2019 State of the Water Industry Report Executive Summary 3

2019 State of the Ideal crop marks Water Industry Report Executive Summary 2

“We’re excited about the increase in optimism in the survey results. While statistically valid, it remains to be seen whether the increase represents a continuing positive trend. I think it does reﬂ ect an accumulation of the water sector’s recent successes in addressing challenges. While there is more to do, we are better at developing solutions that effectively manage water, our most important resource. We’ll be watching.” David LaFrance, CEO, AWWA

Water sector shows upswing in optimism

Water professionals are currently more optimistic about the The 2019 report summarizes data from a survey of utility health of the sector than they’ve been in the past 15 years, and non-utility professionals in the United States and Cana- according to insights from the American Water Works Asso- da. When asked to rate the current health of the ciation’s (AWWA) 2019 State of the Water Industry Report. industry based on a 1-7 scale, with 1 being “not at all sound”

The annual report illuminates the current challenges, and 7 being “very sound,” participants’ scores averaged opportunities and trends impacting the water community. 4.85. This is an 8.5 percent increase from the 4.47 score from the 2018 report and marks the second consecutive SURVEY PARTICIPANTS BY ORGANIZATION TYPE increase after 13 successive years of decline. The outlook for five years from now is also optimistic, but slightly less so. In the 2019 report, the average score for the 30% industry’s soundness in five years is 4.69 -- up by 5.9 percent compared to 4.43 in the 2018 report. This also is a second consecutive upswing after 13 years of decline.

The 2019 report also identifies significant emerging issues 55% 5.20 in the industry, including affordability, cybersecurity and Current In 5 Years 5.00 5.00 developing regulatory concerns. 4.90 4.87 4.86 4.85 4.79 The views included in the annual survey report inform the 4.80 15% 4.81 4.70 4.69 4.65 decisions of utilities and service providers, support water 4.73 4.64 4.61 4.63 4.56 4.60 4.64 4.63 professionals4.51 and guide the water community in safeguard- 4.46 4.47 4.47 4.58 4.57 4.54 4.51 ing public health, serving communities4.34 and protecting the 4.40 4.47 4.43 Water Consulting Service providers, 4.39 4.36 4.35 utilities firmsconsultants academia, science, environment. They also help 4inform.34 AWWA’s legislative, 4.20 regulators, retired professionals regulatory and advocacy priorities. 4.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2Full013 report2014 available2015 at2 0awwa.org/SOTWI16 2017 2018 2019

STATE OF THE WATER INDUSTRY

5.20

Current In 5 Years 5.00 5.00 4.90 4.86 4.85 4.87 4.79 4.80 4.81 4.70 4.73 4.64 4.65 4.61 4.63 4.69 4.60 4.56 4.64 4.63 4.51 4.58 4.57 4.46 4.47 4.47 4.51 4.54 4.40 4.34 4.43 4.47 4.39 4.36 4.35 4.34

4.20

4.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 4

“Despite the challenges the water sector faces – be it infrastructure renewal, supply, quality, affordability or workforce – providing safe water is something that transcends these challenges. The sector will leverage innovation, advocacy efforts and new programs to address critical issues because safe water IS the world’s most precious resource. AWWA will continue to lead the development of solutions by creating and exchanging knowledge, fostering innovation, demonstration the value of safe water, and working with partners to address pressing challenges.”

Kurt Vause, Chair, AWWA Water Utility Council

Most critical issue: renewal and replacement of infrastructure

These are the top issues and challenges currently impacting Not surprisingly, water professionals have identified and the water sector, according to AWWA’s 2019 survey report: ranked some combination of these issues as the most pressing in the sector for several years. 2019 ISSUES FACING THE WATER SECTOR While aging infrastructure is the top concern for RANKING CATEGORY medium-sized through very large utilities, small utility Renewal and replacement of aging water and wastewater 1 infrastructure personnel ranked their top challenges as water sources 2 Financing for capital improvements and rights to those sources. 3 Long-term water supply availability All utilities, regardless of size, are concerned about aging Public understanding of the value of water systems and 4 services workforces and anticipated retirements. 5 Watershed/source water protection Learn more: Transformative Issues Symposium on 6 Public understanding of the value of water resources Workforce, Aug. 7-9, 2019, Washington, D.C. • Buried No Longer report • Thinking Outside the Bill report • Public Com- 7 Groundwater management and overuse munications Toolkit • Risk and Resilience Certificate Program 8 Aging workforce/anticipated retirements

