United States
Environmental Protection
Agency
Water
Office of Water
Program Operations (WH 547)
Washington D C 20460
December 1978
&EPA Report to Congress
Industrial Cost Recovery
Volume II — Detailed
Methodology, Findings,
Alternatives, and
Recommendations
Coopers & Lybrand
1800 M Street, N.W.
Washington, D.C. 20036
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DETAILED METHODOLOGY
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II. DETAILED METHODOLOGY
A variety of analytical techniques were utilized during the
ICR study. These techniques included:
Economic Ait^lysis
Survey Analysis
Financial Simulation
Cost Function Analysis
In the following sections each of these techniques and its method
of application is described in detail.
1. Contractual Scope of Work
EPA's Contract 68-01-4801 included a Scope of Work (see
Exhibit V — 1 — 1 in Volume III) which required Coopers 4 Lybrand to
"examine--with full public participation—the efficiency of, and'
need for, the Industrial Cost Recovery provisions of the Federal
Wa^er Po^ution Control Act." The objective was to be met
throurh work divided into three phases:
Development of the Study Methodology
Data Collection
Data Analysis and -Report Preparation
A brief summary of each of these phases is presented below.
II-1
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a. Development of the Study Methodology
This phase, was to consist of the following subtasks:
Establishment of project protocol
Preliminary literature survey
Revalidation of issues, definition of data require-
ments and methods of analysis
Project protocol activities included orientation meetings
with project staff and EPA personnel, establishment of a project
file structure, and development of a documentation system for all
project communication. Included, also, was the establishment of
an advisory group of interested parties.
The literature survey was to encompass pertinent EPA studies,
industrial data bases and models, and data within the province of
advisory group members.
Following those efforts, the basic issues were to be revali-
dated, analytical techniques identified, and associated data
requirements defined.
b. Data Collection
An information base was to be developed to permit analysis of
at least several issues: combined and incremental impact of user
charge and ICR costs on five industries and on industries in
thirty selected urban and non-urban communities; cost of ICR to
industry groups, by geographic location, and in urban and rural
II-2
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areas; ICR as a function of prevailing levels of unemployment; if
possible, the incremental cost of collecting ICR over that
required for user charges; old versus new cities; and in cities
with wastewater treatment facilities funded with PL 92-500 funds
versus PL 84-660 funds. The cost of ICR monitoring and
enforcement was to be addressed; the benefits to industry from
ICR "interest free" loans; ICR cost as a percentage of total
expenses to industry; a comparison of industrial sewage costs in
publicly owned treatment works (POTW's) versus direct discharge;
and the impact of ICR on selected national industrial growth
patterns. The level of business closures caused by ICR was to be
examined, as was the impact of ICR on inter-industry competition,
and the impact of exemptions from ICR on various user classes.
Also to be investigated was the impact of ICR on employment,
export/import balance, local tax bases, industrial water conser-
vation, small businesses and economies of scale (in wastewater
treatment facilities). The question of encouragement of cost-
effective solutions to water pollution was to be examined, as
were alternative r.ethods of excluding small businesses from ICR,
the extent of ICR disparities in adjacent geographic areas,
differences between ICR costs related to secondary treatment and
advanced waste treatment, alternative methods of achieving ICR
parity, and local government impacts of ICR.
The basic vehicle for obtaining the data needed to address
these issues was to be a survey that would encompass at least 220
communities and industrial establishments in at least 5 indus-
tries. An estimated !50 businesses were to be contacted.
II-3
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The field survey effort was to consist of the following
subtasks:
design of survey instruments
development of interview guides
preparation of survey plan
orientation of field staff
pre-test and modification of survey methodology
conduct survey
summarize results and data
Coopers & Lybrand was to participate in four public review
meetings in Washington.
c. Data Analysis and Report Preparation
Analytical approaches selected during the methodology phase
were to be modified as appropriate during the data collection
phase. All survey data was to have standard validation testa
performed. Appropriate data validation techniques were to be
applied to any non-survey data utilized.
Preliminary evaluation could lead to modification of analy-
tical approaches. Ten public meetings were to be held in EPA's
ten Regional Office cities, and Coopers & Lybrand was to support
and participate in these meetings, and then prepare draft and
final reports.
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2 . Economic Analysis
a. Background
The legislative history of P.L.' 95-217 reveals a Congres-
sional concern with the actual and potential impact of ICR on
business. These included the impact of ICR on:
the cost of doing business
employment
small business
businesses subject to seasonal variations
the achievement of cost effective solutions to water
pollution.
Time and funding limitations dictated, however, that the
analysis of the impact of ICR on industry be limited to a number
of industry groups.
The methodology utilized to select the industry groups for
study consisted of:
Development of Selection Criteria
Determination of Candidate Industries
Analysis of Candidate Industries
Selection
The effort was initiated at a
the C&L project staff and EPA ICR
Regional and tne national level.
meeting that was convened with
specialists at both the
That meeting was utilized to
II-5
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produce selection criteria and an initial candidate industry
list.
b. Selection Criteria
A review of the legislative history and the history of the
ICR program produced seven criteria of importance. These cri-
teria, their order of importance and an explanation of each is
presented below:
1. Labor intensive - with the emphasis of the legislative
history on unemployment, the selection of industries that
were labor intensive and had a high percentage of total
employment was deemed to be of primary importance.
2. Low Operating Margin - as ICR is an added cost of production,
industries with a low operating margin (or low value added
relative to* value of shipments) would magnify the impact of .
ICR on costs of production.
3. High Flow - as the size of an ICR bill is proportional to
flow, water use and wastewater discharged are important
determinants of economic impact.
4. Size of Industry - as the national economic impact is of
interest, industries that are large from the standpoints of
number of establishments, employees and shipment values would
be more useful to analyze than small industries.
II-6
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5. Seasonality - industries that are seasonal are uniquely
affected by ICR. In many cases, the annual ICR charge is
determined by the maximum flow. Thus, an industry with a
limited season experiences a multiplication of the impact of
ICR charges.
In addition, the extent of pretreatment and the size of plant
were considered to be of interest. While pretreatment reduces
ICR costs, it does affect the cost-effectiveness decision. Also,
a range of plant siz.es, small and large, was deemed important to
determine economic impact for a range of plant sizes.
c. Candidate Industries
Based on information submitted to both-regional and national
offices of EPA, the following industries were submitted as candi-
dates for further analysis:
Bakeries
Seafood' Canners
¦ Dairies
Meat Packers
Breweries
Paper and Wood Products
Textile Manufacturing
Ferrous Metals
Nonferrous Metals
Leather Tanning
Raw Food Processing
II-7
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d. Economic Analysis
To provide a consistent basis for analysis, the candidate
industries were reviewed and the fpllowing Standard Industrial
Classification (SIC) Codes were assigned, as shown below:
SIC Code Description
2051 Bread and Other Bakery Products
2091 Canned and Cured Fish and Seafood
202X Dairy Products
2011 Meat Packing
2082 Malt Beverages
2621 or Paper Mills
26XX Paper and Allied Products
22XX Textile Mill Products
3^XX Secondary Metal Products
3111 Leather Tanning and Finishing
2033 Canned Fruit and Vegetables
Using the Department of Commerce Census Bureau's Census of
Manufacturers (1972 and 1976 annual) as the sole source of infor-
mation, the tabl-e shown in Exhibit II-2-1 (following this page) .
was prepared. Most of the data shown is from the 1972 census,
1976 data includes:
Number of establisnments
Value added
Shipment value
Number of employees (all)
To support the evaluation, the following measures were
developed:
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Seasonality Factor - the ratio of high quarter to
lowest quarter (for both number of workers and man-,
hours) was utilized as a proxy for seasonality. The
larger the value for this ratio, the more seasonal an
industry would be expected to be.
Operating Margin - the ratio of value added to value
of shipments was utilized to indicate the amount of
non-fixed costs involved. A*smaller number here
would indicate a t'oinner margin.
e. Selection of Industries
Arranging the data of the exhibit against the criteria pro-
duces the following Tour clear cut choices:
3^XX Secondary Metal Products - the largest in number of
establishments (29,525), number of employees (7.6? of all
manufacturing) and shipment value~(5.85S of all
manufacturing).
2011 Meat Packing - has the lowest ratio of value added to
shipment value (the proxy for operating margin) and, in addi-
tion, a substantial wastewater discharger to POTWs (8.5% of
total).
262 1 or 26XX Paper Products - are the largest from the
standpoints of water used (16.1 % of total) and wastewater
discharged.
2033 Canned Fruits and Vegetables - the only industry
displaying extreme seasonality (employment during the peak
quarter was three times employment during the slack quarter),
The next industry position was assigned to 202X, dairy
Products, for the following combination of reasons;
Large number of establishments (U,U90)
Second lowest operating margin
Generally small establishments (5^ with less than 20
workers)
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At a later point in the project, textile mill products, 22XX,
was added as the final industry group. While not first in any
single category, textile mill products ranked second in both
workers and number of establishments. Of importance to the
study, however, was that this industry t-ended to be located in
cities which, either due to location or size, had higher ICR
rates than most. All industries selected perform pretreatment to
some degree.
f. Summary
The six groups selected and their standard Industrial Classi-
fication (SIC) codes are:
SIC Code Industry Group
2011 Meat Packing
2020 Dairy Products
2600 Paper & Allied Products
3^00 Secondary Metal Products
2033 Canned Fruit and Vegetables
22XX Textile Mill Products
In the aggregate, the six industry groups selected account
for the following:
19% of all water used by industry
37% of all wastewater discharged to public utilities
18% of all employees
18% of all industry in terms of vallie of shipments
50,867 establishments
In addition, the list includes:
One highly seasonal industry
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One industry of predominantly small establishments
One industry of predominantly large establishments
As the project proceeded, some minor changes were made in the
identification of the target industry groups. In some cases the
change consisted of adding an SIC digit to reduce the number of
individual candidate plants; in other cases a digit was dropped
to broaden the scope of the industry in question. In the final
listing, all industry groups were described to the third digit:
201X Meat Products
202X Dairy Products
203X Canned and Frozen Foods
221X Textile Mills
26IX Pulp Mills
347X Metal Platers
3. Survey Analysis
The bulk of the study consisted of a survey that was con-
ducted of both grantees and industry. The survey effort
consisted of the following steps:
Design of Data Instruments
Orientation of Field Staff
Conduct Pretest
Survey Administration
Summarization of Results
a. Design of Data Instruments
Conducting a survey of an essentially unregulated local
government activity poses some major problems. The extremely
II-11
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diverse forces of custom, state and local regulation, and local
discretion have combined to produce a wide array of methodologies
and terminology in wastewater rate setting. This diversity was
expected to pose a major diffculty in designing an instrument in
such a way as to capture data that could be compared grantee-to-
grantee.
Accordingly, a fairly structured approach was utilized in
designing the survey instruments. The first step was to prepare
a matrix relating specific issues from the Congressional debate
to specific questions or data (see Exhibit 11— 3 — 1)• This was
then converted into an initial grantee survey instrument (see
Exhibit V -1 -7 , Volume III). In preparing this initial survey
instrument, the following factors were considered:
1. A limit was placed on the survey form and the length
of time required for completion, because cooperation
with the survey was voluntary.
2. Emphasis was placed on data that was anticipated to
be readily available to the grantee.
3. Emphasis was shifted to costs by category and revenue
by source, because of the multiplicity of rate
setting and revenue-producing methodologies.
The development of the industrial survey instrument proceeded
through a slightly different course. Initially, a survey instru-
ment containing all potential areas of interest was developed
jointly with the Nationak-Food Processors Association (NFPA)
(Exhibit V - 1 -8 , Volume III). This instrument was eventually
utilized by NFPA in a survey conducted in conjunction with the
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EXHIBIT II-3-1
1 of 6
U. S. Environmental Protection Agency
Industrial Cost Recovery Study
Issues Matrix
DEFINITION OF ISSUE
SPECIFIC QUESTIONS AND COMMENTS
1. Combined and incremental impact
of user charges and ICR costs on
five industries arxi on industries
in thirty selected urban and non-
urban communities
Grantee
For one year prior to UC/ICR
and first year of UC/ICR,
what was total revenue by type,
from residential customers and
total revenue, by type, frcm
non-residential customers.
Grantee
"Rate, prior to UC/ICR
. by rate element (debt; O&M
etc.) and billing unit
. dates effective
Current or proposed UCR/ICR rate
. by rate element (debt; O&M;
by volume; BOD; SS; ICR;
etc.) and billing unit
. dates effective
Geographic location-urban or
rural, old or new city
Actual charges to selected
industrial plants. For each -
12 months prior to UC/ICR
.. amounts billed - by rate
element
.. units billed
.. periods billed
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DEFINITION OF ISSUE
2 of 6
SPECIFIC QUESTIONS AND COMMENTS
as a function of prevailing
level of unenploymenl
incremental cost of
collecting ICR over that
incurred for user charges
P.L; 92-500 projects
vs. P.L. 84-660
old city vs. new city
. 12 months prior to UC/ICR
(actual or projected)
.. amounts billed - by rate
element
.. units billed
.. periods billed
Selected Plants. For each -
. Units of Industry Activity
.. description
.. amount of quantity
.. time period
. Geographic location
. Urban and rural
. Large or small business
Grantee
Did any plants, due to UC/ICR:
. close
. reduce production
. decide not to move into
service area
. move to different area
Grantee
What does it cost to bill and
collect ICR? Identify specific
cost components.
See Issue 1 above - rates
See Issue 1 above - rates
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DEFINITION OF ISSUE
3 of 6
SPECIFIC QUESTIONS AND COMMENTS
3. Cost of ICR monitoring and
enforcement
Grantee
Benefits to industry from
exclusion of interest factor
in ICR
ICR costs as a percentage of total
expenses of industry
Comparison of industrial sewage cost
in POTW vs. cost of direct charge
What were monitoring and
enforcement costs before UC/ICR?
What are the monitoring and
enforcement costs with UC/ICR?
Which specific costs would be
eliminated if there were no ICR?
Obtain estimated capital costs
for self-treatment fran C&L sub-
contractor for each selected
plant.
Grantee
What are ICR costs and recovery,
period for each selected plant?
Obtain total industry expense
statistics and units of activity
frcrn Department of Commerce
Develop relationship between
. selected plant units of *
industry activity and total
industry activity
. ICR costs from issue 2 above
and total for industry.
Obtain estimated cost to operate
self-treatment plant frcn C&L
subcontractor or EPA public-
ations for each selected plant.
Use estimated capital cost for
self-treatment fran issue 4
Use UC/ICR costs fran issue 2
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DEFINITION OF ISSUE
4 of 6
SPECIFIC QUESTIONS AND COMMENTS
7. Impact of ICR on selected national
industrial growth patterns
8. Level of business closures caused
by ICR
9. Impact of ICR on selected Inter-
industry competition
10. Impact on ICR exemptions, including
impacts related to
levels of flow
revenues forgone
. cost of grantee administration
See issue 2 - plant closings,
relocation, etc.
See issue 2 - plant closings,
relocation, etc.
Select the lowsr cost substitute
for each industry and determine
efect of ICR on that substitute
industry.
Select alternative ICR exemption
techniques
flow
. minimum $ amount
Grantee
For each alternative exemption
technique and criteria, obtain
. number of industries exempted
. estimated ICR collections
. reduction in ICR admini-
strative cost
11. Impact of ICR on
employment
export import balance
local tax base
water conservation
by industry
See issue 2 above
See issue 2 above
Grantee
List 10 largest water users
Contact those users who have
reduced consumption to determine
reason.
small business
See issue 2 above for plant
closings, relocations, etc.
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DEFINITION OF ISSUE
5 of 6
SPECIFIC QUESTIONS AND COMMENTS
economies of scale
Grantee
12. Encouragement of cost-effective
solutions to (economies of scale)
water pollution by ICR
During plant design or
construction, did any industries
choose not to participate? If
any, identify
. specific industries
. estimated volumes
What are the cost increases due to
lost economies of scale?
This issue will be addressed if, in
issue 11 above, industries who
chose not to participate were
identified.
13- Alternative methods of excluding
small business from ICR
See issue 10 above.
14. Extent of ICR cost disparities
within Standare Metropolitan
Statistical Arrea, or within
50 miles of such areas
For each selected plant and the
related industry group -
Are there any other plants
within the SMSA or 50 miles with
significantly different ICR unit
costs?
15. Relative treatment costs of
secondary vs. advanced
Grantee
What level of treatment do you
provide?
What are the unit costs for ICR?
16. Alternative methods of achieving
ICR parity where disparities exist
17. Local government impacts of ICR
. Revenue producted
. Incremental costs
. Other issues
What is the design capacity of
the plant?
Develop theoretical national ICR
rates
See issue 1 above
See issues 2 and 3 above
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DEFINITION OF ISSUE
6 of 6
SPECIFIC QUESTIONS AND COMMENTS
Grantee
.. dry industries
.. seasonal flow
.. alternative bases for
inclusion in ICR (other
than SIC)
.. critical review of Appendix A
of ICR guidelines
Are there any other ICR
incremental costs not discussed
previously?
See issue 10 above
Grantee
Are there any seasonal flow
industrial users? Who? Days of
operation? Flow and strength?
Grantee
What would the impact be to
' change to the current industry
definition?
What would the impact be to
exclude all sanitary waste?
Grantee
Did you have difficulty in
completing Appendix A? Which
portion? Can you recomend an
alternative form?
.. analysis of grantee payments
for system development
Grantee
Did you receive a grant
amendment for development of the
UC/ICR system? Amount? How
utilized?
What was the total cost to design
and implement the UC/ICR system, by
cost element -
consultants
public hearings
administration
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ICR study. However, consultation with other industry associ-
ations produced a number of areas of concern:
1. Questions relating to either the costs of business or
profits were deemed to be unacceptable, since the
study was performed under the Freedom of Information
Act.
2. A number of the industry groups (such as the paper
and wood products groups) had just completed a very
lengthy and detailed Section 308 survey from EPA.
Therefore, the various associations felt that a
shorter survey would produce a higher response rate.
3. Finally, it was determined that it would be most
efficient to focus on industries located within
grantee's geographical areas. This linkage reduced
the information needed from industry, since much of
the data would be obtained from the grantee.
b. Pre-Test
The resulting grantee survey instrument (Exhibit V-1-7,
Volume III) was then pre-tested on a random sample of 13 grantees
located in Region V. All pre-test surveys were administered in
person. The pr'e-test responses were analyzed and necessary
changes incorporated. Finally, the format of the survey form was
modified to simplify data entry. The final survey form is shown
in Exhibit V-1-2 Volume III.
The industrial survey form (Exhibit V — 1 — 9, Volume III) was
pre-tested in a different manner. The survey forms were reviewed
with, appropriate representatives of industry associations repre-
senting the target industries. Appropriate changes were made and
the format modified to simplify data entry (Exhibit V-1-3, Volume
III) .
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c . Field Staff Orientation
To meet the overall schedule requirements ten survey teams
were established -five for the eastern half of the counry and
five for the western half. The two survey groups (East and West)
received training which covered the following topics:
Introduction to Wastewater Treatment
Wastewater treatment terminology
Clean Water Act Amendments of '72 and *77
Federal Rate Setting Requirements (User Charge and
ICR)
Survey Protocol
Survey Techniques
Administrative Aspects of the Survey
The training sessions were broken down as follows:
Study Background, Survey Techniques, etc. -2 days
Visit to Regional Office-Review of Documents on File
(201 Facility Plans, UC/ICR systems, etc.) - 2 days
The purpose of the orientation was to:
1. Provide the necessary background in wastewater operations,
legislation and study objectives, for the survey team
members.
2. Insure that proper survey protocol was observed.
3. Insure consistency, in the recording of data.
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d. Survey Administration
The survey planning effort was initiated by obtaining from
the EPA Grants Information and Control System (GICS) a listing of
all grantees with approved UC/ICR systems. This listing was
updated and corrected by review with the EPA Regional Offices.
The initial survey target was to visit 100 grantees and to survey
(either in person or over the telephone) as many of the grantees
with approved systems as possible.
The list of candidate grantees was then circulated to all EPA
Regions, EPA Headquarters personnel and Advisory Group members.
The purpose of this screening was to identify those grantees of
particular interest to the study due to:
1. The existence of industry of interest
2. Either a difficult or easy time in implementing ICR
3. Case study candidate (e.g. industries opting out of
POTW, nearby non- ICR city, etc.)
The most promising grantees were then ranked to reflect regional
economics (see Exhibit II-3-2) and an initial site survey list
established.
