    International Boundary and Water Commission: Two Alternatives for
    Improving Wastewater Treatment at the United States-Mexico Border
    (24-APR-08, GAO-08-595R).

    For many years, untreated wastewater originating in Tijuana,
    Mexico, has entered the United States, largely via the Tijuana
    River. Tijuana's sewage system does not have the capacity to
    treat all of the city's wastewater, and some areas of the city
    are not connected to the sewer system. Tijuana's higher elevation
    results in sewage flowing downhill into California and out to the
    Pacific Ocean, causing beach closures in southern California. In
    the 1990s, the U.S. and Mexican Sections of the International
    Boundary and Water Commission collaborated with the U.S.
    Environmental Protection Agency (EPA) to address the problem by
    constructing the South Bay International Wastewater Treatment
    Plant (SBIWTP) in San Ysidro, California. The SBIWTP began
    providing the first level of treatment, known as primary
    treatment, to 25 million gallons per day (mgd) of Mexican
    wastewater in 1997. However, the part of the facility that would
    have provided secondary treatment, allowing the wastewater to
    meet Clean Water Act (CWA) standards for discharge into the
    Pacific Ocean, was not constructed due to a lack of funding and
    legal challenges. As a result, water discharged from the SBIWTP
    is only partially treated and has never complied with the
    requirements of the CWA. Over more than a decade, the U.S.
    Section of the International Boundary and Water Commission
    (USIBWC) has considered a variety of alternatives to bring the
    wastewater into CWA compliance, and now faces a federal court
    order requiring it to achieve CWA compliance by September 30,
    2008. The USIBWC is currently considering two proposals: (1)
    upgrading the SBIWTP to provide secondary treatment at the
    existing plant site, or (2) building a new plant in Mexico where
    wastewater that received primary treatment at the SBIWTP would be
    pumped for secondary treatment, as proposed by Bajagua, LLC.
    Under both proposals, the treated effluent would be pumped into
    U.S. waters of the Pacific Ocean through a pipeline known as the
    South Bay Ocean Outfall, a facility used by both the USIBWC and
    the City of San Diego. In response to an explanatory statement of
    the House Appropriations Committee that accompanied the 2008
    Consolidated Appropriations Act, GAO (1) described the two
    proposed treatment alternatives, (2) described the estimated
    costs and timelines for each proposal, and (3) assessed the
    reliability of these estimates. The explanatory statement
    directed GAO to report to the Appropriations Committees within
    120 days of enactment of the law, which occurred on December 26,
    2007. On April 7, 2008, GAO briefed members of Congressional
    staffs on our findings. This letter summarizes the main points
    from our presentation.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-08-595R
        ACCNO:   A81869
      TITLE:     International Boundary and Water Commission: Two
    Alternatives for Improving Wastewater Treatment at the United
    States-Mexico Border
         DATE:   04/24/2008
      SUBJECT:   Cost analysis
    	     Cost effectiveness analysis
    	     Environmental monitoring
    	     Evaluation criteria
    	     Facility construction
    	     Financial analysis
    	     Groundwater contamination
    	     Program evaluation
    	     Risk assessment
    	     Risk factors
    	     Risk management
    	     Sewage treatment
    	     Standards
    	     Strategic planning
    	     Wastewater
    	     Wastewater management
    	     Wastewater treatment
    	     Wastewater treatment plants
    	     Water pollution
    	     Water pollution control
    	     Water quality
    	     Water quality standards
    	     Water treatment
    	     Program goals or objectives
    	     Program implementation
    	     Mexico

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    GAO-08-595R

    This is a work of the U.S. government and is not subject to copyright
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    GAO-08-595R:

    Washington, DC 20548:
    United States Government Accountability Office:

    April 24, 2008:

    Congressional Requesters:

    Subject: International Boundary and Water Commission: Two Alternatives
    for Improving Wastewater Treatment at the United States-Mexico Border:

    For many years, untreated wastewater originating in Tijuana, Mexico,
    has entered the United States, largely via the Tijuana River. Tijuana's
    sewage system does not have the capacity to treat all of the city's
    wastewater, and some areas of the city are not connected to the sewer
    system. Tijuana's higher elevation results in sewage flowing downhill
    into California and out to the Pacific Ocean, causing beach closures in
    southern California. In the 1990s, the U.S. and Mexican Sections of the
    International Boundary and Water Commission collaborated with the U.S.
    Environmental Protection Agency (EPA) to address the problem by
    constructing the South Bay International Wastewater Treatment Plant
    (SBIWTP) in San Ysidro, California.[Footnote 1] The SBIWTP began
    providing the first level of treatment, known as primary treatment, to
    25 million gallons per day (mgd) of Mexican wastewater in 1997.
    However, the part of the facility that would have provided secondary
    treatment, allowing the wastewater to meet Clean Water Act (CWA)
    standards for discharge into the Pacific Ocean, was not constructed due
    to a lack of funding and legal challenges. As a result, water
    discharged from the SBIWTP is only partially treated and has never
    complied with the requirements of the CWA.

    Over more than a decade, the U.S. Section of the International Boundary
    and Water Commission (USIBWC) has considered a variety of alternatives
    to bring the wastewater into CWA compliance, and now faces a federal
    court order requiring it to achieve CWA compliance by September 30,
    2008. The USIBWC is currently considering two proposals: (1) upgrading
    the SBIWTP to provide secondary treatment at the existing plant site,
    or (2) building a new plant in Mexico where wastewater that received
    primary treatment at the SBIWTP would be pumped for secondary
    treatment, as proposed by Bajagua, LLC.[Footnote 2] Under both
    proposals, the treated effluent would be pumped into U.S. waters of the
    Pacific Ocean through a pipeline known as the South Bay Ocean Outfall,
    a facility used by both the USIBWC and the City of San Diego. (See
    enclosure II for additional discussion of the context for this issue, a
    timeline of significant events in the multiyear effort to address the
    environmental problems of Mexican wastewater affecting California, a
    map showing the location of wastewater treatment facilities in the
    region, and a diagram of the wastewater flows from the proposed
    facilities.)

    In response to an explanatory statement of the House Appropriations
    Committee that accompanied the 2008 Consolidated Appropriations Act,
    GAO (1) described the two proposed treatment alternatives, (2)
    described the estimated costs and timelines for each proposal, and (3)
    assessed the reliability of these estimates. The explanatory statement
    directed GAO to report to the Appropriations Committees within 120 days
    of enactment of the law, which occurred on December 26, 2007. On April
    7, 2008, we briefed members of your staffs on our findings. This letter
    summarizes the main points from our presentation. See enclosure III for
    a copy of the briefing slides from that presentation.

    To conduct this work, we obtained project descriptions and estimated
    costs and timelines from the USIBWC for the proposed SBIWTP upgrade and
    Bajagua, LLC for the proposed plant in Mexico. We interviewed
    representatives of the USIBWC and Bajagua, LLC regarding their
    estimates, and other stakeholders such as the Commissioner of the
    Mexican Section of the International Boundary and Water Commission, EPA
    staff, and staff of the California State and San Diego Regional Water
    Quality Control Boards. We visited the SBIWTP in San Ysidro,
    California, existing and under-construction wastewater treatment plants
    in Tijuana, and the proposed site for the Bajagua plant. We analyzed
    the reliability of the cost and timeline estimates using GAO's Cost
    Assessment Guide.[Footnote 3]

    Our work is subject to three key limitations. First, the USIBWC and
    Bajagua, LLC did not provide complete cost and timeline estimates until
    the latter half of March, limiting the time available for assessing
    their reliability. Second, due to time constraints, we did not
    independently verify the cost or timeline information that was provided
    to us. Third, we limited our review to the objectives discussed with
    the staffs of the House and Senate Appropriations Committees and as
    such did not address a variety of issues, such as (1) independently
    assessing Tijuana's current or future wastewater treatment needs or the
    extent to which each proposal addresses those needs; (2) assessing
    whether Bajagua, LLC could develop the capacity to reclaim and sell
    water from its proposed plant and whether such sales would reduce costs
    to the federal government; (3) assessing the extent to which untreated
    or undertreated sewage from Mexico affects southern California, how
    these impacts vary between wet and dry periods, and the extent to which
    each project would address these impacts; or (4) assessing the extent
    to which the USIBWC managed previous projects within its estimated
    costs and timeframes.

    We conducted this performance audit work from January 2008 through
    April 2008 in accordance with generally accepted government auditing
    standards. Those standards require that we plan and perform the audit
    to obtain sufficient, appropriate evidence to provide a reasonable
    basis for our findings and conclusions based on our audit objectives.
    We believe that the evidence obtained provides a reasonable basis for
    our findings and conclusions based on our audit objectives. For
    additional information on our scope and methodology, see enclosure I.

    Summary of Findings:

    Although both proposals are designed to enable the USIBWC to meet CWA
    requirements, they take different approaches in doing so.

    * The USIBWC's proposal would expand the SBIWTP to allow it to provide
    secondary treatment to the 25 mgd of wastewater already receiving
    primary treatment at the plant, bringing it to CWA standards. According
    to the USIBWC, construction would follow a final design which will be
    provided by an engineering consulting firm in June 2008, based on its
    update of the original SBIWTP design. U.S. appropriations would pay for
    the expansion's construction and operations and maintenance (O&M)
    costs.

    * Under the Bajagua, LLC proposal, Bajagua, LLC would contract with
    another company to design, build, and operate a new facility in Mexico
    that would provide secondary treatment to 25 mgd of wastewater that
    would be pumped to the plant after receiving primary treatment at the
    SBIWTP, bringing it to CWA standards. The Bajagua plant would also have
    the capacity to provide primary and secondary treatment of up to an
    additional 34 mgd of wastewater from Tijuana. However, because
    estimates of Tijuana's future wastewater treatment needs vary, it is
    unclear when this additional capacity will be needed. Bajagua, LLC does
    not currently have a detailed design for its plant because it plans to
    hire a contractor to develop one. Bajagua, LLC would fully finance the
    initial construction of the new plant, and U.S. appropriations for
    wastewater treatment services over 20 years would enable Bajagua, LLC
    to recover the costs of construction and O&M, as well as equity and
    debt service, management fees, and profits. After 20 years, the
    ownership of the plant would transfer to the responsible Mexican
    authorities.

