By Rich Anderson
February 12, 2007

Fillmore (CA) Mayor Steven Conaway presented a case study on a municipal wastewater Design-Build-Operate (DBO) Partnership project with American Water at the Mayors Water Council Meeting January 25. Conaway described Fillmore as a small town with 15,000 population, located east of Ventura and northwest of Los Angeles. Fillmore is situated in one of the most productive citrus producing areas of the world.

The city was served by an antiquated 50-year-old conventional wastewater treatment facility. The DBO Partnership is a 20-year term project designed to serve the current and future wastewater needs of Fillmore. The DBO Partnership approach provides a viable project model because the city has resource limitations and a water quality profile that requires complex treatment operations. The DBO Partnership approach also substantially reduced the overall project completion timeline.

One of the more attractive public benefits of the DBO Partnership model is that one organization — American Water — takes on the sole responsibility for designing, building and operating the new wastewater treatment facility. The resulting reduction of project duration yields savings on the time-value of capital investment. Compared to the traditional Design-Bid-Build (DBB) model, the DBO model reduces the potential for engineering and operations claims, protests and legal challenges. By integrating the design and construction elements of the project there is greater certainty on project cost and schedule. Working closely with an integrated design, build and operate team promotes innovation and creativity. City leaders appreciated that American Water is the largest water services provider in North America, and brings a wealth of experience to the project.

The DBO Partnership between Fillmore and American Water has a 20-year term. The new wastewater treatment facility is designed for 2.4 million gallons a day (MGD) of wastewater throughput, but is intended to operate at 1.8 MGD in the near-term. The total contract is valued at $85 million. American Water is responsible, via performance guarantees, to manage odor, sludge quality, electricity usage and compliance with all environmental regulations.

The city was also attracted to the Partnership approach because they could shift significant risks to the private partner. American Water assumed financial risks and penalties for design and construction of the facility for a fixed price. American is also responsible for designing the technology and process using membrane filters to achieve a high level of water quality. The private partner agreed to a scheduled acceptance date with financial penalties covered by a parent company guarantee. American assumes responsibility for wastewater collection and effluent disposal operations. At the end of the Partnership term the private partner is responsible for returning the facility and equipment in good condition to the public partner, Fillmore.

The Design-Build part of the partnership is valued at $43 million. Operations and maintenance (O&M) costs are fixed at $1.2 million/year, with an annual inflation escalator. There is an O&M variable cost of $22,000 that can be adjusted for increased wastewater flows that require treatment. Electricity costs, however, are subject to pass-through, but there is a maximum kilowatt hour (KWH) usage guarantee.

The public and private partners worked out agreements on a number of project elements. An open book approach and contingency sharing approach was agreed upon. Both partners participate in the rehabilitation and replacement (R&R) activities and at the end of the contract term the R&R fund balances are shared by the parties. Also, both parties agreed to share responsibility for sludge disposal because of the uncertain future of biosolids land application in California.