Alternative Management Models Small Community Sewer Systems

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1 Alternative Management Models Small Community Sewer Systems Craig Goodwin NCS Wastewater Solutions Puyallup, Washington Small community sewer systems are rapidly gaining in popularity. Nearly half of all new single-family residences are being built with septic systems. Extending central sewer is increasingly unaffordable. The management and performance problems of individual home septic systems are well documented, but the high cost of central sewer leaves little current choice. Is there another way? Clustered small community systems offer a manageable and affordable alternative 1. Small Community Systems What Are They? Small community systems are characterized by: Multiple decentralized wastewater treatment facilities for clusters of 20 to 200+ homes each (e.g., a 500 home development may have from 3 to 5 separate treatment and disposal clusters as part of the development, often matched to each phase of the development s build-out). Sewage collection in downsized gravity or low-pressure sewer mains designed to serve each cluster independently. Use of common area playfields or community open spaces for treated wastewater disposal, often using drip irrigation. Use of low tech and easy to maintain treatment systems that can reliably treat to the levels appropriate for drip or drainfield disposal. A management infrastructure provided by public or private sewer utilities. Although most applicable to new development, these same design principles can be used to provide managed sewer service to existing communities now on septic. Many communities are stymied in their desire to grow by the high cost of providing conventional central sewer. Others want to solve current environmental problems but can t afford it. A small community system can often provide a long-term solution at a much lower cost. 1 Septic or Central Sewer, Is There a Better Way? Craig Goodwin, NCS Wastewater Solutions, March 12, 2002.

2 Small Community Systems Why? Achieving higher land use densities with desirable open spaces are important and shared goals of land use planners, environmentalists and developers alike. The lack of sewer availability, however, clearly limits density and drives up the cost of providing greenways and open spaces. Development on septic can therefore, indirectly, contribute to undesirable sprawl and limit land available for playgrounds, hiking trails and other open space related amenities. Small community systems can fill the void, permitting desirable increased density with greater open space, but at a more reasonable cost. The high cost of central sewer is often driven by the high cost of sewage collection. The further from existing central treatment plants a development is located, the higher will be the collection costs -- larger sewer mains, more and bigger lift stations, more right of ways to acquire, more existing roadways to dig up etc. With small community systems and treatment facilities located closer to the homes or commercial district being served, collection costs for each cluster will be lower than for central sewer. The perception that economies of scale substantially reduce the cost for treatment and favor the use of large central sewer treatment plants is overstated. In fact, when the ongoing costs of operation are included, small community sewage treatment costs are very competitive with, if not favorable to, that of central sewer. In part, this is due to the utilization of simpler and less expensive treatment technology. Technically skilled operators are not required to be on site 24/7. Even at developments where a high level of treatment is needed (e.g., to meet urban wastewater reuse standards for landscape irrigation, golf course irrigation, recycling for toilet use, etc.), the economics of smaller community systems serving just 350 to 500 homes have become very competitive. Designated open space areas can also be utilized for treated wastewater disposal. Drip irrigation technology now makes it possible to locate community drainfields in playgrounds, soccer fields or in golf courses. This offers tremendous flexibility in laying out the size and shape of these areas. Such duel use dramatically changes the economics of open space. It is not unusual to find a potential development zoned for 1 or 2 homes per acre where many prospective building lots will not support individual home onsite systems. But, by locating the drip fields in areas with the better soils and clustering collection, zoning densities can be fully sustained and green belt/open space areas provided. Use of treated wastewater for groundwater recharge (via drip irrigation) can also be an environmental positive when compared to stream discharge typical of central sewer treatment plants. This is particularly important where community water supply sources rely on wells. The more water that is pumped from wells and discharged to a stream or other surface water, the less will be available to recharge aquifer or groundwater sources upon which future well water supplies will rely. Soil disposal also requires less monitoring intensity and thus lower operating costs when compared to surface discharge. 2

