assessing the swbno: recommendations for improving efficiency, quality & sustainability

Page | 1 New Orleans Citizen Sewer, Water & Drainage System Reform Task Force

Assessing the SWBNO Water & Sewerage System Improvement Plan: Recommendations for Improving Efficiency, Quality & Sustainability

New Orleans Citizen Sewer, Water & Drainage System Reform Task Force

April 2012

Integrate ♦ Cut Smart ♦ Reorganize ♦ Invest ♦ Grow

Page | 2


Water and Sewerage Treatment & Delivery

The City’s fractured water and sewerage systems require the $1.19 billion infrastructure investment

proposed by the Sewerage and Water Board of New Orleans (SWBNO). Furthermore, SWBNO’s

proposed water and sewer rate increases are the only timely and feasible means for generating the

revenue needed to underwrite the $737.3 million in bonds needed to finance these repairs.

SWBNO’s plan is a starting point that reestablishes baseline services and is a first step in creating

longer-term safe, reliable, and sustainable drinking and wastewater systems. Proposed infrastructure

repairs undo years of deferred maintenance, correct lingering hurricane damage, and help meet time-

mandated federal standards for reducing existing wastewater safety hazards. These infrastructure

failures are wasting SWBNO customers and taxpayers hundreds of millions of dollars as costs increase

to power water and sewage through sieve-like pipes and billions of gallons of leaking water undermine

streets and private property. Failure to meet federal deadlines for correcting the city’s wastewater system

will exacerbate this impact to customers with fines that could exceed tens of thousands of dollars per day.

Nonetheless, for SWBNO’s plan to spur more reliable and sustainable service, proposed infrastructure

repairs need to be complemented with more detailed action plans for improving operational efficiency,

staff capacity, and financing longer term, proactive water system infrastructure upgrades. SWBNO’s rate

increase request should be supported by specific proposals for reducing wasted revenue from

inconsistent water auditing, broken meters, inefficient collection practices, and antiquated policies and

operating procedures. Annual savings from correcting these inefficiencies will not close the enormous

infrastructure funding gap that currently plagues SWBNO customers. However, such improvements

should be a minimum return on ratepayers’ considerable added investment. In addition, while SWBNO’s

proposed repairs are needed, they are reactive to deferred problems and available funds. Looking

ahead, SWBNO should articulate a vision for using consistent and transparent planning processes to

finance more proactive, sustainable investments that anticipate evolving service needs that must be met

by the city’s water distribution and sewer collection systems.

Pathway for Achieving a Safe, Reliable, and Affordable Water & Sewerage System

SWBNO Water & Sewerage Improvement Plan

Detail Plans for Improving Rate Structure, Metering, Collections & Water Loss Controls

Outline Processes for Increase Staff Capacity & Expertise Based on Performance Goals

Invest in More Sustainable Delivery & Treatment Infrastructure

Establish Procedures to Expedite Procurement & Coordinate Street/Pipe Financing

Page | 2

Recommended Reforms to Augment SWBNO’s Proposed

Water & Sewerage Improvements

I. Achieve Ratepayer Fairness & Operational Savings through Phased Rate Structure Changes, Water Loss Audits, Advanced Metering and Collections & Narrower “Free Water” Policies…………..Pages 12-19

Recommended Action Items

Establish timeframe for adjusting water rates to more equitably reflect varied meter and

“readiness to serve” costs among customer classes and incentivize conservation measures.

Invest in water loss control initiatives that include advanced metering, annual water audits,

and a performance goal of replacing at least 10% system meters annually

Improve ratepayer collection practices through improved data analysis, increased staffing

capacity, and utilized legal authority to enforce payment

Narrow the categories of public entities that are eligible for free water and sewer services

and require that all public entities maintain functional water meters and pay marginal

production costs and a share of customer account management expenses

II. Expedite SWBNO Capital Improvements Using Fast-Track Procurement & Coordinated Intergovernmental Infrastructure Investment.……………….Page 20


Establish permanent SWBNO-City DPW Unit to implement roadway and subsurface

distribution improvements using shared procurement and project management processes

Continuously coordinate joint financing and construction planning among City, SWBNO, RPC,

and other relevant entities to ensure concurrent surface and subsurface improvement work

III. Increase Staff Operating Capacity & Expertise………………………Pages 21-22


Identify optimal operational and technical staffing capacity and expertise requirements in each

SWBNO department relative long-term performance goals

Develop a staff succession and training program

Revise civil service rules to increase SWBNO autonomy in filling technical positions

IV. Conduct Comprehensive Investment Planning to Finance Proactive, Sustainable Drinking Water and Sewerage Systems……Pages 23-26


Institute regular comprehensive capital investment planning that emphasizes decentralization,

advanced treatment and sustainable distribution and collection systems

Strategically plan for completing citywide rehabilitation of the water distribution system

Fully develop Bienvenue Central Wetland Unit Assimilation Project by securing increased funding

and formalizing needed partnerships with St. Bernard Parish


Assessment of SWBNO’s Proposed Capital & Operations Improvements

Drinking Water System

SWBNO’s water system needs include nearly $1.4 billion in improved infrastructure, increased

operations and maintenance (O&M), debt repayments, and other expenses between 2012 and 2020.1

If current rates are maintained, SWBNO estimates it will only have $826.9 million to meet these

expenses.2 As such, SWBNO proposes to generate an additional $384.6 million through rates that

will increase 15% on average annually between 2012 and 2016 and 6.5% on average annually

between 2017 and 2020.3 Ratepayer’s average water bill will be 159% more in 2020 than currently.

Foremost, SWBNO’s proposed investment is aimed at achieving approximately $568.8 million in

infrastructure improvements to the city’s water system.4 These prioritized5 projects are mostly

reactive investments to intake, treatment, and distribution systems plagued by long-standing deferred

maintenance needs or Hurricane Katrina-related damage. More proactive investments include

increasing treatment plant security, implementing advanced “raw” water treatment technology, and,

via FEMA funding and planning, the replacing of existing water distribution pumps with more modern

variable-speed pumps to reduce “water hammer” shockwaves that are deteriorating an already fragile

1 “SWBNO Financial Plan & Rate Study 2011-2020,” pgs.23, 33 (Table 6-1, Lines 19, 22-25), Appendix C: ”Capital Programs

Review Report,” (September 28, 2011) (Hereinafter SWBNO Rate Study) (Actual estimated total is $1,352,102,716). 2 Id at pgs. 23, 33 (Table 6-1, Lines 1, 3-6, 8-9). (Actual estimated total is: $844,595,572).

3 Id at p. 33 (Table 6-1, Line 2).

4 The city’s water system consists of two treatment plants: Carrollton Water Purification Plant, which collects and treats about

140 million gallons per day of Mississippi River water from 7 intake pipes on the east bank; and the Algiers Plant, which collects and treats about 10 million gallons per day of river water from 4 intake pipes on the west bank. Treated water is then pumped through more than 1,590 miles of underground pipe mains to more than 124,725 service connections. 5 Proposed investments were scored and ranked by SWBNO using nine point-weighted criteria: regulatory compliance

(0.17), system replacement/rehabilitation (0.13), system reliability (0.12), operation flexibility (0.12), customer service (0.10), system security (0.10), system benefits/efficiency (0.09), project benefit/impact (0.09), and system growth (0.08).

Anticipated Resources (2012-2020)

$826,995,572

Water System Needs (2012-2020)

$1,352,102,716

$384MM New Revenue (Rate Increase)

Page | 4

water distribution system. These shockwaves occur when pressure inside distribution pipes suddenly

drops incident to pump or power failures then rises again upon reactivation producing destructive

energy waves within pipe walls, valves, and fittings.

Among all proposed improvements, however, the most pressing and long-term water system need is

to repair the city’s underground distribution pipes. In 2010 alone, through a potent combination of

deferred maintenance, Hurricane Katrina damage, and operational inefficiencies, at least 56% of the

water pumped for use by New Orleans – 29 billion gallons -- leaked or otherwise went unaccounted

for before ever reaching a paying customer’s faucet.6 Put another way, just about 44% of the revenue

to supply water to the city is instead lost to the earth and underwrites degraded water quality,

inefficient energy consumption, and a myriad of potholes.7 SWBNO’s proposed capital improvement

plan directs just over $202 million towards partial replacement of the water distribution system.

SWBNO estimates complete replacement of the system will cost $3.2 billion.8

General Repairs & Modifications to Pumps, Pipes & Equipment $90,995,000

Water Distribution Pipe System Replacements $111,250,000

Modifications to Mississippi River Intake Pumps & Equipment $27,025,000

Upgrade raw water filter system to better remove pathogens, contaminants, and prevent backflow $29,900,000

Improvements to Chemical System $4,150,000

Feeder Main Extensions to Increase Neighborhood Water Pressure $6,000,000

Reimbursement to DPW for Water Main Repairs $32,000,000

Water Plant security Improvements $21,690,000

Advanced Water Treatment (Carrollton) $17,572,000

Advanced Water Treatment (Algiers) $17,750,000

Hurricane Related Repairs $118,160,000

Water System share of power generation $13,669,750

Water System share of general budget items $78,675,476

Power and General Maintenance $92,345,226 16%

Advanced Water Treatment $35,322,000 6%

Replacement / Rehabilitation $202,245,000 36%

Hurricane Recovery Repairs $118,160,000 21%

Other Improvements $120,765,000 41%

Total Proposed Water System Investment $568,837,226

Source: SWBNO Rate Study (2011), Appendix C.

