988) Cellular Growth and Reproduction of Marine Bacteria on Surface-Bound Substrate.

Biofouling, 1:163-174.

Van der Wende E, C haracklis W G and Smith D B (1989) Biofilms and Bacterial Drinking Water Quality. Wat. Res. , 23:1 313-1322.

Werner P an d Hambsc h B (1986) Investigati ons on the Growth ofBactetia in Drinking Water. Wat. Supply, 4:227-232 .

Authors Dr Mark Angles is a senior consultant at Australian Water Technologies (AWT) E nvironment , Science and T echnology, PO Box 73, W est Ryde NSW 21 14 , em ail: anglesm@awtensight.nsw.gov.au. Apart from his role as laboratory coordinator for the Environmental Pathogens gro up , he is currently managing two CRCWQT proj ects investiga ting biofilms in drinking water. Dr Joseph Chandy and Dr Peter Cox are AWT senior consultants involved in research and development and are all researchers with Australian W ater T echnologies Environment, Science and T echnology.

George Kastl and , Veeriah Jegatheesan are AWT Senior Consultants involved in the modelling of biofilms in drinking water. Dr Ian Fisher is an AWT Principal Scientist and program coordinator for CRCWQT Program Four proj ects.

WATER JULY/ AUGUST 1999

33

WASTEWATER

APOLOGY AND CORRECTION In the paper Groundwater Contamination from Efiluent Irrigation by Snow et al. in our March/ April issue, w hich demonstrated the ability to control nitrate leaching by matching plant production systems to climate, we made two errors for which we apologise.

As was detected by a number of interested readers, Figure 4 published in this paper was in fact a repeat of Figure 1. The correct Figure 4 is printed below.

The authors also submitted a list of further reading with comments to assist readers. These were erroneously published as 'References,' which implies citations throughout the text.

An updated 'further reading' list is published below.

-

Rainfall Perth

Pan evaporation Coffs Harbour

Further Reading Bond W J (1998) Eilluent Irrigation-An Environmental Challenge for Soil Science.

Australian journal of Soil Research 36, 543- 55. [Discusses some of the issues fa cing sustainable reuse of effluents] Bond W J , Polglase P J , Smith CJ , Falk.iner RA, Myers B J and Theiveyanathan S (1995) Effluent Irrigation: Implications for Groundwater. In Groundwater and the Community, 1995 Murray Darling Workshop, Wagga Wagga, NSW, Australia, 11-13 September 1995. R ecord 1995/61 pp. 40- 44.

(Australian Geological Survey Organisation.)

[Presents potential impacts on groundwater from irrigating effluent onto tree plantations] Dillon P J , Pakrou N , Snow V 0, Correll Rand Barry KE (1999) Monitoring and Modelling of Leachate Beneath a Piggery Effluent Irrigation Area. Final R eport on LWRRDC Proj ect CWS5 and Pig RDC Proj ect CRC1P. Centre for Groundwater Studies, Centre for Groundwater Studies Report Adelaide, SA. [Shows expe rimental and modelling results from piggery eilluent irrigated onto potatoes and pasture] Dillon P J, Snow V 0, and Pakrou N (1998) Is Effluent Irrigation a Sustainable Solution for Water Resources Protection? In Proceedings of an International Groundwater Conference, Groundwater: Su stainable Solution s, University of Melbourn e, M elbourne, Vic, 8- 13 February 1998. (Eds. Weaver TR and Lawrence CR) pp. 39- 44.

(International Association of H ydro-geologists: Barton, ACT.) [Presents summary data from several effluent irrigation sites] Myers BJ, Bond W J , Benyon R G, Falk.iner R A, O 'Brien ND , Polglase P J , Smith CJ , Snow V O and T heiveyanathan S (1999) Principles and Practice of E!Iluent Irrigated Plantations in Australia. CSIRO Forestry

34

WATER JULY/ AUGUST 1999

and Fores t Produ cts, Canb erra, ACT. [Detailed guidelines on the design and operation of efflu ent-irrigated plantations, presents simulation results in several climates and soil types, gives information on the calculation of water and nitrogen balances] Myers BJ , Bond W J, Falk.i ner RA, O 'Brien N D , Polglase P J , Smith C J and Theiveyanathan S (1994) Wagga E!Ilu ent Plantation Project - T echnical R eporr. U ser Series N o. 17. CSIRO Division of Forestry , Canberra, ACT , Au stralia. (Presents preliminary experimental refults from the Wagga Wagga Effluent Plantation Proj ect) Myers BJ, Theiveyanathan S, O 'Brien N D, and Bond W J (1996) Growth and W ater U se of Effluent- Irrigated Eucalypws Grandis and Pim1s Radiata Plantations. Tree Physiology 16 , 21 1-19. (Shows data of tree growth rates and water use) Polglase P J , T ompkins D , Stewart L G and Falk.iner R A (1995) Mineralization and Leaching of Nitrogen in an Effluent-Irrigated Pin e Plantation. journal of Environmental Quality 24 , 911-20. [Presents data of the nitrogen balance in a pine plantation and discusses the effect of the decrease in tree growth after canopy closure) Smith CJ , Snow V O , Keating B A, and Huth N I (1998) Managing Nitrogen in Piggery Effluent Applied to Land. In Opportunities and Solution s, National Pig Environmental Con fe rence, Gold Coa st, Qld, 14-15 October. 5 pp (Australian Pig Institute: T oowoomba, Qld.) (Simulation results of the irrigation of high-itrength effluents and disc ussion of management options for managing leaching of nitrogen) Snow V 0 , Bond W J , Myers BJ, Smith C J , Polglase P J , Theiveyanathan S, Falk.iner R A, Benyon R G, Verburg K and Dillon P J (1998) APSIM-WASTE: Prediction of the Fate of W ater, Salt, and Nitrogen Following Irrigation With Effluent. In N ational Soils Conference, Environmental B enefits of Soil M anagement, Brisbane, 2 7-29 April 1998.

(Ed. Mulvey P) pp. 145- 53. (Au stralian Soil Science Society: Clayton, Vic.) [Shows data and simulations from eilluent-irrigated eucalypts] Snow V 0 , Bond W J , Myers B J , Theiveyanathan S, Smith CJ and Benyon R G (1999) Modelling the Water Balance of Effluent-Irrigated Tree Plantations. Agricultural Water M anagement 39 , 47-67.

[Presents a description of the details of the water balance part of the simulation model and comparison of simulation results against data) Snow V 0, Smith C J , Polglase P J and Probert M E (1999) Nitrogen D ynamics in a Eucalypt Plantation Irrigated W ith Sewage Effluent or Bore Water. Australian journal of Soil R esearch 37, 257-244. (Presents a description of the details of the nitrogen balance part of the simulation model and comparison of simulation results against data) Snow V 0 , D illon P J , Smith C J and Bond W J (1998) Containing the Risks of Groundwater Contaminationfrom Reuse of Effluent. In Water R ecycling and Su stainable Water Managem ent, 6th NSW R ecycled Water Seminar, Sydn ey NSW, 3- 4 Novemb er. (AWWA: Sydney NSW.) [Contains simulations of the implications of irrigating efflu ent onto trees or crops)

WASTEWATER

Abstract The Subiaco W astewater Treatment Plant (WWTP) currently discharges all of its 52, 00 0 m 3/d (52 ML/d) of secondary treated wastewater via a 1 km ocean outlet. The W astewater 2040 Study identified possible demand for aro und 20,000 m 3/d (20 ML/d) of this water fo r the irrigation of parks and gardens near the plant.

