AGING INFRASTRUCTURE ALONG WITH TALENT attraction and retention continue to be the key challenges facing the U.S. water industry, according to the 2014 U.S. Water Industry Outlook from Mazars USA LLP. These findings mirror a similar survey conducted in 2012.
In this year’s report, the majority of respondents cited the need to simplify the rate approval process. Tariffs drove growth, with technical expertise and competitive pricing noted as significant success factors. The majority of respondents also said that financing was readily available and accessible. The top-rated industry trends were privatization, partnerships and acquisitions.
Aging infrastructure—Respondents ranked aging facilities and infrastructure as the most significant challenge facing the water industry—32 percent estimated that $100 million to $300 million would be needed to modernize and upgrade their facilities and infrastructure. The financing of repairs to aging infrastructure is perceived as the most critical risk involved in the procurement and management of water in the next five years.
Aging of managerial and plant workers—86 percent of respondents agreed that the water industry will be significantly affected in the near future by the aging and approaching retirement of key employees in both managerial and plant worker positions.
Simplified rate approval process—80 percent of respondents agreed that the current overall process of obtaining approvals for a change in regulated rates from a state public utility commission is unnecessarily complex and should be reformed and simplified in the future.
KEY FACTORS TO OVERCOME THESE CHALLENGES
Local political support—Local political support remains the most critical factor for the water industry in successfully addressing challenges.
Public financial support earmarked for water—A need for federal financial support is strongly advocated by respondents either in the form of a public funding mechanism or an activity bonds volume cap exception for water.
Private sector involvement—Respondents ranked cost efficiency and innovative solutions as the two most important strengths the private sector brings to the table, while 62 percent agreed with the following statement: “Privatizations and partnerships with the private sector will become a necessity for municipalities and other public entities.”
CURRENT FINANCIAL TRENDS
Tariffs and consumption drive growth—65 percent of respondents saw growth in revenues, with 50 percent achieving growth of 3 percent and above. Change in tariffs/ prices and water consumption were cited as the primary drivers of revenue growth. Implementation of new infrastructure and equipment and changes in tariffs/ rates were cited as the factors most positively influencing operations. Access to required financing and the regulatory environment were neutral for operations.“Economic conditions in the United States” was the most negative factor.
Regulatory compliance drives operating costs—75 percent of respondents saw increased operating costs. Regulatory compliance and cost controls were cited as the top contributors to operating costs, while energy costs and mergers and acquisitions were not major influencers.
NEW AREAS FOR THE 2014 SURVEY
Pricing and customer education—The average cost of delivering a gallon of water is too low compared to the cost of other public goods, the value for customers and the cost of service. Throughout the Outlook, respondents commented on the need to educate customers and politicians in order to address the issue of perceived value.
Workforce management and customer service are major factors defining service quality and operational efficiency—Workforce management and improved customer service were both ranked highly for ensuring service quality and operational efficiency. Improved metering was also a major factor, ranked highest for operational efficiency.
Technical innovation is the greatest opportunity for the water industry—Technical innovation emerged as the great untapped opportunity for the water industry, particularly the value of partnerships with the private sector in driving that innovation. Energy/water nexus and water conservation also represent major opportunities.
This article was originally published by Environmental Business on November 6, 2014. Click here to view original article.