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Utility Experience to Date And How It Can Help EPA Refocus Its Financial Capability Assessment Guidance

Utility ExperienceMarket forcesFinancial Capability AssessmentEPA Guidance RevisionsNACWA advocacyNegotiation implicationsConclusions. Presentation Outline. Utility ExperienceMarket forcesFinancial Capability AssessmentEPA Guidance RevisionsNACWA advocacyNegotiation implicationsConclusions.

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Utility Experience to Date And How It Can Help EPA Refocus Its Financial Capability Assessment Guidance

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    1. Utility Experience to Date And How It Can Help EPA Refocus Its Financial Capability Assessment Guidance

    2. Utility Experience Market forces Financial Capability Assessment EPA Guidance Revisions NACWA advocacy Negotiation implications Conclusions Presentation Outline

    3. Utility Experience Market forces Financial Capability Assessment EPA Guidance Revisions NACWA advocacy Negotiation implications Conclusions Presentation Outline

    4. Utility Experience Market forces are imposing unprecedented financial challenges Withdrawal of fed/state support Cost increases O&M costs Labor, health care Electricity, chemicals Capital Construction cost escalation Multitude of requirements CSO, SSO, stormwater, asset management Market saturation via multiple programs in region

    5. Utility Experience Construction costs rose significantly from 2000-2006

    6. Utility Experience Water and wastewater rates are projected to continue outpacing inflation

    7. 7 Utility Experience Consent decree compliance imposes significant community disruption

    8. Utility Experience EPA responses to financial capability issues has been highly variable In Cincinnati, financial capacity was employed to determine program spending limitations in consent decree negotiation

    9. Utility Experience Financial capability a central concern in ongoing negotiations

    10. Utility Experience Market forces Financial Capability Assessment EPA Guidance Revisions NACWA advocacy Negotiation implications Conclusions Presentation Outline

    11. EPA Guidance Revisions Past inconsistencies & myopia have prompted call for change Regulators Focus on discrete regulation enforcement Varying experience & attitudes Non-recognition of resource constraints or alternative community investment options Utilities Historic under-pricing and under-investment Variances in community circumstances, priorities and negotiation approaches

    12. 12 EPA Guidance Revisions NACWA Guiding Principles Economic Capability First consideration must be the community’s economic situation. Economic capability must be assessed in light of other investments and potential environmental benefit. Improvements should mitigate potential adverse impact of their cost on distressed populations. Program Scope and Timetable Scope and implementation schedule must be tailored to community’s unique financial condition. Considering financial capability in light of other investment demands and potential benefits ensures greatest water quality improvement at the earliest possible time.

    13. EPA Guidance Revisions A Portfolio Management approach to environmental investment is suggested May help ensure highest returns within communities’ financial constraints Dispels myth that any regulation warrants enforcement if net environmental benefit will be realized Recognizes that environmental investments with benefit/cost ratios >1 is a necessary but not a sufficient condition to warrant resource allocation Framework enables recognition of non-monetary benefits and costs

    14. 14 EPA Guidance Revisions DRAFT Portfolio Management Framework

    15. EPA Guidance Revisions Negotiation implications Projected costs and compliance must be considered holistically Illegitimacy of prosecution of individual sections of CWA Program schedules must be malleable Cost estimate updating Evolving financial capabilities Availability of higher-return environmental investment options Rate structure options alone can not mitigate impacts on distressed populations

    16. Utility Experience Market forces Financial Capability Assessment EPA Guidance Revisions NACWA advocacy Negotiation implications Conclusions Presentation Outline

    17. Conclusions Financial capability assessment requires fundamental change Current regulatory and environmental policies are of questionable merit given impacts that: challenge communities’ financial capabilities lead to sub-optimal resource investments may deprive services to economically disadvantaged An alternative, portfolio management approach to environmental investments is warranted Limited adjustments to flawed, prescriptive methodology would defeat public policy objectives

    18. Utility Experience to Date And How It Can Help EPA Refocus Its Financial Capability Assessment Guidance

    19. Eric Rothstein, CPA Galardi Rothstein Group

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