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American Society of Civil Engineers Report Card on Infrastructure (February 2001).

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Association of Metropolitan Water Agencies
1717 K Street, Suite 801 • Washington, D.C. 20036 • www.amwa.net


Testimony on Drinking Water Infrastructure Needs
before the
Subcommittee on Environment and Hazardous Materials
Committee on Energy and Commerce
U.S. House of Representatives
by
Beverly Ingram
Assistant Director
Detroit Water and Sewer Department
Detroit, Michigan
March 28, 2001

Good afternoon, Chairman Gillmor, Congressman Pallone, members of the subcommittee. My name is Beverly Ingram, and I am the Assistant Director for Administration of the Detroit Water and Sewer Department.

This testimony was prepared on behalf of the Association of Metropolitan Water Agencies, which is comprised of 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 drinking water.

Thank you for holding this hearing to learn more about the infrastructure needs of local water utilities. Our goal is to provide you with information to help you understand the enormous challenges we are facing over the next 20 years.

Overall Need and the Gap

Last fall, the Water Infrastructure Network (WIN) released Clean & Safe Water for the 21st Century, which summarized infrastructure needs and the funding shortfall facing drinking water and wastewater systems. AMWA is a member of WIN. 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, their 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) 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, the Detroit Water and Sewer Department 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. Detroit’s 4.2 million customers expect and deserve safe water to come out of their taps each morning.

To meet our responsibilities, old pipes and out-of-date treatment facilities must be replaced, repaired and refurbished. Distribution pipes in some of our cities were laid in the late 1800s, when municipal water systems were first built. These cast iron pipes are said to last as long as 120 years. Pipes laid in the 1920s, during a second wave of water system construction, are made of different materials that are said to last as many as 100 years. And experts say that pipes laid during a boom in construction after World War II could last 75 years.

Similarly, treatment plants built in the 1950s have outlived their maximum life spans. Even treatment facilities built soon after passage of the Safe Drinking Water Act, in 1970s, are 25 to 30 years old, and must be replaced with advanced treatment technology.
Considering the average life span of this infrastructure, it becomes clear that the time for refurbishment and replacement is upon us.
Operations and maintenance costs must be taken into account, as well. AWWA estimates that water utilities will spend an additional $27 billion per year to operate and maintain their facilities. We note this because electricity costs comprise between 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 infrastructure.

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 projects.

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.

Further compounding this issue is demographics and its impact on large urban centers, such as Detroit. When people move to the suburbs, the pipe and the liability for repair and replacement remain behind, creating a financial burden on the remaining, often less affluent, customers. Nevertheless, these cities cannot forgo infrastructure improvements.
To better understand these infrastructure needs, here are some local examples.

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.

Knoxville, Tennessee. The Knoxville Utility Board (KUB) 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. 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 years.

Conclusion

How we close the $11 billion drinking water infrastructure gap between historical spending and overall need is the next question. To help reduce this gap, water utilities, especially large metropolitan systems, are raising rates and 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 does not expect the federal government to completely fill the gap, but some help is needed.

AMWA pledges to work with Congress to develop a fair solution to this problem. Thank you, again, for holding this important hearing.

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