Inflation dampens water utilities’ infrastructure projects
After the initial enthusiasm the federal infrastructure investment caused in the water industry, utilities across the U.S. planning to use the funds to make very necessary upgrades to their networks are being hit by the reality of inflation and the rising prices of fundamental equipment.
Aging infrastructure has been one of the top issues water utilities face in many parts of the world, but it is a plaguing matter in the United States. America’s decaying water infrastructure is made up of miles and miles of water pipes installed in their majority in the early to mid-twentieth century that are in dire need of modern-day upgrades. Driven by inadequate investment in rehabilitation and replacement, numerous studies, like Black &Veatch’s annual survey on water point out that 80 percent of utility workers believe this issue is the most challenging facing the industry.
Moreover, the 2018 survey of water industry professionals by the American Water Works Association (AWWA) also listed the renewal and replacement of aging water and wastewater infrastructure as the top issue in the water industry. In 2019, drinking water infrastructure earned a D grade on the American Society of Civil Engineers (ASCE) Infrastructure Report Card, the same grade as in 2017.
In recent years, however, the perception had altered slightly and was regarded with more optimism. This could be due to technological innovation, the expansion of federal financing programs and utilities making investments in their networks. In 2021, ASCE awarded water infrastructure a C- after years of grading it with a D. Nevertheless, the authors of the report highlighted that there is still a long way to go. “There is a water main break every two minutes, and an estimated 6 billion gallons of treated water lost each day in the U.S.”
A needed influx of federal money
Faced with an increasing delicate water infrastructure, which does not only include water pipes – water mains, sewage lines and storm drains, but reservoirs, pump stations, and treatment plants, the U.S. Congress approved in March 2021, The American Rescue Plan Act. The act gave state, local and tribal governments access to $350 billion to repair water and sewer infrastructure. To date, legislatures, states, territories, and Washington, D.C. have already dedicated at least $10.1 billion in ARPA funds to water systems, reported Circle of Blue.
In 2019, drinking water infrastructure earned a D grade on the American Society of Civil Engineers (ASCE) Infrastructure Report Card
In November 2021, President Joe Biden signed into law the Infrastructure Investment and Jobs Act. A “once-in-a-generation investment” in infrastructure, it authorized $1.2 trillion to be spent over five years. It will improve drinking water and sanitation in three major ways: by addressing lead pipes, PFAS contamination and ageing sewage systems.
Rising prices
These two sources of funding were a source of optimism for the water sector, but this enthusiasm has been dampened by worldwide inflation, where prices are rising to their highest levels since the early days of the Reagan administration.
Congress approved in March 2021, The American Rescue Plan Act. The act gave state, local and tribal governments access to $350 billion
In early March, the independent insight firm, Bluefield Research, had warned in its report U.S. Water & Sewer Pipe Network Infrastructure: Market Trends and Forecasts, 2022 – 2030 that “the municipal utility market, like many others, faces uncertainty ahead with respect to inflationary pressures.”
“Acute supply chain constraints stemming from pandemic shutdowns, workforce disruption, and climate volatility (e.g., Texas Winter Storm), are driving record inflation in water and sewer pipe material prices. In some instances, prices for plastic, steel and iron pipes have shot upwards by more than 75.1% from October 2020 to October 2021.”
Nevertheless, Bluefield had predicted that the newly available sources of funding would drive over US$104 billion of hardware and equipment investments by municipal utilities in the U.S. over the next decade.
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Since March, inflation has continued to increase and is taking a toll on the entire U.S. economy, not only the water industry. Fuel, housing and food costs have soared, and it is quickly becoming one of President Joe Biden’s biggest challenges.
Kelly Green, Administrator of Water Infrastructure Financing for Michigan’s environment agency, told Circle of Blue that almost all utilities have had to veer their plans due to the higher costs. “I have not heard of any community that is on target with what they originally budgeted.”
These two sources of funding were a source of optimism for the water sector, but this enthusiasm has been dampened by worldwide inflation
“Maybe they were thinking of removing 300 service lines, and now they’re going to remove 150 service lines instead.”
The price of a foot of water pipe in Tucson, Arizona, has shot up 19%, according to the Daily Press. Likewise, lead service line replacements that usually cost around $5000 per line are now several thousand dollars more expensive.
In the last year, the value of other materials has risen, including concrete pipe (16.2 percent), copper pipe (20.8 percent), fabricated steel (39.8 percent), and PVC pipe (35.6 percent).
According to data from the Federal Reserve Bank of St. Louis, ductile iron pipes and fittings that are also commonly used by water systems were nearly 25% higher compared to last year.
The invasion of Ukraine by Russia has also impacted prices in the water industry. Stainless steel, often used in water networks, has grown considerably as Russia is a leading producer of nickel, a component of stainless steel.
Inflation is scaling back water infrastructure projects across the country. Costs have risen so much that state, local and tribal officials are deferring projects, concentrating on smaller projects or rearranging their agendas.
Scott Schladweiler, Tucson’s chief water engineer, told the Daily Press: “To sum it up, we’re doing less work for the same amount of money.”
Inflation is forcing state, local and tribal officials to defer projects, concentrate on smaller ones or rearrange their agendas
Michael Arceneaux, acting CEO of the Association of Metropolitan Water Agencies, added: “In the end, it’s going to be the rate payers that suffer because the projects have to get done, and funding will have to come from the rate payers.”
Indeed, residential customers are already feeling the effects of inflation in their monthly bills. The average monthly water utility bill in the U.S. is now up $5.73 from 2020 — without a corresponding increase in consumption, found a recent study by J.D Power. This has led customer satisfaction to decline with residential water utilities, ending six consecutive years of improving or flat satisfaction levels, highlighted the study.