Making Progress On Improving Our Aging Water Infrastructure

In February 2011, news outlets across the country reported that Kansas City, MO, experienced 467 main breaks this winter alone—a 73% increase in the number of breaks the city experienced during the winter of 2010. Montgomery and Prince George’s County, MD, which deliver water to 1.8 million people, also made news headlines for breaks in their water systems. According to one article, both counties set a record in December 2010 for having the largest number of water main breaks in a single month—647. The following month, Prince George’s County experienced a 54-inch water main break that damaged nearby businesses and leaked an estimated 50 million gallons of water.

While municipal spending on water systems is taking place, much of it is for emergency repair, and it is not nearly enough to cover the estimated spending gap for necessary repairs and replacement. As stated by the American Society of Civil Engineers (ASCE) in its 2009 report, “America’s drinking water systems face an annual shortfall of at least $11 billion to replace aging facilities that are near the end of their useful lives and to comply with existing and future federal water regulations. This does not account for any growth in the demand for drinking water over the next 20 years.”

To address the shortfalls, municipalities and water utilities are looking at a variety of funding sources, including municipal bond issuance, higher water rates and increasing operational efficiencies.

Municipal bond issuance is a common funding source for water systems. However, some investors have recently expressed concern about the risk of possible municipal defaults. Results of a Reuters poll published in February 2011, found that more than half of Wall Street professionals, including municipal bond traders and investors, anticipate that up to four multibillion-dollar municipal bond defaults will take place this year.

Fortunately, certain investment analysts and ratings agencies have a more optimistic view of municipal bonds that focus on water systems. A recent Fitch Ratings report explained the relatively stable credit quality of water bond issuers. The report cites numerous supporting factors, including the essentiality of water and its monopoly status, which has helped shield the water sector from certain economic factors.

Some analysts say that recovering more of the actual cost of water—if not moving toward full-cost pricing—could be an important avenue to increase the investment needed in our aging water infrastructure. They point out that water rates in the U.S. are typically less than in other developed countries. In fact, results of the International Water Report and Cost Survey, conducted by NUS Consulting Group in 2007, indicated that U.S. water rates were the least expensive at 66 cents per cubic meter average compared to the 13 other developed countries that were surveyed (Denmark’s rates were the highest at $2.25 per cubic meter).

A significant source of funding for water and wastewater comes from the revenues generated by user rates; therefore, pricing water to accurately reflect the costs of providing quality water services is one strategy that utilities are using to maintain infrastructure and encourage conservation.

However, as rates increase, utilities will need to proactively educate consumers on the true value of water to absorb the shock of higher rates and ease consumer acceptance of those rates, according to Avoiding Rate Shock: Making the Case for Water Rates, a study sponsored by the AWWA [American Water Works Association] Water Utility Council. The study found that consumers get upset over rate increases because of misunderstandings about the true value of a safe, adequate supply of water, and that a consistent, structured communications strategy can build support for rate increases.

Despite the estimated spending gap for water infrastructure improvement, everyone knows that a long-term solution to pay for much needed repairs and replacement is necessary. (Respondents to AWWA’s report indicated that inadequate attention toward the physical condition of water infrastructure is the biggest concern.)

The significant rate increases occurring in many cities across the U.S. show we are heading toward pricing that could provide additional funding for repairs and replacement. The New York Water Board recently adopted a rate increase of approximately 13% for 2011, marking the fourth consecutive year the city’s rates have increased by more than 10%. The city council of Pasadena, CA, recently approved a 30% increase in water rates. Numerous other cities, such as Indianapolis; Phoenix; Houston; and Toledo, OH, to name a few, are taking similar actions. In fact, the U.S. Bureau of Labor Statistics indicates water and sewage services have experienced significantly greater long-term consumer price increases than any other utility service—even natural gas—since 1990.

Some municipalities have also started moving forward with projects using technologies to help improve operational efficiencies. For example, the Sewerage and Water Board of New Orleans (SWBNO) recently began using an acoustic-based leak detection system to assess the structural condition of its underground water pipes. This advanced method enables SWBNO to efficiently prioritize the replacement of pipes in its water system based on the extent of deterioration. Using the technology, the city can also pinpoint water main leaks without having to undergo expensive and disruptive excavations. The SWBNO credited this process with locating numerous leaks in its mains that were causing between 75,000 and 100,000 gallons of water loss per day (the equivalent to filling one Olympic swimming pool every six days).

New Orleans and other cities that have started using acoustic-based leak detection, such as Las Vegas; Chicago; Portland, OR; and Oakland, CA, can take phased, cost-effective and non-invasive approaches to prioritizing water system repairs and replacements before serious main breaks occur.

Winston-Salem, a city with the third largest water system in the state of North Carolina, and Port Angeles, WA, are other areas with forward-thinking municipalities. Both have started upgrading their water infrastructures to improve customer service and operational efficiencies and to address non-revenue water. Winston-Salem announced plans to upgrade its water metering system with AMR, and Port Angeles plans to implement AMI for its water and electric services.

Winston-Salem, Port Angeles and other cities that are beginning to implement AMI and AMR expect to experience improved customer service, additional cost-savings and improved water conservation as a result of advanced monitoring capabilities. And, similar to the benefits of acoustic-based leak detection technology used by SWBNO, these capabilities can help the cities detect non-revenue water leaks in a timely manner—before they result in costly main breaks.

Water infrastructure improvements are also being prompted by federal agencies, namely the U.S. Environmental Protection Agency, which is issuing consent decrees to cities whose drinking water and/or wastewater systems are especially at risk. Nearly 50 cities, including Atlanta, Cincinnati, Los Angeles and Honolulu have signed such agreements, which force them to accelerate overdue improvements to various components of their water infrastructures.

THE BOTTOM LINE

The condition of America’s water infrastructure remains critical. However, increased awareness of its condition appears to be prompting actions that can help move it in the right direction. Despite the current spending shortfall to replace aging water infrastructure, improvements are being made in many areas of the country through tools such as rate increases, municipal bonds and new technology. All of this effort is working toward ensuring we continue to have access to an adequate supply of safe, clean drinking water.

Martie Zakas is senior vice president, strategy, corporate development & communications, for Atlanta-based Mueller Water Products, Inc. (www.muellerwaterproducts.com), a North American provider of water infrastructure products and services.