Water Service and the Challenges Ahead

Maryland-DC Utilities AssociationTom Curtis

Deputy Executive Director American Water Works Association

Overview• Water: There’s No Substitute

• ChallengesoThe Need to ReinvestoDeclining DemandoAffordability Issues

• How Do We Answer?

The Value of Water

Every 100 gallons of municipal supply = $8.45 in the local economy…

Every $1 invested in water infrastructure adds $6.35 to GDP…

The Value of Water• Every new job in water and sewer

creates over 3.6 jobs in the national economy…

• But the true value of water is…

• Beyond Measure!

Note: Utility free to add its own logo to ads

Warning: Challenges Ahead

Facing the “demographic echo of the build-up ofAmericanwater systems

Crunch the numbers…

Key FindingsThe needs are very large…

About $1 Trillion over next 25 years…

Household water bills will go up…

12 Year Change in Water Rates 0 to 37%

Source: USA TODAY analysis: Water costs gush higher, Water costs getting more expensive, A USA TODAY survey of 100 municipalities found residential water bills in at least one in four places have doubled in the past 12 years: by Kevin McCoy, USA Today, September 29, 2012 3%

12 Year Change in Water Rates38 to 70%

Source: USA TODAY analysis: Water costs gush higher, Water costs getting more expensive, A USA TODAY survey of 100 municipalities found residential water bills in at least one in four places have doubled in the past 12 years: by Kevin McCoy, USA Today, September 29, 2012 5%

12 Year Change in Water Rates71 to 89%

Source: USA TODAY analysis: Water costs gush higher, Water costs getting more expensive, A USA TODAY survey of 100 municipalities found residential water bills in at least one in four places have doubled in the past 12 years: by Kevin McCoy, USA Today, September 29, 2012 6%

12 Year Change in Water Rates90 to 129%

Source: USA TODAY analysis: Water costs gush higher, Water costs getting more expensive, A USA TODAY survey of 100 municipalities found residential water bills in at least one in four places have doubled in the past 12 years: by Kevin McCoy, USA Today, September 29, 2012 8%

12 Year Change in Water Rates130 to 233%

Source: USA TODAY analysis: Water costs gush higher, Water costs getting more expensive, A USA TODAY survey of 100 municipalities found residential water bills in at least one in four places have doubled in the past 12 years: by Kevin McCoy, USA Today, September 29, 2012 12%

Water Demand is Going Down

Based on an analysis of six utilities ranging is size from 55,000 SFR accounts to 480,000 SFR accounts; The trend line represents the average of the six utilities.

Unfortunately…

• Utility Costs:• High Fixed / Low Variable (80/20)

• Utility Revenues• Low Fixed / High Variable (90/10)

0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96100

104108

112116

120124

128 -

20

40

60

80

100

120

140

Total Cost Uncalibrated Revenue Recalibrated Revenue

Percent of Historic Water Sales

Perc

ent o

f Cos

ts /

Rev

enue Total Costs (80% Fixed; 20% Variable)

Uncalibrated Total Revenue (10% Fixed; 90% Variable)Costs and

Revenue at 100% of His-toric Normal Water Sales

Water Sales and RevenuesConsumption Charge Solutions

New Normal Demand

Shortfall without recalibration

Total Revenue equals Total costs based on recalibrated New Normal Demand

Recalibrated Total Revenue (10% Fixed; 90% Variable)

0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96100

104108

112116

120124

128 -

20

40

60

80

100

120

140

Total Cost Uncalibrated Revenue Recalibrated Revenue

Percent of Historic Water Sales

Perc

ent o

f Cos

ts /

Rev

enue Total Costs (80% Fixed; 20% Variable)

Uncalibrated Total Revenue (10% Fixed; 90% Variable) Costs and Revenue at

100% of His-toric Normal Water Sales

The Need to RecalibrateBase Charge Solution

New Normal Demand

Total Revenue equals Total costs based on recalibrated New Normal Demand

Recalibrated Total Revenue (28% Fixed; 72% Variable)

28%

0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96100

104108

112116

120124

128 -

20

40

60

80

100

120

140

Total Cost Uncalibrated Revenue Recalibrated Revenue

Percent of Historic Water Sales

Perc

ent o

f Cos

ts /

Rev

enue Total Costs (80% Fixed; 20% Variable)

Recalibrated Total Revenue (10% Fixed; 90% Variable)Costs and

Revenue at 100% of His-toric Normal Water Sales

The Need to RecalibrateThe “New Normal” Demand

New Normal Demand

Total Revenue equals Total costs based on recalibrated New Normal Demand

Recalibrated Total Revenue (28% Fixed; 72% Variable)

28%

Solutions:1. Consumption charge up 25%; 2. Base charge up 180%

So We Have…

Rising investment needs…

Declining water sales…

Possibly unbalanced rate structures…

But Wait, there’s More…

But Wait, there’s More…

Big Regulatory Issues

• Advanced WW treatment• Storm water • Lead and Copper Rule• Implementing the Revised Total

Coliform Rule• More coming in the near future…

Some May Not Make Sense

Examples

Municipal storm water controls in the face of uncontrolled agricultural run off?

Drinking water standard for nitrosamines?

A Huge Question…

The Affordability of Water Mandates

Can consumption-based bills can raise the revenues some systems will need at levels that are affordable to low income customers?

The Affordability of Water Mandates

Can consumption-based bills can raise the revenues some systems will need at levels that are affordable to low income customers?

Is there a better alternative?

WIFIA:

WIFIA: Part of the Answer

WIFIA: Part of the Answer

- Low interest loans- Very cost effective- Highly leveraged- Can be used to leverage other capital- States and utilities can borrow

WIFIA

• The Senate has acted

• Action pending in the House

• Let’s get it passed!

Questions