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EXHIBIT II-3-2
U.S. ENVIRONMENTAL PROTECTION AGENCY
ICR STUDY
SURVEY CANDIDATE SELECTION QUANTITIES
% Total U. S. Pop
+ Value Added
Region Manufacturing
Number of
City
Visits
% of
City Visits
1 (Boston)
10
10
9
2 (New York)
10
9
9
3 (Philadelphia)
11.5
12
10
4 (Atlanta)
14.5
15
13
5 (Chicago)-
25
29
25
6 (Dallas)
10
8
7
7 (Kansas City)
5
8
7
8 (Denver)
2
7
6
9 (San Francisco)
11
11
10
10 (Seattle)
3
5
it
Totals
100$
115 Cities
100*
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For each grantee, the following procedure was followed:
1. A call was placed to the grantee explaining the
purpose of the survey.
2. A letter was then mailed infcluding the survey form.
3. After the survey form was received, a follow up call
was placed to answer any questions and confirm
participation in the study.
In the event the grantee was to be visited, a date was selected
during the initial telephone call and confirmed in the follow up
letter and telephone call.
In addition to the identification of plants of interest by
the associations in the Advisory Group, Dun & Bradstreet direc-
tories were utilized to identify industries of interest (by SIC
code) located m the cities to be visited*. These firms were
then called and a follow up letter (along with the survey form)
sent. All completed survey forms were reviewed by the survey
team captain.
Of the estimated 300 grantees selected to be surveyed, com-
pleted survey forms were obtained from 227. Of those grantees
not covered in the survey one of the following conditions
existed:
1. A desire not to participate in the survey
2. Inadequate base of'information
3. No industry
*It should be noted that establishments with gross sales below
$500,000 are not listed by D&B. As a result, we were forced to
rely on association inputs in identifying very small businesses.
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e. Summarization of Results
Following the review of the survey forms, all appropriate
quantitative data was transferred to punch cards and, subse-
quently, transferred to tape. An EPA compatible software package
known as IRS (Inquiry Reporting System) was utilized for data
management.
Once all the data was on tape a number of edit and validity
checks were performed. Some of these checks included:
Was a numerical answer given where one was required?
For certain numerical answers were they within
acceptable ranges?
Do sums add up?
A number of internal validity checks (do certain
answers exceed others ? etc.)
An error listing of all erroneous survey forms was produced.
These forms were then corrected or needed data added.
Once the validation of the data was completed, a number of
mathematical operations were performed. These operations
included segmentation--by state, by SIC code, by grant (old or
new), and by region (urban or rural).
4. Cost Function Analysis
One of the areas to be addressed by the study was the general
issue of cost-effectivengss. Analysis of the impact of ICR on
cost-effective solutions to water pollution required the use of a
simulation model. The simulation model (described in the next
section) employed two sets of capital and operating cost equa-
11-17
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tions for secondary and advanced treatment. One set comprised
first order national cost curves presented in EPA publication
MCD-37, Construction Costs for Municipal Wastewater
Treatment Plants: 1973-1977, and MCD-39, Analysis of Operations
• »
and Maintenance Costs for Municipal Wastewater Treatment Systems;
the second set of cost equations were assembled for this study by
Camp Dresser & McKee, Inc., a consulting engineering firm with
which Coopers 4 Lybrand contracted for technical engineering
assistance.
The EPA equations were based on logarithmic regression
analysis of a large sample of P0TW's._ The equations employed in
this study were national equations based on sample sizes of 97
for secondary capital costs, 40 for AWT capital costs, 1*13 for
activated sludge secondary O&M costs, and 28 for AWT O&M costs.
The EPA equations vrere based on flow only with no adjustment for
influent BOD or-SS levels. The specific EPA equations are pre-,
sented below:
Capital Costs
C Q O
Secondary Treatment C = 2.12 x 10 x Q"
AWT C = 2.88 x 106 x Q*99
O&M Costs
li q f.
Secondary (Activated Sludge) C = 8.25 x 10 x Q'
U 1 Hit
AWT C= 6.85x10 x Q
Camp Dresser & McKee (CDM) provided a second source of cost
estimates based on their design experience in treatment plants.
11-18
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The cost equations were built up from unit process cost estimates
for specific process trains. Because the cost equations were
based on process design experience, account was explicitly taken
of the BOD and SS levels (expressed in mg/1) in influent as coat-
causing attributes. CDM's estimates are presented below:
Capital Costs
Secondary (Activated Sludge)
460 x 103x |fg£ Q| '82 + 465 x 103 x
C = 1.118 x 106 x Q'8 +
^2 , ji£c „ ir\3 „ I SS
AWT
C = 1.789 x 106 xQ'8 + 460 x 103 x
JiAc m3 I SSI.81
+ 465 x 10 x |"2oo[
BOD
200
.81
.82
O&M Costs
Secondary (Non-labor)
15.1 x 10J x
C = 17.2 x 103 x Q-87 +
BOD
200
76 + 11.9 x 103 x
SS
200
.8
Secondary Labor Man Hours (Q _<_ 7.5) MH = 5288 x Q
.41
+ 1166 x (-§§§- Q
.53
+ 4853 x
SS
200
.58
Secondary Labor Man Hours (Q > 7.5) MH = 3776 x Q
.58
1166 x
BOD
200
Q
53 + 3603 x
SS
200
.74
AWT (Non-Labor)
C = 33-6 x 103 x Q'83 +
11.9 :< 10J x
SS
200
Q
*53 + 15.1 x 103 x
BOD
200
.76
4 4
AWT Labor Man Hours (Q < 7.5) MH = 5706 x Q* +
BOD
1166 x
200
• 53 I|0n .r I SS rtl .58
+ 4853 X Q |
11-19
-------
AWT Labor Man Hours (Q > 7.5) MH = 4255 x Q'59 +
1166 x Hot®!'53 ~ 3603 * liir8!'7"
Exhibit II-4-1, and related Exhibits II-4-2 thru II-4-5
present capital and O&M cost estimates for plants of varying
sizes based on the two cost estimating sources employed in this
study. In order to convert the man-hour estimates generated by
CDM into equivalent dollar amounts, estimates of annual labor
costs by size of plant and treatment level were taken from MCD-
39, (Table 4-10).
As employed in this study, the equations were assumed to
apply equally to public and private treatment works, because
there appears to be no technological basis on which to state that
the presence of pretreatment facilities should lower either
capital or O&M costs to the firm. Pretreatment costs were not
factored into firm decision making, since these costs are not
avoidable to the firm regardless of whether public or private
treatment is selected.
The other assumption is that a firm would have to provide
some POTW-type treatment in self treatment. Recognizing tht in
reality, this firm would hve to provide BPT or BAT, this
assumption is nevertheless a valid and practical one for the
purpose of this study. -The cost to a firm to provide BPT may
vary from the cost to provide a POTW-type secondary treatment,
however, the varianace is considered to be within a reasonable
range, and the average of BPT costs approximates that of the
11-20
-------
POTW-type secondary treatment costs. The same inference can be
made in the case of comparing the cost to a firm providing BAT
with the coat of providing POTW-type AWT of secondary treatment
and appropriate pretreatment. Factors which impact the costs to
• I
provide BAT or BPT, and the costs to join a POWT include, but are
not limited to, the size and type of an industry, the size and
type of a POTW, and its specific geographic economical and
demographic conditions. Each combination of those factors may
create a unique cost-effective case, and must be evaluated on a
case-by-case basis.
11-21
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1
5
10
20
30
40
50
F1
1
5
10
20
30
40
50
»
Exhibit 11—4 — 1
Estimated Capital and Operating Costs
for Secondary and AWT Plants
Capital Cost.($1,0001s)
Secondary Treatment AWT
EPA "CDM* EPA "CDM~*
2,120 2,617 2,880 2,998
8,738 9,590 14,170 10,935
16,082 16,779 28,144 19,120
29,082 29,357 55,900 33,432
42,287 40,722 83,511 46,359
54,469 51,365 111,028 58,461
66,287 61,501 138,475 69,984
0&M Costs ($1,000 *s)
EPA CDM* EPA CDM*
83 139 69 161
387 389 695 462
752 657 1,887 789
1,464 1,101 5,119 1,322
2,160 1,533 9,178 1,813
2,847 1-903 13,889 2,250
3,527 2,251 19,152 2,662
BOD and SS levels were assumed to be 275 mg./liter
-------
Exhibit 11-4-2
Estimated Capital Costs - Secondary Treatment
CPA_ Secoi^a rvj I
0(MGD)
-------
Lxhibit JI-s-j
Estimated Capital Costs - Advanced Waste Treatment
Q (MGD)
-------
Exhibit 11-4-
F.stim.i Led O I M Costs - Secondary Treatment
Q (MGD)
-------
Exhibit 11-4-5
Estimated O & M Costs - Advanced Waste Treatment
0 (MGD)
-------
5. Financial Simulations
The focus of the economic analysis of the ICR system concen-
trated on the following questions:
1 . What are the economics of the decision on the part
of a plant to participate in a local POTW or self-
t reat?
2. How is the decision function in (1) dependent on
the size of the plant?
'3. How extensive are the economies of scale in POTW's
and what impact do such economies have on ICR
rates?
4. To what extent if any does ICR lead to a divergence
of private and social costs of treatment?
While a direct "before and after" analysis of industries
subject to ICR rates would be the natural approach, a record of
experience sufficiently long to allow for even intermediate-term
adjustments was not available.
The quantitative approach employed given this absence of
empirical evidence was one of simulation or modeling. As pre-
viously discussed, an experienced consulting engineering firm
(CDM) was engaged to provide cost equations for the various
elements in the range of treatment alternatives faced by
industry. These data were employed to yield simulation models
reflecting the cost of self-treatment versus POTW tie-in, with
and without ICR rates superimposed. By observing the shift in
the set of opportunity costs-advantageous to self-treatment, a
measure of ICR impact was obtained.
11-22
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Financial Considerations
A brief discussion of the major financial elements entering
into the analysis is presented below:
a. Capital and Operating Costs. A discussion of the
methodology employed to estimate capital costs and
O&M costs is presented in Chapters III and IV of
this report. For purposes of this analysis, it has
been assumed that the same cost equations are
applicable both to individual firms and to
POTW's. The major distinction drawn is in the
scale of the plant as measured by flow.
b. ICR Payments. ICR payments faced by the firm were
assumed to be determined on the basis of flow, with
no differential charges for BOD, SS, or other
effluent characteristics. It was assumed that the
recoverable Federal monies represented 75$ of the
total POTW capital costs (C). These were allocated
to the firm on the basis of the ratio of the firm's
flow (Q firnj) to total flow (Q pgTy)» Finally, the
allocated portion of capital costs were annualized
by dividing by POTW plant life (L). Thus, the
annual ICR charge faced by the firm was calculated
as:
ICR = (Qfirm/QP0TW} x ('75 x C/L)'
c. User Charges. User charges faced by the firm were
assumed to be based on flow only and represent a
share of annual O&M costs in the POTW (OM pqtw^
factored by the ratio of the firm's annual flow to
total POTW annual flow. Thus the user charge was
calcuated as:
UC = (9firm/tW x 0M
Local Finance Charges. The local share of capital
costs were assumed to represent 25% of total
capital costs. For purposes of the analysis, the
locality was presumed to finance its share of the
plant costs through debt issuance at a specified
interest rate (rm). Provision for debt retirement
and interest payment was assumed to be in the form
of a sinking fund with annual contributions from
users in proportion to their flow. Thus assuming a
11-23
-------
bond terra equal to plant life (L), the firm's local
debt retirement charge (LDR) was calculated to be:
LM = <«firm/QP0™> * <25 * C> *
Tax Rate. For purposes of calculating the post-tax
cash flows, the effective tax rate was assumed to
be 48%, the marginal Federal corporate tax rate.
Because of the myriad state and local laws it was
decided that consideration of non-Federal taxes was
not practical. There was insufficient time
available to revise the entire analysis to reflect
the recent reduction in Federal tax rates to 46%.
Investment Tax Credit. The investment tax credit
is a tax reduction based on a portion of qualified
investment (Section 38 property) as defined by the
Internal Revenue Code placed in service in a
particular tax year. The provisions of the law
with respect to the investment tax credit are
complex and include limitations on qualified
investment, limitations on the amount of tax which
may be offset with the tax credit, carryover
provisions, and other considerations. For purposes
of this analysis the tax credit was assumed to be
10?, the full capital cost constituted Section 38
property, and sufficient income tax liability was
incurred in theiapplicable year such that the full
credit could be!taken in the first applicable
year. Certain limitations with respect to the tax
credit basis arising out of an election to take
rapid write-off of pollution control equipment is
discussed below.
Depreciation. Provision is made in the tax law for
exclusion of depreciation charges from taxable
income. These depreciation charges are to be
computed in accordancce with procedures consistent
with the Internal Revenue Code. Although many
methods are available, accelerated methods in the
form of double declining balance (DDB) or sum-of-
years-digits (SYD) are most common.. For purposes
of this analysis the computer model selected either
SYD or DDB witti'switchover to straightline on the
basis of whichever method resulted in the greatest
present value benefit. Limitations on depreciable
basis arising out of rapid write-off of certain
pollution control property is discussed below.
11-24
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h. Rapid write-off. Section 169 of the Internal
Revenue Code specifies that certain pollution
control facilities may be amortized over a five-
year period. Certain criteria with respect to
certification of the facility, tha prof .t-making
potential of the facility, and other requirements
must be met. This analysis has assumed that the
self-treatment facilities involved are qualified
Section 169 facilities, that their entire cost is
Section 169 property, and that they are not profit-
making pollution abatement works.
The firm may elect to take Section 169 rapid
writeoff at its discretion. Certain limitations
with respect to depreciation charges and the
investment tax credit are detailed in Sections 169
and 46 of the Internal Revenue Code. These
limitations were factored into the computer model
employed in this analysis. In particullar, the
amortizable basis is subject to limitations with
respect to the useful life of the property: where
the useful life of the property is in excess of 15
years, the amortizable basis (B-j5g) is a proportion
of the otherwise amortizable basis (C) deterraied by
the ratio of 15 years to the useful life of the
property (L). Thus:
Bl69 :CforL< 15,
B169 = x C for L > 15.
The excess basis in cases where the facility life
exceeds 15 years is subject to normal tax
depreciation under Section 169 as discussed above.
Therefore, in the case where useful life exceeds 15
1 5
years, it has been assumed that —p x C may be
15
written off over five years, and that (1 - —7-) x C
may be depreciated using one of the accelerated
depreciation methods.
The Tax Reform Act of 1976 provided that in cases
where Section 169 rapid amortization was elected,
the investment tax credit would be made available,
but the basis for that credit would be reduced to
50% of the otherwise eligible investment amortized
under Section 169. Thus under these provisions, the
tax credit rate would effectively be 5% rather than
10$ on that portion of the investment amortized over
five years. The recent tax law changes removed this
limitation, except with respect to facilities
financed through Industrial Development Bonds (dis-
cussed below). This latter change was not factored
11-25
-------
into the computer model and the calculations were
made on the basis of the law as amended by the 1976
Act, because of schedule limitations on the ICR
Study.
i. Financing. The investment in self-treatment
facilities must be financed by the firm either
through debt or equity capital, or most commonly a
combination of the two. In order to accommodate a
wide range of possibilites, the computer model was
structured to accept as input the share of total
capital costs financed by debt and the annual
interest charge on the debt.
Debt financing is of particular significance in
light of the tax laws. Because interest payments
are tax-deductible expenses, the effective cost of
debt may be' significantly lower than the nominal
cost. Specifically, if the interest rate on certain
debt is denoted r and the tax rate is denoted t, the
after-tax cost of debt is (1—t) x r which, given
current tax laws, may be in the range of one-half of
the nominal pre-tax rate r.
Special consideration of Industrial Development
Bonds is appropriate. Under current tax law,
interest received from qualified Industrial
Development Bonds issued to finance pollution
control equipment is tax-free. Consequently, IDB's
typically carry significanly lower interest rates
than normal industrial bonds. This provision makes
the IDB a particularly attractive financing vehicle
for a firm considering self-treatment.
j. Methodology. The approach embodied in the computer
model was predicated on the assumption that a firm
would desire to self-treat if the present value of
the after-tax cash flow impacts of POTW tie-in
produced a greater reduction in wealth than those
impacts from self-treatment.
Annual cash flow impacts from municipal tie-in
include user charges (UC), ICR charges (ICR) and
local share financing (LDR). Because these are tax
11-26
-------
deductions, the after-tax impact on cash flow in
period j is:
PDTU
CFj = - (1 - t) x (UCj + ICRj + LDRj)
where UC, ICR, a.nd LDR are as specified above.
Annual cash flow impacts from self treatment reflect
many more elements than the municipal tie-in. In
particular, the after-tax cash flow impact in period
j under self-treatment is:
CF3elf = t x (A + D.) - (1 - t) (I. + OM.) + ITC. - P.
J J J J J J J
where A and D are amortization and depreciation
charges, I is interest on debt, OM is operating
expense, ITC is the investment tax credit, and P is
the applicable principal payment on debt.
The necessary technical and financial parameters
were input into the computer which calculated POTW
and firm capital and O&M costs on the basis of
flow. The computer then optimized with respect to
amortization and depreciation options available
under self-treatment to arrive at the algebraic
maximum present value after-tax cash flow impact
under self-treatment, as well as calculating the
POTW's ICR, O&M, and LDR charges to the firm and the
present value after-tax impact of a municipal tie-
in. The results were displayed in tabular form
showing the ratio of present value of muncipal to
self treatment costs for POTW flows of from 5 to 50
MGD, and for self-treatment flows of from .25 to 20
MGD. A ratio exceeding unity for any POTW/firm flow
combination wouid indicate that municipal tie-in
would be more costly than self-treatment under the
assumed parameterization.
To determine the impact of ICR payments, then, it
was necessary only to rerun the program excluding
the ICR segment of municipal tie-in charges. The
recalculated ratios would indicate which POTW/firm
11-27
-------
flow combinations shifted from disadvantageous to
advantageous with respect to municipal tie-in, i.e.,
which ratios shifted from greater than one to less
than one.
11-28
-------
III. DETAILED FINDINGS AND ALTERNATIVES
-------
III. DETAILED FINDINGS AND ALTERNATIVES
1. General
The purpose of this chapter is to present the study's
findings, as well as the alternatives developed. In general, the
study requested that measurements be taken of a program that is
still in its infancy, always a difficult task. In this case
there are two reasons that it is difficult to take precise and
quantitative measures of the effects and impacts of Industrial
Cost Recovery. First, the program is only a few years old and
industry has had relatively little time to measure the impacts of
User Charges and Industrial Cost Recovery and compare these
impacts with other changes facing industry. The second compli-
cating factor is that during the moratorium EPA is no longer
withholding grant payments for failure to develop ICR systems.
Therefore, grantees are spending little time and energy calculat-
ing new ICR rates or updating rates for POTW's that are now func-
tioning. It was for this reason that Coopers & Lybrand examined
the intent of P.L. 92-500 and relied upon simulation (a technique
used to identify how industry should act, discussed in detail in
the next section of this report) rather than solely relying on a
few measurements to determine whether the intent was being ful-
filled.
As discussed earlier, the legislative intent behind ICR was
to:
Create rate parity between industries discharging to
POTW's and those required to self-treat.
III-1
-------
Encourage proper sizing of treatment works.
Encourage water conservation.
Self-sufficiency retainment of ICR revenue by
grantees for future upgrading and expansion of their
POTW.
In addition to responding to the Legislative intent, the
study was to address specific economic questions, including the
questions entered in the Congressional Record by Congressman
Roberts on December 15, 1977. The following sections of this
chapter discuss the assumptions and findings of the study, based
on the areas the study was asked to address. Chapter IV
discusses the conclusions drawn from the findings presented in
this Chapter. Basically, the study has found that Industrial
Cost Recovery as currently formulated is not accomplishing the
goals set forth in the Legislative intent. The issue of intent
was studied using simulation; specific economic issues, and
Congressman Roberts' questions were addressed using quantitative
measurement where available. The lack of empirical data (because
of the relative newness of ICR) shows that ICR has had relatively
little quantifiable effect to date. However, the future effects
of ICR appear to be discernible. The case studies presented in
Chapter III are designed to highlight situations that may develop
into trends if ICR is reinstituted after the moratorium.
III-2
-------
2. Impacts of ICR (Economic)
Because-the ICR program has been only partially implemented,
and because many of those ICR programs in place have suspended
their charges, essentially no empirical data is available on
which a conclusive "befo~re-and-after" analysis could be based.
Moreover, it would be unreasonable to expect that in the short
period during which these rates have been in place, any
significant portion of industry's ultimate long-run adjustments
have been made.
Nevertheless, economic theory can be employed to determine
what long-run adjustments will ultimately result qualitatively,
though not quantitatively relative to the industry's productivity
and costs.
