United States

Environmental Protection Office of Water EPA 816-R-98-008

Agency 4606 July 1998

_____________________________________________________________________________

Information for States on

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
-iiCONTENTS

ACRONYMS ..................................................... -viiCHAPTER 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-
-iiiMunicipalities, 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-
-ivENSURING 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-

Element B: 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-

Element D: 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-
-vAPPENDIX:

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-
-viTABLES, 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-
-viiACRONYMS

Acronym Meaning Acronym Meaning

AMWA Association of Metropolitan Water Agencies

ASDWA Association of State Drinking Water

Administrators

AWWA American Water Works Association

CCE Comprehensive Compliance Evaluation

CCN Certificates of Convenience and Necessity

CCP Composite Correction Program

CFR Code of Federal Regulations

CIP Capital Improvement Plan

CPE Comprehensive Performance Evaluations

CWS Community Water System

DEP Department of Environmental Protection

DOH Department of Health

DWSRF Drinking Water State Revolving Fund

EPA Environmental Protection Agency

FVT Financial Viability Test

G&A General and Administrative

MCL Maximum Contaminant Level

MOU Memorandum of Understanding

NARUC National Association of Regulatory Utility

Commissioners

NAWC National Association of Water Companies

NCWS Noncommunity Water Systems

NDWAC National Drinking Water Advisory Council

NETA National Environmental Training

Association

NPDWR National Primary Drinking Water

Regulations

NRWA National Rural Water Association

NTNCWS Nontransient, Noncommunity Water

System

O&M Operations and Maintenance Cost

OGWDW Office of Ground Water and Drinking

Water

PUC Public Utility Commission

PWS Public Water System

RCAP Rural Community Assistance Programs

RCW Revised Code of Washington

RUS Rural Utility Service

SDWA Safe Drinking Water Act

SDWIS Safe Drinking Water Information System

SRF State Revolving Fund

TNCWS Transient Noncommunity Water Systems

WAC Washington Administrative Code
CHAPTER 1:

Introduction to Technical, Managerial, and Financial

Capacity of Water Systems
Chapter I

 Section 1452(a)(3): LIMITATION.- (A) IN GENERAL.- Except as provided in subparagraph (B), no 3

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)

RESTRUCTURING.- 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-

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.
Chapter I

-10-

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 yearround 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.
Chapter I

Additional information on technical capacity can found within Information for States on Implementing the 4

Capacity Development Provisions of the Safe Drinking Water Act Amendments of 1996.

Ibid. 5

-11-

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:

C Source water adequacy. Does the system have a reliable source of drinking water? Is the

source of generally good quality and adequately protected?

C 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?

C 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:

C Ownership accountability. Are the system owner(s) clearly identified? Can they be held

accountable for the system?

C 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 
Chapter I

Ibid.

6

-12-

regulatory requirements and system operations? Do they have adequate expertise to manage water

system operations? Do personnel have the necessary licenses and certifications?

C 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:

C Revenue sufficiency. Do revenues cover costs? Are water rates and charges adequate to cover

the cost of water?

C Credit worthiness. Is the system financially healthy? Does it have access to capital through

public or private sources?

C 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. 
Ownership of Systems Serving Population 25 - 500

(Percent of Systems)

Investor Owned

17.9%

Homeowners Association

14.1%

Other Privately Owned

4.8%

Mobile Home Park

27.5%

Institution

3.8% Other Ancillary

9.8%

Special District

3.3%

Other Government

18.6%

Ownership of Systems Serving Population > 500 

(Percent of Systems)

Investor Owned

13.0%

Homeowners Association 6.8%

Other Privately Owned 3.4%

Mobile Home Park

1.8%

Other Ancillary 1.2%

Special District 6.2%

Other Government

67.4%

Institution 0.1%

Chapter I

-13-

FIGURE 1

Note: Percentages do not add to 100% due to rounding.
Managerial Capacity

$

Financial Capacity

$

C Ownership accountability

C Staffing and organization

C Effective external linkages

C Source water

adequacy

C Infrastructure

adequacy

(including source,

treatment,

storage,

distribution)

