Water Utilities Need to Completely Reset Their Business Models

As the Joe Biden administration ramps up its climate plan and lays out strategies for lowering emissions in the electricity and transportation sectors, one sector in particular needs to be reconsidered: water. Water utilities will not only feel the full force of climate impacts, but are also a not-often-counted contributor to emissions. Technical solutions exist, but they are complicated by political considerations, lack of resources, competing interests and antiquated processes. All of these challenges are solvable with investments in both effort and money.

The current state of water utilities across the U.S.

Public water utilities serve the vast majority of Americans. Of the approximately 155,000 public water systems, about 8,700 of them serve close to 92 percent of the population, and those smaller systems typically face the worst resource constraints. About 12 percent of water utilities are private, both for- and non-profit. Unfortunately, water utilities’ infrastructure on the whole is in a sorry state: The American Society of Civil Engineers rates it as a “D”. Most of the foundation of today’s water utilities was installed in the early- to mid-20th century with a projected lifespan of 75 to 100 years – so, it’s been long past the time for replacements and upgrades.

One key problem that water utilities face is an antiquated business model, based on revenue from ratepayers. Most of these utilities’ costs are fixed, so they must look to customers to make up the shortfall, leading to a perverse incentive to not encourage conservation. But there’s an interesting problem that it is also a great opportunity: the energy costs of most water utilities can make up to 40 percent of a municipality’s energy bill. By tackling infrastructure upgrades and energy losses, many water utilities could reap significant benefits.

Water loss is a consistent problem for utilities, leading to revenue shortfalls and higher energy bills. That loss also puts communities at risk and cities lose revenue through inaccurate water meters. Addressing many of these utilities’ energy challenges will also address water loss. Leaks are a major source of both energy and water loss and being able to pinpoint their repairs and replacements could help resource-strapped utilities prioritize upgrades.

The array of types of water systems and districts across the country is dizzying. Municipal utility districts (MUDs) are political subdivisions that provide water and wastewater to communities, some of which are as small as a homeowners association. They operate as independent political identities and are not necessarily associated with a city or town. Some are so small that they buy treated water as they cannot treat the water themselves.

And, these MUDs are everywhere. Texas alone has 1,200 special districts, many of which are located outside city limits and so can therefore not access municipal utility services. The Woodlands, a planned community outside Houston, has 11 MUDs that share one water agency, which taps its water from the San Jacinto River Authority. Many of these MUDs, smaller ones in particular, tend to outsource to companies that still undergo manual metering. It’s a recipe for doing things as they’ve always been done. With a lot to manage on a small budget with few staff, undertaking any necessary upgrades, including the adoption of smart technologies, can overwhelm them.

An opening for companies

Some energy companies already see the potential in helping utilities with finding energy-water nexus solutions. The technologies exist and continue to advance. Some are straightforward solutions with knock-on effects: For example, installing smart meters and increasing data resolution allows utilities to share information with customers and market behavior change, especially with data intervals shortened to enable real-time or near-real time information that can influence customers’ use.

Ameresco, an energy efficiency and renewable energy company, has begun to work with small cities and towns that don’t have in-person staff. As a vendor-neutral application company, the company uses various technologies to determine cost viability. Because they work across several MUDs, they can help coordinate scaling up to justify smart meter costs.

Yet Vince Dreiling, Ameresco’s director of business development, noted that water utilities do not face technology problems, but rather governance problems. “Even some large cities fight internally over who gets to control the network,” he said. And beyond that: “Each state has its own nuances. For example, Arizona laws are set up to enable utility districts to leverage future cash flows, as opposed to having to pass a bond to get these projects off the ground as they do in Texas.”

What water utilities need so they can continue to serve their customers

Water utilities often can’t make the investments needed to bring on the latest technology or even to do the most effective infrastructure upgrades. But new investments are necessary. Any new infrastructure should be built with resilience in mind, and that will be different from place to place. Infrastructure simply cannot be built the way we’ve built it before. Climate change impacts, depending on location, include the effects of hurricanes (wind and flooding), droughts, heatwaves and fires. Water systems, in particular, need to consider impacts of droughts and floods, and in some areas, the large swings from one to the other will affect the performance of their pipes and treatment facilities.

Because many of these utility districts do not have the dollars or staff to undertake these necessary improvements, the private sector and the federal government both have a role to play. Technical support and funding are necessary at the national level, and federal dollars can spur private investment. Water systems - natural and manmade - will clearly bear the brunt of climate change. Ensuring water utilities are resilient to these future risks must be part of any climate plan.

Image credit: Terry Vlisidis/Unsplash