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SUSTAINABILITY OF UTILITIES – PART 1

October 8, 2013
engineering, finance, infrastructure, Leadership, local government, management, Marketing water, Risk Management, Uncategorized, water sewer management
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Pipe wears out.  Concrete deteriorates, Steel rusts.  Aluminum pits. Mines play out.  Wells run dry.  But we strive for sustainability.  How do these disparate facts coexist simultaneously?  And if they don’t, how does this impact our long term prospects for our utility systems and communities.  And how do the decisions impact our understanding of sustainability.

An AWWA publication from 2010 was a compendium of thoughts on the meaning of sustainability form the perspective of water utilities.  One of the findings of the publication was that the understanding of sustainability had more to do with the perspective of the person being asked about sustainability than an overall comprehension of the inter-relationships of the concept of sustainability among different sectors.  For water supply entities, the economic sustainability of the community is not really their primary concern.  Instead they focus more on impacts to customers.  But water is a driver for economic development in a community. 

The message is that water utilities may need to look at the broader picture of sustainability in their community and extend the definitions to a wider range because no one else is and the community is looking for leadership.  The first paragraph focuses on infrastructure issues, which are commonly ignored in dealing with the concept of sustainability, but they are the ones traditionally focused on water supply issues.  The utility needs to look at infrastructure and financial outlook as a part of an overall sustainability strategy. 

There are certain assumptions that we make on many of our systems, and perhaps we need to revisit some of these assumptions in light of potential future realities.  For example, what happens to communities that do not grow?  Our current assumptions generally assume that there will be an ongoing increase in population or water use that will drive increases in revenues without specific increases on customers.  However what if you are Detroit where the populations has dropped in half in the past 50 years.  How do we deal with aging infrastructure and demands for increased water quality and reliability while maintaining fees at affordable levels for customers?  This is a particular problem when there are economic disruptions that create a large group of disenfranchised people who become more economically disadvantaged than they might otherwise already be.  The competition for sustaining water rates, infrastructure condition and water supplies can be a difficult conundrum.

WATER SEWER GARBAGE FEES

October 4, 2013
economy, finance, funding, Leadership, local government, management, Uncategorized
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A recent article in the South Florida SunSentinel newspaper raised an interesting question.  What they did was line up all the cities in the county and identify the total fees paid to the City by residents.  They took the tax rates, plus water, sewer, storm water, fire, garbage and any other fees.  The article raised an interesting question.  For example, Hollywood, West Park and Lauderdale Lakes had the highest cost per household – in excess of $3500/year.  The other end of the spectrum was Hillsboro Beach, Sea Ranch Lakes and Southwest Ranches, each under $2000/household.  Of note is that Southwest Ranches provides no water or sewer service (all wells and septic tanks on large lots), so a direct comparison is not really appropriate.  Property taxes were low, but fire fees were really high.  Sea Ranch Lakes is a tiny community with no sewer, so again, not really a good comparison.  Hillsboro Beach is among the wealthiest communities, but also tiny. 

 Most communities had total fees between $2100 and 3200/resident.  Why the difference? First, the value of property varies widely.  West Park and Lauderdale lakes have among the lowest values per household, so their taxes must be higher to provide the same level of service.  Hollywood, and Dania Beach (#4 on the list) had higher water, sewer and storm water costs.  While both have recent, ongoing infrastructure programs, both have large transfers from the water and sewer fund to the general fund, and in both cases the water and sewer customer base does not match the property tax base.  In Dania Beach’s case, the service area is half the City, so those residents are supporting the property tax funded services at a higher rate than their neighbors.  Hollywood struggled with major budget issues to used water and sewer funds to balance the budget.

The problem that this article did not address, but should have was that where water, sewer and storm water costs were high, what was driving this? Was in infrastructure investments that others simply have yet to make?  That’s ok and the fact that these utilities invested now may be more timing.  If the result is due to transfers to the general fund, that is an entirely different, and somewhat disconcerting problem.  First since the service areas are not the same. There is a fairness issue.  Some residents pay more for the same services.  It means the water and sewer system is not really an enterprise, with rates based on service costs.  Instead it is being used as a tax source.

