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Affordability of Services

February 16, 2016
debt funding, decision-making, economy, engineering, finance, funding, growth, infrastructure, Leadership, local government, reserves, Revenues, Uncategorized
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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

 

Economics – Are things Really Better?

February 3, 2016
debt funding, decision-making, economy, engineering, finance, infrastructure, Krugman, Leadership, local government, management, planning, politics, public relations, Reserve Funding, reserves, Responsibility, Revenues, sanitary sewer, social vunerability, sustainability, Uncategorized, utilities, Wages
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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

 

Limited Groundwater

January 23, 2016
agriculture, Aquifer storage and recovery, California, Colorado, decision-making, direct potable reuse, engineering, Environment, groundwater, infrastructure, innovation, Leadership, management, planning, politics, population growth, resource depletion, respect, Responsibility, Rural Utilities, sustainability, Uncategorized, utilities
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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.

Another Ethical Question….

June 27, 2015
agriculture, ethics, Leadership, mining, oil and gas, water quality, water sewer management, water supplies, Water treatment
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I am working on a book on engineering ethics. My wife and I were talking about the ethical obligations of engineers and how that compares to the medical industry (which she is in).  Engineers by canon, creed, code and law, have an obligation to protect the public health, safety and welfare above all else, including their clients and their firms.  It is one of the reasons that engineering services provided to the public require a license and why codes exist to help guide design.  My wife recently raised an interesting question – if licensure means that you must protect the public health, safety and welfare, can you sign and seal a project for which the consequences are not perfectly known?  It harkens back to a lecture I do in my summer environmental science and engineering class – the infamous “What could possibly go wrong?” lecture.  In that lecture we look at logging, mining, oil and gas and agriculture.  I should note that we need each of these industries and will continue to need them for the foreseeable future, so abandoning any of them is not an acceptable answer.  But in each case there are large, historical consequences, as well as current ongoing consequences.  Let’s start with logging which fed the rapid development of many cities by providing accessible building materials.  And actually let’s just start in the upper half of the state of Michigan where loggers cut timber across the state for over 50 years, eliminating white pines form many areas.  The logs were sent down small streams and rivers, many of which had to be altered to take the logs.  Rivers like the AuSable and Manistee changed completely afterward (starting with the loss of sweepers, increased siltation, the loss of the grayling (fish), and the need to introduce trout.  Siltation is a difficult issue for water plants to deal with.  Today the AuSable is a “high quality fishing water” with open fishing season, but limits of zero trout kept in many places or only really large fish (rare in cold water), which means catch and release only, which sounds more like – “not enough fish, so put them back” as opposed to high quality fishing waters.    We needed the logs, but the impacts of logging were never considered and 150 years later, we still suffer the effects.  Few engineers were involved.

Next we look at mining.  Again we needed the gold, silver, lead, iron, etc. from the mines.  The gold rushes started in the 1840s and expanded across the west.  Material was dug out, metals processed and mines abandoned.  The tailings from these mines STILL leach metals into waterways.  The metals content remains toxic to ecology and to us in drinking water, and will continue be so for years.  Metals are often expensive to remove via treatment.  Sometimes the situation is serious enough that the federal government will construct treatment plants to protect downstream waters (drinking waters for people), as they have done in Leadville and Idaho Springs, Colorado.  The tailings issue will be with us for years, which is why the mining industry is subject to regulations today.  Maybe we learned something?  Engineers have become more involved with mining with time, but historically, not so much.

With agriculture (Ag) the big issue is runoff and siltation.  Siltation has increases as more property is farmed.  The runoff also contains pesticides herbicides, and fertilizers, which impact downstream ecological sites, as well as creating difficulty for water treatment.  Ag is largely unregulated with respect to runoff and best management practices are often lacking.  The results include dead zones in the Gulf of Mexico and the Pacific.  Engineers try to deal with water quality issues in rivers and streams, but the lack of ability to effect changes with Ag practices is limiting.  There are situations like Everglades where the engineers did exactly what was asked (drain it), but no one asked the consequences (lack of water supply), or the impact of farming north of the Everglades (nutrients).

