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 ©2019 AMERICAN WATER WORKS ASSOCIATION 2019 STATE OF THE WATER INDUSTRY REPORT EXECUTIVE SUMMARY 3 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 ©2019 AMERICAN WATER WORKS ASSOCIATION 2019 STATE OF THE WATER INDUSTRY REPORT EXECUTIVE SUMMARY 5 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 ©2019 AMERICAN WATER WORKS ASSOCIATION 2019 STATE OF THE WATER INDUSTRY REPORT EXECUTIVE SUMMARY 7 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 Better 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.% 16.9% 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 replace- ment and expansion needs.