US Policy Changes Vol.50 (Infrastructure Vol.5 – Water)

Here are articles on water. Excerpts are on our own.

Investing in water: Comparing utility finances and economic concerns across U.S. cities (12/14/2016) | Joseph Kane @BrookingsMetro
cf. https://twitter.com/_WorldSolutions/status/820261737555324928
SUMMARY
INTRODUCTION
Understanding water investment challenges at the city level
Comparing water investment across different cities
– Only a handful of drinking water utilities in the largest cities nationally rank highly across six major categories of water finance and related economic indicators.
– More than three-quarters of large drinking water utilities are able to cover their operating expenses each year.
– Many large drinking water utilities carry high levels of long-term debt—up to 96 percent of the value of their current assets—making it difficult to accelerate new capital investments.
– On average, large drinking water utilities are charging higher rates to cover needed costs, although the specific rates can vary widely from city to city.
– Many cities with large drinking water utilities are experiencing gains in income and population, but they are still struggling to balance affordability concerns, particularly for lower-income households.
Exploring potential strategies and innovations
CONCLUSION

The aging water infrastructure: Out of sight, out of mind? (3/21/2016) | Patricia Buckley, Lester Gunnion, Will Sarni @DU_Press
… The number of water main breaks across the country, from Syracuse to Los Angeles, is staggering: 240,000 per year… The direct cost of these leaks is pegged at $2.6 billion per year. … The American Society of Civil Engineers estimates that, while the cumulative cost to households from degrading water/wastewater infrastructure will add up to $59 billion (in 2010 dollars) over the period between 2013 and 2020, the cost to business will be more than double that, at $147 billion.
EVOLUTION OF THE SYSTEM
SAFEGUARDING THE WATER SUPPLY
[The problem with lead]
THE ISSUES: AGING, FUNDING, PRICING
… The AWWA estimates that the cost of restoring underground pipes will total at least $1 trillion over the next 25 years, without including the cost of constructing new infrastructure or repairing treatment plants. Separately, the USEPA’s 2011 Drinking Water Infrastructure Needs Survey and Assessment (DWINSA) estimated that the United States will require $384 billion in capital investment over the next 20 years to ensure that drinking water standards are in compliance with the Safe Drinking Water Act. … …the USEPA’s 2012 Clean Watersheds Needs Survey estimates that $271 billion in capital investment will be needed over the next 20 years to address water-related health problems and ensure that watersheds are compliant with the Clean Water Act.
… In 2012, most Americans paid less than $3.75 per 1,000 gallons of safe water. … …even though US water prices increased by 41 percent between 2010 and 2015,32 the average US household spent just $530 on water in 2014—only about 20 percent of the average amount spent on gasoline ($2,468).
… One of the most commonly proposed solutions for recovering costs is by shifting a greater degree of cost recovery to fixed fees from usage-based fees. …
… In December 2015, for instance, the US Congress passed a five-year, $305 billion transportation bill that, among other things, lifted a ban on the issuance of tax-exempt bonds with loans for projects under the Water Infrastructure Finance and Innovation Act (WIFIA). …
[Water prices worldwide]
THE PATH FORWARD
… With regard to innovative funding, we have seen the emergence of green bonds, such as the 100-year bonds used by DC Water, and public-private partnerships, such as that in Bayonne, New Jersey. …

A Tale of Two Public-private Partnership Cities (6/10/2015) | @whartonknows
… The water came from reservoirs 50 miles northwest of the city, delivered through an outdated aqueduct in need of frequent repair that the city could ill afford. Like many other cities, Bayonne had deferred maintenance on its water systems. Its excessive debt burden led to a poor credit rating that made further borrowing more expensive. …
Bayonne’s sewer system, pumping an average of 8.3 million gallons of wastewater daily, had similar challenges, including outdated infrastructure…
… Only a few months after Sandy…a joint venture partnership for both water and wastewater operations with Kohlberg Kravis Roberts (KKR) funding 90% of the effort with United Water, a unit of French giant Suez Environnement S.A.
… In 2013, Moody’s Investor Service upgraded Bayonne’s bond rating from Baa1 with a negative outlook to Baa1 with a stable outlook, in particular citing the city’s recent progress in reducing its debt burden through the lease-sale of the MUA operations.
KKR and United Water further pledged to funnel another $157 million into the water systems over the 40-year length of the contract, with about $2.5 million a year earmarked for maintenance and upgrades. …
… “We receive $2.5 million per year, which is a nice chunk of money guaranteed. What the partnership does is remove the need for political will for the maintenance of the system. …
…@foodandwater…
…“Private Equity, Public Inequity,”…
…@NWFinancialGrp…
…the city could save almost $35 million over its 40-year contract, compared to operating the water utilities on its own. …
A Private Sector Lifeline for Rialto
… According to “Private Capital, Public Good,” a research paper from the Brookings Institution, Rialto’s “historically underfunded system also struggled to meet pension liabilities, which were starting to weigh on the utility’s ability to affordably raise capital in the tax-exempt market.” …
…state revolving loan funds and municipal bond financing often have not been sufficient to meet local needs. …
In 2013, Rialto entered into a 30-year, $300 million public-private partnership (P3) agreement with Veolia Environnement S.A.’s Veolia Water as the operator of the project. Ullico, a labor-owned insurance and investment company, was the lead finance partner, along with Table Rock Capital. …

