America’s Water: Infrastructure in peril

Circle of Blue, American Public Media, and Columbia University brought together national experts and journalists for the first in an urgent H2O Catalyst series of interactive town hall broadcasts exploring the nation’s decaying water systems.

America’s Water Infrastructure Requires New Mindset

Trust, cooperate, and innovate for safe water and thriving communities.

Codi Kozacek, Circle of Blue

America’s substantial water challenges are not secret any longer. Cities poisoned by lead-contaminated drinking water and toxic algae, along with crippling droughts and dwindling groundwater reserves, make it increasingly clear that the nation’s water systems urgently require an overhaul. That was the consensus view of experts convened this week in New York City during H2O Catalyst, an interactive town hal

l event broadcast live by Circle of Blue with American Public Media and Columbia University.

Listeners from around the world joined the H2O Catalyst broadcast, which focused on the extent of repairs needed to upgrade old and inadequate pipes and treatment plants, and redesign the way water is collected and treated.

Event Host, David Brancaccio

David Brancaccio is the host of American Public Media’s Marketplace Morning Report, now a regular segment on NPR’s Morning Edition. His reporting focuses on the future of the economy, financial and labor markets, technology, the environment and social enterprises.

Patricia Mulroy is a senior fellow at the Metropolitan Policy Program of the Brookings Institution. In addition, she serves as the senior fellow for climate adaptation and environmental policy at UNLV’s Brookings Mountain West. She previously served as the general manager for the Southern Nevada Water Authority.

Professor Upmanu Lall is director of the Columbia Water Center, a unit of the Columbia University’s Earth Institute. Lall has over 33 years of experience in statistical and numerical modeling of hydrologic and climatic systems, and water resource planning and management.

Jeff Hughes is the Director of the Environmental Finance Center at UNC. Jeff works with local governments, not for profit organizations, and private companies to identify and implement innovative methods of financing and maintaining environmental facilities and programs. Jeff has worked extensively overseas as an environmental finance specialist with the Research Triangle Institute, providing technical support and training assistance to local and national governments throughout Eastern Europe and Africa.

Diane VanDe Hei is Executive Director of the Association of Metropolitan Water Agencies (AMWA). AMWA repesents the nation’s largest drinking water system serving drinking water to over 110 million people. Diane has held this post since 1990 and leads the association’s legislative and regulatory efforts and continues to work with others including AMSA in the development of new tools to enhance the competitiveness of the nation’s drinking water and waste water systems.

J. Carl Ganter

I’m J. Carl Ganter, director of Circle of Blue. We’ve brought together people from around the nation here today, a really diverse group, to explore America’s water, its infrastructure in peril and what to do, how to fix it, how to finance it. This is an ongoing conversation.

To help take us on this journey for the next 90 minutes or so, we’re joined here on Water Street by David Brancaccio. David is host of the Marketplace Morning Report on American Public Media.

David Brancaccio

Thank you, Carl. I love how we’re live from Water Street. That’s like holding an open space conference on Park Avenue or what. I’m very honored to be here today. I have a special interest in the topic. Some years ago, I did a PBS TV special on climate change, and we looked at that issue through the prism of water security. We did that from the American west and from the Himalayas in India. We continue to try to keep an eye on these crucial infrastructure issues on my show every day.

It is indeed a time of tremendous challenge and perhaps change. We’ll talk about that. One week ago on May 4th, President Obama visited Flint, Michigan during his speech at Northwestern High School. The President criticized what he sees as the corrosive political attitude in the U.S. This attitude, he said, neglects public infrastructure investment and results in roads, bridges, water systems that function just above the failing grade.

Pipes leak billions of gallons of treated water every day, wasting energy, wasting money. Broken pipes disrupt city traffic, commerce. Sewage spills during big storms force beach closures, spread disease. A warming climate is reducing supplies in the country’s fastest growing regions while fueling the growth of toxic algae blooms in places like the Great Lakes that can choke off aquatic life and threaten drinking water supplies.

-David Brancaccio

The President chose Flint for his speech, of course, because of the terrible lead contamination scandal that has unfolded there for more than two years. The crisis left nearly 100,000 people afraid to drink, afraid to bathe, cook with their tap water. The city’s lead pipes became a national symbol of government neglect and of water systems that are outdated and need repair. The needs are large indeed. Estimates of the repair will range from hundreds of billions of dollars to trillions of dollars.

A bit of news just today, the American Society of Civil Engineers came out with an estimate saying that of the $3.32 trillion of infrastructure stuff that it has identified, we’ve only funded 1.88. What’s the difference? 1.44 trillion, that’s a piece of this. It might just be the pipes. What is $1.44 trillion? It’s $1,440 billion. It’s pretty close to the national budget of the entire United States for a year.

Now today you’ll hear from four national water experts who’ll address big questions about U.S. water infrastructure, how to fix it, how to pay for it, and how to build systems that are suitable for our new century here.

We’ll be joined by Pat Mulroy of Brookings; Diane VanDe Hei, the CEO of the Association of Metropolitan Water Agencies; also Jeff Hughes, the Director of the Environment Finance Center at the University of North Carolina and Dr. Upmanu Lall, who’s director of Columbia University’s water center, the Columbia Water Center. We’re going to hear very importantly from you, people who are joined by phone and in person in four breakout groups that we’re convening a little bit later in the program.

Obviously, the challenge is great, but so is the opportunity, I think, to invest in new ways, to think about building systems that use less water, innovation, systems that discharge fewer pollutants, maybe consume less energy and are resilient to whatever Mother Nature throws our way.

Now first, to talk about some of these opportunities for a few moments, we are joined by former U.S. Secretary of Housing and Urban Development, none other than Henry Cisneros. Mr. Cisneros has spent a career fully engaged in urban infrastructure and politics and serves on the Bipartisan Policy Center’s Executive Council on Infrastructure.

Henry Cisneros thank you for joining us on the program.

Henry Cisneros

David, thank you very much for your good overview and also for your years of work and informing the American people in the unique way that you have in your various roles.

Thank you also to Circle of Blue and H2O Catalyst and all of the other organizations who’ve come together for this very creative way to bring people together with minimum inconvenience to hear about an important subject.

The water issue is of course essential to the livability of American cities … So much of the continued health of cities will depend upon dealing with the reality of obsolete water systems, some of them built in the 1800s, some of them still when construction occurs and pipes are dug out are wooden pipes from a century and a half ago … As Flint has taught us, these are also questions of immediacy, of urgency, of real human danger.

-Henry Cisneros

I’ll be very brief and just say the following. First, I did serve as Secretary of Housing and Urban Development. People think that that is generally a role associated with housing per se, public housing, homelessness etcetera, but the second part of the title involves urban development and the infrastructure of urban areas across the country. I’ve travelled to 200 different American cities on the job in every one of the 50 states and saw firsthand the inadequacy of infrastructure preparation for the continued competitiveness of American cities and their livability.

Today I work in one of my capacities as Chairman of the Executive Committee of a company called Siebert Brandford Shank, which is an underwriter of municipal public finance. In that capacity, work a lot on water questions.

The water issue is of course essential to the livability of American cities. We are witnessing something of an urban renaissance, particularly in the coastal cities where people are moving into neighborhoods that had long been abandoned. We see dangers even of gentrification. So much of the continued health of cities will depend upon dealing with the reality of obsolete water systems, some of them built in the 1800s, some of them still when construction occurs and pipes are dug out are wooden pipes from a century and a half ago. These are really important questions to the continuing forward progress of cities.

As Flint has taught us, these are also questions of immediacy, of urgency, of real human danger. It strikes me that there are three important questions, which ought to be addressed.

The first is what is the extent of the highest danger associated with water systems in terms of linear miles, if you will, or other measures of the extent? The second is what is the cost of fixing them in a triaged way? The most immediate that cause human danger and then beyond that, everything else that needs to be fixed. Then thirdly, what are the options for solutions?

With respect to these questions, the American Water Works Association believes in something like 5 million lines that constitute lead lined water systems to date. Some of these are particularly difficult because it’s not the main arterial water systems in the streets, but rather the private lines that run from the streets to the homes. There isn’t a really easy way for the public sector to get at them, and they are obviously extensive.

On the second question, what is the cost? The estimates are somewhere in the range of $30 billion to deal with just the immediate problem of lead lined pipes. With respect to what kinds of options exist to address it, we haven’t crossed that bridge as a country.

The principal measure in recent years has been public bonding of water system replacement with local public bonds. As we know, many communities are confronting revenue crisis and tax limitations and debt limitations. That instrument, if we rely on that, is not going to solve the problem.

It is in my opinion that we’ll have to be talking very soon about a major federal initiative on this immediate urgency of lead-lined pipes across the country, a concentrated [effort] in the Midwest and the older cities, the legacy cities of the country. This seems to me as an appropriate subject for the upcoming Presidential debates and certainly for the new administration to act upon in a creative way immediately after they take office. A federal role in dealing with the worst of the emergency that cannot be addressed through traditional means of local public finance through local debt structuring.

There may be other ways as well. The Bipartisan Policy Center is just completing in the next a taskforce that will look at private sector options, ways to bring private sector capital to this issue, including creative structures like REITs and master limited partnerships and other unused strategies which are going to be essential if we’re going to take on not only this immediate problem. But also the longer term question of replacement of infrastructure at large.

Let me just close by saying that beyond these immediate questions, what is the extent of the immediate emergency? What is the cost of replacing the worst of the toxic lines and what are the concrete financial options for doing it? It strikes me that there’s another question as well, and that is what are the other dangers in our water systems, but other infrastructure as well? What are the other dangers? I use the word advisedly, where is human health is at risk?

…we are falling behind as a country. It’s a question of national competitiveness. It’s a question of national health and wellbeing.

-Henry Cisneros

Then beyond that, what are the other desirable areas of infrastructure improvement beyond immediate danger, the need to make modern, obsolete systems as well as to deal with future challenges?

You are right, David, completely and it is certainly the proper motivation of Circle of Blue and the other organizers of this to address these kinds of long-term questions. I would just hope that the Flint crisis as well as others we confront and traffic congestion and other areas prompt us to recognize that we are falling behind as a country. It’s a question of national competitiveness. It’s a question of national health and wellbeing. It’s a question of building on the opportunities that present themselves to create new urban environments, more livable, more walkable, more prosperous, more equitable.

All of these questions would depend very heavily on a fundamental issue, and that is how are we going to sustain, from a construction and engineering standpoint, from a design standpoint, from a financing standpoint, the nation’s infrastructure?

Water obviously comes first. It is life giving, life sustaining, can’t do without it, never have as a human species as long as we’ve been gathering in urban places and can’t now.

Thank you very much for the opportunity to say a few words. More importantly, thank you for creating this venue and gathering people to begin to address these questions.

David Brancaccio

Thank you Henry Cisneros who has laid out some key questions for us to examine as we proceed here today. Among them, how are we going to pay for this? Will this show up in our individual or collective water bills? In many ways, it’s already in the bills. Circle of Blue’s Brett Walton has just reported on rising water rates across the country as people conserve water in places like California given the drought. Utilities are trying to make up for lost revenue. Brett, what’s going on with our water bills?

Brett Walton

By and large, prices are going up … Since the beginning of the survey in 2010, prices have increased nearly 50 percent for households using as much water.