It is assumed at the outset that the firm employs two factors
of productionlabor (L) and capital (K), to produce a single
product (Q). The production function f(K,L) is assumed to have
continuous first and second order partial derivatives. Further,
it is assumed that as a by-product to this production process
effluent waste (W) is generated, and that the quantity of waste
produced is an increasing function of the level of output. The
firm sells its output at a fixed price, Pq> ancl is charged a
fixed unit rate, P^, for its effluent discharge. The Firm's
profit function (11) which it is assumed to maximize is, then,
III-3
-------
revenue, PqQ, less factor expenses, rK and vL, and less effluent
charges, PvjW. Restated,
11 = PqQ - rK - vL - PWW
and
Q = f(K,L) (fK, fL( fRL >q; ^ o).
The first order'conditions for profit maximization imply:
^VdK = PQfK - r - Pwg' fK = o
and
d1l
/^L = PqfL - v - Pwg' fL = o
Restated, these conditions imply that the firm employs each
factor of produotion up to the point at which the factor's
marginal cost equals the net marginal revenue product. That is,
(PQ " PWS') fK = r
and
(pQ - Pwg') fL = v.
Note that the effluent charge enters in a manner exactly
analogous to a sales tax in the sense that it constitutes a wedge
between the market price of the item, Pq> and the net revenue to
the firm after effluent charges, (Pq - Pwg').
III-4
-------
For the sake of simplicity, and with little loss of
generality, assume that effluent generation is proportional to
the amount of output, i.e.,
W = kQ.
Then profit maximization implies
pQfK ~ r " pWkfK = 0
and
The second order condition required by profit maximizatipn is
that the Jacobian matrix
posess a positive determinant IJI, since it has already been
i
assumed that both f^ and f^ are negative.
The question to be answered, given this model, is: What will
be the effect of an increase in the effluent charge, Pw? To
answer this question the total differential of the first order
conditions is required. That is, differentiating:
PQ ~ pWk) fKK (PQ " pWk>
(pQ " pWk) fKL (pQ " PWk>
III-5
-------
kfKdpw
kfLdpw
(pQ ~ Pw''<) fKK (Pq - Pwk) fKL
(Pq - Pwk) fKL (Pq - Pwk) fLL
Here the indicates optimal quantities employed of the factors
of: production, K and L. Employing,Cramer's rule and taking
advantage of the known signs of the derivatives f^, f^f fj(K>
and f^L as well as the sign of IJI, the factor impacts are:
dK /dPw = I J I ~1 ^ [ k (?Q - Pwk) f ll " k (Pq - Pwk) ftfKL]
-------
Exhibit II1-2-1
Cost and Output Impact of ICR on the Firm
P
MC
TC
AVC
PI
P3
Q1 Q2
O
-------
r.xhibit 111- 2-2
Price <"inci Quantity Jrppnct of ICR on fln TnciusLry
P
SI
02
-------
varying financial and technical assumptions, the relative costs
of tie-in to a municipal wastewater treatment plant versus self-
treatment of industrial effluent. The conclusion of this simu-
lation analysis can be stated simply: it appears that under
certain conditions, especially related to available financing,
there is a sometimes strong incentive to self-treat rather than
to utilize a POTW.
Exhibit II1-3-1 (consists of 22 pages at the end of this
Section) details the matrix output of the simulations based on
varying assumptions with respect to the financial and technical
parameters. Each table reflects for various POTW flows (columns)
and assumed industrial plant flow (rows), the ratio of the
present value of the after tax cash flow impact of remaining in
the POTW to the present value of the post-tax impact of self-
treatment. A second set of tables (15 - 22), reflect the cost-
effectiveness ratios compvited in the absence of ICR charges, but
with user charges and local debt service charges left in place.
The reader should bear in mind that all POTW charges are
presumed to be based exclusively on flow and do not reflect
individual user's BOD and SS loads in differential rates for ICR,
UC, or local debt service.
Interpretation of the tables is straightforward, i.e., there
is presumed to be a positive incentive to self-treat in each case
in which the cost effectiveness ratio exceeds unity. As a
generalization the incentive to self-treat increases as the size
of the industrial user relative to the POTW increases.
III-9
-------
Similarly, the incentive increases as the debt share of project
financing increases and as the interest rate on the debt
financing decreases.
The simulations of AWT under the EPA cost estimates stands in
contrast to the other simulations with respect to the shift in
incentive from a change in the plant flow relative to the POTW
flow. Specifically, while in non-EPA-AWT cases the incentive to
self-treat increases as the plant flow increases relative to POTW
flow, in the EPA-AWT cases the effect is exactly reversed: the
incentive to self-treat increases as the plant flow decreases
relative to POTW flow. This phenomenon reflects the fairly
strong diseconomies of scale in the EPA's estimate of AWT O&M
cost which imply a more than proportional reduction in cost for a
given proportionate reduction in flow.
It is apparent from the financial simulations that the
strongest incentives to self-treat arise when the debt-financed
share of capital costs is high (higher than typical debt
ratios). The case was included to allow not only for the
consideration of long term debt financing through specific or
blanket liens, but most especially to allow for the opportunity
to finance a project with the proceeds of an industrial
development bond which typically carries a much lower interest
rate than normal corporate debt due to its tax-free interest to
the recipient. (See the discussion in volume 2 of this study.)
111-10
-------
The use of industrial development bonds as a means of finance
appears to be relatively wide-spread with 192 new issues in 1977
listed in the 1978 volume of Moody's Bond Record; these do not
include private placements for which no estimate could be made.
It has been argued that the proceeds must exceed $1 million
before it is economical to issue an IDB because of the fixed
charges of issuance. However, ten percent of the new IDB's
listed were in amounts under $1 million and in a number of
instances issues were made in the range of $300,000. The
availability of this low interest financing has recently been
extended to smaller business through an amendment to the Small
Business Investment Act which provides SBA guarantees against
default in the borrowing. Thus, this vehicle may be expected to
become significantly more important to the smaller industrial
plant.
These simulations suggest that there are instances in which
it is desirable for a plant to withdraw from its POTW and self-
treat. The fact that relatively little drop-out has been
observed may be attributed to the relatively short time in which
the charges have been implemented, and to the suspensions of ICR
payments in most locales. It appears that this finding results
from the use of either EPA's cost curves or from the use of CDH's
cost curves.
III-11
-------
Exhibit III-3-1
Page 1 of 22
Table 1
Ratio of POTW to Self-Treatment Present Value Costs
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 0.502 0.475 0.460 0.450 0.442 0.436 0.430 0.426 0.422 0.419
0.50 0.537 0.508 0.492 0.4-31 0.473 0.466 0.460 0.456 0.452 0.448
0.75 0.559 0.528 0.512 0.500 0.492 0.485 0.479 0.474 0.470 0.466
1.00 0.574 0.543 0.526 0.514 0.505 0.498 0.492 0.487 0.483 0.479
2.00 0.614 0.581 0.562 0.550 0.540 0.532 0.526 0.521 0.516 0.512
3.00 0.638 0.603 0.534 0.571 0.561 0.553 0.547 0.541 0.53.6 0.532
4.00 0.655 0.620 0.600 0.587 0.577 0.568 " 0.562 0.556 0.551 0.546
5.00 0.000 0.633 0.613 0.599 0.586 0.580 0.574 0.568 0.562 0.558
6.00 0.000 0.644 0.623 0.610 0.599 0.590 0.583 0.577 0.572 0.568
7.00 0.000 0.653 0.633 0.618 0.608 0.599- 0.592 0.589 0.580 0.576
8.00 0.000 0.661 0.540 0.626 0.615 0.607 0.599 0.593 0.588 O.583
9.00 0.000 0.669 0.648 0.633 0.622 0.613 0.606 0.600 0.594 0.589
10.00 0.000 0.000 0.654 0.639 0.628 0.619 0.612 0.606 0.600 0.595
15.00 0.000 0.000 0.000 0.664 0.652 0.643 0.635 0.629 0.623 0.618
20.00 0.000 0.000 0.000 0.000 0.670 0.660 0.652 0.646 0.640 0.635
Cost Equations: EPA Secondary
Life: 30 Years
Discount Rate: 12.5$
Debt Share of Financing: 50%
Borrowing Rate: Corporate: 9% Municipal: 7.5%
-------
Exhibit III—3—1
Page 2 of 22
Table 2
Ratio of POTW to Self-Treatment Present Value Costs
PLANT POTW LOAD (MOD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 0.717 0.678 0.656 0.642 0.630 0.621 0.614 0.608 0.602 0.597
0.50 0.761 0.720 0.697 0.682 0.67Q 0.660 0.653 0.646 0.640 0.635
0.75 0.789 0.746 0.722 0.706 0.694 0.684 0.676 0.669 0.663 0.658
1.00 0.809 0.765 0.741 0.724 0.712 0.701 0.693 0.686 0.680 0.674
2.00 0.858 0.812 0.786 0.768 0.755 0.744 0.735 0.728 0.721 0.715
3.00 0.888 0.840 0.814 0.795 0.781 Q.770 0.761 0.753 0.747 0.740
4.00 0.910 0.861 0.833 0.815 0.801 0.789 " 0.780 0.772 0.765 0.759
5.00 0.000 0.877 0.849 0.830 0.816 0.804 0.795 0.786 0.779 0.773
6.00 0.000 0.890 0.862 0.843 0.828 0.817 0.807 0.799 0.791 0.785
7.00 0.000 0.902 0.873 0.854 0.839 0.827 0.817 0.809 0.801 0.795
8.00 0.000 0.912 0.883 0.863 0.848 O.836 0.826 0.818 0.810 0.804
9.00 0.000 0.921 0.892 0.872 0.857 0.845 0.834 0.826 0.818 0.812
10.00 0.000 0.000 0.900 0.879 0.864 0.852 0.842 0.833 0.826 0.819
15.00 0.000 0.000 0.000 0.909 0.893 0.881 0.870 0.861 0.854 0.847
20.00 0.000 0.0000 0.000 0.000 0.915 0.902 0.891 0.882 0.874 0.867
Cost Equations: EPA Secondary
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 75%
Borrowing Rate: Corporate: 9% Municipal: 1.5%
-------
Exhibit III-3-1
Page 3 of 22
Table 3
Ratio tc POTW of Self-Treatment Present Value Costs
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 1.088 1.029 0.996 0.974 0.957- 0.944 0.932 0.923 0.914 0.907
0.50 1.143 1.081 1.047 1.024 1.006 0.992 0.980 0.970 0.961 0.953
0.75 1.176 1.113 1.077 1.053 1.035 1.020 1.008 0.998 0.989 0.981
1.00 1.200 1.135 1.099 1.075 1.056 1.041 1.029 1.013 1.009 1.001
2.00 1.259 1.191 1.154 1.128 1.108 1.092 1.079 1.068 1.059 1.050
3.00 1.2^5 1.225 1.186 1.159 1.139 1.123 1.110 1.098 1.088 1.080
4.00 1.321 1.249 1.209 1.182 1.162 1.145 1.132 1.120 1.110 1.101
5.00 0.000 1.268 1.228 1.200 1.180 1.163 " 1.149 1.137 1.127 1.118
6.00 0.000 1.284 1.243 1.215 1.194 1.177 1.163 1.151 1.141 1.131
7.00 0.000 1.297 1.256 1.228 1.207 1.189 1.175 1.163 1.153 1.143
8.00 0.000 1.309 1.267 1.239 1.217 1.200" 1.186 1.174 1.163 1.153
9.00 0.000 1.319 1.277 1.249 1.227 1.210 1.195 1.183 1.172 1.163
10.00 0.000 0.000 1.286 1.257 1.236 1.218 1.204 1.191 1.180 1.171
15.00 0.000 0.000 0.000 1.292 1.269 1.251 1.236 1.224 1.212 1.203
20.00 0.000 0.000 0.000 0.000 1.293 1.275 1.260 1.247 1.236 1.226
Cost Equations: EPA Secondary
Life: 30 Years
Discount Rate: 12.5?
Debt Share of Financing: 95?
Borrowing Rate: Corporate: 9? Municipal: 7.5$
-------
Exhibit III—3-1
Page 4 of 22
Table 4
Ratio of POTW to Self-Treatment Present Value Costs
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 1.442 1.364 1.321 1.291 1.269 1.251 1.236 1.223 1.212 1.202
0.50 1.499 1.418 1.373 1-342 1.319 1.300 1.285 1.272 1.260 1.250
0.75 1.533 1.450 1.404 1.373 1.349 1.330 1.314 1.300 1..289 1.278
1.00 1.558 1.473 1.427 1.395 1.371 1.351 1.335 1.321 1.209 1.299
2.00 1.618 1.530 1.482 1.449 1.423 1.403 1.387 1.372 I.36O 1.349
3.00 1.654 1.564 1.515 1.481 1.455 1.434 1.417 1.403 1.390 1.379
4.00 1.680 1.589 1.538 1.504 1.478 1.457 1.439 1.425 1.412 1.400
5.00 0.000 1.608 1.557 1.522 1.495 1.474 1.457 1.442 1.429 1.417
6.00 0.000 1.623 1.572 1.537 1.510 1.489 1.471 1.456 1.443 1:431
7.00 0.000 1.637 1.585 1.549 1.522 1.501" 1.483 1.468 1.454 1.443
8.00 0.000 1.648 1.596 1.560 1.533 1.512 1.494 1.478 1.465 1.453
9.00 0.000 1.659 1.606 1.570 1.543 1.521 1.503 1.487 1.474 1.462
10.00 0.000 0.000 1.615 1.579 1.552 1.530 1.511 1.496 1.482 1.470
15.00 0.000 0.000 0.000 1.613 1.585 1.563 1.544 1.528 1.514 1.502
20.00 0.000 0.000 0.000 0.000 1.609 1.586 1.567 1.551 1.537 1.525
Cost Equations: EPA Secondary
Life: 30 Years
Discount Rate: 12.5?
Debt Share of Financing: 95*
Borrowing Rate: Corporate: 7.5£ Municipal: 7.5^
-------
Exhibit III-3-1
Page 5 of 22
Table 5
Ratio of POTW to Self-Treatment Present Value Costs
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 0.892 1.053 1.173 1.272 1.359 1.436 1.506 1.571 1.632 1.689
0.50 0.860 1.015 1.130 1.226 1.309 1.384 1.451 1.514 1.572 1.627
0.75 0.836 0.987 1 .'100 1.193 1.274 1.346 1.412 1.473 1.529 1.583
1.00 0.817 0.965 1.075 1.166 1.245 1.316 1.380 1.440 1.495 1.547
2.00 0.765 0.903 1.006 1.091 1.165 1.231 1.292 1.347 1.399 1.448
3.00 0.730 0.861 0.959 1.041 1.111 1.174 1.232 1.285 1.335 1.381
4.00 0.703 0.829 0.924 0.002 1.070 1.131 1.186 1.237 1.28^ 1.330
5.00 0.000 0.803 0.895 0.971 1.037 T.095 ' 1.149 1.199 1.245 1.288
6.00 0.000 0.781 0.870 0.944 1.008 1.066 1.118 1.166 1.211 1.253
7.00 0.000 0.762 0.849 0.921 0.984 1.040 1.090 1.137 1.181 1.223
8.00 0.000 0.746 O.831 0.901 0.962 1.017" 1.066 1.112 1.155 1.196
9.00 0.000 0.731 0.814 0.883 0.943 0.996 1.045 1.090 1.132 1.171
10.00 0.000 0.000 0.799 0.866 0.925 0.978 1.025 1.070 1.111 1.150
15.00 0.000 0.000 0.000 0.802 0.856 0.905 0.949 0.990 1.028 1.064
20.00 0.000 0.000 0.000 0.000 0.806 0.852 0.894 0.932 0.968 1.002
Cost Equations: EPA AWT
Life: 30 Years
Discount Rate: 12.536
Debt Share of Financing: 50$
Borrowing Rate: Corporate: 9% Municipal: 7.5^
-------
Exhibit II1-3-1
Page 6 of 22
Table 6
Ratio of P0TW to Self-Treatment Present Value Costs
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 1.400 1.653 1-841 1.997 2.133 2.254 2.364 2.466 2.561 2.650
0.50 1.317 1.554 1.732 1.878 2.006 2.120 2.223 2.319 2.409 2.493
0.75 1.260 1.487 1.657 1.797 1.919 2.028 2.127 2.219 2.305 2.385
1.00 1.216 1.436 1.599 1.735 1.853 1.958 2.054 2.142 2.225 2.302
2.00 1.100 1.299 1.447 1.570 1.676 1.771 1.858 1.938 2.013 2.083
3.00 1.027 1.212 1.350 1.465 1.564 1.653 1.734 1.809 1.878 1.944
4.00 0.973 1-149 1.280 1.388 1.482 T.566 ' 1.643 1.714 1.780 1.842
5.00 0.000 1.098 1.224 1.327 1.417 1.498 1.571 1.639 1.702 1.762
6.00 0.000 1.057 1.178 1.277 1-364 1.442 1.512 1.577 1.638 1.695
7.00 0.000 1.022 1.139 1.235 1.319 1.394 1.462 1.525 1.584 1.639
8.00 0.000 0.992 1.105 1.198 1.280 1.352 1.418 1.480 1.537 1.590
9.00 0.000 0.965 1.075 1.166 1.245 1.316 1.380 1.440 1.495 1.547
10.00 0.000 0.000 1.048 1.137 1.214 1.283 1-346 1.404 1.458 1.509
15.00 0.000 0.000 0.000 1.027 1.097 1-159 1.216 1.268 1.317 1-363
20.00 0.000 0.000 0.000 0.000 1.015 1.073 1-126 1.174 1.219 1.262
Cost Equations: EPA AWT
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 75%
Borrowing Rate: Corporate: 9% Municipal: 7.5%
-------
Exhibit III—3-1
Page 7 of 22
Table 7
Ratio of POTW to Self-Treatment Present Value Costs
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 0.300 0.258 0.236 0.222 0.214 0.205 0.199 0.193 0.188 0.184
0.50 0.366 0.315 0.288 0.270 0.260 0.250 0.242 0.235 0.229 0.224
0.75 0.409 0.352 0.321 0.302 0.291 0.279 0.270 0.262 0.256 0.250
1.00 0.441 0.380 0.347 0.326 0.314 0.302 0.292 0.283 0.276 0.270
2.00 0.527 0.454 0.415 0.389 0.375 0.361 0.349 0.339 0.330 0.323
3.00 0.583 0.502 0.459 0.431 0.415 Q.399 0.386 0.375 0.365 0.357
4.00 0.625 0.538 0.492 0.462 0.445 0.428 0.414 0.402 0.392 O.383
5.00 0.000 0.568 0.519 0.487 0.470 0.451 0.436 0.424 0.413 0.404
6.00 0.000 0.589 0.539 0.505 0.487 0.468 0.453 0.440 0.429 0.419
7.00 0.000 0.611 0.559 0.524 0.505 0.486- 0.470 0.456 0.445 0.435
8.00 0.000 0.626 0.572 0.537 0.518 0.497 0.481 0.467 0.455 0.445
9.00 0.000 0.642 0.586 0.550 0.531 0.510 0.493 0.479 0.467 0.456
10.00 0.000 0.000 0.600 0.563 0.543 0.521 0.504 0.490 0.477 0.467
15.00 0.000 0.000 0.000 0.613 0.591 0.568 0.550 0.53^ 0.520 0.509
20.00 0.000 0.000 0.000 0.000 0.628 0.604 0.584 0.567 0.553 0.540
Cost Equations: CDM Secondary
Life: 30 Years
Discount Rate: 12.5$
Debt Share of Financing: 50%
Borrowing Rate: Corporate: 9% Municipal: 7.5%
-------
Exhibit III—3—1
Page 8 of 22
Table 8
Ratio of PGTW to Self-Treatment Present Value Costs
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 10 45 50
0.25 0.391 0.337 0.308 0.289 0.278 0.267 0.259 0.251 0.245 0.239
0.50 0.486 0.418 0/382 0.359 0.346 0.332 0.321 0.312 0.304 0.297
0.75 0.549 0.472 0.432 0.405 0.391 0.375 O.363 0.353 0.344 0.336
1.00 0.597 0.514 0.469 0.441 0.425 0.408 0.395 0.383 0.374 0.365
2.00 0.725 0.624 0.570 0.535 0.516 0.496 0.480 0.466 0.454 0.444
3.00 0.809 0.696 0.636 0.597 0.576 Q.553 0.535 0.520 0.507 0.495
4.00 0.872 0.751 0.686 0.644 0.621 0.597 0.577 0.561 0.546 0^534
5.00 0.000 0.796 0.727 0.682 0.658 0.632 0.611 0.594 0.597 0.566
6.00 0.000 0.826 0.755 0.708 O.683 0.656 0.635 O.616 0.601 O.587
7.00 0.000 0.859 0.785 0.737 0.710 O.68J 0.660 0.641 0.625 0.611
8.00 0.000 0.879 0.803 0.754 0.727 0.698 0.675 0.656 0.639 0.625
9.00 0.000 0.902 0.824 0.774 0.746 0.717 0.693 0.673 0.656 0.641
10.00 0.000 0.000 0.844 0.792 0.764 0.734 0.709 0.689 0.672 0.657
15.00 0.000 0.000 0.000 0.866 0.835 0.802 0.775 0.753 0.734 0.718
20.00 0.000 0.000 0.000 0.000 0.889 0.854 0.826 0.802 0.782 0.764
Cost Equations: CDM Secondary
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 75$
Borrowing Rate: Corporate: 9% Municipal: 7.5%
-------
Exhibit III-3-1
Page 9 of 22
Table 9
Ratio of POTO to Self-Treatment Present Value Costs
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 0.516 0.444 0.406 0.381 0.367 0.353 0.341 0.331 0.323 0.316
0.50 0.659 0.568 0.5-19 0.487 0.469 0.451 0.436 0.424 0.413 0.404
0.75 0.756 0.651 0.595 0.559 0.539 0.517 0.500 0.486 0.474 0.463
1.00 0.832 0.716 0.654 0.614 0.592 0.569 0.550 0.534 0.521 0.509
2.00 1.036 0.892 0.815 0.765 0.738 0.709 0.685 0.666 0.649 0.634
3.00 1.172 1.008 0.922 0.865 0.834 0.801 0.775 0.753 0.734 0.717
4.00 1.275 1.098 1.003 0.942 0.908 0.872 ¦ 0.844 0.819 0.799 0.781
5.00 0.000 1.171 1.070 1.005 0.969 0.931 0.900 0.874 0.852 0.833
6.00 0.000 1.217 1.112 1.044 1.006 0.967 0.935 0.908 0.885 0.865
7.00 0.000 1.271 1.162 1.090 1.051 1.010, 0.977 0.949 0.925 0.904
8.00 0.000 1.298 1.187 1.114 1.074 1.032 0.998 0.969 0.945 0.923
9.00 0.000 1.335 1.220 1.145 1.104 1.061 1.026 0.996 0.971 0.949
10.00 0.000 0.000 1.251 1.174 1.132 1.087 1.051 1.021 0.996 0.973
15.00 0.000 0.000 0.000 1.290 1.244 1.195 1.156 1.123 1.094 1.070
20.00 0.000 0.000 0.000 0.000 1.329 1.277 1.235 1.200 1.169 1.143
Cost Equations: CDM Secondary
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 95$
Borrowing Rate: Corporate: 9$ Municipal: 7.5$
-------
Exhibit III—3—1
Page 10 of 22
Table 10
Patio of POIVJ to Self-Treatment Present Value Costs
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 0.608 0.523 0.478 0.449 0.433 0.416 0.402 0.390 0.381 0.372
0.50 0.793 0.683 0;624 0.586 0.565 0.543 0.525 0.510 0.497 0.486
0.75 0.922 0.793 0.725 0.681 0.656 0.630 0.610 0.592 0.577 0.564
1.00 1.022 0.880 0.804 0.755 0.728 0.699 0.676 0.657 0.640 0.626
2.00 1.300 1.119 1.023 0.960 0.926 0.889 0.860 0.835 0.814 0.796
3.00 1.488 1.281 1.170 1.098 1.059 1.018 0.984 0.956 0.9a2 0.911
4.00 1.633 1.405 1.284 1.205 1.162 1.117 " 1.080 1.049 1.022 0.999
5.00 0.000 1.508 1.378 1.294 1.247 1.199 1.159 1.126 1.097 1.073
6.00 0.000 1.569 1.434 1.346 1.297 1.247 1.205 1.171 1.141 1.116
7.00 0.000 1.646 1.504 1.412 1.361 1.308 1.264 1.228 1.197 1.170
8.00 0.000 1.678 1.534 1.440 1.388 1.334 1.290 1.253 1.221 1.194
9.00 0.000 1.728 1.579 1.482 1.429 1.373 1-328 1.290 1.257 1.229
10.00 0.000 0.000 1.621 1.522 1.467 1.410 1.363 1.324 1.291 1.261
15-00 0.000 0.000 0.000 1.680 1.620 1.557 1.505 1.462 1.425 1.393
20.000 0.000 0.000 0.000 0.000 1.737 1.669 1.614 1.568 1.528 1.494
Cost Equations: CDM Secondary
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 95?