    According to data from the USIBWC and Bajagua, LLC for their respective
    proposals, the estimated costs for the SBIWTP upgrade are lower than
    the costs for the Bajagua plant, but Bajagua, LLC projects that its
    plant will be completed about 10 months sooner than the SBIWTP upgrade.
    However, neither proposal will enable the USIBWC to comply with the
    current court-ordered deadline; specifically:

    * The USIBWC estimates that expanding the SBIWTP will cost $101.5
    million in construction costs, and that total O&M costs for both
    primary and secondary treatment facilities during the first year of
    operations will cost about $16.7 million. The cost to the U.S. federal
    government would be about $331 million for construction and operation
    over a 20-year term in 2008 dollars when adjusted for present value.
    The USIBWC projects that the expanded SBIWTP would be operational by
    January 2011.

    * Bajagua, LLC estimates that building a new facility in Mexico will
    cost $195.6 million, which it will finance. Wastewater treatment
    services, including recovery of construction costs, O&M costs (which
    include primary treatment at the SBIWTP), equity and debt service,
    management fees, and profit, will cost the U.S. federal government
    $33.8 million during the first year of operation. Over 20 years, the
    cost to the federal government would be about $539 million in 2008
    dollars when adjusted for present value. Bajagua, LLC projects that the
    new plant would be operational by March 2010.

    Neither projects' estimates of costs and timelines fully meets GAO's
    criteria for reliability, but the estimated costs and timelines for the
    SBIWTP upgrade may be somewhat more reliable than those for the
    Bajagua, LLC proposal. GAO considers a cost estimate reliable if it
    follows certain best practices--is well documented, comprehensive,
    accurate, and credible. The SBIWTP upgrade and the Bajagua plant cost
    estimates both met some of our criteria for being well documented,
    comprehensive, and accurate, but overall, the SBIWTP upgrade estimate
    met more of these criteria than the Bajagua plant estimate. For
    example:

    * The SBIWTP upgrade cost estimate was based on a final design that is
    in the process of being updated and revised, with cost estimates for
    detailed project elements rolled up to a total cost of construction,
    with significant participation and review by USIBWC and SBIWTP
    technical staff.

    * The Bajagua plant cost estimate met some of the criteria for each
    best practice, but as a preliminary design, did not include the same
    level of detailed, comprehensive descriptions of project elements and
    costs, or as clearly explain the sources of data and methodologies used
    in developing the estimate.

    * Both cost estimates met little or none of GAO's criteria for
    credibility, because neither had been independently reviewed and
    verified, varied the assumptions to assess sensitivity to changes, or
    conducted risk or uncertainty analysis to determine the extent to which
    actual costs may vary from the estimate.

    Regarding project timelines, we found that neither project fully met
    GAO's best practices for scheduling. While it is early in the
    development stage for both projects, a schedule risk analysis--using
    statistical techniques to predict the level of confidence in meeting a
    program's completion date--would be useful in assessing the reliability
    of the timeline estimates. In the absence of such an analysis, we
    identified some of the potential risks facing each project that would
    typically be part of the analysis. We found that the Bajagua, LLC
    project includes more unresolved issues than the SBIWTP upgrade, such
    as the need to obtain over 30 permits, approvals, and concessions from
    both U.S. and Mexican authorities; the need to resolve significant
    issues in its draft fee-for-services agreement with the USIBWC; and
    other legal and technical issues which could delay its schedule.

    Agency and Other Interested Party Comments and Our Evaluation:

    We provided a copy of our draft report to the USIBWC and Bajagua, LLC
    for their review and comment. The USIBWC's and Bajagua, LLC's comments
    and our detailed responses are presented in enclosures IV and V.

    In its written response, the USIBWC said that it generally agreed with
    our findings and conclusions given the limited scope and timeframe for
    the review of the two alternatives. The USIBWC also provided technical
    comments, which we incorporated into the report as appropriate.

    In its written response, Bajagua, LLC, commented on several aspects of
    our draft report, including four main areas of concern.

    * Bajagua, LLC said it believed that any comparison of its project with
    the upgrade of the SBIWTP should conclude that its project is the more
    timely and cost-effective alternative. We did not assess either
    project's benefits or make conclusions about which project would be
    more timely or cost-effective. We limited our work to the objectives
    discussed with the staff of the House and Senate Appropriations
    Committees. Specifically, we assessed the reliability of the cost and
    timeline estimates provided by the USIBWC and Bajagua, LLC against the
    criteria contained in our Cost Assessment Guide.

    * Bajagua, LLC disagreed with our finding that its project has more
    unresolved issues than the SBIWTP upgrade and stated that our analysis
    was not supported by the facts. We believe our analysis was correct.
    Our draft report (now in enclosure III, pages 48-51) noted several
    areas where key issues remain unresolved, including obtaining necessary
    permits, negotiating a fee-for-services agreement, and resolving
    outstanding legal issues. Bajagua, LLC's response provided no
    additional information to show resolution of these issues. As such, we
    believe it is appropriate to continue to characterize these issues as
    unresolved and therefore as uncertainties that could delay the Bajagua
    project's timeline.

    * Bajagua, LLC also listed five issues regarding the SBIWTP upgrade
    that it believes we did not consider in our draft report, including how
    the two proposals could affect beach pollution in California, and the
    USIBWC's track record managing past projects. We agree that we did not
    address these two issues since they were not part of our scope, as
    noted in our draft report (now on page 2). The third issue involves the
    potential for legal action against the SBIWTP, which we addressed in
    our draft report (now in enclosure III, page 47). Finally, Bajagua, LLC
    raised two legal and regulatory issues that do not appear to be
    factually accurate. Specifically, it said upgrading the SBIWTP could
    conflict with guidance from the U.S. Environmental Protection Agency
    (EPA) because Tijuana lacks a pretreatment program for its industrial
    wastewater. However, according to an EPA official, no such EPA guidance
    exists and an industrial pretreatment program has been in place in
    Tijuana since 2001. Bajagua, LLC also said the USIBWC's estimated
    timeframes did not include the time needed to obtain approval from the
    California Coastal Commission. However, according to a Commission
    official, the Commission has already granted approval for the SBIWTP to
    provide secondary treatment.

    * Finally, Bajagua, LLC expressed the view that we should continue with
    a comprehensive review of the two alternatives, including the potential
    benefits of the Bajagua project. Bajagua, LLC stated that the
    explanatory statement calling for this report also requires us to
    conduct a separate, comprehensive assessment of the two alternatives.
    While the explanatory statement does make reference to a separate on-
    going comprehensive GAO review, we did not have such a review on-going.
    We would consider conducting further work related to wastewater
    treatment issues in the Tijuana River basin if we received a
    Congressional request or mandate to do so.

    Bajagua, LLC also provided GAO with technical comments, which we
    incorporated into our report as appropriate.

    We are sending copies of this report to the Commissioner of the USIBWC;
    Bajagua, LLC; appropriate congressional committees; other interested
    Members of Congress; and other interested parties. We will also make
    copies available to others upon request. In addition, the report will
    be available at no charge on the GAO Web site at [hyperlink,
    http://www.gao.gov].

    If you or your staffs have any questions about this report, please
    contact me at 202-512-3841 or maurerd@gao.gov. Contact points for our
    Offices of Congressional Relations and Public Affairs may be found on
    the last page of this report. Major contributors to this report were
    Stephen D. Secrist, Assistant Director; Allen Chan; Brad Dobbins;
    Terrell Dorn; Richard Johnson; Alison O'Neill; Karen Richey; Anne
    Stevens; and Heather Whitehead.

    Signed by:

    David C. Maurer:
    Acting Director, Natural Resources and Environment:

    Enclosures:

    Congressional Addressees:

    The Honorable Patrick J. Leahy:
    Chairman:
    The Honorable Judd Gregg:
    Ranking Member:
    Subcommittee on State, Foreign Operations, and Related Programs:
    Committee on Appropriations:
    United States Senate:

    The Honorable Nita M. Lowey:
    Chairwoman:
    The Honorable Frank R. Wolf:
    Ranking Member:
    Subcommittee on State, Foreign Operations, and Related Programs:
    Committee on Appropriations:
    House of Representatives:

    The Honorable Dianne Feinstein:
    United States Senate:

    The Honorable Bob Filner:
    House of Representatives:

    The Honorable Duncan L. Hunter:
    House of Representatives:

    [End of correspondence]

    Enclosure 1: Scope and Methodology:

    To conduct this work, we obtained project descriptions, cost estimates,
    and completion timeline estimates from the U.S. Section of the
    International Boundary and Water Commission (USIBWC) for the proposed
    South Bay International Wastewater Treatment Plant (SBIWTP) upgrade and
    Bajagua, LLC for the proposed plant in Mexico. We interviewed
    representatives of the USIBWC and Bajagua, LLC regarding their
    estimates, and other stakeholders such as the Commissioner of the
    Mexican Section of the International Boundary and Water Commission,
    U.S. Environmental Protection Agency (EPA) staff and staff of the
    California State and San Diego Regional Water Quality Control Boards.
    We visited the SBIWTP in San Ysidro, California, existing and under-
    construction wastewater treatment plants in Tijuana, and the proposed
    site for the Bajagua plant.

    We conducted our analysis of the cost and timeline estimates using
    GAO's Cost Assessment Guide.[Footnote 4] The guide identifies best
    practices that should be followed to achieve the four characteristics
    of a high-quality, reliable cost estimate:

    1. Well Documented. An estimate is thoroughly documented, including
    source data and significance, clearly detailed calculations and
    results, and explanations of why particular methods and references were
    chosen. Data can be traced to their source documents.

    2. Comprehensive. An estimate has enough detail to ensure that cost
    elements are neither omitted nor double counted. All cost-influencing
    ground rules and assumptions are detailed in the estimate's
    documentation.

    3. Accurate. An estimate is unbiased, not overly conservative or overly
    optimistic, and is based on an assessment of most likely costs. Few, if
    any, mathematical mistakes are present and those that are present are
    minor.

    4. Credible. Any limitations of the analysis because of uncertainty or
    bias surrounding data or assumptions are discussed. Major assumptions
    are varied and other outcomes are recomputed to determine how sensitive
    they are to changes in the assumptions. Risk and uncertainty analyses
    are performed to determine the level of risk associated with the
    estimate. The estimate's results are cross-checked, and an independent
    cost estimate is developed to determine whether other estimating
    methods produce similar results.

    The Guide also identifies best practices for conducting reliable
    project timeline estimates. A project timeline estimate is considered
    reliable if (1) all activities are defined; (2) all activities are
    sequenced; (3) the duration for each activity is estimated; (4)
    resources such as labor, materials, and overhead are assigned to all
    activities; (5) a critical path is identified for all activities; (6)
    float time--the amount of time a task can slip before affecting the
    critical path--between activities is identified; (7) schedule risk
    analysis is conducted using statistical methods to determine the amount
    of time to reserve for contingencies; and (8) the schedule is
    horizontally integrated (depicts relationships between different
    program tasks and resources needed for different tasks) and vertically
    integrated (traces the consistency of data between master-,
    intermediate-, and detailed-level tasks in the schedule).

