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Construction industry says it’s looking up? What does that say for utilities?

October 27, 2012
communciations, finance, funding, infrastructure, Leadership, management, Marketing water, sustainability, water sewer management
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The most recent discussions in trade journals, on-line and within the industry is that construction starts have begun to trend upward, a good sign that the economy is moving forward.  Since 2008 when the market crashed just after the election as a result of 2005/2006 packaged loan deals (read The Big Short by Michael Lewis if you really want to understand what happened, but be prepared to be irritated that no one has yet to go to jail), the stock market has crept steadily upward.  The problem is that the returns on investments have not trickled down to the majority of Americans except in low wage jobs (no wonder people can’t pay their mortgage and the IRS collects no income taxes from so many people).  But the tide does seem to be turning according to the construction journals.  In part we can thank low interest rates, but more perhaps more importantly it seems that much of the excess housing and commercial space may be decreasing so investors and owners that are looking to a spurt in economic growth in the coming years.  We see rising house prices in hard hit areas like south Florida.  With luck that will translate to jobs (maybe even decent wage jobs), increased tax revenues for local governments, and increased water revenues form of new or redeveloped users.  While the trend may not hold everywhere, the fact that the construction industry is talking about increases in new starts in the coming year, is a clear sign of things to come.  But are we ready?  That’s the big question.

Down here where I live, the 2007-2009 period was one where utilities ere struggling to find water supplies, with many investing in expensive alternative supplies.  Then reality struck and the 2020 demands are more like 2030 or 2040 demands.  The impetus for investment went away (it did not help that the burden was on the current ratepayers).  Those who invested in the 2008-2011 period got the benefit of much lower construction costs (typically about 70% of 2007 costs), but many sat on the sidelines as a result of political demands not to increase rates on current residents, resulting in lots of deferred maintenance.  While few utilities invested on growth related infrastructure, how many invested on replacement and rehabilitation at the lower costs?  Unfortunately, catching up on the backlog did not happen for many of us, which is why ASCE’s annual report card for water and sewer infrastructure continues to show very low grades (D- in 2009 for water and wastewater, a grade that has not improved).  As a result the legacy of the 2008 recession is that an opportunity to improve the condition of our infrastructure while creating local jobs was lost.  Now we will play catch up at higher prices, and higher interest rates (0.25% since June).

So where is the failure?  We complain about leadership at the federal level, but leadership starts at home (to use a cliché).  Local officials were not persuaded by utility personnel to invest in their future.  Aren’t these the same officials that often move to state and then the federal level?  Our failure to persuade them is an indication that our marketing approach to built consensus is not working.  Our ability to coalesce the community to improve itself is lacking, which readily translate to elected officials.  We can cast the blame upon them, but it starts much earlier than the time they make decisions.  In difficult economic times, we need a better approach to selling our product and the need to maintain the systems that deliver our product.  We need our customer to demand the improvements to protect their health.  People just don’t understand the link.  Water is there, so all is good.  When I flush it goes away.  No problem.  But what separates the US form the Third World is our infrastructure, especially our water and power infrastructure.  Maintaining our place in the world requires that we continuously upgrade and maintain this infrastructure.  That means planning ahead, building reserves, and taking advantage of economic conditions favorable to getting the most for our money.  How many of us missed this last opportunity?  We should be looking in the mirror and asking why…

 

PS  Today would be my Dad’s 90th.  We miss you!!

Defining Leadership

October 4, 2012
communciations, Leadership, management, Marketing water, sustainability
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Defining leadership is like identifying ethics – it is easier to identify what is not leadership than what is.  In fact Scott Adams titled one of his Dilbert books “Don’t Step in the Leadership,” as a quip to indicate the difficulty in defining what is leadership.  One of the problems is that leadership cannot exist if there are no people following the direction.  Hence a leader of one is not a leader.

 

There is good and bad leadership.  Lemmings are an example of the bad leadership.  That’s what your mother was talking about when she asked you if you’d jump off a bridge to be like the other kids.  No, what we want is positive direction, with a long-term improvement to conditions or reduction is the severity of a risk or problem.  As a result is if often easier to measure results after the fact – it’s what we leave behind that defines leadership.  Hard to tell when leadership is happening now.

Elected officials are often pointed to as leaders, but we could spend pages discussing the fallacy of that argument.  For elected officials it is often circumstances that define their leadership skills:  Lincoln in the Civil War, FDR with the Great Depression and World War II, Washington refusing to be named king are examples of leadership.  Congress today, not so much.

