Bridge over troubled water
America’s ailing drinking water infrastructure is like having a crazy old uncle living in the basement. Everyone knows he is there, but no one wants to talk about it. Unless, of course, you are a water professional, and then the problem becomes making people listen.
A nearly universal problem in public works, lack of funding is the major obstacle to addressing infrastructure needs, according to more than 75 percent of the utility employees who responded to a 2004 State of the Industry survey conducted by the Denver-based American Water Works Association (AWWA). “Water utilities are some of the most capital-intensive businesses in the world,” says Julius Ciaccia, director of utilities in Cleveland. So while water departments struggle with a crumbling infrastructure, water systems are being continuously used, therefore requiring ongoing improvements.
Cleveland’s Division of Water serves 1.5 million people within the city and in 69 surrounding communities. “We spend $60 to $70 million a year — the equivalent of about 5 percent of our fixed assets — on system improvements,” Ciaccia says.
Cleveland’s extensive water system needs that kind of upkeep. “We’ve spent more than $1 billion on system upgrades since 1988,” Ciaccia says. “If a policy-maker asks me when this program will be done, my answer is: ‘If we’re doing our job right, it will never be done.’”
Addressing nationwide drinking water infrastructure problems will cost between $250 billion and $300 billion over the next 30 years, according to a 2004 AWWA report, “Dawn of the Replacement Era: Reinvesting in Drinking Water Infrastructure.” The rate-paying public ultimately will have to bear that burden, the report says, because utilities cannot count on federal funds financing infrastructure improvement projects. Utilities apparently have taken that advice to heart and are using rate increases, bond issues, capital reserves, streamlined operations, loans, grants and surcharges to fund needed water system improvements.
Priorities for capital projects often vary by region. In the nation’s older cities, especially those in the Northeast and Midwest where pipelines are aging and customer bases are dwindling, distribution system rehabilitation generally is the main concern. In the Southwest, where populations are mushrooming and water resources are scarce, new treatment plants to help expand supplies take precedence. And in California and Colorado where earthquakes and forest fires are ever-present threats, shoring up system vulnerabilities against hazards sometimes heads the infrastructure improvements list.
Upgrading treatment plants
Cleveland’s Division of Water currently is focusing on a multi-year program to modernize its treatment plants — two built in the early 1900s and two in the 1950s. One plant was upgraded in the 1980s, and the city is spending $750 million to bring the other three up to date.
Funding for the upgrades comes primarily from five-year rate increases instituted in 1990. “Raising rates in five-year increments smooths out the impact,” Ciaccia says. “Customers and politicians accept that rates will increase every year but not by much. In 1990, we asked the city council for an annual increase of 8 percent, in 1995 we requested 7 percent annually, and now we’re raising rates by only 3.5 percent a year.”
Ciaccia says the incremental rate increases allow them to predict what levels of debt they will need to incur. “We look at projections a year at a time. We also got back in the bond market to refinance some debt while interest rates were low.” He notes that since the division began using incremental rate increases, Standard & Poor’s and Moody’s have been upgrading its bonds.
In addition, Cleveland is taking advantage of the Drinking Water State Revolving Fund (SRF). “We’ve been receiving $20 to $30 million a year in SRF loans lately, and interest on these loans is usually a percentage point less than on the open market,” Ciaccia says. “We fund about 20 percent of our annual capital program from cash reserves.”
Like aging celebrities, many water distribution systems are undergoing reconstructive surgery, and some water systems spend millions of dollars each year to repair or replace pipelines. Although Cleveland’s infrastructure improvements temporarily center on its treatment plants, the city has had an ongoing distribution system rehabilitation program for 20 years. “Once the plants are upgraded, our capital improvement projects will be weighted more toward distribution systems,” Ciaccia says.
Currently, the utility spends about $6 million a year rehabilitating water mains. “We’ve relined all our large mains,” Ciaccia says, “but about 2,000 miles of our 5,000 miles of pipe are still unlined. We’ve installed a lot of new trunk main because of urban sprawl, but we’ve spent more money on rehabilitation than replacement because that’s more cost-effective.”
