Opinion: Require Water Utilities to Spend More Now So They Will Cost Less Later
Options exist to make our water supply and wastewater utilities more cost-effective
New Jersey has many hundreds of water-supply and wastewater utilities, ranging from small systems that serve a single development to regional systems serving a million people or more. Some of these systems have treatment plants, while others only operate distribution or collection systems that are linked to regional water-supply or wastewater treatment facilities.
All of these utilities shares at least two problems. First, their physical assets -- the treatment plants, pumps, pipelines, and such -- need to be protected and maintained. Second, their customers want low rates. When was the last time we heard the public clamor for increased rates so their infrastructure would be maintained. It isn’t happening for the gasoline tax, and there is zero public interest in higher water and sewer rates.
Maintenance of assets
Physical assets start declining the moment they go in use. Wear and tear is to be expected. Also predictable is that, by and large, inadequate funds will be dedicated to maintain these assets and, when they reach the end of their viable lifespan, to replace them. I say predictable because we have decades of experience seeing the integrity of water utilities decline. This problem is especially true of pipeline systems, where we have thousands of miles of pipes that have outlived their expected usefulness, but applies to other assets as well. Our current laws, regulations, and incentive systems are inadequate to ensure proper asset management, though treatment plants are better managed because they are more closely regulated.
Clearly, people who control utility budgets are too often unwilling to spend the money necessary. The Legislature and governors over many years have not acted, even though some key people in both the New Jersey Department of Environmental Protection and the Board of Public Utilities have tried to move this issue to the forefront. Hurricanes Irene and Sandy have given some impetus for improved resilience, but again there has been limited interest in forcing progress in general asset management.
While some utilities are successfully bucking this trend, too few are. Part of the problem is simply a lack of clear objectives, so that utilities can determine where they stand relative to a common standard. There is an old saying: if you don’t know where you are going, all roads will get you there. We need to have clear destinations, road signs and milestones to encourage or mandate better utility management.
Upgrades and modernization
What people often forget is that many physical assets, even if well-maintained, can become outdated. Better technology becomes available as time goes on. Concrete-lined steel pipes give way to PVC. Better pumps save energy and aren’t damaged by flooding. New treatment techniques improve results while lowering costs, such as better membrane technology and disinfectants. New technology may allow us to generate enough energy from the wastewater-treatment plant to run the plant, which sounds like a perpetual-motion machine but is gaining a lot of interest in the field. We even are seeing technology to mine wastewater for valuable substances that can help defray the costs of running these utilities, such as phosphorus (for fertilizer) or metals.
Modernization also applies to people. Facility operations can be improved and made more cost-effective, especially when the facilities themselves use modern systems to enhance controls and information. Staff can be trained in new approaches and technology, and can be a source of ideas for improvements. Management and consultants can become more conversant with the best practices and technology, and learn how to apply these to local utilities.
Spending to save
The point is that even if we are maintaining our assets well (which we often are not), we are losing opportunities to improve our assets in ways that save money over time. This raises a critical question. Should our laws require that water utilities assess their systems and identify ways that spending money will reduce costs? Spending to save shouldn’t be a hard sell. Anyone who has replaced old windows or added solar panels to save energy costs is well aware of the benefits. Think of upgrading to a new hybrid vehicle to save gas while avoiding expensive repairs on your old car.
Why is it so hard to achieve the same thinking for water utilities? There are likely several reasons. Costs are easy to predict, but benefits may be less certain. Bonding capacity may be limited and therefore prevent future savings, a counterintuitive result. Those who control the purse strings may not understand the new technology and therefore distrust it. Some system managers (especially with smaller utilities) may not be up to speed on new approaches. Management may be overloaded just keeping the existing (decaying) system going. In a way, the problems keep people from solving the problems.
Whatever the cause, here is an obvious situation where a more aggressive approach by the state could provide significant benefits. The state could require that water utilities engage in a strategic approach to identify where capital spending could significantly reduce costs, and then provide clear guidance, training and technical assistance on how to do the analysis.
Can we be sure it would work? Fortunately, there are examples of water utilities that have done exactly what I’m suggesting, including at least one in New Jersey. Let me applaud the Camden County Municipal Utility Authority, which has spent hundreds of millions of dollars over the past 20 years or so to completely revamp their wastewater treatment plant and optimize their operations, using low-interest loans from the NJ Environmental Infrastructure Financing Program. Despite spending all that money, their rates are essentially the same as 1996 and roughly 40 percent lower in constant dollars (factoring in inflation). Success is feasible.
It seems strange that we might have to require water utilities to save money, but our existing laws can have perverse results, creating disincentives to proper management. It is time that we move into the 21st century in system management and technology. If we must force ourselves to act in our own best interests, we should do so.