Likewise we have business leaders, but mostly they are making money for their stockholders; few are making a big difference to use today.  The latter is why we all know Steve Jobs, Bill Gates, Paul Allen, Mark Zuckerberg, Henry Ford, Thomas Edison and Harvey Firestone – they all made a difference in our lives and how we live.  But who is the CEO of Goldman Sachs?  See you probably don’t know and that’s the problem.  The impact on your life is missing.

Hollywood puts up leaders.  Ok I like Clint Eastwood, but aside from some great movies he’s made or directed, I don’t really have much reason to follow him personally.  Mostly we know a lot about what we don’t want, see the  Kardashians.  Music is similar – not much leadership there despite some great, and potentially insightful tunes (thanks Ronnie van Zant, Hughie Thomasson and Danny Joe Brown, RIP all).  No, leadership is not defined in the entertainment industry.

Leadership is defined by leaders, which is the problem since leadership it is how leaders approach situations.  It is what leaders envision that causes others to buy into their vision and cooperate toward achieving their goals.  It is how they approach a challenge and coalesce resources to resolve it, regardless how big the issue may be.  It is how they carry the torch, while supporting their staff which does the work.  It is how they guide as opposed to direct employees.  It is how they share accolades with the staff and accept the blame for failure, as opposed to the opposite.  All good, but most times leadership is hard to see when it is happening.  Ultimately, leaders are defined by what they leave behind – does the organization or product survive their departure, or not?  The goals of Lincoln and FDR survived their passing.

So what is leadership and how do we apply it to the water industry?  Well I’m not sure we are any closer to a definition of leadership, but maybe we have a better idea what to look for.  Clearly leaders in the water industry will be the ones trying to create a long-term vision that will be expected to survive their time in the field.  They will argue for sustainable use of water and the necessity to cooperate and communicate with other users to reach optimal solutions to over-allocation issues.  They will test new technologies as solutions to old problems.  They will implement “outrageous” concepts like indirect potable reuse and develop cooperative efforts with other industries to get to solutions like using water and wastewater sites to generate distributed power,  things most don’t consider cost effective or proper today.  They will participate in research efforts and outreach to the public and the youth.  And they will empower and train their staff.  Ok, maybe not all these things, but look around, where are the leaders in your utility?

We need to talk more about this subject….

 

 

Communication, like water is a need

September 9, 2012
communciations, Environment, finance, funding, infrastructure, management, Marketing water, sustainability, water sewer management, water supplies
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Water management is a fundamental need for the development of civilizations. Always has been.  If you have any question about this, ask yourself what differentiates the developed world from the undeveloped.  Water supply, sewage management and flood control rank 1-3 among the differences.  Safe drinking water and good sanitation go back beyond the Romans, and is a necessity to insure that the populace, and those performing work are productive as opposed to sick all the time.  At present there are agencies that operate to manage water supplies and drainage, and a few that do both.  Mostly these are regional agencies, which belies the need for local decision making to respond to local conditions.

An example – in 2007/2008 the State of Florida was in the midst of “sever drought.”  The water management agencies spent considerable time and political capital working on water conservation strategies, limiting utility withdrawals, cutting permit allocations and demanding conversions to alternative supplies in the future.  The southern half of the state was hard hit.  Utility customers cut their demands significantly.  Unfortunately the customers’ reward was surcharges to make up lost revenues to overcome large operating shortfalls and potential defaults on borrowing documents.  The short-term implementation was designed regionally, but had significant local consequences that were not considered.

But more interesting was the actual “drought” conditions.  It seems that the hard hit areas were in the central part of the state, not the southeastern coast.   The central part of the state, including the Everglades had received about 60% of the average rainfall, but along the coast, the two year shortage averaged less than 10%, and most residents realized that their rainfall accumulations were not as severe as inland.  Since most of the southeast coast’s water supplies were local, not based on the central part, the local question rose, “why were the water conservation measures required of these utilities and residents? and  Why was this not a locally driven issue?”

The case highlights the fact that while most water resource planning efforts are regional, the impacts occur locally, and often local impacts are not fully considered.   Credibility of the utilities is critical for emergencies or difficult situations.  During this condition, a survey of coastal utility customers found that the customers were better informed on rainfall totals than the regional information provided, which undercut the credibility the local utilities were trying to build with their customers, which impacts future needs for cooperation at the local level.  Something about crying wolf…

Changing Attitudes about Government Infrastructure?

