|Location:||Central Michigan, Lower Peninsula|
|Issues Addressed:||Political Will, Financing and Funding, Affordability and Assistance|
In 2012, water softening chemicals prices increased for service providers in the center of Michigan’s lower peninsula. These mid-Michigan utilities, clustered around the capital city of Lansing, draw water from the Saginaw Aquifer. Saginaw Aquifer water is particularly hard, and require a number of chemical inputs to soften it for use and consumption. Rising chemical costs put extra pressure on water utilities as they attempted to distribute high quality water while keeping rate increases modest.
As a result, central Michigan communities began exploring ways to cut costs and keep rates low. In 2014, the Lansing Board of Water and Light, the East Lansing-Meridian Water and Sewer Authority (East Lansing-Meridian), and the City of Jackson started meeting with the Groundwater Management Board in Lansing and the Michigan Chapter of the American Water Works Association to explore cost savings. Water infrastructure consultants at the meeting suggested the joint chemical purchasing arrangement in the Holland-Grand Rapids area might offer a template that central Michigan communities might replicate to save on chemical costs. After speaking with Holland and Grand Rapids utilities, the Lansing Board of Water and Light and East Lansing-Meridian formed a chemical purchasing group, the Mid-Michigan Drinking Water Consortium (MMDWC), in 2014.
(Detailed account of how the project, legislation, or collaboration addressed an issue, barrier, or challenge, including how they overcome any barriers to implementation)
Lansing Board of Water and Light and East Lansing-Meridian established rules for how MMDWC coordinates joint chemical purchasing. Since central Michigan utilities have a common set of chemical treatment needs, MMDWC would focus on preparing shared bid packages for common chemicals among its members. This ensures bid packages for the largest amount of chemicals and provides the best opportunity for each bid party to realize the deepest cost savings.
As part of the consortium arrangements, Lansing Board of Water and Light handles all bulk chemical purchasing through its purchasing department. As the MMDWC member with the who purchases the greatest amount of chemicals, Lansing Board of Water and Light collects updated chemical use numbers from each member on an annual basis and issues a request for proposal on behalf of the Consortium to receive bids on each chemical from chemical companies. Lansing Board of Water and Light then evaluates each bid submission and awards contracts based on the best evaluated bidder for each chemical. Each MMDWC member then writes their own contract for each chemical to the top rated bidder and facilitates their own ordering and purchasing of the chemicals over the life of the contract.
The MMDWC meets quarterly and requires no fees to join or participate in the group. East Lansing-Meridian and representatives from the Tri-County Regional Planning Commission (TCRPC) facilitate the group meetings and handle member and membership questions. Membership in the consortium does not require participation in every bid package, only ones in which members wish to participate. Additionally, non-members are able to attend and participate in quarterly meetings. This allows both coordination throughout the region and provides opportunities for non-members to learn about potential benefits of participating with the consortium. With these barriers to participation removed, many communities come to see MMDWC as an easy way to save on costs without requiring substantial time or resources.
The consortium coordinates bid packages through their utility’s purchasing departments, avoiding unnecessary oversight from formal decision-making bodies at the council and administrative levels, since purchasing departments only require oversight from the utility’s board of directors. The only aspect of the MMDWC that involves municipally elected decision-makers is the initial decision for members to join.
First Year Joint Bid Results
In 2014, its first year, the MMDWC compiled a bid package for four chemicals that were common among members: lime, sodium hypochlorite, ammonia, and fluoride. The Lansing Board of Water and Light purchasing department coordinated the bid. The results were immediately evident:
2014 Cost Savings for Select MMDWC Members and Chemicals Through Joint Purchasing
|City of Adrian||City of Ann Arbor*||East Lansing-Meridian Water and Sewer Authority||Lansing Board of Water and Light||City of Jackson*|
|Gross Chemical Budget||$260,000||$1,371,283||$367,237||$2,828,895||~$700,000|
|Sodium Hypochlorite Savings||$6,352||~$20,000||$2,040||$8,928||Did not join bid|
|Fluoride Savings||$1,514||$699||Did not join bid||$3,000||$3,848|
|Total Joint Purchasing Cost Savings||$11,803 (5%)||$97,311 (7%)||$4,434 (1%)||$111,928 (4%)||~$68,124 (10%)|
|Amount of time invested in chemical purchasing since joining||Less||Same||Less (2 hrs/wk)||Same||Same|
* Through jointly bidding for Ferric Chloride, the City of Ann Arbor saved an extra $1,612.85 and the City of Jackson saved $3,520.