The Everglades results, along with the unknowns associated with fracking (primarily surface and transport) brought the question to my wife — should an engineer sign off on a project for which the consequences are uncertain, unstudied or potentially damaging the public health safety and welfare, like fracking wells, or oil/gas pipelines across the arctic (or Keystone)?  Engineers design with the best codes and intentions and clearly the goal is to design to protect the public, but she has a great point – when you know there are uncertainties, and you know there are unknowns that could impact public health, safety and/or welfare, or which could create significant impacts, should we be signing off?  I am not so sure.  What are your thoughts?

photo 4IMG_6527 (2015_03_08 17_53_48 UTC)

Marketing and the Utility

June 9, 2015
local government, Marketing water, politics, public relations, Responsibility, sanitary sewer, Uncategorized
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So I am training a group of public officials about utilities. Many have limited experience; others much more so. The interesting question that came up is how these officials should communicate with their customers. Interesting question and one that often receives little thoughts. So I thought their thoughts might be enlightening, keeping in mind that I have abbreviated some of them, and this was a discussion. Here are the thoughts they provided, in no particular order:

“Not the newspaper, most residents do not receive the newspaper anymore”

“Who are our customers and how do they communicate? Until you can answer that, you will not reach them. Ask them.”

“If 37% percent of your customers are direct deposit – should we send them direct mailings?” Response: “Yes! They will not think it is a bill and they might read it.”

“Most people discard bill stuffers without reading them . That wastes a lot of time and money.”

“We have a Facebook page, but we don’t just talk utilities. We talk about things that might interst them like strawberry shortcake recipes and current community events.”

“We use twitter and Facebook”

“We have a website, but we found the website was useless if we did not keep it current constantly. It takes effort and someone with that responsibility to accomplish that.”

“We use Facebook to get people interested, then use it to direct them to our website.”

“Every utility should have a public relations person that deals with media, and can brand your utility to the public.”

“Understand your demographics and then figure out how they communicate – phone, twitter, Facebook, on line, etc. Maybe all of these, interconnected. You can find local people who will do this for your professionally. The results are worth the investment.”

“Radio is useless, just like the paper. Avoid the television because they really only want to report the bad stuff.”

“Blogs tied to websites and Facebook are helpful.”

“Many venues are needed – make the message the same.”

“Ask the young people in your community – they will know how the reach the residents.”

“Don’t focus just on utility issues, add content on topics they might be interested in.”

“Public relations is as important as providing good service.   It is part of your job.”

“worth every dollar spent.”

Interesting isn’t it. I wonder if the mainstream media will take note? And I wonder how many utilities do not have these things and will consider it as a part of the coming budget cycle?

Ability to pay?

April 28, 2015
finance, Leadership, management, Revenues, Water Funding, water sewer management
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So what does ability to pay really mean?  We hear this discussed by political pundits and local officials but few really understand what this means.  Likewise the “I’m on a fixed” budget argument pops up a lot, and it is hard to understand what this really means.

The ability to pay concept was developed many years ago by political scientists and economists looking at the allocation of costs to consumers for government services.  Property taxes are a logical place to start – higher value homes have more potential for loss, so their taxes were more (the percent was the same but because of their value the amount was higher).  For income taxes, those with higher incomes we deemed to have more disposable income and again more to lose, so the rates increased as income rose (we forget that until 1963 the highest income tax rate was 90%, and the economy was growing quickly!).  People with lower incomes had little disposable income because all their money went to food and housing.  Today the issue of affordability arises with water, sewer, taxes and storm water fees, as well as federal and state taxes.  The SRF and bonding agencies often look at 3.5% or 4.5% and the maximum water or water/wastewater cost as a percent of income, but few  utilities charge this much.  Few water and sewer utilities (combined) approach the cost for power per household, let along the cost of cable or cell phone use for all but the cheapest carriers.  Certainly water, sewer and storm water are essential service, but not so much cable, although there are those who will argue the point.  So somehow the ability to pay issue does not apply to private sector services, but does to essential services, especially when we all know we do not collect enough money to cover significant infrastructure needs on those public works systems?  That just does not make logical sense except in the political world.

