U.S. ENVIRONMENTAL PROTECTION AGENCY
ENVIRONMENTAL FINANCIAL ADVISORY BOARD
APR 30 2002
Honorable Christine Todd Whitman
Administrator
U.S. Environmental Protection Agency
Washington, D.C. 20460-0001
Dear Administrator Whitman:
The Environmental Financial Advisory Board (EFAB) is pleased to provide you with a
"Summary of Key Points" from a workshop on public sector initiatives to promote cost-effective
environmental management. The Board is indebted to the Cost-Effective Environmental
Management (CEM) Workgroup, chaired by Michael Deane, Corporate Vice President, United
Water and Billy Turner, President, Columbus Water Works, who organized the workshop.
This workshop was the second in a series that the CEM workgroup is holding to highlight
for the Agency a variety of techniques and strategies in both the public and private sectors, that
can lead to greater efficiencies and lower costs in providing public-purpose environmental and
public health protection. The "Summary of Key Points" shows that the meeting yielded a wealth
of good information and new ideas to improve efficiency in the public water industry.
Additionally, the workshop included a special panel on the Water Infrastructure Network's
report. The report, among other things, argues for a significant increase in long-term, reliable
federal funding of drinking water and wastewater facilities and greater State flexibility in making
grants and loans.
We would like to take this occasion to make two broad recommendations for your
consideration:
Recommendations
1. In general, EFAB believes that there is as much potential to reduce the costs of
environmental and public health protection as there is to increase the volume of
investments in it. The Environmental Protection Agency's (EPA) Innovation Council
would be an excellent forum to undertake a comprehensive attempt to identify cost saving
measures and importantly, what more the Agency might do to encourage their adoption
by the public sector. EFAB members would be happy to meet with the Council to discuss
how this review might take place.
2. Over the years, EPA has done an impressive job in applying demonstration grants to the
assessment of the public benefits of new ideas. EFAB recommends that demonstration
grants be expanded aggressively to identify, document, evaluate, and ultimately
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encourage the adoption of, cost-effective management techniques and strategies. An
excellent example is the use of demonstration grants for environmental management
systems by the Office of Water, resulting in major advances in expanding the knowledge
and application of EMS' in the water industry. Case studies were emphasized in the
workshop as effective communication tools. They should be prepared for each
demonstration project and be presented collectively on an easily accessible webpage of
the agency. Another noteworthy example is the popular website of the Environmental
Finance Program in the Office of the Comptroller, located at: www.epa.gov/efinpage.
Follow-Up Activities
The CEM workgroup has held two subsequent workshops. On November 8,2001, the
workgroup hosted a workshop on the linkage between environmental management systems
(EMS) implemented by the public drinking water and wastewater utilities and financial
performance. A second workshop was held March 4,2002 on the new General Accounting
Standards Board 34 (GASB) requirements covering capital asset inventories and management of
public utilities. The GASB 34 requirements are controversial as they will change, in many
instances, previous practices affecting capital asset management. EFAB will be sending you
shortly specific recommendations regarding further actions EPA should consider with respect to
EMS and GASB 34 implementation.
We appreciate the opportunity to offer this Summary and recommendations to EPA, and
of course we are available to discuss this and other EFAB projects with you or members of your
staff.
Sincerely,
Robert O. Lenna A. Stanley Meiburg
Chair, EFAB Executive Director, EFAB
Enclosure
cc: Linda Combs, Chief Financial Officer
Tracy Mehan III, Assistant Administrator, OW
Thomas Gibson, Associate Administrator, OPEI
Mike Ryan, Deputy Chief Financial Officer
Joe Dillon, Comptroller
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Environmental
Financial Advisory Board
EFAB
Robert Lenna
Chair
A. Stanley Meiburg
Executive Director
Members
Hon. Pete Domenici
Terry Agriss
George Brewster
George Butcher
Michael Curley
Michael Deane
Michael Finnegan
Mary Francoeur
Hon. Vincent Girardy
Steve Grossman
Evan Henry
Anne Pendergrass Hill
Mary Kelly
Stephen Mahfood
Langdon Marsh
John McCarthy
George Rafielis
Arthur Ray
Andrew Sawyers
James Smith
Sonia Toledo
Jim Tozzi
Billy Turner
Mary Ellen Whitworth
John Wise
Public Sector Initiatives to Increase
Efficiency and Overall Performance in the
Water and Wastewater Industry
"Summary Notes of Key Points"
FINAL
This report has not been reviewed for approval by the U.S. Environmental Protection
Agency; and hence, the views and opinions expressed in the report do not necessarily
represent those of the Agency or any other agencies in the Federal Government.
April 2002
Printed on Recycled Paper
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ENVIRONMENTAL FINANCIAL ADVISORY BOARD
COST-EFFECTIVE ENVIRONMENTAL MANAGEMENT WORKGROUP
MARCH 5,2001 PUBLIC MEETING
NATIONAL PRESS CLUB
WASHINGTON, DC
• *
SUMMARY NOTES OF KEY POINTS
Morning Session 9:00 am - 12:30 pm
TOPIC: Public Sector Initiatives to Increase Efficiency and Overall Performance in the Water
and Wastewater Industry .
Meeting brought to order by George Ames, Acting DFO
Michael Deane, CEM Workgroup Chair
• Welcomed attendees and outlined structure and topics of the two sessions.
Billy Turner, CEM member and organizer of the session.