The Onondaga County, N.Y., Water Authority (OCWA) began projecting capital needs 12 years ago. A public benefit corporation, OCWA, which serves 340,000 people, puts an average of $7 million a year back into its system, according to executive director Mike Hooker. “We’ve used some of this money for new storage tanks and pump stations,” Hooker says, “and we try to spend $2 to $3 million a year replacing water mains. Our mains are generally less than 50 years old, but some are as old as 100.”
OCWA manages capital projects with three-year plans, which can change if the capital budget changes. “We’ve had more rainfall than average the past two years,” Hooker says, “so revenues have gone down; 2004 was our fourth wettest summer in more than 100 years, so that ate into our sales quite a bit.”
OCWA has coped with Mother Nature’s challenges just as it has dealt with its customer base’s slow growth — by streamlining operations and acquiring neighboring water systems. The utility has downsized through attrition, outsources noncore functions and has invested heavily in automation.
Today, OCWA has 15 fewer employees than in 1990, though its connections — now at 83,000 — increased by almost 50 percent during that period. “You can’t just downsize,” Hooker says. “You have to give staff the tools to become more efficient than before, and you have to train them to use those tools.”
Concentrating on its core competencies, OCWA turned to outsourcing. “We stopped paving roads, outsourced several accounting functions and hired landscapers to maintain the grounds,” Hooker says. “We’re running the most efficient operation possible by using the latest software. Our small information technology department uses consultants for support.”
Acquiring other water systems has improved OCWA’s economies of scale. “We have more people contributing to the bottom line for capital improvements,” Hooker says. “On the other hand, some of these systems have generated more capital work for us. But the growth pays for itself.”
Streamlined operations have allowed OCWA to reach a debt ratio of 0.07 percent, according to Hooker. “Since 1984, the system has borrowed only $11.5 million,” he says. Although rate increases covered the debt, Hooker says the utility went from 1993 to 2001 without a rate hike.
Building new plants
The water distribution system is not the problem in El Paso, Texas, according to Ed Archuleta, general manager of the community’s Water Utilities Public Service Board. “We’re keeping up our distribution system, but our issue is growth — meeting demand — and complying with regulations. Because we’re in a desert and our service population is growing, we’ve diversified our mix of supplies.”
El Paso depends on surface water from the Rio Grande, and reclaimed water for nonpotable uses and groundwater. Diversifying its sources means treating brackish groundwater by building the country’s largest inland desalination plant and installing arsenic removal systems to ensure that other groundwater supplies comply with the lower standard that goes into effect in January 2006.
The $35 million Fort Bliss/El Paso Desalination Plant is a cooperative project of the city and the nearby U.S. Army base. Construction is scheduled to begin in July. The 27.5-million-gallon-per-day (mgd) reverse osmosis plant will lower the concentration of total dissolved solids in water from 12 of the city’s existing wells, and the treated water will be blended with fresh water from 16 new wells to be drilled on land owned by the base. “Our groundwater supplies are like a sandwich, with layers of brackish and fresh water,” Archuleta says. “Cones of depression in the fresh water layers mean we’re tapping brackish water for the first time. Modeling showed that Fort Bliss’s water would also become brackish eventually, so it made sense to build the plant to help both the city and the base.”
The project, including land acquisition, well drilling, engineering, design and construction, is expected to cost $87 million. Archuleta says the army spent $3.3 million for the environmental impact statement and test drilling; the city is paying for the rest. “El Paso sold revenue bonds, which have to be paid for by the ratepayers, to help pay its portion of the desalination plant and the arsenic plants,” he says. “We’ve also received $26 million in funds earmarked by Congress for Border Environment Infrastructure Funds, a program under the North American Free Trade Agreement.”
Archuleta says 46 of El Paso’s 175 wells will require treatment to comply with the new arsenic standard. “Our wells are 1,000 feet deep on average, so the arsenic comes from deep volcanic formations. We’re spending about $50 million on a 30-mgd facility on the west side of the Franklin Mountains, where the volcanic formations are located. On the east side of the mountains, we’re building three smaller plants, which will cost about $26 million.”
Constructing new conveyance facilities
In California, the East Bay Municipal Utilities District (EBMUD), which serves 1.3 million people in Alameda and Contra Costa counties, “has always focused on keeping up with system needs,” says director of finance Gary Breaux.
