Editor’s note — Our sister publication Water Finance & Management sat down with new president and CEO of the National Association of Water Companies (NAWC), Robert Powelson. Powelson officially joined NAWC in August after a year serving on the Federal Energy Regulatory Commission (FERC), to which he was confirmed in August 2017 by the U.S. Senate. Prior to his appointment to FERC, he served on the Pennsylvania Public Utility Commission since 2008, including as Chairman from 2011 to 2015. While on the PUC, he was particularly focused on Pennsylvania’s water infrastructure development, promoting the availability of safe drinking water and reducing unaccounted-for water. We chatted with Powelson about what it’s like to be working in the water sector and his thoughts on several upcoming NAWC initiatives.
Since joining, what are your thoughts on the current state of the U.S. water sector and what are you looking to bring to the association?
Powelson: I’m excited to join NAWC and help tell the very positive success story of NAWC member companies. Our members are first-in-class in many areas, including sound asset management, stellar compliance with federal health and environmental regulations, and water system technical expertise. Water companies already serve 73 million Americans – about 1 in 4 – and have the capital investment, the expertise and the experience to help communities address their unique challenges to ensure systems continue to serve residents for generations to come.
For good reason, water utilities across the country are required to meet increasingly stringent and complex water quality standards. I am happy to report that NAWC member companies have risen to this challenge and have a great track record with respect to complying with these standards. However, with the enormous amount of fragmentation there is within the U.S. water sector, many smaller and municipally-owned water systems find themselves struggling to meet these standards. There are approximately 52,000 community drinking water systems and over 90 percent of these systems serve fewer than 10,000 people, which the U.S. EPA defines as a “small system.” Tens of thousands of these systems serve less than 3,300 people. Increasingly, these small utilities struggle with a lack of expertise to operate and maintain their systems and rising treatment costs coupled with a lack of financial resources to make necessary investments in aging infrastructure. In fact, according to U.S. EPA data, more than 1,200 community water systems have been in serious noncompliance for at least three years. All of this points to a great need for consolidation, partnerships and a more integrated approach in the water and wastewater industries to achieve economies of scale and facilitate capital attraction, as well as technological and financial viability. Partnering with a NAWC member company is a proven way for struggling systems to access capital and expertise because our members understand how crucial it is to strategically invest in water systems. The six largest NAWC members combined invest $2.7 billion annually in their water systems – that’s more than the total federal appropriation for the Clean Water and Drinking Water State Revolving Fund programs. I see it as my mission to tell this story and educate regulators and state officials about the value that NAWC member companies can bring to this conversation.
Since you came from the energy regulatory side, what about the water sector is different from electricity, natural gas, etc.? What is different about how utilities are managed/operated? Do you see any similarities?
Powelson: I always like to remind people that water is very unique as it’s the only public utility that is ingested. This distinction is important for everyone – from regulators to system operators – to keep in mind. As mentioned earlier, there are more than 52,000 community drinking water systems in the United States. Compare that with the fact that there are only 3,300 energy utilities in the country and you start to see the extent of water industry fragmentation. As a result, the water industry is playing catch-up in terms of instituting alternative regulatory policies and ratemaking mechanisms. It is also important to keep in mind that the water sector is one of the most capital intensive among state-regulated utility industries. I’m concerned that, unlike our brethren in the electric sector, customers don’t fully understand the cost to treat and distribute this public utility service. On average, water rates are increasing 7 percent per year, and where they aren’t increasing, it can likely be attributed to insufficient investment. It’s incumbent on all of us in the water industry to educate customers on the complexity and costs of delivering this life-sustaining service. The days of water as the silent service are in the past.
What trends are you seeing with respect to private financing and P3s in the water/wastewater sector?
Powelson: Flint, Pittsburgh and Baltimore have made it clear to municipalities that having enhanced technical and operating expertise matters and that water system investment is not something that can be delayed. With the ever-increasing strain on municipal and state budgets, it’s not surprising that communities and decisionmakers turn to the private sector for help. As previously stated, partnerships are one way to address these challenges. Stakeholders across the water sector have endorsed the idea that partnerships – which may include different models, from sharing of managerial and technical resources to acquisitions – are a prudent step for many in the water sector to take. Working with NAWC members brings many benefits: improved operational efficiencies, stronger compliance with EPA regulations, increased purchasing power and greater access to capital.
The unique benefit of a public-private partnership approach is that these agreements can be scaled and customized to meet a community’s unique water and wastewater needs – there is no cookie cutter approach. Municipalities are able to share risk with the private sector, which is a huge benefit on top of those already mentioned. Data shows that communities that partner with a water company are overwhelmingly satisfied, evidenced by the 97 percent contract renewal rate between 2000 and 2016.
Do regulatory mandates imposed on energy utilities result in infrastructure funding for, say, water utilities? If so, how? Is it a viable/sustainable source of funding?
Powelson: It is possible for regulatory mandates on energy utilities to result in lower costs for water utilities, and therefore increase the availability of capital for infrastructure spending. Two examples come to mind:
- Energy efficiency and conservation programs could result in reduced energy bills for large users of energy, such as water utilities, or could offset the costs of energy efficiency and conservation projects that are already planned (although jurisdictions generally disfavor free ridership).
- Energy infrastructure replacement mandates/incentives could result in reduced costs on water utilities if the energy and water utilities are able to coordinate and co-locate underground infrastructure replacement projects, which allows for a sharing of expenses that would otherwise be borne completely by each of the utilities.
Read the full Q&A with Water Finance & Management here: The Outlook for Partnerships and Private Investment: Q&A with NAWC CEO