^ n \
                   ^T ^^^^^^^^j ^&
                FEBRUARY 1976
               WASHINGTON, D.C. 20460

To order this publication, MCD-45, Federal Guidelines - Industrial
Cost Recovery Systems, write to:

     General Services Administration (8FFS)
     Centralized Mailing List Services
     Bldg. 41, Denver Federal Center
     Denver, Colorado  80225

Please indicate the MCD number and title of publication.

This publication should be placed in Part III, Guidelines of the
Municipal Vlastewater Treatment Works Construction Grants Program
manual of references.


  Municipal Construction Division
Office of Water Program Operations
  Environmental Protection Agency
      Washington, D. C.  20460

           February 1976

                  TABLE OF CONTENTS
 Foreword                     •                      i i i
 1.   Introduction                                    1
 2.   Purpose and Scope                               1
 3.   General Requirements for Step 2 and             1
     Step 3 Grant Applications
 4.   Step 3 Grants -- Required Documentation         2
     for Approval of Proposed ICR Systems
 5.   Appeal Procedure                                3
 6.   Computation of ICR Payments                     3
 7.   Reserved Capacity                               4
 8.   Exclusions from Application of ICR System       5
 9.   Industrial Cost Recovery Examples               6
      A.  Construction of a New Wastewater
          Treatment Plant                            6
      B.  Expansion of an Existing Wastewater
          Treatment Plant                           13
      C.  Construction of Sanitary Sewers           13
10.   New Industry                                   13
11.   Monitoring                                     14
12.   Discontinuance of Use by Industrial User       14
13.   Lump Sum Industrial Cost Recovery Payments     14
14.   State Agency Reviews                           15
15.   Conflict Between Local Laws or Agreements
     and Federal ICR Requirements                   15

16.  Implementation of Approved ICR Systems           15
     A.  Notification of Implementation               15
     B.  Deposit of Recovered Funds                   16-
     C.  Annual Payment to EPA                        16
     D.  Use of Retained Funds                        16
     E.  Reduction of Allowable Costs for Future
         Grants                  .                     17
     F,  Audits    ...                     17
     G.  Record Keeping                               19
     H.- Penalties for Non-Compliance                 20

     Appendix A - Description of Industrial Cost
     Recovery System       .     .                      A-l
     Appendix B - Opinion of Legal  Counsel             B-l

                             .  FOREWORD
     Section 204(b)(l)(B) of the Federal Mater Pollution Control  Act
Amendments of 1972 (PL 92-500) requires that industrial  users of the
treatment works make payments for that portion of the cost of constr-
uction of such treatment works (as determined by the Administrator)
which is allocable to the treatment of such industrial  wastes.

     The congressional intent of this provision is that "it is
inappropriate in a large Federal  grant program providing a high
percentage of construction funds to subsidize industrial users from
funds provided by taxpayers at large" (legislative history).

     This provision was implemented in the Code of Federal Regulations
at 40 CFR Part 35, Subpart E, promulgated by the Environmental  Protection
Agency on February 11, 1974.  Specifically, 40 CFR 35.928 and 35.935-13
state the industrial cost recovery system shall be prepared by the
grantee, approved by the Regional Administrator, and implemented and
maintained by the grantee in accordance with those regulations.

     These guidelines are published to establish general minimum
guidance and to inform industrial users, grantees, Regional
Administrators, and the public concerning industrial cost recovery.
The purpose of the guidelines is to increase understand!'no, assist
preparation, simplify evaluation, and accelerate approval,
implementation and maintenance of industrial cost recovery systems.
                                   Andrew W.  Breidenbach
                                  Assistant Administrator
                        for Water and Hazardous Materials (WH-556)


     On October 18, 1972, the Federal  Water Pollution Control  Act
Amendments of 1972 (Public Law 92-500) (the "Act") were enacted,
extending the construction grants program and imposing new requirements
on grant applicants.  Section 204(b)(l)(B) of the Act prohibits
the Environmental  Protection Agency from approving a construction
grant after March 1,  1973, unless the  grant applicant has made provision
for repayment by the industrial  users  of the treatment works,  of
that portion of the Federal grant which is allocable to the construction
of facilities for treatment of wastes  from those users.

     Pursuant to the mentioned above legislation, rules and
regulations covering industrial  cost recovery (ICR) were codified in
40 CFR Part 35 and are referenced in these Guidelines and in Appendices
A and B.  It should be noted that the  appendices are part of these
guidelines and must be followed to the same extent as these


     These Guidelines and Appendices are intended to implement the
industrial cost recovery regulations and to assist State and local
officials and their representatives in the establishment of ICR systems
which conform to the statute and EPA regulations.  Guidance is
provided on only the minimum Federal requirements.  The resolution
of other issues and the selection of alternative methods of meeting
the ICR requirements have been left to the discretion of grantees.

     The examples in Section 9 of these Guidelines should not be
considered as inflexible or complete solutions for all municipalities
seeking Federal grants.  In particular, it should be recognized that
the numerical figures in the examples  are to be regarded as hypothetical.


