2011 Trenchless Technology Editorial Roundtable:
June 2, 2011Each year, Trenchless Technology convenes a panel of experts to talk about a particular aspect of the marketplace. This year, we gathered a group of utility owners at the NASTT No-Dig Show in Washington, D.C., to discuss “Market Conditions.”
With the economy in flux and spending habits changing as a result, we polled six leaders from utilities ranging from small to large to get a sense of their sewer and water spending plans.
In general, the consensus is that sewer and water spending has not been negatively affected by the economic downturn of the tightening of the credit market. Largely, it appears, that this is due to utilities dealing with aging infrastructure that is reaching the end of its useful life.
Each utility, however, has a different story to tell, so be sure to read the transcription below. We believe that the recap provides valuable insight into the market segment that drives the industry – the owners. The participants were:
- John Allen, Senior Engineer, Public Works Commission, Fayetteville, N.C.
- Rollie Arbolante, Senior Engineer, Union Sanitary District, Union City, Calif.
- Mike Boyle, Division Manager Quality and Standards, Public Works Department, City of Austin, Texas
- Dino Ng, Associate Commissioner, New York City Department of Design and Construction
- William A. Tracy, Commissioner, Board of Southwest Suburban Sewer District, Burien, Wash.
- Marcia Tucker, Group Leader-Systems Infrastructure Group, Washington Suburban Sanitary Commission
- Moderator – Nathan Gardner-Andrews, General Counsel, National Association of Clean Water Agencies
1. How much do you plan on spending on rehabilitation of pipe networks in 2011? How does that compare to previous years? Do you anticipate an increase, decrease or level spending in 2012?
Ng: The total dollar amount of our program this year and last year has significantly increased from past years. We went from spending an average of $400 million a year for the past 10-plus years to approximately $600 million last year, and we’re now at about $800 million – and we’re not at the end of the year yet. We’ve gone from about 45,000 lf a year and now we’re up to over 70,000 lf per year in terms of rehab.
Boyle: We have a great deal of spending this year on network improvements. We’re putting in a couple of large tunnels in the wastewater system. They will pretty much complete what is called the Austin Clean Water program. We were under a state order, which we complied with and have been released from, so the spending on that will probably go down in the coming years. Right now we’re building a new treatment plant for water and putting in improvements to connect that into the system. So that will take up most of our CIP spending for the next couple of years. As for rehabilitation, we have ongoing service contracts for pipe lining for wastewater and those will continue.
Tucker: For FY11, we anticipate spending approximately $68 million on the sewer reconstruction program, much of it to address a consent decree order. That amount will cover about 25 miles of main line sewer and 10 miles of lateral lining, as well as several hundred sewer renewals. But our main effort on the sewer side right now is meeting the consent decree and the deadlines associated with it. For FY 11’s water main reconstruction program, we will spend about $62 million to include about 41 miles of small pipeline replacement as well as replacement of our large meter vaults. Comparing that to FY10, on the water side, it’s been pretty similar. We spent about $62 million on the water program; on the sewer program we spent about $30 million. We are steadily ramping up the sewer program to where we think we need to be. As far as our FY12 spending levels, we anticipate that we’ll spend about another $66 million for water reconstruction and about $50 million for sewer and we think the $50 million will be the level of spending that we’ll be able to accomplish.
Tracy: We are a small operation so compared to a lot of the people [in the Roundtable]. We have two treatment plants in the area just south of Seattle and approximately 16,000 connections. Over the past three years we have been in the process of completing a project that will culminate in about 70,000 ft of pipe — largely the entire center of the district. That has taken us about five years and almost all of it has been CIPP. We spent approximately $3 million on that particular project, which we are finishing this spring. Looking to the future, we’ve just let a contract using a public trust fund loan to replace a line along the beachline. It’s along Puget Sound, actually part of it is in Puget Sound, which raises a whole lot of interesting issues along. That is a $4.5 million project and that’s what we’re looking at for the upcoming year.