C Technical

knowledge and

ability to

implement it

Technical Capacity

S

Figure 2

Technical, Managerial, and Financial Capacity

C Revenue sufficiency

C Credit worthiness

C Fiscal management and controls

Short- and Long-term Planning

2
CHAPTER 2:

Ensuring That All New CWSs and

NTNCWSs Demonstrate Technical,

Managerial, and Financial Capacity
Chapter II

-16-

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 new NTNCWSs 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.
Chapter II

-17-

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:

C State Authority for Drinking Water Quality

C State Authority for Economic Regulation of Public Utilities

C State Authority for Water Resource Management

C State Authority for Revolving Loan Funds

C State Authority for Planning and Growth Management

C State Enabling Authority for Local Government

C State Authority for Public Safety

C Local Governmental Authority For Land Use, Planning, And Finances 

C Federal Rural Utilities Authority 

C Interstate Authorities and Compacts

C 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.
-18-

Table 1: Potential Authorities and Control Points for Ensuring the Technical, Managerial, and

Financial Capacity of New Water Systems

A. B. C. D. Capacity Assessed

Basis of Authority Agency Vested with Control Points for Ensuring New System

(Statutory or Other) Authority Capacity Technical Managerial Financial

State Authority for State drinking water

Drinking Water Quality primacy agency

Facility plan review and permit*

Operating permit*

Operator certification

Construction requirements for wells

Source water protection plans

System planning requirements

State Authority for

Economic Regulation of

Public Utilities

State public utility Approval of system’s financial structure (debt and

commissions (PUCs) equity)

Certificate of convenience and necessity*

Approval of system’s investments (ratebase)

Approval of initial rates and rate design

System planning requirements

State Authority for Water

Resource Management State water resource agency

Withdrawal and source development permits*

Approval of water rights

System planning requirements

Approval of environmental impact assessment.

State Authority for State financial assistance

Revolving Loan Funds agency

Eligibility and approval of grants and loans

State Authority for

Planning and Growth

Management

State planning, growth

management, or Review and approval of plans*

development agency

Regional planning councils

(intrastate) Review and approval of plans

State Enabling Authority Subdivision and platting regulations

for Local Government 

Secretary of State (or other

State agency)

Authorization of local governments and districts

State financial control Authorization of local government financing (public

agency systems)

State Authority for Public State fire marshal (or other Permits and approvals related to fire 

Safety agency) protection codes

Local Governmental

Authority for Land-Use, Franchise approval*

Planning, and Finances 

Municipalities, counties,

and special districts

Subdivision, zoning, and land-use approvals*

Construction permits and approvals

Local planning approvals

Authorization of local government financing

Federal Rural Utilities

Authority Rural Utilities Service Approval of grants and loans

Interstate Authorities and

Compacts River basin commissions

Basin withdrawal permits*

Basin planning and resource management

requirements

State Authorities to

Regulate Related

Businesses

Banking regulators Loan approval by commercial lenders

Insurance regulators Insurance approval by insurers

*principal approval processes for creating a water system.
Chapter II

-19-

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:

C 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.

C 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. 

C 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. 

C 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.

C 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.

C 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. 
Chapter II

-20-

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:

C 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.

C 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.

C 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.

C 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.
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C 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:

C 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.

C 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.

C 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.

C 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. 
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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:

C 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:

C 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 specialpurpose 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:

C Review and approval of plans. Regional planning agencies may be authorized to review

development plans that include new water systems.
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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:

C 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.

C 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. 

C 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:

C 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:
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C 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.

C Construction permits and approvals. Local government can exercise authority through

requirements such as building permits.

C 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.

C 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.

C 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.

C 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
Chapter II

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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:

C 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. 

