TRANSMITTAL LETTER FOR BOARD MEETING OF MAY 1, 2008
COMMITTEE ON ENGINEERING
Mr. Richard Lanyon, General Superintendent
Title
Report on the Goose Pond Nutrient Farm Pilot Project
Body
Dear Sir:
The use of wetlands for nutrient removal was first reported to the Board of Commissioners ("Board") at the regular meeting on March 20, 2003. At the October 21, 2004 meeting, the cost-effectiveness of wetlands was reported with the completion of a study funded by the Water Environment Research Foundation that compared the cost of wetlands versus conventional treatment technology for nutrient removal. At the December 16, 2004 meeting, the Board granted authority to negotiate an agreement for the Goose Pond Nutrient Farm Pilot Project ("Project"). In this letter, it was estimated that the Project, including the Research Program, would cost nearly $26 million. The letter further stated that the District would pay for the cost of construction, which was estimated at $9.8 million. At the July 13, 2006 meeting, the Board again granted authority to negotiate an agreement for the Project with the realization that the Project may be replaced by an alternative, the Sawmill Pocket Project. Since that time, however, the Project has proceeded to be developed and the alternative has not been pursued.
The Wetlands Initiative ("TWI") of Chicago has been the moving force behind the Project. TWI has raised funds from private sources for the preliminary engineering and legal work on the Project. Additionally, TWI has obtained the support of two hunting clubs in Bureau and Putnam Counties where the Project is sited. The clubs have agreed to provide the land to be used for the Project at no cost, and to form a mutual levee and drainage district under Illinois law. As a result, on December 14, 2006, the Goose Pond Mutual Levee and Drainage District ("Levee District") was created by the filing of a Formation Agreement in the Circuit Court of Putnam County. As originally contemplated, the Project site could have been as large as 4,300 acres. However, due to site constraints and ownership limitations, the Levee District was formed comprising only 1,338.24 acres. The formation of the Levee District creates an entity with which the District can enter into an intergovernmental agreement to implement the Project.
The purpose of the Project is to develop wetland-based nutrient removal technology, and to conduct related research on this technology to ascertain whether this technology is a cost-effective and efficient means to remove nutrients. The Project will delineate the proper parameters for constructing, operating, and maintaining a wetland-based nutrient farm. The Project has received endorsements from the United States Environmental Protection Agency ("USEPA"), Illinois Environmental Protection Agency ("IEPA"), and the National Association of Clean Water Agencies.
Although the IEPA will apparently not meet its earlier announced schedule to propose water quality standards for nitrogen and phosphorus to the Illinois Pollution Control Board by 2008, efforts are underway at both the federal and state levels to implement controls on the discharge of nutrients. At the February 28, 2008 meeting of the federal interagency Mississippi River/Gulf of Mexico Watershed Nutrient Task Force, the USEPA put forth a plan for comprehensive nutrient reduction strategies that calls for mandatory reductions from point sources through the National Pollutant Discharge Elimination System ("NPDES") Permit Program and voluntary incentive-based reductions from nonpoint sources. Obviously, permitted dischargers, such as the District, will be required to reduce nutrient discharges, at some point even though this reduction will have little impact on the Gulf of Mexico.
At the March 5, 2008 meeting of the IEPA Nutrient Standards Workgroup, three proposals were made for implementing nutrient standards in Illinois. All three will require point sources to reduce the discharge of nutrients under various conditions. These proposals are being advanced despite a lack of credible science to support the need for nutrient standards. Environmental groups, encouraged by the Natural Resources Defense Council lawsuit against the USEPA, are increasing their advocacy for nutrient standards.
While it was reported to the Board in October 2004 that large-scale wetlands were a viable cost effective alternative or complement to traditional treatment technology, the reduction in acreage of the Goose Pond Project, coupled with the ever-increasing estimated cost of construction, has called that conclusion into question for this Project. The Project has proceeded through site geotechnical investigation, hydraulic and hydrologic analysis, and is currently in engineering design. The Engineering Department has reviewed conceptual design reports and project layouts and details from two engineering design firms. Several design alternatives have been presented in an attempt to reduce the construction costs associated with the Project. In spite of those efforts, as of the latest design estimate dated April 8, 2008, the District's cost of construction of the Project has increased from $9.8 million to $33.4 million, while the size of the constructed wetlands has been reduced to approximately 1,125 acres. This has resulted in nearly a six-fold increase in the per acre cost of construction. This cost no longer substantiates the conclusions reached in the earlier October 21, 2004 report to the Board, which portrayed constructed wetlands as a cost-effective alternative to conventional treatment. However, this conclusion is specific to this project because of its peculiar design constraints and not a general conclusion regarding wetland technology. At its current costs, the Project's value is that of a demonstration project for the establishment of nutrient trading credits, and not as a cost-effective alternative to conventional treatment at District facilities.
