United States
Environmental Protection Office of Water EPA816-R-98-008
Agency 4606 July 1998
Information for States on
4>EPA Implementing the Capacity
Development Provisions of
The Safe Drinking Water Act
Amendments of 1996
Includes: Ensuring That All Community Water Systems
and Nontransient, Noncommunity Water Systems
Demonstrate Technical, Managerial, and
Financial Capacity
Preparing Capacity Development Strategies
Assessing Capacity
-------
CONTENTS
ACRONYMS -vii-
CHAPTER 1:
Introduction to Technical, Managerial, and Financial Capacity of Water Systems -8-
What is water system capacity? -9-
What is water system capacity development? -9-
How does the SDWA address capacity development? -9-
To which water systems do the SDWA's capacity development provisions apply?
-9-
What is a public water system (PWS)? -10-
What is a community water system (CWS)? -10-
What is a nontransient noncommunity water system (NTNCWS)? -10-
What is a transient, noncommunity water system (TNCWS)? -10-
What is technical capacity, and how can it be assessed? -11-
What is managerial capacity, and how can it be assessed? -11-
What is financial capacity, and how can it be assessed? -12-
How are technical, managerial, and financial capacity related? -12-
CHAPTER 2:
Ensuring That All New CWSs and NTNCWSs Demonstrate Technical, Managerial, and
Financial Capacity -15-
INTRODUCTION -16-
AUTHORITY AND CONTROL POINTS -16-
State Authority for Drinking Water Quality -19-
State Drinking Water Primacy Agency -19-
State Authority for Economic Regulation of Public Utilities -20-
State Public Utility Commissions -20-
State Authority for Water Resource Management -21-
State Water Resource Agency -21-
State Authority for Revolving Loan Funds -22-
State Financial Assistance Agency -22-
State Authority for Planning and Growth Management -22-
State Planning or Development Agency -22-
Regional Planning Councils (Intrastate) -22-
State Enabling Authority for Local Government -23-
Secretary of State (or other agency) -23-
State Authority for Public Safety -23-
State Fire Marshal (or other agency) -23-
Local Governmental Authority for Land Use, Planning, and Finances -23-
-ii-
-------
Municipalities, Counties, and Special Districts -23-
Federal Rural Utilities Authority -24-
Rural Utilities Service -24-
Interstate Authority -24-
River Basin Commissions -24-
State Authority to Regulate Related Businesses -25-
Banking Regulators -25-
Insurance Regulators -25-
ACTIONS TO ENABLE OR ENHANCE STATE AUTHORITY -26-
Expand Authority to Add, Strengthen, or Coordinate Control Points -26-
Issue Rules, Regulations, and Policies -26-
Enhance Capacity Assessment Resources -27-
Coordinate Agency Capacity Efforts -27-
Conduct Regular Meetings -27-
Formulate Interagency Policies and MOU -27-
Hold Joint Proceedings or Provide Testimony -28-
Share Data and Information Resources -28-
Clarify State and Local Roles -28-
Enhance System Approval Processes -28-
Conduct Preliminary Feasibility Meetings With Applicants -28-
Develop a Standard Operating Procedure (SOP) for Approvals and Denials
-29-
Promote Awareness of Capacity Issues -29-
Form a Stakeholder Group -29-
Educate New System Applicants -29-
Educate Consumers and Communities -30-
Educate the Technical Community -30-
Educate the Financial Community -30-
Encourage Interconnection, Consolidation, or Regionalization -30-
Require Consideration of Regional Alternatives -30-
Promote Regional Planning -31-
Establish an Interconnection Policy -31-
Minimize Bypass Opportunities -31-
Modify Annexation Policies -31-
Strengthen New System Capacity -31-
Require a Comprehensive Business Plan -31-
Require a Technical Operations Plan -32-
Develop Benchmarks or Minimum Standards -33-
Require Guarantees And Assurances -33-
Provide Performance Guarantees -33-
Ensure Takeover by Another Entity in Case of Failure -33-
-111-
-------
ENSURING CAPACITY OF NEW NONTRANSIENT, NONCOMMUNITY WATER
SYSTEMS -35-
Legal Authority or Other Means -35-
Control Points in the New System Development Process -35-
Actions to Ensure Capacity of New Systems -35-
CHAPTER 3:
Preparing Capacity Development Strategies Under §1420(c)(2) of the Safe Drinking Water
Act -37-
INTRODUCTION -38-
BUILDING A STRATEGY -39-
Relationship Between the Elements of a Capacity Development Strategy and the
Tools Used to Enable Their Implementation -41-
Element A: Methods or Criteria to Prioritize Systems -43-
ElementB: Factors That Encourage or Impair Capacity Development -45-
Element C: Description of How the State Will Use the Authority and Resources
of the SDWA -48-
ElementD: Establishing a Baseline and Measuring Improvements -51-
Element E: Identifying Interested Persons -52-
NONCOMMUNITY WATER SYSTEMS -54-
Methods or criteria to prioritize systems -54-
Factors that encourage or impair capacity development -54-
How the State will use the authority and resources of the SDWA -54-
How the State will establish a baseline and measure improvements -55-
Procedures to identify persons that have an interest in and are involved in the
development and implementation of the strategy -55-
CHAPTER 4:
Assessing System Capacity -56-
INTRODUCTION -57-
METHODS OF ASSESSING CAPACITY -57-
APPLICATION OF THE ASSESSMENT TOOLS FOR NONTRANSIENT
NONCOMMUNITY WATER SYSTEMS -61-
Technical Capacity -61-
Managerial Capacity -61-
Financial Capacity -62-
-iv-
-------
APPENDIX:
The Tools -63-
INTRODUCTION -64-
Annual Financial Reports -65-
Big Brother and Buddy System Programs -68-
Bond Issue Reviews -70-
Capital Improvement Plans -72-
Certificates of Convenience and Necessity (CCNs) -74-
Compliance Data -76-
Comprehensive Performance Evaluation -79-
Consumer Confidence Reports -82-
Consumer Complaint Records -84-
Cooperation with Non-Governmental Organizations -86-
Cooperation of Industry Groups and Lenders -88-
Coordination with Other Agencies -90-
Credit Rating Services -94-
Criteria Used by Lenders -97-
DWSRF Loan Applications -99-
Emergency Response Plans -102-
Enforcement -104-
Financial Viability Assessment Methods -106-
Financial Assurance Mechanisms -108-
Financial and Managerial Training -110-
Interviews with Personnel Familiar with the System -112-
Operator Certification -114-
Permit Application Data -116-
Public Education and Information -118-
Rate Reviews and Approvals -120-
Regional Plans -123-
Restructuring -126-
Review of Audit Reports -128-
Sanitary Surveys -130-
Satellite Management -133-
Self-Assessment and the "Dozen Questions" -135-
Source Water Assessment Programs -138-
State or Federal Surveys of Infrastructure Needs -141-
State-Wide Studies of Water Quality or Quantity -143-
Training and Technical Assistance -145-
Water Conservation Plans -148-
Water System Plans or Business Plans -151-
-v-
-------
TABLES, FIGURES, and EXHIBITS
Ownership by System Size -13-
Elements of Capacity -14-
Potential Authorities and Control Points for Ensuring the Technical, Managerial, and Financial Capacity of
New Water Systems -18-
Actions to Establish or Enhance Authority to Ensure the Capacity of New Water Systems -34-
Building a Capacity Development Strategy -40-
Tools and Resources for Developing State Capacity Programs -42-
Tools to Develop Methods or Criteria to Prioritize Systems -44-
Tools to Address Factors that Impair Capacity Development Efforts -47-
Tools that May Permit the State to Exercise the Authority and Resources of the SDWA -50-
Capacity Development Matrices -59-
-vi-
-------
ACRONYMS
Acronym
AMWA
ASDWA
AWWA
CCE
CCN
CCP
CFR
CIP
CPE
CWS
DEP
DOH
DWSRF
EPA
FVT
G&A
MCL
MOU
NARUC
NAWC
Meaning
Association of Metropolitan Water Agencies
Association of State Drinking Water
Administrators
American Water Works Association
Comprehensive Compliance Evaluation
Certificates of Convenience and Necessity
Composite Correction Program
Code of Federal Regulations
Capital Improvement Plan
Comprehensive Performance Evaluations
Community Water System
Department of Environmental Protection
Department of Health
Drinking Water State Revolving Fund
Environmental Protection Agency
Financial Viability Test
General and Administrative
Maximum Contaminant Level
Memorandum of Understanding
National Association of Regulatory Utility
Commissioners
National Association of Water Companies
Acronym
NCWS
NDWAC
NETA
NPDWR
NRWA
NTNCWS
O&M
OGWDW
PUC
PWS
RCAP
RCW
RUS
SDWA
SDWIS
SRF
TNCWS
WAC
Meaning
Noncommunity Water Systems
National Drinking Water Advisory Council
National Environmental Training
Association
National Primary Drinking Water
Regulations
National Rural Water Association
Nontransient, Noncommunity Water
System
Operations and Maintenance Cost
Office of Ground Water and Drinking
Water
Public Utility Commission
Public Water System
Rural Community Assistance Programs
Revised Code of Washington
Rural Utility Service
Safe Drinking Water Act
Safe Drinking Water Information System
State Revolving Fund
Transient Noncommunity Water Systems
Washington Administrative Code
-------
CHAPTER 1:
Introduction to Technical, Managerial, and Financial
Capacity of Water Systems
-------
Chapter I
What is water system capacity?
Water system capacity is the ability to plan for, achieve, and maintain compliance with
applicable drinking water standards. Capacity has three components: technical, managerial, and
financial. Adequate capability in all three areas is necessary for a system to have "capacity."
What is water system capacity development?
Capacity development is the process of water systems acquiring and maintaining adequate
technical, managerial, and financial capabilities to enable them to consistently provide safe
drinking water. The SDWA's capacity development provisions provide a framework for States
and water systems to work together to ensure that systems acquire and maintain the technical,
managerial, and financial capacity needed to meet the Act's public health protection objectives.
How does the SDWA address capacity development?
The SDWA as amended establishes a focus on capacity development through two major
provisions. First the law requires States to develop and implement programs to ensure that new
systems demonstrate capacity and to assist existing systems in acquiring and maintaining capacity.
States failing to develop and implement such programs will have up to 20% of their DWSRF
allotment withheld.
Second, the law ties a water system's eligibility to receive assistance from a DWSRF to the
system's technical, managerial, and financial capacity. In short, the law prohibits DWSRF
assistance to a system which lacks the technical, managerial, and financial capacity to ensure
compliance with SDWA requirements. The only exception for systems lacking capacity is if they
agree to undertake changes in operations, such as changes in ownership, management,
accounting, rates, etc. These would apply if the State determines that the changes are necessary
to ensure that the system has the technical, managerial, and financial capacity to comply with the
SDWA over the long term. Section 1452(a)(3) establishes the prohibition on DWSRF assistance
to a system lacking the capacity to ensure SDWA compliance unless the system agrees to
restructuring changes to ensure it has the necessary technical, managerial, and financial capacity
to comply with the Act over the long term.3
To which water systems do the SDWA's capacity development provisions apply?
Section 1420(a), the new systems provision, applies to all new CWSs and all new NTNCWSs.
3 Section 1452(a)(3): LIMITATION.- (A) IN GENERAL- Except as provided in subparagraph (B), no
assistance under this section shall be provided to a public water system that- (i) does not have the technical,
managerial, and financial capability to ensure compliance with the requirements of this title; or (ii) is in significant
noncompliance with any requirement of a national primary drinking water regulation or variance. (B)
RESTR UCTURING. - A public water system described in subparagraph (A) may receive assistance under this section
if- (i) the use of such assistance will ensure compliance; and (ii) if subparagraph (A)(i) applies to the system, the
owner or operator of the system agrees to undertake feasible and appropriate changes in operation (including
ownership, management, accounting, rates, maintenance, consolidation, alternative water supply, or other
procedures) if the State determines that such measures are necessary to ensure that the system has the technical,
managerial, and financial capability to comply with the requirements of this title over the long term.
-9-
-------
Chapter I
Section 1420(c), the capacity development strategy provision, applies to all PWSs, but States
must consider which systems they will focus on.
Section 1452(a)(3), the prohibition of DWSRF assistance to PWSs which lack capacity, applies
to all PWSs eligible for DWSRF assistance, which are CWSs , nonprofit NTNCWS, and nonprofit
TNCWS.
What is a public water system (PWS)?
A PWS is a "system for the provision to the public of water for human consumption through
pipes or other constructed conveyances, if such system has at least fifteen service connections or
regularly serves an average of at least twenty-five individuals daily at least 60 days out of the
year." (40 CFR 141.2) This category includes community water systems (CWSs), nontransient
noncommunity water systems (NTNCWSs), and transient community water systems (TNCWSs).
There are approximately 172,000 PWSs nationwide.
What is a community water system (CWS)?
A CWS is a "public water system which serves at least 15 service connections used by year-
round residents or regularly serves at least 25 year-round residents." (40 CFR 141.2) About
55,000 CWSs serve more than 246 million people.
Slightly more than 86 % of CWSs are "very small" (serving fewer than 500 persons) or "small"
(serving fewer than 3,300 persons). Although a significant majority of CWSs, these systems serve
just over 10 percent of the CWS service population. CWSs can be privately owned or publicly
owned. A substantial number of privately-owned systems are "ancillary systems" they provide
water as an ancillary function of their principal business. An example is mobile home parks, which
provide water as an adjunct to their principal business. Fifty-three percent of CWSs serving
between 25 and 100 persons are ancillary systems. Only 0.1 percent of CWSs serving more than
10,000 persons are ancillary systems. See Figure 1.
What is a nontransient noncommunity water system (NTNCWS)?
A NTNCWS is "a public water system that is not a community water system and that regularly
serves at least 25 of the same persons over 6 months per year." (40 CFR 141.2) NTNCWSs are
generally commercial or institutional establishments having their own water supply which serves 25
or more of the same people on a regular basis. Examples include schools, factories, office and
industrial parks, and major shopping centers. Approximately 20,000 NTNCWSs across the nation
serve some 6 million people. Over 96 % of NTNCWSs use ground water as their primary source.
Ninety-nine percent of NTNCWSs are "very small" or "small". Most are privately owned.
What is a transient, noncommunity water system (TNCWS)?
A TNCWS is a "non-community water system that does not regularly serve at least 25 of the
same persons over six months per year." (40 CFR 141.2) TNCWSs are generally commercial or
not-for-profit establishments having their own water supply which serves 25 or more people per
day, but not the same people on a regular basis. Examples include restaurants, roadside stops,
campgrounds, and hotels.
-10-
-------
Chapter I
What is technical capacity, and how can it be assessed?4
Technical capacity is the physical and operational ability of a water system to meet SDWA
requirements. Technical capacity refers to the physical infrastructure of the water system,
including the adequacy of source water and the adequacy of treatment, storage, and distribution
infrastructure. It also refers to the ability of system personnel to adequately operate and maintain
the system and to otherwise implement requisite technical knowledge.
A water system's technical capacity can be determined by examining key issues and questions,
including:
• Source water adequacy. Does the system have a reliable source of drinking water? Is the
source of generally good quality and adequately protected?
• Infrastructure adequacy. Can the system provide water that meets SDWA standards? What is
the condition of its infrastructure, including well(s) or source water intakes, treatment, storage,
and distribution? What is the infrastructure's life expectancy? Does the system have a capital
improvement plan?
• Technical knowledge and implementation. Is the system's operator certified? Does the
operator have sufficient technical knowledge of applicable standards? Can the operator
effectively implement this technical knowledge? Does the operator understand the system's
technical and operational characteristics? Does the system have an effective operation and
maintenance program?
What is managerial capacity, and how can it be assessed?5
Managerial capacity is the ability of a water system to conduct its affairs in a manner enabling
the system to achieve and maintain compliance with SDWA requirements. Managerial capacity
refers to the system's institutional and administrative capabilities.
Managerial capacity can be assessed through key issues and questions, including:
• Ownership accountability. Are the system owner(s) clearly identified? Can they be held
accountable for the system?
• Staffing and organization. Are the system operator(s) and manager(s) clearly identified? Is the
system properly organized and staffed? Do personnel understand the management aspects of
Additional information on technical capacity can found within Information for States on Implementing the
Capacity Development Provisions of the Safe Drinking Water Act Amendments of 1996.
5 Ibid.
-11-
-------
Chapter I
regulatory requirements and system operations? Do they have adequate expertise to manage water
system operations? Do personnel have the necessary licenses and certifications?
• Effective external linkages. Does the system interact well with customers, regulators, and other
entities? Is the system aware of available external resources, such as technical and financial
assistance?
What is financial capacity, and how can it be assessed?6
Financial capacity is a water system's ability to acquire and manage sufficient financial resources
to allow the system to achieve and maintain compliance with SDWA requirements.
Financial capacity can be assessed through key issues and questions, including:
• Revenue sufficiency. Do revenues cover costs? Are water rates and charges adequate to cover
the cost of water?
• Credit worthiness. Is the system financially healthy? Does it have access to capital through
public or private sources?
• Fiscal management and controls. Are adequate books and records maintained? Are
appropriate budgeting, accounting, and financial planning methods used? Does the system
manage its revenues effectively?
How are technical, managerial, and financial capacity related?
Many aspects of water system operations involve more than one kind of capacity. Infrastructure
replacement or improvement, for example, requires technical knowledge, management planning
and oversight, and financial resources. A deficiency in any one area could disrupt the entire effort.
The relationship between the three areas of capacity is illustrated in Figure 2. Additional
information on technical, managerial, and financial capacity and how they relate to one another can
be found in Information on Implementing the Capacity Development Provisions of the Safe
Drinking Water Act Amendments of 1996.
6 Ibid.
-12-
-------
FIGURE 1
Ownership of Systems Serving Population 25 - 500
(Percent of Systems)
Homeowners Association
14.1%
Other Privately Owned
4.8%
Mobile Home Park
27.5%
Investor Owned
17.9%
\
Other Government
18.6%
3.8% Other Ancillary Special District
9.8% 3.3%
Ownership of Systems Serving Population > 500
(Percent of Systems)
Chapter I
Special District 6.2%
Mobile Home Park
1.8% Other Privately Owned 3.4%
Other Government
67.4%
< Homeowners Association 6.8%
\ Investor Owned
13.0%
Institution 0.1%
Other Ancillary 1.2%
Note: Percentages do not add to 100% due to rounding.
-13-
-------
Managerial Capacity
Technical Capacity
4
Source water
adequacy
Infrastructure
adequacy
(including source,
treatment,
storage,
distribution)
Technical
knowledge and
ability to
implemen
Ownership accountability
Staffing and organization
Effective external linkages
Short- and Long-term Planning
Financial Capacity
$
Revenue sufficiency
Credit worthiness
Fiscal management and controls
Figure 2
Technical, Managerial, and Financial Capacity
-------
CHAPTER 2:
Ensuring That All New CWSs and
NTNCWSs Demonstrate Technical,
Managerial, and Financial Capacity
-------
Chapter II
INTRODUCTION
SDWA §1420(a) directs the EPA Administrator to withhold a portion of a State's allotment
under §1452 unless the State "has obtained the legal authority or other means to ensure that all
new community water systems and new nontransient, noncommunity water systems . . .
demonstrate technical, managerial, and financial capacity with respect to each national primary
drinking water regulation in effect, or likely to be in effect, on the date of commencement of
operations."
Under this provision, a State must develop and implement a functional program to ensure that
all new CWSs and newNTNCWSs beginning operation after October 1, 1999 demonstrate
technical, managerial, and financial capacity. States should:
• Demonstrate a basis of authority for ensuring that all such systems show technical,
managerial, and financial capacity. This authority could include State legislation, regulations,
policies, or other implementing authorities that provide the State with the ability to intervene
in the process of developing new CWSs or NTNCWSs to obtain assurances of technical,
managerial, and financial capacity.