Allen: In FY10, we spent about $6.7 million on water and sewer main rehab. Our rehab budget funds both lining and replacements and also includes lateral lining and lateral replacements. This year in FY11, we’re looking to spend about $7.6 million, and FY12 we’re looking to spend a little over $9 million. Recently, we’ve actually been doing a little bit more of replacement of water lines than the lining of water mains. Most of that is due to either trying to get rid of some of the asbestos cement water lines in our system or replacing mains that may be under part of the City’s resurfacing or streetscape projects. In those instances we will go ahead and replace mains rather than reline them. In total we line or replace about 20,000 lf of water mains each year. On the sewer side, we line the majority of our sewer mains vs. replacement. We do about 30,000 ft of sewer relining a year. We’re moving toward larger diameter sewer mains – the 18-, 21- and 24-in. – because a lot of those outfalls are built through low areas along creeks and swamps and have a lot of inflow and infiltration. Most of our lining and replacement work is done by contractors. We’ve increased our spending on the sewer side due to our SSES work that we do in-house. We’re finding a lot more defects and a lot more things to do. On the water side and the sewer lateral side, we’re trying to stay ahead of the city resurfacing project, replacing those laterals before the city paves the street. They don’t seem to like us tearing up their streets after they’ve paved it. We’ve received good support from our Commission as far as our rehab program so I suspect our current spending will increase mostly to maintain the current construction costs and to help try and keep our system intact.
Arbolante: The past three years, we have spent almost $6 million on pipe rehab. We plan to spend about $1 million this year split 50-50 with a CIPP lining project and a spot repairs project, and we anticipate spending about the same next year. Overall, our system is in good shape. Most of the sewers are less than 50 years old and we have had an aggressive CCTV and cleaning program for many years, so we are in a situation where most of our lines have been cared for and we don’t come across critical repairs very often.
2. How much do you plan on spending on new construction of pipe networks in 2011?
Arbolante: Over the past 10 to 20 years, we addressed most of our capacity issues by upsizing existing sewers or installing new trunk sewers to relieve capacity deficiencies. Many of these sewers were installed using microtunneling. With most of our capacity-related projects completed, we have focused more on the rehabilitation and repair of our treatment plants and pump stations now. So for 2011, we do not have any money budgeted for new pipe networks and we see that continuing in 2012.
Allen: New construction at PWC is not really a significant part of our budget. Typically, we rely on the developers to furnish and install most of the infrastructure for us and then we take it over for ownership and maintenance. Any new construction in our budget is typically outfalls or other large diameter projects. We anticipate our FY11 levels to be about $500,000 worth of new projects and right now we anticipate the FY12 levels to stay about the same. So we don’t expect to see a big increase or decrease as we move forward.
Tracy: Our situation has really slowed down for new construction because there has been little development. We probably won’t be putting much new piping in the ground unless there is an emergency situation whereby somebody has to connect to the system. But bottom line, the funds aren’t there for the public to pay for it and they’re not there for of the developers. It’s slow right now.
Tucker: We also depend on our developers for new construction. We don’t get into much of that at this point. The vast majority of our program is geared toward upgrading and rehabilitating our existing systems. That’s the way it’s been for quite a few years now; so there’s not a whole lot in regard to new construction.
Boyle: As I mentioned before, we have a new treatment plant going in, and that will also generate several large transmission mains to tie that into the system. So in the coming year we will probably spend somewhere in the neighborhood of $60 million to $70 million on those transmission mains. We just finished an expansion of an area of town, where the last two years we spent a total of $80 million on transmission mains and a pump station. Austin is still a growing city. Before that, we’d spend on average about $20 million a year on transmission mains, which is really about all the city participates in. All of the infrastructure for subdivisions and small diameter mains is paid by the developer who develops the subdivisions with the city building the transmission mains that expand the system out from the center of the city. For wastewater, we hardly ever participate except in interceptors and those are pretty much in place, so we won’t be spending a great deal of money on that.
