Guest Column | December 15, 2016

Redefining The Water Utility Business Model: Is It A Pipe Dream?

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By Reese Tisdale

Last week, a two-inch thick, ductile iron section of a water main broke and flooded a densely populated part of downtown Boston — sparking manhole fires, deluging businesses, and snarling traffic while utility crews rushed to repair the ruptured main. The culprit, a broken pipe that was originally installed in 1891 and relined in 1984. Interestingly enough, the main break occurred the day before and blocks away from the MIT Enterprise Forum’s panel discussion, Smart Water — Smart Cities: A CleanTech Event.

I attended the forum, a well-attended and thought-provoking event — underpinned by a great panel including utility engineers, technology and software vendors, and academics­ — that zeroed-in on a number of technology solutions and approaches to address the growing water infrastructure gap.

It is evident that the status quo is not working for municipal utilities and ratepayers alike. The dialogue between utility operators, municipalities, and customers continues to center on legacy approaches to water and wastewater management. In doing so, the innovative influences municipal utilities could wield within their networks is often ignored. Municipal utilities should be looking to adjust their business models and capitalize on changing market dynamics (e.g., technology, demands), which run counter to their current approaches.

Some takeaways from the event and perspectives from Bluefield Research include:

No end in sight for utility rate increases. Just over 22 percent of Boston’s pipe network is more than a 100 years old, signaling a serious need for significant upgrades, one would think. What’s interesting, however, is that the city’s water network has experienced only 32 main breaks so far this year, a far cry from the national utility average of 270 per 1,000 miles. In this case, Boston Water & Sewer Authority Commission stands out among its peers, even though its almost 1,000-mile network of pipes is one of the oldest in the country.

The house must be rebuilt from within — while we live in it…

However, the Boston utility would be first to say that staying financially ahead of its aging infrastructure is its greatest challenge — a looming second is climate change. But of the 50 largest municipal water and wastewater systems in the U.S., Boston’s rates rank among the highest at sixth for water and sewer services, according to Bluefield Research’s U.S. Municipal Water & Wastewater Utility Rate Index, 2016. If Boston is concerned about keeping up, what is happening in the rest of the U.S.?

Look no further than Indiana. The Indiana Finance Authority recently reported that more than $2.3 billion in immediate repairs and $815 million for O&M are needed to protect human health and plug the leaks releasing more than 50 billion gallons a year. At the water rates currently charged in Indianapolis, this represents more than $284 million of non-revenue water and expenses annually dedicated to energy, pumping, chemicals, labor, and ongoing wear on equipment. After multiplying this same cost of lost water across 50,000 water systems in 49 other states, the elephant in the room becomes bigger; needless to say, the current model is not sustainable.

The water sector could learn from the electric utility experiences. It was not so long ago — only within the last decade — that electric power utilities were forced to confront the impacts of decentralized, end-user power solutions (e.g., solar, micro-wind turbines, geothermal, conservation) on the grid. By leveraging their boots on the ground, in-depth network understanding, and available technologies (e.g., solar PV, batteries, smart meters, etc.), a host of electric utilities, albeit private, adapted to this new environment by to building-out broader network service capabilities, including decentralized power generation, to address customer demands.

Similarly in water, broader market shifts are beginning to take hold. A number of independent water service providers like Veolia, Natural Utility Systems, and Banyan Water, for example, are making inroads to serve commercial properties and communities with decentralized treatment, reuse systems, and water management platforms. A central driver to their success are rising water and wastewater costs, increasing more than 7 percent annually. Further, in drought-stricken states like California, profligate water usage is increasingly detrimental commercially. 

But no good deed goes unpunished. Utility revenues are ultimately undercut by these more efficient water usage practices. For every gallon of water conserved, or reused, pipes networks need be resized accordingly to maintain water quality standards (drinking water pipes need to be fully charged). Within this context, a wait-and-see approach is likely to become a costly one without taking these market shifts head on.   

This is not to say that the copycatting the power sector is a panacea, rather, there are strategic lessons to be learned that could benefit municipal water utility bottom lines and ratepayer wallets. After all, water and power are inherently interconnected by their dependence each other.

Clear calls for real-time water quality testing. An open question was presented to the forum's panel, “…is there a technology, or so far missing solution, that would have a major impact on utility operations?” The responses, immediate and almost visceral, “…real time, remote water quality testing sensors that can withstand a year in the field would be a lifesaver...”

Given the impact of Flint, MI, on the psyche of utility operators, and customers alike, it is clear that concerns about water quality across the country have reached a crescendo. To date, testing for nitrates, phosphorus, and lead, among other constituents, is largely a manual process, relying on grab samples that has proven to be inefficient and sometimes unreliable. This is one point of focus that utilities would like quickly improve upon.

Therefore, one can expect smarter water quality testing products and companies developing technologies to scale in the coming years, particularly if it they hit at the heart of utility fears — diminishing public trust in their ability to deliver reliable, safe drinking water. 

At the end of the day, the challenge to revamp our water infrastructure is going to be difficult. Unfortunately, the house must be rebuilt from within — while we live in it.

Reese Tisdale is the president of Bluefield Research, a market research and insight firm focused exclusively on supporting companies addressing opportunities in water.

Image credit: "Pipes," Nigel Howe © 2011, used under an Attribution 2.0 Generic license: http://creativecommons.org/licenses/by/2.0