    Our work is subject to three key limitations. First, we did not receive
    current and complete cost and timeline estimates until the latter half
    of March, limiting the time available for assessing their reliability.
    Second, we did not independently verify the cost or timeline
    information that was provided to us. Third, we limited our review to
    the objectives discussed with the staff of the House and Senate
    Appropriations Committees and as such did not address a variety of
    issues, such as (1) independently assessing Tijuana's current or future
    wastewater treatment needs or the extent to which each proposal
    addresses those needs; (2) assessing whether Bajagua, LLC could develop
    the capacity to reclaim and sell water from its proposed plant and
    whether such sales would reduce costs to the federal government; (3)
    assessing the extent to which untreated or undertreated sewage from
    Mexico affects southern California, how these impacts vary between wet
    and dry periods, and the extent to which each project would address
    these impacts; or (4) assessing the extent to which the USIBWC managed
    previous projects within their estimated costs and timeframes.

    We conducted this performance audit work from January 2008 through
    April 2008 in accordance with generally accepted government auditing
    standards. Those standards require that we plan and perform the audit
    to obtain sufficient, appropriate evidence to provide a reasonable
    basis for our findings and conclusions based on our audit objectives.
    We believe that the evidence obtained provides a reasonable basis for
    our findings and conclusions based on our audit objectives.

    [End of Enclosure I]

    Enclosure II: Background and Timeline of Major Events in the Effort to
    Address Wastewater Problems along the California-Mexico Border:

    Wastewater from Mexico has historically flowed into the United States
    from Tijuana, polluting the Tijuana River estuary and, subsequently,
    the beaches south of San Diego. The Clean Water Act (CWA) generally
    prohibits the discharge of pollutants into waters of the United States
    without a National Pollutant Discharge Elimination System (NPDES)
    permit.[Footnote 5] California implements the CWA through its own water
    quality legislation known as the Porter-Cologne Act. Pursuant to these
    acts, the San Diego Regional Water Quality Control Board issues permits
    to discharging facilities in the San Diego area, including the SBIWTP.
    To meet CWA standards, wastewater discharged from the SBIWTP must
    undergo primary and secondary treatment.

    According to the USIBWC, from 1991 to 1994, Congress appropriated
    $239.4 million to the EPA for (1) a wastewater treatment facility that
    would provide both primary and secondary treatment capacity, (2) a
    facility called the South Bay Ocean Outfall (SBOO) to carry the treated
    effluent from the plant out into the Pacific Ocean for disposal, and
    (3) related facilities.[Footnote 6] The EPA distributed these funds to
    the USIBWC to plan, design, and construct the SBIWTP; to the City of
    San Diego to construct the SBOO; and to the U.S. Army Corps of
    Engineers to provide planning and environmental review assistance.
    EPA's appropriations act for fiscal year 1993 capped funding for this
    project at $239.4 million.[Footnote 7]

    A primary treatment facility and related infrastructure was constructed
    for about $133 million, the SBOO was constructed for about $90 million,
    and the SBIWTP began operating in 1997. However, the part of the SBIWTP
    that would have provided secondary treatment was never constructed
    because nearly all of the appropriated funds had been spent on
    constructing the other facilities. As a result, effluent that does not
    comply with CWA standards continues to flow into the U.S. waters of the
    Pacific Ocean, and the SBIWTP has never been in compliance with the
    terms of its NPDES permit. Figure 1 shows the location of the SBIWTP
    and other existing and proposed wastewater treatment facilities in the
    Tijuana border region.

    Figure 1: Location of Existing and Proposed Border Wastewater Treatment
    Facilities:

    [See PDF for image]

    This figure is a map of the location of existing and proposed border
    wastewater treatment facilities. The following items are specifically
    depicted on the map:
    * Proposed Bajagua pipelines (delivery and return);
    * South Bay International Wastewater Treatment Plant (WTP) site and
    proposed Bajagua pump station;
    * San Antonia de los Buenos Wastewater Treatment Plant;
    * La Morita WTP under construction;
    * Monte de los Olivos WTP under construction;
    * Proposed Bajagua WTP site;
    * Existing pipeline and South Bay Ocean Outfall.

    Source: GAO analysis of data provided by U.S. Section, IBWC, and
    Bajagua, LLC.

    [End of figure]

    Over the years, the USIBWC has considered several options for bringing
    the SBIWTP into compliance with the CWA. Under the National
    Environmental Policy Act of 1969 (NEPA), agencies evaluate the likely
    environmental effects of projects they are proposing using an
    environmental assessment (EA) or, if the projects likely would
    significantly affect the environment, a more detailed environmental
    impact statement (EIS). Over the past 14 years, the USIBWC prepared
    three separate EISs--in 1994, 1999, and 2005--considering different
    alternatives for achieving CWA compliance at the SBIWTP.

    In 1994, as part of the original SBIWTP design process, the USIBWC and
    EPA evaluated various options for secondary treatment and concluded
    that activated sludge treatment--using aerobic micro-organisms to
    produce disposable wastewater and residual solids--was its preferred
    option for meeting CWA effluent standards. However, the infrastructure
    needed to provide this treatment was never constructed in part because
    the adequacy of the NEPA analysis for the 1994 decision was challenged
    in court. The USIBWC and EPA resolved the litigation by agreeing to re-
    examine the secondary treatment alternatives. In 1999, the USIBWC and
    EPA again reviewed its options and concluded that aerated pond
    treatment was its preferred alternative for secondary treatment because
    the USIBWC believed this was the most timely and cost-effective
    option.[Footnote 8] However, Congress declined the USIBWC's and EPA's
    requests for funding and, in November 2000, passed the Tijuana River
    Valley Estuary and Beach Sewage Cleanup Act, authorizing the secondary
    treatment of wastewater from the SBIWTP at a new facility to be built
    in Mexico.[Footnote 9] The Act authorized the USIBWC to enter into a
    multiyear fee-for-services contract with the owner of the Mexican
    facility and to negotiate a new treaty minute to implement the Act's
    provisions. The Act's provisions closely paralleled the proposal of a
    private company, Bajagua, LLC, to carry out secondary treatment in
    Mexico under a fee-for-services agreement.

    In 2001, the Regional Water Quality Control Board of San Diego sued the
    USIBWC seeking to compel it to begin complying with the CWA, the Porter-
    Cologne Act, and the terms of the NPDES permit. In December 2004, the
    U.S. District Court for the Southern District of California issued an
    order that established milestones to lead the USIBWC to comply with the
    CWA by September 30, 2008.

    In February 2004, the United States and Mexico Sections of the IBWC
    agreed to a new international agreement known as a treaty minute,
    Minute 311, to implement the Tijuana River Act. Under Minute 311, the
    commission could enter into an "operating lease contract" with Bajagua,
    LLC as the service provider of the Mexican facility. Minute 311
    provided that the arrangement would be subject to the approval of the
    U.S. and Mexican governments in a subsequent treaty minute.[Footnote
    10]

    In 2005, the USIBWC once more evaluated its options and concluded that
    funding was not available at that time to construct a secondary
    treatment option at the U.S. facility. Therefore its preferred option
    was to pump wastewater that had undergone primary treatment at the
    SBIWTP to a plant to be built in Mexico, where it would receive
    secondary treatment using an extended aeration process. The plant would
    be built and operated by Bajagua, LLC and paid for by a fee-for-
    services agreement. According to a 2005 document explaining the
    USIBWC's decision, Bajagua, LLC was chosen in part because the USIBWC
    believed that Bajagua, LLC could meet the deadlines in the court order
    and because funding was not available at that time to upgrade the U.S.
    facility. However, the USIBWC suspended its development agreement with
    Bajagua, LLC on May 8, 2007, after Bajagua, LLC informed the USIBWC
    that it would not be able to meet the court-ordered deadline.[Footnote
    11] The 2008 Consolidated Appropriations Act, signed by the President
    on December 26, 2007, included language requiring the USIBWC to resume
    negotiations with Bajagua, LLC and to prepare plans to upgrade the
    SBIWTP. Consequently, the USIBWC is currently considering two
    proposals: (1) upgrading the SBIWTP to provide secondary treatment at
    the existing plant site, or (2) building a new plant in Mexico and
    pumping wastewater that received primary treatment at the SBIWTP to the
    new plant for secondary treatment, as proposed by Bajagua, LLC. Figure
    2 shows the wastewater flows for the two proposals.

    Figure 2: Diagram of Wastewater Flows for the Alternative Proposals:

    [See PDF for image]

    This figure displays two maps containing diagrams of wastewater flows
    for the alternative proposals. The following items are indicated on
    each map:

    SBIWTP Upgrade Proposal:
    1) 25 mgd of untreated waste.
    2) SBIWTP: 25 mgd advanced primary treatment (existing).
    3) SBIWTP: 25 mgd secondary treatment (proposed).
    4) 25 mgd discharged outfall (existing).

    Bajagua Plant Proposal:
    1) 25 mgd of untreated waste.
    2) SBIWTP: 25 mgd advanced primary treatment (existing).
    3) 25 mgd primary treated water pumped uphill (proposed).
    4) Up to 34 mgd untreated Mexican waste (proposed).
    5) Bajagua WTP up to 59 mgd treated to secondary level (proposed).
    6) Up to 58 mgd secondary treated waste water flows downhill
    (proposed).
    7) Up to 59 mgd discharged to Outfall (existing).

    Source: GAO analysis of data provided by U.S. Section, IBWC, and
    Bajagua, LLC.

    [End of figure]

    [End of enclosure II]

    Enclosure III: Slides from April 7, 2008, Briefing to Congressional
    Staff:

    International Boundary and Water Commission:

    A Briefing for Congressional Requesters on Two Alternatives for
    Improving Wastewater Treatment at the United States-Mexico Border:

    April 7, 2008:

    The Problem:

    For many years untreated sewage flows entered the United States from
    Tijuana, Mexico, largely via the Tijuana River. Tijuana�s sewage system
    does not have the capacity to treat all of the city�s wastewater, and
    its higher elevation resulted in sewage flowing downhill into
    California.

    The untreated wastewater polluted the Tijuana River estuary and
    discharged into the Pacific Ocean, causing beach closures on the
    California coast south of San Diego.