     Applicants for Step 2 (preparation of construction drawings
and specifications) and Step 3 (fabrication and building of a treatment
works) grants must furnish letters of  intent from prospective industrial
users pursuant to 40 CFR 35.925-12.  All Step 2 and Step 3 grants will
be made on the condition that the grantee will comply with Federal ICR
requirements unless the project will not initially serve industrial
users (see Section 8).


     A.  Prior to requesting payment of more than fifty percent of the
Step 3 grant, the grantee must furnish evidence to the Regional Administrator
which demonstrates that it has made timely progress in development of an
approvable ICR system.  Such evidence shall include, but is not limited to,
the following:

     (1)  The identity of grantee personnel, consultants, and grantee's
     legal counsel, whose responsibility it is to develop the industrial
     cost recovery system.

     (2)  A detailed schedule for completion of all significant
     portions of the ICR system (e.g., ordinances, identification
     of industrial users, etc.).

     B.  Prior to requesting payment of more than 80 percent of
the Step 3 grant, or the event or schedule determined by the
Regional Administrator to be applicable as described below, the
grantee shall submit the following additional  documentation:

     (1)  A completed statement in the form shown in
     Appendix A, which describes pertinent features of the ICR

     (2)  A resolution passed by the grantee or a written agreement
     executed by the grantee's representative who is authorized
     to execute the grant documents that it will  properly and
     lawfully implement all  the provisions of its ICR system;

     (3)  An opinion of the  grantee's legal counsel, in the form
     shown in Appendix B, that the grantee's ICR system meets the
     requirements of Section 204(b) of the statute and applicable
     EPA regulations, and is in conformance with the general
     principles set forth in these Guidelines.

     Generally, the requirement for submission of an ICR system at
the 80 percent payment level of a Step 3 grant is appropriate when
the treatment works to be constructed under the grant consists of
a single treatment facility  which will be operable when construction
is completed.  The two most  frequent cases where the operation
of a treatment works or operation of elements  of a treatment works
does not coincide with complete payment of the Step 3 grant are:
the segmented project -- a project is segmented by the grantee
and several  Step 3 grants are necessary to complete construction

of the treatment works before it can be placed in operation; and the
multiple facility project -- a project in which the treatment facilities
or elements will be constructed and placed in operation by the grantee
at different times and before the completion of all payments under
the Step 3 grant.

     In projects where segmenting of an operable treatment works
has occurred, payment of more than 80 percent of the total of all Step 3
segments is not permitted unless the ICR system proposed by the grantee
is approved by the Regional  Administrator.

          In projects where an element or elements of the treatment works
have been completely constructed and placed in operation by the grantee,
additional payment on a Step 3 grant is not permitted unless the ICR
system (or that portion of the ICR system associated with the operating
elements of the treatment works) proposed by the grantee is approved
by the Regional Administrator.

          In approving an ICR system, the Regional Administrator may
require additional documentation and assurances if he requires, revisions
to the grantee's proposed system, or otherwise deems it.appropriate.
                                               • / •
5.  APPEAL PROCEDURE                                 '

     The grantee's ICR system and plans must provide for an administrative
appeal procedure by which individual industrial users will have an
opportunity to be heard regarding the reasonableness of the allocations
and ICR assessments imposed upon them.  It must also provide a
method whereby others affected by the ICR system may obtain local
review of the grantee's administration of the ICR system.


     It is the grantee's responsibility to insure that the proper amount
of Federal funds are recovered from industrial users and that each
industrial user is treated, fairly and consistently and assessed ICR
payments in accordance with applicable law and generally accepted
accounting principles.

     ICR payments must be in proportion to those industrial wastewater
characteristics which influence the cost of construction of the
treatment works.  These characteristics may include strength, volume,
and delivery flow rate characteristics.

     The following must be taken into consideration relative to
the computation of the individual industrial  user's ICR payment:

          A. If an industrial user's maximum flow (hourly, daily,
          monthly, seasonally, etc.) contributes to the cost of
          construction of a treatment works, it should be the basis
          for that user's ICR payment.   No credit shall be given
          to the industrial user for the time period when the user
          is not operating and not discharging wastewater.

          B.   Industrial users often discharge uncontaminated cooling
          waters into municipal treatment facilities.  Such cooling water
          is considered process waste and must be included in the
          ICR computation.

          C.  Wastewater collection and treatment facilities are normally
          designed with unreserved excess capacity for expanded
          future use.  The cost of building such unreserved excess
          capacity into a facility need not be recovered from existing
          users under these Guidelines.

          D.  Industrial cost recovery must be based on Step 3 construction
          and administrative costs, plus related Step 1 and Step 2 costs.
          Step 1 or Step 2 grant costs which do not result in actual Step 3
          construction are not allocable to individual industrial users,
          and consequently need not be recovered.

          E.  Industrial users discharging pretreated process wastes
          into the municipal treatment facilities must pay industrial
          cost recovery based on the characteristics of the pretreated
          process wastes.

     Those industrial wastewater characteristics included in the ICR
system shall be monitored as required under Section 11 of these Guidelines.


