The Impending Water Utility Crisis

Pennsylvania Governor Ed Rendell is fond of repeating a story from his days as Mayor of Philadelphia. After a prolonged cold snap, temperatures quickly soared into the upper 50s causing 58 water main breaks in the city service area.

The Philadelphia water managers reported back to him that some of the pipes had been installed in the 19th century and were not buried deep enough. When the rapid change in weather occurred, the ancient parts of the water service infrastructure simply failed. Old pipes, treatment facilities and other infrastructure present significant challenges for many water utilities. Over the years, demand for water and wastewater treatment systems increased with growth. Expanding plant and facilities seemed sensible when local economies were growing and new customers were demanding service. New facilities were made possible by revenue from new customer demand. As infrastructure assets reach the end of their service lives though, communities without an expanding revenue base struggle to find ways to pay for not for expansion but for infrastructure and facility replacement. Should a key piece of that infrastructure fail unexpectedly, smaller communities may have to absorb significant service rate increases. Bob Hebert, columnist for the New York Times in a recent opinion, seemed to call for federal intervention to replace aging facilities in an opinion piece from February 15, 2010. “”Ignoring these problems imperils public safety, diminishes our economic competitiveness, is penny-wise and pound-foolish, and results in tremendous missed opportunities to create new jobs on a vast scale. ” Hebert seems to believe that the federal treasury should use the 'jobs' argument as justification for providing this funding.

In the end, this probably only generates a false impression that Washington will be riding to the rescue of small utilities and water providers. Squeezing every possible day of service out of existing facilities is good management. But providing continued service with old facilities is begging for trouble. At some point, water and sewer service providers will have to confront the very real possibility that they will have to replace expensive plant and facilities by themselves. Handling these costs – some of which could be enormous – has many managers losing sleep. According to Hebert and others, looking for help from Washington makes sense, but taxpayers and budget hawks are sure to object. Resolving the impending crisis won't be easy. Local utilities may not have the ability to fund new facilities without massive rate increases and the federal government doesn't appear to be in a position to provide much help. Water utilities in the United States typically serve small groups of customers.

In fact, 85% of American water utilities serve fewer than 3,300 customers. Some of these small business units are now faced with huge expenditures for facility replacement. Distributing many millions in facility replacement costs to just a few thousand customers can mean huge service rate increases.

The NYT's Hebert correctly points out that failing to replace these assets could have far-reaching consequences. Coming up with the money is -as always – the problem. And utilities and communities had better start planning now rather than wait for the next plant to fail or set of pipes to burst.
Specializing in Water Utility Consulting , author Jason Mumm is a respected financial advisor to water and wastewater utilities nationwide. His company, StepWise Water Utility Consultants , help utilities improve management operations, improve cash flow management as well as manage customer fees in a challenging financial situation.

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