Ratzki, Tom, Black & Veatch, Black & Veatch Strategic Direction: U.S. Water Industry Report,...

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REGFORM2014 MISSOURI WATER SEMINAR

BLACK & VEATCH STRATEGIC DIRECTIONS:U.S. WATER INDUSTRY REPORT

TOM RATZKI, P.E.VICE PRESIDENT, BLACK & VEATCH

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INDUSTRY RESPONDENTS BY TYPES OF SYSTEMS AND / OR PLANTS

Survey included a diverse group of utility managers

58.4%

19.3%

22.0%

0.3%

Water and wastewater Water only Wastewater only Industrial facilities

9 June 2014Strategic Directions Report for Water Utility Industry |

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FIGURE RB-2: INDUSTRY RESPONDENTS BY SERVICE REGION

Focus on utilities between the coasts


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SERVICES PROVIDED

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RESPONDENTS BY TYPE OF ORGANIZATION

Municipal department

Municipal utility

Special district

County

Utility district

Water district

Investor owned utility

State

Other

36.7%

23.4%

14.9%

7.9%

5.7%

5.7%

2.4%

0.5%

2.7%

Wastewater

Drinking water

Stormwater

Solid waste

Electricity

Natural Gas

78.8%

77.7%

32.6%

14.1%

10.9%

4.6%


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RESPONDENTS BY JOB FUNCTION

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RESPONDENTS BY SIZE OF POPULATION SERVED

Management / Supervisor

Executive

Engineer

Other

47.0%

34.2%

14.4%

4.3%

22.3%

48.1%

29.6%

Small (Under 100K)Medium (100K-1M)Large (>1M)


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WHAT WE FOUND?

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Utilities must educate their stakeholders on the value of water and cost of providing safe and reliable services

TOP 5 INDUSTRY ISSUES HIGHLIGHT FINANCIAL GAP

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Aging water and sewer infra-structure

Ability to fund capital programs

Managing capital costs

Justifying capital improvement programs/rate requirements

Managing operational costs

4.60

4.48

4.44

4.41

4.38


TOP 5 INDUSTRY ISSUES – MIDWEST REGION

9 June 2014

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Strategic Directions Report for Water Utility Industry |

Participants were asked to rate the importance of a variety of issues using a scale of 1 to 5, where 1 indicates, “Very Unimportant” and 5 indicates “Very Important.” This chart provides the five industry issues that received the highest rating based on the mean value for each item among all survey participants representing the Midwest region.

Aging water and sewer infra-structure

Managing operational costs

Managing capital costs

Ability to fund capital programs

Justifying capital improvement programs/rate requirements

4.61

4.50

4.46

4.44

4.41

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2

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National Rank

TOP ITEMS THAT HAVE NEGATIVELY IMPACTED REVENUES DURING THE PAST 5 YEARS – BY SIZE OF POPULATION SERVED

9 June 2014

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Respondents were asked to select all items that have negatively impacted their utility’s revenue stream during the last five years.

Negative Revenue Impact in Past 5 Years Total

BY POPULATION SERVEDSmall

(Under 100K)Medium

(100K-1M)Large

(More than 1M)Slow growth in new customers / residential building 57.9% 65.9% 64.4% 41.3%

Change in water use behaviors – non-fixture conservation measures by customers

44.6% 45.1% 42.4% 47.7%

Impact of improved efficiency in fixtures and appliances 35.1% 30.5% 36.7% 35.8%

Loss of industrial or commercial demand 30.2% 28.0% 31.1% 30.3%Drought - water conservation results in decrease in demand 25.5% 18.3% 23.2% 34.9%

Wet weather - decrease in demand for irrigation purposes 25.3% 31.7% 24.9% 21.1%

Population erosion, declining customer base 17.4% 14.6% 16.4% 21.1%

Increase in delinquent accounts 12.0% 12.2% 9.0% 16.5%Other 9.0% 8.5% 9.6% 8.3%

/ Statistically higher / lower than Total at the 95% confidence level.

WATER/WASTEWATERREDUCE, REUSE, RECOVER

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Negative revenue impacts experienced by many utilities during last five years as a result of conservation and lost customer base.