     Grantees may permit industrial users to reserve capacity
in the treatment works (including-used and unused capacity).  Such
capacity reserved through formal, written agreement is subject to
industrial cost recovery as set forth below.

     In such cases, the industrial user shall  be required to pay the
full ICR allocable to the capacity reserved.  In the event that the
industrial user exceeds its reserved capacity, it shall be required
to pay ICR calculated on the full reserved capacity plus additional
ICR for use above the limits of the reserved capacity or any element

     In the event the treatment works are expanded in the future
vith PL 92-500 grant assistance, an industrial  user who has executed
i reserved capacity agreement" and has made ICR payments based upon
rull reserved capacity will not incur additional  ICR charges
issociated with the cost of expansion until  the industrial  user's
ictual  use of the treatment works exceeds its reserved capacity.

     Industrial users with reserved capacity contracts will, of course,
be required to pay any additional ICR charges associated with the
cost of upgrading a treatment works.


     A.  ICR is not required for the following grant costs:

          (1)  Infiltration/Inflow correction or treatment;

          (2)  Correction of combined sewer  overflows and collection
          or treatment of stormwaters;

          (3)  Grants for projects which will not initially serve
          industrial users.  In such cases,  the grantee must provide
          evidence that industrial users will not be initially
          served and must agree  to a special condition to the
          grant agreement or grant amendment which will provide
          that the grantee will submit for approval by the Regional
          Administrator an ICR system in full compliance with EPA
          requirements, and that the system  will  be placed in
          operation at the time the first industrial user introduces
          industrial wastes into the grant-assisted facilities.

     B.  Certain industrial users may be excluded, at the grantee's  option,
from the application of the industrial cost  recovery system if they
fall within the following categories:

          (1)  Industrial users (as defined  in 40 CFR 35.905-8(a), (b),
          (c), (d) and (e)) which discharge  only non-process,
          segregated domestic wastes, or wastes from sanitary
          conveniences (for example,  the so  called "dry" industries)
          which are not significant industrial  users under the
          Regulations (40 CFR 35.925-12);

          (2)  Industrial users that have reserved a portion of an
          existing treatment works under contract or agreement
          existing as of March 1, 1973, and  who have paid a reasonable
          portion of the capital costs associated with that reserved
          capacity as determined by the Regional  Administrator.
          This exemption applies only to grants for treatment works

          expansions and only then if the industrial user has not
          exceeded his reserved capacity and will not require a
          portion of the expanded capacity.   Any capacity reserved
          after March 1, 1973 is subject to ICR in accordance with
          the regulations.


     A.  Construction of a New Wastewater Treatment Plant

     The first step in developing an ICR system is to determine the share
of capital construction costs of each component of the treatment
works in relation to the principal parameters -- volume of flow, (Q),
biochemical oxygen demand (BOD), suspended solids (SS), and any other
design parameter which influences the cost of construction.  General
agreement regarding cost allocation can be easily obtained for some
plant components; for example, costs associated with raw wastewater
pumping are almost wholly a function of flow.   The cost of such pumping
equipment would, therefore, be assigned to the flow parameter (Q).
Allocation of costs for other plant components is not so obvious and
less precise methods of estimating must be employed.  The allocations made
in Table 1 are for illustrative purposes only and should not be construed
as definitive for all types of treatment.

     Costs associated with some of the components in Table 1 are not
allocated across Q, BOD, and SS because these particular cost items
(for example, control building or design costs) are not clearly linked
to the wastewater treatment parameters under consideration.  Instead
a weighted average allocation may be made based on the costs attributed
to those other components which are allocable.

     It should be noted that any Step 1, 2 or, 3 grant cost associated
with infiltration/inflow correction or treatment of stormwater is not
allocable to industrial users, and should be deducted from total costs
of construction for the treatment works prior to calculating industrial
cost recovery payments.  In Table 1, Tor example, Step 2 and Step 3
costs were reduced by the ratio of the volume of nonexcessive
infiltration/inflow (100,000 gal/day from Table 2) to the total
volume (1,900,000 gal/day).  Since I/I contributes only to the
volume (Q) parameter, only the cost of facilities for that
parameter was affected by the reduction.  Step 1 costs were reduced
by the costs incurred in removing excessive I/I from the system.
In the event the Step 1 grant or Step 2- grant had covered more' than
one Step 3 grant, a deduction from total Step 1 and total Step 2 costs
would also be appropriate to reflect the .amount of such costs allocable
to other Step 3 grants.

     The percentage cost allocations shown in Table 1  should not be
considered mandatory nor should they be considered uniformly applicable
to all locations.  They are presented to illustrate a  reasonable approach
to carrying out this cost allocation analysis and serve only as the
basis for the examples. . Grantees may allocate costs associated with
flow, BOD, suspended solids, etc., to the treatment facility as a
whole, without resorting to the component-by-component analysis.
shown in Table 1.

     Since it is often impractical to develop a monitoring program to
measure wasteload discharges from each minor industrial user (See Section 11)
such industries may be initially assessed cost recovery payments on the
basis of estimated discharges.  In such cases, a flat rate may be charged
each industry provided that the grantee has documented that it would be
administratively impractical to monitor each of the industries separately,
and that all such industries discharge a waste that is compatible with
the municipal treatment process.

