Publications

- February 1, 2018: Vol. 5, Number 2

Taking on water: Private investors and companies need to play major roles in fixing crumbling U.S. water systems

by Christopher Franklin

Like much of the infrastructure in the United States, water and wastewater infrastructure is in dire need of investment. U.S. drinking water is delivered via a complex, nationwide system of pipes, filtration plants and pumps, many of which are reaching the end of their 90-year life spans. This creates an increased risk for breaks and quality concerns, which must be addressed.

The American Society of Civil Engineers recently issued its 2017 Infrastructure Report Card, giving U.S. water infrastructure a “D” and wastewater infrastructure a “D+”. The report estimates that 240,000 water main breaks per year waste more than 2 trillion gallons of treated drinking water. Fixing the problem is an expensive proposition; according to the American Water Works Association, an estimated $1 trillion is needed to maintain and expand drinking water service to meet demands over the next 25 years. Complicating things further, the United States has a very fragmented network of aging water systems, with many of them being municipally managed.

More than 150,000 water systems in the United States serve nearly 320 million Americans. Most — just under 300 million people — receive their drinking water from one of more than 51,000 community water systems, managed by local governments. While some of these municipally managed systems are well run, others face serious challenges. Municipalities need to balance budgets that include many critical needs — schools, police and fire departments, roadways, and bridges. It can be easy to overlook the state of pipes in the ground in favor of other critical priorities, but this can lead to serious consequences for the safety and quality of a water system.

Simply put, many municipalities do not have the resources to properly fund the necessary upgrades to their aging water systems. As a result, opportunities for private investment to revitalize water and wastewater infrastructure have never been more present. Private water companies, also known as regulated utilities, are able to provide solutions for municipalities struggling to maintain their own water or wastewater systems, whether because of water quality issues, critical infrastructure investment needs or budgetary constraints. These companies can leverage compliance expertise, purchasing power and operational efficiencies to acquire municipal and private water systems, inject needed capital into the systems, and develop the infrastructure required to provide clean drinking water and wastewater.

New legislation has helped this effort. Fair market valuation legislation in Pennsylvania and Illinois allows regulated water companies to pay a fair market amount for municipal water and wastewater systems. This benefits local governments, customers and the environment. Prior to the passage of this legislation, utilities were often restricted to including only the original depreciated cost into their rate base, which became a regulatory barrier to a sale. For many regulated utilities, purchasing private and municipally owned systems is about more than growth — it also allows them to do their part to strengthen water and wastewater infrastructure in communities across the United States.

Private utilities recognize that the state of the nation’s infrastructure is a serious issue, and these companies are focused on being part of the solution. Strong infrastructure allows regulated water companies to deliver clean, safe and reliable water and wastewater services to customers. The road to repairing and replacing water and wastewater infrastructure in the country should include private capital going to work to help solve the problem. Private utilities and investors must be willing to answer the call when opportunities arise to step in and help deliver the world’s most essential resource to millions of Americans.

 

Christopher Franklin is president and CEO of Aqua America, a publicly traded water and wastewater utility serving nearly 3 million people in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana and Virginia.

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