2023 Update to EPA Clean Water Act Financial Capability Assessment Guidance
On February 1, 2023, the US Environmental Protection Agency (EPA) announced an update to its Clean Water Act (CWA) Financial Capability Assessment (FCA) Guidance. The updated Guidance provides an expanded process to assess a community’s ability to afford water quality improvements.
The 2023 FCA Guidance replaces the methodology in the 1995 USEPA Interim Economic Guidance for Water Quality Standard Workbook and the 1997 Combined Sewer Overflow (CSO) Guidance for Financial Capability Assessment and Schedule Development, which has been historically used to determine an acceptable financial impact of CSO controls on customers and the length of schedule to implement controls.
More specifically, the 1995 USEPA Interim Economic Guidance for Water Quality Standard Workbook has been utilized in Indiana to determine whether new wastewater treatment facilities and their associated discharge are warranted as part of the Antidegradation review process.
Much like the previous FCA versions, the 2023 Long Term Control Plan (LTCP) Guidance utilizes financial indicators including the wastewater cost per median household indicator to evaluate a utility’s capability to fund water quality control projects; however, the 2023 CWA FCA Guidance provides an expanded evaluation of the financial burden on customers, adding an assessment of the burden on low-income and impoverished customers. The evaluation initially creates two determination keys, a residential indicator, and a financial capability indicator, to be used in a matrix. The residential indicator is the relationship of the project cost to the median household income of customers, while the financial capability indicator assesses the percent difference of community financial information against threshold indicators.
The final matrix result determines whether an alternative would create a financial burden on ratepayers and would provide an appropriate implementation period for the project. The financial burden is classified as either “low”, “medium”, or “high”. Projects with medium and high burdens are typically recommended to extend their current schedules to accommodate ratepayers and lessen the financial burden of paying for the implementation of the project over a longer period.
The 2023 FCA Guidance expands on this evaluation by adding an additional determination key, the Lowest Quintile Poverty Indicator (LQPI) Score. This supplemental key accounts for the variability of income distribution by assessing the severity and prevalence of poverty. Six indicators are scored:
- Upper limit of the lowest quintile income
- Percentage of the population with income below 200% federal poverty level
- Percentage of households receiving food stamps/Supplemental Nutrition Assistance Program (SNAP) benefits
- Percentage of vacant housing units
- Trend in household growth
- Percentage of unemployed population
The assessed LQPI Score is evaluated against benchmarks, ranging between “low”, “medium”, and “high” impacts. According to the new 2023 FCA Guidance, communities with LQPI Scores of “medium” and “high” are encouraged to search for additional subsidies or grant consideration from government funding sources. The LQPI Score is also compared against the matrix result of the FCA score, to determine an Expanded Financial Capability Assessment. According to the 2023 FCA Guidance, results of “medium” or “high” impact should be considered for extended implementation schedules beyond the commonly accepted 20 years.
With the implementation of the new 2023 FCA Guidance, communities have an additional tool to evaluate CSO LTCP projects and new treatment systems. The addition of the LQPI evaluation provides communities with an added reason to revisit CSO LTCP costs and schedules.
For more information on planning and budgeting for your water quality improvement projects, call Commonwealth Engineers and ask to speak to Brady Dryer or Theresa Criss-Hartwig.