To finance these improvements, SWBNO seeks to pair $261.6 million from the Federal Emergency

Management Agency (FEMA)9 with $381.1 million in new revenue bonds that would be collateralized

by increased rates and other local sources, including state revenue sharing, fees, interest, and other

income.10 SWBNO’s proposed revenue increase is intended to cover the multiple years of inflation-

adjusted debt service on these issued bonds,11 the cost of issuance, and the goals of maintaining at

least $32 million in annual “pay-as-you-go” funding for construction and a debt service reserve fund

6 SWBNO Rate Study, Appendix A: “Water Audit FY 2008-2010,” p.A-7, A-26.

7 Id.

8 Sewerage and Water Board of New Orleans: Report on Current and Future Capital Needs (December 2006)

9 Id at p.23.

10 Id at p.31-33 (Table 6-1, Lines 3-6,8). Bond terms are 20 years, 6.00% interest. Debt service will be $79.5MM(2012-2020).

11 Id at p.31. SWBNO assumes an annual 3.0% capital escalation rate between 2012 and 2020.


that is at least 1.5 times greater than the amount needed to service the bonds.12 These latter two

aims would greatly improve SWBNO’s current water system financial liquidity and debt service

coverage ratios, which are ranked last by considerable margins among comparable utilities,

nationwide, and a bond rating that is ranked second to last.13 Those are all factors that the bond

market considers in deciding whether to finance SWBNO improvements.

SWBNO also seeks sufficient revenue “to restore staffing levels, training activities, and preventative

maintenance programs that were eliminated following Hurricane Katrina.”14 SWBNO estimates that

new infrastructure and operational changes will add an additional $80.5 million to O&M water system

costs for a total of over $704.6 million between 2012 and 2020.15 This estimate reflects over $14

million in savings from unspecified reforms that SWBNO asserts will result in “improved efficiency

associated with capital improvements and reduced water loss.”16 However, SWBNO does not detail

specific staffing levels or operational changes in support of its O&M cost estimates.17 Instead, the

proposed O&M increase is in part intended to close a sizeable gap between existing funding levels

and what comparable utilities ranked in the top quartile of operational efficiency invest in O&M.18

Among the greatest challenges for SWBNO in closing this O&M funding gap is doing so with at least

25,000 less rate-paying customers than before Hurricane Katrina.19 In large part, SWBNO is relying

heavily on FEMA for O&M contributions totaling over $39 million through 2015.20 The remainder of

increasing O&M costs would need to be met through rate-based revenue and other funding sources.21

Finally, SWBNO’s proposed water rate increase will help finance $35.1 million in outstanding revenue

bonds,22 approximately $25 million in subordinate obligations to the federal government,23 $7 million

to the City of New Orleans Department of Public Works (DPW), and $11.7 million to other entities.24

12

Id at pgs.31-32. (Debt service coverage is the ratio of net operating income [Operating Revenues less Operating

Expenses] divided by debt service requirements.). 13

Id at 48-50. SWBNO’s water system liquidity ratio (ratio of assets in-hand to liabilities) is 0.51. The recommended

minimum is 1.0. SWBNO’s debt service ratio is -3.11, which is 4 times lower than the next ranked comparable utility. SWBNO’s Drinking Water System bond credit rating is BAA2(Moody’s), which is considered sub-par investor grade. Benchmark utilities against which SWBNO‘s liquidity and debt service ratios are compared, respectively, are: Central Arkansas Water (1.92/2.78), Louisville Water Company (1.07/3.6), Greater Cincinnati Water Works (1.65/1.37), Birmingham Water Works Board (1.34/1.22), Des Moines Metropolitan (1.53/1.2), and City of St. Louis Water Division (1.28/1.75). 14

Id at p.2. 15

Id at p.17, 33 (Table 6-1, Line 11-13). 16

Id at p.2. 17

Id. (While staffing goals are not provided, SWBNO states: “the General Superintendent incurs over two-thirds of the water system O&M expenses; almost 15% of expenses are incurred by…Management Services…; and the remaining expenses are distributed roughly equally across the Divisions of the Executive Director, Support Services, and Payroll Related.”). 18

Id at pgs.17-18, 30-31. 19

Id at p.49. 20

Id at p.33 (Table 6-1, Line 9). 21

Id at pgs.17-18, 31. 22

Id at p.33 (Table 6.1, Line 15). 23

Id (Table 6.1, Line 19). 24

Id (Table 6-1, Line 22-25).

Page | 6

Sewerage System

SWBNO’s estimated sewer system needs include approximately $1.4 billion in improved

infrastructure, increased O&M costs, debt repayments, and other expenses between 2012 and

2020.25 Assuming current sewer rates and expected FEMA contributions, SWBNO estimates it will

only have approximately $806 million to meet these expenses.26 As such, SWBNO proposes to

generate an additional $453.3 million through a flat rate change that increases 14% on average

annually between 2012 and 2016 and increases 5% on average annually between 2017 and 2020.27

As such, a ratepayer’s average water bill will be 159% more in 2020 than current rates.

SWBNO’s proposed sewerage infrastructure investment is aimed at achieving approximately $595.8

million in prioritized infrastructure improvements to the city’s water system.28 Among these projects,

listed below, the most pressing are time-mandated improvements to wastewater treatment and

collection pursuant to a 2010 modified federal court consent decree with the U.S. Environmental

Protection Agency (EPA) (41% of total investment). Failure to timely meet construction timelines and

wastewater safety standards imposed in the consent decree could result in millions of dollars in fines

passed through to SWBNO ratepayers.29 The remainder of SWBNO’s proposed investment will target

deferred maintenance to the city’s network of sewer pipes and treatment capacity (28%); repairs of

damage related to Hurricane Katrina (17%); and upgrades to SWBNO power generation systems and

general maintenance (14%). Two projects specifically highlighted by SWBNO in its rate study to

illustrate the need for the proposed sewerage improvement plan receive small percentages of the

25

Id at 23, 37 (Table 6-3, Lines 13-15, 19, 22, 26-27) , Appendix C (Actual estimated total is $1,397,620,767). 26

Id at 35, 37 (Table 6-3, Lines 1-2, 4-11, 28). (Actual estimated total is: $779,814,141). 27

Id at p,35, 37 (Table 6-3, Line 2). 28

See Note 5. The city’s sewerage system consists of the East and West Bank Sewage Treatment Plants, which can treat up to 239 and 50 million gallons per day of wastewater, respectively, which is collected through a system of 83 pump and lift stations that utilize 1,350 miles of gravity lines and 100 miles of pressurized force mains. 29

U.S. V. Sewerage and Water Board of New Orleans, No. 93-cv-3212 (E.D. La 2010). Stipulations 61-85 detail potential fines and other penalties if SWBNO does not meet mandated timelines and standards. Available at: http://www.swbno.org/documents/Consent%20Decree/2010ConsentDecree.pdf.

Anticipated Resources (2012-2020)

$806,114,141

Sewerage System Needs (2012-2020)

$1,397,620,767

$453.3MM New Revenue (Rate Increase)


overall investment: an East Bank Sewage Treatment Plant levee ($2.7 million, 0.4%); and routing

treated wastewater to help rebuild wetlands near Bayou Bienvenue along Orleans and St. Bernard

Parish ($10 million, 0.6%).30

Rehabilitation of damaged and aging citywide “gravity” mains $67,100,000

Extension and replacement of damaged and aging sewer mains in Algiers $22,875,000

Normal Extensions and system replacements at East and West Bank Treatment Plants $58,674,000

Expansion of West Bank Treatment Plant $19,029,000

Capacity Analysis of East Bank Treatment Plant $10,000

Extension and replacement of pump stations as required by federal Consent Decree $28,656,578

Reimbursement to DPW for repairs to wastewater mains as required by federal Consent Decree $35,300,000

Wetland Assimilation Project $10,000,000

Extension and replacement of pressurized mains as required by federal Consent Decree $13,500,000

Extension and replacement of gravity mains as required by federal Consent Decree $159,400,637

Hurricane Related Repairs to Sewer System $100,660,000

Sewer System share of power generation $10,781,250

Sewer System share of general budget items $69,715,476

Engineering Inspections $135,000

Power and General Maintenance $80,631,726 14%

Sewer Consent Decree Related Improvements $247,857,215 41%

System Replacement and Rehabilitation $167,688,000 28%

Hurricane Recovery Repairs $100,660,000 17%

Total Proposed Sewerage System Investment $595,836,941

Source: SWBNO, October, 2011.