-Brett Walton

Thanks David. Since 2010, Circle of Blue has been tracking residential water rates for 30 of the largest cities in the United States to see how prices and rates are changing. By and large, prices are going up. For a family of four that uses 100 gallons per person per day, prices increased in average for about 5 percent last year for our 30 cities. Prices are increasing not just year on year, but their increases accumulate. Since the beginning of the survey in 2010, prices have increased nearly 50 percent for households using as much water.

Prices are not the same as bills. Bills reflect individual decisions on how much water to use. As conservation happens more and more across the country, revenue is going down for some cities. That is an issue they have to deal with. The survey of course is a course tool. There are more than 52,000 community water systems in the United States. We look at only 30 of the largest.

Nonetheless, the survey is indicative of the major trends that are shaping the future of U.S. water infrastructure. Those major trends include the growth of conservation, as I mentioned, the need for revenue in order to reinvest in all these water pipes and pumps and systems to accommodate growth and changes in water patterns and the pressure to keep water affordable for the poorest customers. There’s been a big movement in the last few years as incomes have stagnated to make sure that water is affordable.

David Brancaccio

Brett, thank you very much here. All right, now we’re going to get a discussion going with our initial set of very wise panelists. It’s a great panel here. We have Pat Mulroy, Upmanu Lall, Diane VanDe Hei and Jeff Hughes. I’m going to start with Pat Mulroy, a person who better not find out you’re using water in a stupid way. Pat, thanks for joining us.

Pat Mulroy

My pleasure. Glad to be here.

David Brancaccio

Listen, open-ended question, and we’ll rotate through the panelists on this one. As you see it, what is the first problem that’s got to get solved here? What’s your priority?

Pat Mulroy

I’m going to stay on the subject of how we’re going to pay for it. I think there are two main things that have to happen.

First of all, I think we who have been in the water business for a very long time need to recognize that our customers look at their water bill in a very different way than they are used to their power bill, their cable bill, their cell phone bill. They see it as a tax, not as a utility expense.

“Yes, water is a basic human right. Here’s your bucket. Go to Lake Mead. Take as much as you want.”

What you don’t have a basic human right to is billions of dollars of infrastructure that moves that water and lifts it 2500 feet to your home treated to a safe drinking water standard and all you have to do is turn on the tap. There’s a cost associated with that. To the extent that you share in that larger infrastructure, you have a responsibility to help pay for that infrastructure.

-Pat Mulroy

The reason for that is simple, is we’ve used that money as tax revenue for general city purposes. That practice has got to stop. It makes it very difficult for us to be able to, in a straight-faced way, go to the public and convince them that their dollars are actually going to go towards fixing facilities when we’ve moved water away from the utility aspect of it into other city services, police, fire, parks, whatever it is.

The second one is we have to uncouple infrastructure from the resource itself. In doing that, one tool that’s being used out west that we implemented is an infrastructure surcharge. I always said to our customers, “Yes, water is a basic human right. Here’s your bucket. Go to Lake Mead. Take as much as you want.”

Separating the infrastructure cost from the resource costs where on the resource side, you can leave all those conservation triggers in place I think is going to become increasingly important. Otherwise, this infrastructure, from a financial standpoint, is never going to be tackled.

David Brancaccio

You’ve got to pay for those pipes and water. All right. Pat, thank you. Let’s switch to Columbia’s Manu Lall here. I gave a figure from the Civil Engineers that came out this morning, and that was for all infrastructure. They are just counting what? Pipes?

Dr. Upmanu Lall

Yes David. That’s the primary thing. I guess the way I want to address the question is in any enterprise where you’re making investments that are likely to last 50 years or 100 years, there’s an element of irreversibility about your decision. Once you choose to do a certain thing, you’re locked in because the next opportunity won’t come for a long time.

As Henry Cisneros pointed out, I think it’s really important for us to think about problems that have urgency, but in this particular context also think about what we want our water infrastructure to look like in the long run.

Many people essentially have free access to it, agriculture being one of them. Then we have the cost of delivering water to them through large-scale infrastructure dams and canals, among other things.

-Dr. Upmanu Lall

If you look at what Pat said, she wants to separate infrastructure from the resource. This is a really important point that I want to emphasize because we have no structure for pricing the resource. Many people essentially have free access to it, agriculture being one of them. Then we have the cost of delivering water to them through large-scale infrastructure dams and canals, among other things.

Overall, I think we need to have a real thought about what all are urgent priorities for managing the resource in the long run and what infrastructure elements would support that process.

David Brancaccio

Manu, is there a plan? In other words, is there a document I could consult now if I would want to see a closely argued 10-year plan for dealing with this?

Dr. Upmanu Lall

I don’t think so. This is something we started this year with our America’s Water initiative, and we are engaging a bunch of people to try to come up with a roadmap of exactly this sort. At the moment, there’s not been a real discussion about it in the water space. Perhaps there has been in the energy space.

David Brancaccio

I want to turn to Diane VanDe Hei at the Association of Metropolitan Water Agencies. Diane, any best practices come to mind from your cities, cities doing it in interesting ways or doing it the right way or a better way?

Diane VanDe Hei

…you have to be looking at climate change, the impact on water, making the system more resilient, sustainable and what that will cost. That’s kind of a base fee, and then you look at the other components of the system where you can vary the rates based on whatever factors you’re allowed to do in the locality.

-Diane VanDe Hei

I don’t know of any large water system that is not looking at alternative rate structures, particularly since what Pat said that consumers look at their resource differently than the infrastructure. Regardless of the resource, their infrastructure has to be paid for.

You have utilities looking at a baseline that you have to have in order to keep the infrastructure in good shape. Plus you have to be looking at climate change, the impact on water, making the system more resilient, sustainable and what that will cost. That’s kind of a base fee, and then you look at the other components of the system where you can vary the rates based on whatever factors you’re allowed to do in the locality. That’s an issue that I think every large metropolitan water system is looking at today.

David Brancaccio

I’m going to circle back in just a moment to Jeff Hughes on some of the finance stuff, but staying with Diane for a second, beyond innovative finance and interesting rate structures, do you have some metropolitan areas that are models for others? Is someone doing something interesting that the group should know about?

Diane VanDe Hei

I think there are different municipal models and I think they are important in terms of how efficient they are and how their ability to use the funds that come in when we pay our bills for the purpose for which it was intended. That was job one, to provide in our case drinking water.

An example, instead of a department within a city, you can create the authority that is publicly owned, and I’m a public person. It is structure in a way that the funds that come in, it stays there and it goes back into the system.

There’s another utility in the U.S. and I think the only one, and it’s Louisville Water Company that is both public and private. It’s a utility that the only stakeholder in the utility is the City of Louisville. It’s run by a business, but the City of Louisville gets a rate of return for its initial investment.

I think that’s a really interesting financial arrangement that other utilities should be looking at. Because if you talk to elected officials and others, the rate of return on their investment is something that they think about when some of the funds that go into the water system go to other services within the city. The Louisville model is very interesting and I think the only one in the U.S., but not the only one run like that in the world.

David Brancaccio

Jeff Hughes now who is Director of the Environmental Finance Center at UNC. Jeff, Henry Cisneros said the old way, let’s do a bond issue locally… It’s just not going to work anymore. Is he right?

Jeff Hughes

I think the answer is it’s not going to work for all of our challenges. We’re very proud of the municipal bond market that we have in the U.S., and I think it works well for many of our needs and will continue to work well. What we are seeing is some regions of the country that the revenue stream is not there to support the traditional municipal bond market. I think we are, as an industry, looking for some alternatives, but I don’t think we’re going to lose the municipal bond market as one of our chief go-to mechanisms anytime soon.

David Brancaccio

That will be part of the portfolio. What are other ways to think about it though? I know you’ve done a lot of thinking about that.

Jeff Hughes

I do and I think the mechanisms for raising the capital are an interesting place to work. I do think before we can get too far on the mechanisms for raising the capital, we probably have to get to the foundation, which is where’s the revenue going to come from?

In that, to answer your first question about where we go, I think it’s a business based on selling a product. For years, the product was gallons of water. I think what we’re seeing across the country, particularly in some forward-looking utilities is they are no longer pretending like they just sell gallons of water. If you look at the cost structure, many of these utilities are spending tremendous amounts of money on environmental protection, on economic development projects.

I think we are seeing some utilities that are selling the quality of life features and they are breaking that link to water, or what you need is just money to get me a gallon of water. We hear a lot the phrase, “one water,” coming in from some areas of the country where they are really promoting the utility as an economic development resource agency, not your old water and sewer department that nobody wants to really talk about except at budget time.

David Brancaccio

Economic development, also quality of life. You want to live in a world that’s safe and nurturing and prosperity. This is the monthly bill you’re paying.

Jeff Hughes

I think the average customer, when they flush their toilet, has absolutely no idea what it takes to reduce the impact of that waste on their local community’s water bodies, but also it might be reducing the impact on the water bodies of the community downstream.

-Jeff Hughes

I think so. Particularly for things that are sometimes difficult for the average customer to relate to. Some of the money they pay their utility is literally going hundreds, if not thousands of miles away from their household to deal with really complex engineering challenges, particularly on the wastewater side. I think the average customer, when they flush their toilet, has absolutely no idea what it takes to reduce the impact of that waste on their local community’s water bodies, but also it might be reducing the impact on the water bodies of the community downstream.

David Brancaccio

Pat Mulroy, I want to ask you about this. Is there a way in which the public remains focused on this and opens up their pocketbook for these infrastructure remedies, improvements? Flint has this issue front and center now. California drought had it front and center for so many for a while, but are we ever really going to be focused in a sustained way? Will the public ever be focused in a sustained way on this and what does that mean for policy?

Pat Mulroy

I think they are and unfortunately or fortunately, it will happen in degrees. Where water becomes a significant issue and I’m one who tends to believe that’s going to increasingly become the case everywhere in the country, irrespective of where you are. Be it a water quality issue or a water availability issue, the public focus.

How do you assess these costs to where everyone feels they are paying their fair share and not being overly burdened in order to help someone else out?

-Pat Mulroy

It is going to be the responsibility of the utility and the water leadership of that area to engage in a very transparent conversation with their community. Open their books, show the public, show their customers either in whether you put together structured, integrated resource planning groups that are made up of a cross section of your community where they actually dedicate a tremendous amount of time to becoming far more educated on the issue and they then become your messengers for the rest of the community. Or whether you do it through constant dialogue with community groups and which you say, “Look, here are our books. This is our resource picture.”

As long as the public believes and has confidence in the messenger that there is a real need that exists that is going to cause them to have to pay a little more and they will get something for their money, they will pay that additional amount. As long as they feel it’s being fairly assessed, and that’s always the magic, right there.

How do you assess these costs to where everyone feels they are paying their fair share and not being overly burdened in order to help someone else out?

David Brancaccio

Diane, what are the topology barriers to this? I have a feeling the following issue is going to come up in the breakout session. It’s an important theme, but whether or not our local approach to water utilities is an approach that has to be reevaluated? Maybe this is such a … A problem that’s so big, it’s really a federal problem.

Diane VanDe Hei

More and more people are looking at water as a national issue, looking at water as a generator of jobs, of economic development … although I do believe locally is where the money is going to come from predominantly.

-Diane VanDe Hei

I think there are a couple of answers to that problem. I think going forward, it’s predominantly going to be paid for locally. More and more people are looking at water as a national issue, looking at water as a generator of jobs, of economic development. It’s impact on the national security shows something happens to some of the largest systems. I think there’s a role, although I do believe locally is where the money is going to come from predominantly.