Likewise the “fixed income” argument is often applied in tandem.  Fixed income is generally applied to retirees, but let’s not forget that 10% of those in poverty are retirees, but 18% of millionaires are over 65.  But don’t most people have a fixed income – their income is fixed by their employer.  They can change jobs but the argument that younger folks should change jobs if they want to earn more is like telling retirees to go back to work.  There is only so much we can do and only so much income to be earned because few control their income.

So on both counts, the ability to pay argument seems like an argument created to keep public service costs down and prevent the full cost application to many.  The squeaky wheel gets coddled, at the expense of society.  Somehow that is not fairness, and subjects us all to unnecessary risks.  The question is who is going to be the person/group to stand up and say enough?

Peak Diamonds and Chocolate? Oh no!

December 21, 2014
peak oil, planning, sustainability
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Have we passed peak diamonds? Just as a prior blog outlined the concept of peak oil, gas, metals etc, the recent news not suggests that diamond miners are decreasing their exploration investments because the number of new finds is decreasing each year, and those found are far more expensive to extract than the current values.  Sounds like oil?  We find less each year, it is more expensive and current oilfield yields are on the decrease.  Phosphorous is similarly situated which is why there is much research taking place to find means to recover phosphorous from ag lands and wastewater effluent – recover phosphorous meant to be resold to ag interests as fertilizer as the price of phosphorous continues to increase as a result so increasing demand and decreasing supplies.

We are also being told that while peak diamonds have passed perhaps chocolate will become scarcer and the demand for chocolate is outstripping the supply, and the available land for cropping is being out competed by more lucrative crops in South America.  At some point the available land for many crops will be exhausted.  It is then that we reach peak agriculture?

Misconcepted?

December 18, 2014
communciations, Education, Leadership, local government, management, politics
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There is a recent iPos MORI study that evaluated the perception and reality of issues in 14 western, industrialized countries to determine how well the perception of the populace matched reality.  The US was one of those surveyed.  No surprise, most Americans’ perception is very different than reality because the news and politics get in the way of the facts.  The study found for example that Americans perceived that teenage birth rates were 24 % of girls vs the real number of 3%, that 32% of the population is immigrants vs 13% actual, and that the majority of people perceiving welfare were black vs. the reality of 39% (38% are white and 15% Hispanic).  The states with the largest number of welfare recipients are in the northeast, which are also the states that received the smallest amount of federal funding per capita.  Talk about misperceptions.

While other countries have similar misperceptions, perpetuating misconceptions is part of the extreme discourse in Congress and among different constituencies. When we perceive the issues incorrectly and our elected officials do nothing to improve that perception?  What does that say about them?  No wonder we cannot get infrastructure to the top of our funding needs?  They perceive if you get water, can drive on it or flush it away, things must be fine?

DECREASING WATER DEMANDS VS INFRASTRUCTURE NEEDS

September 24, 2014
Banking industry, borrowing for infrastructure, Congress, contractors, debt funding, economy, engineering, finance, funding, growth, infrastructure, Leadership, local government, planning, politics, Reserve Funding, Risk, sanitary sewer, Uncategorized, Water Funding, water sewer management
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Earlier this year the Journal for AWWA had several articles about water use and infrastructure needs.  One of the major concerns that has arisen in older communities, especially in the Rust Belt and the West is that demands per person have decreased.  There are a number of reasons for this –the 1992 Energy Policy Act changes to plumbing codes that implemented low flush fixtures, the realization in the west that water supplies are finite and conservation is cheaper than new supplies, a decline in population, deindustrialization, and climate induced needs.  But all add up to the result that total water use has not really changed over the past 30 years and in many locales, water sales may have decreased.  Water utilities rely on water sales for revenues so any decrease in sales must be met with an increase in cost.  Price elasticity suggests the increase will be met with another decrease in sales, etc.  It is a difficult circle to deal with.  So less water, whether through deliberate water conservation or other means, creates a water revenue dilemma for utilities.  A concern about conserving to much and eliminating slack in the system also results.

