As water and wastewater infrastructure ages and deteriorates, the cost of replacing it all becomes a growing concern. Replacement costs can be astronomical and, and it doesn’t help that many utilities have not planned for the inevitable expenditures for replacement. When providers cannot postpone replacement of this infrastructure, the high costs come as a shock to previously oblivious rate-paying customers. The resulting conflict between providers and ratepayers can be enough to cause gnashing of teeth for even large, well-heeled utilities. Unfortunately, the problem can occasionally be insurmountable for small water systems.

The EPA reports that water utilities serving fewer than 3,300 customers – make up nearly 85% of all water systems in the United States. For these systems, the cost of infrastructure replacements is more than large, it’s unbelievable. The small town of Lebannon, OR provides a good example. The cost of replacing Lebannon’s incredibly old water treatment plant is going to cause water rates to increase by 60% is only one example among many of how major capital replacement costs in one small town can lead to a significant increase in customer water rates.

As infrastructure ages, facilities need to be replaced. So what is a small water utility to do? Unfortunately, there are no easy or simple methods to handle it. Grant money for these systems has been all but eliminated, leaving rate hikes in the 60% range a real possibility for those utilities that have not planned ahead. Back in Lebannon, Oregon the system to be replaced was put into service in 1946. It is not surprising that this plant is nearing the end of its useful life. After 64 years of service, most facilities can be expected to require substantial upgrades.

Costs for upgrades and replacement can be estimated by professional engineers. Small communities with some foresight can initiate smaller scale rate increases to build up a cash fund as well as to establish debt capacity to finance replacement costs. This type of ‘forward planning’ is essential for small utilities and communities that may not enjoy reserve cash funds or ready access to credit markets.

Financial planning is essential to avoiding the surprises that accompany massive service rate increases. Water utility consultants provide these services, however most utility managers can begin without consulting help. Recognizing the need is step one. Understanding what the fixed assets situation is, where each facility is in its service life, and when each was put into service is important. Then, reasonable estimates can be made regarding expected timing of facility replacements and the associated costs for each replacement project.

As facility-life expectancy and replacement costs are understood and at least estimated, informed decisions can be made that may preclude imposing massive rate hikes on consumers. Utilities can then work within the community to research the best way to fund the replacement project and to set realistic expectations for future fee increases. Will most utilities have to increase service fees? Most likely, the answer to this is ‘yes.’ Although the costs are expensive, preparing in advance to replace aging infrastructure and establishing a solid financial plan to guide funding, utilities can avoid having to inform customers of sometimes staggering and unexpected fee increases. Utilities that wait until an integral facility becomes inoperable have narrowed their options to zero and are inviting trouble.

StepWise Water Utility Consultants help water utilities nationwide improve operations and improve cash flow management in difficult economic environments. Contact the Water Utility Consultants and Wastewater Consulting Experts at StepWise today! Click here to get your own unique version of this article with free reprint rights.