    In the 1990s, the U.S. and Mexican Sections of the International
    Boundary and Water Commission and the U.S. Environmental Protection
    Agency (EPA) addressed the problem by building the South Bay
    International Wastewater Treatment Plant (SBIWTP) in San Ysidro,
    California.

    To meet Clean Water Act (CWA) standards, wastewater from the plant must
    receive primary and secondary treatment before it can be discharged.

    The SBIWTP began operations in 1997, providing advanced primary
    treatment to 25 million gallons per day (mgd) of wastewater from
    Tijuana. The part of the facility that was to provide secondary
    treatment was never constructed because of legal challenges and a lack
    of funding.

    As a result, water discharged from the SBIWTP via the South Bay Ocean
    Outfall (SBOO) into U.S. waters of the Pacific Ocean is only partially
    treated and has never met CWA standards.

    USIBWC Currently Is Considering Two Proposals:

    The U.S. Section of the International Boundary and Water Commission
    (USIBWC) has considered several options over the years to solve the
    problem, and is currently under a federal court order to comply with
    the CWA by September 30, 2008.

    The USIBWC is considering two alternatives:

    1. Upgrading the SBIWTP to provide secondary treatment at the existing
    plant site, or;

    2. Building a new plant in Tijuana, Mexico, and pumping wastewater from
    the SBIWTP to the new facility for secondary treatment, as proposed by
    Bajagua, LLC.

    Under both proposals, treated wastewater would be discharged into the
    ocean via the existing SBOO.

    Neither proposal addresses wastewater flows outside of the Tijuana
    sewage system.

    Figure 1: Location of Existing and Proposed Border Wastewater Treatment
    Facilities:

    [See PDF for image]

    This figure is a map of the location of existing and proposed border
    wastewater treatment facilities. The following items are specifically
    depicted on the map:
    * Proposed Bajagua pipelines (delivery and return);
    * South Bay International Wastewater Treatment Plant (WTP) site and
    proposed Bajagua pump station;
    * San Antonia de los Buenos Wastewater Treatment Plant;
    * La Morita WTP under construction;
    * Monte de los Olivos WTP under construction;
    * Proposed Bajagua WTP site;
    * Existing pipeline and South Bay Ocean Outfall.

    Source: GAO analysis of data provided by U.S. Section, IBWC, and
    Bajagua, LLC.

    [End of figure]

    Objectives:

    In response to an explanatory statement that accompanied the 2008
    Consolidated Appropriations Act, GAO:

    1. described the two proposed treatment alternatives;

    2. described the estimated costs and timelines for each proposal, and;

    3. assessed the reliability of the cost and timeline estimates.

    The explanatory statement directed GAO to report to the Appropriations
    Committees within 120 days of enactment of the law, which occurred on
    December 26, 2007.

    Scope and Methodology:

    To describe the proposals, their costs, and timelines, we:

    * obtained project descriptions and cost and completion timeline
    estimates from the USIBWC for the SBIWTP upgrade and Bajagua, LLC for
    the plant in Mexico; and;

    * interviewed representatives of the USIBWC, Bajagua, LLC, EPA,
    regional water quality control boards, and other stakeholders.

    We also visited the SBIWTP, existing and under-construction treatment
    plants in Tijuana, and the proposed site for the Bajagua plant.

    We conducted this performance audit from January 2008 to April 2008 in
    accordance with generally accepted government auditing standards.

    Limitations of GAO�s Work:

    The USIBWC and Bajagua, LLC did not provide current and complete cost
    and timeline estimates until the latter half of March, limiting the
    time available for assessing their reliability.

    We did not independently verify these cost or timeline estimates.

    We limited our review to the objectives discussed with the staffs of
    the House and Senate Appropriations Committees. As a result, we did not
    assess a number of related issues, such as the potential benefits of
    the proposals.

    The Alternatives: In Summary:

    Both plants would address the current need to provide secondary
    treatment to 25 mgd of Mexican wastewater, but would do so with
    different contracting and funding approaches.

    The Bajagua, LLC proposal is more logistically complex due in part to
    the movement of wastewater back and forth across the border for primary
    and secondary treatment.

    The larger treatment capacity of the Bajagua plant could help address
    Tijuana�s future needs, but estimates vary regarding when this
    additional capacity may be needed.

    Table: The Alternatives: Three Key Differences In Approaches:

    Amount treated:
    SBIWTP Upgrade: Would provide secondary treatment for 25 mgd of
    wastewater;
    Bajagua Plant: Would provide secondary treatment for 25 mgd of
    wastewater and the capacity to treat up to 34 mgd of additional
    wastewater from Tijuana.

    Design, construction, and operation:
    SBIWTP Upgrade: USIBWC would request separate bids to (1) construct the
    upgrade based on USIBWC�s final design and (2) operate the plant when
    completed;
    Bajagua Plant: Bajagua, LLC would enter into a fixed price contract
    with a single contractor to design, build, and operate (DBO contractor)
    the plant.

    Funding:
    SBIWTP Upgrade: U.S. appropriations would fund construction and
    operations and maintenance (O&M) costs;
    Bajagua Plant: Bajagua, LLC would finance cost of construction. U.S.
    appropriations would pay for wastewater treatment services over 20
    years enabling Bajagua, LLC to recover the cost of construction and pay
    for O&M costs, management fees, and profits.

    [End of table]

    The Alternatives: Differences in Wastewater Flows for Each Alternative:

    Figure 2: Diagram of Wastewater Flows for the Alternative Proposals:

    [See PDF for image]

    This figure displays two maps containing diagrams of wastewater flows
    for the alternative proposals. The following items are indicated on
    each map:

    SBIWTP Upgrade Proposal:
    1) 25 mgd of untreated waste.
    2) SBIWTP: 25 mgd advanced primary treatment (existing).
    3) SBIWTP: 25 mgd secondary treatment (proposed).
    4) 25 mgd discharged outfall (existing).

    Bajagua Plant Proposal:
    1) 25 mgd of untreated waste.
    2) SBIWTP: 25 mgd advanced primary treatment (existing).
    3) 25 mgd primary treated water pumped uphill (proposed).
    4) Up to 34 mgd untreated Mexican waste (proposed).
    5) Bajagua WTP up to 59 mgd treated to secondary level (proposed).
    6) Up to 58 mgd secondary treated waste water flows downhill
    (proposed).
    7) Up to 59 mgd discharged to Outfall (existing).

    Source: GAO analysis of data provided by U.S. Section, IBWC, and
    Bajagua, LLC.

    [End of figure]

    The Alternatives: Estimates Vary on When Bajagua�s Extra Capacity May
    Be Needed:

    A 2003 report by the State Commission of Public Services of Tijuana
    (CESPT) and EPA projected that Tijuana would need an additional 34 mgd
    of wastewater treatment capacity by 2023.

    A February 2008 updated analysis, also conducted by CESPT and EPA,
    found that Tijuana will need no additional treatment capacity until at
    least 2015, but could need about 17 mgd of additional capacity by 2025.

    In a March 27, 2008 letter to the Commissioner of the Mexican Section
    of the IBWC, CESPT independently updated its estimate, identifying 12
    mgd of additional treatment capacity needed in 2010, and 34 mgd needed
    by 2019.

    Costs and Timelines: In Summary:

    According to USIBWC and Bajagua, LLC estimates for their respective
    proposals:

    * the SBIWTP upgrade would cost less to construct and less to operate
    on an annual basis as well as over a 20-year operating period;

    * the Bajagua plant would be operational about 10 months before the
    SBIWTP upgrade would be operational.

    Neither proposal�s estimated completion date meets the court order to
    meet CWA standards by September 30, 2008.

    Costs and Timelines: SBIWTP Upgrade Costs Less Than Bajagua Plant to
    Build and Operate:

    USIBWC estimates the U.S. federal government�s cost to upgrade the
    SBIWTP to 25 mgd of secondary treatment capacity is $101.5 million in
    2008 dollars.

    Total O&M costs for both the primary and secondary treatment facilities
    will initially (first year)cost $16.7 million in 2008 dollars.

    * Total O&M costs include $8.4 million for primary and $8.3 million for
    secondary treatment.

    Bajagua, LLC estimates that it will cost $195.6 million in 2008 dollars
    to construct a plant with secondary treatment capacity of 59 mgd.

    Wastewater treatment services, including O&M costs (which include
    primary treatment at SBIWTP), equity and debt service, management fees,
    and profit, will initially cost the U.S. federal government $33.8
    million, in 2008 dollars.

    Bajagua, LLC�s estimate is based on treatment of 34.6 mgd in the first
    year of operation. This includes 25 mgd of wastewater it will receive
    from the SBIWTP and 9.6 mgd it expects to receive from the Tijuana
    sewer system.

    As treatment needs increase over time, as Bajagua, LLC expects them to,
    costs to the U.S. federal government will also increase.

    Costs and Timelines: SBIWTP Upgrade�s Total 20-year Cost Is Less Than
    Bajagua Plant�s:

    The estimated cost to the U.S. federal government for construction and
    operation over a 20-year term is:

    * about $331 million for the SBIWTP upgrade, and;
    * about $539 million for the Bajagua plant.

    Both estimates are for the present value in 2008.

    Both estimates include the costs of providing primary and secondary
    treatment. This means that both estimates include the O&M costs for
    primary treatment at the SBIWTP ($121 million).

    Costs and Timelines: Other Cost Considerations:

    If Bajagua, LLC develops the capability to reclaim water from its
    plant, it has proposed that future U.S. federal government costs could
    be reduced by sharing in revenues from the sale of such reclaimed
    water.

    After 20 years, Bajagua plant ownership would transfer to Mexican
    authorities, and the U.S. federal government�s service fee obligation
    to Bajagua, LLC would end.

    SBIWTP O&M costs would continue as an obligation of the federal
    government indefinitely, as would O&M costs for pumping primary treated
    water to the Bajagua plant if it is built.

    USIBWC is currently initiating negotiations with Mexico to increase the
    share of SBIWTP O&M costs paid by Mexico.

    Costs and Timelines: USIBWC Estimates the SBIWTP Upgrade Will Be
    Operating Jan. 2011:

    Table:

    Activity: Design;
    Timeline: January 2008 - June 2008.

    Activity: Permits and Approval;
    Timeline: April 2008 - January 2009.

    Activity: Procurement (construction);
    Timeline: June 2008 - January 2009.

    Activity: Construction;
    Timeline: January 2009 - January 2011.

    Activity: Procurement (Operations);
    Timeline: April 2010 - January 2011.

    Activity: Testing;
    Timeline: January 2011.

