In its second annual U.S. water industry report, Black & Veatch take a look at an industry "...more focused on informed spending to stretch limited budgets and extend the life of current assets." Please visit the Black & Veatch website to download the report.
At the Fund, the question "What will water utilities look like in 20 years?" comes up often. This report continues the conversation about the formidable problems that water utility managers are facing and offers up best practices currently being implemented to meet the challenges of the industry. A particular focus is placed on asset management programs which water industry leaders estimate will be in place or in progress in more than 90% of utility districts by 2016.
The Fund is interested in new innovations that will shape how water utilities will operate in the future and we welcome your ideas and input. Please drop us a note to start a conversation or add a comment below.
Engineering firm Black and Veatch has just released its first-ever survey of the US water utility industry. That report is available here. The survey summarizes information from a "broad cross section of the industry and country." Not surprisingly, respondents identified failing infrastructure, the need for capital (and accompanying rate increases) as key concerns. Improved asset and energy management were identified as important opportunities. Last, and consistent with the findings of our grantee teams and advisors, survey respondents noted that regulatory actions drive investments, not financial incentives.
The Fund continues to look for teams that wish to innovate in these spaces. For more see this workshop report.
Do you have a powerful innovation- financial, operational or behavioral- that you want to test?
Building on the Johnson Foundation’s Charting New Waters convening, and by analyzing work already underway by those who have a head start, this report charts the pathways of cooperation that will be required to forge innovative thinking about our freshwater systems.
We are pleased that the report identifies several Fund-supported teams as leaders in the financing space. These teams are gaining traction and we hope to expand our impact with future investments. We have been working to promote these teams' work—visiting with environmental groups, trade associations, and charitable foundations—to build shared-expertise on how we can pay for our infrastructure gap, how we can build the next generation business models to deliver what we need, and how we can work together on an issue that is nationally—if not globally—critical, even though the answers must work locally. If you haven’t seen it yet, I strongly recommend the Johnson Foundation report on financing sustainable water infrastructure.
Along those lines, the Fund hosted a recent workshop that explored how the next generation of water utilities can lead in ecosystem management innovations. You can read a summary report here. Some of the insights from this workshop have already been incorporated in our programming.
The Fund has invested in three teams to test some of the ideas discussed at the workshop. One team is exploring how distributed technologies can be bundled, managed and financed. While this work is at an early stage, it could well be a very positive disruptive force in the utility space. Another project is looking at new ways to target, finance and deliver conservation impacts in the rural environment. This work too, might catalyze new business models in the region’s food and fiber belt. A third effort is looking at how to facilitate water conservation in industrial customers of water utilities (including creative efforts in stormwater management), to drive positive ecological change, and navigate the many challenges (rates, disappearing user savings, and roi requirements).
We are looking for efforts to fill out this portfolio of work.
We would be interested in projects that test technologies, novel insights, new products, new revenue or financing models, or new combinations of services that have the promise of catalyzing change in the institutions that currently “manage” some aspect of freshwater.
Ideally, each would be a fairly substantial effort, work in a number of strategically important places, and be true collaborations (rather than large teams of a prime contractor with many subcontractors).
Here's how you can help. In the comments below, or via e-mail, give us your advice on any of the following:
What ideas should we test?
Who is ready to lead such a project?
Where should we signal our interest in supporting such work?
What if anything has changed on the landscape that should alter our course?
(If you are reading this from our main Resource Room page, you will need to click here to go to the blog page to comment.)
A new report, Financing Sustainable Water Infrastructure, is now available on the Johnson Foundation at Wingspread's website. I recommend this to anyone who is interested in what our water service sector will become, how it might be supported financially, and what has to change between now and then. The webinar introducing the report was recorded and can be accessed here.
This report summarizes a series of web-facilitated and in-person meetings focused on how to finance the new needs of water management entities (drinking water, storm water, waste water, and possibly other water management utilities). I was honored to be asked to participate in these sessions and did my best to share the expert advice the Fund has received on these issues and the lessons that Fund-supported teams have learned by exploring financial and market-based tools in this sector. This work has been substantial and the learning impressive. Some of these approaches have blossomed. Others have not worked. Some are still a work in progress.
If you want to learn more, a few resources follow.
The Fund has sponsored a number of teams exploring how to identify, package, and exchange water-based ecological services like nutrient removal, sediment control and flow restoration. Case studies produced by a team led by the Environmental Trading Network identify how to structure effective water quality trading programs, how to creatively use assets of state revolving fund programs and how to think strategically about storm water projects. Their work is nicely summarized here.
Alternate Financing Approaches
Two Fund-supported teams evaluated how the cost of financing and/or the cost of subsidies for water infrastructure can be lowered. These teams identified that a number of mechanisms could lower financing costs.
At the federal level, tax credit bonds can substantially lower the costs of water infrastructure to the federal government, as well as lower the costs to those who take on this debt. More on this approach can be found here and in this report (pdf format).
At the local level, use of tax increment financing might allow new sources of capital to flow to restoration activities. More on this approach is available here (pdf format).
Interestingly, neither project could attract partners to test how these approaches would work on the ground. The teams felt (oversimplifying here), that slightly less expensive financing did not overcome the barriers to action. Financing appears to be necessary, but not by itself sufficient, for the sector to become more sustainable.