• Introduced speakers ands reviewed morning's agenda
• Noted significant changes taking place in public sector
• Public utilities have accepted the challenge of privatization; their culture is changing
Gary Westeroff, Malcom Pirnie: The Changing Utility
• Spoke via teleconference from New York, NY.
• Covered the changing and the changed utility.
• Identified several drivers as the "momentum for change:" Rate and cost control; political
influences; "threat" of privatization; massive awareness and new leadership.
• Utilities of "every significant size" are succeeding in improving effectiveness and
efficiency.
• "Actions of change" include leadership commitment; focus on customers; strategic use of
technology (especially IT); stress on quality; and improved credibility with customers.
• New leadership focuses in performance and customer satisfaction and more cost-effective
approaches.
• Three areas of emphasis regarding technology are process control plans to improve
productivity, control operations and monitor performance. Billy Turner strongly
reinforced this point, especially with respect to improved technologies driving improved
monitoring and reduced staff requirements.
• Widespread staff reduction underway.
Key balance must be struck between effectiveness and efficiency, for example, reducing
cost may come at the expense of reliability; public utilities are more conservative/better
suited in striking this balance.
• Briefly discussed five models from publicly owned and operated, though complete
privatization and motivational difference between the public and private sectors.
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• Cited several examples of public utility successes, including rising credit rating for the
water and wastewater industry; 13:1 upgrades to downgrades.
• Suggested a "Framework for Consideration" include ensuring fair and open evaluation of
all alternatives; moving cautiously on privatization because of limited experience (long
term issues vs short term savings); and if privatization is selected as an alternative the
selection of a contractor should be an open and fair process.
Comments
• Industry going through fundamental change in terms of the improvements in
effectiveness of utilities in performing their core missions and the efficiency of their
operations.
John Huber, Louisville Water Company: A WWA/WEF QualServe Program
• Spoke via teleconference from Louisville, KY.
• Gave an overview of the QualServe Program developed by the AWWA and WEF for
water/wastewater utilities
• Program seeks continuous improvement and customer satisfaction, built around self-
assessment, peer review and benchmarking - and quality improvement programs that have
worked well.
• Must accommodate organizational responsibilities - customer relations, business planning
and management, organizational development, wastewater operation, and water supply -
with which there are 26 business process categories.
• Thorough preparations are essential, including support from the top, representative teams,
credible measures of success, and access to information.
• QualServe offers staff assistance providing help in all aspects.
• The self assessment involves a confidential, comprehensive survey, to involve staff and
share what they know.
• Peer review is an objective evaluation by trained utility professionals over a 3 month
period, with a summary report showing strengths and opportunities for improvement;
peer reviewers are senior executives from utilities across nation; attend training; have no
vested interest in participating utilities.
• Benchmarking uses metrics to compare results of practices and to improve performance;
a clearinghouse has been established; will be fully developed by 2003; service include
website connection to APQC services (an international benchmarking organization);
training and workshops; performance indicators database; and best practices studies.
• How can utilities develop goals and controls to have freedom to act?
• To gauge and compare results the program calls for customer satisfaction surveys which
feedback in to the self assessment, peer review, and benchmarking.
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Comments
• It will be a challenge to develop good standards for best practices.
• How do we maintain interest of utilities?; marketing an issue; in the original pilot 120
utilities participated; employees got very involved - can be a cultural issue.
• Is there any interface with the city council? Local utilities have the option of letting
governing body know of their participation; surveys can be "scary."
• Can the QualServe program work for all utilities? - would smaller utilities be able to take
advantage of the tools/techniques? Attempt underway to adapt the program to small
systems.
Ken Rubin, PA Consultants: AMSA/AMWA Competitiveness
First examine the cost structure of an average utility.
25-35% capital program
25-35% business support services
30-40% core O&M
• What is the competitiveness framework? A supply chain of core organizational values
(source protection, water production, transmission, treatment, distribution, and customer
service) that uses a wide range of organizational services, all based on a foundation of
capital programs management.
• In 1998 AMSA and AMWA began a joint initiative with case studies and regional
workshops to train over 2000 managers in productivity improvement. Also began
competitiveness programs in more than 150 utilities.
• Key finding: a savings of 15-30% achievable in O&M.
Benchmarking an important tool with reducing costs of business support service, yielding
up to 50 percent savings.
• AMSA/AMWA supported similar program to capture efficiencies in provision of
business support services, with second handbook and series of management workshops.
Similar levels of savings are attainable.
• Recently began project to develop an asset management handbook based on Australian
and US experience. Also included AWWA &WEF. Bottom line of asset management is
that, if properly implemented, it can generate significant reductions in capital replacement
costs and also increases control over costs.
What's been learned using competitiveness strategies? Cited several anecdotal examples,
including reduction of operating costs by 31% and reducing a $200 million operating
budget by $33 million.
Compared a burdened utility with an optimized private utility. The former's burdened
include inefficient work practices, overstaffing, reactive maintenance, poor management
information.
The burden gives a cost edge ranging from 25 to 35% in controllable O&M costs to the
optimized private facility. However, addressing these issues, a public utility can begin to
eliminate the burden and bring costs in line with those of private utilities.
• Leveling the playing field allows the public utility the flexibility to invent more in
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training and other worthy activities and still remain competitive with a private counterpart
that still is required to provide a return to shareholders and pay taxes & fees not paid by a
public utility.
• Neither model is foolproof and each depends on certain conditions being satisfied, e.g., a
flexible civil service for the public utility and fair management contract for the private.
• BUT main issue: how do we assure reliable, high-quality service at affordable rates?
