Outlook for Utilities is Up, but Leadership needed for Infrastructure Investments


The magazine Utility Contractor suggests that 2013 may be much better than 2012 from a utility construction perspective.  In Fact they suggest a 13% increase in utility construction, although the bulk of that is in the power industry, not the water industry.  Their projections are for water utility infrastructure spending to remain roughly constant from 2012, a slight uptick from the recession years.  At the same time, the US water infrastructure bill was suggested by Public Works magazine to exceed $1 trillion over the next 30 years, requiring over $30 billion to be spend annually on upgrades.  This is more than double their estimates of current funding..  Many of these upgrades are pipe.  Much of the piping infrastructure in America is over 50 years old, and the condition may be unclear (unless you dig it up, you don’t know much).  But piping projects are hard to fund, because no one sees the pipe, only the failures.  As time goes on, the condition continues to deteriorate.

Much of the reason that water utility infrastructure is not expected to increase is that revenues are not expected to climb significantly to allow for the expansion of capital funding despite historically low borrowing rates and lowered costs of construction.  The reason:  many public sector utilities, which accounts for many of the larger systems, have been caught in one or more of several traps:  deferring capital to pay current expenses without raising rates, revenue losses from defaults on housing, use of utility fees to overcome ad valorem tax losses in the general fund, or political pressure to reduce rates.  All four cases can be crippling to the utility because it not only removes revenues today, but likely will result in a continuing practice in the future.

The good news in the revenues are rising, and that unemployment is down nationally despite the loss of 276,000 state and local jobs in 2011.  But since governments tend to lag the private sector in recovery, and we now have 34 straight months the private sector adding jobs, governments should start to see improved conditions in 2013.  Salaries are up, revenues are up a little and jobs are being filled, but what does this mean to infrastructure? The question is why the projections are for no increase in spending.  Water and sewer utilities owned by governments, are caught in the middle of the political process which lacks leadership.  These utilities are set up as enterprise funds, whereby revenues are gained from provision of a measurable service.  As a result they are designed to be operated more like a business, than a government.  But if your utility funds are altered through the political process, this can frustrate the efforts to run an efficient and effective business-like organization, which may mean the status quo, which is not investments in infrastructure beyond absolutely essential and emergency measures.  The question is where is the leadership to reverse this trend?  Unfortunately the political leadership focus is on elections, 2 to 4 years out, not the 20 or 30 year life of the utility’s assets.  As a result, short term benefits sacrifice long-term needs.

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If you are a person who wants to be a leader, you also need to think about the long-term impacts of your plans/policies and actions.  How will they be perceived 10 or 20 years out?  How will your decisions impact the course of the organization?  For utilities how has your tenure added value to the utility, whether that value is treatment capacity, public health protection or reliability of the system.  And how is it measure, since monetary value is not the only means to add value. Keep in mind no one remembers the guy who did not raise rates, only the person who did not plan to replace the infrastructure that failed. That’s a legacy leadership issue.  One thing many people do not understand is that while we live in the moment, it is how people view our actions afterwards.  It is why it is so easy to see leadership after the fact, but sometimes very difficult during the event.  The question is, how to we overcome the restrictions caused by the 2008 recession?  That’s where leadership comes to play.

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1 comment
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