Two stimulating panel discussions at the American Water Summit 2018 on October 25th debated different aspects of financing water systems across the USA. While there was consensus across expert panels that the future of finance looks generally good, particularly with interest rates at record lows, there was also recognition that sector needs are daunting and urgent, with one speaker estimating that $2-3 trillion will be needed for water infrastructure upgrades over the next 20 years. While innovative financing options are reason for optimism, smaller water operators having the capacity to pay back investments remains a major cause for concern.
Hopeful opportunities offered by panelists included:
- Mainstreaming the concept of fair market value by addressing the historic lack of municipal motivation to consider the sale of water assets. The original model of appraising water assets resulted in significant undervaluation thus stymying the appetite of both public and private sectors to consider partial or full privatization. But new legislation in a growing number of US states on fair market value has been enacted, introducing a new, fairer appraisal methodology.
- Opportunities for water operators to consider bundling water services with other, higher margin services such as telecommunications. One panelist operating a not-for-profit cooperative model of water utility management threw down the gauntlet to other water system operators to maximize existing water infrastructure opportunities and put boots on the ground to look into acquisition of complementary utilities.
Concerns raised included:
- A sense from the majority of panelists that politicians and city managers continue to be hesitant to consider selling water assets in cases of water and sewer utility underperformance. Factors including fear of losing control over core services as well as union pressures to keep utilities public were cited as common reasons.
- Continued underpricing of water and an inability of water operators to establish rates that reflect the true cost of water service delivery. Panelists described water system operators as the ‘silent utility’, impeding the sector’s ability to educate consumers on what water delivery services really cost.
- Water affordability. Panelists debated the responsibility of water system operators in addressing the increasing percentage of US residents with decreased capacity to pay for water or sewer service. Looking abroad at how other countries were managing this challenge was encouraged.
So, is the sector in crisis? If crisis is understood as a decisive moment, after which recovery will be difficult, a majority of panelists said yes. The pervasive ‘fix as fails’ approach to dealing with aging US infrastructure was deemed unacceptable, given that for every $1 of deferred maintenance costs, $4 in future capital expenditure will be needed. Given the importance of water in sustaining life, the sector needs to harness the brightest and most courageous minds to develop context specific models to address these challenges.