Ng: Last year we did about 35,000 lf of new sewer. This year we’re doing a little bit less in terms of footage, but dollar-wise it’s a little bit higher because the average pipe diameters of the sewers we’re building are larger. On the water side, we actually have a blip in terms of the budget because we are planning to tie into the new City Tunnel No. 3, in order to bring service online by 2013. We have about 10 very large trunk water-main projects that connect to the shaft that brings water up from the tunnel, which is at a depth of 500 ft. About eight of them are currently in the bid process, and the remainder will conclude design and go out to bid this year. Basically, these are anywhere from $25 million to $60 million projects, just on the city’s side. When you add in the private utility work associated with these projects, their individual value can exceed $100 million. Next year, the trunk main projects will be in construction, so the total dollar value of our projects will drop due to that, but in terms of footage we do have a significant increase in the coming year.
Allen: I want to add that the city recently annexed a large part of Cumberland County, so as part of that annexation we’re putting new sewer into those neighborhoods and that’s obviously new construction. So we’re spending about $7 million to $8 million a year on installing new sewers into those neighborhoods, which equates to about 35,000 to 40,000 lf of new sewer each year. We’re bringing sewer to about 500 homes every year. We’ve been doing that for the last three or four years, and we anticipate doing that for the next 10 to 15 years. So we’re keeping steady with that, but outside of that, we’re not going to have too much new construction.
3. How has the current economic climate impacted construction and rehabilitation projects?
Arbolante: We have seen a very competitive bidding environment and we have received low bids coming in at 20 to 30 percent below the engineer’s estimate. Not only have the prices been low, but the number of contractors bidding has been high. We recently received 21 bids for a sewer project that would normally receive 5 to 10 bids. It’s great because the money we save from the low bids can be used toward other projects. So, the challenge is trying to design projects fast enough so they can be advertised to take advantage of this environment. We have even hired an additional engineer to help manage projects into construction.
Allen: At PWC, we’re a city-owned utility. We are solely funded by our water and sewer rates, which allow us to maintain our spending levels. Really the economic downturn back in 2008 had very little impact other than scaling back on some non-essential spending. Part of the reason we’ve been fortunate is because Fayetteville is home to Fort Bragg, which is a fairly large military installation. And through the recent base realignment and closures, Fort Bragg is growing and we are expecting an influx of troops and their associated families and support personnel over the next couple years. That’s going to help buffer us from the economic conditions that other regions may have seen. So because of Fort Bragg we don’t foresee any long-term impacts of the economic climate.
Tracy: In our district there is not a heck of a lot of area for expansion and growth. We are basically the west side of Sea-Tac airport out to the water. We are kind of on a ridge and a lot of the available land has already been developed. We don’t project a lot of growth in the area.
Tucker: We’ve always had a large pool of contractors available to construct our water main replacement projects. What we’ve observed over the last three years or so is that our bid prices have come in significantly lower than our engineers’ estimates. The contractors are definitely being more competitive in terms of their prices, so we have been able to do much more with our available funds. And we’ve taken advantage of that. On the sewer reconstruction side however, I don’t know that we’ve seen any impact. Our biggest observation is that because we are heavily into addressing the rehab portion of the consent decree, we have had to aggressively market our bids to attract new bidders. We’ve had to take extra efforts to find contractors who are capable of doing various types of lining and other sewer rehab work that are needed. We have found that these contractors have been busy in other regions addressing other agencies’ consent decree; even in nearby jurisdictions such as Baltimore and the District of Columbia, which are also under consent decrees. So finding qualified rehab contractors has been our biggest challenge.
Boyle: We’ve seen about a 30 percent drop in prices due to the economic downturn and that’s mostly because the private development has slowed significantly and our bidder pool has gone up. Almost 70 percent more people are bidding on projects than were three years ago. So the process is much more competitive than it was and that really has helped the utility be able to do more with the same amount of money because they have limited funds. The city has seen this across the board, not just in water and sewer, but also in paving and the other construction projects we’re doing.
Ng: We’re also experiencing lower bids on most of our construction projects. Our budget is primarily based on bonds, so that has not been reduced significantly. In fact, in recent cycles our budget has increased. That is primarily due to the fact that the city’s new water treatment plant and other large projects are concluding construction, so money that was originally slated for those large projects has now been freed up for smaller projects. But in terms of the number of footage, we haven’t seen a significant increase primarily because the cost of doing many of these projects — not the hard construction but the soft costs — has escalated significantly for us. We’re working in very congested areas. To give you an example: on one shaft connection project, the hard construction dollars are probably about two-thirds of the budget and the other third goes to traffic agents that we have to hire from the police department to do work. The estimated cost just for the traffic agents is close to $30 million. So the significant soft cost is limiting the amount of work we can do.
