Water is going to get more expensive, and utilities need to get ready because water service is the bill customers think about the least, according to a Rutgers University-Camden professor.
The central takeaway from professor Richard Michenfelder’s latest paper, published in the Electricity Journal, focuses on what he says is an impending spike in the cost of water, driven by the need to invest in the country’s aging water systems.
Michenfelder — a former executive in the electricity industry who co-wrote the article with public utilities consultant Gary Shambaugh — compared the coming wave of rising costs to the electricity industry in the 1970s, when price hikes spurred Congress to pass a law requiring companies to collect and study metered usage data and ensure customers were paying their fair share.
“Electricity prices started to make a meteoric rise, so much so that all of a sudden it got the attention of residential and business customers who typically didn’t think twice about it,” Michenfelder said.
Now he says water service is the bill people think about the least, but that will change after necessary but costly upgrades drive up water bills.
He thinks the water industry is in far worse shape than the electricity industry was in the 1970s. Utilities have underinvested in aging water systems for nearly 100 years, compared to the few decades of underinvestment in electricity that led to the 1970s price increases, he said.
“In some areas, the main pipelines are wooden logs hollowed out,” he said. “How much leakage is there? How much can it handle in terms of serving more customers?”
The vast majority of water utilities in the United States are small, municipally owned systems, and many are facing rising pension costs, tighter budgets and looming costly upgrades. Increasingly, those municipalities are selling their assets to companies like Camden-based American Water, the largest publicly traded water utility in the country, and Bryn Mawr-based Aqua America (NYSE: WTR), a smaller competitor. The water companies argue that in many cases, they’re better equipped to run the water systems because of their ability to spread pricey repair costs over a much larger customer base.
Opponents to water privatization often claim water systems should be publicly owned based on principal, but cite potential rate spikes as a concern as well. With the dire situation many systems face, Michenfelder said, price increases are coming to every ratepayer, and all utilities both private and public need to prepare them.
He suggests utilities follow a similar approach as the electricity industry by collecting extensive amounts of data on customer usage and metering. Utilities then have to educate consumers about the cost of water and break it down by activity.
“When you’re able to tell people how much of their water bill is driven by toilet flushing, showers, filling up pools, all of a sudden they will start paying attention to it,” Michenfelder said.
He said he’s talked with an executive at American Water (NYSE: AWK) about his paper, although he’s not telling the company “anything new about prices of water,” he said. “They live this every day.”
In a statement, an American Water spokesperson said customers “are the center of” everything the company does.
"Through our many communications channels across our company footprint, we continually drive energy and water conservation through consumer and community education programs, innovative leak detection efforts, replacement and rehabilitation of aging infrastructure including pipelines and pumps. Showing our customers and communities that we care matters,” he said. “We do this by providing them the information they want and need; and the service that they expect and deserve.”