Christine E. Boyle, PhD is a Post-doctoral Fellow at the Environmental Finance Center
Signs of progress in the US public water utility sector
Part II of this series describes three reasons for optimism within the US water utility sector.
1. Public-private sector projects could ease pressure on capital-strained systems. With the availability of state revolving loan funds (SRF) dollars declining, opportunities are opening up for innovative public private partnerships to finance, build, and operate public water systems. A recent report by Water Utility Infrastructure Management (UIM) details two viable options for private sector participation. The first is the use of alternative project delivery methods such as design-build-operate (DBO) contracts, which offer a cost effective way to construct and deliver water and wastewater projects. A successful example cited by UIM is the Western Ramapo Advanced Wastewater Treatment Plant.
A second example of innovative public private partnerships with potential for large cost savings for utilities is privatization of the operation and maintenance of water and wastewater systems. A recent report by Standard and Poor’s Credit Week predicts that pressure to reduce public outlays of capital will drive increasing reliance on privately provided O&M in mid-size municipally owned systems – representing about 10% – 15% of water utilities in the nation (Prabhu 2012). Both options face political hurdles and they will need to be crafted carefully to protect the public service aspect of water provision, yet have potential to provide needed capital and revenue to struggling water systems.
2. Attention to utility finance management is gaining momentum across the nation
A shift in focus within water utilities from engineering-based decision making to sustainability and finance-based decision making is gradually gaining traction. EPA’s 2008 report on Effective Utility Management and 2012 Planning for Sustainability: A Handbook for Water and Waste Water Utilities each outline steps to gold-star utility management, and highlight “Financial Strategies” as critical to successful utility management. Input from stakeholders on the earlier report emphasized greater need for attention to using innovative financing mechanisms (i.e. full life cycle costs) and implementing sound financial strategies to successfully operate.
Mention of finance management tag words such as “benchmarking,” “risk management,” and “debt-service coverage ratio” are increasingly entering the parlance of water utility managers. Major initiatives by Water Research Foundation, EPA, American Water Works Association, and other industry leaders are moving effective financial management to the forefront of tools for effective utility management. As national, state, and local agencies continue to emphasize the need for a major departure from status quo, we are seeing a shift in types of trainings and conference topics along the lines of “Transforming the Culture of Water Infrastructure Management” (IUM), “Fundamentals of Asset management – A Hands On Approach” (EPA) and “Utility Resilience in the Face of Lower Per Capita Consumption, Increasing Water Prices, and a Different Economic Environment” (UNC EFC). The emergence of such topics indicates a demand for discussion on pricing, finance, and responsible asset management. From consultants to water utility managers to funding agencies, a field of experts better versed on the core principles of sound financial management presents hope an opportunity for developing viable solutions to the infrastructure needs gap.
3. Integration of natural infrastructure into accounting standards
Current work to modify national and state-level accounting standards to include enhancements to natural infrastructure (i.e. watersheds, buffers, stormwater BMPs) will allow for wider use of cost-effective green infrastructure techniques by local water and stormwater utilities. According to a recent report by Ceres, the Alliance for Water Efficiency has been working with water utilities to identify replacements to the Governmental Accounting Standards Board (GASB) accounting standards which would allow utilities greater financial flexibility to invest in non-pipe based conservation, water quality, and efficiency projects. The ability for water utilities to capitalize conservation and efficiency projects through techniques such as ecosystems services, replacement cost accounting, etc., is making progress. This marks a turning point for water utility management, and natural resource management overall.
Although none of these offers a panacea to solve the ills of the water utility sector, teams of bright and dedicated individuals have been known to accomplish great things – and this possibility is fully within the sight of the US water utility sector.