Competition is key to low cost and high quality [it has benefitted public utilities and
should be a fact of life]
Comments
• How effective has US experience been with Nessie curves (asset management) thus far?
Not that effective so far, but will improve.
• What cost reductions could we expect to see on the capital side (from asset
management)? On the order of 10%.
• Modified GASB 34 approach supports asset management.
Utility Roundtable
Alan Manning, EMA
• Addressed "keeping a vibrant and dominant public utility sector."
• Traditional monopoly enjoyed by public utilities provided resistence to improved
competitiveness, in terms of cost minimization
• Being a monopoly reinforces a bureaucratic mind set of waiting; covering and finger
pointing.
• But utilities have demonstrated significant cost savings are attainable.
• Why have a dominant public utility sector?
protect public health and the environment
profit motive not present to generate decision conflicts
least costly
• Compared with an optimized public utility, a private will "always be 5-15% more
expensive than the public-
profit
overheads
performance bonds
shareholder return
taxes
• Improvements made in 203 utilities through teamwork/work practices changes,
technology, PDM &WFF.
• Emphasized the importance of creating a real team from a working group as compared
with pseudo teams.
• Internal resistence can be overcome by aligning around urgency, vision, and solution.
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• Have to involve employees in teams to get their commitment.
• Savings beginning first year and grow rapidly with effective implementation.
Comments
• Private sector need not dominate but around 20% of public utilities for varying reasons
will not be able to become competitive; these are candidates for privatization
• What then is the role of the private sector? Design-build practices are one example;
outsourcing some functions has good possibilities.
Myron Olstein, Black and Veatch
• Covered trends in utility management
• Performance and management are improving
• Treatment performance improved significantly
1999 AMSA survey of 119 large utilities - 95% of flows are at secondary, up from
84% in 1993.
24% are at tertiary.
heavy metals down by half in past 12 years.
• Unit staffing levels going down.
30% decline in 9 years.
• Between 96-99 costs to customers match inflation; debt increased by 12%.
• Management is improving in several key ways.
best practices being implemented [automation; workforce flexibility]
more tools and assistance programs [asset management, competitiveness,
benchmarking].
development of quality improvement programs [QualServe].
establishment of a benchmarking clearinghouse [40 members, with the American
Productivity and Quality Center], developing common data definitions and
benchmarking protocols; standardization.
development of EMS guidance from EPA grant to WEF and AMSA
• Long term operations contracts [con ops] may not be most efficient.
more savings in capital and support services.
operations will change due to Internet and wireless technologies.
Comments
• Declining staff level would have been seen as a major negative until just recently when it
has resulted from improved productivity/performance, generating major cost savings.
• Over 60% of the sample utilities were providing some type of financial assistance to poor
customers, such as lifeline rates.
Bill Knecht, Cincinnati Water Works
covered the changing water utility using CWW as an example.
• developed a strategic business plan for the period 1996-2000.
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developed 10 core competencies all managers and supervisors are expected to possess.
created a value statement focusing on customer service through: efficiency and cost-
effectiveness, quality drinking water, community involvement, professionalism, and the
environment.
made major investment in technology which is viewed as a tool for reducing
cost/improving customer service.
operating and maintenance expenses remained flat for the period 1996-2000 and all
revenue generated by rate increases was invested in the capital improvement program.
reviewed financial highlights of the CWW; notably revenue increases from suer fees fell
considerably below the average rate of inflation.
realized a AA+/Aa2 ratings on inaugural issue of revenue bonds; good management being
a key factor.
developing a total enterprise asset management system.
average net income as a percent of operating revenue is 22.6%.
Barry Gullett, Charlotte-Mecklenburg Utilities
Covered CMU competition program.
• Competition seek best service at lowest cost.
• CMU largest utility in Carolines with 185,000 service connections.
• Competition program began in 1995 with yellow pages test - looking for the service that
are offered by the private sector.
• First generation contacts ran 1 -5 years
• Second generation contracts run 3-10 years; now in third generation.
• Process involved proposal from firms and from public sector employees the "City bid
team".
• Used an evaluation team with a privatization and competition advisory committee.
• Disinterested parties used in bidding/evaluation process; benchmarks used in evaluations.
• City staff can compete; blended best private practices with public sector advantages.
• Significant cost reductions achieved; less staff, lower energy/chemicals costs and more
efficient work practices.
• Second generation focused on longer cost savings; balancing risk and costs and using
larger contracts.
• Third generation will seek competitive bids where competition is real; stress
benchmarking and optimization; and continue to adopt private sector approaches.
• Findings
city employees can compete successfully;
involve employees; give them the resources
| break down internal bureaucracies
'; benchmark competitors
i
i
Pete Dobrolski, Malcom Pirnie .
• covered the experience of Houston with optimization, using managed competition.
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• new laws/standards have raised the community profile of public utilities, requiring them
to invest large amounts on new technologies.
• Houston's budgeted $556 million for water and sewer funding in 1999.
• improved work force flexibility and training has resulted in:
improved productivity
higher morale
betted educated workforce
more efficient use of time
Greater reliability at less cost
a 1996 managed competition generated $12.7 savings at one plant over an earlier
contract.
• in 1997, Houston re-engineered itself, redesigning job classifications, streamlining
functions Adopting skill based pay and increasing work flexibility.
• Between 1997-99, O&M reduced by 8% per year; personnel reduced by 15%; procedures
streamlined; installed modem instrumentation and automation, and use cross functional
integration.
• Typical annual saving are $14.8 million.