SWBNO estimates that its share of the cost for proposed infrastructure improvements will be

approximately $432.1 million when adjusted for inflation through 2020.31 FEMA and other federal

sources are expected to contribute an estimated $219.1 million.32 To finance its share, SWBNO

proposes to use current revenues from rates and other sources paired with the issuance of $356.2

million in revenue bonds that would be collateralized by increased rate-based revenue.33 As with

SWBNO’s water system investment, proposed sewer-related revenue increases are intended to cover

the multiple years of inflation-adjusted debt service on these issued bonds, the cost of issuance, and

the goals of maintaining at least $18.5 million in annual “pay-as-you-go” funding and a debt service

reserve fund at least 1.5 times greater than the amount needed to service the bonds.34 This latter aim

would greatly improve SWBNO’s current wastewater system debt service coverage ratio and bond

credit rating, which are ranked last by a considerable margin among comparable utilities,

nationwide.35

30

See, SWBNO Rate Study, p.9. 31

Id at p.35. SWBNO assumes an annual 3.0% capital escalation rate between 2012 and 2020. 32

Id. 33

Id at p.36-37 (Table 6-3, Lines 4-9, 28). Bonds will be issued for a term of 20 years at an interest rate of 6.00%. Debt service on these issued bonds will total $79,534,522 between 2012 and 2020. 34

Id at p.36-37 (Table 6-3, Line 25). 35

Id at 48-50. SWBNO’s wastewater system debt service ratio is 0.48, which is two times lower than the next ranked

comparable utility. SWBNO’s Wastewater bond credit rating is BAA1(Moody’s), which is considered a sub-par investor grade rating. Benchmark utilities against which SWBNO‘s wastewater system debt service ratios is compared are:

Page | 8

In addition to financing new infrastructure, SWBNO also seeks additional revenue to expand

operations and meet anticipated increases in O&M costs related to sewerage system investments.

According to SWBNO, required sewer system upgrades add $135.2 million in related O&M costs for a

total of over $590.2 million between 2012 and 2020.36 This figure reflects an estimated $10 million in

savings during that time through unspecified operational reforms.37 As with the water system O&M,

FEMA heavily subsidizes sewerage systems operations through 2015, contributing approximately

$23.9 million 38 Rate-based and other revenue will supply the remainder and will be the sole source of

O&M funding after FEMA’s offerings dissipate.

According to SWBNO, at current levels it is “spending less than the most efficient quartile of utilities in

terms of O&M expenses on a per-million gallons basis of sewerage treated.”39 However, as with its

explanation for increasing water system O&M, SWBNO does not offer specific staffing levels or

operational changes to support proposed increases.40 Instead, SWBNO’s estimates a $145.2 million

O&M cost increase based on the “goal of aligning the O&M expenditures for the sewerage system to

the most efficient quartile benchmarking, meaning that the Board would be spending more than 25%

of comparable utilities on a cost per million gallons basis.”41

Finally, SWBNO’s proposed water rate increase will finance $171.9 million in currently outstanding

water system revenue bonds42 as well as approximately $25 million in subordinate obligations to the

federal government for hurricane recovery related loans.43 Lastly, SWBNO owes other parties over

$14.5 million from the water system budget, including approximately $9.7 million to the City-DPW.44

Proposed Rate Structure

SWBNO intends to apply its rate increase uniformly among all types of customers. SWBNO’s

rationale for this is because system leakages to be repaired from added rate-based revenue are

neither attributed nor beneficial to certain customer classes versus others.

Similarly, SWBNO intends to maintain its current rate structure format. This includes a Water Service

Charge that differs based on meter size and is intended to cover billing, meter maintenance, and

being able to meeting customer capacity (“readiness to service”).45 In addition, SWBNO employs an

“increasing block/decreasing block” water volume rate structure that charges a monthly rate per

Little Rock Wastewater (1.06), Louisville and Jefferson County (1.03), Metropolitan Sewer, District of Greater Cincinnati (1.36), Jefferson County Environmental Services Department (1.01), Des Moines Metropolitan Wastewater Reclamation Authority (1.05), The Metropolitan St. Louis Sewer District Metro Water Services (1.48), and Baton Rouge City-Parish Department of Public Works (1.74). 36

Id at p.17, 33 (Table 6-3, Line 11-13). 37

Id at p. 37 (table 6-3, Line 15). 38

Id (Table 6-3, Line 10-11). 39

Id at p.19. 40

Id. While specific staffing goals are not provided, SWBNO details that the General Superintendent incurs almost 40% of sewerage system O&M expenses; over a quarter of the expenses are incurred by the Treatment Division; over 20% of the expenses are incurred by the Management Services Division; and the remaining expenses are distributed roughly equally across the Divisions of the Executive Director, Support Services, and Payroll Related. 41

Id at p.19, 37 (table 6-3, Line 14). 42

Id (Table 6-3, Line 18). 43

Id (Table 6-3, Line 22). 44

Id (Table 6-3, Line 26-27). 45

Id at pgs.27-28. SWBNO’s water service charges range from $4.05 per month for its smallest (5/8”) meters to $333.00 for its largest (16”) meters.


thousand gallons of water used that is $2.69 for 0-3,000 gallons); $4.60 for 3,001-20,000 gallons;

$3.62 for 20,001-1,000,000 gallons; and $3.04 above 1 million gallons used in a month.46 SWBNO

does not presently intend to differentiate water rates based on residential or commercial customer

sizes nor are there stated plans for conservation credits that could be applied to water rates.

For sewerage service, SWBNO intends to maintain a monthly service charge that varies by meter size

and a uniform volume-based charge of $4.04 per thousand gallons.47 In contrast to its water rate

structure, SWBNO does employ a “sewerage return factor” that allows customers to reduce its

sewerage rates by demonstrating that not all metered water is discharges to the sewerage system. In

addition, SWBNO charges a surcharge for certain commercial customers that discharge sewerage

with higher levels of organic material and/or other solids.48

46

Id at p,28. 47

Id at pgs.28-29. SWBNO’s sewerage service charges range from $11.60 per month for its smallest (5/8”) meters to $1,550

for its largest (16”) meters. 48

Id at 29.

Page | 10

Rationale for Increasing Rates to Achieve SWBNO’s Proposed Water & Sewerage Capital and Operations Improvements

The New Orleans Citizen Sewer, Water & Drainage System Reform Task Force believes that

SWBNO’s proposed drinking and wastewater system investments are a timely and important starting

point towards achieving redundant capacity that can meet the city’s peak demands, reliably,

sustainably, and cost-effectively. Given the enormous cost of these investments relative to available

funds, the Task Force further recommends increasing rates to finance SWBNO’s improvement plan.

SWBNO’s proposed infrastructure improvements address remaining hurricane damage and decades

of deferred maintenance that hamstring the growth of New Orleans into a modern, more sustainable

city. At present, ratepayers are financing a system that pours billions of gallons of drinking water –

nearly three-fourths of what is pumped from the river – into the earth before reaching their homes and

a wastewater system that for a generation has been playing catch-up to meet minimum federal

safeguards for public health and environmental quality. SWBNO’s proposed investments help

staunch further degradation of these systems and establish a foundation for more sustainable,

proactive water system investments that both SWBNO and City-DPW should begin framing through

comprehensive water management planning and investment strategies (See, New Orleans Citizen

Sewer, Water & Drainage System Reform Task Force: Assessing the Sewerage & Water Board of

New Orleans: Recommendations for Enhancing Governance, Management & Strategic Planning).

SWBNO’s requested rate increases to help finance these infrastructure investments, while

substantial, are, nonetheless, on scale with the improvements being sought and necessary to

collateralize the $730.1 million in bond financing that is the lifeblood for these infrastructure upgrades.

SWBNO’s effort to secure that amount of bond financing is already hampered by a skittish bond

market and SWBNO’s below-par bond rating. Failure to enter the bond market with the collateral that

would come from proposed rate increases will likely be an insurmountable hurdle.

Furthermore, the timeliness of these improvements and related rate increases is important in staving

off even greater costs to New Orleans citizens. The city’s ever-worsening water distribution system is

requiring increasingly expensive power generation to maintain pressure, while leaking water

undermines street improvements even before completion. Equally pressing, several crucial

wastewater system corrections in New Orleans East and the Lower Ninth Ward need to begin in 2012

pursuant to federal consent decree or risk massive penalties if decree deadlines are not met. Missing

such deadlines further hinders SWBNO’s bond rating when trying to finance similar projects, citywide.

The Task Force supports SWBNO’s request for additional rate-based revenue to finance expanded

O&M. Given New Orleans’ unique challenge of having to overpower gravity to move drinking and

wastewater through a sieve-like and ancient distribution system, it is unfathomable that SWBNO

spends less on O&M than the most efficient 25% of utilities of similar size. Moreover, SWBNO’s

continued substantial reliance on FEMA for operational funding – budgeted through the tenth

anniversary of Hurricane Katrina – is not the hallmark of a thriving, self-sufficient municipal entity.

SWBNO, rightly, prides itself in treating and distributing water with limited disruptions despite existing

infrastructure and funding handicaps. However, such ingenuity and commitment will only go so far in

an increasingly unsustainable system. SWBNO’s most persistent shortcomings in customer service,


system repairs, collections, etc., stem from chronic and deep understaffing, antiquated technology,

and operational inefficiencies.49 Unchecked, these maladies will increasingly overpower SWBNO’s

noble efforts to reliably provide New Orleans with safe and affordable water services.

Finally, the Task Force concurs with SWBNO that the massive cost for needed infrastructure repairs

cannot be covered solely by annual savings from improved collections, narrowing or eliminating free

services to other public entities, and reducing unaccounted for water loss. While improvements

relative to these latter issues and other systemic inefficiencies must be addressed, immediately

known operational savings only total approximately $24 million between 2012 and 2020. That amount

is just 2% of SWBNO’s water and sewer system infrastructure plan just to reestablish baseline service

levels (See above figure).

.

49

See, Sewerage & Water Board of New Orleans 2011-20220 Strategic Plan (Adopted September 21, 2011). Available online at: http://www.swbno.org/documents/reports/StrategicPlan2011.pdf) (Acknowledged “weaknesses” include, among

others: again workforce, difficulty in hiring experienced technical employees, information technology systems which have exceeded their design life, insufficient documentation of work processes, and collection practices.).

