Conduit Financing: Avon Lake Regional Water Applies Unique Loan Program to Address Overflows

Avon Lake Regional Water

By Todd Danielson

“Honey, why is the cat wet?” That is not a phrase people want to hear because most cats do not willingly get wet. Those of us in the utility world especially don’t want to hear the cat got wet because it could mean someone’s basement backed up due to a sewer surcharge. Unfortunately, with the reality that many utilities have delayed reinvestment in their systems, compounded with changing weather patterns and more severe storms, basement backups and sewer overflows still occur.

To address sewer overflows, utilities want to find the projects with the best return on investment. However, many utilities have found that inordinate time and money can be spent on wet weather investigation and repairs; and the end results are never as good as the anticipated benefits.

For years and years, the U.S. Environmental Protection Agency (EPA) and others have suggested to utilities that an excellent place to reduce wet weather impacts is on private property. After all, when looking holistically at the collection system, about half of the total length of pipe may be found on private property; and that pipe can be contributing up to about 40 percent of the overall infiltration and inflow (I&I) to the system. Even if this is the case, utilities usually do not attempt to address these issues due to any number of reasons. Commonly, public entities have legal constraints regarding paying for work on private property or that unduly benefits private entities.

Desperate Times Call for Desperate Measures

With mounting infrastructure reinvestment requirements, improved residential and industrial water efficiency (reducing water and sewer revenue), and declining user bases (in some areas), some utilities are getting desperate enough to consider new alternatives.

No, wait a minute. Let’s try this again. Reframing the Problem

Self-help gurus suggest that the quality of life and the likelihood of success are dependent on the types of questions one asks and the ability to look at things from other angles. That belief has equal applicability in a utility setting.

In 2011, Avon Lake Regional Water, a midsized water and wastewater utility serving Avon Lake, Ohio, and some surrounding areas, reframed the problem while implementing new solutions. As it turns out, 2011 was the wettest year on record and caused five different events that led to basement backups. As one could imagine, customers demanded results.

As staff assessed what might have changed (aside from the weather), we realized that approximately 20 minutes after the heavy rains started, flows in our major lift station rapidly increased. Obviously, it seemed like an inflow issue. So, crews started popping manhole covers but could not find any smoking gun.

It was around that time that a stormwater expert suggested that the inflow could be coming from private property and convinced us to do a pilot project on one street where he would simulate rain events and have video cameras in the sanitary sewer. The area was formerly a combined sewer area. In Avon Lake, when we separated sewers in the past – though we required customers to prevent downspouts, yard drains, and driveway drains from entering the sanitary sewer – we did not require customers to prevent foundation drains from discharging into their lateral that used to be connected to the combined sewer and was then connected to the sanitary sewer upon separation.

Pilot testing showed that the foundation drains were an immediate inflow source and contributed to sewer surcharging and basement flooding. This led to Avon Lake Regional Water changing its regulations and requiring customers to prevent all clean water sources from entering sanitary laterals, including foundation drains. To complement this, the city council passed a Resolution of Necessity, which put the force of law behind the requirement to prevent clean water from entering the sanitary sewer. Additionally, as sewer separations progressed, no houses were allowed to connect to new sanitary sewers until it was proven that all clean water sources were not connected to the sanitary lateral. The houses remained connected to the combined sewers and were required to remove all sanitary wastes from those combined sewers by a certain date when those sewers were to become storm sewers.

With the memory of basement backups, there were few who complained about the new requirement. Avon Lake Regional Water worked to make it easier for customers by providing them $1,000 in wastewater bill credits over a 10-year period if they separated their clean and dirty water sources, ending up with storm and sanitary laterals connected to the respective sewers (the $1,000 was originally determined by estimating the amount of water that could enter foundation drains and needed to be pumped through the collection system and treatment process). This led to a number of customers undertaking the work. However, as time progressed, Avon Lake Regional Water realized that the rate of customer inspections and separations was not quick enough to meet the deadlines imposed.

Avon Lake Regional Water

Avon Lake Regional Water provides water and sewer service to more than 200,000 residents living in the seven-county area surrounding Avon Lake in Northeast Ohio.

A Win-Win-Win

Avon Lake Regional Water had been hearing from some customers that even with the $1,000 credit, they could not afford to pay the $3,000 to $4,000 out-of-pocket to separate their laterals. Wanting to help make it easier for customers to help end sanitary sewer surcharges, the utility investigated options for helping customers pay for repairs. Unfortunately, very little grant money was available (CDBG funds); and that was very quickly used for the neediest of residents. Luckily, Avon Lake Regional Water approached Ohio EPA, which was very interested in piloting a new type of revolving loan.

For frame of reference, the Toledo, Ohio, algae bloom that fouled the city’s water treatment plant, had only happened about six months earlier. Ohio EPA was looking for new ways to help speed the reduction of nutrients entering Lake Erie. In addition, Ohio EPA had understood the wisdom of eliminating inflow sources from private property but never had a utility interested in borrowing funds to address the issue. This was a marvelous opportunity for Ohio EPA to use Clean Water State Revolving Funds (CWSRF) to loan to a utility which in turn established its own revolving program for customers to address wet weather issues and sewer overflows (a term Ohio EPA is calling conduit financing).

