Five Essentials for A Viable Water Utility (even when the money is free)
In 2023, some things remain the same when it comes to owning and operating a viable water utility. Other things have significantly and subtly changed. Mastering the things that have subtly changed will be essential for water utility success over the next five years.
The Traditional Issues Remain
One historical financial pressure is to build a nest egg for future development while, at the same time, keeping rates low. The water utility sector is not very good at doing this, primarily because most asset value is underground and rate makers are elected on two-year cycles.
There continues to be a labor shortage, and water utilities historically do not pay the highest salaries in the market.
From a regulatory perspective, the traditional issues related to an ever-tightening regulatory environment will not change. Society is more risk-averse than ever, and the Precautionary Principle will continue to rule the day from PFAS to climate change.
Water utilities continue to have an aging infrastructure problem. It seems that it is hard to catch up once you fall behind.
Data management systems continue to be a challenge. In this case, once you decide to be a follower, you never catch up when the market is rapidly changing. It is even harder when you don’t have the money and afford the people to catch up.
The New World Order
The traditional challenges are not good, but we can argue that they are already baked into how the business is run. New challenges will be with us for at least the next five years. These new challenges are the difference maker when it comes to water utility viability.
1. Our Capital Funds Are Buying Less
The essential issue is not that our money is buying less. That's almost an old problem since we have been dealing with that problem for more than a year. And we will be dealing with it for another three to five years.
The problem is that we will appear to be doing better, at least from a spending perspective. Staff and annual reports will reflect capital improvements that are greater than ever. Many utilities will “solve” their capital project delivery problems for the first time in decades, at least from a dollars-spent perspective.
Viable utilities will track (or continue to track) the pumps, pipes, and infrastructure that was constructed. Non-viable utilities will pat themselves on the backs for how hard they have worked (aka, money spent) and wake up in a few years to a harsh reality.
2. Organizational Capacity Is the Bottleneck
The second thing is our workforce as a nation. The US has been on a downward trend for twenty years in terms of the percentage who are eligible to work and those who actually work.
The current percentage is around 62 percent, down approximately 5 percent from 67 percent in 2002. In South Carolina, for example, only 56 percent of eligible people work (down 11 percent), and in North Carolina, 61 percent, down 7 percent. The COVID blip is behind us, yet the downward trend continues.
Viable utilities will understand that traditional workforce problems like retirement and the lack of younger skilled workers will worsen the continued decline in workforce participation.
Non-viable utilities will continue believing they can do some internship programs and they will continue to get their fair share of skilled workers.
3. Regulations Are On the Rise
State regulatory agencies have record vacancy rates. For example, North Carolina’s Department of Environmental Control's Division of Water Quality reported a 23+ percent vacancy rate in January. And there are not enough qualified candidates in the pipeline to resolve the shortfalls.
In most states, modeling and permitting will take longer and be more expensive, regardless of how much free capital money they received from the federal government in 2022.
Viable utilities will realize they will have to negotiate for third parties to help state agencies and pay for it in order to deliver their capital projects on time. Non-viable utilities will stay with how things have always been done and complain that someone needs to fix them.
4. Struggling To Maintain What We Own
The impact of aging infrastructure is a persistent one. Many water utilities have attempted over the last decade to dig out of the proverbial hole; however, most have not been able to do so. The reality is that only part of the problem is money.
The other part of the problem is poor project delivery, mainly due to organizational capacity, poor project controls, and lack of year-over-year accountability. The industry remains in a corrective maintenance mindset that disproportionately rewards emergency response.
Most water utilities have not delivered their yearly infrastructure delivery goals of rebuilding and replacing what they already own. Now with new capital improvement programs five to ten times larger due to the injection of free money, the existing infrastructure needs are going to suffer further.
Viable utilities will understand the shortfalls and take a balanced approach in terms of new and existing assets. Non-viable utilities will chase the allure of capital money and lean harder on emergency response, resulting in a worsening gap related to existing infrastructure needs.
5. Desired Service Levels Are Increasing
The fifth aspect is responsiveness which combines everything a customer wants or experiences. Traditionally, water utilities have done a good job with emergency response, operational resilience, and disaster recovery. There is no evidence that that will not continue.
The front-end communication, especially customer interaction, is where water utilities will continue to struggle, and the gap will worsen. This is in part due to society as a whole – smartphones and other technology enable us to get what we want when we want it. Apps are everywhere, from ordering maintenance at your kid’s dorm room to Amazon to investor-owned power utilities that provide a quick, reliable customer experience.
Data management and data system integration are where utilities will continue to struggle.
One example is related to customer metering systems, where I am working with a medium-sized utility to decide whether information can be provided on a real-time basis, only daily, or something in between. Their advantage is that they have installed an automated meter infrastructure (AMI), yet despite the large investment, they are still struggling with how to manage and communicate the data. Most water utilities only read their meter once per month.
Another example is a water utility attempting to resolve a historical issue where the Customer Information System and the Work Management System will not automatically share work orders. It has taken eight staff, a consultant, and both software companies more than a year to figure it out.
A final example is related to interfacing the warehouse and inventory system with the work management system. It sounds almost automatic that we should be able to scan our inventory items onto our work orders and then track them for purchasing and accounting. It is not that easy, and we can judge that fact by the small number of water utilities that can do it.
The reality in the water utility space is that the technology is hard to implement and even harder to maintain. It is a function of costs, staff capabilities, and utility size. Water utilities have always been trailers, not leaders, in technology applications compared to other larger and more profitable industries. However, the pressure continues to increase exponentially, and the industry is falling further and further behind.
Viable utilities will find ways to partner with others, regionalize, and look outside the water utility industry for solutions. Non-viable utilities will struggle, explain this is not part of their core mission, and look to the federal government to provide more money to solve the problem(s).
Mastering the things that have subtly changed will be essential for water utility success over the next five years. Communication of the issues is equally important as utilities look at different forms of partnering and regionalization.
Viable utilities will:
track (or continue to track) the pumps, pipes, and infrastructure that was constructed, not just the dollars spent.
understand that traditional workforce problems like retirement and lack of younger skilled workers will be worsened by the continued decline in workforce participation
negotiate for third parties to help state regulatory agencies and pay for it in order to deliver their capital projects on time
take a balanced approach in terms of new capital spending and taking care of existing assets
find ways to partner others, regionalize, and look outside the water utility industry for data management and customer-response solutions
Owning and operating a viable water utility is full of significant and subtle changes to traditional challenges. The next five years will be a brave new world.
JD Solomon Inc provides solutions for facilitation, asset management, and program development at the nexus of facilities, infrastructure, and the environment. Sign-up to receive a monthly update.
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