• Identify at least one control point. A control point is a crux in a new system's development
at which a State (or other unit of government) can exercise its authority to ensure the new
system's capacity. Although local governments can play an important part in the new system
capacity-assurance process, each State must have one or more control points at which it
directly exercises its authority.
• Present a plan for implementation of the new system capacity-assurance program.
The next section of this chapter provides an overview of State authority and associated control
points. The third section discusses strategies that can be used to enhance State authority. The
final section of this chapter reviews special issues that may arise when dealing with proposed
NTNCWSs.
AUTHORITY AND CONTROL POINTS
Table 1 provides a summary of the types of authority and the associated control points where
States can intervene in the development process to ensure new system capacity. Columns in the
table provide the following information:
A. Basis of Authority. Statutes, regulations, rules, or policies are typically the primary bases
of authority for government agencies to ensure the technical, managerial, and financial
capacity of new water systems.
-16-
-------
Chapter II
B. Agency Vested with Authority. The governmental agency with jurisdiction to make
authoritative determinations about new water system capacity.
C. Control Points. The specific points in the process of new water system development
where agencies can exercise their authority to ensure capacity.
D. Type of Capacity Assessed. Agencies can assess technical, financial, or managerial
capacity of proposed new water systems. This column generalizes about the type of
capacity assessed at each control point.
The authority vested in State and local governments varies substantially from State to State.
Not every jurisdiction has adequate authority to ensure new water system capacity. Some may
find it necessary to seek more explicit or additional authority from State legislatures.
This chapter discusses the following types of authority:
• State Authority for Drinking Water Quality
• State Authority for Economic Regulation of Public Utilities
• State Authority for Water Resource Management
• State Authority for Revolving Loan Funds
• State Authority for Planning and Growth Management
• State Enabling Authority for Local Government
• State Authority for Public Safety
• Local Governmental Authority For Land Use, Planning, And Finances
• Federal Rural Utilities Authority
• Interstate Authorities and Compacts
• State Authority to Regulate Related Businesses
The discussion following Table 1 provides an overview of each type of authority and the
agencies and control points with which it is associated. States may consider which control points
are most appropriate for assessing each component of capacity for new systems.
-17-
-------
Table 1: Potential Authorities and Control Points for Ensuring the Technical, Managerial, and
Financial Capacity of New Water Systems
A.
Basis of Authority
(Statutory or Other)
State Authority for
Drinking Water Quality
State Authority for
Economic Regulation of
Public Utilities
State Authority for Water
Resource Management
State Authority for
Revolving Loan Funds
State Authority for
Planning and Growth
Management
State Enabling Authority
for Local Government
State Authority for Public
Safety
Local Governmental
Authority for Land-Use,
Planning, and Finances
Federal Rural Utilities
Authority
Interstate Authorities and
Compacts
State Authorities to
Regulate Related
Businesses
B.
Agency Vested with
Authority
State drinking water
primacy agency
State public utility
commissions (PUCs)
State water resource agency
State financial assistance
agency
State planning, growth
management, or
development agency
Regional planning councils
(intrastate)
Secretary of State (or other
State agency)
State financial control
agency
State fire marshal (or other
agency)
Municipalities, counties,
and special districts
Rural Utilities Service
River basin commissions
Banking regulators
Insurance regulators
C.
Control Points for Ensuring New System
Capacity
Facility plan review and permit*
Operating permit*
Operator certification
Construction requirements for wells
Source water protection plans
System planning requirements
Certificate of convenience and necessity*
Approval of system's investments (ratebase)
Approval of system's financial structure (debt and
equity)
Approval of initial rates and rate design
System planning requirements
Withdrawal and source development permits*
Approval of water rights
System planning requirements
Approval of environmental impact assessment.
Eligibility and approval of grants and loans
Review and approval of plans*
Review and approval of plans
Authorization of local governments and districts
Subdivision and platting regulations
Authorization of local government financing (public
systems)
Permits and approvals related to fire
protection codes
Subdivision, zoning, and land-use approvals*
Construction permits and approvals
Franchise approval*
Local planning approvals
Authorization of local government financing
Approval of grants and loans
Basin withdrawal permits*
Basin planning and resource management
requirements
Loan approval by commercial lenders
Insurance approval by insurers
D. Capacity Assessed
Technical
Managerial
Financial
*principal approval processes for creating a water system.
-18-
-------
Chapter II
State Authority for Drinking Water Quality
State Drinking Water Primacy Agency
Implementation of SDWA's provisions, as well as implementation of State statutes, is
generally vested in State primacy agencies. Their comprehensive jurisdiction makes State primacy
agencies critical for ensuring new system capacity. Some States provide only the minimal
authority required to carry out the SDWA, while others define the primacy agency's mission in
terms of broader public health objectives. In recent years, some States have added capacity
concepts to their statutes.
Within the broader function of water quality regulation, State primacy agencies exercise
authority related to certification, technical standards, and planning. Control points implemented
by State primacy agencies include:
• Plan and specification review and/or construction permit. State SDWA primacy
agencies generally require a review of plans and specifications or a permit before
construction can begin on a new PWS. The plan approval or permitting process itself
presents the major control point in any new system capacity assurance program, affecting all
PWSs and providing an opportunity to impose additional requirements and guarantees.
• Construction requirements for springs and wells. Some States may require new systems
using groundwater resources to meet construction requirements for springs and wells.
Meeting well-construction requirements may be a signal of technical capacity.
• Operating permit. In addition to approving plans and specifications and issuing
construction permits, primacy agencies may grant a renewable operating permit. Primacy
agencies also may grant licenses to operate ancillary facilities such as mobile home parks,
nursing homes, and other supervised living facilities.
• Operator certification. A facility operator generally must be certified as technically
competent. States vary in certification requirements for different categories of systems, as
well as in the requirements related to the on-site presence of the operator.
• Approval of source water protection plan. Primacy agencies may require new systems to
submit a source water protection plan. The ability to do so may signal technical as well as
managerial capacity.
• System planning requirements. Primacy agencies may also require a comprehensive
business plan or multi-year operating plan from new water systems above and beyond the
basic facilities plan.
-19-
-------
Chapter II
State Authority for Economic Regulation of Public Utilities
State Public Utility Commissions
Forty-five State public utility commissions (PUCs) regulate water utilities. The PUCs
in Georgia, Michigan, Minnesota, North Dakota, and South Dakota do not have this authority.
Commissions typically wield authority over investor-owned or private water systems, although
commissions in several States have some authority over publicly owned systems.
Several State commissions have addressed water system capacity by conducting formal
proceedings on small system policies (New York); developing and issuing policy statements
(California, Connecticut, and Pennsylvania); and engaging in Memoranda of Understanding
(MOUs) with sister agencies (Connecticut, Missouri, North Carolina, Pennsylvania, and
Washington).
Within their broader role in economic regulation, State PUCs exercise authority related to
certification, ratemaking, and planning. Control points implemented by the State commissions
include:
• Issuance of certificate of convenience and necessity. Most PUCs require new water
systems to obtain a certificate of convenience and necessity (or need) that establishes their
service territory and places other conditions on service. PUC approvals or certificate
modifications may be required for extensions of service to new developments outside the
original service territory. PUC certificates can be conditioned by the requirement of a
performance bond or other financial guarantees.
• Approval of system investments (ratebase). Many PUCs can review the new water
system's ratebase investments, either as part of the certification process or separately.
Some commissions use informal benchmarks (e.g., investment per customer) to evaluate
whether the investment in the system is sufficient to maintain financial health.
• Approval of financial structure. Many PUCs can review the new water system's financial
structure (e.g., its use of debt and equity instruments and its debt to equity ratio).
Commissions also may require a business or financial plan focused on cost-of-service,
financing, and rate issues.
• Approval of initial rates and rate design. Initial rates must be approved by the State
PUC for all systems subject to ratemaking jurisdiction. Commission review generally
focuses on whether rates adequately reflect the cost of providing service and properly
balance the interests of investors and ratepayers. Rate design refers to the differentiation of
rates based on class of service, amount of water used, period of use, and other factors.
-20-
-------
Chapter II
• System planning requirements. The PUC role in planning varies and may be somewhat
limited, even for investor-owned systems. Increasingly, however, commissions require
some form of capital planning, as well as other types of system planning. Commissions also
often play a review and advisory role in planning processes required by other State
agencies. In some cases, PUCs may be asked to review financial aspects of plans prepared
by utilities not under their jurisdiction.
State Authority for Water Resource Management
State Water Resource Agency
The authority for water quantity regulation generally rests with State natural resource agencies
(which may be identical to the primacy agencies). The authority of the water resources agency
may derive from general environmental laws or separate statutes. The nature of authority over
water quantity issues and the instruments of water resource policy (e.g., rights, permits, and
registration systems) vary by geographic region and by State.
State water resource agencies exercise authority related to permitting, planning, and
environmental resource management. Control points at which State authority is implemented by
water resource agencies include:
• Withdrawal and source development permits. Access to a reliable water source is an
obvious necessity for drinking water systems. Water resource agencies may have authority
to approve proposed developments and withdrawals, water markets (sales and transfers),
and supply management measures.
• Approval of water rights. In some States, a system of water rights governs access to and
use of water resources. The State water resource agency may be involved in reviewing and
approving water rights or transfers of water rights from one party to another.
• System planning requirements. Water resource agencies may be responsible for
developing, encouraging, or overseeing development of Statewide, regional, or river basin
plans for water use. Some resource agencies may require demand management and supply
management measures.
• Approval of environmental impact assessment. Larger developments may require an
environmental impact assessment. Impacts considered include ecological and social
systems, and the benefits and costs of the proposed project. In this context, better planning
and regional solutions also could be encouraged to address some environmental goals.
-21-
-------
Chapter II
State Authority for Revolving Loan Funds
State Financial Assistance Agency
The State agency responsible for administering a State revolving fund (SRF), or other grant
and loan program, can exert substantial authority to ensure new system capacity. Some States
have established independent agencies for this purpose (e.g., PENNVEST in Pennsylvania). This
authority focuses on financial capacity because of the need to ensure the prudent use of grant
funds or the timely repayment of loans. The control point for State financial assistance agencies
is:
• Deciding eligibility and approving grants and loans. Eligibility criteria used by the State
financial assistance agencies can incorporate capacity provisions. Information needed to
assess capacity can be obtained as part of the loan or grant application process.
State Authority for Planning and Growth Management
State Planning or Development Agency
Water systems play a role in the growth and development of communities. Some States have
planning, development, or growth management agencies authorized to promote better planning
and growth management strategies. A few States have implemented Statewide regional planning
processes for water supply (e.g., Maryland). The control point for State planning and
development agencies is:
• Review and approval of plans. State planning agencies may be authorized to review
development plans that include new water systems.
Regional Planning Councils (Intrastate)
Regional planning councils can act as comprehensive planning organizations and as special-
purpose water resources planning bodies. In many instances, these bodies do not have significant
authority to affect new system development, but they may have influence on the local and county
governments within the region. The control point for regional planning councils is:
• Review and approval of plans. Regional planning agencies may be authorized to review
development plans that include new water systems.
-22-
-------
Chapter II
State Enabling Authority for Local Government
Secretary of State (or other agency)
State enabling laws define the powers and responsibilities of local government and can provide
local government with an important role in the new water system development process. Enabling
legislation may affect the formation of a new water system in a variety of ways. Control points in
this area include:
• Authorization of local governments and special districts. Formation of a new local
governmental entity, including special districts to provide water service, requires State
authorization. Some States also have planning statutes of various types that confer special
powers to local jurisdictions.
• Subdivision and platting regulations. In many States, land development is guided by local
government subdivision and platting regulations. Local governments can exercise this
authority through land development approval.
• Authorization of funding (debt, bonds). Local governments generally must have State
approval to issue debt instruments, such as bonds, which may be needed to fund new systems.
State Authority for Public Safety
State Fire Marshal (or other agency)
The State Fire Marshal (or another agency vested with public safety responsibilities) may require
water systems to meet fire protection standards. Potential control points at which authority is
exercised by the State Fire Marshall include:
• Permits and approvals related to fire protection codes. Distribution systems for new water
systems typically should be designed to meet fire protection codes. New systems might be
required to submit engineering specifications related to water storage, pressure, fire hydrant
locations, and various building codes.
Local Governmental Authority for Land Use, Planning, and Finances
Municipalities, Counties, and Special Districts
Local governments (municipalities, counties, and special districts) can play an important role in
the creation of new water systems. Local governments can intervene very early in the creation of
new systems. Specific procedures approving new developments are defined in local ordinances.
Control points where local governments can exercise authority to ensure new system capacity
include:
-23-
-------
Chapter II
• Subdivision, zoning, and land-use approvals. Developers usually must obtain
preliminary and final approval for subdivisions. The preliminary approval process is the
most important control point because it usually occurs before the developer has made
significant fixed commitments. Active local or county governments require sufficient
planning information to evaluate the need for utilities, roads, and other services.
Performance bonds also may be required.
• Construction permits and approvals. Local government can exercise authority through
requirements such as building permits.
• Franchise approval. For many utility services, providers must obtain a franchise that
defines the service territory and the terms of service. The franchise agreement can be
negotiated and conditioned to help ensure capacity.
• Local planning approvals. Capacity-related questions are often raised during the local
planning process. The extent to which local authority for planning is exercised varies.
Some States have adopted a strategy of encouraging local water supply planning processes
where feasible and developing other means of addressing new systems in other parts of the
State.
• Authorization of local government financing. A new publicly owned system requires
local approval of financing arrangements, such as the issuance of debt instruments.
Federal Rural Utilities Authority
Rural Utilities Service
Grants and loans from the federal Rural Utilities Service (RUS; formerly the Farmers' Home
Administration) are a critical control point at which new system capacity can be addressed. RUS
currently evaluates capacity when making loan and grant decisions.
• Approval of grants and loans. Capacity may be tied to the eligibility criteria and approval
processes for grants and loans. Use of grants and loans also may be affected by various
provisions and conditions.
Interstate Authority
River Basin Commissions
In a few river basin regions, interstate authority may be relevant to the development of new
water systems. For example, the Delaware River Basin Commission has authority comparable to
State water resource agencies. Federal interstate compacts, however, carry the force of federal
-24-
-------
Chapter II
law and thus can preempt certain State policies. Interstate institutions and authorities may
become more important as conflict increases over water resources. Control points exercised by
river basin commissions include:
• Basin withdrawal permits. An interstate commission can require a withdrawal permit for
water resources common to more than one State. These permits may be conditioned on a
variety of terms.
• Basin planning and resource management requirements. An interstate commission can
require supply management and demand management to ensure that only necessary
withdrawals are permitted.
State Authority to Regulate Related Businesses
Banking Regulators
The States regulate the banking industry, which in turn makes loans to water systems and
developers. A control point exercised by banks is:
• Loan approval. The loan eligibility and approval process can assess the financial capacity
of applicants.
Insurance Regulators
The States regulate the insurance industry, which in turn provides insurance to water systems
and developers. A control point exercised by insurance companies is:
• Insurance approval. The insurance eligibility and approval process can assess the financial
capacity of applicants.
-25-
-------
Chapter II
ACTIONS TO ENABLE OR ENHANCE STATE AUTHORITY
This section provides an overview of actions that States can take to 1) establish the necessary
authority and control points to ensure new system capacity or to 2) enhance the effectiveness of
existing authority. These actions can be used with several types of authority and control points.
The actions are not mutually exclusive, but mutually reinforcing. The challenge is in designing a
comprehensive, coordinated set of actions that best meets each State's institutional arrangements
and capacity development needs.
The following actions are described below:
• Expand authority to add, strengthen, or coordinate control points
• Coordinate agency capacity efforts
• Enhance system approval processes
• Promote awareness of capacity issues
• Encourage interconnection, consolidation, or regionalization
• Strengthen new system capacity
• Require guarantees and assurances
Expand Authority to Add, Strengthen, or Coordinate Control Points
Enact Legislation Regarding Authority or Jurisdiction
A State should determine whether it currently has the authority to intervene prior to new
system development to obtain assurances of technical, managerial, and financial capacity. State
authority and the specific control points derived from it can be added, strengthened, and
coordinated statutorily to ensure new system capacity. Another potential use of legislation is to
expand the jurisdiction of agencies. Legislation can also be used to improve agency coordination
and to specify when and how agencies will collaborate in joint efforts. For a State program to
effectively ensure capacity, the State must have the authority to intervene prior to new system
development.
Issue Rules, Regulations, and Policies
Some States may find that existing statutory authority provides sufficient basis for developing
and clarifying new water system capacity policies through rules, regulations, or policy statements.
Where adequate statutory authority exists, new elements can be added to application requirements
by amending regulations or revising guidance manuals or application forms.
-26-
-------
Chapter II
Enhance Capacity Assessment Resources
State capacity development efforts may require expanded engineering analysis and financial
analysis capabilities within State agencies. Staff may need additional tools and training to conduct
business planning and other activities. New staff functions might be created or outsourced. MOU
can address sharing of personnel among agencies. In some States, for example, PUCs perform
financial reviews for primacy agencies.
Agency resources devoted to capacity development will prevent future capacity problems,
resulting in a net savings in State resources.
Coordinate Agency Capacity Efforts
Conduct Regular Meetings
Many States could coordinate their capacity development efforts by conducting regular
meetings that include representatives of the agencies that have authority over water systems.
These meetings can facilitate informal (e.g., information sharing) and formal (e.g., executive
memoranda of understanding) means of coordination. Regular meetings allow agency personnel
to craft and implement more effective capacity policies.
Formulate Interagency Policies and MOU
State agencies can formulate joint policies to direct their capacity development activities.
These policies establish common goals and activities across agencies. The development of a
formal MOU can greatly enhance coordination among State agencies. MOU typically include a
joint policy statement or statement of objectives, a description of the specific areas where
collaboration is envisioned, and the mechanics of the collaboration.
Some of the major mechanical issues addressed in MOU are coordinating information required
of applicants to avoid duplication, streamlining application requirements, and ensuring consistent
application evaluations by establishing evaluation criteria to be used by all involved agencies;
sharing analytical resources and capabilities (e.g., one agency may have engineering capabilities
while another has financial capabilities); coordinating decision making to clarify which agency
decides first, whether one agency's decision is contingent upon that of another, or whether the
multiple agencies need to act concurrently; and establishing a protocol for monitoring and
evaluating the collaboration defined in the MOU.
Primacy agencies and public utility commissions in several States have developed MOU. In
some cases, natural resource agencies also have engaged in the development of MOU. These
agreements also could be drafted to include State financial assistance agencies, the RUS, and local
governments.
-27-
-------
Chapter II
Hold Joint Proceedings or Provide Testimony
Government agencies often have authority to conduct joint hearings with other agencies whose
missions and interests are similar. This type of authority could be used to formally establish a
consolidated approval process among the agencies responsible for water quality, water quantity,
and economic regulation.
Another means of procedural coordination is to have personnel in one agency provide
testimony at the hearings of another agency.
Share Data and Information Resources
The inaccessibility of relevant information is a significant barrier to effective review of new
water systems. Economic regulators may have access to key financial information, while primacy
agencies may have access to key technical information. Sharing information and developing a
complete picture of a system's capacity may be difficult. New information-sharing technology
(e.g., computer mapping) can enhance interagency communications and policymaking.
Clarify State and Local Roles
Successful capacity development requires clarification of State and local roles. While States
are responsible for ensuring the capacity of new water systems, many critical control points exist
at the local level. Well-informed, active local governments will achieve more efficient
development practices and reduce the need for State intervention.