9 Emergency preparedness Recent funding successes spur progress Cost recovery (pricing water to accurately reflect the cost Toward the end of 2018, AWWA and the water sector 10 of service) Governing board acceptance of future water and wastewater celebrated successes in their efforts to generate additional 11 rate increases funding for infrastructure repair and replacement and 12 Compliance with current regulations drinking water protection. These included: 13 Compliance with future regulations • Passage of America’s Water Infrastructure Act (AWIA) 14 Talent attraction and retention of 2018, which removed the “pilot” designation from Public acceptance of future water and wastewater rate 15 increases the Water Infrastructure Finance and Innovation Act 16 Water conservation/efficiency (WIFIA) — a signature AWWA legislative achievement.

17 Cybersecurity issues WIFIA is expected to support $12 billion in loans for water

18 Asset management and wastewater projects in 2019.

19 Drought or periodic water shortages • AWIA also reauthorized the Drinking Water State Revolving Improving customer, constituent, and community 20 Loan Fund (DWSRLF) and funded it at $1.174 billion. relationships 21 Data management • Congress passed a 2018 farm bill that expands funding

22 Water loss control for drinking water protection. The efforts of AWWA and its

23 Certification and training members resulted in significant improvements to federal

24 Energy use/efficiency and cost conservation programs, such as a requirement that the

25 Water rights Natural Resources Conservation Service (NRCS) spend at

26 Water quality issues from premise plumbing systems least 10 percent of conservation dollars on source water

27 Expanding water reuse/reclamation protection, totaling $4 billion over the next 10 years.

28 Financing for water research Learn more: Source Water Justification Toolkit • U.S. Dept. 29 Physical security issues of Agriculture Tools to Support Source Water Protection • M21 Groundwater 30 Climate risk and resiliency 6

“Even utilities like Denver Water that have planned for aging infrastructure face new challenges to our ability to fund capital plans. Water providers in the Southwest are encountering signifi cant capital needs for maintenance, upgrades and growth at a time of greater uncertainty for water supplies. Climate change costs from fi res, ﬂ ooding and prolonged drought are increasing elements of our fi nancing plans. There also is uncertainty from changing regulatory and security environments. To meet these funding challenges, Denver Water must partner with other utilities and work with stakeholders outside our industry.” Angela Bricmont, Chief of Finance, Denver Water

Utilities stretched to ﬁ nance infrastructure renewal/replacement

Even with growing federal loans support, the ability to AWWA’s Policy Statement on Accounting, Financing, and fi nance much-needed infrastructure renewal and/or Rates states, “AWWA believes that the public can best be replacement remains a top water sector concern. provided water and wastewater services by self-sustaining

Forty-six percent of utilities reported adequate access enterprises adequately fi nanced with rates and charges to capital in the 2019 report, declining from 53% in 2018 based on sound utility accounting, management and and below the running average of 53%. fi nancial principles.”

Many water and wastewater systems built and fi nanced The policy also states, “Revenues from water and by previous generations are approaching or have exceeded wastewater service charges, user rates, and capital their useful lives and need renewal and replacement. charges should be suffi cient to pay for annual operation and maintenance expenses, fi nancing of capital costs, ACCESS TO CAPITAL TO FINANCE INFRASTRUCTURE maintenance of working capital and required reserves, and etter than any time in the past 5 years achievement of defi ned fi nancial performance metrics.”

15.2% ABILITY TO COVER CURRENT AND FUTURE COSTS

As good as any time in the past 5 years 30.%

31.0% 20.9% Similar to most of the past 5 years 18.9% 19.3%

30.9% 10.3%

As bad as any time in the past 5 years (%) Participants

4.8%

Worse than any time in the past 5 years Current

5.1%

0% 5% 10% 15% 20% 25% 30% 35% 28.1% 22.2% Ability to recover costs through rates and fees 17.% 1.9% 15.1% This fi nancing issue relates to the ability of utilities to fully recover the cost of providing services through customer (%) Participants rates and fees, including infrastructure renewal and replacement and expansion needs. Future

As the useful lives of infrastructure systems come to an end, Not at all able Moderately able Fully able managers and the communities they serve must address Slightly able Very able these costs, sometimes through unwelcome rate increases.

