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Water Infrastructure Meeting the Long Range Challenge

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Indiana American Water provides water service at average cost of less than 1 Penny per gallon ... Application of fair Infrastructure Surcharge programs ... – PowerPoint PPT presentation

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Title: Water Infrastructure Meeting the Long Range Challenge


1
Water Infrastructure Meeting the Long Range
Challenge
  • David K. Baker, President
  • Indiana American Water
  • Michigan American Water
  • MARC - Oklahoma City
  • June 17, 2008

2
Water Infrastructure Meeting the Critical Long
Range Challenge
  • Objective Overview
  • Water Industry What is the infrastructure
    challenge?
  • Unique Characteristics Water industry
    infrastructure
  • 4 Prong approach to meeting the water
    infrastructure challenge
  • The Global, Human Challenge

2
3
Where We AreWe manage more than 350 individual
water systems across the country
  • Every day we operate and manage
  • 45,000 miles of distribution and collection
    mains
  • And more than
  • 80 surface water treatment plants
  • 600 groundwater treatment plants
  • 1,000 groundwater wells
  • 40 wastewater treatment plants

3
4
  • Largest Investor Owned Water Utility in State
  • Serve 1.2 million people across the state through
    regulated operations
  • Serve 123 Communities in Indiana
  • 4,200 miles of main
  • 351 Employees
  • 21 operating districts
  • 55 ground water 45 surface water

4
5
Water Sector Interdependencies
5
6
The Water Industry Unique Characteristics
  • US 54,000 systems supply 107 Trillion
    gallons/day
  • Water Utilities are unique distinct sources of
    supply, finite distribution systems, limited
    transportability, non-homogeneous commodity
  • Treated for distinct properties of source water
    turbidity, minerals, surface, ground,
    temperature, etc.
  • Water is treated and monitored for 98
    contaminants EPA expanding with scientific
    knowledge and environmental challenges
  • Only utility ingested by humans average family
    consumes 72 Thousand gallons per year
  • Indiana American Water provides water service at
    average cost of less than 1 Penny per gallon
  • Source USEPA.gov

6
7
The Water Industry is the most Capital Intensive
of All Utility types
7
8
Water/Wastewater Industry Challenges
  • CHALLENGE OF CAPITAL ATTRACTION
  • Infrastructure Replacement and Compliance with
    increasing SDWA CWA Quality Requirements
  • 2002 USEPA Clean Water and Drinking Water GAP
    analysis
  • - Drinking Water 154 billion - 446 billion
    through 2019 (pt.est. 274 billion)
  • - Clean Water 331 Billion - 450 billion
    through 2019 (pt. est 388 billion)
  • - Total 485 billion 896 billion through
    2019 (pt. est 662 billion)
  • June 2005 USEPA Drinking Water Infrastructure
    Needs Survey and Assessment
  • 276 billion over 20 years (former estimate 154
    Billion)
  • 20 year water/wastewater infrastructure costs
    could exceed 1 trillion

8
9
(1980-2005)
Index 1980 1.0
--- Net Plant Investment per Customer ---
--- Unit Price of Water ---
--- Inflation Index ---
--- Water use per Customer ---
Although average water use per customer has
declined, the amount invested per customer has
risen dramatically, leading them to question,
Why is my water bill increasing when I am using
less water?.
9
10
Drivers of Increased Water Capital Spending
  • Aging Infrastructure replacement costs are
    multiples of current books costs
  • Approximately 75 Miles of Main will be replaced
    over 5 years
  • Population migration, reduction in people per
    household
  • Material Costs are increasing faster than
    revenues/rate of inflation

