More than a pipe dream: The path forward for water utilities

Photo by Emily Cikanek

By Matt Nichols

“Financial issues, sustainability and optimized asset management practices.” Those challenges likely sound familiar to managers in any number of industries, especially amid the on-going economic malaise.  They are also the key themes that engineering consulting firm Black and Veatch identified in their report entitled 2012 Strategic Directions in the U.S. Water Utility Industry.

Right now, water utilities in the U.S. are in a precarious situation, the report’s authors argue, because “funding is grossly inadequate to upgrade infrastructure that, for the most part, is well past its useful lifespan.”  While utilities have billions of dollars locked up in pipe systems, pumping stations, and treatment plants, the industry urgently needs an aggressive roadmap for future investments to maintain and modernize these assets.

The current state of water infrastructure is, in large part, the product of several decades of complacency.  While utilities undertook significant grey infrastructure projects in the 1970s to comply with Clean Water Act regulations, investment has lagged in the subsequent forty years.  Indeed, in 2009 the American Society of Civil Engineers gave America’s water supply system “nearly failing grades,” and Black and Veatch estimates it will cost almost a trillion dollars between now and 2035 to fix it.

The utility managers surveyed are in consensus about the severity of the problem and agreed that the greatest driver of infrastructure investment is regulatory compliance.  In short, utilities may neglect to replace outdated assets until new environmental regulations prompt them to do so.  While government regulations can provide the impetus for modernizing water infrastructure, government money will certainly not be able to cover the entire cost of these massive overhauls.  Utilities will need assistance from a variety of innovative financing tools, including full-cost pricing, value capture taxes, public-private partnerships, and state revolving loan funds.

However, environmental concerns are more than just a “stick” to motivate infrastructure investment; they can also be a “carrot” that contributes to greater economic efficiency.  For example, one key aspect of sustainability in the water industry is the so-called water-energy nexus: it takes energy to produce clean water, and energy generation in turn requires water.  In fact, in electricity-hungry areas of the country – like Georgia – energy utilities are responsible for half of all water use.  Conversely, energy costs account for up to 30 percent of most water utilities’ operating budgets, according to Black and Veatch.  But these water utilities also have abundant, free energy sources at their disposal.

As a panel of regional leaders explained at a recent Openlands and Metropolitan Planning Council roundtable, energy generation technologies like sewerthermal and biomass incineration can provide benefits in terms of both sustainability and financial metrics.  Chicago, Milwaukee and Cleveland are among the U.S. cities taking to heart the report’s advice that “it is time to shift our focus away from the elimination of something undesirable to the opportunity to recover valuable resources such as water, energy, nutrients and beneficial products.”

As an inherently fluid resource, water does not abide by political boundaries on a map or by arbitrary distinctions between stormwater, wastewater, and drinking water.  With aquifers straining to meet demand in some suburban Chicago communities, new strategies for water conservation and reuse have come into play, such as recycling greywater, rain water, or treated effluent for nonpotable uses.  While these proposals may provoke a knee-jerk reaction among some residents in Illinois, in other parts of the world, such as Singapore, reusing treated water – or so-called “NEWater” – has long since gained acceptance.  The report authors point out that “where water is scarce or of impaired quality, discussion tends to focus less on overcoming the “yuck” factor and more on providing the flexibility to match water quality to a specific use.”  In other words, we do not need to use scarce, energy-intensive drinking water to water lawns or flush toilets.

This reluctance to adopt more stringent water reuse practices is largely a result of entrenched attitudes toward water.  In the American West, where water is visibly, undeniably scarce, 33 percent of residents view water scarcity as the most significant sustainability issue, versus only 9 percent of residents in the Midwest.  Conversely, 73 percent of Midwesterners rank energy efficiency as the most significant sustainability issue, perhaps owing to the hefty heating and air conditioning bills typical in the region’s climate.  The obvious lesson is that people care about issues they perceive as impacting them – and their wallets – personally.  Until consumers are asked to pay the full cost of drinking water supplies and stormwater management, water may lack the urgency of other sustainability issues.

Finally, water utilities must develop better data collection and management systems.  Currently, half of utility managers surveyed report they are making decisions based on data that is average, poor or very poor, which leads to waste in the long-term, as improperly maintained systems eventually must be replaced at even greater cost.  Just as electric utilities and parking authorities are moving toward “smart” systems to better manage demand, it is not far-fetched to imagine a system in which water is metered in real time and priced accordingly to limit peak demand.  Similarly, a sewerage district might offer sliding-scale stormwater fees that correspond to the actual impermeability of a property.  Electric utilities have strong incentives to encourage conservation among their consumers – yes, in some cases, selling less electricity is more profitable – rather than risk blackouts or undertake the costly permitting and construction process for new power plants.   Likewise, with the right incentives, stormwater utilities can encourage property owners to manage rain on site, thus reducing the need for billion-dollar deep tunnel projects.

The outlook for U.S. water utilities has never been more urgent, and the trillion dollars of infrastructure investment required by 2035 presents a serious challenge to utility operators and policymakers.  However, the diverse toolbox of green infrastructure projects, demand management technologies, and innovative financing strategies already being employed nationwide provides cause for optimism.

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One Response to More than a pipe dream: The path forward for water utilities

  1. Pingback: Investing in the next 40 years of clean water |

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