Ohio EPA offered Avon Lake Regional Water a 0 percent interest loan in order to help address the issue and allowed Avon Lake Regional Water to charge an appropriate interest rate. In order to make it attractive to customers while also helping build the fund for future use, Avon Lake Regional Water established a 2 percent interest rate for customers to borrow the money with a 10-year loan to pay contractors for the work. Under the plan, customers select a contractor and arrive at an approved price. The customers then apply for a loan from Avon Lake Regional Water. Once the contractors do the work and both customers and Avon Lake Regional Water approve the work, Avon Lake Regional Water pays the contractor. Monthly, Avon Lake Regional Water submits to Ohio EPA for repayment all invoices it paid during the month. Customers repay their loans through their quarterly water and wastewater bills, and Avon Lake Regional Water uses this money to repay its loan from Ohio EPA. By charging an interest rate, Avon Lake Regional Water built a mechanism to provide a certain level of perpetuity. The 2 percent interest rate means that for every $1 million loaned to customers, Avon Lake Regional Water will receive over $100,000 in interest charges that will build the fund for future use.

lateral construction

Homes that were built in combined sewer areas were typically built between the 1940s and 1972, and a number of customers were experiencing root intrusion and other failures. The loan program helped to provide an affordable method to address a maintenance issue for which customers had not typically budgeted.

It is clear how Avon Lake Regional Water and Ohio EPA win with this program. The third win is for the customer. Homes that were built in combined sewer areas were typically built between the 1940s and 1972. These houses had vitrified clay pipe laterals. A number of these customers were experiencing root intrusion and other failures. This program helped to provide an affordable method to address a maintenance issue for which customers had not typically budgeted. In support of this, as of the writing of this piece, the program has been in existence for 20 months. During that time, more than 275 customers have executed loan agreements, and Avon Lake Regional Water has committed nearly $1 million for the loans to these customers.

Size May Not Matter, But It Helps

Every few years in any given industry, a new buzzword starts being used. In the utility sector, the buzzword is “innovation.” Thought leaders tell us that we must innovate to survive. This is no different than when a boss rhetorically says, “What’s the definition of insanity? It’s doing the same thing over and over and expecting different results.” As utilities, we need to end the insanity by looking for other ways to address the problems we are experiencing and by ramping up the reinvestment in our systems.

As a midsized utility, Avon Lake Regional Water functions without much bureaucracy. Therefore, relatively easily, the utility has been able to both change requirements regarding what customers must do to assure clean water is not entering the sanitary sewer and implement the lateral loan program. The utility aims to look at many other issues with the same nimbleness. Likewise, other utilities, regardless of size, must also keep an open mindset toward “innovation” in all areas.

before and after

Wet weather peak flow reduction during sewer separations has improved by 10 percent during the sewer separation process by now requiring foundation drain disconnection from sanitary laterals.

The Future Is Larger and Brighter

The Lateral Loan Program established by Avon Lake Regional Water, with the help of Ohio EPA, has met the needs of the utility, the regulatory authority, and the customers in a way that does not affect rates. Wet weather testing and sewer modeling has shown that wet weather peak flow reduction during sewer separations has improved by 10 percent (from an 85 percent reduction in peak flow to a 95 percent reduction in peak flow) during the sewer separation process by now requiring foundation drain disconnection from sanitary laterals. In Avon Lake, that means an additional 640,000 gallons of extraneous water are prevented from entering the sanitary sewers during a 10-year storm event. This reduces chances for basement backups and/or overflows into Lake Erie and keeps capacity available for future growth.

Due to the initial success of the program, as Avon Lake Regional Water’s revolving loan program becomes more established, we look forward to expanding the program to meet other customer needs, such as renewing and repairing laterals and undertaking other projects that remove private property clean water from sanitary sewers. As a service organization with a guiding principle to lead by influencing change that will leave a legacy for future generations, the program will benefit customers, the community and the environment.

Author’s Note: The author wishes to thank Ohio EPA leadership and, especially, its Division of Environmental and Financial Assistance staff for their willingness and interest in modifying their CWSRF program. The program has helped customers address potential issues on their properties and has set an example for utilities to have additional ways to address sewer overflows without further burdening expenses. 


Todd Danielson

Chief Utilities Executive | Avon Lake Regional Water

 

Todd Danielson, P.E., BCEE is the Chief Utilities Executive of Avon Lake Regional Water, a midsized water and wastewater utility on Ohio’s shores of Lake Erie. Danielson has helped his organization implement a $130 million capital improvement plan with state-incentivized financing that will save $20 million in interest expenses. Aside from enjoying water-related activities, Todd’s passion is to find better, best-value ways to serve his customers.

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