Breaux says $80 million to $100 million a year goes back into EBMUD’s system. “Recently, we’ve been recoating our covered storage reservoirs, and we spend $10 to $15 million a year on distribution system rehabilitation — 8 to 10 miles of pipeline get replaced every year,” he says.
The utility’s largest capital program involves constructing conveyance facilities for a dry-year supplemental supply, a joint project with nearby Sacramento County. Initiated 30 years ago, the project is finally fully permitted and is in design. The infrastructure to convey the new supply to EBMUD will cost about $415 million, according to Breaux. “The Mokelumne River, 90 miles away, is our main source, and three aqueducts bring the water to our service area,” he says. “For the new supply, we’ll be taking water from the Sacramento River. We’ll build a river intake and a series of pipelines that will eventually connect to our aqueducts. Based on our precipitation history, we expect to use this supplementary supply three out of every 10 years.”
Because new customers are estimated to account for 70 percent of demand, according to EBMUD’s 15-year-old water supply master plan, connection fees will cover 70 percent of the supplementary supply’s cost. Remaining costs will be covered by rate increases to take effect over the next five years.
“We raise rates every year, usually by 3 to 4 percent,” Breaux says. “Our board wants the increases to be no higher than inflation and approximately midway between the rates of other providers in the area. The increase will be 3.75 percent for the next two years, then 2.7 percent. We also issue bonds, but we use no more than 65 percent debt to pay for capital programs.”
EBMUD also is taking steps to protect residents from the consequences of earthquake damage. In 2007, the utility will complete a 10-year, $225 million seismic improvement program being underwritten in part by a seismic surcharge, which brings in $14 million a year. He adds that customers have been cooperative about the seismic surcharge, viewing it as a way to complete the program more quickly. “We’ve built a new pipeline and pumping plants to allow us to move water from the east side of the system to the west side, which is more vulnerable to seismic activity,” Breaux says. “We’re strengthening our covered reservoirs, most of which are aboveground. We’ve also installed shut-off valves on the transmission mains that cross the fault line so we can divert water from damaged pipelines and use flexible aboveground mains temporarily.”
The utility’s source water conveyance system currently includes a 7-foot-diameter tunnel that crosses the fault. The seismic improvement program includes a separate bypass tunnel. “The new tunnel actually serves as a vault for a pipeline inside,” Breaux says.
In Colorado, where a multi-year drought contributed to devastating forest fires in Denver Water’s watershed in back-to-back years, the utility recently constructed two dams to prevent sediment in runoff from scorched, denuded land from entering the city’s water supply. “These leaky dams are essentially sedimentation traps,” says finance director Dave LaFrance. “They slow the water down and act like big sieves. Water flows on into the reservoir, but the sediment stays upstream.”
Like El Paso, Denver recycles some of its limited supplies, using reclaimed wastewater for industrial purposes and to irrigate municipal parks and golf courses. Denver Water’s new recycling plant went online in February 2004, and the 31-mile network that distributes the nonpotable supply is still being extended. The plant can produce up to 17,000 acre-feet of water per year, enough to free up potable supplies for almost 40,000 households.
“Denver Water relies heavily on rates, bonding capacity, system development charges and capital reserves to pay for capital projects,” LaFrance says. “Our debt issues are primarily revenue bonds, and we also have some general obligation bonds. We use rate hikes to fund distribution system improvements.” The utility’s potable water distribution system serves just over a million people through 2,600 miles of main.
Winning support for rake hikes
With federal funds becoming almost as rare as a desert rainstorm, communities are turning to their residents to pay for water system repairs and expansion projects. Archuleta offers some advice on securing funding for infrastructure improvements: “Look for potential partners in your region. Be vigilant in seeking state and federal funds. And educate your customers, your board or city council and the media about the value of water service.”
LaFrance echoes Archuleta’s emphasis on promoting water’s value to win support for regular rate increases. “Water is both an amenity and a necessity,” LaFrance says. “If utilities priced tap water at its value, it would become a luxury item like bottled water. Cost of service is the generally accepted method for setting water rates, but cost and value are different. In the case of water, its value is greater than its cost.”
Nancy Zeilig, a freelance writer based in Denver, was editor of Journal AWWA for 19 years.