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IMG_7385One of the issues I always include in rate studies is a comparison of water rates with other basic services.  Water always comes in at the bottom.  But that works when everyone has access and uses those services.  Several years ago a study indicated that cable tv was in 87-91 % of home.  At the time I was one of the missing percentage, so I thought it was interesting.  However, post the 2008 recession, and in certain communities, this may be a misplace comparison.  A recent study by Emmanuel Saez and Gabriel Zucman notes that the top 0.1% have assets that are worth the same as the bottom 90% of the population!  Yes, you read that correctly.  Occupy Wall Street had it wrong.  It’s not the 1% it is the 0.1%.  This is what things were like in the 1920s, just before the Great Depression.  The picture improved after the implementation of tax policies (the top tax rate until 1964 was 90% – yes you read that right – 90%).  Then the tax rate was slowly reduced to deal with inflation.  The picture continued to improve until supply side economics was introduced in the early 1980s when the disparity started to rise again (see their figure below), tripling since the late 1970s (you recall the idea was give wealthy people more money and they would invest it in jobs that would increase employment opportunities and good jobs for all, or something like that).  Supply side economics did not/does not work (jobs went overseas), and easy credit borrowing and education costs have contributed to the loss of asset value for the middle class as they strove to meet job skills requirements for better jobs.  In addition wages have stagnated or fallen while the 0.1% has seen their incomes rise.  The problem has been exacerbated since 2008 as they report no recovery in the wealth of the middle class and the poor.  So going back to my first observation – what gets cut from their budget, especially the poor and those of fixed pensions?  Food?  Medicine?  Health care?  My buddy Mario (86 year old), still works because he can’t pay his bills on social security.  And he does not live extravagantly.  So do they forego cable and cell phones?  If so the comparison to these costs in rate studies does not comport any longer.  It places at risk people more at risk.  And since, rural communities have a lower income and education rate than urban areas, how much more at risk are they?  This is sure to prove more interesting in the coming years.  Hopefully with some tools we are developing, these smaller communities can be helped toward financial and asset sustainability.  But it may require some tough decisions today.

Income percent

 


My cousin  once asked me what I thought about deciding on who to vote for for President might be best done when evaluating how well your 401K or investments did.  Kind of an amusing thought.  In that vein the decisions might be very different than they were.  Clearly your 401k did with with Clinton.  The economy was flat for George W. Bush, and the end of his term was the Great Recession.  Reagan’s first term was flat.  We all know about George H.W. Bush.  Interesting thoughts.  Not so good.  So what about the last 8 years?   But is raises a more interesting issue.  So don’t get me wrong, this blog is not intended to lobby for any candidate (and Obama can’t run), but it is interesting to look at the last 8 years.  They have been difficult.   The economy responded slowly.  Wages did not rebound quickly.  But in comparison to 2008 are we better off?

The question has relevance for utilities because if our customers are better off, that gives us more latitude to do the things we need – build reserves (so we have funds for the next recession), repair/replace infrastructure (because unlike fine wine, it is not improving with age), improve technology (the 1990s are long gone), etc., all things that politicians have suppressed to comport with the challenges faced by constituents who have been un- or under-employed since 2008.

Economist Paul Krugman makes an interesting case in a recent op-ed in the New York times:  (http://krugman.blogs.nytimes.com/2016/01/13/yes-he-did/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body).  Basically he summarizes the figure below which shows that unemployment is back to pre-2008 levels, and income is back to that point.  Some income increase would have been good, but this basically tracks with the Bush and Reagan years for income growth – flat.  So the question now is in comparison to 2008 are we worse off that we were?  And if not, can we convince leaders to move forward to meet our needs?  Can we start funding some of the infrastructure backlog?  Can we modernize?  Can we create “smarter networks?”  Can we adjust incomes to prevent more losses of good employees?  Can we improve/update equipment?  All issues we should contemplate in the coming budget.

Krugman Income percent

 


photo 2Over the holidays there were a couple articles that came out about groundwater issues in the US, mostly from the declining water level perspective.  I also read a paper that suggested that rising sea level had a contribution from groundwater extraction, and of course USGS has maps of areas where the aquifer have collapsed as a result of overpumping.  In 2009 USGS published a report that showed a large areas across the country with this issue.  The problem is that of the 50,000 community water systems in the US, 500 serve over 50% of the population, and most of them are surface water plants.  There are over 40,000 groundwater systems, but most are under 500 customers.  Hence, groundwater is under represented at with the larger water associations because the large utilities are primarily surface water, while the small systems are groundwater. AWWA has difficulty reaching the small systems while RWA and NGWA reach out to them specifically.  But the small utility seems more oriented to finding and producing water and operating/maintaining/drilling wells than the bigger impact of groundwater use.  It is simply a matter of resources.  I ran a system like that in North Carolina, and just getting things done is a huge issue.  A couple of my medium size utility clients have the same problem.

The bigger picture may contain the largest risk.  Changing water supplies is a high cost item.  We have seen a couple examples (surface water) as a result of drought.  We saw Wichita Falls and Big Springs TX go the potable reuse route due to drought.  California is looking at lots of options. Both have had rain lately (Wichita Falls discontinued the potable reuse when the reservoir got to 4% of capacity).  Great, but someone is next.  Droughts come and go, and the questions is how to deal with them.