The federal government and the state government have a role to play because every dollar that the federal government puts into water investment, they get about $0.93 of it back. There have been two reports out recently. One was I think 2014 and the other was just a couple of days ago that looked at … I don’t know where the number 30 comes from, but it’s the 30 water systems serving more than 500,000 people with drinking water, wastewater and storm water. That report looks at an average unit of $23 billion per year over the next decade in expenditures.

Also looking at about 289,000 jobs that are aggregated in that same time period, good paying jobs, permanent jobs.

In addition to the report that came out a couple of days ago from the Water Environment Federation and the WateReuse association took a slightly different look at the economic impact of the federal government investment in water infrastructure.

I think there is a larger role for the federal government to pay for some portion of the infrastructure needs that we have, particularly since we can’t just deal with today. If you look at climate change, we have to deal with resilience for tomorrow, sustainability in the future and you need to do that now and not 10 years from now.

-Diane VanDe Hei

They looked at the economic benefit analysis and the increase funding for the Drinking Water Revolving Loan Fund and the Green Water Revolving Loan Fund. They found that for the money that the government put out that let’s say 37.7 I think is … billion dollars is the number they are looking at. They get back almost $30 billion of it in tax revenues because of the money that goes out, it’s loaned, it’s leveraged through the states. It’s a loan, not a grant, and so the money grows. That people get jobs and they pay taxes. The federal government gets a rate of return on their investment as well and that’s a pretty big investment and pretty big rate of return.

David Brancaccio

Jeff Hughes, how do you come down this notion of we have to stop thinking about this infrastructure challenge as a local and regional issue? We have to start thinking about it as a national issue.

Jeff Hughes

I think the federal government has been an active participant for a long time. It’s gone up and down. We certainly had periods of time in the 70s and 80s where they were much more involved in putting out the pure grant funds. They’ve maintained an important player, particularly for many small communities in providing low interest loans, some modest sized grant programs, again, mostly targeted to smaller communities. I think what we’re finding, though, now is that as the needs go up, that federal assistance is not … is filling all the holes.

I think we’re going to have some challenging decisions about where we put our federal assistance. I think the math that’s hard to make work out, we’re trying to recreate just a massive grant program frankly. I do think there are certain financial challenges that local utilities could use a lot of help with.

For example, the federal government runs a fairly successful energy customer assistance program at the federal level. We have nothing of that sort at the water level. I know there’ve been some discussions about looking at that. There’s also some … We have some federal support to lower the cost of capital for very large transportation projects. There’s now interest in maybe using some of the federal financial power to route it and just offering enough grant programs, lower the cost of capital for these really massive, particularly multi-utility, multi-region.

I think there are some exciting things that the federal government will play, but I think the devil is going to be in the detail.

David Brancaccio

What will you need if Secretary Cisneros called for the next Presidential administration to make this a priority from the word go? They are going to have to start figuring what is the best way to even if there was the political will to raise the money, how it would be disbursed.

Let’s go over to Professor Lall. Fixing rusty, dangerous pipes is crucial, it’s lifesaving. It’s not interesting. It isn’t. We can’t make it interesting. What’s fascinating is thinking about the water systems of the future and opportunities for the future on how we can serve, how we think about technology. Share some of your thoughts about the water systems that we should have once we go beyond fixing what’s broken.

Dr. Upmanu Lall

The model we have had is a large centralized system for collecting water, sending it to people’s houses by pumping it over and then picking up that dirty water from there, pumping it back to a centralized location and then finding a way to dispose it. In between, we run into surface storm water disposal issues as well.

-Dr. Upmanu Lall

Thanks David. We’ve been thinking about this issue from the following lens. You have traditionally three components of infrastructure for water delivery and treatment … Wastewater disposal and treatment. These are storage, distribution and treatment. If you consider that climate change or climate variability brings more floods and droughts or even just historically severe floods and droughts, you need to pay attention to storage. Distribution is the pipes as you were talking about.

If you think about it, and I’ll give you New York City’s example. I pay $3.90 per cubic meter of water for my bill. That’s substantially higher than some places, but it’s sort of in the middle of the road in a place where water is arguably not scarce. New York City has a fantastic system that has been around for a long time. Essentially outsourcing their water needs to the Northern part of New York.

Now of this $3.90 per cubic meter, around two-thirds to three-fourths of my bill is for the disposal of wastewater and storm water. It’s not the gallon bucket that I’m going to pick up that Pat was talking about, that disposal issue.

Now as the EPA identifies and promotes the treatment of additional contaminants, emerging contaminants, as many people are calling them, we’ll have to upgrade many of our treatment systems as well on the drinking water side. Then we have the wastewater that we generate and those will have to be treated back to drinking water levels. This is going to add expense.

Now an alternative to this would be to start thinking about should we be taking this highly purified water, using it to flush toilets and then getting it back out and retreating it to that same level or to dispose of in different ways?

An infrastructure of the future might actually look somewhat different. It might involve buildings being processing units for water so that you’re not spending huge amounts of money pumping and then re-pumping the water back and forth. They might have treatment systems that are built right there.

My response to that is ultimately these costs are all going to be shifted down to the user in one way or another, either through general taxes or directly through rates. There are some moral decisions that have to be made in that context as well.

-Dr. Upmanu Lall

They might have sensors that the water that a person is taking out of your faucet is of an assured quality. And you don’t have the issue that you treat water to very high standards and it comes in through your ancient pipes into your own building, which is your responsibility perhaps and then you have lead coming out of it. I see remarkable changes possible and are clearly the questions that will come beyond the technology side is, Who pays for this?

David Brancaccio

Some moral decisions. All right. In just a few minutes we’re going to do what we really want to do also is bring your voice into this as we break up into the smaller groups. I want to ask Pat, while we still have her on the line, about what might be a balance.

Pat, between infrastructure development, fixing for instance the water system and growth. It’s like if you’re building a highway, you add an extra lane. Often that attracts more traffic and more sprawl. How do balance these two issues? If we’ve got the water system that we wanted, maybe we’d be encouraging too much growth in a way that might be destructive in a different way. What do you think?

Pat Mulroy

…the American habit of using as much water as we want, whether we really need it or not has to stop.

-Pat Mulroy

I think that goes down to our usage patterns more than to an infrastructure issue to be very frank with you. I think as our communities grow, and they will grow, the notion that you’re going to use water to stop growth is foolhardy. It’s just not going to work. However, if we as a country are going to add significantly to our population, particularly in urban centers, then the American habit of using as much water as we want, whether we really need it or not has to stop. We as a nation use more per capita than anywhere else in the world.

I think conservation, and that includes both technology conservation with high efficiency washers and high efficiency showerheads and all those other things that are becoming rather commonplace in the market now with our habits are going to have to significantly change. We can accommodate additional people, but we can’t accommodate additional people with our old usage habits.

I think a more challenging question for us is there are a lot of new industries that are locating and relocating in this country that we don’t even appreciate as average citizens how water intense they are. It takes 1400 gallons of water to make a single cell phone battery. As we bring these kind of industries in, we need to be very thoughtful about making them pay for the necessary infrastructure footprint that they create, if you will. Having a significant connection charge and infrastructure charge as new industries move into an area I think is going to have to become the norm.

David Brancaccio

Pat Mulroy at Brookings. Now I’m going to switch back to J. Carl Ganter who is going to tell us how exactly we’re going to break into these groups. Carl?

J. Carl Ganter

Thanks so much David, and thanks everybody. This is really a terrific conversation and it’s an opportunity to get more specific, and we have an exciting way to do that here. We’re going to go into breakout groups. We have four separate groups. We have four leading experts here that you’ll have the chance to speak with, and they’ll be facilitated by terrific journalists as well. You’ll be in a breakout group in a virtual room with one of our speakers as well as with a journalist. If you’re on your social webinar, you’ll see on your screen right now the list of breakout groups. If you’re just on your phone, just make a mental note and I’ll run through this twice.

Our breakout groups, we’re going to have breakout group number one, and this is if you want to join this breakout group on your phone or your social webinar dash, touch this number.

For group number one, Pat Mulroy and the short version of the theme is, “Better together, a collaboration and water supply in disruptive times.” Our journalist facilitator in that room with Pat and with you is Annie Snider of POLITICO. Again, that’s Pat Mulroy, room number one, “Better together, a collaboration and water supply in disruptive times.”

Room number two is Diane VanDe Hei and in room number two you’ll be talking about cities and economies that run on water. How can businesses and cities work together on these grand challenges? Our journalist facilitator is our own Keith Schneider, senior editor at Circle of Blue, and Keith will be facilitating and helping lead that discussion with Diane.

In group number three, we have Jeff Hughes, and Jeff, as you know, will be talking about financing the replacement era. Can utilities balance reinvestment, conservation, revenue and affordability? I’m sure the conversation will go much further. Our journalist facilitator in that room is Brett Walton also with Circle of Blue and author of the water pricing story that we talked about earlier.

In room number four, Upmanu Lall from the Columbia Water Center will be talking about engineering smarter systems for the 21st century. How might water infrastructure be reengineered for 21st century challenges? Joining Manu Lall will be journalist facilitator and author Charles Fishman. Charles wrote the book, The Big Thirst.

This is the first in a series. This is a big conversation as we’ve heard. It’s a multi-trillion dollar conversation, and it’s not starting here, but it’s moving forward from here. How do we take that further?

A word to our journalists: Your mics will be on and so will our guests’. Have fun and we’ll be tuning in.

Better Together? Collaboration & Water Supply

Pat Mulroy – Senior fellow at the Metropolitan Policy Program of the Brookings Institution

Moderator: Annie Snider, Politico

Annie Snider

Welcome to our conversation with Pat Mulroy. This is Annie Snider here, from Politico. We’re going to be talking about collaboration and partnerships and the policy that can help deal with some of these water infrastructure and water financing challenges. I’m going to get things kicked off here, but we really do want this to be an interactive conversation, and so we do hope folks on the line will add their questions to the document that should be up in front of you. Pat, thanks for being with us.

Pat Mulroy

My pleasure, how are you this morning, Annie?

Annie Snider

Climate change is going to, at least for the next decade, significantly change precipitation patterns in the West, and along with that comes the exposure to long protracted droughts like we have never experienced.

What is hopeful in what could seem a bleak landscape, is that there’s been significant progress made in the conversations and in the cooperations between the agricultural and the urban sectors.

-Pat Mulroy

I am doing well. I’m excited to be having this conversation. So in the larger panel discussion here, we were mostly talking about municipal water infrastructure. The cities and towns aren’t the only ones that are using water on their landscaping. Can you tell me a little bit about the opportunity for municipalities to partner with some of these other players, like farmers, is that something that can help bring costs down?

Pat Mulroy

Not only will it bring the cost down, I think it is one of the only pathways of survivability in the West. We have to be very frank. Climate change is going to, at least for the next decade, significantly change precipitation patterns in the West, and along with that comes the exposure to long protracted droughts like we have never experienced.

What is hopeful in what could seem a bleak landscape, is that there’s been significant progress made in the conversations and in the cooperations between the agricultural and the urban sectors. I think that there has been a realization that protecting the larger systems that they share, and that everyone has to be a part of a larger solution, taking a more proactive approach to managing through droughts rather than the traditional 20th century reactive mode, is going to be all-important. You see this beginning especially to emerge on the Colorado River, where the urban areas, along with federal dollars, have pooled their financial resources and have said to all users, “If we will help you pay for conservation, be it that you rest some of your land early on to avoid the whole Colorado system from crashing” and they have propped reservoirs up in the process by doing it.