New Transaction Models
The Fund has recently supported two teams that are designing and testing new ways to reduce the impacts of run-off in urban and rural settings.
One team is exploring how to pay for the performance of practices of agricultural producers. Many farms undertake conservation practices like buffer strips and grassed drainage swales to keep nutrients and soils on the land, rather than in the water. This team looks to design payments for what those practices do in the way of improved stream health, so that producers receive higher payments for better performance. More is available here.
Another team is designing a series of investment grade, coordinated, integrated, distributed storm water management practices in three Great Lakes urban centers. They want to develop a series of site-based rainwater harvesting and management systems, bundle their performance, find private financing, and negotiate sales agreements to public or private entities that will benefit from storm water management. They expect to create a template for such transactions, and an electronic platform to reduce the transaction costs of creating and selling these services. More is available here.
We Want to Hear from You
The Fund is very interested in working with teams to help shape the future of water management in and around the Great Lakes. If you have a new idea you want to try, drop us a note, and let's start a conversation!
I spent yesterday at the Milwaukee Water Council's fifth Water Summit. The session was focused in three tracks: Urban Agriculture, Urban Water and the relationship between Water and Energy. By my rough estimate, the event drew nearly two hundred individuals from companies in the "water space" (the Council reports that there are some 120 of these firms in the Milwaukee area), research universities, government agencies, and interest/trade groups. The audience was energetic, engaged and enthusiastic. I'm glad that I was able to be there. I can not cover all of what happened here, but the three items below offer a taste of what the Council is up to. I encourage you to explore each of them. To learn more about the Council, you can listen to coverage of this event on Chicago Public Radio's Front and Center program (focusing on Great Lakes issues) here: http://www.wbez.org/episode-segments/2011-09-20/milwaukee-taps-great-lakes-economic-potential-water-summit-92215# or visit them directly here: http://www.thewatercouncil.com/
The morning keynote speaker, Phil Enquist, a partner at Skidmore, Owings, and Merrill, gave a version of his talk on a 100 year vision for the Great Lakes. If you haven't had a chance to see it, a version from last year is available over on You Tube:
Another very interesting idea is the "Water Entrepreneurship Workshop" that helped budding entreprenuer-teams to articulate business cases for water-related innovations. UW Whitewater's Business School provided templates and experts from XPV Capital, Imagine H20, USEPA and Veolia Water provided assistance, inspiration and advice. The final "pitches" from five teams can be found here: http://www.thewaterworkshop.com/presentations.html I'm not sure where these business ideas will go, but the workshop approach is very intriguing.
Last, but not least, the lunchtime keynote speakers provided some useful insights into the value of water. David Zetland (http://aguanomics.com) and Jamie Workman discussed how a dose of economic thinking can help both water managers and the rest of us better manage our water. David seemed to suggest that a transition from water "rates" to "prices" is an important means to the end of better managed water, and Jamie offered a unique "earn and trade" (http://ecocloud-sv.com/page/water-ownership-and-aquajust) approach to water management. Keep an eye out for both of these fellows! It was a very interesting and engaging session.
I have just returned from a three-day expert workshop on Financing Sustainable Water Infrastructure sponsored by the Johnson Foundation at Wingspread. This is one of the best and most useful gatherings I've attended on the future of water, wastewater, drainage and other "utilities." Financiers, C-suite executives, entrepreneurs, ngo leaders, and regulators explored what the "utility" of the future would do, how it might be capitalized, and how ongoing services would be paid for. This discussion is closely allied with two workshops that the Fund recently hosted exploring similar issues.
Reports on all three will be forthcoming shortly-- watch this space for updates.
Based on the energy and enthusiasm in these sessions, it seems like the utility space is not only ripe for innovation, but that we are already in the early days of transforming what we now call water "utilities." A few common themes: distributed technologies (think green infrastructure, rainwater harvesting, and agricultural BMPs) are disrupting the natural monopoly of utilities-- opening up new ownership structures and access to different capital sources; revenues, currently from rates (based on cost recovery) can move toward prices (based on creating shared value)--think about on-bill financing of efficiency technologies, point-of-use services (like carbonation or filtration), and buying a share of equity in the utility; integration and consolidation makes financial and performance sense--there is one hydrologic cycle, but our services are fragmented, myopically optimized, and often operate at cross purposes; and last, change is happening-- Milwaukee, Philadelphia, Seattle, and Cleveland are fundamentally rethinking how they deliver services. Some of these things will work, other won't, but there is much learning underway. What is exciting is the chance to embed positive ecological change in the center of whatever water "utilities" become.
For another attendee's take on the Wingspread meeting, read Peter Malik's post here. Thanks to the Johnson Foundation, American Rivers and CERES for planning this event.
We welcome ideas for projects that try a specific action which will catalyze the changes underway in this industry. Have one of those ideas? Let's start a conversation.
The Great Lakes Protection Fund is a private, nonprofit corporation formed in 1989 by the Governors of the Great Lakes states. It is a permanent environmental endowment that supports collaborative actions to improve the health of the Great Lakes ecosystem.
To date, the Fund has made 253 grants and program related investments representing more than $68.7 million to support the creative work of collaborative teams that test new ideas, take risks, and share what they learn.