The Impending Water Utility Crisis

When serving as Mayor of Philadelphia, Pennsylvania Governor Ed Rendell was surprised by a sudden need to replace a number of water supply pipes. Following a prolonged cold period, the Philadelphia temperature suddenly warmed to over 50 degrees, causing 58 water pipes to burst throughout the city. Rendell recalls that the city’s water management team reported back that many of the pipes were installed in the 19th century and were not buried deep enough to avoid the stress caused by the rapid change in temperatures.

Although few utilities currently use equipment brought into service during the 1800s, managing aging infrastructure is an ever present challenge for most water providers. Most utilities grew up along with their communities, providing increased services to meet the need of a growing consumer population. Building new facilities to meet increasing need only made sense and new customers meant additional revenue to the provider.

Over time though, all facilities inevitably reach the end of useful service lives. As this point is approached, providers that do not have a growing population or expanding market need to confront the need to replace facilities even though revenues may be static or even declining. The cost of replacing existing systems could translate to major rate increases to current customers.

In a recent New York Times opinion, (February 15, 2010) columnist Bob Hebert wades into the issue of decaying facilities and the battles states and communities are facing when it comes to replacing expensive infrastructure. “Ignoring these problems imperils public safety, diminishes our economic competitiveness, is penny-wise and pound-foolish, and results in tremendous missed opportunities to create new jobs on a vast scale.” Using the ‘jobs’ rationale, Hebert implies that Washington DC can provide a funding solution and thereby deliver relief from high unemployment rates.

City and utility planners understand the need to replace key assets such as treatment plants and wastewater systems and are trying to squeeze every last possible day of service out of aging facilities. As these facilities age, they become more expensive to maintain with some destined to fail completely. Many cities, states and special districts now face enormous costs to replace necessary plant and utility systems.

The best way to handle this problem according to Hebert, is to look for help from the national treasury. Budget hawks are sure to resist. With the current deficit and budget crises, resolving this conflict won’t be easy and could certainly be expensive. Communities and water utilities – like Rendell’s Philadelphia water department – will still have to come up with a way to pay for repair and replacement costs. Washington may not have the ability to help.

Water utilities in the United States typically serve small groups of customers. In fact, 85% of American water utilities serve fewer than 3,300 customers. Some of these small business units are now faced with huge expenditures for facility replacement. Distributing many millions in facility replacement costs to just a few thousand customers can mean huge service rate increases.

As Herbert recognizes, failure to replace important infrastructure has severe negative implications and finding the funds is exceptionally challenging. Water utilities across the nation need to begin planning soon to replace old equipment and facilities – or they will be waiting for the next set of old water pipes to break when the weather warms.

Specializing in Water Utility Consulting, author Jason Mumm is a respected economic advisor to water and wastewater service providers nationwide. His organization, StepWise Water Utility Consultants, assist utility organizations improve management operations, improve cash flow management as well as manage customer fees in a difficult economic situation.

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The Impending Water Utility Crisis

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