Robert Danhauser, Charleston CPW
• Covered the adoption of an EMS under ISO 14001 guidelines at the Charleston
Department of Public Works.
• Why change is needed - aging infrastructure, tighter requirements, threat of competition,
limited resources; customer issues.
• ISO 14001 provides a business framework to utilities, beginning with the evaluation of
current procedures using processes to identify potential strengths and weaknesses and
assisting the organization in developing long term business and environmental strategies.
• Using ISO guidelines a process was developed to evaluate performance against
established objectives and to review and adjust performance.
• In two years - CPW has:
established a planning process
developed a structured process to implement improvements
developed a process to implement waste minimization and pollution prevention
measures.
ISO 14001, through the EMS concept, has
provided a planning and management framework for improvement
reduced exposures to risk and liability
reduced O&M costs
increased staff skills
CPW is the first certified utility under ISO 14001.
• Liability issues and customer concerns will promote greater use of EMS by public
utilities.
• 80 utilities are considering EMS.
• But concrete incentives are needed.
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• EPA's Office of Water providing grant assistance to the development of EMS guidelines
for the wastewater industry.
Comments on Roundtable
• How do we get the word out to smaller utilities - how do we penetrate this market - get
broader application below say the top 500 utilities?
• There is no mechanism to do this - but smaller utilities will be easier to change than
larger ones.
• Make greater use of rural networks, such as the Rural Water Associations; political inertia
a big problem.
• Improvements in instrumentation have played a major role in achieving greater
efficiencies in, for example, reducing staff required to conduct routine operations.
Ed Means, McGuire Environmental Consultants, Inc. - Strategies for the Future
• Genesis of work: public water leadership —AWWA
• Effort involved trends papers and workshops to id. scenarios and strategies
• The final product later this year will be a Water Utility Futures Book
• General findings: change will be driven, but costs will grow
• About 60 trends were identified via the approach
Ten Most Important Trends
1.
2.
3.
4.
5.
6.
large rate increases will be needed to replace infrastructure
many water utilities will have funding difficulties
the services that water utility must supply will grow
regulations and economics will drive consolidation of small utilities
raw water supplies will be curbed by environmental concerns
u. small treatment units and point-of-delivery devices will be important
7. economic pressures wilt drive utilities to continuous improvements
8. conservation and water recycling must and will increase
9. traditional utility management approaches will change
10. mergers of water and wastewater utilities with electric and gas utilities will be common
Other Findings and Observations
• U.S. population will double by 2100 increasing pressure on water supplies.
• Customers will demand more service and information of water providers.
• Consumer confidence has declined and may continue to do so.
• Water infrastructure spending and household costs will grow.
• Water utility options will shrink as demands grow.
• Technology will help in alleviating future water problems especially as computers
become relatively cheaper and more powerful.
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• But, finding technical staff will be more difficult and more costly.
• Outsourcing will grow driven by local economics and politics.
Possible future scenarios
1. Business as usual 2. Rise of the oligopoly
3. Consumers rule 4. Empire strikes back
Promising strategies (appear applicable to addressing all scenarios)
• Practice good management — quantify and articulate needs and maintain flexible
approach (be willing to do what works)
• Maintain good stakeholder relations and stress customer service
• Increase community involvement and develop partnerships
• Remove impediments to efficiency
• Transform work environment via emphasis on improved recruitment, training, incentives,
and pay
• Apply best available technology:
install automation to reduce labor and save energy
integrate information systems
use the internet to gain administrative efficiencies
invest in research and development to foster innovation
• Adopt total watershed management approach using such tools as demand management,
conservation, reuse programs, and rate-based incentives to manage water supply needs
• In short, water utilities must operate as a business
Afternoon Session 2:00 pm - 4:00 pm
TOPIC: A panel discussion of the findings and recommendations of the "Water Infrastructure
Now (WIN) Report" by experts representing a range of viewpoints
• Michael Deane welcomed and introduced the panel
• Ken Kirk, Executive Director of the Association of Metropolitan Sewage Agencies,
reviewed the principle findings and recommendations of the WIN Report
• Each panelist briefly outlined the position of their respective organization(s) with respect
to the WIN Report.
PANELISTS PRESENTATIONS
Ken Kirk, Association of Metropolitan Sewage Agencies
• A new federal-state-local partnership is needed and within this relationship there is a need
for federal government to play a bigger role.
• The WIN coalition held series of four facilitated discussions on addressing the issue of
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water infrastructure financing needs.
• WIN conclusions and suggestions:
1. Need long-term reliable funding source — $57 billion over five years
equally split between drinking water and wastewater
2. Want a commission to look into long-term solutions to funding problems
3. Give funding flexibility to the state; let them determine the grant/loan mix
Other WIN thoughts
1. expect 25-50 per cent to be eligible for grants
2. expect 10-15 per cent subsidized loans
3. let the state decide the mix/set priorities/area of focus
4. establish consolidated state water agencies as successors to srfs
5. lift caps on private activity bonds
6. restrict eligibilities to core infrastructure needs
7. establish an EPA Office of Water Infrastructure Financing
8. commit $250 million a year for new technologies and management
practices R&D
9. fund expanded technical assistance of $25 million per year (EPA and Ag)
• WIN initiative only means that the federal share would be 8% of total costs.
• There have been 29 signatories to the WIN report so far.
Peter Cook, National Association of Water Companies
• The cost estimates for water infrastructure needs vary widely from report to report.
However, all parties agree that the costs will be large.
• A realistic expectation of federal assistance provided over the five year period described
in the WIN report might be in the range of $5-6 billion.