Borrowing Rate: Corporate: 7.5% Municipal: 7.5%
-------
Exhibit III-3-1
Page 11 of 22
Table 11
Ratio of PO'IW to Self-Treatment Present Value Costs
PLANT POTW LOAD (M3D)
LOAD 5 10 15 20 25 30 35 ^0 45 50
0.25 0.419 0.368 0.340 0.321 0.309 0.298 0.289 0.282 0.276 0.270
0.50 0.493 0.432 0.400 0.378 0.363 0.351 0.341 0.332 0.325 0.318
0.75 0.540 0.474 0.438 0.415 0.398 0.385 0.373 0.364 0.356 0.349
1.00 0.576 0.506 0.467 0.442 0.425 0.410 0.398 0.388 0.379 0.372
2.00 0.670 0.588 0.544 0.514 0.494 0.477 0.463 0.451 0.441 0.433
3.00 0.730 0.641 0.593 0.561 0.538 Q.520 0.505 0.492 0.481 0.471
4.00 0.776 0.681 0.629 0.595 0.572 0.552 0.536 0.523 0.51*1 0.501
5.00 0.000 0.713 0.659 0.624 0.599 0.578 0.562 0.547 0.535 0.525
6.00 0.000 0.737 0.681 0.644 0.619 0.597 0.580 0.566 0.553 0.542
7.00 0.000 0.761 0.703 0.665 0.639 0.617 0.599 0.584 0.571 0.559
8.00 0.000 0.779 0.720 0.681 0.654 0.631 0.613 0.598 0.584 0.573
9.00 0.000 0.797 0.73b 0.697 0.669 0.646 0.627 0.611 0.598 0.586
10.00 0.000 0.000 0.752 0.711 0.683 0.659 0.640 0.624 0.610 0.598
15.00 0.000 0.000 0.000 0.769 0.739 0.713 0.693 0.675 0.660 0.647
20.00 0.000 0.000 0.000 0.000 0.781 0.754 0.732 0.714 0.698 0.684
Cost Equations: CDM AWT
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 50%
Borrowing Rate: Corporate: 9% Municipal: 1.5%
-------
Exhibit III-3-1
Page 12 of 22
Table 12
Ratio of POTW to Self-Treatment Present Value Costs
PLANT
LOAD
0.25
0.50
0.75
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
15.00
20.00
5
0.490
0.579
0.637
0.680
0.793
0.866
0.920
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
10
0.430
0.508
0.559
0.597
0.696
0.760
0.808
0.847
0.874
0.903
0.924
0.945
0.000
0.000
0.000
15
0.398
0.470
0.517
0.552
0.644
0.703
0.747
0.783
0.808
0.835
0.854
0.874
0.892
0.000
0.000
20
0.376
0.445
0.489
0.522
0.609
0.665
0.707
0.740
0.765
0.790
0.808
0.827
0.844
0.913
0.000
POTW LOAD (MGD)
25
0.361
0.427
0.469
0.501
0.585
0.638
0.679
0.711
0.734
0.758
0.776
0.794
0.810
0.877
0.926
30
0.349
0.412
0.453
0.484
0.565
Q.616
0.655
0.687
0.709
0.732
0.749
0.767
0.782
0.846
0.895
35
0.339
0.400
0.440
0.470
0.548
0.598
0.636
0.667
0.688
0.711
0.727
0.744
0.760
0.822
0.869
40
0.330
0.390
0.429
0.458
0.534
0.583
0.620
0.650
0.671
0.693
0.709
0.726
0.741
0.801
0.847
45
0.323
0.382
0.419
0.448
0.523
0.57.0
0.606
0.635
0.656
0.678
0.693
0.709
0.724
0.783
0.828
50
0.316
0.374
0.411
0.439
0.512
0.559
0.594
0.623
0.643
0.664
0.680
0.695
0.710
0.768
0.811
Cost Equations: CDM AJT
Life: 30 Years
Discount Rate: 12.5$
Debt Share of Financing: 75$
Borrowing Rate: Corporate: 9% Municipal: 7.5$
-------
Exhibit III—3-l
Page 13 of 22
Table 13
Ratio of POTW to Self-Treatment Present Value Costs
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 0.567 0.498 0.460 0.435 0.418 0.404 0.392 0.382 0.374 0.366
0.50 0.674 0.592 0.547 0.518 0.497 0.480 0.466 0.454 0.444 0.435
0.75 0.743 0.652 0.603 0.570 0.548 0.529 0.513 0.501 0.489 0.480
1.00 0.795 0.697 0.645 0.610 0.586 0.566 0.549 0.535 0.524 0.513
2.00 0.930 0.816 0.755 0.714 0.686 0.662 0.643 0.627 0.613 0.601
3.00 1.017 0.892 0.825 0.781 0.750 0.724 0.703 0.685 0.670 0.657
4.00 1.082 0.950 0.878 0.831 0.798 0.770 0.748 0.729 0.713 O.699
5.00 0.000 0.996 0.921 0.871 0.836 0.808 0.784 0.764 0.747 0.733
6.00 0.000 1.028 0.950 0.899 0.863 0.834 0.809 0.789 0.771 0.756
7.00 0.000 1.062 0.982 0.929 0.892 0.861 0.836 0.815 0.797 0.781
8.00 0.000 1.086 1.004 0.950 0.912 0.881 0.855 0.834 0.815 0.799
9.00 0.000 1.111 1.027 0.972 0.933 0.901 0.875 0.853 0.834 0.817
10.00 0.000 0.000 1.048 0.992 0.953 0.920 0.893 0.871 0.851 O.834
15.00 0.000 0.000 0.000 1.073 1.030 0.995 0.966 0.942 0.921 0.902
20.00 0.000 0.000 0.000 0.000 1.089 1.052 1.021 0.995 0.973 0.954
Cost Equations: CDM AWT
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 95$
Borrowing Rate: Corporate: 9% Municipal: 7-5%
-------
Exhibit III—3-1
Page 14 of 22
Table 14
Ratio of PQTW to Self-Treatment Present Value Costs
PLANT
LOAD
0.25
0.50
0.75
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
15.00
20.00
5
0.613
0.731
0.807
0.864
1.013
1.108
1.180
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
10
0.538
0.642
0.708
0.758
0.889
0.973
1.036
1.087
1.121
1.158
1.184
1.212
0.000
0.000
0.000
15
0.497
0.593
0.655
0.701
0.822
0.899
0.958
1.005
1.036
1.071
1.095
1.120
1.144
0.000
0.000
20
0.471
0.561
0.619
0.663
0.778
0.851
0.906
0.950
0.981
1.013
1.03b
1.060
1.082
1.170
0.000
P0TW LOAD (MGD)
25
0.452
0.539
0.595
0.637
0.747
0.817
0.870
0.913
0.942
0.973
0.995
1.018
1.039
1.124
1.188
30
0.436
0.520
0.574
0.615
0.721
Q.789
0.840
0.881
0.909
0.940'
0.961
0.983
1.003
1.085
1.147
35
0.424
0.505
0.558
0.597
0.700
0.766
0.816
0.856
0.883
0.912
0.933
0.954
0.974
1.054
1.114
40
0.413
0.492
0.544
0.582
0.682
0.747
0.795
0.834
0.861
0.889
0.909
0.930
0.950
1.027
1.085
45
0.404
0.482
0.531
0.569
0.667
0.730
0.777
0.816
0.841
0.870
0.889
0.910
0.928
1.004
1.061
50
0.396
0.472
0.521
0.558
0.654
0.716
0.762
0.799
0.825
0.852
0.871
0.891
0.910
0.984
1.040
Cost Equations: CDM AWT
Life: 30 Years
Discount Rate: 12.5$
Debt Share of Financir.*: 95$
Borrowing Rate: Corporate: 7.5$ Municipal: 7.5%
-------
Exhibit III—3—1
Page 15 of 22
Table 15
Ratio of POTW to Self-Treatment Present Value Costs
No ICR Charge
PLANT POTW LOAD (M3D)
LOAD 5 10 15 20 25 30 35 ^0 45 50
0.25 0.787 0.752 0.733 0.719 0.709 0.701 0.694 0.688 0.683 0.679
0.50 0.827 0.790 0.770 0.756 0.745 0.737 0.730 0.723 0.718 0.713
0.75 0.851 0.813 0.792 0.778 0.767 0.758 0.751 0.744 0.739 0.734
1.00 0.868 0.830 0.809 0.794 O.783 0.773 0.766 0.760 0.754 0.749
2.00 0.911 0.871 0.848 0.833 0.821 0.812 0.804 0.797 0.791 0.786
3.00 0.937 0.895 0.872 0.856 0.844 0.834 0.826 0.819 0.813 0.808
4.00 0.955 0.913 0.889 0.873 0.861 0.851 0.843 O.836 0.829 0.824
5.00 0.000 0.927 0.903 0.887 0.874 0.864 0.856 0.848 0.842 0.837
6.00 0.000 0.938 0.914 0.897 0.885 0.875* 0.866 0.859 0.852 0.847
7.00 0.000 0.948 0.924 0.907 0.894 0.884 0.875 0.868 0.861 0.856
8.00 0.000 0.957 0.932 0.915 0.902 0.892 0.883 0.876 0.869 9.863
9.00 0.000 0.964 0.939 0.922 0.909 0.899 0.890 0.882 0.876 0.870
10.00 0.000 0.000 0.946 0.929 0.916 0.905 0.896 0.Q89 0.882 0.876
15.00 0.000 0.000 0.000 0.954 0.940 0.930 0.921 0.913 0.906 0.900
20.00 0.000 0.000 0.000 0.000 0.958 0.947 0.938 0.930 0.923 0.917
Cost Equations:
Life: 30 Years
Discount Rate:
EPA Secondary
12.5?
Debt Share of Financing: 95$
Borrowing Rate: Corporate: 9% Municipal: 7.5%
-------
Exhibit III—3-1
Page 16 of 22
Table 16
Ratio of POTW to Self-Treatment Present Value Costs
No ICR Charge
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 1.043 0.997 0.971 0.954 0.940 0.929 0.920 0.913 0.906 0.900
0.50 1.085 1.037 1.010 0.991 0.977 0.966 0.957 0.949 0.942 0.935
0.75 1.109 1.060 1.033 1.014 1.000 0.988 0.978 0.970 0.963 0.957
1.00 1.127 1.077 1.049 1.030 1.016 1.004 0.994 0.986 0.978 0.972
2.00 1.171 1.119 1.090 1.070 1.055 1.043 1.032 1.024 1.016 1.009
3.00 1.197 1.144 1.114 1.094 1.078 1.066 1.055 1.046 1.039 1.032
4.00 1.215 1.161 1.131 1.111 1.095 1.082 1.072 1.063 1.055 K048
5.00 0.000 1.175 1.145 1.124 1.108 1.095 1.085 1.076 .1.068 1.061
6.00 0.000 1.187 1.156 1.135 1.119 1.106 1.095 1.086 1.078 1.071
7.00 0.000 1.197 1.166 1.144 1.128 1.115 1.104 1.095 1.087 1.080
8.00 0.000 1.205 1.174 1.152 1.136 1.123 1.112 1.103 1.095 1.087
9.00 0.000 1.213 1.181 1.160 1.143 1.130 1.119 1.110 1.101 1.094
10.00 0.000 0.000 1.188 1.166 1.150 1.136 1.125 1.116 1.108 1.100
15.00 0.000 0.000 0.000 1.191 1.174 1.161 1.150 1.140 1.132 1.124
20.00 0.000 0.000- 0.000 0.000 1.192 1.179 1.167 1.157 1.149 1.141
Cost Equations: EPA Secondary-
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 95$
Borrowing Rate: Corporate: 7.5$ Municipal: 7.5$
-------
Exhibit III-3-1
Page 17 of 22
Table 17
Ratio of POTW to Self-Treatment Present Value Costs
No ICR Charge
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 0.658 0.820 0.941 1.041 1.128 1.206 1.277 1.3^2 1.403 1.460
0.50 0.634 0.791 0.907 1.004 1.087 1.162 1.230 1.293 1-351 1.407
0.75 0.617 0.769 0.882 0.976 1.058 1.130 1.197 1.258 1.315 1.368
1.00 0.603 0.752 0.863 0.954 1.034 1.105 1.170 1.230 1.285 1.338
2.00 0.564 0.704 0.807 0.893 0.968 1.03^ 1.095 1.151 1.203 1.252
3.00 0.538 0.671 0.770 0.852 0.923 0.986 1.044 1.097 1.147 1.194
4.00 0.518 0.646 0.741 0.820 0.889 0.950 1.005 1.057 1.105 r. 150
5.00 0.000 0.626 0.718 0.795 0.861 0.920 0.974 1.024 1.070 1.114
6.00 0.000 0.609 0.699 0.773 0.837 0.895- 0.947 0.996 1.041 1.083
7.00 0.000 0.594 0.682 0.754 0.817 0.873 0.924 0.971 1.015 1.057
8.00 0.000 0.581 0.567 0.737 0.799 0.854 0.904 0.950 0.993 1.034
9.00 0.000 0.569 0.653 0.723 0.783 0.837 0.886 0.931 0.973 1.013
10.00 0.000 0.000 0.641 0.709 0.768 0.821 0.869 0.914 0.955 0.994
15.00 0.000 0.000 0.000 0.656 0.711 0.760 0.804 0.845 0.884 0.920
20.00 0.000 0.000. 0.000 0.000 0.669 0.716 0.757 0.796 0.832 0.866
Cost Equations: EPA AWT
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 50%
Borrowing Rate: Corporate: 9% Municipal: 7.5%
-------
Exhibit III—3-1
Page 18 of 22
Table 18
Ratio of POTW to Self-Treatment Present Value Costs
No ICR Charge
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 *10 45 50
0.25 1.033 1.288 1.-478 1.635 1.771 1.893 2.004 2.106 2.201 2.291
0.50 0.971 1.211 1.390 1.537 1.665 1.780 1.884 1.981 2.070 2.155
0.75 0.929 1.159 1.330 1.471 1.594 1.703 1.803 1.895 1.981 2.062
1.00 0.897 1.119 1.284 1.420 1.538 1.644 1.740 1.829 1.912 1.990
2.00 0.812 1.012 1.161 1.285 1.392 1.488 1.575 1.655 1.730 1.801
3.00 0.757 0.945 1.084 1.199 1.299 1.388 1.470 1.545 1.615 1.681
4.00 0.718 0.895 1.027 1.136 1.231 1.315 1.393 1.464 1.530 1.592
5.00 0.000 0.856 0.982 1.086 1.177 1.258 1.332 1.400 1.463 1.523
6.00 0.000 0.824 0.945 1.046 1.133 1.211 1.282 1.347 1.408 1.465
7.00 0.000 0.796 0.914 1.011 1.095 1.170 1.239 1.302 1.361 1.417
8.00 0.000 0.773 0.887 0.981 1.063 1.136 1.202 1.264 1.321 1.375
9.00 0.000 0.752 0.863 0.954 1.034 1.105 1.170 1.229 1.285 1.338
10.00 0.000 0.000 0.841 0.931 1.008 1.078 1.141 1.199 1.253 1.304
15.00 0.000 0.000 0.000 0.841 0.911 0.973 1.030 1.083 1.132 1.178
20.00 0.000 0.000 0.000 0.000 0.843 0.901 0.954 1.003 1.048 .1.091
Cost Equations: EPA AWT
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 75$
Borrowing Rate: Corporate: 9$ Municipal: 7.5%
-------
Exhibit II1-3-1
Page 19 of 22
Table 19
Ratio of POTW to Self-Treatment Present Value Costs
No ICR Charge
PLANT
LOAD
0.25
0.50
0.75
I.00
2.00
3.00
II.00
5.00
6.00
7.00
8.00
9.00
10.00
15.00
20.00
POTW LOAD (MGD)
5
0.367
0.469
0.538
0.592
0.737
0.834
0.908
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
10
0.314
0.401
0.460
0.506
0.631
0.713
0.776
0.828
0.860
0.899
0.918
0.944
0.000
0.000
0.000
15
0.285
0.365
0.419
0.460
0.573
0.648
0.706
0.753
0.782
0.817
0.835
0.858
0.380
0.000
0.000
20
0.267
0.341
0.392
0.431
0.536
0.607
0.660
0.704
0.732
0.765
0.781
0.803
0.823
0.905
0.000
25
0.258
0.330
0.379
0.416
0.519
0.586
0.638
0.681
0.708
0.739
0.755
0.776
0.796
0.875
0.935
30
0.248
0.316
0.363
0.399
0.497
0.562
0.612
0.653
0.679
0.709
0.724
0.744
0.763
0.839
0.896
35
0.239
0.305
0.350
0.385
0.480
0.543
0.591
0.630
0.655
0.684
0.699
0.719
0.737
0.810
0.865
40
0.232
0.296
0.340
0.374
0.466
0.527
0.573
0.611
0.635
0.664
0.678
0.697
0.715
0.785
0.839
45
0.226
0.288
0.331
0.364
0.453
0.513
0.558
0.595
0.619
0.646
0.660
0.679
0.696
0.765
0.817
50
0.220
0.282
0.323
0.355
0.443
0.501
0.545
0.581
0.604
0.631
0.645
0.663
0.679
0.747
0.798
Cost Equations: CDM Secondary
Life: 30 Years
Discount Rate: 12.5?
