COFee in Action

While completing the financing plan for Phase 1 of a wastewater system upgrade, the City of Nampa, Idaho asked this fundamental question: ?Which alternative is most cost effective ? going through the process of planning and financing for more wastewater treatment capacity or making better use of existing treatment capacity by making permitted dischargers more efficient???

COFfee Figure 1

Working with Nampa?s Industry Working Group in 2012, Voltaic Solutions designed the Capacity Optimization Fee system. Under the COFee, a permitted industry can discharge up to 115 percent of their annual peak discharge level at no additional charge. If, for example, their permitted level is 125 percent of their peak, then the COFee is assessed on the discharge above 115 percent up to the 125 percent permitted level (see Figure 1). Essentially, the COFee is charged for the difference between the higher permitted level and the demonstrated maximum use of the treatment system. In this example, the industry has 10 percent more capacity than it potentially needs. This is 10 percent of their permitted discharge level that could be used by another customer. The ?incentive? then, is to offer the unneeded or excess capacity to a participating industrial discharger through the capacity exchange (market function).

The COFee liability is essentially established by using the previous year?s actual performance. Industries have ample notice of the upcoming fee and can reduce their excess discharge capacity by exchanging it in the marketplace, or returning it to the city.

Efficient use of existing capacity is what motivated the City of Nampa to design the COFee. The idea is that if industrial customers would only use the capacity of the system they really needed, perhaps the purchased, but unneeded, discharge capacity could be used by someone else ? perhaps by that next industry whose need for discharge capacity in the treatment system might force the city to begin expensing the process of system expansion (85 percent planning threshold).?

So, what if that industry holds on to the ?unneeded? discharge capacity?? Unneeded capacity is subject to the fee. Knowing that a 15 percent buffer exists over and beyond the maximum annual discharge level means that a well-managed industrial discharger wouldn?t need to hold on to unused capacity. Industrial users are given a capacity baseline and excess capacity can be exchanged in the marketplace.?

COFfee Figure 2

In preparation for the effective date of the COFee on Oct. 1, 2014, Nampa has now worked with each permitted industrial discharger to determine their ?baseline? of discharge capacity they own. An example of the capacity owned and the ?unused? capacity subject to the COFee is shown in Figure 2.?

The City of Nampa?s cost-of-service consultant calculated the capacity optimization charges based on what it really costs the city to be prepared to provide wastewater treatment to the permitted users at their permitted levels even if their actual use of the system was lower. Nampa?s consulting engineers and the wastewater system staff determined the industrial users? annualized peak capacity compared to the permitted capacity to calculate what wasn?t being used (above the plus-15 percent peak usage).

Over the last several months, the Nampa Public Works Department and the city attorney have negotiated with each industrial user to establish its baseline of purchased capacity. Under the COFee system, Nampa will be compensated for the unused permitted capacity of the system. Thus, the COFee helps move the community toward the most efficient use of the publically-owned treatment works (POTW).? ?
When the COFee is fully operational in October,?the market value of discharge capacity will drive the industrial participants toward the most efficient or productive use of (each unit of) capacity. The COFee allows the individual market needs of each participating industrial discharger to be achieved (by over- or under-consuming) while meeting the overall discharge requirements of the POTW.

The innovation of the Capacity Optimization Fee within the broader policy of incentives for industrial customers has become the City of Nampa?s approach to solidifying the connection between wastewater infrastructure and economic development. The COFee system concept demonstrates how a financial management mechanism can transform and how communities achieve the goal of providing the best service to the most customers at the least cost for the longest period of time.

William L. Jarocki is the founder and president of Voltaic Solutions, LLC, a consultancy firm specializing in public finance and management as well as software development, based in Boise, Idaho.

Kevin O?Brien is the executive director of the Great Lakes Environmental Finance Center and the Center for Public Management in the Maxine Goodman Levin College of Urban Affairs at Cleveland State University.?

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