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Water Reuse in Illinois: Part 2

Last week, we introduced you to Rick Manner, the director of the Urbana-Champaign Sanitation District. In the part two of our interview, you'll hear about how changes in the State Revolving Loan Fund opened the door to reuse project and how the district determined the market value of their effluent. 

Illinois EPA is allowing Cronus to apply for SRF funding to build the pipeline. Can you tell us more about that?

State Revolving Loan Fund is part of how wastewater plants expanded in the 1970s. The U.S. EPA set up a big pot of money that the states could draw from for loans to city sanitation districts to help them expand their treatment facilities. Treatment facilities then pay back the loan over time, which sets up the revolving nature of the program. The payments going in this year can then go out to someone else.

Originally, SRF was set up exclusively for wastewater treatment plants, but then they set up an equivalent for drinking water plants. Then the Water Resources Reform and Development Act was passed in 2014. In that, Congress explicitly called out an expansion of SRF. They explicitly said that reuse projects, including the pipelines associated with them, can be eligible for loan options. In particular, they said that because reuse is a little bit unusual, the funding can go not only to municipal bodies but also to private sector entities.  

Before these amendments, it was ambiguous as to whether this project would have been eligible for SRF dollars. We would have had to argue that it was part of our treatment plant. But now Illinois EPA is willing to consider it because Congress has said that reuse can be eligible.

This is significant because the reason reuse projects often fail is the difficult economic hurdle of building the pipeline from point A to point B. The biggest reason Cronus might not want to do reuse is the $20 million hurdle of building the long pipeline. Even though it may cost more on a per gallon basis to make a drinking water pipe larger, that up front capital cost is so difficult to overcome that it often kills reuse projects. So SRF really helps make reuse a more appealing operation to consider because the interest rate is so good.

How did you decide what to charge for the effluent?

That is one of the more interesting elements of this whole process. Currently, we get nothing for the 20 million gallons a day that we discharge. So, in theory, if I were to get $1 for it, we would come out better. In reality, we did bit of research to try and find out what projects are out there and what other people are charging. It was a bit challenging because they’re aren’t very many in the Midwest. There are a few golf courses that use effluent about a hundred miles from here. But for the most part, they get a very large volume at a low rate. And that’s because the golf course happens to be right across from the water treatment plant. There really aren’t good models for effluent pricing.

We landed on a shared benefit/shared cost scenario. If Cronus was to buy from the drinking water plant, they would be charged about $3 per thousand gallons. However, they would get the pipeline subsidized by the drinking water plant, so it is really more like $2 per thousand gallons range. If we were much more than that, they would logically turn to the groundwater resource. That set a ceiling for the rate we could charge.

But there is also added risk associated with our flow because our water is not as pristine as good aquifer water. We aren’t required to treat it back to groundwater quality. And so, because of that added risk and the fact that they may need to do some chemical treatment on their end. We settled on charging just over $1 per thousand gallons. That’s the baseline price. On top of that, we get a 30 cent per thousand gallons add-on for our capital projects. That is how we will be funded for our lagoon and our pump station. Once we’ve been paid $3 million via that added amount, the extra fee will go away, and we will be back down to the $1 per thousand gallons. There is an inflation factor that is kicking in, so it is a bit more than that.

Ultimately, we will get about $2 million a year in income. Our expenses would be anywhere from $500,000 to a million dollars. So the benefit our ratepayers should expect to see is about $1 million a year net benefit, which is about 7 percent of our annual income. Some of that may be in value from the lagoon that won’t be a direct cash benefit. But we are aiming to keep the cash fraction as close to a full million as we can so that we can feel really good about this being a net benefit for the rate payers

One thing that I need to emphasize is that UCSD’s expenses have been going up continuously. I cannot and never will guarantee no rate increases. But I can absolutely guarantee that all of the finical benefit that UCSD gets will be seen by the rate payers in terms of avoided rate increases.

What other benefits can ratepayers expect?

Our board of trustees also voted to spend about $50,000 a year on habitat projects to make the creeks healthier in the long run. We consider that a reasonable thing to do with some of that income. That way the waterway will be healthier and better able to handle the drought conditions. By adding some pools and riffles, we can add some physical complexities that will help the fish and other aquatic species handle the stress of a drought better.

The pool and riffles idea is something the Illinois Department of Natural Resources has been looking to do for a number of years in the Copper Slough. They already have some money set aside for it as a result of a truck accident that spilled into the waterway. But they are looking for local matching funds, which they have had a hard time securing over the last few years. We would provide those local matching funds to allow that project to finally begin.

What’s the status of the deal with Cronus?

Cronus has announced that, if they build a plant, it will in Tuscola. And we have a contract to sell them effluent, so we would be their main water source if this all goes forward. Right now, they are looking to secure financing for the facility, so they are talking to financial people to get that secured. That is still a work in progress.

Is there an expected timeline?

It’s a process that has taken a few months and will take a few more. The finance people want a lot of assurances before they actually open up the check book. We are hoping for a positive announcement sometime soon.