    [End of table]

    Costs and Timelines: USIBWC�s Assumptions for Beginning Operations in
    Jan. 2011:

    Table:

    Activity: Design;
    Estimated Duration: 5 months;
    Plans/Assumptions: Engineering firm S&B Infrastructure is updating the
    original design for USIBWC, to be completed by June 24, 2008.

    Activity: Permits and Approval;
    Estimated Duration: 9 months;
    Plans/Assumptions: USIBWC estimates it will develop and issue a revised
    record of decision explaining its rationale for selecting the SBIWTP
    upgrade alternative in 3 months, and it will take an additional 6
    months to receive two permits.

    Activity: Procurement (Construction);
    Estimated Duration: 6.5 months;
    Plans/Assumptions: Time includes 1.5 months to prepare the
    solicitation, 3 months of bidding, and 2 months to award and issue
    notice to proceed. The construction contract will be awarded through
    sealed bidding. Ability to award contract assumes that Congress
    provides sufficient funding at beginning of FY 2009.

    Activity: Construction;
    Estimated Duration: 24 months;
    Plans/Assumptions: S&B Infrastructure estimates construction will take
    18-24 months.

    Activity: Procurement (Operations)
    Estimated Duration: 9 months;
    Plans/Assumptions: USIBWC�s estimate is based on its last solicitation
    for the SBIWTP O&M contract. O&M contract will be a negotiated
    procurement.

    Activity: Testing;
    Estimated Duration: 1 month;
    Plans/Assumptions: S&B Infrastructure estimates testing will take a
    month.

    [End of table]

    Costs and Timelines: Bajagua, LLC Estimates Its Plant Will Be Operating
    in March 2010:

    Table:

    Activity: Design;
    Timeline: May 2008 - September 2009.

    Activity: Permits and Approval;
    Timeline: January 2008 - March 2010.

    Activity: Procurement;
    Timeline: April 2008 - September 2008.

    Activity: Construction;
    Timeline: September 2008 - March 2010.

    Activity: Testing;
    Timeline: March 2010.

    [End of table]

    Costs and Timelines: Bajagua�s Assumptions for Beginning Operations in
    March 2010:

    Table:

    Activity: Design;
    Estimated Duration: 17 months;
    Plans/Assumptions: Current design is conceptual. In line with typical
    DBO contracts, contractor will complete design during procurement and
    construction phase.

    Activity: Permits and Approvals;
    Estimated Duration: 27 months;
    Plans/Assumptions: Bajagua, LLC and its DBO contractor would be
    required to obtain over 30 permits, environmental approvals, and
    concessions from both U.S. and Mexican authorities during this period.

    Activity: Procurement;
    Estimated Duration: 5 months, 1 week;
    Plans/Assumptions: Procurement phase includes the time from USIBWC
    review of the request for proposal to signing the DBO contract.

    Activity: Construction;
    Estimated Duration: 18 months;
    Plans/Assumptions: Construction will begin after procurement.
    Engineering firm RW Beck made the estimate and the three firms that
    passed the request for qualifications (RFQ) stage confirmed it.

    Activity: Testing;
    Estimated Duration: 1 month;
    Plans/Assumptions: RW Beck made the estimate and the three firms that
    passed the RFQ stage confirmed it.

    [End of table]

    Reliability Assessment: In Summary:

    Neither project�s cost and timeline estimates fully meets GAO�s
    criteria for reliability.

    * The SBIWTP upgrade�s cost estimate meets GAO�s criteria to a greater
    extent than the Bajagua plant�s cost estimate, which may make it
    somewhat more reliable than the Bajagua plant�s estimate.

    * Neither timeline estimate meets GAO�s criteria, although the greater
    number of uncertainties related to Bajagua, LLC�s timeline reflects
    more potential risk in that schedule.

    Reliability Assessment: Criteria for Assessing the Cost Estimates:

    Certain best practices should be followed to develop accurate and
    credible cost estimates.

    * Best practices represent established, repeatable methods that result
    in quality estimates that can be easily and clearly traced, replicated,
    and updated.

    We conducted our analysis of cost estimates using GAO�s Cost Assessment
    Guide (GAO-07-1134SP), which considers an estimate to be reliable if it
    is:
    * well documented;
    * comprehensive;
    * accurate, and;
    * credible.

    Reliability Assessment: SBIWTP Estimate Is Better Documented Than
    Bajagua�s:

    While neither project�s cost estimate fully meets GAO�s criteria for
    being well documented, the SBIWTP upgrade estimate meets more of the
    best practices than the Bajagua estimate.

    The SBIWTP upgrade cost estimate largely meets GAO�s documentation
    criteria. Specifically:

    * its purpose is clear, assumptions are well-defined and have been
    reviewed and approved by USIBWC technical staff, and it includes a
    technical baseline that comprehensively describes the project in
    detail;

    * the source data and methodologies for calculating the point cost
    estimate are clearly stated, which lends itself to replication;

    * the estimate did not provide for full traceability to source data
    (e.g., price quotes for materials) or always provide the rationale for
    using a particular methodology or source.

    The Bajagua plant cost estimate partially meets GAO�s documentation
    criteria. Specifically:

    * its purpose is clear, the assumptions are generally defined, and it
    has been reviewed and approved by Bajagua, LLC�s management;

    * the preliminary technical baseline describing the project is not
    detailed or comprehensive, in keeping with the DBO approach;

    * source data and methodologies for calculating the point cost estimate
    are only described in general terms, making replication potentially
    difficult; and;

    * the estimate did not provide for full traceability to source data, or
    always provide the rationale for using a particular methodology or
    source.

    Reliability Assessment: SBIWTP�s Estimate Is More Comprehensive Than
    Bajagua�s:

    While neither project�s cost estimate fully meets GAO�s
    comprehensiveness criteria, the SBIWTP upgrade estimate provides
    greater detail on more project elements than the Bajagua estimate.

    The SBIWTP upgrade cost estimate partially meets GAO�s
    comprehensiveness criteria. Specifically, it includes:

    * a work breakdown structure defining in detail the work needed to
    produce specific elements of the project down to four levels of cost,
    and;

    * a detailed description of resources and processes needed to produce
    each component of the project, including the largest budget items that
    most impact total cost.

    We found estimates for high-level costs common to all project elements,
    but not for more detailed level costs, such as testing or procurement.

    The Bajagua plant cost estimate partially meets GAO�s comprehensiveness
    criteria. Specifically, it includes:

    * a work breakdown structure generally defining the work needed to
    produce specific elements of the project down to three levels of cost,
    and;

    * a general description of the resources and processes needed to
    produce each component of the project, but did not specify the largest
    budget items that most impact total cost.

    We found estimates for many costs common to all project elements, such
    as procurement and construction management.

    Reliability Assessment: Both Cost Estimates Partially Met GAO�s
    Accuracy Criteria:

    Neither project�s cost estimate fully meets GAO�s accuracy criteria,
    but both have taken steps to validate the reasonableness of their
    updated estimates.

    For the SBIWTP upgrade cost estimate:

    * a consulting engineering firm checked the original design estimate
    for errors, made corrections, cross-checked the biggest budget items,
    and used the build-up method which identifies detailed level costs and
    rolls the costs up to higher levels to produce a new total cost point
    estimate.

    For the Bajagua plant cost estimate:

    * the consulting engineering firm that developed the preliminary plant
    design revised the estimate to reflect the current design status,
    updated costs to reflect current prices and rates, and used the build-
    up method to produce a new total cost point estimate.

    Reliability Assessment: Both Cost Estimates Met Little of GAO�s
    Credibility Criteria:

    Neither project�s cost estimate meets GAO�s credibility criteria.

    The cost estimates for both projects have not:

    * been independently reviewed and verified to determine if other
    estimating methods would produce similar results;

    * varied major assumptions to determine how sensitive outcomes are to
    changes in the assumptions; and;

    * conducted risk and uncertainty analyses to determine the level of
    risk and the extent to which the actual costs may vary from the point
    estimate.

    Both estimates included a contingency factor for uncertainty (10% for
    Bajagua and 15% for SBIWTP upgrade) but neither described how or why
    this amount was selected.

    Reliability Assessment: Best Practices for Assessing the Timeline
    Estimates:

    GAO�s Cost Assessment Guide (GAO-07-1134SP) includes a set of best
    practices for scheduling that focus on constructing an integrated
    network schedule, necessary components of which include that:

    * all activities are defined and sequenced, and the duration for each
    activity is estimated;

    * resources (e.g., labor, material, and overhead) are assigned to all
    activities;

    * the critical path is identified for all activities;

    * float time�the amount of time a task can slip before affecting the
    critical path�between activities is identified;

    * schedule risk analysis is conducted using statistical methods to
    determine the amount of time to reserve for contingencies; and;

    * the schedule is horizontally integrated (depicts relationships
    between different program tasks and resources needed for different
    tasks) and vertically integrated (traces the consistency of data
    between master-, intermediate-, and detailed-level tasks in the
    schedule).

    Reliability Assessment: Neither Project�s Timeline Fully Meets GAO�s
    Criteria:

    While both projects have timeline estimates based on the previous
    experience of their engineering contractors, neither project�s timeline
    estimate fully meets any of the scheduling best practices.

    Since a construction contractor has not yet been assigned to either
    project, neither project has yet developed an integrated network
    schedule, which would promote efficiency and accuracy in program
    scheduling.

    Although it is early in the project development stage for both
    projects, completing a schedule risk analysis to determine the level of
    uncertainty related to different program elements would be critical in
    assessing the reliability of the projects� timeline estimates.

    Reliability Assessment: Bajagua Plant Timeline Includes Greater
    Uncertainties:

    Since neither project has conducted a schedule risk analysis, GAO
    identified some of the potential risks facing each project that would
    typically go into such an analysis.

    GAO found that there are a greater number of uncertainties associated
    with the Bajagua plant that could affect schedule and cost.

    Reliability Assessment: Uncertainties That May Delay the SBIWTP Upgrade
    Timeline:

    Table:

    Areas of Uncertainty: USIBWC may not receive funding at the beginning
    of the fiscal year;
    Potential Impact: May delay contract award date and, subsequently,
    completion dates.

    Areas of Uncertainty: USIBWC may not receive sufficient funding;
    Potential Impact: USIBWC could not complete upgrade with current
    appropriations of $66 million.

    Areas of Uncertainty: Lawsuit may seek to force USIBWC to prepare new
    Environmental Impact Statement;
    Potential Impact: Delays upgrade if court issues injunction, which will
    depend in part on whether there is significant new environmental
    information needing analysis.

