Aug 25, 2003

Water in the Forecast

Andy Richardson discusses present and future issues surrounding the water industry

Recently, Water & Wastes Digest discussed future and
current industry-related events with Andy Richardson, a principal at Greeley
& Hansen and vice president, American Water Works Association, as well as a
recent addition to the WWD Editorial Advisory Board.

WWD: Where
is the water/wastewater industry headed?

Andy Richardson:
A while ago, the American Water Works Association (AWWA) in collaboration with
the AWWA Research Foundation conducted a study to determine what are the trends
in the water industry. That study concluded there are eight major trends that
participants in the industry need to be aware of and will have to respond to as
the 21st century unfolds. Those eight trends involve:

* Infrastructure
management, which will be a critical issue resulting in an increased capital
investment with an impact on ratepayers in the future. It has been stated we
are at the dawn of the “Replacement Era,” and based on demographics
and the age of our infrastructure, critical funding shortfalls will need to be
addressed for appropriate infrastructure management.

* Environmental
regulations will become more stringent for water and wastewater in general with
major regulations that will impact smaller utilities the hardest in the future.
Examples of this are the amendments to both the Safe Drinking Water Act and the
Clean Water Act. Utilities will need to monitor these amendments and determine
their financial impact.

* Utilities
will continue to reorganize and look at what are the best management practices
available to be as efficient as they can, particularly in light of the need to
fill the impending funding gap and provide more with less. In addition, there is an expectation
that there will be some consolidation. Larger utilities may be looking to offer
assistance and perhaps even running smaller utilities as consolidation
continues to occur across the North American water industry.

* Good
customer relations will be the key to success when dealing with the impending
funding shortfall that is perceived to meet future regulations, as well as the
rehabilitation of older systems. As consumers, utility customers are looking
for value. The challenges for utilities will be to craft
“value-added” messages so customers understand the connection
between their quality of life and the infrastructure investments made by the
utility in their behalf.

* The
overall work environment within the water industry, as it is in other industries,
will continue to change with diversity, age, gender and ethnicity being an
important aspect of the new work force. Because of the “baby
boomers” affect, with people retiring you have several utilities losing
their institutional knowledge and focusing on succession planning. In addition,
technology will have the impact of requiring entities to provide two to three
more times training than was necessary in the past.

* Management,
training, strategic and financial planning will be key to future water
utilities survival. Understanding of rates, asset management and creating
innovative financing in the future will minimize rate impacts to consumers.

* Total
quality management will be critical to doing more with less and looking at
trends on how existing utilities can provide the same service to customers at
less cost.

* Total
water resources management is the key to the future, looking at the impacts of
watershed management and source water protection, in addition to building a
partnership with the agricultural community and its impacts on TMDL

The eight trends present some opportunities and challenges
to the water industry. It is how the participants in industry respond that will
shape the future.

WWD: How would you compare and contrast the industry’s funding
issues and solutions?

Richardson: Numerous reports have been published by the EPA and others
that say the biggest challenge is going to be determining what is the funding
“gap” between what local water utilities can afford to pay to meet
regulatory requirements and infrastructure needs and other sources of funding.
If you look at the Congressional Budget Office estimates, they said that by
2019 the average annual expenditures (capital and O&M) will be between
$71-$98 billion for drinking water and wastewater utilities. The real debate is
the other sources of funding.

Should there be a grant or loan program? Should the states
take a larger active role or should it be a federal role? Regardless of what
happens, there are those that are suggesting that the biggest issue is how the
utilities become self-sufficient by increasing rates.

WWD: Should there be an “investment philosophy” that could be
used as a benchmark for financial decisions?

Richardson: Financial decisions should be aligned with long-term
community goals. The challenge will be to get consensus on what are the
long-term community goals. Reliability of water supply and quality is a major
economic driver. Regardless of what source we use for the funding gap, the
consumers are going to have to pay one way or another. So you have to think
about what is it that utilities managers need to do to get to their
constituency and to get to their elected officials to smooth the way for the
appropriate rate increase.

One concept is to educate the public and the elected
officials that water and wastewater services are not really commodities, they
are value-added services to maintain a certain quality of life. Community goals
and rate increases should be in alignment. So, what people are paying for is
the value of those services.

One solution could be to move the industry towards an
“Investment Philosophy,” as the generation before us did. We should
be looking to provide for the future generations to come. One of the challenges
will be if you have a federally subsidized program or state subsidized program,
does this continue to perpetuate not having the consumers pay for the true cost
of the service.

WWD: Utility managers obviously play an important role in the water
industry. What can be done to make sure these managers have developed the
necessary skills to make informed decisions?

Richardson: The response of the utility manager and their staff to
those trends I spoke of earlier will shape the future of the water industry.

Accordingly, they will need to be prepared to take advantage
of the opportunities and successfully navigate through the challenges. In
today’s heady times, a key skill that all industries are requiring of
those at the top is leadership. In recent years, regardless of the industry, it
has been leadership skills that have helped managers succeed. In the water industry, leadership
skills will be critical to negotiate with elected officials and non-technical
decision-makers of the importance of taking certain actions to maintain a
viable utility.

In regards to making informed decisions, utility managers
and their staff should participate to the fullest extent possible in AWWA.
AWWA, through its great network of participants, helps all in the industry turn
information into knowledge, which in turn supports informed decision making.

WWD: In regards to security, where is the water industry in
a realistic sense?

Richardson: The first thing that consumers ask: Is my water safe? Safe
meaning is it secure from someone doing some nefarious activity? Or is it safe
when I get my water from the tap?

That is a question that has a double meaning. The answer,
unequivocally, is yes to both meanings. In regards to your tap water, utilities
now deliver and develop what are called Consumer Confidence Reports. Any
consumer can ask their water utility for their Consumer Confidence Report.

In regards to security as a whole, there is a lot that was
being done before September 11, and there is so much more that has been done
since then, particularly with the vulnerability assessments required to be
submitted. I would say that the water utilities themselves feel as they have a
very good handle on being safe and secure.

About the author

Andy Richardson is a principal at Greeley & Hansen and vice president, American Water Works Association, as well as a recent addition to the WWD Editorial Advisory Board.