In addition to the economic climate, what about the regulatory climate? There are regulations for drinking water and wastewater, but there are also consent decrees. How much of your construction is being driven by regulatory mandates or enforcement mandates from the state or federal government?
Ng: Obviously, as with many other older cities, the combined sewer overflow issue is a huge problem. We’re spending a great deal of money trying to mitigate CSOs. In the last couple years, DEP has built huge end-of-pipe CSO tanks, worth around $1 billion each, in order to detain stormwater before it overflows into NYC’s water bodies. At the same time, they’ve been exploring less costly ways to solve this problem, and have created a program to encourage the diversion of street and rooftop runoff into more natural infiltration and detention settings. Now the directive is not so much for us to build pipe, but to build a network of these smaller, naturally-based BMPs that capture and detain stormwater before it ever reaches the pipe. That’s where we’re spending, and I think in the next year or two, we’ll be doing a great deal more in that area.
Boyle: The City of Austin was released from our administrative order about 18 months ago, and we hope to not get back into that situation again. We went after it aggressively in spending funds, and actually reduced the flow into the system by about a third. So it really has reduced overflows by somewhere around 60 or 70 percent. So we have reduced spillage of sewage into the system. On new development onsite detention of storm water in required so we don’t have increased flows into the city. That’s helped quite a bit and that has been going on for quite some time.
Tucker: WSSC’s sewer program is geared towards addressing our consent decree, which we have to complete by December 2015. In fact, we are in the process of getting several sewer contracts bid, awarded and in place so that once all the SSES investigative work has been identified, construction may begin right away. We’re doing that in the form of several indefinite delivery-type or IDIQ contracts for mainline lining work, as well as several lateral contracts to address the problems. We started this effort late 2010 and we’ve already awarded our first IDIQ contract, which is valued at approximately $20 million and will last for five years. We currently have been advertising a second IDIQ contract worth another $20 million to $25 million and four lateral contracts worth about $80-plus million in total. Each IDIQ contract covers specific basins. We’re going to continue this process until we have about six main line IDIQ-type sewer contracts advertised and awarded, as well as five or six contracts for the environmentally sensitive areas to address sites that are impacted by streams and other sensitive areas; and four lateral contracts to address sewer services. So when we’re done, we’ll have quite a large number of contracts on the street, but that is so we can have those services in place to address the consent decree work as soon as they are identified.
Tracy: We don’t have much contact with the federal government. We received one large grant, believe it or not, back in 1995 and since that time, we have had no real opportunity. We do operate in the bond market somewhat to do a lot of infrastructure work. In fact, that’s where most of our expenditures in the next year are going to be as we build a new administrative and maintenance facility. We’re going to have to issue bonds for that. The market is tight. We do what we can do.
Allen: The short answer to the question is “no.” Our work is not really driven by regulatory enforcement. We are not currently under a consent decree. When we do have an SSO, we do follow that up with CCTV and cleaning. And as necessary, depending on what caused the SSO, we schedule that line for rehabilitation or replacement. We may do a mailing to those customers upstream if the SSO was caused by grease. We also have a root control program. As I mentioned earlier, we have an internal flow monitoring program, and as part of that we conduct SSES work within various parts of our system. We go into several sub-basins at a time, and through our SSES work we have identified defects within the system, such as cross connections with the storm drainage. Obviously, we work to eliminate those as well. North Carolina issues each sewer system owner a collection systems permit. I think North Carolina did that when EPA was talking about the CMOM program. So we operate underneath that collection systems permit. Most of our work is directed toward taking actions to maintain compliance with existing regulations.
Arbolante: Union Sanitary District has not operated under a consent decree. Our construction projects have been identified and prioritized through careful master planning of our collection, transport, and treatment systems.