    [End of table]

    Reliability Assessment: Uncertainties That May Delay the Bajagua
    Plant�s Overall Timeline:

    Table:

    Areas of Uncertainty: Over 30 permits, environmental approvals, and
    concessions from both U.S. and Mexican authorities are needed both for
    construction and operations;
    Potential Impact: Delay in any of these items would cause the timeline
    to be put on hold until the necessary permit, approval, or concession
    could be obtained.

    [End of table]

    Reliability Assessment: Uncertainties That May Delay the Bajagua
    Plant�s Start of Procurement:

    Areas of Uncertainty: According to EPA, the National Environmental
    Policy Act (NEPA) requires a review of the Bajagua plant�s new site
    location before the start of procurement;
    Potential Impact: Review would take a minimum of 1 month and could take
    more than a year if the site is an endangered species habitat.

    Areas of Uncertainty: The Binational technical Committee which advises
    the IBWC is concerned about the availability and location of the 34 mgd
    of additional sewage flows;
    Potential Impact: Procurement could be delayed until the issues are
    resolved.

    [End of table]

    Reliability Assessment: Uncertainties That May Delay the Bajagua
    Plant�s Start of Construction:

    Table:

    Areas of Uncertainty: U.S. and Mexican Sections of the IBWC must
    negotiate a Minute (implementation agreement) before construction can
    begin;
    Potential Impact: USIBWC officials estimate that negotiation will take
    approximately 13 months from the date of issuance of this GAO report,
    which could delay construction by about 9 months.

    Areas of Uncertainty: USIBWC has concerns about the draft of its fee-
    for-services agreement with Bajagua, LLC, which must be signed before
    Bajagua, LLC could sign a DBO contract;
    Potential Impact: USIBWC hopes issues can be resolved before the DBO
    contract is ready, otherwise construction would be delayed for an
    unknown period until the issues are resolved.

    Areas of Uncertainty: The location of proposed pipelines to and from
    the Bajagua plant along the Tijuana River flood control channel;
    Potential Impact: The pipeline design details may delay approval of the
    right-of-way issuance by Mexico if Mexico thinks the pipeline
    installation may pose a problem for flood control, vehicular access, or
    traffic.

    [End of table]

    Reliability Assessment: Uncertainties That May Delay the Bajagua
    Plant�s Start of Operations:

    Table:

    Areas of Uncertainty: Bajagua, LLC�spending application for CWA permit
    and the need for USIBWC to be named on the permit;
    Potential Impact: Failure to resolve this issue could delay or prevent
    Bajagua plant operation.

    [End of table]

    [End of enclosure III]

    Enclosure IV: Comments from the USIBWC:

    Note: GAO comments supplementing those in the report text appear at the
    end of this enclosure.

    International Boundary And Water Commission:
    United States And Mexico:
    Office Of The Commissioner:
    United States Section:
    The Commons, Building C, Suite 310:
    4171 N. Mesa Street:
    El Paso, Texas 79902:
    (915) 832-4100:
    (FAX) (915) 832-4190:
    [hyperlink, http://www.ibwc.state.gov]:

    April 16, 2008:

    Mr. David C. Maurer:
    Acting Director, Natural Resources and Environment:
    Government Accountability Office:
    441 G St., NW:
    Washington, D.C. 20548:

    Dear Mr. Maurer:

    I would like to extend my appreciation to the Government Accountability
    Office for your work evaluating alternatives for secondary treatment at
    the South Bay International Wastewater Treatment Plant (SBIWTP). The
    following comments are offered by USIBWC on the draft report we
    received from you on April 8, 2008, and we look forward to receiving
    the final report. The USIBWC generally agrees with GAO's findings,
    conclusions and recommendations given the limited scope and timeframe
    for the review of the two alternatives. I would also like to emphasize
    that the alternative for completing secondary in the United States is
    viewed as a more efficient and less expensive solution to bringing the
    SBIWTP into Clean Water Act compliance as demonstrated by the funding
    for this project in the FY 2008 Appropriations Act.

    Page 1, first sentence - Transboundary flows in canyons should be
    noted; not all flow into the U.S. enters via the Tijuana River. [See
    comment 1]

    Page 1, second sentence - Note there are unsewered areas in Tijuana in
    addition to lack of wastewater treatment capacity. [See comment 1]

    Page 1, third Sentence - Identify the U.S. Environmental Protection
    Agency as a collaborator with the U.S. and Mexican Sections of the IBWC
    in constructing the SBIWTP. [See comment 1]

    Page 1, second paragraph, first sentence and throughout document - The
    abbreviation for the United States Section, International Boundary and
    Water Commission, United States and Mexico is USIBWC. IBWC is the
    abbreviation for the Commission as a whole, which includes both U.S.
    and Mexican Sections. [See comment 1]

    Page 5, first paragraph - Regarding the statement that the Bajagua
    project will cost the U.S. federal government $32.2 million during the
    first year of operation and would be about $516 million in 2008
    dollars, the USIBWC questions the reliability of this estimate unless
    Bajagua has some data to substantiate this assertion. The Development
    Agreement entered into between the USIBWC and Bajagua identified a cost
    range of between $29-39 million dollars, which represented + /- 15% of
    $34.5 million. This figure was based on a construction cost of $178
    million. Bajagua is now estimating a construction cost of $195.6
    million. The reduced annual cost appears low in light of the fact that
    the capital cost has increased above the amount anticipated in the
    Development Agreement. USIBWC also comments that there is not certainty
    on the cost of the Bajagua project until after the Request for
    Proposals is issued and a Design Build Operate contract is awarded for
    the project.

    Page 5, first paragraph - USIBWC disagrees that the Bajagua project
    could be completed by March 2010. USIBWC internal analysis, including
    consideration of needed binational agreements, including a new IBWC
    Minute, and the general complexity and novelty of the project indicates
    at the very best, a similar time frame to the SBIWTP secondary upgrade.

    Page 12 The location maps here and on page 15 should have a scale. [See
    comment 2]

    Page 13, second paragraph - It is important to note that both USIBWC
    and EPA collaborated in NEPA document preparation and evaluation of
    treatment options. The 1994 lawsuit involved NEPA compliance for the
    plant. The treatment technology was not the subject of litigation but
    rather litigants challenged the NEPA documentation for failure to
    examine sufficient alternatives. Congress declined both the USIBWC and
    EPA's requests for funding. In the discussion of the 1999 ROD, it
    should be noted that EPA was a cooperating agency and that it was
    indeed EPA who believed that ponds were the most timely and cost-
    effective option, considering the remaining funding available to EPA.
    USIBWC concurred since it was EPA that was the funding stream for the
    project; USIBWC always believed that from an engineering standpoint
    activated sludge was the more proven and better technology. [See
    comment 1]

    Page 14 - Substitute "an extended aeration process" for "aerated
    ponds". Also, change "using oxygen and microorganisms to break down
    sewage into a disposable sludge" to "the use of aerobic microorganisms
    in a biological floc to reduce the organic content of sewage. The end
    products of the activated sludge process include wastewater of
    acceptable quality for discharge and a residual biosolid requiring
    further stabilization and treatment." [See comment 1]

    Power Point Presentation Slides:

    Slide 10: It should be noted that the SBIWTP upgrade has the capacity
    for expansion up to 100 mgd. Clarify that one contractor will operate
    the SBIWTP, both advanced primary and secondary facilities. On the
    funding section, we should note that U.S. appropriations would fund the
    U.S. share of construction and operations and maintenance costs and
    that Mexico will continue to cost-share the O&M. Indicate that we are
    initiating negotiations with Mexico to increase their cost-share. [See
    comment 1]

    Slide 12: The USIBWC has not been provided data to substantiate the
    CESPT assertion that an additional 12 mgd capacity is needed in 2010;
    unless CESPT is planning to reduce sewage flows currently going to
    existing Mexican facilities.

    Slide 13: Please delete reference to IBWC on the timeframe estimate for
    the Bajagua project. USIBWC does not believe the Bajagua Project can be
    completed 10 months earlier than the SBIWTP upgrade. [See comment 1]

    Slide 14: Cost for advanced primary operations and maintenance should
    be revised to $8.4 million and cost for secondary to $8.3 million, 2008
    dollars. USIBWC current cost for O&M contract for the plant is $6.8
    million, however the cost of water, electricity and SDG&E fees is $1.6
    million. [See comment 1]

    Slide 15: Third bullet - Is there any basis for the 9.6 mgd additional
    capacity above 25 mgd proposed in the first year of operation? CESPT
    identified 12 mgd deficiency in 2010, not 9.6 mgd. [See comment 3]

    Slide 17: Third bullet--Note that Mexican financial obligations for
    IBWC treatment facilities at Nuevo Laredo and Nogales have been less
    than optimum. USIBWC expects that there will be ongoing U.S. Government
    cost participation after 20 years with the Bajagua Project because in
    the past Mexico has not developed the financial capacity to become self
    sufficient. In addition to the continued U.S. Government funding of the
    SBIWTP O&M costs, it should be noted that the U.S. Government would
    likely also be indefinitely supplementing the funding of the cost of
    pumping the advanced primary effluent from the SBIWTP to the Bajagua
    plant, since that pump station is in the U.S. and will receive power
    from a U.S. utility. [See comment 4]

    Slide 21: Clarify that the duration for permits and approvals stretches
    over the entire procurement process. Delays in any of these could delay
    construction. Also, verify that design will be conducted up to a point
    5 months before construction is completed. I am assuming that the
    schedule reflects the DBO proposals submitted before construction
    begins as part of "design". [See comment 5]

    Slide 36: A significant area of uncertainty includes negotiation of a
    new Minute by the U.S. and Mexican Sections of the IBWC, which will
    constitute final binational approval of the project design parameters
    and fee-for-services contract. In addition the Minute must be approved
    by both the U.S. and Mexican Governments before it can enter into
    force.

    Thanks for the opportunity to review the draft and provide comments. If
    you need any additional information, please call me at 915-832-4157 or
    Mr. Steve Smullen at 619-662-7600.

    Sincerely,

    Signed by:
    Carlos Marin, P.E.
    Commission:

    GAO Evaluation:

    1. Except where noted otherwise below, we made changes to the draft
    report in response to USIBWC's technical comments as appropriate.

    2. The purpose of the maps in enclosure II, pages 12 and 14 of our
    report, is to identify the general locations of the existing and
    proposed border wastewater treatment facilities. They are not
    necessarily drawn to scale.

    3. As the report indicates in enclosure III, page 29, 9.6 mgd of
    additional wastewater is Bajagua, LLC's estimate of the amount of
    wastewater it expects to receive from the Tijuana sewer system in its
    first year of operation. We did not independently assess Tijuana's
    current or future wastewater treatment needs.