July 17, 2012
Environment, finance, funding, infrastructure, management, Uncategorized, water sewer management
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A recent comment on the blog posts reminded me of this discussion of a community on the beach that was populated by mostly retired executives from Chicago, Cleveland, Toronto, Louisville, Indianapolis and Detroit.  This was the 1970s and 1980s.  The community was wealthy, and had very low taxes.  It’s water and sewer rates were similarly low, while the community was starting to grow fairly quickly.    The mayor was on of these retired CEOs.  He was asked what helped his community be so successful.  His answer was simple:  they had a vision for the community that they all agreed on – a retiree utopia of beach, golf and dining.  They wanted to hire the best and brightest younger people to manage their community, hoping they would bring with them new ideas to improve efficiency.  They were willing to pay people at the 25th percentile to bring them to an out-of-the-way community, where medians and yards were heavily landscaped, where beach access was granted to all, where taxes remained low and housing values continued to rise, with the expectation that the community would continue to prosper.  Their experience had taught them to hire the best and brightest to increase their productivity and introduce new ideas.  By all measures, the strategy was successful.

But all good things come to an end.  By the mid 1990s, most of these old CEO had departed, replaced by newer people.  While many were also executives, there were more of them, and their focus was changing.  They were retiring from companies where profits were far more short-term and the politics were different.  They did not have the same experience in hiring people, and they did not see the need to pay higher salaries to attract employees. Unlike the prior generation, they wanted their kids close-by, which meant that there needed to be lower cost housing because most of their children were not making CEO salaries.  This also meant more services, and higher costs.  Cost control because the them, and cuts to government, to keep the low taxes low, became the norm.  So where were all those “best and brightest” hired 10-15 years earlier?  Gone.  When the attack on government workers started, who was the first to leave?  Those who were easiest to employ elsewhere of course, which does not help the professionalism of government.  It’s like another community where the Mayor said that the town was needed to provide employment for the otherwise unemployable!  Really?

This attitude does not help our industry at a time when reinvestment needs are in the hundreds of billions of dollars in the US alone.  Public investment has been billions because government was the solution for many needs of society, because it could not cost effectively or fairly be delivered by the private sector.  It’s like owning a multi-billion house and deciding not to fix the roof!  The leak can only get worse and delay the (much higher) cost of repairs to the next person.  So what about our infrastructure?  Who pays those costs?

And of course thisis all true….

How Come Cable is Valued more than Water?

July 13, 2012
Environment, finance, funding, infrastructure, management, water sewer management
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A question raised on the internet last week was whether our current delay in replacing infrastructure was simply delaying the costs for infrastructure to our children and grandchildren?  The amount of money we spend on infrastructure today, as a component of GNP, has decreased.  That should be troubling for a couple reasons.  Just as the economists will tell you that the economy cannot expand at a greater rate than the population grows, the investment to maintain the infrastructure needed to expand that economy should have some relationship to the growth rate.  If investments in what makes the economy go are half the rate they used to be, clearly our priorities are elsewhere which portends future expenses to catch up.  While it makes a good political sound-bite to cut costs, reduce government, cut funding to infrastructure programs, etc, the reality is that this is akin to the short term profit outlook on Wall Street – it does not plan adequately for the future.

So how does this help utilities?  Well, let’s think about your community’s priorities.  How many of you have compared your customer’s rates to those of cable television?  Or to typical telephone plans?  Rarely are the average costs for our customers, typically in the 5000 to 6000 gallons per month range, exceed the typical costs for a family cable or telephone plan.  And which one is needed to survive?  While the phones are needed for business, and cable is great to have (Game of Thrones is excellent if you have missed it) neither is needed to survive.  This is a missed opportunity for the utility industry.  It is one where we have been out-marketed, with the potential for huge costs to impact out kids and grandkids, just to maintain the current systems.  Many of our central city utility systems were started pre-WWII.  WPA was a 1930s program that constructed piping across the US.  Expansions occurred in the 1950s as people started migrating to the suburbs, and from the 1960s-today, but the reality is that many people reading this were not alive when the bulk of the piping in the US was constructed.  Which makes it “old!”

It is important that the utility industry convey to local officials the need for reinvestment in a system that runs well now, so that it will continue to provide good service.  We need to project the long-term program needs.  Asset management can help, but we need to plan, inform and market our product.  So who out there is doing any of this?  What input have you received and are you getting your needed rate increases?

Why aren’t We Paying the Cost for water and Sewer?

July 8, 2012
Environment, finance, funding, infrastructure, management, water sewer management
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It is budget season again which means the annual battle for water and sewer rates.  The costs for power and chemicals go up every year, and billions of dollars of deferred maintenance obligations exist.  So why is it that utilities find it so hard to get the revenues needed to update and operate?  The easy answer is politicians, but the issue is more complicated than that.