Debt Share of Financing: 95%
Borrowing Rate: Corporate: 9% Municipal: 7.5%
-------
Exhibit III—3-1
Page 20 of 22
Table 20
Ratio of POTW to Self-Treatment Present Value Costs
PLANT
LOAD
0.25
0.50
0.75
1.00
2.00
3.00
4 .00
5.00
6.00
7.00
8.00
9.00
10.00
15.00
20.00
5
0.432
0.565
0.656
0.728
0.925
1.059
1.162
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
10
0.370
0.483
0.561
0.622
0.791
0.905
0.994
1.066
1.109
1.163
1.187
1.222
0.000
0.000
0.000
15
0.336
0.439
0.510
0.566
0.720
0.823
0.904
0.970
1.009
1.058
1.079
1.111
1.141
0.000
0.000
20
0.315
0.411
0.477
0.529
0.673
0.770
0.845
0.907
0.943
0.990
1.010
1.040
1.067
1.178
0.000
POTW LOAD
25
0.304
0.397
0.461
0.512
0.651
0.745
0.817
0.877
0.912
0.957
0.976
1.005
1.032
1.139
1.221
(MGD)
30
0.292
0.381
0.442
0.491
0.624
Q.714
0.784
0.841
0.875
0.918'
0.936
0.964
0.989
1.092
1.171
35
0.282
0.368
0.427
0.474
0.602
0.689
0.756
0.812
0.844
0.886
0.904
0.930
0.955
1.055
1.131
40
0.273
0.357
0.414
0.459
0.584
0.669
0.734
0.788
0.819
0.859
0.876
0.902
0.926
1.023
1.097
45
0.266
0.347
0.403
0.447
0.569
0.651
0.714
0.767
0.797
0.837
0.853
0.879
0.902
0.996
1.068
50
0.260
0.339
0.394
0.437
0.556
0.636
0.698
0.749
0.779
0.817
0.833
0.858
0.880
0.972
1.042
Cost Equations: CDM Secondary
Life: 30 Years
Discount Rate: 12.5?
Debt Share of Financing: 95%
Borrowing Rate: Corporate: 7.5$ Municipal: 7.5%
-------
Exhibit III—3—1
Page 21 of 22
Table 21
Ratio of POTW to Self-Treatment Present Value Costs
No ICR Charge
PLANT
LOAD
0.25
0.50
0.75
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
15.00
20.00
POTW LOAD (MGD)
5
0.494
0.587
0.647
0.692
0.810
0.885
0.942
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
10
0.434
0.516
0.568
0.608
0.711
0.778
0.827
0.868
0.896
0.925
0.946
0.968
0.000
0.000
0.000
15
0.401
0.477
0.525
0.562
0.658
0.719
0.765
0.802
0.828
0.855
0.875
0.895
0.914
0.000
0.000
20
0.379
0.451
0.497
0.532
0.622
0.680
0.724
0.759
0.783
0.809
0.828
0.847
0.864
0.935
0.000
25
0.365
0.433
0.477
0.511
0.598
0.653
0.695
0.729
0.753
0.777
0.795
0.814
0.830
0.898
0.949
30
0.352
0.418
0.461
0.493
0.577
0.631
0.671
0.704
0.727
0.751
0.768
0.786
0.802
0.867
0.917
35
0.342
0.406
0.448
0.479
0.560
0.613
0.652
0.684
0.706
0.729
0.746
0.763
0.779
0.842
0.890
40
0.333
0.396
0.436
0.467
0.546
0.597
0.636
0.667
0.688
0.711
0.727
0.744
0.759
0.821
0.868
45
0.326
0.387
0.427
0.456
0.534
0.584
0.621
0.652
0.673
0.695
0.711
0.727
0.742
0.803
0.849
50
0.319
0.380
0.418
0.447
0.524
0.572
0.609
0.639
0.659
0.681
0.697
0.713
0.728
0.787
9.832
Cost Equations: CDM AWT
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 95$
Borrowing Rate: Corporate: 9% Municipal: 7.5?
-------
Exhibit III-3-1
Page 22 of 22
Table 22
Ratio of POTW to Self-Treatment Present Value Costs
No ICR Charge
PLANT POTW LOAD (MGD)
LOAD 5 10 15 20 25 30 35 40 45 50
0.25 0.534 0.469 0.433 0.410 0.394 0.380 0.369 0.360 0.352 0.345
0.50 0.637 0.559 0.517 0.489 0.470 0.454 0.440 0.429 0.420 0.412
0.75 0.703 0.617 0.570 0.540 0.518 0.501 0.486 0.474 0.463 0.454
1.00 0.752 0.661 0.611 0.578 0.555 0.536 0.520 0.507 0.496 0.486
2.00 0.882 0.775 0.716 0.678 0.651 0.629 0.610 0.595 0.582 0.570
3.00 0.965 0.848 0.784 0.741 0.712 5.688 0.668 0.651 0.63*7 0.624
4.00 1.028 0.903 0.834 0.789 0.758 0.732 0.711 0.693 0.678 0.664
5.00 0.000 0.947 0.875 0.828 0.79b 0.768 0.746 0.727 0.711 0.697
6.00 0.000 0.977 0.903 0.854 0.821 0.793- 0.770 0.750 0.734 0.719
7.00 0.000 1.009 0.933 0.883 0.848 0.819 0.795 0.775 0.758 0.743
8.00 0.000 1.032 0.954 0.903 0.867 0.837 0.813 0.793 0.775 0.760
9.00 0.000 1.056 0.976 0.924 0.887 0.857 0.832 0.811 0.793 0.777
10.00 0.000 0.000 0.996 0.943 0.906 0.875 0.849 0.828 0.810 0.793
15.00 0.000 0.000 0.000 1.020 0.980 0.946 0.919 0.895 0.876 0.858
20.00 0.000 0.000 . 0.000 0.000 1.035 1.000 0.971 0.946 0.925 0.907
Cost Equations: CDM AWT
Life: 30 Years
Discount Rate: 12.5%
Debt Share of Financing: 95%
Borrowing Rate: Corporate: 7.5% Municipal: 7.5%
-------
4. Summary of Findings
a. General Findings
As shown in the prevous two sections, ICR is not necessary in
order to maintain sewage rate parity. The analysis shows that
for some medium to large industries with compatible wastes it is
cheaper to self-treat than to discharge to a POTW. In effect,
there is a potential subsidy to industry because of the tax
advantages of self-treatment. These tax advantages include:
Accelerated depreciation (over a five year period for
pollution control equipment).
Investment tax credit for capital expenditures.
The use of tax-free IDB's (industrial development
bonds) to finance self-treatment facilities.
In regards to the issue of deterring excess capacity, it
appears that ICR has had little effect.
POTWs are required to be built with enough capacity to serve
existing domestic, commercial and industrial users, and to pro-
vide sufficient reserve capacity for projected growth during the
20-year planning period. The Agency has determined, based on
analysis of the most cost-effective methods for construction of
wastewater treatment facilities, that reserve capacity for such
facilities normally should be approximately 20 to 40$ of design
capacity, with higher reserve capacity in areas of unusually high
growth. Based on the survey of 227 wastewater treatment facili-
ties from which the study team obtained data, the average POTW
III-12
-------
has about 32J reserve capacity, which is within the 20-40? range
normally essential for cost-effective design. The cases where
reserve capacity is considerably greater than 32? could result
from high anticipated growth rates, slow schedules for hook-up of
existing installations to sewers, or the other factors including,
in some cases, design of excess capacity for industrial or popu-
lation growth which is desired by not fully justified on the
basis of cost-effectiveness planning requirements. ICR appar-
ently imposes such a minimal cost burden that it has not been a
factor in decisions on how much capacity should be planned in
POTWs. User charges and charges for local debt service can be
relatively high, however, during the time before anticipated
growth and new hook-ups utilize reserve capacity in treatment
plants and spread relatively fixed costs over a large number of
users. These high initial charges have possibly been a factor in
encouraging industrial water conservation. The higher user
charges and debt service costs could cause industry to reduce
flow even more than might be expected, and consequently, cause
even higher sewage treatment costs to other users. Distribution
of the initial costs of needed reserve capacity among present
users can be a major local issue.
The findings related to the third issue, that of water con-
servation are not as clear. Of the industries surveyed, 176 of
200 responding attributed water conservation to higher water
rates and to User Charges, not to ICR. ICR, as a percentage of
water bill and User Charges, is not that significant at this
time. ICR averages, on an annual basis, approximately 10-15? of
III-13
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total sewage costs for most industries. The apparent reduction
in water usage by industry, if continued, could have an impact on
the amount of future capacity required in wastewater treatment
facilities.
Based on the best available estimates, the ICR revenue
retained by all grantees ( ever 5,000 in total) would be an
average of $24 million per year, when all POWTs funded under the
authorization of P.L. 92-500 and P.L. 95-217 are in place. This
amount, would not have any significant contribution toward the
grantees' financial capability to meet the cost (when adjusted
for inflation in the ensuing recovery period) for future
expansion and upgrading of the wastewater treatment works.
As stated previously, the economic impact of ICR has not been
significant to date.
ICR has not been in effect for more than a year or two, and
most grantees have suspended ICR billings while the ICR mora-
torium is in effect (through June 30, 1979). The exceptions to
the insignificance of ICR are those cases where there are
seasonal users and/or advanced waste treatment (AWT). In the
case of seasonal users, total sewage costs for industries have
increased by a factor of as much as several times. In the case
of AWT, the cost to industry is much greater, (by about 50$ per
gallon) as compared with secondary treatment.
The impact of ICR is generally not great (less than ^5% of
total sewage charges) with the exception of the two cases
III-1^
-------
previously mentioned. (See the Sacramento Case Study, Section
III-6 for a discussion of the possible impacts of UC/ICR).
The study team could find only a few scattered instances of
plant closings due to increased sewage costs, and none attribut-
*
able solely to ICR. In -every case, there were other factors such
as plant age which also affected the plant closing decision. The
study team was not able to identify any significant impact by ICR
to date on employment, plant closings, industrial growth, import/
export balance, or-local tax bases. (See the Los Banos Case
Study, Chapter III.6 for a discussion of the significance of
UC/ICR on plant closings.)
ICR rates appear to be higher in older cities, particularly
in the northeast, and particularly in small to medium sized
cities, and in agricultural communities. Most older cities have
a physical plant that requires some rehabilitation, and construc-
tion costs tend to be higher in more heavily populated areas;
therefore, ICR rates are also higher in older cities, since ICR
rates are a function of construction cost. The same situation
frequently occurs in agricultural communities, which construct
wastewater treatment facilities designed to handle seasonal peak
loads, and which have unused capacity for a significant portion
of the year. (See the Sacramento Case Study, Chapter III.6, for
the effects of ICR on §.e„asonal users.)
The study was not able to differentiate the impact of ICR on
small versus large businesses, because very few industrial plants
111 — 1 5
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were willing to disclose production or sales data. The indus-
tries receiving survey questionnaires were told that partici-
pation in the survey was voluntary, and that all data submitted
was potentially subject to public scrutiny under the Freedom of
Information Act. The study team told individual industries that
it was not anticipated that data related to specific industrial
establishments would appear in the report. Industries were also
told that data that they were reluctant to allow competitors to
obtain should not be provided to the study team. An insufficient
number of industries provided sales or production data to allow
any differentiation of ICR's impact on small versus large
industries.
ICR does not appear to be cost-effective in producing discre-
tionary revenue for local government, at least in most cities.
The incremental cost to grantees to maintain and operate ICR
(that is, the ."eliniinatable cost" above and beyond UC costs) is
small (averaging about $15,000 per grantee per year), when com-
pared to the total costs of sewage treatment, (averaging about
$6.0 million per grantee per year). However, average ICR
revenues per grantee per year are approximately $101,000, of
which only $10,100 is retained for discretionary use by the
grantee.
b. Findings With Respe-ct to Congressman Roberts' Questions
On December 15, 1977, Congressman Roberts inserted in the
Congressional Record nine questions related to User Charges and
Industrial Cost Recovery (see Exhibit V—1 — 4, Volume III). The
III-16
-------
questions, and the study team's response to them, appear below.
It should be noted that some of the questions require an examina-
tion of anticipated actions, an area that is difficult to
analyze.
QUESTION
First (A) Whether the Industrial Cost Recovery pro-
gram (ICR) discriminates against particular industries
or industrial plants in different locations,
(B) And do small town businesses pay more than
their urban counterparts?
(C) What is the combined impact on such industries
of the user charge or ICR requirements?
FINDING
(A) ICR rates are different in different locations,
and are a function of the cost of a*wastewater
treatment plant's rate methodology, basis of
allocation, etc. Some industries (especially heavy
water users and/or strong dischargers) pay pro-
portionally more for ICR than other users. The cost
equations described in Chapter II, Methodology are
capable of suggesting answers to some questions about
the ICR program related to inter-community rate
parity and cost effectiveness. In particular, the
capital cost estimates indicate that ICR payments
based solely on the relationship between firm and
POTW flow will result in lower per-gallon ICR
payments to firms discharging into large POTW's.
This conclusion is appropriate regardless of which of
the two cost data sources (EPA or CDM) or treatment
levels is examined, although it must be noted that
the impact is slight in the case of EPA based AWT
estimates, since there does not appear to be any
economies of scale in AWT plants.
The exhibited scale economies have another
implication: if th.e proposed imposition of ICR'
payments inauces some firms to withdraw from a POTW
and self-treat, the total capital outlays, both
public and private, would exceed the outlays
necessary to construct a single POTW capable of
treating the total flow. For example, and using the
EPA secondary treatment equation, assume that a 20
MGD POTW is proposed at a cost of $29,597,000.
111 — 1 7
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Assume, further, that two industrial plants with
flows of 1 MGD each decide not to tie-in but to self-
treat witn a capital outlay of $2,120,000 each. The
resultant 18 MGD POTW would then have a cost of
$26,976,000. The total capital expenditures, both
public and private, would be $31,216,000 with the two
plants out, or $1,619,000 more than if a single plant
had been constructed. Had the two 1 MGD plants been
four 15 MGD plants, the total outlays would have been
$1,987,000 higher .than if a single plant treated the
entire flow.
(B) The combined impact of User Charge (UC) and
Industrial Recovery (ICR) is greatest on seasonal
users (for ICH), on industries paying for AWT (for UC
and ICR) and in those cases where rates prior to
UC/ICR were low due to treatment levels or
promotional (declining block) rate structures.
QUESTION
Second (A) Whether the ICR program and resultant user*
charges cause some communities to charge much higher
costs for wastewater treatment than other communities in
the same geographical area? (Some communities have
indicated that disparities in ICR and user charges
affect employment opportunities.)
(B) Whetner a mechanism should be provided whereby
a community may lower its user and ICR charges to a
level that is competitive with other communities in
order to restore parity?
FINDING
(A) We have not been able to identify any pattern
in such cases, based on the data supplied to us by EPA
or grantees (See the Los Banos Case Study).
(B) If a community were to lower its UC rates to be
competitive with other nearby communities, a source of
funding would have to be identified to provide for UC
revenue, if the wastewater treatment plant is to be
self-sufficient for OM & R costs and to operate at
design levels of discharge. If ICR rates were lowered
the federal government would receive less revenue than
anticipated. Reduction of either UC or ICR rates would
require that legislative mechanisms be enacted.
II1-18
-------
QUESTION
Third Whether the ICR program drives industries
out of municipal systems, the extent and the community
impact?"
FINDING
There have been only a few instances of this
happening to date, because very few communities have
implemented ICR. Based on tax law, and the assumption
that in the long rur. industry will choose the least
expensive sewage treatment option, ICH (particularly
when coupled with pretreatment) could encourage industry
to self-treat. This would result in proportional
increase in user charge costs and (possibly) in debt
service costs, for the remaining POTW customers.
QUESTION
Fourth (A) Whether the industries tying into
municipal systems pay more or less for pollution control
than direct dischargers?
FINDING
It appears that medium or large size industries
using a POTW could pay more (over time) for wastewater
treatment than do direct dischargers depending on the
tax structure of the self-treatment alternative.
QUESTION
Fifth Whether the ICR program encourages conser-
vation, the extent and the economic or environmental
impact?
FINDING
ICR appears to have a role in encouraging
conservation of water, but is an insignificant
conservation factor to date, particularly relative to
User Charges and wat-e-r costs.
QUESTION
Sixth Whether the ICR program encourages cost
effective solutions to water pollution problems?
111 -19
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FINDING
ICR appears to have had no noticeable effect on
cost effective solutions to water pollution.
QUESTION
Seventh How much revenue will this program produce
for Local, State and"Federal governments, and to what
use will or should these revenues be put?
FINDING
Based on assumed eventual EPA grants of $45
billion, it appears that total ICR revenues will amount
to $1-2 billion over 30 years. The split of these
revenues would be:
federal government -- $.5-1.0 billion
(5056) , to Treasury
state government -- none
local government —
for capital costs related to wastewater
and to offset ICR administrative costs
-- $.4-.3 billion (40$)
for discretionary use -- $.1-.2 billion
(10%)
This is considerably less than the $4.5-7.0
billion estimated in the 1972 legislative history.
Possible reasons for the reduction include:
liberalized definitions of "industry" by
local governments
self-treatment and/or pre-treatment
exclusion for dry industries
water conservation
the 2b,000 gpd floor implemented by P.L.
95-217
III-2C
-------
QUESTION
Eighth Determination of the administrative costs
of this program, additional billing costs imposed, costs
associated with the monitoring of industrial effluent
for the purpose of calculating the ICR changes,
ancillary benefits associated with the monitoring of
industrial effluent, procedures necessary to take
account of charges in the number of industries
discharging into municipal plants, and the impact of
seasonal or other changes in the characteristics and
quantity of effluents discharged by individual
industries?
FINDING
The incremental costs of administering ICR
(assuming that a User Charge system will be maintained)
is relatively small and amounts to less than $20,000 per
grantee per year, based on the data available to us.
QUESTION
Ninth Whether small industires should be exempted
from ICR? How should small be defined? Is there a
reasonable floor that can be established for ICR based
upon percentage flow?
FINDING
EPA has already excluded most industries
discharging iess than 25,000 gallons per day from ICR.
We were unable to obtain sufficient data to reach a
specific finding or conclusion related to the question.
c. Other Findings
During the course of the project, the study team made several
findings which, although not directly related to the scope of
work, are still of interest.
ICR is not generally-understood by grantees or by industry.
Many grantees appear to be developing ICR systems with only a
partial understanding of legal or regulatory requirements. Both
grantees and industries are often unable to distinguish between
111-21
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User Charges and ICR, or between ICR and local debt service. The
various applications and interpetations of very complex ICR
legislation, regulations, and guidelines by EPA personnel and by
consultants can have a significant, although often unintended,
impact on the level of ICR charges paid by similar industries.
This impact is caused to some extent by the varying bases used
for allocation of capital costs by grantees. (See the Olympia
Case Study, Chapter III.6 for discusssion of cost allocation
methods).
Repeated efforts (both legislative and regulatory) have been
made to make ICR simpler and more cost-effective. These effots
have been particularly successful, but have resulted in a
dilution of the intent behind ICR. An example of this is the
statutory exemption from ICR for all discharges with less than
the equivalent of 25,000 gallons per day of sanitary waste. In
addition, the Standard Industrial Classifications (SIC's) chosen
by EPA to define industry exclude some large water users from ICR
while including others. Since ICR rates are a function of POTW
cost, disparities in ICR rates are inherent in the concept of
ICR.
ICR is complicated to administer for both grantees and for
EPA, and will require complex control mechanisms to assure
integrity. In order tcuadminister ICR, considerable resources
msut be allocated by EPA at Headquarters level and in the
Regional Offices, by the state agency responsible for water
quality, and by the grantee. Relatively few ICR systems have
111-22
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been implemented becauie of the moratorium allowed by P.L.
