By Rob Starr, Big4.com Content Manager
The WeiserMazars LLP 2015 U.S. Water Industry Outlook published recently reports investments in technology are a priority for the industry’s aging infrastructure. This is the third report since 2012 and it found overwhelming agreement among the industry leaders on the importance of this technical trend. The document identifies future trends and provides other operational and financial perspectives. Big4.com interviewed Robert Wilson, Partner, Jerome Devillers, Partner and Brian Jones, Senior Manager with WeiserMazars.
What makes investment in technology particularly important to the water industry?
The 2015 survey found that the water industry is increasingly technology focused, viewing technology and innovation as the means to address its challenges. Fully 80% of respondents agree that technology will play a key role in competitiveness in the industry in the next 10 years. This is consistent with prior findings and in line with conversations we have had with industry leaders. The top three reasons identified for the investment in technology are reduction in operating costs, replacement of aging infrastructure and compliance with regulations.
There is a significant amount of aged infrastructure in the ground, creating everyday risk of service interruptions and reduced water quality. The industry monitors that risk through non-revenue water. Water loss is a major issue because of the difficulty locating leaks and the cost of replacement/repair, especially for underground assets. Technological improvements are cited as the key to reducing non-revenue water loss. Respondents clearly indicated that three technologies will drive increased performance metrics within the water industry:
• Energy efficiency technology
• Smart metering/business intelligence
• Asset management programs
The implementation and utilization of beneficial technology will be a key differentiator in performance within the industry. From these results we can conclude that technology is, and
will continue to be, a driving force in addressing and resolving many of the significant issues water companies currently face.
What part does the aging infrastructure play?
Aging infrastructure is a considerable burden on the U.S. in terms of reduced water quality, water main breaks, and the substantial investment needed to repair and improve it. Respondents again ranked aging facilities and infrastructure as the most significant challenge facing the water industry in 2015.
38% of respondents stated that their mains have 30 to 50 years of useful life, a decrease compared to last year. 19% reported having greater than 50 years of useful life, a number consistent with last year. 19% also predicted less than 10 years of remaining life for their mains, an increase of more than 10% from last year. This rating of useful life of mains indicates the amount of capital investment needed to replace the existing infrastructure and the speed at which the process needs to happen. In the worst case, with a 10 year average useful life, the annual replacement rate needs to be 10% each year. Best case, with 50 year average useful life, the replacement rate needs to be 2% each year.
In our 2015 Outlook, we discuss the evolution and characteristics of water mains, as well as their impact on the water industry’s aging infrastructure. Compared to prior surveys, we can see that the industry is moving in the right direction. In our initial 2012 survey, respondents were decreasing their capital expenditures year over year. In our opinion, the industry will either have to make much more drastic increases or sustain these asset replacement programs for a
longer period of time.
What about regulatory compliance and staffing issues?
Respondents ranked regulatory compliance (environmental and economic) as the second most significant challenge facing the water industry. Similarly, a simplified regulatory process was ranked as the second most important way to overcome the industry’s challenges (after technology). 76% of respondents agreed that the current overall process of obtaining approvals for a change in regulated rates from a state public utility commission is unnecessarily complex and should be reformed and simplified.
Regulatory compliance is the top contributor to increased operating costs. This burden is inherent to the industry – both in terms of environmental and economic regulations. We expect compliance to remain a major driver of costs and therefore increased water rates in the next 5 years.
The water industry will be significantly affected in the near future by the aging and retirement of key employees in both managerial and plant worker positions. Participants noted workforce management and succession planning as the most significant risk to maintaining the quality of service in the next 5 to 10 years.
What are the positive notes?
While there are still many challenges facing the industry, this year’s Outlook did provide some bright spots. Respondents said that focusing on operational cost controls has had a positive impact on operations year over year. 47% of respondents also indicated that they had a greater than 10% increase in their capital expenditures budget year over year. This could be an indication that the industry is beginning to make the annual investments required to maintain
and improve their treatment and distribution systems and that will lead to continued improvement in operational performance.
We also saw general reduction in the amount of Non-Revenue Water. This is another indicator that increased investment in replacing infrastructure assets could be having a positive impact on overall system operations.
What’s in the future according to the report?
80% of respondents to the survey agreed that technology will play a key role in competitiveness within the water industry over the next 10 years. Continued implementation of technologies such as smart metering, asset management programs and energy efficiency boosters are the three areas that will have the greatest focus.
Some of this investment in technology may be driven by further involvement by the private sector. 60% of respondents felt that this would be required for the industry to address its challenges in the next 3-5 years. They indicated that the private sector is strong in terms of innovative solutions, performance standards and cost efficient operational management – all areas that can benefit the water industry as a whole.