Connecting Waterpeople

Consolidation is an often-touted answer to water quality. What prevents it from happening?

  • Consolidation is an often-touted answer to water quality. What prevents it from happening?

About the blog

Michael Griffiths
Michael Griffiths is vice president of the Water and Community Facilities division at CoBank, a national cooperative bank serving vital industries across rural America by providing loans, leases, export financing, and financial services.
ACCIONA

Themes

For many people across the United States, the first thing that comes to mind when hearing the words “water crisis” is Flint, Michigan.

It makes sense: When Flint’s city officials decided to switch system providers, an infamous stopgap was used as a water source. By diverting its water source to the Flint River, the city caused pipe corrosion that contaminated tens of thousands of people’s drinking water and led to adverse health outcomes (including unsafe blood lead levels in countless children).

Although Flint’s story is far from uncommon, it made news around the world due to the large group of people affected — leaving questions about how a scandal of this magnitude was allowed to happen.

What many might not know, however, is that water quality issues often occur in much smaller communities. In fact, more than half of the 5,000 health-related water system violations in 2015 occurred in systems serving 500 people or fewer.

Take Louisiana as an example: Residents in smaller communities might find disinfectant byproducts in their water supplies, and these byproducts are attributed to the chlorine and other chemicals used to treat the water as per EPA regulations. Drinking water must go through a filtration system after treatment to remove these impurities, but rural municipalities often lack the resources to install and maintain the necessary infrastructure. Unfortunately, one survey found that the state’s 20-year funding needs for drinking water infrastructure are upwards of $7 billion.

Merging water systems — or partnering with another “healthier” system — could correct some of the issues and mitigate many of the expenses, assuring affordable and clean drinking water in smaller communities. Regionalization (or a large geographic area merging several smaller water systems under one infrastructure) is also an option. Case in point: Raleigh, North Carolina, recently completed a regionalization effort with six smaller cities surrounding it. Those communities found cost savings, lower rates, and increased water security, and Raleigh itself was able to spread the operational costs across a larger population and gained support for future water systems activities.

The barriers to water access

Of course, fixing the water sector is no small feat, and a number of economic, political, and social barriers obstruct the path toward progress.

Just consider the costs associated with each mile of new pipe. Even when water systems are relatively close together, it’s expensive to engineer, dig, and install everything necessary for a connection — and that’s not accounting for the costs of maintaining, treating, and pumping water across broad areas. Nor does it account for any hidden costs that come with such a merger. Oftentimes, better-managed systems take over and absorb any deficiencies of the other systems (such as deferred repairs, outstanding debt, and so on). That’s a large undertaking for smaller communities.

Additionally, smaller communities might not hold enough political sway to convince elected officials to apply for grants on their behalf, limiting their access to the financing to complete such a project. Many small communities in Delaware, for example, are unincorporated and, therefore, aren’t connected to a neighboring municipality’s water system. Living outside the city limits means they’re not eligible to vote on that city’s utility ballot measures and can’t directly address the issue. In some cases, resistance to long-term infrastructure investments — combined with laws governing utility mergers and acquisitions — can get in the way of bringing failing systems together.

Too often, a lack of knowledge surrounding water quality and individual interests can be at odds with the need to fix outdated or failing systems. Job security, for one, quickly comes into question during a utility merger — as do the direct costs to landowners for needed improvements on their properties. And should the proposed merger disproportionately impact land use in one community or affect the financial health of the other utility system, the incentives to see the project through evaporate — even when it’s critical for long-term sustainability.

Solutions for struggling water systems

Change can be slow, but the path is often simple.

Fixing the water sector and drumming up the support for a merger, particularly in small communities, generally starts with education. Systems need to educate customers on the potential risks associated with their water supply and work at providing relevant information to community members. They should disclose the reasons for the project and provide an explanation for subsequent rate changes. If this entails a phased rate increase due to improvements and maintenance, explain the details and benefits of the merger. Remember: Transparency is key to a new system’s structure.

When educating residents and customers on these risks and potential costs, be sure to cover these critical questions and talking points:

1. Who will pay for the merger, and how much do rates need to increase?

Of course, setting expectations around payments is of the utmost importance for concerned residents, and those on deficient systems shouldn’t be paying higher rates than those who are already hooked up to superior water systems. Some scenarios see all consumers paying the same rate (or less), as the long-term costs can be spread over more taps. And when rate increases are necessary, the individual household impact is often less severe for these same reasons.

2. What will be the cadence of rate increases?

These payment hikes should be made incrementally or perhaps annually. This prevents the need for massive increases, and there’s often less resistance when implementing them.

3. How important is the maintenance of the infrastructure?

Superior systems must demonstrate to customers that simply because they’re in a good position now doesn’t mean the situation will stay the same. All systems need to continually update and replace their infrastructure to ensure safety and high-quality service for years to come.

Beyond the educational aspect, small, low-capacity systems and the communities they serve often need access to low-cost capital. This might come in the form of funding from government agencies, such as the State Interconnection and Groundwater Investigation grant in New Hampshire, which allows smaller communities a 25% reimbursement for costs associated with the merger of two or more public water systems.

Assistance might also come in the form of loan forgiveness when a better-run water system takes on one that is outdated or failing. And of course, small systems should consult with a third party as they explore partnering, merging, or acquiring another system. Industry organizations, such as the National Rural Water Association and the Association of Regional Water Organizations, are good places to start, but attorneys, consultants, and engineering firms can also provide valuable insights into the project.

No matter the filtration systems a water system introduces, the significant costs of implementing and switching infrastructure are unavoidable. However, systems can also avoid large upfront costs by being proactive and segmenting improvements out in phases. While the first phase might finance a water meter project that captures water loss and boosts revenues, the second phase could involve refinancing existing USDA RD debt to improve cash flow.

Merging water systems isn’t always the best option for every community. The system must explore all potential remedies before committing to such a project, as the outcome will be a merged system for years to come. That said, the health and financial benefits often outweigh the economic, political, and social hoops participating systems must jump through to see each merger to its successful end.

Subscribe to our newsletter

The data provided will be treated by iAgua Conocimiento, SL for the purpose of sending emails with updated information and occasionally on products and / or services of interest. For this we need you to check the following box to grant your consent. Remember that at any time you can exercise your rights of access, rectification and elimination of this data. You can consult all the additional and detailed information about Data Protection.

Comments