So, that kind of a partnership that doesn’t go to eviscerating the agricultural landscape, that recognizes there are real communities that are tied to those agricultural endeavors, and that the agricultural produce that the United States creates is an integral part of the international food chain, I think that is the path forward.

Annie Snider

So what kind of partnerships have you seen work? Give me some examples of what has worked well? And I’m particularly interested in ones that haven’t worked, are there things that have been tried that have just ran into a wall, that just weren’t the right way to go, that seemed great at the beginning maybe?

Pat Mulroy

Doing it with a hatchet is going to cause not only great disruptions but enormous animosities that then come back to bite you in times when you really need that cooperation.

-Pat Mulroy

Let’s start with the ones that have worked. I’m going to go back to the Colorado River, because it has been a great example. The Metropolitan Water District entered into a partnership with the Palo Verde Irrigation District, and they acquired what they called “dry year option.” In other words, before the crisis hits, Palo Verde was willing to take out some of its land from agricultural production, being reimbursed both, the district, the community, thereby the larger economy, the area is being paid by Metropolitan for not using that water. That water was then left in Lake Mead for Metropolitan’s future use, for their ability to use it. Well, in doing so, it benefited the whole system. Because had it not been for Metropolitan’s and for other agencies’ efforts in leaving water behind in the reservoirs, Lake Mead would have gone into shortage conditions. When, however, Metropolitan was hit by the devastation of last year’s drought, they had to then rely on those reserves that they had acquired from Palo Verde in the better years. Without those resources, Southern California, all 20 million people in Southern California who rely on Colorado River water, would not have made it through.

Now, Palo Verde had an additional infusion of capital into the area, both at the individual farmer level and at the community level. Metropolitan had a drought reserve that they had stored for themselves, and in the larger context, the rest of us all benefited during those times because it propped the reservoir up and made the reservoir and the whole Colorado River system more resilient.

What has not worked so well, has been when entrepreneurial – how do I put this – water investors, let’s say, have gone into rural communities, and it’s happened in Colorado and it’s happened elsewhere in the West, where they’ve essentially bought out all the agricultural water, and they have then flipped it to a metropolitan area, whatever that metropolitan area in the area might be, for their use. Well those rural communities got devastated. They have massive unemployment, the whole community suffers, the whole economy of that community starts crashing. It causes a lot of social disruption. It didn’t necessarily provide any environmental benefits. Those kind of wholesale movements of water, from a agricultural use, to an urban use, have to be very, very carefully approached. Doing it with a hatchet is going to cause not only great disruptions but enormous animosities that then come back to bite you in times when you really need that cooperation.

Annie Snider

Interesting. We have a question here from the audience about industry, what role can they play, are they a potential partner? What role is there for an educated consumer in the water needs, products that they’re buying?

Pat Mulroy

It’s really interesting. As the drought really began to settle in in California, you saw especially in the media a lot of discussion about us shipping our water to foreign countries by shipping our food resources and our agricultural products into Asia and into the Middle East. Ironically, with every cell phone battery we bring into this country we are importing somebody else’s water. I think there’s been very little awareness on the part of the public how much of the water footprint everything has. From the clothing that we wear, to the tech products that we use, everything comes with a water footprint. I think there’s an enormous responsibility on the part of industry to really lead in this area. They have much deeper pockets than the average homeowner or the average resident in any community, and for them it is the cost of doing business. They have an opportunity to help in the innovation space, and see that ground zero where new innovation gets tested in the water conservation space, where new technologies are deployed and where they show an enormous sense of stewardship towards the waste water that they discharge and the amount of water that they take in.

There’s a leadership role there that some companies have already stepped up to the plate and are beginning to assume that responsibility, and others are lagging behind. But I think bringing them into the larger conversation is all- important.

Annie Snider

So you talk a little bit about the awareness at the consumer level, or lack thereof. Where does behavior change fit into all this? You were talking on the main panel about the inability to sustain growth if patterns don’t change, if usage doesn’t change. Tell us a little more about that, about how do you go about doing that? Who’s responsibility is it?

Pat Mulroy

People want to be part of the solution. We have found that the majority of our customers don’t want to be viewed as water wasters, they want to be as frugal as they possibly can. But they need the tools, and they need the education, and they need the financial support to be able to do it.

-Pat Mulroy

Oh it is everybody’s responsibility. I have sat through so many discussions where economists have argued what the threshold price of water needs to be where you start changing behavior. And I always push back. People have a very different relationship with their water supply than they do with their power supply, with their phone bills, with everything else. There is a hardening there beyond which it becomes very difficult for someone to be able to see a return for their conservation investment.

We’ve found in Southern Nevada where we took the community in five short years into a 40 percent reduction in how much water they use, as an ongoing matter. Not just as a temporary drought response with Draconian measures. But a ongoing sustainable change in water use habits. Pricing plays a role in that it continues to send a signal on the significance of water, but people need to be educated what can they do, and then in all honesty they need the financial help.

When we reached out in the West and it doesn’t matter where in the West you are, most of the water is used outside because it’s so arid, and we began to pay our customers to take their grass out, and help them in that initial upfront capital investment, they made the change. People want to be part of the solution. We have found that the majority of our customers don’t want to be viewed as water wasters, they want to be as frugal as they possibly can. But they need the tools, and they need the education, and they need the financial support to be able to do it.

Annie Snider

I wonder, is the price symbol the most important in sparking behavior change or is some of it, you talk about the customers wanting to be part of the solution, is it more than just the money issue?

Pat Mulroy

You can’t leave the average homeowner who is struggling to pay their monthly bills, who is struggling to pay their mortgage, who’s got kids, and other obligations, with the sense that the problem is being fixed on their back at their expense.

-Pat Mulroy

It is much more than the money issue. I think the single biggest most critical ingredient that we found is, is there a reason why people have to change? Is that reason legitimate? If you rely solely on pricing, you’re creating such stratification and you’re fixing the problem on the back of the people that can least afford it.

For us, for example, when your single largest customer is a sultan from a foreign country, who’s doorknobs are $500,000 on his house, who uses 17 million gallons a year, and he really doesn’t care what you charge him, are you really going to affect his behavior change through a pricing structure? No. Can you do it by mandate? Yes. That’s why it’s a balance. You can’t leave the average homeowner who is struggling to pay their monthly bills, who is struggling to pay their mortgage, who’s got kids, and other obligations, with the sense that the problem is being fixed on their back at their expense.

Annie Snider

So we’ve had a few questions here from the audience about the role of schools and community education, if it is more than just about pricing as you describe, what role can some of those institutions play in getting the message across and shaping behavior change?

Pat Mulroy

One of our greatest partners has always been the school systems. Every summer we run “Teach the Teacher” programs, the lessons of water reality and water conservation and the water cycle and connecting the next generation to the water issue in a very different way, is embedded in the curriculum now. It’s embedded in the third grade, it’s embedded in the fifth grade, it’s embedded in the ninth grade. It is a critical part. Kids can be the greatest teachers of their parents.

Annie Snider

So we’ve been talking about the kinds of changes that can happen at the local level. What role does the federal government have to play in this? Are they just the financial benefactor, or is there things that the federal government can be doing, and we’re talking mostly on the water supply side, are there policy changes that need to be made? There’s been some interest on the Senate side in Congress in doing a wider water bill, there’s been efforts to get something through for California, they’re kind of broadening their scope. Are there things that you’d like to see out of that?

Pat Mulroy

It is an extremely emotional issue in the state of California, there are a lot of subplots playing themselves out, and it is a very heavy lift to get it done for one state, let alone for the entire country.

-Pat Mulroy

That relationship with the federal government is really interesting. Because water is so splintered jurisdictionally amongst various federal agencies. Look, you have the US Corps of Engineers, you have the Department of the Interior, you have the Environmental Protection Agency, just to mention a few. It is embedded in so many different jurisdictional domains, that it’s very difficult for the federal government to really address a policy that is effective across the country. There are large differences across the country. But in each particular region, those federal agencies that are closest and have jurisdiction over various parts of the larger water and environmental systems in an area, they have to partner with the state and the locals. They have the carrot and the stick. They have some regulatory authorities that can motivate areas to avoid regulatory smothering, and they have some financial opportunities where they can provide incentive. It’s a carrot and a stick. I’m not a big fan of national policies because they will create it in their own way. The differences are so enormous across the country, geographically, hydrologically, that trying to create a one-size-fits-all bucket isn’t working.

That’s why California is having such a hard time getting this legislation through. It is an extremely emotional issue in the state of California, there are a lot of subplots playing themselves out, and it is a very heavy lift to get it done for one state, let alone for the entire country.

Annie Snider

Are there specific things, I am really interested in the stick side of the equation, we’ve seen that a little bit on the Colorado River, Deputy Interior Secretary Mike Connor last year, set the bar and said the states really need to come up with a solution before this becomes a crisis, or else the feds are going to step in. Is that what we’re hoping to do?

Pat Mulroy

This drought on the Colorado [River] is real and it is not getting any better.

-Pat Mulroy

It is in that arena. Listen, there is nothing that the states along the Colorado River have greater disdain for than federal intervention. The only reason that, for example, the federal government is the water master for the lower section of the river is because of the U.S. Supreme Court lawsuit that was settled between Arizona and California. In the upper basin, the federal government has no role, and they will fight to the death to keep them out. So that threat has been effectively used by Bruce Babbitt, it got effectively used by Gail Norton, and now it’s being used by this administration. It is something that brings the states to the table. Especially when the situation is such that the need is real.

It’s not some artificially contrived catalyst. This drought on the Colorado [River] is real and it is not getting any better. So, yes, I think that is a very appropriate tool for the federal government to use.

Annie Snider

I think for the agricultural space to be as effective as it can be, it has to be driven by the agricultural users themselves. Those communities are not going to change their practices, and they’re in total defense mode at the moment, unless they see that it benefits them

-Pat Mulroy

So we have a bunch more questions here about the infrastructure side and the investment side, going to turn the conversation back to that. Is there a role, we talked a little bit about investors coming in in a crisis and the challenges that that can create in rural areas and the like, what about sustainably minded investors? Are there things that they can be doing? How should they be approaching us?

Pat Mulroy

I think there is a next generation of farming techniques around which you’re seeing innovation happen in that space, where more food can be grown using less water, where different irrigation structures are being explored. I think for the agricultural space to be as effective as it can be, it has to be driven by the agricultural users themselves. Those communities are not going to change their practices, and they’re in total defense mode at the moment, unless they see that it benefits them, that there’s something in it for them. So if an investor buys a ranch or a farm let’s say, if he wants to use it in order to bring in new farming techniques and look at how food can be grown with less water.

Financing The Replacement Era

Jeff Hughes – Director of the Environmental Finance Center at UNC

Moderator: Brett Walton, Circle of Blue

Brett Walton

Hi, thank you all for choosing the finance and rates conversation. I’m Brett Walton, Circle of Blue, and I’m here with Jeff Hughes, of UNC’s Environmental Finance Center. As an aside to people that are listening in to the conversation and to give you a peek behind the curtain as to how this call’s actually working, Jeff and I are in the same room in New York but we’re sitting about 30 feet apart with our backs to each other so that our headsets and our audio works correctly. Lots to talk about. A reminder that if you want to pose a question, you can type it into the document that is on your screen. I’ll be looking at those as Jeff and I talk, and pulling some questions from there.

