NACWA s Financial Capability Affordability in Wet Weather Negotiations WhitePaper

1. NACWA’sFinancial Capability& Affordability in Wet Weather NegotiationsWhitePaper This is the notes version of the shortened 2002 strategic plan This is the notes version of the shortened 2002 strategic plan

2. Agenda NACWA White Paper Project Project structure and review process Economic considerations in EPA policy Financial Capability Assessment guidance Findings & Recommendations Low Income Considerations USEPA Reaction Case Studies Conclusions

3. Agenda NACWA White Paper Project Project structure and review process Economic considerations in EPA policy Financial Capability Assessment guidance Findings & Recommendations Low Income Considerations USEPA Reaction Case Studies Conclusions

4. Purpose of NACWA project: Review EPA policy/guidance on financial capability assessments (FCAs) for wet weather programs. Provide guidance for discussions with regulators on FCAs. Suggest modifications to EPA’s methods and enforcement practices… …in particular, expanding FCAs to include all wet weather compliance requirements facing a community. Develop case studies on use of FCAs in negotiating wet weather enforcement actions. Provide guidance on relationship between financial capability & low-income affordability.

5. White Paper development process engaged many utility representatives and reviewers

6. Executive Focus Group,January 2005 Conference Call John Chorlog MDWASD

7. Open Discussion, 2/05 Winter Meeting Utility Participants

8. Economic considerations have been consistently factored into water quality improvement policies

9. 1994 National CSO Policy offers opportunity for negotiation and compromise Emphasized flexibility: Site-specific solutions Cost-effective solutions Phased approach Financial capability No specific schedules

10. EPA financial capability guidance interpretations called for 20-year schedule

11. EPA Financial Capability Assessment (FCA) guidance has limitations that may frame negotiations Absence of Financial Planning Capital Financing – single debt not allowing alternates Use of Median Household Income disallows consideration of diversity of residential population no consideration for commercial/industrial Exclusion of other mandated costs other costs to ensure water quality asset management related costs future compliance costs Community specific challenges

12. Context for consideration of clean-water agencies’ financial capabilities In late 1980s and early 1990s, rates have increased at well above national rate of inflation Successful utilities emphasized public education In rate increase requests In positioning for reasonable federal enforcement conditions Variances in EPA regional enforcement approach imposes more onerous burdens on some cities

13. Recommendations 1 of 3 Enforcement of wet weather requirements should consider all costs imposed by CWA, and options for relief using a more holistic regulatory framework. Evaluation of the costs/benefits of investments, relative to other potential demands upon local resources, should guide enforcement of wet weather regulations. Assessment of financial capabilities must consider the full spectrum of requirements to provide wastewater services, not simply those that are associated with one individual rule or another. FCA methodologies should include the costs of needed reinvestment in all critical infrastructure.

14. Recommendations 2 of 3 SSO costs are incurred for the same reason as CSO costs --- both should be included in the assessment of long-term economic impact. Implementation/enforcement policies should recognize that local decision-makers are severely challenged to achieve the highest quality of life benefits with limited resources. Non-traditional and market-based approaches (i.e. UAAs, watershed permitting, credit trading, phased implementation, and adaptive management) are tools to ensure maximum benefits/affordable investments over time, to the net benefit of the community.

15. Recommendations 3 of 3 EPA’s FCA guidance should consider the combined effect of all its policies to mitigate wet weather effects on water quality, particularly its SSO policy. Review of historic consideration of financial capability assessments across regions could help develop policy guidance and improve consistency of enforcement. Program schedules should not make untenable messages of the prioritization of investments in water quality vis-à-vis other local investment opportunities. EPA should provide for consistent and substantive consideration of prospective impacts on low-income populations within the context of its review of a permittee’s FCA.