REDUCED WATER CONSUMPTIONCONSERVATION AND UTILITY REVENUES AT ODDS

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Slow growth in new customers/residential building

Change in water use behaviors - non-fixture conservation measures by customers

Impact of improved efficiency in fixtures and appliances

Loss of industrial or commercial demand

Drought - water conservation results in decrease in demand

57.9%

44.6%

35.1%

30.2%

25.5%


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Reusing water can be source of revenue for Wastewater utilities

REUSING WASTEWATER IS AN AREA OF OPPORTUNITY

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Surface water

Groundwater

Recycling/Reuse - non-potable for landscaping/industrial use

Purchase water from another utility, wholesale or other water supplier

Recycling/Reuse - potable reuse for drinking water supplies

Desalination of brackish or ocean supplies

Stormwater

82.9%

51.9%

32.4%

28.9%

7.7%

7.3%

4.5%


Lessons learned from Singapore and Australia has US industry looking at effluent as water source

CUSTOMER ACCEPTANCE CRITICAL FOR SUCCESSFUL WASTEWATER REUSE PROGRAMSTOP 3 ITEMS CONSIDERED WHEN COMPARING ALTERNATIVE WATER SUPPLIES

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Cost

Reliability

Water quality

Technical feasibility

Environmental impacts/permitting

Social considerations

81.9%

61.3%

56.8%

40.8%

36.6%

11.1%


Energy recovery from wastewater treatment and/or in-line hydro is an area of opportunity, although economies of size do apply.

WWTP OR RESOURCE RECOVERY FACILITY?

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Reduce losses or other efficiency improvements to reduce water processing/handling requirements

Using distribution modeling tools to better size/optimize pumps/pipes

Implement software and/or data analytics programs

Renewable energy programs

Restructure wholesale electric supply contracts

Waste-to-energy programs

Recover energy through in-line hydro

Not focused on energy efficiency measures or costs

45.9%

44.3%

43.8%

39.1%

30.7%

28.0%

21.7%

6.5%


Wastewater treatment plants are becoming Resource Recovery Facilities

• Biological Nutrient Removal• Enables utilities to recover

phosphorus – potential new revenue source

• Enables utilities to recover energy – reduce costs or sell renewable energy

• Recover nutrients using natural processes – not chemicals

• Need to recover nutrients• EPA has mandates on

nutrient levels in effluent• Phosphorus must be

removed from waste streams

• Phosphorus is finite material – 90% of minable supply in 1 country

RECOVER NUTRIENTS FROM WASTEWATER

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MOST SIGNIFICANT ISSUES – BY SERVICE REGION

Most Significant Issues Total

BY SERVICE REGION

Midwest Southeast Southwest Northwest Northeast Rocky MT

Maintaining or expanding asset life 58.7% 58.5% 55.6% 55.7% 63.3% 67.9% 59.3%

Long-term financial viability 39.1% 36.8% 41.4% 33.0% 56.7% 50.0% 33.3%

Customer water rates 34.2% 28.3% 37.4% 37.5% 30.0% 39.3% 37.0%Maintaining levels of service with declining budgets 30.4% 27.4% 27.3% 31.8% 43.3% 14.3% 44.4%

Water supply / scarcity 28.3% 12.3% 26.3% 50.0% 26.7% 3.6% 44.4%

Energy efficiency 26.4% 38.7% 20.2% 19.3% 23.3% 42.9% 33.3%Reducing sanitary sewer overflows and/or combined occurrences within system

25.8% 42.5% 28.3% 13.6% 16.7% 21.4% 3.7%

Water conservation 14.1% 7.5% 13.1% 26.1% 3.3% - 14.8%

Energy recovery / generation 12.2% 12.3% 8.1% 10.2% 10.0% 25.0% 3.7%

Backup plan - interconnections 8.2% 5.7% 13.1% 5.7% 10.0% 7.1% 3.7%

Distribution system water loss 8.2% 16.0% 10.1% 4.5% - 17.9% 7.4%

Chemical use 7.1% 6.6% 11.1% 6.8% 6.7% 7.1% 7.4%

/ Statistically higher / lower than Total at the 95% confidence level.


16Top 5 issues for Midwest demonstrate challenges with aging infrastructure and capital programs

TOOL: ASSET MANAGEMENT

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• Asset Management will lead to:• Improving Current service levels • Reducing Risks to the businesses and customers • Capital spending focused on the most critical needs

• Programs focus on replacing the right assets in the right way and at the right time• Supports need to justify expenses through risk analysis, actual

condition and deterioration forecasts• Uses data from AMI to reduce consequence of failure, and

demonstrate lower cost to extend asset life vs replacement

TOP INDUSTRY CHALLENGES ADDRESSED THROUGH ASSET MANAGEMENT

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CURRENT USE OF TOOLS / SYSTEMS THAT SUPPORT ASSET MANAGEMENT

9 June 2014

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GIS system

CIP prioritization

Hydraulic models

Computer maintenance mgmt systems

Condition assessment and inspections

Paperless work order mgmt system

Enterprise mgmt software

Dashboards

Mobile applications

Deterioration models

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

53.3%

50.5%

46.5%

36.4%

34.2%

25.8%

17.7%

17.7%

16.3%

5.4%

35.3%

36.4%

34.0%

36.7%

46.2%

36.1%

30.7%

27.7%

36.4%

10.1%

3.3%

6.8%

4.6%

11.7%

10.1%

19.3%

14.7%

24.7%

22.3%

15.8%

8.2%

6.3%

14.9%

15.2%

9.5%

18.8%

37.0%

29.9%

25.0%

68.8%

Currently in use;Supports all needs

Currently in use;Plan to improve within 2 years

Not in use;Plan to implement within 2 years

Not in use;No plans to implement;I don't know

Respondents were asked to select their utility’s current usage plan for each of the listed tools / systems that support asset management within their utility.