C 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:

C 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:

C Insurance approval. The insurance eligibility and approval process can assess the financial

capacity of applicants. 
Chapter II

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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:

C Expand authority to add, strengthen, or coordinate control points

C Coordinate agency capacity efforts

C Enhance system approval processes

C Promote awareness of capacity issues

C Encourage interconnection, consolidation, or regionalization

C Strengthen new system capacity

C 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.
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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. 
Chapter II

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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. 
Chapter II

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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. 
Chapter II

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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.
Chapter II

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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 investorowned 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.
Chapter II

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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. 
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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 percustomer 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 substate 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 investorowned 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.
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Table 2: Actions to Establish or Enhance Authority to Ensure the Capacity of New

Water Systems

Objectives Actions

Expand authority to add, strengthen, or coordinate

control points

Enact legislation regarding authority or jurisdiction

Issue rules, regulations, and/or policies

Enhance capacity assessment resources 

Coordinate agency capacity efforts Hold joint proceedings and/or provide testimony

Conduct regular meetings

Formulate interagency policies and MOU

Share data and information resources

Clarify State and local roles

Enhance system approval processes

Conduct preliminary feasibility meetings with applicants

Develop a protocol for approvals and denials

Promote awareness of capacity issues Educate consumers and communities

Form a stakeholder group

Educate new system applicants

Educate technical community (consultants)

Educate financial community (lenders and insurers)

Encourage interconnection, consolidation, or

regionalization

Require consideration of regional alternatives

Promote regional planning

Establish an interconnection policy 

Minimize bypass opportunities

Modify annexation policies

Strengthen new system capacity Require a technical operations plan

Require comprehensive business plan 

Develop benchmarks or minimum standards

Require guarantees and assurances

Require performance guarantees

Assure takeover by another entity in case of failure
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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, investorowned 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
Chapter II

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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.
CHAPTER 3:

Preparing Capacity Development Strategies Under

§1420(c)(2) of the Safe Drinking Water Act
Chapter III

 See EPA, Office of Water, Drinking Water State Revolving Fund Program Guidelines (EPA 816-R-97-005, 7 

February 1997).

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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)]

• 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)]

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

§1452(a)(1)(G)(i).

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.
Chapter III

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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.
Plan and implement actions

designed to build capacity.

§1420(c)((2)(C)

Compare against the baseline

and measure progress.

§1420(c)(2)(D)

Collect and evaluate information

to establish a baseline.

§1420(c)(2)(D)

Collect and evaluate information

to prioritize systems..

§1420(c)(2)(A)

Collect and evaluate information

on factors that encourage or

impair capacity development..

§1420(c)(2)(B)

Stakeholder

Involvement

Stakeholder

Involvement

Stakeholder

Involvement

Section 1420(c)(2)(E)

Section 1420(c)(2)(E) Section 1420(c)(2)(E)

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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
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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.
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Exhibit 2: Tools and Resources for Developing State Capacity Programs

Tools

Element A Element B Element C Element D Element E

Methods or Factors that Methods by which the State will use the authority Methods to Procedures

criteria to encourage or and resources of the SDWA to: establish a to identify

prioritize impair baseline and and involve

systems capacity measure stakeholders

development improvements

Assist PWSs Encourage the Assist PWSs in

to comply development of the training and

with partnerships certification of

NPDWRs between PWSs their operators

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
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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.
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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
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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.
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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.
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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
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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
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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.
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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
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Element D: Establishing a Baseline and Measuring Improvements

Establishing a baseline and measuring improvements are crucial to fulfilling State responsibilities 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, longterm process.
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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. 
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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.
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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
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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.
CHAPTER 4:

Assessing System Capacity
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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 
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• 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.
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Table 1: Capacity Development Matrices

Tools Managerial Capacity

Ownership Staffing and Organization Effective Linkages

Accountability Clear ownership identity Management information system

Clear identification ofoperator/managerTraining and continuingeducationSufficient qualified staffStaff with appropriateProcedures and policiesUnderstanding ofmanagement aspects ofregulatory requirementsAwareness of availableexternal resourcesCommunications withother systemsCommunication withcustomersCommunication withregulators

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
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Tools Financial Capacity

Revenue Sufficiency Credit Worthiness Fiscal Management and Controls

Revenues cover expensesAppropriate rate structureBilling and collectionRevenues for depreciationand interestCost-of-service studiesPositive credit ratingAccess to capital throughpublic and private sourcesHealthy financial ratiosBonds and assurancesGood debt/equity ratioAdequate books and recordsAnnual budgeting andreportingAppropriate accountingpracticesValuation of utility assetsCapital facilities planningAppropriate managementrevenuesInvestment strategy

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
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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.
Chapter IV

-62-

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. 
APPENDIX:

The Tools
Appendix

-64-

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.
Appendix

-65-

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:

C 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.