Each system has its own unique rate-setting challenges Learn more: 2019 Water and Wastewater Rates Survey based on current conditions, recent developments and • M1 Groundwater • M54 Developing Rates for Small Systems • Buried No Longer report longer-term history. 8

"The San Diego County Water Authority has embraced smart, long-term water conservation and investment strategies such as seawater desalination that have greatly enhanced regional water supply reliability. Instead of being dependent on a single source for 95 percent of our water like we were 30 years ago, the Water Authority now has a diversifi ed portfolio of water supplies and we're supporting emerging sources such as potable reuse." Jim Madaffer, Board Chair, San Diego County Water Authority

Managing water supplies with conservation, innovation

Another critical water issue is the ability to meet long-term AUGMENTING WATER SUPPLIES water supply needs. Of the utility participants, 14% indicated Urban stormwater recovery for nonpotable or potable reuse their systems were “not at all” or “slightly prepared” to meet 2% 4% long-term supply needs, up from 6% in the 2018 report. 73% % In addition, 55% indicated their utilities are very or fully pre- Direct potable reuse pared, down from 67% in 2018. The fi ve-year average is 59%. 2% 4% 75% MEETING LONG-TERM SUPPLY NEEDS 7% Indirect potable reuse 45% 38% 5% 40% % 8% 35% 10% 30% 27% Desalination of seawater 25% 1% 20% 1% 17% 8% 15% 2% 10% 10% Desalination of brackish groundwater 4% 5% 3% 2% 0% 81% Fully Very Moderately Slightly Not at all 3% prepared prepared prepared prepared prepared 0% 20% 40% 0% 80% 100%

Fully implemented In development No es Many utilities fi nd water restrictions to be a useful short-term water supply management tool. Of the utility AWWA MEMBER INSIGHT participants, 65% said their organizations had mandatory During a record drought from 2010 to 2015, the City of restrictions and 53% had voluntary restrictions for up to Wichita Falls, Texas, successfully implemented an one year in the last decade; 13% had fi ve or more years of emergency direct potable reuse project, fully using its voluntary restrictions; and 10% had fi ve or more years of wastewater effl uent to supply half of the city's drinking mandatory restrictions in the past decade. water for over a year. The reuse, as well as conservation and drought restrictions, allowed the city to cut summer In addition to water restrictions, utilities sponsor water demand on water reservoirs by 80 percent and maintain conservation programs to emphasize lasting improvements reservoir levels for 12 months. After the drought, Wichita in water use effi ciency while maintaining their communities’ Falls converted to a permanent indirect potable reuse quality of life standards. Of the utility participants in the project with continued community support for potable survey, 42% said they have fully-developed drought reuse for long-term water resource management. management or water shortage contingency plans. “We spent a lot of time educating the public about the high quality of wastewa- From the supply side of the equation, more utilities are ter efﬂ uent, including the technologies looking at augmenting and diversifying their traditional and processes used for drinking water water sources through newer, innovative strategies including treatment and system safety,” said Daniel potable reuse, stormwater reuse and desalination. Nix, public utilities operations manager Learn more: M52 Water Conservation Programs: A Planning with the Wichita Falls Public Works Department. “Our Manual • G485-18 Direct Potable Reuse Program Operation citizens were extremely accepting of direct potable and Management • Potable Reuse 101 report • M60 Drought reuse and we did not receive a single complaint.” Preparedness and Response 10

“As a utility, you believe your infrastructure is adequately protected to suffi ciently and reliably provide service to your customers. Hurricane Harvey illustrated where our utility was prepared to handle a natural disaster and where we remain vulnerable. The AWIA requirements provide a checklist for all information a utility will need when facing the next major weather event.” Yvonne Forrest, Director, Houston Water