Sewerage System

Drinking Water System

$10,030,382

$14,028,628

$617,806,628

$508,207,044

SWBNO Estimated Operational Savings Relative to Total 2012-2020 Additional Revenue Need

2012-2020 Savings from Improved Operations & Reducing "Free Water"

Total Additional 2012-2020 Revenue Needed Above Current Rates

(2.7 % of Total Revenue Needed)

(1.6 % of Total Revenue Needed)

http://www.swbno.org/documents/reports/StrategicPlan2011.pdf


Recommended Additional Water & Sewerage System Reforms

While SWBNO’s proposed improvements are needed, the Task Force is greatly concerned that the

full benefit and return on ratepayers sacrifice will not be realized without SWBNO also presenting

more specific and measurable performance goals, action steps, and timelines to improve rate

fairness, minimize water loss, modernize metering and revenue collection, expand staff capacity and

expertise, and institute proactive, comprehensive infrastructure and operations investment planning

processes. As such, the Task Force recommends that the following operational improvements ne

achieved concurrent with SWBNO’s proposed improvement plan, beginning with SWBNO presenting

a framework of goals and proposed action-steps to achieve these additional reforms.

Establish Timeframe for Adjusting Water Rates to Equitably Reflect Varied Meter and

“Readiness to Serve” Costs Among Customer Classes and Incentivize Conservation

SWBNO should devise a more specific timeline and process for modifying its rate structure to

accurately reflect usage demand, rate impact disparity, and conservation practices impact among its

residential and commercial customer classes. The Task Force concurs with SWBNO that, at present,

the potential gain in rate equity by further differentiating water service and volume-based rates is

outweighed by the benefit shared equally among all customer classes from system leak repairs

financed by increased rates.50 However, SWBNO should outline a timeline and/or a leakage repair

threshold upon which it adjusts its rate structure to better address disparities among residential and

commercial rates. This mirrors recommendations in SWBNO’s rate study which states:

As the system leakage is reduced and reaches an equilibrium, RFC recommends that the Board evaluate whether a modification in the rate structure is then warranted. The Board might also consider having a separate rate schedule for residential and non-residential customer classes. This modification would allow the Board to move away from an IB/DB rate structure, which can be confusing to the ratepayers.51

50

Id at p.27. 51

Id at p.28.

Goal: Achieve Ratepayer Fairness & Operational Savings through Phased Rate Structure Changes, Water Loss Audits, Advanced Metering, Improved Collections, and Narrower “Free Water” Policies


Establish timeframe for adjusting water rates to more equitably reflect varied meter and

“readiness to serve” costs among customer classes and incentivize conservation.

Invest in water loss control initiatives that include advanced metering, annual water audits,

and a performance goal of replacing at least 10% of system meters annually

Improve ratepayer collection practices through improved data analysis, increased staffing

capacity, and utilized legal authority to enforce payment

Narrow the categories of public entities that are eligible for free water and sewer services

and require that all public entities install functional water meters and pay marginal

production costs and a share of customer account management expenses


Looking ahead, SWBNO should link rate adjustments among customer classes to leak index

measurements made through an annual water system audit, discussed in the following section.

Revisiting rate structures when “leakage is reduced and reaches an equilibrium” does not provide

customers with sufficient certainty as to when the issue will be addressed nor any reliable means for

measuring return on their investment. By SWBNO’s own acknowledgement, reducing system

leakages to within national utility averages is not likely within the next ten years.52 Given this, a

timeline is recommended for restructuring rate structure that reflects obtainable and measurable

progress in leak reduction that occurs within the timeframe of SWBNO’s improvement plan.

In revising its rate structure, the Task Force recommends the following adjustments be considered:

Simplify water service charges by identifying total monthly charge revenue requirements and divide

by the meter equivalents based on meter flow. This calculation more accurately reflects SWBNO’s

“readiness to serve” costs, while increasing service charge equity among customer classes,

particularly smaller commercial customers

Adjust service and volume-based charges to more accurately mirror consumption and rate impact

among residential, small commercial, and large commercial customers. Possible recommended

strategies include adding additional volume-based rate blocks between existing rate blocks of

3,001-20,000 gallons; 20,001-1,000,000 gallons; and above 1 million gallons.

Incentivize water conservation by enabling broader rate credits beyond the existing “sewerage

return factor” to reward a wider array of conservation practices among customers, including use of

low-consumption appliances.

Similar to the sewerage system surcharge used in certain instances, require separate metering or

an additional surcharge for water consumption above a threshold amount for landscaping and other

property exterior purposes.

Invest in Water Loss Control Initiatives that Include Advanced Metering, Annual Water

Audits, and a Performance Goal of Replacing at Least 10% of System Meters Annually:

At several points, SWBNO’s Rate Study alludes to the need reduce lost and free water as well as

improve revenue collections through improved metering. While this is an encouraging

acknowledgement, SWBNO’s massive rate increase request should more appropriately be paired with

specific action plans for how it intends to achieve these aims and its budgeted costs savings. In that

framework, the Task Force recommends the following specific action items.

Advanced Metering Investment

SWBNO’s meters are its cash register and for ratepayers they should be a reliable and fair gauge of

services delivered for the asking price. SWBNO is working towards this aim but bolstered investment

in expediting the modernization of its meters and increasing related staff capacity is recommended.

52

Id at Appendix A: “Water Audit FY 2008-2010”, p.A-11.

Page | 14

SWBNO estimates that it utilizes 116,146 meters for billed and unbilled water in its service area,

including over 99.2 thousand residential meters and 15.5 thousand large meters among multifamily,

commercial, and industrial users.53 SWBNO uses these meters to charge for water volume used

within a range of $2.69 to $4.60 per 1,000 gallons, and for wastewater volume, a set charge of $4.04

per 1,000 gallons.54 In addition, SWBNO collects monthly service charges that currently range from

$4.05 to $333.00 for water and $11.60 and $1,550.00 for wastewater services based on the size of

the meter.55 In all, over $115 million in current annual revenue – and the fairness and effectiveness of

proposed rate increases – hinges on the functionality of SWBNO meters and the timeliness and

accuracy with which they are read.56

At present, SWBNO is plagued by thousands of non-working or otherwise defective meters and

critical staff and resource shortages that prevent adequate meter reading and repairs. The dominant

meter model in use is a circa 1956 “Sensus SR” manual-read model fitted with solid brass that

SWBNO cites as having a 20-year lifespan. According to a recent SWBNO water audit, in 2010

alone, metering defects and inaccuracies resulted in over 450 million gallons of consumed water

being unmetered for a loss of over $2.3 million in net revenue.57 This lost revenue is particularly

problematic among SWBNO’s aging large meters, which can lose up to 3% of accuracy per year after

10 years of operation.58 Given limited operating funds, SWBNO does not presently have a large-

meter replacement program.59 When its smaller “Sensus SR” models become defective, SWBNO

fixes them internally, however, that effort is hamstrung by meter repair staffing levels staff levels that

are nearly 40% below optimal levels.60

Compounding this, thousands of bills are merely estimated, often for several months consecutively,

due to staff deficiencies among SWBNO’s meter-reader corps. Optimally, a system comprised of

such meters requires 18-21 personnel each reading 300 meters per day –performance benchmarks

that are not being met by SWBNO.61

SWBNO acknowledges in its Rate Study that a “[c]hange-out of existing manual-read meters with

electronic meters and installation of an automated meter reading system would allow all meters to be

read electronically.”62 As such, SWBNO’s improvement plan includes the “purchase of new meters”63

Also, SWBNO is beginning to retrofit its manual SR models with electronic encoders that will allow the

meters to be read remotely. Related to this, SWBNO’s improvement plan calls for investment in

“mobile automatic meter readers installation,” which would allow for remote meter reading “by driving

through city in a van equipped with an antenna and laptop computer.”64 Ultimately, SWBNO envisions

53

SWBNO Rate Study, Appendix B: “O&M Review Report,” p.B-2 (Table 2.1). 54

Id at p.28-29. 55

Id. 56

Id at p.33 (Table 6-1, Line 1); and p,37 (Table 6-3, Line 1). 57

Id at Appendix A: “Water Audit FY 2008-2010,” p.A-24. 58

Id at Appendix B, B-3. 59

Id. 60

Id at B-13. Optimal meter repair staffing should be 13 personnel. SWBNO currently employs 8 persons. 61

Id. 62

Id at p.9. 63

Id at Appendix C:”Capital Programs Review Report,” p.C-W-13. 64

Id at p.C-W-19.


using a network of fixed towers by 2017 in lieu of drivers to remotely read meters.65 Whether by driver

or tower, multiple thousands of meters per day can be read by remote electronic readings.66

While these investments are encouraging, the Task Force recommends that SWBNO also develop an

action plan for increasing staff capacity to increase meter replacement and readings. Equally

important, the Task Force recommends that SWBNO dedicate more resources to purchasing new

meters than retrofitting its older SR models with electronic encoders. Interviews with several water

meter experts suggest that SR models may be discontinued in the near future making it difficult or

impossible to secure encoders for that model.

