Response to LDEQ Consolidated Compliance Order and Notice of Potential Penalty

LPDES Overview 2CORRECTIVE ACTION PLAN ♦Wastewater system discharges to the Mississippi River. ♦Requires a Louisiana Pollutant Discharge Elimination System (LPDES) permit. ♦Permit requires operating the collection and treatment facilities under the terms and conditions of the LPDES permit or face civil fines. ♦The Louisiana Department of Environmental Quality (LDEQ) is responsible for enforcement all permit requirements.

LDEQ Background 3CORRECTIVE ACTION PLAN ♦LDEQ conducted several inspections of wastewater facility records and discovered 444 overflows had occurred within the system. ♦Age of the system, poor soil conditions causing subsidence, and lack of maintenance over the years contributed to the overflows within the sewer system. ♦On August 26, 2009, the City received a Consolidated Compliance Order and Notice of Potential Penalty Enforcement Tracking No. WE- CN for noncompliance activities from February 1, 2004 through May 31, 2009.

Summary of Overflows CORRECTIVE ACTION PLAN Sub- Totals Grand Totals Mainline Blockage Broken Force Main Power Failuresa.)Hurricanes15 90 b.)Normal Rain Storm/ I & I Issues (Sewer System Up) a).Heavy1 Hurricane b). Normal Miscellaneous overflows from grit chamber, aeration tank, etc Mechanical Failures of Lift Station Totals

Importance of Regulatory Compliance 5CORRECTIVE ACTION PLAN Why is it important for the COK to meet its LPDES permit requirements? ♦Overflows discharge raw sewerage into nearby roads, drainage, and waterways ♦Threat to public health, animals, the environment and the federal and state waterways. ♦Violation of the Federal Clean Water Act ♦The City’s failure or refusal to comply with the Compliance Order could result in the assessment of a civil penalty in an amount of not more than $50,000 for each day of continued violation or noncompliance resulting in possible millions of dollars of fines.

Response to the Compliance Order 6CORRECTIVE ACTION PLAN ♦In response to the Compliance Order, related to the reported Overflows, the City was required to prepare a Sanitary Sewer System Overflow Corrective Action Plan. ♦Purpose of Corrective Action Plan -mitigate, reduce, and prevent Overflows in the City -comply with LPDES discharge permit requirements, related Louisiana Laws, and the Federal Clean Water Act. ♦$62,137,196 total in capital improvements to reduce and prevent future overflows ♦Corrective Action Plan only considered the SSO’s cited in the LDEQ compliance order and was not meant to correct every deficiency in the City’s system.

Corrective Action Improvements Funded 7CORRECTIVE ACTION PLAN Funded Improvements Project Funding SourceTotal Amount Funded LRA/CDBG Grant$4,145,275 LDEQ Low Interest Loan$10,510,613 City Capital Funds$3,428,255 Total Funded Improvements$18,084,143 ♦These improvements will be completed without any additional tax or fee increase ♦LRA/CDBG Grant Money does not have to paid back. ♦A list of funded improvements is available separately

CORRECTIVE ACTION PLAN8 Corrective Action Improvements Future Funded Projects Contingent Upon Sewer Fee Increase Project Funding SourceTotal Funds Required LDEQ Low Interest Loan$12,067,440 Municipal Bonds$31,985,613 Total Funds Required$44,053,053 Future Funds Required ♦A list of future projects is provided separately ♦$6,900,000 planned for “Green Project” +Discharge to La Branche Wetlands +Provides wetland restoration and enhanced Hurricane Protection

Budget Observations and Comparisons 9CORRECTIVE ACTION PLAN ♦Last user rate increase 19 years ago (1991) ♦Cost of equipment, repair, services and electricity, chemicals and inflation have risen significantly. ♦City does not collect enough revenue currently to operate and maintain the system ♦There is insufficient funds within the City to pay for the plan along with operation and maintenance costs

Proposed Rates 10CORRECTIVE ACTION PLAN ♦ An estimated $44,053,053 of additional funding is needed. ♦Necessary to consider a user rate increase or face possible civil penalties. ♦Phased increase to meet future expenditures for principal and interest. ♦Pay as you go for citizens through increases over four years ♦Two separate bond issues proposed to spread out the increase

CORRECTIVE ACTION PLAN11 Proposed Rates ♦ 2011 increase to $2.01 per 1,000 gallons covers operating and maintenance and remaining LDEQ loan money ♦2012 increase to $2.63 per1,000 gallons covers first municipal bond of $16 million ♦2013 increase to $2.68 per 1,000 gallons covers the estimated CPI increase in 2013 ♦2014 increase to $3.031per 1,000 gallons covers second municipal bond of $16 million

Proposed Rate Chart 12CORRECTIVE ACTION PLAN Calendar Year Residential Customers Monthly Usage Charge per 1,000 gal$1.35$2.01$2.63$2.68$3.31 Avg. Monthly Sewer Bill$10.81$16.04$21.02$21.43$26.45 Commercial Customers Monthly Usage Charge per 1,000 gal$1.59$2.36$3.09$3.15$3.89

Sewer Rate Comparisons 13CORRECTIVE ACTION PLAN Municipality /Parish Sewer Fee/1,000 gallons Monthly Min Avg. Bill/8,000 gallons Additional Fee Harahan$1.02$5.25$8.16None Kenner (Current) $1.35$3.27$10.80None Jefferson Parish (2012) $2.41$3.90$20.45$1.17 monthly Kenner (2014) $3.31$8.01$26.45None Gretna$3.70$10.14$29.60None Slidell$3.96$29.64$31.68None New Orleans$4.04 $40.40$1.01/1,000 gallons toward Federal consent decree with US EPA Baton Rouge$4.36$13.08$34.91$.30 cents/100 gallons for more than 3,000 gallons. $2,150 one-time connection fee Covington$6.00$15.18$48.00None Houston$6.52 $53.30$1.14 additional service fee for more than 7,000 gallons

CORRECTIVE ACTION PLAN14 Utility Comparisons UtilityAvg. Monthly Bill 2010 Sewer Fee$ Sewer Fee$26.45 Avg. Gas Bill Based on 100 ccf usage$ Avg. Electric Bill Based on 1,000 kWh usage$ Basic Cell Phone Based on 450 minutes usage per month $39.99

Options CORRECTIVE ACTION PLAN15 ♦ Do nothing – Millions of dollars in possible fines from LDEQ and EPA plus the City still will be expected to pay for repairs to the system ♦Increase fees to levels shown +Fair to users because proportionate use pays for system +Few City services produce revenue to pay for itself

CORRECTIVE ACTION PLAN16 Consequences of No Action ♦If sewer fee increase is not approved outstanding bills owed to system operator (Veolia) will continue to increase ♦LDEQ will take back the remaining $11,000,000 in low interest (0.95%) loan money ♦EPA will step in for violation of Clean Water Act ♦Taxes may increase to pay fines ♦City services may be cut that don’t generate revenue (Recreation, Community Services, etc.)

Conclusions 17CORRECTIVE ACTION PLAN ♦ Fee increases are not popular but to take no action would be irresponsible and cost more over time ♦2014 the average residential homeowner would pay $26.45 per month for its wastewater services. ♦Comparable to other utilities and municipalities the proposed rates are not out of the ordinary