A report on annual survey results of managers in the Water Utility Industry

1. September 4, 2014
BLACK & VEATCH STRATEGIC DIRECTIONS:
U.S. WATER INDUSTRY REPORT
REGFORM
2014 MISSOURI WATER SEMINAR
TOM RATZKI, P.E.
VICE PRESIDENT, BLACK & VEATCH

2. S TUDY B A C KGROUND
Strategic Directions Report for Water Utility Industry | 9 June 2014
INDUSTRY RESPONDENTS BY TYPES OF
SYSTEMS AND / OR PLANTS
58.4%
19.3%
22.0%
0.3%
Water and wastewater Water only
Wastewater only Industrial facilities
Survey included a diverse group of utility managers
2

3. S TUDY B A C KGROUND
Strategic Directions Report for Water Utility Industry | 9 June 2014
FIGURE RB-2: INDUSTRY RESPONDENTS BY
SERVICE REGION
Focus on utilities between the coasts
3

4. Strategic Directions Report for Water Utility Industry | 9 June 2014
SERVICES PROVIDED
S TUDY B A C KGROUND
RESPONDENTS BY TYPE
OF ORGANIZATION
36.7%
23.4%
14.9%
7.9%
5.7%
5.7%
2.4%
0.5%
2.7%
Municipal department
Municipal utility
Special district
County
Utility district
Water district
Investor owned utility
State
Other
78.8%
77.7%
32.6%
14.1%
10.9%
4.6%
Wastewater
Drinking water
Stormwater
Solid waste
Electricity
Natural Gas
4

5. RESPONDENTS BY
JOB FUNCTION
S TUDY B A C KGROUND
RESPONDENTS BY
SIZE OF POPULATION
SERVED
47.0%
34.2%
14.4%
4.3%
Management /
Supervisor
Executive
Engineer
Other
48.1%
22.3%
29.6%
Small (Under 100K)
Medium (100K-1M)
Large (>1M)
Strategic Directions Report for Water Utility Industry | 9 June 2014
5

6. WHAT WE FOUND?
6

7. TOP 5 F INDINGS
TOP 5 INDUSTRY ISSUES HIGHLIGHT
FINANCIAL GAP
Utilities must educate their stakeholders on the value of
water and cost of providing safe and reliable services
7
4.60
4.48
4.44
4.41
4.38
Aging water and sewer
infrastructure
Ability to fund capital programs
Managing capital costs
Justifying capital improvement
programs/rate requirements
Managing operational costs
Strategic Directions Report for Water Utility Industry | 9 June 2014

8. TOP 5 INDUSTRY ISSUES –
MIDWEST REGION
9 June 2014
National Rank
8
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.
4.61
4.50
4.46
4.44
4.41
Aging water and sewer
infrastructure
Managing operational costs
Managing capital costs
Ability to fund capital programs
Justifying capital improvement
programs/rate requirements
1
5
3
2
4

9. 9 June 2014
TOP ITEMS THAT HAVE NEGATIVELY IMPACTED
REVENUES DURING THE PAST 5 YEARS –
BY SIZE OF POPULATION SERVED
9
Strategic Directions Report for Water Utility Industry |
Negative Revenue Impact
in Past 5 Years
Total
Respondents were asked to select all items that have negatively
impacted their utility’s revenue stream during the last five
years.
BY POPULATION SERVED
Small
(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
25.5% 18.3% 23.2% 34.9%
decrease in demand
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.

10. WATER/WASTEWATER
REDUCE, REUSE, RECOVER
10

11. WA T E R C O N S UMP T I O N T R E N D S IMP A C T WA T E R &
WA S T EWA T E R U T I L I T I E S
REDUCED WATER CONSUMPTION
CONSERVATION AND UTILITY REVENUES AT ODDS
Negative revenue impacts experienced by many utilities
during last five years as a result of conservation and lost
customer base.
11
57.9%
44.6%
35.1%
30.2%
25.5%
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
Strategic Directions Report for Water Utility Industry | 9 June 2014

12. EMRGING T R END – R EUS E ?
REUSING WASTEWATER IS AN AREA OF
OPPORTUNITY
Reusing water can be source of revenue for
Wastewater utilities
12
82.9%
51.9%
32.4%
28.9%
7.7%
7.3%
4.5%
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
Strategic Directions Report for Water Utility Industry | 9 June 2014

13. CUSTOMER ACCEPTANCE CRITICAL FOR
SUCCESSFUL WASTEWATER REUSE
PROGRAMS
TOP 3 ITEMS CONSIDERED WHEN COMPARING ALTERNATIVE
WATER SUPPLIES
Lessons learned from Singapore and Australia has
US industry looking at effluent as water source
13
81.9%
61.3%
56.8%
40.8%
36.6%
11.1%
Cost
Reliability
Water quality
Technical feasibility
Environmental
impacts/permitting
Social considerations
Strategic Directions Report for Water Utility Industry | 9 June 2014

14. WWTP OR RESOURCE RECOVERY
FACILITY?
Energy recovery from wastewater treatment and/or in-line
hydro is an area of opportunity, although economies
of size do apply.
14
45.9%
44.3%
43.8%
39.1%
30.7%
28.0%
21.7%
6.5%
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
Strategic Directions Report for Water Utility Industry | 9 June 2014

