Much of the nation wouldn't consider wastewater a viable way to increase revenue while creating more dependable drinking water supplies and providing environmental benefits.
But even before the economic downturn, 60-year-old Inland Empire Utilities Agency was exploring ways to accomplish all three goals. The agency has stepped up production of three “products” — recycled water, renewable energy, and a composted soil amendment — that will allow it to hold rates steady for two years while adding at least $10 million annually through new revenues.
All three products had been in the planning stages for roughly a decade. The agency's board of directors decided to further expand these particular activities only after conducting short-term (i.e., the next 5 to 10 years) and long-term (i.e., 20 and 30 years) business case studies to identify scenarios that would show a return on investment in less than 10 years. While they used consultants, a broad multidisciplinary team of employees also participated in each study.
“You need to be strategic, look at long-term trends, and pick your targets carefully,” says CEO and General Manager Richard Atwater. “Options need to be carefully studied by a diverse team to confirm that there's a reasonable return on investment and limited downside risk.”
Headquartered 35 miles east of Los Angeles, Inland Empire was formed in 1950 to import water from the Metropolitan Water District of Southern California to augment local stream and ground-water supplies. The agency's since added wastewater treatment, producing and delivering disinfected tertiary recycled water, composting biosolids, and generating energy to its list of services.
Although the region is blessed with abundant groundwater supplies, Inland Empire imports about one-third of its water from the water district. Metropolitan raised rates 15% in 2008 and 20% last year while reducing Inland Empire's allocation by 10%; and further allocation cuts are entirely possible.
Meanwhile, connection-fee revenues fell from about $30 million to $5 million as the economic recession expanded during the past few years.
Inland Empire plans to offset these challenges by:
Selling more recycled water to regional businesses. Recycled-water revenues equal, and therefore offset, 20% of wastewater operations and maintenance costs; by 2015, revenues are expected to equal, and therefore offset, 50% to 60%.
Using more renewable energy. The agency generates 45% of its electricity and expects to be completely off the grid by 2020.
Wholesaling composted soil amendment. Composting biosolids costs about half of other solids-handling options; that is, the effective net cost is $35/ton compared to $60 to $80/ton to landfill solids.
One motivation for holding the line on rates is that the agency increased sewer rates by 11.75% in 2008. But having tracked primary inputs to operating costs — labor, chemicals, electricity — managers believe they can hold these costs fairly stable for the next few years. Costs also are much more stable than several years ago when, for example, chemical and energy prices spiked after Hurricane Katrina in 2005.
RAMPING UP WATER RECYCLING
In cooperation with its seven member agencies, Inland Empire produces 60 mgd of fully disinfected tertiary recycled water that meets all California Title 22 criteria. Current recycled water use is about 30 mgd, or 50% of total production, which the agency sells for $65 to $75/acre-foot for about $4 million in annual revenues.
While using recycled water for irrigation and industry has increased rapidly, the agency also uses it to recharge groundwater supplies, which is key to the region's drought-proofing strategy. Inland Empire has budgeted the capital improvements, including laterals and retrofit financing, necessary to achieve this at $40 million/year over three years for a total of $120 million. Though most are being paid for with stimulus funds through EPA and the U.S. Bureau of Reclamation, the agency also received state grants and low-interest loans.
When the projects reach full capacity, the system is expected to generate $5 million annually through wholesale recycled-water sales and rebates through the Metropolitan Water District of Southern California's local projects program. With debt service expected to be $6 million/year and operation and maintenance costs $4 million/year, the operation will be entirely self-sustaining.
In September, the agency learned that virtually the entire $30 million cost of projects will be provided through grants and zero-interest rate loans (see sidebar on page 20).
On the cost-cutting side, the agency hopes to save $500,000 on electricity with solar installations at two plants, its composting facility, and land next to its headquarters building.
Inland Empire has reused the methane gas generated in its treatment plants for years. Now, thanks to a power purchase agreement (PPA) with SunPower Access, it's paying 30% less for electricity.
Rather than buying a solar power system outright, the agency is financing the necessary equipment through Morgan Stanley and the California Solar Initiative. The agency invests nothing but agrees to buy all of the generated solar power from the financier, which owns and operates the system, at a predetermined rate of 10 to 14 cents/kW for the next 20 years. (For more information about such agreements, see “Let the sun shine” on page 11 of the July 2008 issue of PUBLIC WORKS.)
In addition to having a long-term hedge against rising peak power prices, the agency owns the renewable energy credits associated with the system. A 700-kW array and 137-kW solar tile system are located at Regional Plant 1 in Ontario, while solar tiles were installed at Chino's wastewater treatment plant and the agency's composting facility in Rancho Cucamonga — which, at 3 acres, is the nation's largest indoor biosolids composting facility.
Built in partnership with the Los Angeles County Sanitation District through a joint power agreement, the installation at the composting facility avoids using more than 166,000 kilowatt-hours per month, equivalent to planting 20 trees each month.
Inland Empire and the sanitation district shared the cost of building the $80 million facility, which was completed in 2007, to recycle green waste, biosolids, and horse stable bedding into a wood-based, nutrient-rich soil amendment for topsoil manufacture, agricultural soil amendments, erosion control, sports fields, golf courses, and parks. To date, 240,000 yards of SoilPro Products Compost have been sold, generating $1 million. The two entities also give some away to the public several times a year.
While economic conditions have caused many utilities to curtail or cancel capital spending, Inland Empire demonstrates that strategic, focused capital investments generate revenues that hedge against anticipated future regulatory and climatic changes.
— Matichich ([email protected]) is global technology leader, Financial Services, for the engineering firm CH2M Hill.
Stimulus supports ‘purple pipes'
Reusing water is the ultimate conservation program, and California state authorities apparently agree. They approved Inland Empire Utilities Agency's $30 million plan to build new, or improve, infrastructure necessary to recycle an additional 10,000 acre-feet of wastewater annually to be funded almost entirely through the stimulus package.
The projects, which began construction last summer and are scheduled to be completed by this fall, include:
In addition, two greenfield residential developments are fully dual-plumbed, meaning that each house has a treated-water piping system and a separate system with purple-colored pipes indicating recycled water.
CEO and General Manager Richard Atwater attributes his team's success in accessing stimulus funds to a combination of factors: Employees paid attention to and followed tedious application details; and the project promotes conservation, so it received credit for promoting energy savings and lowering greenhouse gas emissions.
And, finally, plain old luck: Design/planning had been completed, so the project was shovel-ready.