TWI's ability to secure funding for the Research Program is also uncertain at this time. The Research Program is not intended to be a financial obligation of the District. Its costs include, in addition to those for scientific and economic research, the costs of operation and maintenance of the Project, and Project management. At the June 7, 2007 meeting, the Board adopted a resolution in support of federal funding for those costs. This resolution was sent to the entire Illinois delegation and has been used by TWI to advocate for federal funds. Senator Durbin has taken an interest in the Project and has been leading the quest for federal funding. However, to date, and regretfully, no appropriation has been secured. As of July 2007, the cost of the Research Program was estimated to be $16.9 million. The District is unaware of any firm commitment to provide such funding, although TWI is continuing its effort to secure funding.
The Project has faced strong local public opposition, primarily from landowners adjacent to the site. The surrounding landowners have expressed their concerns that the Project would disrupt waterfowl hunting and increase flooding and sedimentation. There have been several local meetings in the Hennepin area to explain the Project to the public. The District has attended these meetings and answered questions regarding the District's interest and participation. Numerous questions have been addressed and it appears that initial opposition has softened as the Project has been explained and better understood. A few landowners remain firmly entrenched in their opposition to the Project.
Several permits are required in order for the Project to proceed. In February 2007, the Levee District and TWI submitted a joint application for a 404 permit to the U.S. Army Corps of Engineers, Rock Island District. A public comment period was held in which residents lodged written objections to the Project, and to which the Levee District responded. In June 2007, the U.S. Fish and Wildlife Service recommended that the permit be held in abeyance due to concerns regarding the known presence of a federally threatened plant species (decurrent false aster) and the potential habitat for the Indiana Bat and bald eagle, as well as concerns regarding loss of in-kind wetland and floodplain forest. TWI is in the process of addressing those concerns, including making various Project design changes, and anticipates permit issuance in June 2008. Additionally, in February 2007, a written determination was requested from the IEPA as to whether a NPDES permit is required for operation of the Project. The IEPA response is pending. Should IEPA determine an NPDES permit is required, it will be necessary to initiate that permitting process as well.
One of the originally stated goals of the Project is to generate nutrient removal credits, either for sale or as an offset to District operations. As stated earlier, current cost estimates contraindicate the Project as potentially offsetting District operations. Additionally, neither USEPA nor IEPA has as yet established market-based trading proposals. To be applicable for water quality regulation, water quality trading must either be authorized by the United States Congress or be subject to both federal and state rulemaking. However, a demonstration project is needed to demonstrate that water quality trading is viable.
The lack of prospect of an established regulatory trading structure in the near future presents an additional difficulty when viewed in tandem with the current structure of the Levee District. Under the Formation Agreement, the Levee District is set to terminate on December 14, 2016, unless the landowners unanimously consent otherwise. Upon dissolution of the Levee District, the Project improvements, with the possible exception of the pumps, would then become the property of the duck clubs. Should the Levee District be dissolved prior to the establishment of a regulatory trading scheme, the District could be in the position of having contributed the capital cost of the Project improvements without benefit of sharing in a percentage of nutrient removal credits if and when such trading is finally established. The Levee District and the District are attempting to resolve this inequality, but could face opposition from the landowners at the prospect of extending the term of the Levee District indefinitely.
Negotiations and reviews have proceeded on several draft agreements and legal documents between the District's Law Department and attorneys for the Levee District. The first and most important to the District is the Draft Agreement between the Levee District and the District ("Agreement"). The Agreement provides that the Levee District will contribute approximately 1,338 acres of land to be used for the Project and Research Program. The Agreement is structured such that the Levee District and/or its agents will design and construct the improvements to the land that are necessary to carry out the purposes of the Project. The improvements will primarily consist of a series of berms to create wetland cells and a number of gate structures and pumps to control water flow. The Agreement anticipates that construction of the improvements to the land will take three years to complete, although recent discussions with the design engineers suggest that time frame is overly optimistic in view of the likelihood of flooding during the period of the construction causing berm wash outs and delays for necessary repairs. The Agreement does require that the District's access to the project site be restricted during waterfowl hunting season.
In the event that nutrient removal credits are generated by the project during the ten-year term of the Agreement, the Agreement insures that the District will receive at least a 55% share of any revenues, and the Levee District will receive a 45% share, of which it anticipates distributing a 25% share to TWI. The Parties have yet to agree as to whether or not the proceeds from the sale of nutrient removal credits should be reduced by operating expenses incurred in generating the credits. Of course, the Agreement also includes various protections and assurances inuring to the District such as insurance, bonding, and indemnification.
Several other agreements, amendments, and easements that are required in order for the Project to proceed are also being negotiated by the District. For example, the Levee District must go back to its membership and obtain approval on several necessary amendments to the Formation Agreement. Further, the Project has been modified numerous times in part to appease the landowners. Due to the Project design being in a state of flux, negotiation of the Agreement is still ongoing. In addition, while it is incumbent upon the Levee District to negotiate numerous easements from landowners adjacent to or near the Project site, it cannot proceed until the Project design is established.
If all the foregoing matters can be satisfactorily resolved, Board approval will be sought for the proposed agreements before any funds are expended.
Respectfully Submitted, Joseph P. Sobanski, Chief Engineer, Frederick M. Feldman, Attorney, JPS:FMF:RMH:LLD:jvs