U.S. Water Infrastructure Trapped in Recurring Cycle of Debt and Rate Hikes, Study Shows

NEW YORK, October 14, 2013 – Water infrastructure in the United States is caught in a recurring cycle of debt and rate increases even as its condition and resilience continues to deteriorate, according to a new study released by the Columbia University Water Center in conjunction with Veolia Environnement and Growing Blue.

America’s Water: An Exploratory Analysis of Municipal Water Survey Data is one of the first studies to systematically explore national survey data on water rates, providing a description and understanding of the major factors that influence the operational costs, rates and financial health of water utilities. Its analysis reveals that both debt and rates for the nation’s water infrastructure are rising, increasing the financial burden on ratepayers.

From 2000-2010, on average utility debt increased by 33 percent while water rates increased by 23 percent. Notably, debt and rates have increased by more than 100 percent at approximately one third of the nation’s utilities surveyed by the American Water Works Association (AWWA).

“Achieving sustainability in our water systems requires a transparent understanding of the factors that influence rates,” said Upmanu Lall, director of theColumbiaWaterCenter. “In the last 30 years, federal funding for water infrastructure has almost dried up and it will be difficult for many utilities to raise rates high enough to pay down existing levels of debt. But although debt is increasing, the age of our water infrastructure continues to pose a challenge. We need to rethink what the water utility of the future should look like and how we will pay for water services and stimulate sustainable use.”

As shown in the report, increased debt impacts rates, but it does not seem to have resulted in an overall improvement in the nation’s infrastructure. In a widely cited analysis, the American Society of Civil Engineers ranks the nation’s drinking water infrastructure with a “D” grade, requiring more than $1 trillion in investment over the coming decades, just to replace aging pipes.

As indicated by the trends noted in the study’s findings, rates will likely go up in the short term. However, while some factors such as altered precipitation levels are largely out of the control of utilities, there are areas that could be better controlled in order to stem rising rates and build a buffer to deal with unexpected and uncontrollable events.

  1. Operational efficiency could be improved. The study shows that operating expenses are one of the key variables affecting water rates and that low productivity rates are passed to the user in the form of higher rates. Inefficient utilities cost ratepayers more money and typically use relatively more energy, chemicals, resource and manpower. Improving efficiency is therefore an important driver in managing rates. Utilities should examine their operations for efficiency improvements, including maintenance plans, personnel utilization, chemical costs, and energy usage. All of these elements contribute to the operational cost per employee and cost per gallon processed. Further, water use efficiency – using less water to accomplish the same objectives – should also be reviewed. More efficiency in water use reduces the amount of water a utility must process per capita, thereby lowering costs and environmental impact.
  2. Source matters and is a significant cost driver. Managing for environmental sustainability will beneficially impact costs. The study finds that the source of a utility’s water directly impacts rates. Utilities tend to use the least expensive source to its limit, and then look at other resources. To reduce costs, areas with less costly water sources, such as groundwater, should work to ensure the long-term viability of these sources, even during periods of population growth. Agricultural use leads to depleting groundwater in many parts of the country, leading to potential increases in costs for municipal water. When a water resource becomes stressed due to inefficient and wasteful use, alternate sources need to be identified. This typically adds costs per gallon.
  3. Alternatives to the existing rate structure can be explored. The study demonstrates that efficiency and conservation of the water resource is critical to keeping overall rates low, since water scarcity has associated costs. The municipal solid waste sector developed a sliding scale fee system to encourage waste reduction by charging a premium rate to those that exceed pre-set limits. A similar system could apply to water, encouraging conservation and reducing wastage. Some of the municipalities identified in the study already utilize such conservation-driven sliding scales, requiring those who put the heaviest strain on a system to pay more proportionately.
  4. All revenue sources can be considered. There are other ways to recover costs than through usage rates alone, a path already used by several of the utilities in the study. Other revenue sources include connection fees, green infrastructure incentives or savings performance contracting. In some cases, the investment community can be recruited to provide options for transferring liabilities from municipalities to the private sector.

“The problem of escalating debt and rising rates is not a problem limited to a handful of poorly managed utilities, but includes many well-run utilities,” said Ed Pinero, Veolia Environnement’s North American head of sustainability. “Many of today’s water managers are operating in an old framework that needs to be re-examined for the 21st century. Ratepayers are adversely affected by old governance and management models and are increasingly being asked to shoulder the burden of debt.”

ColumbiaUniversity’s Water Center Aquanauts conducted the America’s Water: An Exploratory Analysis of Municipal Water Survey Data study with the support of Veolia Water and Growing Blue. TheColumbia academic group develops projects to analyze water supply chains and examine particular sets of water issues, providing both policy and technical analyses.

“The historical analysis of water rates provided in this report helps identify the strains faced by water managers around the nation and demonstrates the real challenges we face in the coming years,” said Lall. “To secure our nation’s water future, our water infrastructure must meet our current realities and challenges. When we establish systems to sustainably match our water usage with growth, then we will truly be ‘growing blue.’”

Links and Downloads

  • An infographic on the top factors driving the variability of water rates across theU.S.
  • The American Society of Civil Engineers’ Report Card for America’s Infrastructure
  • America’s Water: An exploratory analysis of Municipal Water Survey Data, the full report

About the Columbia University Water Center

The ColumbiaWaterCenter, in collaboration with other Earth Institute units and external partners, is leading intellectual inquiry into the assessment, understanding and resolution of the global crisis of freshwater scarcity. Read more at http://water.columbia.edu/

About Growing Blue™

Growing Blue is a collaboration of non-governmental organizations, water companies, industry groups and international organizations working together to build awareness of water issues and water solutions through the use of water management tools, hosting educational events and sharing data. Growing Blue was created by Veolia Water in consultation with The Nature Conservancy, the U.S. Water Alliance, the World Business Council for Sustainable Development, the UN Global Compact CEO Water Mandate, the Earth Institute at Columbia University, Global Water Intelligence and Cardno ENTRIX. IBM, Xylem, GE Intelligent Platforms, the World Resources Institute, the International City/County Management Association and the International Desalination Association have all joined Growing Blue. For updates and additional information, follow us on Twitter @GrowingBlue or visit www.growingblue.com