Based on the above, the Task Force recommends the following specific action-items for SWBNO to

incorporate in a more detailed strategy for meter system improvements that includes budgeting,

timelines, and performance metrics for improving its metering system:

“Big Meters for Big Bucks.” The Task Force recommends that meter inspection and replacement

prioritize larger meters, of which there are fewer but generate considerable revenue. In this, the

Task Force echoes a recent consultant O&M assessment, which recommends data logging large

meters to verify the accuracy of these meters based on industry-accepted accuracy standards.67

Achieve a performance goal of replacing 10% of SWBNO’s entire meter system each year and

develop an operational plan that allows SWBNO to achieve the goal of inspecting all meters every

7 years per current industry best-practices.68

Replace existing meters with next-generation electronic meters mobile or fixed network meter

reading systems The Task Force recommends that SWBNO provide more detail as to the number

of meters to be replaced within set time periods and invest in related towers sooner than 2017.

Increase meter system staffing levels and develop a related succession and training program to

expedite staff readiness to utilize a new meter system, while increasing overall reading accuracy

and repairs to existing meters in the interim.

Install electronic meters on all public assets to better assess the amount of unbilled water provided

to local governmental entities.

Coordinate with the New Orleans Redevelopment Authority and the City’s Office of Code

Enforcement to assess the status of meters present on vacant lots and structures.

Articulate a specific plan, timeline, and performance metrics for reducing data transfer errors

between meters and billing system and improving transparency of meter-billing process.

65

Id. 66

See, http://www.sensus.com/documents/10157/31008/WP-

100_Licensed%20vs%20Unlicensed%20Spectrum_Sensus_2010.pdf. 67

Id at B-2. 68

See, American Water Works Association, M6 Standards.

Page | 16

Annual Water Audits

The Task Force strongly recommends that SWBNO conduct annual water audits as part of standard

business practice. Ratepayer fairness and efficiency demand that SWBNO regularly track apparent

and real water losses and the annual cost impacts of these losses to ratepayers, SWBNO

functionality, and the city’s overall economic health.69 Moreover, an annual audit is the most effective

means for SWBNO to gauge the success of planned improvements in stemming wasteful water loss.

The Task Force is encouraged that SWBNO commissioned an independent 2008-2010 Water Audit in

preparing its proposed improvement plan.70 While the results of this audit are sobering, the process

conducted nonetheless positions SWBNO to continue evaluating and correcting non-revenue water

losses that are diminishing SWBNO effectiveness.

The starting point from which successive annual water audits must track progress is startling. The

most recent audit in 2010 revealed the following:71

42,524 gallons of water leaked daily day along every mile of water pipe (1,590 mi of pipe in system)

71.3% of water pumped for use is never billed due to leaks, public use, or theft

47.2% inefficiency in the use of water as a resource

44.5% of the annual cost associated with processing drinking water is not reimbursed

8.82% of water pumped for use is “apparent loss” due to broken meters, billing errors, and theft

3.02% of the annual cost associated with processing drinking water (at least $11MM) is “free water”

Similarly, industry-standard performance indicators based on these audit measurements also

strikingly reveal how dire SWBNO’s water system is relative to comparable utilities and the gap to be

traversed to reach more sustainable service delivery. First, SWBNO’s Infrastructure Leakage Index

(ILI), an international performance indicator that measures the ratio of “real losses” in a water

distribution system with a theoretical “Unavoidable Annual Real Loss” value, is 36.7.72 According to

the American Water Works Association, an ILI score of 8.0 or above is “not an effective use of water

as a resource.”73 Indeed, SWBNO’s third-party water audit concludes “ILI performance (score) greatly

exceeds any other large water utility in the United States currently performing water auditing.”74

Second, SWBNO’s amount of non-revenue water (NRW),75 as a percent of volume (71.3%) and cost

(44.5%) are also “extremely high for municipal water utilities.”76 SWBNO’s audit attributes this “in part

to the significant amount of free water that is contributed by SWBNO for public purposes.” By

69

Apparent Losses are “paper” losses of water that are attributed to billing errors, defective meters, ineffective collection processes, and unauthorized use of water such as theft. Real Losses are annual volumes of water lost through leaks, bursts

and overflows on pumps, mains, and service connections, up tothe point of customer metering. 70

See, generally, SWBNO Rate Study, Appendix A: “Water Audit FY 2008-2010” Freeman, LLC prepared the analysis

according to American Water Works Association Water Loss Control standards. 71

Id at A-6. 72

Id. 73

Id at A-10. 74

Id at A-7. 75

Non-revenue water enters the distribution system but does not result in revenue gained because of real and apparent losses as well as unbilled authorized consumption (free water), which includes water for firefighting, flushing of mains and sewers, public hydrants, street cleaning, watering of municipal gardens, public fountains, and in the instance of New Orleans, the provision of free drinking water to local governmental entities, including public schools. 76

SWBNO Rate Study at Appendix A, p.A-8.


comparison, the Philadelphia Water Department, a utility comparable to SWBNO in age, size,

demographics and infrastructure, averaged 34.2% NRW by volume between 2000 and 2008.77

SWBNO’s Rate Study recommends that it “annually monitor and manage water loss based on the

approach outlined as part of the audit.” 78 The Task Force agrees and recommends that, concurrent

with seeking its rate increase approval, SWBNO provide a more detailed action plan for conducting

these annual water audits. In so doing, the Task Force recommends the following action-items to

address in a water audit strategy plan that includes budgeting, timelines, and performance metrics:

Develop a water loss reduction and audit plan that includes a robust leak detection system and a

performance goal of achieving an annual 4-point reduction in SWBNO’s ILI to achieve an ILI score

of 16.7 by 2015 and a score below 4.0 by 2020.

Establish an interdisciplinary Water Audit Unit consisting of in-house staff from distribution

operations, treatment plant operations, billing and customer service, finance, information

technology and engineering to conduct the annual audit.

Prepare and present the Water Audit Report to the Board and New Orleans City Council alongside

SWBNO’s annual Financial Audit and a recommended annual Infrastructure Investment Plan.

Include within the annual Water Audit, recommendations for policy, operational, and infrastructure

changes and investments based on factors contributing to lower than optimal ILI and NRW scores.

Develop procedures and performance metrics to more accurately measure unbilled and unmetered

water loss due to public uses, collections inefficiencies, and unauthorized consumption or theft.

Improve Ratepayer Collection Practices through Improved Data Analysis, Increased

Staffing Capacity & Utilized Legal Authority to Enforce Payment:

In addition to reducing meter inefficiencies and water loss, SWBNO’s ratepayer-strategy for financing

infrastructure improvements turns on SWBNO’s ability to collect what is owed them. Apparent water

losses due to inadequate collection processes needlessly burden compliant ratepayers, while

depriving SWBNO of much-needed revenue. Despite this, SWBNO offers no details as to how it

might improve its collection process as part of its water system improvement plan. As such,

concurrent its rate increase request, the Task Force recommends that SWBNO present a detailed

action plan for improving and monitoring its collections processes, including the following action-items:

Develop methodologies for measuring revenue loss due to billing and administrative errors,

procedures for improving transparency and reliability, and metrics to gauge progress.

Install restricted water service devices in non-paying customer meters to restrict water flow to an

amount sufficient for basic needs (cooking, drinking water, toilet flushing) but precludes larger

volume use until payment is rendered. The Task Force recommends that SWBNO research similar

initiatives conducted in Atlanta, Las Vegas, San Francisco, and New Jersey.

77

Id. 78

Id at p.7.

Page | 18

Narrow the Categories of Public Entities that are Eligible for Free Water and Sewer

Services and Require that All Public Entities Install Functional Water Meters & Pay

Marginal Production Costs and a Share of Customer Account Management Expenses:

The Task Force strongly recommends that SWBNO’s governing legislation be revised to eliminate or

significantly narrow the amount of free water and sewer services to local government institutions and

the types of government institutions that receive free or discounted services.

SWBNO estimates that it provided just over $5.5 million in water and sewer services to public entities

beyond itself in 2010.79 While that portion of SWBNO’s “non-revenue water” generation is miniscule

compared to overall revenue needs, this policy of providing free water and sewer services without any

return compensation, hampers SWBNO’s financial liquidity, shifts added burden to ratepayers, and

disincentivizes water conservation and accountability among local public entities. This practice is all

the more egregious given that few, if any, utilities, nationwide, provide free water and SWBNO ranks

among the bottom in national comparisons of water utility financial strength and non-revenue water

waste. In short, “free water” is a luxury that SWBNO and its ratepayers cannot afford.

Pursuant to La R.S. 33:4096 and 33:4121, SWBNO’s “free water and sewer” policy includes:

Audubon Park, City Park, and the New Orleans Museum of Art are only charged for annual

consumption in excess of their respective 1981 usage.

The City of New Orleans and its public institutions from which no revenue is derived shall be

exempt from service charges and rates based on usage.80

Schools and non-school facility belonging to the Orleans Parish School are exempt from charges

for all water service charges and rates for water consumed that do not exceed four gallons per day,

per enrolled student, in a calendar year.

