OVERVIEW OF PROPOSED
ACT 537 PLAN
The
Background
The proposed Act
537 plan and the project it recommends is the direct result of changes
made by the Pennsylvania Department of Environmental Protection (DEP) to
the operating permit for the Advanced Wastewater Treatment Facility
(AWTF) owned by The Harrisburg Authority (THA).
The revised permit limits reflect both reductions in the levels
of ammonia nitrogen that can be discharged to the
The CBTS was
developed by DEP in response to
The vast majority,
over 80%, of the nitrogen and phosphorus is attributable to run-off from
agricultural and other non-point activity adjacent to the waterways that
empty into the Chesapeake Bay; not the discharges from wastewater
treatment facilities (point sources).
But the mechanisms for monitoring discharges and measuring
compliance for the non-point sources vary widely and are less exact than
those for the point sources. Point
sources are regulated and their discharges are closely monitored;
therefore, compliance with a requirement to significantly reduce the
amounts of nitrogen and phosphorus they discharge can be assured.
By intensively treating this smaller portion of the discharge to
the Bay, the overall levels of nitrogen and phosphorus can be reduced to
acceptable levels.
While all
activities that contribute nitrogen and phosphorus have been required to
reduce the amount discharged, it is the users of wastewater treatment
facilities that seem to have the greatest financial burden.
The multi-state agreement signed by Governor Ridge in 2000 was
simply implemented by DEP without any legislative action or regulatory
review. There are numerous
lawsuits challenging the CBTS and THA has also sued DEP over this
approach, but it seems clear that DEP will prevail, at least in the
short term.
There have been no
successful challenges to-date and it could be decades before the legal
issues surrounding the CBTS are resolved.
In the meantime, daily fines for non-compliance would accrue and
may ultimately need to be paid.
Regardless, even if the CBTS is somehow overturned in court,
Worse still is the
fact that the science that established the discharge limits to the Bay
is not precise and a second round of mandates is likely once the initial
reductions are made.
Systems that have constructed facilities to comply may be required to
construct additional facilities to meet even more stringent discharge
limits. In fact, EPA has
indicated that it will impose a Total Maximum Daily Load (TMDL) on the
Bay and each of its tributaries as early as 2011.
It is unclear how this might affect THA’s AWTF.
Strategies for Compliance
The previous plan
relied on a “build all” strategy to achieve compliance.
This was probably the most widely used approach for what are
described as Phase 1 facilities.
These are the sixty-two largest plants that have a compliance
date of 2010. DEP has
offered a second approach for compliance that does not require
construction of facilities.
DEP has created nutrient credits that can be purchased to offset the
actual number of pounds of nitrogen and phosphorus that are discharged
in excess of the number of pounds allowed by the permit.
This may be referred to as the “trade all” approach.
The recommended project in the proposed plan is based on a
combination of these alternatives, a “build some – trade some” approach
which achieves compliance at an overall lower long term cost.
The “build all”
versus “trade all” is often thought of in the same way as buying versus
renting. Somehow, it always
seems better to own something rather than just rent it.
But we can all think of occasions when this is not true.
For example, if you need something for a relatively short period
of time, like for a wedding reception.
You might buy some things that you would likely use again and
again but you wouldn’t think of buying all the extra dishes, tables,
chairs, etc. that you would need to accommodate all of your guests.
Renting what you need for only as long as you need it is surely
less costly.
This may seem like
an odd analogy as it relates to compliance for the AWTF, but you need to
consider the facts. The
current permitted capacity for the AWTF is 37.5 million gallons per day,
but average flows at the AWTF have been trending downward, and the
average daily flow for 2007 was 20.9 million gallons per day.
Yes, there are days when the plant reaches capacity during heavy
rain events, but that represents only a few days per year.
Yet the “build all” approach requires that you design and
construct new facilities that will accommodate the maximum flow.
Not only do the capital costs reflect these larger facilities,
but the cost to operate them is often more related to size, not flow.
Staffing and certain other costs are the same regardless of the
amount of flow.
The “trade all”
seems like it might be a more economical approach since you only buy
what you need each year. If
flows are low because it has been a “dry” year, you need to buy fewer
credits. Conversely, if it
is a “wet” year and flows are high, you need to buy more credits, but
only for that year.