CHALLENGE:

RATES THAT MATCH VALUE OF SERVICE

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Two-thirds of utilities do not have a revenue or rate structure that covers all components needed for a financially sound business operation.

All O&M, debt service, R&R, capital im-provement and reserve funding

All O&M, debt service, R&R and capital improvement funding

All O&M, debt service and renewal and replacement (R&R)

All O&M plus debt service expenses

All necessary O&M expenses

33.4%

26.6%

7.3%

19.0%

4.9%

GAPS IN RATES CHARGED VERSUS FUNDING/BUDGET NEEDSCURRENT UTILITY REVENUES/RATES COVER:

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BRIDGING INDUSTRY GAPS• Major gaps in water industry include:

• Gaps in financing investments, utility revenues• Gaps in available water supply • Gaps in customer engagement

• Asset management and technology can help bridge industry gaps• Smart grid/AMI programs aid in reducing operational

costs and support customer conservation efforts• Asset management frameworks provide the foundation

for justifying capital programs based on risk

Customer education and engagement critical link to overcoming industry challenges


TOP ITEMS THAT HAVE IMPACTED REVENUES DURING THE PAST 5 YEARS – MIDWEST

Slow growth in new customers/residential building

Loss of industrial or commercial demand

Impact of improved efficiency in fixtures and appliances

Population erosion, declining customer base

Change in water use behaviors - non-fixture conservation measures by customers

57.5%

48.1%

39.6%

34.9%

34.0%


23Customer conservation/water efficiency efforts have impacted nearly 40% of utilities’ revenues in the Midwest

ANNUAL RATE INCREASES NEEDED DURING THE NEXT 10 YEARS

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Less than 5%

5% to less than 10%

10% to less than 15%

15% to less than 20%

20% or more

21.7%

40.2%

12.0%

4.3%

7.1%

23.4% of all utilities need double-digit rate

increases every year for the next 10 years to fully

cover necessary costs and investments.


26http://bv.com/docs/default-source/reports-studies/signup.html

YOU CAN DOWNLOAD THE REPORT AT BV.COM


AMI can help utilities reduce costs, conserve water and better engage/educate customers

WATER UTILITIES BELIEVE IN BENEFITS OF A WATER SMART GRIDPRIMARY DRIVERS FOR CONSIDERING ADVANCED METERING SYSTEMS

16 March 2011

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Direct meter reading cost reductions

Leak detection

Infrastructure/asset management

Water resource management

Cash flow improvement via more frequent billing, billing timeliness

Theft detection

Distribution Automation

Advanced rate designs such as pre-payment or time-of-use rates

Improve response to EPA and other government mandates

73.5%

48.4%

36.9%

36.2%

34.5%

23.7%

19.2%

16.4%

5.6%

AMI reduces metering costs, can enhance customer service and support asset management

Considering or have implemented AMI

Not considering AMI Utility does not meter I don't know

63.8%

27.1%

2.1%7.0%

MORE THAN 60% OF ALL UTILITIES ARE CONSIDERING OR HAVE AMI IN PLACE

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Less than half of all utilities are considering web-based portals that use AMI data so that customers can better manager their water use

CONSIDERED FEATURES FOR UTILITY AMI PROGRAMS

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Web-based customer portal to monitor usage and account

Customer premise leak detection

Theft detection

Remote disconnect capability

Water restriction monitoring

Time of use rates

Advanced functionality

43.6%

42.9%

23.3%

22.0%

16.7%

15.7%

15.0%

Asset management frameworks use data derived from AMI and other sources to develop proactive, risk-based investment plans.

UTILITIES UNAWARE OF AVAILABLE ASSET MANAGEMENT FRAMEWORKS

16 March 2011

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EPA - Asset Management

WERF-SIMPLE

ISO 55001

PAS 55

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

13.3%

4.3%

2.2%

1.9%

19.3%

9.5%

8.4%

4.1%

16.3%

15.5%

18.2%

13.3%

51.1%

70.7%

71.2%

80.7%

Using ConsideringAware; not using or considering Not aware

Ratzki, Tom, Black & Veatch, Black & Veatch Strategic Direction: U.S. Water Industry Report,...

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