July 2006, Vol. 18, No.7

Gulf Coast Utilities Require $1.2 Billion To Rebuild, Report Says


It will cost $1.2 billion to repair and rebuild wastewater utility treatment and collection systems damaged by Hurricane Katrina, according to an April 25 report prepared by the Water Environment Federation (WEF; Alexandria, Va.) and Black & Veatch (Overland Park, Kan.).  The report, Assessment of Reconstruction Costs and Debt Management for Wastewater Utilities Affected by Hurricane Katrina, estimates that these utilities will need approximately $163 million during the next 5 years to offset lost revenues from reduced populations and remain financially stable.

It will cost $1.2 billion to repair and rebuild wastewater utility treatment and collection systems damaged by Hurricane Katrina, according to an April 25 report prepared by the Water Environment Federation (WEF; Alexandria, Va.) and Black & Veatch (Overland Park, Kan.). The report, Assessment of Reconstruction Costs and Debt Management for Wastewater Utilities Affected by Hurricane Katrina, estimates that these utilities will need approximately $163 million during the next 5 years to offset lost revenues from reduced populations and remain financially stable.

“Water and wastewater utilities are the most capital-intensive of all utilities,” said Eileen O’Neill, WEF’s chief technical officer. “Utilities in areas subject to long-term population reductions will likely need financial subsidies beyond currently available grants and loans if they are to maintain the facilities essential to public health protection.”

The report provides an assessment of the damage to plant infrastructure, an estimate of the lost revenues from displaced populations, and recommendations for federal, state, and local governments — as well as utilities and the wastewater and financial sectors — to aid recovery and planning for future disasters.

Approximately 445,000 people lost their homes to storm surge damage, and surge-affected cities lost 25% to 80% of their populations, the report says.

“The study originated from a general lack of attention paid to wastewater systems in the response to and recovery from this enormous natural disaster,” said Jim Clark, vice president of Black & Veatch and a principal investigator for the report.

“Although these services are critical for public health and the environment, they are often overlooked,” Clark said. “Our goal was to produce a high-level cost assessment that can be used as a basis for assessing the need for reconstruction funding and financial support.”

Storm Damage
U.S. Environmental Protection Agency (EPA) and state databases revealed that 118 wastewater treatment plants, serving 1.8 million people, were located in the hurricane-affected areas of Louisiana, Alabama, and Mississippi, the report says. To assess storm damage, teams of investigators visited 19 wastewater treatment plants and conducted telephone surveys of six others. Findings were categorized by the type of damage an area received: surge, flood, or winds greater than 160 km/h (100 mi/h).
By far the greatest amount of damage occurred in the surge zones, the report says. In these areas, most administration buildings, maintenance buildings, and chemical storage facilities were destroyed. Electrical and control equipment experienced extensive damage. After being immersed in salt water, mechanical equipment required cleaning, lubrication, and corrosion protection; despite these efforts, much of it will have to be replaced. However, reinforced concrete structures, such as aeration basins, clarifiers, and trickling filters, suffered only minimal damage.

Damage in the flood and wind zones was much less severe. For the most part, essential treatment plant structures remain in place, with most damage confined to windows, roofs, and interior surfaces, such as walls and floors.

Cost Estimates
The $1.2 billion repair estimate — which investigators extrapolated from the damage assessments — is comparable to what the Louisiana Department of Environmental Quality (DEQ) calculated, said Chris Piehler, Clean Water project director at DEQ, at a Capitol Hill press conference. Likewise, the WEF report and DEQ agree on the estimated $163 million shortfall for operations and maintenance and debt service.

At the press conference, Clark pointed out that the estimates are in January 2006 dollars and do not include increases for escalating building material costs. Since so much of the region is rebuilding, he said, there has been a sharp increase in the cost of such materials as concrete, steel, and plastics. For instance, the price of polyvinyl chloride (PVC) pipe is increasing daily and has almost doubled since before the hurricane, he said.

The original damage estimates from the U.S. Federal Emergency Management Agency (FEMA) were lower than those of WEF and DEQ because they did not account for damage in municipalities that performed no assessments, Piehler said. FEMA will grant funds to municipalities for assessment and repair of collection systems only if the damage found is a result of the hurricane, he said. If the collection systems are undamaged or the damage cannot be linked to the storm, municipalities must foot the assessment bill themselves, Piehler said. As a result, many smaller, hard-hit towns cannot afford to perform assessments at all.

Additionally, utilities cannot use any FEMA-allocated funds to help pay operations and maintenance or debt service costs, Piehler said.

“So far as we know, that’s a gap right now,” said Tim Williams, director of government affairs at WEF. “There is no government funding available to address that. Communities are in the position of asking for forbearance from the people who hold their debts.”

Fiscal Flexibility
The WEF report calls on federal and state governments, as well as the private financial sector, to monitor the fiscal health of Gulf Region utilities and provide relief if necessary. The report recommends that federal and state governments grant subsidies and forgive debt for utilities that are in danger of defaulting on loans. In addition, bond holders should work with communities to reschedule debt obligations to avoid default due to ratepayer base loss, the report says.

