In deep water
Have you recently stood at a construction site at 2 a.m. watching your city crew repair a broken water main that created a mess on a main road, hoping the repairs would be made before a local news crew showed up?
Have you faced public opposition to rate increases to fund long overdue water or sewer infrastructure replacements and repairs?
Has a Department of Justice letter just arrived explaining that both of those problems have been solved — with a consent decree that imposes a tight schedule for making repairs that will cost much more than your budget is prepared to handle?
If so, then you are not alone. In fact, you are like the more than 100 leaders and managers from nearly 60 water utilities who discussed the issues they face in a series of workshops, called “Views from the Lunchroom,” held across the country last year. The conversations engaged managers from water and wastewater utilities diverse in geography, size and customer demographics, and revealed similarities among the communities’ issues and their consequences. The meetings revealed that utility managers in all kinds of cities and counties are dealing with substantial issues, such as the environment, financial support, aging infrastructure, workforce development and cooperation with other jurisdictions.
IT BEGINS WITH THE ENVIRONMENT
By far, regulations (Total Maximum Daily Load limits, nutrient reduction in streams, sewer overflow prevention), which consistently result in increased capital spending and rate increases, were the most common topic during the lunchroom discussions. For example, an Ohio utility manager said it was difficult to make long-range strategic and capital plans when federal regulations can change at least every five years, requiring funds that were not in the projected budget for projects that were not in the long-range plan.
The most-oft voiced solution to regulatory demands (also called unfunded mandates) is solidarity among water and wastewater utilities, and public campaigns that educate stakeholders about the cost-benefit equation of continued reductions in point source limits. As one utility manager said, “Is the cost incurred by utilities to remove phosphorous from wastewater effluent — and passed along to customers and ratepayers — really justified by the minimal degree of improvement that is realized in water quality?”
Transitioning to watershed-based water quality programs and approving a framework for water quality trading programs also were raised as solutions. Virginia adopted a water quality trading program as one way to reduce the nutrient pollution that has degraded water quality and aquatic life in Chesapeake Bay. By purchasing credits from other utilities that have excess allocation in their permits above the amount of nitrogen and phosphorous they are discharging, utilities can reduce capital spending on treatment plant upgrades to meet permit limits.
As a result of seasonal droughts caused by precipitation pattern changes caused by climate change and population growth in arid areas, utility managers say that water scarcity is requiring them to evaluate customer use and may require larger capital investment for new sources of supply. Until new sources are found or developed, many participants say they are restricting water use, which results in decreases in water revenue and will not help cover the rising cost of water supplies. They also said that complicating the issue are the difficulties of siting new sources, frequently because of environmental concerns.
Many attendees say they are finding new water sources in their wastewater supplies and are attempting to change the paradigm from wastewater disposal to provider of resources, such as energy, bio-solids and reuse water. For example, the Alexandria, Va., Sanitation Authority is working with the city to provide reclaimed wastewater for industrial use. The reuse project will encourage industrial development that otherwise would have been hindered by tight discharge standards to the Potomac River, as well as avoid a treatment plant expansion. On the West Coast, Los Angeles’ Bureau of Sanitation is engaged in a similar provision of services, including using its own wastewater treatment by-products (methane gas) to co-generate power with its neighboring electric utility, which is run by the city’s Department of Water and Power. Soon, the bureau will expand the process to directly receive organic wastes (like fats, oils and grease) from outside organizations and put them directly into the same digesters to produce even more energy.
FINANCES ARE ALWAYS A FACTOR
Considering the state of the economy last year, when the utility managers were interviewed, it is not surprising that many discussions focused heavily on the difficulty of funding projects. Capital and operating budgets have been reduced, delaying maintenance and replacement projects, although projects tied to growth and demands for services have been pushed well into the future. Funding from the American Recovery and Reinvestment Act has been a disappointment, and few utilities say they received funds from the stimulus package.
As revenues have fallen because of the decline in the economy, many managers say their ability to fund operations and repair and replacement activities has been hampered. Because the public has resisted paying more for water services, raising rates or changing rate structures to increase revenue from a stagnant or diminished customer base has been a problem.
To turn the tide, most utility managers see the need to convince the public of the value of water and to optimize operations, showing rate-payers and bond issuers that the utility is doing its part to hold down costs. They also say that formal repair and replacement programs, and rates aligned with asset management programs that predict infrastructure condition and useful life, maintenance and replacement costs, and required revenue also help increase bond ratings and reduce the debt cost.