95-217, and because mary POTWs fundered by P.L. 92-500 grants
have not gone on line. To date, control procedures and mecha-
nisms necessary to assure that the ICR regulations are enforced
consistently have not been developed by EPA, and will have to be
installed if ICR is continued after June 30, 1979- This would be
a resource-intensive undertaking at all levels. Control
procedures will be necessary to insure that grantees:
correctly classify industrial users.
calculate and charge the correct ICR amounts to
individual industrial users.
properly collect, account for, invest, and return ICR
revenues to the U. S. Treasury through EPA.
EPA personnel, grantees, and industrial user all stressed
that the law and related regulations are complex, difficult to
understand, and hard to implement. In most cases, all groups
felt that the amount of revenue generated ($101,000) annual
average per grantee) did not justify the resources utilized.
Grantees frequently have limited information related to the
determination of costs or to customer characteristics. Many
grantees have accounting and budgeting systems which are unable
to provide sound cost data needed for User Charge or ICR rate-
setting. Most grantees have customer data bases that appear to
be inadequate for the implementation of adequate monitoring and
enforcement programs or pretreatment programs. Regardless of the
decision on ICR, grantees will be required to upgrade their
111-23
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information on industrial users for user charge and for
pretreatment.
The adoption of UC/ICR revenue systems has caused a major
shift in grantee revenue sources. The study data indicates that,
prior to adoption of UC/JCR systems, an average of about 55% of
grantee wastewater revenues came from the residential sector,
with H5% coming from the non-residential sector. Subsequent to
adoption or UC/ICR systems, this ratio was reversed.
Industries and grantees uniformly expressed concern over the
costs of pretreatment. Almost without exception, grantees
expressed concern over the impact that the enforcement of pre-
treatment requirements might have on industrial participation in
POTW's. Many industries expressed an intention to reserve a
final judgement on self treatment until they could determine the
impact of pretreatment.
5. Alternatives to ICR
The purpose of this section is to discuss the alternatives to
ICR that were considered and presented for public discussion and
comment during the study. Based on the finding that ICR was not
accomplishing the intended goals of sewage rate parity, adequate
facility sizing, water conservation, and self sufficiency, a
series of sixteen alternatives to ICR was developed. The
alternatives were presented for discussion and comment at the ten
public meetings held in the ten EPA Regional Offices (see Exhibit
V-1-6, Volume III, for the alternatives presented).
111-24
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The alternatives were developed by the Coopers & Lybrand
study team, by EPA Regional Office and Headquarters personnel,
and by the ICR Advisory Group. Each of the alternatives were
intended to address one or more of the following concepts:
Reduce rate disparities - One of the major concerns
voiced during the study was the fact that similar
industries discharging to different treatment plants
would be paying disparate ICR rates. Several of the
alternatives provided for the development of a uni-
form ICR rate, to reduce these possible inequities.
Increase local discretion - Several communities were
concerned that the ICR regulations were too rigid and
restrictive, leaving the grantee no flexibility.
Alternatives were designed that would allow grantees
the flexibility to apply the ICR regulations to meet
the unique circumstances of local situations.
Simplify administration - Both grantees and EPA
Regional Offices are required to devote resources to
the administration and monitoring of ICR. On the
average, the current ICR regulations are not cost
effective in generating revenue for local municipal-
ities or the Federal government. Alternatives were
presented that would reduce the complexity of ICR
regulations and reduce the burden on grantees and EPA
to monitor ICR.
Limit excess capacity - As mentioned previously ICR
was intended as a mechanism to reduce excess capac-
ity. The study team could find little evidence that
ICR was having any significant impact on facility
planning. In order to increase industries' partici-
pation in facility planning, and promote efficient
sizing of POTW's, several alternatives were provided
that could help limit excesss capacity.
Encourage industrial participation in POTW's - The
simulation analysis performed shows that for certain
medium to large industries with compatible wastes,
the cost of self-treatment could be less than the
costs associated with discharging to a POTW. If
industry withdraws from POTW's, the analysis shows
that more capital resources will be expended than
would be expended if joint treatment were utilized.
In order to limit the adverse effects of industry
withdrawing from POTW's, alternatives were designed
that encouraged industry to remain in POTW's. These
alternatives included offering tax relief to off-set
111-25
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ICR charges and reduce the economic advantage of
self-treatment.
Encourage water conservation - Again, as noted
before, one of the Legislative goals of ICR was to
promote water conservation. One alternative provided
that all costs of providing sewage treatment
(including local capital costs) be recovered propor-
tionately from all users. -This means that all sewage
service costs would be included in a useage based
fee. In theory this would cause all users to reduce
water consumption by generally increasing the cost
associated with sewage treatment.
Produce a long-term funding mechanism for grantees to
be self-sufficient for the future expansion and
upgrading of their POTW.
Obtain additional data - The final intention of all
of the alternatives was to elicit public comments
from everyone concerned with ICR. The hope was that
the sixteen alternatives would stimulate conversation
and thinking on ICR, and provide new alternatives or
a combination of alternatives not previously con-
sidered (Exhibit V-1-10, Volume III, summarizes
comments and new alternatives presented at the ten
public meetings).
At the time these ICR alternatives were discussed it was
stressed that they were not ranked in any order of preference and
that the alternatives were not mutually exclusive. The conclu-
sions presented by the study team are based on these sixteen
alternatives and the information received during the ten public
meetings.
111-26
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III.6. CASE STUDIES
-------
City of Ravenna
City Hall
Ravenna, Nebraska
Ravenna was selected as a case study to demonstrate the
effects of UC/ICR on industries located in rural communities.
The city is currently in the proces of designing and constructing
a land application wastewater treatment facility to replace the
system now in use. The new facility scheduled to be completed in
1979 will provide tertiary treatment. Design parameters for the
POTW are:
Flow - 308,000 gpd
BOD - 1 ,444 lbs/day
SS - 660 lbs/day
Total project costs are estimated to be $520,000 with the grantee
providing $39,000, the state $39,000, and EPA approximately
$442,000.
Currently sewer system users, both residential and industrial
pay $24.00 per year, generating approximately $15,000 in total
revenue. Total costs associated with the current system are
approximately $3,500 in operations and maintenance expenses, with
the surplus deposited in the city's general fund.
Estimated annual costs for the new system are as follows:
OM&RCosts - $29,200 (see Exhibit I)
Debt Service 3 >6?Q
Total $32,870
111-27
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Charges to system users will be as follows:
User Charges - Annual
Residential - $21,000 ($2.93 per account per
month - 600 estimated
accounts)
Henningsen Foods - 4,217
Ravenna Cheese- 12,350
Total $37,567
Industrial Cost Recovery - Annual
Henningsen Foods - 1,979
Ravenna Cheese - 5,822
Total $7,801
The charges described above are estimated charges based on
estimated percentage use of total design capacity. Industry's
total estimated use of the system is as follows:
Henningsen Foods Ravenna Cheese
Flow 17$ 28$
BOD 6$ 61$
SS 8$ 36$
Summary
Since the new facilities are not yet completed and on line,
there is no way to estimate the impact on' employment or indus-
trial activity in Ravenna. The dollar impacts will be signifi-
cant, however, assuming the estmated charges are correct. User
charges for Henningsen Foods and Ravenna Cheese will increase
from $24 per year to $4^217 and $12,350 respectively. ICR
charges will add an additional $7,801 per year: $1,979 for
Henningsen Foods and $5,822 for Ravenna Cheese.
(Using a 30 year recovery
period)
111-28
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EXHIBIT I
ESTIMATED ANNUAL SYSTEM COSTS
Operations and Maintenance
Labor - Operator § $8
Operator § $5
Clerk 0 $4
Part-time § $3
Total
Maintenance - Materials
Treatment
Outside Repairs
Chemicals
Irrigation System
Total
Utilities
Total
Equipment -
Total
Supplies -
Total
Power
Phone
Standby Fuel
Truck
Mower
Paper
Postage
$ 800
5,000
800
300
$ 7,480
850
800
600
300
1 ,050
3,600
12,090
100
40
12,230
1,140
200
1 ,340
850
1 ,200
2,050
Fees - Audit and Consulting
Total Operations and Maintenance
Debt Service
Total Costs
2,500
2$,200
3,670
$12.870
111-29
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Olympia Brewery
Olympia, Washington
Introduct ion
This case study is designed to present an alternative method
of determining the amount of industrial cost recovery to be paid
by one industry. The information in this case study is based on
a methodology developed by the Olympia Brewing Co. and is
included here because the alternative appears reasonable and
merits consideration. This methodology represents an incremental
cost approach to determining industry's share of ICR.
There are currently two approvable methods for distributing
ICR costs:
Flow only method-used when all classes of users,
including industry, discharge waste equivalent to
domestic sewage. Total grant funds are divided by
total design flow to compute a unit ICR rate.
Proportionate allocation - industry's ICR charge is
computed by multiplying the total grant funds alloc-
ated to flow, BOD, SS, or other parameters, by
industry's proportionate contribution to each para-
meter .
Both of these methods will be compared to the incremental cost
approach.
Flow Only Allocation
The easiest allocation to apply is the flow only alloca-
tion. If all classes of user discharge basically the same
111-30
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strength waste, ICR costs can be allocated based on the flow
parameter only. (Table 1 and 2 summarize design parameters and
grant funds assigned to each parameter). Assuming total grant
funding of $22,395,266 a flow only allocation results in total
ICR payments of $3,222,340, computed as follows:
industrial flow Total Grant
total design Funding
2 x 22,395,266 = *3,222,340
13-9
Proportionate Allocation
Proportionate allocations are the most common ICR allocations
and are used to determine industry's ICR payment when there are
excess strength users on the system. Proportionate allocations
would be computed as follows:
Industrial Flow Grant Allocated Industrial BOD Grant
Design Flow to Flow + Design BOD x Allocated
to BOD
Industrial SS Grant Allocated Total
+ Design SS x to SS = ICR
2_ v 7,435,229 ^ 18,000 8,599,782
13.9 ' 30.300
3,300 „ 6,360,255 _ 7,524,037
15,500
Incremental Allocation
Stated quite simply, the incremental cost allocation makes
the assumption that excess strength dischargers should pay the
total cost of treatment works components that are needed to
provide treatment for the wastes in excess of domestic strength
sewage. Once the excess strength components are identified, all
other treatment plant components are allocated on a flow only
basis. This method allows industry to benefit from economies of
scale.
IH-31
-------
If all users discharged domestic strength wastes tne ICR
calculation would be made on a flow only basis. Once those
components necessary to treat excess strength discharges are
identified and segregated, the remaining treatment plant
components can be allocated on a 'flow only basis. In this case
industry would pay 100% of the cost of components to treat BOD is
i
excess of domestic strength; these components total $2,021,658.
Remaining grant funds would be allocated on a flow only basis, as
shown in Table 2 for a total of $4,953,113.
Summary
The basic advantage to an incremental cost approach is that
it allows industry to take advantage of economies of scale when,
determining ICR cost allocations.
111-32
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Table 1
POTW DESIGN PARAMETERS
LOADING
POTW
DESIGN LOAD
DOMESTIC LOAD
PORTION
INDUSTRIAL LOAD PORTION
PARAMETER
TOTAL
CONCENTRATION
TOTAL
% OF TOTAL
CONCENTRATION
TOTAL
% OF TOTAL
CONCENTRATION
Flow, MGD
13.9
11.9
85.6
2
14.4
BOD #1 day
30,300
261 mgld
12,300
40.6
124 mgld
18,000
59.4
1080 mgld
SS ft 1 day
15,600
135 mgld
12,300
78.8
124 mgld
3,300
21.2
198 mgld
-------
Table 2
COMPARISON OF ALTERNATIVE ICR 03ST ALLOCATION METHODS
PROPORTIONATE
ELIGIBLE GRANT
PROJECT COSTS FUNDING ICR ALLOCATION
Flow
9,913,638
7,435,229
1,069,817
BOD
11,466,376
8,599,782
5,108,781
SS
8,480,340
6,360,255
1,345,439
Total
.29,860,354
22,395,266
7,524,037
FLOW ONLY
COST ALLOCATION 29,860,354 22,395,266 3,222,340
INCREMENTAL
"Flow 9,913,638 7,435,229 1,069,816
BOD-Normal 8,770,832 6,578,124 946,493
BOD-Excess 2,695,544 2,021,658 2,021,658
SS 8,480,340 6,360,255 915,145
Total 29,860,354 22,395,266 4,953,113
111-34
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Sacramento Regional Country Sanitation District (SRCSD)
9660 Ecology Lane
Sacramento, California
SRCSD was selected as a case study because the District
depicts in detail the typical history of user fee rate develop-
ment and the possible f-uture impacts of UC/ICR on industrial
users and others. SRCSD provides wastewater conveyance, treat-
ment, and disposal for the Cities of Sacramento and Folsome and
the large unincorporated urban area of Sacramento County. Waste-
water collection is provided by the Cities and the recently
formed County Sanitation District No. 1. Table I provides a
general description of the SRCSD treatment works that will go on
line during fiscal year 1981.
User fee rate setting methodologies nationwide have gone
through three basic periods in the last ten years. The first
period, prior to passage of P.L. 92-500, saw grantees using a
variety of rate mechanisms. In general most communities did not
allocate system costs to users in proportion to the users'
wasteload contribution to the system during this period. In many
cases the industrial user class was undercharged and other user
classes overcharged in relation to actual flows and loadings.
The second period, corresponding to the passage of P.L.
92-500 and extending to the present, is characterized by a shift
towards proportionate rate methodologies, with all users paying
for system costs in relation to their wastewater discharge to the
111-35
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treatment works. Although P.L. 92-500 only required that recipi-
ents of grant funds recover operations, maintenance, and replace-
ment costs proportionately, approximately 70$ of the grantees
interviewed during the study recover all costs, including debt
service, proportionately.
The third rate setting period, extending from the present
into the indefinite future is characterized by a proportionate
user charge system coupled with an industrial cost recovey
system, recovering.the portion of grant funds allocable to
industry's share of the treatment works. Although many grantees
have already developed ICR rates, relatively few have implemented
the charges due to the ICR moratorium allowed in P.L. 95-217- A
characteristic of all three periods is escalating system costs.
Rate setting in the Sacramento area has followed the pattern
described above. Prior to FY 1975, rates did not require a pro-
portionate allocation of costs and industry was undercharged in
relation to toal flows and loadings contributed. Beginning with
FY 75 phased rates were established requiring proportionate
allocations of all costs including debt service to all user
classes, with fully proportionate rates established in FY 77.
The third period, (user charge and ICR) is expected to begin in
FY 81 when the new regional facilities go on line. Table 2
depicts the UC/ICR rates to be implemented in FY 81. Table 3
shows average system costs for the three periods and the charges
to the six largest industrial users for the same period. FY 81
costs are average costs for a three year period, and are
111-36
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presented with and without ICR charges. This table vividly
portrays the dollar impact of UC/ICR on industry in Sacramento.
From FY 7^ to F7 81 there has been a 214% increase in total
system costs. During the same period, charges to the largest six
industrial users have exDerienced a 696$ increase. Because of
these large increases, two of Sacramento's largest industrial
users are seriously considering withdrawing from the POTW and
building their own land application systems. SRCSD estimates
that if these two large users leave the system, costs to all
users remaining with the POTW will increase by at least 11$.
Both representatives of SRCSD and the members of the
Industrial Committee of the Scaramento Chamber of Commerce agree
on the impacts of ICR on the community:
1. "Absent ICR and with an equitable allocation of
costs for sewer service, the cost to some major
elements of our local-industries is marginally
above their costs for alternative remote disposal."
2. With the inclusion of a requirement for ICR,
industry's costs will be higher by staying within
the municipal system than they would be for
separate disposal, and some of our industrial
customers will either relocate their plants or
convey the wastes to disposal sites at the urban
margin."
Creation of additional disposal sites is in direct contradiction
to the basic concept of the regional plan, which was to eliminate
multiple disposal sites.
«¦
Industry points out that they have been heavily involved in
all phases of the new facilities including planning and design.
The Industrial Committee elected to participate in the regional
111-37
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program, despite apparent significant cost differences in
alternative regional plans. At the time of site selection, none
of the industries in Sacramento proposed to provide separate
disposal. The cost advantage described above for separate dis-
posal does not reflect optimum cost savings that could have been
achieved, had separate disposal been considered at the time of
site selection in 1973, using current estimates of costs shown in
Table 3-
Summary
Sacramento is an example of a community that has had active
involvement of industry in all phases of the design and construc-
tion of the treatment works. Based on costs presented at the
time of site selection when the regional plan was finalized, none
of the major industries intended to provide separate wastewater
disposal. However, with current estimates of costs:
Sewer service costs, without ICR, are marginally
higher for some major local industries.
With ICR, industry's costs will be significantly
higher, by approximately $1.1 million annually.
With ICR, those industries that are not geographi-
cally precluded from developing alternate disposal
systems may likely withdraw from the POTW.
The loss of these major industries will increase the
costs to all users remaining on the sytem by 11$.
The purpose of regionalization, to elimate multiple
disposal sites, "will be defeated as industries go to
self-treatment.
111-38
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The effects of ICR noted in Sacramento can be considered
typical and will be recreated in other areas as the combined
impacts of UC/ICR become apparent. In those cases where
industries are not able to develop alternatives to discharging to
the POTW because they are not situated on a receiving body of
water or land application is not feasible, costs of wastewater
disposal will become a significant factor in future decisions
concerning plant expansion or relocation. Medium to large
industries with compatible wastes will tend to locate in those
areas where self-treatment is possible.
111-39
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Table 1
Design Capacity:
Parameter
Seasonal
Non-Seasonal
Flow (MGD)
BOD (thousand #/dayl
SS (thousand #/day)
•136
248
239
115
184
175
The Sacramento Regional Wastewater Management Program
consists of interim improvements to existing treatment plants, a
system of interceptors and pumping stations, SRWTP, and the
Combined Wastewater Control System (CWCS). Total capital costs
of the program are $423 million of which $341 million is being
financed from State and Federal grants. The remaining $82
million is the District's responsibility. Upon start-up of SRWTP
in 1980, wastewater treatment in 22 separate treatment plants
will be treated at the Sacramento Regional Wastewater Treatment
Plant (SRWTP). SRWTP will provide secondary treatment using
biological treatment with chemical coagulation. Approximately
90J of the design flow capacity will be utilized when the
facilities go on line.
In 1981, the District will provide sewage service to approxi-
mately 725,000 residents of Sacramento County. Wastewater is
discharged to the Regional system by various user groups includ-
ing industrial, federal facilities, commercial, and
111-40
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residential. The percentage of the total annual volume of waste-
water discharged by each major user group is shown below:
Total Annual Volume
User Class (percent)
Residential 75
Commercial 1j
Industrial 11
Federal Facilities 1
111-41
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Table 2
User Charge" Rages
Operations, Maintenance
and Replacement rates
$.17 per thousand gallons
.024 per pound SS
.050 per pound BOD
Capital Cost Rates *
$8.41 per thousand gallons
.83 per pound SS
2.80 per pound BOD
.258 per $100 assessed value
ICR Rate »
$14.77 per thousand gallons
1.41 per pound SS
4.69 per pound BOD
* allocated on a demand basis including maximum monthly flow,
BOD and SS.
111-42
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Table 3
System Costs
($1,000)
FY 74
FY
77
FY 81*
FY 81**
Operations, Maintenance,
and Replacement
$6,320
$12,980
$14,551
$14,551
Debt Service
1 ,039
6,
745
7,429
7,429
ICR
1 ,137
Total
7,359
19,
725
21,980
23,117
Costs to Large
($1 ,000)
Users
Campbell Soup
$153
$
646
$1,097
$1,482
Proctor & Gamble
16
95
169
224
Keyes Fibre
34
76
163
198
Sacramento Foods
65
111
264
471
Libbey. McNeil, Libbey
78
75
177
307
Del Monte
50
151
290
471
Total
$396
$1,154
$2,160
$3,153
* without ICR
** with ICR
111-4 3
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Sanitary District of Rockford
3333 Kishwaukee Street
P.O. Box 918
Rockford, IL 61105
Design Capacity 60,000,000 gpd
85,400 lbs/day B.O.D,
124,400 lbs/day S.S.
Secondary treatment level utilizing an activated sludge process
(including nitrification) results from the EPA grant.
User Charge Rates
Flow $.1197/1,000 gallons
B.O.D. $.0293/lb.
S.S. $.1780/1d.
$68.45 per quarter per toxic to be monitored
$.0243 per pound of adjusted toxic loading
Annual Industrial Cost Recovery Rates
Estimated for projects completed through 1979 are below.
Rates will increase as more projects-are completed.
