How Conduit Financing Can Make Upgrades Affordable

A new financing program helps an Ohio utility accomplish I&I goals.

How Conduit Financing Can Make Upgrades Affordable

Avon Lake (Ohio) Regional Water’s water reclamation facility provides the community’s need for safe wastewater treatment. It has a capacity of 6.5 mgd and can accept flows as high as 12.5 mgd during wet-weather periods.

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The last thing those of us in the utility world want to hear about is someone’s basement backing up with wastewater due to a sewer overflow. Unfortunately, the reality is that many utilities have delayed reinvestment into their systems, and compounded with changing weather patterns and more severe storms, basement backups and sewer overflows still occur.

To address sewer overflows, utilities want to find the projects with the best return on investment. However, many utilities have found that inordinate time and money can be spent on wet-weather investigation and repairs — and the end results don’t always align with the anticipated benefits.

For years and years, the U.S. Environmental Protection Agency and others have suggested to utilities that an excellent place to reduce wet-weather impacts is on private property. After all, when looking holistically at the collections system, about half of the total length of pipe may be found on private property, and that pipe can contribute up to about 40% of the overall inflow and infiltration into the system.

Even if this is the case, utilities usually don’t attempt to address these issues on the private side for a number of reasons. Commonly, public entities are legally limited in their ability to pay for work on private property, or existing laws unduly benefit private entities.

Reframing the problem

With mounting infrastructure reinvestment requirements, improved residential and industrial water efficiency that reduces water and sewer revenue, and declining user bases in some areas, many utilities are considering new alternatives.

In 2011, Avon Lake (Ohio) Regional Water — a midsized water and wastewater utility serving Avon Lake and some surrounding areas — had to reframe its problems during the wettest year on record. That year, five different weather events led to residential basement backups, and customers demanded a solution.

As staff assessed what might have changed (aside from the weather), it realized that approximately 20 minutes after the heavy rains started, flows in its major lift station rapidly increased. Obviously, it seemed like an I&I issue. At that point, crews started popping manhole covers but couldn’t find any smoking gun.

It was around that time that a stormwater expert suggested that the inflow could be coming from private property and convinced the utility to do a pilot project on one street where he would simulate rain events and position video cameras in the sanitary sewer.

The area was formerly a combined sewer area. In Avon Lake, when the utility separated sewers in the past — though it required customers to prevent downspouts, yard drains and driveway drains from entering the sanitary sewer — it did not require customers to prevent foundation drains from discharging into laterals.

Pilot testing showed that the foundation drains were an immediate inflow source and contributed to sewer overflows and basement flooding. This led to Avon Lake Regional Water changing its regulations and requiring customers to prevent all clearwater sources from entering sanitary laterals, including foundation drains. To complement this, the City Council passed a Resolution of Necessity, which put the force of law behind the requirement.

Additionally, as sewer separations progressed, no houses were allowed to connect to new sanitary sewers until it was proven that all clearwater sources were not connected to the sanitary lateral. The houses remained connected to the combined sewers and were required to remove all sanitary waste from those combined sewers by a certain date when those sewers were to become storm sewers.

With the memory of basement backups, few complained about the new requirement. Avon Lake Regional Water worked to make it easier for customers by providing them $1,000 in wastewater bill credits over a 10-year period if they separated their clearwater and wastewater sources, ending up with storm and sanitary laterals connected to the respective sewers. The $1,000 was originally determined by estimating the amount of water that could enter foundation drains and proceed through the collections system and treatment process.

This led to a number of customers undertaking the work. However, as time progressed, Avon Lake Regional Water realized that the rate of customer inspections and separations was not quick enough to meet the deadlines imposed.

A win-win-win

Avon Lake Regional Water had been hearing from some customers that even with the $1,000 credit, they could not afford to pay the $3,000 to $4,000 out-of-pocket to separate their laterals. Wanting to help make it easier for customers to help end sanitary sewer surcharges, the utility investigated options for helping customers pay for repairs. Unfortunately, very little grant money was available through the Department of Housing and Urban Development’s Community Development Block Grant program, and that was very quickly used for the residents who needed it most.

Luckily, Avon Lake Regional Water approached the Ohio EPA, which was interested in piloting a new type of revolving loan.

For frame of reference, the Toledo algae bloom that fouled the city’s water treatment plant had only happened about six months earlier. The Ohio EPA was looking for new ways to help speed the reduction of nutrients entering Lake Erie. In addition, the Ohio EPA had understood the wisdom of eliminating inflow sources from private property, but never had a utility interested in borrowing funds to address the issue.

This was a marvelous opportunity for the Ohio EPA to use Clean Water State Revolving Funds to loan to a utility, which in turn established its own revolving program for customers to address wet-weather issues and sewer overflows — a term the Ohio EPA is calling conduit financing.

The Ohio EPA offered Avon Lake Regional Water a 0% interest loan to help address the issue and allowed the utility to charge an appropriate interest rate. In order to make it attractive to customers while also helping build the fund for future use, Avon Lake Regional Water established a 2% interest rate for customers to borrow the money with a 10-year loan to pay contractors for the work.

Under the plan, customers select a contractor and arrive at an approved price. The customers then apply for a loan from Avon Lake Regional Water. Once the contractors do the work and both customers and Avon Lake Regional Water approve the work, the utility pays the contractor. Monthly, the utility submits to the Ohio EPA for repayment of all invoices it paid during the month. Customers repay their loans through quarterly water and wastewater bills, and the utility uses this money to repay its loan from the Ohio EPA.

By charging an interest rate, the utility built a mechanism to provide a certain level of perpetuity. The 2% interest rate means that for every $1 million loaned to customers, Avon Lake Regional Water will receive over $100,000 in interest charges that will build the fund for future use.

It is clear how Avon Lake Regional Water and the Ohio EPA win with this program. The third win is for the customer. Homes that were built in combined sewer areas were typically built between the 1940s and 1972. These houses had vitrified clay pipe laterals. A number of these customers were experiencing root intrusion and other failures. This program helped to provide an affordable method to address a maintenance issue for which customers had not typically budgeted.

Today, more than 400 customers have executed loan agreements during the few years the program has been in effect. And Avon Lake Regional Water has committed more than $1.4 million for the loans to these customers.

The future is bright

The lateral loan program established by Avon Lake Regional Water, with the help of the Ohio EPA, has met the needs of the utility, the regulatory authority and the customers in a way that does not affect rates. Wet-weather testing and sewer modeling has shown that wet-weather peak flow reduction during sewer separations has improved by 10% (from an 85% reduction in peak flow to a 95% reduction in peak flow) during the sewer separation process by now requiring foundation drain disconnection from sanitary laterals. In Avon Lake, that means an additional 640,000 gallons of extraneous water are prevented from entering the sanitary sewers during a 10-year storm event. This reduces the chances for basement backups and overflows into Lake Erie while keeping system capacity available for future growth.

Due to the initial success of the program, as Avon Lake Regional Water’s revolving loan program becomes more established, the utility looks forward to expanding the program to meet other customer needs, such as renewing and repairing laterals and undertaking other projects that remove private property clearwater from sanitary sewers.

As a service organization with a guiding principle to lead by influencing change that will leave a legacy for future generations, the lateral loan program will benefit customers, the community and the environment.

ABOUT THE AUTHOR

Todd Danielson is the chief utilities executive of Avon Lake Regional Water, located on the shores of Lake Erie in Ohio. He leads an organization providing drinking water to 200,000 people and wastewater services to 30,000.



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