    4. The USIBWC notes that it expects that there will be ongoing U.S.
    federal government cost participation in the proposed Bajagua plant
    after 20 years. Our report does not say that all costs to the U.S.
    government would end after 20 years. Rather, in enclosure III, page 31,
    we said that the U.S. government's service fee obligation to Bajagua,
    LLC would end at that time. In addition, we indicated that the O&M
    costs for the SBIWTP would continue indefinitely, including O&M costs
    for pumping primary treated water to the Bajagua plant, if it is built.

    5. Enclosure III, page 34, of the report shows that, according to
    Bajagua, LLC, its estimated time for obtaining permits and approvals
    extends over the entire procurement process and that design activities
    will be conducted up to a point 5 months before construction is
    completed.

    [End of enclosure IV]

    Enclosure V: Comments from Bajagua, LLC:

    Note: GAO comments supplementing those in the report text appear at the
    end of this enclosure.

    bajagua project, LLC:
    160 Industrial St. Suite 200:
    San Marcos, CA 92078:
    Bus. 760.471.2365:
    Fax 760.471.2383:
    [hyperlink, http://www.bajagua.com]:

    April 16, 2008:

    Mr. Steve Secrist:
    Assistant Director:
    Natural Resources & Environment:
    Government Accounting Office:
    301 Howard Street, Suite 1200:
    San Francisco, CA 94105:

    Re: Comments on GAO's Draft Report "International Boundary and Water
    Commission: Two Alternatives for Improving Wastewater Treatment at the
    United States/Mexico Border"

    Dear Mr. Secrist:

    Bajagua, LLC, respectfully provides the following comments on the draft
    GAO Report (Draft Report) referenced above. Bajagua appreciates the
    efforts of the GAO in preparing the Draft Report, but believes that any
    project-to-project comparison of the Bajagua Project and the upgrade of
    the International Wastewater Treatment Plant (IWTP) should conclude
    that the Bajagua Project is a more timely and cost-effective manner for
    the IBWC to comply with its Clean Water Act permit. [See comment 1] In
    fact, the GAO Report does conclude that the Bajagua Project could be
    constructed 10 months sooner than the IWTP upgrade. For that reason
    alone, the Bajagua Project should be selected to address the border
    sewage problem. [See comment 2]

    [See comment 1] While the Draft Report focused on timely and cost-
    effective compliance with the Clean Water Act, Congress also directed
    the GAO to continue its comprehensive review of the two projects. [See
    comment 3] This directive is important because the Bajagua Project's
    ability to treat additional sewage, to provide recycled water to
    supplement diminishing supplies of water in the border region, and to
    manage wastewater treatment sludge in compliance with the Clean Water
    Act discharge permit make the Bajagua Project an even more-compelling
    choice. [See comment 4] These benefits of the Bajagua Project were
    excluded from consideration in the Draft Report, but they are critical
    to any comprehensive review. [See comment 1]

    The facts are clear. Not only would it take longer to upgrade the IWTP
    than to construct the Bajagua Project, but the cost per unit of treated
    water for the IWTP would be more expensive, the IWTP upgrade would not
    produce any recycled water, and the IWTP upgrade would not treat any
    additional untreated sewage. [See comment 5] In addition, the Draft
    Report does not include the costs to the IBWC of properly managing the
    sewage sludge currently generated at the IWTP in accordance with its
    Clean Water Act permit, a cost that will increase if the IWTP is
    upgraded. [See comment 6]

    This is another example of how the IWTP upgrade fails to address the
    larger environmental issue of managing the flow of untreated sewage
    from Tijuana into the United States.

    If the GAO takes the position that it cannot affirmatively state that
    the Bajagua Project would be the most-timely and cost-effective
    project, then the comprehensive review of the two projects directed by
    Congress should be completed. [See comment 3] Further review would be
    appropriate because the Draft Report (1) claims there are a number of
    uncertainties associated with information submitted by the IBWC and
    Bajagua, and (2) acknowledges that the GAO did not have the time to
    verify some of the information submitted. [See comment 7] Because Judge
    Moskowitz in the Federal District Court case has indicated that he will
    grant the government adequate time to make good-faith efforts to select
    the right project, GAO would have time to complete a full review of the
    two projects and to make a determination on the merits of the two
    projects. [See comment 8]

    However, if the GAO only intends to issue a final version of the Draft
    Report, there are a number of issues that it should reconsider before
    it issues a Final Report. An overview of these issues is provided below
    and in more detail in the attached comments.

    I. The Bajagua Project Is More Cost Effective Than Upgrading the IWTP:

    * Because the Bajagua Project will treat 59 million gallons per day
    (mgd), and the upgrade of the IWTP will treat only 25 mgd, a comparison
    of cost effectiveness based solely on construction and operational
    costs for 20 years is misleading because a larger project obviously
    will cost more. [See comment 9]

    * When comparing the unit total costs (capital and operational) of
    treating 1,000 gallons of sewage, the Bajagua Project has significantly
    lower costs than the IWTP upgrade, the Bajagua Project cost $1.71
    versus the IWTP upgrade cost $2.39. [See comment 5]

    * The Draft Report estimates the operational costs for a 20-year
    period, although either treatment plant will operate for longer than 20
    years. Limiting the cost analysis to 20 years is misleading because,
    after 20 years, the Bajagua facilities will be transferred to Mexico,
    and the United States will not pay for operation of those facilities.
    Conversely, the United States will continue to pay for the operation of
    the upgraded IWTP. To better assess the true costs of the two projects,
    a 40 or 50-year time frame is appropriate. [See comment 9]

    * The estimated cost in the Draft Report of operating the IWTP does not
    include the cost to the IBWC of properly managing sewage sludge
    generated at the IWTP. The sludge currently is managed in Mexico in a
    manner that directly impacts waters and beaches of the United States,
    and violates the IBWC's Clean Water Act permit. [See comment 10]
    Because an upgraded IWTP would generate even more sludge, the GAO
    Report must include the costs of properly managing that sludge to
    achieve permit compliance when it estimates operation and maintenance
    costs for the IWTP. The full costs of properly managing the sludge are
    included for the Bajagua Project.

    * The Draft Report does not consider the fact that the risk of cost
    overruns on the Bajagua Project will be borne by Bajagua, not by the
    United States. That is not the case with the IWTP upgrade. [See comment
    11]

    * The Draft Report does not consider the significant savings to the
    taxpayer from the sale of 52,000 acre feet per year (AFY) of reclaimed
    water yearly (potable water) or 66,000 AFY of secondary treated water,
    even though Section 804 of PL 106-457 and Treaty Minute 311 allow the
    United States to offset its costs with a portion of the revenue
    obtained from the sale of reclaimed water. The amount of this offset
    could be significant given that decreasing flows in the Colorado River
    and in other water sources make reclaimed water very valuable in the
    border region. [See comment 12]

    II. The Bajagua Project Is More Timely Than the IWTP Upgrade:

    * The Draft Report acknowledges that the 59 mgd Bajagua Project would
    be completed 10 months prior to the IWTP upgrade, but it downplays this
    difference by stating that the Bajagua Project includes more
    "unresolved issues than the SBIWTP upgrade." [See comment 2] That
    conclusion is not supported by the facts. [See comment 13]

    - The "over 30 permits" cited by the GAO as being needed by Bajagua are
    mainly minor permits or approvals, many of which can be obtained after
    construction begins. The three selected design, build, and operate
    (DBO) contractors all considered the time needed to obtain these
    permits when they approved the construction schedule for the Bajagua
    Project, and Mexican legal counsel confirmed that all Mexican permits
    can be obtained within the period of the proposed schedule. [See
    comment 14]

    - The federal, state, and local governments of Mexico strongly support
    the Bajagua Project, and the federal government has issued a 30-year
    concession to Bajagua for the use of federal land for the project. The
    Mexican federal government has indicated that it will issue other
    needed concessions once the Bajagua Project is approved and under
    construction. [See comment 15]

    - Bajagua is not aware of any "significant issues" that would delay the
    fee-for-services agreement that cannot be resolved with the IBWC's
    cooperation. The appropriations legislation directed the IBWC to resume
    the fee-for-services negotiations, which it unilaterally had suspended
    for a period of approximately one year. [See comment 16]

    - The issue of whether Bajagua needs a Clean Water Act permit to
    discharge from the Bajagua facilities has not been resolved, but on
    March 25, 2008, Judge Moskowitz indicated that if the project is
    delayed because the IBWC refuses to cooperate with Bajagua and the
    Regional Water Quality Control Board on the issuance of the permit he
    could direct the IBWC to "be on the permit or stop discharging." [See
    comment 17]

    * The Draft Report did not consider unresolved issues regarding the
    IWTP upgrade.

    - The IBWC allotted three months to complete the NEPA process, but the
    environmental group Surfrider has stated that it will sue the IBWC if
    it fails to reopen the NEPA process. One issue that would be raised in
    any NEPA action would be the management of sewage sludge in Mexico,
    which affects waters in the United States. It is highly unlikely that
    the NEPA process could be completed in three months. [See comment 18]

    - IBWC's decision to upgrade the IWTP using an activated sludge process
    conflicts with guidance issued by the United States Environmental
    Protection Agency (EPA) that activated sludge systems are not effective
    unless industrial discharges are controlled through a pretreatment
    program. Such an industrial pretreatment program is not in place in
    Tijuana, and therefore the effectiveness of the IWTP upgrade must be
    evaluated under NEPA. [See comment 19]

    - Upgrading the IWTP to provide secondary treatment will generate more
    sludge and, exacerbate the pollution of California beaches and near
    shore waters. This could result in a new Clean Water Act citizens'
    suit, which will cause further delays and result in additional costs.
    [See comment 10]

    - The IBWC schedule in the Draft Report does not include the time it
    will take the IBWC to obtain a Consistency Determination under the
    Coastal Zone Management Act (CZMA) from the California Coastal
    Commission. For controversial projects like the IWTP upgrade, the CZMA
    process is time consuming and can result in project denial. A recent
    CZMA hearing on a toll road proposal was attended by more than 4,000
    people, most of whom opposed the project. The project was rejected by
    the Coastal Commission. [See comment 20]

    - Whereas Bajagua's DBO contractor will be an internationally known and
    reputable construction company selected by a process approved by the
    IBWC, the contracting entities for the IWTP upgrade are not known.
    Given the IBWC's failure to complete the IWTP on schedule or within
    budget or to comply with its permit from the inception of operations of
    the IWTP in 1997, the GAO must conclude that the IBWC's track record on
    the timeliness question presents more of an unresolved issue than any
    of the concerns stated for the Bajagua Project. [See comment 21]

    If the 120 day final GAO Report is used to make a decision on the most
    timely and cost-effective project, then the Bajagua Project should be
    selected. However, if the GAO determines that additional study is
    needed to satisfy the directive of Congress to "continue its
    comprehensive review of the two proposed projects," Bajagua is
    available to assist the GAO in doing so. Again, Bajagua believes that a
    more-comprehensive review that addressed issues not included in the
    Draft Report would confirm that the Bajagua project is the best project
    to address border sewage issues. [See comment 3]

    While this letter presents an overview of these issues, the attached
    comments address GAO's specific statements in their letter to the
    Congressional Requesters, and in their PowerPoint briefing provided to
    Congressional staff. Bajagua is available to provide any additional
    information as requested.

