Funding Innovations and Opportunities in the Water Market

During WEFTEC 2015 in Chicago, WaterWorld's Angela Godwin sat down with Mike Orth of Black and Veatch's Water Business to discuss what, in his view, are some of the most prevalent funding trends and opportunities available in the water market.

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During WEFTEC 2015 in Chicago, WaterWorld's Angela Godwin sat down with Mike Orth of Black and Veatch's Water Business to discuss what, in his view, are some of the most prevalent funding trends and opportunities available in the water market.

WATERWORLD: We want to talk to you a little bit about funding. This is such a huge issue in our industry. What are some of the funding mechanisms out there that utilities are using or what's kind of new and innovative there?

MIKE ORTH: From a financial standpoint, money is very important obviously so that capital improvement programs can be implemented. Looking at capturing the revenue streams and asset management, making sure that [we're billing for] all the water that is running through our system, [that] we're reducing the amount of leaks and trying to capture as much as we currently have within the revenue stream potentially. Then we're also looking at, from an asset management condition assessment, ensuring that that revenue stream finances that complete capital improvement program. Many clients are also looking at low interest rates and loans from federal government. There's a new program that's a pilot program, the WIFIA program modeled after the TIFIA programs. We're trying to get more federal dollars into our business as well. Rate structures are also a big moving item at this point in time. As population had been moving from the north to south as we age in the United States, a lot of utilities had system development fees that were a base load of what their consumption was. When 2008 happened, the movement of people stopped occurring from the north to south, and those utilities had to adjust their rate structures to make sure that they captured and could fully fund their revenue streams. So it's a combination of a whole variety of solutions to make sure that we've got adequate revenue generated within our utilities to fund all their needs.

WATERWORLD: One concept I wanted to talk to you about a little bit though, is financial resilience, because we hear about this and it's different than just getting funds for something, right?

MIKE ORTH: It's a balance where you've got adequate funds so you can fund all your capital improvement programs, you can cover your debt service You can do your routine maintenance and operation, but then you're also looking at asset renewal. A lot of utilities are looking at an asset renewal of replacing a pipe once every 100 years, and that's probably one of the more aggressive. Unfortunately, many utilities are looking at a renewal program once every 300 years, 400 years. There's just been so much of a deferral of the hard discussions relating to rate structures to adequately fund our renewal systems. There has to be some continued education amongst our ratepayers, our general public, on the value of water. You think about how our lives are so dependent upon water, how industry is so dependent upon water. We're seeing that in the west right now in the reductions in the water and what they're doing to agricultural communities. Conservation has to be part of the conservation, but we can't conserve our way out of a crisis. We have to look at different sources of water, we have to look at different solutions. Wastewater reuse is going to be a major solution going forward, as we get more direct and indirect potable reuse. Desalination will have to be part of that answer as well.

WATERWORLD: What kinds of differences do you see regionally or state by state in terms of their financial resilience? What things are impacting them?

MIKE ORTH: It's very difficult right now. A lot of our utilities have public systems that approve rate increases. And the economy still is not up and roaring right at this point in time, so there's always sensitivity to raising rates. No one likes to have that conversation. And there is diversity when you get into some wet weather states that have a lot of rain, rainfall issues. They don't have as much from an irrigation standpoint. And you get into the arid west right now and their utilities are asking, and actually the governor of California is demanding, reductions in your water consumption. Well, you've got fixed costs. Your revenue is declining because our public is conserving its water, but then we get to reward them for doing what we've asked them to do by raising their rates. It's a very difficult political situation, so there is great diversity and it's very seasonal. Even the wet weather communities can have droughts; the dry communities can obviously have floods at some point in time. So, financial resilience ties into that whole picture and you got to be able to withstand a year or two worth of crises. So that is really an education component towards the public, your council, the elected officials, so that they support that adequate reinvestment back in the business.

WATERWORLD: What are some tools or resources that utilities can use to start along the path of financial resilience?

MIKE ORTH: A big component is education obviously, and that education is, as I just described it, to the general public and the elected officials. It's got to be a major component of that. The value of water and realizing that water is so essential in our daily lives fits into that education decision also. The other discussion is around asset management and making sure we're evaluating, and we're making really critical decisions on where we're spending our precious resources at so that we get the most bang for our buck in what our investment is. All the utilities out in the United States aren't going to have enough money to do everything that they want to do. We all know that. We accept that. It's just a fact of life. They have to be able to prioritize where their greatest needs are, where they can capture that water. They know that they've got a condition of a pipeline that's out of sight, out of mind, but it's a critical intersection, a disruption. It costs ten to 100 times more to repair something on an emergency basis than on a planned basis. So, we have to get much more of a plan mentality. Asset management fits exactly into that conversation. And, it takes a little bit of political will. And, that will be the challenge: how good and convincing we are in telling the story about the need and value for water.