The W estern Australian Water Corporation commissioned Kinhill Pty Ltd to do a feasibility study into irrigatmg areas close to Subiaco WWTP with wastewater treated at the plant. The purpose of this study was to determine the interest in and dem and for reclaimed water fo r irrigation , assess add1t1011al treatment requirem ents, estuna te costs, and highlight environmental or social iss ues. Thi s paper reports on the results of that study .

The to tal immediate demand from users willing to pay sub stantially more for reclaimed water than they pay for other water at present was determined to be 4,500 m 3/d. The total potential reclaimed water dem and (if the price of reclaimed water was no greater than the cost of extracting and using groundwater) was determined to be 35,000 m 3/d.

Comparison of water and nutrient requirements for turf showed that there would be a need to incorporate biological mtroge n removal to 18 mg/L, alum

dosing for phosphoru s removal to 1 mg/L and a dissolved air flotation (DAF) plant fo r suspended solids for the reclaimed water. After on-site storage in a 25,000 m 3 lined and covered dam 5 g/m 3 chlorine was estimated to b~ needed to achieve the required m edian coliform levels of less than 10 thermotolerant colifo rms per 100 mL at the point of use.

The reclaimed water would be pumped to the users on dem and via a network of five trunk mains between 8 pm and 4 am since H ealth D epartment regulations required that irrigat1011 with reclaimed water cease at least one hour before sunrise.

From the w hole of life cost estimate to 2030 based on net present value plu s a discount rate of 8% , the additional unit cost of supplying reclaimed water to all identifi ed p otential users to recover both capital and operating costs was determined to be 44 c/m 3. If only the extra operatmg and maintenance costs of the reclaimed water schem e were to be recovered, the additional unit cost of supplying reclaimed water to all identified po tential users was determined to be 12 c/m 3 .

This paper was judged the best paper in the environment stream at the AWWA 18th Federal Convention.

Key Words W astewater, re use, irrigation , treatm ent, nutrients, reclaimed, cost

Introduction The Subiaco W astewater Treatment Plant (WWTP) currently trea ts about 52,000 m 3/d (52 ML/d) of predomin antly dom es tic wastewater fro m Perth 's central bu siness district and wes tern suburb s, all of w hi ch is currently disposed to an ocean outlet 1 km off Swanbourne (see Figure 1).

The W astewater 2040 Study identified possible demand fo r about 20,000 m 3/d of this water fo r irrigation of parks and garden s in the immediate vicinity of the WWTP (W ater C orporation , 1995).

Groundwater is used extensively in the m etro politan area to irrigate parks, reserves and ovals, and su stained pressure_ on the superficial groundwater aqmfer 111 some areas is resulting in a lowering of the watertable and decreasing water quality.

Con sequently, in 1997, the W estern Australian W ater Corporation investigated the feasibility of extrac ting untreated wastewater from, sewer mains leading to Subiaco WWTP and treating and reusm g 1t to irrigate parklands and golf courses in the M osman Park area .

That study identified demand fo r at least 1,000 m 3/d of water, but the cost of extracting and treating the wasteWATER JULY/ AUGUST 1999

35

WASTEWATER wa ter in a neighbourhood sewer mining treatment plant was uneconomical.

The W ater C orporatio n commissioned Kinhill P ty Ltd (Kinhill) to c·o nduct a feasibility study to identify non-residential areas of urban parkland close to the Subiaco WWTP w here reclaimed water could be beneficially and responsibly used for irrigation . The study also determined how mu ch reclaimed water could be used , assessed additi onal treatm en t requirem ents, es timated costs, and highlighted environm ental and social issues . This paper re po rts on the results of that study.

Demand for Reclaimed Water

1,286,000 m 3/ month , with approximately 60% of the total annual use occurring in D ecember to February.

Total current use by the 31 ~riority users is approxima tely 36,100 m /d.

A total of approximately 883 hectares of golf courses, parks, ovals, reserves and garden s were identified as currently irrigated or likely to be irrigated by the 31 priority users in the future. If all these areas co uld be irriga ted with reclaimed water, the total potential reclaimed wa ter usage would be 8,747,000 m 3 per annum, or 40,100 m 3/d.

H owever, it was considered that only

H owever, most of these users indica ted they would only be interested if the cost was n o m o re than they currently expended on borewater.

On the other hand, two potential users expressed grea t interest in being suppli ed with reclaimed wa ter by 2000/2 001. These u se rs, plu s the Subiaco WWTP , could use ab o ut 4,500 m 3/d of reclaimed water.

Regulatory and Quallty Requirements

"

N ational and state guidelines exist fo r use of reclaimed water (NHMRC, ANZE CC, ARMCANZ , 1996 and EPA, 199 1; Thomas, 1993; Water and Rivers Commission, 1998 respec tively). Application and regulation of these guidelines by local agen cies is an important point of control for wastewater reuse schemes. The H ealth D epartment of W estern Australia (HDWA), the W ater and Rivers C ommission (WRC), and the D epartment of Environm ental Protec tion (DEP) all have powers to regulate aspects of reu se schem es .

All proposed uses of reclaimed water for irrigation in the study area are within areas designated as ' unco ntrolled ,' since public access is possible to almos t all of these areas. Access to an irrigation area wo uld be considered by the HDWA to be 'controlled' w hen the area was fen ced to res trict access and signed to indica te reclaimed wa ter irriga tion was b eing undertaken. Table 1 gives a summary of the various requirem ents fo r irrigation of 'uncontrolled' areas.

All curre nt and po te ntial irriga ted areas including urban parks and gardens, golf courses, sporting and show gro unds, cem eteries, schools, hospitals, defence establishments, railway reserves, resea rch es tabli shments, and the Subiaco WWT P itself, within the study area (north of the Swan River, west of the Mitchell Freeway and so uth of the Lake Karrinyup and H am ersley Golf C ourses) were identified (see Figure 1). From thi s list, 31 priority non-school or hospital users were identified based on size of potential irrigation area .

C urren t wa ter and nutrient usage rates in the resulting 113 irrigated sites were estimated by ques tionnaires and mee tings.

W ater applica tion rates we re found to vary between 2,000 and 35,000 m 3/ha/annum, with the average being 10,000 m 3/ha/ annum. The highest wa tering rates were in parks w here exotic plan ts we re watered daily.

Treatment Requirements H owever , even the average Th e data on wa ter quality water application rate of 10,000 shown in T able 2 indica te that m 3/ ha/annum is co n si dered Figure 1 Pipeline routes to potential irrigation areas from the quality of the trea ted more than required to maintain Subiaco WWTP wastewater currently produced acceptable healthy turf under at Subiaco WWTP would need W estern Au stralian conditions.

Lowe r appli cation rates could be 86 of these sites, including the Subiaco to be upgraded significantly to m eet the obtained by edu ca tio n of users and WWTP itself, could be cost-effectively HDWA and WRC requirements given close r m o nito ring of irriga ti o n supplied with reclaimed wa ter from in T able 1 with respect to nutrient progra m s. H owever, it is unlikely that Subiaco WWTP. Small , isolated areas loading and bacterial levels before any consumption would fall to rates recom- of turf were excluded. The total water reuse could occur. The required nutrim ended in the Turf Irriga tio n an d dem and from these possible users was ent concentrations were based on an 3 Nutrient Study Oohnston , 1996) in the estimated to be 35,300 m /day or ass umed wa ter applicatio n rate of 3 near term because of the need to install 7,675,000 m /annum. T his is almost 10,000 m 3/ha/a.