However, the long term cost and availability of credits is not assured,
the cost of credits may decline in the future, or the cost to buy
credits may exceed the cost of constructing facilities at some point.
The
Harrisburg Patriot News
recently reported that some believe that purchasing credits was “paying
to pollute” implying that purchasing credits does not help the
environment. But nothing is
further from the truth. You
may recall from the discussion above that the real source of the
pollution is not the “point source” wastewater treatment facilities, but
the run-off from fertilizers used by “non-point source” agricultural
activities. Currently, the
largest credit generators are non-point source providers.
In other words, while it was impractical for regulators to
enforce regulations to reduce run-off, the ability to generate revenue
by reducing run-off achieves the same purpose and reduces the number of
pounds of nitrogen and phosphorus that ultimately reach the Bay.
In fact, the non-point source must remove more than one pound of
nitrogen or phosphorus in order to sell one pound (The exact number of
pounds that need to be removed in order to generate a single credit
varies based on a number of factors.).
The currently
proposed 537 Plan achieves a balance by recommending a “build some –
trade some” approach. THA
must build in order to achieve compliance with the new ammonia nitrogen
limit. This is not part of
the CBTS, but reflects conditions in the
Achieving
compliance using some credits allows for a better determination of how
many credits are actually needed and what a stable price is for those
credits. It also allows
time for monitoring of the performance of the facilities that were
constructed. It is not
uncommon for facilities to outperform their established design criteria.
Often, this is because the actual characteristics of the
wastewater are different than the characteristics assumed for the
purpose of design.
Equipment manufacturers will sometimes under-rate the capabilities of
their equipment, and performance is often influenced by how the
equipment is operated. An
approach that achieves a lower cost of compliance, provides greater
flexibility in meeting future requirements, and allows for the
monitoring of actual performance and credit prices is a better choice
than those approaches that do not.
Recommended Project
The recommended
project consists of two stages implemented simultaneously.
The first stage of work constructs a new side stream treatment
system and improves the primary and secondary clarifiers.
This reduces the amount of ammonia in the effluent and also
provides some total nitrogen reduction benefits. The second stage
constructs a 4th train in the existing high purity oxygenated
activated sludge (HPOAS) process, creates an anaerobic zone, and vents
the ends of the HPOAS to the atmosphere.
This provides for a significant removal nitrogen and
phosphorus. The removal of
nitrogen and phosphorus reduces the number of credits that must be
purchased. The additional
costs to construct and operate the second stage are offset by the cost
savings achieved by purchasing fewer credits.
Side stream
treatment is a proven technology that has been reviewed by DEP and found
suitable for this purpose.
(THA has received a letter to this effect from DEP.)
In essence, this technique intensely treats a small portion of
the total wastewater flow, and then recombines it with that portion of
the flow that has received normal treatment.
This is similar to DEP’s approach in reducing overall nitrogen
and phosphorus levels in the Bay:
Intensely treating the “point source” discharges reduces the
impact of the “non-point source” discharges.
To the extent that the side stream treatment does not fully
reduce the amount of nitrogen and phosphorus discharged to required
permit levels, credits will be purchased to make up the difference.
The side stream
treatment approach needs the availability of nutrient credits in order
insure compliance with permit parameters.
The plan assumes the need to purchase 150,000 total nitrogen (TN)
credits per year and no phosphorus credits (TP).
The average cost is $5.60 per credit.
Initially and for the next five years, the cost and availability
of credits is assured. In
October of 2008, THA received bids from credit providers for
significantly more credits than needed and at fixed prices.
The actual number
of credits that must be purchased will vary from year-to-year, but may
be less than anticipated since the efficiency of the constructed
facilities may be greater than anticipated in treating the wastewater
received at the AWTF. Also,
a project is currently under consideration to reuse a portion of the
AWTF’s effluent at the Resource Recovery Facility as process water.
This is a non-discharge alternative that reduces the amount of
total nitrogen and total phosphorus being discharged to the river and
ultimately to the bay. In
addition, the receipt of septage by truck at the AWTF will increase the
number of pounds of nitrogen and phosphorus the AWTF is allowed to
discharge further reducing the number of credits that must be purchased.