16. Agenda NACWA White Paper Project Project structure and review process Economic considerations in EPA policy Financial Capability Assessment guidance Findings & Recommendations Low Income Considerations USEPA Reaction Case Studies Conclusions

17. Low-Income Assistance Options Bill Assistance Programs Fixed Dollar Amount Discount Percentage of Bill Discount Percentage of Bill Discount Up to a Maximum Percentage of Bill Discount Graduated by Income Level Discounts for Advance Payments Crisis Vouchers Bill Forgiveness/Write-offs Rate Structure Options Lifeline Options Maximum Quantity Subject to Charges Inverted Rate Block Options Low Rates by Area (e.g., low-income zip codes)

18. Low-Income Assistance Options Water Use Efficiency Education Conservation Programs Leak Repair/Plumbing Fixture Replacement Programs Other Measures Financial Counseling and Referral Payment Plans Disconnection Moratoria Voluntary In-Kind Service in lieu of Payments

19. Criteria for Evaluating Programmatic Options Program costs Magnitude Predictability Ease of implementation Administrative requirements Billing system constraints Ability to target customer groups Eligibility considerations Ratepayer outreach Legal requirements Sustainability Permanence of assistance Insulation from challenge / budget reductions Complementary community programs

20. Agenda NACWA White Paper Project Project structure and review process Economic considerations in EPA policy Financial Capability Assessment guidance Findings & Recommendations Low Income Considerations USEPA Reaction Case Studies Conclusions

21. EPA is referring to NACWA White Paper in developing affordability guidance

22. Agenda NACWA White Paper Project Project structure and review process Economic considerations in EPA policy Financial Capability Assessment guidance Findings & Recommendations Low Income Considerations USEPA Reaction Case Studies Conclusions

23. Case studies cover a range of experiences

24. Panel Discussion,7/05 NACWA Summer Meeting Cincinnati Case Study, CSO/SSO Bob Campbell Los Angeles Case Study, SSO Adel Hagekhalil Columbus, OH Case Study, CSO/SSO Susan Ashbrook

25. Cincinnati MSD Negotiated time limit + cost ‘tripwire’ Program to be complete in 2022 unless… Total program cost expected to exceed $1.5 Billion MSD may petition court for additional time

26. Cincinnati MSDWet Weather Improvement Program - Updated $1.99 Billion Program (2006 basis) v. $1.5 B Program scheduled through 2029 v. 2022

27. City of Los Angeles, CA Political & public support 5-year rate increase Enhanced bond rating Spill reductions Manageable Agreement Terms The City has enhanced its sewer maintenance and upgrade programs to reduce the sewer overflows in the system. Overall, the City has reduced city-caused spills by 8%. The Board of Public Works demonstrated its commitment to environmental protection by setting a goal of reducing wastewater spills by 25 percent by December 2005. The multi-faceted, comprehensive program aimed at achieving that goal includes spending $2 billion on upgrading sewers and implementing many new, innovative and enhanced programs.   The City has enhanced its sewer maintenance and upgrade programs to reduce the sewer overflows in the system. Overall, the City has reduced city-caused spills by 8%. The Board of Public Works demonstrated its commitment to environmental protection by setting a goal of reducing wastewater spills by 25 percent by December 2005. The multi-faceted, comprehensive program aimed at achieving that goal includes spending $2 billion on upgrading sewers and implementing many new, innovative and enhanced programs.   

28. Columbus, OH 2002 & 2004 Consent Decrees related to SSOs and CSOs, respectively 20-year schedule agreed for CSOs Subsequent cost estimates almost $4 Billion Defined measures of success to demonstrate: impacts the service area’s economic health test varying program lengths on “ability to pay”. Proposing 40-year implementation schedule and regular recalculation of ‘economic barometer’ Variances may trigger schedule adjustments USEPA and State of Ohio responses pending

29. Columbus, OH

30. Other lessons learned: MWRA: Shelter costs. MHI can be misleading SAN FRANCISCO: Set stage for CSO policy Economic impact & improved prioritization ATLANTA: Costs do matter. Water and sewer costs driving bond rating DC WASA: Economic indicators as time sensors Gov’t assumptions vs. real life to increase time NEW ORLEANS: Grants are crucial Without federal money, wouldn’t work NEORSD: Defining own schedule Notwithstanding EPA guidance, local conditions cited

31. Agenda NACWA White Paper Project Project structure and review process Economic considerations in EPA policy Financial Capability Assessment guidance Case Studies Findings & Recommendations Low Income Considerations USEPA Reaction Case Studies Conclusions

32. Challenges to local government Financial Capabilities are becoming more evident Ratepayer Affordability must be a prime consideration in consent decree negotiations Low-income affordability will become more pronounced EPA’s financial capability assessment tools and enforcement practices are problematic Regulators should accelerate evolution of new regulatory perspectives Utilities can and have made successful economic arguments during negotiations Conclusions