• The best place to invest any federal dollars would be in the replacement of existing
facilities.
• The industry question, "What is affordable?", is important and must get more attention.
• Many large systems simply do not need help, but many small systems and large ones with
many poor users probably do.
• Strongly supports the idea of using a variety of financing mechanisms.
• However, grants should be used very judiciously and a strict cap/lid should be placed on
their use.
• The U.S. Department of Agriculture's Rural Utilities Service (RUS) does great
affordability work.
• The quality of such work done by U.S. EPA is less impressive.
• The country must not give subsidies to systems that do not need them and must encourage
the efficient use of the limited subsidies that are or become available.
Diane Van De Hei, Association of Metropolitan Water Agencies
• It is very important to begin to address the water infrastructure funding/financing problem
now.
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• While it is true that different reports have identified different absolute levels of needs,
they all agree that the financing challenge is large.
• The reason for the differences is that each of the reports have focused on different things,
so comparing them is like comparing apples and oranges
• Affordability, if examined and considered, must take into account not just the costs of
providing water and wastewater services, but also the cost of providing other public
services.
• Most affordability arguments are just a smokescreen to avoid providing federal assistance
to large systems.
• The small systems affordability issue is a red herring to divert government money away
from where it will do the most good for the most people -- the large systems.
• Government should look at and adopt a new model of affordability that factors in (gives
credit for) a water and wastewater system's existing efficiency and viability.
• Government should direct its resources to areas and systems in which they will do the
most good.
• Non-viable and inefficient systems (i.e., many small systems) should not be supported
with government subsidies.
Rick Norment, National Council for Public-Private Partnerships
• The Council supports much of the WIN report findings, particularly the recommendations
concerning private activity bonds.
• It agrees with the WIN report that the nation faces a large financing challenge in meeting
its significant water and wastewater infrastructure needs.
• The Council believes that an expansion in the use of private activity bonds would be of
great help in meeting these environmental infrastructure needs.
• However, it does not agree with the magnitude of the grant program proposed in the WIN
report.
• The Council believes that there needs to be incentives for greater efficiencies by the
nation's water and wastewater systems. Grants are frequently not a good incentive, if not
an outright disincentive for full cost accounting.
• Further, if significant grants were made available to the admirable state revolving loan
fund programs they would use the grants extensively in lieu of loans.
• Competition drives improvements in efficiencies and grants, which will not be made
available to the private sector, will make them uncompetitive.
Tim Williams, Water Environment Federation
The Water Environment Federation's (WEF) is an organization comprised of different
types of members who hold a variety of views on the WIN report.
• However, the WEF signed on to the WIN report because it highlights serious needs and
makes realistic suggestions for meeting them.
• The WIN report is also very good because it clearly identifies the need for the federal role
in water and wastewater infrastructure financing to grow.
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• Mr. Williams expressed considerable disappointment in those who did not sign on to the
WIN report.
• Since there is a budget surplus and considerable Congressional support exists for
financing environmental infrastructure, the timing is right to get new and expanded
federal grant assistance.
• The WIN proposal for $57 billion in federal assistance over five years is actually a very
• modest one.
Dawn Kristof, Water and Wastewater Equipment Manufacturers Association
• While her association chose not to endorse the WIN report, they agree on the seriousness
of the problems/needs.
• The association and its members strongly believe that a healthy marketplace is absolutely
necessary for them to help provide cost-effective solutions.
• The demand for water and wastewater infrastructure technology is driven by
environmental regulations and enforcement.
• Depending on uncertain, year-to-year, federal funding often results in a lot of undesirable
stop and go activity by local utilities.
• Government subsidy programs may stifle the desire of client utilities for innovation
because such funding is often accompanied by intended and unintended restrictions to
innovations.
The association greatly doubts that federal grant funds would come with no restrictions
and remembers the problems that existed in this regard with the construction grants
program.
• Any grants provided by the federal government should also be strictly and closely tied to
affordability.
Steve Allbee, U.S. EPA, Office of Water
• Capital spending on water and wastewater systems maintenance has not been, and is not,
adequate. Such spending is flat.
• Water and wastewater systems are facing increasing affordability problems.
• The country (and the industry) are not investing enough in research. More dollars are
needed for both research and investment.
• A major pathway decision on the approach to addressing the infrastructure challenge must
be made soon.
• There is a need for a fiscal partnership as no single party can adequately address the
challenge.
• Improved asset management must be an important part of the answer as federal support
will be limited.
• Efficiency improvements are needed and can be achieved.
• This problem calls for an approach that incorporates business-like sustainability and
permanent federal support.
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• There does not see a return to the construction grants mentality.
• There is a serious weakness in the fragmentation of information on the infrastructure
financing problem.
Meeting adjourned by George Ames
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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
MAY 31 2002
OFFICE OF
WATER
Mr. A. Stanley Meiburg
Executive Director, EFAB
Environmental Protection Agency - Region 4
61 Forsyth Street, SW.
Atlanta, GA 30303-8960
Dear Mr. Meiburg:
Thank you for your letter of April 30,2002, to Administrator Christine Todd Whitman,
transmitting the Environmental Financial Advisory Board's (EFAB) recommendations from the
Cost-Effective Environmental Workgroup's recent meeting. Your letter contained two broad
recommendations for our consideration.