The current layout of the plant soil m oisture se n so rs and irriga tio n 68% of the current average daily flow of wastewater from Subiaco WWT P. provides the following treatment stages : controll ers.

N o t all the p o tential u se rs were • coarse screening consisting of The to tal identified current wa ter use was almo st 7,8 30,000 m 3/a nnum equally enthu sias tic about us111g automatic bar screens • grit removal in cross-flow detritus irriga ted over 25 to 35 weeks of the year reclaimed water. The probable demand from O ctober to April , averaging from those users w ho did express signif- basins • primary sedimentation in fo ur circu210 days per year. Peak use in the icant interest in the use of reclaimed sum m er mon ths was approximately water was estimated to be 23,200 m 3/ d . lar tanks 36

WATER JULY/ AUGUST 1999

WASTEWATER • activa ted sludge reactor consisting of nine parallel recta ngular. basins with common draw- off of mixed liqu or to the clarifiers and common sludge recycle • twelve secondary clarifiers • waste activated sludge thickening in a dissolved air flotation (DAF) unit and subsequent treatment in an oil-from-sludge plant.

A variety of op tions for nitrogen and phosphoru s removal , including converting the plant to a full biological nutrient removal mode, were considered in order to achieve the required treated was tewa ter quality .

Because of the imminent but not yet final proposal to expand the plant, it was proposed that the Subiaco WWTP be .upgraded to run in the modified Lutzack-Ettinger mode by increasing the size of the anoxic zone and providing an internal recycle. By doing this, complete or near complete denitrification would be achieved, and nitrogen levels in the reclaimed wa ter would vary from anything between 3 gN/m 3 and 12 gN/m 3 . Treated wastewater from the clarifi ers would then be dosed with alum and treated in a DAF unit to redu ce pho sphoru s to 1 g/ m 3 and suspended solids to less than 15 g/m 3.

Reclaimed Water Distribution Several options for distributing the reclaimed water to 86 potential users

of the WWTP , gradually decreasing in size to 300 mm. The branch lines would range in diameter from 100 mm to 375 mm. Once wa ter is delivered to the sites, users would u se their existing irriga tion system s.

Costs

were examined. This included: • pumping water to all users over a 24-hour period with storage at each site • pumping to three intermediate reservoirs over a 24-hour period, with distribution to users on demand over an eight-hour irriga tion period • storage on-site at the Subiaco WWTP with pumping to users on demand over an eight-hour irrigation period.

T he mo st economical option was determined to be to store the reclaimed water in a 25,000 m 3 holding dam at the Subiaco WWTP and to supply it to users on demand.

The propo sed pipeline n etwo rk would consist of tvvo main lines, with three sub sidiary lines, and va riou s branch lines to users (see Figure 1). The main lines would range in diameter from 600 mm to 900 mm at the outlet

Table 1 Summary of current treated wastewater reuse requirements

Issue

Requirement

Leve I of treatment

Secondary treatment with filtration and pathogen red uction .

Thermotolerant coliform count

Median < 10 cfu/100 ml; 4 of 5 samples less than 20 cfu/100 ml.

To be measured at the point of irrigation at no less than half hour intervals. Sampling weekly initially reduced to monthly once it is evident the scheme is working.

Suspended solids, pH and chlorine

Sufficient monitoring to ensure the thermotolerant coliform count is met at the irrigation outlet.

Total nitrogen application

140-480 kg/ha/a depending on location , sensitivity of water body, soil amendment. 180 kg/ha/a elected.

Total phosphorus application

10-40 kg/ha/a depending on location , sensitivity of water body, soil amendment. 10 kg/ha/a elected.

Nutrient management

Preparation of a nutrient and irrigation management plan.

Irrigation location and timing

Irrigation allowable within 15 m of roads and houses.

No spray detectable at or beyond the boundary of the site.

Irrigation to cease one hour before sunrise.

Regulatory approvals

Single or multiple works approvaljs and licence/sunde r the Environmental Protection Act. Licence under the Health Act

Monitoring

Reclaimed water quality and quantity; groundwater depth and quality; soil salinity and plant health; possibly rainfall/ evaporation.

Other

Appropriate signage

Table 2 Current and required treated wastewater quality from Subiaco WWTP at point of use

Parameter {g/m 3 )

Total nitrogen Total phosphorus (g/m 3 ) Suspended solids {g/m 3 ) Thermotolerant coliform bacteria (cfu/ 100 ml)

Current value

Required value

20-45 5-10 25-125 103-105

18

1 10-20 <10

The total con stru ction costs (including a design and contingency allowance of 25%) for the trea tment plant upgrade, pump station , sto rage rese rvoir, and distribution system to supply the 86 po ssible u sers wi th re claimed wa ter were estimated to an accuracy of no more than 25% (see Table 3). These costs are only for upgrading the particular parts of the plant required to treat a flow of 35,000 m 3/d. There may be additional costs associated with enabling the rest of the plant to accommodate the remaining actual fl ows . Additional annual operating and maintenance costs were estimated (see Table 4).

From the w hole of life cost estimate to the year 2030 based on net present valu e, and a di scount rate of 8%, the additional unit cost of supplying reclaimed water to all identified potential users in order to recover both capital and operating costs was determined to be $0.44 / m 3 . If only the extra operating and maintenance costs of the reclaimed water scheme were to be recovered, the additional unit cost of supplying reclaimed wa ter to all identifi ed potential users was determined to be $0.12 /m 3 .

These unit cos ts are considerably lower than the current charge of $0.606-$0.676 to use scheme wa ter to irrigate reserves . However , they are greater than the operating and maintenance costs of about $0 .20 /m 3 associated w ith using gro undw ater. Mo st potential use rs indica ted they were more likely to accept reclaimed water should costs be comparable or less than current costs. Unit charges of $0.20 /m 3 wo uld not allow the Water Corporation to recover the capital investment of the proj ec t, but wo uld easily cove r th e additional operating and maintenance costs associated with the scheme.

Environmental and Social Issues Potential impacts associated with the use of reclaimed water depend on many factors including wastewa ter quality, application rate, timing :md method , management of the irriga tion area (e.g. grass, weed and drainage control), soil conditions, the location and nature of nearby sensitive areas and community attitudes. T he major issues associated with the use of reclaimed wa ter include: WATER JULY/AUGUST 1999

37

WASTEWATER • contamination of wetlands such as maj o r sch ools and Table 3 Capital cost estimate of reclaimed water infrastructure and groundwater with hospitals to determine their Item Cost ($'000) elevated nitrogen and water use phosphorus Treatment plant upgrade • undertake a detailed ro ute 382 Pumping station (to DAF) 558 • algal grow th or particuand site inves tiga ti on to Phosphorus and suspended solids removal (DAF) 2 ,169 lates/suspended solids blockresolve pipeline routing issues Pumping station (reclaimed water) 2,365 ing reticulation system s • assess m ore closely the risk Ch lorine dosing facility 715 • algal and fungal growth on of soil becoming sodic from Treatment plant design and contingency (25%) 1,547 turf, particularly golf greens the use of reclaimed water fo r Trunk and branch lines 13,511 • nutrient levels in treated irrigation Pipeline reinstatement cost 2,496 Pipeline design and contingency (25%) 3,378 was tewa ter affecting native • undertake trials on the use Balancing storage 649 plants ofDAF followed by chlorinaBalancing storage design and contingency (25%) 162 • BOD/odo ur tion to meet the disinfec tion Tota l 27,932 • general risk of disease from requi rement of less than microbial levels 10 thermo tolerant coliform • safety of treated wastewater colo ny fo rming units per Table 4 Additional annua l operating and maintenance costs irrigation in areas containing 100 mL public use facilities such as Item • determine the po tential Cost ($'000) barbecues and playgrounds impac t and di scuss w ith Treatment 512 .• safety of treated wastewater regulators the po ssibility of Pumping, storage and distribution system 381 irrigation fo r sportsgrounds discharging off-specifica tion Total 893 • safety of treated wastewater reclaimed water already in the during daytime testing and distribution network into the occur in the near fu ture. N evertheless, local stormwater system maintenance of irrigation system s • increase in sodicity and salinity of the this could be expedited with H ealth • prepare practicable contingency plan s D epartment WA requirements to cease w hich can be implemented in the event soil.