Where allowed by State law, States can delegate some of the responsibility for ensuring
capacity of new systems to local government, provided that the arrangement is guided by clear
written agreements. Local control points are most effective when coordinated with local approval
processes and known and understood by new system applicants.
Enhance System Approval Processes
Conduct Preliminary Feasibility Meetings With Applicants
Some States encourage informal pre-feasibility meetings between developers and their
engineers and State plan review and permitting staff. The objective is to discuss alternative
approaches for providing service, in light of State requirements, as early as possible.
-28-
-------
Chapter II
Develop a Standard Operating Procedure (SOP) for Approvals and Denials
A fragmented process of approving new water systems could be coordinated by developing a
standard operating procedure (SOP) identifying critical authorities and control points and an
optimal sequence of approvals. The SOP should be drafted with input from stakeholders,
formally recognized in an MOU, and used by the counties and municipalities to coordinate State
and local activities.
States may also want to develop a "disapproval" SOP in which alternatives to new system
creation are recommended to applicants who cannot meet capacity requirements. Denial of an
application does not preclude the State from providing the advice or technical assistance
necessary for the applicant to later obtain approval.
Promote Awareness of Capacity Issues
Form a Stakeholder Group
State capacity development efforts can be enhanced by a formal process for stakeholder
involvement. The key groups involved in new system formation are builders associations, realty
associations, mobile home park operators associations, county associations, municipal
associations, planning associations, consulting engineers associations, water industry groups
(Association of Metropolitan Water Agencies (AMWA), American Water Works Association
(AWWA), National Association of Water Companies (NAWC)), consumer advocates,
environmental organizations, operators associations, and technical assistance providers (National
Rural Water Association (NRWA), Rural Community Assistance Programs (RCAP)). While such
organizations do not represent everyone, their communication networks reach a large percentage
of the target audience.
Several States have convened advisory committees or task forces consisting of all relevant
stakeholder groups and the relevant agencies of State government. Some of these groups
continue to meet regularly to monitor and manage the implementation process. Some States have
developed written communications plans to support program implementation. The plans identify
objectives, specify the individual segments of the target audience, outline the messages and
information to be conveyed to each segment, and itemize the options for delivering the messages
and information.
Educate New System Applicants
New system applicants may be unfamiliar with State regulations and unaware of capacity
development policies. Clear, early communications with new water system applicants (e.g.,
property developers) is an important aspect of capacity development.
-29-
-------
Chapter II
Property developers can be important partners in ensuring capacity. One of the most
significant hurdles in development is minimizing uncertainty. Once property developers begin to
commit significant investment dollars, they need to have some confidence that they will be able to
complete the development within a predictable period. Developers often will trade assurances of
capacity for minimized uncertainty. This process will become easier as consulting engineers and
local officials become aware of the importance of including capacity in decisions about
development.
Educate Consumers and Communities
Educating consumers and communities can help bring market forces to bear on new system
capacity. If home buyers know what to look for and how to recognize a well-conceived CWS,
market forces may provide substantial pressure to ensure capacity. State and local governments
should provide consumers with information and opportunities for public hearings related during
approval processes.
Educate the Technical Community
Property developers may rely on many technical consultants to design and build infrastructure
facilities. Engineering and other consultants should be made aware of capacity development
issues and policies.
Educate the Financial Community
New water systems usually require support from the private sector, including the lending and
insurance industries. Bankers and insurers can avoid potential liabilities by fully understanding
water system capacity. Better-informed providers can exert their market power on the water
industry to enhance capacity development efforts.
Encourage Interconnection, Consolidation, or Regionalization
Require Consideration of Regional Alternatives
The State approval process could include consideration of regional alternatives. Regulators
may require a new system applicant to demonstrate that the proposed service area cannot be
absorbed by a larger system or served by a line extension from a nearby system. Regional options
could be considered for all or part of utility operations. For example, a system might run its
distribution facilities, but purchase wholesale water from a regional supplier. Another system
might maintain ownership but contract with a nearby utility for operations services. Washington
State's water system plan requirement is one example of a State-sanctioned regional alternative.
-30-
-------
Chapter II
Promote Regional Planning
Regional water system planning can promote capacity by providing efficient alternatives to
creating new systems. Regional planning can link capacity development to other planning
processes by providing opportunities for local governments to interact. For example, all new
development in Maryland is authorized through county planning processes. The States can
promote regional planning through grants and other incentives.
Establish an Interconnection Policy
Through policy statements, MOU, and other instruments, State agencies can establish
interconnection policies to guide approvals and other determinations. A State-level
interconnection policy requires coordination of existing policies that may or may not be consistent
with regionalization goals. These policies include State natural resource agency determinations
about water transfers, State public utility commission orders regarding acquisitions by investor-
owned utilities, and local annexation policies and practices. Some States require serious
consideration of interconnection with an existing system for all proposed systems.
Minimize Bypass Opportunities
A policy that requires customers in an enfranchised service territory to connect to the water
system and stay connected, rather than draw from individual wells, can enhance capacity by
reducing uncertainty and enlarging the customer base, making it possible to achieve economies of
scale. Minimizing bypass also can improve regional environmental management by making it
easier to monitor and control withdrawals, supply management, and source protection practices.
Modify Annexation Policies
Local annexation policies and practices may encourage inefficient growth and development,
preventing annexation where it makes sense. State annexation policies might be modified to
consider new system capacity. States can work with local governments to use annexation to
promote regional solutions to water utility services.
Strengthen New System Capacity
Require a Comprehensive Business Plan
Requiring new water systems to provide comprehensive business plans (also called water
system plans) may be one of the most important means of ensuring technical, managerial, and
financial capacity. Planning is a diagnostic as well as a capacity development tool. Planning can
be used to generate reliable information about costs and other issues needed to make sound
decisions about a water system's future.
-31-
-------
Chapter II
Some States already have the authority to require financial data. Other States have amended
statutes and regulations to clarify authority to gather and use planning information. Several States
have used this authority to develop processes for the evaluation of business and water system
plans. Several States have produced technical guidance manuals for completing water system
plans.
One issue in the implementation of a water system plan approach is the need for review
capability at the State level. This review has two dimensions: engineering analysis and financial
analysis. Engineering staff would be called upon to evaluate the engineering elements of the
water system plan, and may need additional training. State review of water system plans also
requires a method for comparing cost estimates submitted in the plans against standard cost
estimates and actual operating experience (e.g., the PAWATER cost model developed by
Pennsylvania and EPA).
For SDWA primacy agencies, the rationale for incorporating business planning into State
approval processes is to protect public health and ensure safe, adequate, and reliable service.
From the State PUC perspective, the rationale is to increase service reliability and affordability.
Local governments use water system planning to ensure that new infrastructure is conceived in a
sustainable manner, providing a stronger footing for economic development. For the consumer,
water system planning means safe, reliable, and affordable drinking water.
Require a Technical Operations Plan
This approach relies on inherent public health authority to set expanded engineering standards
for such topics as well construction (Minnesota), requirements for approval of surface water
sources for small systems (Missouri), requirements for the frequent presence of a certified
operator on the premises (Florida and South Carolina), specific operator certification
requirements, requirements for system water rates, and management certification requirements.
Unexpected circumstances during the construction process can require that modifications be
made to the original design specification. Thus the plans may not reflect the actual condition of
the system "as built." Details of the "as built" water system should be included with the overall
plan once the system is operational. This precaution makes it much easier to identify and correct
any technical problems that may occur.
The engineering and operations approach can be implemented with existing State primacy
agency staff. While this approach provides a high level of insurance of technical and managerial
capacity, the insurance of financial capacity is indirect. Standards are available for conducting
engineering reviews, but States also have considerable room to exercise judgment if not fully
satisfied with the adequacy of proposed plans. In most cases, the basis for exercising this
judgment is the State's legal authority to protect public health.
-32-
-------
Chapter II
Develop Benchmarks or Minimum Standards
Under various authorities, agencies can develop benchmarks or minimum standards for
screening proposed systems. For example, systems may be required to make a minimum per-
customer investment or achieve a specified coverage ratio. While standards usually are developed
formally, benchmarks often emerge from practical experience. Benchmarks and standards also
can be used to monitor system performance.
Require Guarantees And Assurances
Provide Performance Guarantees
Performance guarantees provide specific remedies for a system's failure. Guarantees can be
required of either the system developer or the local government authorizing the system's creation.
Guarantees tend to emphasize financial protection and may take the form of performance bonds,
letters of credit, guarantees from a parent company or affiliated organization, or operations
contracts with reputable providers that include performance criteria. Some States (Maryland and
Washington) require developers of new water systems to establish escrow accounts or reserves.
Ensure Takeover by Another Entity in Case of Failure
Ensuring the takeover of a failed water system can help guarantee that new systems have
adequate capacity, while providing a solution if they do not meet performance expectations.
Ensuring a takeover involves appointing a local government or another system as trustee or
securing a commitment from the local government to annex, assimilate, or interconnect the
system. One approach is to give some unit of sub-state (municipal or county) government
responsibility for all water service within its purview. Therefore, if a new system fails, the sub-
state unit is required to provide water to the customers served by the failed system.
New Jersey approves only municipal or investor-owned water systems, which forces local
government to accept responsibility to provide service for new development unless an investor-
owned system seeks to provide the service. In Connecticut and Washington, a local government
that approves a new system prior to the State's viability review can be designated as the receiver
if the system fails. Of course, the goal of capacity development is to avoid receivership and
mandatory takeovers of failed systems.
Table 2 provides a list of specific actions that States can take to meet their objectives for
enhancing State authority.
-33-
-------
Chapter II
Table 2: Actions to Establish or Enhance Authority to Ensure the Capacity of New
Water Systems
Objectives
Expand authority to add, strengthen, or coordinate
control points
Coordinate agency capacity efforts
Enhance system approval processes
Promote awareness of capacity issues
Encourage interconnection, consolidation, or
regionalization
Strengthen new system capacity
Require guarantees and assurances
Actions
Enact legislation regarding authority or jurisdiction
Issue rules, regulations, and/or policies
Enhance capacity assessment resources
Conduct regular meetings
Formulate interagency policies and MOU
Hold joint proceedings and/or provide testimony
Share data and information resources
Clarify State and local roles
Conduct preliminary feasibility meetings with applicants
Develop a protocol for approvals and denials
Form a stakeholder group
Educate new system applicants
Educate consumers and communities
Educate technical community (consultants)
Educate financial community (lenders and insurers)
Require consideration of regional alternatives
Promote regional planning
Establish an interconnection policy
Minimize bypass opportunities
Modify annexation policies
Require comprehensive business plan
Require a technical operations plan
Develop benchmarks or minimum standards
Require performance guarantees
Assure takeover by another entity in case of failure
-34-
-------
Chapter II
ENSURING CAPACITY OF NEW NONTRANSIENT,
NONCOMMUNITY WATER SYSTEMS
NTNCWSs serve schools, factories, office and industrial parks, major shopping centers, resort
hotels, and other establishments that may be physically isolated from central water supply systems.
Water service in these instances is an ancillary function. Many NTNCWSs are private, investor-
owned establishments; some are publicly owned (e.g., schools).
Evaluating capacity in new NTNCWSs must be approached somewhat differently. This
section reviews the major program elements discussed for CWSs, focusing on areas in which the
approach to new NTNCWSs needs to be developed differently.
Legal Authority or Other Means
All of the local and county government sources of legal authority discussed for CWSs are
relevant to NTNCWSs, but NTNCWSs may be more involved in zoning approval than
subdivision approval. The authority of the State water resources agency and SDWA primacy
agency still pertains, but the State PUC is unlikely to be involved. A technical operations plan
review may be an effective means of ensuring capacity for NTNCWSs.
Adding the capacity assurance dimension for NTNCWSs to the traditional authority of State
primacy agencies may require the same effort in developing regulations, guidance, or new
legislation as for CWSs, depending upon existing statutory language and practices.
Control Points in the New System Development Process
Many control points relevant to new CWSs do not apply to NTNCWS (e.g., home buyers,
developers, mortgage lenders), but local government and State agencies (except the PUC) still
play important roles in the NTNCWS approval processes. In addition, the local government
control point may be less effective with NTNCWSs than it is with CWSs. Therefore, State
control points may be more appropriate in ensuring new system capacity.
Actions to Ensure Capacity of New Systems
In ensuring the capacity of new NTNCWSs, the full range of communication, coordination,
and consolidation discussed for CWSs are also relevant. Technical assistance by States, the water
industry, and the private sector also can be an effective way to develop capacity in NTNCWSs.
However, capacity evaluations must be approached differently because the nature of the service
provided by CWSs and NTNCWSs is different.
The fact that an NTNCWS is an ancillary service of a larger business or public enterprise could
be interpreted to imply a performance guarantee by that larger business or enterprise. There is, in
-35-
-------
Chapter II
effect, more capacity implicit in the fact that the system will not have to stand financially on its
own. Rather than attempt to obtain authority sufficient to probe the finances of private businesses
or school districts, a simpler approach would be to formalize the implied guarantee, making it an
explicit condition of the approval and stressing to the applicant that performance shortfalls can
result in permit revocation, shutting the entire facility down. In this context, the State drinking
water regulator is no different than the food service inspector, the building code inspector, or the
fire marshall. This approach could be coupled with the engineering and operating standards
approach to provide a high level of capacity assurance in approving new NTNCWSs.
-36-
-------
CHAPTER 3:
Preparing Capacity Development Strategies Under
§1420(c)(2) of the Safe Drinking Water Act
-------
Chapter III
INTRODUCTION
SDWA §1420(c)(2) addresses the strategies developed by each State to ensure the technical,
financial, and managerial capacity of PWSs under their jurisdiction. A State that does not develop
and implement a capacity development strategy will receive only 90 percent of the DWSRF
allotment it would otherwise receive in FY 2001, 85 percent of its scheduled DWSRF allotment in
2002, and 80 percent of its scheduled DWSRF allotment in each subsequent fiscal year.7
In developing and implementing a capacity development strategy, SDWA §1420(c)(2)(A-E)
requires States to "consider, solicit public comment on, and include as appropriate" five elements:
• Methods or criteria to prioritize systems [§1420(c)(2)(A)J
• Factors that encourage or impair capacity development [§1420(c)(2)(B)]
• How the State will use the authority and resources of the SDWA [§1420(c)(2)(C)]
• How the State will establish the baseline and measure improvements [§1420(c)(2)(D)]
• Procedures to identify interested persons [§1420(c)(2)(E)J
In addition to considering these elements, §1420(b) requires States to "prepare, periodically
update, and submit to the Administrator a list of community water systems and nontransient,
noncommunity water systems that have a history of significant noncompliance and, to the extent
practicable, the reasons for noncompliance." States are also required to "report to the
Administrator on the success of enforcement mechanisms and initial capacity development efforts
in assisting [those systems] ... to improve technical, managerial, and financial capacity," by
August 6, 2001. The list and the report must be included as part of the State's capacity
development strategy to avoid the withholding of DWSRF monies, as stipulated in
This chapter identifies some of the tools and resources that States could use to address the five
potential programmatic elements listed above [§1420(c)(2)(A-E)] and discusses some of the ways
in which they can contribute to the success of other parts of a State's drinking water program.
When appropriate, this chapter also provides suggestions as to how the tools might be assembled
to form a functioning capacity development strategy.
Due to the unique characteristics and circumstances of each State, the tools and strategies
employed by States will vary. Therefore, each of the five potential programmatic elements is
discussed individually.
7 See EPA, Office of Water, Drinking Water State Revolving Fund Program Guidelines (EPA 816-R-97-005,
February 1997).
-38-
-------
Chapter III
BUILDING A STRATEGY
As noted above, each State must consider, solicit public comment on, and include as
appropriate five potential elements of a capacity development strategies:
• Methods or criteria to prioritize systems. [§1420(c)(2)(A)] These include methods or
criteria that could be used to identify and prioritize PWSs most in need of improving
technical, managerial, and financial capacity.
• Factors that encourage or impair capacity development. [§1420(c)(2)(B)] These
include the "institutional, regulatory, financial, tax, or legal factors" that exist at the federal,
State, or local level that encourage or impair capacity development.
• How the State will use the authority and resources of the SDWA. [§1420(c)(2)(C)]
States should describe how they will use the authority and resources of the SDWA or other
means to:
1. Assist PWSs in complying with NPDWRs.
2. Enhance technical, managerial, and financial capacity by encouraging the development
of partnerships between PWSs.
3. Assist PWSs in the training and certification of their operators.
• How the State will establish the baseline and measure improvements. [§1420(c)(2)(D)]
States should describe how they will establish a baseline and measure improvements in the
capacity of PWSs under their jurisdiction. This potential programmatic element provides
the tools that State primacy agencies must have to produce and submit a report to their
Governors on the efficacy of their capacity development strategy and progress made toward
improving the technical, managerial, and financial capacity of PWSs in their State.
• Procedures to identify interested persons. [§1420(c)(2)(E)] States should identify and
involve stakeholders in the creation and implementation of their capacity development
strategy.
Tools to address these five potential programmatic elements into a strategy are described in the
appendix. Exhibit 1 illustrates a way in which these elements may be integrated to form a
comprehensive capacity development strategy. This strategy consists of four steps:
1. Collection and evaluation of information to prioritize systems for capacity
development efforts and to identify factors that encourage or impair system capacity.
2. Planning for implementation.
-39-
-------
Chapter III
3. Implementation actions.
4. Collection and evaluation of information to assess the success of the strategy.
Throughout each of these steps, States are encouraged to identify and involve stakeholders.
Figure 1: Building a Capacity Development Strategy
Stakeholder
Involvement
Section 1420(c)(2
Collect and evaluate information
on factors that encourage or
impair capacity development..
§1420(c)(2)(B)
Collect and evaluate information
to prioritize systems..
§1420(c)(2)(A)
Collect and evaluate information
to establish a baseline.
§1420(c)(2)(D)
Stakeholder
Involvement
Section 1420(c)(2)(E
Plan and implement actions
designed to build capacity.
§1420(c)((2)(C)
Compare against the baseline
and measure progress.
§1420(c)(2)(D)
Stakeholder " \
Involvement )
Section 1420(cX2Xg)X/
-40-
-------
Chapter III
Relationship Between the Elements of a Capacity Development Strategy and the Tools
Used to Enable Their Implementation
Although the SDWA requires that a State consider each of the five potential programmatic
elements for inclusion in its capacity development strategy, it does not require the State to use
specific tools to implement the selected elements. Each State is unique and must make policy
decisions based upon its own characteristics and in light of its particular circumstances. Some
States have access to many of the tools described in the appendix, while others have access to
only a few. Further, a specific tool may need to be applied differently across States to contribute
to capacity development efforts.
Water systems are also unique. A tool that is useful for developing capacity for privately
owned, ancillary systems may not be useful for developing capacity in municipal systems.
Exhibit 2 provides a framework for the review of the applicability of each tool in the
preparation of a successful capacity development strategy. The cells in the matrix have been left
blank, to permit each State to shape their own strategy given their unique situation. The tools,
and examples of their use, are described in detail in the appendix.
