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Water Partnerships Reviewed by Mayors at Urban Water Council Meeting in Miami Beach

By Rich Anderson
April 15, 2002

The Urban Water Council (UWC) convened a seminar on water partnerships in Miami Beach in conjunction with the Mayors' Urban Water Summit on April 6th. UWC Co'Chairmen, Trenton Mayor Douglas H. Palmer and Augusta Mayor Bob Young led the discussion, reviewing new partnership projects, legislative trends, risk sharing in partnerships, and trends in biosolids recycling partnerships.

Indianapolis - Incorporating New Performance Standards in Partnerships

Bob Clifford, Director of the Indianapolis Local Public Improvement Bond Bank, described the partnership arrangement and the financial structure involved. Clifford recounted the chronology of the project involving the drinking water plant that served the community.

The drinking water plant has a daily capacity of 140 million gallons. The plant serves about 1.1 million customers. The facility employs 440 workers.

The water plant was owned and run by NiSource, a private company. NiSource merged with the Columbia Energy Group, and was required to divest the asset. The City of Indianapolis chose to acquire the plant. The plan was to acquire the plant, outsource its operation based on an RFQ/RFP, and coordinate regional operations.

The City purchased the plant in 2001. The book value was approximately $600 million. In December 2001, the city put out a Request for Proposals from water system operating companies to propose a 20'year term Operation and Maintenance service agreement. The Department of Waterworks (DOW) selected US Filter, and on March 18, 2002, the DOW Board of Directors authorized a bond resolution to finance the purchase of the plant. The purchase is expected to become final in May 2002 with a purchase price at $515 million.

Scott Chinn, Corporation Council, City of Indianapolis, explained how the City created a Department of Waterworks (DOW) as the contracting authority and owner of the facility. Chinn explained the City Council members set up the DOW to concentrate administrative duties to manage the water utility. Chinn pointed out the need to equalize rates for all customers. He stated the need for a small rate increase each year to make necessary capital replacements.

Chinn was asked if there was a concern that the vendor had foreign ownership ties. He stated that the service agreement was a legally defensible contract protecting the City and ultimately the rate'payers. He pointed out that rates and service regulation were controlled by the DOW and the Indiana Utility Regulatory Commission. Vendor proposals to raise rates must go through both bodies with a fact'based case to support the proposal.

Jim Keene, Senior Vice President, US Filter, discussed the O&M contract. He stated the contract divided the service fee into an 80 percent fixed fee for the service, and a 20 percent incentive fee for performance. O&M contracts are generally 100 percent fixed fee for the service.

Keene identified factors included in the performance standard part of the contract. Each of them carried a specific weight reflecting their importance. One was customer service. Another was environmental. This factor involved the reduction of odor and taste problems caused by methylisobomeol (MIB). The goal is to reduce MIB concentrations from the current level of 35 nanograms per liter to 8. Keene explained that the science on this chemical indicates that odor and taste problems abate at around 10 nanograms per liter.

Municipal Biosolids Partnerships

Recognizing the growing importance, and costs involved, with managing treatment works sludge, the mayors heard presentations describing what a number of cities have done to increase the practice of sludge recycling. Sludges are no longer merely disposed of in landfills; they are treated to meet EPA standards and are then referred to as biosolids. Biosolids are routinely recycled as soil amendments and fertilizers and used to reclaim strip'mine lands. These types of beneficial recycling also provide cost savings through cost avoidance for the municipal generators.

Jim Carmichael, President of Synagro Technologies Processing Division explained the Company's residuals management approach. He described the "Four Ds" that comprise the technology capabilities: Digestion, Dewatering, Drying, and Pelletizing, and End Product Distribution.

Carmichael discussed the New York City Organic Fertilizer Company (NYOFCo) plant located in the South Bronx. It processes 300 dry tons per day from the New York City wastewater treatment plants. The facility is state'of'the'art technology in terms of processing efficiency as well as environmental controls.

The project was a design'build'operate partnership with New York City, and the City Department of Environmental Protection is involved. It became operational in 1993. Over 2 million tons of NYC biosolids have been converted into end product (Exceptional Quality Class A biosolids) in the form of pellets. The pellets are sold to agricultural businesses. This beneficial recycling does not require any subsidy from the City to pay for itself; it is a profitable recycling business venture.

Tim Muirhead, Vice President of US Filter, discussed a partnership project with the Metropolitan Water Reclamation District of Greater Chicago (MWRD). This plant produces pellets that are Exceptional Quality Class A biosolids. More than 95 percent of the pellet end products are beneficially recycled.

The project involves a 20'year term O&M contract between US Filter and the MWRD. It is valued at $217 million: $54.5 million for design and build, $6.4 million annual O&M. This project saves the District $77 million over the 20 years. $61 million of the cost savings derive from improvements in operations and avoided land'disposal costs.

The facility will be built at the site of the Stickney Water Reclamation Plant which has a design capacity of 1.2 billion gallons per day. The system serves about 2.38 million people residing in the City of Chicago and surrounding suburbs. The project benefits include certainty/stability in solids management for the next 20 years; cost controls (both on operations and capital replacement); and, risk transfer for regulatory compliance and operations to the private partner, US Filter.