 

Much of the growth and expansion of the US and Canadian economies can be traced to the development of water, sewer, storm water and transportation infrastructure.  Without water, and associated wastewater disposal, the public health suffers, people get sick, and are less productive than if they are healthy (and you don’t need transportation then).  The lack of clean water is a major barrier to growth and development in many parts of the world.  So going back over 100 years, the federal government saw the benefit of improving drinking water quality.  Utilities responded, building filtration and disinfection facilities which were so successful that we are still reaping the benefits of those improvements.  Many central cities began expanding their systems as a means to provide service to surrounding communities.

Development of regulations relating to metals in water occurred in the 1940s, and developed through the 1962.  The Safe Drinking Water Act reaffirmed many of these standards, and of course added new ones as new constituents.  Over 90 percent of the US population has access to safe, potable drinking water on a 24/7 basis.

Unfortunately we do too good a job and have for 100 years.  People take safe water and sewer for granted.  Regulation or not, people assume it’s all good (the bottled water folks aside (see Peter Gleick’s new book).

 

The solution?  Marketing.  Local governments, their employees, their systems and their solutions are all kept under wraps.  No one actively markets the benefits of utilities?  Why not?  Why don’t we use our CCRs, monthly newsletters, meetings, and community involvement to market ourselves.  True most of us in the industry are not great marketers and we see so many other issues it is not a priority.  The private sector sees the benefits of marketing, but utilities often see the lack of active marketing in the attitudes of our elected officials, who do not often understand the value of the service.  IF people value your product they will pay for it.  The difficulty that many utilities have in getting rate increases to update and improve their inrastructure is an indication of failure to understand the value of the product.  That’s a marketing failure!  I once had an elected official tell me marketing was not something the public sector should do.  I asked why.  There was no answer, but he acknowledged it would help.  So we need to make marketing our efforts, and products.  So who’s got some great ideas out there to market?  Who has some great success stories we can all use?

BLOG 2 Unfunded Mandates or Stuff we should be doing anyway?

June 22, 2012
Environment, finance, funding, infrastructure, management, water sewer management
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In the prior blog, the theme of It’s All One Water was discussed.  Our industry has operated with the concept that potable water, wastewater, storm water, runoff, navigable waters, etc are distinct from one another and are somehow different, creating a silo effect. The silo effect obfuscates the current program of drawing water from rivers, streams and lakes, and discharging our wastes to those same rivers, streams and lakes, downstream of our withdrawal point of course.  Our local perceptions generally to not allow us to acknowledge that our uses affect other users, one reason that conflicts occur in water basins.  Instead the focus is “unfunded mandates” from political circles, whereby utilities are required to meet increasing standards for water, wastewater and storm water treatment.  Much of the regulatory focus is on utilities because they are perceived to have deep pockets due to the populations they serve.  If everyone pays a little, then it won’t hurt is much is the philosophy.  But the reality is that treatment of dilute source waters is often made more difficult as a result of upstream releases.  It is easier to treat water before it gets released.  The solution to pollution is apparently not dilution.  So who should treating these waters?

Perhaps the question is better framed a different way.  The concept in the legislation is to have polluters pay the cost for their pollutions, but reality is that the urban users pay the bulk of the costs.  Agriculture may create a downstream impact of nutrients, pesticides and herbicides, but controlling runoff is a difficult issue, especially if there are heavy rains just after application of chemicals.  It is unclear how you cool water for cooling without extensive energy costs, which would increase energy demands further.  And of course rainfall creates runoff as a contribution form the natural system (mostly in the form of turbidity).  There is nothing much that utilities can do to control these issues aside from acquiring large tracts of land to control the source.  But that does not solve the regulatory needs.

So the responsibility for public health falls on us.  As we evaluate regulations, we need to think about responsibility and cause (not costs).  The public health issues is much clearer with wastewater plants, where discharge of wastewater could impact both aquatic species and downstream water users.   In this case, there are no unfunded mandates – it is local responsibility to insure that the public health is protected near and farfield.

With water plants, well it all depends on the raw water.  So cleaner upstream water and less adverse users are better, but most utilities don’t fully control their source basins.  So then the key is whether the regulatory mandates meet the public health tests, which may depend on who you ask.  Ask this question to women with kids:  How much arsenic in your water is ok?  You rarely get any answer other than “none.”  Why?  The public health perception.  Cost is rarely the issue, but public health always is a concern.  The public expects their utility to do what is needed to clean up the water and places that responsibility on us.  Hence there are no real unfunded mandates, although that sounds great to deflect the need for rate increases to other agencies.

So then the question is whether all this discussion of unfounded mandates is an abdication of our public health responsibility.  The perception might be reality.  If your customers think that meeting regulations or treatment upgrades are being forced on you by others, does that create the question “Is the utility is really putting public health first?”  Does it beg the question  “why isn’t our utility already doing this?”  While every region will be different, how your customers may view your responsibilities is good question to ponder….

Thoughts?