First, EFAB recommended that the Environmental Protection Agency's (EPA)
Innovation Council take up the issues of improving efficiency in the water and wastewater
'industry. We have been in touch with staff in the Office of Policy, Economics and Innovation
(OPEI) regarding their Innovation Action Council (1AC), and as you may know, the IAC recently
released a 60 page innovation strategy for EPA entitled Innovating for Better Environmental
Results (www.epa.gov/opei/strategv/). EPA's program offices and regions will soon be
implementing the commitments set forth in the strategy. Clearly, improving efficiency in the
public water and wastewater industry is consistent with the Office of Water's stated objective to
"employ innovative management mechanisms to reduce the lifecycle costs of infrastructure and
utilize more flexible financial mechanisms to fund improvements." To advance this objective,
we believe it would be fruitful for OPEI to meet with EFAB and discuss some of the Board's
recommended improvements in procurement practices and other cost-effective initiatives
recommended in your June 2001 report. Our staff in the Office of Wastewater Management
(OWM) would be happy to work with OCFO to set up a three-way meeting so that OWM,
OCFO and OPEI can jointly consider issues of efficiency in the water and wastewater industry.
Second, EFAB recommended that EPA expand its demonstration grants for cost-effective
management strategies, most particularly, environmental management systems (EMS), and that
Internet Address (URL) • http://www.epa.gov
Rocyelod/Rocyclablo • Printed with Vagstablo Oil Based Inks on Recycled Paper (Minimum 20% Postconsumer)
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.demonstration projects be presented collectively on an Agency webpage. We are moving to
implement both of these suggestions. Under Section 104 (b)(3) of the Clean Water Act, we
support a number of projects to promote EMS adoption. We will soon issue a Notice of Request
for Initial Proposals in the Federal Register that again includes EMS as a distinct project area.
Over the past five years we have assisted 23 local and state agencies as they developed EMSs for
their operations. Last year, we funded a new EMS project designed to assist local governments
called the Public Entity Environmental Management System Resource Center (PEER). The
PEER Center f www.peercenter.net/) is a national clearinghouse of EMS information designed
primarily for local governments. The PEER center will soon include a series of Local Resource
Centers around the country to provide technical assistance on EMS to local, county and state
governments. EPA will provide funding and technical assistance to these Centers so that they
may better serve the EMS needs of local and state agencies. All these activities support EPA's
overall policy of promoting EMS adoption in key sectors, as part of our recently released
innovations strategy.
Finally, we in the Office of Water look forward to building a stronger relationship with
the EFAB on a variety of issues. The enclosed fact sheet details the potential use of the Clean
Water State Revolving Fund for EMS projects. As I am sure you know, George Ames, Chief,
State Revolving Fund (SRF) Branch, brings his expertise and institutional knowledge to the
OWM and will continue serving EFAB as an expert witness. In addition, George has asked Holly
. Stallworth, an economist in the SRF Branch, to serve as liaison to EFAB.
Thank you for your work on cost-effective environmental management. If you have any
further questions, please feel free to contact George Ames (202-564-0661) or Richard Kuhlman,
Director, Municipal Support Division (202-564-0696).
Sincerely,
G. Tracy Mehan, Til
Assistant Administrator
Enclosure
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&EPA
United States
Environmental Protection
Agency
Office of Water
(4204 M)
Washington, DC 20460
EPA832-F-00-075
November 2001
Environmental Management Systems and the Clean
Water State Revolving Fund
Several publicly owned treatment works (POTWs) have been or will
shortly be certified to ISO 14001. These include San Diego, CA.
Lowell, MA, Charleston. SC, Eugene. OR and Gastonia. NC. Other,
more tailored EMS programsareaJsoundcrdcvelopmerrt. Forexample,
under the National Biosolids Partnership (NBP), the EPA's Office of
Water, along with lite Water Environmental Federation (WEF) and the
Association ofMclropolitan Sewerage Agcncics(AMSA), is helping to
develop and implement an EMS program tailored to the biosolids
industry. EPA, AMSA and WEF are also beginning a project to analyze
the feasibility of developing a utility-wide EMS template that would
integrate the use of other utility management tools like asset
management. More infortnation about theNBP's EMS program can be
found on their web site at www.hicMiolids.orB.
The Problem
Public and private enterprises face an increasingly heavy burden of
responsibility for the future condition of our environment.
Waste-water treatment systems in particular are getting more complex
and face numerous environmental challenges, requiring dynamic, top
quality environmental management A systematic method for
addressing environmental consequences is often needed - not only for
current issues of legal compliance but also to address additional
community and environmental concerns. One method of managing
environmental impacts has been codified into a series of protocols:
environmental management systems (EMS). The EMS method holds
particular promise as an information-rich and inclusive framework for
addressing environmental issues.
This fact sheet will briefly discuss the method of an environmental
management system (EMS) and how the Clean Water State
'Revolving Fund may be tapped to establish an EMS program.
••:.-
\Vlfat is an EMS?
An EMS is a formal set of procedures and policies that define how on
organization will manage and reduce its impacts on the environment.
The basic elements of an EMS include;
• reviewing the organization's goals;
• analyzing its environmental impacts and legal
requirements;
• setting environmental objectives and targets;
• establishing programs to meet objectives and targets;
• monitoring and measuring progress;
• ensuring employee environmental awareness and
competence;
• reviewing progress of the EMS and making
improvements.
As an iniegrative process, EMS is a continual cycle that involves
planning, implementing, reviewing and improving so that iin
organization can reduce its environmental impacts.