    Sincerely,

    Signed by:
    Jim Simmons:
    Managing Member:
    Bajagua, L.L.C.

    GAO Evaluation:

    1. As stated on page 2 of the letter and enclosure III, page 22, we
    limited our work to the objectives discussed with the staff of the
    House and Senate Appropriations Committees and did not assess a number
    of related issues, including the potential benefits of the alternative
    wastewater treatment proposals. We assessed the reliability of the cost
    and timeline estimates provided by the USIBWC and Bajagua, LLC, but
    made no conclusions about which project would be more timely or cost-
    effective.

    2. Our report does not conclude that the Bajagua project could be
    constructed 10 months sooner than the South Bay International
    Wastewater Treatment Plant (SBIWTP) upgrade. On page 3 of the letter we
    present Bajagua, LLC's estimate that its plant would be operational
    about 10 months before the SBIWTP upgrade, but as noted on page 2, we
    did not independently verify this information. We also identify, on
    pages 4 and 5 of the letter and enclosure III, pages 48-51, a number of
    uncertainties that could delay the Bajagua plant's planned start of
    operations.

    3. Under our Congressional Protocols, when an explanatory statement
    directs us to report to specific committees, we work with the majority
    and minority staff of the designated committees to clarify the scope of
    work, reporting objectives, and time frames. In this case, we worked
    with the relevant staff of the Senate and House Appropriations
    Committees to arrive at the scope of work and reporting objectives
    described in the report on page 2. Although the explanatory statement
    which called for this report, accompanying the 2008 Consolidated
    Appropriations Act passed on December 26, 2007, makes reference to a
    separate on-going comprehensive GAO review, we did not have such a
    review on-going. We would consider conducting further work related to
    wastewater treatment issues in the Tijuana River basin if we received a
    Congressional request or mandate to do so.

    4. Bajagua, LLC states that its project could provide recycled water to
    supplement diminishing supplies of water in the border region. However,
    the construction plans that Bajagua, LLC submitted to us for its
    proposed wastewater treatment plant did not include plans to construct
    facilities to treat wastewater so that it can be recycled, sold, and
    reused. As our report states on page 2, we did not assess whether
    Bajagua, LLC could develop the capacity to reclaim water from its
    project at some point in the future.

    5. Bajagua, LLC states that the cost per unit of treated wastewater for
    the SBIWTP would be higher than for the Bajagua plant. We did not
    conduct such an analysis because it requires credible estimates of the
    amount of wastewater that will need to be treated by the Bajagua plant
    on an annual basis over the next 20 years, above the 25 million gallons
    per day (mgd) that will be coming from the SBIWTP. As the report notes
    on page 3 of the letter and in more detail in enclosure III, page 26,
    existing estimates vary widely on when treatment capacity over 25 mgd
    will be needed, calling into question whether the per unit cost of
    wastewater treatment can be accurately estimated.

    6. The report does not include the costs of sludge disposal because
    these costs are not borne by the USIBWC, but rather are paid for by the
    Mexican government in accordance with Treaty Minute 283.

    7. As the report states on page 2, we did not independently verify the
    cost and timeline data submitted by either Bajagua, LLC or the USIBWC.
    We did, however, assess the reliability of the cost and timeline
    estimates we received against the criteria contained in our Cost
    Assessment Guide.

    8. The decision concerning which project is the best "on the merits" is
    a policy decision for Congress and the executive branch to make by
    weighing numerous and often conflicting policy goals. We can assist the
    decision makers by providing relevant data and analysis.

    9. Our assessment of the reliability of the cost and timeline estimates
    focused on a 20-year period because that is the term of the proposed
    contract between the USIBWC and Bajagua, LLC. As the report notes in
    enclosure III, page 31, after 20 years, ownership of the Bajagua plant
    would transfer to Mexican authorities and the U.S. federal government's
    service fee obligation to Bajagua, LLC would end. However, the
    operations and maintenance costs for pumping primary treated water from
    the SBIWTP to the Bajagua plant would remain. Beyond that obligation,
    whether the United States would continue to incur additional costs
    related to the Bajagua facility, or whether the Mexican government
    would assume those costs, is not known at this time.

    10. See comment 6. As the report states on page 2, there were a number
    of issues related to wastewater treatment in the U.S.-Mexico border
    region that we did not assess, including how the Mexican government
    disposes of the sludge it receives from the SBIWTP and whether
    improperly disposed of sludge enters the Pacific Ocean and ultimately
    pollutes California's beaches.

    11. Because Bajagua, LLC does not yet have a final contract with a
    design-build-operate (DBO) contractor and a fee-for-services agreement
    between the USIBWC and Bajagua, LLC has not been finalized, we believe
    it is too soon to safely conclude that the risk of cost overruns on the
    Bajagua project will not be borne by the United States.

    12. We did not assess the extent to which the cost of the Bajagua plant
    could be offset by revenues from the sale of reclaimed water for
    several reasons. First, Bajagua, LLC did not provide us information on
    how and when it plans to construct facilities that would allow it to
    reclaim water from its plant. Second, Bajagua, LLC did not provide us
    estimates of how much it would cost to construct these facilities.
    Third, as we note in enclosure III, page 26 of the report, it is
    unclear how much wastewater the Bajagua facility would have available
    to treat and potentially reclaim. Fourth, the price that might be
    obtained for this water is not known. Fifth, the USIBWC, Bajagua, LLC,
    and the Mexican government would need to agree on the amount of revenue
    from reclaimed water sales that would go to the United States, and no
    negotiations to develop such an agreement have begun.

    13. Our report shows in enclosure III, pages 46-51, that the Bajagua
    plant's timeline is subject to more unresolved issues than the timeline
    for the SBIWTP upgrade.

    14. Bajagua, LLC characterizes its over 30 needed permits and approvals
    as "mainly minor"; nevertheless a delay in obtaining any one of them
    could delay its schedule. Delays could occur because the Bajagua
    project is logistically complex and as such will likely require
    thorough review before permit approval. Furthermore, the timing of some
    permits is dependent on the approval of others, and the permits and
    approvals will need to be obtained from governments in two countries.

    15. According to the information that Bajagua, LLC provided to us, it
    has concessions from the Mexican government for the land for its plant
    site but not for rights-of-way needed to construct the pipelines to the
    plant as noted in enclosure III, page 50. We are aware that several
    Mexican government agencies support the project, but whether Bajagua,
    LLC can ultimately meet the requirements of these agencies to obtain
    the needed concessions, permits, and approvals in a timely manner
    remains an area of uncertainty.

    16. USIBWC and Bajagua, LLC have not reached agreement on the terms of
    the fee-for-services agreement. As the report states in enclosure III,
    page 50, this is an area of uncertainty and could delay construction of
    the Bajagua plant. Our report also notes in enclosure III, page 50,
    that the USIBWC hopes that issues related to the fee-for-services
    agreement can be resolved before the DBO contract is ready. However, it
    is not unusual for negotiations to be characterized by conflicting
    views that take time to resolve.

    17. In the hearing held on March 25, 2008, Judge Moskowitz discussed
    the possibility of ordering the USIBWC to sign the National Pollutant
    Discharge Elimination System (NPDES) permit. While he suggested he
    might order such an outcome, attorneys for both the USIBWC and the
    State of California expressed reservations, and there was collective
    agreement to revisit the issue should the USIBWC decide to pursue the
    Bajagua project. Therefore, this remains an area of uncertainty.

    18. Our report acknowledges, in enclosure III, page 47, that one of the
    areas of uncertainty that could delay the SBIWTP upgrade timeline is if
    a lawsuit seeking to force the USIBWC to prepare a new environmental
    impact statement resulted in an injunction.

    19. According to an EPA Region IX official, there is no EPA guidance
    stating that activated sludge systems are not effective without
    pretreatment of industrial discharges. Moreover, the same official said
    that a pretreatment program has been in place in Tijuana since 2001.

    20. According to a California Coastal Commission official, a
    consistency determination and approval has already been granted for the
    SBIWTP to provide secondary treatment and no further review is
    anticipated.

    21. As our report states on page 2, we did not assess the extent to
    which the USIBWC managed prior projects, which includes the existing
    SBIWTP, within their estimated costs and timeframes.

    [End of enclosure V]

    Footnotes:

    [1] Building of the SBIWTP was provided for in July 1990 by an
    international agreement known as a treaty minute between the U.S. and
    Mexican Sections of the International Boundary and Water Commission.
    They are responsible for resolving water and boundary issues along the
    U.S.-Mexican border, including constructing and operating wastewater
    treatment facilities.

    [2] Bajagua, LLC is a private company.

    [3] GAO, Cost Assessment Guide: Best Practices for Estimating and
    Managing Program Costs, GAO-07-1134SP (Washington, DC: July 2, 2007).

    [4] GAO-07-1134SP.

    [5] The permit includes limits on the amount of pollution that can be
    discharged as well as monitoring requirements to ensure, among other
    things, that water quality levels are maintained.

    [6] United States Section, International Boundary and Water Commission,
    Final Supplemental Environmental Impact Statement, Clean Water Act
    Compliance at the South Bay International Wastewater Treatment Plant
    (Pasadena, CA, 2005).

    [7] Pub. L. No. 102-389, 106 Stat. 1599 (1992).

    [8] Aerated ponds treat organic wastes using natural bacteria.

    [9] Pub. L. No. 106-457, Title VIII.

    [10] Minute 311 further provides that if "agreement on an operating
    lease arrangement or design that is acceptable to both governments is
    not reached, the stipulations established in [the 1990 treaty minute]
    will apply." The 1990 treaty minute included the original conceptual
    plan for building the SBIWTP to secondary treatment capacity.

    [11] The development agreement gives Bajagua, LLC exclusive rights to
    develop the Mexican facility.

    [End of section]

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