COLORADO IS DRY, WELL NOT ANYMORE

September 16, 2013
Drought, economy, engineering, Flooding, infrastructure, Insurance, Leadership, management, stormwater, sustainability, Uncategorized
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I went to Colorado in July, and it was bone dry like I noted in a prior blog.  The trend was expected to continue, but then something happened.  It rained.  A lot. It’s been raining for almost a month.  Last week it was wet out there, really wet, devastatingly wet on the east side of Rocky Mountain National Park (Boulder, Estes Park, Longmont, Lyons). The rain has not really let up so mountain streams are over-running their banks, flooding streets, washing away bridges, damaging property and businesses.  Helicopter evaluation of the damage indicates that miles of roadways are badly damaged. Route 34/36, the primary eastern entrance to Rocky Mountain National Park may have 17 miles (of 20) damage pavement and foundation needing immediate repair.  Estes Park is cut off from the world and there was mud in the streets.  Rocky Mountain National Park is closed to allow access from Grand Lake for emergency vehicles, residents and supplies.  And eastern emergency route from Nederland is also available.  Tourism has halted in the peak of Fall tourist season.

How fortunes have changed, and continue to change.  Three years ago it was the west side of Colorado with 300 inches of snow that flooded downstream communities.  Three months ago was drought. Are these changes part of a larger issue, or a continuation of the status quo?  Hard to know, but certainly both events were far above any prior events experienced in the area.  The local infrastructure was not constructed to meet these conditions, so either the climate is changing, our models are wrong, or both.  We see the same issue playing out regularly around the world when the 100 year or 500 year storm event occurs and wreaks havoc on a community which does not have infrastructure planned for events like this.

 Expect NE Colorado to be a federal disaster area.  Expect billions to be spent on reconstruction of roadways.   But the larger question is whether the new, replacement infrastructure will survive a similar, or larger climate event in the future.  Will our infrastructure planning be short sighted or will it be adjusted accordingly?  The potential for us to protect infrastructure, and property is completely related to our ability to adjust to infrastructure needs and to minimize exposure to weather events.  Keep in mind our economy and way of life is directly related to our infrastructure condition.  But people want to live near rivers and streams, but rarely consider the real risk and consequences. 

How do we address these risks?  FEMA evaluates the probability of flooding to set flood insurance, but FEMA does not prevent construction in flood zones.  Where construction can occur is a state or local issue.  Of course, few local entities want to limit development in any way, so we keep putting people at risk.  Local officials, like those in Florida, keep pushing FEMA officials to reduce flood risks, despite evidence of increasing rainfall intensity that would increase flooding.  Florida is not alone.  No doubt Colorado officials have the same views.  We need to impress upon local officials the risks and encourage them to reduce risks to citizens.  It’s our tax money and insurance premiums they are raising.  But they are rarely held accountable.  Nor are non-elected officials.  Somehow, this needs to change.  We need leaders to stand up and draw the  line in the sand.

LOCAL REVENUES BLEAK? Part 1

August 27, 2013
economy, finance, funding, infrastructure, Leadership, management, Revenues, sustainability, Uncategorized, Water Funding
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A new GAO report suggests that the short and long-term future for state and local revenues may be more difficult that currently anticipated, despite the economy recovering in many places.  For most of the 1990s and the mid 2000s, many states and local governments operated with surpluses, or could have.  Many elected officials, like those in Florida (or Congress in 2001), chose to reduce tax rates to balance the budget as opposed to restocking reserve funds.  When property values plummented and tourism and consumer buying diminished, the taxes related to all three plummented as well.  None have yet returned to their pre-2008 levels.  In fact, the property values lag so badly, it may be 10-20 years in many jurisdictions before they return to their former selves.  In South Florida’s suddenly “hot” real estate market, local officials are raving about the 28% increase in property values in 2012/2013.  Sounds great until you realize that they need to increase 100% to return to pre-2008 levels.  Even in a hot market it may be over 5 years to recover.  So property values are not a short-term problem.  Some communities may never recover.  So much for saving for that rainy day.

It should be plain to all of us that the failure of those in power to stockpile reserves caused many governments to spend down what limited reserves they had in the past 5 years as a means to avoid the hard and unpopular decision – raising taxes to collect the same revenues as before the mid-2000s cuts.  Now the lack of reserves creates an issue going forward – as costs increase faster than revenues, there are no reserves to tap into.  It is a problem that just keeps on giving.  The failure to address the root cause – the failure to set revenues collections at an appropriate level and accumulate surpluses when you are lucky enough to get them.  Unfortunately the political discussion keeps going back to keeping costs down, but cuts in costs means cuts in services.  Sounds great to cut the Plantation trolley because of budget needs, but what about those citizens that rely on the trolley?  Or the businesses it serves.  Cutting Meals on Wheels which primarily serves shut-ins is a great idea in Broward County with a hue population of elderly that find it difficult to get out of the condo?  And does it really make much impact on the overall budget?  Not really.  There are cosmetic issues.  There a more symptomatic issue here?