A DISCONNECT WITH INFRASTRUCTURE
To address an aging infrastructure, utilities say they are assessing conditions and determining which elements are in critical need of repair, investing in preventive maintenance, and prioritizing capital improvement projects. But, the huge price tag to repair aging infrastructure highlights another issue: the disconnect between the service expectations of customers and the real cost of capital and operations. Again, managers say that the solution involves concerted public outreach to gain the support of community leadership, business and environmental groups. Lee County, Fla., Utilities, for example, has used an asset management program to clearly establish the need and consequences of infrastructure repairs, and has gained public support for its projects. (For more details, read the “Financial analysis and long-term planning in Lee County, Fla.” sidebar.)
MAINTAINING THE WORKFORCE
An improved economy likely will result in many senior employees leaving, with a smaller group of less experienced managers to fill their positions. So, many utility leaders are focusing on capturing information about asset location and condition using technology such as computerized maintenance management systems and geographic information systems.
Finding skilled workers to fill unglamorous positions in utilities complicates the problem. In response, utilities are working with state labor agencies to develop apprenticeship programs, and with local high schools and colleges for internships and for education and training programs. And, there is a greater effort to develop career paths within utilities. Several leaders mentioned that it is time to take advantage of the green movement and position the agencies as providing green jobs.
COMMUNITIES WORKING TOGETHER
The nature of water and wastewater is such that the challenges they present stretch beyond the boundaries of cities and utility districts. In many cases, an individual utility does not have the resources to deal with large problems, which leads to a fragmented approach to solve them. Collaboration is an effective solution, but regionalization is a practice that frequently encounters political opposition.
However, many utility managers note that approaching a challenge such as workforce training, security or watershed protection through memorandums of understanding or other instruments has proven successful. For example, San Francisco utilities have been able to work together on many common issues (see “Regional collaboration in the San Francisco Bay area” sidebar).
There are no silver bullets, but utility leaders can access a range of solutions and actions to preserve the public health, the environment and the economic benefits that water and wastewater utilities provide. Many of the solutions rest on regional collaboration, public outreach and education, and informed public leadership.
- Read the “Financial analysis and long-term planning in Lee County, Fla.” sidebar to learn more.
- Read the “Regional collaboration in the San Francisco Bay area” sidebar to learn more.
Sandra Ralston and Jim Ginley are consultants with Red Oak Consulting, a division of White Plains, N.Y.-based Malcolm Pirnie. For more information on the ongoing Views from the Lunchroom workshops, visit www.redoakconsulting.com/blog.
Financial analysis and long-term planning in Lee County, Fla.
Many utilities struggle with accurate long-term financial forecasting of capital needs, including the significant funds required for rehabilitation and renewal as critical infrastructure components and systems age. The need for accurate data and prioritized spending is only heightened by the current economy where affordability is especially important to ratepayers.
To address those challenges as part of an overall asset management philosophy, Lee County Utilities has integrated capital and financial analysis into its asset management program to ensure that financial planning is addressed in parallel with inventory, condition and risk strategies to create a defensible approach for stakeholders.
The result was a Repair and Replacement Model that helps the utility forecast based on observed useful lives, predict spikes in capital and operations and maintenance needs, and understand how service levels and rate requirements could be affected. The model has allowed the utility to analyze alternative capital programs based on risk and priority; determine optimal funding strategies, including revenue, reserves and debt; and assess long-term rate revenue impacts.
Using graphic presentations and an interactive financial model that dynamically shows the cost and revenue impacts of alternative repair and replacement programs, utility managers are able to demonstrate to board members, commissioners and rate payers the true cost of meeting service expectations.
Regional collaboration in the San Francisco Bay area
Collaborating regionally can help water utilities share best practices, reduce operating and research costs and better serve communities. One example of the benefits to that approach is found in the San Francisco Bay area, where four of its largest water and/or wastewater agencies — the San Francisco Public Utilities Commission, Santa Clara Valley Water District, East Bay Municipal Utility District, and Contra Costa Water District — have been working together for the past decade on water topics. Together, they have collaborated on emergency preparedness, security, water conservation and drought messaging, workforce development, asset management, water quality, water treatment technologies, control of invasive mussels and operational efficiencies.
In 2008 and 2009, the agencies participated in a Water Research Foundation project, “Bay Area Water Utilities Operations Collaborative: Model for Inter-Regional Utility Cooperation.” Throughout the project, the agencies focused on four industry trends, including employing an adequate workforce; maintaining aging infrastructure (asset management); addressing water quality; and planning for emergencies and business continuity.
The research has yielded a number of beneficial outcomes, including the development of regionally actionable, consensus-based initiatives in each of the four areas and the development of a template for cooperation that can be used by other utilities. It has inspired a nationwide inventory/survey of regional water and wastewater utility collaboration, currently being led by volunteers from the American Water Works Association and the Association of Metropolitan Water Agencies.