A key issue for irrigation within the irrigation of reclaimed wa ter one hour of the supply of off- specifi catio n Swan Coastal Plain is clearly protec tion before sunrise, and the requirem ent of reclaimed water to users. of groundwater and wetlands, particu- the W ater and Rivers Commission for larly fro m nutrient enrichment . irrigators to prepare nutrient and irriga- Acknowledgements However, provided the managem ent tion managem ent plans if the source of The autho rs would like to thank measures o utlined in T able 1 are water changes . those enthusiastic respondents to the It 1s likely that the W ater survey regarding po tential reuse applifollowed, po tential negative enviro nCorporation would have to bear the cations within the study area. They also mental impacts were considered to be controllable. Although there are po ten- bulk of the capital cost of the scheme. thank D erek Wilson , Trent Arnold , tial negative impacts associated with the H owever, o ther possible sources of M argaret D omurad, Brian Blayden and reclaimed water scheme, there are also fu nds include some of the $5 1 million Bert Mueller fo r assistance in the study. p ositive impac ts including redu ced planned to be spent by the Commondischarge of wastewater to the ocean , wealth Government to reduce sewage References reduced usage/overuse of groundwater and stormwater pollution of coastal and Johnston K J (1996) T urf Irrigation and res ulting in saline intru sion , and marine environments under the Clean Nutrient Study: Tu rf M anual. Perth: redu ced dem an d for fresh sch em e Seas Program (part of the N atio nal R oyal Australian Institute of Parks and H eritage Trust). Other innovative R ecreation. water. solutions such as j oint ventures could NHMRC, ANZECC, ARMCANZ (1996) D raft Guidelines fo r Sewerage Systems also be explored.

Concluslons U se ofR eclaimed W ater. National W ater In conclusion , it is considered that T here are numerous potential users Quali ty M anagement Strategy, N ational the use of reclaimed water to irrigate of well treated wastewater within a zone H ealth and M edical R esearch Council, parks and gardens in the vicinity of the of up to 15 km from the Subiaco Australian and N ew Zealand EnvironWWT P . All these po tential u sers Subiaco WWTP is technically feasible. ment and Conservation Council, Agricurrently use groundwater for irrigation R egulators indicate support fo r wastecultu re and R eso urce M anagement C ouncil of Australia and N ew Zealand. and w ould be interes ted in using water reuse, but the conditions imposed reclaimed water for irrigation under the continue to make reuse complex, diffi- Thomas J W (1993) Guidelines for W astewater Irrigation. Publication 168. Environright conditions of price and quality. cult and costly. mental Protection Authority of Victoria.

The charges to recover the full cost of Water and Rivers C ommission (1998) the schem e may be too high fo r m ost Recommendations Irriga ting Vegetated Land with NutrientAt the conclusio n of this study users, so only those u sers w ho have rich W astewa ter. Perth: W ater and Rivers expresse d great interest in u sing several technical issues and user willingCommission . reclaimed water because the quality of ness to pay remain outstanding. To W ater Authority (1995) W astewater 2040 their groundwater supplies is currently fu rther advance the prospect of using Strategy for the Perth R egion. 2nd . deteriora ting m ay participate in any reclaimed water fo r the irrigation of Edition. Perth: W ater Authority of W estern Australia. initial schem e. These users, plus the parks and gardens near the Subiaco Subiaco WWTP, would be able to use WWTP the follow ing ac tions are Authors abo ut 4 ,500 m 3/d (4. 5 ML/d) of recommended : assess the willingness of users to pay reclaimed water.

Johannes Edmund (Eddy) WaJon It is co nsidered that the current between A$0. 20 and A$0.50/m 3 for the is Principal Consultant-Chemistry and irrigation regime applies more water supply of reclaimed w ater Steven Kenway is Senior Consultant determine the costs of supplying with K.inhill Pty Ltd, 47 Burswood Rd, than is necessary to maintain healthy turf, and this could be reduced with reclaimed water to the most interested Victoria Park WA 6100 . Alan Maus is more widespread use of soil moisture users alone Planning and Policy Officer with the sensors. It is unlikely that this w ould • contact other large potential users W es tern Australian Water Corporation.

38

WATER JULY/ AUGUST 1999

m

Abstract In developing a water supply strategy for Western Australia for the first half of next century, the Water Corporation ('NC) has identified a range of potential sources including groundwater, surface water, efficiency measures and desalination . Inherent in these sources are a number of options which any financial evaluation must take account of. This paper highlights the problems in using conventional net present value (NPV) techniques to value these options and identifies emerging techniques that can do this, notably a contingent claims or real options technique. The paper also identifies the data constraints in the use of these techniques.

Introduction P erth 's Water Future (WA WA, 1995) articulates the water supply strategy for the Water Corporation ('NC) in Western Australia into the 21st Century. The Corporation has a range of water supply sources to meet the needs of the Perth metropolitan region , including groundwater, surface water, water efficiency programs and the piping of water from thou sands of kilometres to the north of the Perth m etropolitan region. Each of these sources carries a financial, social and environmental impact. Whilst there is no shortage of water, there is a shortage

BUSINESS

of inexpensive sources. At any point in time a hierarchy of preferred sources w ill exist. With the resolution of demand and supply uncertainties, the order of preference may change over time. It is therefore desirable to keep flexibility in the strategy to take advantage of changes in costs. Thu s it is typical to h ave more wa ter sources available than will ultimately be required. In short, it is useful to keep your options open.

The Water Corporation must work in consultation with state government planning and enviro nment agencies to secure its preferred water supply strategy through the identification and exploration stages of these water sources. For example, because mu ch of the water will be supplied by groundwater it is important for the WC that compatible landu se ac tivity commitments are made by state and local government planning agen cies on recharge areas to ensure water availability.

Whilst the WC needs to work towards secu ring long- term sources , there is not necessarily a reciprocal commitment in that the W C can change its supply strategy upon review.

This asymmetry produced by the nonreciprocity is at the heart of the options value that the WC has through some of these source alternatives. The owner of an option has the benefit of the upside

wi thout exposure to the downside because it is their option to exercise or not. The pre sent ap plication of the financial valu ation methods used in assessing competing strategies does not appear to recognise these options and may provide incorrect financial assessm ents. This paper identifies both the shortcomings in the conventionally applied tools and the burgeoning litera ture, providing better tools for water suppliers w hich will , however, require more data inputs from the WC to be successfully applied .

Water Supply Options The Perth 's Water Future paper acknowledges a number of water supply options in its short list of strategies.