-41-
-------
Chapter III
Exhibit 2: Tools and Resources for Developing State Capacity Programs
Tools
Compliance data
Sanitary surveys
Water system plan or business plan
Self assessments and peer reviews
The "Dozen Questions" approach
Regional plans
Operator certification programs
Permitting requirements
Capital improvement plans
Comprehensive performance evaluations
Statewide water quality/quantity studies
DWSRF loan applications
DWSRF loans
Simplified budgeting worksheets
Annual financial reports
Cooperation with industry groups
Public education efforts
Rate reviews and approvals
Cooperation with NGOs
Big brother and "buddy system" programs
Restructuring programs
Training and technical assistance programs
Coordination with other agencies
Source water assessment programs
Water conservation plans
Emergency response plans
Certificates of Convenience and Necessity
Review of audit reports
Review of bond issues
Satellite management programs
Consumer Confidence Reports
Enforcement records
State/Federal survey of infrastructure needs
Element A
Methods or
criteria to
prioritize
systems
Element B
Factors that
encourage or
impair
capacity
development
Element C
Methods by which the State will use the authority
and resources of the SDWA to:
Assist PWSs
to comply
with
NPDWRs
Encourage the
development of
partnerships
between PWSs
Assist PWSs in
the training and
certification of
their operators
Element D
Methods to
establish a
baseline and
measure
improvements
Element E
Procedures
to identify
and involve
stakeholders
-42-
-------
Chapter III
Element A: Methods or Criteria to Prioritize Systems
A variety of methods and criteria can be used to identify and prioritize systems that need to
improve their technical, managerial, and financial capacity. In many cases, a combination of tools
is most effective in collecting the information needed to prioritize systems. States may consider
the following in developing their methods and criteria:
• Does the State's methods or criteria for prioritizing systems permit the consideration
of all systems in the State? Review of compliance data would meet this suggestion.
Tools such as sanitary surveys or simplified budgeting worksheets would meet this
suggestion if they were required of all systems over a specified period of time period.
• Do the methods or criteria for prioritizing systems provide the State with a ranking
scheme? The use of some of the tools discussed below leads naturally to ranking schemes.
For example, States could prioritize systems currently in significant noncompliance. In
other cases, States must adopt ranking schemes that fit the available tools.
• Are the methods or criteria for prioritizing systems easy to implement?
• What are the data requirements of the prioritization procedure? Does the State have
an existing database, can an existing database be modified, or can a new data system
be developed, given available resources? It would be helpful to organize any new
prioritization database to ensure easy maintenance, user-friendly data retrieval, and the
availability of the correct data. A State should also coordinate its capacity development
database with the databases for programs with similar data needs, such as a State's
disadvantaged-community program.
Washington and Massachusetts have developed systems to identify and prioritize those systems
most in need of capacity development:
Washington tracks the performance of all systems in terms of their compliance histories, their
water system plans, and the financial viability component of their water system plans. Systems
are classified according to their compliance and capacity. Systems classified as "green" have
adequate capacity and compliance histories; systems coded as "red" have inadequate capacity
and/or compliance histories.
Massachusetts' program for "viability assessment and assurance" covers all CWSs and
NTNCWSs serving fewer than 1,000 persons. The program requires each of these systems to
undergo a Comprehensive Compliance Evaluation (CCE) Sanitary Survey and a follow-up
survey at least once every 6 years. Depending on the results of the CCE, systems may be
referred to a "Mobilization Partner" for viability assessment and technical assistance.
-43-
-------
Chapter III
Exhibit 3 lists some tools that States might use in developing their methods or criteria for
prioritizing systems. This table is meant to serve only as a starting point—depending upon their
unique circumstances, States may be able to take advantage of additional tools to help prioritize
systems. A full description of each tool and examples of its use are provided in the appendix.
Exhibit 3
Tools to Develop Methods or Criteria to Prioritize Systems
Tool
Annual Financial Reports
Capital Improvement Plans
Compliance Data
Comprehensive Performance Evaluations
Consumer Confidence Reports
DWSRF Loan Applications
Operator Certification Programs
Permitting Requirements
Sanitary Surveys
Self-Assessments
Source Water Assessment Programs
State or Federal Surveys of Infrastructure Needs
Statewide Water Quality/Quantity Studies
Water System Plans or Business Plans
-44-
-------
Chapter III
Element B: Factors That Encourage or Impair Capacity Development
Under §1420(c)(2)(B) of the SDWA, States must consider developing a description of the
"institutional, regulatory, financial, tax, or legal factors at the Federal, State, or local level that
encourage or impair capacity development." The broad spectrum of factors that might be
included in this description may make it quite comprehensive for each State. Factors that impair
capacity development efforts within a State might include:
• A State's lack of legal (or regulatory) authority to develop and implement a capacity
development strategy.
• Institutional barriers to developing a capacity development strategy.
• Legal and financial issues associated with water rights.
• Insufficient State or local funding to implement a capacity development strategy.
• A lack of reciprocity for operator certification.
• Barriers that preclude systems from obtaining variances or exemptions reasonably.
• State statutes or regulations that hinder consolidation, regionalization, or interconnection.
The 1996 Amendments streamline the process of applying for variances and exemptions, and
provide access to DWSRF resources to help States overcome some of the barriers outlined above.
Factors that encourage capacity development within a State might include:
• Statewide growth-management legislation—encourages capacity development by checking
the unrestricted growth of poorly-planned water systems (other statewide planning statutes
have similar beneficial effects).
• Statutes dealing with privatization or procurement—allows systems to contract for
operations and maintenance or other services more easily.
• Statutes dealing with mergers and acquisitions—encourages consolidation by allowing
adjustments to the rate base.
• Statutes that require renewable operating permits for water systems, CCNs, or periodic
sanitary surveys—encourages capacity development by enabling the State to periodically
assess capacity.
-45-
-------
Chapter III
States' reports to their legislatures on the subject of capacity development may prove useful in
the creation and implementation of capacity development strategies. Many of these reports
include discussions of the factors that encourage or impair capacity development. Examples of
useful reports are those submitted in Washington, Connecticut, California, and Pennsylvania.
While each State's report has unique aspects, the process that was followed — including the
issues that were discussed — should be helpful to other States that are considering these issues.
Reports derived from the deliberations of stakeholder workgroups, such as those published in
North Carolina and South Carolina, may also prove helpful in the preparation of capacity
development strategies for other States.
Exhibit 4 lists several tools that address the factors that impair capacity development. This
table is meant only as a starting point. As States build their capacity development strategies, they
are likely to find other tools to address factors that impair capacity efforts. A full description of
each tool and examples of its use are provided in the appendix.
-46-
-------
Chapter III
Exhibit 4
Tools to Address Factors that Impair Capacity Development Efforts
Tool
Capital Improvement Plans
Comprehensive Performance Evaluations
Consumer Confidence Reports
Cooperation with NGOs
Coordination with Other Agencies
DWSRF Loan Applications
Operator Certification Programs
Permitting Requirements
Rate Reviews and Approvals
Regional Plans
Restructuring Programs
Sanitary Surveys
Satellite Management Programs
Source Water Assessment Programs
Training and Technical Assistance Programs
Water Conservation Plans
Water System Plans or Business Plans
-47-
-------
Chapter III
Element C: Description of How the State Will Use the Authority and Resources of the
SDWA
Under SDWA §1420(c)(2)(C), States must describe how they will use the authority and
resources of the SDWA to improve capacity in PWSs. Specifically, the State is asked to describe
how it will accomplish three goals central to a sound capacity development strategy:
1. Assist PWSs in complying with NPDWRs.
2. Encourage the development of partnerships between PWSs to enhance the technical,
managerial, and financial capacity of the systems.
3. Assist PWSs in the training and certification of their operators.
This is the core element of a State's capacity development strategy. Under this element the
State describes how it will use the new financial and programmatic resources of the 1996 SDWA
Amendments, and any other statutory or programmatic means, to help water systems reliably
deliver safe drinking water. This element encompasses a wide variety of activities meant to
provide assistance to individual water systems and to build partnerships among systems.
The activities set forth in element C are at the heart of the linkages between the capacity
development program and other sections of the SDWA. Not only are the authority and resources
provided in other parts of the SDWA—and the "other means" that may be available in other State
and federal programs—vital to developing capacity, the development of greater system capacity
through compliance, including technical assistance and multi-system partnerships, is essential for
other important sections of the SDWA to function.
For example, variances and exemptions are key parts of the new flexibility provided to small
water systems. Before States can grant variances or exemptions, the SDWA requires them to
evaluate whether restructuring and water supply alternatives are affordable compliance options.
Because both alternatives include, by definition, multi-system partnerships, the State's database
and methodology for analyzing that data will need to look well beyond the options that lie within
the reach of the individual system seeking a variance or exemption.
Because this information has not been required for the drinking water program in the past,
many States may not have the database or analytic capabilities to perform these needed functions.
But by formulating a capacity development strategy and using the resources available through the
DWSRF, States can assemble this database and develop analytic methodologies that will help
them make these decisions.
In formulating capacity development strategies, State drinking water programs should locate
and evaluate data sources and prepare to apply them to assess compliance options for small
-48-
-------
Chapter III
systems that apply for variances or exemptions. The source water assessments required of States
under §1453 of the SDWA (funded through the DWSRF) can be an important means of
assembling information on the water sources currently used by PWSs, if designed with this use in
mind.
Exhibit 5 lists several tools that may permit States to exercise the authority and resources of
the SDWA. This table is meant only as a starting point as States build their capacity development
strategies. A State is likely to find other tools. A full description of each tool and examples of its
use are provided in the appendix.
-49-
-------
Chapter III
Exhibit 5
Tools that May Permit the State to Exercise the Authority and Resources of the SDWA
Tool
Big Brother and "Buddy System" Programs
Capital Improvement Plans
Certificates of Convenience and Necessity
Compliance Data
Comprehensive Performance Evaluations
Cooperation with NGOs
Cooperation with Industry Groups
Coordination with Other Agencies
DWSRF Loan Applications
Emergency Response Plans
Enforcement Records
Operator Certification Programs
Permitting Requirements
Public Education Programs
Rate Reviews and Approvals
Regional Plans
Restructuring Programs
Bond Issue Review
Reviews of Audit Reports
Sanitary Surveys
Satellite Management Programs
Self-Assessments
Statewide Water Quality/Quantity Studies
Training and Technical Assistance Programs
Water System Plans or Business Plans
Water Conservation Plans
-50-
-------
Chapter III
Element D: Establishing a Baseline and Measuring Improvements
Establishing a baseline and measuring improvements are crucial to fulfilling State responsibili-
ties under §1420(b)(2), which requires State reports to the EPA Administrator, and §1420(c)(3),
which requires State reports to the Governors. States must evaluate the success of their capacity
development efforts as part of both reports. The most meaningful way to measure the success of
State efforts is to measure actual improvements in water system capacity, but capacity building is
an incremental process that may take years to result in measurable improvements. Therefore,
even highly effective capacity development programs may not show immediate improvements in
the actual capacity of water systems.
There are several approaches to measuring capacity:
• Outreach activity. A State could assess its program on the basis of its effectiveness in
reaching water systems. This could include sanitary surveys conducted, Comprehensive
Performance Evaluations conducted, technical assistance provided, and completion of water
system plans or self-assessments. To make this a valid measure, States need to ensure that
these activities are helping systems achieve and maintain capacity.
• Operator certification. States could base their assessment on the prevalence of certified
operators who have the training necessary to improve the capacity of the systems they
operate.
• Planning mechanisms. States could use the results of water system self-assessments,
water system plans, annual financial reports, or simplified budgeting worksheets to measure
improvements in capacity. This process would require a baseline measure of all systems at
the time when the capacity development efforts began and a method to update system
assessments regularly.
• Compliance data. Since the statute explicitly mentions capacity with respect to national
primary drinking water regulations, analyzing compliance trends could be a useful way to
measure improvements in capacity. The baseline would be compliance data from the
calendar quarter when the capacity development efforts began. Variables such as the
number of systems in significant noncompliance, number of exceedances, number of M/R
violations, and time required to achieve compliance could be used as indicators of capacity.
Measuring improvements solely on the basis of compliance might yield an analytical
framework that is too limited, since factors such as new regulations or new enforcement
tools could influence compliance rates. In addition, trends in compliance data may not yield
sufficient data over the short term because capacity development is an incremental, long-
term process.
-51-
-------
Chapter III
Element E: Identifying Interested Persons
The purpose of this element is to identify stakeholders, people that have an interest in and are
involved in the development and implementation of the capacity development strategy. The
overall purpose of identifying and involving stakeholders is to inform the parties that interact with
water systems so they will be better able to contribute to capacity assurance in their actions.
One approach to identifying stakeholders is to use resources available to related outreach
programs. Potentially interested parties include:
• Advisory panels for new system development. Foremost among the methods for
involving and informing key stakeholders is the creation of a formal stakeholder advisory
panel as part of a new system capacity assurance program. Such panels should include
governmental and nongovernmental organizations. States could use panels to disseminate
information on existing system capacity. The key groups involved in new system formation
do not represent everyone, but their communication networks do reach a large proportion
of the target audience. Potential advisory panel constituents include:
Builders' associations
— Realtors' associations
Mobile home park operators' associations
County associations
— Municipal associations
Planners' associations
— Consulting engineers' associations
-- Associations of utilities (AWWA, NAWC, NRWA)
Consumer advocates
Environmental groups
Operators' associations
Technical assistance providers (NRWA, RCAP)
— Community action agencies
Community development corporations
— Homeowners' associations
Chambers of commerce
Regulated community
Citizens who have registered an interest
Bankers and lenders
Operator certification advisory boards. Operator certification advisory boards can be key
resources in disseminating capacity information. States might work with operator
certification boards to develop a certification curriculum that would help ensure capacity.
-52-
-------
Chapter III
Tools to identify additional stakeholders include:
• Regional plans. Regional planning can promote communication and information sharing
between water systems in the planning area. In Washington State, the regional planning
document explicitly specifies the types of support that large systems will provide to smaller
systems within the plan's jurisdiction. This support system is a formal agreement under
which a large or central utility in a county performs direct, contract, or support services for
smaller utilities.
• MOU with public utility commissions. Some State PUCs are involved in regulating
public water districts or authorities and even municipal water systems. PUC approval may
also be required to extend service from an existing investor-owned system to a new
development outside the original franchise area, or from a municipal water system to a new
development outside the municipal boundaries. The statutory authority for the PUCs'
actions are defined in the statutes that authorize them to promote the general public interest
(e.g., safe and reliable service at reasonable cost) by regulating the manner in which
monopoly services are provided.
These statutory authorities make PUCs logical partners in capacity development. Several
State commissions have adopted more expanded roles in small water system capacity by
opening formal proceedings on the matter and requesting public comment (New York);
developing and issuing a new policy statement adopted by the commissioners (California,
Connecticut); and drafting MOU that state the broad objectives of small system capacity
development and itemize specific commission responsibilities (Connecticut, Pennsylvania,
North Carolina).
• Permitting requirements. The permitting process alerts permittees to capacity
development and helps the State identify affected stakeholders.
• Cooperation of industry groups, lenders, and nongovernmental organizations.
Developing relationships with these important groups helps ensure their participation in the
capacity development process.
• Public education. Public education plays an essential role in identifying interested persons
by informing the public of the issue and the opportunity to participate. In addition, public
education allows the general public to participate as an informed party in the preparation of
the capacity development strategy.
• Coordination with other agencies. Coordinating with all involved agencies helps ensure
that the capacity development process runs smoothly. This is particularly important in
States where the primacy agency is not the only agency participating in the DWSRF
process.
-53-
-------
Chapter III
NONCOMMUNITY WATER SYSTEMS
Unlike CWSs, NCWSs generally do not charge for their water. Instead, the cost of operating
the system is built into the cost of their product or service (if the system is a business), or is part
of the cost of public services (in the case of public schools).
NCWSs are much like ancillary CWSs, and can be dealt with similarly; capacity development in
both NCWSs and ancillary CWSs must be approached somewhat differently than in most CWSs.
Many elements of the approach are still the same, however.
In this section, the five elements are reviewed with a focus on the places where the approach to
new NCWSs needs to be developed differently.
Methods or criteria to prioritize systems
Many of the tools discussed for CWSs could also be used for NCWSs. For example, States
are likely to have information to prioritize NCWSs from permit applications, compliance data, or
sanitary surveys (since these types of data collection generally apply to both NCWSs and CWSs).
NCWSs are less likely, however, to employ tools such as water supply plans and capital
improvement plans. In addition, only nonprofit NCWSs are eligible to apply for DWSRF funding.
Because many are privately owned, NCWSs may resist disclosing financial data.
Factors that encourage or impair capacity development
Many of the factors that impair or encourage capacity development in CWSs are likely to apply
to NCWSs. Operator certification may be less relevant for NCWSs in many States, because
NCWSs may not be required to have access to certified operators. Dedicating resources to
training and technical assistance will encourage capacity in NCWSs.
In some States, regulatory, statutory, or policy requirements that encourage capacity may not
apply to NCWSs. States should recognize these limitations when they consider element B of their
capacity development strategies.
How the State will use the authority and resources of the SDWA
States can use the programmatic and funding resources of the SDWA to help NCWSs achieve
compliance, build partnerships, and gain access to trained operators. In some cases, States will
want to work with individual NCWSs. In other cases, partnerships between CWSs and NCWSs
may be appropriate.
States should recognize the limitations of the SDWA with regards to NCWSs. For example,
consumer confidence reports are required only of CWSs, and the operator certification
-54-
-------
Chapter III
requirements apply only to CWSs and NTNCWSs, not TNCWSs. However, the Act's source
water protection provisions apply to NCWSs and CWSs.
How the State will establish a baseline and measure improvements
Assuming that the States rely on traditional data sources to establish their baselines and
measure improvements, States are likely to have data on CWSs and NCWSs. Data sources such
as compliance reports, sanitary surveys, and permit applications are likely to have information on
all PWSs. There is one difference between data collected on CWSs and those collected on
NCWSs: States collect information on NCWSs less frequently than CWSs, making it more
difficult to measure improvements in NCWSs.
Another characteristic of NCWSs is that ownership may change frequently, particularly for
small businesses. This may make it more difficult for States to measure improvement in these
systems.
Procedures to identify persons that have an interest in and are involved in the development
and implementation of the strategy
The State should identify representatives of NCWSs and the communities served by NCWSs to
participate in the preparation of the State capacity development strategy. These stakeholders can
be identified using the tools discussed under element E.
States have been trying to reach out to NCWSs for many years, and some States have
perfected methods for doing so. One important step is to identify the largest categories of
NCWSs (e.g., public schools, day care centers, offices, factories). Interest groups representing
these entities can help conduct outreach and identify interested persons.
Some States find it difficult to reach the public affected by TNCWSs, yet many organizations
represent these groups. For example the American Automobile Association has an interest in
water quality at highway rest stops. Similarly, tourism organizations have a keen interest in
avoiding outbreaks of acute waterborne illnesses. In States that rely on tourism (e.g., Colorado,
Florida, and California) the tourism industry has focused public attention on water quality in
highway rest stops.
The statute recognizes not only persons with an interest in the strategy, but also those who will
be involved in its implementation. This is useful because some drinking water regulators may
need to coordinate with other agencies, particularly regarding NCWSs. For example, drinking
water regulators may need to work closely with the State agencies that license TNCWSs such as
restaurants and lodging establishments. An MOU with the licensing authority may substantially
increase the effectiveness of a capacity development strategy.
-55-
-------
CHAPTER 4:
Assessing System Capacity
-------
Chapter IV
INTRODUCTION
SDWA §1452(a)(3) prohibits assistance from the DWSRF to a PWS that "does not have the
technical, managerial, and financial capability to ensure compliance with the requirements of this
title" or is in significant noncompliance with an NPDWR or variance. The Act does, however,
allow a system lacking adequate capacity or in significant noncompliance to receive DWSRF
assistance if one of two conditions is met:
• The use of the assistance ensures the compliance of a system in significant noncompliance.
• The owner or operator of a system that lacks capacity agrees to undertake feasible and
appropriate changes in operations (including ownership, management, accounting, rules,
maintenance, consolidation, alternative water supply, or other procedures) that the State
determines would ensure the system's technical, managerial, and financial capacity.