     Table 2 lists the flows and strength of sewage from a sample
community.  The Federal grant allocable to per unit of capacity of flow, BOD,
and suspended solids, based on the costs given in Table 1, are:

          Flow = $529.08/1,000 gals/day

       •   BOD = $75.15/1b/day

          Suspended Solids = $25.62/1b/day

     The calculations in the example were based on design flows
and do not include flows attributable to nonexcessive infiltration/inflow
which are not subject to ICR.  (Guidelines, Section 8).  Thus, although
the treatment plant's design capacity is 1,900,000 gals/day, an adjusted
capacity (total capacity less infiltration/inflow) of 1,800,000 gals/day
was utilized in calculating ICR allocations to industrial users.

                                TABLE 1
Pump Station
Grit Chamber
Primary Clarifier
Aeration Basin
Secondary Clarifier
Chlorine Contact
Flow Measurement
Sludge Digester
Sludge Dewatering

Control Building
Step 3 Admin. Costs
Deduct, for Non-
Excess. I/I (1/19 of
Q, See Table 2)
Total Step 3 Cost
for ICR Purposes
Step 1 Costs
Less Sewer Rehab.
Total Step 1 Costs
for ICR Purposes
Step 2 Costs
Less Deduct, for
I/I (1/19)
Total Step 2 Costs
for ICR Purposes
Total of All Grants
(1-3) for ICR Purposes
Federal Grant

- 64,000




- 5,200


1 ,481 ,850




$ %*
$150,000 0
45,000 0
325,000 0
160,000 60
325,000 0
50,000 0
30,000 0
0 50
0 50
1,085,000 24
99,000 24
33,000 24

- 64,000

33,000 24


99,000 24

- 5,200


$ 0






36 ,000

501 ,000











*Cost allocations for individual plant components are not definitive for
 all types of treatment, and may be varied as necessary

                                Table 2
        Design Raw Wastewater Flows  and  Strengths  in  Sample  Community
                                Q	       BOD	  	SS
Type of No. of
Account Accounts
Industrial* 8
Commercial** 10
Residential 3,000
Excess Capacity
Total Design Capacity
Less Nonexcessive I/I
+ 400,000
- 100,000
% of
' 150
% of
% of
Design Capacity
for ICR Purposes       1,800,000    100     5,000     100    6,000      100

                  Capital  Costs Per Unit of Treatment Capacity
Flow:      Federal  grant allocable to flow    =   $952,350  (from Table 1)
          Design Flow (1,900,000-100,000)    =    1,800,000 gals/day
          Cost per unit of   = $952,350
            flow Capacity          T7500      =    $529.08/1000 gals/day
BOD:      Federal  grant allocable to BOD     =    $375,750 (from Table 1)
          Design BOD                         =    5,000 Ibs/day
          Cost per Unit of  BOD = $375.750
            capacity               5,000     =    75.15/1b/day
SS:       Federal  grant allocable to SS      =    $153,750 (from Table 1)
          Design SS                          =    6,000 Ibs/day
          Cost per unit of  = $153,750
            SS capacity         6,000        =    $25.62/lb/day

industries are defined as any establishment listed  in Divisions A, B, D,  E
 and I of the SIC Manual.
**Some commercial  establishments are included in  Division I, and as such,
  have an ICR obligation.

                         TABLE 3
       Daily Industrial Discharge in Sample Community
No. of
Empl oyees
Type of
Waste .
Process waste.
Process waste &
res.erved capacity
Pretreated process
Sanitary waste
Process waste
Q( gals/ day)
70,000 .
    Table 3 lists the community's eight industrial accounts.  The
procedures followed in calculating each industry's cost recovery
obligation are as follows.
Industry No. 1      Q = 150,000 gal/day
                  BOD = 600#/day
                   SS = 1,000 #/day
Assumptions:  Process wastes discharged to municipal  sewerage system.
Total Cost Recovery Payment = 150,000 gals/day -($529.00/1,000 gal /day)
 (over the useful life)
                            + 600#/day«($75.15/#BOD/day)
                            + l,000#/day($25.62/#SS/day)
                            = $79,362.00 + $45,090.00 + $25,620.00
                            = $150,072.00
Annual payment = $150.072.00
                   30 years    =    $5,002.40/year
                              (Based on a 30 year useful  life)

   Industry No.  2      Initial  Q = 100,000 gals/day
                       Ultimate Q = 200,000 gals/day
                       Initial  BOD.= 600#/day;  ultimate BOD = l,200#/day
                       Initial  SS = 500#/day;  ultimate SS =. 1,000#/day
        Assumptions:  This industry olans on doublinn its oirtnu*: sonetine
   during the useful life of the facility, and has entered a binding
   agreement reserving treatment plant capacity for ultimate usage.