If utilities are forced to default on their loans, it could affect municipal bond rates nationwide, Williams said. But the effects of allowing public health utilities to default go far beyond finances.

“If you’re willing to give up New Orleans, what about San Francisco after the next earthquake or Florida after the next hurricane?” asked Bill Bertera, WEF executive director. “Where does it stop? The message that implies is politically, morally, and psychologically unacceptable.”

Piehler said he wants to raise legislator awareness of the shortcomings in current emergency management funding programs, especially regarding operations and maintenance and debt services expenses. In particular, he pointed to the Robert T. Stafford Disaster Relief and Emergency Assistance Act, which constitutes the statutory authority of most FEMA programs. The law was not designed to cover long-term, slow-recovery disasters, he said.

Looking Ahead
In addition to its suggestions for ensuring utilities’ financial stability, the report includes recommendations to help prepare utilities for future disasters.

“We feel that we have learned some very important lessons in emergency planning, and we intend to capture that knowledge,” O’Neill said.

A key recommendation is that EPA be given a greater and more well-defined role in emergency response for wastewater utilities. “The [U.S.] Army Corps [of Engineers] has a specific defined responsibility ... [and] FEMA has a role,” she said. “We are pleased to hear from our colleagues at EPA that they are working with those agencies to work out an understanding of how the role of EPA can be recognized.”
The report also recommends that all stakeholders work together to create and foster mutual aid agreements, which lay the groundwork for neighboring utilities to aid one another after a disaster.
After Katrina, “agencies and individual members who wanted to go down and help [in Louisiana] were somewhat stymied by the lack of preplanning for that and the lack of agreement and protocols to address issues such as liability and worker’s compensation,” O’Neill said.

Mutual aid compacts between Florida and Mississippi enabled Florida wastewater utilities to send volunteers, equipment, and other forms of relief to Mississippi in the immediate aftermath of the hurricane, the report states.

WEF is working with other organizations to share information and form interstate mutual aid networks, O’Neill said.

Meanwhile, recovery efforts are progressing slowly, according to Piehler. He said that the rallying cry for the job at hand is, “Recovery is a marathon, not a sprint.”

Even though EPA reported that more than 90% of treatment plants are operational, Piehler explained that their level of operation is generally far below prehurricane standards. Moreover, he said he expects more damage and problems to be discovered as more people return to the affected areas and more systems are brought on-line.

While the work continues, Clark said he hopes the report will help the public and policy-makers understand how utilities’ rate bases were eroded, and full recovery will require more than simply rebuilding the structures that were destroyed.

— Steve Spicer, WE&T




















Taking Wetlands Mitigation to the Next Level

Developers who damage, destroy, or fill in wetlands must compensate for this practice by restoring or creating new wetlands elsewhere. Under a new rule proposed March 28 (71 FR 15519), the U.S. Environmental Protection Agency (EPA) and U.S. Army Corps of Engineers would hold such developers more accountable, spelling out more clearly what results are expected.

The proposed regulation is expected to accelerate the pace of wetlands restoration and preservation nationwide, as well as promote businesses involved with wetlands mitigation, agency officials said on releasing the proposal. It also incorporates a number of recommendations from the U.S. National Research Council, which, along with the U.S. Government Accountability Office and others, has questioned how effective compensatory mitigation has been in helping to achieve the national “no net loss” of wetlands goal set in 1988.

In particular, the proposed rule would establish a watershed-based approach and encourage the expansion of mitigation banking, a market-based tool that, according to EPA, “is one of the most reliable and environmentally effective methods of wetland replacement.” The practice allows a developer to purchase “credits” from another landowner, or wetland banker, who has created or enhanced wetland resources elsewhere.

Various stakeholders — including developers, environmentalists, wetland scientists, and state wetland regulators — agreed that the proposal is a step in the right direction, but questioned how well it would play out on the ground.

Watershed Focus
One of the National Research Council’s principal recommendations for improving the success of wetland restoration and replacement projects is for regulatory agencies to follow a watershed approach in analyzing impacts and guiding mitigation choices.

Previously, there was a preference for mitigation projects to occur onsite and be in the form of in-kind replacements. “There’s still a soft preference for that” under the proposed rule, said Benjamin Grumbles, EPA assistant administrator for Water. Under the watershed approach, however, EPA and the Army Corps are moving toward the type of mitigation that best benefits the watershed, which may not be exactly the site where the proposed development project is, or it might even be a different kind of wetland, he said. In this way, he noted, the proposed rule offers more flexibility and would result in faster, more effective compensation within the context of local or regional watershed needs.

Mitigation Banking Takes Center Stage
Currently, there are three methods of compensatory mitigation used under the Clean Water Act Sec. 404 program, including permittee-responsible compensation, in-lieu fee mitigation, and mitigation banking.