Basically, the States are required to address the following question: Does the system applying for
a loan have adequate technical, managerial, and financial capacity? Is the system in significant
noncompliance? If not, will the assistance ensure compliance? Does the owner/operator agree
to make changes necessary to ensure capacity?
This chapter identifies the tools and resources that States can use to answer this question.
METHODS OF ASSESSING CAPACITY
The DWSRF is a lending operation. Therefore, assessments of capacity for DWSRF purposes
should be based on criteria used to make lending decisions. It is bad management of DWSRF
monies to fund projects for water systems that would not have the ability to adequately operate
and maintain the improvements provided by those projects. The borrower must have the financial
capacity to repay the loan and to maintain the system over the life of the loan. DWSRF
assessment of capacity must be comprehensive, with an emphasis on financial capacity. There are
many tools for assessing a system's technical, managerial, and financial capacity:
Compliance data
Sanitary surveys
Water system plans or business plans
Self-assessment/peer reviews
Regional plans
Criteria used by lenders
Financial viability assessment methods
Operator certification
Financial and managerial training
Permit application data
Capital improvement plans
Comprehensive performance evaluation
-57-
-------
Chapter IV
• Consumer complaint records.
• State-wide studies of water quality or quantity
• SRF loan application
• Budgeting worksheets
• Annual financial reports
• Source water assessment programs
• Water conservation plans
• Emergency response plans
• Certificates of Convenience and Necessity (CCN)
• Review of audit report
• Bond issue reviews
• Rate reviews and approvals
• Credit rating services
• Financial assurance mechanisms
• Consumer confidence reports
• Interviews with personnel familiar with the system
It is difficult to determine which tool is most appropriate for evaluating which element of
capacity. Each State is unique; some States have access to many of the tools described above,
while others have access to only a few. In addition, tools are used differently in each State.
Systems are unique, too. A tool that is useful for assessing the capacity of a very small system
may not be useful for assessing the capacity of a large system. Tools to assess privately owned,
ancillary systems may be different from the tools to assess municipal systems.
The matrices on the following pages provide a framework for reviewing each tool's
applicability to various aspects of capacity. The matrices have been left blank so that each State
can use them to identify tools that address its unique situation. The tools and examples of their
uses are described in detail in the appendix.
-58-
-------
Table 1: Capacity Development Matrices
Tools
Compliance data
Sanitary surveys
Water system or business plans
Self-assessments
Regional plans
"Dozen Questions"
Criteria used by lenders
Financial viability assessment methods
Operator certification
Financial and managerial training
Permit application data
Capital improvement plans
Comprehensive performance evaluations
Consumer complaint records
State- wide studies of water quality or
quantity
DWSRF loan applications
Budgeting worksheets
Annual financial reports
Source water assessment programs
Water conservation plans
Emergency response plans
Certificates of Convenience and necessity
Review of audit report
Bond issue reviews
Rate reviews and approvals
Credit rating services
Financial assurance mechanisms
Managerial Capacity
Ownership
Accountability
Clear ownership identity
Management information
system
Staffing and Organization
Clear identification of
operator/manager
Training and continuing
education
Sufficient qualified staff
Staff with appropriate
c/5
0}
^0
"o
OH
T3
C
oj
c/5
U
1
O
o
£
Understanding of
management aspects of
regulatory requirements
Effective Linkages
Awareness of available
external resources
Communications with
other systems
Communication with
customers
Communication with
regulators
-59-
-------
Tools
Compliance data
Sanitary surveys
Water system or business plans
Self-assessments
Regional plans
"Dozen Questions"
Criteria used by lenders
Financial viability assessment methods
Operator certification
Financial and managerial training
Permit application data
Capital improvement plans
Comprehensive performance
evaluations
Consumer complaint records
State- wide studies of water quality or
quantity
DWSRF loan applications
Budgeting worksheets
Annual financial reports
Source water assessment programs
Water conservation plans
Emergency response plans
Certificates of Convenience and
necessity
Review of audit report
Bond issue reviews
Rate reviews and approvals
Credit rating services
Financial assurance mechanisms
Financial Capacity
Revenue Sufficiency
Revenues cover expenses
Appropriate rate structure
1
u
OJ
!=l
O
(J
-O
a1
'm
Revenues for depreciation
and interest
Cost-of-servlce studies
Credit Worthiness
Positive credit rating
•is
O 3
JH °
•3 »
-H a
1 g
ra
si
rt
$
-------
Chapter IV
APPLICATION OF THE ASSESSMENT TOOLS FOR
NONTRANSIENT NONCOMMUNITY WATER SYSTEMS
NTNCWSs are stand-alone water systems serving schools, day care centers, factories, offices,
and other establishments that have nontransient populations. Unlike CWSs, most NTNCWSs
were not designed to serve water to the public. Instead, water service is an auxiliary function to
the principal business or focus of the organization.
Because of their unique characteristics, assessing the capacity of NTNCWSs may need to be
approached differently. Most of the tools described above apply to both CWSs and NTNCWSs.
Nevertheless, there may be some areas where tools need to be modified.
Technical Capacity
The three elements of technical capacity—adequacy of source water, adequacy of
infrastructure, and technical knowledge—can be assessed similarly in CWSs and NTNCWSs.
NTNCWSs are simpler in design and construction, but most States require a review of their plans
and specifications before construction, just as they do for CWSs. This review and inspection
prior to construction is an important step in ensuring the technical capacity of NTNCWSs.
A State could review the adequacy of source water and infrastructure for CWSs and
NTNCWSs. A State also could assess the technical knowledge of personnel in both types of
systems, but it will be more difficult in NTNCWSs because the person responsible for the system
will not necessarily be a water system professional.
The discussion of technical knowledge under element B is relevant to NTNCWSs. A State
could investigate, for example, whether the system complies with all applicable monitoring
requirements, whether the system has access to adequately trained personnel, and so forth. The
materials presented in the preceding pages can be used for NTNCWSs and CWSs.
Managerial Capacity
The three elements of managerial capacity—ownership accountability, staffing and
organization, and effective external relations—can be assessed in similar ways in NTNCWSs and
CWSs, despite the smaller, simpler organizational structure of NTNCWSs.
Some aspects of managerial capacity are not relevant to all NTNCWSs. These aspects can
simply be skipped when assessing capacity. The tools presented in this chapter and discussed in
the appendix are relevant, they simply must be adjusted to the size and complexity of the system.
-61-
-------
Chapter IV
Financial Capacity
The financial structure of NTNCWSs differs significantly from that of CWSs. As discussed
above, NTNCWSs generally do not charge for their water; their cost of operation is built into the
cost of the product or service. Therefore, it is unlikely that these systems will be able to readily
produce data essential to the assessment of financial capacity.
While it is clear that the financial structure of NTNCWSs is fundamentally different from that
of medium-sized CWSs, NTNCWSs share many of the characteristics of very small CWSs. Very
small CWSs generally are ancillary, privately owned systems, much like NTNCWSs. Assessment
tools developed for small, ancillary CWSs should be applicable to NTNCWSs.
-62-
-------
APPENDIX:
The Tools
-------
Appendix
INTRODUCTION
The tools described in this appendix are intended to provide States and stakeholders with ideas
for meeting the capacity development provisions of the SDWA. By no means is this list intended
to be exhaustive or restrictive. Each State is unique; tools that work well in one State may be
inappropriate in other States. Use of any of these tools should be informed by the unique
situation faced by the State. The primary function of the appendix is merely to complement the
information provided in the preceding chapters and provide examples and suggestions that may
help States build and strengthen their capacity development programs. Each description
comprises a brief explanation of the tool, several examples of the way the tool can be used, a table
outlining the broader applicability of the tool, and a listing of sources for additional information.
-64-
-------
Appendix
Annual Financial Reports
The content of annual financial reports varies, depending on the system's size, level of
sophistication, and accounting system. Ownership (i.e. public or private) is the major variable
affecting accounting structure, but there are also variations within publicly owned systems, since
some systems have adopted an enterprise fund method of accounting while others have not.
Annual financial reports include itemizations of operating expenditures and capital expenditures,
revenues and other sources of income, debt service expenditures, and the status of reserve
accounts. For investor-owned systems and some publicly owned systems, financial reports will
also include balance sheet information (assets and liabilities). Furthermore, some systems may
provide cost-of-service analyses, comparisons with previous years' expenditures, information on
stock value and dividends (for investor-owned systems), discussions of the system's investment
strategy, and predictions of future revenues and expenditures.
Public utility commissions (PUCs) require annual financial reports of the systems that they
regulate. These reports generally follow the same format, use a uniform system of accounts, and
are reviewed by commission staff. Annual reports to commissions always contain data on
operating and capital expenditures, revenues, and they usually contain information on operations,
service area, customer base, source of supply, pumpage rates, and other information on system
finances and operations. Annual reports to PUCs are not likely to have much forecasting
information; instead, they provide a good snapshot of current operations.
Uses of this tool include:
• Prioritizing systems. Annual financial reports are an excellent source of current financial
information that could be part of a State prioritization method. For example, a State could
assign highest priority to those systems in the worst financial condition.
• Establishing a baseline and measuring improvements in capacity. Improvements in
capacity could be measured in terms of changes in the financial ratios taken from annual
financial reports. There are several problems with this approach:
• Financial ratios may be slow to reflect improvements in capacity.
• Unfavorable financial ratios may mask improvement in other areas of capacity (e.g., a major
problem facing systems is the lack of investment in infrastructure, so State capacity
development strategies may recommend such investment, which may require additional
debt, and (other things being equal) may cause debt service ratios to get worse, not better).
• Annual financial reports are "snapshots" of financial conditions at a single point of time each
year, and thus may not be a good measure of the overall financial health of systems. A
better approach is to look at trends over time for each system.
-65-
-------
Appendix
• Assessing capacity. In assessing capacity, States might examine a system's expenses,
revenues, reserves, and future expenditures as reported in annual financial reports. The way in
which systems estimate and document these important financial elements can be an excellent
indicator of capacity.
Sources of Additional Information
For more information on annual financial reports see:
National Association of Regulatory Utility Commissioners, Uniform System of Accounts for
Water Utilities (by class).
-66-
-------
Appendix
The broad applicability of this tool is outlined below:
Annual Financial Reports
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
-67-
-------
Appendix
Big Brother and Buddy System Programs
Several State SDWA primacy agencies, working cooperatively with non-governmental
organizations representing utilities (e.g., American Water Works Association or National Rural
Water Association) have experimented with "big brother" or "buddy system" programs. These
programs encourage partnerships between water systems, pairing a well-managed system with one
that needs guidance. The idea is that the well-managed system can provide training and technical
assistance to the system that is less well-managed.
In a "big brother" program, the well-managed system is usually large, and the system that
needs help is usually small. In this respect, the arrangement is similar to a satellite management
program. The "buddy system" arrangement pairs two systems of equal size, generally two small
systems. Matching systems of similar size offers a better understanding of the problems to be
resolved and a better acceptance of peer-level assistance and training.
Uses of this tool include:
• Prioritizing systems. The identification of systems being assisted by big brother and buddy
programs could be one type of information used to prioritize PWSs.
• Assisting PWSs in complying with NPDWRs; encouraging the development of partnerships
between PWSs; and assisting PWSs in training, certification, and continuing education of
operators. Big brother and buddy system programs are examples of partnerships between
PWSs.
Sources of Additional Information
For more information on buddy system programs see:
Association of State Drinking Water Administrators, Enhancing Drinking Water System
Viability: Options for States, December 15, 1995, p. 19.
Please refer to the description of Satellite Management for more information.
-68-
-------
Appendix
The broad applicability of this tool is outlined below:
Big Brother and Buddy System Programs
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
/
/
-69-
-------
Appendix
Bond Issue Reviews
Some States require publicly owned water systems to obtain State regulatory approval before
issuing general obligation bonds. The bond approval process includes an engineering review of
the facilities to be purchased with bond proceeds and a financial review of the feasibility of the
system to make debt service payments. Like the audit report, this review reflects the State's
responsibility to ensure that political subdivisions with taxing authority act responsibly when
incurring debt.
Uses of this tool include:
• Prioritizing systems. As with the review of audit reports, bond issue reviews provide
additional information about systems. This information can be used to supplement information
routinely available to primacy agencies for establishing priorities.
• Assessing capacity. The application for bond approvals includes an engineering report that
explains why the technology for the infrastructure was selected; various resolutions of the
governing board of the system to indicate that the board has reviewed and approved the
application and the terms of the bond issue; and an analysis of the potential tax revenues for
the development, based on current and future assessed valuations of the property over the life
of the bonds, usually 20 years. Thus bond issue reviews can be used to assess all aspects of
capacity.
Sources of Additional Information
NARUC, Annual Report on Utility and Carrier Regulation, Washington, DC. (202) 898-2200
Beecher, Janice. 7995 Inventory of Commissions of Regulated Water and Wastewater
Utilities, Indianapolis Center for Urban Policy and the Environment.
EPA's Environmental Finance Program: A Guidebook of Financial Tools:
www.epa.gov/efmpage/guidebk/guindex.htm
-70-
-------
Appendix
The broad applicability of this tool is outlined below:
Bond Issue Reviews
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
-71-
-------
Appendix
Capital Improvement Plans
Capital Improvement Plans (CIPs) are planning documents produced by local governments,
utilities, or water systems that rigorously catalogue, for a specified period of time, all needed
capital projects, the reason for each project, and the associated costs. Often, CIPs also list the
source of funding. Most large water systems develop CIPs, but only a limited number of small
systems use this tool. Investor-owned systems and systems in States that place a strong emphasis
on planning are more likely to develop CIPs than other small systems.
Uses of this tool include:
• Prioritizing systems. Capital improvement plans provide outstanding forward-looking financial
and technical data for a system. Capital improvement plans usually provide information on all
capital projects planned by a system for five, ten, or twenty years into the future.
Unfortunately, capital improvement plans are generally completed only by larger water
systems.
• Assessing capacity. Often, CIPs include a description and assessment of the system's existing
infrastructure. They always include information on infrastructure needs. States can use CIPs
to ensure that systems have accurately evaluated capital improvements needs by comparing the
needs listed in the CIP with needs from other sources, such as recent sanitary surveys or CPEs.
A well-managed system will develop a CIP that helps customers and local regulatory
authorities understand and appreciate the need for infrastructure improvements and rate
increases. Therefore, a review of the CIP could help the State understand the system's ability
in this important aspect of managerial capacity. In addition, the quality or quantity of
information in a CIP could provide insight into a system's management information system.
Sources of Additional Information
For more information on CIPs see:
The "PAWATER Model." This model validates cost estimates and provides comparative
information between proposed and existing water systems. Contact the Pennsylvania
Department of Environmental Protection, 400 Market Street, Harrisburg, PA 17105. (717)
783-2300.
-72-
-------
Appendix
The broad applicability of this tool is outlined below:
Capital Improvement Plans
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
-73-
-------
Appendix
Certificates of Convenience and Necessity (CCNs)
A CCN is a license that allows certain public utilities to operate as regulated monopolies within
defined areas. A utility's ability to provide continuous and adequate service is assessed prior to
granting or transferring CCNs. This may involve a review of the utility's debt/equity ratio, the
feasibility of obtaining service from another utility, the effect on the consumers of granting the
CCN, and other technical, managerial, and financial capabilities.
Investor-owned utilities, water supply corporations, and border counties are required to obtain
a CCN. Cities and districts must obtain a CCN only if they wish to serve in an area lawfully
served by another utility. The order to grant, amend, or transfer a CCN may include requirements
to improve the utility's ability to provide continuous service. The orders are monitored for
compliance. If a utility is being transferred, the new owner must describe in the application how
the current facilities will be maintained or improved to meet minimum State standards.
Uses of this tool include:
• Assisting PWSs in complying with NPDWRs; and encouraging the development of
partnerships between PWSs. States can use CCN requirements to assist systems in
maintaining compliance. Also, the nature of the CCN review process, particularly since it
permits other nearby systems to comment on the application, can assist in the development of
partnerships between water systems.
• Identifying interested persons. The process for issuance or renewal of a CCN includes
explicit procedures for involving water system customers. PUCs that issue or renew CCNs
could assist State primacy agencies in the identification of stakeholders.
• Assessing capacity. The process for issuance or renewal of a CCN involves an assessment of
the capacity of the system applying for the CCN. It therefore can be used to supplement the
primacy agency's assessment of the technical, financial, and managerial capacity of water
systems.
Sources of Additional Information
NARUC, Annual Report on Utility and Carrier Regulation, Washington, DC. (202)898-2200
Beecher, Janice. 7995 Inventory of Commissions of Regulated Water and Wastewater
Utilities, Indianapolis Center for Urban Policy and the Environment.
-74-
-------
Appendix
The broad applicability of this tool is outlined below:
Certificates of Convenience and Necessity
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
/
/
-75-
-------
Appendix
Compliance Data
Compliance data are records of system compliance with State and federal drinking water
regulations; data are maintained by State primacy agencies and routinely uploaded to EPA's Safe
Drinking Water Information System (SDWIS). Certain elements of a system's technical and
managerial capacity can be assessed by reviewing these data. At a minimum, States can identify
systems that are in significant non-compliance and examine the specific nature of the non-
compliance. States can determine whether the non-compliance is due to monitoring and
reporting, maximum contaminant level, or treatment technique violations, and whether it is an
isolated event or a recurring problem. Monitoring and reporting data also may provide
information not related to a violation, but which is interesting for assessing capacity (e.g.,
monitoring data on unregulated contaminants).
Uses of this tool include:
• Prioritizing Systems. Systems could be prioritized on the basis of monitoring and reporting
data, testing results, and other compliance data available in the Safe Drinking Water
Information System (SDWIS) and in States' compliance databases. Compliance data can be
used to identify systems that are in significant noncompliance, that are currently violating
NPDWRs, that are likely to experience compliance problems in the future, and that do not
appear to understand applicable monitoring and reporting requirements or have the necessary
resources to meet these requirements.
• Establishing a baseline and measuring improvements in capacity. Since the statute
explicitly mentions capacity with respect to NPDWRs, analyzing compliance trends is a useful
way to measure improvements in capacity. The baseline would be compliance data from the
calendar quarter when the capacity development efforts began. Variables such as number of
systems in significant noncompliance, number of exceedances or violations, and time required
to achieve compliance could be used as indicators of capacity.
Measuring improvements solely on the basis of compliance might yield an analytical framework
that is too limited, since factors such as new regulations or new enforcement tools could
influence compliance rates. In addition, trends in compliance data may not yield sufficient data
over the short term because capacity development is an incremental, long-term process. This
is especially true for small systems and NCWSs, which are generally required to submit
compliance data less often than larger systems.
• Assessing Capacity. Compliance data can reveal violations that do not lead to significant
noncompliance, but may nevertheless reveal potential capacity problems. For example,
intermittent violations of bacteriological standards may indicate a problem with the system's
treatment facilities or distribution system. If the State finds indications of potential problems, it
-76-
-------
Appendix
should use other tools, such as sanitary surveys, peer reviews, or self-assessments, to
determine if the system is taking steps to identify or address any deficiency.
EPA's guidance on assessing capacity directs the State to ensure that systems have the
capacity to comply with current and future SDWA requirements. Compliance data review can
help States understand how future SDWA requirements might affect a system.
Sources of Additional Information
For definitions of Significant Non-Compliance, see U.S. Environmental Protection Agency,
Water Supply Guidance Manual. Relevant sections of this document are available from the
Internet on the Office of Ground Water and Drinking Water (OGWDW) home page. You can
access these documents at www.epa.gov/OGWDW.
If you do not have access to the Internet, call the Safe Drinking Water Hotline at 800-426-
4791.