Groundwater from north of the metropolitan area in the Moore River region is explicitly identified as 'a stra tegic option for the system ' ('NAWA, 1995) in one strategy, w hereas surface wa ter sources in the south-west of the state in the Harvey-Waroona area are labelled as strategic sources in another strategy. The value of each option depends on the cost of p,;ovision and the cost of alternative water sources .

T he stra tegic value of each source arises primarily from proximity to future population centres and the resultant bulk-water transport cost advantage.

The total cost will also be driven by WATER JULY/ AUGUST 1999

39

BUSINESS treatment costs given that the quality of the water is more uncertain for. the groundwater source. When a decision must be made, the total cost of supply of; for example, treated groundwater is compared with the supply costs of a surfa ce wa ter source and if favourable, the option to develop is exercised or is left to lapse.

In Perth 's Water Future the Water Corporation also developed a strategy that minimises finan cial cos t and excluded from it an R &D component as this 'would be expensive, with no assured pay-back in cost effective wa ter supply' (:WAWA, 1995) . Research and development expenditures into wastewater reuse or drainage water usage can also be viewed as providing options .

Rather than seeking to minimise these costs, these expenditures 'can be seen as links in a chain of interrelated proj ects' and 'The value of these early proj ects derives not so much from their expected direc tly measurable cash flows as from the future growth opportunities they may unlock.' (Trigeorgis 1996).

It is therefore important that the option value provided by the R &D be included in any analysis.

Each strategy has a water efficiency measure w hi ch provides the option to defer investment in other water sources and therefore has a financial value that should be acknowledged and included.

Need to Value Wafer Supply Options Explicitly Evaluation of the options that may be created or lost should be of importance to both the Water Corporation as a licensed water supplier and the Office of Water Regulation (OWR) as the regulator of water industry participants and provider of policy and planning advice to the Minister for Water Resources . At zero cost , it is preferable to keep all options open. But in the face of direc t or indirec t financial cos ts, the value of the option must be assessed and compared.

At present the Water Corporation does not necessarily pay a direc t financial cost to purchase any options. It may in effec t 'purchase' an option by requesting sympathetic or compatible landu se ac tivities over the top of a potential groundwater so urce, w hich it may then choose to develop in the future even though at present cos ts it is too expensive to develop . Given the evolving nature of the water industry in Western Australia w here the WC is now a licensed supplier of water, it may only be a matter of time before the WC is forced to pay in a financial sense for the options to develop. That scenario aside, it is within the role of the OWR to consider the value of these options when offering advice to the Minister for 40

WATER JULY/A UGUST 1999

Water R esources. For example, at a wider government planning perspective, the valu e that can be attributed to the Moore River groundwa ter option warrants consideration w hen landu se decisions are made that can prematurely close them.

The WC currently relies on the conventional discounted cash flow technique and the strategy or source with the lower expected present value of costs when discounted is recommended on financial grounds , as discussed by Guj and W erner (1990).

The choice of disco unt rate is integral to present value calculations but is given no justification in the Perth 's Water Future document. The discount rate used is constant over time and constant between alternatives, although eac h strategy clearly entails very different cas h flow risk. Water efficiency program s are incorporated by evaluation of the deferral of costs , i. e. the difference in present value of costs when discounted over five years as against ten years. The R&D component of each strategy is acknowledged only as a cost to each strategy. Such an evaluation does not properly reflect the true costs or benefits of each strategy and the specific options outlined.

Shortcomings of Conventional Methods Example In respect to the ability to value the options, 'The valuation of such options is difficult to accommodate within the co nven tional di sco unted cash flow (DCF) framework' (Kulatilaka & M arcus, 1992). To highlight the problems of the conventional application of the net present value method , the fo llowing simple exa mple 1s presented .

Consider the example w here a water utility needs 50 gigalitres/annum of water to fulfil an expected increase in demand. The utility can either use groundwa ter sources or promote a water effi ciency program. The groundwater alternative will cost $4 million immediately followed by a payment of $6. 75 million one year after acceptance to cover lifetime operating expenses.

The wa ter efficiency program would cost the utility $3 million immediately.

An exten sive advertising campaign would then be required with the extent of community involvem ent dictating the ' operating costs' in future years . It is assumed there is a fifty percent chance of good community participation w hich would require further costs of $4 .05 million one year from acceptance.

However, there is the other fifty percent chance of poor participation levels, w hi ch would result in an increased cost of $17.55 million one yea r from acceptance to cover increased

extra advertising costs.

Apart from the initial payment, the utility is not obligated under the terms of the tender to commit to the payment at the end of the year. These costs are valid for at least one year.

For purposes of illustration the utility is assumed to be risk-neutral and as such the cash flows can be discounted at the risk-free rate estimated from the rate on a government bond with equivalent maturity, taken here as 8%.

Given an objective to minimi se finan cial costs and given that the net present value method has traditionally been recommended as a suitable technique to assess these, a comparison of the two options is presented below. For the efficiency alternative the possible costs are weighted by their probabilities.

NPV (groundwater) = -4-

6 75 ¡ 1.08

= -$ 10.25 million . ) -- - 3 - (0.5 (4.05) -~~ NPV(effioency 1.08

0.5 +~(17.55)) ---' 1.08

= -$13 million

The groundwater option would therefore be chosen.

Such an analysis , however, assumes that the utility 'sits back' and merely observes the consequences of its decisions without reacting to them. The utility has the option to change its supply plan by trying the efficiency program but if there were a poor reaction , changing to the groundwater at the end of the first year, rather than incurring the cost of $17.55 million required by an enhanced efficiency program. Therefore, the cost it would face at the end of the year would be $4 .05 million if the program goes well , or a further $10.25 million ifit shifts to the groundwater alternative . The full NPV of this combination is now: (4.05) 0.5(10.25)) --+-NPV (effio.ency)-- - 3 - (0.5 1.08 1.08 =

-$9 .62 m.illion

Therefore trying the efficiency drive is the better alternative. The fle xibility provides a value of 13-9.62 = $3.38 million. This simplifi ed example stre sses that the option to switch provides value and how simple application of the NPV approach can lead to the wrong decision. It also &Uggests that the NPV through the decision tree approach can be u sed to incorporate these options. The question is , can the existing m ethods be used when faced with the inevitable complications of real life investments?

BUSINESS Better Evaluation Techniques As has been illu strated , the NPV approach ha s two major drawbacks.

First, the use of expected cash flows, discounted at the outset, 'presupposes a static approach to investment decisionmaking' (Brennan & Schwartz, 1985a) .

The disco unt rate 'is the second Achilles heel of the classical approach ' and presents 'an almost insurmountable task' (Brennan & Schwartz, 1985a). As this rate will reflect the risk of the investment, an assessment of risk must be m ade . Fama and French identify difficulty in the choice of model and results w hich provide 'estimates of the cost of equi ty [that) are distressingly imprecise' (Fama & French , 1997) . ¡ The de cision tree method or dynamic discounted cash flo w m ethod can be used to solve investments w hich have fl exibility (Brealey & Myers, 1996). D ecision tree analysis forces the decision-maker to make explicit both the expected distributions of cash flows as well as the possible operating strategies available. D ecision tree analysis can be used to determine the value of the option by working backwards through the nodes of the decision tree until the fir st decision is reached. The main problem w ith this approach is not just the specification of probabilities and comp utational requirements, but the trea tment of risk and determination of a utility function so that an approp riate discount rate can be determined at each node.