   Total  Cost Recovery = 200,000 gaVday ($529.08/1,000 gal/day)
(over the useful life) + 1,200  #BOD/day ($75.T5/#BOD/day)
                       + 1,000  #SS/day ($25.62/#SS/day)
                       = $105,816.00 + $90,180.00 + $25,620.00
                       = $221,616.00
   Annual payment      = $221.616.00
                           30 years    = $7,387.20/year
                                         (Based on a 30 year useful life)
   Industry No.  3      Q = 70,000 gals/day
                     BOD = 350  #/day     Volume and strength of pretreated
                      SS = 590#/day
        Assumptions:   Process wastes discharqed to municipal  sewerage
   system following pretreatment.

   Total Cost Recovery   = 70,000 gals/day($529.08/1,000 gal/day)
(over the useful life)   + 350  #BOD/day '($75.15/#BOD/day)
                         + 590  #SS/day ($25.62/#SS/day)
                         = $37,035.60 + $26,302.50 + $15,115,80
                         = $78,453.90
   Annual payment        = $78.453.90
                            30  years   = $2,615.13/year
                                         (Based on a 30 year useful life)

     Industry No. 4           Q = 15,000 gals/day

                            BOD = 30 #/day

                             SS = 30 #/day

     Assumptions:  The only type of waste discharged by this industry
originates in sanitary conveniences.  In the event the grantee exercises
the option to exclude this and other "dry" industries (Guidelines
Section 8) no cost recovery would be required. .Otherwise the ICR
would be calculated in the same manner as for other industries in this

     Industries 5-8           Total Q = 15,000 gals/day

                              Total BOD = 120 #/day

                              Total SS = 180 #/day

     Assumptions:  The process wastes discharged by the four industries
in this group are not large enough to justify constant monitoring.  The
grantee will have the choice of either calculating cdst recovery payments
from these industries on the same basis as for Industries 1 through 4
or determining the cost recovery payments required from these industries
as a group, and dividing the resultant liability equally among the four.
Cost recovery calculations for the latter case would be made as follows:

     Total Cost Recovery Payment = 15,000 gals/day($529.08/1,000 gal/day)
        (Over the useful life)'
                                 + 120 #BOD/day ($75.l5/#BOD/day)

                                 + 180 #SS'/day($25.-62/#SS/day)

     Total Cost Recovery Payment = $7,936.20 + $9,018.00 + $4,611.60

                                 = $21,565.80

     Cost Recovered from each industry = $21,565.80
        (over the useful life)                4"= $5,391.45

     Annual payment from each industry = $5,391.45
                                          30 years   = $179.72/year

                                        (Based on a 30 year useful life)

     It should be noted that industrial cost recovery payments are required
from industrial users which pretreat their wastes (Industry No. 3 in
the example), but the amount of such payments will  be determined by the
wastewater characteristics following the pretreatment process.

     In the event the grantee exercises its option to exclude "dry"
industries from industrial cost recovery (Guidelines, Section 8),
the grantee should also deduct the estimated sanitary wastewater from the
total discharge of industrial users which discharge a combination of
process wastewater and wastewaters from sanitary conveniences, prior to
computing the industrial cost recovery payments of such industrial users.

     B.  Expansion of an Existing Wastewater Treatment Plant

     Capital costs for treatment plant expansion projects will be
determined in the manner outlined in the proceeding example.  Allocation
of costs to industrial users will be based on the total expanded capacity
of that facility.  For example, if industrial users will utilize
50 percent of the total capacity of the treatment works as expanded,
ICR payments adequate to recover 50 percent of the Federal grant will
normally be required, unless any industrial users qualify for the exclusions
from ICR described in Section 8 of these Guidelines.

     C.  Construction of Sanitary Sewers

     Allocation of sewer construction costs to industrial users must be
based on the design discharge from such users as a percentage of the
design flow in the sewer.  Industrial allocations may be based on
(a) the total cost of the sewer without regard to the point of an
industrial discharge, or (b) the cost of the portion of the sewer
downstream from the industrial discharge.


     A "new" industry is one which connects to a treatment works after
such treatment works has been put into service.  ICR payments by a new
industry shall begin on the date use is initiated and shall continue
for the unexpired portion of the ICR period or until the industry
ceases use of the facility, whichever occurs first (see Section 12).
Total ICR recovered from a new industry shall be the Federal cost of
the capacity used multiplied by the ratio of its period of use to
the ICR period.


     In developing the ICR system, the wastewater characteristics of
each industrial user shall be determined.  Normally this id done by
monitoring.  However, where monitoring is not feasible, wastewater
characteristics may be estimated using historical records, data from
similar industrial users, etc.  After the ICR system is put into operation,
major industrial users must be monitored on a regular basis, not less
often than annually.  Monitoring for minor industries may be done on a  .
random basis.  The grantee shall propose a definition of major and minor
industry and a monitoring program for each which reflects its relative
impact on the cost of construction of the treatment works (see Appendix A).
Monitoring must be conducted during periods of normal discharge.