-77-
-------
Appendix
The broad applicability of this tool is outlined below:
Compliance Data
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
-78-
-------
Appendix
Comprehensive Performance Evaluation
The Comprehensive Performance Evaluation (CPE) is the first of two formal procedures
developed as part of the Composite Correction Program (CCP) approach to optimizing surface
water treatment plant performance. A CPE is a thorough review and analysis of a surface water
treatment plant's design capabilities and associated administrative, operation and maintenance
practices. CPEs are conducted to identify factors that may adversely impact a plant's ability to
achieve optimal performance.
A CPE involves five basic elements: evaluation of the major unit processes; assessment of plant
performance; identification and prioritization of performance-limiting factors; determination of the
necessity of a follow-up Composite Technical Assistance program (the second phase of the CCP
approach); and reporting of the results of the evaluation.
The recommended CPE format utilizes a series of detailed forms and defined evaluation
procedures to provide consistent and comparable results. A significant aspect of this is the list of
definitions for assessing performance-limiting factors in administrative, maintenance, design, and
operations areas. Completion of all activities would be necessary to apply findings of a CPE to an
assessment of small water system capacity.
Uses of this tool include:
• Prioritizing systems. The findings of a CPE could be used in an assessment of water system
capacity. However, this tool is only appropriate for surface water systems and is thus limited
for the purpose of statewide prioritization.
• Assessing capacity. The results of a CPE provide an evaluation of the major unit processes,
an assessment of plant performance, a list of performance-limiting factors, and a
recommendation on the need for follow-up. Each of these distinct activities help States and
systems understand appropriate treatment technologies, optimal plant operations, and effective
maintenance programs. From a managerial perspective, the evaluation also helps ensure that
system operators understand the plant.
A primary objective of CPEs is to determine if significant improvements in performance can be
achieved without major capital expenditures. Comparing the results of a CPE to the planned
infrastructure improvements outlined in the SRF application can help the State determine if the
system has the capacity to understand its needs and allocate its budget appropriately. CPEs
examine financial records and investigate a system's budget and financial planning to make
determinations about the capacity of the system.
-79-
-------
Appendix
Sources of Additional Information
U.S. Environmental Protection Agency, Summary Report: Optimizing Water Treatment Plan
Performance with the Composite Correction Program, EPA/625/8-90/017, March 1990.
-80-
-------
Appendix
The broad applicability of this tool is outlined below:
Comprehensive Performance Evaluation
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
-81-
-------
Appendix
Consumer Confidence Reports
SDWA §1414(c)(4) requires that all CWSs inform their customers about the levels of
contaminants in the drinking water provided by that system. Systems serving more than 10,000
persons are required to inform their customers by mail. The Governor of a State may allow
systems serving fewer than 10,000 persons to inform their customers through notice in
newspapers if they are willing to make the report available upon request.
Uses of this tool include:
• Assessing capacity. Consumer confidence reports discuss both technical and managerial
capacity. Their results could be used by States in an effort to assess capacity. The levels of
contaminants in finished water provided to customers reflects on the adequacy of source water
(from a qualitative standpoint). It also reflects infrastructure capacity and technical
knowledge. Weaknesses in each of these elements could contribute to levels of contaminants
that exceed standards.
The levels of contaminants in finished water also could reflect problems with the management
of a system. From the standpoint of capacity development, contaminant levels that exceed
standards are most likely linked to the staffing and organizational element of managerial
capacity.
Sources of Additional Information
The Nov. 8, 1996 "Water Quality Reports Update" on Consumer Confidence Reports.
www.awwa.org/ccrupdat.htm.
AWWA and the CCR: www.awwa.org/ccr.htm.
Discussion of CCR regulations that EPA must publish:
www.epa.gov/OGWDW/sdwa/consumer.html.
Examples of CCRs: www.ci.portland.or.us/water/ccrindex.htm;
www.city.davis.ca.us/city/pworks/wqrept95.htm; www.water.denver.co.gov/dwbwq96.htm.
Fact sheet: www.epa.gov/OGWDWOOO/ccr/ccrfsold.html.
"Consumer Confidence Reports: Opportunity's Knocking." Journal of the American Water
Works Association. (Apr. 1997): 12.
AWWA's listing of utilities with CCRs: www.awwa.org/utility.htm.
-82-
-------
Appendix
The broad applicability of this tool is outlined below:
Consumer Confidence Reports
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
-83-
-------
Appendix
Consumer Complaint Records
This tool is a State's record of consumer complaints regarding a water system. These records
may reside with the State primacy agency or with regional or local authorities. State housing
commissions may receive information on water systems operated by developers, neighborhood
associations, or communities of manufactured housing. The State public utility commission
processes complaints regarding investor-owned utilities and other utilities within its jurisdiction.
Uses of this tool include:
• Prioritizing systems. States could use this tool as part of a system of prioritization. It is not
likely to be the most important criterion, particularly when compared to more direct tools, such
as compliance data and sanitary surveys.
• Assessing capacity. Sometimes, consumer complaints help identify problems with water
systems. The most common consumer complaints usually concern taste, odor, or low
pressure. The State can use follow-up information on the complaint or other tools to
determine if the system is taking steps to identify the source and find a solution to any problem.
If there are problems with a system's billing and collection procedures, consumers are likely to
complain. Consumers may complain that they were over-billed, or that the water system fails
to recognize receipt of their payments. Such errors may indicate a lack of financial capacity.
Sources of Additional Information
As mentioned above, States have different methods of recording consumer complaints but
most have records at either the State, regional, or local level. State Better Business Bureaus
and Departments of Health may have useful information.
-84-
-------
Appendix
The broad applicability of this tool is outlined below:
Consumer Complaint Records
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
-85-
-------
Appendix
Cooperation with Non-Governmental Organizations
Non-governmental organizations have an important role to play in the implementation of
capacity development strategies. These organizations offer a non-governmental and non-
regulatory resource for technical assistance and training services for PWSs. Non-governmental
organizations that are active in the field of public water supply are organizations like the American
Water Works Association, the National Rural Water Association, the Association of Metropolitan
Water Agencies, the National Association of Water Companies, the Association of Boards of
Certification, the Rural Community Assistance Program, and others.
Developing relationships with non-governmental organizations helps ensure their participation in
the capacity development process and creates a forum for discussion. In addition, because they
are non-governmental and non-regulatory, their participation brings a fresh perspective to the
challenges facing small water systems.
Uses of this tool include:
• Assisting PWSs in complying with NPDWRs; encouraging the development of partnerships
between PWSs to enhance technical, managerial, and financial capacity; and assisting
PWSs in training, certification, and continuing education of operators. Cooperation with
non-governmental organizations could assist the State in achieving all of these objectives.
• Identifying interested persons. Many non-governmental organizations represent important
stakeholder groups.
Sources of Additional Information
American Water Works Association: www.awwa.org
Association of Metropolitan Water Agencies: www.amwa-water.org/water
National Rural Water Association: www.nrwa.org
Rural Community Assistance Program: www.rcap.org
Partnership for Safe Water: www.awwa.org/partner2.htm
Association of State Drinking Water Administrators (ASDWA): www.asdwa.org
American Water Works Association Research Foundation (AWWARF): www.awwarf.com
-86-
-------
Appendix
The broad applicability of this tool is outlined below:
Cooperation with Non-Governmental Organizations
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
/
/
-87-
-------
Appendix
Cooperation of Industry Groups and Lenders
An effective capacity development strategy will rely extensively on cooperation between the
SDWA State primacy agency and other groups that can help to implement the strategy. For
example, if the primacy agency wants to implement a strategy that relies on public education of
potential home buyers, then cooperation of the mortgage lending community can be an important
asset. Mortgage lenders can assist in public education by explaining the value of reliable water
systems to prospective home buyers. Indeed, lenders may require homes to be supplied by a
reliable system before they will provide a loan. Similarly, the primacy agency might need the
cooperation of organizations that represent the water supply industry. Organizations like the
American Water Works Association (AWWA) and the National Rural Water Association
(NRWA) are important allies in the development of public education programs, technical
assistance programs, and other efforts that may be part of the capacity development strategy.
Uses of this tool include:
• Identifying interested persons. Relationships with industry groups are essential to identifying
some of the most interested parties, the owners and operators of PWSs.
• Factors that encourage or impair capacity development. Relationships with industry groups
and lenders can encourage capacity development by helping systems comply with NPDWRs
and informing and training system owners and operators.
Sources of Additional Information
For more information on cooperation with industry groups and lenders see:
A Guidebook of Financial Tools. Environmental Finance Program.
This document is available through the EPA home page. You can access this document at
www.epa.gov/efmpage/guidebk/guindex.htm.
Information on organizations can be found at:
American Water Works Association: www.awwa.org
National Rural Water Association: www.nrwa.org
Rural Community Assistance Program: www.rcap.org
-------
Appendix
The broad applicability of this tool is outlined below:
Cooperation of Industry Groups and Lenders
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between
PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
-89-
-------
Appendix
Coordination with Other Agencies
Effective design and implementation of capacity development strategies requires the
coordination of a large number of governmental agencies. At the State level, these may include
the State SDWA primacy agency, the public utility commission (PUC), the SRF development
financing agency, and the water resources management agency. In some States, several of these
may be authorized by a single statute and be in the same overall agency. In other States, there
may be substantial fragmentation.
Public utility commissions (PUCs) play an important role in the regulation and oversight of
PWSs in many States, and are logical partners in capacity development strategies. Several state
commissions have adopted more expanded roles in small water system capacity.
The State financing agency, if different from the primacy agency, is another important actor.
This agency administers grant and loan programs that can provide incentives for capacity
development efforts. Establishing coordination between the primacy agency and the financing
agency is an essential part of a capacity development strategy.
The State agency responsible for administering water supplies (through water rights or user
permits) is likely to have data on water allocations that are necessary for evaluating the supply
options in an area. Similarly, a State's water quality agency will have some data on the quality of
those surface or ground water supplies; this information is valuable for determining whether
treatment costs or contamination problems may be associated with a particular supply alternative.
In addition, university geology departments and federal agencies such as the U.S. Geological
Survey or the Army Corps of Engineers may have conducted studies that include either or both
types of useful information.
At the sub-State level, the primacy agency must coordinate with all regional, county, and
municipal governments that may play a role in capacity development. Agencies concerned with
development, land use planning, and growth management are likely candidates for partnerships.
Coordination is necessary to develop a State-wide effort to ensure that all new residential and
commercial developments are served by systems with adequate capacity. In most States, most
land use planning is done at a sub-State level by municipal governments, county governments, or
regional planning agencies.
Coordination between agencies is usually accomplished through Memoranda of Understanding.
These could be implemented in several different ways.
• Primacy agencies and PUCs could jointly issue renewable operating permits. The primacy
agency could focus on technical areas where it has strong engineering and operations
expertise, while the PUC could focus on financial areas. Together, the two agencies could
-90-
-------
Appendix
perform a more thorough development assessment than either agency could perform alone.
• Both the PUC and the State financing agency could be included in the MOU, thereby
ensuring that prospective uses of grant and loan funds are reviewed by both the primacy
agency and the PUC.
• Primacy agencies could sub-contract the assessment of PWSs' financial capacity to PUCs or
the State financing agency, thereby bringing the expertise of these other agencies to bear on
this critical element of capacity assessment.
Uses of this tool include:
• Prioritizing systems. Coordinating with all other agencies that routinely assess capacity of
water systems would improve the ability of the primacy agency to prioritize systems.
• Identifying factors that encourage or impair capacity development. Coordination with
other, relevant agencies encourages capacity development, and absence of coordination will
impair the implementation of a capacity development strategy.
• Establishing a baseline and measuring improvements in capacity. Coordination with other
agencies, particularly through MOU, would be one indication of improvement in the State
program.
• Assessing capacity. Coordination with other agencies is an important step in assessing
capacity. As demonstrated throughout this document, each of these agencies may have
technical expertise that would not be available from the primacy agency alone. For example:
• PUCs have information on financial aspects of the capacity of systems that they regulate.
The staff includes professionals who are trained to assess financial capacity—a type of
expertise that may not be found in the primacy agency.
• State financing agencies have a unique database comprised of applications for grants and
loans, plus agency evaluation of the capacity of systems applying. Also, like PUCs,
financing agencies have trained professionals who are expert in assessment of financial
capacity.
-91-
-------
Appendix
Sources of Additional Information
For more information on coordination with other agencies see:
A Guidebook of Financial Tools. Environmental Finance Program.
This document is available through the EPA home page. You can access this document at
www.epa.gov/efmpage/guidebk/guindex.htm.
Washington Public Utility Districts Association: www.wpuda.org
-92-
-------
Appendix
The broad applicability of this tool is outlined below:
Coordination with Other Agencies
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
-93-
-------
Appendix
Credit Rating Services
There are several different credit rating services. Different institutions rate the credit-
worthiness of different types of PWSs. Two institutions, Standard & Poor's and Moody's, rate
the credit of some PWSs that have issued bonds; not all systems that issue bonds are rated. Both
publicly owned and privately owned systems are included in these ratings. Dun & Bradstreet,
another credit rating service, issues reports on the credit-worthiness of millions of investor-owned
businesses, which include investor owned water systems. All of these services use a variety of
financial ratios to compare the financial condition of the entity being rated with comparable
publicly owned or privately owned entities. Dun & Bradstreet also uses a history of accounts
payable to assess whether the utility pays its vendors promptly.
Many small PWSs do not have the type of financial history that is required to obtain a credit
rating from institutions like Moody's, Standard & Poor's, or Dun & Bradstreet. Because the
inability to get a credit rating from these services is generally due to the systems' small size, it is
not a good indicator of capacity for very small systems.
Uses of this tool include:
• Assessing capacity. All of the credit rating services focus primarily on an evaluation of the
financial condition of water systems. Therefore, they are most useful in assessing the financial
capacity of systems. It is likely that most small systems will not be rated by any of these
services. Nevertheless, the procedures and techniques used by the services may provide some
insights to States as they develop methods for assessing financial capacity.
The credit rating services described above provide insights into variables that are of most
interest to creditors. The bond rating services focus primarily on variables that are related to
the ability of a water system to establish and maintain a revenue stream that will allow a system
to repay the institutions that purchased the bonds. Dun & Bradstreet, in contrast, is more
interested in day-to-day credit worthiness, e.g., the ability of a system to pay its vendors. The
type of analysis used by Dun & Bradstreet is particularly useful for the smallest systems that
are unlikely to ever issue debt instruments.
-94-
-------
Appendix
Sources of Additional Information
For more information on credit rating services see:
AWWA Research Foundation, "Meeting Future Financial Needs of Water Utilities."
Standard & Poor's: www.ratings.standardpoor.com/
Moody's: www.moodys.com
Dun & Bradstreet: www.dnb.com/
EPA's Environmental Finance Program: A Guidebook of Financial Tools:
www.epa.gov/efmpage/guidebk/guindex.htm
-95-
-------
Appendix
The broad applicability of this tool is outlined below:
Credit Rating Services
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
-96-
-------
Appendix
Criteria Used by Lenders
All lenders have criteria that they use to evaluate loan applications. Some lenders (e.g., the
Rural Utilities Service (RUS) and Co-Bank) have experience in lending to small water systems.
Both RUS and Co-Bank provide financial assistance to small water systems; in the course of
making decisions about providing that assistance, both institutions review the financial capacity of
the systems that have applied for loans. The criteria used by these institutions could be used to
assess a system's financial capacity.
Uses of this tool include:
• Prioritizing systems. Criteria used by lenders might provide examples of measures that could
be used to prioritize systems.
• Assessing Capacity. A basic concern of both RUS and Co-Bank is that their loans be repaid.
Therefore, both will look for system policies and procedures that ensure an adequate source of
revenue. For small systems, this generally means adequate fees (or taxes for publicly owned
systems). Fees or taxes should be complemented by sound financial planning, including
separate accounts for debt service payments. Both lending institutions request several types of
financial information from systems that have applied for loans. Since the information requested
has been tailored to the unique conditions of small systems, they may be particularly useful for
States as they evaluate systems' financial capacity.
RUS looks at more than financial capacity; it also assesses the managerial capability of the
system as an important aspect of the system's overall capacity.
Sources of Additional Information
For more information on lending criteria see:
"Financial Viability Manual for New and Expanding Small Water Systems." Washington State
Department of Health, Environmental Health Programs, March 1995.
-97-
-------
Appendix
The broad applicability of this tool is outlined below:
Criteria Used by Lenders
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
-98-
-------
Appendix
DWSRF Loan Applications
To take advantage of the funding opportunities outlined in §1452 of the SDWA, water systems
must submit an application to the agency managing the DWSRF in their State. These applications
commonly require systems to include detailed information on system needs, long-term plans,
service population demographics, and financial structure. Reviewing SRF applications can also
help the State assess the system's technical, managerial, and financial capacity. In particular, the
State should examine the system's ability to identify a dedicated source of funds for repayment (or
loan security, in the case of private systems).
Uses of this tool include:
• Prioritizing systems. Under the 1996 SDWA, States must provide assurances that water
systems receiving SRF assistance currently have the technical, managerial, and financial
capacity to meet SDWA requirements, or that the SRF assistance will help them attain
capacity. As a result, SRF loan applications should be tailored to elicit from systems the data
most relevant to prioritization.
• Assessing capacity. In accordance with the SRF guidelines, the State must adopt policies and
procedures to assure that borrowers have a dedicated source of revenue for repayment (or
adequate security). Generally, loan applicants work with the County Council (or similar body)
to pass a resolution to reserve revenues from user fees, taxes, or other sources for this
account. The system's ability to accomplish this helps demonstrate its ability to engage in
sound financial planning, establish appropriate user fees, work with local regulators, and obtain
the necessary political support for its system.
Many States are requesting basic financial data on SRF applications or pre-applications. The
types of data requested are modeled after the information requested in the Clean Water SRF
program. They are aimed at determining municipal financial conditions and can often be used
in conjunction with a State's disadvantaged community program. Requested information often
includes debt data(e.g., debt level, debt per capita, debt as a percentage of full market
property), financial operations (e.g., property tax collection rates), socioeconomic indicators
(e.g., median income, employment, and poverty level), and information to assess user fee
impact (e.g., user fees as a percent of median household income). States should note,
however, that the financial capacity of the municipality does not necessarily correlate with the
capacity of the water system. System-level indicators, such as cost-of-service analyses, should
also be examined.
-99-
-------
Appendix
Sources of Additional Information
For more information on SRF applications see:
U.S. Environmental Protection Agency, "Drinking Water State Revolving Fund Program
Guidelines," EPA 816-R-97-005, February 1997. This document was developed to provide a
description of guidelines that will apply in the operation of the DWSRF program.
-100-
-------
Appendix
The broad applicability of this tool is outlined below:
DWSRF Loan Applications
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between
PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
-101-
-------
Appendix
Emergency Response Plans
One potential step in building capacity is the development of an Emergency Response Plan that
will define how systems respond to emergency situations. These plans cover both "routine" and
"disaster" emergencies. The plan lists procedures that a system should follow when emergencies
occur. The goal is for the system to develop the capacity to handle routine emergencies so the
system will be better capable of protecting public health if a disaster occurs.
Uses of this tool include:
• Assessing capacity. Examining how a system will respond to routine and disaster emergencies
could cover all aspects of capacity, but is most applicable to technical capacity, particularly
technical knowledge and infrastructure adequacy. Secondarily, the tool could be applied to
assessments of managerial capacity for the element of staffing and organization. Finally,
analyzing ERPs may provide insight as to whether a system is capable of handling the financial
burden of responding to emergencies.
Sources of Additional Information
Washington State requires an emergency response plan as an element of a system's Water
System Plan. Washington State Department of Health, "Planning Handbook: A Guide for
Preparing Water System Plans," August 23, 1993.
www.doh.wa.gov/ehp/dw/newpubz.htm#planning
National Rural Water Association, "Emergency Response Manual for Small Systems."
