COST REDUCTION AND SELF-HELP HANDBOOK
August 1986
Prepared by
Roy F. Ueston, Inc.
West Chester, Pennsylvania 19380
for
Wastewater Environmental Research Laboratory
and
Office of Municipal Pollution Control
U.S. Environmental Protection Agency
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DISCLAIMER
This report has been reviewed by the Wastewater
Environmental Research Laboratory and Office of Municipal
Pollution Control, US Environmental Protection Agency, and
approved for publication. Approval does not signify that
the contents necessarily reflect the views and policies of
the US Environmental Protection Agency, nor does mention of
trade names or commercial products constitute endorsement
or recommendation for use.
ii
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FORWARD
With the passage of the Clean Water Act in 1972, this
nation committed itself to the construction of facilities
necessary for the elimination of water pollution. Through the
Construction Grants Program, the L'SEPA provided financial
assistance to many communities to construct their wastewater
facilities.
Selection of a wastewater technology should include
consideration of both construction and operational costs.
Although Federal and State financial assistance may be
available for construction costs, operational costs are
generally the responsibility of local communities.
The USEPA recognizes that some local communities may have
difficulty in financing the construction and operation of
wastewater facilities. This report is one of a series of
guidance materials on financial management issues related to
the cost-effective construction and operation of wastewater
facilities. This particular report focuses on suggestions for
identifying and remedying excessive cost factors involved in
facilities operations.
Michael J. Quigley, Director
Office of Municipal Pollution Control
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ABSTRACT
This report presents communities experiencing higher than
expected operating costs for their wastewater facilities with a
methodology to identify and reduce operating costs. This
report may assist public works managers, elected officials and
engineers involved in facility operational audits to more
systematically identify potential problems and more fully
consider possible options for reducing costs. All aspects of
facility operating costs are explored. The cost reduction
techniques outlined in the report can be used by communities
desiring to take a comprehensive look at cost savings in all
phases of operation as well as those communities interested in
evaluating a particular aspect.
The recommendations and procedures in the report are based
in large part upon actual field experience in fifteen
communities. About half of the communities were experiencing
significant cost/operational problems with their facilities.
The remainder had initiated efforts to identify and implement
cost reduction measures. The case study communities were
selected by the contractor, the Wastewater Environmental
Research Laboratory.and the Office of Municipal Pollution
Control based upon recommendations of EPA Regional Office
operation and maintenance coordinators. An additional twenty
communities were contacted by telephone. Their experiences are
also reflected in this report.
The material covered in this report is summarized in a four
page brochure entitled "Reducing the Cost of Operating
Municipal Wastewater Facilities." The Dreader interested in
other financial management aspects of operating wastewater
facilities may be interested in a report entitled "Going All
Nine Innings" which is currently in preparation by the Office
of Municipal Pollution Control. It is scheduled for release in
May 1987. "Going All Nine Innings" will include a summary of
material from this handbook as well as other financial
management topics not .covered here. It is intended for a
general audience.
This report was prepared by Roy F. West'on, Inc. in
fulfillment of contract no. 68-03-3109 for the US Environmental
Protection Agency. '". "
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TABLE OF CONTENTS
Section Title Page
Disclaimer ii
Foreward ii1
Abstract iv
Figures vi
Tables vii
Exhibits viii
I Part I: Introduction - Defining the Problem
Background 1-1
Factors Contributing to the High Cost 1-2 -
of Wastewater Operations
Purpose of this Handbook 1-8
II Part II: Methodology - Conducting a Cost
Reduction Assessment
Basic Objective 2-1
Methodology
Step 1: Identify High-Cost Areas 2-3
Step 2: Itemize High-Cost 2-7
Components
Step 3: Determine Cost Reduction 2-10
Opportunities
Step 4: Develop and Evaluate 2-10
Program Alternatives
Step 5: Formulate an Implementa- 2-18
tion Plan
Summary 2-20
III Part III: Options for Reducing Costs
Overview 3-1
Reducing Labor Costs 3-1
Reducing Energy Costs 3-15
Reducing Chemical Costs 3-29
Reducing Water Use and Water Supply Costs 3-35
Reducing Maintenance and Repair Costs 3-37
Controlling Administrative and Overhead
Expenses 3-44
Controlling Capital Expenditures 3-47
Balancing the Budget and Maximizing Revenues 3-57
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LIST OF FIGURES
Figure No. Title Page
II-l Basic elements of a Cost Reduction Assessment 2-2
11-2 Steps in conducting a Cost Reduction Assessment 2-4
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LIST OF TABLES
Table No. Title Page
II-l Typical Wastewater Operation Expenditures 2-5
(Line Items)
II-2 Typical Revenue Sources 2-9
II-3 Example Format: Listing of High-Cost Items
and Applicable Cost Reduction Options 2-11
II-4 Cost Reduction Option - Line Item Cost Matrix 2-12
II-5 Description of Program Elements for a Given
Cost Reduction Alternative 2-14
II-6 Typical Simple Payback Periods 2-16
II-7 Life-cycle Cost and Simple Payback Analysis 2-17
III-l Summary of Cost Reduction Opportunities 3-2
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LIST OF EXHIBITS
Exhibit No. Title Page
1 Cost Breakdown by Line Item (Example Form) A-l
2 Cost Breakdown by Uastewater Operation
Activity (Example Form) A-3
3 Tabulation of Revenue Data (Example Form) A-7
4 Cost Reduction Options A-8
vlll
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PART I: INTRODUCTION
DEFINING THE PROBLEM
BACKGROUND
Many small communities have been faced with serious financial
burdens due to high-cost wastewater projects. These communities
have found that they cannot support the cost of operating their
wastewater facilities without imposing high user charges. This
situation is created when actual operating costs exceed
expectations or when the revenue base is less than expected. In
most cases, both factors are evidt,. . to some extent.
The end result of a high-cost project can be manifested -in
different ways. The most obvious result is excessive user fees.
However, many communities elect not to charge the high sewer
rates, and either operate at a deficit or subsidize the sewer
operations with revenues from water operations or the general
fund. In some cases the lack of adequate revenues can lead to
default on financial obligations (i.e., bonds and loans). In
other cases a community may simply cut back on various operating
expenses (e.g., cut staff, curtail use of chemicals) which
can seriously impact plant performance.
Small communities are particularly vulnerable to the impacts
of a high-cost project because of their limited financial capac-
ity (i.e., limited revenue base and ability to carry debt). Part
of the problem is related to the fact that certain wastewater
technologies, are simply not suited to small communities. The
more sophisticated a treatment facility is, the less likely it
is that a small community will be able to support the associated
operating expenses (i.e., staff, chemicals, utilities, etc.).
The special needs of a small community must be taken into
account in the planning and design stages in order to avoid
high-cost situations. It is particularly important that a
community demonstrate its financial capability to operate a
wastewater facility before it commits itself to implementing
such a project.
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The U.S. Environmental Protection Agency requires that a
financial and management capability analysis be conducted before
a Step 3 construction grant can be approved. This analysis,
which is to be performed according to guidelines provided in the
Financial Capability Guidebook,1 must "demonstrate that the
community has the legal, institutional, managerial, and
financial capability to ensure construction, operation, and
maintenance (including equipment replacement) of the proposed
treatment system."2 This requirement will hopefully prevent
communities from implementing a construction project without
fully appreciating the financial commitments involved.
There are many small communities, however, that have rea-
lized too late, after building wastewater facilities, that the
cost of operating those facilities is far greater than they
expected. These communities desperately need advice^on how to
minimize their operating costs, in order to make the financial
burden on the community, and on the individual users, as bear-
able as possible.
The U.S. EPA Wastewater Environmental Research Laboratory
sponsored a research project charged with developing a cost re-
duction and self-he-lp program to assist these communities.
This handbook is the product of the initial project study
effort. Although the primary focus of this handbook is to
assist communities with existing wastewater facilities in
helping themselves reduce their operating costs, the guidance
offered should also be useful in identifying potential high-cost
items (e.g., energy-intensive treatment processes or equipment)
to be considered in planning and designing a new facility.
FACTORS CONTRIBUTING TO THE HIGH COST OF WASTEWATER OPERATIONS
The term "high-cost project" cannot be strictly quantified,
since it is a relative term that must be defined somewhat
subjectively for a particular situation. What may be considered
excessively high cost in one community may be perfectly
acceptable in another. It is totally dependent on how the
community (i.e., local officials, individual users, and
taxpayers) perceive the financial burden
^Financial Capability Guidebook; prepared by Municipal Finance
Officers Association and Peat, Marwick, Mitchell & Co. for
U.S. EPA Office of Water Program Operations, March 1984.
^"Financial and Management Capability for Construction,
Operations and Maintenance of Publicly Owned Wastewater
Treatment Systems; Final Policy, 40 CFR Part 35,
February 17, 1986.
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placed on them. The limits defining what is a high cost and
what is not are generally a function of a community's size, tax
base, socioeconomic status, geographic location, and the level
of existing public services provided.
Although it is difficult to quantify the limits of high cost
related to the construction and operation of a municipal waste-
water system, there are certain indicators of potential high
cost problems. In fact, the U.S. Environmental Protection
Agency suggests the use of such indicators to identify projects
that have "a high probability of encountering financial
difficulties."1 Some of the suggested indicators are
presented below. (Note that these are only guidelines; EPA
encourages States to adopt these or develop additional
indicators.)
INDICATORS OF POTENTIAL HIGH COST PROJECTS2
o Capital Cost Per HouseholdI - National figures in-
dicate tha.t new projects for which the total cap-
ital cost per household exceeds $6,000 are gener-
ally high cost. The figure for capital costs of
sewer service is $4,000 per household.
o Total Annual Cost Per Household - On a national
basis, projects tend to be high cost when the
total annual cost per household exceeds 1.5% of
median household income.
o Capital Cost of Treatment Per 1,000 Gallons Per
Day of Capacity - When the cost of building a
treatment facility exceeds $3,000 per 1,000 gal-
lons capacity, the technology proposed may be in-
appropriate.
o Annual Operation, Maintenance, and Replacement
TOM&R) Cost Per Household - When the OM&R for a
project exceeds $100 per household, the treatment
technology selected may be too complex for the
community. Unlike capital cost, OM&R .will increase
in the future as labor, materials, and energy
costs increase. If OM&R costs are high initially,
the system is starting at a disadvantage.
Construction Grants 1985 (CG-85), Municipal Wastewater Treat-
ment, Appendix K - Financial and Management Capability Informa-
tion Sheet, EPA 430/9-84-004, U.S. EPA, July 1984.
2Ibid. Attachment A, Suggested Screening System Elements.
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It Is important to note, however, that these guidelines are
intended only to provide a general indicator of potential high-
cost problems, which relates primarily to the user's ability to
pay. In some cases, it is impossible to provide wastewater
service and not charge more than the minimum limits prescribed
by EPA's expensive project criteria. This is especially true
for smaller communities where the user base is too small to
effectively spread out the minimum fixed costs of building and
operating necessary wastewater facilities.
In such cases, the only recourse is to minimize the finan-
cial burden to the greatest extent possible by reducing costs
and by increasing revenues without increasing individual user
charges. This is essentially the purpose of implementing a
cost reduction and self-help program. In order to accomplish
this, three key cost determinant variables must be controlled:
PROJECT COST, OPERATING COST, and REVENUE CAPACITY.
Project cost (i.e., the total cost of building a wastewater
facility including engineering fees, legal fees, interest pay-
ments, and land cost, as well as construction cost) has a direct
impact on total annual cost through debt service. Therefore,
any reduction in total project cost will in effect reduce
operating cost. The'relative impact on overall operating cost
will depend on the level of outside grant funding and the type
of financing. Reducing project cost will have the greatest
impact when the local share of capital cost and the interest
rates on borrowed capital are high. These conditions often
apply to small communities which typically have difficulty
securing grant monies due to low rankings on state construction
grant priority lists, and have difficulty in securing financing
at reasonable interest rates due to the lack of sufficient tax
and revenue base. Factors which can contribute to excessive
project cost are listed below.
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FACTORS CONTRIBUTING TO EXCESSIVE PROJECT COST
o Inadequate consideration of less-costly collection
system alternatives.
o Inadequate consideration of cost-effective
treatment technologies.
o Failure to seriously consider operational
improvements or facilities upgrading versus plant
expansion.
o Oversizing of facilities due to unrealistic growth
projections and flow estimates.
o Designing overly-sophisticated facilities which
are inherently expensive, energy intensive, and
operationally complex.
o Failure to perform Value Engineering analysis.
o Failure to consider the impact of inflation on
ultimate construction and operating costs.
o High debt service payments.
o Failure to seek most competitive bid possible.
o Excessive, unnecessary construction change orders.
Operating cost (i.e., the day-to-day cost of owning and op-
erating wastewater facilities, including debt service, as well
as operation and maintenance costs) has the most direct finan-
cial impact on a community, and is therefore often perceived as
the root of the problem in a high-cost project. Actually,
operating cost should be viewed more as a symptom of the
problem rather than the cause. In order to attack the problem
of high operating costs, the individual components of operating
cost must be identified. Debt service is one major component
of operating cost. Labor, operating expenses, outside
services, and overhead are the other major costs components.
These components are affected by many different factors. Some
of the factors which can contribute to excessive operating
costs are listed below.
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FACTORS CONTRIBUTING TO EXCESSIVE OPERATING COST
o Maintaining larger operating staff than required.
o Excessive outlays for overtime pay.
o Cost of in-house administrative services (manage-
ment, accounting, billing, payroll, revenue col-
lection, etc.).
o Excessive power consumption/excessive utility
charges.
o Excessive use of chemicals/failure to consider
use of less expensive alternative chemicals.
o Excessive equipment repair and replacement caused
by inadequate routine maintenance.
o Cost of outside services (professional services,
treatment and disposal fees, etc.).
o Cost of miscellaneous expenses (rent, miscellane-
ous supplies, vehicle maintenance, etc.).
o Overhead expenses (fringe benefits, insurance,
etc.).
Regardless of the magnitude of operating costs, there is
usually no perception of a high-cost problem as long as operat-
ing revenues are sufficient to cover operating costs (provided
excessive user fees are not being charged). Wastewater opera-
tions commonly rely on non-user charge revenues as well as user
charges to cover operating cost. In some cases, a community
may simply not have sufficient service base (i.e., service area
population) to support wastewater operations without imposing
unreasonable individual user charges. However, in many cases,
excessive user charges can be reduced to reasonable limits by
taking advantage of supplemental revenue generating capacity
such as selling waste byproducts, staff service (e.g., lab
analysis). Factors affecting the revenue capacity of a
wastewater operation are listed below.
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FACTORS CONTRIBUTING TO INSUFFICIENT REVENUE CAPACITY
o Inadequate user charge revenue base related to
size of service population and individual user's
ability to pay.
o Refusal of users to connect.
o Inequitable user charge system (e.g., not charging
non-residential users their fair share).
o Excessive accounts receivable (delinquent user
fees/payments).
o Reliance on user charge revenues, alone without
considering opportunities to generate supplemental
income.
o Insufficient budgeting resulting in underestima-
tion of revenue requirements.
o Failure to take advantage of investment opportun-
ities.
o Diversion of revenues to pay for other services
(e.g., water, road repair).
It can be seen that in order to deal with the problem of a
high-cost wastewater operation, it is important to understand
the various cost components involved, and the numerous contrib-
uting factors that can cause inefficient operations and exces-
sive costs. Once these factors have been identified, the proc-
ess of remedying a high-cost problem is relatively straightfor-
ward.
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PURPOSE OF THIS GUIDEBOOK
The information provided in this handbook focuses on
reducing operating costs and maximizing revenue capacity since
these offer the greatest practical potential for mitigating
high-cost impacts for communities with existing wastewater
facilities. Specific guidance pertaining to the evaluation of
project costs during the facilities planning stage is given in
EPA's construction grants guidelines document CG-85.1
Further guidance is provided by the EPA Report entitled
"Planning Wastewater Management Facilities for Small
Communities.2 it is also suggested that a value engineering
analysis be conducted during the design phase of a project in
order to identify possible cost saving design modifications
that might be implemented before proceeding with construction.
Guidance on conducting value engineering studies is given in
EPA's "Value Engineering for Wastewater Treatment Works."3
The second part of this handbook presents a methodology for
conducting a cost reduction and self-help assessment. This is
intended to show how a community should go about evaluating its
own wastewater operation to identify cost saving opportunities
which might be implemented. It is important that the reader
realize that in order for such an assessment to be successful,
it must be custom-tailored to suit the particular needs of the
situation in question. It is recognized that a complete and
comprehensive analysis is not always appropriate and, in many
cases, simply cannot be afforded. The person conducting the
assessment must concentrate on those items which offer
significant cost-saving potential, and for which cost-saving
measures can be practically implemented with reasonable invest-
ments of time and money. The purpose of the methodology
presented in Part II is to help identify those areas where the
greatest cost-saving potential exists.
^Construction Grants 1985 (CG-85), Municipal Wastewater Treat-
ment; Section 7.3, Demonstration of Financial Capability-and
Appendix K, Financial and Management Capability Information
Sheet, EPA 430/9-84-004, U.S. EPA, July 1984.
^Planning Wastewater Management Facilities for Small Communi-
ties, EPA-600/8-80-030, U.S. EPA, August 1980.
•tyalue Engineering for Wastewater Treatment Works, EPA 430/9-
84-009, U.S. EPA, September 1984.
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The third and final part of the handbook presents specific
guidelines pertaining to different methods of reducing operating
costs and improving revenue capacity. These guidelines are
presented in the form of cost reduction options, which are
intended to illustrate the use of specific cost-saving
techniques, as well as define the broad range of approaches to
reducing the financial impact of wastewater operations. The
intent is not to provide an all inclusive list of options, but
rather to stimulate cost-saving ideas on the part of facility
operators and wastewater system managers which suit their own
particular situations. Specific references are cited
throughout the handbook to provide further sources of
information pertaining to the various methods and techniques
discussed.
The handbook is meant to serve as an initial reference on
the subject of reducing the cost of operating wastewater facili-
ties. The reader must rely on his own knowledge and judgment,
and that of his staff and outside consultants in applying these
guidelines to develop a workable plan suiting his particular
situation. The reader is encouraged to seek technical
assistance and advice from the appropriate state water
pollution control agency and EPA regional office.
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PART II: METHODOLOGY
CONDUCTING A COST REDUCTION ASSESSMENT
BASIC OBJECTIVE
Every community will have its own specific reasons for
conducting a cost reduction assessment. However, most will
have the same basic objective: to determine what can be done
to improve their financial capability to operate a public
wastewater system without placing an undue burden on users and
taxpayers. This usually involves reducing operating
expenditures and maximizing revenues. The specific means of
accomplishing this will vary from one community to another.
It is important to note that the only effective solution to
a high-cost problem 1s one that can be implemented. Therefore,
the evaluation of options and the development of a cost
reduction program must consider the institutional limitations
and financial capability of the community in determining
whether or not a proposed measure is Implementable. For the
same reason, each community's approach to conducting _an
assessment will differ in terms of the range of alternatives
considered and the depth of the analysis.
Although it would be desirable to conduct a complete and
comprehensive investigation of all possible options in all
cases, it must be realized that many small communities simply
do not have the resources to undertake such an effort. The
basic elements in a complete assessment are depicted in Figure
II-l. Obviously the scope of such an effort can be very broad,
touching on all aspects of wastewater facilities operation and
program management. For communities with limited staff and
financial resources, it may be more productive to concentrate
on certain functional areas (e.g., energy requirements, staff
utilization, and purchasing) which are suspected of being major
contributing factors to a high-cost problem.
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Phase)
Preliminary Assessment
Phase II
Functional Evaluation
Facility Operation!
• Facility Design
• Process Control
• Energy Requirements
• Chemical Use
• Maintenance Practices
. Equipment Reliability
• Discharge Requirements
Program Management
. Staff Utilization
• Financing of Debt
• User Charge Revenues
• Other Revenue Sources
. Cash Management
Support Services
• Personnel
• Accounting
• Purchasing
• Outside Services
Phase III
Overall Program Evaluation
Phase IV
Alternative Solutions.
