Assessing and addressing utility viability for the long term

What the South Carolina Rural Infrastructure Authority’s Report “Working Together, A Path to Economic Viability” can teach small utilities nationwide

While we often value water and wastewater utilities for the services they provide to our communities, we often overlook their role as economic engines. Without safe drinking water and treatment of our wastewater, our local economies would cease to exist. So how do we know if these critical agencies are on a path to becoming less economically viable themselves? And how can we prevent it?

That’s what “Working Together, A Path to Economic Viability” sought to find out. The report was created in 2021 by the South Carolina Rural Infrastructure Authority (SCRIA) with funding from the U.S. Economic Development Administration and with assistance from a number of agencies, including Raftelis. The issues and solutions identified in the report may be instructional for utilities nationwide as they seek to obtain new federal funding and apply it effectively.

The core of the study was to examine the long-term viability of South Carolina utilities using 15 indicators of socio-economic, financial, and infrastructure health, which, when evaluated holistically, can foretell whether a utility is on a continued path to success or at risk. A viable utility is one that operates efficiently and effectively. That means they are maintaining infrastructure and investing in it when needed, all while continuing each day to provide reliable, essential services to customers at a price that’s based entirely on user fees and rates.

A committee composed of representatives from water and wastewater systems, economic development, commerce agencies, and healthcare agencies were presented with the report’s draft findings, and they helped to refine and finalize the report’s recommendations, which are focused on partnerships that can help systems proactively identify and address their viability challenges. Some of the most beneficial agencies utilities can partner with for this work include government regulators, funding agencies and professional associations within the water and wastewater utility sector.

Indicators of Utility Viability

Within the larger umbrella categories of socio-economic, financial, and infrastructure health, the research team examined several specific characteristics, many of which came from the USEPA Capacity Development Program and the Effective Utility Management (EUM) initiative. In the socio-economic realm, these include factors like median household income, poverty rate, and unemployment rate. It includes infrastructure factors like compliance record, system age, and type of ownership. Finally, financial factors, such as affordability, rates, debt load and cash reserves were also considered. When taken all together, the data provides a compelling and objective assessment of a system’s long-term viability that the utility can share with regulatory and technical assistance providers in the search for long-term solutions.

Trends in Viability Uncovered

Utility size is a key factor in determining its long-term viability, and smaller utilities are most at risk.

Unsurprisingly, the size of a utility is a key factor in determining its long-term viability, because so many factors are tied to a utility’s size. Smaller utilities were confirmed to be the most at risk for a variety of reasons. One is, smaller utilities struggle with affordable rates, as costs must be allocated over a smaller number of connections. Smaller, more rural systems often serve lower income populations, exacerbating the rate issue, as affordability becomes a challenge. In addition, it was found that the smallest utilities were often the oldest ones. This helps explain why compliance record was also a strong indicator of a utility’s long-term viability, given that most smaller system’s assets were older and in need of repair and these smaller utilities struggle to obtain the revenue needed to reinvest in their systems. The trend of smaller systems being more at risk continued over the majority of the parameters examined.

Recommendations for Utilities Nationwide

While SCRIA’s report focused on South Carolina utilities, the lessons and recommendations are instructional for smaller and more rural utilities nationwide.

1: Utility Viability Identification

This recommendation is to create a self-assessment toolkit using the indicators in this report that utilities can use to assess themselves. This would create consistency in the way utilities measure their viability. Doing so as soon as possible, and engaging the assistance of outside resources, may help utilities prevent problems from becoming more significant or even eliminate them if proper actions are taken in time.

2: Coordination of Assistance

The success of any assessment tool rests on having strategic partnerships between funding and regulatory agencies and the professional associations that provide technical assistance to utilities. This network can be instrumental in moving things forward by:

  • Developing protocols to respond to viability concerns
  • Coordinating technical assistance
  • Developing and coordinating training
  • Identifying additional training needs
  • Collaborating on new programs or expanding programs to promote viability
  • Identifying resources that can improve viability

3: Leveraging Partnerships

In concert with the second recommendation, it is imperative that utilities enhance their existing partnerships and develop new ones. Members of the study’s advisory committee suggested the following:

  • Sister Utilities Program to provide utility-to-utility mentoring opportunities around specific issues or needs.
  • Regional Utility Coordination Groups that can bring utility managers and staff together on a regular basis to collaborate, provide training and direct assistance among neighboring communities. This could also be a vehicle to identify regional partnerships at the grassroots level.
  • Water Utility Institute to provide a curriculum for training utility board members and local elected officials on water utility management best practices.
  • Rapid Assessment Partnerships to identify and develop operational/managerial, technical, financial, and legal resources that can be deployed rapidly to address immediate, serious needs for hands-on assistance and to quickly identify the scope of the underlying issues.

4: Targeted Financial Assistance

Last, reliable, effective funding is required for any utility seeking to address its long-term viability. This funding can be used to help identify and quantify a utility’s needs and help them implement actual solutions by conducting critical planning activities, such as:

  • Asset Management Planning
  • Rate Studies/Rate Setting
  • Capital Improvement Studies
  • Regional Feasibility Studies

Once a utility identifies its specific needs through these assessments and/or planning activities, it can obtain the proper funding for a solution, whether that’s critical capital improvements or regional solutions, such as consolidation of utilities (e.g. contracts, billing, etc.), partnerships between a large utility and one that is smaller; or multiple small utilities sharing resources.

The funding is crucial for success, as is having a consistent approach for providing statewide assistance, such as:

  • Including viability indicators in funding applications and priorities
  • Incentivizing regionalization where appropriate
  • Strengthening conditions of assistance to promote viability
  • Evaluating potential for new programs of assistance

Beyond the Recommendations

Beyond these recommendations there are more, longer-term factors to consider that may take more time to implement, including:

  • Reviewing state laws and policies to identify how they can better support the implementation of solutions
  • Identifying sustainable utility funding sources for viability solutions

With this once-in-a-generation federal investment being made in our nation’s water infrastructure, utilities have an unprecedented opportunity to make transformational change that contributes to their long-term health. That money should be allocated and spent wisely, to support the specific initiatives and investments that a utility needs to achieve long-term success. It starts with assessing key parameters, then continues with developing and strengthening key partnerships.