     If an industrial user discontinues use of the treatment works
(including termination of any agreement for reserve capacity),
its payment for industrial cost recovery will cease.  There is no
requirement for other industries presently using the treatment works to
assume the portion of the ICR payment which is unrecovered due to the
departure of an industrial user.  Total ICR recovered from an industry
which discontinues use during the ICR period shall be the Federal cost
of the capacity used multiplied by the ratio of its period of use to the
ICR period.  A significant industry planning to discontinue its use
of the treatment facility during the ICR period must make its intention
known in the letter of intent required under 40 CFR 35.925-12.  The
grantee must consider the cost-effectiveness of providing capacity for
that industry in its facility plan (Step 1).


     An industrial user may wish to fulfill  its industrial cost recovery
obligation by making a lump sum payment for its entire share of the cost
of construction of the treatment works.  Such payments may be accepted
by the grantee and either processed as a normal ICR payment or set
aside in a separate account to be drawn on annually for the remainder
of the industrial  cost recovery period.  Lump sum payments will not relieve
an industrial user from the obligation of making additional  future payments
should its wastewater flow or load increase.  Discounts from the total
industrial cost recovery requirement will not be given to industrial
users making advanced ICR payments.   Any interest earned by the grantee
on ICR payments set aside will be recoverable in the same manner as if the
ICR payments were  made as due (40 CFR 35.928-2(a)).


     Federal review functions including review of the original  ICR system,
approval of the use of retained funds, and the conduct of necessary audits
can be delegated to State water pollution control agencies.


     Section 204(b)(l)(B) of the Act supersedes and nullifies any and
all State or local laws and ordinances and orders in conflict therewith.
Any agreement between the grantee and any industry, or between the grantee
and any other political jurisdiction, or other party, which purports to
relieve any industry from payment of the Federal share of the grant,
or which purports to limit the power of a grantee to demand collection
of the Federal share of the cost of construction from each industrial
user will not be grounds to circumvent or avoid the requirements
of Section 204(b)(l)(B), EPA regulations and these Guidelines.   Prospective
grantees shall promptly notify EPA of such laws or agreements and take all
steps necessary to remedy the defect in their ability to fully comply
with EPA requirements.  Until such restrictions are completely removed,
whether by court order or otherwise, the grantee shall be ineligible for
Federal funding.


     A.  Notification of Implementation

     In general, the industrial cost recovery period will commence when
Step 3 construction is complete.  However, at the time any element of a
treatment works funded by the Federal construction grant becomes operable,
it must be placed in the ICR system and the ICR period will  begin from
the date of beneficial use by the first industrial user.

     Immediately after the ICR period begins, the grantee will  establish
the accounting period for the ICR system, which may be based on the
grantee's fiscal year or any other appropriate annual period and need
not coincide with the ICR period for any particular treatment works.
Adjustment for a particular treatment works or individual industrial
users should be made where appropriate and necessary to maintain
administrative integrity and simplicity.

     Not later than 30 days after the ICR period begins, the grantee
will establish the accounting period for the ICR system and will notify
the Regional Administrator, in writing, of the date of this implementation
of the ICR system.  The first payment to the grantee by the industrial
users shall be made not later than one year after the beginning of the
ICR period.

     Although the ICR assessment imposed on industrial users is based
upon an annual allocation of the Federal costs of construction of the treatment
works, the grantee may require or accept partial payments of an industrial
user's ICR assessment on a monthly, quarterly or semi-annual basis.
The grantee shall not provide industrial user's with an interest type
credit for such periodic payments and the payments must be associated
with the assessment of ICR charges for the year in which they are paid.

     B.  Deposit of Recovered Funds

     All funds recovered during the annual accounting period (with the
exception of the discretionary portion of the grantee's share) shall be
deposited in interest-bearing accounts which are fully collateralized by
obligations of the U.S. Government or by obligations fully guaranteed as
to principal and interest by the U.S. Government or any agency thereof.

     Uncoilected ICR charges which mature into bad debts as a result
of bankruptcy of any industrial users should be identified, but
are not to be recovered from other industrial users or
other sources, and the Federal share of such charges need not be paid to the
U.S. Government as long as they remain uncoilected.  The funds recovered
in ICR payments are not to be decreased by the grantee's costs of collection
and administration of the ICR, since those expenses should be paid as
part of the operation and maintenance expenses associated with the treatment
works.  EPA reserves the right to withhold future grants or grant
payments from any grantee who is not operating its ICR system
in accordance with EPA regulations or enforcing its system to
recover ICR payments.

     C.  Annual Payment to EPA

     At no less than annual  intervals, no later than four (4) months
after the end of the grantee's annual accounting period, the grantee
shall submit to the Regional Administrator's Financial Management Office
a check for the annual ICR payment to the Federal Government, made
payable to the Environmental Protection Agency.  This payment must
include any interest earned  on the Federal portion of recovered funds
during the preceeding annual accounting period.

     D.  Use of Retained Funds

     (1)  The grantee must obtain the written approval of the Regional
Administrator (or the State  agency when it is certified by the EPA to
do so) prior to committing any of the funds retained for the construction
of treatment works,  pursuant to 40 CFR 35.928-2.  Since retained funds
belong to the grantee, approval of their use is not a separate grant

and need not be applied for through the State priority system.   Only
the approval of the Regional Administrator is necessary and it will be
based upon a determination that the prooosed use of the funds would be
for costs for expansion and reconstruction of treatment works
within the applicant's jurisdiction which would be eligible for
a grant.

