Cities grapple with value-from-wastewater question
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Aurora, Colo., hits pay dirt selling treated effluent to industry, but PERC Water hits a wall trying to spur a similar deal with recycled water in Pinole, Calif. How can cities be prodded to see value in wastewater?
A recent spate of municipal bankruptcies has raised the question of whether cities can help prevent future financial peril by reaping value from wastewater discharged into surface waters. One city in Colorado has seized an opportunity to pay down water-related debt by selling treated effluent to a nearby industrial operation. Selling effluent is a relatively simple proposition, but the leasing of recycled water, for which industry appears willing to pay top dollar, can be a tough sell for cities already strapped for cash and reluctant to build new systems and infrastructure to produce and deliver the treated water.
The City of Aurora, Colo., in July voted in favor of a plan to lease 1,500 acre feet per year of effluent over five years to Anadarko Petroleum, which will use the water for its hydraulic fracturing operations in Colorado’s Northern Front Range. Anadarko will pay the city $1,200 per acre foot, which is about four times the market rate. The deal is expected to raise approximately $9.5 million for the city. Greg Baker, manager of public affairs for Aurora Water, told AWI the city will use the money to pay down a chunk of more than $500 million of debt it incurred while building the Prairie Waters indirect potable reuse system, along with other general debt.
Baker said the Prairie Waters system does not at present have the capacity to recycle the amount of effluent that will be sold to Anadarko, but it will after future phases of construction. When the Anadarko contract expires, the effluent will be recycled and integrated into the city’s long-term water plan, which will likely include water leases to communities south of Aurora.
The city council’s decision was made amid criticism from members of the local population who are opposed to frac’ing. Still, the opportunity to make millions from an industrial client that would purchase water no matter what Aurora’s officials decided made too much sense to ignore.
“They’ll find water somewhere, so it’s really a question of whether you want to be noble and say, ‘We’ll take the high ground and pass up $9.5 million and watch rates increase in 2020 as a result,’” Baker said.
Selling effluent from a conventional wastewater treatment plant is relatively low-risk. The idea of investing in new infrastructure to produce high-quality recycled water in order to lease it to an industrial plant, however, is a more difficult proposition. The cities of Pinole and Hercules, Calif., for example, recently considered a proposal from PERC Water to design, build, operate and possibly finance a water recycling facility that would have reduced the city’s outfalls into the San Pablo Bay by about 90 percent and raised revenue for both communities from the sale or lease of recycled water to a local refinery. The cities were already planning a $47 million upgrade of their current wastewater treatment plant, a project necessitated by an order from the San Francisco Regional Water Quality Control Board to eliminate discharges of partially treated wastewater in the bay, which occur during peak wet weather conditions.
Under PERC’s proposal, Phillips 66 would have purchased recycled water from the new facility for its Rodeo, Calif., refinery, raising revenue for the East Bay Municipal Utilities District (MUD). East Bay MUD has identified the refinery as a potential user of recycled water, and intends to invest an estimated $30- 40 million in the future for a stand-alone water recycling facility in addition to the cities’ upgrade project of $47 million. PERC proposed to combine the two projects into one facility at the cost of $60-70 million, resulting in capital cost savings as well as meaningful efficiencies and reduced operating costs.
Pinole’s four-member wastewater subcommittee, however, effectively shot down PERC’s proposal in May. Among the concerns were the lack of a long-term commitment from Phillips 66 and the cost of decommissioning certain parts of the local wastewater treatment plant, which may be necessary depending on the site of the recycling facility. PERC’s proposal included options to site the facility near the refinery or at the existing Pinole WWTP site.
Pinole city council member Timothy Banuelos, who serves on the wastewater subcommittee, told AWI the city couldn’t justify the costs of creating recycled water that would have no use if Phillips 66 stopped buying it after the expiration of its initial deal.
“If you have no customer – and you need a large industrial customer for this – it doesn’t matter what your lifecycle costs are because you’ve blown the whole thing out the window,” Banuelos said. “It’s like buying an old Cadillac and not knowing how to drive.”
PERC president Brian Cullen said moving forward with his company’s proposal could have resulted in a more firm commitment from Phillips 66 and a backup plan, perhaps to discharge the recycled water into San Pablo Bay until a new use is identified. PERC’s calculations also showed the life-cycle costs of its facility would be about the same as the costs for the upgrade of the existing wastewater treatment plant, even without revenues from the recycled water project (see chart above).
It seems the PERC proposal would have helped the cities solve their environmental compliance issues with the state’s regulators. Before the PERC proposal was voted down by the subcommittee, the San Francisco Regional Water Quality Control Board wrote a letter to the mayor of Pinole stating that the board would work with the city on developing a revised timetable for eliminating the blending of partially treated wastewater into the bay if it showed progress toward development of the recycled water project proposed by PERC.
The cities of Pinole and Hercules are by no means against the idea of developing a project involving recycled water. The subcommittee also voted in the May meeting to continue to explore recycled water and indicated it would consider future proposals from PERC.
Cullen said the public-private partnership aspect of recycled water projects is typically one of the most difficult hurdles to overcome when selling the concept to cities. Indeed, the members of the Pinole subcommittee appeared queasy over the idea of the project being privately financed, even though PERC offered a publicly financed option. It seems as though a shift in public perception of private sector involvement in water systems will be necessary to prompt cities into thinking about how to get value from their wastewater via reuse. In the meantime, Cullen said regulators can encourage change by offering incentives such as better SRF financing or flexible discharge permit terms if dischargers embrace recycled water instead of more traditional options.
As for cities located in proximity to hydraulic fracturing operations, the case of Aurora shows that selling effluent to industry is a no-brainer, provided there is political will to face down opposition from citizens concerned about the effects of natural gas drilling.