GAO points to health care as a cost increasing faster than the rate of increase in revenues, but the latest data seems to indicate that the rate of growth may be less than projected by those opposed to the new Health Care laws.  Underfunded pensions are also a potential area of concern, but cutting employees is not the solution for that as outlined in a prior blog.  Cutting employees cuts the funding for pensions which guarantees future problems.  So that idea actually works against the goal of shoring up the problem.  So, no that is not the answer.  We are clearly paying for the sins of 15 years ago when we were awash with funds, but decided to cut or public “income.”  Who does that anyway?!?!

I never like Chicken Little, because he never had a solution for the problem.  Part 2 will outline some thoughts…

Increase Revenues without Raising Rates

July 27, 2013
finance, Leadership, management, Meter Reading, Revenues, Uncategorized, Water Funding
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It surprises me how many utilities ignore their meter stock.  Water meters are the “cash registers” of the utility – they are how we bill our customers.  Many utilities allow their meters to age without checking how much loss their may be.  I have a client who regularly has issues with high unaccounted for water, which is a permit condition.  Every time the issue arises, they ask me what to do.  Each time I ask the Finance Department, which is responsible to for meter reading and billing, to check the number of meters with 90 days of zero readings.  The past two times I had them do this the number of meters was about 10% of the system! Both times I have had them replace all 10% immediately.  The result each time was to decrease the unaccounted for water amount in half (15 to 7%).  In essence they received a 7% rate increase without raising rates.  Yet, the Finance department NEVER runs the zero read report unless I ask them to. 

 

This situation is all too common.  Meters lose accuracy with time.  Small meters lose accuracy slower than big meters, which may lose 50% of their accuracy (for low flows) within 2 years, but the small meters may not last the 15 to 20 years they are typically installed.  The easy way to monitor this is to run a zero read report monthly, and to run a report to compare the water billed 12 months apart to see if the billing amount decreases significantly from year to year.  Water utilities need regular meter maintenance to insure they are receiving the revenues for services delivered.  But it is often too easy, or too politically difficult to spend the dollars to insure meters run accurately and to bill people appropriately.  But we should ask if it is fair to bill others disproportionately to avoid fixing the meter problem?

 

Similarly utilities need to insure that everyone is being billed.  Some cities do not charge themselves for water, which means they cannot track it adequately.  Other potential users that are not metered or charged include churches, parks, and schools.  There is a fairness issues associated with not billing everyone.  Likewise, large losses that cannot be accounted for may be indicative of water theft.  A water audit program can help identify potential water theft.  Theft is an affront to all customers.

 

Utilities should also look at fees for services.  Sometimes these have not been adjusted for years.  Utilities should determine exactly what it costs to provide services like meter turn-ons, turn-offs and call outs.  A couple utility clients of mine have contracted to perform services for other utilities as a mean to raise revenues without big rate increases. 

 

Keep in mind though that rates need to increase because power, chemicals and capital needs are constantly increasing.  Power, cable, telephone and other utilities increase to insure they recoup their costs.  Water and sewer utilities should incorporate CPI-type increases in their rate structures to insure they can sustain ongoing operations and capital replacement programs.  Insuring everyone is billed properly and the meter inventory is up-to-date insures that rate increases are limited to what is actually needed.

 

 

SEQUESTRATION HITS US ALL

July 23, 2013
Congress, infrastructure, Monitoring Water, planning, Sequestration, sustainability, USEPA, USGS, Water Funding, water sewer management, water supplies
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Sequestration is the word we are all using to explain the failure of the Congress to put together a budget with appropriate revenues and expenditures.  Congress can’t figure out how to reach a budget agreement, so the federal government set itself up for mandatory cuts in services. I had a recent grant sequestered, then cancelled.  It really could have helped a local community with long-term water supply and quality problems identify adaptation and mitigation strategies fo rites future.  Minor money for Washington, but a big deal down here.  Likewise I have spent the last 6 months on a subcommittee for USGS that is focusing on what could be cut from USGS.  That means less testing water quality, water levels in groundwater, stream gauges and less evaluation of results.  Most of the water issues USGS looks at crosses local and even state lines.  Since we all rely on water, this is at national concern.  Precisely when we need the information most, we may be getting less.  Expect to start seeing more sequestration issues. 

