I had the pleasure of speaking with Dave McGimpsey yesterday on the Water Values Podcast to discuss the impact of The United States’ decision to step away from the Paris Climate Accord. While always a pleasure to share thoughts with Dave, it also allowed me to think a bit more about the state of water in the U.S. in a post-Paris world.
C’est la vie. The federal government’s abandonment of any strategy to address climate change– human caused or not– has further isolated state and local governments at a time of significant stress. If this is news, federal support for public water systems has steadily declined since 1977 and a ten-year, US$532 billion water utility CAPEX bill is piling up. Paying for solutions to manage rising tides, stormwater events, and drought will only make matters worse for water utilities. Bluefield Research’s soon-to-be released analysis of water rates in the U.S., once again, shows a 6% to 7% increase on average for the largest utilities. While Philadelphia is taking on an innovative rate structure to insulate the poor, how long can customers withstand 3x inflation increases without wide-sweeping change.
Unfortunately, there is a fair amount of intrigue to distract us from managing the one thing that we can’t live without for more than three days.
Fortunately, in some respects, municipal water utilities are already concerned about climate change. From Miami to Sacramento, increasingly frequent large storm events are already overwhelming networks and treatment systems. In the case of Miami, it sits at ground zero for sea level rise, so waiting is not an option. For Sacramento (and neighboring cities), never before have utilities been forced to confront such a swings from drought to deluge. Just this morning, I reviewed a list of 365 wastewater reuse projects in California, alone, that are partly in response to utility concerns about supply risks caused by climate change. The impact of drought on operating revenues for 295 California utilities was a 45% from 2013 to 2015. It’s tough to keep up with fixed costs in this environment.
Natural gas is the new king. Everyone goes immediately to coal when the issue of climate change is raised. However, 33 horizontal drill rigs are currently poking holes in Pennsylvania’s Marcellus shale, eroding the importance and value of the U.S. power sector’s aging coal fleet. If you did not read the recent Wall Street Journal article, Gas output from the Permian basin is likely to surge by 2020, rivaling production from Appalachian Marcellus, the title says it all. While energy companies are forecasted to spend as much as US$12 billion on water management for hydraulic fracturing, water companies should relish in the opportunity that power companies will need to treat water for more than 1,200 coal ash ponds. Further, replacing +200 coal plants with gas-fired plants will need various types of water systems.
So far its been an”infrastructure-less week” at the White House. Unfortunately, there is a fair amount of intrigue to distract us from managing the one thing that we can’t live without for more than three days. At the start of the year, signals were positive for investment in water infrastructure, including improved local sentiment towards public-private partnerships and investor owned water utilities. There also, seemed to be bipartisan support for change and the Water Infrastructure Finance and Innovation Act (WIFIA), which now looks to be oversubscribed at US$6 billion. Much of this investment, directed by the EPA, is for climate change related projects. Going forward, however, the likelihood that the decision criteria for new awards will be different is high.
I didn’t forget about Pittsburgh. This afternoon, a Pennsylvania House committee voted to approve a bill that would put Pittsburgh’s troubled water and sewer authorityunder state control. In summer 2016 PWSA alerted its customers that it had found elevated levels of lead in 17% of tap water samples, echoing lead contamination problems facing Flint, Michigan. This is not a climate problem, but emblematic of the need to invest in our nation’s water and wastewater infrastructure, on top of dealing with the climate’s impacts on our water utility networks.
The upside of all this, we don’t have to depend on anyone else now, and the opportunity is immense. Hopefully the simplicity of the children’s picture of the water cycle above will make you think about it and the future. And if this doesn’t work, maybe the video about these popsicles will do so.
What’s your bluefield strategy?
Reese Tisdale is the President of Bluefield Research, a market research and insight firm focused exclusively on supporting companies addressing opportunities in water. Learn more about how Bluefield is helping companies.