Recommendations, and
Implementation Plan
Plan
• BaMd hi part on • diagram found m Compahmnt Ottgnottic fvtlutVon ml Salfcttd Ui
I (EPA 430/9-12-OOJL U.S EPA. Frtwaiy 19M.
Figure II-l. Basic Elements of a Cost Reduction Assessment,
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METHODOLOGY
When conducting a cost assessment, a standard procedure
should be followed whether a community intends to prepare a
complete comprehensive analysis or elects to limit the analysis
to certain functional areas. The five basic steps to this
procedure are as follows:
o Step 1: Identify High Cost Areas (Line Items)
o Step 2: Itemize High Cost Components (Cost Centers)
o Step 3: Determine Cost Reduction Opportunities
o Step 4: Develop and Evaluate Alternative Cost
Reduction Programs
o Step 5: Formulate an Implementation Plan
The relationship of these steps to the four phases depicted
in Figure II-l is shown in Figure II-2. General guidelines on
how to conduct a cost assessment are presented below.
Step 1: Identify High Cost Areas
The logical place to start the search for cost reduction
opportunities is to identify specific high-cost items associated
with wastewater facility operations. The proper way of
identifying these high-cost items is to examine wastewater
utility expenditures of previous years and note items that
appear to be excessive. These cost items would be prime
candidates for cost reduction.
It is important for the utility manager to use accurate
cost data in making the determination of high-cost items. The
initial identification of high-cost areas will generally be
based on existing budget information and records of expenditure
accounts. The most common major line items used in budgeting
wastewater operations include LABOR, UTILITIES, MATERIALS and
SUPPLIES, CONTRACTUAL SERVICES, MISCELLANEOUS EXPENSES, CAPITAL
OUTLAYS, and DEBT SERVICE. These major line items can be
further subdivided as shown in Table II-l. It is recommended
that operating costs be itemized to the greatest extent
possible in order to identify the specific sources of high-cost
problems^
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Phase 1
Preliminary
Assessment
Step 1.
Identify High-
Cost Areas
Phase II
Functional
Evaluation
Step 2.
Itemize High-
Cost Components
— ^
Step 3.
Evaluate
Options
Phase III
Overall
Program
Evaluation
Step 4.
^ Develop and
Evaluate Alternative
Programs
Phase IV
Alternative Solutions.
Recommendations, and
Implementation Plan
Step 5.
r Formulate
Implementation
Plan
Figure II-2. Steps In Conducting a Cost Assessment,
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(LINE ITEMS)
Labor (including Fringe Benefits)
o Administrative
o Operations
o Maintenance
o Support
o Contingency (overtime/part-time help, etc.)
Utilities
o Electricity
o Fuel Oil/Natural Gas
o Water
Materials and Supplies
o Chemicals
o Maintenance and Repairs
o Laboratory Supplies
o General (tools, lubricants, protective clothing, etc.)
Contractual Services
o Legal, Accounting, Revenue Collection, Engineering,
etc.
o Sludge Disposal
o Treatment/Disposal Charges
o Service Contracts
o Contract Operations
o Laboratory Testing
Miscellaneous Expenses
o Office Expenses (rent, utilities, phone, postage,
supplies, etc.)
o Building and Landscape Maintenance
o Vehicle Maintenance
o Motor Fuel
o Insurance
o Training and Conferences
o Equipment Rental
Capital Outlays
o Process Equipment Replacement
o Vehicles/Construction Equipment
o Plant Expansion/Upgrading
o Collection System Expansion
o Major System Repairs
o Special Studies
Debt Service
o Bond Principal and Interest
o Short-term Debt
o Automotive Loans
o Mortgage Payments
o Sinking Fund Contributions
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It is important that all appropriate direct and indirect
costs associated with facility operations are included in the
tabulation of expenses. This tabulation can be recorded by
filling in the first column ("total line item cost") in Exhibit
1 (see Appendix). Once these costs have been compiled, review
the data and note those cost items which exhibit one or more of
the following characteristics, as candidates for cost reduction:
1. Items which constitute a significant portion of the op-
erating budget — Look for cost items that constitute
20 percent or more of the total operating cost (not in-
cluding debt service cost). Also note when debt service
accounts for more that 40 percent of the total oper-
ating budget.
2. Expenditures over budget — Compare annual budgets
againstactualexpenditures for .previous years to
identify items that have consistently exceeded budget
allocations.
3. Items which appear to be excessive in relation to ex-
perience at other comparable facilities — Review lit-
erature on operating costs for similar-si zed facili-
ties or discuss operating costs with other communities,
state agency personnel assigned to sewage operations,
or professional consultants.
4. Items which have increased in cost over the past few
years — A simple calculation of average annualcost
increases over the past five years by line item can be
used to identify costs that have increased
dramatically compared to other budget items.
5. Items which are subject to significant cost increases
in the future — Look for cost items that are likely
to increase due to rate changes (e.g., electric rates)
or pending contract agreements (e.g., labor union con-
tracts, disposal service contracts).
After completing this exercise, a prioritization of
potential high-cost problem areas can"be done. A general rule.
in prioritizing problem areas is to place the most emphasis on
the larger cost items where the absolute cost saving potential
is usually the greatest. Remember the objective is to lower
the overall cost of operating the wastewater system, so select
cost items where even modest reductions (i.e., percent
reduction in that cost item) can result in significant absolute
cost savings in terms of the overall operating budget.
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Generally Tabor and utilities will be the largest line Items
in a wastewater operations budget, typically accounting for 50
to 75 percent of total operating expenditures, excluding debt
service. Therefore, there are usually many opportunities for
cutting costs in these areas. However, it is important to
search for potential high-cost items in all of the cost
categories listed in Table II'-l. Very often, significant cost
savings can be achieved in what might be considered minor line
items on the budget.
Step 2: Itemize High Cost Components
The next step in a cost reduction evaluation is to determine
why costs are as high as they are for specific items. Some of
the sources of high-cost problems may be obvious; however, the
following procedure should be used in order to compile a valid
data base and rationale for evaluating cost reduction options.
Once expenditures have been broken down into line items (in
Step 1), the individual line item costs need to be allocated to -
the different system components. Typical wastewater system
components include the TREATMENT PLANT, PUMP STATIONS,
INTERCEPTORS AND FORCE MAINS, and COLLECTION SEWERS. A
separate general administrative and support services component
should be included to account for costs that apply to overall
system operation. If alternative collection systems exist,
other components to be considered might include GRINDER PUMP
UNITS, SEPTIC TANK/EFFLUENT PUMP UNITS, VACUUM VALVES, and
VACUUM STATIONS. In order to pinpoint specific sources of high
costs, these components can be further subdivided as
appropriate.
Exhibit 1 (see Appendix) is provided to facilitate the
itemization and allocation of operating costs according to line
item and system component. Exhibit 2 presents a format for
distributing selected line item costs (i.e., those where high
costs are suspected) among individual system subcomponents or
activities. These exhibits can be used to tabulate actual
expenditures, or they may be used as matrices to identify where
the major expenditures are occurring, without quantifying the
actual cost for each item. Both of these exhibits can and
should be modified to suit a particular wastewater operation.
For example, the line item terms used and the assignment of
different costs to these line items should be consistent with
the system of accounting presently in use.
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Detailed cost information and a thorough understanding of
wastewater system operations is necessary to make an accurate
assessment of the causes of high operating costs. In order to
fully appreciate the impact of different cost items, it is
important to identify any patterns or trends (e.g., seasonal
variances) affecting expenditure levels. Therefore, cost data
should be available on a monthly basis, disaggregated by
wastewater operation component, if possible (i.e., treatment
plant, collection system, etc.).
Assembling monthly expenditures of plant operations can be
a relatively simple task, basically involving just the
recording of monthly bills and disbursements. Energy costs,
for example, can be easily tabulated on a monthly basis by
merely listing the monthly utility bills. For other cost items
(for example, chemicals which may be purchased on a bulk basis)
determining monthly costs necessitates the calculation of
monthly usage estimates for each unit process. This can be a
difficult and time-consuming task; however, it will be useful
in pinpointing instances of excessive usage.
The information derived through this compilation of monthly
costs is used to further refine the identification of specific
operational activities which are causing operating costs to be
greater than they should be.
Since most small wastewater utilities do not record their
operating costs in the format just described, it may be
necessary for the utility manager or plant operator to conduct
a detailed facility audit to disaggregate operating costs by
system component on a monthly basis. The audit itself can help
utility managers and operators better understand the reasons
for high-cost problems, since it forces them to critically
examine all aspects of facility design, operation, and
management.
Revenue data must also be reviewed in order to identify
potential revenue insufficiencies, and to determine if all
appropriate revenue generating opportunities are being
realized. The various sources of revenue generally available
to a public wastewater utility can be divided into user charge
revenues and non-user charge revenues as shown in Table II-2.
In compiling.revenue data, it is again useful to show how
revenue income varies from month to month. Exhibit 3 can be
used to tabulate the pertinent revenue information.
2-8
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TABLE II-2. TYPICAL REVENUE SOURCES
User Charge Revenues
Service Fees*
o Residential
o Commercial/Institutional
o Industrial
o Suburban (outside municipal or service area limits)
Ad Valorem Taxes
o General Property Taxes
o Improvement Assessments (taxing districts)
Non-User Charge Revenues
Special Assessments
o Connection Fees
o Development Fees
o Sewer Availability Charges
Special Service.Fees
o Septage Treatment
o Charges for Treating Wastes from Other Service Areas
o Personal Services Contracted to Others
o Service Call Charges
Sale of Byproducts
o Eff1uent
o Sludge/Sludge Products
o Digester Gas
o Nursery Stock, Crops
Sale of Assets
o Used Equipment, Vehicles, etc.
o Land, Buildings, etc.
Rent/Lease Income
o Land for Agricultural Use
o Buildings, Unused Storage Space
o Construction Equipment, Portable Generators, Pumps,
etc.
Interest on Investments
o Construction/Reserve Funds
o Operating Accounts
Including surcharges for extraordinary use or waste strength
and forfeited user discounts.
2-9
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In summary, the reasons for high operating costs can be
determined by reviewing operational procedures, facility
design, and cost data by wastewater utility function for each
of the potential high-cost problem areas identified in the
preliminary assessment phase. This will, in many instances,
necessitate the completion of an audit, since the financial
data maintained by small wastewater utilities is typically not
sufficient to isolate the specific sources of high-cost
problems.
Step 3: Determine Cost Reduction Opportunities
Once the data base for cost reduction has been prepared as
a result of the previous activity, alternative cost reduction
measures can be identified and analyzed. The analysis of cost
reduction measures can be done by members of the audit team;
that is, utility managers, facility personnel, or outside
consultants or specialists. This decision should be made by
the utility manager.
Depending on the comprehensiveness of the data base prepared
as a result of the previous steps in the assessment, a
follow-up facility evaluation may be necessary. Once it is
determined that a data base of sufficient detail exists, a set
of options and alternative solutions for each problem area can
be developed. The general format provided in Table II-3 might
be used to list these options. The alternatives to be
considered should include realistic solutions that will
generate desired cost savings and have a reasonable chance of
implementation. The evaluator should, nevertheless, consider a
broad spectrum of possible solutions, so that a large number of
alternative solutions can be considered.
As an aid in identifying possible cost reduction solutions,
a list of representative options is provided in Exhibit 4.
Table II-4 illustrates in matrix form which options might be
considered to reduce costs or augment revenues in different line
item cost categories.
Step 4: Develop and Evaluate Alternative Cost Reduction
Programs
In order to realistically evaluate the effectiveness of
proposed cost reduction measures, workable program alternatives
need to be developed. This involves considering the various
individual options proposed collectively, so that the
system-wide implications of implementing these actions (e.g., .
impact on other treatment processes, impact on total manpower
requirements) can be assessed. One purpose in doing this
2-10
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TABLE II-3. EXAMPLE FORMAT: LISTING OF HIGH-COST ITEMS
AND APPLICABLE COST REDUCTION OPTIONS
Line Item Possible
Subcomponent cost element Reasons for corrective
or activity affected high cost actions
2-11
-------
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OPTIONS
STAFFING
1. Reduce Labor Requirements
2. Share Staff
3. Minimize Overtime
4. Contract Staff to Others
FACILITY OPERATIONS
5. Energy Conservation
6, Alternate Energy Sources
7. Minimize Demand and Penalty Charges
B. Chemical Use Monitoring
9. Alternate Chemicals
10. In-plant Water Conservation
11. On-site Water Supply
12. Preventive Maintenance
13. Service Contracts
ADMINISTRATION AND OVERHEAD
14. Eliminate Administrative Positions
IS. Outside Administrative Support
16. Competitive Bidding
17. Low Maintenance Building and Grounds
CAPITAL EXPENDITURES
18. Capital Improvement Planning
19. Creative Financing
BUDGET MANAGEMENT
20. Enterprise Accounting
21. Expand Service Base
22. Cash Management
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Is to exactly define what is involved in carrying out a given
plan (i.e., specific staff changes, organizational changes,
changes in operating procedures, etc.), what it will cost (i.e.,
additional operating costs to be incurred, amount of capital
investment required, etc.), and what is to be gained (i.e.,
amount of cost savings over given period of time).
A format similar to that shown in Table II-5 might be used
to list the various elements of a proposed program in a fashion
that allows a summation of manpower requirements and costs for
individual program elements so that the net cost of
implementing the program can be determined. This also allows a
determination to be made of the net increase or decrease in
staff that would be required.
The alternative cost reduction programs considered should
be designed so that they represent different levels of
implementation cost. Generally, program alternatives will fall
into one of two categories:
1. Those requiring little or no cost to implement. For
example, changes to operation and maintenance
procedures.
2. Those requiring a significant capital outlay to imple-
ment. For example, design modifications or
replacement of equipment.
Solutions involving simple management decisions which can
reduce a high-cost situation should be considered for immediate
implementation. More comprehensive solutions, which require
time and money to implement, should be carefully evaluated to
determine if the benefits (i.e., cost savings) justify the
investment required. An assessment of implementation
time-frame, that is short-term (over the next year) or
long-term (1 to 5 years) should be part of this evaluation.
Each alternative under evaluation should be accompanied by
a listing of advantages and disadvantages (see Table II-5).
This information will help in selecting the most appropriate
implementation strategy.
An engineering and economic analysis of each alternative
should be performed to determine the cost of its implementation
and the associated benefits. The level of detail and amount of
data required for this analysis depends on the types of correc-
tive measures being considered, and the complexity involved in
quantifying expected cost savings. For most alternatives under
evaluation, a simple payback analysis technique can be used to
determine the relative attractiveness of investing in the
implementation of various cost reduction measures. The output
of this calculation is the number of years required to recover
2-13
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TABLE II-5. DESCRIPTION OF PROGRAM ELEMENTS FOR A GIVEN COST REDUCTION ALTERNATIVE
Impact
Increase/ Increase/ Increase/ on other
Description decrease decrease decrease processes
of Affected Specific Increase/ in in in or Other
program operation actions decrease Capital labor energy other treatment advantages/
element activities required in staff investment cost cost expenses efficiency disadvantages
2-14
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the Initial capital investment. The general rule of thumb in
private enterprise is that the payback period should be less
than 5 years, preferably less than 2 years, to justify
significant investments of capital. However, the relatively
long service life of a typical wastewater facility may justify
longer payback periods. Examples of typical payback periods
for different types of cost cutting measures that might apply
to a wastewater operation are presented in Table II-6.
For major capital-intensive alternatives, a more detailed
life-cycle cost (i.e., present worth) analysis should be per-
formed. This type of analysis considers the initial capital
investment, the useful life of the equipment involved, the cost
to operate and maintain the equipment, and the annual operating
cost savings over the period of useful life. Table II-7 pre-
sents a format which can be used in calculating life-cycle sav-
ings and simple payback period. A very thorough discussion of
life-cycle and simple payback cost analysis methods is provided
in the Life Cycle Cost Manual prepared by the National Bureau
of Standards.1
The final task in the evaluation phase .involves the ranking
of program alternatives according to cost-effectiveness and
implementability. Typically, ranking criteria include
engineering feasibility, cost, legal/institutional impacts,
financial capability, acceptability, and environmental impact
(i.e., as it may affect compliance standards). The information
generated in filling out Tables II-5 and II-7 should provide an
adequate basis for ranking program alternatives.
.In comparing alternatives, the distinction between low-cost
implementation alternatives (i.e., involving little or no
capital outlay, and having immediate short-term payback) and
^Life Cycle Cost Manual for the Federal Energy Management Pro-
gram, prepared for the U.S. Department of Energy by the U.S.
Department of Commerce, National Bureau of Standards, NBS Hand-
book 135, December 1980.
2-15
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TABLE II-6. TYPICAL SIMPLE PAYBACK PERIODS1
Cost Cutting Measure Payback period
Preferential operation of most efficient pumps Immediate
Electrical demand scheduling Immediate
Hydraulic adjustments (when possible) Immediate
Maintenance of electrical contact surfaces Immediate
Waste heat recovery system 0-15 years
Boiler maintenance program 5 months
Correction of electrical power factor 8 months
Rigorous program of pump maintenance 1-2 years
Installation of night lighting system 1-2 years
Use of "fine-bubble" aeration diffusers 1-5 years
Recovery and use of methane gas 1.- 5 years
Replacement of incandescent with fluorescent lights 2-4 years
Replacement of standard motors with high efficiency motors 3-30 years
Installation of high efficiency variable speed drives 5-15 years
Energy Conservation in Municipal Water and Wastewater Treatment Sys-
tems, seminar sponsored by Pennsylvania Governor's Energy Council, pre-
pared and presented by Ayres, Lewis, Morris and May, Inc., 1983.
2-16
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FABLE II-7. LIFE-CYCLE COST AND SIMPLE PAYBACK ANALYSIS
Estimated
net savings Salvage Replacement Net2
1n annual Capital1 value of cost of Life Cycle Simple3
operating Investment capital capital Cost Savings payback
Cost saving measure cost required Improvement Improvement (present worth) period
iFrom Table II-5.
Present worth of Present worth of + Present worth of Present worth of
2NLCCS = Annual Net Savings " Capital Investment Salvage Value •", Replacement Cost
(Present worth factor Is a function of useful life period, usually 20 to 30 years, and discount rate)
(Inflation Is not Included except for cost Hems subject to unusual escalation such as energy costs).
3SPP
Capital Investment
Annual Net Savings - Annuanzed Replacement Costs
2-17
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capital-Intensive alternatives should be kept in mind. Most
utility managers and facility operators will be quick to accept
cost cutting measures involving no significant up-front
investment. However, in order to achieve maximum long-term
cost saving benefits, certain capital outlays will usually be
required. The implementation of a few low budget cost cutting
measures does not in itself constitute a valid, complete cost
reduction program effort, but should only be considered the
initial phase in carrying out an effective long-term program.
Therefore, the more capital-intensive options should not
necessarily be rejected on the basis of high cost, if they
appear to be cost-effective over the long term. If funds
cannot be made available for such investments at the present
time, they might be considered in later phases of program
implementation with proper capital improvements planning.
Step 5. Formulate an Implementation Plan
The implementation plan defines a strategy for setting a
course of action to place the selected cost reduction program
into operation. The implementation plan is developed in the
following manner:
1. Select preferred cost reduction program based on the
alternatives evaluated.
2. Formulate a plan of action which identifies individ-
uals, departments, agencies, etc. responsible for
implementation; projects an implementation schedule
and cost estimate and outlines the financial
arrangements for implementing the preferred solutions.
3. Develop a mechanism for ongoing performance
evaluations.
The alternatives evaluation step described previously exam-
ined sets of alternative cost reduction measures aimed at alle-
viating high-cost problems. The evaluation culminated in a
ranking of alternatives, considering advantages, disadvantages,
cost, and economic cost-effectiveness.
The results of this analysis should be reviewed with the
wastewater facility personnel and local officials in selecting
a preferred solution. Part of this final review process should
be an examination of legal, institutional, and financial con-
straints that may affect implementation (e.g., limits of au-
thority provided by operating charter, provisions of service
agreements).