As structured above, this policy relies on inefficient estimates of the amount of free water provided,

utilizes 30-year old usage caps that are out of synch with current day water conversation and

operation needs, and lacks reliable assurances as to accurate, functioning meters among those

entities benefitting from this generous policy. Specifically, it is speculative that SWBNO ratepayers

only sacrifice $5.5 million in annual free water to local government given that SWBNO’s free service is

based solely on billing receipts. Many public building meters and distribution pipes still need to be

repaired or replaced since Hurricane Katrina, making it difficult to more accurately track what services

are provided and enforce any established volume caps. Moreover, using fixed and dated

consumption caps ignores current-day water conservation techniques and changing usage demands

that should reduce or eliminate such revenue caps

For its part, SWBNO has informally committed to reducing the amount of free water and sewer

services provided to local governmental entities.81 The Task Force concurs. Reforming this policy

79

See, “Water Contributed During 2010 for Public Purposes.” SWBNO. (2010). (Hereinafter “Water Audit”). 80

Emphasis added. 81

See, Krupa, Michelle. “Doubling water rates debated as S&WB gives away millions of gallons for free.” Times-Picayune [New Orleans] February 16, 2012. Available at: http://www.nola.com/politics/index.ssf/2012/02/doubling_water_rates_debated_a.html.


should be an important facet of SWBNO reducing wasteful non-revenue water and strengthening its

overall financial stability. As such, the Task Force recommends that, concurrent with seeking

approval for rate increases, SWBNO present a detailed action plan for revising applicable law and

operating policies to narrow or otherwise eliminate its free water policy. The Task Force recommends

the following action-items to be included:

Eliminate “free water” to all local public institutions. If some discount in lieu of full service charges

and rates is maintained, then require at that all entities pay a minimum amount for production

costs, meter installation, and customer account management expenses, with such fees being

adjustable annually relative to inflation and other relevant indices. Relative to usage by the City of

New Orleans, a “services in lieu of payment” arrangement should also be considered given the

amount of services for reimbursement that SWBNO and City-DPW perform for each other.

Eliminate revenue caps based on consumption amounts. If such caps are to be maintained, then

structure them so that the cap is established based on an adjustable annual index that considers

actual consumption and related SWBNO costs.

Transparently enforce any maintained discounted water policy caps to ensure that any public entity

that generates its own revenue is not eligible for discounted water service.

Install and regularly verify meters are functioning and being accurately read on all public buildings.

Conduct routine leak detections within water and sewerage pipes in all public buildings.

To the extent a discounted water policy is maintained, clarify in applicable statutes whether and to

what extent the policy applies to all public schools, including those under the jurisdiction of the

State’ Recovery School District and other charter-based systems.

Page | 20

Establish Permanent SWBNO-City DPW Unit to Implement Roadway and Subsurface

Distribution Improvements Using Shared Procurement & Project Management

Processes:

The Task Force recommends that SWBNO and City-DPW permanently establish a joint

intergovernmental unit that is empowered with a single set of procurement and project management

authorities and processes to coordinate construction of all roadway and subsurface improvements.

SWBNO’s proposed improvement plan includes approximately $600 million in subsurface

improvements to the city’s drinking and wastewater distribution systems. Combined with

approximately $208 million in City-DPW street improvements planned in 2012, alone,82 this collective

investment in the city’s surface and subsurface infrastructure is a massive and time-critical

undertaking that warrants establishing fast-track protocols that marry SWBNO and City-DPW

procurement, project management, and construction processes.

At present, SWBNO, City-DPW, and FEMA conduct monthly sessions to coordinate timing and

phasing for FEMA-funded surface and subsurface projects only. These consultations are a marked

improvement from a prior lack of routine coordination between SWBNO and City-DPW. However,

while these sessions provide important opportunities to prioritize investment areas and streamline

some construction activities, actual implementation remains hamstrung by the omission of protocols

that would unify and streamline procurement, design, site prep, and complete project execution.

Given this, the Task Force recommends that SWBNO and the Mayor execute a joint agreement that

transforms the existing FEMA-project coordination effort into a permanent surface-subsurface repair

intergovernmental unit with stand-alone procurement and project management authorities, timelines,

and processes to enable large-scale, expedited implementation.

Annually Coordinate Joint Financing and Construction Planning Among City, SWBNO,

RPC, and Other Entities to Ensure Concurrent Surface and Subsurface Improvements:

The Task Force recommends that City, RPC, and SWBNO establish cooperative endeavor

agreements or other effective instruments to formalize transparent and consistent procedures for

annually aligning funding resources, bond issuances, construction timelines, and related

administrative and procurement processes to better coordinate proposed water and sewerage system

repairs with the Administration’s overlapping Capital Improvement Plan, RPC’s Transportation

Improvement Program, and other public infrastructure initiatives.

82

See, 2012 Annual Operating Budget, City of New Orleans (October 2011), p.70.

Goal: Expedite SWBNO Capital Improvements Using Fast-Track

Procurement & Coordinated Intergovernmental Infrastructure Investment


Establish permanent SWBNO-City DPW Unit to implement roadway and subsurface

distribution improvements using shared procurement and project management processes

Annually coordinate joint financing and construction planning among City, SWBNO, RPC, and

other relevant entities to ensure concurrent surface and subsurface improvement work

I.


Large-scale staffing losses in the aftermath of Hurricane Katrina paired with large numbers of

anticipated retirements is diminishing SWBNO’s ability to be a self-performing entity. Increasingly,

SWBNO is a management entity that oversees system designs made by third-party contractors and

stretches in-house operations and maintenance among increasingly sparse crews.

SWBNO’s improvement plan and more ambitious water management systems it must next achieve

require increasing its ranks of proficient staff and passing along SWBNO’s proud institutional

knowledge to those individuals. The Task Force recommends the following action items to assist in

that endeavor:

Identify Optimal Operational and Technical Staffing Levels and Expertise

Requirements in Each SWBNO Department:

The Task Force recommends that SWBNO reinforce its requested rate increase with more details for

how it proposes to increase operational capacity and bolster staff expertise with increased revenue.

While the Task Force concurs that O&M spending should increase – and that rate increases are the

most sustainable means for achieving this – SWBNO and its customers would benefit from an outline

of the organizational structure, skill-sets, and personnel levels that are needed to improve operations.

SWBNO’s Rate Study estimates that at least 66 staff positions remain open among O&M-related

departments compared to pre-Hurricane Katrina levels.83 However, details as to a strategy for filling

those positions or how departments might be restructured are lacking. At a minimum, the Task Force

recommends that SWBNO present an Operational Strategic Plan that includes the following:

Organization Structural Assessment: Outline of how O&M departments should interrelate with each

other as well as management, and the Board. Recommended emphasis should be on bolstering

staff expertise in lieu of overreliance on consultants. Further, training emphasis should be placed

staff dual-expertise in water and sewerage systems to consolidate staffing needs.

Operations Review: Articulate current operational shortcomings, including offline or damaged

systems, personnel inefficiencies, technology shortfalls, and limited collection/enforcement

capabilities; and recommend resources and processes to address these shortcomings.

83

See, generally, SWBNO Rate Study, Appendix B: “O&M Review Report.”

Goal: Increase Operational and Technical Staff Capacity & Expertise


Identify optimal operational and technical staffing levels and expertise requirements in each

SWBNO department relative long-term performance goals

Develop staff succession and training program

Revise civil service hiring rules to better meet SWBNO technical staffing needs

Page | 22

Service Levels Assessment: Assess current and desired levels of system efficiency and survey-

based customer service and address how intended operational reforms address those aims.

Timelines for O&M Investments: Outline proposed sequencing for operational improvements and

staff improvements relative to forecasted O&M investment.

Sustainability Practices: Evaluate and specify specific cost savings and efficiency goals based on

proposed O&M investment increases and performance metrics to gauge success.

Develop Staff Succession Program & Revise Civil Service Rules for Increase SWBNO

Autonomy in Defining and Filling Technical Positions:

Staff Succession & Training

The Task Force strongly also recommends that SWBNO reinforce its request for increased rates with

a strategic plan for staff succession and training relative to increasing O&M investment. As with the

recommended Operations Strategic Plan, SWBNO and its rate payers would benefit from an outline of

how SWBNO intends to address anticipated large-scale retirements among its existing O&M staff and,

more generally, assure that personnel are properly trained to facilitate planned system improvements.

SWBNO’s Rate Study estimates that over 33% of current O&M personnel have 20 years or more

service time with SWBNO, including critical management and supervisory positions.84 As such, the

Study concludes that “the development of a succession plan is an urgent need.”85 However, no

details are provided as to a strategy for developing such a plan. At a minimum, the Task Force

recommends that SWBNO outline a plan for succession and training that includes the following:

Department Needs Assessment: Identify specific updated skill-sets needed in each department and

functions currently handled by personnel with more than 20 years of SWBNO service.

Training Content Needs Assessment: Identify content and material resource needs, select staff

liaisons, and structure ongoing training programs relative to specific departmental operation goals.

Implementation Timelines: Outline sequencing for training relative to forecasted O&M investment.

Revise Civil Service Hiring Rules to Better Meet SWBNO Technical Staffing Needs

The Task Force recommends that SWBNO be afforded greater autonomy in hiring technical and

engineering positions. Current rules, which uniformly define technical positions across all local

governmental entities, ignore highly specialized skill-sets that SWBNO needs to conduct operations

and contribute to SWBNO’s diminished in-house expertise, innovation, and operational flexibility. As

such, SWBNO should granted greater flexibility to define the scope and compensation of specialized

positions that are needed to accomplish its mission.

84

See, generally, SWBNO Rate Study, Appendix B: “O&M Review Report.” 85

Id at B-3.


Institute Comprehensive Capital Investment Planning Emphasizing Decentralization,

Advanced Treatment & Sustainable Distribution and Collection Systems:

The Task Force recommends that SWBNO complement planned infrastructure improvements with a

regularly conducted infrastructure planning processes to achieve more proactive infrastructure

investment. SWBNO’s proposed improvements are a necessity but more a function of deferred

maintenance and available federal monies, than the outcome of goal-oriented process for achieving a

sustainable and integrated New Orleans water system.