 

 

The problem is that the biggest expenses, social security and debt, cannot be cut without major backlash in the financial and voter markets.  So the cuts come from the smaller accounts – things like the federal share of state revolving funds, water research and water/wastewater programs.  The community and tribal assistance account was slashed $210 million while the environmental program budget was cut $135 million. While some may be cheering EPA cutbacks, the reality for water and wastewater users is less federal assistance to our industry.  That means more of the onus is on us, and on our customers.  The  unintended consequences of the failure of Congress to act….

COLORADO IS DRY!!

July 20, 2013
Aquifer storage and recovery, Climate, Drought, economy, Environment, Fires, infrastructure, Leadership, management, planning, Sediments in Water, Uncategorized, water sewer management, water supplies, Water treatment
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I went back to Colorado last week and it’s dry again out there.  Ok, maybe not this past week when it rained a bit, but despite late snow (March to May), the forests are dry.  The bark beetle problem has not made things easier, so lightning from thunderstorms can easily create fires, like the fire down in Colorado Springs or the Big Meadows fire that is ongoing in Rocky Mountain National Park.  The latter has been ongoing (although fortunately mostly out) for over a month, and has closed some trails in the park.  I hiked through the Fern Lake fire remnants (although virtually all the fire was around Cub Lake). That fire burned for a couple months last fall, only finally burned out in the winter after snowfall. 

 

The west is dry and “drier than in the past” is the new normal it seems in Colorado.  So now water managers are faced with three new challenges:  less water, faster runoff and more difficult water to treat.  The fires cause the loss of protective vegetation, which means less water is kept in the forest.  As a result, the tiny, light ash particles easily run off in the rain.  Ash is hard to remove without activated carbon or other advanced processes.  The loss of vegetation increases runoff, which means larger sediment content in otherwise pristine water supplies.  That can make a major impact on downstream water plants that may not have planned for such events.  The cost of fire suppression for the last 60 years confounds the current water supply and quality problems.  There are also ecological effects that may impact local economies. 

 

All this said, I am unsure what the solution is.  Clearly the climate in Colorado is changing.  It is unlikely we can alter the current course any time soon.  Instead we must adapt to the changes and attempt to mitigate the impacts on water supplies.  Creativity, innovation and likely more infrastructure will be required. Concepts like aquifer storage and recovery are coming back to the fore as a result of the current condition. It will be interesting to see how this all plays out. 

 

 

GROWTH CORRIDORS MISSING THE WATER COMPONENT?

June 30, 2013
Development loans, Environment, funding, Holistic Water Planning, infrastructure, innovation, management, planning, Risk, water sewer management
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A recent Manhatten Institute for Policy Research report titled “America’s Growth Corridor: The Key to National Revisal” noted that the future economy in the US will tend to growth in certain corridors, which echos a prior report that identified “super-regions” where population, manufacturing, education and economic growth were likely to be concentrated. Both reports suggest that the super-regions will prosper, with the rest of the country lagging behind. The seven high growth areas in the Mnahatten Institute report are the Pacific Coast, the Northeast, the Front Range, Great Lakes, the southeast/piedmont, Florida/Gulf Coast, and Texas/southern plains. This new report focuses more on the politics of the region, noting that each region is politically fairly consistent internally, indicating there is more than one way to do business. The current business climate, driven primarily by energy favors the Plains, with the southeast starting to import jobs from Japan and Korean as a result of low wage rates. The report goes on to draw a series of political conclusions about business climates and the politics of why growth is occurring in certain areas. But let’s look at a different view of the report. Each of these regions has had “ it’s day in the sun” so to speak, and some a couple of days, like California. Business cycles are cyclical so shifts in growth corridors is not unexpected. However there are some potential limiting issues that are not addressed in the report that are of significant interest or concern.

First, where is the water? Texas and the Plains have significant water limitations, as does much of the southeast. Trying to build an economy when you lack a major resource becomes difficult. That is why the Northeast, Great Lakes and later the Pacific grew earlier than the south, mountain and Gulf states. The Northeast and Great Lakes had water for industrial use and transport of goods, a real key historically for industry. Those regions also had (and still have) better embedded transportation facilities (rail, roads, airports).

The next question is where is the power coming from? The answer that will be given is that the Plains states and Texas have created 40 % of the jobs in the energy sector in the past 4 years so that is where the energy comes from, but having energy and being able to convert it efficiently to power that is useful to people or industry is a different issue. You need water to cool natural gas plants, unless you want to sacrifice a lot of efficiency. Back to water again. Moving the gas to other parts of the country to convert coal or oil plants to natural gas would work, but getting the electricity back does not come without 6% losses and a real need to make major improvements to the electrical grid. Not a small job.