2-18
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Final agreement on the desired solutions will provide the
basis for developing an Implementation plan; that Is, a plan of
action to serve as a guide for placing the cost reduction meas-
ures Into operation. The Implementation plan should, at a
minimum, Indicate the following:
1. "Who" will be responsible for Implementing the cost
reduction measures.
2. "When" will the measures be put Into operation.
3. "How" will the cost reduction measures be carried out.
4. "How much" will It cost to Implement.
The plan should, therefore, Identify Individuals and
responsibilities, establish a timetable for certain actions,
identify funding requirements, allocate resources, and define
the specific steps that must be taken to put these measures
into practice. The implementation of a program should be
planned and scheduled to minimize the impact on facility
operations.
Performance objectives should be established in order to
measure the success of specific cost reduction measures', and
also to monitor overall facility operations. These performance
targets should be evaluated on a periodic basis through a moni-
toring program to track operating costs and facility perform-
ance. This monitoring and performance evaluation effort will
provide the means to assess whether the cost reduction measure
is meeting expectations, and whether other (perhaps more dras-
tic) measures should be considered to reduce operating costs.
2-19
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SUMMARY
The guidelines presented in Part II are intended to provide
a general procedure to be followed in conducting a cost
reduction assessment. The methodology presented attempts to
systematically itemize the specific sources of high-cost
problems, and then develop cost cutting solutions for the key
high-cost items.
A list of possible cost reduction options to be considered
is provided in Exhibit 4; however, the specific details of a
proposed cost cutting measure will be determined by the design
and operating characteristics of the facility or piece of
equipment in question. This requires an intimate knowledge of
a particular system's design and operation. Therefore, it is
strongly recommended that the assessment be conducted as a team
effort involving personnel directly responsible for different
aspects of system operations (i.e., plant operator, maintenance
foreman, utility manager, municipal manager, bookkeeper,
consultant, etc.}. This will assure that the cost saving
proposals developed are not only effective, but also practical
and implementable.
Carrying out this type of assessment also serves as a means
of evaluating overall facility performance, and can be used to
address other problems not directly related to high cost (e.g.,
non-compliance with permit requirements). If, in fact, a
facility is experiencing serious operational performance
problems, an expanded diagnostic evaluation may be warranted.
Specific guidance on conducting "comprehensive diagnostic
evaluations" and "composite correction programs" is available
from U.S. EPA.1*2 If such an evaluation is to be performed,
much can be gained by considering cost reduction opportunities
at the same time as part of the analysis effort. It is
important in conducting any assessment of a wastewater facility
operation to consider the technical as well as the economic
factors involved in optimizing system operation.
1Comprehensive Diagnostic Evaluation and Selected Management
Issues, U.S. EPA-OWPO, EPA 430/9-82-003, February 1982.
^Improving POTW Performance Using the Composite Correction
Program Approach, U.S. EPA-CERI, EPA 625/6-84-008, October
1984.
2-20
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PART III: OPTIONS FOR REDUCING COSTS
OVERVIEW
As stated in the Introduction, the cost reduction options
presented here do not represent an all-inclusive list of
cost-saving techniques. However, every attempt has been made to
identify a broad and diverse range of alternatives for reducing
operating costs and maximizing revenues. This is intended to
help plant managers and operators identify cost reduction
opportunities that might be applicable to their particular
situation.
The options discussed here relate to the various high cost
areas identified in Step 1 of the Cost Reduction Methodology
(labor, energy, chemicals, etc.) as well as other factors
affecting the overall efficiency of a wastewater operation
(e.g. excessive equipment breakdown, poor plant performance,
insufficient revenues, etc.). Table III-l lists possible
-options that might be effective in reducing costs and improving
operational efficiency in several different areas. Specific
cost reduction opportunities are addressed in the following
discussion.
REDUCING LABOR COSTS
Labor cost is a direct function of staff size and staff
composition. Therefore, the key to reducing labor costs is to
provide the required range of operating skills with the fewest
number of staff possible, without compromising plant
performance or operator safety. Some of the methods that can be
applied to accomplish this include:
o Productivity Incentives
o Flexible Scheduling
o Contracting Staff to Others
o Private Contract Services
o Public Agency Contract Services
o Cooperative Agreements
o Automated Process Monitoring
Further information on how these techniques might be
applied to reduce labor cost is presented below.
3-1
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Table III-l
Summary of Cost Reduction Opportunities
Cost Reduction
Problem Opportunities Direct Benefit
High labor o Productivity incentives o Reduces total staff
costs requirements
o Flexible scheduling o Improves staff
utilization/minimizes
overtime
o Contracting staff o Generates additional
to others revenue/offsets labor
costs
o Private contract o Reduces staff require-
services ments/controls costs
o Public agency contract o Reduces staff require-
services ments
o Cooperative agreements o Serves mutual staff
needs
o Automated process o Eliminates extra shifts
monitoring
High energy o Energy conservation o Minimizes energy
costs consumption given
existing equipment and
facilities
o Load management o Minimizes demand
charges
o Power factor adjustment o Minimizes power factor
penalty
o Time of use scheduling o Takes advantage of
lower off-peak rates
3-2
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Table III-1
(continued)
Problem
Cost Reduction
Opportunities
Direct Benefit
High energy o Rate negotiation
costs
(continued) o Alternative energy
sources.
o Fuel conversion
o Energy recovery
o Process and equipment
modification
High
chemical
costs
o Chemical use monitoring
o Process modifications
o Alternative chemicals
o Competitive bid
purchasing
Excessive o In-plant water
water use conservation
o Effluent reuse
.0 On-site wells
o Reduces total charges
o Lessens dependence on
public utilities
o. Takes advantage of loir
cost" fuel availability
o Reduces energy
purchases
o Reduces energy consump-
tion and demand/
improves power factor
o Eliminates chemical
wastage
o Reduces chemical
requi rements
o Accomplishes equal
treatment using less
expensive chemicals
o Minimizes purchase
price of a given
product
o Reduces water con-
sumption
o Reduces net water
consumption
o Provides less expensive
water supply
3-3
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Table III-l
(continued)
Problem
Cost Reduction
Opportunities
Direct Benefit
Excessive o Preventive maintenance
breakdowns/
high repair
costs o Spare parts inventory
management
o Service contracts
o Life cycle bidding of
equipment purchases
Poor plant o Process monitoring and
performance control
o Process and equipment
modifications
o Operator training
o Performance incentives
o Private contract
services
o I/I correction programs
o Extends equipment
service life
o Expedites repairs/
minimizes down time
o Limits repair costs
to fixed service fee
o Shifts repair cost
liability to vendor
o Improves treatment
performance
o Improves treatment
performance, reduces
energy and labor
requirements
o Improves individual
operating skills
o Encourages operating
personnel to take
performance standards
more seriously
o Improves efficiency of
facility operations
o Minimizes peak flow
impacts/increases net
flow capacity/reduces
chemical use and
pumping requirements
3-4
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Table III-l
(continued)
Problem
Cost Reduction
Opportunities
Direct Benefit
Poor plant o Water Conservation by
performance users
(continued)
o Flow equalization
facilities
o Increases net flow
capacity/reduces chemi-
cal use and pumping
requirements
o Improves treatment
performance/reduces
peak energy/demand
High o Internal reorganization o Eliminates or reduces
Adnrirrfstra- number administrative personnel
tive and
overhead
expenses o Regional administrative o Eliminates need for
and support services administrative and
support personnel
o Private contract
services
o Low maintenance building
and landscaping features
o Competitive bid
purchasing
o Competitive employee
benefit and insurance
packages
o Provides administra-
tive and support
functions at fixed
service fee
o Reduces maintenance
costs
o Minimizes purchase
prices
o Minimizes cost of
fringe benefits and
insurance
o Cutbacks in travel, etc. o Reduces expenses
o Reevaluate existing
contracts for outside
services
o Possible cost savings
by performing services
in-house or with other
contractors
3-5
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Table III-l
(continued)
Problem
Cost Reduction
Opportunities
Direct Benefit
Unbalanced o Enterprise
budget and accounting
insuffi-
cient o Aggressive revenue
revenues collection
o Service base expansion
o Supplemental sources
of income
o Case management
High o Creative financing
capital
improvement
costs o Capital improvement
planning
o Capital reserve funds
o Privatization
o Achieves self
sufficiency
o Increases revenue
income
o Increases revenue
capacity
o Increases total income
o Takes advantage of
investment income
opportunities
o Minimizes long-term
debt service
o Allows municipality
time to make financial
arrangements for future
capital projects; sets
clear priorities
o Reduces amount of
capital that needs to
be borrowed
o Private sector provides
capital investment
3-6
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Productivity Incentives
The most obvious incentive that can be offered to improve
individual productivity is monetary reward (e.g., salary
increases, bonuses). Time off (e.g., extra holidays, vacation
time) can also be an incentive reward. However, it may be
difficult to apply an explicit formula which measures and
rewards for productivity, especially in smaller operations.
Nonetheless, employees should be made aware that individual
productivity will be weighed heavily in performance reviews.
Having staff fill out daily logs or timesheets which detail
specific tasks performed day-to-day may provide useful informa-
tion for evaluating individual productivity.
A more subtle and possibly more effective means of
maximizing staff productivity is to provide a work atmosphere
which encourages individual contribution and development. The
most important element of such an approach is effective
communication between management and staff which encourages
feedback from the operating staff (e.g., suggestions for
improving an operation or cutting costs). Employees should be
encouraged to take pride in their work and given opportunity
for developing individual skills and experience (e.g., outside
and on-the-job training). It is very important to define job
functions as broadly as possible to avoid "pigeon-hole"
assignments with limited responsibility. Ideally, each
employee should be exposed to all phases of a facility's
operation. This tends to provide the employee with a greater
appreciation of his individual role and responsibilities, and
also provides a cross training of staff which allows one
individual to cover for another as needed without sacrificing
operations efficiency.
Individual productivity may be difficult to measure quanti-
tatively, but it is fairly easy to tell when there is room for
improvement. When individual productivity is high, the opera-
tion will generally run very smoothly, even in the event of
occasional emergencies (e.g., equipment breakdown, process
upset).
3-7
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Flexible Scheduling
Multiple work shifts and overtime charges can significantly
increase labor costs. In many cases, it may be possible to
eliminate these extra shifts through flexible work scheduling.
For example, "flex-time" type arrangements can be made to allow
some people to come in late and leave later. This can extend
the period of time that the facility is manned without paying
overtime. Another approach would be to have specifically de-
fined overlapping shifts (e.g., 7 a.m. to 4 p.m. and 11 p.m. to
8 p.m.) which also results in at least one person being on duty
for a greater portion of the day, while the facility is fully
staffed for several hours each day, so that certain jobs which
require more than one person (e.g., safety backup, major
repairs) can be done.
Having a well defined dally work schedule for each staff
member will help maximize staff utilization. By scheduling
routine maintenance chores (e.g., equipment lubrication, pump
station inspection) so as not to conflict with times when
operator attention is required for process monitoring and
control (e.g., diurnal peak flows) one person can attend to
more than one job function. It may be appropriate to have
different schedules for different times of the year. For
example, longer work days may be necessary to meet the demands
of peak seasonal flows for several months while shorter days
are in order the rest of the year. The relaxed work schedule
in the off-season compensates for the extra effort during the
peak flow season, which would otherwise require overtime pay.
Another means of avoiding overtime charges is to provide
"comp-time" (time off with pay) in lieu of overtime pay. Under
such an arrangement, the employee is given one hour off at
straight time pay for every hour of overtime. This avoids
paying a premium for overtime. The time taken off should be
prearranged with supervisors to avoid disruption of normal
operations.
Operating schedules might also be altered to reduce
manpower requirements. For example, by converting to a batch
treatment process, operator attention would only be required
for the duration of the batch treatment. In another example,
the manpower required to man a septage or sludge receiving
facility could be reduced significantly by restricting
discharges to certain times during the day.
3-8
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ILLUSTRATION - FLEXIBLE SCHEDULING
The operators at the 1 mgd Block Island, Rhode Island
Sewage Treatment Facility adopted an innovative system of staff
scheduling to meet unique operating conditions. Their work
force schedule is designed to accommodate the dramatic
fluctuation in diurnal and seasonal sewage flows. The Island's
summer population is nearly ten times greater than its winter
population. In order to reduce overtime hours and yet provide
sufficient staff time at the plant to handle routine and
emergency maintenance procedures, the full-time staff (of two
persons) operate on an alternating 8-day/4-day off schedule
during the summer, with overlapping 2-day periods between two
operators to handle major maintenance activities- (e.g.,
inspection of pump stations). The extra time devoted to the
plant operations during the summer (resulting from on-call
requirements and extended work shifts), is compensated by a
shorter workweek during the winter (off-peak) months. Paid
overtime is therefore eliminated through this "comp-time"
arrangement. This has helped keep salary costs under control
and has enabled the operating staff to maintain second jobs .
without affecting their commitments to the plant and conveyance
system operations.
Obviously, work schedules must fit the specific needs of
the facility in question, and also be acceptable to the staff.
Nonetheless, in most cases, there is great opportunity for
reducing labor costs by simply modifying work schedules to
maximize staff utilization.
m
Contracting Staff to Others
If an operating staff is not fully utilized, it may be
possible to contract out some of the staff (on a part time
basis) to other municipalities or private interest. This
brings in additional revenue which can offset labor costs, and
may possibly avoid the need to cut staff. It is very possible
that nearby municipal treatment plants or privately owned
treatment facilities may be in need of a trained operator or
maintenance person, but cannot support a full-time staff. The
feasibility of such an arrangement will depend on the amount of
unutilized staff 'time available and the ability to schedule
outside services so as not to conflict with an individual's
primary operation and maintenance responsibilities.
3-9
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Another way of taking advantage of underutilized staff is
to share staff with other municipal departments. A formal
arrangement can be made where a certain split of time between
departments is specified. Alternatively, each department can
simply pay on an hourly basis for the time actually spent.
Private Contract Services
A wide variety of services related to the operation and
management of wastewater facilities can be performed by private
firms under contract. These contract services- range from
one-time special studies (e.g., engineering reports, financial
audits) and common retainer-type arrangements to total plant
management (i.e., contract operations). The Use of temporary
labor services (i.e., using temporary labor service agencies)
and equipment service contracts are other forms of contract
services that can be provided by the private sector.
Contract services can be used to supplement existing
administrative and technical staff functions, or they can be
used to replace these functions entirely. The degree to which
contract services are employed will determine the extent of
staff reduction possible. Of course, the benefit of reduced
labor costs resulting from staff cuts must be weighed against
the cost of the contract services.
In order for contract services to be cost-effective, some
net reduction in operating cost or financial liability must be
realized by the operating agency. This should take into
account the savings in direct salary costs as well as fringe
benefit costs, insurance costs, and miscellaneous expenses
(e.g., staff training, work clothes, tools). In some cases,
the cost of contract services may equal or even exceed current
labor related costs, but still be cost-effective if certain
cost liabilities are shifted from the operating agency to the
contractor. For example, under a typical contract operations
agreement, the contractor agrees to provide a specific service
(e.g., operate a treatment facility within certain performance
limits) for a set fee over a specified period. If the actual
cost of maintaining the agreed upon performance limits is
greater than projected (e.g., chemical requirements are under-
estimated, or additional manpower is needed), the operating
agency is not obligated to pay those additional unexpected
costs. It should be noted that the provisions for financial
liability will vary from one contract to another, and must be
mutually agreed upon by the contractor and the operating agency.
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The basic premise in contract services is that a given task
can be performed more efficiently by a private contractor due
to the fact that costs have to be controlled in order to make a
profit. This often results in improved facility performance
(i.e., compliance with discharge requirements) as well as cost
savings. In fact, in a contract operations arrangement, the
contractor may incur financial penalties (e.g., reduction of
service fees) if a certain level of performance is not achieved,
Another advantage that a full-service contract operations
arrangement offers to the operating agency (i.e., sewer
authority or municipality), is improved budget stability.
Except for extreme unforeseen events, such as major equipment
breakdown or facility damage, the contractor usually bears the
risk of cost overruns. Once the service fee is negotiated, the
actual expenditure for that line item is set as far as the
operating agency is concerned. Long-term contracts can have
the added advantage of protection the operating agency from
unusual inflation and price escalation.
A contract operations arrangement also relieves the
operating agency of certain administrative and supervisory
duties (e.g., personnel management, dealing with labor unions,
subcontractors, regulatory agencies). In addition, access to
expert technical advice through the contractor's staff may
reduce outside engineering consultant fees. Finally, the
operating agency's overall insurance liability may be decreased
since they are not directly responsible for the operating
personnel.
ILLUSTRATION - CONTRACT OPERATIONS
The City of Lebanon, Oregon contracted with a large private
operation and maintenance firm to provide complete contract
operations at its 3 mgd activated sludge treatment plant. The
private firm provided its own plant superintendent (that
position was vacant) and retained all existing wastewater
personnel. After the first year of the contract, the
performance of the plant was significantly improved, a backlog
of neglected maintenance items was attended to, energy demand
was reduced by 25 percent, and the contractor stayed within the
projected operating budget.
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In another case, the City of Vancouver, Washington recently
awarded a 10-year contract to a private contract operations
firm based on a successful previous contract with the same
firm. The renewed contract actually resulted in a substantial
savings over the previous contract. As a result, an
anticipated sewer rate increase was not necessary.
Contract services may offer significant cost reduction
potential, particularly in smaller communities unable.to
provide the skilled staff required to operate a wastewater
facility. However, care must be taken in developing a
contractual agreement which will guarantee contractor
performance and also limit the financial liability of the
operating agency.
Public Agency Contract Services
Public agencies, such as local sewer authorities or
regional sewer districts can provide contract services much
like private firms do. This can range from very specific
operation and maintenance tasks (e.g., pump station
maintenance) to complete contract operations. However, in most
cases, this is done on a cost reimbursement basis rather than
on a fixed price contract, as it is more common in private
contract operations. Public agencies are less likely to assume
primary responsibility for treatment facility performance.
Although public agency contract services may not offer some
of the advantages of private contract services (e.g., budget
stability based on fixed price contracts, shifting of cost and
performance liability), they may be attractive to smaller
wastewater operations which cannot justify full-time staffs of
their own. Very often, regional sewer districts or
metropolitan sewerage agencies have ample manpower and
technical resources to provide such services to communities
outside their normal service areas. This is sometimes referred
to as "circuit rider" or "satellite" operations.
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ILLUSTRATION-CONTRACT SERVICES BY REGIONAL SEWERAGE AGENCIES
Several regional sewerage agencies have found success in
providing operational and maintenance services to outlying
rural communities. The Harbor Springs Area Sewage Disposal
Authority (HSASDA), in Harbor Springs, Michigan, and the Kent
County Department of Public Works (KCDPW), in Grand Rapids,
Michigan, provide routine and emergency operation and
maintenance services to small communities outside their normal
service areas. Each community has an operating contract with
the regional agency. Service charges are based on the actual
services rendered (i.e., a time and materials-type
arrangement). Field staff in both of these agencies complete a
detailed-weekly timesheet that identifies their time spent on
different accounts and operational activities.
In Washington County, Oregon, the Unified Sewerage Agency
(USA) operates two small package plants (less than 1 mgd
capacity each) under contract with two-municipalities. A USA
field crew of two persons spend half of their time at each
facility. This crew essentially travels between the two plants
for routine inspections and corrective maintenance.
The concept of public agency contract services should be
carefully considered along with the option of private contract
services, recognizing the difference in the types of contracts
alluded to above. The feasibility of such an arrangement will
depend on the proximity of the nearest existing municipal or
regional wastewater operations and their staff resources.
Cooperative Agreements
Neighboring communities might also consider entering into a
cooperative agreement where they share wastewater operations
personnel when neither can support a full-time staff on its
own. This can be done by either forming a joint public
authority or service district, or through an intermunicipal
agreement. The intermunicipal agreement, which would be the
least complicated from a legal and administrative point of
view, would require one of the municipalities to assure
responsibility for staff management and administration.
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ILLUSTRATION - COOPERATIVE AGREEMENTS BETWEEN MUNICIPALITIES
The two small communities of Montrose and Portland,
Arkansas (population of about 1,000 each), for example, share
one operator between their two sewage treatment facilities.
