Water Treatment Plant Conversion
In June 2005, Seacoast Utility Authority staff prepared a report analyzing Seacoast’s existing water supply and treatment practices and evaluating replacement and expansion alternatives. In summary, staff’s findings were that Seacoast’s aging lime softening water treatment systems should be replaced with membrane (reverse osmosis and nanofiltration) facilities (enclosed memo dated June 9, 2005).
Seacoast’s Board reviewed and discussed that report, then directed the engineering firm LBFH, Inc. to complete a more comprehensive technical analysis. LBFH, Inc.’s evaluation was submitted to the Board in December 2005. This detailed evaluation confirmed staff’s findings and provided detailed preliminary cost estimates for each alternative.
In January 2006, Seacoast’s Board concluded that conversion to membrane technology was an essential step, that doing so would yield a superior quality finished water (reduce color), eliminate a significant and growing concern relating to lime sludge disposal, allow Seacoast to tap and treat brackish water resources, and expand Seacoast’s highly successful wastewater recycling program. The Board selected a mid-range cost alternative, an $88 million program to build a single regional facility on Hood Road, and phase out its aging lime softening treatment facilities. (enclosed memo dated May 12, 2006)
Seacoast hired a highly qualified engineering team in September 2006. During the 2 ½ years that followed, these professionals researched and analyzed existing facilities, designed new or upgraded systems, sought and obtained required regulatory approvals, then solicited and received bids from qualified contractors. A summary of project costs, as they have evolved from December 2005 through the present time, is linked here. (Membrane Conversion Project spreadsheet dated January 12, 2010).
Since 2006, unforeseeable, uncontrollable and in some cases unprecedented economic forces have diminished Seacoast’s ability to fund this project. The most profound of these influences are summarized below:
1. Responding to extraordinary turbulence and uncertainty in the banking and insurance industries credit rating agencies recently downgraded the rating of virtually every firm that insures municipal debt, including Seacoast’s insurer. When that occurred, Seacoast became legally obligated to fund a $13 million cash reserve to cover an entire year’s debt service. This single requirement increased the project cost by approximately 14%.
2. The housing market collapse has had multiple negative consequences. For example, approximately $10 million in anticipated “growth” income, revenue generated by new customers, has not materialized. Further, it has halted the land development activity that formerly allowed lime sludge recycling for roadway and parking lot base material, adding up to $1.2 million in annual hauling and landfill cost.
3. Historically low interest rates on permitted investments and the need to deplete cash reserves have reduced interest income by approximately $1 million per year.
4. Rising fuel costs have added approximately $700,000 per year in unforeseeable fuel, chemical and operating costs.
5. South Florida Water Management District has declared a Water Shortage Emergency, restricting irrigation to two days per week temporarily and perhaps to three days per week permanently. Sustainable and available water formerly sold at higher rates to high volume, willing and financially able customers – revenue that historically subsidized rates paid by lower volume customers - has been curtailed.
WHAT HAS SEACOAST DONE TO SAVE MONEY?
Having already reduced its work force by 19 positions, deferred certain renewal and replacement activities and suspended cost of living pay adjustments, increasing rates is the only remaining alternative (enclosed memorandum dated February 12, 2008). The rate proposal discussed in the enclosed July 22, 2009 presentation titled Rate Impact & Feasibility Assessment, Membrane Conversion Project, was considered by Seacoast’s Board at the scheduled public hearings, will allow Seacoast to achieve the project’s intended public health and environmental benefits.
WHY NOT DEFER THE MEMBRANE REPLACEMENT PROJECT?
Perhaps ironically, the same economic forces that compel the proposed rate increase also eliminate the most obvious cost saving measure; that is, deferral of the Membrane Conversion Project. Technology, regulatory pressures, public health and environmental concerns will soon render Seacoast’s aging lime softening infrastructure entirely obsolete. In short, conversion to membrane technology, the only reasonable alternative for this area’s water supply, is inevitable.
The struggling economy has yielded the lowest construction bid prices seen in years, approximately 30% lower than the engineers’ most recent estimates (see enclosed Membrane Conversion Project spreadsheet dated January 12, 2010). Further, the rate of interest that Seacoast will pay on debt issued to support the project remains relatively low. Knowledgeable consultants advise that as the economy rebounds, both are likely to trend upward. Thus, Seacoast believes that the time to proceed with this project is now, before the project costs and the consequential need for additional revenue increase.
Seacoast Utility Authority has determined that to improve drinking water quality, resolve an increasingly challenging lime sludge disposal issue, and allow the future use of alternative water supplies, it must abandon its half-century old lime softening water treatment facilities, consolidating all water treatment operations into a single membrane (reverse osmosis/nanofiltration) treatment plant. To take advantage of the current construction market and prevailing interest rates, Seacoast believes it must proceed.
Attributable to a number of unforeseeable economic circumstances, and despite Seacoast’s considerable cost reduction and containment initiatives, current rates will not yield sufficient revenue to fund this initiative. Accordingly, Seacoast's staff and professional rate consultants had proposed an amended system of water/sewer rates designed to support this critically important public health and environmental project. Public hearings on the proposed rates were held on August 25, and September 23, 2009. Seacoast Board approved the new rate structure at it's September 23, 2009 board meeting.