|Log-Log Fig 3.5 from EPA (1980) shows IRS...|
As most of you know, "increasing returns to scale" (IRS) refers to the increase in efficiency (or decrease in cost per unit of material handled) that you get from a larger facility. Greater efficiency must, however, be balanced against decreasing scales from, e.g., moving material over greater distances to a larger facility, less local customization, etc.
The water business has been characterized by IRS for many years (due to the low cost of energy, ease of digging up streets, importance of discharging water at a single point, etc.), but IRS makes less sense if treated wastewater is going to be used again (IPR, or water recycling), energy is expensive, centralized management is less responsive, etc.
Bottom Line: Make sure you include ALL costs before you go for an "efficient" scale facility.
* Check out these reports if you want more details:
EPA (1976) An analysis of construction cost treatments for wastewater treatment plants [PDF]
EPA (1979) Determining wastewater treatment costs for your community [PDF]
EPA (1980) Construction costs for wastewater treatment plants 1973-1978 [PDF]
MT DEQ (2007) Wastewater treatment performance and cost data to support an affordability analysis for water quality standards [PDF]