Less water means less money for infrastructure.  Communities do not see a need for new infrastructure because there are fewer new people to serve.  Replacing old infrastructure has always been a more difficult sell because “I already have service, why should I be paying for more service” is a common cry, unless you are in my neighborhood where the water pipes keep breaking and we are begging the City to install new lines (they are on my street J)  Educating customers about the water (and sewer) system are needed to help resident understand the impacts, and risk they face as infrastructure ages.  They also want to understand that the solutions are “permanent” meaning that in 5 or 10 years we won’t be back to do more work.  Elected officials and projected elected officials (the tough one) should be engaged in this discussion because they should all be on the same page in selling the ideas to the public.  And the needs are big.  We are looking at $1 trillion just for water line replacement by 2050 and that is probably a low number(2010 dollars).  The biggest needs are in the south where infrastructure will start hitting its expected life.  The south want west will also be looking for about $700 billion in growth needs as well.  All this will cause a need for higher rates, especially with ¼ less low interest SRF funds avaialalbe this year from Congress.

Sea Level Rise Planning Part 2

June 26, 2014
Climate, communciations, economy, engineering, Environment, Flooding, infrastructure, innovation, Leadership, local government, management, planning, politics, Risk, Risk Management, sea level rise, stormwater, Uncategorized, utilities, water sewer management
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In the last blog we discussed 10 planning steps for sea level rises.  When planning 50-100 years other factors can come into play as well.  As a result, to allow flexibility in the analysis due to the range of increases within the different time periods, an approach that uses incremental increases of 1, 2, and 3 feet of SLR is suggested.  Hence infrastructure is built to meet milestones, not arbitrary dates lessening the potential for stranded assets.. The increments can work as threshold values in planning considerations in terms of allowing planners the ability to know ahead of time where the next set of vulnerable areas will be to allow a for proactive response approach that can be matched to the observed future sea levels.

But prior to developing infrastructure plans, the local community needs to define an acceptable level of service (LOS) for the community. A level service would indicate how often it is acceptable for flooding to occur in a community on an annual basis.  1% is 4 days per years and for a place like Miami Beach, this is nearly 2 ft NAVD88, well above the mean high tide.  The failure to establish an acceptable LOS is often the cause of failure or loss of confidence in a plan at a later point in time.  The effects of SLR of the level of service should be used to update the mapping to demonstrate how the level of service changes, so that a long-term LOS can be defined and used for near-term planning.

With the LOS known, the vulnerability assessment is developed using a GIS based map of topography and the groundwater levels associated with wet and dry season water levels.  LiDAR is a useful tool that may be available at very high resolution in coastal areas.  Topographic maps must be “ground-truthed” by tying it to local benchmarks and transportation plans.  USGS groundwater and NOAA tidal data from local monitoring stations to correlate with the groundwater information. Based on the results of these efforts, the GIS-based mapping will provide areas of likely flooding.

GIS map should be updated with layers of information for water mains, sewer mains, canals, catch basins, weirs and stormwater facilities.  Updating with critical infrastructure will provide a view of vulnerability of critical infrastructure that will be funded by the public sector. Ultimately policy makers will need more information to prioritize the needed improvements.  For example, a major goal may be to reduce Economic Vulnerability.  This means identifying where economic activity occurs and potential jobs.  At-risk populations, valuable property (tax base) and emergency response may be drivers, which means data from other sources should be added.

The next step is to analyze vulnerability spatially, by overlaying development priorities with expected climate change on GIS maps to identify hotspots where adaptation activities should be focused. This effort includes identification of the critical data gaps which, when filled, will enable more precise identification of at risk infrastructure and predictions of impacts on physical infrastructure and on communities. The final deliverable will include descriptions of the recommended concepts including schematics, cost estimates, and implementation plan.

So why go through all this.  Let’s go back to the beginning.  It has to do with community confidence in its leaders.  Resident look at whether their property will be protected.  Businesses look at long-term viability when making decisions about relocating enterprises.  The insurance industry, which has traditionally been focused on a one year vision of risk, is beginning to discuss long-term risks and not insuring property rebuild is risk-prone areas.  That will affect how bankers look at lending practices, which likely will decrease property values.  Hence it is in the community’s interests to develop a planning framework to adapt to sea level rise and protect vulnerable infrastructure through a long-term plan.  Plan or….