     In order to make such a determination, the Regional Administrator
will require the following:

          (a)  a preliminary engineering report sufficiently detailed
          so as to permit a determination of eligible costs;

          (b)  an estimate of eligible costs (see 40 CFR 35.940).
          The grantee should not contract for,  or proceed with the
          expenditure of such funds until the Regional Administrator's
          approval has been obtained.   No more  than actual costs
          may be withdrawn.

     (2)  Discretionary funds retained by the grantee (20 percent of
the retained funds (See 40 CFR 35.928-2(b)) may be used for any purpose
except for construction of industrial  pretreatment facilities or rebates
to industrial user(s) for costs incurred by such users in complying with
Federal user charge or industrial cost recovery requirements.

     E.  Reduction of Allowable Costs  for Future Grants

     Allowable costs for future grants will be  reduced by an amount equal
to the unexpended balance of the amounts retained by the grantee for future
expansion and reconstruction together  with interest earned thereon
(40 CFR 35.925-17).

     F.  Audits

     (1)  It will be the practice of EPA to make a preliminary audit of the
grantee's industrial cost recovery system at the time of, and as an
extension to, the final construction audit.  The scope of this preliminary
audit will generally encompass:

          (a)  a verification that the grantee's approved industrial cost
recovery system as described in its submission  pursuant to paragraph
4B(1) and (3) of these Guidelines fully complies with the Act,
EPA regulations concerning ICR and these Guidelines;

          (b)  a determination that the grantee has an adequate accounting
system and other administrative procedures and systems, including waste
monitoring systems where these are required to effectively implement
the approved industrial cost recovery system.

     Where deficiencies are identified, EPA will so advise the grantee
and recommend appropriate corrections.  The purpose of these preliminary
audits is to identify deficiencies and seek their correction.  When
the final construction audit occurs after the first full year of operation
of the industrial cost recovery system, or in some cases, after several
months of operation, the preliminary audit will take the form of the
regular audit described below.

     (2)  EPA will schedule audits of industrial cost recovery systems when
determined to be necessary and requested by the Regional Administrator.
Unrequested, random audits will also be made to assess general performance
of grantees and identify potential problem areas.   These audits will
normally encompass the following:

          (a)  a determination of whether allocable industrial costs have
been properly computed, assessed and collected pursuant to the approved
industrial cost recovery system or approved revisions thereto:

          (b)  a determination of whether collected amounts have been
properly accounted for and have been deposited in accounts or invested
in obligations prescribed by 40 CFR 35.928-2, and a determination of
whether the interest earned on collected .amounts has been fully and
properly accrued;

          (c)  a determination of whether the grantee has made all  annual
submission and payments to EPA and whether these have been complete and

          (d)  a determination of the effectiveness of actions being taken
by the grantee to collect proper amounts, if any,  which have not been
paid by industrial users;

          (e)  a determination of the adequacy of wastewater monitoring and
reporting by the grantee and/or the industrial users, to the extent
that such monitoring is required by the approved industrial cost
recovery system or approved revisions thereto; and

          (f)  a determination of whether any and all uses of retained
funds have been approved by the Regional Administrator (or the State
agency when it has been certified to grant such approval), and have
been actually applied to eligible project costs.

     If there is any reason to suspect non-compliance with the approved
ICR system, Federal laws, EPA regulations, or these Guidelines, an
audit of the grantee's system will be made.  Examples of non-compliance
are: 'inequitable proration of the ICR charges among industrial users,
failure to charge all ICR amounts, failure to account for and invest
collected and retained amounts, failure to pay the share due the
Federal Government, and use of the grantee's 80 percent portion of
retained amounts without the prior approval of the Regional Administrator.

     G.  Record Keeping

     40 CFR 935.13(d) requires that the grantee maintain, for the
duration of the cost recovery period, such records as are necessary to
document compliance with the grant requirements.  These will generally
include the following:

     (1)  documentation of the final grant amount;

     (2)  the originally approved industrial cost recovery system
and all documentation related thereto;

     (3)  all subsequent revisions to the industrial cost recovery
     system and all documentation related thereto;

     (4)  a list of contributing industries and their wastewater loads
     to the system;

     (5)  information on the total wastewater loading of the system;

     (6)  the grantee's notification to EPA of initiation of operation
     of the industrial cost recovery system;

     (7)  all approval(s) of the use of retained funds;

     (8)  the record of the grantee's annual payments to EPA and
     documentation related thereto;

     (9)  records relating to retention and investment of those
     funds set aside for future expansion and reconstruction.

     These materials are necessary for all audits and must be made
available to representatives of EPA or the State upon request.

     H.  Penalties for Non-Compliance

     Compliance with the approved system of industrial  cost recovery is
a fundamental condition of the grant.  If the grantee fails to
implement and maintain the approved system, the Regional  Administrator
will take appropriate action, which may include (1) withholding of
grant funds for current projects, (2) determination of non-responsibility
for purposes of future grants, and (3) seeking a judicial remedy such
as a suit for recovery of funds already granted, criminal prosecution,
or other appropriate action.

