Water Chief: Funding Models Are Failing Water Utilities

Water utilities are stifled by an outdated economic model that fails to support infrastructure replacement, according to George Hawkins, the CEO and general manager of DC Water.

“The financial system was set up when all we were charging customers for a system that’s already in the ground but not the capital cost of replacing it,” he said in a wide-ranging interview with Bloomberg BNA.

“Most of the big water and sewer lines in Washington, DC, were put in place before anyone who is currently here was here. So it was paid for back then. Here, the budget that has come due is not only the continued operating costs, but now I’ve got to replace capital costs. That’s not in the rate structure, that’s not in the revenue base, and the customers... aren’t used to paying that much,” he said.  

This broken funding system is one of five factors driving financial pressure on water utilities, which Hawkins compared to the five fingers of a fist during the interview.

Another source of financial pressure on water utilities: Ratepayers don’t realize “what a miracle of modern civilization it is” when they drink tap water, Hawkins said.

“Customers don’t know us,” he said, noting that this makes ratepayers resistant to paying for infrastructure upgrades. “What customer wants to pay more money for something that they don’t know?”

“We have done well for decades in most cities, so most people in the United States who walk up to a water fountain or a spigot expect it,” he said.

The other three financial challenges for utilities, according to Hawkins: the condition of infrastructure, industry resistance to change, and federal mandates that are “extremely expensive” for utilities.  

DC Water is known for forward-thinking policies. For instance, the utility was among the first in the country to hire a full-time emergency prep manager, according to The Washington Post. And Hawkins is known as an “idea man,” according to Bloomberg BNA, “constantly trying to come up with new ways of delivering drinking water and disposing of wastewater.”

For some utilities, financial pressures are getting worse over time. Engineering firm Black & Veatch’s latest analysis of trends in the water industry reported: “Only 28 percent [of respondents] said their existing streams would cover maintenance, debt service, capital investment and reserves — a drop from the 36 percent that was reported the year previous."