15. RECOVER NUTRIENTS FROM WASTEWATER
• 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
Wastewater treatment plants are becoming
Resource Recovery Facilities
15
Strategic Directions Report for Water Utility Industry | 9 June 2014

16. MI DWE S T T R ENDS
Strategic Directions Report for Water Utility Industry | 9 June 2014
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
25.8% 42.5% 28.3% 13.6% 16.7% 21.4% 3.7%
occurrences within system
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.
16
Top 5 issues for Midwest demonstrate challenges with aging
infrastructure and capital programs

17. TOOL:
ASSET MANAGEMENT
17

18. A S S E T MANAGEMENT TO IMP ROV E S E R I V C E
TOP INDUSTRY CHALLENGES ADDRESSED
THROUGH ASSET MANAGEMENT
• 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
18
Strategic Directions Report for Water Utility Industry | 9 June 2014

19. T R ENDS IN A S S E T MANAGEMENT
9 June 2014
CURRENT USE OF TOOLS / SYSTEMS THAT
SUPPORT ASSET MANAGEMENT
19
Strategic Directions Report for Water Utility Industry |
5.4%
16.3%
17.7%
25.8%
34.2%
46.5%
36.4%
27.7%
50.5%
53.3%
36.4%
17.7%
36.4%
35.3%
24.7%
46.2%
34.0%
36.7%
36.1%
30.7%
10.1%
25.0%
29.9%
18.8%
10.1%
9.5%
15.2%
14.9%
6.8%
3.3%
11.7%
4.6%
19.3%
14.7%
22.3%
15.8%
6.3%
8.2%
37.0%
68.8%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Deterioration models
Mobile applications
Dashboards
Enterprise mgmt software
Paperless work order mgmt system
Condition assessment and inspections
Computer maintenance mgmt systems
Hydraulic models
CIP prioritization
GIS system
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.

20. CHALLENGE:
RATES THAT MATCH
VALUE OF SERVICE
20

21. 33.4%
GAPS IN RATES CHARGED VERSUS
FUNDING/BUDGET NEEDS
CURRENT UTILITY REVENUES/RATES COVER:
26.6%
4.9%
7.3%
19.0%
All necessary O&M expenses
All O&M plus debt service expenses
All O&M, debt service and renewal and
replacement (R&R)
All O&M, debt service, R&R and capital
improvement funding
All O&M, debt service, R&R, capital
improvement and reserve funding
Two-thirds of utilities do not have a revenue or rate structure
that covers all components needed for a financially sound
business operation.
21
Strategic Directions Report for Water Utility Industry | 9 June 2014

22. Strategic Directions Report for Water Utility Industry | 9 June 2014
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

23. TOP ITEMS THAT HAVE IMPACTED REVENUES
DURING THE PAST 5 YEARS – MIDWEST
57.5%
48.1%
39.6%
34.9%
34.0%
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
Strategic Directions Report for Water Utility Industry | 9 June 2014
23
Customer conservation/water efficiency efforts have impacted
nearly 40% of utilities’ revenues in the Midwest

24. Strategic Directions Report for Water Utility Industry | 9 June 2014
ANNUAL RATE INCREASES NEEDED
DURING THE NEXT 10 YEARS
24
21.7%
40.2%
12.0%
4.3%
7.1%
Less than 5%
5% to less than 10%
10% to less than 15%
15% to less than 20%
20% or more
23.4% of all utilities need
double-digit rate
increases every year for
the next 10 years to fully
cover necessary costs
and investments.

25. 25

26. YOU CAN DOWNLOAD THE REPORT AT BV.COM
http://bv.com/docs/default-source/reports-studies/
signup.html
26
Strategic Directions Report for Water Utility Industry | 9 June 2014

28. WATER UTILITIES BELIEVE IN BENEFITS
OF A WATER SMART GRID
PRIMARY DRIVERS FOR CONSIDERING ADVANCED METERING SYSTEMS
AMI can help utilities reduce costs, conserve water and
better engage/educate customers
16 March 2011
28
73.5%
48.4%
36.9%
36.2%
34.5%
23.7%
19.2%
16.4%
5.6%
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

29. MORE THAN 60% OF ALL UTILITIES ARE
CONSIDERING OR HAVE AMI IN PLACE
63.8%
27.1%
2.1%
7.0%
Considering or have
implemented AMI
Not considering AMI Utility does not meter I don't know
AMI reduces metering costs, can enhance customer
service and support asset management
29

30. CONSIDERED FEATURES FOR UTILITY
AMI PROGRAMS
Less than half of all utilities are considering web-based
portals that use AMI data so that customers can better
manager their water use
30
43.6%
42.9%
23.3%
22.0%
16.7%
15.7%
15.0%
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

31. UTILITIES UNAWARE OF AVAILABLE
ASSET MANAGEMENT FRAMEWORKS
1.9%
4.1%
2.2%
8.4%
4.3%
18.2%
80.7%
71.2%
PAS 55
ISO 55001
WERF-SIMPLE
Asset management frameworks use data derived from
AMI and other sources to develop proactive, risk-based
investment plans.
16 March 2011
31
13.3%
19.3%
9.5%
16.3%
15.5%
13.3%
51.1%
70.7%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
EPA - Asset Management
Using Considering Aware; not using or considering Not aware