We’re going to hear eventually in this conversation about rate designs, state and federal rules, financing, 21st century water systems. Some of the things we’ve talked about in the opening. But before we get to that, I want Jeff to set the stage for us.

Jeff, why is this a particularly challenging time for water utilities?
What hurdles are they up against?

Jeff Hughes

Sure. Well, it’s hard to separate the financial challenges of water utilities from the general challenges because I think for many water utilities it is a finance challenge that keeps them awake at night. The finance challenge is really, in some ways it was easy to predict and in some ways there are some surprises that we didn’t see coming. But a lot of the finance challenges are based on the age of the infrastructure that we have in the ground and when it was put in. We are now, for particularly many of the older cities, facing infrastructure portfolio that is now at the end of its life or getting close to the end of its life and it’s needing more investment. So the numbers are coming in, at the same time there are new environmental regulations, new understanding of environmental threats that are causing some additional needs on utilities. And we have some areas of the country that are still growing quite fast and are needing new infrastructure put in.

So, when you add up all of those different financial needs and try to put it on the existing customer base, we are seeing some mathematical challenges as far as the revenue needed to pay off debt versus the customer base ability to generate that revenue.

Brett Walton

So then, most of the water prices paid for by local customers… are they to a breaking point, do they have capacity to absorb all of these increases that are needed, or do we need to look at other options?

Jeff Hughes

…the household bills in many areas have gotten high enough that for certain customers we’re starting to see the strain, we’re starting to see increased disconnections, we’re starting to see rebellions, rate payer rebellions in urban, low income neighborhoods.

-Jeff Hughes

This is the big question and the answer is yes. The answer is many, many utilities and many individual families have the capacity to improve their water system. The challenge in the way that we set up our utility finances is that often you’ll have a large urban utility that is serving both low-income customers as well as, say, fairly wealthy customers. The wealthy customers have significant more capacity at their means, below income customers in many cases, even if the bill is relatively low are already making difficult finance household decisions. At the community level, the same spectrum. We have some very hard-hit communities that have never really gotten out of the recession, have seen large industries leave, and as a community in all kinds of economic development indicators, they have very little financial capacity. Again, we have other parts of the country where things are booming. So it’s really not a one-size-fits-all challenge.

Brett Walton

I want to explore some more of those discrepancies, the variety that we see within water utilities because it’s not all the same problem everywhere. So within urban utilities, there’s some very wealthy people in the city and middle income people that have no problem paying water bills and then there’s lower income people that do. You mentioned earlier about federal programs for water assistance, that we have them for energy, but not for water. Can you explain a bit more about what some of those low income programs might look like?

Jeff Hughes

Yes, and I really think this is going to be something that if a utility hasn’t already started to think about it, they’re going to start to think about it in the future. Your survey did an excellent job of just showing while still moderately inexpensive, the price of water’s going up. It used to be that water and waste water services were so cheap, we didn’t really think about subsidizing at the household level. If there was federal involvement or statement involvement, it would just come in at the top and it would go directly to the utility and it would be the utility’s responsibility to figure out how to use that federal or state assistance. Now, the household bills in many areas have gotten high enough that for certain customers we’re starting to see the strain, we’re starting to see increased disconnections, we’re starting to see rebellions, rate payer rebellions in urban, low income neighborhoods.

You’re starting to see things that you wouldn’t have dreamed of seeing 10 or 15 years ago where utility finance offices are spending as much time studying their customers’ financial capacity as they are traditional financial tasks.

-Jeff Hughes

Energy prices have been high for a long time and we’ve long recognized that many low-income customers have a very difficult time meeting their energy bills. We have a long-established federal low income assistance program that goes out through social service network. Not necessarily through the utility structure network, but it actually goes and follows on the infrastructure that states and counties and cities have for providing general social help. That program, I don’t have the numbers now, but it’s in the billions of dollars a year that’s funded. There has been discussion about trying to look at something like that at the water side. Whether that happens or not, remains to be seen, but in the meantime a number of utilities have started to look at these household level affordability programs. You’re starting to see things that you wouldn’t have dreamed of seeing 10 or 15 years ago where utility finance offices are spending as much time studying their customers’ financial capacity as they are traditional financial tasks.

So we see places like Philadelphia and D.C. having done detailed affordability analyses of their customer base and identifying neighborhoods and communities within their service areas that are going to need additional help. They’ve started to look for funds and mechanisms to provide that help on their own without necessarily going to the state and federal government. We have bill assistance programs, we have in some cases, where it’s legal, we have separate rate structures for low income. So, there’s a variety of mechanisms that we’re starting to see and I think we’re going to see more of them as the price of water goes up.

Brett Walton

You said something interesting that I don’t think everyone knows, that was certainly news to me when one of the researchers at your finance center told me about it. One of the people who’s been typing into the document mentioned this too. That there are some states have laws that prevent subsidization of low-income residents by a utility. So, there are states that have a different playing field for how this can be addressed. Is that right?

Jeff Hughes

That’s exactly right and I would be able to talk a lot more about that issue in about four months. We just got engaged for a national research project on that exact issue by a group of professional organizations. So, we’re just starting that project. But it’s safe to say that there are 50 financial legal frameworks in this country that influence local government rate setting, influence local government access to capital, what they can borrow money for. So, you really do have to look at these things from a state-level lens. It is true, to your point, there are some states, California is a good example, where cross subsidization of water customers through their rates is prohibited. And what that means is you cannot just arbitrarily say that you have a low-wealth population in this neighborhood and you want to charge this other neighborhood more and move that over to the low wealth neighborhood. It’s expressly prohibited and California’s not alone, many states have those prohibitions

Other states don’t. Other states have no problem with the utility itself deciding how to best balance the financial capacity of their customers. So, it’s really a complex and interesting legal framework that’s out there.

Brett Walton

We’ll certainly have to bring you back three months from now and see how that report works out. So, a lot of variety within utilities, as well. So we’ve talked about big systems and small systems. Diane VanDe Hei, who was on the call earlier, represents some of the larger systems. What are some of the differences that you see in how rates are designed and how water infrastructure is financed between these big utilities that might serve a Metropolitan area, versus a smaller utility that might be serving 1,000 people?

Jeff Hughes

I think the finance question is multi-fold. Often, in our work, we separate out the revenue generation side, the pricing side and then the access to capital side. So, on the pricing side, and the drivers and that influence what particular price structure you might have, large utilities have more diverse populations, can be, can actually have pricing structures that are maybe a little bit more resilient. Some of the really small rural systems of 1,000 people, if they lose the large employer and a quarter of their customer base fall out of work, which in some cases we’ve seen, it could have just major financial impacts very quickly.

On the finance side, the municipal bond market, again, is alive and well, it’s very, very strong for the large utilities. It is working well. I think many finance officers are just very happy with their ability to raise lots of capital. On the small side, the municipal bond market in most cases isn’t an option for a utility that serves 1,000 people. They are turning to a state funding program or subsidized loan program. They may be turning to regional banks for their capital needs.

-Jeff Hughes

So, in those small systems, they tend to be looking at price structures that provide revenue resiliency and you have a lot more discussion about trying to have everybody pay a larger bill that’s not dependent on how much water they use. So, we have things in the rate world, fixed charges and variable charges. I think many small systems tend to have much larger fixed charges than, say, a large metropolitan area that has more diverse customer base. The trade-off between those pricing structures where someone pays about the same every month or the variation from month to month is not as great when they use less water, versus the utilities where if someone cuts their bill in half they pay half. The big impact on usage of those different models is when you give customers the ability to control how much they pay by using less water, it drives down their water use, which is a good thing, but then it can lead to very sharp drops in revenue.

Brett Walton

Okay, let’s look at some of the questions that are coming into the document. You guys are putting up some really excellent questions, some a lot more detailed than others. I’m going to try and consolidate some of these so we address the broadest issues possible. What I’m seeing repeated quite often is looking at financing for the future so we’re not exactly rebuilding what we had, but we’re looking at new types of infrastructures, they might be green infrastructure, wetlands, those things, decentralized infrastructure, like septic systems or waste water recycling systems or on-site gray water reuse, storm water, all these new things that we’re putting in. This financing for these new types of infrastructure look different than financing for the harder, grayer stuff.

Jeff Hughes

I think it does and I think there is an incredibly important connection between the financial tools and the types of the infrastructure. Keep talking about bonds, but the bond market, which is basically a lot of distributed investors getting together and loaning money with a fixed interest rate. That’s the most common structure. They’re very confident that the utility has the revenue to pay them back and owns and controls the assets and there’s just very little risk. In the decentralized world, while that model has some potential there’s some challenges to that model in the distributed infrastructure, often that infrastructure that’s likely to have the biggest impact may not be owned by the utility so it influences the utility mission it may result in improved water quality. But it may be infrastructure that is installed on private property, it may be a rain guard and it may be an engineered wetland and it may be a green roof. These are things that are owned by private property owners and the way we finance small scale private investments is very different.

If we could develop just a rock solid individual finance product, I mean we’ve done it for buying cars, we’ve done it for home improvements, if we could do it for green infrastructure we’d really see it pick up.

…that’s a core financial challenge that I think will become mitigated in the future as these technologies get innovative and the price comes down.

-Jeff Hughes

I think the interesting thing that we are exploring — and I know a lot of other financial researchers are exploring — are there ways that we can decouple the ownership of the asset and the finance asset, is there a role for a utility to generate capital for investments that may be done on the private side. I think we’re currently working with a large utility in investing just that issue, is what does the bond market look like where you’re not building a sewer plant, but you are agreeing to put on institutional scale 1,000 water cisterns throughout your service area that will be on private roofs and possibly owned by private entities?

There are a lot of questions that have to be asked for that kind of mechanism, but I think there’s some potential. We’re also trying to learn a lot from our friends in the energy sector. We’ve seen an explosion of creative finance mechanisms used to distributed energy improvements, whether it’s energy efficiency or solar on people’s roofs, lots of exciting innovation has occurred on that. Some of that may be transferable, for example, using property assessments, which is something that a local government has authority to do in most areas of the country, potentially using property assessment for a private property which basically turns an investment into a future facing tax liability, potentially using that mechanism, again, to pay for a large scale cistern or a private property’s internal water recycling system.

Brett Walton

So, just so we’re clear here, when we’re talking about some of these decentralized solutions, you’re talking about decoupling ownership and finance and these two categories. So an example might be a utility wanting to reduce storm water runoff so it wants homeowners to install rain gardens or it wants homeowners to install rain barrels. Are you talking about a way that the city would help pay for that infrastructure to put on a house or property?

Jeff Hughes

Yeah, and we’re already seeing some ways that there are a number of urban utilities that have started to help support those financing, primarily through small scale grant programs. We have places like Philadelphia and Washington that do offer up some type of co-funding matching grant. But, so far, it hasn’t covered the bulk of the cost, but it’s a way of taking public dollars to support that. What I was alluding to earlier was maybe taking it to the next level scale of where there’s not enough grant to go around to put a green roof on every roof in Philadelphia. But if we could develop just a rock solid individual finance product, I mean we’ve done it for buying cars, we’ve done it for home improvements, if we could do it for green infrastructure we’d really see it pick up.

