Dc Water: Turning Sewers from Gray to Green

Abstract

Mark Kim, CFO of DC Water, believed building green infrastructure in Washington, DC, was an innovative way to improve the performance of the city's aging sewer system and save money. In considering the options to fund a pilot program, Kim was especially intrigued by a new financing structure: social impact bonds (SIBs). Partnering with Eric Letsinger of Quantified Ventures, they built on SIBs to develop an Environmental Impact Bond. This case discusses the risks and potential rewards of financing the pilot through a new structure at the intersection of public policy, finance, and science, the costs and benefits of employing green infrastructure, and the potential investor base for the new financial product. It also challenges students to consider the use of private capital to finance social outcomes. Excerpt UVA-F-1854 Rev. Aug. 29, 2019 DC Water: Turning Sewers from Gray to Green Mark Kim, CFO of DC Water (formerly called the District of Columbia Water and Sewer Authority), was sitting in his office in southwest Washington, DC, in May 2015, considering his options for the final phase of an infrastructure modernization project that had been underway for over 10 years. Under a newly renegotiated agreement with the US Department of Justice and the Environmental Protection Agency (EPA), the project's final phase would utilize innovative technology, known as low-impact development or green infrastructure, to be more environmentally friendly and less expensive than traditional sewer infrastructure. Kim worried, however, about the risks involved in implementation. Although the underlying technology had been proven over the last several years, it had not been widely implemented. Moreover, the infrastructure's performance depended on a number of variables specific to the location, including geology, soil conditions, weather, and the price of land. DC Water CEO and General Manager George Hawkins was hoping to proceed with the green infrastructure, and it was Kim's job to figure out how to pay for it. DC Water DC Water was an independent authority of the District of Columbia government. It provided water and sewer services to more than 681,000 residents of the District of Columbia, as well as 1.6million people in Montgomery and Prince George's Counties in Maryland and Fairfax and Loudon Counties in Virginia, covering a service area of approximately 725 square miles (see Exhibit1). In 2016, DC Water pumped an average of 99million gallons of water per day to its customers through a network of 1,350 miles of pipes, four pumping stations, five reservoirs, three water tanks, and 9,510 fire hydrants. It also operated 1,900 miles of sewers, 160 flow meters, nine wastewater pumping stations, 16 stormwater pumping stations, 12 inflatable dams, and a swirl facility. DC Water's Blue Plains Advanced Wastewater Treatment Plant was one of the largest facilities of its type in the world, covering more than 150 acres and treating an average of 290million gallons of wastewater per day. . . .