Closing the infrastructure funding gap

March 24, 2003
WWEMA Member Bill Acton accompanied WWEMA President Dawn Kristof on January 31 to an EPA-sponsored stakeholders forum on sustainable water infrastructure.

A report from WWEMA representatives on recent EPA forum

March 24, 2003 -- WWEMA Member Bill Acton (Parkson Corporation) accompanied WWEMA President Dawn Kristof on January 31 to an EPA-sponsored stakeholders forum on "Closing the Gap: Innovative Responses for Sustainable Water Infrastructure."

Nearly 200 individuals were in attendance, representing a broad cross- section of interests in the water and wastewater industry, from private utility managers and public utility commissioners, to regulatory officials and environmental advocates.

The topic was water infrastructure: how to close the funding gap that exists between growing investment needs in the water and wastewater industry and current spending levels.

EPA Administrator Christine Whitman opened the program by describing the results of a recent study issued by EPA titled "The Clean Water and Drinking Water Infrastructure Gap Analysis. "

She stated that if municipalities were to increase their spending at a rate of 3% per year, the $270 billion in capital and O&M needs facing the clean water industry, and the $265 billion in needs facing the drinking water industry, could be reduced by 90% and 80%, respectively, over the next 20 years.

She called on the industry to adopt new innovative approaches to further reduce the funding gap, including asset management, public-private partnerships, consolidation, environmental management systems, and conservation practices. "We need to be bold and sensible in finding creative ways to close the gap," she said.

Following Administrator Whitman on the program was G. Tracy Mehan, EPA's Assistant Administrator for Water. He described four broad directions to help meet future water needs, including better management practices, smarter use of water, full cost pricing and using the watershed approach.

On the subject of full cost pricing, he noted that Americans pay on average only one-half of one percent of their household income for water and sewer. He further stated that the United States has the lowest percentage of income going to water charges among the 18 OECD countries.

Two panel sessions were held at this event, the first focusing on better management practices, the latter on sustainable infrastructure financing options.

Water Management Panel The first panel session focusing on the management side of the water infrastructure funding equation was kicked off by remarks from Chuck Clarke, director of Seattle Public Utilities. He described the four biggest challenges facing his utility: no new federal ; assistance for Seattle; pricing water to encourage conservation; redefining the gap by using asset management and privatizing some operations; and balancing investment in new vs. old infrastructure needs.

Another public utility perspective was offered by Paul Pinault, executive director of the Narragansett Bay Commission. He stated that his utility was already charging full cost of service rates but faces a dwindling rate base and fixed income population. He called for federal assistance comparable to that provided to airports and highways, and a shift in regulatory focus toward non-point source pollution where states can get the "biggest bang for a buck!"

Offering the private utility perspective was Andrew Chapman, president of Elizabethtown Water Company. He described his utility's use of innovative technologies and management practices and challenged the industry to produce 'best in class' service. He observed that most utilities only charge a fraction of value-to-service provided and urged greater use of consumer marketing as a valuable tool for change.

Richard Pinkham, adjunct research scholar at the Rocky Mountain Institute, a non-profit natural resources policy center, presented a different perspective on the way our water resources should be managed. He called for greater water efficiency use and reuse; institutional and physical integration of water, wastewater and storm water; and increased diversity in the use of a broader range of technologies, including decentralized wastewater systems.

Harry Ott, director of global environmental assurance for Coca-Cola, emphasized the importance of closing the loop on water use efficiency. "We need to get away from using the word 'wastewater'," he said.

The chief inspector of Britain's Drinking Water Inspectorate, Michael Rouse, urged water utilities to find ways to segment its services and use sources of income to offset other expenses. "We need to think more as marketeers," stated Rouse.

Water Financing Panel

The second panel session focusing on water financing options offered a variety of opinions on sources of funding and the role of the federal government in helping to meet current and future infrastructure investment needs. Janice Beecher, director of Michigan State University's Institute of Public Utilities, called the funding gap a 'construct' and opined that the problem lies not with a 'willingness to pay' on the part of the consumer, but with a 'willingness to charge' on the part of the utilities.

She cited Indiana as an example where over 70% of utilities choose to have their rate structure regulated by the state, giving protection to mayors who resist rate hikes due to political pressures.

Billy Turner, president of Columbus Water Works, had a differing opinion on what it takes to get the consumer to accept a rate hike. "You can convince the public to raise rates if you can show that you are getting a match from the Federal government," he stated, and called for the creation of a national water trust fund.

"You can't solve 21st Century infrastructure problems with 201h Century thinking," replied Michael Chesser, chairman and CEO of United Water.

"We need creative financing and a level playing field," he added.

His 21st Century solutions included use of tax-exempt financing; a market structure which accommodates design/ build/operate and public-private partnerships; optimizing system operations by managing demand instead of building for peak capacity; and better use of energy and water loss prevention practices. As for the role of the federal government, Chesser views it to be a catalyst for new approaches and R&D initiatives. He believes the federal government should also provide leadership in consolidating and regionalizing the 168,000 drinking water systems in existence today.

Eric Olson, senior attorney at the Natural Resources Defense Council, offered his own unique take on the situation. He called for creative leveraging of state revolving funds; increased water rates, including affordability or life-line rates; greater public education and outreach; green solutions and green bonds; and a water infrastructure trust fund. He suggested that a trust fund could be capitalized with penalties received from Clean Water Act and Safe Drinking Water Act violators, user fees on water-related industries, or fees on the users, themselves.

Speaking on behalf of public utility commissioners was John Betkoski from the Connecticut Department of Public Utility Control. Commissioner Betkoski explained that water "is still the stepchild of the utility industry" and that more work needs to be done to get the message out on the importance of water "before it's too late." He stated that it was no problem to add the costs associated with water security to rate structures in his state.

Paul Halberstadt, vice president of technical services at Renewable Environmental Solutions, a joint venture between ConAgra Foods and Changing World Technologies, opined that the federal government should be a last resort for financial assistance and that full cost prices is appropriate, but cautioned that "the devil's in the details." Before raising rated, he urged water utilities and their customers to employ water reuse to the maximum extend possible.

If anyone in the audience questioned the Administration's position on federal subsidies, it was put to rest when EPA Assistant Administrator Tracy Mehan stated in his final remarks at the conclusion of the Forum, "if sustainability comes down to federal subsidies, that's not sustainable over time!"

WWEMA continues to work with the H20 Coalition partners in advocating long-term, self-sustainable solutions to address our industry's infrastructure challenges.

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