C 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:

C Financial ratios may be slow to reflect improvements in capacity.

C 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).

C 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.
Appendix

-66-

C 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).
Appendix

-67-

The broad applicability of this tool is outlined below:

Annual Financial Reports

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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

T T

Element E: Identifying Interested Persons

Assessing Capacity T T
Appendix

-68-

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:

C Prioritizing systems. The identification of systems being assisted by big brother and buddy

programs could be one type of information used to prioritize PWSs.

C 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.
Appendix

-69-

The broad applicability of this tool is outlined below:

Big Brother and Buddy System Programs

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and T T T

Strategy Resources of

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

Encouraging the Development of

Partnerships Between PWSs

Assist PWSs in the Training and

Certification of Their Operators

T T T

Element D: Establishing a Baseline and Measuring

Improvements

Element E: Identifying Interested Persons

Assessing Capacity
Appendix

-70-

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:

C 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.

C 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. 1995 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/efinpage/guidebk/guindex.htm
Appendix

-71-

The broad applicability of this tool is outlined below:

Bond Issue Reviews

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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 T T T
Appendix

-72-

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:

C 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.

C 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.
Appendix

-73-

The broad applicability of this tool is outlined below:

Capital Improvement Plans

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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 T T T
Appendix

-74-

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:

C 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. 

C 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.

C 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. 1995 Inventory of Commissions of Regulated Water and Wastewater

Utilities, Indianapolis Center for Urban Policy and the Environment.
Appendix

-75-

The broad applicability of this tool is outlined below:

Certificates of Convenience and Necessity

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and T T T

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

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 T T T

Assessing Capacity T T T
Appendix

-76-

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 noncompliance. 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:

C 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.

C 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.

C 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
Appendix

-77-

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.
Appendix

-78-

The broad applicability of this tool is outlined below:

Compliance Data

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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

T T

Element E: Identifying Interested Persons

Assessing Capacity T T
Appendix

-79-

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:

C 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.

C 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.
Appendix

-80-

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.
Appendix

-81-

The broad applicability of this tool is outlined below:

Comprehensive Performance Evaluation

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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

T T

Element E: Identifying Interested Persons

Assessing Capacity T T
Appendix

-82-

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:

C 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/OGWDW000/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.
Appendix

-83-

The broad applicability of this tool is outlined below:

Consumer Confidence Reports

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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 T T
Appendix

-84-

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:

C 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.

C 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.
Appendix

-85-

The broad applicability of this tool is outlined below:

Consumer Complaint Records

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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 T T T
Appendix

-86-

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 nonregulatory 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:

C 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.

C 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
Appendix

-87-

The broad applicability of this tool is outlined below:

Cooperation with Non-Governmental Organizations

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and T T T

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

Encouraging the Development of

Partnerships Between PWSs

Assist PWSs in the Training and

Certification of Their Operators

T T T

Element D: Establishing a Baseline and Measuring

Improvements

Element E: Identifying Interested Persons T T T

Assessing Capacity
Appendix

-88-

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:

C Identifying interested persons. Relationships with industry groups are essential to identifying

some of the most interested parties, the owners and operators of PWSs.

C 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/efinpage/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

-89-

The broad applicability of this tool is outlined below:

Cooperation of Industry Groups and Lenders

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

T T T

Element C: 

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 T T T

Assessing Capacity
Appendix

-90-

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
Appendix

-91-

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:

C 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.

C 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.

C 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.

C 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.
Appendix

-92-

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/efinpage/guidebk/guindex.htm.

Washington Public Utility Districts Association: www.wpuda.org
Appendix

-93-

The broad applicability of this tool is outlined below:

Coordination with Other Agencies

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

T T T

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

Assist PWSs in the Training

and Certification of Their

Operators

Element D: Establishing a Baseline and

Measuring Improvements

T T T

Element E: Identifying Interested Persons T T T

Assessing Capacity T T T
Appendix

-94-

Credit Rating Services

There are several different credit rating services. Different institutions rate the creditworthiness 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:

C 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.
Appendix

-95-

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/efinpage/guidebk/guindex.htm
Appendix

-96-

The broad applicability of this tool is outlined below:

Credit Rating Services

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

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 T
Appendix

-97-

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:

C Prioritizing systems. Criteria used by lenders might provide examples of measures that could

be used to prioritize systems.

