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The drinking water and wastewater sector is large and diverse and can be challenging to understand. There are more than 51,000 community water systems (CWSs) as defined by the Environmental Protection Agency (EPA) and more than 16,000 wastewater treatment plants, which the EPA calls publicly owned treatment works (POTWs).

The majority of these systems are small and have limited market potential. Of the 51,000 CWSs, only 419 systems serve more than 100,000 people. On the wastewater side, only 533 POTWs with flows greater than 10 million gallons per day exist in the United States. A fair number of these CWSs and POTWs serve the same area, even if the ownership or governance of the drinking water and wastewater systems is different.

Keep in mind that the water and wastewater sector is conservative and risk-adverse. The vast majority of CWSs and POTWs are municipally owned and must follow typical government procurement procedures and policies. Many of the general managers for these systems rose through the ranks of the engineering or operations side of the organization and do not want to be the “early adopter,” in the event new technology does not work as expected and they are stuck with justifying their decision to local elected officials and voters. 

Market Differences for Treatment Plants Vs. Distribution and Collection Systems
Treatment plant upgrades are driven by EPA regulations, which move slowly. Given the requirements of the regulatory development process within the Safe Drinking Water Act, a new federal drinking water regulation takes at least 10 years to develop. Therefore, treatment upgrades for compliance with future regulations won’t likely be a big market in the near term.

However, existing treatment plants have a specific design life, so plants will continue to be restored, repaired or upgraded to align with current technology, even if no new regulations are in place. New treatment plant capacity also will be needed in areas with population and job growth, and some of those areas (such as the Sunbelt) have water scarcity issues that likely will lead to new treatment technologies such as desalination or direct potable reuse.

Buried infrastructure, which has the most potential in the water and wastewater sector, has not had the public and media focus compared to visible infrastructure, such as roads and bridges. Competition for any potential increases in infrastructure funding is fierce, as appropriations at the federal, state and local level are either decreasing or under fire.

But the needs are huge for states, counties, cities, towns and villages alike. As such, the rehabilitation and replacement of distribution and collection systems represents a significant potential market. In a recently released report, “Buried No Longer,” the American Water Works Association estimated the drinking water distribution system needs $1 trillion over 25 years. The EPA has estimated the drinking water sector needs $335 billion during the next two decades and wastewater needs $298 billion over the same time period.

The Big Question: How to Pay For It
Capital projects in the water and wastewater sector are generally paid for by some combination of pay-go, loans or bond financing. Any of these financing mechanisms have to be paid from, or paid back from, customers’ water and wastewater rates. System expansion and increased treatment capacity can be paid for by tap fees or other capital mechanisms, but the costs for rehabilitating and replacing buried infrastructure are generally going to have to be paid by customers’ water rates.

The majority of water and wastewater systems are municipally owned and governed by elected officials—none of whom want to be known as the person who approved a substantial increase in water rates, even if those increases are necessary to cope with degrading buried infrastructure. It should be noted that private water and wastewater systems typically have to get their rate increases approved by a Public Utilities Commission, so it’s not much easier for them to raise rates either. 

New low-cost financing mechanisms are on the horizon with the passage of the Water Infrastructure Finance and Innovation Act, which was part of the Water Resources Reform & Development Act President Obama signed on June 10, 2014. Additionally, in his Fiscal Year 2016 budget request, President Obama proposed creating a new municipal bond (called a Qualified Public Infrastructure Bond) that would have no expiration dates and no issuance caps like Private Activity Bonds. Any tool that could be used to lower financing costs would be welcome by water and wastewater systems.

Additional Challenges and Potential Opportunities
Layered on top of the financing issues are increasing problems with water supply and water scarcity. Many parts of the United States are blessed with abundant water supplies, but others are not. And many of the areas with scarce water resources, such as the Sunbelt and the Southwest, are predicted to have the largest population and job growth.

Uncertainties inherent in predicting future population, job growth and water and wastewater demands are complicated by changes in weather patterns. Long-term water demand forecasts have traditionally assumed long-term normal weather patterns for future forecast scenarios. However, if it’s true that past weather patterns may not be the same in the future, then predicting precipitation and temperature patterns will be particularly problematic for long-term water demand forecasts.

The water and wastewater sector provides some potential long-term opportunities for consultants and contractors that are willing to examine buried infrastructure as opposed to treatment plants. For example, most public-private partnerships have been for new treatment plants as opposed to program management for distribution and collection system rehabilitation or replacement program management.

As contractors look for an edge in the water and wastewater sectors, they should focus on building relationships, understanding system-wide needs and getting a handle on local politics.

J. Alan Roberson is director of federal relations at the American Water WorksAssociation. For more information, call (202) 326-6127, email aroberson@awwa.org or visit www.awwa.org.

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