12 November 2020 / Reese Tisdale
Reflecting on the State of America’s Municipal Water Sector
“… Walmart and Target are not forced to give away food for free, so why should water utilities be prevented from shutting down services to non-paying customers?”
I once lived in a community in El Salvador, where drinking water was a 45-minute walk away and in another village, where water flowed through the distribution pipes about once a week. So, the aforementioned Walmart comment during a group discussion with water companies has since haunted my thoughts. No, I am not saying that utilities—public or private— should have to bear the financial burden for pandemic-afflicted customers. In fact, I am questioning the sustainability of our current system, even in the absence of COVID-19.
For me, professionally, my recent discussions have exposed the reality of America’s critical infrastructure, water utilities, and traditional business models. Essentially, those that cannot afford to pay could be forced to get in the water line, that is, after completing another trip to one of the 60,000 community food banks? This is not hyperbole. For context, I now receive two text messages a week notifying city residents with children of the availability of free breakfast and lunch meals.
“Only when the tide goes out do you discover who’s been swimming naked.”
– Warren Buffet
Just last month, Bluefield Research revised its ten-year forecast for capital investments in U.S. municipal water & wastewater to decline 21% over the next five years. The not so dirty little secret is that these potentially crippling impacts—shaped by analysis of historical experiences and data—will not hit bottom for another couple of years for many system owners. The fact that municipal utilities just recovered in 2018 from the Great Recession (2007-2009) is, if anything, a proverbial shot across the bow.
Now is when we should be taking a collective breath and asking, what the hell is happening, and how do we get out of this situation? Again, technology is not the barrier, and I write with even more confidence that money is not the obstacle that many proclaim it to be. It is a matter of thinking outside of our respective boxes and leveraging the tools set before us.
- I, too, am tired of discussing Infrastructure Week. The need for investment can be highlighted by the fact that Bluefield analysts tracked approximately US$85 billion of state revolving fund project requests this past year, of which only 17% were awarded. Now, the elusive Infrastructure Week in Washington has been kicked into 2021, at best, leading me to believe that our leaders fail to understand the risks ahead of water industry stakeholders. Water, including its quality and delivery systems, should be the last thing we take for granted and low interest rates (i.e., cheap money) will not solve the problem, as it hasn’t to date. The answer lies in a commitment to addressing the infrastructure challenge.
- Put a lid on it, addressing rate structures. Water and sewer rates for 50 of the largest U.S. cities increased by 6.37% from 2019 to 2020 (pre-Covid), compared to 1.46% in the prior year. For a mature sector, the rate decisions should not be so politically driven and shortsighted. It is time to rethink municipal water rate structures. Philadelphia’s income-based billing approach, which confronts the affordability challenge at the outset, should not be an outlier.
- Commit to squeezing water from the stone. Utility revenues overall are expected to decline approximately 17% this year, as compared to last year. At the same time, non-revenue water (i.e., improper billing and leakage) exceeds 15% in the U.S., overall, with select utilities hitting levels as high as 65%. This tells me not only that money is being left on the table, but many utility operators are simply unequipped to even calculate their non-revenue water. In many cases, it’s not a drought problem but rather a financial problem. Some of the water sector’s lowest hanging fruit for improvement can be found in flawed billing systems and uncalibrated meters (and not just smart ones).
- Yesterday’s pipes are not what they used to be. Water & wastewater utilities across the U.S. are responsible for almost four million miles of distribution and collection networks. Trenchless solutions including the cost comparisons with open-cut solutions, showcase economically beneficial alternatives to more traditional replacement methods. Certainly not a panacea, but they are valid alternatives that are forecasted to accelerate to a combined US$50 billion over the next decade. Interest in the trenchless segment is growing and demonstrated by more than 20 recent sector-specific acquisitions by companies looking to seize on this growth.
- Rely on data at our fingertips. Accelerating technology innovations—whether they are cloud computing, communications protocols, and connected assets—have thrust utility operators into the ether, so to speak. For this reason, the proliferation of digital water solutions and services providers is expected to grow and support utilities navigating the transition towards the Internet of Things. Already gaining momentum in this space are a host of engineering firms and “Big Tech” providers developing digital-specific service offerings for the water sector.
Water has always been out of sight, out of mind, which is an incredible feat in its own right. But water is more needed now than ever for handwashing, for tracking COVID via wastewater-based epidemiology tools, and as the backbone for industry (e.g upstream oil & gas). So, rather than focus on our turning off water for the most vulnerable populations, who are already suffering during this pandemic, let’s focus on making sure that water is getting the investment needed to meet water quality standards, keep the taps flowing, and support industrial growth into the future.
Bluefield is supporting its clients with ongoing and transparent insights to tackle the most pressing and complex water market issues. One example is an upcoming Bluefield Webcast, Competitive Trends in the Digital Water Market on 17 November. Our team will present analysis of the global competitive landscape for digital water to Insight Service clients. The discussion and Q&A will zero-in on key market trends, including M&A, venture investment, the role of engineering consultancies, and the potential for disruption by new market entrants.
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