EMSs arc increasingly being developed in conformancc with the
voluntary International Organization for Standardization (ISO) 14001
''standard for EMSs. Over 1300 organizations in the US. arc attracted
to the ISO EMS because it provides a documented, externally
verifiable system. Firms adopting an ISO 14001-based EMS can
demonstrate due diligence in regulatory compliance, a positive
statement of environmental philosophy, and a competitive advantage
in public, customer, and business partner relationships. EPA has
Established a policy of promoting the development of EMSs in key
sectors, including wastewatcr, because the EMS method can help
improve overall environmental performance, reduce costs, and bring
about improved facility management in many other ways. A number
of states arc also promoting EMS adoption by various sectors.
The Clean Water State Revolving Fund
The CWSRF programs, in every stale and Puerto Rico, work like
banks. Federal and state contributions arc used to capitalize or set up
the programs. These assets, in turn, are used to make low or no-interest
loans for important water quality projects. Funds arc repaid to the
CWSRFs over terms as long as twenty years. Repaid funds arc then
recycled to fund other water quality projects. Nationally, the CWSRF
has in excess of $34 billion in assets (includes loans already made and
funds available to make loans). The CWSRF is funding water quality
projects at a rate of more than S3 billion per year.
Potential incentives for funding CWSRF EMS projects include special
recognition, such as acknowledgment on EPA'swcb site, opportunities
to be featured in EPA publications, and participation in information
exchanges such as EMS practitioner forums.
Benefits in Using Environmental Management Systems
for CWSRF Projects
EMS can help local government entities address their regulatory and
non-regulatory issues in a systematic and cost-effective manner. This
proactive approach can help reduce the risk of non-compliance and
improve health and safety practices for employees and the public. The
EMS can also help address non-regulatory issues such as odor
management and energy conservation. Implementation of EMS can
result in significant energy savings. The EMS can promote stronger
operational control and employee stewardship. Local government
unlitius ure also using EMSs to manage growth. In addition to the
advantages available for local governments, state agencies benefit by
extending the coverage of their CWSRF by making more efficient and
ttlTcclivu use of their loan funds in achieving water quality benefits.
Eligibility for Funding
The EPA is pursuing a policy of actively promoting the adoption of
EMSs. The Clean Water State Revolving Fund can be used for
developing an EMS, provided it is part of the construction,
-------
modification or expansion of a POTW. While CWSRF loan
funds can be used to help establish an EMS program in the context of
waste-water treatment, CWSRF funds may not be used to maintain or
operate the EMS. However, research shows that EMS development
"tests usually exceed the costs of implementing the EMS. Again, only
EMS development costs arc eligible and only those costs can only be
funded as part or the construction, modification, or expansion of a
POTW. EMS projects are not eligible for loans as a stand alone
activity.
/ v
Learning by Example
While CWSRF funds were not used to develop and set up the
following EMS projects, these projects would have been eligible for
funding as part of a POTW construction, expansion or modification.
The City of Lowell, Massachusetts, Lowell Waslcwatcr Utility
was selected as a project participant in the USEPA EMS Pilot
Program for Local Government Entities. The Utility is an activated
sludge wastewater treatment facility providing primary and secondary
treatment to 170,000 users in five communities. The EMS focused on
waste stream management, chemical use management, energy
reduction, odor control, and industrial notification. Energy reduction
alone resulted in a savings of 57,000 over a 10-month period. Other
benefits include improved communication at all levels of the
Organization, greater participation in decision making, more creative
solutions, employee empowerment, and increased operation
efFjciencics'arid belter service to customers. These improvements
resulted from a rather modest expenditure of about 542,000. For more
information contact Mark Young, (978) 970-4248, e-mail:
• myoung@ci.lowell.rna.us.
The Wastewater Division within the City of Eugene, Oregon is
devclopinganBMSforn49 million-gallon-pcr-day regional secondary
wastcwntcr treatment plant, a biosolids processing facility, a land
application site for irrigation using vegetable cannery wastewater, and
49; local sewage pumping stations. The EMS centers on the
Wastewater Division's core responsibilities of protecting health and
environment, and clarifies guiding policies, ensures integration of the
different functional components of the regional wastewater program to
optimize environmental benefits, and helps to establish and maintain
an effective documentation system. The EMS objectives target
reductions in natural resources consumption, power consumption,
non- recyclable wastes, and improvement of die quality of treated
wastewater. For more information, contact Peter Ruflicr at (541) 682-
8606'or via e-mail at Petcr.J.RUFFlER@ci.eiigene.or.us
North City Reclamation Plant, and reductions of over 8% and 30%,
respectively, of their normalized process chemical use for the Point
Loma Wastewater Treatment Plant and the Metro Biosolids Center.
The EMS has also prepared the Division to effectively respond to other
regulatory and wastcwalcr industry standards, like the US EPA's
Capacity, Monitoring, Operations, and Maintenance (CMOM)
Program requirements and the National Biosolids Partnership's EMS
for Biosolids Initiative. For more information contact Chris Torn at
(858)654-4265,
e-mail: CJT@sdcity.sanncl.gov.
Challenges Ahead
EPA has been encouraging the states to open their CWSRFs to the
widest variety of water quality projects, while addressing high priority
projects in targeted watersheds. Those interested in establishing an
EMS (in conjunction with the construction, expansion or upgrade of a
wastcwater treatment plant) should contact their state for information
on the CWSRF application process.
For more information on Environmental Management Systems,
please contact:
The EMS web s'llef http://ena.BOV/mvmimtH/ems.him'> or Jim Home at
(202) 564-0571 or through email at
home.inmes6?cpa.pov.