This individual also serves as the water supply system operator
for the combined municipal water supply system. Special radio
communications have been set up between the two cities for
emergency maintenance calls. This, arrangement saves both
cities the cost of employing a full-time person, and enables
part of the labor costs to be absorbed by the water supply
system as well.
In another example, the South Fork Sewer and Water
District, in Wallace, Idaho, recently purchased a high pressure
sewer cleaning machine which greatly increases the efficiency
of the sewer cleaning operation. The purchase of the expensive
equipment was made possible through a cooperative agreement
with neighboring communities. The district shares the
equipment with one city, and provides sewer cleaning services
to another.
This type of intermunicipal cooperation can result in
considerable cost savings for the participating
municipalities. However, in order for this type of arrangement
to work, groups of two or more municipalities with small
wastewater facilities must be in reasonable proximity of one
another, and must recognize the mutual need and common benefit
of such an agreement.
Automated Process Monitoring
It may be possible to eliminate existing night shifts by
installing automatic process monitoring and alarm systems.
Assuming the primary function of the night shift is to monitor
plant operation and respond to emergencies, much of the
associated labor cost can be eliminated by relying on an
automated monitoring system to record operating data and
contact on-call operators or maintenance personnel in the event
of a serious system malfunction (e.g., power failure, pump
station failure) using an automatic dialer.
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Recent advances in microcomputer and microprocessor
technology provide considerable capability in process
monitoring as well as remote process control. Although the
cost of these systems may be high, the savings in labor costs
may result in relatively short payback periods.
REDUCING ENERGY COSTS
At most wastewater facilities, energy (i.e., electricity,
gas, fuel oil) is a major budget item. With the continuing
escalation of electricity and fuel prices, energy costs have to
be controlled to prevent a corresponding escalation in sewer
rates. More and more energy saving features are being
incorporated into sewage treatment plant design as a result of
these recent trends. There are also many opportunities for
reducing energy costs at existing facilities. The range of
options include:
o Energy Conservation
o Electrical Load Management
o Power Factor Adjustment
o Time of Use Scheduling
o Rate Negotiation
o Alternate Energy Sources
o Fuel Conversion
o Energy Recovery
o Process and Equipment Modification
A more specific discussion of options follows.
Energy Conservation
The objective of an energy conservation program is to
minimize non-productive energy consumption without making major
modifications to existing equipment. Energy conservation
opportunities in a wastewater operation can be divided into two
categories, those related to lighting and heating systems, and
those related to treatment process and pumping systems.
Very often, the energy requirements associated with
lighting and heating treatment works buildings (e.g., process
buildings, control rooms, laboratory, administrative offices)
can be significant. Simple conservation measures such as
turning lights off in unoccupied areas and lowering thermostat
settings can have a noticeable effect on energy costs.
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The concept of zone heating should be applied if possible
so that different areas of a building can be heated only to the
degree needed for a specific use. For example, an empty garage
does not need to be heated at all, and an unoccupied process
building does not need to be maintained at room temperature
unless the treatment process is temperature sensitive. In all
cases building insulation should be utilized to the maximum
extent possible to minimize heat loss from heated areas.
In plants operated on a dayshift basis, the heating system
should be "turned down" overnight. The same applies to hot
water heaters. In some cases computerized HVAC control systems
may be appropriate, although the cost of installing such a
system must be justified in terms of annual net cost savings.
It may be possible to integrate HVAC control with other com-
puterized control systems (e.g., electrical load management or
process control systems). .
Lighting costs can be reduced by disconnecting or removing
the light bulbs from selected light fixtures in areas where
illumination appears excessive or unnecessary. However, care
should be taken to assure adequate lighting exists in all areas
where personnel safety is a concern. Another option is to
replace existing light fixtures (e.g., incandescent and mercury
vapor lamps) with more efficient units such as fluorescent and
high pressure sodium lamps. This may be particularly
applicable in cases where large outside areas need to be
illuminated.
In treatment process and pumping systems, energy
requirements can be reduced by selectively controlling the use
of certain process equipment. The most obvious example is
aeration equipment, which can be turned on or off based on
actual air requirements. This requires continuous process
monitoring which can be done manually or with the aid of
automated computerized control systems. Selective use of
pumping systems (e.g., operating a smaller pump at near peak
efficiency for a longer period rather than operating a larger
pump in a series of shorter periods) can also reduce total
energy consumption. In some cases, it may be possible to take
a process unit off-line completely without significantly
affecting treatment performance and thus save the energy
required to operate the unit. This is particularly applicable
where redundant process units exist.
If heated treatment processes (e.g., heat treatment of
sludge, anaerobic digestion) are used, insulation of treatment
units and external process piping should be considered to
minimize heat loss and thereby reduce energy requirements.
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Finally, water conservation by service area customers, and
infiltration/inflow correction programs can indirectly reduce
energy requirements by reducing pumping requirements.
ILLUSTRATION - ENERGY CONSERVATION
The chief operator at the Watkins Glen, New York sewage
treatment facility initiated an in-house energy audit which
resulted in the implementation of several energy conservation
measures. Lighting and heating conservation measure alone
resulted in a 23,000 kilowatt-hour drop in energy usage in one
three-month period. In addition, a redundant treatment process
line (including a clarifier, aeration basin, and aerobic
digester) was shut-down. These measures together with other
minor process and equipment modifications reduced energy
consumption by over 300,000 kilowatt-hours in the first year
the program was implemented. This resulted in a net cost
savings of over $3,000 in spite of a 30 percent electric rate
increase.
Although the cost saving resulting from an individual
energy conservation measure sometimes appears insignificant,
the cumulative effect of implementing a plant-wide conservation
program can be dramatic.
Electrical Load Management
Any treatment plant operator realizes that electrical
energy cost is not only a function of the amount of power
consumed (i.e., kilowatt hours), but is also a function of the
rate at which the power is consumed (i.e., "demand"). Power
demand is defined as the maximum average electrical load
(measured in Kilowatts) over a given time interval, usually 15
minutes, exerted at any time during a billing period. Most
power utilities impose a "demand charge" in addition to the
base rate for Kilowatt-hours consumed. Rate structures vary
from one utility to another, and can be very complex in terms
of the calculation of demand charges.
Very often the demand charge is determined not only on the
basis of peak demand for the current billing period but also on
the basis of peak demands in previous billing periods (e.g., as
a function of the mean peak demand of the previous 11 months).
Therefore, a single high peak demand can affect power costs for
up to a year after the demand occurred. This points out the
importance of controlling electrical loads to the greatest
extent possible in order to minimize demand charges.
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A treatment facility will always have certain peak power
demands that cannot be avoided due to the starting and running
of high horsepower electrical motors. However, by scheduling
the operating cycles of different power equipment to avoid
coinciding periods of high demand, the average electrical load
(i.e., the basis for demand charges) can be minimized. This
approach to controlling power Demand is referred to as "load
management."
Electrical load management programs can be as simple as
establishing a daily operating schedule for starting and
stopping certain high load power equipment (e.g., pumps, blower
motors) to avoid coinciding demand peaks. More effective load
management can be accomplished by continuously monitoring
plant-wide power demand and cutting back on the use of certain
equipment when demand reaches a given point. There should be a
predetermined priority for cutting back different electrical
uses based on the importance of that use. For example, HVAC
equipment might be temporarily shut down before resorting to
turning off pumps and aeration units. This technique, known as
"load shedding" can be implemented using computerized automated
control systems. Such control systems are becoming more
practical with recent developments in microcomputer technology
(i.e., small personal and business computer systems).
One option to simply shutting off certain equipment during
high demand periods is to switch to alternate sources of power
(e.g., self-generated electricity) during these periods. This.
option is discussed later in this section.
Power Factor Adjustment
In addition to basic energy charges and demand charges,
many rate structures include a power factor adjustment which
can Increase energy costs. The power factor is a measure of
electrical efficiency related to the degree to which electrical
current is out of phase with voltage. Certain types of
electrical equipment (e.g., induction motors and certain
variable-speed drives) have inherently low power factors. Such
equipment requires more current to produce a given amount of
power. This is not reflected in the measurement of real power
(i.e., kilowatt-hours), and therefore utilities charge a
penalty to recoup the cost of generating the additional current.
The power factor for an electrical motor is very sensitive
to motor load. Power factor decreases significantly when a
motor is under loaded (i.e., operated at less than its rated
horsepower). With the variation in pumping and aeration
requirements at a typical treatment plant, it is inevitable
that motors will be operated at less than their rated capacity
a large part of the time, thus creating a low power factor.
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High power factor penalties can be reduced by (1) replacing
Induction motors with synchronous type motors which have high
factors, (2) adjusting operating cycles so that motors operate
at nearer their rated capacities, or (3) Installing corrective
power factor capacitors. Synchronous motors are very expensive
and generally not cost-effective, except In very large motor
applications (1,500 hp or larger). In many cases operating
cycles are dictated by uncontrollable diurnal and seasonal flow
variations and cannot be modified.
In most cases, the use of power factor capacitors
represents the most practical and cost-effective means of
correcting a low power factor. These capacitors cause current
and voltage to be out of phase In the opposite direction and,
therefore, counteract the effect that Induction motors and
other coll type devices have on power factor. They can be
Installed higher on the Individual pieces of equipment having
low power factors, or they can be Installed at a central
location In the plant's electrical system. Although these
capacitors are fairly expensive, costing from several hundred
to several thousand dollars each, the savings In power factor
penalties can pay for the capacitors In a few years. If the
power factor Is Improved significantly, there may even be a
credit to the energy charge.
Time of Use Scheduling
Many utilities charge different rates for energy use
depending on the time of day, charging higher rates during peak
use hours (typically early morning, mid-day, and early
evening). In such cases, the use of electrical equipment
should be scheduled to the maximum extent possible in off-peak
periods. This can be done manually or with the use of timer
controls.
Any scheduling of equipment use should be coordinated with
electrical load management objectives as discussed earlier. In
fact, time of use scheduling and load management can be
integrated using computerized control systems which seek to
optimize the use of electrical equipment so that overall energy
costs are minimized. Automated control systems can be very
expensive, and may be difficult to justify unless significant
reductions in utility charges can be realized.
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Rate Negotiation
It should be obvious from the preceding discussions that
electrical energy costs are greatly Influenced by the rate
structure established by the power utility. Most wastewater
facilities are treated as Industrial users by power utilities
and therefore are subject to rate schedules specifically
developed for industrial uses. As a general rule, these rate
schedules do not take into consideration the unique operating
constraints that a wastewater treatment facility is subject to.
For example, an unusual storm event can cause a dramatic
increase in pumping requirements due to excessive Inflow into
the sewer system. Under certain rate schedules the wastewater
facility owner would have to pay an excessive demand charge
based on this single event. In some cases, a single high
demand event such as this might affect demand charges for up to.
a year following the event. In situations such as this the
wastewater facility owner should seek relief from these
excessive charges from the power utility.
A waiver from time of use charges might also be sought on
the basis that sewage high flow periods tend to coincide with
peak power use periods and cannot be controlled by the
wastewater facility operator. It may be possible to convince
the power utility to grant certain concessions (e.g., increase
the flat energy use charge) but waive demand and time of use
charges. Most power utilities will be willing to negotiate the
terms of the rate schedule. If the power utility refuses to
grant the desired concessions an appeal to the State Public
Service Commission might be warranted.
Alternate Energy Sources
It is unlikely that a wastewater operation can be totally
•independent of power utility companies (through the use of
alternate energy sources). However, it may be possible to
significantly reduce the amount of electricity and fuel
purchased, and thereby reduce energy costs. Of course, the
capital and operating costs of energy generation equipment
(e.g., dlesel generator, windmill, hydropower turbine) must be
taken into account in computing the long term cost-effect-
iveness of alternate energy sources.
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In some cases the economic feasibility of such an option
will depend on the availability of a primary energy source
(e.g., steady prevailing winds, stream with hydropower
potential). In other cases the availability and cost of fuel
will be a factor. However, in all cases the cost-effectiveness
of using alternate energy sources is ultimately determined by
the magnitude of avoided purchase costs. This will be a
function of current prices and rate structures, and the total
quantity of energy that can be self-generated.
The most obvious alternate source of electrical energy at a
wastewater treatment plant is the emergency standby generator
(usually diesel powered) required for back-up power in event of
power outages. These generators are usually designed to meet
the total energy requirements of a treatment facility, but
normally stand idle most of the time. Since back-up generators
are usually required equipment at most plants, there is
essentially no capital investment. The only additional costs
incurred are the cost of fuel and the cost of the extra
maintenance required.
Although standby generators can generate enough power to
operate an entire plant, they are intended to operate only for
short periods of time, and are generally not appropriate for
24-hour operation. If 24-hour power generation is desirable,
redundant equipment would be required to provide back-up in
case of breakdown, and to allow for routine maintenance. In
most cases, this would require the purchase of additional
equipment which can be a significant capital investment.
A more practical use of existing standby generators is to
supplement purchased power supply during peak use periods.
This is a particularly effective means of avoiding premium
charges when time of use rates apply. Standby generators can
be easily be timed to "kick-in" during those times of the day
when the higher rates are in effect. Standby generators can be
also be used in lieu of load shedding during periods of high
demand to minimize demand charges.
Other more nonconventional methods of generating
electricity onsite include windpower systems, low-head
hydropower systems, photo voltaic systems, geothermal power
generators and fuel cells. The use of photo voltaic cells,
geothermal power generators, and fuel cells in wastewater plant
applications 1s very limited due to the current cost and state
of art of these technologies. Windpower and low-head
hydropower systems generally have more applicability, but are
somewhat geographically limited. Windpower systems are best
suited to the plains states, mountainous regions and coastal
areas, while the use of low-head hydropower systems require
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reasonable proximity to a stream with, hydropower potential,
preferably with a existing dam structure. The capital cost of
these systems will vary greatly depending on site requirements,
but in general such systems are fairly capital intensive and .
will require a large initial investment, and will have
relatively long payback periods.
Alternate sources of heat for space heating and process
heating purposes include heat pumps, active and passive solar
systems, and geothermal systems. Except for geothermal
systems, these alternate energy sources are normally limited to
space heating and water heating applications. The use of
geothermal systems is obviously dependent on the existence of a
suitable geothermal heat source. The coincidental location of
an existing treatment plant near such a source is very
unlikely, but if such a source exists, the feasibility of
tapping it should be investigated.
Heat pumps have been successfully used in residential and
commercial applications for years. The same systems can be
used to provide more economical space heating in wastewater
operation buildings. Most HVAC systems can be easily adapted
to use a heat pump. The major capital investment will be the
cost of the heat pump unit itself, and the cost of installing a
well if groundwater serves as the heat source/sink.
The use of solar heating systems can reduce fuel
consumption in conventional heating systems, but it is unlikely
that such systems will provide a major space heating
contribution unless buildings are specifically designed with
solar heating in mind. This is particularly true for passive
systems where building orientation is critical. Active systems
with roof collectors that can be positioned to maximize solar
exposure are somewhat adaptable, but involve more hardware
(i.e., collectors, piping systems, pumps, storage systems) and
are more capital intensive (I.e., greater capital investment
and longer payback periods) than passive systems. Nonetheless,
opportunities for utilizing solar heat that do not involve
major structural retrofitting or major capital expense should
be seriously considered as a means of reducing fuel and/or
electricity consumption.
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ILLUSTRATION - ON-SITE POWER GENERATION
A 1.2 tngd treatment plant on Block Island, Rhode Island Is
totally powered by two 150-kw diesel powered generators eight
months of the year. The use of the on-site generators is
necessitated by the fact that the generating capacity of the
relatively small private power utility on the island is
extremely limited during the spring and summer tourist season
when energy demand is high. The plant operators have
determined they can produce electricity for less than it would
cost to purchase it from the power utility under the current
rate schedule. The only reason the generators are not used
year round is that the energy requirements are drastically
reduced in the off-season due to lower flows: It is also more
cost-effective to purchase the power. The use of the on-site
generators has been so successful that the plant operators are
investigating other possible uses (outside of the plant) for
the excess power generated.
The opportunities for using alternate energy sources will
vary from site-to-site. Although certain alternatives may, at
first, sound totally impractical, no alternative should be
ruled out until a preliminary cost analysis is done. It should
be kept in mind that alternate energy sources can also provide
the added advantage of protection from future utility price
escalation.
Fuel Conversion
Significant cost savings may be realized by switching from
one type of fuel to another for space heating, process heating,
and vehicle operation. This usually requires some retrofitting
or modification of equipment, and thus involves an up-front
capital investment. Modifying furnaces and boilers in space
heating, digester heating, and heat treatment systems to burn
natural gas instead of fuel oil is a common example of fuel
conversion. Converting vehicles (e.g., cars, trucks,
forklifts, backhoes) to operate on propane gas rather than
gasoline is another example. Another option worth considering
is the use of waste oil in place of distilled fuel oil.
The cost-effectiveness of such conversions will depend
largely on the prevailing prices and local availability of
different fuels. Long range price trends as well as current
prices should be considered in evaluating fuel conversion
options. One means of mitigating the effect of future price
increases is to secure long term supply contracts. Such
contracts should be awarded by competitive bidding in order to
obtain the lowest-pricing possible.
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If fuel conversion programs are implemented, the equipment
replaced (e.g., burners, engine carburetors, storage tanks)
should be retained in case it is decided to switch back to the
original fuel at some point in the future. It is also possible
to modify equipment to accommodate multiple fuels.
Energy Recovery
A significant amount of energy is generated by the
operation of wastewater treatment facility. Much of this
energy is in the form of side products (e.g., digester gas) and
waste heat which can be recovered and used to help satisfy the
energy requirements of the plant.
The use of digester gas (byproduct of anaerobic digestion)
is probably the most recognized method of energy recovery in
wastewater operations. Digester gas, or "biogas" as it is
sometimes referred to, has many potential uses. It can be used
as fuel for furnaces and boilers serving both space heating and
process functions such as digester heating and sludge heat
treatment. It can also be used to fuel internal combustion
engines which might be used to drive pumps, air blowers,
electric generators or vehicles.
In order to utilize digester gas, certain burner and
engineer modifications are required. A gas cleaning unit,
compressor, and storage tank must also be provided in most
cases. The cost of these items and any other ancillary
equipment (e.g., special pumps, power drives, electric
generators) should be included in the payback analysis. The
cost-effectiveness of digester gas recovery is largely a
function of the volume of gas generated. Therefore, it may be
difficult to justify biogas recovery systems in small treatment
plants (i.e., less than 1 MGD).
Waste heat can be generated from many sources in a
wastewater treatment plant including pumps, compressors,
electrical motors and transformers, heated process units,
process piping, combustion equipment, internal combustion
engines and engine exhaust. The amount of heat that can be
recovered from noncombustion equipment is generally
insignificant; however, the heat generated by this equipment
can contribute to warming interior building spaces depending on
its location. Waste heat recovery from high temperature
combustion processes (i.e., incinerators, furnaces, and
internal combustion engines) is more effective, but requires
that fairly complicated energy recovery systems be installed.
In most cases such systems are not practical for small
treatment facilities.
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One potential source of recoverable energy that is usually
.overlooked is the sewage itself. For example, sewage effluent
can serve as the heat source/heat sink for a heat pump system
used for space heating. The effluent is an ideal heat source
and sink since its temperature fluctuates very little
year-round. Wastewater heat pump systems require special
design to prevent fouling and corrosion problems, and therefore
will generally be somewhat more expensive than conventional
heat pump units. Another recently developed energy recovery
method takes advantage of the hydraulic head created by the
sewage flow to drive a turbine powered electric generator.
These low-head hydropower generating systems, which can be
installed interceptor sewer lines or plant outfalls, can
operate on as little as 10 to 20 feet of head.
Another relatively simple energy recovery device is the air
to air heat exchanger which extracts heat from exhaust
ventilation air and preheats fresh outside air used in space
heating. This method can be particularly effective in process
buildings that require 100 percent outside ventilation air.
Without an air to air heat recovery system, the heat loss
associated with exhaust ventilation air can be significant.