Right now at the facility level, some of the math is challenging as far as what a household might save as far as the storm water fee they pay their utility. It’s hard to back that into, say, a loan payment that could cover the cost of that installation. So, that’s a core financial challenge that I think will become mitigated in the future as these technologies get innovative and the price comes down and as the storm water fees and other fees that people are paying for not dealing with it goes up.

Brett Walton

Most of the revenue streams are going to come from the customers and they’re going to maybe not want to pay for the future needs, but at least see the value of it. It doesn’t take much to break that trust and it takes a long time to regain it.

-Jeff Hughes

We’re coming close to the end of our breakout group, so I want to draw back and do some big picture questions here. If you’re drawing up a recipe for a utility, a basic idea for what they should be looking at as they look at this new era of water systems, where we’re going decentralized, your revenue problems, conservation is growing, what’s in your recipe for a water utility? What should they be thinking about?

Jeff Hughes

I think the decentralized portfolio of assets is going to play a role, for some utilities relatively minor, but for others it could be major, particularly in areas that are facing huge wastewater management costs. I think the recipe though is back to what I said in the large group is going to start with, and I think Pat said this too, it’s going to start with the trust and the communication between the utilities and the customers. Most of the revenue streams are going to come from the customers and they’re going to maybe not want to pay for the future needs, but at least see the value of it. It doesn’t take much to break that trust and it takes a long time to regain it.

So, most of the advising that we do with the utilities in the finance area is to understand your customer base and that’s more than understanding the median household income of your city, but it’s actually understanding the industrial customers that the different neighborhood customers and really starting to do some calculations about what is their ability to carry future infrastructure and are they willing to be a partner. I think that’s where things have to start. The other thing, Brett, just to finish on, is the way we do planning has often been dominated by very long planning scales and very conservative assumptions made with things like demand. I do think that we are seeing that being a challenge…

Brett Walton

Thank you all for being in the breakout session and we’ll see you all back in the main room.

Economic Engines Run on Water

Diane VanDe Hei – Executive Director of the Association of Metropolitan Water Agencies.

Moderator: Keith Scheider, Circle of Blue

Diane VanDe Hei

Yes. The membership of the association are the largest municipally owned public water systems around the country.

Keith Schneider

So the largest are? Who are the top three?

Diane VanDe Hei

The top three … Depends on if you are talking about wholesale or retail. When we say largest, it’s any utility above 100,000. That is about 1 percent of the 52,000 that you hear about in community water systems, New York City, Chicago, L.A., Seattle, Miami, New Orleans, to name a few.

Diane VanDe Hei

They are already seeing the impacts of sea-level rise. They have incorporated different design measures, alternative engineering standards to deal with what they see the level of the water maybe 50, 60 years from now.

-Diane VanDe Hei

Great. I was wondering Diane if you could tell us one or two stories of water systems that are doing a really good job?

Diane VanDe Hei

All are except for one. Just joking. Well, I’d like to turn to Miami-Dade. Miami-Dade is a drinking water, wastewater system. They are already seeing the impacts of sea-level rise. They have incorporated different design measures, alternative engineering standards to deal with what they see the level of the water maybe 50, 60 years from now. When you talk about that kind of planning and actually having to do. You have to bring the public into the conversation because you pay now for something that is needed later. In addition to keeping the water, wastewater system in good shape for today and tomorrow and being in compliance plus, they have engaged their public to significant success in accepting and even encouraging the inclusion of resilience into their planning. I think their story is a really good success story in part because they have taken it own as a community dialogue that sort of has to have everybody buy into literally I guess and figuratively to have it happen. I would say Miami-Dade is doing a great job.

There are others that are. Go the West Coast. Go to the Southern Nevada Water Utility or Las Vegas Valley Water District. They have seen the drought coming for the last 10 years as Lake Mead has gone down, down, down, down and has done I think a tremendous job of conservation…. Conservation is a great thing but it also diminishes the revenue you have. It’s kind of between a rock and a hard place in some ways. They have managed to build a customer base both with the businesses within Las Vegas and the home owners to the idea that you have to conserve water. It doesn’t necessarily mean that your rates are going to go down because of that infrastructure that the water has to come through. I think the community utility that is forward looking and there are others. Denver Water is another one.

Keith Schneider

Before we go to some of the questions that are appearing on my computer screen, since you are in Washington and we have this trillion dollar plus shortfall in our spending that needs to be done to our water system, do you see any break in Congress’s attitude to its responsibility to help fund repairs, re-investments, monetization, expansions, contractions? Do you see any change in what is happening in congressional view of what the president last weekend in Flint, Michigan what he called the culture of neglect?

Diane VanDe Hei

Right now you see a change in congressional attitude toward funding infrastructure. A lot of that to be quite honest is driven by Flint.

-Diane VanDe Hei

I do today. I think someone else on the call mentioned is this a national dialogue that is going to continue pass the elections and into next year and the year after or is it a dialogue about infrastructure that is short term? I hope so. Right now you see a change in congressional attitude toward funding infrastructure. A lot of that to be quite honest is driven by Flint. Although the tragedy in Flint, Michigan accrued not just because of infrastructure and I think everybody knows that. You do have on the Hill in the Senate appropriations process … No, actually it is Environmental Public Works committee. You have additional funds for the drinking water and the clean water state loan programs. There is an additional program that is a loan. It is kind of like a bank. It’s called WIFIA. It’s the water, infrastructure, finance, innovation. It was enacted two years ago as a pilot program. It was intended to fund through low interest loans larger projects. The S.R.S. in-particular on the drinking water side tend to fund smaller systems. And the WIFIA is intended to provide another source of revenue for larger systems and bigger projects. Those have appeared in the bill that came out of the Senate environment and public works committee last week. I believe it may go to the floor this week.

Keith Schneider

What’s the change in funding for that? Do you have a number on what they are calling for in terms of investment?

Diane VanDe Hei

They were asking for $70 million for the WIFIA program, which is more than it is authorized for. They are asking for more funds for both the drinking water and the clean water S.R.S.

Keith Schneider

We are talking hundreds of millions of dollars not tens of billions of dollars right? The increase-

Diane VanDe Hei

I think the drinking water is about 1.3 and clean water is about 1.7.

Keith Schneider

Most of these infrastructure investments are going to need to come from the municipalities and the states themselves and rate payers.

Diane VanDe Hei

The idea of affordability is big on everyone’s screen.

-Diane VanDe Hei

I think so. I do. I think Congress has some will but not that much. I think most of the funds are going to come locally. That is why a lot of particularly the largest systems are looking at alternative rate models. The idea of affordability is big on everyone’s screen. The question is what does that mean? I personally believe that there are some people who cannot afford their water bill, but most can. I think we need to look, and I think the federal government should as well, look at affordability in the context of low income households. People that live near or below the poverty level and help figure out a way to subsidize those bills. As I said, on the other hand I think water bills are not that high and most of us can pay them locally. There definitely is an environmental justice, affordability issue for low income.

Keith Schneider

We have seen that here in Michigan with Detroit, secondly, Flint, where folks are having trouble paying their bills. Let me now turn to some of the questions that are coming in the screen here. One is from Bill Decker. He asks, “Do you know how many large utilities make excessive transfers from the water enterprise funds to the general fund? Is there any movement by your group to stop this practice?” Could you explain what the transfer from water enterprise fund to the general fund? What is that and is it something that needs to be stopped?

Diane VanDe Hei

Number one I do think it needs to be stopped. What is it? It’s couched in different terms in different cities. In some cities it’s called a fee for service. Say the water utility, water waste utility or whatever is paying for the legal work it needs. It’s paying for maybe the I.T. people that it uses. There is a fee for service and I can’t tell you how that is calculated. That’s the way it is done in some places. I can say I have heard from a lot of large water systems they pay an annual fee and it’s all over the board but it is not small into the general fund. Even for the largest systems, it has an impact on what they see, and again I work for the drinking water side, as they see their job one is providing safe drinking water. That just makes it even more difficult. It’s not an uncommon practice.

Keith Schneider

We have a question from Diane on security of supply and cyber security. She ask, “Are these systems addressing security to infrastructure systems? Is there a critical problem with funding and implementing sufficient cyber security protections?” I guess this is related to people’s bad behavior and terrorism. Are our water systems and water supply systems in peril from attack?

Diane VanDe Hei

I wouldn’t say that they are imperiled. I would say that cyber security has risen in importance to the larger systems by several magnitudes. Believe it or not before 9-11 the focus of the federal government was on cyber security. After 9-11 it turned to physical security. Today we are back looking at cyber security. Utilities are concerned about terrorism attacks. They can attack a system and potentially change valves.

Keith Schneider

Do you have any examples of where that could happen in the United States?

Diane VanDe Hei

Most of that is held by the D.H.S. It’s not public. It is not great at this point. It is also a growing problem not just as a threat say to the SCADA system, the control system. That is a problem. Physical assets. Then you have the hackers for the billing systems. The other I.T. aspects of a large water system. That’s more common everywhere.

Keith Schneider

The more perilous circumstances clearly we have seen it here in the Midwest is from contamination i.e. Flint’s lead and poison algae in Lake Erie which has closed several water systems over the last couple of years, including Toledo’s water system. There is an ecological infrastructure peril there that is real not imaginary at this point.

Vincent Lee had a question. He asks, “How will smaller communities, smaller cities”-

Diane VanDe Hei

Could I back up one second?

Keith Schneider

Sure.

Diane VanDe Hei

Cyber security is real. It become a priority. Finding the right secure system that can do what needs to do is ongoing. It’s at the top of large systems. Chemical contamination is another issue we could talk about if you like.

Keith Schneider

How will smaller communities, cities cope with aging water infrastructure as they typically have more piping infrastructure per resident?

-Vincent Lee

Vincent Lee asks, “How will smaller communities, cities cope with aging water infrastructure as they typically have more piping infrastructure per resident?” This is cost thing. How do smaller cities, smaller systems pay for these improvements in the modernization?

Diane VanDe Hei

One of the questions that I was thinking about is the difference between large systems and small systems. For smaller systems, one they have more access to federal funds whether it’s E.P.A. or the Department of Agriculture. Some of them have been innovative in forming co-ops where they share equipment. They share personnel because the capacity of any one of them to do all the things that they need to do is not what they need to have. They have done some innovative things at the rural level. How do they pay for it? I think they get more funds federally. They are looking at their own rate bases as well. They are also looking at ways that they can help each other and be more efficient. You also have some of the larger systems that are surround by rural communities reaching out to do some of the customer service call centers, do some of the things that they need done so they don’t have to create them in-house. In the Des Moines area, around there, they sent operational people out to help smaller systems when they ran into a problem. You do have some agreement, some formal, some informal agreements between larger and smaller systems to work out problems as well.

Keith Schneider

Interesting question here from John, who ask about private sector water utilities. Private investment in infrastructure. He notes that it works for electricity. Are there private water suppliers in the United States?

Diane VanDe Hei

About 15 percent of the drinking water suppliers in the United States are privately owned and run.

Keith Schneider

Which one is the largest?

Diane VanDe Hei

The largest one is American Water. I think they have 27 systems in 17 states. American Water is the largest privately owned company.

Keith Schneider

How are they doing? What is the public discussion around private water systems. Is it accepted? Is there chatter in the system?