For more information on emergency response plans, contact the National Rural Water
Association at 405-252-0629, or the American Water Works Association at 303-799-7711.
RCAP: "Small System Guide to Risk Management and Safety." (703) 771-8636
EPA: The National Response Team's Integrated Contingency Plan Guidance.
www.epa.gov/swercepp/pubs/one-plan.html
-102-
-------
Appendix
The broad applicability of this tool is outlined below:
Emergency Response Plans
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
-103-
-------
Appendix
Enforcement
Many States consider enforcement to be a tool for improving system capacity. As one State
representative put it, "this is the last tool in the toolbox." In other words, enforcement (or the
threat of enforcement) can assist in capacity building.
Uses of this tool include:
• Assisting PWSs in complying with national primary drinking water regulations.
Enforcement is one tool that can be used (as a last resort) to ensure that systems are complying
with NPDWRs.
Sources of Additional Information
For more information on enforcement, see:
"In the Main." Massachusetts Division of Water Supply. Spring 1996.
"Enforcement Program." Washington Division of Drinking Water: www.doh.wa.gov/ehp/dw/
-104-
-------
The broad applicability of this tool is outlined below:
Appendix
Enforcement
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
-105-
-------
Appendix
Financial Viability Assessment Methods
State SDWA primacy agencies and public utility commissions (PUCs) have developed methods
to assess the financial viability of PWSs. Typically, these methods focus on a few key financial
ratios that are indicative of overall financial health. These methods may help States assess the
financial capacity of systems.
Uses of this tool include:
• Prioritizing systems. Like criteria used by lenders, the financial ratios that are used in financial
viability assessment methods may be useful in prioritizing systems.
• Assessing capacity One of the problems that States may have when trying to apply financial
ratios is deciding which ratios to use. Financial analysis typically is the strength of public utility
commissions rather than SDWA primacy agencies. An advantage of these viability assessment
methods is that they have been applied and tested on financial data from many utilities. The
ability of each ratio to predict financial health has been assessed empirically.
Sources of Additional Information
For more information on regional planning, see:
Beecher and Dreese, "Financial Distress Models for Small Water Utilities," Proceedings of the
Eighth NARUC Biennial Regulatory Information Conference, Vol. IV, pp. 175-195
(Columbus, OH 1992).
-106-
-------
Appendix
The broad applicability of this tool is outlined below:
Financial Viability Assessment Methods
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
-107-
-------
Appendix
Financial Assurance Mechanisms
Several States have authority to require that system owners provide some form of financial
assurance prior to construction of a new water system or expansion of an existing system. While
the types of financial assurance mechanisms vary from State to State, the intent generally is the
same: to ensure that sufficient funds are available to repair and/or operate the system in the event
that the owner is unable to do so. Typically, these requirements are more often imposed on small,
privately owned systems.
Examples of financial assurance mechanisms include:
• Escrow accounts (Maryland)
• Reserve accounts to cover emergency or system component failure costs (Washington)
• Surety bonds (North Carolina)
• Letters of credit
• Trust funds
• Financial tests (e.g., an analysis of financial statements that demonstrates the financial health
of the water system)
Uses of this tool include:
• Assessing capacity. These financial assurance mechanisms are a quick test of a system's
financial capacity. If the system cannot afford one of these financial assurance mechanisms,
then it may not have the financial capacity to provide safe drinking water.
Sources of Additional Information
U.S. Environmental Protection Agency, "Ensuring the Viability of New, Small Drinking Water
Systems: A Study of State Programs," EPA-570/9-89-004, April 1989.
EPA's Environmental Finance Program: A Guidebook of Financial Tools:
www.epa.gov/efmpage/guidebk/guindex.htm
-108-
-------
Appendix
The broad applicability of this tool is outlined below:
Financial Assurance Mechanisms
Potential Uses
Ensuring New System Capacity
Capacity
Developme
nt Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
-109-
-------
Appendix
Financial and Managerial Training
In 1990, EPA, ASDWA, AWWA and NRWA joined together to form the National Drinking
Water Training Coalition. The purpose of this coalition was to establish State staff and operator
training programs. The Coalition was expanded in 1991 to include RCAP and the National
Environmental Training Association (NETA).
One lesson learned from the work of the Coalition is that existing training programs, while
adequate in addressing technical issues, are less effective in financial and managerial aspects.
Training programs need to address all three aspects of capacity. Indeed, training on financial and
managerial issues needs to be given emphasis equal to training on technical issues.
Uses of this tool include:
• Assisting PWSs in complying with NPDWRs, encouraging the development of partnerships
between PWSs; and assisting PWSs in the training, certification, and continuing education
of operators. Many States believe that managerial and financial training are essential in helping
systems to comply with regulations. Such training also assists PWSs in the training and
continuing education of their operators.
• Assessing capacity. Most training programs assess needs prior to developing curricula and
giving courses. Most programs also do evaluations of the effectiveness of their training
courses.
Sources of Additional Information
For more information on financial and managerial training see:
National Training Coalition, "Final Report on Training Needs and Providers," July 1997.
Andrew A. Holton, GET, "Introduction to Utility Management." This is a management
training course designed for small and very small water systems.
RCAP-Community Resource Group, "The Small System Guide to Financial Management,"
"The Small System Guide to Planning, Financing and Constructing Facility Improvements."
You can obtain more information by calling the Association of State Drinking Water
Administrators at 202-293-7655, or RCAP-Community Resource Group at 501-443-2700.
-110-
-------
Appendix
The broad applicability of this tool is outlined below:
Financial and Managerial Training
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
-111-
-------
Appendix
Interviews with Personnel Familiar with the System
States should not overlook the obvious step of talking with individuals who are familiar with
the system.
Uses of this tool include:
• Assessing capacity. States could obtain valuable information from sanitarians, engineers, or
regulatory staff at the State, county, or local level who are familiar with the system; local
planning boards, operator certification boards, or developers' associations; technical assistance
personnel such as circuit riders; and system owners and operators.
-112-
-------
Appendix
The broad applicability of this tool is outlined below:
Interviews with Personnel Familiar with the System
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between
PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
-113-
-------
Appendix
Operator Certification
One method of assessing aspects of technical and managerial capacity is to determine whether
a system has a certified operator. EPA, in conjunction with a State working group and a
NDWAC working group, is developing guidelines for State operator certification programs. The
final guidelines for States will be published not later than February 1999. Under §1419 of the
SDWA, States are required to adopt and begin implementing operator certification programs for
CWSs and NTNCWSs by February 2001.
Uses of this tool include:
• Prioritizing systems. Many States have data on the number of systems with certified operators
and, in some cases, the qualifications of those operators.
• Identifying interested persons. Operator certification advisory boards can be key resources in
identifying and informing interested persons. States might work with operator certification
boards to develop a curriculum that would help ensure capacity. Such a curriculum might
include continuing education requirements that would keep stakeholders informed.
• Assessing capacity. States generally agree that systems that have certified operators have
greater managerial and technical capacity.
Sources of Additional Information
Association of Boards of Certification (ABC), "Operator Certification Program Standards,"
January 1997.
ABC, "ABC Survey of Water Treatment Certification Requirements: Preliminary Results,"
December 12, 1996.
"American Water Works Association White Paper on Operator Certification Programs."
Association of State Drinking Water Administrators (ASDWA), "Final Position Statement-
Operator Certification," #96-03, October 30, 1996.
National Rural Water Association (NRWA), "Operator Certification—the NRWA Position,"
Fourth Quarter 1996.
You can obtain more information by calling the ABC at 515-232-3623, the AWWA at 303-
799-7711, the ASDWA at 202-293-7655, or the NRWA at 405-252-0629.
-114-
-------
Appendix
The broad applicability of this tool is outlined below:
Operator Certification
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
/
/
-115-
-------
Appendix
Permit Application Data
Permitting is a process designed to help ensure that PWSs are complying with all applicable
environmental and public health regulations and that they will have adequate technical,
managerial, and financial capacity to provide safe drinking water. The State's authority to issue a
permit is an opportunity for the State to assess system capacity. The requirement to renew
operating permits ensures that this assessment of system capacity will be repeated periodically.
Uses of this tool include:
• Prioritizing systems. Permitting requirements can provide a wide range of data that could be
used by States to prioritize systems. Since permitting requirements vary across States, and the
availability of accessible databases will differ, the usefulness of this tool will be State-specific.
• Identifying interested persons. The issuance of permits affords States an opportunity to
identify and communicate with stakeholders.
• Assessing capacity. Permit applications collect information that can be used to evaluate the
overall management and operation capabilities of a water system. The permit applications of
most States have components that include, to varying degrees, technical, managerial, and
financial documentation.
Sources of Additional Information
For more information on permitting see:
U.S. Environmental Protection Agency, "Initial Summary of Current State Capacity
Development Activities," EPA Document # 816-S-97-001, January 1997. This report reviews
State capacity development efforts as of August 1996. It responds to the statutory mandate
contained in §1420(d)(2) of the SOW A.
-116-
-------
Appendix
The broad applicability of this tool is outlined below:
Permit Application Data
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
/
/
-117-
-------
Appendix
Public Education and Information
Public education and information is at the heart of many capacity development strategies.
Regardless of available grants and loans, it is likely that some of the costs of compliance
(including infrastructure and operations improvement) will fall on consumers. Water systems may
be concerned about increasing user fees. However, if the public (including system owners and
operators) is fully informed of the costs associated with operation of a reliable water system, the
options available for meeting the water supply needs of the public, and the association between
public health and sound drinking water infrastructure, then responsible citizens will choose the
least-cost option that protects public health. For example, if prospective home buyers were aware
of the risks and potential costs associated with joining a homeowners association that owns its
own water system, then there would be pressure on developers to rely more extensively on
professionally managed water systems.
Uses of this tool include:
• Assisting PWS in complying with NPDWRs and encouraging the development of
partnerships between PWSs. Public education can be used to assist PWSs in achieving both
of these objectives.
• Identifying interested persons. Public education could play a role in identifying interested
persons by informing the public of the issues and the opportunity to participate. In addition,
public education allows the general public to participate as an informed party in the preparation
of the capacity development strategy.
Sources of Additional Information
Powell, John R., David J. Allee and Charles McClintock. "Groundwater Protection Benefits
and Local Community Planning: Impact of Contingent Valuation Information." American
Journal of Agricultural Economics." 76 (Dec. 1994): 1068-1075.
Public Involvement Strategies: A Manager's Handbook. AWWARF. Denver: 1996.
Plank, R. David, Roddy Rogers, Frank L. Shorney, David J. Novak and Robert R. Zion.
"Public Involvement Helps Supply Project Succeed." Journal of American Water Works
Association. (May 1997): 40-54.
USEPA Office of Water. (WH595), EPA 430/09-89-006. July 1989. "Building Support for
Increasing User Fees."
AWWA Blue Thumb Project, "Give Drinking Water A Hand."
http://www.awwa.org/bluethum.htm
-118-
-------
Appendix
The broad applicability of this tool is outlined below:
Public Education and Information
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
-119-
-------
Appendix
Rate Reviews and Approvals
Public utility commissions (PUCs) periodically review the rate structures of the PWSs
they regulate. The theoretical ideal is to set rates equal to the cost of service plus a reasonable
return on investment. Since the cost of service changes periodically, it is useful to review costs
and rates and determine whether systems are, in fact, recovering their full cost of service.
Approval of the rate application is largely contingent on having adequate records to determine
cost-of-service and the valuation of rate base.
The review of a rate application requires the collection of substantial information that may be
relevant to issues of capacity development. For example, PUCs routinely examine the results of
sanitary surveys. There also may be an on-site inspection of the facilities to determine whether
deficiencies noted on the sanitary survey have been addressed.
The rate review process identifies systems that are not metered or that use flat rates; utilities may
be ordered to meter customers or to set rates based on usage. This process encourages
conservation and helps to identify systems with significant leaks.
Customers are notified of the rate change application and have an opportunity to protest the
rates or the service provided by the utility. Customer complaints during the rate approval process
could be another source of information indicating system deficiencies that should be addressed.
Uses of this tool include:
• Prioritizing systems. Data from rate reviews can be used to help prioritize systems. If data
from rate reviews are not of uniform quality, or if the number and percentage of systems with
reviews is small, rate review data could be used to supplement other data sources.
• Establishing a baseline and measuring improvements in capacity. The data from rate
reviews can be used to measure progress. A longitudinal analysis of the technical, financial,
and managerial capacity of systems, as measured by information obtained during rate reviews,
could be used to supplement information on these subjects gathered from other sources.
• Assessing capacity. Rate application data are taken from sanitary surveys and occasionally on-
site inspections of the facilities. These types of information provide substantial insights into the
technical capacity of the system. The records of all systems submitting a rate application will
be subject to inspection by PUC staff, allowing thorough assessment of managerial capacity.
The PUC review of cost-of-service, valuation of rate base, depreciation expense and the
debt/equity ratio to ensure appropriate rates could also assist in assessing financial capacity.
-120-
-------
Appendix
Sources of Additional Information
For more information on rate reviews see:
Public Utilities Commission, State of California, Proceeding No. 1.90-11-033, "Staff Report on
Issues Related to Small Water Utilities," June 10, 1991.
AWWA Research Foundation, "Meeting Future Financial Needs of Water Utilities."
-121-
-------
Appendix
The broad applicability of this tool is outlined below:
Rate Reviews and Approvals
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in
Complying with NPDWRs
Encouraging the
Development of
Partnerships Between
PWSs
Assist PWSs in the
Training and Certification
of Their Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
-122-
-------
Appendix
Regional Plans
Regional planning is a strategic management process used to coordinate resolution of drinking
water issues related to population demographics, new system development, and overall water
quality. The process often involves the consolidation and integration of individual water system
plans and identifies potential conflicts among individual plans. These plans are usually examined
by a committee comprised of representatives of county governments, water utilities, and the State
drinking water program. The committee structure also provides a forum to resolve identified
conflicts.
Each State approaches regional planning differently. In many States, planning occurs at the
county level and may e augmented with State assistance or formal regulatory control. In
Maryland, for example, counties are responsible for submitting county-wide plans for water and
sewer services; the water system component of the plan must be approved by the Maryland
Department of the Environment. These plans must identify present and future water systems and
provide schedules and financial information for system construction, development, extension, and
expansion to meet county population growth over a 10-year period.
Typically, the planning committee delineates the exact boundaries of the planning area and
produces a final integrated planning document. This final document may include the following
components:
- demarcation of present and future service areas
- outline of anticipated water system development
- itemization of procedures for authorizing new water systems
- delineation of arrangements for shared use of facilities
- description of minimum design and fire flow performance standards
- creation of satellite support systems to provide assistance to small systems
Uses of this tool include:
• Assisting PWSs in complying with regulations and encouraging the development of
partnerships between PWSs. Regional water supply plans, by requiring a planning process for
all systems in a region, assist systems in complying with all federal and State regulations, and
since the planning process is regional, it encourages the development of partnerships among
systems.
• Assessing capacity. Regional planning provides an opportunity to predict a utility's future
service area, based on population projections. The first step in this process usually involves
compilation of individual water system plans, which typically include information about current
and anticipated service plans. Washington State, for example, requires individual water system
-123-
-------
Appendix
plans to address a 20-year planning horizon. With review of these plans, committees can
identify and resolve any conflicts that may exist between individual water systems and plan to
ensure future capacity.
Sources of Additional Information
For more information on regional planning, see:
Washington State Department of Health, "Planning Handbook: A Guide for Preparing Water
System Plans," August 23, 1993.
-124-
-------
Appendix
The broad applicability of this tool is outlined below:
Regional Plans
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
/
/
-125-
-------
Appendix
Restructuring
Restructuring is one approach to improving system capacity. This is a broad term referring to
a wide range of changes a system could make in its operations, management, or institutional
structure. Restructuring means changing the way a system does business in order to ensure its
customers the best possible service at the lowest possible cost.
Experts who have written about restructuring often categorize restructuring strategies into two
broad categories: internal and external. Internal strategies seek to provide greater access to
capital financing and operating efficiency. External strategies involve collaboration with
neighboring systems to achieve the advantages of economies of scale.
An example of internal restructuring is increasing rates, thereby improving the financial
condition of the system and providing greater access to capital markets. External restructuring
may be categorized into two types: consolidation (e.g., physical restructuring, mergers, and
acquisitions), and cooperation (a variety of methods including contract operations and
maintenance agreements). Thus, external restructuring could include a wide range of changes,
from mergers and acquisitions to satellite management, contract O&M, and even big brother
arrangements.
Uses of this tool include:
• Assisting PWSs in complying with NPDWRs; and to encourage the development of
partnerships between PWSs. Restructuring is designed to improve compliance and encourage
partnerships.
• Assessing capacity. Restructuring also could be used in a general way to assess all aspects of
capacity. It is a means of ensuring that water system customers obtain the best possible service
at the lowest cost, and it may help States and systems to consider least-cost alternatives to new
construction.
Sources of Additional Information
For more information on restructuring see:
U.S. Environmental Protection Agency, Restructuring Small Drinking Water Systems:
Options and Case Studies, 1996.
Castillo, Eloise Trabka, Scott J. Rubin, Sally Keefe and Robert S. Raucher. "Restructuring
Small Systems." Journal of the American Water Works Association. (January 1997): 65-74.
-126-
-------
Appendix
The broad applicability of this tool is outlined below:
Restructuring
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
-127-
-------
Appendix
Review of Audit Reports
Some States require that utilities submit an annual audit report to the State. One reason for this
requirement is the States' oversight responsibility for political subdivisions that may issue
municipal bonds and levy taxes. This oversight requires audit information so that States may
monitor their burden of responsibility. States may require that supplemental information be
included with the audit report to assist the State in evaluating the water system's capacity.
Uses of this tool include:
• Prioritizing systems. As with many other types of financial reviews conducted by State
agencies, the review of audit reports provides additional information about these systems. This
information can be used to supplement information routinely available to primacy agencies as
they establish priorities.
• Assessing capacity: Managerial capacity can be assessed by examining a system's internal
controls. The annual audit report is analyzed to ensure its rates, charges, and revenues are
sufficient to cover debt service and operating expenditures. This analysis can be used as an
assessment of capacity.
Sources of Additional Information
For more information on audit reports, see:
Texas Natural Resource Conservation Commission, "Annual Audit Report Requirements for
Texas Districts and Authorities." www.tnrcc.state.tx.us/admin/topdoc/wv.html
-128-
-------
Appendix
The broad applicability of this tool is outlined below:
Review of Audit Reports
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
-129-
-------
Appendix
Sanitary Surveys
In 40 CFR 141.2, a sanitary survey is defined as an on-site review of the water source,
facilities, equipment, operation, maintenance, and monitoring compliance of a PWS for the
purpose of evaluating the adequacy of such source, facilities, equipment, operation and
maintenance for producing and distributing safe drinking water. It reviews many facets of a
system's operation and management, with the intent of identifying and documenting actual and
potential problems that might lead to noncompliance or degradation of drinking water.
Each primacy State must establish a systematic program for conducting sanitary surveys, in
which the following factors may be considered in determining which systems will be evaluated:
compliance history of the system; source type, including whether a new source was recently
added; treatment technology, including recent changes; system size; system type; whether the
system has received a monitoring waiver; and whether the system has a new operator.
Several aspects of sanitary surveys require special attention. Inspectors or field engineers must
ensure that distribution and storage equipment is properly maintained and that all regulations
related to cross-connection control are followed. Evaluation of these components requires
inspectors to perform a physical inspection of the relevant system components and discuss with
system personnel the standard procedures used for operation and management of these
components. For example, if an inspection reveals fecal contamination of a finished water storage
tank, it is important to identify the proximate cause (e.g., a loose-fitting cover over the storage
tank) and also to identify the procedural breakdown that allowed the problem to occur.
