Jul 11, 2007

A Pathway to Sustainable Water Assets

Today, many rivers, lakes and coasts are centers of healthy communities. As we look toward the future, protecting the gains of the last 30 years and addressing emerging environmental and public health objectives will require regular upgrades and reinvestments. Facing up to essential reinvestments represents an easier-said-than-done proposition. But, it will happen. To paraphrase a colleague of mine, it’s very, very difficult to run a first-class city on second-rate infrastructure. The bottom line is that no matter how it’s parsed, reinvestment choices cannot be postponed indefinitely.


Demand increases, resources decrease

Stepping up to the plate is surely a struggle. An underlying profile of the typical service provider is emerging: It is confronted with increasing aggregate demand for water and wastewater, diminishing water resources, a leveling off of production efficiencies, increasing output restrictions and aging infrastructure.

Add to the equation an aging customer base with an increasing number of households transitioning into fixed income, more sophisticated plants, an outflow of knowledge with a retiring labor force and mounting resistance to rate increases. Surely, the operating context is seemly more complex, but taking some small manageable steps in the right direction can make this seemingly gigantic mountain a less menacing landscape.

By anyone’s yardstick, the aggregate national numbers are in the hundreds of billions of dollars. At a household level, within the foreseeable future, the typical homeowner can expect to pay about twice what they currently pay for water and wastewater services. A doubling in the price of services is driven by two factors.

First, for the typical household, the historic pricing structure for services has not reflected the long term full costs for the delivery of the services. Second, in the context of the profile outlined above, one can expect that future service level requirements will be more demanding than the requirements associated with current services.

Inevitably, when big numbers are bantered about, the bulk of the dialogue quickly turns to a discussion about strategies to acquire the needed resources and various schemes to breathe life into subsidy arrangements. To gain a better understanding of the future challenges, the U.S. Environmental Protection Agency (EPA) has conducted a study that is referred to as the “Gap Analysis.” The Clean Water and Drinking Water Infrastructure Gap Analysis is available online at www.epa.gov/owm/gapreport.pdf.


Fall into the gap

My point of view is that the most important facet of the Gap Analysis is the embedded recognition that the vision, policy choices, strategies, programs and partnerships that led to past achievements are unlikely to yield a sustainable future. Placing the spotlight on the relative responsibility to pony up is putting the cart before the horse.

The central focus of our interest should tie back to an ethic of sustainability. I believe that the major elements critical to a logical rationale and practical way forward are relatively easy to envision.

First, service levels need to be set commensurate with benefits. Second, anyone who owns and operates water and wastewater assets should have the capacity to make certain that the service objectives are reliably accomplished while minimizing the long-term costs of achieving the public health, environmental and economic outcomes. Third, the underpinnings to our strategy must include sound institutional structures, value economic principles and judiciously adhere to appropriate business practices in the management and delivery of services. These services can be successfully delivered in either a public or private structure or more likely in various combinations or partnerships. What counts is the efficiency and effectiveness of how the work is done. Fourth, why subsidize those of us that can afford the services? We need to become much better at validating the true long-term cost of services and respecting the issues of intergenerational equity in covering the costs. Assuming we are able to establish a responsible understanding of costs, for the most part, water and wastewater should be priced on the basis of commercial principles. Assuredly, the majority of households can afford and should pay their full share; however, generally adhering to commercial pricing recognizes that some households have affordability issues.

Undoubtedly, as prices go up, the number of households with affordability concerns will increase. In modern society, water and sanitation are basic and necessary services. We would be well advised to realistically work through how existing subsidies might be realigned to enable access to those households that cannot afford the full price of high quality services.

To a large degree, the elements of this pathway simply reflect moving ahead on changes that are overdue and inevitable. But, we all need to appreciate that pursuing this pathway requires coming to terms with changes in the working culture of many of our service providers. At the very least this is a tough transition, which will require time.

In any scenario, the bottom line is that the vast portion of the required resources will be drawn from ratepayers and local revenue sources. We run an out-of-sight, out-of-mind business.


