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Water Infrastructure Clogged by Cycle of Debt and Rate Hikes

mah, terry, veoliaPeople who work in the water industry aren’t immune to the common household problem of clogged drains. When they happen, they’re an inconvenience for everyone, often reflecting years of buildup that’s impossible to see.

There’s another “clogged drain” that’s been decades in the making that also affects everyone – the country’s water infrastructure, which is affected by increasing levels of deterioration, debt and rate increases.  And like any clogged drain, that infrastructure can’t be taken for granted; it requires a “roll up your sleeves” approach.

According to a new study, not only is the condition and resilience of our nation’s water infrastructure continuing to deteriorate, debt levels and rates associated with that infrastructure continue to rise without corresponding benefit.  Conducted by the Columbia University Water Center, in conjunction with Veolia Environnement and Growing Blue, America’s Water: An Exploratory Analysis of Municipal Water Survey Data shows how our water infrastructure is caught in a vicious cycle. It’s one of the first studies to systematically explore national survey data on water rates, and it provides an honest look at the major factors influencing the financial health of the nation’s water utilities.

The report highlights that, over the last decade, water rates increased an average of 23 percent, while US utility debt increased an average of 33 percent. Yet we haven’t seen a corresponding improvement in our drinking water infrastructure. The widely publicized American Society of Civil Engineers report gives our drinking water infrastructure a “D” grade, noting that we require $1 trillion in investment to simply replace aging pipes. And at approximately one-third of the nation’s utilities surveyed by the American Water Works Association, debt and rates increased by more than 100 percent.

High rates coupled with little or no improvement to infrastructure indicate a problem with the approach many utilities are taking.  Increasing debt loads amplify those problems. But the Columbia report doesn’t indicate that rates for many utilities shouldn’t increase.  Indeed, everyone in the water industry knows that America’s water and wastewater infrastructure is generally underfunded.  Instead, utilities should maximize their resources given the magnitude of the problem.

The funding issue and general deterioration is so significant that a broad coalition of nonprofit associations, public entities and private-sector companies called The Value of Water Coalition have just banded together to address the current state of water infrastructure.  The trends identified in the Columbia University Water Center report indicate that rates will likely continue to rise at least in the short term. However, there are areas that could be better controlled to mitigate rate hikes and help water utilities deal with unexpected and uncontrollable events:

Improve Operational Efficiency – By scouring their operations for efficiency improvements, such as reviewing maintenance plans and personnel utilization, water utilities can lower both their operational costs per employee and costs per gallon processed. Additionally, more efficient water use would lower utilities’ costs and environmental impacts.

Identify Water Sources – The study finds that the source of a utility’s water directly and significantly impacts rates. Ensuring the long-term viability of less-expensive sources, like groundwater, is a critical step toward cost-mitigation. In other words, sustainability can pay.

Reconfigure Rate Structures – To reduce wastage, the municipal solid waste sector developed a sliding-scale fee system, charging a premium rate to those exceeding the pre-set limits. A similar system could be utilized by the water sector to encourage conservation.

Consider Revenue Sources – Alternative means of recovering costs, other than usage rates alone, can include connection fees, green infrastructure incentives and savings performance contracting. Some cities are working closely with the investment community to create options for transferring their liabilities to the private sector.

The hard truth is that over the last 30 years, and not just during the recent global recession, federal funding for water infrastructure has dried up almost entirely. These problems are not limited to under-performing utilities; they’re often shared by well-run utilities as well. This lack of funding must be faced head-on, requiring utility managers to revisit approaches to further stimulate sustainable use, re-envision the future of water utilities and reexamine the ways we pay for our critical water services.

Between exponential population growth, lack of funding, and the unpredictable effects of climate change, the demands on our water systems have never been greater. Our country’s outdated framework of governance and management models needs to be modified for the 21st century. If we do indeed want to grow our economies and create jobs, we must properly manage our water now. And that’s a real, roll-up-your-sleeves and get-it-done moment that we can all appreciate.

As president and CEO of Veolia Environnement North America, Terry Mah leads the water, energy and environmental service and technology activities of Veolia’s North American operations, which has approximately 10,000 employees and generates approximately $2 billion in annual revenue.

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One thought on “Water Infrastructure Clogged by Cycle of Debt and Rate Hikes

  1. A lot of the heavier costs are due to the over-done employment and pension agreements. Another source of unreasonable costs are the A&E’s who receive a percentage of build costs and hence specify ‘gold-plated’ equipment. Another cost center is the extreme ridiculousness of job site inspections by over zealous self-important, self serving consultants with not one ounce of practical practice or common sense. Another thing, where are all these $$s of recycled materials recovered going – solid & wastewater – it seems this was not a well-managed activity and has resulted in over-capacity which drives pricing down. A lot of folks bet on land fill many of which are now like apartment buildings without tenants – sadly ‘planning’ is an activity which flies in the face of capitalistic opportunism – c’est la vie – just glad that now I have become older & wiser I had the good sense to ‘bail-out’ & retire 🙂

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