ILLUSTRATION - HEAT PUMP ENERGY RECOVERY SYSTEM
The recently upgraded Hasting, Nebraska Water Pollution
Control Facility utilized a water to air sewage effluent heat
pump energy recovery system. The heat pump is part of a total
energy management system at the 5.4 MGD plant which also
Includes the use of multi-fuel boilers and air to air heat
recovery systems. The total cost of heat pump energy recovery
system was $605,000, while the associated savings in operating
costs amounts to $24,000 per year.
"Treatment Plant Heating Requirements Trimmed," R. M.
Helgoth; C. G. Arnold, Public Works, August 1984.
Process and Equipment Modification
There are numerous process and equipment modifications that
can be made to improve the overall energy efficiency of a
wastewater facility. However, before implementing any process
or equipment change, the potential long term operating cost
savings must be carefully weighed against the initial capital
cost. The lost salvage value of the replaced equipment (i.e.,
Its current value based on remaining service life less any real
salvage value) should also be taken into account.
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If the treatment facility is operating at less than design
capacity, it may be possible to eliminate redundant treatment
units (i.e., parallel process trains). This can result in
significant energy savings, and may improve the performance of
individual treatment units, since it is likely they will be
operating nearer their ideal design loading. Such
modifications should be applied first on a trial basis to
assure that effluent quality is not adversely affected.
Energy savings can also be realized by controlling the
operating cycles of pumps and aeration equipment. By operating
such equipment on an intermittent rather than continuous basis,
total energy consumption is reduced. By scheduling the
operating cycles.of different equipment to avoid coinciding
use, peak energy demand can also be reduced. These operating
schedules should be designed to assure that minimum operational
design criteria are not compromised. In most cases this can
easily be accomplished without continuously operating pump and
aeration equipment.
Certain equipment modifications can improve energy
efficiency and thus reduce energy consumption. For example,
pump impellers can be changed to Improve pumping efficiency
when actual flow conditions differ from the original design
assumptions. Changing the sheaving of motor drives might also
be considered. Different types of pumps may be inherently more
efficient under certain conditions (e.g., screw pumps vs.
centrifugal pumps under low head conditions). Likewise,
certain types of aeration equipment will be more energy
efficient than others depending on the application. The
relative efficiency of diffused air versus surface aeration
versus brush type aerators must be evaluated on a case by case
basis.
However, when the type of aeration system is given, there
are certain modifications that can be implemented to improve
energy efficiency. With mechanical surface aerators and brush
type aerators, horsepower requirements, and therefore energy
'requirements, are a function of immersion depth. This can be
adjusted by either raising or lowering the aerator or by
adjusting outlet weir levels. Ideally, the aerator blades or
brushes should be at the minimum depth required to maintain
minimum D.O. levels. In diffused air systems conversion from
coarse bubble to fine bubble diffusers can result in noticeable
energy savings.
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The use of more efficient motors and power drive equipment
will also reduce energy consumption. The efficiency gains
possible with high efficiency motors are greater for smaller
horsepower motors (i.e., 5 to 8.5 % for a 1 hp vs. 2% for a 100
hp motor); however, the total net energy savings possible are
greater for the larger motors since total energy consumption is
greater. When motor load conditions vary greatly (I.e.,
pumping and aeration requirements cover a wide range) variable
speed power drives may be the preferred means of matching motor
horsepower and load (as opposed to using throttling or bypass
valves). The increase in overall efficiency gained must be
weighed against the capital cost of this equipment which can be
relatively expensive.
Besides focusing on particular pieces of equipment in
searching for energy reduction opportunities, the modification
of whole unit process operations should also be considered.
Sludge management, for example, can involve relatively high "
energy requirements. One option that might be considered is
off-site sludge dewatering and disposal (i.e., trucking liquid
sludge to a regional treatment facility). The economies of
scale at a larger treatment facility may result in a net
savings in total treatment and disposal costs even when the
additional hauling cost is taken into account. Shutting down
dewatering and/or incineration operations at the smaller
facilities will result in significant energy cost savings.
Short of off-site treatment, certain pretreatment options might
be considered (e.g., using centrifuges to lower the moisture
content of the sludge and thus reduce incinerator fuel
requirements), or equipment replacement may be in order (e.g.,
use of belt filter in lieu of vacuum or plate and frame
filter). Since such modifications require significant capital
investments, they must be justified by a thorough
cost-effectiveness analysis.
ILLUSTRATION - PROCESS MODIFICATION
At the Saline, Michigan 1.4 MGD treatment plant a
considerable savings in energy costs was realized by modifying
the operation of the return sludge pumps. The pumps which had
been operated in a continuous recycle mode, were placed on an
intermittent operating cycle. This caused an increase in
average sludge solids concentration and reduced sludge
recycling by over 200,000 gallons per day. This reduced energy
consumption by 38,200 kilowatt-hours per year and resulted in
an annual savings of $1,900. Implementation cost (automatic
timers) was negligible).
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ILLUSTRATION - EQUIPMENT MODIFICATION
Plant operators at the Wheaton, Illinois sewage treatment
plant replaced coarse bubble diffusers with fine bubble
diffusers In order to Improve the energy efficiency of their
aeration process. By comparing the performance .of fine and
coarse bubble diffusers in side-by-side-aeration basins, the
operators determined that the fine bubble diffusers consumed 30
to 40 percent less energy than the coarse bubble diffusers
under controlled conditions (i.e., maintaining a given D.O.
level). The use of the fine bubble diffusers reduced the
number of blowers that needed to be on line at any given time
from three to two, which-reduced the average peak electrical
demand by 33 percent. After one year of operation energy
consumption was reduced by 12 percent (from 660 .kwhr/million
gallons to 580 kwhr/milHon gallons). The conversion to fine
bubble diffusers resulted in a total savings, of $14,800 per
year in direct energy costs and $6,000 per year in avoided
demand charges. These savings were achieved by converting only
pne of two aeration basins: A total savings of $33,000 per
year is projected when the other basin is converted.
Process and equipment modifications generally involve some
capital investment. It may be difficult to justify such
investments, especially when the modification involves
abandoning a major piece of equipment or structure which has
much of its design life remaining. Nonetheless, the resulting
long term energy savings may more than justify the initial
investment and lost salvage value. Payback periods can range
from less than a year to over twenty years. Obviously, a very
careful cost-effectiveness analysis must.be done before
implementing any major process or equipment modification.
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REDUCING CHEMICAL COSTS
Chemicals are used in wastewater treatment processes for
many different purposes, Including disinfection, pH adjustment,
sludge conditioning, nutrient addition, coagulation and
flocculation. Very often the physical-chemical mechanisms
involved in chemical addition are not fully understood by plant
operators, and chemical misuse can result. Too often, chemical
addition Is done on a "trial and error" basis (i.e., "If a
small amount of chemicals works, larger dosages will work even
better"). This usually results in wasting chemicals, which can
be very expensive. Even when properly applied, the use of
chemicals can Involve significant operating costs. Aside from
the cost of the chemicals themselves and the cost of maintain-
ing chemical storage and feed equipment, there may be addi-
tional costs due to secondary process impacts (e.g., the cost
of handling excess sludge generated by lime addition).
Therefore, every attempt should be made to minimize chemical
usage and associated operating costs. Specific measures that
might be considered include:
o Chemical Use Monitoring,
- o Process Modification,
o Use of Alternate Chemicals, and
o Competitive Purchasing.
These methods are discussed below.
Chemical Use Monitoring
Chemical dosages should be determined by laboratory
testing, and confirmed by full-scale operational monitoring.
It Is common for chemical feed metering pumps to be initially
calibrated and then left alone. Ideally, these systems should
be checked weekly, or at least once or twice a month to be sure
they are consistently delivering chemicals at the calibrated
feed rate. The feed devises sho.uld be recalibrated if
necessary.
Periodic testing (e.g., monthly jar tests) should be
perforated to confirm that the chemical dosages being applied
are correct. Changes in wastewater characteristics (e.g.,
flow, waste strength) can significantly increase or decrease
the dosages required. It may be possible to develop a
correlation between certain waste characteristics (e.g., flow,
BOD, Total Phosphorus) and chemical dosage based on a •
compilation of test data collected over a period of time. This
would allow dally adjustment of chemical dosages based on the
continuous monitoring of key wastewater parameters. Although
the correct dosages would still need to be confirmed by
periodic jar tests, these could be done less frequently.
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With certain types of chemical addition, continuous
monitoring is required as part of a feedback control system.
This controls the amount of chemical applied (e.g.,
disinfection systems where chlorine dosage is controlled to
maintain a given chlorine residual and neutralization systems
where the addition of acid or base is controlled as a function
of the measured pH). It is important that such systems
compensate for lag time (the time between chemical addition and
measurement of effect) so that overdosages do not occur. The
dosages for flocculation, nutrient addition and sludge
conditioning systems can be based on periodic testing, once a
history of typical waste characteristics is established.
Within certain limits chemical dosages can be. adjusted based on
operator judgement in response to observed changes in process
performance (e.g., to improve settling or de water ing
properties). However, such adjustments should be within the
range of dosages dictated by the results of the periodic jar
tests.
Process Modifications
The amount of chemicals required for various chemical
addition purposes can be controlled to some degree by making
certain process modifications. In fact, it may be possible to
eliminate the need for certain chemicals altogether by
maximizing the performance of different unit processes. For
example, it may be possible to maintain stringent effluent
requirements (e.g., suspended solids concentrations less than
20 mg/1) without the use of flocculant aids by maintaining
proper sludge age and food to mass ratio (F/M) in order to
produce a sludge with good settling characteristics. This is
done primarily by controlling sludge wasting. Another means of
meeting stringent suspended solids limitations is to maximize
the performance of the secondary clarifiers. Maintaining
proper sludge blanket depth is a key factor in this regard. In
some cases, equipment modifications (e.g., increasing weir
.length to reduce solids overflow) may be appropriate.
When chemicals are used for odor control or H2$ control
(e.g., prechlori nation, sodium permanganate, hydrogen peroxide)
other non-chemical treatment methods should be considered. For
example, pre-aeration can be used in lieu of chemical oxidizing
agents. Certain structural modifications in collection systems
and inlet structures (e.g., the use of drop inlets) can also be
effective in controlling H2$ and odor problems.
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The method and point of chemical addition can also affect
the amount of chemicals used. Some chemicals (e.g., polymers)
require dilution and aging in order to maximize their
effectiveness. If such chemicals are not properly prepared,
excessive dosages will be required to produce the desired
result. Likewise, proper mixing and time of contact must be
provided when any chemical is applied to wastewater of sludge.
The point of addition can greatly affect the degree of mixing
and time of contact that occurs. Improper application
techniques not only result in excessive chemical use, but also
reduce the effectiveness of the treatment.
ILLUSTRATION - CHEMICAL CONSERVATION
THROUGH PROCESS MODIFICATION
When the annual bids for chemical purchase at the Watkins
Glen, N.Y. treatment plant were received in 1980, the price of
lime had increased 21 percent and the price of ferric chloride
had increased 60 percent over the year before (these chemicals
are used for vacuum filtration sludge conditioning). This
prompted the chief operator to initiate an intensive chemical
conservation program. The program had two basic elements or
phases. In the first phase, net sludge production was reduced
by holding the sludge in aerobic digesters for longer periods
of time. This reduced chemical use by almost 10 percent. In
the second phase the F/M ratio in the aeration basin was
reduced to the maximum extent possible by reducing sludge
wasting and increasing sludge recycling. This reduced sludge
production and resulted in an additional 36 percent reduction
in chemical use.
Any proposed process modification should be tested at near
full scale conditions to assure that process performance and
effluent quality are not compromised. Plant operators should
be encouraged to conduct such experiments in order to better
understand the response of the plant to different conditions
and operational modes.
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Alternate Chemicals
In many cases, different chemicals can be used for a given
purpose. A good example is sludge conditioning where lime,
ferric chloride, alum and organic polymers are often used
interchangeably. In most cases polymer addition will be more
cost-effective in terms of the cost of chemicals required to
accomplish the desired degree of conditioning. Although lime
is less expensive pound for pound, significantly greater
quantities of lime are required. On the other hand, additional
chemical handling facilities (e.g., mixing tank, aging tank)
may be required when converting from lime and ferric chloride
or alum to polymer, which will obviously involve some capital
investment. Polymers might also be applied in conjunction with
other conditioning chemicals in order to reduce the dosages
required for the other chemicals used. Another consideration
that should be taken into account when lime addition is
involved is the added cost of handling and disposing of the
increased amounts of sludge generated. Lesser quantities of
sludge are generated than with other chemicals. The associated
cost savings should be included in the analysis of
cost-effectiveness when evaluating chemical addition
alternatives.
Using different forms of a particular chemical agent (e.g.,
ferrous chloride instead of ferric chloride) may also prove
cost-effective if the alternate forms of chemical are available
at a lower price. However, differing dosage requirements must
be considered in determining the net savings based on
equivalent performance.
The cost of chlorine for disinfection is a significant item
in most treatment plant operating budgets. Several other
disinfection options exist (e.g., ultraviolet radiation,
on-site sodium hypochlorite generating). However, conversion
to such systems can involve significant capital cost.
Nonetheless, long-term annual operating savings may warrant
such conversions.
ILLUSTRATION - USE OF ALTERNATE DISINFECTANT
When a new 2 MGD wastewater treatment facility was built by
the French Creek District in North Ridgeville, Ohio in 1975, it
included a disinfection system using sodium hypochlorite
instead of chlorine. The hypochlorite solution is prepared
on-site using electrolytic cells. This eliminates the cost of
chlorine purchases and the hazards associated with chlorine
handling.
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The hypochlorite system consists of an electrolytic unit,
DC rectifier, two brine pumps, recycle tank, two recycle pumps,
heat exchanger, storage tank, two product pumps, an acid
flushing system, water softener, and salt storage.containers.
The system consumes approximately 25,000 KWH of electricity and
18,000 pounds of salt per year. The cost of producing the
hypochlorite solution 1s about $0.34 per pound of solution (at.
$0.042/KVIH and $0.034/pound of salt). The cost of purchasing
hypochlorite from a local commercial supplier would be $1.32
per gallon ($1.05/pound). The resulting cast saving 1s over
$3,000 per year.
Plant operators should experiment with the use of different
chemicals and combinations of chemicals to determine 1f
alternate chemicals might accomplish an equivalent treatment
effect at a lesser cost. Operators should attempt to keep
current about recent developments 1n the use of different
chemical additives. The use of bacterial additives might also
be considered for certain purposes (e.g., odor, grease, and
control) in 11 eu of chemicals.
Competitive Purchasing
Considerable savings can be realized by simply seeking the
"best deal" when purchasing chemicals. Competitive bids should
be sought from different suppliers. Long term supply
contracts, with or without escalation clauses, can be an
effective means of controlling chemical costs. Supply
contracts should include specific performance standards or
specifications in order to guarantee the quality of the product
supplied. The performance of any chemical additive should be
periodically tested (e.g., jar testing) to assure that the
product meets the guaranteed specifications.
Documentation of daily chemical use and trends of changing
chemical use over time can be used as an indicator of possible
variations in chemical quality. Jar testing should be
performed to confirm any suspected discrepancies from
performance specifications. If the supplied chemicals do not
meet specifications, the supplier should either replace them or
offer some monetary compensation depending on the terms of the
supply contract.
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Chemicals purchased 1n large quantities will typically cost
less than chemicals purchased 1n small quantities. Before
purchasing a bulk quantity of chemical, first be sure that the
chemical can be used prior to its losing effectiveness due to
long-term storage. Another factor to consider is
transportation cost. The cost Incurred to transport the
chemical may exceed the cost of the chemical itself.
Therefore, the local availability and method of carrier should
be investigated.
The cost associated with chemical addition 1s also related
to the form in which the chemical 1s purchased (I.e., liquid,
powder, or gas). Labor requirements may be less for chemicals
which are fed from stock solution versus those which require
preparation, (e.g. mixing or dilution). However, the costs of
a liquid chemical will generally be higher than a chemical
purchased in powder form. Therefore, the reduced labor
requirements need to be weighed against the higher purchase
price.
REDUCING IN-PLANT UATER USE AND MATER SUPPLY COSTS
A wastewater treatment plant is typically not a major water
user; however, a reduction In water use will generally result
in some cost savings. If alternate sources of water supply can
be utilized, water utility fees can be significantly reduced or
eliminated. Options to consider Include:
o In-Plant Water Conservation;
o Effluent Reuse; and
o Independent Water Supply.
These methods are discussed below.
In-Plant Water Conservation
Considerable water can be conserved by ceasing wasteful
water use practices. Water conservation measures to consider
include the repair of leaky faucets and valves; limiting the
amount of water use for equipment washdown, cleaning walkways,
etc.; and control of landscape watering. The use of sprays to
control foaming in aeration basins and clarifiers can often be
cut back without sacrificing effectiveness. If such sprays are
used, they should be checked dally and adjusted as needed to
provide the necessary foam control with minimum water use.
Other water consuming process equipment (e.g., pump seals and
packing) should also be Inspected daily to assure that water is
not used.
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Plant-wide water use should be monitored on a weekly or
monthly basis to detect unusual peaks or Increasing trends of
water use. This may Indicate excessive water use or a supply
line leak. When such trends are observed, the source of the
excessive use or leak should be Isolated and corrected.
Flow restricting devices can be Installed on certain
plumbing fixtures (e.g., shower heads and-washroom faucets) -to
further reduce water use. Water-saving toilets might also be
considered. Existing toilets can be modified to reduce .-water
use.
While Individual measures such as these might only
accomplish modest water savings, the cumulative effect of a
plant-wide water conservation program can be dramatic.
ILLUSTRATION - WATER CONSERVATION PROGRAM
As part of an overall cost-cutting campaign, a water
conservation program was Instituted at the Watklns Glen, N.Y.
Treatment Plant. This consisted mainly of making a
conscientious effort to monitor and control water use
throughout the plant. Dally Inspections of pump packings,
seals, and sprayers were conducted, and leaky plumbing fixtures
were repaired. The Installation of water saving spray heads In
the foam control spray equipment reduced water usage from 6
gallons per minute to 1.4 gallons per minute. Further water
usage reductions were realized when a redundant parallel
treatment train was taken off-line.
The net reduction In-annual water use over a two-year
period was just over 1,000,000 cubic feet of water. This
represented a reduction of 70 percent, and over $8,000 1n water
bills.
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The key to implementing an effective in-plant water
conservation program is to carefully monitor water use
throughout the plant. Cases of excessive water use will
generally be fairly obvious when such monitoring is done.
Records of monthly water use should be plotted and compared
against previous years to determine the effectiveness of
implemented conservation measures.
Effluent Reuse
The use of plant effluent to supplement an outside water
supply can help reduce water utility bills. Plant effluent can
be used in many non-potable applications such as equipment
washdown, chemical mixing, and landscape watering. The treated
effluent would normally be obtained from either the chlorine
contact tank or post aeration basin. This would require the
installation of a pumping and piping system (which should be
clearly labeled as non-potable water).
The cost-effectiveness of installing such a system will
depend on the current water rates being paid and the extent to
which effluent can be used for non-potable uses throughout the
plant.
Independent Water Supply
It may be possible to reduce or eliminate the need for
outside water supply by developing an independent source of
water supply; for example, an on-site well. This obviously
requires a suitable source of water, which must be of potable
quality if it is to be a totally independent water supply. The
cost of developing the necessary water supply facilities
(usually an on-site well, storage tank, and pumping system) and
operating the system must be taken into account when evaluating
the potential cost savings possible by eliminating water
utility charges. The comparison of life cycle costs should
consider the likelihood of future water rate increases.
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REDUCING MAINTENANCE AND REPAIR COSTS
Excessive maintenance and repair requirements can have
direct cost impacts (e.g., expenditures for time and materials
and outside services), as well as indirect impacts such as
process downtime. This may also increase expenditures for
emergency storage or alternate treatment measures. Since most
treatment plants are fairly equipment intensive, the potential
for mechanical breakdown always exists. The financial impacts
of these breakdowns can be mitigated by controlling the
frequency and duration of these events, and by limiting
financial obligations through service contracts, extended
warranties, or insurance policies. Specific methods of
controlling maintenance and repair costs are discussed under
the following headings:
o Preventive Maintenance.
o Spare Parts Inventory Management.
o Service Contracts, Warranties, and Insurance.