Under the first method, the permit applicant undertakes compensatory measures on the project’s site or at an offsite location and is responsible for the mitigation’s implementation and success. When in-lieu fee mitigation is used, the permittee makes a payment, typically to a public agency or nonprofit organization, and this so-called fee administrator is responsible for the success of the mitigation project. With mitigation banks, the permit applicant purchases credits from a mitigation bank, which is a wetland, stream, or other aquatic resource area that has been restored, created, or enhanced. This resource area is then set aside to compensate for future conversions of aquatic resources for development activities. The bank’s value is determined by quantifying the aquatic resource functions restored or created in terms of credits.

Up until now, each of the three mechanisms was subject to different standards and criteria, which produced variable ecological outcomes and regulatory effectiveness, according to EPA and the Army Corps. Under the proposed rule, mitigation providers would be held to the same standards, so that providers of high-quality resource replacement projects are not at a competitive disadvantage to others meeting different and lower standards, agency officials said. This “leveling of the playing field” would remove disincentives to use innovative practices.

In particular, the proposal would encourage the expansion of mitigation banking, because it is a performance-based form of wetland replacement. Credits generated by the banks are tied to demonstrated achievements of project goals, agency officials said. As a result, mitigation banking offers the most reliable and verifiable method of wetland replacement, they added.

Will It Work?
What’s good about the proposal is that “it puts into formal rulemaking quite a bit of guidance that has existed for a number years and provides an important opportunity for public comment,” said Jeanne Christie, executive director of the Association of State Wetland Managers (Berne, N.Y.).

Joy Zedler, a wetlands ecologist at the University of Wisconsin–Madison, agreed. “I think the intent is excellent to encourage the watershed approach in deciding how to mitigate losses of wetlands,” she said. “The problem I see is that we don’t yet have plans for very many watersheds,” and that means that most of the time there won’t be a plan in place for the Army Corps and other regulators to use.

The proposal could have been made better by requiring watershed planning up-front and “making that somebody’s responsibility,” Zedler pointed out. “There hasn’t been an agency identified to be responsible for evaluating wetlands for their potentially restorable wetlands and then coming up with a strategy for what to restore where; that’s what’s really needed,” she explained.

Zedler, Christie, and others also questioned the agencies’ strong promotion of mitigation banks. “I don’t think we know yet how well mitigation banks operate at the watershed scale,” Zedler said. “Individually, a particular mitigation bank might do very well in regaining ecosystem services and habitat, but what we don’t have is an analysis of how an entire watershed will function with its natural component of wetlands versus those same resources packed into one or two mitigation banks in one or two locations.”

Despite the fact that mitigation banking is a rapidly growing industry, no conclusive studies or evaluations have shown that the practice is more successful than the other methods from an ecological standpoint, Christie said. In fact, a recent empirical study of the demographic changes prompted by wetland mitigation banking found that the practice actually shortchanges urban areas.

Two legal experts from Florida State University (Tallahassee) and Duke University (Durham, N.C.) recently determined that wetland mitigation banking redistributes wetland resources from urban areas to rural ones. In “The Effects of Mitigation Banking on People,” published in the March–April 2006 National Wetlands Newsletter of the Environmental Law Institute (Washington, D.C.), J.B. Ruhl and James Salzman assert that the wetland mitigation banking industry has a systematic, pervasive environmental downside: It shifts environmental services away from urban areas to rural communities, leaving city dwellers with fewer important environmental services, such as water filtration, erosion protection, and flood control.

For more information on the proposed rule, see www.epa.gov/wetlandsmitigation.

— Kris Christen, WE&T



















No Net Loss: Are We There Yet?

Wetlands acreage in the United States saw a net gain between 1998 and 2004 for the first time since records have been compiled, according to the latest Status and Trends report released by the U.S. Fish and Wildlife Service at the end of March. However, the gain was attributed to an increase in manmade ponds, such as water traps on golf courses, recreational or decorative ponds in residential areas, and stormwater retention ponds.

Past data show that from the mid-1950s to the mid-1970s, the United States was losing almost 202,000 ha (500,000 ac) of wetlands annually, the report shows. This loss rate was reduced to about 24,000 ha (59,000 ac) a year by 1997 and then eliminated through a net gain of about 78,000 ha (192,000 ac) by 2004.

The good news is that “we’re not destroying wetlands at the rate we were, but we’re continuing to lose wetlands of higher value and gaining wetlands or waters of lower value,” said Jeanne Christie, executive director of the Association of State Wetland Managers (Berne, N.Y.). The big question now is what are the net losses and gains in ecosystem function and habitat quality, and there are some hints in the Fish and Wildlife Service report that they will be looking at that question next. “That’s long overdue,” Christie added.

Status and Trends of Wetlands in the Conterminous United States: 1998 to 2004 is accessible at wetlandsfws.er.usgs.gov.

— Kris Christen, WE&T