Water utilities are looking at a massive reinvestment in infrastructure.



The American Water Works Association’s (AWWA) Water Industry Technical Action Fund sponsored a study that analyzed 20 utilities’ needs for repair and replacement of drinking water infrastructure. Here we present the executive summary of the study’s report. The entire report is available at www.awwa.org.

The importance of safe drinking water to public health and the nation’s economic welfare is undisputed, and today, water utilities face significant economic challenges. For the first time, in many of these utilities, a significant amount of buried infrastructure – the underground pipes that make safe water available at the turn of a tap – is at or very near the end of its expected life span. The pipes laid down at different times in our history have different life expectancies, and thousands of miles of pipes that were buried over 100 or more years ago will need to be replaced in the next 30 years. Most utilities have not faced the need to replace huge amounts of this infrastructure because it was too young. Today, a new age has arrived. We stand at the dawn of the replacement era.

Extrapolating from our analysis of 20 utilities, we project that expenditures on the order of $250 billion over 30 years might be required nationwide for the replacement of worn out drinking water pipes and associated structures (valves, fittings, etc). This figure does not include wastewater infrastructure or the cost of new drinking water standards. Moreover, the requirement hits different utilities at different times, and many utilities will need to accelerate their investment. Some will see rapidly escalating infrastructure expenditure needs in the next 10 to 20 years. Others will find their investment decisions subject to a variety of factors that cause replacement to occur sooner or at greater expense, such as urban redevelopment, modernization, coordination with other city construction, increasing pipe size and other factors.

Overall, the findings confirm that replacement needs are large and on the way. There will be a growing conflict between the need to replace worn out infrastructure and the need to invest in compliance with regulatory standards under the Safe Drinking Water Act. In addition, the concurrent demands for investment in wastewater infrastructure and compliance with Clean Water Act regulations, including huge needs for meeting combined sewer overflow and storm water requirements, will compete for revenue on the same household bill.

Ultimately, the rate-paying public will have to finance the replacement of the nation’s drinking water infrastructure either through rates or taxes. AWWA expects local funds to cover the great majority of the nation’s water infrastructure needs and remains committed to the principle of full-cost recovery through rates. However, many utilities may face needs that are large and unevenly distributed over time. They must manage a difficult transition between today’s level of investment and the higher level of investment that is required over the long term. Facing an inexorable rise in infrastructure replacement needs driven by demographic forces that were at work as much as 100 years ago, compounded by the negative effects of changing demographics on per-capita costs in center cities, many utilities face a significant challenge in keeping water affordable for all the people they serve.

Meeting this challenge requires a new partnership in which utilities, states and the federal government all have important roles. Utilities need to examine their rate structures to assure long-term viability. States need to streamline their programs. And the federal government needs to significantly increase assistance for utilities. To better understand this problem, AWWA undertook studies of 20 large and medium utilities. The findings and recommendations of this report provide the basis for this new partnership to achieve the goal to which we all aspire – the provision of safe and affordable drinking water for all Americans.

The Study’s Findings:

• Water utilities must make a substantial reinvestment in infrastructure over the next 30 years. The oldest cast iron pipes, dating to the late 1800s, have an average life expectancy of about 120 years. Because of changing materials and manufacturing techniques, pipes laid in the 1920s have an average life expectancy of about 100 years, and pipes laid in the post-World War II boom can be expected to last about 75 years. The replacement bill for these pipes will be hard on us for the next three decades and beyond.

• Most utilities are just now beginning to face significant investments for infrastructure replacement. Indeed, it would have been economically inefficient to make large replacement investments before now. The utilities we studied are well managed and have made the right decisions. But the bills are coming due now, and they loom large.

• On average, the replacement cost value of water mains is about $6,300 per household in today’s dollars in the relatively large utilities studied. If water treatment plants, pumps, etc., are included, the replacement cost value rises to just under $10,000 per household, on average.

• Demographic shifts are a significant factor in the economics of reinvestment. In some older cities, the per-capita replacement value of mains is more than three times higher than the average in this sample due to population declines since 1950.

• By 2030, the average utility in the sample will have to spend about three-and-a-half times as much on pipe replacement due to wear as it spends today. Even so, the average utility also will spend three times as much on repairs in that year as it spends today, as the pipes get older and more prone to breakage.

• The water utilities studied concurrently face the need to replace infrastructure and upgrade treatment plants to comply with a number of regulations under the Safe Drinking Water Act. Many municipalities also face significant needs for investments in wastewater infrastructure and compliance. This concurrent demand significantly increases the financial challenge they face.

• Overall, in the 20 utilities studied, in-frastructure repair and replacement requires additional revenue totaling about $6 billion above current spending over the next 30 years. This ranges from about $550 per household to almost $2,300 per household over the period. These household impact figures do not include compliance with new regulations or the cost of infrastructure replacement and compliance for wastewater.

• The pattern and timing of the need for additional capital will be different in each community, depending on its demographically driven replacement “wave.”

• Household impacts will be two to three times greater in smaller water systems ($1,100 to $6,900 per household over 30 years) due to disadvantages of small scale and the tendency for replacement needs to be less spread out over time.

• Because of demographic changes, rate increases will fall disproportionately on the poor, intensifying the challenge that many utilities face keeping water affordable to their customers.

AWWA’s Recommendations

America needs a new partnership for reinvesting in drinking water infrastructure. There are important roles at all levels of government.

Utilities and Local Governments – Although the AWWA analysis has looked at the infrastructure issue in the aggregate, many key issues must be addressed at the local utility level. Utilities should develop a comprehensive local strategy that includes:

• Assessing the condition of the drinking water system infrastructure.

• Strengthening research and development.

• Working with the public to increase awareness of the challenge ahead, assess local rate structures and adjust rates where necessary.

• Building up managerial capacity.

Reform of State Programs – The states too have an important role to play in addressing our infrastructure funding needs. States may need to match an appropriate share of any new federal funds that are provided for infrastructure assistance. Moreover, states need to reform their existing programs to make them more effective. States should commit to:

• Respecting the universal eligibility of all water systems for federal assistance.

• Streamlining their programs for delivery of assistance and allow alternative procurement procedures that save money.

• Making their financing mechanisms more attractive by committing to grants and very low or negative interest loans.

• Using federal funds in a timely fashion or face the reprogramming of those funds to other states.

Increase in Federal Assistance – The federal government has a critical role to play in preventing the development of a gap in water infrastructure financing. AWWA recommends either changing and expanding the existing Drinking Water State Revolving Fund and other drinking water programs, or creating a new, infrastructure-focused fund. The federal role should include:

• Significantly increased federal funding for projects to repair, replace or rehabilitate drinking water infrastructure.

• An increase in federally supported re-search on infrastructure management, repair and replacement technologies.

• Steps to increase the availability and use of private capital.

In Conclusion

Considering when pipes were laid down in many water systems and how long they can be expected to last, it is clear that a new age – the replacement era – has arrived for water utilities.

Over the next 30 years, infrastructure replacement needs will compete with compliance needs for limited resources. Clearly, infrastructure needs and compliance with the Safe Drinking Water Act can’t be approached as separate issues, but need to be addressed together.

Only in the true spirit of a new partnership, as outlined in this report, can we think most broadly about these issues. Only in this spirit can we achieve the goals to which we all aspire – the provision of safe and affordable water to all Americans.