California Wastewater Industry Roundtable

Editor?s note: The Southern California Alliance of Publicly Owned Treatment Works (SCAP), which represents more than 80 wastewater agencies, recently conducted a roundtable discussion with four long-time California wastewater industry leaders on the multiple challenges facing the industry. This month, UIM presents that roundtable discussion as we examine some of those challenges and what wastewater agencies are doing to improve operating efficiency despite reduced budgets.

John Pastore

John Pastore is the executive director of the Southern California Alliance of Publicly Owned Treatment Works (SCAP), and former general manager of Lee Lake Water District (1990-2006). He has previously served as contract manager for six water/sewer agencies, nine sewage treatment plants, and as San Diego County manager of 15 sanitation districts.

Tom Rosales

Tom Rosales is the general manager of the South Orange County Wastewater Authority (SOCWA), which provides treatment and disposal of wastewater for more than 500,000 homes and businesses.

Richard Atwater

Richard Atwater is the executive director of the Southern California Water Committee, a nonprofit, nonpartisan public education partnership. He is a former general manager of the Inland Empire Utilities Agency (IEUA) and former general manager of the West Basin Municipal Water District. He also worked in the Central Basin Municipal Water District and as resources division manager at the Metropolitan Water District of Southern California.

Frank Dudek

Frank Dudek is president of Dudek, a California-based environmental and engineering firm that has specialized in wastewater consulting since 1980.

What are some of the most pressing challenges currently facing wastewater agencies?

Pastore: Many wastewater utilities are getting hit hard by revenue loss caused by the poor economy, state budget shortfalls, pension cost increases and the high cost of compliance with unfunded, government mandated regulatory programs. Wastewater agency work forces are also diminishing in size due to retirements and budget cutbacks. Consequently, agencies are finding it more and more difficult to keep up with basic maintenance and replacement of infrastructure ? which we all know is very capital intensive ? and many are delaying needed maintenance projects or forgoing new capital expenditures.

Some of the most pressing questions I hear from agencies are how can we improve efficiencies to lower costs while maintaining excellent service? How can we develop and maintain trained workforce in light of the Baby Boomer retirement and budget cutbacks? How can we manage challenges with revenue sources and be creative about alternative revenue sources?

How can wastewater agencies develop and maintain trained workforce in light of the baby boomer retirement and widespread budget cutbacks?

Dudek: What jumps out at me from John?s list is the pension issue because it has ramifications for budgets, keeping a motivated workforce and retaining stakeholder trust. How much uncertainty is there for young employees joining a wastewater agency today that they will have the same benefits of the older work force?

Rosales: I would say it?s become almost the new normal that younger agency employees are going to pay more of their retirement costs. I think they are very happy to have a job in a good industry. At the South Orange County Wastewater Authority (SOCWA) we have a second-tier for new employees, but the employees that are in it seem to still be very happy to have a job in a good industry. To maintain a trained and motivated workforce, SOCWA does a lot of training to support new hires so that they can become managers later on. Traditionally, our agency?s focus has been very technically oriented, but now, we?re trying to expand on that and provide more comprehensive development opportunities, which staff has responded very well too.

How are agencies addressing lowering costs while maintaining high service levels?

Atwater: Tying into the culture and workforce comments that were just made, I wonder if the outsourcing trend will expand, given how important it is to manage labor costs efficiently. We used to think that on a monthly or hourly basis, outsourcing might be a little more expensive, but now it provides much greater flexibility to manage labor costs while still maintaining service levels ? and you can ?turn it off? if you don?t need it. My supposition is most agencies are going to move toward a leaner engineering staff, particularly with growth slowing. Technical services and even operations and maintenance will be looked at more and more for outsourcing.

Rosales: At SOCWA, we had a small engineering staff for many years and used outsourcing for additional support on certain activities and projects, which gave us flexibility. We continue to use outsourcing on a project-by-project basis to extend our capacity when needed.

Dudek: It seems projects today are typically so complicated that small and mid-sized agencies just can?t staff all the needed regulatory and technical expertise under one roof. This is especially true for the many cities and water/wastewater agencies that are having to reduce staff or are experiencing attrition due to budget cutbacks, as well as for smaller agencies with a limited ratepayer base and restricted financial resources. For these agencies, outsourcing for professional and field services is a palatable, cost-effective strategy for staffing high-level expertise when they need it.

How can wastewater utilities improve operating efficiencies to save on operating costs?

Pastore: Saving on operating costs by managing facilities more efficiently is just as important as managing labor costs effectively. More agencies should consider creating an Operations Work Plan for field, engineering or administration operations. Just like an Engineering Master Plan or a Capital Facilities Plan, an Operations Work Plan provides a formal infrastructure for assessing and prioritizing operational tasks and understanding the staffing and time requirements for each. With this infrastructure in place, an agency can pinpoint where savings and operational efficiencies can and should be achieved, and can better determine how existing resources should be allocated.

Atwater: Utilizing existing facilities and infrastructure more efficiently can be key to saving on costs. Several years ago, the Inland Empire Utilities Agency (IEUA) was considering a proposed $75 million project to expand one of our regional water recycling plants because our demand figures were approaching 80 percent of capacity. There was a big debate, but we made the decision not to expand and instead focused on optimizing existing facilities. Focusing on optimization led us to the solution of rerouting wastewater flows to IEUA?s three other existing plants, which eliminated the need to expand our facility and saved us $75 million.