Real options alter a strategy's riskiness , therefore using a single discount rate inside a decision tree. 'Because the tree contains m eaningful future decisions, it also contains options' (Brealey & M ye rs, 1996).

Risk, therefore, needs to be assessed at every branch of the tree. It is incorrect to assume that the probabilities account for risk as the probabilities assigned to various cash flo ws, which are more than likely only subjective probabilities, serve to m ake explicit the cash flo w probability distribution.

These cash flows must then be discounted at a risk-adjusted rate.

The use of a constant discount rate by the WC in its financial assessm ents implies that risk is being resolved at a constant rate but clearly as it moves through time ri sk is being resolved w hich necessitates the different risk adjusted rates. So how best to value these options?

Real Options Approach There has been a break in the financial literature from the use of decision tree analysis to the more explicit evaluation of options using the real options or contingent claims approach. Because

contingent claims analysis appli es the workings of financial options valuation models to real assets , this approach has more commonly been referred to as the real options approach. The financial options approac h uses the option replication strategy first used by Black and Scholes (1973) and Merton (1973).

Dixit and Pindyck (1994) and Trigeorgis (1996) provide a review of real options applica tions to the valuation of oil reserves, petroleum, forestry , environmental policy and elec tricity development. Trigeorgis (1996) identifi es applications to land development, leasing, and research and development.

Trigeorgis (1996) concludes, 'Th e potential for future applications is not unlike a growth op tion .'

The example outlined previously can be considered w ithin an options framewo rk. At the end of the first year the cost w ill be $ 10.25 million for the gro undwater, and either $4. 05 million or $ 17.55 million for the effi ciency program. Therefore the option to choose the groundwa ter alternative is worthless if the water effi ciency cos ts are low in year one, but worth $ 17 .55-$10 .25 = $7.3 million if the water efficiency costs are high in year one. The question is how much is this op tion wo rth today?

H erbelot (1992) valu es such an option by constructing two portfolios with identical payoffs, one of w hich contains the option, and then using an arbitrage argument to solve for the value of the option. Portfolio I contains one asset (A), the option to develop the groundwater so urce. Portfolio II contains two asse ts. The first, (B ), represents entitlem ent to the volum e of wa ter required by the WC. Such a volume entitlem ent is assumed to be worth $10 million today , and the second (C) a risk-free asset valued at $1 million today and $ 1.08 million at the end of the year, given an eight per cent risk-free rate. If a and P are the proportions invested in asse ts B and C respectively then the two possible values of portfolio II at the end of the year are: o.(17.55) + P (l.0 8) or a (4.05) + P (1.08).

The two possible values of portfolio I, as outlined above, are $7 .3 million or nothing. If the proportions are set so that: a (17.55) + P(l.08) = 7.3, a (4 .05) + P (1.08) = 0.

The proportions of assets B and C can be determined so that portfolio II has the sam e outcome as portfolio I. Solving the identities yield a = 0.54 and P = - 2 .01. That is, by purchasing 0.54 of asset Band selling 2.0 1 of asse t C, the outcome at the end of the year of portfolio II replicates portfolio I. Such portfolios should therefore be equal in

valu e today. Using the weights, the present value of portfolio II is 0.54(10) - 2.0 1(1) = $3 .39 . Therefore the value of portfolio I, the op tion to develop the groundwater at the end of year one, is also wo rth $3 .39 million today, i .e. the same value as determined previously for the value of the flexibility as per the decision tree approach. The adva ntage w ith the approac h is that it is not necessary to determine probabilities of cost movements or an appropriate risk adjusted discounted rate.

Technique Suitability Of the techniques available the contingent claims analysis/ real options approa ch and the decision tree approach wo uld seem the only possibilities available to solve the current problem. T he decision tree m ethod has the problems that have been identified. However, neither is perfectly suited to the problem and both pose problems fo r application.

Empirical application s outlined above, w hilst numerous, understandably have concentrated in indu stries w hi ch provide ready access to data enabling volatility measure s in the underlying asset of the option, notably the petroleum indu stry. No applications have been found in the wa ter industry for suppliers, be they public or private.

The preference for the real options approach in the literature wo uld seem to suggest that the decision tree difficulties have been significant. The question to be explo.red is w hether these problems are any m ore or less w hen applied in a water resource developm ent and w hether the real options difficulties prevent meaningful valuations.

The existen ce of an inves tment option does no t of itself mean that the real option s approach can be applied .

H erbelot (1992) identifies a series of step s to u se to determine w h ether options analysis is a suitable procedure for w hen option valuation is applicable to a real asse t valuation . Critically, he argues that 'Contingent claims analysis will only be applicable for the valuation of the investment in qu estion if the main sources of uncertainty . . . are "spa nned " by the existing finan cial m arket' (Herbelot, 1992). Use of the financial options valuation technique involves constructing a risk-free portfolio, which includes the option to be valued , and the underlying asse t. Dixit and Pindyck (1994) point out that this requires an ability to trade in the underlying asse t, or som ething else w hich is perfectly correlated with it, and w hich 'spans' the price risk of the asset.

This immediately poses a potential problem for the applica tion of real options to water supply development by the Water Corporation. This is due to WATER JULY/ AUGUST 1999

41

BUSINESS water or water entitlem ents not being traded in markets. The ability to apply the real options approach would therefore rest on the ability either to find pe"rfectly correlated substitute finan cial markets or to simulate and model the stocha stic process . The latter is the more probable.

The pattern of pas t wa ter cost changes can at prese nt only be summarised at a sm all number of discrete points in time, with a limited ability to access from previous W C publica tions. Forecasts of the future pattern of future water prices are also limited to a small number of future reference time periods from existing W C publications. Variance m easures or forecas t error es timates are n o t published.

Cos t volatility es timates m ay be retri eved from previou s extra ction , treatment and bulk-water transport cost data on all strategy source types. They may be estimated by examining W C fo recasts on water recovery quantities and quality and scenarios used in these physical models.

P opulation and hen ce dem and uncertainti es co uld be modelled similarly to production cost uncertainties. Population data and forecasts exist as well as water use forecasts. Previous studies have provided info rmation on dem and , dem and elasticities and patterns in dom estic water consumption that can be coupled with population fo recasts to m odel demand changes (M etropolitan W ater Authority, 1985).

The quality of water at times in the future is a key ingredient in determining the viability of sources. H owever, the likelihood of contamination and the cost consequences of these are not as rea dily quantifiable. The histo ry of contamination and its impacts in Perth co uld be examined and p o tentially m odelled as exogenous adjustments to supply schedules.

Data Constraints The maj or uncertainties encountered in developing and implem enting a water supply plan include production cost uncertainties, demand uncertainties ca used primarily by population changes and supply quantity uncertainties cau sed primarily by chan ges to water source quality.

The step from qualitative description to quantitative analysis, w h ether th ro ugh an analytical o r numerical approach , requires data . If u sing the options approach or decision tree analysis, estimates must be made of capital and operating costs, volatility measures for these costs and discount rates .

The history of the W C is such that the necessity for such data has n o t arise n. In its previo u s fo rm as the

WAWA, all face ts of water resource development and managem ent were conducted under one roo( T he WC, or its predecessor, has never competed in a market to supply its product, and is unlikely to do so for the fo reseeable futu re. T he W C has had its supply consumed and costs justified by political rather than economic marke ts.