New law addresses utility risk and resilience, emergency response

With the passage of America’s Water Infrastructure Act Cybersecurity critical component of risk of 2018 (AWIA), water systems are increasingly focused preparedness on utility risk and resilience. AWIA requires water systems Cyberattacks are a growing and persistent threat to serving more than 3,300 people to complete these statutory critical infrastructure, including drinking water and requirements: wastewater systems. AWIA requires that risk and resilience  Conduct a risk and resilience assessment assessments include cyber threats to all electronic,  Prepare or revise an emergency response plan computer and other automated systems, including financial infrastructure such as accounting and payroll.  Submit a letter to the U.S. Environmental Protection Agency certifying that both requirements have been CYBERSECURITY EVENTS BY UTILITY SIZE

completed according to statutory deadlines 0%

50%  Repeat the process every five years 48% 40% 39% Of the survey’s utility participants, 33% said their 32% 31% 32% 30% organization had fully implemented a community risk 24% 22% 22% 20% and resilience assessment and 37% said they were in the 17% 15% 12% 10% process. The table below shows results by utility size. % 0% AWWA recently introduced a Utility Risk and Resilience Small Medium Large Very Large Certificate Program to help utility members address AWIA Once Never Multiple Times requirements. The online program includes five self-paced courses that support development of an all-hazards risk and Survey participants were asked to rate the importance of resilience management process for critical infrastructure various challenges facing the industry. More than 88 percent through the application of AWWA standards and tools. said cybersecurity was a high priority issue and nearly 30 percent rated it as critical. Overall, participants ranked STATUS OF R&R ASSESSMENT BY UTILITY SIZE cybersecurity as the 17th highest issue facing the water Status Utility Size industry in 2019. For large utilities, it was ranked 8th highest. Small Medium-Sized Large Very Large Fully implemented 26% 31% 38% 45% “The threat is clear, based on findings from the intelligence In progress 37% 36% 29% 38% community and reports like Verizon’s Data Breach Investiga- Interested 37% 33% 33% 17% tions Report, that data breaches are prevalent across all Counts (n) 222 184 126 120 sectors and we don’t want our members to have a false sense of security,” said Kevin Morley, AWWA’s manager of Learn more: G430-14 Security Practices for Operation and Management • G440-17 Emergency Preparedness federal relations. “Given this reality and the requirement to Practices • J100 Risk and Resilience Management of Water assess cyber risks under AWIA, it is essential that water and Wastewater Systems • M19 Emergency Planning for Water and Wastewater Utilities systems make cybersecurity a top priority to protect against harm to public health and safety, damage from service interruptions, lost data, compromised systems, litigation, recovery costs, and reputational harm.”

Learn more: Cybersecurity Risk and Responsibility in the Water Sector report • Cybersecurity Guidance and Use Case Tool 12

“Early in our lead replacement project we asked customers to help identify and report potential lead services, which we checked against our data. In cases where our online records weren’t complete, we cross-referenced our archived paper service cards with current databases and our geographic information system. Lines with unknown material characteristics were treated as lead until verified in the field by physical inspections and, in some cases, excavations.” Randall Roost, Senior Planner, Lansing Board of Water and Light

Utilities mapping out lead service line locations

In the aftermath of the water crisis in Flint, Mich., there is LEAD SERVICE LINE DOCUMENTATION BY UTILITY SIZE increased public attention on the issue of lead in drinking 35% water, primarily due to corrosion in service lines that 30% 29% 27% connect some older homes to water mains. 25% 22% 22% The U.S. Environmental Protection Agency (EPA) issued 20% a federal Lead and Copper Rule (LCR) in 1991 under the 15% Safe Drinking Water Act to minimize lead in drinking water. 10% The LCR was updated in 2000 and 2007 and further 5% revisions were anticipated in 2019. 0% The survey asked utilities whether their system has Small Medium Large Very Large fully documented the location of lead service lines in its service area.

Learn more: Lead Communications Toolkit • C810-17 Replacement and Flushing of Lead Service Lines • Lead Service Line Replacement Collaborative • Policy on Lead Service Line Management

Emerging PFAS concerns impact regulatory compliance

Concerns about current and future regulatory compliance An emerging concern is perfluorinated compounds (PFCs), were ranked higher in the 2019 report than the previous year. also referred to as perfluorinated alkyl substances (PFAS). “Compliance with current regulations” and “Compliance with The EPA has identified PFCs as emerging contaminants future regulations” were rated 12th and 13th, respectively, in because they have a pathway to enter the environment, the 2019 list of top issues impacting the water sector. may pose a human health or environmental risk, and do not yet have federal regulatory standards. Individual states are CURRENT REGULATORY CONCERNS Rank Area Average % Extremely developing guidelines for monitoring and reducing PFCs in concerned the environment. 1 Non-point source pollution 3.30 17.1% Current regulations regarding nonpoint source pollution 2 Per- and polyfluoroalkyl substances 3.22 15.8% (PFAS) and PFAS were identified by survey participants as the 3 Cyanotoxins 3.18 14.6% top two regulatory concerns in the 2019 report. In addition, 4 Chemical spills 3.15 16.0% participants were asked about their levels of concern 5 Point source pollution 3.15 13.5% regarding the water sector’s ability to comply with current 6 Combined sewer overflows 3.12 14.9% regulations. Responses are summarized in the table at left. 7 Disinfection byproducts 3.11 12.3% 8 Nutrient removals 3.09 13.0% Learn more: Treatment and Removal of PFAS • 2019 PFAS 9 Lead and copper 3.06 14.0% issue paper • 2019 House Subcommittee Testimony on PFAS • DrinkTap.org 10 Pathogens 3.05 14.4% 11 Radionuclides 2.84 10.9% 12 Arsenic 2.84 10.7% 14