C 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.
Appendix

-98-

The broad applicability of this tool is outlined below:

Criteria Used by Lenders

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

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 T T
Appendix

-99-

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:

C 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.

C 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.
Appendix

-100-

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.
Appendix

-101-

The broad applicability of this tool is outlined below:

DWSRF Loan Applications

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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 T T
Appendix

-102-

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:

C 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
Appendix

-103-

The broad applicability of this tool is outlined below:

Emergency Response Plans

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

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 T T T
Appendix

-104-

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:

C 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/
Appendix

-105-

The broad applicability of this tool is outlined below:

Enforcement

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

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
Appendix

-106-

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:

C Prioritizing systems. Like criteria used by lenders, the financial ratios that are used in financial

viability assessment methods may be useful in prioritizing systems.

C 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).
Appendix

-107-

The broad applicability of this tool is outlined below:

Financial Viability Assessment Methods

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

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 T
Appendix

-108-

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:

C 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/efinpage/guidebk/guindex.htm
Appendix

-109-

The broad applicability of this tool is outlined below:

Financial Assurance Mechanisms

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Developme Authority and of Partnerships Between PWSs

nt Strategy Resources of

Element A: Prioritizing Systems T

Element B: Factors That Encourage or Impair

Capacity Development

T

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

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 T
Appendix

-110-

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:

C 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.

C 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, CET, “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.
Appendix

-111-

The broad applicability of this tool is outlined below:

Financial and Managerial Training

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T

T T

Assist PWSs in the Training

and Certification of Their T T

Operators

Element D: Establishing a Baseline and

Measuring Improvements

Element E: Identifying Interested Persons

Assessing Capacity T T
Appendix

-112-

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:

C 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.
Appendix

-113-

The broad applicability of this tool is outlined below:

Interviews with Personnel Familiar with the System

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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 T T T
Appendix

-114-

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:

C Prioritizing systems. Many States have data on the number of systems with certified operators

and, in some cases, the qualifications of those operators.

C 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.

C 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 StatementOperator 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.
Appendix

-115-

The broad applicability of this tool is outlined below:

Operator Certification

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T

T T

Assist PWSs in the Training

and Certification of Their T T

Operators

Element D: Establishing a Baseline and

Measuring Improvements

Element E: Identifying Interested Persons T T

Assessing Capacity T T
Appendix

-116-

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:

C 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.

C Identifying interested persons. The issuance of permits affords States an opportunity to

identify and communicate with stakeholders.

C 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 SDWA.
Appendix

-117-

The broad applicability of this tool is outlined below:

Permit Application Data

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

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 T T T

Assessing Capacity T T T
Appendix

-118-

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:

C 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.

C 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
Appendix

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The broad applicability of this tool is outlined below:

Public Education and Information

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

T T T

Assist PWSs in the Training

and Certification of Their

Operators

Element D: Establishing a Baseline and

Measuring Improvements

Element E: Identifying Interested Persons T T T

Assessing Capacity
Appendix

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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:

C 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.

C 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.

C Assessing capacity. Rate application data are taken from sanitary surveys and occasionally onsite 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.
Appendix

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Sources of Additional Information

For more information on rate reviews see: 

Public Utilities Commission, State of California, Proceeding No. I.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."
Appendix

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The broad applicability of this tool is outlined below:

Rate Reviews and Approvals

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Development of

Development Authority and Partnerships Between

Strategy Resources of PWSs

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: Encouraging the

the SDWA

Assisting PWSs in

Complying with NPDWRs

Assist PWSs in the

Training and Certification

of Their Operators

Element D: Establishing a Baseline and

Measuring Improvements

T T T

Element E: Identifying Interested Persons

Assessing Capacity T T T
Appendix

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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:

C 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.