The Path to Water Innovation (PDF; Oct 2014) | Newsha K. Ajami, Barton H. Thompson Jr., David G. Victor @hamiltonproj,@StanfordWoods
Abstract
… Today, it provides sufficient water to support over 315 million people, almost 55 million acres of irrigated farmland, and a $16 trillion economy. …
… Yet, in comparison to the electric power sector, investment in water innovation is extremely low. …
… Among the main management and policy barriers are (1) unrealistically low water pricing rates; (2) unnecessary regulatory restrictions; (3) the absence of regulatory incentives; (4) lack of access to capital and funding; (5) concerns about public health and possible risks associated with adopting new technologies with limited records; (6) the geographical and functional fragmentation of the industry; and (7) the long life expectancy, size, and complexity of most water systems. …
We focus on several recommendations: (1) pricing policies that would both better align with the full economic cost of supplying water and decouple revenues from the volume of water supplied; (2) regulatory frameworks to create an open and flexible governance environment that is innovation friendly and encourages valuable new technologies; and (3) financing and funding mechanisms, such as a public benefit charge on water, that can help raise sufficient funds to implement innovative solutions.

Chapter 1: Introduction
…almost 40 percent of the pipes used in the nation’s water distribution systems are forty years old or older, and some key infrastructure is a century old. On average, about 16 percent of the nation’s piped water is lost due to leaks and system inefficiencies, wasting about 7 billion gallons of clean and treated water every day…
… Research and development (R&D) is a public good that is likely to be suboptimal in scale without public financial support…
… First… Improper water pricing undercuts both the incentive for water-conserving technologies by water users and the financial stability needed to finance the adoption and implementation of new water technologies by the water suppliers. …
Second… …many current regulations frequently hinder the adoption of cost-effective technologies.
Third, we call for a public benefit charge on water to allow for more public funding for water innovation.

Chapter 2: Background
THE WATER SECTOR
FIGURE 1. Water Distribution and Use Cycle
…155,000 drinking-water systems and 15,000 wastewater systems exist…
… While private water suppliers still outnumber public suppliers in the United States, public suppliers today furnish water to about 80 percent of the nation’s domestic and commercial users and almost 20 percent of its industrial users. …
Public water entities are seldom subject to regulation by state public utility commissions. As a result, local political processes provide the principal oversight of public water suppliers. …
COMPARISONS TO THE ENERGY SECTOR
… First…
Second…
…the nature of ownership. …
…state-owned enterprises (SOEs)…
FIGURE 2. Comparison of U.S. Patents Filed under the Patent Cooperation Treaty for Clean Energy and Water Purification, 1999–2011