Diane VanDe Hei

There is chatter I think. There was more chatter ten years ago, let’s put it that way, than now. There is chatter because of a Flint that question comes up, “Is private better than public?” I have already admitted I am a public person so I would say, no. There are public and private systems that work together on what they call public and private partnerships. Those do exist and work. The wholesale privatization of a large system hasn’t worked. American Water has been around for over one hundred years so they are well established and so are others. Their headquarters are in Voorhess, New Jersey. That is their corporate headquarters and they have water systems in, I think, 17 states.

Keith Schneider

I wonder if we can explore this a little bit more. This is interesting to me because as I recall there was some resistance or there has been some resistance to making water systems… private, privatizing water. It had to do with public access to operations to some extent and the potential for raising rates beyond what would ordinarily be market inflation or whatever.

Keith Schneider

That resistance has not really become apparent around the country is what you are saying.

Diane VanDe Hei

I think if privatization came up in a bigger way you would hear a lot of chatter. I think people still believe that water should belong to the citizens of the country. They do. If it comes up in a big way you would hear a lot more chatter about it.

I want to thank you all so participating in the breakout. We are going to bring it all back together into the main room.

Engineering Smarter Systems for the 21st Century

Dr. Upmanu Lall – Director of Columbia Water Center

Moderator: Charles Fishman, Author, The Big Thurst

Charles Fishman

we’ve got the sexiest and most entertaining session because we get to conjure a view of the world.

-Dr. Upmanu Lall

Dr. Lall, nice to meet you through the wonders of virtual technology. You had a bunch of really interesting observations that we can work on, and unpack a little bit in this session. I think we’ve got the sexiest and most entertaining session because we get to conjure a view of the world. Do us all a favor, if you don’t mind, and explain how the water system works now. My sense, from my own work is, the water system in the United States is brilliant, and it’s based on 100-year old engineering; most water utilities don’t have any visibility into their hundreds of miles of pipes and infrastructure. It’s brilliant, but it’s also not a 21st-century system at all. Can you give us a little flavor of it?

Dr. Lall

I think you’re essentially right. I mention that there are three major components, storage, distribution and treatment. The storage and distribution, I would say, are exactly as you characterize them because not much has changed there in a long, long time. The treatment aspects, thanks to the Clean Water Act and regulatory activities by the USEPA, there has been quite a bit of technological innovation, both on physical chemical treatment. Filtration for example or reactions with specific chemicals and also with biological treatment of waste water specifically.

Specifically on the use side, we are definitely quite blind to what goes on. It’s unfortunate that the Google fiber doesn’t allow you to transmit water to people.

-Dr. Upmanu Lall

The exciting aspect that many academics focus on and the industry focuses on, nowadays, is more how to recover materials from waste, whether they be energy or anything. But in terms of the overall structure of the water system and thinking about it either from the hardware side — the design of the infrastructure, how it is laid out, what are the major components, what function they provide — to the software side, which is to what level do we understand, what is going where, what is the quality of the incoming water, what’s the quality of the outgoing water, what’s the quality of the delivered water and what it’s being used for.

Specifically on the use side, we are definitely quite blind to what goes on. It’s unfortunate that the Google fiber doesn’t allow you to transmit water to people.

Charles Fishman

No and also the pipes were laid so long ago that they don’t have any digital element. People are furiously typing in questions, which is great. Let’s ask one sort of big fantasy question and then we’ll take some of the specific questions that are being typed in.

I think we would have rainwater harvesting, which may sound odd because some people, when I bring that up, say we are here in the United States, not in a developing country.

-Dr. Upmanu Lall

Dr. Lall, if you were going to design a community right now and money were not an object, money were not a challenge, what kinds of water systems would you put in place? How many water pipes would come into a house? Where would the water come from? Where would it be treated? If you could design a truly, a system for 2020 or 2030, for Homeland City, what would that look like? What would the state-of-the-art sustainable 100-year old system be like? How would you do it?

Dr. Lall

I think we would have rainwater harvesting, which may sound odd because some people, when I bring that up, say we are here in the United States, not in a developing country. But it actually makes sense to short circuit much of the issues that we have by trying to do local collection. That would also reduce the strong water burden.

Charles Fishman

Your first … Just to underscore that, the answer to the first high-tech system is to do the oldest, but most important, easiest thing, collect and use the rainwater, which by the way most American cities collect it and throw it away.

Dr. Lall

Exactly.

Interviewer: Okay, sorry to interrupt you. Go ahead. I think that’s so great.

Dr. Lall

Then, the next thing is, if you have adequate local groundwater supply then, again at some scale, which I think would depend on the population density and the site and distribution of the infrastructure. What I mean is, do we have a dense environment like New York, with a hard rock below or are we in suburbia where we have ground water available and the buildings are individual family houses with a few larger buildings? It would depend a bit on that, but you would end up with groundwater development for that, you have sustainability with the most primary process and the pipe that’s coming to the house from those sources would be intentionally raw water or water treated for some minimal amount. Then, within the house, you separate it with different levels of sophistication of treatments so that what comes out of your drinking faucet or your shower, where you have direct exposure, it’s safe, you could even run a reverse osmosis on it because for the volume you would generate there, the cost of reverse osmosis systems would not be prohibitive.

In fact, people in India are already doing this. In many houses because the water that comes in is not a good quality or cannot be assured. Then, the rest of it probably goes to the toilets, the washing machine and so forth and gets treated to a different extent. Most of the wastewater that we would collect would get treated and get reused on site.

[To do] these treatments, [the equipment] would perhaps be not tremendously larger than the water heaters that most people have in their houses or water heaters that people have in their building. You’d basically add one such stand for clean water and one such stand for dirty water and processing units in between. We are not talking about a huge amounts of space, but we are indigenizing the entire water system to some local scale. Like I said before, the scale could be the building, the household or a neighborhood. This would depend on the economic stuff to gain.

The other aspect is the software side. We do have to think about growth because it could be that we have a severe sustained growth of multiple years where rainwater harvesting is simply not going to cut it. There either needs to be groundwater channel or a pipe system coming in from the outside and then we need some way by which there’s a pricing system that allows transactions across the communities, so that essential services are prioritized still but not essential services are diminished at that time of configuration.

Charles Fishman

Great. Let’s take a couple of questions. Here’s a question from someone who works with small towns in New York state. This is Michael. He writes, the water systems of the small towns of New York state were laid out in the early part of the 20th century. Those systems haven’t been well-maintained and the towns are small without great resources, the towns, like the systems are crumbling. How does the community act with a what was once a really good water system, but they don’t have the resources to grab hold of it. How are we going help towns like that fix their systems and where do you start? Is there a good engineering solution for that and is that separate from lots of other things?

I would point to the audience, the US has 55,000 water utilities and 80 percent of the country, 80 percent of the people, 250 million to 260 million people are served by just a thousand of those. So 55,000 water utilities all serving tiny little communities but the people in those communities want clean water too.

Dr. Lall

In the 1930s or 40s, we settled the western United States largely on the backbone of water projects that were commissioned at the federal level.

-Dr. Upmanu Lall

I think this is a really good question. Several years ago, at Columbia, we were looking at climate vulnerability analysis and helping water systems develop resilience into climate risk exposure. What we found was that things that we were developing and things that cities like New York, Tampa Bay, Los Angeles could do because they have scale and they had money, were things that were simply not accessible to these small water systems in New York. We talked that maybe one way to deal with that is, to start coming up with making the analysis that we were doing for these larger cities, available to the cities in their region. Even then, you know, what you find is the scale of capacity and the nature of the problems is not always the same. The thing that Charlie just pointed out about the very large number of systems, is critical here because I think what it speaks to is that, built not in ability at the local level, to actually solve these problems..

In the 1930s or 40s, we settled the western United States largely on the backbone of water projects that were commissioned at the federal level. I think that basic principle that we need an aggregation in terms of financial and technical capacity to help these systems, is an important point. I think, this is something that could be supported by a bipartisan level. That’s not the question you really asked. You wanted to know what are the technical solutions for you. I think there could be many technical solutions that could be developed in this particular context, but if you look at industry, the interest in dealing with small, small projects in small places is not there.

One does need some sort of an agency, which would consolidate the ability, many of these smaller systems to negotiate, to get consulting services to design things for them and to highlight what kind of options are feasible at those particular scale.

Charles Fishman

Great. I mean, what you’re saying is, our breakout group is a tiny bit artificial because in the modern world, you can’t separate engineering water solutions from who’s going to pay for it and whether a community of 50,000 people, that isn’t a tiny little village, it’s a real city, but whether a community of 50,000 people has the technical and managerial skills to upgrade what they’ve got? Do they have the expertise to manage the overhaul? You can’t really separate the engineering solution from the site.

A great question from a woman named Katie. I think this is exactly what people are looking for. Are there examples of cities you know in the U.S. that have grabbed hold of their water problems and really engineered themselves new solutions? If you could point to two or three places where you could say, “If you want to go see what the future looks like, or you want to go see what it’s like, at least thinking about and planning for the future, looks like, go to fill in the blank and here’s why.”

Dr. Lall

…the judge did something interesting. He mandated that over a period of 15 to 20 years, Tampa Bay had to reduce their ground water pumping by 50 percent — the entire area. And they could not import water from outside.

-Dr. Upmanu Lall

I’m going to start with Tampa Bay because both from technical and the governing point of view, it’s been an interesting journey to see what these people have had to do. The background of Tampa Bay in Florida is that, in the period to maybe through 1995 there were multiple communities around Tampa Bay, small cities plus Tampa Bay. Each of which, were operating their own ground water systems and they periodically were and called, claiming that the pumping by utility A was affecting the ability of utility B to pump because of a drop in ground water levels, They got sued, all of them, by environmental groups who were concerned about reduction of fresh water flows going into the main river and the bay there, which impacted manatees. Both groups won a court settlement and the judge did something interesting. He mandated that over a period of 15 to 20 years, Tampa Bay had to reduce their ground water pumping by 50 percent — the entire area. And they could not import water from outside.

Charles Fishman

He put them in a box, in other words.

Dr. Lall

Exactly, so what this led to was a consolidation of the seven or eight different utility types there into a company called Tampa Bay Water, with the requirement that those individual groups could fund this consolidated utility, but they could reserve the right to withdraw if their water needs were not met with 100 percent reliability. Interesting, right? One of the first things that happened as these people cope how they were going to reduce their water usage by 50 percent from ground water, was not that they focused on conservation, rather they focused on capturing all the waste water, pumping it back up, treating it to drinking water standards and see if that would supply the utility. Well, they finally did that and they were told that people won’t drink their own poo, sorry. They built the largest desalination plant in the United States and they came up with a variety of ways to financing. They came up with state-of-the-art designs and operating systems and so on.

…it’s a journey. It’s taken them 20 years of working with admitted solutions, where they finally recognize that maybe doing conservation right from the beginning would have been a good idea as well.

-Dr. Upmanu Lall

Anyway, the journey continues and then they got a permit to drop their treated wastewater into the river, right below a small dam and take water above the dam, to treat and drink. This is all work on the supply side. As this stuff is happening, the cost goes up, conservation starts kicking in, and they end up exactly what people were talking about earlier, which is as a result of conservation their cash flow reduces. They actively started looking at increasing rainwater harvesting as well and coming up with ways to recover first. In short, in summary, what they should bring up is that, it’s a journey. It’s taken them 20 years of working with admitted solutions, where they finally recognize that maybe doing conservation right from the beginning would have been a good idea as well.

