Bill Elmore Testimony
Testimony on Drinking Water Infrastructure Needs
Subcommittee on Water Resources and Environment
Committee on Transportation and Infrastructure
U.S. House of Representatives
Senior Vice-President and Chief Operating Officer
Knoxville Utilities Board
March 28, 2001
Good morning, Mr. Chairman, Congressman DeFazio, members of the
My name is Bill Elmore, and I am the Senior Vice-President and Chief
Operating Officer of the Knoxville Utilities Board in Tennessee. This
testimony was prepared on behalf of two drinking water associations: the
Association of Metropolitan Water Agencies (AMWA) and the American Water
Works Association (AWWA).
Knoxville Utilities Board (KUB) is an independent public agency of the
City of Knoxville that provides water and wastewater service to more
than 180,000 customers in Knoxville and parts of seven surrounding
counties. (KUB also provides gas and electric service.) KUB treats 37
million gallons of drinking water each day, which requires two treatment
plants, 22 booster pump stations and 1,442 miles of pipe, in a
189-square mile service area. KUB also operates four wastewater
treatment plants, 46 effluent pump stations and a 1,275-mile collection
Founded in 1881, AWWA is the world's largest and oldest scientific and
educational association representing drinking water supply
professionals. The association's 57,000-plus members are comprised of
administrators, utility operators, professional engineers, contractors,
manufacturers, scientists, professors and health professionals. The
association's membership includes over 4,000 utilities that provide more
than 80 percent of the nation's drinking water.
AMWA represents the nation's largest drinking water agencies. All AMWA
member-agencies are publicly owned. Represented by city water
commissioners and utility chief executives, AMWA's member-agencies
collectively serve more than 110 million Americans with clean, safe
Both AMWA and AWWA are members of WIN - the Water Infrastructure
Thank you for holding this hearing to learn more about the
infrastructure needs of local water utilities. Our goal is to provide
you with everything you need to help water utilities resolve the
enormous challenges we are facing over the next 20 years.
Overall Need and the Gap
Last fall WIN released Clean & Safe Water for the 21st Century, which
summarized infrastructure needs and the funding shortfall facing
drinking water and wastewater systems. The report estimates that
drinking water utilities across the nation collectively need to spend
about $24 billion per year for the next 20 years, for a total of $480
billion. WIN's analysis also concluded that water systems currently
spend $13 billion per year on drinking water infrastructure, leaving an
$11 billion annual gap between current spending and overall need.
A separate needs estimate was released in February by the U.S.
Environmental Protection Agency (EPA), based on a survey of public water
systems. The survey results suggest water systems will need $150 billion
during the next twenty years. But according to EPA, the survey
underestimates the true need. The survey is intended to be used as the
basis for the Drinking Water SRF distribution formula. Because the
Drinking Water SRF is primarily concerned with projects that will help
systems comply with drinking water quality regulations, so is the
survey. Therefore, EPA's estimate excludes many needs, such as the
replacement of treatment facilities and distribution systems due to age.
This is the largest infrastructure expense facing the nation's water
suppliers. The survey also excludes capital projects related to raw
water storage, and EPA's estimate for medium and large systems is
substantially under-evaluated because the agency relied on five-year
capital improvement plans (CIPs) by utilities and included them in the
20-year picture. Utilities may estimate their needs for many years into
the future, but most CIPs cover five-year periods, leaving the remaining
out-years undocumented, and thus excluded by the survey.
In contrast, WIN's $24 billion per year estimate is more comprehensive.
It relies on historical system construction data, population figures
from the Census Bureau, actual cost data from the drinking water
community, data on infrastructure spending from the Department of
Commerce, as well as needs estimates by EPA and AWWA.
Like the nation's other 55,000 water utilities, KUB is responsible for
providing safe, clean drinking water to protect public heath and comply
with drinking water regulations. In addition, our customers -- both
families and businesses -- expect reliable service. My 180,000 customers
expect safe water to come out of their taps each morning. Likewise, KUB
supplies safe water to manufacturing, chemical, steel, electronics, and
food processing plants, as well as five hospitals and thousands of
businesses. These facilities and businesses expect and deserve reliable
service, as well. To meet our responsibilities, old pipes and
out-of-date treatment facilities must be replaced, repaired and
Replacing and Repairing Pipes
In a recent study by AWWA looking at 20 utilities throughout the United
States, researchers learned that the original pattern of water main
installation from 1870 to 2000 is a reflection of the overall pattern of
population growth in large cities across the country. There was an 1890s
boom, a World War I boom, a roaring '20s boom, and the massive
post-World War II baby boom.
The oldest cast iron pipes - dating to the late 1800s - have an average
useful life of about 120 years. This means that as a group these pipes
will last anywhere from 90 to 150 years before they need to be replaced,
but on average they need to be replaced after they have been in the
ground about 120 years. Because manufacturing techniques and materials
changed, the roaring '20s vintage of cast iron pipes has an average life
of about 100 years. And because techniques and materials continued to
evolve, pipes laid down in the post World War II boom have an average
life of 75 years, more or less. Using these average life estimates and
counting the years since the original installations, it's clear that
water utilities will face significant need for pipe replacement in the
next couple of decades.
Pipe repair costs add another dimension to the overall need. As pipes
age, they tend to break more frequently. But it is not cost-effective to
replace most pipes before, or even after, the first break. Like the old
family car, it is cost efficient for utilities to endure some number of
breaks before funding complete replacement of their pipes.