SWBNO’s proposed infrastructure improvements and the criteria used to prioritize those projects

provide a suitable foundation upon which it should commence inclusive annual planning that sets forth

projects based on anticipated service needs, community growth and input, and opportunities for

increased integration and sustainability. At a minimum, the Task Force recommends that SWBNO

develop a comprehensive sustainable infrastructure planning process that accomplishes the following:

Invest in System Improvements that Reflect Anticipated Service Area Conditions & Community

Growth Patterns: Design distribution and collection systems based on land use, population,

hydrologic, and water consumption changes within the service area over a defined period

Integrate Water System Design with Regional Transportation and Stormwater Management Aims:

Conduct formal inter-parish planning and investment strategies to develop systems that are more

fully integrated with regional transportation, public space, and stormwater protection initiatives.

Maximize Sustainable Infrastructure Investment Opportunities: Define SWNBO’s long-term

sustainability aims and establish performance metrics for gauging success in achieving those aims.

Investments should increase local watershed quality, meet or exceed federal requirements for

water treatment, minimize energy consumption, decrease treatment residuals, decentralize

treatment processes, and facilitate effluent reuse options.

Strategically Plan for Completing Citywide Restoration of Water Distribution System:

The Task Force recommends that SWBNO develop a long-term Distribution System Asset

Management Plan to establish a reasonable time frame and transparent prioritization process for

complete restoration of the city’s water distribution system. SWBNO’s proposed $202 million in

Goal: Conduct Comprehensive Investment Planning to Finance Proactive

& Sustainable Drinking Water and Sewerage Systems


Institute regularly scheduled comprehensive capital investment planning that emphasizes decentralized, advanced treatment and sustainable distribution and collection systems

Strategically plan for completing citywide restoration of the water distribution system

Fully develop Bienvenue Central Wetland Unit Assimilation Project by securing increased

funding and formalizing needed partnerships with St. Bernard Parish

Page | 24

improvements is an effective initial investment. However, complete restoration will cost approximately

another $3 billion and require years to complete. Restoration of this system is the only direct means

of stemming the billions of gallons of water that are leaking before ever being used and related

millions in O&M costs needed in attempts to stabilize a fractured system.

A 2003 study by the consulting firm MWH, recommended that SWBNO commence a 27-year plan to

repair the distribution system.86 Hurricane related pipe corrosion and breakages greatly exacerbated

the system’s failure such that city functionality might not be able to afford that lengthy timeframe. As

such, a comprehensive replacement program should be developed to address the following:

Develop non-intrusive tools and metrics for identifying leakage areas, including a acoustic leak

detection system and financial and consumption modeling within geographical areas.

Develop a prioritization system for component repairs based on surrounding community need and

hydraulic, structural, and water quality assessments as the probability and consequences of failure,

Assess repair options that maximize sustainability, benefit for cost, and minimize public disruption.

Estimate the amount of years needed to complete system restoration, total funding needed, and to

the extent feasible, classify areas of the city in terms of the probability and consequences of failure,

Coordinate funding streams and repairs with other local governmental entities and projects that

overlay or otherwise impact completing repairs.

Establish transparent means for citizens, businesses, and objective professional organizations to

provide input and track overall program progress.

Fully Develop Bienvenue Central Wetland Unit Assimilation Project by Securing

Increased Funding and Formalizing Needed Partnerships with St. Bernard Parish:

SWBNO’s Central Wetland Unit Assimilation Pilot Project presents SWBNO and its customers with an

innovative lower-cost means for meeting increasingly stringent and expensive wastewater regulations,

while restoring Bayou Bienvenue wetlands – a 30,000 acre natural defense that is critically important

to protecting New Orleans and St. Bernard Parish from storm surge. With a pilot phase and related

feasibility study near completion, fuller implementation of this important opportunity will require

effective collaboration between SWBNO, the City, St. Bernard Parish, and their state and federal

partners to secure needed funds and property rights, and implement the project in a timely manner.

Looking ahead, SWBNO and its customers will pay increasingly more to treat wastewater in

compliance with existing federal environmental regulations and more stringent controls that are being

developed. Notwithstanding lower-cost options, this will require expanding existing tertiary treatment

methods and additional expensive filtration methods. For example, SWBNO must now comply with

Federal Clean Water Act rules that limit the amount of nutrients that can be released into the

86

Sewerage and Water Board of New Orleans: Report on Current and Future Capital Needs (December 2006), p.22.


Mississippi River watershed to within a “total maximum daily load” that the State must establish for

that watershed and other impaired waterways pursuant to Section 303(d) of the Clean Water Act.87

Several wetland assimilation projects have already been completed in Louisiana as alternate means

for recycling treated wastewater, including in Thibodaux, Breaux Bridge, Amelia, St. Martinville,

Mandeville, Luling, and Hammond. The Central Wetland Unit Assimilation Project would allow

SWBNO to similarly meet increasingly stringent federal rules by releasing nutrients from secondarily

treated wastewater into the Bayou Bienvenue wetlands in lieu of the Mississippi River.

Utilizing an active management system that continuously tracks nutrient flow, this project would allow

SWBNO to reduce costly tertiary treatment with a more efficient, natural alternative that adds soil

building materials into the wetlands and ultimately reestablish productive wetlands and cypress forest.

The project is also estimated to create over 680 direct and indirect jobs and broader economic and

recreational value for the region88

At present, SWBNO is investing $10 million in state grant funds to conduct this assimilation on a 20-

acre portion of the Bayou and is near completion of its feasibility study, which suggest that fuller

implementation of the project is possible.89 For its part, St. Bernard Parish is implementing a similar

project to assimilate wastewater into the Poydras-Verret Wetlands, which comprise the Central

Wetlands Unit, along with Bayou Bienvenue. As required by state regulations, the next step for

SWBNO is to conduct a baseline study that analyzes current vegetation, sedimentation, and water

quality characteristics within the Central Wetlands Unit.

Concurrent with this study, however, it is recommended SWBNO and the City partner with St. Bernard

and applicable state and federal agencies perform the following action items to ensure timely and

cost-effective project implementation:

Secure property rights to the land comprising Bayou Bienvenue: Bayou Bienvenue is comprised of

numerous privately owned tracts harkening back to a not too distant past when the area was dry

and contemplated for residential development. Now completely submerged under an average of

12 feet of water, a cohesive property rights strategy is needed by which SWBNO and its

governmental partners can access and develop the Bayou into a thriving wetland.

Full-scale wetland assimilation will require a range of rights during the course of project

development, beginning with limited entry during planning and design, longer term occupancy

during construction, and a permanent right to occupy once the project is completed, allowing both

for the introduction of effluent and ancillary public uses of reclaimed wetlands.90

87

33 U.S.C. §1313 (Water Pollution Control Act); 40 CFR §130.7. 88

See, http://blogs.edf.org/restorationandresilience/2010/05/03/profiles-in-restoration-the-central-wetlands-unit-part-vi/ 89

For an outline of issues that must be studied in a feasibility study pursuant to state regulations before a full wetland assimilation project is approved by the Louisiana Department of Environmental Quality, please see: http://www.deq.louisiana.gov/portal/DIVISIONS/WaterPermits/WetlandAssimilationProjects.aspx 90

Davis, Mark. Bayou Bienvenue Restoration: “A Summary of Property Rights Issues and Options.” Tulane Institute on

Water Resources Law and Policy (December 1, 2009).

Page | 26

The Task Force recommends that SWBNO and the City commence a property right/acquisition

strategy in partnership with the State and U.S. Army Corps of Engineers through which appropriate

possessory and nonpossessory property rights are secured in a timely and affordable manner such

that implementation of the assimilation project is not needlessly delayed. At a minimum, the

following strategies should be considered separate or in conjunction with each other:

Claim state ownership to all areas that are now submerged and tidally influenced

Exercise eminent domain over all privately owned tracts using either state or federal authority

Buy-out of privately owned tracts by public entities

Secure long term dedication or lease of privately owned tracts by public entities for defined uses

Secure Long-Term Funding for Complete Implementation: SWBNO, the City and their state and

federal governmental partners should begin coordinating efforts to secure long-term funding

beyond SWBNO’s current $10 million in the pilot phase of the Central Wetland Unit Assimilation

Project. Beyond that amount, SWBNO’s proposed improvement plan does not include any

additional investment in the project nor detail a process for securing additional funds.

The Task Force specifically recommends that a long-term financing strategy be developed that

includes SWBNO funding paired with state and federal coastal restoration funding, including an

apportionment from any federal Clean Water Act penalties related to the Deep Water Horizon oil

spill that are directed to Louisiana.

Establish Public-Private Working Group to Commence Project Design and Implementation: Upon

the completion of its feasibility study, SWBNO and the City should immediately establish a public-

private working group to finalize design and implementation strategies for the Central Wetland Unit

Assimilation Project. At a minimum, this group should identify a suitable scale of wetland

restoration based on the amount of nutrients that can be safely released and the amount of

additional fill and land needed. In addition, a long-term tracking system is needed whereby wetland

restoration progress is measured. Finally, long-term strategies for economic, community, and

recreational uses should be developed in conjunction with reestablishing the area as a wetland and

cypress forest.