4. What impact has the credit market had on your work? What potential impact might alternative financial sources like private activity bonds, Build America Bonds and a National Infrastructure Bank have on your operations?
Allen: On the developer and private side, the credit market has had a great impact. It’s slowed the single family residential development to a standstill. For PWC itself, it did force us to take a step back and take a look at how we finance things. The interest rates for bonds have gone up from what we had anticipated during our planning. We do fund a fair amount of our work through bonds. All of our rehab programs are funded through bonds. I think three years ago, we sold about $40 million worth of bonds, and we’re looking to do another bond purchase here in the next year or so in the same dollar range. So the credit market has had an impact on how we finance things. We’ve taken a look at more of the low interest loans through the state revolving funds because typically those interest rates are half of what we can get through bonds. With regards to the alternative sources, such as the national infrastructure bank and the activity bonds, we would have to take a close look to see if pursuing those bonds or financing arrangements make sense for us. It depends on what the rates would be and the level of effort it would take to get those bonds. One disadvantage that we have with our rates being fairly low and the median household income in the county fairly high makes it difficult to qualify for low interest loans and bond projects. So certainly we’re looking at getting the loans where it makes sense, but overall, the credit market hasn’t had a huge impact on how we do things.
Tracy: If there is a way for us to become eligible for some of these alternative sources, we will be looking into that. We are a rather small organization, and it’s difficult to even apply because most of the work that is being done is being done by other governmental agencies in our area.
Tucker: Because of WSSC’s triple-A rated credit, we have not been adversely affected by the current credit market. In fact, the historically low interest rates will result in savings for WSSC in the lower debt service payments. As far as alternatives like the Build America Bond, we have utilized that in the past; however, private activity bonds are not useful to us, because of our triple-A rating. And we would have to see how a national infrastructure bank lending program would be funded in order to determine if that would be something of benefit to WSSC.
Boyle: We haven’t been adversely affected except the private sector has slowed dramatically because of their lack of funding. But the city actually had a large bond issue in 2006 and most of those bonds have been sold, and we haven’t had any trouble at all selling our bonds. Now that may change in the future going forward. We rarely participate in the state revolving loan fund bonds because the rates that they get are no better than the rates we can get with our bonds. And the cost of doing the paperwork to qualify for those is extensive, so we tend to just stick with our own bonding capacity. We did get a large $30 million zero-interest loan through the stimulus program to do a plant expansion at our bio-solids plant. And that has significantly helped because that project was on hold, but with zero interest money, they decided to go forward.
Ng: The city primarily only uses bond funding that’s raised for the city – sewer and water bonds. The economic situation really has not affected us. We don’t use private funding. There are rate payers, but primarily the capital works are funded through the city water and sewer bonds. In terms of federal funding, last year I believe there were some ARRA funds that we used for some of the small sewer projects, but not a significant amount.
Arbolante: The credit markets have not had an impact on us because we have not needed to issue bonds for any of our projects. Most of our funding comes through user fees, but we also rely upon SRF funds, and those funds have been very useful.
5. What impact has the economic stimulus had? How much do you rely on State Revolving Funds for your projects? What is the implication of reducing SRF funding levels?
Allen: We applied for the stimulus funding. We did not receive any grants so we did not have any direct impact from the stimulus funding.
Tracy: We received nothing from the stimulus funds. We didn’t have anything ground ready to go after because most of our projects at that time were tied up with regulatory issues others. The state revolving funds, however, that’s been our bread and butter. We have been very good at getting funding from the revolving funds over the past 20 years that I have been commissioner of the district. We have applied for and received between $10 and $12 million, which is one of the larger chunks that has come out in Washington State. The best thing about this is that it’s a revolving fund. We pay the money back at one-half to one percent interest. And it keeps going back so it keeps renewing itself. The problem that we’re facing right now is the legislative control. The legislators are looking at this as money they can use for other purposes and spending it now. So we don’t know how much longer we’re going to have it available, but it has been a major impact.