Flow $.029957 per 100 cubic feet
B.O.D. $.001035 per pound
S.S. $.004427 per pound
Total cost to upgrade/expand
$45,250,000
The Sanitary District of Rockford (SDR) was selected as a
case study because of the high admimst rat l ve and monitoring
costs for the size of tne facility. The SDR developed the user
charge system in compliance with requirements of P.L. 92-500
during 1975 and implemented the system in April of 1976. Prior
to the development of this system, the revenue for operation and
maintenance of the district was derived from ad valorem taxes.
The initiation of a user charge eliminated the financial problem
111-44
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of operating the district on a limited tax revenue base.
However, the transfer to a user charge operation had a
significant cost increase. This document will deal mainly with
the increased costs incurred and not with the merits of the user
charge system.
The main area of increased costs has been in increased per-
sonnel. In 1974, prior to the development of the user charge
system, the district employed 75 employees. Last year, the staff
increased to 115 full time employees. Approximately 75$ of this
increase is directly attributable to the administrative require-
ments of the user charge system. Major factors causing.the
increased costs include:
The district bills approximately 45,000 users once
each quarter on a cyclical basis. A service bureau
was originally employed to handle this work.
However, after a year of operation, it was found to
be more efficient and cost effective to develop an in
house computer department. This computer system
required capital purchases of approximately $250,000
and also accounts for 5 of the additional personnel
of the district.
Because no appropriate data base was available, the
district undertook an original survey of land use
that took approximately 9 months to complete and cost
$150,000 in order to determine who should be billed.
Water usage information
local water departments
rnately $50,000.
has to be obtained from three
at an annual cost of approxi-
In order to bill users on a proportional basis,
required by P.Lr'92-500 and particularly insisted
upon by local industry, it was necessary to develop a
sampling program to determine waste characteris-
tics. The district had to purchase samplers and
laboratory equipment at a cost in excess of
111-45
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$100,000- Additional staff was required in the
laboratory plus an entire department was created to
handle waste surveillance.
Collection problems, which previously were non—
existant under the tax base, have created consider-
able expense and effort. The major problem facing a
utility such as the district is an appropriate method
to insure payment by all users. The district is
still searching ^for the most effective means of over-
coming this problem.
Legal expenses have risen over the past three years
also. This has been partially in connection with the
collection problem. However, there have been several
cases that dealt directly with the user charge system
itself. This litigation has been not only expensive,
but time cQnsuraing for the district.
Other administration personnel who previously were
concerned mainly with the operation of the treatment
plant have now become involved with individual
accounts, particularly industrial and commercial
accounts. Although these accounts number only 3jl00
of the 45,00 accounts, they represent 56$ of the
district's flow and therefore in many cases require a
more complex recordkeeping system to maintain proper
waste characteristic data on file.
Another problem encountered was the high profile of
the district in the community. When the users of the
syste/n were paying for district services on their tax
bill, t'he public contacts for the district consisted
of sewer backups and a few industrial contacts
regarding toxic waste disposal. The district now
receives from 20 to 50 calls daily concerning their
user charge bills. The telephone system had to be
expanded and a customer service clerk had to be hired
to handle the user billing problem.
Increased staff and increased record requirements
have also caused expansion of the district's physical
facilities. In 1976 the district completed an addi-
tion to its administration building. Another addi-
tion to house the computer facilities as well as
expanded laboratory and sampling facilities is
currently in the design stage. The original addition
cost approximately $250,000 and the new addition is
estimated to be about the same, for a total cost of
$500,000.
111-46
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In conclusion, although a user charge system should provide
sufficient revenue for the operation of the district, and will
bill users in proportion to their use of the facilities of the
district, it should also be noted that a user charge system can
be expensive to develop and will -continue to cost the district
significantly more to administer tljan the ad valorem system it
replaced.
An important element that contributed to the increased cost
for SDR, which cannot be accurately estimated, is the adminis-
trative costs that were caused by the agressive attitude of local
civic and industrial groups in challenging SDR and the user
charge and industrial cost recovery requirements.
111-47
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City of Fall River
1 Government Center
Fall River, MA 02722
Design Capacity
of new plant
30,900,000 gpd
61,800 lbs/day B.O.D.
46,740 lbs/day S.S.
Present treatment facility is overloaded. New plant, to be
completed in 1981, is expected to be utilized at 75$ of design
capacity when it begins operation.
Secondary treatment level utilizing an activated sludge process.-
using oxygen will result from the EPA grant.
Annual User Charge Rates
$12.00 per 1,000 gallon of average daily flow
$4.87 per average daily pound of B.O.D.
15.66 per average daily pound of S.S.
OR
Unit User Charge Rates
Assuming the daily averages apply for 365 days, the
calculated unit UC rates are:
111-48
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City of Fall River
1 Government Center
Fall River, MA 02722
Design Capacity
of new plant
30,900,000
61,800
46,740
gpd
lbs/day B.O.D,
lbs/day S.S.
Present treatment facility is overloaded. New plant, to be
completed in 1981, is expected to be utilized at 75$ of design
capacity when it begins operation.
Secondary treatment level utilizing an activated sludge process
using oxygen will result from the EPA grant.
Annual User Charge Rates
$12.00 per 1,000 gallon of average daily flow
$4.87 per average daily pound of B.O.D.
15.66 per average daily pound of S.S.
OJR,
Unit User Charge Rates
Assuming the daily averages apply for 365 days, the
calculated unit UC rates are:
-------
$.033/1,000 gal flow
$.013 per pound of B.O.D.
$.043 per pound of S.S.
Annual Industrial Cost Recovery Rates
Flow $15.17 per 1,000 GPD
B.O.D. $3.06 per average daily pound
S.S. $3.52 per average daily pound
Total cost to upgrade/expand
$43,374,000
111-49
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Fall River was selected as a case study for the following
reasons:
Industrialized city in the north east
Significant textile industry in area
Local industry appears to be only marginally
profitable and the imposition of ICR may have a
significant impact.
Cooperation between local government and industry in
opposition to ICR.
Fall River is an older, industrialized city. Local
industries are competing against other areas with lower utility
costs, lower taxes and better transportation costs. Because of
the substantial upgrading of wastewater treatment facilities and
the change from an ad valorem tax to a proportionate user charge
basis, received total wastewater costs will increase
significantly. The recurring statement from industries, local
government and trade groups is that wastewater treatment costs
will be the final incremental cost that will force them out of
business in the Fall River area.
During the course of the C&L project, Fall River officials
demonstrated the local opposition to UC and ICR. Illustrations
of the opposition included the following:
When the C&L consultant visited Fall River on July
27, 1978, to collect grantee information, the city
scheduled a public meeting so that local industries
could express their opposition to ICR. Approximately
twenty people attended the meeting.
111-50
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Local industries kept Congresswoman Heckler informed
of the study.
At the request of local industries, a second public
meeting to discuss UC and ICR and the objective of
the C&L economic study was held on August 21, 1978.
Approximately 30 people attended the meeting,
including, the City's U. S. Representative (Mrs.
Margaret Heckler, R.-Mass.).' The recurring position
was the oppositioa to ICR. A transcript of the
August 21st meeting appear in Volume VII of this
report.
Representatives of the city and industries attended
the October 24, 1973 Boston public meeting to express
opposition to IC r'.
Representative Heckler also attended the Boston
neet ing, and spoke out forcefully against ICR.
The Fall River activities illustrate a coordinated effort to
present a wide range of support for a specific issue - opposition
to ICR.
Fall River is an area //hare tie local economy -nay be
seriously harmed oy the imposition of user charge (UC) and
industrial cost'recovery (ICR) rates. A more detailed economic
analysis of the impact of UC and ICR on the local economy should
be conducted.
111—51
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Portland Water District
Box 3553
332 Douglas St.
Portland, ME 04104
Design Capacity
15,000,000
24,270
26,760
gpd
lbs/day B.O.D.
lbs/day S.S.
Treatment facility was not in operation when survey was
conducted. 7556 of design capacity is expected to be utilized
when the facility begins operation.
Secondary treatment level utilizing an activated sludge process
(no nitrification) will result from the EPA grant.
User Charge Rates
South Portland
Portland
Westbrook
Capital - Flow $54/1000 gal/day/Yr.
BOD $ 4.65/lb/day/Yr.
SS $ 4.83/lb/day/Yr.
O&M
Flow $ 0.40/1000 gal.
BOD $ 0.1025/1b.
SS $ 0.115/lb.
Regular Rate
$1.12/100 cf $ 0.75/100 cf
Surcharg BOD
$0.056/lb $89.17/1000 lb/,
over 250 mg/1 over 400 mg/1
SS
$0 .028/lb $63.80/1000 lb.
over 300 mg/1 over 400 mg/1
111-52
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Annual Industrial Cost Recovery Rate
South Portland Portland Westbrook
ICR - Rate
Flow $47.27/1000 gal/day/Yr.
BOD $ 5.93/lb/day7Yr.
SS 7.87/lb/day/Yr.
Flow $156/MG/Yr. $76.36/MG/Yr.
BOD $0.021/Ib/Yr. $0.032/1b/Yr.
SS $0.014/lb/Yr. $0.023/lb.Yr.
Total cost to upgrade/expand
$69,625,000
111-53
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The Portland Water District was selected for a case study for
the following reasons:
Cooperation between local officials and industries in
opposition in ICR.
Illustration of wastewater cost disparities in a
limited geographic area.
In July, 1978, when the Portland Water District was contacted
to schedule a visit for completing the grantee survey form, the
Chamber of Commerce of the Greater Portland Region scheduled a
public meeting to "discuss the impact of industrial cost recovery
and sewer use charges on your operations". Approximately 30
people attended the 8/1/78 meeting to discuss the significant
cost increases, the effect of these higher costs on their ability
to compete with other domestic and foreign companies and the
disparity of costs within the Greater Portland Area.
Representatives from the Greater Portland area also attended
the public meetings in Boston on 10/25/78 and 10/26/78 to express
their concerns.
The Portland Water District (PWD) is a regional facility that
serves several municipalities. While the charges levied by PWD
are uniform for any municipality, because of varying municipal
operations, costs to upgrade, methods of funding and development
of billing systems, the cost for similar wastewater flows can
vary significantly from one municipality to another. The rates
listed previously for South Portland, Portland and Westbrook
111-54
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illustrate the difficulty in comparing areas - different
computations and units are used. A simpler comparison is to take
an assumed wastewater flow and calculate the charges that would
result in each of the three cities. When an assumed flow of
144,000 gpd for 230 days per year with B.O.D. of 800 mg/1 and
S.S. of 2000 mg/1, the annual charges summarized below result.
Annual Industrial
Cost Recovery
Flow
BOD
SS
TOTAL - ICR
Annual User
Charge
Regular Rate
Surcharge BOD
SS
TOTAL - UC
Total Annual
Cost
South
Portland
$ 6,806.88
$ 5,692.80
$ 18,903.74
$ 31,403.42
$ 21.031,20
$ 27,114.04
$ 75,132.38
$123,277-62
$154 .681.04
Portland
$ 5,166.72
$ 4,640.50
$ 7,734,17
$17,541.39
$49,591 .00
$ 8,507-60
$13,148. 11
$71,246.71
$88 .788. 1°
Westbrook
$ 2,528.38
$ 7,071,23
$12,706.14
$22,305.75
$33,208.56
$ 9,852.22
$28,196.60
$71,257.38
$93,563,13
Variations of this magnitude could affect relocation and self-
treatment decisions for the affected industries.
111-55
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Comparison of these alternative watewater costs can also be
misleading because of the alternative methods that are acceptable
for collecting the local share of capital costs and all annual
operating costs except operations and maintenance. Any area
comparisons must include all costs'and sources of revenue.
111-56
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City of Grand Rapids
Michigan 49502
Design Capacity 66,000,000 gpd
61,100 lbs/day B.O.D.
76,500 lbs/day S.S.
4,240 lbs/day phosphoros
74^ of design capacity presently used
Secondary treatment level utilizing an activated sludge process
(including nitrification) results from the EPA grant.
User Charge Rates
Flow $172.62/raillion gal
B.O.D. $.04 per pound in excess of 300 mg/1
S.S. $.04 per pound in excess of 350 mg/1
Annual Industrial Cost Recovery Rates
Flow $.0162 per 100 cubic feet
B.O.D. $.992 per 1000 lbs in excess of 300 mg/1
S.S. $.721 per 1000 lbs in excess of 350 mg/1.
111-57
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The City of Grand Rapids was selected as a case study because
of the local benefits obtained through the meeting of EPA
requirements for user charges (UC) and industrial cost recovery
(ICR) systems.
The City provides water and sewer services to residents
within the City and to adjacent suburban communities. Both water
and sewer rates had been arbitrarily established and periodically
increased to compensate for rising costs. In 1975, the need for
an additional rate increase was coupled with the EPA requirement
to develop UC and ICR systems. The City decided that an overall
review of both the water and sewer use rate structures should be
conducted. The three main objectives of the rate study were to:
convince all users (city or suburban; residential or
industrial) that the rates were equitable and fair.
provide adequate revenue for water and sewer
ut ilit ies'.
meet EPA requirements for UC and ICR.
In effect, the goal was to "take rate making out of politics".
The City's approach to rate making centered on the following
elements.
a 5 member steering committee representing expertise
in finance, law, sewer use and sewage disposal, water
and engineering. "The steering committee was
responsible for all decision recommendations.
111-58
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a public utility consultant to develop a work plan,
advise the committee and suggest opinions. The
consultant was not to make recommendations.
a liaison committee consisting of 16 representatives
from the suburban communities, the board of
education, industrial customers, commercial customers
and citizens. The liaison committee's major
responsibility was to follow the actions of the
steering committee^ and communicate with the groups
they represented.
news media participation to provide public awareness
of the project and promote the policy of openness and
public participation.
The three major objectives were accomplished: users agreed
that rates were equitable; adequate revenue was assured; and the
EPA approved UC and ICR systems. Additional benefits resulting
from the project were:
the greater participation of suburban communities in
planning for growth and in deciding how to fund the
growth
resolution of disputes in rate contracts with
suburban communities and industrial customers
training of City personnel
establishment of records and data
The key to the success of the project can be summarized as the
active, informed participation of all affected parties in all of
the decisions.
111-59
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Metropolitan Waste Control Commission
350 Metro Square Building
Saint Paul, Minnesota 55101
Design Capacity 348,000,000 gpd
778,000 lbs/day B.O.D.
936,000 lbs/day S.S.
72% of design capacity is currently* utilized
the 18 treatment plants provide secondary level of treatment,
with primarily an activated sludge process.
User Charge Rates
$.270/1000 gal flow
$.014 per pound of C.O.D.
$.030 per pound of S.S.
Annual Industrial Cost Recovery Rates
Current ICR rates reflect only a portion (approximately 1/3
of the total) of the federally funded system completed and in
use.
Flow $.017 per 1000 gal
C.O.D. .001 per pound
S.S. .001 per pound
Total cost to upgrade/expand
$349,333,000
III-60
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Metropolitan Waste Control Commission (MWCC) was selected as
a case study because it is a large regional system. MWCC was
created in 1969 to serve a seven country metropolitan area of
3000 square miles containing approximately 100 communities.
MWCC designed and installed approved user charge (UC) and
industrial cost recovery (ICR) systems. MWCC meters the flow from
each community and bills each community for its proportionate
share of operation and maintenance costs and debt service
costs. If the community is one of the approximately 35 with
industries subject to surcharge, MWCC calculated the surcharge.
MWCC bills the industries directly in approximately 30
communities. The remaining 5 communities bill their own
industries. MWCC bills each community for the normal volume
charges (residential and commercial customers) and the
communities bill each of their normal volume charge customers.
MWCC illustrates the successful development of a regional
wastewater treatment facility for a large number (33) of the
independent treatment facilities serving 100 separate
communitles.
111—61
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Village of Fredoma
Village Hall
Fredonia, NY 14063
Design Capacity 3,300,000 gpd
9,900 lbs/day B.O.D.
5,600 lbs/day S.S.
75$ of design capacity presently utilized
A combination of secondary and tertiary treatment levels,
utilizing an activated sludge process (including nitrification)
will result from the EPA grant
User Charge Rates
$1.00/1000 gal flow
Village expects to develop a surcharge for industrial
customers once measurement of their input is completed.
Annual Industrial Cost Recovery Rates
Flow $11.57 per 1000 GPD - peak flow
Flow $15.17 per 1000 GPD - average daily flow
B.O.D. $ 2.53 per average daily pound
S.S. $ 6.95 per average daily pound
Phosphorus $97.36 per average daily pound
Total cost to upgrade/expand
$13,800,000
111-62
-------
Fredonia was selected as a case study because -
It is a relatively small city and POTW
It has seasonal, food processing industries
It has effectively installed ICR.
Fredonia is an example of a small community where a local
official (village attorney) was able to study the appropriate EPA
regulations and design and install an approved ICR System. For
the three industries in the village, no additional cost were
estimated to design, implement, operate and monitor the ICR
System. Annual ICR payments are estimated at $30,000 - an
example of ICR cost effectiveness.
The three industries in Fredonia have been involved and
informed about ICR. While all do object to paying additional
costs such as ICR, all have so far remained within the POTW. The
Village, however, is concerned that the additional ICR charges
may cause the industries to move or go to self treatment, to the
detriment of the Village and the residential customers. The
Village objects to the restrictions imposed in developing user
charge and ICR systems and the resulting effect upon industries
served by the POTW.
111-63
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Village of Greenport
236 Third Street
Greenport, NY 11944
Design Capacity 500,000 gpd
833 lbs/day B.O.D.
917 lbs/day S.S.
Present treatment facility will be 'utilized at approximatly 70^
of design capacity once the two industries meet their
pretreatment requirements.
Secondary treatment levels utilizing primary sedimentation,
aerated lagoons, final settling and chlorination results from the
EPA grant.
User Charge Rates
$.86/1000 gallons
Annual ICR Rates
Flow $28.91 per 1000 GPD
B.O.D. $ 3.57 per average daily pound
S.S. $ 1.63 per average daily pound
Total cost to upgrade/expand
$879,000
111-64
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Greenport was selected as a case study in order to illustrate
the impact of ICR requirements on a very small facility.
Greenport has two "industries" with the following character-
istics:
A - 50,000 GPD .
500 lbs/day B.O.D. - prior to pretreatment
417 lbs/day S.S. - prior to pretreatment
83 lbs/day B.O.D. - after pretreatment
79 lbs/day S.S. - after pretreatment
B - 10,000 GPD
167 lbs/day B.O.D. - prior to pretreatment
167 lbs/day S.S. - prior to pretreatment
16 lbs/day B.O.D. - after pretreatment
31 lbs/day S.S. - after pretreatment
With these characteristica and alternative definitions of
industry, there may be one or two "industries":
under the SIC definition, two industries
under 25,000 GPD and no pretreatment, two industries.
under 25,000 GPD and pretreatment, one industry.
under SIC definition and 25,000 GPD and no
pretreatment, two industries
under SIC definition and 25,000 GPD and pretreatment,
one industry.
With either one or two industries, Greenport was required to
design and implement an ICR system. Depending upon pretreatment
or not, the following ICR collections per year are possible:
With no pretreatment $5064 per year.
with pretreatment (1 industry) $1870 per year.
111-65
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Bureau of Water Pollution Control
40 Worth Street
New York City, NY 100013
Design Capacity 1,800,000,000 gpd
estimated if all facilities are completed.
Present treatment facilities provide secondary level of
treatment. With upgrading, advanced secondary will be the
general level of treatment.
User Charge Rates
The City does not have an approved user charge (UC) system.
The City does have a sewer rental surcharge for those
industries whose wastewater exceeds 300 mg/1 for B.O.D.
and/or S.S. The surcharge varies by the wastewater
characteristics. of specific industries. The surcharge was
not, however, based upon projected operation and maintenance
costs.
Annual Industrial Cost Recovery Rates
No ICR system or projected ICR rates have been developed.
Total cost to upgrade/expand
$3,000,000,000 estimated if all facilities are completed.
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New York City was selected as a case study for the following
reasons:
Large investment in upgrading/expansion.
Effort required to comply with the appropriate user
charge (UC) and industrial'cost recovery (ICR)
requirements.
Outlined below are the issues and observations resulting from
our data collection visit to the City on 8/10/78.
Only 6 of the 14 drainage areas have been funded by
92-500 monies. Therefore, a decision as to system
wide or specific drainage area ICR system must be
made. The question of rate inequities from one
drainage area to another or potential law suits must
be answered before initiating the design of an ICR
system.
Analyses to identify all industries in the city must
be made. The current strength of wastewater now
subject to surcharge exceeds "normal domestic
waste". Those industries exceeding "normal domestic
waste" in strength but less than 300 rng/1 must be
identified.