If necessity is the mother of inventi on , then sca rcity is the fa ther of effi cien cy. There has n ever been a physical scarcity of water in Perth and there never will be. Sca rcity, however, is best considered as an economic rather than physical concept. Water consumptio n charges h ave only ever been partially linked to financial or economic costs. An im portant justification for the splitting up of the old WAWA, into the three agencies and the corporatisation of the WC, has been to bring closer the financial, if not economic, realities . In such an enviro nment w here all costs would be m et, the only question is a political decision w hich only started in 1975 as to the level of cost recovery that is linked to con sumption and the level to be met by cross-sub sidisation from general government revenues . Financial evaluations of expected present values have been of interest to the W C more to fac ilitate fi nancing rather than inves tment decisions, with m ore of a fo cus on ac tual costs fo r accounting purposes.

O ver time, with the role of each agency more clearly established, more incentive will be provided to the W C to better assess the alterna tive stra tegies .

Thi s incentive may be due to financial constraints placed on it by economic markets or in fac t institutionally by the activity of the OWR in its dem ands of the W C.

Conclusions and Further Research This paper has highlighted po tential problem s in the conventional application of financial evaluation m ethods in the financial assessm ent of water supply strategies that contain real options. It has identifi ed m any options present in wa ter supply strategies of the W ater Corporation of Western Australia and the techniques useful in their valuation.

D ata constraints present a maj or hurdle in quantifying these values. T he move towa rds better assessm ent could be assisted by developing cost histories fo r individual water sources, ide ntifying cost di stributions and exploring sim ulation s based on the limited financial data set available to identify orders of magnitude for the real options present . Such explo ratory valu atio ns may h elp to identify the variables that have the greatest influence on the value of these options and identify the data that would be useful to accumulate to assist the

evaluations in the future.

'M ost great fo rtunes were made on free options' (Risk/Finex, 1992) . Su ch fo rtunes may not have been fo rged by those granting the option , bu t ra ther because 'we rarely attempt to make a purely analytical valuation of w hat these options are worth' (Risk/Finex (1992) .

The intention sh ould no t necessarily be to discover a fo rtune, rather to apply and enhan ce the existing analytical fra m ework to the water supply financial evaluation in Perth , W estern Australia.

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""

Black F & Scholes M (1973) T he Pricing of O ptions and Corpora te Lia bilities . j ournal of Poli tical Econ omy, 81(M ay-June), pp. 637-659 Brealey R A & Myers S C (1996) Principles of Corporate Finance. (Fifth ed. ). New York: McGraw Hill.

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WAWA (1995) Pe rth 's Wa ter Future.

Leederville, Western Australia: Water Authority ofWestern Australia.

Author Paul Gerrans is a lecturer in the Sch ool of Finan ce and Business Economics at Edith Cowan University, C larem ont , P erth WA 60 10 . Hi s research interests include enviro nmental economics and investment evaluation . H e can be contacted at email: p .gerrans@cowan. edu .au.

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ENVIRONMENT

Abstract The document A Phytoplankton Methods Manual for Australian Rivers (LWlUWC Occasional Paper 18/98) has been produced via extensive consultation with water resource agencies and other algal workers. The manual documents methods for the sampling, fixation, preservation, identification and enumeration of phytoplankton in rivers and contains recommendations for program design, data storage and quality control. It is intended as a benchmark to facilitate the adoption of uniform methods for the monitoring of riverine phytoplankton Australiawide .

Key Words Riverine phytoplankton, methods, algae, enumeration

Introduction It is now well recognised that many of our rivers, especially those subject to hydrological manipulation, contain well defined phytoplankton populationspopulations of algae living suspended in the water column. These populations play an important role in riverine ecosystems and often impact on the intended uses of individual wa ters.

Regular monitoring of phytoplankton is conducted in many rivers in E urope, North America and Australia as part of the assessment of water quality and to assist in the determination of river health. To date, however, the 44

WATER JULY/ AUGUST 1999

determination of river phytoplankton across Australia has been variable in both method and extent.

In this paper we summarise some of the phytoplankton monitoring undertaken both in Australia and overseas and detail the recent publica tion A Phytoplankton Methods Manual for Australian Rivers (Hetzel and Croorn.e, 1998) produced via a grant from the Land and Water R esources Research Development Corporation to facilitate the standardisation of methods used by water resource agencies and other algal workers across the continent.

Phytoplankton Monitoring

tonic algae for the continuous assessment of ecotoxicology have been developed in central Europe (M erschemke , 1991).

The main obj ectives of phytoplankton monitoring in rivers are to: â&#x20AC;˘ detect long-term trends in biomass development â&#x20AC;˘ identify changes in species composition in response to changes in environm ental conditions â&#x20AC;˘ detect short-term changes in biomass w hich might lead to an algal bloom or to problems of toxicity, de-m.'Ygenation , tastes and odours, or filter clogging.

The long-term value of phytoplankton monitoring is exemplified by riverine work in Germany, where regu lar algal identification and enumeration is conducted along rivers suc h as the

In many countrie s, phytoplankton cell density and species composition are regarded as crucial components of riverine water quality. Basic water quality monitoring '... the determination of river programs include the assessment of Chlorophyll-a phytoplankton across Australia as a m easure of standing has been variable in both crop. More sophisticated programs undertake method and extent.' taxonomic identification, often to species level, and cell co unts to determine species Danube , Elbe, Rhine and Ruhr. compo si tion and phytoplankton Phytoplankton species composition has abundance. Phytoplankton activity is been determined as part of water quality also m easured (e.g. as oxygen produc- monitoring in the Rhine since the ea rly tion capacity in the laboratory-see 1900s and it now continues under the Standard M ethod DIN 38 412 and its aegis of the International Corn.mission applica tion in the River Rhine by for the Protection of the River Rhine.

Friedrich and Viehweg, 1984). Over Phytoplankton cell densities have the past decade bioa ssays using plank- increased tenfold since the beginning of

ENVIRONMENT the century and peaks of C hlorophyll-a above 100 ugL- 1 are regularly observed.

There has also been a shift in species co mpo sition from oligotrophic to eu"trophic taxa and in recent years the daily oxygen curve in the Lower Rhine ha s bee n determined mo re by th e photosynthetic activity of phytoplankton than by decomposition processes (Friedrich , 1990) .

Phytoplankton species compo sition and biomass have been used in the fiveyearly state of the river reports since 1980 and in setting the obj ective of achieving a Chlorophyll-a concentration of <100 ugL- 1 in the Rhine at the Dutch/ German border, largely via a reduction in phosphorus inputs to the river. Under the new European Union Direc tive for Ecological Quality of Waters, member countries are obliged to 'control pollution of surfa ce wa ters from point so urces , sources of diffuse pollution and other anthropoge ni c facto rs affecting surface water quality' (Friedrich , 1996). Co untries have to ' maintain and improve ecological quality of Community surface waters, with the ultimate aim of achieving good ecological quality.' Good ecological quality includes maintenance of the diversity of aquatic plant communities, including algae and the control of 'algal growth due to elevated nutrient levels of anthropogenic origin. ' It is envisaged that member countries will continue or commence phytoplankton monitoring programs in their large rive rs, m easuring algal species diversity and abundance, biomass and phytoplankto n activity expressed as oxygen production potential in fulfilment of this legislation.

Monitoring in Australia N umerous Australian water resource agen cies monitor phytoplankton in both lakes and rivers. Mo st of the monitoring occurs on a ro utine basis fo r operational purposes, but comprehensive assessment of the phytoplankton of the Murray River, for instance, has bee n co ndu cted since 1980, with species composition being determined weekly at 12 sites along the main stem of the river and in its maj or tributaries.