Preventive Maintenance
Preventive maintenance is doing all the things necessary to
keep equipment running smoothly. Preventive maintenance sounds
easy, but it is sometimes difficult to train people to pay
attention to the small tasks such as regularly checking
equipment and providing routine maintenance (e.g., equipment
lubrication, checking seals). Too often, mechanical equipment
1s Ignored until is breaks down, at which time significant
effort and expense is incurred to make the needed repairs.
Routine equipment checks and maintenance requiring a few hours
per week can minimize the number of unscheduled shut-downs and
emergencies due to major mechanical failures.
A comprehensive preventive maintenance program should
include the following elements:
1. Operator/Maintenance Staff Orientation - Plant
operations staff should be familiar with the design
and function of all mechanical equipment. They should
be able to detect signs of problems that might lead to
equipment failure, and be able to pinpoint the source
of the trouble when such problems develop. All
available equipment information (e.g., technical
specifications, vendor brochures, operating manuals)
should be carefully studied, and on-site training
conducted by the respective equipment vendors and/or
the design engineer.
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2. Record of Equipment Specifications - A complete record
of all technical Information pertaining to mechanical
equipment should be maintained on file to facilitate
easy reference. These files should Include detailed
equipment specifications, plans, shop drawings, parts
lists, operation and maintenance manuals, and any
other Information pertaining to equipment design,
operation, maintenance, and repair.
3. Maintenance Planning and Scheduling - Based on a
review of equipment specifications, operation and
maintenance manuals, and manufacturer literature,
preventive maintenance objectives should be
established, and a plan for carrying out the necessary
activities developed. This should Include a detailed
schedule that specifies when various maintenance tasks
are to be performed on Individual pieces of
equipment. This schedule should provide for routine
Inspection as well as periodic equipment overhaul as
required.
4. Maintenance Log - A complete record of all maintenance
and repair performed on each piece of equipment should
be maintained on file. It should contain such Items
as work classification, number of hours worked, type
of job, name and number of equipment, parts or
supplies required, purchase order number, receipt, and
total cost. These records should be kept as
maintenance history records. Such records can be used
to detect trends of Increasing breakdown frequency or
Increasing maintenance requirements which might
Indicate the need for equipment overhaul or
replacement.
5. Record of Expenditures - A detailed account of all
expenditures related to preventive maintenance should
be kept for cost control purposes, and also to provide
Input to the preparation of realistic operating
budgets. All costs representing time and materials
(Including the cost of service contracts) should be
accounted for.
Most preventive maintenance may be performed by plant
personnel, even 1f they have only self-taught mechanical
knowledge; however, some preventive maintenance and most
corrective maintenance will require special training. The
equipment must be repaired quickly and properly. Many pieces
of equipment have a warranty period; unqualified adjustments
may nullify warranties. All warranty Information should be
filed until they expire. Untrained plant personnel should
assist and learn from outside mechanical contractors and vendor
personnel In order to be prepared for the next maintenance or
breakdown task.
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In some situations, contract maintenance services become
attractive and cost-effective. (See discussion of "Service
Contracts.") This 1s especially true when specialized tools,
equipment or specially trained personnel are required for
system maintenance.
Effective preventive maintenance program requires a
thorough understanding of system operations and maintenance
needs as determined from the Interpretation of well-kept
operating and service records. The use of computers for
planning preventive maintenance and storing reference data
(e.g., equipment specifications, parts lists, O&M Instructions)
Is becoming popular. Computerized systems can greatly
facilitate the monitoring of day-to-day maintenance
requirements and the updating of maintenance logs. Sharing the
computer with other departments (e.g., process control, spare
parts Inventory) can often justify the Initial capital cost.
If a computer 1s not available, there are several manual
scheduling methods that can be used. Some form of card-file
system Is probably the most common. Regardless of the
recordkeeping/ "tickler" system used, 1t Is Important to
maintain a complete and up-to-date record of all maintenance
activities 1n order to assure that necessary preventive
maintenance Is not neglected.
Spare Parts Inventory Management
A preventive maintenance program cannot be effectively
Implemented without managing a plant's spare parts Inventory so
that critical maintenance and repairs can be performed In a
timely manner. This first requires the preparation of a
complete listing of all critical spare parts, tools, and
materials that should be on hand at all times. The availability
of various Items through local suppliers should be considered
In preparing this 11st. The use of salvaged parts and used
equipment should also be considered as an alternative to
purchasing new spare parts. The spare parts Inventory should
not be allowed to grow too large since a very large parts
Inventory can easily become unmanageable and require a very
large capital Investment.
Items to Include In a spare parts Inventory range from
bearings, seals, couplings and belts, to pumps, motors, and
power drives. In addition, an adequate stock of tools and
lubricants should be provided. This 1s especially Important 1f
specialized tools or lubricants are required.
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It may be possible to standardize certain parts and
materials so that more than one piece of equipment can use the
same spare parts. Parts standardization Is one area where high
potential cost savings can be realized. Many pieces of
equipment In wastewater treatment have similar components. For
example, many pumps, aerators, blowers, compressors, conveyors
and mixers use common bearings, grease seals, and other similar
components.
Most equipment manufacturers do not make these components
themselves. They purchase bearings, seals, and other Items
from component manufacturers and Install them Into their
system. Because It 1s very expensive to develop and
manufacture unique components (such as bearings or seals), most
equipment manufacturers design their equipment so that standard
size; readily available subcomponents are used. However,
equipment manufacturers often assign their own part numbers to
a bearing or seal that may be purchased from a component
manufacturer. Therefore, It may be difficult to determine when
similar components are used. Usually the equipment
manufacturer will provide the original part number and
manufacturer's name upon request. Very often it will be
determined that more than one piece of equipment will use the
same "generic brand" parts. This makes 1t possible to reduce
the total inventory of spare parts, since common stock parts
can be shared by different pieces of equipment. Also, by
having the standard part numbers, replacement parts can usually
be purchased locally at lower cost. Typical items that can
usually be standardized include:
o Bearings;
o Grease/Oil Seals;
o Drive Motors;
o Gears;
o Packing;
o Mechanical Pump Seals;
o Electrical Components (breakers, solenoids, timers,
resistors, transistors, etc.);
o Metal Stock (channel, box angle iron, diamond plate,
grating, etc.); and
o Lubricants.
Numerous and sometimes large quantities of lubricants are
often stored at wastewater treatment facilities due to the
various types of equipment in operation. The space required to
store and the difficulties involved in maintaining an adequate
stock of lubricants is often costly. Therefore, it is often
desirable to limit the number of lubricants by purchasing
equivalent types which can be used interchangeably for the
various equipment. The total cost of lubricants will probably
also be reduced since "generic brands" can be used in place of
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expensive "name brand" products. 011 company distributors can
often prepare a 11st of equivalent lubricants and required
quantities to stock based on the model number and type of
equipment used. Usually this Inventory service is free of
charge so long as the lubricants are purchased from the oil
company distributor providing the service.
An inventory of equivalent lubricants can be performed
In-house after carefully reviewing equipment maintenance
manuals. However, It is Important that maintenance personnel
familiarize themselves with the various lubricants available.
Many pieces of equipment have been prematurely worn out or have
required replacement of bearings and other parts because
someone has ordered the wrong lubricant. It is necessary to
check manufacturers recommendations.
Once a complete list of required spare parts (Including
quantities of each part required) is prepared, the needed spare
(e.g., parts, tools, lubricants) should be purchased. All
items should be stored in a clean, we11-protected stock area
and organized so that an item can be easily located when
needed. A record of Items added to and taken from the
Inventory should be maintained so that the spare parts manager
is always aware of stock levels. A standard procedure for
reordering supplies should be established. Such a procedure
should specify when to reorder stock. This will assure that
the stock is adequate, minimize paperwork and avoid oversupply
of items.
Arrangements should be made with suppliers to establish
standard procedures for purchasing, including delivery time.
This should also be done for Items not stocked in the spare
parts Inventory so that downtime will be minimized. The spare
parts manager should be prepared to order any item that might
be needed to replace or repair any piece of equipment in the
plant. The spare parts manager should also be familiar with
.the shipping options to expedite delivery when a critical item
1s needed.
In order to expedite the purchase of a needed spare part or
piece of equipment not in the spare parts inventory, purchasing
approval from the authority's administration or governing board
should be prearranged. Certain dollar limits (should be
established and there should be a procedure for verifying such
purchase approval (e.g., by the plant superintendent or plant
manager). Such an arrangement will avoid unnecessary delays in
order approvals.
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Finally, 1t 1s very Important to keep a record of all
expenditures Incurred 1n maintaining the spare parts inventory
(e.g., the cost of purchasing new supplies, the cost of
rebuilding salvaged parts, labor costs associated with managing
and staffing the spare parts department). This provides useful
input to the preparation of future operating budgets. The
current asset value of the spare parts inventory should be
determined every year for accounting purposes.
The use of computerized information systems can greatly
facilitate the efficient management of a spare parts inventory.
Such systems can be used to maintain a record of current stock
inventory and to indicate when items need to be reordered.
Programs can also be developed to assist in the purchasing of
spare parts by maintaining a listing of available suppliers,
current prices, shipping options, purchase order arrangements
and ordering details for different items. If a computer is not
available, a reliable manual filing system should be used.
Service Contracts, Warranties, and Insurance
One means of reducing maintenance and repair costs is to
limit the operating authority's responsibility or liability for
certain maintenance and repair items. For example, service
contracts can be entered Into through which a manufacturer or
local vendor will maintain a given piece of equipment for a set
fee. The terms of such service contracts will vary. The
cost-effectiveness of a service contract, as compared against
providing the necessary maintenance in-house, must be evaluated
on a case-by-case basis. Service contracts are often
especially attractive when special skills or tools are required
to perform a maintenance task. Such contracts might be
considered for especially complex mechanical equipment (e.g.,
centrifuges, vacuum filters, belt filter presses) and for
unique maintenance tasks such as sewer cleaning, tank cleaning,
and major equipment overhauls. In every case, the cost of a
service contract should be compared to the cost of performing
the service in-house. The current demands on maintenance staff
should also be considered in assessing the merits of outside
service contracts. If a service contract is being considered,
competitive bids shold be sought from different service vendors.
Another means of reducing repair costs is to extend the
warranties on certain pieces of equipment. Such warranty
extensions can often be arranged when purchasing a piece of
equipment. Although certain exceptions may apply, extended
warranty will generally cover most repairs and can greatly
reduce repair costs, especially in the event of a major
breakdown. The potential avoided repair costs must be weighed
against the cost of the extended warranty. Routine equipment
maintenance must still be provided in-house; in fact, failure
to provide required maintenance may nullify the warranty.
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Some manufacturers or vendors many offer the option of
"life cycle bidding" when purchasing equipment. With such a
bid, the manufacturer or vendor guarantees that maintenance and
repair costs will not exceed a certain amount over a specified
period of time (conceivably through the projected life of the
equipment). Maintenance and repair costs exceeding this amount
are absorbed by the manufacturer or vendor, although certain
restrlctons may apply (e.g., mechanical failures due to abuse
will not be covered). Again, the potential cost savings over
time must be weighed against the Increase In purchase price
associated with this type of bid.
The cost of equipment replacement and repair due to unusual
events such as explosion, fire, hall, lightning, and wind, can
often be covered under extended fire Insurance or comprehensive
physical damage Insurance policies. Damages due to the failure
of certain types of equipment can also be covered by Insuring
Individual pieces of equipment (e.g., boiler and machinery
physical damage Insurance). The cost of such Insurance
policies must be justified by the potential cost savings (I.e.,
avoided losses). A sewer authority can also Insure Itself to
cover unusual maintenance and repair costs. This Involves
setting up a contingency fund for major repairs and equipment
replacement not otherwise provided for In the the operating
budget. This avoids the cost of Insurance premiums; however,
there 1s always some risk that the contingency fund will not be
sufficient to cover repair costs.
There are several methods to reduce the cost liability
associated with equipment maintenance and repair. The economic
tradeoffs between the varous options must be carefully
assessed. In some cases, service contracts, extended
warranties, and Insurance policies may be applied even though
they are determined not to be cost-effective. This might be
done to create a more stable operating budget, protected from
the risk of Incurring unexpected high repair costs at anytime.
Although this may not In Itself result In cost savings, 1t can
help stabilize revenue requirements from one year to the next
by eliminating many of the unknown cost factors In the
operating budget.
CONTROLLING ADMINISTRATIVE AND OVERHEAD EXPENSES
Administrative and overhead expenses Include all
expenditures not directly related to the day-to-day operation
of the treatment system. This Includes administrative salaries
(I.e., plant manager, superintendent, clerical support, etc.)
as well as miscellaneous expenses (I.e., office expenses,
building and landscaping maintenance, vehicle maintenance,
Insurance, etc.) and outside services (e.g., legal, accounting,
engineering, and data processing services). Since the
expenditures in these areas are relatively small compared to
the large ticket budget
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items (e.g., staff labor, utilities, chemicals), little
attention is given to cost control. However, the potential
cumulative cost savings resulting from controlling
administrative and overhead expenses can be significant, and
should be considered. Some of the cost reduction measures that
might be applied include:
o Consolidation or Elimination of Administrative
Positions;
o Competitive B1dding/"Comparison Shopping";
o Low Maintenance Building and Landscaping Features;
o Cutbacks in Non-Operating Expenses; and
o Contract Operations/Privatization.
These topics are discussed below.
Consolidation or Elimination of Administrative Positions
In most cases, a small wastewater operation cannot justify
a full-time administrator. Very often administrative duties
will be assumed by the plant superintendent or chief operator;
however, this may become a significant burden. When it 1s not
possible for the superintendent or chief operator to assume
these responsibilities, a part-time administrator might be
sought. This generally proves to be impractical.
Another option to share an administrator with other small
wastewater operations. Such an arrangement might be
coordinated through a regional sewer agency. It may also be
possible to contract for such services through a professional
services contractor. The concept of full contract operations
is discussed later in this section.
Whatever arrangement is selected, care must be taken to
assure that the necessary administrative functions are
provided. The cost-effectiveness of a contract services
arrangement versus having a full-time administrator should be
evaluated.
Competitive Bidd1ng/"Comparison Shopping"
When purchasing supplies and equipment, every effort should
be made to obtain a given item for the least cost. With major
items such as vehicles, competitive bids should be sought from
different suppliers. On smaller items, price quotes should be
sought from several vendors before making a purchase. This
also applies to items such as employee benefit packages and
Insurance programs. For example, less expensive hospitalization
and insurance policies may be available.
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If certain services are provided under contract by
professional service contractors (e.g., engineers, law firms,
accountants) these contracts should be evaluated to determine
1f the same services might be provided by others at a lesser
cost. The practicality and cost-effectiveness of providing
such functions with In-house staff should also be evaluated.
Every expense Item should' be considered. However,
administrators should note that paying more for a particular
Item may be justified 1n some cases (e.g., when an extended
warranty or life-cycle bid 1s Involved). Current expenditures
should be reviewed monthly and compared against the project
expense budget. Evidence of excessive expenditures should be
Investigated to assure that the expenses are legitimate and
that excessive prices are not being paid for particular Items.
Low Maintenance Building, and Landscaping Features
The effort devoted to building and site maintenance can
often demand a considerable amount of manpower. Such
maintenance 1s usually provided by the plant operating staff.
It may be possible to reduce the labor requirements associated
with this task by Installing low maintenance building and
landscaping features such as aluminum siding or masonry
building exteriors In lieu of surfaces that require painting.
Stone, gravel, or mulch ground cover 1n lieu of grassed areas
will eliminate the need for frequent mowing.
Although such features should be Incorporated during the
design and construction stages, certain steps can be taken to
reduce maintenance requirements of exiting facilities. Any
capital Investment required for such renovation projects must
be justified by payback 1n avoided annual maintenance costs.
Cutbacks in Non-Operating Expenses
In evaluating the expense budget, particular attention
should be paid to expenditures for non-operating expenses, such
as travel, and conference attendance, Such expenditures should
be justified on a case-by-case basis and should not be taken
for granted. The budget for travel and conference attendance
should be shared to the greatest extent possible, so that all
staff can take advantage of legitimate training and '
professional development opportunities.
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Contract Operations/Privatization
. One very effective means of controlling administrative and
overhead costs is to delegate the resonsibility for plant
administration to a private contractor. Contract operations
and privatization are two ways to accomplish this. Under a
contract operations arrangement, the municipality or sewer
authority contracts with a private contractor who assumes full
responsibility for staffing and operating the public wastewater
facilities for a predetermined fixed fee. The term of such a
contract can be one (1) to five years (5) years or more
depending on state laws.
In a privatization arrangement, the wastewater facility is
owned and operated by a private concern, which in turn provides
wastewate services to a municipality or other defined service
area under a service agreement. In such an arrangement, the
private owner is usually completely responsible for all
operating costs. The term of a privatization service agreement
will typically be twenty (20) to twenty-five (25) years. The
feasibility of privitization may be subject to modification in
tax codes.
Contract operation and privatization arrangements can take
many different forms. The assignment of operational and
financial responsiblities will vary. The contractual
agreements can become very complex. Legal and financial
liabilities must be carefully evaluated.
Contract operations and privatization are attractive only
if the service can be provided at less cost to the user than
possible with a publicly operated system. Aside from the
direct cost savings involved, such contractual arrangements can
offer the municipality or sewer authority protection from the
risk of unusual and unexpected future increases in operating
cost depending on the terms of the contract agreement. An
obvious disadvantage to such an arrangement is that the
municipality relinquishes control of the wastewater operation.
This should not have any detrimental effect if the interests of
the municipality are fully protected by the terms of the
service agreement. The advice of legal, financial, and
engineering experts should be sought before entering into such
an agreement.
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CONTROLLING CAPITAL EXPENDITURES
The capital cost of building, enlarging and upgrading
sewage treatment and collection facilities is .normally-financed
by local governments or public authorities, with supplemental
Federal and state grants. Over the past decade, construction
and equipment costs have risen dramatically,.as well as the
cost of financing (e.g., interest costs). Concurrently,
cut-backs in Federal and state grants have made it expensive
and sometimes economically infeasible to implement planned
capital improvements.
The result is that wastewater utilities must carry higher
debt service burdens. To help control the rising cost of
financing capital improvements, several-alternative financing
techniques have emerged. Those that appear applicable.to
wastewater utility operations Include:
o Creative financing.
o Capital improvement planning.
o Capital reserve funds.
o Privatization.
Creative Financing
The escalation of .construction costs and interest rates,
combined with the decreasing availability of Federal
construction grant funding and.the constraint of local debt
limits has had a .significant impact on the ability of many
communities to finance capital projects. This has led to the
development of a number of innovative financing techniques
which can raise capital for needed wastewater facilities. Very
often when community leaders realize the true cost of financing
a wastewater project through conventional methods (e.g.,
general obHgaiton bonds, revenue bonds, special assessment
bonds), they recognize a need to consider innovative financing
alternatives.
In the past, the tax.exempt status of municipal bonds was
sufficient incentive ..to encourage the purchase of relatively
low interest securities. This is no longer the case.
Increasing interest rates in the prime lending market have
driven up municipal bond Interest rates, thus increasing the
debt service burden on the municipality issuing the bond.
Securing bond insurance or a bank letter of credit may Improve
a municipality's credit rating and lower the interest rate on
the bond issue. However, certain costs are involved.
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In order to make lower Interest municipal bonds more
attractive, several innovative types of long-term,bonding
options have been introduced. The more common ones include:
o Zero Coupon and Step Coupon Bonds
o Tender Option Bonds
o Floating Rate Bonds
Zero coupon bonds pay no current interest and thus avoid
the cost of interest payments throughout the term of the debt.
This type of bond is sold at a relatively large discount so
that the investor is assured of a guaranteed appreciation in
principal. Step coupon bonds pay lower than normal interest
rates In the early years of the bond term and produce an
increasing rate of return in later years. The advantage to the
municipality issuing the bond is that less interest needs to be
capitalized during the construction period, reducing the size
of the bond.