                              APPENDIX A
EPA Grant. Identification Number:
Name of Grantee:
Grantee's Legal Address:
Name of Facility (if applicable):
Brief Description of the Project:
(a)  Total Design Capacity:              Total Initial Industrial Contribution:
     Flow = 	              Flow = 	
     BOD =                               BOD =
     SS =                                SS =
     Other (Itemize) =                   Other (Itemize) =
(b)  Total cost of construction of the treatment works based upon the
     best available data or estimates including Step 1 and Step 2 costs,
     and the total amount of construction grants to be received based
     upon such estimates.
     Total Cost $	
     as of (date)	
     Total grant funds_
     as of (date)	

(c)  Furnish industrial  user cost allocations similar to Table 1  and
     Table 2 of Section  9 of these Guidelines (40 CFR 35.928-1(d),
     40 CFR 35.925-12).

(d)  Industrial Cost Recovery Period (40 CFR 35.905-7):  	Years
     Initial date:	
     Useful life:	Years (if different from  ICR period)
     Did the grant fund  the construction of elements of  the total  treatment
     works which will  be placed in operation at different  times?        yes	no
     If "yes", attach a  listing of the industrial  cost recovery period
     for each element so constructed and placed in operation.

(e)  Cite the ordinances, authorities or contractual  agreements which
     establish the basis for the ICR system (40 CFR 35.928).
(f)  Describe the method used for defining industrial  users for the
     purpose of allocating costs (40 CFR 35.905-8).
(g)  Does the proposed ICR system make provision for an appeal  procedure
     in accordance with Section 5 of these Guidelines?	yes	no
     Briefly describe the appeal  procedure and cite legal  authorities.
(h)   Does the'proposed ICR system make provision for adding new industrial
     users to the system in accordance with Section  10 of these Guidelines?
     	  yes	no

(i)   Were any grant costs excluded from the ICR system? 	yes  	no
     If "yes", attach a description of the excluded  portion and give the
     basis for such exclusion (Guidelines  Section 8).

(j)   Were any industrial users excluded from the industrial cost recovery
     system? 	yes 	no
     If "yes", attach a list of the industrial  users, so excluded and the
     basis for each such exclusion (40 CFR 35.905-8(e), Guidelines Section 8).

(k)   Has any portion of the treatment works'  reserve capacity been
     set aside for use by specific industrial  users through formal
     written agreements?	yes 	no
     Informal  agreements?          yes	no
     If "yes", attach a list of such agreements (formal  and informal)
     and the capacity reserved for each industrial  user  (40 CFR 35.928-1(g),
     Guidelines Section 7).

(1)   Will  industrial users be required to begin paying ICR within one
     year of the date of initiation of service of the grant-assisted
     facility (40 CFR 35.928-1 (c), Guidelines  Section 16)?  	yes  	no
     If "no",  attach explanation.

(m)   Will  the proposed ICR system affect any ICR system  developed under
     a previous grant?           yes 	no
     If "yes", attach explanation.

(n)   Describe the method to be used in classifying  industries into major
     and minor categories for monitoring purposes.   Include, in the
     description, the nature and level of monitoring to  be required and
     the manner in which monitoring will be conducted and reported.
     Describe the method by which an industrial users ICR payment will
     be adjusted with changes in wastewater characteristics (40 CFR 35.928-1(e),
     Guidelines Section 11).
(o)  Describe the method by which an industrial  user's ICR payment
     be adjusted if the treatment works is upgraded or expanded
     in the future (40 CFR 35.928-1(f)).
(p)  Describe proposed procedures for funds management and investment.
Prepared by:

     Name    (Typed)               	(Signature)

     Title   (Title)               	(Date)

     Telephone Number 	

                              APPENDIX B
                       OPINION OF LEGAL COUNSEL

     I, 	, an Attorney-at-Law, authorized  to  practice  law
in the State of	, and employed as legal  counsel  for	(the
grantee) have reviewed the industrial cost  recovery (ICR) plans and
system proposed for implementation by the grantee,  which has  obtained a
Federal grant under Environmental Protection Agency (EPA) Grant Identification
Number	pursuant to Title II of the  Federal  Water Pollution
Control Act Amendments of 1972 (Public Law  92-500)  (the  "Act").   A brief
description of the proposed ICR system and  plans, is attached hereto
(Appendix A).  I have reviewed Appendix A and  its supporting  documents,
and assuming that the engineering basis for the  cost allocations is
correct, I am of the opinion that the grantee's  ICR system  as described
therein will meet the requirements of Section  204(b)(l)(B)  of the Act,
will comply with EPA's rules and regulations,  and will conform with
EPA's ICR Guidelines.  Furthermore, it is my opinion that the grantee
has the legal authority to implement the ICR system and  plans, and to
fully enforce its provisions requiring ICR  payments by industrial  users.
Date:	            Name:	(Typed)

Telephone:	__             	(Signature)

                                        Title:   (Typed)