Uses of this tool include:
• Prioritizing systems. Sanitary survey data are constantly being updated, and can identify
systems with ongoing, recurring deficiencies. These deficiencies may not require compliance
or enforcement action, but do indicate the need for capacity development. Sanitary survey
procedures can be structured to provide data that are most relevant to capacity issues; by tying
sanitary surveys to a capacity development strategy, States can begin to break the cycle of
recurring, uncorrected deficiencies. Unfortunately, few States have assembled their data into
databases that allow easy data retrieval.
• Assessing capacity. Information on the condition and history of a system's infrastructure is
extremely useful in assessing technical capacity. Sanitary surveys provide an opportunity to
collect and review this information and directly observe the operation of a system's
infrastructure. Direct observation of the competence of staff interviewed during the survey
provide one measure of the system's management capability. Other, more formal measures
include review of the existence and quality of documents such as operations and maintenance
manuals and plans; emergency contingency plans; management information system
-130-
-------
Appendix
documentation; general personnel, purchasing, and accounting policies; and bylaws or articles
of incorporation documenting the utility's decision-making structure. Sanitary surveys provide
an opportunity to confirm a system's compliance history by reviewing monitoring data logs and
reports to ensure that these logs accurately reflect data reported by the systems. Additionally,
they allow verification of the quality of monitoring data recorded and reported by the system.
Sources of Additional Information
For more information on sanitary surveys, see "EPA/State Joint Guidance on Sanitary
Surveys," December 1995.
Call the Safe Drinking Water Hotline at 800-426-4791, or call the Association of State
Drinking Water Administrators (ASDWA) at 202-293-7655.
-131-
-------
Appendix
The broad applicability of this tool is outlined below:
Sanitary Surveys
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
-132-
-------
Appendix
Satellite Management
Satellite management generally refers to an arrangement whereby a large CWS (e.g., a
municipal or county system) agrees to become responsible for specified management tasks for
nearby smaller systems. The smaller systems therefore become "satellites" of the larger system.
A variation on this arrangement is satellite ownership where the assets of the smaller system are
transferred to the larger system. Satellite management programs provide relief to smaller systems
overwhelmed by the increasing challenges of water system management
The generic concept of satellite management is applied in many different ways across the
country. In Washington State, for example, satellite management was a central concept in the
development of regional water supply plans. Counties, in particular, were urged to offer satellite
management services to small water systems in their service area. More recently in Washington, a
new statute has enlarged the role of satellite management and seeks to provide incentives for large
systems to become certified satellite management agencies.
Each State will want to shape the concept of satellite management to fit its unique
circumstances. In Washington State and many other States, the candidates most likely to become
satellite managers are large publicly owned systems like counties. In States where large investor-
owned utilities predominate, however, it may be useful to encourage these systems to engage in
satellite management.
Uses of this tool include:
• Assisting PWSs in complying with NPDWRs; and to encourage the development of
partnerships between PWSs. Satellite management is designed to improve compliance and
encourage partnerships.
• Assessing capacity. Satellite management could be used in a general way to assess all aspects
of capacity. For example, a State might require that systems requesting assistance demonstrate
that they have considered satellite management options prior to proposing any major
infrastructure improvements.
Sources of Additional Information
For more information on satellite management programs, see:
Washington State Department of Health, "Satellite Management Program," "Satellite
Management," and "Impacts of Engrossed Second Substitute Senate Bill ... on Satellite
Management of Public Water Systems."
-133-
-------
Appendix
The broad applicability of this tool is outlined below:
Satellite Management
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
-134-
-------
Appendix
Self-Assessment and the "Dozen Questions"
Several States have used self-assessment to help small water system owners assess their
system's capacity. States typically provide a self-assessment manual that contains a structured
system of yes/no questions that follow the major elements of a complete business or water system
plan. Thus, the questions are organized around issues related to technical, managerial, and
financial capacity. Questions are further grouped according to overall topic areas. Each topic
represents an important area where there may be hidden costs in store for the water system. The
manual may contain simple budget worksheets that assist the water system in using its estimates
of future costs to develop an assessment of projected revenue, capital requirements, and water
rates.
Uses of this tool include:
• The "Dozen Questions" is a self-assessment tool that groups important questions regarding
system capacity into twelve categories. States have used these questions as part of a business
plan approach or as a self-assessment exercise to assist PWSs in complying with NPDWRs,
encourage the development of partnerships between PWSs, and assist PWSs in the training of
operators.
• Measuring improvements in capacity. This process would require a baseline measure of all
systems at the time when the capacity development efforts began, and a method to update
system assessments regularly.
-135-
-------
Appendix
Sources of Additional Information
Cromwell, Schmidt and Albani, "A Dozen Questions to Assess Small System Viability,"
Proceedings of the 1993 AWWA Annual Conference, San Antonio, Texas.
Pennsylvania Department of Environmental Protection, "Pennsylvania Water System Self-
Assessment Guide," September 1996.
Iowa Department of Natural Resources, "Self Assessment Manuals for Iowa Water System
Viability," September 1996.
RCAP-Community Resource Group, "The Small System Guide to Viability."
RCAP-Community Resource Group, "The Self-Evaluation Guide for Decision-Makers of
Small Community Water Systems."
Rural Water Association and American Water Works Association, Georgia Section, "Georgia's
Small System Peer Review Program."
You can obtain more information by calling the RCAP-Community Resource Group at 501-
443-2700, the Georgia Rural Water Association at 770-358-0221, the National Rural Water
Association at 405-252-0629, or the American Water Works Association at 303-799-7711.
-136-
-------
Appendix
The broad applicability of this tool is outlined below:
Self Assessment and the Dozen Questions
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
-137-
-------
Appendix
Source Water Assessment Programs
Source water and capacity development have two fundamental links. One link is to the
DWSRF, which allows States to set aside funds for prevention activities. The second link is to
public participation. A consistent theme in the Amendments is for States to have both flexibility
and resources in adjusting programs to meet State needs, especially in the prevention area, and the
obligation for public information and involvement to ensure that States' choices correspond to
their constituents' needs and conditions.
Wellhead Protection Programs (for ground water) and Watershed Control (or Protection)
Programs (for surface water) are types of source water assessment programs that many States
have implemented for years. Wellhead Protection Programs can include requirements that a PWS
determine the susceptibility of its source water to surface activities; delineate wellhead protection
areas; investigate potential contaminant sources; notify owners, operators, regulators, land use
planners, and emergency responders of the findings; and develop contingency plans in the event of
a contamination incident.
Uses of this tool include:
• Prioritizing systems. Source water protection programs can provide information on potential
sources of contamination that could help in prioritization.
• Assisting PWSs in complying with NPDWRs; and encouraging the development of
partnerships between PWSs. Source water protection, encouraged by the 1996 Amendments
to SDWA, assists in both of these efforts.
• Establishing a baseline and measuring improvements in capacity. Given the potential
importance of source water protection and its links to capacity development, one measure of
improvement in capacity development could be the extent to which the State and its systems
have implemented source water protection.
• Assessing capacity. Developing a sound source water protection or wellhead protection
program involves all three components of capacity: the technical ability to determine
hydrogeologic data, the management skills to develop and implement the plan; and the financial
capacity to finance any needed facilities or activities. The presence of a source water
protection program or wellhead protection program is an indicator of capacity. Similarly,
developing a watershed control program requires all three components of capacity: the
technical ability to determine watershed data, the management skills to develop and implement
the plan, and the financial capacity to finance any needed facilities or activities.
-138-
-------
Appendix
Sources of Additional Information
U.S. Environmental Protection Agency. "State Source Water Assessment and Protection
Programs Guidance" EPA Document # 816-R-97-007, April 1997.
Washington State's Department of Health has an administrative mandate for requiring
watershed control programs (WAC 246-290-135) and provides guidance in the "Water System
Planning Handbook."
Washington State has also mandated wellhead protection programs for ground water systems
(WAC 246-290-135A). The State has a guidance document available, Washington State
Wellhead Protection Program Guidance Document, April 1995.
-139-
-------
Appendix
The broad applicability of this tool is outlined below:
Source Water Assessment Programs
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development
of Partnerships Between PWSs
Assist PWSs in the Training
and Certification of Their
Operators
Element D: Establishing a Baseline and
Measuring Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
-140-
-------
Appendix
State or Federal Surveys of Infrastructure Needs
Several States (e.g., Washington, Pennsylvania, Oregon, and New York) conducted surveys of
infrastructure needs during the first half of this decade. In 1995, EPA began the first national
survey of infrastructure needs, and all States participated in this effort to survey a national sample
of CWSs. In 1999, EPA will conduct a second national survey of infrastructure needs, as
required by SDWA §1452. One limitation of EPA's survey is that it was limited to CWSs. Some
States, however, also included noncommunity systems' needs.
Uses of this tool include:
• Prioritizing systems. Federal or State surveys of infrastructure needs could be used to
prioritize systems in need of assistance in capacity development. A capacity development
strategy might focus its activities on systems that have a large backlog of unfunded
infrastructure needs. In this way, these surveys could assist in the development and
implementation of a State's capacity development strategy.
Sources of Additional Information
For more information on surveys of infrastructure needs, see:
U.S. Environmental Protection Agency, Drinking Water Infrastructure Needs Survey: First
Report to Congress, January 1997, EPA 812-R-97-001. www.epa.gov/ogwdw.
-141-
-------
Appendix
The broad applicability of this tool is outlined below:
State or Federal Surveys of Infrastructure Needs
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
-142-
-------
Appendix
State-Wide Studies of Water Quality or Quantity
This group of tools includes studies that cover topics such as contaminant occurrence, ground
water subsidence, and pesticide usage or other watershed management concerns. Such studies
may be produced by the State primacy agency, regional or local authorities, large water systems,
academic institutions, or they may appear in trade journals.
Uses of this tool include:
• Prioritizing systems. Poor source water quality may be an important factor in prioritizing
systems. Water quantity problems also may be a criterion, particularly in western States.
• Encouraging the development of partnerships between PWSs. Water quantity problems may
be best resolved through partnerships between and among systems to optimize the use of
scarce water resources. Quantity problems are often amenable to regional solutions.
• Assessing capacity. Often, States or institutions within the States will conduct studies to
estimate the impact of future regulations. Such studies may indicate that a system is located in
an area where a future standard may pose a problem. Studies may also indicate that the system
is located in a watershed where activities such as fertilizer or pesticide use may affect the
quality of the system's source. Further, a study may show that a system is in an area affected
by source-depletion issues. The State could use other tools to ensure that the system is
prepared to deal with potential water quality and quantity problems identified in State-wide
studies.
Sources of Additional Information
Examples of State-wide studies of water quantity or quality are conducted by a variety of
different organizations and thus can be found in an equally wide variety of sources. Two
examples of such studies are:
Kolpin, Dana, Stephen J. Kalkhoff, Donald A. Goolsby, Debra A. Sneck-Fahrer, and E.
Michael Thurman. "Occurrence of Selected Herbicides and Herbicide Degradation Products in
Iowa's Ground Water, 1995." Ground Water. 35.4 (July-Aug 1997): 679-688.
Stuart, Maureen A., Frederick J. Rich and Gale A. Bishop. "Survey of Nitrate Contamination
in Shallow Domestic Drinking Water Wells of the Inner Coastal Plain of Georgia." Ground
Water. 33.2 (Mar.-Apr. 1995)284-290.
Information on the Targeted Watershed Approach in Illinois can be accessed on the Internet at
www.epa.state.il.us/org/bow/targeted-watershed. Additional information on State-wide water
quality and quantity studies can be found on a variety of State home pages.
-143-
-------
Appendix
The broad applicability of this tool is outlined below:
State-Wide Studies of Water Quality or Quantity
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
-144-
-------
Appendix
Training and Technical Assistance
The SDWA provides new resources to assist systems with capacity development. One
important use of these funds is training and technical assistance. These tools are likely to play a
vital role in capacity development strategies. A common theme in systems that lack adequate
capacity is the absence of trained, professional personnel to operate and manage the system.
Training and technical assistance can remedy that deficiency. These tools also can be used to
educate and persuade system owners and operators to adopt practices and methods that will
enhance capacity and reliability. Both State and non-governmental organizations offer training
and technical assistance programs. Services range from on-site assistance to educational
programs for operator certification and community planning.
Uses of this tool include:
• Prioritizing systems. Training and technical assistance providers could be one source of
information for prioritization. However, systems that need training or technical assistance, but
have not sought them out, are probably most in need of improving capacity.
• Assisting PWSs in complying with NPDWRs; encouraging the development of partnerships
between PWSs; and assisting PWSs in training, certification, and continuing education of
operators. Training and technical assistance providers can be important assets in the
development of this aspect of a strategy, particularly with respect to training, certification, and
continuing education.
-145-
-------
Appendix
Sources of Additional Information
There are a wide variety of providers of training and technical assistance. These include:
Rural Community Action Project (RCAP) and their regional affiliates
National Rural Water Association (NRWA) and their State associations
American Water Works Association (AWWA) and their State sections
State public utility commissions
International City Managers Association (ICMA)
National Environmental Training Association (NETA)
For more information on training and technical assistance providers see:
National Training Coalition, "Final Report on Training Needs and Providers," July 1997.
You can obtain more information by calling the Association of State Drinking Water
Administrators at 202-293-7655, RCAP-Community Resource Group at 501-443-2700, the
National Rural Water Association at 405-252-0629, or the American Water Works
Association at 303-799-7711.
-146-
-------
Appendix
The broad applicability of this tool is outlined below:
Training and Technical Assistance
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
-147-
-------
Appendix
Water Conservation Plans
Some States use Water Conservation Plans to help boost water systems' technical capacity, as
well as the systems' managerial and financial capacity. Typically, these plans include three
components:
• Water conservation program: various conservation measures are evaluated and those that
are cost effective are scheduled for implementation (description, budget, monitoring
program, etc.).
• Water demand forecasting: systems are required to forecast 6- and 20-year water demands
considering projected population, historic water use, land use, projected conservation
savings, and other appropriate factors.
• Water use data collection and reporting: various parameters of water use are required to be
collected and reported to the State annually.
Requirements for water conservation plans will vary, depending on the size of the water system.
The larger the system the more detailed and complex the requirements.
Uses of this tool include:
• Encouraging the development of partnerships between PWSs. Existence of conservation
programs, particularly those that require long-term forecasting of water demands, could
facilitate partnerships between water systems.
• Establishing a baseline and measuring improvements in capacity. For those States where
water quantity is an important public policy issue, implementation of water conservation plans
can be used to measure improvements in capacity.
• Assessing capacity. Each of the three components of capacity are addressed in various
sections of a water conservation plan. Knowing future water demands and current water usage
provide a technical basis for making managerial decisions to ensure adequate physical capacity.
Knowing when additional system component capacity will be needed based upon projected
water conservation savings and water demand forecasts will lead to sound financial decisions
related to needed system expansions and improvements.
-148-
-------
Appendix
Sources of Additional Information
Washington requires water conservation plans under RCW 43.20.230, 43.70.310, and WAC
246-290-100. Additional authorities from the Department of Ecology related to water
conservation are found in RCW 43.27A.090, 90.03.005, 90.54.020, and 90.54.180. DOH and
Ecology's "Water Conservation Planning Requirements" provide detailed guidelines and
requirements for water conservation for PWSs.
Readers may wish to cross-reference water conservation plans with other tools, specifically the
water supply plan or business plan. Some States require that water conservation plans be
included with other planning documents.
-149-
-------
Appendix
The broad applicability of this tool is outlined below:
Water Conservation Plans
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
-150-
-------
Appendix
Water System Plans or Business Plans
Water system plans (called business plans in some States) are comprehensive documents that
attempt to capture the true cost of building and operating a water system by projecting costs and
revenues over time. They can be used for both new and existing water systems, and cover not
only the physical condition of the system's source, infrastructure, and operations, but also
managerial and financial issues. In addition, water system plans force system owners and
operators to ponder and plan for the future of their system. Water system plans include a
Facilities Plan Checklist that contains a description of required infrastructure and resources, a
Management Plan Checklist that describes the system's proposed (or existing) management
strategy, and a Financial Plan Checklist that requires systems to provide a complete financial plan.
Uses of this tool include:
• Prioritizing Systems. The Pennsylvania Department of Environmental Protection (DEP) has
developed a series of benchmarks and indicators for use with business plan data (the
PAWATER cost model) that provide an overview of where a proposed system fits in relation
to other existing systems. This process provides statistically significant capacity information
that could be an effective means of prioritization.
Washington State has a water system planning program that is based on the capacity and size
of the system. It includes a comprehensive analysis of the system's capacity, and seeks to
ensure and document system capacity for the future.
• Assisting PWSs in complying with national primary drinking water regulations and
encouraging the development of partnerships between PWSs. Water system plans, by
requiring a planning process for all systems, assist systems in complying with all federal and
State regulations. Since the planning process typically involves consideration of regional
solutions to system problems, it also encourages the development of partnerships among
systems.
• Measuring improvements in capacity. This process would require a baseline measure of all
systems at the time when the capacity development efforts began, and a method to regularly
update system assessments.
• Assessing capacity. Water system plans typically examine such factors as the characteristics of
a system's service area; the adequacy and quality of its source; the condition of its facilities;
and its O&M, management, and accounting practices.
In Washington State, a Financial Viability Test (FVT) is required of all CWSs serving fewer
than 1,000 service connections that must submit a water system plan. The FVT consists of
four steps:
1) Develop an operating budget showing that its revenues will meet all incurred expenses over
-151-
-------
Appendix
a six-year period.
2) Create and fund an operating cash reserve account at a level equal to or greater than one-
eighth of its operating budget (O&M plus G&A expenses). This reserve account can be
funded by a one-time charge, a transfer of funds from an existing reserve, or from funds
accumulated in the first year of the six-year budget from step 1.
3) Create and fund an emergency reserve account to cover the cost of an emergency or failure
of its most vulnerable system component (for small systems, usually a well or pump). This
reserve account can be funded by a one-time charge, a transfer of funds from existing reserves,
a plan to accumulate the fund in the six-year budget from step 1, or an alternative financing
arrangement (e.g., an insurance mechanism).
4) Conduct a median household income index analysis. The system must demonstrate that the
rates required to meet the budget from step 1 and to fund the reserves in steps 2 and 3 do not
exceed 1.5 percent of the annual median household income for its county.
In addition to all of these elements of the water system plan, systems typically submit relevant
documents that support the plan, e.g., maps of service areas, maps of facilities, and so forth.
Sources of Additional Information
For more information on water system plans, see:
Washington State Department of Health, "Planning Handbook: A Guide for Preparing Water
System Plans," August 23, 1993.
Washington State Department of Health, "Financial Viability Manual for New and Expanding
Small Water Systems," March 1995.
Pennsylvania Department of Environmental Protection, "Pennsylvania Water System Self-
Assessment Guide," September 1996.
-152-
-------
Appendix
The broad applicability of this tool is outlined below:
Water System Plans or Business Plans
Potential Uses
Ensuring New System Capacity
Capacity
Development
Strategy
Element A: Prioritizing Systems
Element B: Factors That Encourage or Impair
Capacity Development
Element C:
Using the
Authority and
Resources of
the SDWA
Assisting PWSs in Complying
with NPDWRs
Encouraging the Development of
Partnerships Between PWSs
Assist PWSs in the Training and
Certification of Their Operators
Element D: Establishing a Baseline and Measuring
Improvements
Element E: Identifying Interested Persons
Assessing Capacity
Area of Capacity
Technical Managerial Financial
/
/
/
/
/
/
/
/
/
/
/
/
/
/
/
-153-
------- |