Tucker: As with others, we also applied for stimulus funding. Our problem is that the average income of residents in our service are is much higher than that of the other counties in Maryland, so we rank at the lower end when it comes to distributing the money. I believe we got $6 million for one sewer project, and it ended up funding about two-thirds of that project. Beyond that, we really have not gotten much of anything.
Boyle: In terms of water and the waste water as I mentioned, we got a $30 million grant to expand our biosolids facility. We had the past 10-15 years, expanded both of our waste water treatment plants but did not have the money to expand the biosolids facility. So in doing that, it allowed us to keep up with the capacity of the wastewater plant.
Ng: On the transportation side, the city received close to $300 million, but they used it on two major projects that were actually already in the pipeline and could easily take advantage of the money. What that did was it freed up $200 million to $300 million city funding that was originally slated for those projects, and we were able to use it for smaller projects, with less restrictions because it’s city funding. On the DEP work, the sewer and water similarly took on about $80 million in ARRA money, and that freed up the money from the city funds to fund important projects that probably would not have been funded had it not been for that source of money.
Arbolante: We have always known about the SRF program and have utilized it in the past. However, with the economic stimulus infusing more money to the program, there are more agencies aware of it now. What we have noticed with the funding now is that it is taking a longer time to secure the loan. Besides more agencies using it, the state of California has also had staffing shortages coupled with furloughs that have delayed the processing of these loans. This has led to some of our projects being delayed.
6. How important has the SRF been if at all to funding your projects? What would the impact be if it was reduced?
Ng: I don’t think significantly. Again, the city programs are primarily funded with bond money. We don’t generally receive federal money, particularly on the sewer and water pipe street work. So we would probably not be affected.
Boyle: Austin typically doesn’t apply for the revolving loan funds because we can sell bonds at approximately the same interest rates, and the restrictions are much less and the paperwork to acquire those is much less. The oversight is strictly ours as opposed to the state oversight of those projects. We stick with our own bonding capacity.
Tucker: We also would not be impacted as we do not apply for those types of funding. We would not qualify because of our income levels and we also depend heavily on our bonds.
Tracy: As I said, it’s our life-blood. If we don’t have the revolving funds available then we’d dig down into our deep reserves or we’ll go out in the open bond market.
Allen: As I mentioned before, PWC does not rely on the SRF loans or grant program. We have pursued them recently, just because the interest rate has been a little bit lower than what we can get on the bond market. But again, our median household income and our rates and the condition of our system is such that we typically do not qualify for the SRF-type loans or grants. So, reduction of those programs should not have a significant impact on our projects.
Arbolante: For Union Sanitary District, we don’t rely on the SRF loan program, but we do take advantage of it. Even if there was a reduction of funds to the program, it is a revolving fund so monies will still get paid back into the program and there will still be money in there that will be loaned back out. A reduction will not have a big impact on us.
7. Have your utilities seen significant rate increases to support these construction projects? Is there any concern in your community that at some point you’re going to reach a point when your customers can no longer bear the additional increases? What does that mean for your future construction projects and plans to expand?
Arbolante: Our rate increases have typically ranged from 3 to 6 percent each year. What our board has done is try to keep our rates within a certain percentile of our comparable agencies – and we’re in the lower 30 percentile. Even though we’ve had moderate increases, that’s been something that they’ve established over a period of years and we have been balancing that and still been able to provide funding for our projects.
Allen: We have not had a recent significant increase in our rates. I think in the last three or four years, our board has made a decision to look at the water and sewer rates every two years and then our electric rates will be the alternate every two years. The board did just pass a rate increase to go in effect on the first of May of this year, but typically that increase I think was in the neighborhood of 3-5 percent. PWC does have one of the lowest rates in the state of North Carolina. I think our current average bill for using 5,000 gallons is about $48 a month for water and sewer. So I think our board is wary of rate increases and they’re not looking to make significant rate increases. We’re solely funded by our rates so we have a rate model and we look at those rates continually. They understand the need to phase in rates and not just double your rates overnight. So I think the board understands the need to raise rates to fund our programs that we need to maintain our system, but they are also cognizant of how those rates impact our customers.