Initial contact

For most people, the first time they come in contact with their service provider is when there is a service interruption or when the rates go up. More than ever, the customers need to understand what a water utility does. They need to have enough information to conclude that the service and environmental investments have value commensurate with costs; and they need to accept as true that the way the work is done (the practices) are competent, if not exceptional. In a nutshell, getting the resources depends upon establishing customer confidence in the capacity of the service providers to deliver a good value.

Service providers need to be good, and the fact that the services are good needs to be transparent.

Service providers are expected to have the capacity to foster efficiencies, streamline work processes and modernize management controls. There are a couple of factors that lead to the conclusion that broadly adopting appropriate asset management practices is a good place to start.

We know quite a lot about the particulars of the discipline and second, asset management practices are primarily within the domain of industry practitioners. The “how-to” knowledge is our responsibility. The art of decision making in environmental infrastructure is moving through a period of rather rapid evolution. Learning about and exploring emerging management strategies is mostly confined to the cutting edge.

Yet, the transition is imbedded and well underway, and the strategies are certain to be extended to other service providers. The thrust toward adopting more advance asset management practices in the water sector has literally exploded in the past couple of years.

If you are not moving in this direction, you are not in the mainstream of where the water sector is headed.


Key steps

So, just what is asset management? It is a management paradigm and a body of management practices that applies to the entire portfolio of infrastructure assets that seeks to minimize the total cost of acquiring, operating, maintaining and renewing the organization’s assets while continuously delivering the service levels required at an acceptable level of risk.

The key steps in the asset management process (AMP) include: asset identification, asset registry, condition and criticality assessment, definition of targeted service levels and prioritized decision making with regard to the risk and consequence of asset failure. Asset management is a way of thinking that respects that capital, operations, maintenance, repair, renewal and replacement are all investment decisions. The practices, tools and techniques are growing in effectiveness and usefulness.

The work of asset management encompasses the work of the utility. Being really efficient requires that you bring this new thinking and problem solving to the decision making on an hour-by-hour, task-by-task basis.

Asset management is basically about doing things at the right time. If you replace an asset too early, you’re wasting money and if you replace an asset too late, you’re wasting money. The idea is to have the ability to analyze the full range of maintenance, repair, renewal and replacement options in the same matrix and compare available strategies against the alternatives. If you become good at doing this, you will be successful.

I think that the best strategy for getting started is simply to get started. Think about the following in framing a game plan that will work for your particular situation.

If you cannot answer basic questions about your physical assets, your community is taking a huge risk with an accompanying potential for adverse financial consequences.

It is essential to know what you have, understand its condition and recognize what aspects of your system are most critical to meeting service objectives; then manage accordingly your system’s investment priorities.

By definition, physical assets will fail. How a system manages the consequences of failures is very critical to managing and planning for the full life cycle costs of the system.

An AMP can be relatively simple and appropriate to the size and relative complexity of the system. It boils down to having some way to share information with your customers as to your understanding of your systems requirements, your recognition of the relative risk associated with aspects of your systems, your alternative ways of addressing challenges and what it costs to take the action.

Finally, on a strategic level, every system should have an understanding of what’s required to becoming financially self-sustaining.

If rates are going to double, you must be able to tell your customers why. Your explanation needs to demonstrate that you have put enough thought into the proposition; then they can have confidence that what you are saying is sound and reliable. If you are waiting for the pot of gold to magically appear, you are making a mistake.

Confronting the infrastructure challenge head-on is fundamental to the public health, environmental quality and economic well-being of every community. From time to time, folks tell me they would like to get started, but they simply cannot afford to invest, or that they are overwhelmed by the pressure of the business of the day and therefore, getting better will need to wait.

Five years ago, the range of excuses for not moving forward might have been defendable. Today, I doubt it.

About the author

Steve Allbee is project director of Gap Analysis for the U.S. Environmental Protection Agency. He can be reached at 202/564-0581 or by e-mail at [email protected].