Financial reporting systems must be reviewed to
determine whether or not appropriate financial data
to develop user charges is available for setting
rates.
Development of a computerized data base for customer
billing and collections will be necessary because of
the potential volume of activities.
Because of the size and complexity of the project, it is very
unlikely that the City can complete the design of user charge and
industrial cost recovery systems by June 30, 1979.
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City of Plattsburgh
City Hall
Plattsburgh, NY 12901
Design Capacity 16,000,000 gpd
45,000 lbs/day B.O.D.
32,500 lbs/day S.S.
73$ of design capacity presently us^d
Secondary treatment level utilizing an activated sludge process
(including nitrification) results from the EPA grant
User Charge Rates
Three major industries pay on the basis of measured waste
flow
0M&R - Flow $83.68/million gal.
B.O.D. $.025/lb.
S.S. $.027/lb.
Local capital costs are paid proportionately over a 30 year
period by the three major industries. Remaining customers
pay declining block rates from $1.4625/1000 gallons for the
first 9000 gallons per quarter to $.3938/1000 gallons for
usage over 501,000 gallons per quarter.
Annual Industrial Cost Recovery Rates
Not applicable since EPA grant was under PL 84-660 and not
PL 92-500.
Total cost to upgrade/expand
$12 ,790 ,000
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The city of Plattsburgh was selected as a case study to
illustrate successful cooperation between local government and
the major industries in the city utilizing the publicly owned
treatment works (POTW). In 1971, the city and the three major
industries (Diamond National Corpt , Georgia-Pacific Corp. and
Imperial Paper Co.) entered into a written contract whereby -
the city would design, construct, operate and
maintain a POTW.
the city would accept and treat all wastewater from
the three industries so as to meet all standards for
pollution abatement.
each industry would pay its proportionate share
(based on usage of the POTW) of the total annual
capital cost over the life of the project.
each industry would pay its proportionate share
(based on usage of the POTW) of total annual
operating and maintenance cost.
a board consisting of representatives from each of
the three industries, the State University of New
York and the City would be established to review
operation and maintenance co3ts and procedures and
cost allocations.
During our grantee data collection visit in the City on
7/31/78, we met with City POTW officials and with representatives
of the three industries. There appeared to be a cooperative
attitude from all involved. The monthly meetings of the review
board appear to be successful in controlling operating costs and
maintaining the spirit of cooperation.
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City of Woonsocket, Rhode Island
City Hall
169 Main Street
Wonsocket, RI
Design Capacity 16,000,000 gpd
33,^00 lbs/day B.O.D.
40,000 lbs/day S.S.
50% of design capacity presently utilized (outlying
municipalities have not been connected). Secondary treatment
level utilizing an activiated sludge process (no nitrification)
will result from the EPA grant.
User Charge Rates
$.21/1000 gal flow
$.037 per pound, of B.O.D. in excess of 250 milligrams/liter
$.05 per pound of S.S in excess of 300 milligrams/liter.
Annual Industrial Cost Recovery Rate
Flow $17.50 per 100 GPD
B.O.D $ 3.20 per average daily pound
S.S. $ 3-06 per average dialy pound
Total cost to upgrade/expand
$23,661,000
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Woonsocket was selected as a case study for the following
reasons:
industrialized city in north east
Significant textile industry in area
Local industry appears to be only marginally
profitable and the imposition of ICR may have a
significant impact.
Cooperation between local government and industry in
opposition to ICR.
During the course of the C&L project, Woonsocket officials
demonstrated the local opposition to ICR. Illustrations of the
opposition included the following:
When the C&L consultant visited Woonsocket on August
9, 197ti, to collect the grantee information, the
City Scheduled a public meeting so that local
industries could express their opposition to ICR.
Over thirty people attended the meeting. The local
newspaper carried an article, with a picture, of the
meeting.
A copy of the "Hon. John A. Cumraings, Kayor,
Woonsocket, Rhode Island, Statement Before the
Senate Public Works Committee, Washington, DC on
Tuesday, June 18, 197^ was furnished to express the
City's position opposing ICR.
Attendance at the ICR Regional Meeting in Boston on
October 24 by representatives of the City, local
industries and industrial associations to present
prepared statements opposing ICR.
Attendance of Congressional staff members at the
8/9/73 Woonsocket meeting and the 10/24/78 Boston
meeting.
The Woonsocket activities illustrate a coordinated effort to
present a wide range of support for a specific issue - oppositon
to ICR.
111-73
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Woonsocket is an area where the local economy may be impacted
by the imposition of user charge (UC) and industrial cost
recovery (ICR) rates. A more detailed economic analyis of the
impact of UC and ICR on the local economy should be conducted.
111-74
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IV. DETAILED CONCLUSION
-------
IV. DETAILED CONCLUSION
Based on previous discussion and comments received concerning
the various alternatives to ICR, the Environmental Protection
Agency presents a conclusion with regard to Industrial Cost
Recovery as it is presently constituted, and also identifies
these related issues which may require further study. The
conclusion is as follows:
THE INDUSTRIAL COST RECOVER? PROVISIONS OF P.L. 92-500
HAVE NOT ACCOMPLISHED THEIR LEGISLATIVE PURPOSES
ICR is not meeting the legislative and economic intent which
led to the enactment of ICR:
Changes m tax law and IRS regulations since 1972
have impaired the ability of (or need for) ICR to
serve as an equalizer in sewage treatment costs. For
medium or large discharges of compatible wastes, it
appears less expensive over time to build and operate
their own self-treatment facilities than it is to pay
a proportionate share of the operating costs and
local debt service of a public sewage treatment
system.
ICR has not served to control design and construction
of excessive future capacity in wastewater treatment
facilities. The average useage in the 227 facilities
surveyed was 68% of the design capacity.
ICR is not credited with a role in encouraging water
conservation. The industrial plants responding to
the Coopers & Lybrnad syrvey reported an average
reduction in water use of 29% {which could have an
impact on the amount of future capacity that should
be built), but attributed the reduction to increased
water rates and sewer user fees rather than ICR. ICR
is a relatively snfSll charge to industry when
compared with sewer user fees and water rates (ICR on
the average is equal to about 10—15% of total sewage
costs).
ICR is inherently cumbersome to administer, and it
does not seem probable that it can be further
IV-1
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improved or modified without eliminating its original
intent.
ICR is al30 found to have the following undesirable effects;
It is a set of burdensome, complex Federal Law and
regulations that are only riarginally cost effective,
when comparing th.e administrative costs of ICR to the
ICR revenues collected.
It increases total sewage costs to industry.
It creates discrimination in sewage costs, both with
regard to type of business and size of business
charged.
On the other hand, ICR also has the following positive effect:
ICR will generate revenues to grantees and the U. S.
Treasury. Total ICR revenues over 30 years are
estimated to be between $1 and $2 billion. A few
municipalities have already included their portion of
the 'anticipated ICR revenue as income in their
operating budget plans.
As mentioned earlier, however, there were several reasons for
originally requiring ICR: parity, proper facility sizing,
promoting water conservation, and self sufficiency. Central to
the entire focus of P.L. 92-500 was the elimination of multiple
wastewater discharges through regionalization of treatment
facilities and encouraging industries to participate in publicly
owned treatment works. The Legislative History summarizes the
Congressional intent as follows:
The committee devote5"a great deal of attention to the
difficult issue posed by the discharge of industrial
pollutants into publicly owned treatment systems. There
is much to be said for encouraging industrial use of
public facilities. Each industrial discharge into a
public system is one less outfall that must be moni-
tored, and in many cases the economies of scale that
IV-2
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characterize public treatment works would permit a net
capital saving to the economy as a whole, assuming that
the alternative to industrial use of public facilities
is the on-site treatment by industry of its own wastes.
The bill would deal with industrial pollutants in this
way: each industrial user of a public system would pay
a charge that would include not only that share of oper-
ating and maintenance costs allocable to such user but
which would also be sufficient to recover that portion
of the Federal share of the capital cost of the facility
allocable to such user. That portion of the Federal
share of the capital cost allocable to each industrial
user would be returned to the federal treasury.
The committee believes that this approach to the issue
of industrial use of public facilities appeared to the
committee to be 'the most reasonable and equitable one
that can be devised. Any scheme that did not provide
for full recovery of the Federal share of capital costs
allocable to industrial users would clearly constitute a
Federal subsidy of private industry and, more partic-
ularly, of those industries that were so situated as to
make use of public facilities and industries producing
wastes that are compatible with public treatment sys-
tems. Any other approaches would discriminate unfairly
against those industries which, for whatever reason,
were unable to utilize public systems.
The Conference Committee also recognized some of the potential
conflicts that ICR represented, as the following passages
discuss:
It may be that the Congress will, at some future time,
determine that some form of Federal financial assistance
to industry in meeting pollution control costs --
whether through tax relief, loans, or grants -- is
appropriate. The committee does not prejudge the pro-
priety or need for such assistance. But the committee
does conclude that subsidy of private industry through
the waste treatment works grant program would be hap-
hazard and inappropriate. . .
It may prove to be the case in certain instances that
individual industrial operations will conclude that it
will be more economical to treat their own wastes than
to discharge into a public system. If and where such
instances arise, it is logical to conclude that a net
saving to the taxpayer and to the consumer will
result. It is certainly not the intent of the committee
IV-3
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to discourage industrial use of public systems. It is
the judgement of the committee that the industrial "pay-
back" requirement will not discourage such use in most
cases. It is clear that the environmental costs should
be borne by those who place demands on the environ-
ment. User charges carry out this principle.
As discussed earlier, tax incentives and accelerated depre-
ciation now make it attractive for many industries to self-treat
rather than to discharge to a POTW. With the added cost of ICR
the economic advantage of self-treatment is exagerated even
greater. Unfortunately, it appears that a net saving will not
result in those cases where industries chose to withdraw from a
POTW after the treatment works have been constructed (see the
Sacramento Case Study, Chapter III-6). In the case of
Sacramento, the treatment works was sized and constructed to
accomodate waste discharges from industrial users. Two large
industries now find that current cost estimates, including ICR,
substantially exceed the costs of self-treatment, and the
industries are seriously considering withdrawing from the POTW.
If these industries withdraw, the remaining users will be faced
with an estimated 1increase in monthly sewage charges. Once a
plant is constructed to handle a specific discharge, decreased
flows and loads to the treatment works do not necessarily mean
decreased operating costs, because a large portion of the total
operating costs of a POTW are fixed costs rather than variable
costs. Costs in a POTW generally do not decrease in direct
proportion to decreased loading.
During the course of the study, several other issues were
identified relative to the other aspects of ICR's intent
IV-4
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(treatment capacity and water conservation) and the total cost of
sewage treatment. These issues may require further study, in
light of the passage of the Clean Water Act of 1977 (P.L. 95-217)
and its implementing Regulations. These issues identified were
briefly discussed as follows:
ISSUE in
Change the criteria for determining the amount of capa-
city eligible for federal grant support, to eliminate
federal support for speculative industrial capacity.
The basic idea contained in this issue is to address the
proper sizing of treatment facilities. Proper sizing begins with
the planning process and, if it is to be successful, must include
information from all user classes, including industry. Proper
sizing also places a burden on the planning agency to provide
detailed, accurate, and up-to-date cost estimates to interested
parties, including industry, in order to allow all parties to
make intelligent, well-considered decisions concerning the size
of the POTW and who will participate in the POTW.
Redefining grant eligible costs to include "immediate" needs
only should tend to force both potential grantees and EPA to
reduce excess future capacity. Please note that "excess capa-
city" is not used in a pejorative sense. The point has been made
that capacity created at today's costs will often be cheaper than
capacity created at future costs. The point to remember, and the
reason this issue is presented, is that excess future capacity
sometimes puts an excessively heavy economic burden on current
users. In essence, current users pay inflated O&M and debt
service costs in order to provide capacity for future users. In
IV-5
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addition, in the past, the Federal Government, through EPA
construction grants, has borne 75?& of the construction costs of
this excess capacity.
"Immediate capacity needs" are,defined to be treatment capa-
city to meet national discharge standards of secondary treatment
in most locations, unless EPA specifically determines (on a case-
by-case basis) that AWT is required. If a state or locality
chooses to build an AWT facility, EPA's grant would be limited to
75# of the eligible costs of secondary treatment facilities,
unless EPA determines AWT to be necessary. This puts the burden
of the incremental costs of AWT on the states and localities
which opt for it. Immediate capacity needs would also be defined
to include: (a) existing industrial capacity; (b) future
industrial capacity for which contractually binding letters of
commitment had been negotiated between the grantee and industrial
user, and (c) existing and projected residential and commercial
capacity. This should encourage more precise planning of
facilities, since grantees will be required to improve the
quality of their facility sizing estimates. Particular attention
should be called to the 29$ water conservation to date reported
by industries surveyed during the study. This trend, if it
continues will reduce the future capacity needs of grantees
designing wastewater treatment facilities.
The major difference between the current cost-effectiveness
guidelines and the redefined grant eligible costs is that there
IV-6
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would be no allowance for speculative future industrial capa-
city. The only industrial capacity that would be funded would be
current industrial capacity, and capacity for which industry has
signed a binding contractual agreement. As noted earlier, this
places a burden on industry to define future wastewater dis-
charges. It also places a burden on grantees to produce accurate
estimates of costs because industry will be less likely to place
unbridled faith in grantee's cost estimates if these estimates
must be relied on to provide the decision-making base for a long
term contractual commitment.
All parties will become more actively concerned with proper
sizing. Treatment capacity in excess of immediate needs for
residential, commercial and industrial users would reduce total
grant funding as grantees designed treatment works larger than
immediate needs indicate, and nore sophisticated than required by
secondary treatment. The more the proposed plant exceeds current
needs, the larger the grantee's local share will become. In
addition, the grantee's local share will become proportionately
larger. EPA's percentage share of eligible project costs would
decrease, from 75% to 70%, 65% or less depending upon the type
and size project proposed by the grantee. If consistently
followed, this procedure should provide positive economic
incentives for all classes of users to become actively involved
in planning and sizing new.wastewater treatment facilities.
IV-7
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ISSUE #2
Require repayment of local debt service on a propor-
tional basis.
The intention is to encourage water conservation and better
better facility planning, require a more uniform approach to
computing rates, and eliminate wastewater debt service as a
demand on local property tax revenues.
Survey data indicates that requiring that local debt service
be included as a proportionate component of the rate base will
not be a drastic or even substantive change for the majority of
grantees. Of those interviewed, approximately 70% currently
include local debt service in the user charge rate base. The
remaining grantees use a variety of methods to recover funds to
be applied to retirement of debt associated with the wastewater
treatment works. Some of the more common methods are as follows:
Ad valorem property tax.
Front-foot benefit assessments.
Flat rate charge per user.
Connection fee.
Declining block rate (the higher the flow to the
treatment works the lower the unit charge for service
becomes.)
None of these charges are designed to promote water conservation
or achieve parity in rate^setting based on use. Also, all of the
methods, except for the connection fee, require current users to
bear the burden of excess capacity costs for future users. These
rate methods also tend to favor the large user at the expense of
IV-8
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the small user, because often the size or value or number of
pieces of property in a community do not correlate well with the
amount of service required from the POTW and the debt service
charge levied.
Making debt service a- proportionate part of the user charge
should encourage water conservation and better facility
planning - the larger the wastewater discharge the larger a
user's bill will be. Some of the methods currently in use do
little to promote water conservation because the amount charged
the user does not relate to the amount of wastewater discharged
to the POTW. Paying annual debt service through a property tax
mechanism is almost a hidden charge, highly visible when paid but
difficult to relate to an actual service performed.
Requiring debt service to be paid as a proportionate part of
the user charge would shift the economic burden from a property
based charge to 'a charge based on use. This would free property
tax revenues to be used to fund other essential services that are
not as readily adaptable to a usage based charge system.
Another major advantage of this method is to make rate
setting methodologies more uniform on a national basis. Actual
rates charged will still vary depending upon the size and type of
treatment works. However, all grantees will have to include the
same major components (O.li.R. and debt service) in the rate
base. Including debt service would ensure that those placing
demands on the environment would actually pay the total cost of
treatment. Grantees would no longer be able to offer discount
IV-9
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rates to certain users by excluding capital costs from the rate-
making formula. This would reduce any geographic disparity that
may exist in parts of the country. For instance, while not
actually required by the state, California, strongly encourages
grantees to include debt service 'in the user charge. In effect,
industries in California face an economic disadvantage compared
to other areas that do not require that debt service be included
in the user charge.
ISSUE #3
Require each grantee to establish a locally administered
trust fund for reconstruction or expansion of the treat-
ment works, charging a uniform national rate to all
users.
This issue (self sufficiency) deals with the following: (a)
Establishment of a uniform national charge for ultimate recon-
struction of the wastewater treatment facilities; (b) Reduction
in future demands for federal grants for reconstruction; (c)
Creation of a fund for reconstruction which will serve to assure
the availability of reconstruction funds when needed, eliminating
some of the financial problems presently surfacing in other
federally-supported construction projects, such as the Interstate
Highway System, and (d) Replacement of the share of ICR currently
retained for use by the grantee.
In order to insura self sufficiency each grantee would
establish and administer his own trust fund, and would publish an
audited financial report annually, similar to existing Revenue
Sharing requirements. The reconstruction and expansion trust
IV-10
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fund would not replace the reserve for major recurring repairs
comprising the" replacement portion of existing User Charge sys-
tem. The trust fund may or may not generate 100$ of reconstruc-
tion and expansion costs (depending on local conditions and
specific circumstance), but would certainly reduce demands for
capital financing when reconstruction occured. The trust fund
assets would be invested in federally secured obligations until
expended. It is estimated that a uniform charge of $.02 per
thousand gallons, if invested and compounded annually , would
generate approximately $20 to $30 billion over 30 years. A proxy
for this charge could be developed for those grantees who qualify
for and elect to use ad valorem taxes as a partial substitute for
User Charges.
The estimate of the amount of revenues generated are based on
the following assumptions:
Average population during the 30-year period will be
approximately 240,000,000 people.
A 120 gallon per capita per day discharge approxi-
mately equals residential and commercial discharge
during that period.
Industrial discharge represents approximately 15U of
the residential/commercial discharge.
Funds generated annually from the $.02 per thousand
gallon charge to all users will be compounded
annually at 1.2% for 30 years (which seems appro-
priate based on today's interest rates).
Total revenue generated under these assumption, will be almost
$24 billion. Given the uncertainty associated with some of the
IV-1 1
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assumptions, a reasonable estimate would place total revenue
generated between $20 and $30 billion.
The major advantages of this type of charge are that the
charge would create a non-disriminatory, uniform, national charge
for all users, to be used to replace the treatment works, thus
reducing the need for Federal grants in the future. Such a
system would be easy to administer and monitor and would require
no additional administrative apparatus on the grantee's part. It
would also ensure that funds are available at the local level to
replace the ICR funds eliminated with Recommendation #1.
Summary
In summary, the study's Conclusion recognizes that social and
economic objectives of ICR are valid. However, ICR in its cur-
rent form does not fulfill these goals and ICR should be replaced
with other mechanisms more likely to accomplish the original
purposes of ICR. Issue #1 deals with a limit on the size and
sophistication of treatment works to be funded with EPA construc-
tion grants, reducing EPA participation as the plant grows larger
and more technically complicated than immediate needs dictate.
Increasing the local share of project costs and requiring indus-
tries to enter into binding contractual agreements to pay for
future, reserved capacity should cause all parties to pay serious
attention to the sizing and design criteria of the treatment
works. It will also require that the bulk of the costs of future
capacity be borne by future users rather than current users.
IV-12
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Issues #2 and #3 address the uniformity of rate setting method-
ologies, striving for administratively simple solutions to the
problem of arriving at national rates. The purpose here is to
ensure that all users pay their equitable share for the burdens
placed on the environment and for replacing the wastewater
treatment facilities necessary to protect the environment.
IV-1 3
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- 3 -
The table below summarizes some $535 million in program
increases for FY 1980.
Program Increases (In Millions) 1980
Child Health Assurance Program $288
Community Mental Health Systems Act 99
Medicare Payments for Outpatient
Psychiatric Services 22
Hospital Closure/Conversion 30
Health Planning 2
Health Maintenance Organizations 35
Community Health Centers 30
Professional Standards Review
Organizations 2
Shorten Medicare Waiting Period
for Disabled 27
TOTAL $535
Finally, the Department has requested $4 0 million for
the Office of the Inspector General, a $4 million increase over
FY 1979. The budget states: "Increasing attention will be
given to recommendations for improvements in eligibility payments
and accounting systems and to practices that will minimize
fraud, abuse, and waste while fostering economy and efficiency.
Further, the Office of Inspector General will work with counter-
part organizations in the states to assist in achieving
program effectiveness."
WPM:br
Enc.
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