Tender option bonds give the bondholder the option of
redeeming the bond notes before they reach maturity. Since
these bonds are more liquid than a conventional 30-year bond,
they will generally have lower yields (I.e., they are sold at a
lower interest rate), lowering Interest costs.
Floating rate bonds bear interest at a rate that varies as
a function of a predetermined Index, usually the prevailing
prime lending rate. The objective of the Issuer 1s to reduce
current interest expenses rather than risk paying higher
Interest rates later In the bond term. "Adjustable floating
rate" bonds have the added feature of giving the bondholder the
option of tendering the bonds at specified dates during the
bond term. The Issuer can then adjust the rate on the tendered
bonds and reissue them. "Floating fixed rate" bonds offer the
option of fixing the Interest rate at some point during the
bond term.
The potential for Increased Interest yields over the long
term encourages the Investor to accept lower initial interest
rates on floating rate type bonds. On the other hand, if
interest rates do not escalate, the issuer's total debt costs
will be less than they would have been with conventional fixed
rate bonds. However, the Issuer should understand that if
interest rates do escalate, the total amount of debt service
will increase. This is generally acceptable for wastewater
utility operations since their cash flow position usually
improves with time as the service base is expanded and revenues
Increase.
The applicability of these and other innovative bonding
options should be thoroughly investigated with the advice of
legal and bond counsel.
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One alternative to Issuing a bond to raise needed capital
Is to secure a loan. Given the size of a typical wastewater
capital project, borrowing from a conventional lending
institution may be impractical; It may be practical, however,
to, secure low Interest or no Interest loans through state
sponsored revolving loan funds or trust funds. At least four
states (California, Georgia, New Hampshire, and New Jersey) are
in the process of developing such revolving fund programs other
States are expected to Initiate such a program. There are
various other ways in; which states can offer assistance to.
local conmunitfes in securing reasonable project financing
(e.g., bond guarantees,, bond banks.,- bond pools, matching
grants.). The state municipal league should be able to
Identify what, If any,, state agencies offer such assistance.
When It is obvlxms that the cast of financing a capital
project will impose a- significant financial burden on a
comnunity, long-term leasing and lease purchase arrangements
should be considered. Under such an arrangement, a
municipality or a public sewer authority would lease a facility
rather than own it. Such an arrangement might include a
purchase option allowing the leassee to acquire the facility at
some point in time. Another approach involves selling an
existing property (e.g. an operating treatment facility) and
then leasing it back.
The leasing of a wastewater facility will generally involve
an agreement between a. municipality or public agency and a
private Interest (e.g., a corporation, leasing company, or
group of Investors) through which the private interest can
achieve certain tax advantages (e.g.., investment tax credits,
depreciation). This Is especially true for "leveraged leases"
in which an Investor contributes a relatively small percentage
of the equity and. receives the tax benefits on the full value
of the asset. Such arrangements can become very complicated,
but can offer significant financial benefits to both parties.
This option must be carefully evaluated since Federal tax laws
Impose certain constraints which may affect the economic
feasibility of a project. (It should be noted that potential
changes In the tax law may diminish many of the current tax
advantages possible through the leasing of public facilities).
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ILLUSTRATION - SELF FINANCING WITHOUT GRANTS
Many communities have financed and built their own systems
without Federal financial assistance. The Carlisle Suburban
Authority (Carlisle, PA), the communities of Middletown,
Odessa, and Townsend (New Castle County, DE), Evesham Township,
NJ, the City of Wilsonville, OR, the City of Lenexa, KS, and
the Borough of Ephrata, PA are all examples of small
communities (with sewage treatment plants of less than 4 MGD)
that have financed the construction of new or expanded sewage
treatment facilities without Federal grant assistance. In
fact, most of these communities have financed their sewage
systems without any form of outside financial aid, relying
totally on the proceeds from the sale of bonds and available
municipal funds to finance the needed capital Improvements. In'
each of these communities, growth pressures demanded Improved
sewage services. Therefore, a large portion of the debt
service on the new facilities is assessed to new customers.
The City of W1lsonv1lle, Oregon, for example, recovers much
of the debt retirement costs for its sewage treatment plant
expansion project through connection charges. The city
expanded its treatment plant in 1981 from 1.0 MGD to 2.25 MGD.
Connection fees were set at roughly $1,000 per equivalent
dwelling unit. Revenues from the sewer connection fees have so
far been sufficient to pay the bulk of the annual principal and
interest costs on their general obligation bonds. Excess
revenues from connection fees have also been used to maintain "a
reserve fund for future capital improvements and contingencies.
Self financing of a wastewater facility also gives the
community increased incentive to pursue cost saving
opportunities. In Ephrata, Pennsylvania, force account labor
(i.e., municipal employees) was used to perform the time
consuming front end renovations and groundwork for the sewage
treatment plant expansion. The borough manager estimates that
$1 million was saved by using force account labor, not only as
a result of wage rate differentials, but also from direct
control of construction costs and personal project management.
In Carlisle, Pennsylvania, similar construction cost savings
were made by expediting the construction phase, thereby
avoiding additional interest and inflationary costs. According
to Carlisle's design engineer, without outside grant
assistance, the community had the flexibility to phase and
schedule the construction to meet its needs. It was able,
therefore, to formulate a favorable interim and long-term
financing arrangement to suit the affordability of the service
area residents.
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ILLUSTRATION - STATE TRUST FUNDS
In an effort to provide a new source of funds for public
wastewater facilities, the State of New Jersey has proposed an
Infrastructure trust fund to provide low Interest loans, or
grants to local governments. Under this arrangement, the
state-sponsored loans would cover a fixed portion of project
costs. Loan repayments would help maintain the trust, fund and
provide future loans.
Under the state's proposal, the trust would make low
interest loans to localities to cover a percentage of the total
project cost. Local governments would repay the loans over a
15-year period. Localities would also be responsible for
financing the local share of the project costs. Limited grants
might also be available to help reduce this local share in some
cases. New Jersey estimates that replacing current Federal and
state grants with loans will result in user fees roughly 30
percent higher than they would be with grant funding. However,
the cost to the community could be as much as 50 percent less
than It would be if the community had to finance its projects
on its own. The implementation of the state's proposal depends
on a large extent on whether Federal construction grants can be
used to capitalize the bank.
Federal tax laws, rulings by the Internal Revenue Service,
and state enabling legislation will influence the feasibility
of many of these creative financing techniques. As stated
earlier, the use of these innovative financing methods can
involve very complex legal agreements and financial
arrangements. The Implementation of such arrangements should be
done under the supervision of qualified legal and financial
experts.
Capital Improvement Planning
In preparing a sound financial plan for a utility,
provision must be made for future capital improvements. A
capital Improvement plan identifies specific sewage system
needs, and outlines a course of action to satisfy those needs.
It is Important that utility managers do not view the capital
Improvement plan as a "wish list," but view it as a realistic
projection of facility needs, Including equipment replacement,
system expansion, and facility upgrading.
The types of capital improvements to be considered when
projecting facility needs include:
o Sewer extensions.
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o Equipment replacement (e.g., pumps* process equipment,
vehicles)
o Treatment plant expansion.
o Treatment system upgrading.
Obviously, many factors influence when these types of
expenditures will be incurred. The replacement of equipment
can be predicted to some degree, based on estimates of service
life, while the need for sewer extensions and treatment plant
expansions will be determined by service area growth trends.
Although it is not possible to predict exactly when these
expenditures will occur, a rough estimate of capital needs over
time can be prepared. For example, the replacement of a given
piece of equipment can be assumed to occur at regular intervals
based on an estimate of service life. The tinning of system
expansion and facility upgrading should be consistent with long
range plans.
Once a realistic schedule of future expenditures is
developed, a reserve fund should be established to provide the
capital funds when needed. This can be done in many different
ways. It can be capitalized from bond proceeds (i.e., a
specific amount of capital set aside in a separate interest
bearing account) or it can be set up as a sinking fund, where
contributions are made to a special reserve account on a
regular basis. A reserve fund can also be initially
capitalized and then supplemented with sinking fund
contributions.
The monies deposited in a reserve fund can be from excess
general revenues or they can be specifically designated in the
budget and rate structure. The latter approach is preferred
since this is the only way to assure that the reserve account
will be adequately funded. One method of generating reserve
funds is to capitalize the depreciation of the treatment plant
'and collection system. This treats depreciation as an
operating expense, which can be included in the operating
budget and recovered through service fees.
The key to effective capital improvement planning is to
accurately define current and future capital requirements.
This requires a fairly detailed accounting of system assets
(e.g., treatment and collection system infrastructure and
accessory equipment, buildings, vehicles} and periodic updating
of current replacement costs. Projections of future service
area population and service demand should also be periodically
updated to define a realistic timeframe for system expansion.
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Once prepared, the capital Improvement plan should be
reviewed on an annual basis, and modified, 1f appropriate.
Sinking fund contributions might be adjusted based on such
reviews. These reviews should be conducted during budget
preparation.
Capital Improvement planning -Is projection of major capital
outlays. By setting money aside for future expenditures, high
financing .costs can be avoided. This can also eliminate the
need for Imposing special assessments on service area
customers. Even where a major-capital Improvement project
requires financing to raise the necessary capital, planning
ahead allows time to formulate the best financing package.
This makes it possible to take advantage of current Investment
market conditions (e.g., low Interest rates, Impending tax law
changes), and Issue debt when conditions are right.
However, the.most Important reason for having a capital
Improvement plan Is that It assures that needed capital
Improvements will be Implemented. Too often, facility
Improvements are put off Indefinitely simply because the money
1s not available. An effective capital Improvement plan will
prevent this from happening.
Capital Reserve Funds
The concept of using reserve funds for future capital
Improvements was Just discussed. The use of reserve funds In
connection with municipal bond Issues Is very common. Most
bond trust Indentures will require a debt service reserve
(usually equal to one year's debt service) to assure that funds
are always available to make principal and interest payments.
In this application, the reserve is used as a contingency
account. Contingency type reserves can also be established to
cover uncollectible accounts (i.e., delinquent customer
accounts that are written off) and to provide self Insurance
(I.e., cover certain losses due to accidents).
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While contingency type reserves set aside funds for events
that may or may not occur, a capital reserve provides for
expenditures that are expected to occur. For this reason, this
type of special reserve requires continuing contributions to
maintain the fund, as in a sinking fund. The contributions
should be built into the rate structure. A portion of service
fee revenues should be used to fund the reserve. Most bond
indentures require certain rate covenants that mandate that
rates will be established to provide a buffer of excess revenue
to assure that debt service is covered. If this coverage is
actually provided, the excess revenues can be deposited in a
capital reserve fund. Certain connection fees and other
special assessments (e.g., development fees, treatment capacity
purchase fees) might also be used to fund reserves for future
projects.
The use of capital reserve funds supports the concept of
"pay-as-you-go" capital financing, which seeks to minimize the
amount of debt required to finance a capital project by
increasing the equity contribution (i.e., paying 'up-front).
Some investment experts frown upon maximum debt financing
(i.e., financing the entire cost of a project through bond
proceeds). Bond issues where the utility makes a meaningful
equity contribution are generally be rated higher than those
involving maximum debt financing. This makes the bonds more
attractive, and should result in lower interest costs. The
total debt service will be less due to the smaller bond size
and lower effective Interest rate.
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A working capital account can be used like a capital
reserve fund since it provides funds to meet immediate capital
requirements. However, working capital is intended to provide
a cashflow buffer, and is generally limited in size (usually
equivalent to 2 or 3 months operating expenses). Nonetheless.,
municipal finance analysts may view working capital as a form
of a capital reserve, and like to see it incorporated Into a
utility's rate structure.
The main advantage of a capital reserve fund is that it
minimizes the need for short and long term financing* The
provision of such reserves makes a municipal bond more
attractive to investors, making lower interest rates may be
possible. Finally, the existence of capital reserves will
assure that capital improvements will be implemented when
needed, and not put off for lack of capital.
Privatization
Recently, there has been much interest in privatizing many
traditional public sector services, Including refuse
collection, parking, fire fighting, water supply, and most
recently, wastewater collection and treatment. Under this type
of arrangement, commonly referred to as "privatization," a
private interest will own and operate a public facility and
charge a fee for the services provided. Privatization is being
considered by more and more communities as an alternative to
financing large capital projects themselves. This is
particularly applicable to wastewater projects since the
decreasing availability of Federally sponsored construction
grants is making it increasingly difficult for many communities
to raise the capital required to build or expand a wastewater
facility.
Privatization can be thought of as having three components,
namely:
o Financing.
o Turnkey construction. -
o Full service operation and maintenance.
Privatization financing schemes will generally have the
private sector contribute some amount of equity (i.e., capital)
which entitles the investors to certain tax benefits. In many
cases, the bulk of the capital is provided from the proceeds of
tax-exempt industrial development bonds (IDBs), backed by the
privatization contractor. The main feature of privatization
financing is that it does not require the municipality or sewer
authority to incur any debt. If IDBs are involved, they are
issued by a separate agency (e.g., a local industrial
development authority). Therefore the municipality's debt
capacity Is unaffected.
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Once the financing is secured, the privatization contractor
is responsible for designing and constructing the facility.
Since the contractor is in charge of both design and
construction, significant cost savings can be realized.
Engineering costs will be less since the engineering is
generally done in-house. Construction costs will be less since
the design engineer has more flexibility in preparing
construction specifications. Since the contractor does not
have to comply with EPA construction grant regulations, design
and construction time can often be cut in half. This may
result in significant cost savings due to avoided cost
escalation.
Upon completion of the construction phase, the contractor
must demonstrate that the facility meets specified performance
criteria. The contractor is responsible for starting-up the
facility and providing day-to-day operation and maintenance of
the facility through the terms of the service agreement. The
contractor is normally responsible for all costs associated
with the operation of the facility. The contractor recovers
these cost through a service fee collected from the
municipality.
A privatization venture involves fairly complex legal and
financial arrangements which need to be documented in detailed
service agreements. These agreements often consist of two
parts: one dealing with the construction period and one dealing
with the operations phase. Some of the Items addressed in the
service agreement include:
o Construction specifications.
o Construction schedule.
o Guarantees of facility performance by the contractor.
o Guarantees of waste volume and waste characteristics
by the municipality.
o Basis for service fees and sharing of project revenues.
o Assigned rights and liabilities of different parties.
o Contingency provisions.
o Provisions for dealing with changes in laws that
affect facility operation.
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Preparing such agreements requires the efforts of a multi-
disciplined team of engineering, legal, and financial experts,
Including bond counsel and the bond underwriter. The develop-
ment of a financial agreement can also Involve extended
negotiations with the contractor. The municipality should be
prepared to devote the effort required to prepare the necessary
legal and financial agreements Involved In Implementing a
privatization plan. ;.
In order to be attractive, a privatization proposal must
demonstrate that the necessary services can be provided for a
fee less than It would cost the municipality to build and
operate the needed facilities Itself. However, the
municipality must be assured that the contractor Is committed
to the long term operation of the facility. If possible, the
service agreement should specify that the contractor Is liable
for any regulatory penallties resulting from non-compllance
with discharge requirements. At the same time, the
municipality must be convinced that the proposed costs are
realistic, and that the contractor (I.e., the equity owner) has
the financial capacity to secure the debt Incurred and pay
liquidated damages. Obviously, privatization requires a firm
working relationship between the municipality and the
contractor. This Is why privatization is often referred to as
a public/private partnership. In actuality, it is a legal
arrangement where each party must fully understand its
responsibilities and obligations. In order for the arrangement
to work, the municipality and contractor must work together
like-partners, because, if the arrangement fails, both parties
lose.
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BALANCING THE BUDGET AND MAXIMIZING REVENUED
The basic objective of budgeting in a wastewater operation
is to develop a financial plan that provides sufficient
revenues to cover debt service, operating costs, maintenance
costs, and replacement costs. In order to maintain a balanced
budget, revenues must equal or exceed costs. This is
accomplished by controlling costs and taking full advantage of
revenue opportunities. Cost control at a wastewater utility
requires sound financial planning and financial management at
the administrative level, as well as day-to-day attention to
cost saving opportunities on the part of the operating staff.
Day-to-day cost saving measures have been discussed in previous
sections. This section addresses adminstrative measures that
can be taken to help balance the budget, including:
o Enterprise accounting.
o Rate setting.
o Aggressive revenue collection.
o Service base expansion.
o Supplemental sources of income.
o Cash management.
Enterprise Accounting
The key to financial planning and financial management Is
the adoption of a self-sustaining utility management
philosophy. Under this concept, the utility's financial plan
is based on generating sufficient revenues to cover the total
cost of deliyering a service. Increased attention to the goal
of self-sufficiency can also help provide the motivation for
Implementing many of the cost reduction methods discussed in
this document. In developing a financial plan for a self-
sustaining utility, the primary goal 1s to account for and
recover all costs incurred in operating and maintaining the
sewerage system. This is often referred to as enterprise
accounting.
Setting up and implementing an enterprise accounting
program requires that the utility manager carefully identify
all the costs involved in operating the utility and accurately
determine its revenue-generating capacity. After analyzing
total outlays and income, the utility should establish a rate
structure that will provide the revenue required to balance the
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budget. When sewer rates are kept artificially low (i.e.,
subsidized by a municipality's general fund or water system
revenues), the operating budget will usually be fixed. In most
cases it will not fully provide adequate operating capital and
capital improvement funds. Enterprise accounting, on the other
hand, allows the utility manager to establish whatever
operating and reserve accounts are required, providing adequate
revenue can be generated to fund the accounts.
In developing the operating budget for an enterprise
operation, the utility manager should consider long-range needs
as well as day-to-day operating costs. Typical long-range cost
items to consider include:
o The cost of repairing and replacing sewerage system
infrastructure and equipment (e.g., pumps, blowers,
sewer lines, vehicles) based on realistic projections
of service life.
o Capital investment required for needed capital
improvements (e.g., plant upgrading, sewer extensions).
o Increased future debt service costs, given the reality
of higher interest rates and larger local shares, due
to reduced Federal and state funding.
The cost of complying with emerging regulatory
requirements (e.g., plant upgrading, increased
monitoring requirements, sludge disposal restrictions)
In defining opportunities for generating the revenue needed
to fund the identified budget items, the following possible
revenue sources should be considered:
o The potential for expanding service area and thus
increasing the revenue base.
o The assessment of sewer rates based on an equitable
sharing of capital and operating costs (i.e., service
charges that take into account the actual volume and
strength of wastewater from different sources).
o Supplemental sources of income in addition to service
charge revenues (e.g., sale of effluent or sludge).
It is very Important that the projection of costs and
revenues be an accurate as possible In order to develop
realistic budgets and financial plans.
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In order to establish an effective system of accounting for
costs and revenues, the utility should develop an automated
system for keeping track of expenditures and revenues, this
will enables the manager to closely monitor the budget and make
adjustments to the financial plan on a timely basis, as
required.
ILLUSTRATION - ENTERPRISE ACCOUNTING
The Kent County Department of Public Works (KCDPW) of Grand
Rapids, Michigan is an example of a sewage utility that
operates on an enterprise accounting-type budget. The KCDPW
derives its revenue solely from user fees from its customers.
The utility has established an accounting system that documents
the expenses and revenues of over a dozen separate sewage
systems and water systems.
The enterprise accounting system contains standard cost
data plus documentation of the time spent by maintenance staff
in twenty-four (24) maintenance activities. The computerized
reporting system then makes this cost and manpower information
available to participating municipalities (i.e., customers).
This provides back-up documentation submitted with monthly
invoices. Utility managers at the KCDPW are also initiating an
employee productivity/performance evaluation system using the
information reported in this system. The KCDPW Managers hope
to utilize the information to better forecast and schedule
manpower requirements, and improve overall staff efficiency in
performing routine maintenance tasks.
In the Village of Dexter, Michigan (population 1,750), the
Village Manager has recently automated the revenue and
expenditure data utilized in the municipal budget. The manager
now has access .to expenditures and revenue data by department
(e.g. sewer, water, refuse collection) on a monthly basis. The
monthly print-out shows a comparison of monthly expenses and
revenues, year-to-date totals and the annual budget by line
item within each municipal service fund account. The
information is used to track expenses and identify high-cost
items as part of the budget control and preparation process.