M ore than 100 algal taxa have been reco rded, with cell numbers varying from <100 to 77,500 cells mL-1. Parallel wa ter quality and discharge monitoring has also occurred. As a consequence, we now have a general understanding of the occurrence and behaviour of the phytoplankton populations along the various sections of the Murray River and the major factors determining the growth and reprodu ction of algae causing taste and odour, filter clogging and toxicity problems (Sullivan et al. , 1988; Sullivan, 1990; Hotze! and Croome, 1994, 1996). The Murray

Yarrawunga Weir with blue-green algal bloom

Ri ver phytoplankton and wa ter quality types of programs detailed above, but data have also co ntributed to the devel- also for the day-to-day assessment of opment of rational nutrient manage- algae for operational purposes.

The 52-page manual contains inform ent programs for the M urray system.

Long- term phytoplankton monitor- mation on the obj ectives of phytoplanking has been less intensive elsewhere in ton monitoring; the design of monitorAustralia , but there has been a progra m ing programs; the taking, preservation, in the Haw kesbury/Nepean system for transport and storage of samples; the many years w hich screen s filter clogging analysis of samples for qu antitative, and potentially toxic algae in drinking semi-quantitative and.biomass determiwater supply and provides ba seline nations; quality ass urance and reporting data for modelling of the sys tem of data; occupa tional health and safety (P Hawking, pers. comm .).

C hlorophyll-a is m eas ured 'The 52-page manual ... is regularly and full cell counts are performed w hen the intended as a comprehenchlorophyll level excee ds a sive guide and contains certain minimum concentration. benchmark methodologies Routine monitoring of phytoplankton is also co nfor adoption by the water du cted in m any rivers in industry.'

W es tern Au stralia, w here there are ongoing problem s w ith potentially toxic cyanobacteria issues and staff training; fi eld and and harmful (estuarine) dinoflagellate laboratory equipment ; and alga l blooms. M onitoring is used to assess taxo nomic literature. wa ter quality, to co mpare differe nt It is intended as a comprehensive wate1ways and to assess the success of guide and contains benchmark methodmanagement initiatives (W Hosj a, pers. ologies for adop tio n by th e wa ter comm.). Full counts are performed to indu stry. determine species compositi on and The methods used in Au stralia to numeric biomass, the prese nce of date for the assessment of phytoplankindica tor species and the presence and ton have n ot bee n uniform: som e identity of potentially harmful species . undo ubtedly give spuriou s results and many deny th e possibili ty of realistic Phytoplankton Methods comparisons between program s. It is Manual not the intention that all programs The document Ph y toplankton should assess phytoplankton in th e sam e M ethods Manual for Australian Rivers way, rather that the methoÂŤlologies used (Hotze! and Croome, 1998) ha s been within individual program s allow a valid produced to aid water resource agencies comparison of data. No one microscope and others in the implementation of co unting chamber is reco mmended acceptable and nationally compatible in the manual, rather, a Utermobl methods for the assessment of phyto- chamber with an inverted mi croscope, plankton in rivers, principally fo r the or a Se dgewick- R after chamber or WATER JULY/ AUGUST 1999

45

ENVIRONMENT Australia (AFFA, formerly DPIE) Shopfront in Canberra, tel. 1800 020157 for $20.

References

Mallomoras splendens

Notorious taste and odour producer, Synusa

Lund Cell with an upright microscope.

In other cases, a benchmark m ethod is stated, with the recommendation that it alone be adopted , but that individual programs may use alternative methods _provided they satisfactorily compare them with the benchmark.

Some 30 taxonomic reference texts are listed, with an indication of w hich are basic requirements and w hich are needed for speciali st taxo nomi c discrimination within particular algal groups. Standard sampling techniques are illustrated , as are samplers currently under development for riverine work.

The suppliers of specialist items are identified, together with electronic software programs available for the support of algal counting.

The manual is intended in part to 'state the case' for phytoplankton monitoring in rivers , but is directed mo st at the practitioner at both supervisory and laboratory bench level. It has been referenced in the latest edition of the Australian and New Zealand Environment and Conservation Council (ANZECC) water quality guidelines as a guide to riverine phytoplankton methods and is expected to formally supplement the recently develop ed National Protocol for the Monitoring of Cyanobacteria and their Toxins.

T he manual has been distributed widely in the wa ter indu stry. Additional copies are available through the Agriculture, Fisheries and Forestry

SPECIALISING IN ENVIRONMENTAL SERVICES TO THE WATER INDUSTRY ..,.. Water And Wastewater Treatment & Reuse ..,.. Water Quality Management ..,.. Water Resources Development & Hydrology ..,.. Hydrogeology ..,.. Irrigation & Drainage

Acknowledgements

..,.. Industrial Liquid & Solid Waste Management ..,.. Air Pollution Control ..,.. Environmental Assessment & Management

fÂŁeg iS consulting Australia

CONSULTING ENVIRONMENTAL ENGINEERS & SCIENTISTS Formerly ~ Offices throughout Australia and South East Asia 46

Friedrich G (1996) The Use of Algae in Monitoring Rivers in the Proposed EU Directive on the Ecological Quality of Waters. In Whitton B A, Rott E, Friedrich G (eds.) Use of Algae for M onitoring Rivers. Proceedings of In ternatio nal Symposium, Dusseldorf, Ge rmany, 26-28 M ay 1991. R ott, Innsbruck University, Austria, 193 pp.

Friedri ch G, Viehweg M (1984) Recent Developments of the Phytoplankton and its Activity in the Lower Rhine. Verh Internat Verein Limnol, 22: 2029-35.

Hotze! G, C roome R (1994) Long-term Phytoplankto n Monitoring of the Darling River at Burtundy, New South Wales: Incidence and Signifi cance of Cya nobacterial Blooms. Aust J M ar Freshw Res, 45: 747-5 9.

Hotze! G, Croome R (1996) Population Dynamics of Aulacoseira granulata (Ehr. ) Simonson (Bacillariophyceae, Centrales), the Dominant Alga in the Murray River, Australia. Arch H ydrobiol, 136/ 2: 191-215.

H o tze ! G, Croome R (1998) A Ph ytoplankton M ethods M anual for Australian Rivers. Land and W ater Resources R esearch D evelopment Co rporation, Canberra, 52 pp.

M ersc hemke C (1991) D evelopment, T esting and Installation of Automatic Bioassays Along the River Rhin e. In Whitton BA, Rott E, Friedrich G (eds.)

Use of Algae for Monitoring Rivers.

Proceedings oflnternational Symposium, Dusseldorf, Germany, 26-28 May 1991.

Rott, Innsbruck University, Austria, 193 pp.

Sullivan C (1990) Phytoplankton . In Mackey N , Eastburn d (eds .) Th e Murray.

Murray-D arling Basin Commission , Canberra, pp. 251-262 Sulliva n C, Saunders J, W elsh D (1988) Ph ytoplankton of th e River Murra y, 1980-1985. Water Quality R eport No. 2. Murray-Darling Basin Commission, Canberra, 61 pp .

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The authors acknowledge the valuable input of numerous alga l workers in the water industry towards the production of the phytoplankton methods manual, which was funded by LWRRDC under the umbrella of the National River H ealth Program.

Authors Gertraud Hotzel and Dr Roger Croome are with the D epartment of

Environmental Management of Ecology at the Albury/Wodonga campus of La Trobe University, PO Box 821 , W odonga Vic 3689, a partner in the Cooperative Research Centre for Freshwater Ecology.