Chapter 3: State of Innovation in the Water Sector
…53 percent of the water sector’s capital spending goes to system expansion, followed by 37 percent for replacing existing infrastructure and 10 percent for compliance. …
INNOVATION FRONTIERS IN THE WATER SECTOR
FIGURE 3. Size of the Major International Water Markets, 2010
… First, water managers assumed that demand for fresh water would increase with population and that the only way to ensure a balance between supply and demand was to find new sources of supply. …
… Water managers, moreover, generally looked to large-scale, centralized infrastructure projects to increase supply, on the assumption that large-scale projects would generate significant economies of scale and provide greater operational flexibility…
… Finally…if they designed water systems to meet current hydrologic conditions, those systems would also meet future conditions. …
1. Supply enhancement. …technologies that promise more-drought-resistant water supplies, such as reclaimed water or desalination; or that can reduce energy use, such as recycling technologies that extract significant energy from wastewater… …technologies that allow more-localized resource enhancement strategies, such as rainwater and storm water capture, and small-scale water reclamation.
2. Demand management. …technologies that encourage or enable water-use efficiency…or water conservation… Examples range from water-efficient appliances to drip irrigation to smart irrigation controllers. …smart meters…
3. Governance improvement. … Smart metering and advanced data collection methodologies…
These three categories cover a wide variety of technological innovations including:
• Smart water.
• Efficiency and conservation.
• Purification.
• Alternative sources.
• Storage (surface and ground).
• Groundwater.
EVALUATING PATTERNS OF INNOVATION IN WATER AND CLEAN ENERGY
Innovation Indicators: Investment Trends
…clean energy and water…
… In the United States, investments are dominated by venture capital activity in both sectors, but especially in the water sector where venture capital and corporate ventures account for 53 and 24 percent, respectively, of total investment dollars (figure 4b). By comparison, investment banking is the largest global contributor to both clean energy and water, at 31 and 27 percent, respectively, of total investment dollars (figure 4a).
… The United States accounts for approximately 50 percent of global investment deals in both the clean energy and water sectors…
… There were 4,193 venture capital deals for clean energy, raising $20 billion at an average of $4.8 million per deal. By contrast, 372 deals raised $800 million in venture capital for the water sector, at an average of $2.2 million per deal…
FIGURE 4. Sources of Investment Dollars for Global and U.S. Innovation in the Clean Energy and Water Sectors, 2000–13
Venture Capital Investment
FIGURE 5. Number of Deals and Relative Contribution of Investment Types for Global and U.S. Innovation in the Clean Energy and Water Sectors, 2000–13
FIGURE 6. Global and U.S. Investments in Clean Energy and Water by Venture, Corporate and Corporate Venture, and Public Sources, 2000–13
Corporate Investment
… First, some corporations might be seeking to improve their own internal operations. … Second, corporations might be looking for new market opportunities. …
FIGURE 7. Number of Patents Relative to Market Size for Solar and Wind Power Industry, 2000–11
Public Investment
…in the United States the clean energy sector has benefited from about $8 billion in public investment over the past thirteen years, while only $28 million in public dollars has gone to the water sector over the same period. …
Innovation Indicators: Patents
FIGURE 8. Patent Filings with Patent Cooperation Treaty for Water Purification and Clean Energy by Country, 1999–2011
FIGURE 9. Number of U.S. Patents Filed in the Clean Energy and Water Subsectors, 1999–2012

Chapter 4: Explaining Patterns of Innovation
PRICING PRACTICES
FIGURE 10. Tariff Price and Domestic Use per Capita, 2012
The pricing of water in the United States affects innovation in several ways. First, it reduces the revenue available to water suppliers to invest in innovation. …
…about 16 percent of the treated water in the United States is lost to leaky pipes and system inefficiencies. This translates to 7 billion gallons of clean water per day that is produced without generating any revenue for the water service providers…
…about 30 percent of the water in the United States falls under the category of nonrevenue water, meaning water that has been extracted, treated, and distributed, but that has never generated any revenue because it has been lost to leaks, metering inaccuracies, or the like…
Second…the extraction of water from a river or stream can have significant environmental costs. Because prices do not reflect such costs, however, analyses to decide whether to extract additional water for a growing city or to invest instead in water recycling and reuse…
Third, the underpricing of water can undercut incentives that water users would otherwise have to invest in new technologies to reduce water use. …
FIGURE 11. Relative Capital Investment to Revenue Ratio for Several Utility Services
… States with the highest electricity costs—such as Hawaii and California—have seen the most active programs to advance wind, solar, and other forms of renewable electricity. …
REGULATIONS
…(1) ensuring a significant market for recycling technology, (2) encouraging the diffusion of such technology, (3) enabling the refinement and improvement of recycling technology through actual use, and (4) driving the development of less-expensive recycling technologies.
TABLE 1. Regulatory Drivers and Barriers to Adoption of Water-Recycling Innovations
FIGURE 12. Importance of Industry Issues, 2012
LACK OF ACCESS TO CAPITAL

Chapter 5: Infusing Innovation into the Water Sector
IMPROVE WATER PRICING POLICIES
FIGURE 13. Number of Clean Energy Patents and Price of Electricity, 2001–11
BOX 1. California’s Decoupling Experience
DEVELOP INNOVATION-FRIENDLY REGULATION
…each state conduct a systematic review of its regulatory practices relating to the water sector. …:
• State legislators and regulators should avoid geographically inconsistent regulations. …
• Legislators and regulators also should consider crosssector impacts when adopting new regulations. …
• State regulations should provide sufficient flexibility to avoid blocking the timely adoption of new and innovative technologies. …
• State legislators and regulators should consider the appropriateness of rules that encourage the adoption of new technologies. …
INSTITUTE A MECHANISM FOR RAISING PUBLIC FUNDS FOR INNOVATION
FIGURE 14. Governance Structure of Public Good Charge for Electricity in California

Chapter 6: Conclusion

Chapter 7: Questions and Concerns
How can states and local agencies be encouraged or incentivized to implement the proposed reforms?
Would states need to build additional capacity or provide additional funding for these reforms?
Should there be a mandate for these pricing reforms?
What will be the potential obstacles or resistance to these reforms?
• Salience.
• Financial Impacts.
• Complexity.