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If properly implemented, enterprise accounting should
Improve the efficiency of any wastewater operation. The key to
its success is that the utilities manager become more aware of
cost control and revenue enhancement opportunities. To put it
simply, a wastewater operation should be managed as if 1t were
a private enterprise (i.e., a profit making venture). The only
difference 1s that there is no profit per se; any income in
excess of total operating expenditures is applied to reserve
accounts to serve future needs (e.g., to .fund capital
improvement projects).
Although enterprise accounting may force utilities to raise
service fees, very often other sources of revenue can be
identified to help generate the supplemental income required to
support the operating budget. In most cases, enterprise
accounting will give the utilities manager more flexibility in
budgeting a wastewater operation. This is because the manager
can budget whatever Is appropriate provided there is a plan for
generating the required revenue.
Rate Setting
A vital part of enterprise accounting is establishing a
rate structure. This discussion is presented to highlight the
principle of "fair and equitable" allocation of costs in the
rate setting process. That is, not only should rates be set to
generate sufficient revenue (as required in enterprise
accounting), but the rates should reflect the actual cost of
providing service to different classes of users.
Establishing fair and equitable user fees can be a
complicated process, particularly for service areas where the
quality and quantity of wastewater generated by different users
varies widely. Utility managers have to decide how to best
allocate the costs of system 0, M, & R (operation, maintenance,
and replacement) and debt service as part of their annual
budgetary process. The first step is to accurately determine
the total user charge revenue requirements. In some cases, the
cost of the wastewater operation 1s subsidized with funds from
general tax funds or from the revenues of other utility
operations (particularly water supply systems). In such cases,
the user charge revenues do not reflect true operating costs.
In determining true operating costs, reserve funds should be
Included to provide for future replacement and capital
Improvement needs.
The following items should be considered in developing a
rate structure:
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The basic user charge should assess all users of
wastewater services for their proportionate share of
operating costs based on the strength, volume, and
flow rate of their discharge. The operating costs
should include debt service and administrative costs,
as well as day-to-day O&M costs.
A reserve fund for future replacement of major
equipment should be established. The reserve fund
should be a budgeted item each year (based on an
assumed depreciation rate) and be allowed to
accumulate (e.g., in a sinking fund) to provide
immediate funds for equipment replacement when needed,
A reserve fund for future capital improvements (i.e.,
system expansion, upgrading, and rehabilitation)
should be established to provide a source of local
share capital for future projects.
ILLUSTRATION - MODIFICATION OF RATE STRUCTURE
Public opposition to the high costs of sewerage services in
Sussex County, Delaware, forced the County to reevaluate its
user charge system. The County provides water and wastewater
utility services to several water and sanitary sewer districts
in the coastal (recreational) part of the county. Sanitary
sewer district residents were paying between $350 and $500 per
year for sewer services under a uniform rate structure (i.e. a
front footage assessment to cover debt service and a flat rate
per EDU to cover O&M expenses). High seasonal peak flows
demanded that the newly constructed treatment facility have a
large capacity which was underutilized much of the time.
Repayment of the very large debt placed an unfair financial
burden on the full-time resident users who were not responsible
for the peak summer flows. A consultant hired by the County
recommended a modified rate structure based on recovering the
actual costs of providing sewer service, as a function of the
peak and average flow characteristics, wastewater strength, and
the number of full-time and part-time residents. The
recommended user charge system resulted in a more equitable
distribution of user fees among full-time and part-time
residents. Given the more reasonable fee structures, new
customers were more willing to connect to the system and the
effective service area was significantly expanded. The
combination of modified sewer rates and expanded service area
reduced the typical homeowner's sewer service charge by as much
as 50 percent.
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Rate structures, therefore, can Influence the cost of
service to the customer and affect the ability of a utility to
raise the necessary funds to operate, maintain, and repair the
system on a continuing basis. Concern about rate structures
and operating costs Incurred In small municipalities has been
expressed by many state regulatory agencies, Including the
Oregon Department of Environmental Quality (DEQ), the New
Jersey Department of Environmental Protection (DEP), and the
Illinois Environmental Protection Agency (EPA). The Oregon DEQ
has offered technical assistance and advice to communities on
how to Improve their financial planning. The New Jersey DEP,
In conjunction with the EPA, has sponsored the publication of a
series of guidebooks on the financial management of wastewater
facilities. The Illinois EPA, on the other hand, Is
considering reviewing wastewater utility audit reports and rate
structures In order to Identify financial problems and to
monitor operations costs on an annual basis. The EPA Region I
Office (In Boston, MA), along with participating New England
States, has recently sponsored financial management workshops
for municipal officials, and financed the publication of a
Utility Management Manual which describes many financial
management options.
Aggressive Revenue Collection
Once a budget Is prepared and user rates are established,
It becomes the responsibility of the utility to collect the
revenue from the service area customers. The utility must
assure the timely receipt of customer payments in order to
maintain a positive cash flow.
Many techniques are being used by the public and private
sector to alleviate the problem of delinquent payments. Some of
these techniques include:
o Use of preaddressed (and/or postage paid) return
envelopes.
o Stiff late payment penalties.
o Prompt notification of overdue payments (automated
cost reporting systems can help managers monitor
delinquent accounts).
o Use of computerized billing and recordkeeping system.
o Post office box arrangements (payment checks are
delivered daily to the utility's bank for immediate
deposit).
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Bank collection arrangements which enable customers to
pay utility bills over-the-counter at local banks.
Customer budget plans designed by the utility to
spread the cost of service uniformly over the year.
(This helps, the customer budget his or her resources
on a monthly basis.)
ILLUSTRATION - AUTOMATING BILLING AND RECORDKEEPING
The automated cost reporting system utilized in Dexter,
Michigan enables the town manager and clerk to devote more time
to billing and collecting delinquent bills. It also allows the
Village to bill on a monthly basis, thus helping to spread the
annual cost of service in lower monthly installments and to
better monitor and reduce the number of delinquent accounts.
These changes helped improve the village's case flow position.
Monthly billing requirements and concerns for delinquent
accounts led the South Fork Sewer and Water District to
automate their billing system. Each of the 1,000 sewer
accounts in the District has a computerized payment file which
shows payment histories, water usage, and service performed.
The recordkeeping and billing system enables the District to
maintain tight control over the status of unpaid bills.
Service Base Expansion
c
One method of dealing with increasing operating costs is to
expand the revenue producing base of the wastewater utility.
Service base expansions can only be done if the treatment plant
has the available capacity. This available capacity may be
used to treat wastewater, septage, or sludge from adjacent
communities through various arrangements as illustrated below:
o Small independent treatment facilities (e.g.,
developer-built facilities or small public utility
systems) can be phased out and connected to a central
treatment plant which has usable capacity.
o Two independent treatment systems can be connected on
a "load-shifting" basis. That is, during peak flows
an overloaded plant can send wastewater flows to an
underutilized plant for treatment. In this way, both
plants remain operational and expansion of the
overloaded plant can be avoided, or at least delayed.
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o Septage from septic tank pumping, and sludges from
other existing wastewater treatment systems can be
accepted for a fee. In most cases, only minor capital
Improvements will be required to accommodate the
treatment of septage and additional sludge, and the
Increase In operating cost should be nominal.
Therefore, the fees collected can produce a
significant return on revenue.
o Unsewered developments can be added to the treatment
system through the extension of sewer collection
lines. If the plant Is underutilized, the additional
flow to the plant through an expanded customer base
may contribute to Improved plant performance. Using
up available plant capacity may not be feasible In
every case; however, there 1s a potential for
generating additional revenue by using the facility to
Its maximum capacity.
o Local sewer connection ordinances (I.e., laws
requiring that a developed property connect to the
public sewer system 1f service Is available) should be
en forced.
o In cases where the demand for sewer service 1s great
but treatment capacity 1s limited, plant expansion may
be justified. A thorough cost-effectiveness study
should be done to determine If the Increased revenues
justify the capital Investment.
Even If plant expansion Is not required, expanding the
service base may Involve considerable capital Investment (e.g.,
extension of sewer lines, phasing out existing smaller treat-
ment facilities, Installation of sewer lines to connect to the
main treatment plant, retrofitting the existing plant to
accommodate septage or sludge handling and treatment).
Special legal and Institutional Issues associated with the
expansion of the user base need to be examined. Significant
technical Issues Involving the treatment of septage or sludges
at an existing plant (e.g. the Impact of shock loads) also need
to be addressed.
While expanding the user base through the addition of more
customers or by providing additional treatment services may
offer significant financial advantages, the technical feasi-
bility of such plans must be carefully evaluated. Projections
of service demand and facility needs must be accurate and
realistic. The costs and benefits of alternative user.base
expansion scenarios should be thoroughly examined to evaluate
the full potential of various options.
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ILLUSTRATION - EXTENDING SERVICE TO NEW CUSTOMERS
In Sussex County, Delaware, household sewage service bills
of up to $500 per year caused much dissatisfaction and protest
from County residents. In order to reduce the high user
charges which resulted from the construction of a new sewage
treatment plant, the County expedited the completion of local
facilities plans which allowed the eventual connection of an
additional 2,500 customers to the system. These new customers
now constitute a third of the total user base for the treatment
facility. User charges for system customers were reduced
dramatically by the addition of these customers.
ILLUSTRATION - SUPPLEMENTAL INCOME FROM SEPTAGE TREATMENT
Many sewage utilities have found that offering septage
treatment services provides an additional source of revenue.
In Somersworth, New Hampshire, for example, a 2.6 MGD facility
treats on the average about 7,500 gallons per day of septage
delivered to the plant by private haulers. Annual revenues
from septage treatment fees were $12,000 In 1982, which
represents ten percent (102) of the sewage department's annual
revenues.
Supplemental Sources of Income
Additional Income from treatment system operations can be
realized through creatively promoting the resources available
at the plant. Additional revenue from the sale of treatment
system by-products, such as sewage effluent, sewage sludge,
methane gas, and other recoverable products, 1s possible with a
little Imagination and salesmanship. Many communities
underestimate the value of the waste material being produced at
their wastewater treatment plants. With a sound marketing plan
and good public relations effort, selling waste material can be
an effective means of raising revenue. The reuse of residual
wastes may also eliminate or reduce the cost of otherwise
disposing of these residuals.
Some examples of raising supplemental income include:
o Sewage effluent and sludge can be sold directly to
farmers to Irrigate tree nursery products and crops.
Sewage utilities can also grow crops or nursery stock
by irrigating with sewage effluent to market locally.
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o Land application of septage or sewage sludge, which
also serves as a nutrient base for crop production.
o Other recoverable products, such as methane gas, could
become a marketable product to local industry.
o Contract services to other utilities (see discussion
on "Contracting Staff to Others" in "Reducing Labor
Costs" Section).
o Interest income (see discussion on "Case Management").
The feasibility of selling effluent or recovering waste
by-products should be carefully evaluated before attempting to
implement such a program. This: evaluation should consider
technical feasibility (i.e. the ability to consistently produce
the desired by-product), as well as market demand and public
acceptability. If the demand for the product Is not great
enough, the additional income generated may not cover the
capital Investment and increased operating costs involved,
despite the savings in disposal costs that may be realized.
Public protests (e.g. objection to land application of effluent
or sludge products) may delay or even prevent the
implementation of by-product reuse schemes. The posture of
local and state regulatory agencies can also have great impact
on the feasibility of reuse plans.
ILLUSTRATION - SUPPLEMENTAL SOURCES OF INCOME
Producing a Case Crop Using Effluent Irrigation
The sewage treatment facility in the City of Roosevelt,
Utah, is being used to irrigate land which grows a cash crop
for the utility. The treatment facility consists of a
.facultative lagoon with winter storage and land disposal,
designed to serve a population of about 22,000 people. The
land disposal system consists of center-pivoted sprayed
irrigation units that operate over a total wetted area of 268
acres. An alfalfa cash crop is harvested at this site (3 or 4
times each year). Total revenues from the sale of the
harvested crop were $58,900 in FY 1980, $59,400 in FY 1981, and
$59,600 in FY 1982.
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The decision to utilize a cash crop in conjunction with the
spray irrigation system in Roosevelt City was made in
consultation with a plant/soil scientist from the Utah State
University Cooperative Extension Service and a local advisory
group, composed of farmers from the area. Field evaluations
and productivity studies were performed by the Cooperative
Extension Service representative. The proposed cropping plans
and economic feasibility studies were then reviewed by the
local advisory group, which recommended alfalfa as the cash
crop with rotation of grain to establish the alfalfa.
While operating revenues appear to be substantial, a
comparison of revenue and expenditures for the cash crop
enterprise (prepared by the City's auditors) shows operating
expenses exceeding revenues from the annual harvests. The
operating expenses of labor, supplies, cutting and bailing,
utilities, and equipment repair (of the irrigation system) were
shown in the report to constitute a significant portion of the
total operating cost. According to the city finance director,
a positive cash flow can be realized if additional land area
were irrigated. The City is considering different crop
management practices in an effort to increase hay production.
This example illustrates the importance of carefully
estimating operating costs, and being realistic in projecting
the revenue potential for such ventures.
Equally important in this case is the need for continuous
follow-up and performance evaluation of the project by
knowledgeable persons (e.g., farmers and crop management
specialists in this case) to review the techniques used, and
formulate recommendations to enhance the productivity and
efficiency of operations.
Lease of Effluent Irrigated Cropland
At the Township of Gratton, Michigan, sewage facility
revenues from the leasing of an irrigated apple orchard
constitute one source of operating revenue. A local farmer
pays a $6,600 per year fee to the Township to lease the orchard
site which includes the use of effluent from the Township's
wastewater facility for irrigation water. This revenue
represents about nine percent (9%) of the total annual
operating budget for the sewage collection and treatment system
in the Township. The Township is also planning to harvest
timber from hardwood trees planted at another- sewage disposal
site where effluent is used to irrigate the land.
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Selling Effluent
In Hillsboro, Oregon, the Unified Sewage Agency sells
sewage effluent In the summer months to a golf course and to a
tree farm'for Irrigation. Proceeds are about $7,500 per year.
The sewage agency personnel have estimated the average revenue
for the sale of effluent to be $10 per acre-foot. Revenues
from the sale of effluent for Irrigation will vary according to
the climate, proximity to users, and price and availability of
alternative water supply sources for Irrigation.
'Selling Methane Gas
The sale of methane gas from the Unified Sewage Agency's
Forest Grove Facility (2.5 MGD) to a nearby Industrial park Is
also under consideration. The adjacent businesses would use
the gas to help fuel their boilers.
Recovering Other Haste Products
The Unified Sewage Agency has also discovered that silver
chloride, recovered from spent COD solutions In their
laboratory, Is a marketable product. In 1982, the recovered
s'llver chloride was sold for about $100. The spent COD
solutions are normally disposed of without attempting to
recover the silver chloride.
Selling Sludge
The Galesburg Sanitary District has been applying sludge to
a sod farm adjacent to the treatment plant. This saves the
district the cost of hauling the sludge 17 miles to a landfill
and results In a savings of $60,000 a year 1n sludge disposal
costs. The District has contracted with an Individual to
operate the sod farm on the District's land. The contractor
plants grass seed, maintains It, and then pays the District for
each square yard of sod harvested.
These extra sources of revenue, however small, can be used
to supplement the operating budget. They can also be utilized
to set up funds for special purposes. For example, an
"incentive fund" to serve as a basis for merit awards, could be
established, or a special fund for training seminars and travel
for plant operations personnel could be maintained. These
creative uses of the utility revenues have the added benefit of
encouraging creativity and pride in the operations staff. The
main advantage of having supplemental sources of income is that
the utility does not have to depend entirely on service fees to
raise the needed revenues, and thus may avoid unpopular rate
increases.
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Case Management
As mentioned in the previous section, the interest in
investments can produce supplemental income for a wastewater
utility. Very often, this additional revenue can be realized
without a lot of time or effort on the part of the utility
manager. Case management is the process of managing the
utility's fiscal resources in order to take advantage of cash
availability for investment and maximize the yield on
investments.
There are basically two options that a community can choose
in implementing a cash management program. The two options are:
o Consolidate temporarily idle cash from available fund
accounts within the utility operation into a single
special fund for investment, and invest the available
monies in low risk securities (e.g., treasury bills,
certificates of deposit, repurchase agreements).
o Participate in local government investment pools
coordinated and managed by county or state agencies.
Idle cash for investment can be found in a variety of
fund accounts (e.g., water and sewer operating
budgets, revenue sharing funds, tax collection funds,
and construction and capital improvement funds).
These idle monies may be simply awaiting use, set
aside for pending payments, held in reserves required
by law, used as operating reserves, or collected in a
revenue account. Interest earnings from pooled cash
investments are typically credited to the contributing
funds based on the proportion of their contribution.
Generally, cash flow management accounting systems
(i.e., automated record keeping systems) are necessary
to track and forecast cash needs and balances. Cash
flow forecasts, for example, can tell the case manager
how much idle cash will be available for investment,
when and for how long. Simple computer programs can be
written to track the status of investment funds. Some
banks offer this service as part of their financial
management services to municipalities and utilities.
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Local government Investment pools can be organized through
the auspices of the state or be created by local governments
themselves In cooperation with independent administrative and
investment advisors. Consolidating separate accounts into a
pooled cash fund increases the flexibility of the investments.
It enhances the ability to invest larger sums of money for
longer periods of time, generally resulting in higher Interest
rates and higher yields. Investments should be made in safe
and liquid interest bearing funds to ensure that monies are
available upon demand and that investments are protected from
market defaults. Despite the advantages of cash management,
many local units of government are reluctant to pool their
resources into a county or statewide pooled Investment fund.
In order for such investment pools to be successful, the
participating agencies must be comfortable with the fund
manager and trust that sound Investment decisions will be
made. It may take some time to earn this trust, but once
established, Investment contributions and average yields could
increase noticeably.
Over a dozen states and a multitude of localities have
organized local government Investment pools. State operated
local investment pools, for example, managed some $2.5 million
in assets in 1981. The participation in a state operated
investment pool can help simplify cash management for small
communities that have neither the staff nor the resources to
develop a full-scale cash management program of their own.
ILLUSTRATION - INVESTMENT POOLS
In Kent County, Michigan, investment pooling is coordinated
and managed by the county treasurer's office. During 1982,
about twenty-eight townships, cities, and villages earned over
$585,000 in Interest through the county's pooled investment
fund program. (The invested balance for the local government
unit pool in that year was $4.7 million. Interest yields in
the pooled fund program for the year averaged over 14 percent,
which is at least twice the Interest yield which the local
governments were accustomed to receiving in their normal
investment practices. The participants in the local government
unit pool Included rural townships, some of which invested debt
fund proceeds from the sale of bonds used to finance sewer and
water projects. Other townships Invested both operating and
debt fund revenues Into the county pool.
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In the City of Portage, Michigan, a pooled cash management
program was initiated by the city manager and finance
Department in 1980. The system consolidated idle cash from
thirty-six different fund accounts in the city government.
These included the general operating fund, water and sewer
operating and debt funds, and a variety of other debt and
operating funds. In fiscal 1981, the total city-wide interest
earnings from the 36 funds was $1.2 million. In the subsequent
fiscal year, it was $1.6 million - the equivalent of most 4
mils of property tax. The interest earnings from the Pooled
Investment Program are roughly three (3) times what they were
before the cash management and investment pool programs were
initiated.
Pooled investment (and cash management) programs operate
within a defined framework of legal and administrative
constraints. Legal constraints consist of Federal, state, and
local laws and regulations that restrict or otherwise affect
local cash management practices. Federal laws and regulations,
for example, strictly govern investments of grant funds and
money from the sale of municipal bonds. Other Federal
regulations require special treatment of interest earned on
investments of Federal funds (e.g., revenue sharing).
As with other local government functions, the powers,
duties, and responsibilities of municipalities in the area of
cash management are set forth by state law (except for home
rule municipalities). Local laws may restrict the fund manager
in a number of ways as well. This makes it essential that the
fund manager carefully review all local ordinances, state
statutes, and Federal laws, and seek professional advice to
avoid legal problems. State municipal leagues may be able to
offer information regarding the use of such investment programs
in a particular state.
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