♦♦♦

SWBNO Water & Sewerage System Solutions

CHECKLIST FOR CHANGE

Recommended Reform Lead Entity Partner Entities

Applicable Policies Applicable

Funding

Recommended Next Steps

Develop

Comprehensive

Planning &

Investment Process

to Ensure Proactive

and Sustainable

Water and

Sewerage Systems

Institute comprehensive capital

investment planning that emphasizes

decentralized assets, advanced

treatment and sustainable distribution

and collection systems

SWBNO

Board Bylaws, SWBNO Strategic Capital, Operational & Financial Plans

Bonds, water & sewer rates

Within Next Year: (1) Revise Board Bylaws to establish a Strategic Planning Committee; (2) adopt a transparent, customer-inclusive framework for researching and prioritizing short-, mid-, and long-term infrastructure investments; (3) outline an organizational and funding structure for a permanent Strategic Policy and Planning Department.

Strategically plan for completing

citywide rehabilitation of the water

distribution system

SWBNO City, City Council, and RPC

Same as above.

Bonds, water & sewer rates, disaster-recovery funding, other funding sources

Within Next Year: (1) Identify and map outstanding major leakages within distribution system; (2) prioritize components of the system for repair based on the probability and consequences of failure); (3) assess estimated costs, available funding sources, and a realistic timeline for completing system rehabilitation; and (4) institute joint planning protocols with City and RPC for long-term coordination of funding and street and subsurface project procurement and construction.

Fully develop Bienvenue Central

Wetland Unit Assimilation Project by

securing increased funding and

formalizing needed partnerships with

St. Bernard Parish

SWBNO City, St. Bernard Parish

SWBNO Strategic Capital, Operational & Financial Plans; Coastal Master Plan; Regional Integrated Stormwater Management

SWBNO bonds, water & sewer rates, other funding sources

Within Next Year: (1) Commence baseline study and finalize nutrient load based on regulations and SWBNO treatment needs; (2) establish intergovernmental working groups to secure long-term property rights and funding streams; and (3) develop an implementation timeline and public-private working group to coordinate project development with other community aims.

Achieve Greater

Operational Savings

through Advance

Metering, Improved

Collection Practices

and Narrower “Free

Water” Policies

Establish timeframe for adjusting water

rates to more equitably reflect varying

meter and “readiness to serve” costs

among customer classes and

incentivize conservation measures.

SWBNO City Council water & sewer rates

Concurrent with Rate Increase

Request: Present a proposed

threshold/ timeframe based on

regular system leak audits upon

which rate structure could be

modified

Within Next Two Years: (1)

Research options for modifying

rate structures to reflect

disparate consumption and rate

impact between small and large-

scale residential and commercial

customers; (2) conduct customer

outreach to solicit input and

feedback relative to rate

structure proposals.

Invest in advanced metering, with a

goal of replacing at least 10% system

meters annually

SWBNO City, NORA

SWBNO Strategic Capital, Operational & Financial Plans; Code Enforcement

water & sewer rates

Within Next Year: (1) Identify

staffing and funding needs to

upgrade at least 10% of

SWBNO’s entire meter system

annually and reasonable annual

targets for meter inspection; (2)

investigate continued reliability of

existing SR meter models amid

pending large-scale industry

phase-out of that model and

identify alternative solutions; (3)

present a timeline and funding

process for installing network

towers sufficient for entire

system by 2017; (4) develop

protocols with NORA and City

Code Enforcement to inspect

meters on vacant lots and

structures; and (5) develop a

transparent process by which

customers can track meter

replacement progress.

Conduct annual transparent water

audits

SWBNO City Council SWBNO Strategic Capital, Operational & Financial Plans;

Same as above.

Within Next Year: (1) Develop

operating plan for conducting

regular water loss audits and

establish realistic performance

goals and benchmarks by which

progress can be tracked by

customers; (2) develop an

organizational structure for an

interdisciplinary Water Audit Unit

consisting of in-house staff

among relevant departments; (3)

establish a format and protocols

for preparing and presenting

water audit reports to the Board

and New Orleans City Council, at

least annually; and (4) develop

procedures and performance

metrics to measure unbilled and

unmetered water loss due to

public use, collections

inefficiencies, and unauthorized

consumption or theft.

Achieve Greater Operational Savings through Advance Metering, Improved Collection Practices and Narrower “Free Water” Policies

Improve ratepayer collection practices

through improved data analysis,

increased staffing capacity & legal

authority to enforce payment

SWBNO SWBNO Strategic Capital, Operational & Financial Plans

water & sewer rates

Within Next Year: (1) Develop

methodologies for measuring

revenue loss due to billing and

administrative errors, procedures

for improving transparency and

reliability, and metrics to gauge

progress; (2) research cost and

technical feasibility for installing

restricted water service devices

in non-paying customer meters

to restrict water flow to an

amount sufficient for basic

needs; and (3) as feasible,

develop enforcement procedures

and an implementation plan and

timeline for installing restrictor

devices.

Narrow public entities eligible for free

water and sewer services and require

that all public entities install functional

water meters and pay marginal

production costs and share of

customer account management

expenses

SWBNO

State Legislature, Orleans government entities

Same as above. Same as above.

Within Next Year: (1) Draft

legislation to amend La R.S.

33:4096 and 33:4121 to require,

at a minimum, (a) that all Orleans

Parish public entities pay a

minimum amount for production

costs, meter installation, and

customer account management

expenses, with such fees being

adjustable annually relative to

inflation and other relevant

indices and (b) eliminates rate for

public entities based on fixed-

year consumption amounts; and

(2) develop protocols for

regularly verifying that meters on

public buildings are functioning

and monitoring for leakages.

Expedite Capital

Improvements

Using Fast-Track

Procurement &

Formalized

Intergovernmental

Investment

Coordination

Establish permanent SWBNO-City

DPW Unit to implement roadway and

subsurface distribution improvements

using shared procurement and project

management processes

SWBNO, City RPC

SWBNO Strategic Capital, Operational & Financial Plans; City Capital Projects; Regional Transportation Implementation Plan

SWBNO and City bonds, water & sewer rates, other funding sources

Within Next Year: (1) Execute a

joint agreement between City

and SWBNO to establish a

permanent surface-subsurface

repair intergovernmental unit; (2)

develop unified procurement

processes and consolidated

project management roles and

responsibilities; and (3) establish

a unified online resource to allow

public tracking of project

selection and progress timelines.

Annually coordinate joint financing and

construction planning among City,

SWBNO, and RPC for surface and

subsurface improvement work

SWBNO, City, RPC

Same as above. Same as above.

Within Next Year: (1) Establish

formal agreements among City,

RPC, and SWBNO and related

procedures for aligning existing

budget funding processes and

any future planned bond

issuances; (2) develop

administrative and procurement

processes to better coordinate

proposed water and sewerage

system repairs with regular

updates to the City’s Capital

Improvement Plan, RPC’s

Transportation Improvement

Program, and other public

infrastructure initiatives.

Increase Staff

Operating Capacity

& Expertise

Identify optimal operational and

technical staffing capacity and

expertise requirements in each

SWBNO department relative to long-

term performance goals

SWBNO SWBNO Operational Plan

Concurrent with Rate Increase

Request: Present an outline of

internal performance and

customer-satisfaction indicators

that will be used to guide the use

of increased investment in

operational capacity and staffing.

Within Next Year: (1) Conduct

customer surveys and internal

operations audit to quantify

current and optimal levels of

system efficiency; (2) present to

SWBNO Board, City Council,

and customers how operational

departments will be restructured

or otherwise bolstered based on

performance assessments; and

(3) outline proposed sequencing

for operational improvements

and staff improvements relative

to forecasted O&M investment.

Increase Staff Operating Capacity & Expertise

Develop staff succession and training

program

SWBNO

SWBNO Operational Plan

Within Next Year: (1) Identify

specific updated skill-sets

needed in each department and

functions currently handled by

personnel with more than 20

years of SWBNO service; (2)

identify content and material

resource needs, select staff

liaisons, and structure ongoing

training programs relative to

specific departmental operation

goals; and (3) outline sequencing

for training relative to forecasted

O&M investment.

Revise civil service rules to increase

SWBNO autonomy in defining an filling

technical positions

SWBNO, Civil Service Commission

Civil Service Rules

Within Next Year: (1) Define

positions for which revised hiring

rules would be preferred and the

rationale; and (2) collaborate with

Civil Service Commission staff to

finalize position definitions,

compensation, and related hiring

processes.

Water & Sewerage System Advisory Group

Members:

Billy Burk, Managing Partner, Burk Property Investments, LLC (Chair)

Michael Guiza, Senior Project Manager, Weston Solutions

Louis Jackson, Senior Project Manager, CDM

Kerwin Julien, President, Julien Engineering & Consulting, Inc.

Sarah Mack, PhD, President, Tierra Resources, LLC

Douglas Olson, Barriere Construction Co., LLC

Jeffrey Thomas, Principal, Thomas Strategies, LLC

Greta Zornes, PhD

Organizational Contributors:

City of New Orleans

Horizon Initiative, Water Management Subcommittee

Raftelis Financial Consultants, Inc.

Regional Planning Commission

Sewerage and Water Board of New Orleans

Thomas Strategies, LLC ♦ 917 Washington Avenue, Suite C New Orleans, LA ♦ 504.237.4736

assessing the swbno: recommendations for improving efficiency, quality & sustainability

Documents

leaking water

power water

citys fractured water

citys water distribution

inconsistent water auditing

sewerage systems

swbno customers

infrastructure investment