Considering the waves of pipe installation in the last century, we can
expect to see significant increases in break rates and therefore repair
costs over the coming decades. This will occur even when utilities are
making efficient levels of investment in replacement that may be several
times today's levels. In the utilities studied by AWWA, there will be a
threefold increase in repair costs by the year 2030 despite a concurrent
increase of three-and-a-half times in annual investments to replace
Replacing Water Treatment Facilities
Replacement of water treatment facilities presents a different and more
complicated picture from that of pipe replacement. Major investments in
water and wastewater treatment plants were made in several waves
following the growing understanding of public health and sanitary
engineering that evolved during the 20th Century. Of course, the
installation pattern of treatment facilities also reflects major
population growth trends. But whereas pipes can be expanded
incrementally to serve growth, treatment must be built in larger blocks.
Investments in treatment thus present a more concentrated financing
demand than investments in pipes.
Treatment facilities are also much more short-lived than pipes. Concrete
structures within a treatment plant may be the longest lasting elements
in the plant, and may be good for 50 to 70 years. However, most of the
treatment components themselves typically need to be replaced after 25
to 40 years or less. Replacement of treatment facilities is therefore
within the historical experience of today's utility managers. Even so,
many treatment plants built or overhauled to meet EPA standards over the
last 25 years are too young to have been through a replacement cycle.
Many are about due for their first replacement in the next decade or so.
The concurrent need to finance replacement of pipes and of treatment
plants greatly increases the challenge facing utilities. While spending
for the replacement of pipes rises like a ramp over the first part of
the 21st Century, spending for treatment plant replacement will occur at
intervals causing "humps" in capital needs on top of the infrastructure
replacement capital needs.
Other Costs Facing Utilities
AWWA estimates that water utilities will spend $27 billion per year to
operate and maintain their facilities. We note this because electricity
costs compose make up 20 to 80 percent of a water utility's total
operating budget. The inevitable rise in energy costs will increase the
O&M expenses of utilities, leaving fewer dollars for drinking water
Also, after city funds are spent on more pressing wastewater and
storm-water infrastructure projects, there may be less room in the local
budget for drinking water infrastructure. The estimated need for
wastewater infrastructure is $23 billion per year.
Similarly, the cost to finance infrastructure can affect the
availability of funds and whether a community can afford to build a
needed water project. AWWA and EPA estimate drinking water and
wastewater systems will each spend $5 billion per year to finance their
WIN estimates that household water bills must double or triple in most
communities, on average, if utilities are forced to absorb the entire
infrastructure bill. This scenario is complicated by rate inelasticity.
A household's water bill often covers drinking water supply, sewer and
storm-water control. Raising rates to cover one, diminishes the ability
to pay for the other two. Unfortunately, all three sectors are facing
massive infrastructure challenges. The impact on American families is
even harsher when you consider the other utility expenses, such as
phone, gas and electricity.
Members of Congress who served at the local level know this debate all
too well. In communities large and small across the nation, utility
managers face rate inelasticity each time they propose a rate increase
to cover infrastructure costs.
Further compounding this issue is demographics. Large investments are a
major source of financial vulnerability for water utilities due to the
very fixed nature of the pipes and plants and the very mobile nature of
the customers. When populations grow, the infrastructure is expanded,
but when people move away, the pipe and the liability for repair and
replacement remain behind, creating a financial burden on the remaining
customers. This is true in small towns facing economic hardship, as well
as cities like Detroit, where the more affluent left the less affluent
to cover the water infrastructure maintenance and replacement costs.
This problem, known as "stranded capacity," adds considerably to the
challenge of funding infrastructure replacement in our communities.
Some Local Examples
Knoxville, Tennessee. Knoxville has spent $40 million in capital
improvements over the last five years for the drinking water system, and
the utility is anticipating another $64 million in water system
improvements during the next five years. When you consider that this
scenario is repeated hundreds of times across the United States, you
begin to understand how WIN developed the $480 billion figure.
Resolving our infrastructure needs is made more onerous given that KUB
is also a wastewater utility, which has its own infrastructure needs,
including $63 million in sewer system improvements over the next five
years in addition to the $80 million KUB spent over the previous 14.
Kansas City, Missouri. Kansas City raised rates by 100 percent over the
last 10 years, and the utility plans water rate increases of four
percent each year and sewer rate increases of six percent each year. The
water department anticipates spending $85 million per year for the next
six years just to resolve its infrastructure backlog, but these rate
increases and new efficiencies will net the utility only $55 million per
year, leaving an annual shortfall of $30 million.
Cleveland, Ohio. Cleveland has been investing an average of $60 million
per year over the last 10 years for drinking water infrastructure. Over
the next eight years, Cleveland must invest $500 million to rehabilitate
and modernize three of its four water plants. To finance this, Cleveland
has adopted an 18-percent annual rate increases over the next five
years. This is after 10 consecutive years of increases totaling 80
percent. Yet this does not even address Cleveland's distribution system
needs in any substantial way.
Portland, Oregon. In Portland, a $1 billion mandated combined sewer
overflow program will result in double digit rate increases for about 15
years. At the same time, the need for infrastructure funding for
drinking water is $400-800 million in the next 10 years. The likelihood
that water rates can be raised to cover these costs is doubtful, given
that the increase in sewer bills has virtually used up the elasticity
that existed to raise rates.
How we close the $11 billion drinking water infrastructure gap between
historical spending and overall need is the next question. Many water
utilities can meet this demand for greater investment without
assistance. To help reduce this gap, water utilities, especially large
metropolitan systems, have made great strides in efficiencies, with some
utilities achieving a 20-percent savings in operations and maintenance.
Utilities will continue to reduce costs, seek cost-effective financing
and employ innovative management strategies. Regardless, there will
remain a gap between the available funds and the significant level of
investment required. AMWA and AWWA do not expect the federal government
to completely fill the gap, but some help is needed.
AWWA and AMWA pledge to work with Congress to develop a responsible and
fair solution to this problem. Thank you, again, for holding this