For more Information on the CWSRF or,for a program
representative in your stale, please contact:
The Clean Water Slate Revolving Fund Branch
U.S. Environmental Protection Agency
EPA East
1201 Constitution Avenue, NW
(Mail Code 4204M)
Washington ,D.C. 20004
Phone: (202) 564-0752 Fax: (202) 501 -2403
Internet: hfrn:y/\v\v\v.cna.iiov/ovvm/finnn.hlm
City of San Diego, California Metropolitan Waslewaler
Department's Operations and Maintenance Division. The
Department manages a regional sewer system service area of 4,560
sguare miles serving a population of two million people. Utilizing the
ISO 14001 standard, the Division developed and implemented the first
ISO-certified EMS for POTWs within the United States. The EMS
established four system-wide environmental programs focusing on
inductions in energy consumption, chemical usage, solid waste
disposal, and potable water use. Successful implementation of the
EMSresulted in a reduction of 10% in normalized electrical use by the
-------
SEPA
United States
Environmental Protection
Agency
Office of Water
(4204 M)
Washington, DC 20460
EPA832-F-00-075
November 2001
Environmental Management Systems and the Clean
Water State Revolving Fund
Several publidy owned treatment works (POTWs) have been or will
shortly be certified to ISO 14001, These include San Diego, CA,
Lowell, MA, Charleston, SC, Eugene, OR and Gastonia, NC. Other,
moretailoredEMSprogramsarealsoundcrdevelopment Forexample,
under the National Biosolids Partnership (NBPX the EPA's Office of
Water, along with the Water Environmental Federation (WEF) and the
Association ofMetropolitan Sewerage Agencies (AMSA), is helping to
develop and implement an EMS program tailored to die biosolids
industry .EPA, AMSA and WEF are also beginning a project to analyze
the feasibility of developing a utility-wide EMS template that would
integrate the use of other utility management tools like asset
management. More information about IheNBP's EMS program can be
The Problem
Public and private enterprises face an increasingly heavy burden of
responsibility for the future condition of our environment
Wastewater treatment systems in particular are getting more complex
and face numerous environmental challenges, requiring dynamic, top
quality environmental management A systematic method for
addressingenvironmental consequences is often needed- not only fen-
current issues of legal compliance but also to address additional
community and environmental concerns. One method of managing
environmental impacts has been codified into a series of protocols:
environmental management systems (EMS). The EMS method holds
particular promise as an information-rich and inclusive framework for
addressing environmental issues.
This fact sheet will briefly discuss the method of an environmental
management system (EMS) and how the Clean Water State
Revolving Fund may be lapped to establish an EMS program.
What is an EMS?
Ah EMS is a formal set of procedures and policies that define how an
organization will manage and reduce its impacts on the environment.
The basic elements of an EMS include:
• reviewing the organization's goals;
• analyzing its environmental impacts and legal
requirements;
• setting environmental objectives and targets;
• establishing programs to meet objectives and targets;
• monitoring and measuring piogress,"
• ensuring employee environmental awareness and
competence;
• reviewing progress of the EMS and making
improvements.
As an integrative process, EMS is a continual cycle that involves
planning, implementing, reviewing and improving so that an
organization can reduce its environmental impacts.
•
EMSs are increasingly being developed in conformance with the
voluntary International Organization for Standardization (ISO) 14001
standard for EMSs. Over 1300 organizations in the US. are attracted
to the ISO EMS because it provides a documented, externally
verifiable system. Firms adopting an ISO 14001-based EMS can
demonstrate due diligence in regulatory compliance, a positive
statement of environmental philosophy, and a competitive advantage
in public, customer, and business partner relationships. EPA has
established a policy of promoting the development of EMSs in key
sectors, including wastewater, because the EMS method can help
improve overall environmental performance, reduce costs, and bring
abbirt improved facility management in many other ways, A number
of states are also promoting EMS adoption by various sectors.
found on their web site at www.biosolids.org.
The Clean Water State Revolving Fund
The CWSRF programs, in every state and Puerto Rico, work like
banks. Federal and state contributions are used to capitalize or set up
(he programs. These assets, in turn, are used to make low orno-interesl
loans for important water quality projects. Funds are repaid to the
CWSRFs over terms as long as twenty years. Repaid funds are then
recycled to fund other water quality projects. Nationally, the CWSRF
has in excess of $34 billion in assets (includes loans already made and
funds available to make loans). The CWSRF is funding water quality
projects at a rate of more than S3 billion per year.
Potential incentives for funding CWSRF EMS projects include special
recognition, such as acknowledgment on EPA's website, opportunities
to be featured in EPA publications, and participation in information
exchanges such as EMS practitioner forums.
Benefits in Using Environmental Management Systems
for CWSRF Projects
EMS can help local government entities address their regulatoiy and
non-regulatory issues in a systematic and cost-effective manner. This
proactive approach can help reduce the risk of non-compliance and
improve health and safety practices for employees and the public. The
EMS can also help address non-regulatory issues such as odor
management and energy conservation. Implementation of EMS can
result in significant energy savings. The EMS can promote stronger
operational control and employee stewardship. Local government
entities are also using EMSs to manage growth. In addition to the
advantages available for local governments, state agencies benefit by
extending die coverage of their CWSRF by making more efficient and
effective use of their loan funds in achieving water qualify benefits.
Eligibility for Funding
The EPA is pursuing a policy of actively promoting the adoption of
EMSs. The Clean Water State Revolving Fund can be used for
developing an EMS, provided it is part of the construction,
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