Tracy: I think I’m the one person here that has to make that hard decision all the time as an elected commissioner. I basically set the rates, and we’re on a spiral now about every two or three years that we may increase by a dollar or two. The last rate increase, we went from $21.50 to $24.50 a month. That keeps us I think second from the bottom as far as rates throughout the area. We have been very cognizant of the impact because we have a very large portion of our community that’s low income and relatively high unemployment. There is a lot of public housing in the area. And one of the parameters that I brought about when I came on the board was talking to the other commissioners into setting up a special rate for low income and seniors. And we have constantly been upgrading, but that level has been growing and getting a little bit higher all the time. But we’re very cognizant of what has to take place because if we raised the rate, we could be walking the street. And the voting public has been rather vociferous at times. We’re scheduled for an election this fall, and we probably won’t even be talking about any rate increases until next year, which is the year in between elections. We will examine the issues at that time and see if we want to get another $2 or so. Again, it will depend on what the market is doing and what our goals are. Fortunately because of the revolving loans that we have had, we have been able to do most of the rehab that needs to be done. The problem is eight years down the road. Our plants were built in the 1950s. Our plants are built out of concrete, and the concrete is wearing out. We’re going to have to rebuild the plants. How are we going to finance that? I don’t know. The financial end of things, the biggest issues that we have had to face, and I don’t know if the rest of you are looking at this, is federal regulations on nutrient removal, and who is going to pay for it.
Because nutrient removal is going to cost as much as secondary treatment costs, and the only way that 90 percent of the nation was able to afford secondary treatment was through federal money. That federal money isn’t there. How are we going to achieve nutrient removal without that aid? And if you have a system that is emptying out into a freshwater or saltwater estuary, you’re going to be in deep trouble over the next 10 years if the regulations go in and they say you have to go and do it.
Tucker: In the early 2000s, Washington Suburban Sanitary Commission went through a period of about five years of no rate increases. That seemed like a good thing at the time. It was great for our rate payers. We soon realized we had to significantly increase our water and sewer rehab program to address our aging infrastructure. We had to address the challenge of how we would pay for the ramp up. So, consequently for the last couple of years or so, we have had to increase rates. For FY12, our proposed rate increase is 8.5 percent and this has already been approved by our Board. Hearings are being conducted by Prince George’s County and Montgomery County Councils. Our rate payers are attending these budget hearings to express concerns about having to pay the proposed increase. So that’s a big issue for us right now but we’re also struggling with how best to address the aging infrastructure at the required pace to have these pipes rehabbed before they start breaking in significant numbers; that’s an on-going challenge for us.
Boyle: The city of Austin actually went 10 years without a rate increase from the early ’90s to the early 2000s, and that again sounded really good at the time, but it’s led to a portion now where we’ll probably have a series of years with incremental rate increases to pay for both the new treatment plant – which is $500 million – and all of the aging infrastructure. We also have a fairly aggressive conservation program to try to limit the growth of water usage per capita, and actually reduce it. We want to reduce the per capita use by about 20 percent. Most of that is in irrigation. Our use doubles in the summer. It’s very hot in Texas. And people like nice green lawns. We’re trying to get to where they are using less water to maintain those green lawns, and we have less of a strain on the system in the middle of the summer. And that has an effect on our income because we have reverse block rates, and the irrigation actually is the most expensive water that people use. So as we get people to cut down on their irrigation, it cuts down the income to the utilities. The more successful we are… it’s a very strong conundrum that we’re trying to address and strike some balance. We don’t want to kill ourselves by being overly successful by conservation but if we can conserve, we can reduce our need for more water.
Ng: Similarly, we had not raised the rate for many years in the city until Mayor Bloomberg came in. We have had two substantial rate increases in the last eight years, yet still have relatively cheap water and sewer rates compared to many, many cities. We proposed a third increase this past year that got turned down by the mayor. He said, ‘Look, two is enough.’ I guess we have to wait until he leaves, then we can propose again. I know he’s not running, so I’m not sure he wouldn’t let us raise the rate. Because of the lack of increases through the years, I think our system has suffered maintenance-wise from a lack of funding. We’re basically only patching what needs to be patched at this point. We have over 6,300 miles of sewer and water in the city each. We’re doing literally less than half of 1 percent per year. So when you look at that cycle, it’s a 200-plus year cycle. I don’t know of any pipe that lasts that long. We’re really sitting on pins and needles until something happens basically. Funding is a bit of problem, but can you raise rates that much to cover all your costs? I guess the answer is no.