For the City of Jackson, saving ten percent on the chemical budget allowed the city to invest savings in capital improvement projects. At the time of the first joint bid, Jackson was in a two-year planning process for a $2.3 million high-service pump station at their water treatment plant. Realizing the savings through jointly bidding on chemicals with MMDWC made it easier for Jackson to decide to move ahead with the project.
Lansing Board of Water and Light passed the savings directly on to their customers in the form of a reduction in their Power Chemical Adjustment fee. These savings helped Lansing Board of Water and Light accomplish two important goals. First, they preserved affordability for ratepayers and delayed rate adjustments. Second, it allowed them to keep their water production budget steady.
The MMDWC recently began discussing ways they could collaborate beyond joint chemical purchasing. During regular quarterly meetings, they explore additional areas where cooperation could lower costs and help member utilities function more effectively. They have worked on solutions for common problems such as well bore rehabilitation, lime repurposing, water quality testing, and sludge disposal. They have already begun to experience the benefits of joint well bore rehabilitation bidding. Since MMDWC members primarily use groundwater, they regularly need to rehabilitate their well bores to keep them producing water at an appropriate rate. Joint bidding has brought rehabilitation costs down from $8,000-$12,000 to a steady $8,000 per rehabilitated well bore.
MMDWC members also realized the non-monetary benefits of a more regional approach to water infrastructure in central Michigan. The MMDWC provides an open communication channel among utilities and operators throughout the region. Quarterly meetings create a collaborative, information-sharing environment where members share best practices, lessons, and strategies. For example, the MMDWC has helped cultivate better working relationships among regional operators, who have worked together to develop solutions to common problems. Generally, members find that participating in the group has helped to transition the region away from isolated, individual community goals toward seeking and realizing collaborative opportunities on a regional scale.
(What resources the actors needed to address the issue)
To participate in the MMDWC, utilities need political approval to collaborate regionally and the ability to reallocate participating personnel time for attending joint meetings.
Regional collaboration requires a willingness to cooperate and negotiate. To minimize political issues, the group has low barriers to entry and maximizes autonomy for member utilities. The utilities participate in the consortium through their purchasing departments. Elected officials only address the decision to join the consortium. This creates the space for members to collaborate without overt political concerns.
The policy of allowing non-members to attend meetings eases prospective members into the idea of regional collaboration. Representative of other utilities can learn about the benefits, costs, and guiding principles of the group by attending as non-members. These two methods of overcoming political barriers have resulted in very little political opposition from the member communities and typically council resolutions to join the group pass unanimously.
MMDWC members report that joint purchasing required the same or less time as bidding through their own purchasing departments (see Table 1). However, members reported that they needed to reallocate some of the time they spent on the bidding process in the past to attending quarterly MMDWC meetings. While attending meeting is not required, it does allow members to maximize the benefits of participating.
(An analysis of the lessons to be gleaned from the case)
- Having one entity handle bids keeps the bidding process simple and organized for everyone. It also allows smaller members to devote time they had devoted to coordinating bids to other tasks.
- Members receive from the consortium what they put into it. Greater cooperation and information sharing helps all parties involved but requires active participation. Putting more time into the group results in greater monetary and non-monetary benefits.
- Open participation results in greater cooperation and greater benefits. Open membership, without fee or specific time commitment, means that participation is possible by even resource-restricted communities. It increases regional participation, allowing for greater idea and information exchange. It also keeps the door open for prospective members to join, which improves future opportunities.
- Cost savings can be realized by non-member communities when bulk purchasing drives prices down for all customers in a given region.
(Where the agreement currently stands at the time of the case’s writing)
The MMDWC currently has nineteen members, with more members joining each year. The most recent online bid (2016) involved seven participants: the cities of Ann Arbor, Jackson, Lansing and Adrian, as well as the Lansing Board of Water and Light, East Lansing-Meridian, and Delhi Township.
The MMDWC is actively exploring other aspects of regionalism, such as the prospect of a jointly-owned lime kiln. This idea is still in early discussion; however, the fact that it is being considered points to a future where MMDWC is a regional body rather than merely a purchase group.
What other communities have implemented similar projects?
The west Michigan joint purchasing group is implementing joint purchasing endeavors similar to the MMDWC although not at the same scale.