As water and sewer infrastructure across the country ages, deteriorates, and eventually fails the cost of replacing it all becomes a growing concern.  The cost of replacements is fantastically large, and it doesn’t help that these needs have been largely unplanned, meaning that these large costs tend to come as a shock to oblivious rate-paying customers.  It’s enough to cause even large well-heeled utilities to gnash teeth.  The problem can sometimes be insurmountable for small water systems though.

According to the EPA, small systems – those serving fewer than 3,300 customers – make up nearly 85% of all water systems in the US.  For these systems, the cost of infrastructure replacements is more than large, it’s unfathomable.  In Lebannon, OR – a small town – the cost of replacing its incredibly old water treatment plant is going to cause water rates to go up by 60% . It’s one small example of how just one major capital replacement in one small town can cause a major disruption in the water rates.

What’s a small utility to do?  First off, there are no simple answers.  The days of never ending grant money for these systems is mostly gone and that means that in order to avoid a 60% hitch in rates, even small systems have to be smart about planning ahead for their needs. In the Lebannon example, the water plant had been in service since 1946! Running at capacity, the plant was only able to stay one day ahead of demand.  In other words, it should have come as a surprise to no one that the plant would need to be substantially upgraded or replaced at some point (before the 64th year of operations).  The costs of those upgrades and replacements can also be reasonably estimated by any professional engineer and, with enough foresight, small communities can start implementing small increases to rates to build cash funds as well as debt capacity to finance the costs of replacement.  For small communities who lack access to credit markets and don’t have much cash in reserve, forward planning like this is even more critical.

Financial planning is the key.  StepWise provides this service, but any utility manager can get started with the key elements of financial planning without consulting help.  Start by understanding the need.  Know what your fixed assets are, where they are, and when they were put there.  Once you know that, you can start making reasonable estimates as to when you should expect those assets to be replaced.  Then, get some estimates as to how much those replacements will cost, and you suddenly have a decent picture of what the future holds for your utility.  Will rates need to be increased? Probably.  The key is that you will now have some control over how much and when.  Wait until the last minute though, and your options will be extremely limited.