8. Because of the lower bids you’re getting on some projects, have you seen any decrease in quality or are there lower quality products being used?
Boyle: We’re not seeing less quality, but I do deal with the claims as part of my job. What’s happened is most of the contracts that these much lower rates are bidding to keep their companies going, and they’re not making any money on that project. They’re just keeping the doors open, keeping the equipment running, keeping their employees. And any change at all, no matter how insignificant it would normally be, they have to recover costs for that. And that’s been the biggest thing. It’s much more contentious when you have any small change in a project to negotiate those change orders with the contractors because there is no margin in what they bid. When they reduce their bids by 30 percent in one year, you can imagine there is no profit in that project. Previously, something really small, they would just take care of it to keep the project going. They can’t do that anymore because there is no profit in the project, and there is no margin for them to take care of anything other than what is exactly in the bid.
Tucker: We have not seen a decrease in quality beyond the normal issues we would normally deal with on our construction contracts. We also believe that these lower bids help to keep companies afloat in some cases. If we see a bid that is significantly low, we will, as part of our process, interview the contractor to make sure they fully understood what they were bidding on. We don’t allow contractors to be excused from their bid, but at the same time, if a legitimate error was made, we will allow the contractor to bow out. If something is really abnormal, we’ll take a look at it. Generally speaking, we’re finding that the lower bids are occuring to keep companies afloat; contractors would rather have a contract that is not as lucrative rather than have nothing at all.
Ng: In New York City, whenever we do work in the street, the private utilities are responsible for the costs for support, protection, and relocation. The utility cost is actually a significant portion of the contract. It’s not part of our contract; it’s dealt with separately, negotiated by the contractor, the low bidder, with the utility company. So there’s a lot of money that’s in these contracts, so to speak, that’s not being funded by the city. Though many of our contractors bid low in order to get city contracts, they’re much more aggressive in terms of negotiation with the utility company to perform their work. And that’s primarily where they earn any profits. We don’t see a quality issue, but I think part of the city work is really being subsidized by the private utilities.
Allen: We haven’t really seen a decrease in the quality of the work. We have fairly strict specifications and we have project coordinators who visit the job sites to enforce the quality. But we have seen a lot more contractors interested in bidding on our work. Some of the contractors, we wish weren’t bidding on our work. I think most of our issues have been the contractors were bidding just to cover their costs to keep their people employed. That forces us to provide more oversight in the field to ensure that our standards are being met. While the lower prices have not impacted quality, they do force us to watch over the contractors more. Like in the City of Austin, some contractors are looking to change order you or change the scope if the smallest thing comes up, which can be a little more difficult to deal with. Overall, the prices are good from the owner’s perspective, but dealing with some of those contractors can be more aggravating than others.
Tracy: I hate to say that your concern is my concern. What I have seen this past year is kind of disturbing with people bidding that have never bid on a project before and sometimes don’t know what they’re getting into. We’ve had two or three pull out f the bidding process when they found out they were in over their heads. Worse yet is the performance of some contractors who seem to be rushing through each job to get to the next. This has led to a number of road failures and sometimes hazardous conditions including an approximate 6-in. drop. And I’m phoning my inspector ‘Get a hold of the contractors and get some people out there quickly before we start getting all kinds of lawsuits from people breaking the axels in their car.’ We had one instance, I don’t know what was going on, but in the repaving they decided to go in and remove all of our manhole covers, put a steel plate on top and pour asphalt on top of it, which denied us access to the area. We had to go back in and remove that so that we could finish part of the project.
Arbolante: I haven’t seen what Bill is talking about, which I guess is fortunate for us. One thing we’ve done that addresses quality issues is include pre-qualification requirements in our specs for some projects and that has helped prevent inexperienced contractors. That and providing for full-time inspection and construction management on each project helps.