The cost of
credits beyond the five year period cannot be assured at this time. The
report considers a third stage, the addition of denitrifying filters on
the main stream of the AWTF.
Stage 3 is not currently recommended, but could be constructed
sometime in the future to replace the need to purchase credits based on
economic evaluation at that time.
Credit trading as
a compliance alternative had not been previously evaluated.
The time needed to study this alternative delayed the
construction of the “build all” approach.
But, this delay has provided a benefit to the City since it has
allowed DEP to grant additional time to achieve compliance.
In addition, the current economic environment provides enhanced
funding opportunities compared to just a year ago.
Although these funding opportunities are very competitive and
there are maximum limits on the amount of funding for a particular
project, the type and cost of the recommended project is within those
guidelines. THA has applied
for funding from these programs and is optimistic that grants will be
awarded to reduce the overall costs to the users of the system.
Costs and Project Comparisons
The currently
approved project used the “build all” approach at a time when
construction costs were increasing and THA was likely to have some
difficulty accessing the municipal bond market.
Also, constructed facilities reflect the conditions at the time
they were designed and generally, they are less flexible when adjusting
to decreasing flows, responding to stricter permit requirements, or
taking advantage of beneficial regulatory changes that might occur in
the future.
There are a number
of cost estimates available for the “build all” project and it is
difficult to say which one is more accurate.
For purposes of our study we relied upon the most recent project
cost estimates of $66,086,800 in 2007 dollars and $2,764,000 in
additional annual operating costs.
The capital costs include the cost of construction, engineering
design and contract administration, legal financing, and other similar
costs. Operating costs
include ongoing labor, electricity, chemicals, including a petroleum
based chemical additive known as methanol.
For comparison
purposes, the recommended project has an estimated capital cost of
$34,583,883 in 2010 dollars and estimated additional operating costs of
$1,757,388 plus the cost to purchase credits of $975,000 for a total
additional annual cost of $2,732,388.
The capital cost savings is $31,502,917, plus interest.
Although the annual costs are essentially the same, it should be
noted that the costs for labor, electricity, chemicals and the like will
increase over time, but the cost of credits is likely to decline
reflecting a need to purchase fewer credits.
As part of the
planning process, DEP requires an economic evaluation of the
alternatives using “present worth”.
The present worth analysis confirms the lower cost of the
recommended project. The
2010 present worth of the 2007 build all alternative is $90,574,198,
while the 2010 present worth of the recommended project is $62,802,224,
a savings of $27,771,974.
The complete analysis is included in the study.
Project Funding
The Authority is
pursuing all grant and low interest funding opportunities that are
presently available for a variety of projects including the proposed
project along with other smaller more immediate projects that help
conserve energy, lower operating costs, and achieve compliance with the
AWTF's operating permit. Specifically, an application has been
made to PENNVEST for $7,400,000 to fund several preliminary projects at
the AWTF including a new belt filter press, upgraded grit removal
system, needed maintenance of the methane storage facility building,
improvements to the facilities that allow wastewater effluent to be used
as process water at the Resource Recovery Facility that reduces the
amount of effluent that is discharged to the Susquehanna River.
The source of
funding for PENNVEST comes from three sources: Federal stimulus
money, the $400 million bond issue approved by the voters in November
2008, and PENNVEST's own funds from the repayments of prior loans.
Because the current projects are expected to meet the "shovel ready"
criteria established by the federal government, it is expected that they
will be funded with the stimulus money, but there is no assurance in
advance. However, the application has been included in the
Commonwealth's Intended Use Plan that was published in the PA Bulletin
in March of 2009.
The projects
included in the PENNVEST application have been combined with the upgrade
of the AWTF and included in the grant application made to the
Commonwealth Financing Authority (CFA) on
The PENNVEST board
meets on
THA will continue
to monitor the availability of funding from all sources and make
applications that help to reduce the costs of these projects for the
users of the wastewater system. Additional applications to
PENNVEST appear likely given the need to provide matching funds for the
proposed project as more detailed design is initiated and construction
bids received.