So while the Manhatten Institute reprort suggest that all seven corridors will grow, but that the southern corridors are growing faster, the sustainability of this growth is at question. I recall a similar prediction when I graduated from college in the early 1980s, when the jobs for engineers were limited to the energy fields in Texas and Louisiana and the prediction was that al the industrial growth would be in the south. And then Silicon Valley happened, and then the housing boom in California, Nevada and Florida happened, and a few things in between. Oh and that energy economy collapsed in the late 1980s …. You get the picture. This is not to say that some marketing the power, water and transportation benefits of the historical industrial areas of the north are not needed – they are, but the fact is that there is significant available water, power, transportation and people capacity that is unused. If I am an industry, I may want to look at the power/water issue a little more closely.

Sustainability and Risk Managers as Future Water Manager Obligations?

June 27, 2013
Climate, communciations, Environment, finance, funding, groundwater, Holistic Water Planning, infrastructure, innovation, Leadership, management, Marketing water, planning, Risk, Risk Management, sustainability, water sewer management
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In the past week I have had the opportunity to experience the extremes with water – heavy rains/tropical weather in SE Florida, and dry weather in Denver at America Water Works Association’s Annual Conferences and Exposition. Two months ago with was snowing in Denver and there had been limited rain in SE Florida. Six months ago we were both dry and there was significant concern about drought in both places. How quickly fortunes change and the associated attitudes as well. It is part of a perception problem – looking at the near term – instant gratification, as opposed the long-term consequences. In truth neither set of conditions is historically different or should have created major panic or much shift in attitudes, but it is the potential to predict conditions that require the water manager’s scrutiny. We have all become risk managers.

Managing risk is not in the job description of most water and sewer personnel (risk managers aside, and they are focused on liability risks from incidents caused by or incurred by the utility like accidents, not water supply risks). We spend a lot of effort on the engineering, operation and business side, but less on planning or risk/vulnerability assessments. EPA has required vulnerability assessments in the past, but having seen some of those exercises, most are fairly superficial and many put on a shelf and forgotten. I have had clients ask me if I still had copies because they did not. Clearly we need a renewed commitment to vulnerability assessment.

Vulnerability starts with water supplies. Groundwater is particularly tricky. A new USGS study reports significant decreases in water levels in many aquifers across the US, especially confined aquifers in the west. That situation is not improving, and the situation will not correct itself. Loss of your water supply is a huge vulnerability for a community. Finding a new supply is not nearly as simple as it sounds or as many are led to believe. Confined aquifers do not recharge quickly and therefore have finite amounts of water in them. Remove too much water and all too often land subsidence occurs, which means the aquifer collapses and will never hold the same amount of water. USGS has mapped this and it matches up well with the drawn down aquifers. More data needs to be collected, but Congress is looking to cut USGS funds for such purposes, just when conditions suggest the data is needed most.

Many watershed basins and many aquifers are over allocated and overdrawn, and not just in the west. New England and the Carolinas have examples. Overallocation means competition for water will increase with time and it will be utilities that everyone will look at to solve the problem. Afterall the utilities have money as opposed to agriculture and other users, right? To protect themselves, water utility managers will need to look beyond their “slice of the pie” to start discussions on the holistic benefits to water users throughout the watershed, which will extend to understanding economic and social impacts of water use decisions. It is not just about us, and paradigm shift that is coming and one that we as an industry need to be the leading edge for. Our use impacts others and vice versa. Every basin wants to grow and prosper, but decisions today may reduce our future potential. Klamath River is a great example of misallocated water priorities. The biggest potential economy in the basin is Salmon ($5B/yr), followed by tourism ($750 M and growing), which relies on fishing and hiking. But agriculture ($0.2 B/yr) get the water first. Then power, which warms the water (salmon like cold water). Then a few people (a few 100,000 at the most in the basin). The result, the salmon industry gets reduced to $50 M/yr. Now how could we create more jobs, which would result in more income and a bigger economy? The easy answer is encourage the salmon industry, but that doesn’t sit well with the other, smaller users that will become more vulnerable to losses.

I suggest that to harden our water future in any given basin, we need to start looking a little more holistically at the future. This type of analysis is clearly not in the job description of the utility or its managers, utility managers may have the best access to technical expertise and information. As a result to protect their interests and manage risk, we may need to shift that paradigm and become holistic water managers.