C 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
Appendix

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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.
Appendix

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The broad applicability of this tool is outlined below:

Regional Plans

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

T T T

Assist PWSs in the Training

and Certification of Their

Operators

Element D: Establishing a Baseline and

Measuring Improvements

Element E: Identifying Interested Persons T T T

Assessing Capacity T T T
Appendix

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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:

C Assisting PWSs in complying with NPDWRs; and to encourage the development of

partnerships between PWSs. Restructuring is designed to improve compliance and encourage

partnerships.

C 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.
Appendix

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The broad applicability of this tool is outlined below:

Restructuring

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

T T T

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
Appendix

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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:

C 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.

C 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
Appendix

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The broad applicability of this tool is outlined below:

Review of Audit Reports

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

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 T T
Appendix

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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:

C 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.

C 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
Appendix

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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.
Appendix

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The broad applicability of this tool is outlined below:

Sanitary Surveys

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

Assist PWSs in the Training

and Certification of Their

Operators

Element D: Establishing a Baseline and

Measuring Improvements

T T

Element E: Identifying Interested Persons

Assessing Capacity T T
Appendix

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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 investorowned utilities predominate, however, it may be useful to encourage these systems to engage in

satellite management.

Uses of this tool include:

C 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.

C 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."
Appendix

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The broad applicability of this tool is outlined below:

Satellite Management

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

T T T

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 T T T
Appendix

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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:

C 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.

C 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.
Appendix

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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 SelfAssessment 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.
Appendix

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The broad applicability of this tool is outlined below:

Self Assessment and the Dozen Questions

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

T T T

Assist PWSs in the Training

and Certification of Their T T T

Operators

Element D: Establishing a Baseline and

Measuring Improvements

T T T

Element E: Identifying Interested Persons

Assessing Capacity T T T
Appendix

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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:

C Prioritizing systems. Source water protection programs can provide information on potential

sources of contamination that could help in prioritization.

C 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.

C 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.

C 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. 
Appendix

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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.
Appendix

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The broad applicability of this tool is outlined below:

Source Water Assessment Programs

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the Encouraging the Development

Development Authority and of Partnerships Between PWSs

Strategy Resources of

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

T T T

Assist PWSs in the Training

and Certification of Their

Operators

Element D: Establishing a Baseline and

Measuring Improvements

T T T

Element E: Identifying Interested Persons

Assessing Capacity T T T
Appendix

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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:

C 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.
Appendix

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The broad applicability of this tool is outlined below:

State or Federal Surveys of Infrastructure Needs

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and

Strategy Resources of

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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
Appendix

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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:

C 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.

C 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.

C 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.
Appendix

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The broad applicability of this tool is outlined below:

State-Wide Studies of Water Quality or Quantity

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and T T

Strategy Resources of

Element A: Prioritizing Systems T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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 T T
Appendix

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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:

C 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.

C 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.
Appendix

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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.
Appendix

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The broad applicability of this tool is outlined below:

Training and Technical Assistance

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and T T

Strategy Resources of

Element A: Prioritizing Systems T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T

Encouraging the Development of

Partnerships Between PWSs

Assist PWSs in the Training and

Certification of Their Operators

T T

Element D: Establishing a Baseline and Measuring

Improvements

Element E: Identifying Interested Persons

Assessing Capacity T T
Appendix

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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:

C 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.

C 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.

C 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. 
Appendix

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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.
Appendix

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The broad applicability of this tool is outlined below:

Water Conservation Plans

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and T T T

Strategy Resources of

Element A: Prioritizing Systems

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

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

T T T

Element E: Identifying Interested Persons

Assessing Capacity T T T
Appendix

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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:

C 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.

C 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.

C 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.

C 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
Appendix

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a six-year period.

2) Create and fund an operating cash reserve account at a level equal to or greater than oneeighth 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 SelfAssessment Guide," September 1996.
Appendix

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The broad applicability of this tool is outlined below:

Water System Plans or Business Plans

Potential Uses

Area of Capacity

Technical Managerial Financial

Ensuring New System Capacity

Capacity Using the

Development Authority and T T T

Strategy Resources of

Element A: Prioritizing Systems T T T

Element B: Factors That Encourage or Impair

Capacity Development

Element C: 

the SDWA

Assisting PWSs in Complying

with NPDWRs

T T T

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

T T T

Element E: Identifying Interested Persons

Assessing Capacity T T T