Groundwater supposedly is a drought-proof problem, but is it?  Groundwater has been a small utility solution, as it has been for agriculture.  But aquifer require recharge and water limited areas do not have recharge.  The result is a bigger problem – overpumping.  Throughout the west/southwest, Plains states, upper Midwest (WI, MN, IA), southeast (SC, NC), we see this issue.  Most of these areas have limited surface water so never developed much historically.  Rural electrification changes that because it made is easy to put in an electric pump to pull water out of the ground in areas that never had a lot of water on the surface, and hence were not farmed much. Pumps made is easier to farm productively, which led to towns. However, our means to assess recharge are not very good, especially for confined aquifers. The lowering water levels USGS and state agencies see is an indication that recharge is normally over estimated giving a false picture of water availability.  If your aquifer declines year after year, it is not drought – it is mining of the aquifer. You are sucking it dry like the eastern Carolinas did.  But, like many negative things, there is a lack of willingness to confront the overpumping issue in many areas. There are many states with a lack of regulations on groundwater pumping.  And I still think groundwater modeling use is limited to larger utilities, when smaller, rural systems may be most in need of it due to competing interests.

Concurrently, I think there is a tendency to oversell groundwater solutions (ASR, recharge), groundwater quality and the amount of available water (St George, UT).  Easy, cheap, limited treatment should not be the only selling point.  That leads to some curious decisions like some areas of California north of LA the utilities do not treat hard groundwater – then tell residents they cannot use softeners because of the salt in the wastewater prevents it from being used for reuse.  The reason they do not treat – cost, but it makes things difficult for residents.  The fact is we do not wish to confront is the realization that for many places, groundwater should probably be the backup plan only, not the primary source.

That leads to the question – what do we do about it when every politician’s goal is for their community to grow?  For every farmer to grow more crops?  But can they really grow sustainably?  DO we not reach a point where there are no more resources to use?  Or that the costs are too high?  Or that competition become unruly?  The growth and groundwater use ship is sailing, but in to many cases they do not see the rocks ahead.


Spring is in the air, at least in some places, so it gives us a chance to take stock of where we are after the winter.  Boston actually is seeing the ground after record snow.  The west is seeing lots of ground, even though some areas should not be seeing ground at this point.  I recall the Colorado Rockies having snow at 8000 ft a couple years ago, but not this year.  Some ski resorts in western Colorado never opened.  Not a good sign.  Snow was 10% of normal in parts of California which means the drought will continue.  12% in Oregon and Washington is some part – not good for places that rely on snow for water supplies.  So the question is whether the current drought is the start of a longer climate driven issues and/or the result of where demands have permanently exceeded supplies?  And if the latter is true, conservation is one option, but has obvious financial and supply limitations since urban use is less than 12% of water total use (agriculture is 40% and power plant cooling water is 39%).

Better management is part of a toolbox, but when the supply is finite, the economics says that costs will increase, shutting out certain sectors of the economy.  This is where the “market system” theory of economics fails large sectors of the population – at some point finite supplies become available only to those who can afford to pay, but water is not one of those commodities that is a luxury – we need it to survive.  Certainly the argument can be made that water is underpriced, but like energy, low water prices have helped fuel economic development while improving public health.  It is a chicken/egg conundrum where the argument that conservation will solve all problems is not realistic, nor is using the market or curtailing economic activity.  This is where the market fails and therefore governments have a role in insuring that all sectors are treated fairly and the commodity can be provided to all those in need of it – serving the public good.  The public good or public welfare argument is often lost in the political dogma of today, but our forefathers had this figured out and designed regulations to insure distribution after seeing the problems that arose in the late 19th and early 20th centuries.  We have forgotten many of those lessons.

The public good or welfare does not mean unlimited distribution to areas that would otherwise be bereft of the commodity.  The early engineers in Los Angeles realized that development could only continue if water was brought in.  So massive water movement projects were developed.  The economic benefit was the only consideration – the impacts of these changes were not considered.  Likewise the Corps of Engineers was directed to drain the Everglades, but no one asked if this was a good idea or would have negative impacts.  Loss of the Everglades permitted economic development that is southeast Florida – 40% of the economy of the state, but it impacted water supply and places millions are risk for future sea level rise impacts.  Worse, agriculture was fostered in the upper Everglades as the federal government sold off the acreage to private interests cheaply to encourage sugar cane and winter vegetables.  That agriculture is now planning to develop the Everglades if the property is not purchased by the state.  But purchasing the property rights a prior error in consequences – it is likely in the public interest as an effort to restore water supplies in the Biscayne acquire that feed southeast Florida, and to increase water flows to retard saltwater migration in the southern Everglades.  These are both ”sins” of the past, made with good intentions but with very little thought of consequences beyond the economic benefits.  Both have resulted in water shortages in the areas they were meant to serve as climate patterns have changed.

The question is whether we continue to make these mistakes.  Development in desert areas, areas known to be water poor, and deepening wells to get groundwater supplies who’s levels continue to decline are all poor long-term decision, despite the short-term potential gains.  California farmers continue to deepening wells but those aquifers have a limit in depth.  Deepening wells means those wells do not recharge (otherwise the aquifer levels would not continually decline).  What happens when the wells run dry permanently? Clearly the sustainability criteria is not met.

Meanwhile lower aquifer can divert surface waters into the ground – not enough for full recharge, but perhaps enough to impact surface water flows to other farmers, potable water users, and ecosystems.  Droughts are climate driven- and we have persevered droughts before, and will again.  However in light of the California drought, perhaps we should all assess more closely the long-term trends – lowering groundwater, increasing demands, lessening availability and make better decisions on water use – not only in California but in many parts of the US and the world.  Changing water use patterns is great, but it is just part of a larger issue — do we need to change our current behaviors – in this case water use – in certain areas?  Are there just places we should not develop?  Is there a limit to water withdrawals?  And how do we deal with the economic losses that will come?  All great question – but do we have the leadership in place to make the hard decisions?

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