Today, conservation is used only 14 percent of their time. The reason I bring this up is that I think, they have reached to a point, where they state-of-the-art monitoring in different components of the system, they have state-of-the-art technologies in different components of the system and they have state-of-the-art pricing systems that they forgot about in the past and all that has brought them back to is that, maybe the first decision would have been to focus on increasing conservation and figure out how to differently scale the system.

Charles Fishman

Of course the whole thing triggered by that evil beast, the federal courts, which actually sometimes have a good effect. Okay, let’s take one final question. I’m not sure I can identify this guy but one of the people in our chat room is a senior official at the state department. He asks what does it say about the state of water engineering in cities that for years, utilities and taxpayers have neglected the costs of operating and maintaining their systems. I don’t know whether most people listening know, but water bill typically in the United States are only a buck a day for a family of four and a water bill in a typical water utility doesn’t even cover the cost in delivering the water.

…what does it say about our water engineering systems, that for decades, we’ve neglected taking care of the very good systems we’ve got and upgrading them, and now everybody is scrambling around, looking for the cool high-tech solution?

-Charles Fishman

The question is, what does it say about our water engineering systems, that for decades, we’ve neglected taking care of the very good systems we’ve got and upgrading them, and now everybody is scrambling around, looking for the cool high-tech solution? How do you resolve that conflict? We haven’t taken care of what we’ve got and yet, we want to throw out the old ported phone system and leap right to the iPhone? What does it say about us and how do we make sure I guess, that doesn’t happen if we do move to high-tech systems?

Dr. Lall

I think it’s a wonderful opportunity in a way that has emerged, because 30 years ago, when I was trying to talk to people to encourage thinking about what we should be doing in the future with water. For example, dual-water systems. For example, point of use treatment and reuse. They said, “Well, we have the huge investment in our state-of-the-art, best in the world water system, so why we have this sudden cost?” We can’t really change the system. It doesn’t make sense. We have kicked ourselves to the point, where the cost is about to be repeated, if we just do exactly what we did in the past. I think this is the perfect time to think about how we want to do something in the future and maybe the idea that what we do if we were trying to promote off-grid systems, making it doable and sustainable at that level. How does that scale to our large water systems today? becomes the question.

Charles Fishman

We have time I think for one more question. You used the example of Tampa Bay, it’s funny I think you could also use them as an example of a city that really had to be thwacked on, a community that had to be thwacked over the head to get it right, but what incentives would you put in place, if there’s something that federal or state government should do. I’m thinking for instance of building codes or rules. Just this year, I’m sorry just last year, in 2015 for instance, San Francisco became the first city in America to require big commercial office buildings and big commercial apartment and condominium buildings, to have exactly what you talked about in the beginning, on-site recycling systems.

What could we do that would begin to change the game in terms of forcing people to confront the future? You have to answer quickly.

Dr. Lall

That’s a really good question. The status today is that there are at least three tall buildings in New York that have systems installed and they are operating those systems at a cost which is lower than the cost of water coming in from the city. Just a little bit lower but even the full scale thing. I think the feasibility is there.

Charles Fishman

Thank you all for being in this break out session and we’ll see you all back in the main room.

Closing Remarks

David Brancaccio

We have a one-minute lightning round coming up. I’ve been staring over your shoulders in each of the breakout groups, and each of them were just fascinating. You should go through some of the transcripts when we’re done to see some of the pearls that were embedded. One-minute lightning round, a recap. I’ll go to each of the journalists involved.

Annie Snider, your group was talking to Pat Mulroy. Give me some highlights.

Annie Snider

We really focused the conversation on partnerships and collaboration and the different players that can play a role in dealing with our water challenges, Pat said it’s really one of the only pathways to survive reaching out beyond just the municipal utility to others working on the landscape. We talked through a couple examples of things that worked and things that hadn’t. The collaboration in Southern California between a large water utility and a water district allowed the utility to be able to cap reserves when drought came, and that also bolstered the reservoir levels in the meantime.

Some of the examples of things that might not work as well are when investors come in in a crisis situation, try to buy up water rights from agriculture and transferring them to cities. We also talked a little bit about behavior change and how that can be effective. Pat argues that it’s not just pricing that can spur people to make changes, but a broader interest in being part of the solution. The role for schools and other community institutions play in that. Then we talked a little bit about the federal role, the federal government, which she argues could play a carrot and stick game, trying to help ease pathways for solutions, use conversations between states and different entities, but also have a stick there that if it doesn’t get done, they’ll be willing to step in. We’ve seen that on the lower Colorado recently as a persistent drought has continued.

David Brancaccio

Annie, thank you very much. Now coordinating Diane VanDe Hei’s group was Keith Schneider. Keith, some headlines from your interaction there.

Keith Schneider

We talked a lot about about costs. How to pay for infrastructure. How well various systems were working. Diane told us also about privatizing water. The question came up about the value of privatizing water. She represents public water systems, but she acknowledged that there are private systems that are doing well. It was her sense that if privatization became more popular in the United States, there would be more chatter in the system from the public about it.

We talked a little bit about Congress. I asked her whether there was any shifting in Congress toward embracing the idea that we needed to spend more money at the federal level to help modernize, expand our systems and she said that that it’s happening right now. That the Senate, one of the Senate committees out of environment and public works, had increased the amount of [money] going into both the drinking water systems and into waste water management systems. Most of our conversation focused on how do we pay for what we’re doing. I think that Diane was fairly optimistic with some caveats that the nation was beginning to address this as a real conversation. Some of that had to do with the fact that we’ve had terrible contamination problems in Flint, and also a terrible poisoning problem, poison algae in Lake Erie that had shut down public water systems including Toledo, which has 500,000 water users.

David Brancaccio

Thank you. Now Jeff Hughes’s group. Brett Walton was the coordinator there. Brett?

Brett Walton

We talked quite a bit about the change in context for utilities. Demand is changing, conservation is happening, assumptions about how much water a city is going to use are often made on very long time scales, and are having to be thrown out because water use is going down. We talked a lot about the variety — the rainbow of different utilities that we have in this country. There are fifty different states and fifty different legal frameworks, Jeff said, for how utilities go about financing their water infrastructure. We can’t put everything into one basket and say everyone has the same problems because they don’t. Not all infrastructure is crumbling. There are some places that are doing quite well, but by and large, it’s the big problem that utilities will have to face. They’re going to need to face that with better communication and better planning, so better data about knowing how much they have and how much water they’re going to be using.

David Brancaccio

Great. Charles Fishman with Dr. Lall’s group. What did you learn?

Charles Fishman

We asked Dr. Lall for a fantasy future water system — if he could engineer one from scratch using all of the high tech developments available, what would he do? I was surprised. I don’t know whether the listeners were equally as surprised. The first thing Dr. Lall said was if you’re going to engineer a brand-new, high-tech, 21st-century water system, you have to start by collecting the rain water that falls on your community. What a brilliant, old fashioned approach to the high-tech system. Most communities collect their rainwater and throw it away rather than use it.

He then went on to describe a really interesting mix of very de-centralized water cleaning systems, right in your home or right in your business, where you literally use the right water for the right purpose. You clean the toilet water to a certain degree, but you clean the water in your kitchen or in your bathroom sink to a different degree. That way you’re only spending the money to purify what you need to purify. He made the very important point that if there’s a drought, you may not be self-sufficient, so to speak. Even in that fantasy universe, everybody is going to need to be connected to a system that can provide water if the local ground water or the local rain water isn’t enough. It was interesting to hear this idea that we really have available now the technology to put right in the building whatever water treatment we need, and to keep reusing that water.

One of the listeners asked what was a good example of a place that had done the right thing. Dr. Lall told the complicated story of Tampa Bay, which was seriously misusing its water. Over the last 20 years [Tampa] has come to use water smartly, price it smartly, put in place some very high-tech solutions. But also had come around to understand that the original low-tech solution, conservation, teaching people to use the right amount of water, is also very effective going forward. I think what we heard is that as much as we would like to fantasize that desal [desalination] or reverse osmosis reuse could quickly and instantly be the iPhone of water. Could solve our water problems.

In fact, you can’t separate water engineering from the other three [breakout] groups. You can’t separate water engineering from how you manage the water, from what’s available, and from who’s going to pay for it. All of the engineering solutions have to literally be connected — [when you’re] talking about a community of eight million or a community of fifteen thousand, what’s the history and what’s the water availability? A good realistic reality check: engineering can solve any water problem, but it’s got to be connected to the real people who are going to use that water solution.

David Branaccio

All right. Pat, Diane, Jeff, Manu. If there’s something still nagging at you that you want to get out on the table or a final comment, we have a moment here.

Diane VanDe Hei

This is Diane. I’ll make one final comment. I really want to thank the Circle of Blue, and American Public Media and Columbia University, for holding these webinars. They’re just better than that. We need you to continue to do that so our national dialogue continues on the issues surrounding water. It’s just what you said. One of the sessions that we held this morning doesn’t stand alone. It’s incorporating it into the discussions that we all have. Thank you so much for holding this and do more. Thank you.

J. Carl Ganter

Thank you to everybody. I want to underscore this. We invite you to stick around and keep this conversation going. What was missing from the conversation today? What do we take forward? How do we communicate this? I need to do some thank yous.

First, of course, to our live audience here on Water Street. Bravo, thank you for all coming. It’s been terrific to have a great showing here and all participating. Then a big thank you, too, for David Brancaccio for guiding the conversation. David, thank you. Thanks to our guests for sharing their time and their expertise. Pat Mulroy and Jeff Hughes and Manu Lall, and Diane VanDe Hei. Our special facilitators, Annie Snider and Charles Fishman. Great round of applause, too.

To Arup, our host and tech support here on Water Street in Lower Manhattan, and especially Janine Witko and Mark Fletcher, who have made this happen. Our partners and those who have helped design and ideate this in the past, present and future, the Pacific Institute and the Columbia Water Center. And the Columbia School of International and Public Affairs — we have the whole crew here physically in the room with us. The U.S. Water Alliance helped us spread the word, and American Public Media for helping us structure the idea of a multi-layered live broadcast.

Of course, to Marketplace for allowing David to step away for a few hours and join us. And our friends at Qlik, the data visualization company that’s helped us visualize water pricing. Also going forward, we have an exciting Clinton global initiative commitment with Qlik and with Columbia Water Center, Twitter and a range of others to tap into that big stream of big data and try to make sense of it.

I have to say thank you, too, to our funders for this event. Brookby Foundation and Arup provided support to make this happen. I mentioned before, we have the Columbia School of International and Public Affairs and Nancy Degman who helped organize an exciting project we’re doing with them. Of course a huge shout-out to our family at Circle of Blue behind the scenes here running around the room in New York. Laura Herd, Brett Walton, Cody Pope, and Matt Welch who are here on Water Street with us today. Keith Schneider, Connor Bebb, Cody Kozacek, and Nick Beadleston who are back in Michigan, manning the screens there. Lastly but definitely not leastly, to Maestro Conference, Charlie, Brian, Alex and Aubrey and the rest of the crew for the technology that made this possible.

I encourage you to follow the results of the Catalyst series online at H2OCatalyst.org. We’ll have transcripts and the audio clips and all the other fun stuff that came out of the conversations. That’s H2OCatalyst.org. Stay in touch because we’ll be doing a lot more of these, and bring your tough questions and hopefully even more answers. I’m J. Carl Ganter, director of Circle of Blue, and thank you on behalf of all of us.

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