Cost Effectiveness Analysis
Applicants for federal funding provided by the Pennsylvania Infrastructure Investment Authority (PENNVEST) for drinking water and wastewater infrastructure are required to demonstrate that the project they wish to construct represents the most cost-effective, environmentally-sound alternative.
Applicants should consider all feasible alternatives to address the environmental and public health issues at their facility. The most feasible alternatives should be analyzed using standard engineering economics principles that combine capital cost and operations & maintenance costs. This combination provides a net present value (total present worth) or equivalent uniform annual cost. The resulting cost-effectiveness analysis allows projects with varying capital and operations & maintenance costs to be compared on an equal footing. The current discount rate to be used on PENNVEST-funded projects is 2.5%.
Separate guidance is provided below for wastewater and drinking water applicants. In Pennsylvania, the cost-effectiveness analysis for wastewater projects is frequently done as part of the periodic Act 537 Plan. There is no corollary state planning requirement for drinking water systems in Pennsylvania.
The issues addressed in wastewater and drinking water are also somewhat different. For example, an opportunity exists for wastewater systems in the Chesapeake Bay drainage area to address their nutrient control responsibilities through the purchase of nutrient credits.
Further information can also be obtained at the Planning Consultation Meetings. These meetings are held to help potential recipients of PENNVEST funding understand program requirements.
For further information concerning the cost-effectiveness analysis requirement for PENNVEST projects, contact:
Regional Office where the project is located, or
Richard A. Wright, P.E.
Municipal Finance Section
Division of Municipal Facilities
P.O. Box 8774
Harrisburg, PA 17105-8774