“‘We ARE the Community’ is our approach to fi nding new solutions to ongoing challenges, including affordability. This speaks to past practices where we would expect the community to solve ‘their’ affordability issues while still paying our utility bills. When we say, ‘We ARE the community,’ it becomes our problem and we work differently to fi nd a solution.”

Cathy Bernardino Bailey, Executive Director, Greater Cincinnati Water Works

Developing solutions to maintain water service affordability

Discussions about costs and customer rates must UTILITIES OFFERING BILL PAYMENT ASSISTANCE also address the issue of water affordability for low-income 40% households. Historically, water services were underpriced 37% 37% compared to their true cost. However, since 1996 they 35% have increased 4.9% annually to more fully recover utility 30% costs, outpacing annual increases in the U.S. Consumer 25% 22% Price Index. 20% This year’s survey asked utilities whether their organizations 15% offer programs to help low-income customers pay their 10% water and/or wastewater bills. Of the 894 participants, 5% 4% 37% reported that they do offer assistance and 37% reported that they do not offer assistance to low-income customers. 0% es No In development but Don’t The remaining 26% were developing a program or did not not implemented know know if their utility had an assistance program.

In 2018, AWWA adopted a Policy Statement on Affordability, acknowledging that “providing reliable and high-quality water, wastewater, reclaimed water, and storm water AWWA MEMBER INSIGHT services at fair and reasonable rates and charges to all Greater Cincinnati Water Works (GCWW) fi rst addressed customers is fundamental to a utility’s mission.” The affordability through its commitment to help customers statement recognized that “some utilities are faced with replace lead service lines. GCWW’s recently-developed affordability challenges among some of their low-income Enhanced Lead Program includes cost-sharing through credit and long-term payback to help customers pay for residential customers.” It recommends that utilities work replacement of the private-side of their lead service lines. with regulators and government entities to address afford- The cost-sharing is funded through donations from ability challenges and “evaluate new policies that allow employees via payroll deductions, customers through low-income households to have access to utility services, the billing portal, gift donations on behalf of others, while maintaining the fi scal sustainability of utilities.” corporate donations via their websites, and various donations raised through community events. Learn more: Thinking Outside the Bill report • Special Content Collection, 2018 Transformative Symposium on Affordability “This robust solution works for our community and allows • Developing a New Framework for Household Affordability ‘US’ to work collectively with many partners to change and Financial Capability Assessment in the Water Sector • 2019 Rate Survey • M1 Principles of Water Rates, Fees, and positively impact our community for generations and Charges to come,” said Cathy Bailey, executive director. “Ownership and the understanding that we ARE the community make all the difference in the solutions that were brought forward. We will use this same approach as we now turn our attention to customers and affordability of monthly bills for water, sewer and stormwater services.” AWWA is the best place to connect and collaborate Become with others in the water industry a Member I need to join today! of AWWA

Join a community of people dedicated to the same important goal and help shape the future of water. Share best practices and learn from other members’ experiences. You’ll also have access to the latest industry information, technical resources, education, training and more. Join AWWA today!

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AWWA Headquarters Government Affairs Offi ce AWWAIndia 6666 West Quincy Avenue 1300 Eye Street NW Mumbai, India Denver, CO 80235-3098 USA Suite 701W www.awwa.org/india Phone: 303.794.7711 Washington, DC 20005 USA Toll-free: 800.926.7337 Phone: 202.628.8303 Fax: 303.347.0804 Fax: 202.628.2846 Dedicated to the World’s Most Important Resource ® [email protected] www.awwa.org

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