3 And one final important note is that small community clustered systems can effectively be managed, monitored and regulated. How best to provide this necessary management infrastructure is the subject of this paper. Management & Ownership Alternatives 1. The first critical step, in our experience, is to remove any and all sewer system ownership and operating responsibilities from homeowners. A utility structure, either public or private, we believe, is highly desirable and critical to long-term success. Once we ask homeowners to assume operational and direct economic responsibility, the regulatory and management challenges increase dramatically 2. For this reason, we do not recommend the use of homeowner associations as an underlying structure to manage small community systems. Though there are exceptions, the general experience around the country has been that this structure can be unstable and often has serious problems. Disputes among homeowners, limited technical knowledge, a reluctance by many to pay the assessments required to solve problems or to do appropriate maintenance, homeowner turnover, and cumbersome organization politics can all play a role. It is important to emphasize that our objective must be to provide a sustainable long-term solution. What may work today for a neighborhood may not work well in 20, 50 or 100 years from now. A utility structure best meets this objective. 2. If feasible, a publicly owned sewer utility is the preferred choice. Ownership and operating responsibility can best be transferred to an existing public agency with established sewer utility operations. Financing and installation remains the responsibility of the developer. The benefits to an established utility can be considerable. Billing and operating infrastructure are already in place. Operating costs for small community system operations typically average $15 to $25 per month per residence, including sinking fund accruals for future equipment replacement. These costs are well below established sewer service billing rates and provide utilities with a sound financial opportunity -- benefiting their established customer base. Because operating skill requirements for small community systems are generally quite low, significant labor efficiencies and flexibility can be maintained. Operating small community systems provides an excellent entry-level training opportunity. 3. Unfortunately, in many areas there are no established sewer utilities. In others, the established sewer utility may already be stretched thin and have no interest in adding to their current scope of responsibility. Political or internal provincial 2 Operations & Maintenance, Lots of Talk, Where s The Beef? Craig Goodwin, NCS Wastewater Solutions, 11 th Northwest Onsite Wastewater Treatment Short Course, University of Washington, April 4,

4 influences may also lead a utility to express no interest in ownership or management. The next best choice then, is the transfer of ownership and operating responsibility to an established public water utility or perhaps electrical utility 3. Each of these organizations possesses an established billing infrastructure and has ratemaking experience. Some technical skills for pump and/or electrical controls are already in place that fit well with the operating skill requirements for small community systems. Skills and experience that may currently be lacking are readily supplemented by training and operational documentation. It is also possible for these utilities to subcontract with a qualified operating entity such as NCS to provide ongoing sewer operating services. Taking this approach, allows the utility more time to get comfortable with operating these systems before jumping into a new operating arena. The economics of adding small community system ownership and operation to an existing water utility or electrical utility can be extremely attractive, leveraging in place infrastructure and fixed costs. 4. Should a search fail to identify a qualified or interested public utility, it is time to consider establishing a private small community system utility. Services such as billing and collection might still be contracted out to an established water or sewer utility, but system ownership and operation requires another entity. A private utility best serves this need. Essential goals for a private utility are to: a) Provide long-term dependable sewer service to residential and commercial customers at a reasonable cost. b) Provide customers with sewer rate protections and effective government operating oversight. c) Provide safeguards to address potential financial or operating problems that a private utility might face. The path to achieving goals a) and b) above is clear. Operating histories at established sites can be checked. Due diligence review of financial and operating plans can be conducted. Monitoring and reporting requirements are clearly established at the time of permit issuance by a designated state agency (e.g., State Department of Environmental Protection, State Health Department, etc.). Utility Commission policies and guidelines are well established in most states. Rate setting and review mechanisms are known. In other words, we need not reinvent the wheel. 3 Curtis Sparks, North American Wetland Engineering, National Onsite Wastewater Conference, September,

5 Safeguards How best to achieve c), however, is of greater concern. What happens if the private utility becomes financially insolvent? What happens if the operator is unable to perform? What if equipment needs to be replaced and the utility owner can t or won t fund it? What if the adjacent township or county has the system dropped in its lap because the utility fails and utility owners walk away? Sewage still needs to be treated and homeowners served. State law in Michigan, for example, explicitly requires townships to assume liability and responsibility in the event of such failure. What if, what if, what if -- the sum of all our fears. The path to addressing these issues is not so clear. Drawing upon our experience in Georgia and elsewhere in the southeast, where these issues have been important for some time, following are several safeguards worth considering: I. Performance Bonds Within budgeting limits, it is possible to project how much revenue will be required each year to operate a small community system. For illustrative purposes, let s assume that annual operating costs for a 200 home community system is projected to be $25,000, including electricity, sampling and lab fees, equipment maintenance, operator costs, pumping fees and a sinking fund for planned equipment replacement. Posting a $100,000 performance bond, renewable annually, would provide 3 years of operating costs plus an extraordinary allowance for equipment replacement in the event of unforeseen problems. This bonded amount, plus accumulated sinking fund balances should provide significant protection in the event of operator or utility ownership problems. Should a township or other government agency be required to step in, significant resources will be available. Bonds are also reasonably affordable for reputable companies with the annual cost ranging from 1½% to 2½% depending on the nature of the bond. Incorporating this cost into a private utility s budgetary process is reasonable. A bond, per se, is only one of several financial instruments that might be used for this purpose. As Don Alexander with the Virginia Department of Health points out, collecting on bonds is not always easy and can take some time. There may well be an alternative financial instrument that in the end will work better and accomplish the same objective. That is a matter for the lawyers, which we are not. The key point, however, is that significant financial resources can be provided to cover major what if problems that a private utility might face. II. Trustees Not only is there concern for providing adequate financial resources, but what about system operating skills and knowledge? Should there be operational problems and the utility struggles or owners walk away, where can we turn for the skills and resources needed? One way to address this is to appoint a trustee for each private system. For example, in the state of Georgia, NCS is a designated trustee, 5