10
11
Long Term Infrastructure investment management is
key to meeting customer needs in future decades
Pipe was installed at the highest rate between
1930 and 1970
T/D, Mains replacement needs increase most
dramatically between 2010 and 2040, as a result
of the 75 year average age
11
Source USEPA
12
Fixed Cost vs. Fixed Revenue The Quest for
Balance
COST
REVENUE
Source American Water (example)
12
13
Prong 1 Progressive Regulatory Practice to
support infrastructure investment
  • Continued Application of fair Infrastructure
    Surcharge programs to help reduce regulatory lag,
    generate revenue for non-revenue producing
    Distribution replacements
  • The Decoupling of water revenues from customer
    demand (sales) may help facilitate steady
    investment in infrastructure regardless of
    revenue trends (weather)
  • Establishment of appropriate rates of return on
    equity - important for the attraction of
    investors
  • Institution of Tracker Charges to mitigate the
    regulatory lag associated with rising power and
    chemical costs

13
14
Prong 1 Progressive Regulatory Practice to
support infrastructure investment
  • Major capital expenditure regulatory pre-approval
    programs (e.g., Indiana) can help reduce risk of
    non-recovery
  • Single tariff pricing can help lessen burden on
    smaller systems, but can be met with customer and
    political challenges
  • Continued consumer education on the value of
    water services relative to all other utilities
    and budgetary items the average water bill for
    an Indiana American Water customer is less than
    30 per month
  • Forward looking test year can help mitigate
    regulatory lag

14
15
Prong 2 Consumer Water Consumption Demand
Management
  • Indiana American Water is developing Indianas
    first comprehensive water conservation plan for
    its 21 operating utilities will be submitted
    for IURC approval
  • While residential consumption per customer has
    steadily declined over the past 10 years, the
    need for residential peaking reserves has not
    declined
  • However, reserve water treatment capacity must be
    maintained up to 100 in order to meet outdoor
    watering needs
  • Customer Education is key conservation measures
    for outdoor water reduction
  • Comprehensive Demand Management Plans for each
    water utility, with local municipal enforcement
    capability in time of enhanced water restriction
  • Financial disincentives for greater water
    consumption the establishment of inclining rate
    blocks
  • Customer Incentive programs for water conservation

15
16
Prong 3 Infrastructure Investment Reduction via
Industry Consolidation - Synergies
  • Fragmentation
  • 54,000 community water systems
  • 16,000 wastewater systems
  • By comparison 3,200 electric, 2,700 gas
  • Regionalization of Water/Wastewater Utilities can
    promote more efficient use of investment in
    treatment plant, source of supply and T/D
  • Acquisition adjustments for proven benefits
  • Proposition If and to the extent a business
    combination produces identifiable savings,
    service improvements or other benefits to
    customers, shareholders should have the
    opportunity to recover and earn a return on the
    investment required to produce those benefits

16
17
Prong 4 Integrated View of Capital Asset
Management and Planning
Sustainability . . .meeting the needs of the
present without compromising the ability of
future generations to meet their own
needs. Source World Commission on Environment
Development
17
18
Prong 4 Integrated View of Capital Asset
Management and Planning
  • Sustainability planning for water infrastructure
    reduction in life cycle costs for water
    treatment plants, LEED certification, etc.
  • Careful asset investment prioritization modeling
    based upon Comprehensive Planning Studies
  • Reduction of Non-Revenue Water leak detection,
    careful cost/benefit analysis of costs for
    detection and repair versus resource conservation
    and avoided capital expenditure
  • Reduction in energy consumption 3 of nations
    energy supply goes to water/wastewater
  • Equivalent to 45 million tons of greenhouse gases

18
19
Water Infrastructure Investment is a Global
Challenge
  • Water is the basic key to life human and
    economic sustainability
  • Water resources are the foundation of economics
    arid countries battle for the water resource
  • Our Nations Security is directly linked to water
  • Worldwide, 1.1 Billion people lack access to safe
    drinking water
  • 2.6 Billion people lack access to proper
    sanitation
  • Water related illnesses kill over 2 million
    people per year, most of them children

Source www.cdc.gov
19
20
Water Infrastructure Meeting the Long Range
Challenge
  • - - - END OF PRESENTATION - - -

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