Rosales: Using automation technology contributed to increased operational efficiencies and lower operating costs at SOCWA?s facilities. For example, because we automated certain operations we no longer need our two smaller facilities staffed on the weekends, which has freed-up staff capacity and helped the agency cut costs during off-peak hours. Technology also has driven greater efficiency on the administration side of the agency. Whereas we used to operate in independent pods ? the treatment plants, our lab, our purchasing, etc. ? we now have integrated those areas of operations through improved network systems, which has provided for substantially increased efficiencies and organization-wide performance improvements.

Dudek: Mobile apps are a great example of low-cost technology that can increase efficiency and push productivity in an agency. At Dudek, a team of our GIS and engineering staff actually developed an iPad application for water/wastewater infrastructure field data collection that enables data collectors to wirelessly send data about field assets directly to an agency?s database for real-time QA/QC monitoring and analysis. With standard data collection processes, it can be weeks before captured data is ready to be viewed, but with the mobile apps approach there is no lag time and any data accuracy issues can be identified and addressed while data collectors are still in the field.

What challenges are associated with revenue sources? How can wastewater utilities develop alternative revenue sources?

Rosales: Given the budget struggles at the state and federal levels, it?s uncertain whether funding support from those sources will continue. What is certain is there will be a lot more regulations that are mandated but without adequate funding support to go along with it. We?re going to be forced to find funds elsewhere in order to address those needs.

Atwater: I agree that the era of having a lot of available state and federal grants for water and wastewater utilities is basically over. The reality is that from a finance and revenue standpoint, water and wastewater utilities have a luxury that the rest of local government services generally don?t. We can raise our water and sewer rates and charges, whereas cities and most other local governments are dependent on property taxes, sales tax revenue and other fees that require voter approval. But explaining the value of our services and justifying the need for rate increases to the public is one of the greatest challenges for water and wastewater utilities. The compelling argument we have in California is that most of our infrastructure was built in the post-World War II period and we are living on borrowed time. The bottom line is wastewater is capital intensive, but investing in our infrastructure is necessary to protect public safety.

Dudek: I think we can all agree that the costs to maintain and replace aging wastewater infrastructure are challenging for most wastewater utilities to keep up with, especially with a shrinking revenue base and the increasing scarcity of traditional outside funding options.

Pastore: Over the last 30 years, the biggest trends have been in generating revenues from recycled water and renewable energy. But renewable energy is the big thing, and even though it?s been around for decades, it?s really coming into its own right now. Wastewater agencies in particular have the ability to develop alternate sources of revenue and save on operating costs by enhancing reliance on self-generated renewable energies within treatment plants. Presently, the hottest trend out there is to increase digester gas outputs through the anaerobic digestion of food waste.

Atwater: The IEUA has implemented on-site renewable energy projects with minimal risk and without having to invest its own capital by entering public-private partnerships. One example of this is the 20-year Power Purchase Agreement (PPA) IEUA signed with a private investor to operate and maintain a 2.8 megawatts fuel cell system at our 44-mgd (million gallons per day) wastewater facility. Under the agreement, the financier owns the system and is responsible for its funding, design, construction, operation and maintenance. The IEUA invested nothing, but agreed to purchase the power generated from the fuel cell plant from the financier at a predetermined rate, that is lower than what it would expect to pay the electric utility over the 20 year period.

Dudek: Is private equity a practical way to fund projects? California has some very hard hit cities near bankruptcy. What if the private equity funds go in and say, ?We?ll buy the whole system and run it?? Rich mentioned earlier that over the next decade, the Los Angeles Department of Water & Power will need to spend close to a billion dollars on sophisticated groundwater treatment for a Superfund site, but the agency is presently having a difficult time getting a rate increase to raise the necessary funds. If we apply my model to this scenario, you could certainly make the argument that with imported water costs approaching $1,000 an acre foot, there is a need for private equity financing because the city can?t finance and build the project in the traditional way.

Atwater: Private equity has certainly become a practical revenue source for agencies looking to fund on-site renewable energy projects. At IEUA, private equity provided the financing for the 3.5 megawatts on-site solar power system we implemented at our water recycling facilities in 2008. We had considered issuing $28 million in bonds to install the solar, but while it would be cost-effective for us 20 years out, we would have had to pay the debt service without rate support for four to five years until an adequate electricity rate increase was implemented. And, it would still take a number of years after that for the bonds to be paid off. So instead, we worked with a private solar power company that provided financing for the entire project through Morgan Stanley. IEUA signed a Power Purchase Agreement and buys the electricity generated from the system from Morgan Stanley ? which owns and operates it ? at a pre-negotiated rate. At the end of the day, private equity coming in on the project enabled IEUA to improve energy efficiency and reduce energy costs at our facilities without spending any of our own capital. We saved a half million dollars on our power bill in the very first year, and we expect to continue experience savings of at least that amount every year for the next 20 years. Think about applying that type of public-private financial partnership to groundwater treatment or small satellite recycling plants.

John Pastore is the executive director of the Southern California Alliance of Publicly Owned Treatment Works; Tom Rosales is the general manager of the South Orange County Wastewater Authority; Richard Atwater is the executive director of the Southern California Water Committee; and Frank Dudek is president of Dudek environment and engineering firm.

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