6 prepared to step in and assume management responsibility in the event of problems. NCS provides the necessary skills. Performance bonds supply the necessary financial resources for NCS to perform in the event of utility financial woes. Becoming a designated trustee is an excellent roll for a sewer or water utility not currently interested in operating the utility. A township can also serve as trustee with limited risk. In either case, through bonding, letters of credit, etc., financial resources will be available should they be needed. III. IV. Performance Warrantees Engineers, equipment suppliers and installers should be encouraged to provide performance warrantees, adding another layer of insurance to mitigate future risk. Turnkey design-build contracts provide a single point of accountability for projects. They also make it easier to obtain/grant performance warrantees since finger pointing among multiple organizations with shared responsibility becomes a non-issue. Clear accountability backed by written warrantee adds valuable added protection. Off-The-Shelf Components Care should be taken to minimize the use of treatment system components that are not readily available locally. Use of custom designed electronic controllers and other custom high-tech gadgets should be avoided. NCS designs typically incorporate Nibbler high strength treatment units for commercial applications. Bioclere trickling filters and recirculating gravel filters are used as secondary treatment systems for both residential and commercial applications. Each of these technologies provides low long-term life cycle costs and incorporates standard off-the-shelf components that can easily be replaced. All pumps, blowers and electronic controllers specified for use in these designs are standard items with multiple manufacturers offering abundant supply choices. For any long lead-time items, a spare parts inventory should be provided. V. Active Government Oversight Monitoring and reporting regulations for ongoing operations vary widely from state to state. Auditing and enforcement practices are even more diverse and non-existent in some locations. Requirements for regular monitoring and reporting by certified personnel are absolutely essential. Little problems need to be identified with an imperative to correct them early before they become big problems. It is best that this not be just a paper exercise, but involves actual site visits/audits by appropriate government staff. Checks and balances here are a good thing. Audits can be effective without being intrusive. The North Carolina DENR offers a good role model. Funding for this activity, always an issue, can readily be incorporated into the annual or semi-annual operating permit renewal process. It should be noted how much easier and economical it is to provide effective government oversight for small community system utilities, whether public or private, when compared to the challenges with individual home septic systems. 6

7 Enforcement action can be clearly directed with limited extraneous political influences. Private Utilities - Additional Considerations Most utility commissions currently allow returns on investment in the 7% to 9% range. With interest rates currently at 40-year lows and the stock market weak, such rates can be very attractive to prospective investors. The ability of a utility to attract capital is perhaps the greatest long-term guarantor of success. It also offers significant potential financial benefits to those underwriting the expense of private systems. Owning and operating a number of these smaller community systems, particularly when they are reasonably proximate to each other, can be very attractive to companies already in or seeking entry into this business. This fact will likely not escape the attention of developers and builders. Today, if a developer/builder invests in the sewer collection infrastructure and pays the sewer hookup fees charged by established public sewer utilities, this is a sunk cost. For every dollar thus invested, it is value that must be subtracted from net land values. The sale of each lot generates a lower return. Capital is consumed, not to be recovered. On the other hand, if that same investment for a small community system, capitalized in the form of a private utility, can be recovered by inherent utility returns or sale of the utility, value is now created, not sunk. The net value of each lot sold has now grown. Conclusion Small community systems offer an important alternative to individual home septic systems and central sewer. Homeowners receive high quality service. Development density and broader land use goals can be achieved while protecting the public health and environment. Providing an effective management infrastructure is key to success. A utility structure offers the best framework for establishing this infrastructure for the long term. A public utility should be our first choice, but private utilities can also serve this need. Townships and other local government entities should not fear such development but instead embrace it. With reasonable care and attention to providing adequate safeguards, private utilities will become important long-term community assets. 7

8 For more information regarding Small Community Systems, contact NCS Wastewater Solutions at (800) or Craig Goodwin at: Craig Goodwin is General Manager of NCS Wastewater Solutions. NCS provides turnkey Design/Build/Manage services for small community and commercial development in non-sewered areas across the country with installations now in 28 states and Canada. NCS Wastewater Solutions P.O. Box Puyallup, WA Phone: (800) Fax: (253)