ACE16: The Water Industry Continues to Transform Part 2

ACE16: The Water Industry Continues to Transform Part 2

The American Water Works Association Annual Conference and Exhibition served as a gathering place for members of different spectrums of the water sector. Speakers affiliated with utilities, vendors, non-profits and government agencies, and service firms presented their research and insights on the latest water trends and the biggest challenges facing the industry. I have been a member of West Monroe’s Energy & Utilities Practice for two years. As a relatively newcomer to the industry, I am most interested in learning about the direction of utilities and how they plan to adapt to address emerging challenges (and which challenges still need to be addressed). As described in more detail below, I attended several sessions related to utility workforces and infrastructure, both of which are expected to experience significant changes in the coming years. Here is a link to Part 1 that focuses on non-revenue water and sustainability.

Inspiring Innovation and Developing the Next Generation of Leaders: Lessons from the Water Industry
Like many industries, the water utility workforce is rapidly changing. One third of utility staff is expected to retire within the next five years. Unlike the generation before them, millennials have an average career span of two years. The Transformational Water Utility Leadership track of conference sessions were led by water industry professionals who shared their best practices and lessons learned from hiring, inspiring, and promoting knowledge transfer within their organizations.

The importance of investing in employee development was a common message across the sessions. Panelists felt there is a clear business case for devoting time and resources to growing their employees’ leadership and technical skills. They stressed that utility issues with infrastructure, water quality, and conservation will not be solved without innovative thinkers. The panelists also noted that if innovation is to succeed, leaders need to be more comfortable accepting both risk and failure, but need to be able to manage their scope. Water utilities are facing a variety of challenges, but emphasis on developing strong leaders and innovators to help overcome them appears to be pervasive throughout the industry.

The water industry is becoming more customer-centric and data-oriented, making it a more attractive and exciting career field than ever for younger professionals. Many of our clients have established relationships with local high schools, community colleges, trade schools as well as 4 year universities to help “breed” the future workforce at influential ages and work to build passion for industry opportunities and challenges.

WIFIA: The Utility Solution to Project Financing
As infrastructure ages and water quality becomes more tightly regulated, utilities are confronted with needing to upgrade their treatment and distribution systems. Unfortunately, these improvements are not expected to be cheap. The U.S. Environmental Protection Agency estimates that the gap between actual and needed levels of investment in water infrastructure will exceed $300 billion over the next 20 years.

American Water Works Association representatives presented an overview of the Water Infrastructure Finance and the Innovation Authority (WIFIA), a proposal to help meet utilities’ pressing need for capital. WIFIA funds would come from the US Treasury and be used to provide low-interest loans to support water and wastewater infrastructure projects over $20 million. Reactions to the program have been mixed. The funds would only be available for utilities with investment-grade bond ratings, meaning the utilities that most desperately need help may not be eligible for assistance. Additionally, smaller utilities may not need to invest in $20 million infrastructure projects and could benefit from smaller loan amounts. On the other side of the coin, larger utilities with successful track records have historically found it more difficult to receive federal assistance dollars than smaller utilities that struggle with compliance. WIFIA gives these larger utilities an opportunity to be proactive in their planning, instead of reacting to issues as they arise. While some matters may still need to be resolved, WIFIA is certainly a step in the right direction to solving the looming infrastructure funding crisis. Congress is seeking public comment on WIFIA through July 22.

In addition to this opportunity, we are also seeing private lenders enter this lending market as an alternative to this loan opportunity, bond sales, etc. They are seeking opportunities to put money into long term infrastructure projects with long pay-back cycles. It remains to be seen if this will be a successful option for smaller systems.

We would appreciate any insights or comments related to this and other topics.

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