Oct 17, 2013

Study Shows U.S. Water Infrastructure in Cycle of Debt, Rate Hikes

Columbia University study reveals why water rates are likely to keep rising

Columbia University Water Center Veolia Environnement Growing Blue Study

Water infrastructure in the U.S. is caught in a recurring cycle of debt and rate increases even as its condition and resilience continues to deteriorate, according to a new study released by the Columbia University Water Center in conjunction with Veolia Environnement and Growing Blue.

America's Water: An Exploratory Analysis of Municipal Water Survey Data,” is one of the first studies to systematically explore national survey data on water rates, providing a description and understanding of the major factors that influence the operational costs, rates and financial health of water utilities. Its analysis reveals that both debt and rates for the nation's water infrastructure are rising, increasing the financial burden on ratepayers.

From 2000-2010, on average, utility debt increased by 33% while water rates increased by 23%. Notably, debt and rates have increased by more than 100% at approximately one third of the nation's utilities surveyed by the American Water Works Assn.

"Achieving sustainability in our water systems requires a transparent understanding of the factors that influence rates," said Upmanu Lall, director of the Columbia Water Center. "In the last 30 years, federal funding for water infrastructure has almost dried up and it will be difficult for many utilities to raise rates high enough to pay down existing levels of debt. But although debt is increasing, the age of our water infrastructure continues to pose a challenge. We need to rethink what the water utility of the future should look like and how we will pay for water services and stimulate sustainable use."

As shown in the report, increased debt impacts rates, but it does not seem to have resulted in an overall improvement in the nation's infrastructure. In a widely cited analysis, the American Society of Civil Engineers ranks the nation's drinking water infrastructure with a "D" grade, requiring more than $1 trillion in investment over the coming decades, just to replace aging pipes. 

As indicated by the trends noted in the study's findings, rates will likely go up in the short term. However, while some factors such as altered precipitation levels are largely out of the control of utilities, there are areas that could be better controlled in order to stem rising rates and build a buffer to deal with unexpected and uncontrollable events.

  • Operational efficiency could be improved. The study shows that operating expenses are one of the key variables affecting water rates and that low productivity rates are passed to the user in the form of higher rates.
  • Source matters and is a significant cost driver. Managing for environmental sustainability will beneficially impact costs. The study finds that the source of a utility's water directly impacts rates. Utilities tend to use the least expensive source to its limit, and then look at other resources.
  • Alternatives to the existing rate structure can be explored. The study demonstrates that efficiency and conservation of the water resource is critical to keeping overall rates low, since water scarcity has associated costs.
  • All revenue sources can be considered. There are other ways to recover costs than through usage rates alone, a path already used by several of the utilities in the study.