Impact on User Rates
While present
worth is a highly structured and formal comparison of alternatives that
evaluates both capital and annual costs, it does not consider the
practical user rate impacts that reflect the availability of grant
programs and low interest funding.
The following table summarizes these impacts.
It assumes that the 2007 project may have qualified for grant
funding up to the maximum amount of $20,000,000; but this is not
assured. If begun in 2007,
it would not have qualified for PENNVEST funding since they can only
fund the least cost alternative and the 2007 study did not consider the
use of credit trading.
Based on the table
below, the recommended project saves the City over $1.2 million per year
which results in a $48.30 per year savings for the average City
household. The savings is
even greater when the 15% surcharge is taken into consideration.
Since the City
provides wastewater treatment service to surrounding municipalities, a
portion of the costs for the proposed project will be incorporated into
cost of treatment under the terms of existing inter-municipal
agreements. The City does
not bill these users directly but the costs are included in the rates
established by the individual municipalities or municipality authorities
that own and operate the wastewater collection systems.
Comparison of User Rates for Proposed
Project
with Build All Alternative
(2007 and 2010 Costs)
|
|
2007 Costs |
2010 Costs |
|
|
|
Build All |
Build All |
Recommended |
|
Project
Costs |
|
|
|
|
Estimated
Project Cost |
$
66,086,800 |
$
72,214,831 |
$
34,583,883 |
|
less Max
Grants |
$
(20,000,000) |
$
(20,000,000) |
$ (
20,000,000) |
|
Amount Financed |
$
46,086,800 |
$
52,214,831 |
$
14,583,883 |
|
Funding
Sources |
|
|
|
|
PENNVEST
Funding |
|
$
20,000,000 |
$
14,583,883 |
|
Bond Issue
Funding |
$
46,086,800 |
$
32,214,831 |
- |
|
Total Funding |
$
46,086,800 |
$
52,214,831 |
$
14,583,883 |
|
Annual
Debt Service |
|
|
|
|
PENNVEST
Funding |
|
$
1,252,841 |
$
913,565 |
|
Bond Issue
Funding |
$
3,620,140 |
$
2,530,490 |
|
|
Total Debt Service |
$
3,620,140 |
$
3,783,331 |
$
913,565 |
|
Additional Operating Cost |
|
|
|
|
Operating
Costs |
$
2,764,000 |
$
2,764,000 |
$
1,757,400
|
|
Credit
Purchases |
- |
- |
$ 975,000 |
|
Total
Additional Costs |
$
2,764,000 |
$
2,764,000 |
$
2,732,400 |
|
Debt
Service and Operating Costs Applicable to City Users |
|||
|
Additional
Revenue Required |
$
2,710,700 |
$
2,780,000 |
$
1,548,100 |
|
Current
Treatment Rate (per
thousand gallons) |
$ 3.481 |
$ 3.481 |
$ 3.481 |
|
Rate
Increase |
$ 1.635 |
$ 1.677 |
$ 0.934 |
|
Increased
Rate |
$ 5.116 |
$ 5.158 |
$ 4.415 |
|
Annual
Cost at Existing Rates |
$
226.27 |
$
226.27 |
$
226.27 |
|
Rate
Increase |
$ 106.28 |
$ 109.00 |
$ 60.70 |
|
Annual
Cost at New Rates |
$
332.55 |
$
335.27 |
$
286.97 |
|
NOTES: |
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Implementation
The proposed Act
537 plan is considered a draft until adopted by the City of
City approval to
advertise for public comments on the plan and
issue draft plan
to local planning agencies for comment
04/29/09
Adopt final plan
Award contracts
for the purchase of credits
DEP approval of
Act 537 Plan Update
Initiate
development of local credit generating projects
Initiate
sidestream treatment pilot program
Initiate
preliminary design of selected alternative
Complete
preliminary design and submit permit application
Initiate final
design
Complete final
design
Advertise for
construction bids
Award construction
contracts
Complete
construction
Achieve compliance
with ammonia limitations
Begin trading
based on actual credits need
This summary
attempts to present an overview of the draft 537 Plan and the project it
recommends. The full
document includes more detailed technical and financial analyses along
with other information relative to the purchase of credits and the
treatment process. It is
available for review at the offices of the Harrisburg Authority,