Putting improvements to water infrastructure on tap

While easy to ignore, reliable service crucial to business operations

NJBIZ STAFF//July 30, 2012//

Putting improvements to water infrastructure on tap

While easy to ignore, reliable service crucial to business operations

NJBIZ STAFF//July 30, 2012//

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Most people don’t spend a lot of time thinking about water.

Most people don’t spend a lot of time thinking about water.

“Because the infrastructure is underground and not visible to the population, it’s relatively easy to assume that reliable water service will always be there,” said Dennis Doll, president and CEO of Woodbridge-based Middlesex Water.

What goes unseen, Doll said, is the fact that it takes a lot of diligence — and a lot of money — to keep the water infrastructure in working order.

But while the “no news is good news” approach may work for the general public, reliable water service can be a make-or-break issue for businesses.

“We need to have infrastructure in order to attract and retain our businesses,” said Ann Brady, managing director at Plan Smart NJ. “Unlike the general population, businesses do look at the infrastructure capacity and quality in making their locational choices.”

Brady said last year’s state strategic plan calls for the creation of regional innovation clusters to promote economic development. In order for those clusters to work, Brady said, the state needs to ensure those clusters have adequate infrastructure for each of the different industries. For instance, she said, some companies — such as biotechnology firms — need clean and reliable water, while other industries can use non-potable water, but they need it in large amounts.

So far, New Jersey is getting mixed reviews for its infrastructure maintenance. The American Society of Civil Engineers gave the state’s water infrastructure a “C” grade, but warned billions of dollars of investment will be needed to keep the century-old system in good working order.

Edmund DeVeaux, vice president of external affairs at United Water, whose New Jersey subsidiary serves some 800,000 customers in northern New Jersey, said aside from being underground, water also can be forgotten because emergency outages are repaired before they reach a crisis point.

Earlier this year, the Board of Public Utilities approved a new Distribution System Improvement Charge mechanism, which lets water utilities get approval to charge customers for capital improvements. That differs from the standard system, whereby companies make capital improvements, then go to the BPU to ask for a rate increase to recover the cost.

DeVeaux said that system doesn’t encourage investment, since companies often have difficulty recovering their full costs.

Still, DeVeaux said the state could do more to help fund water infrastructure improvements. He specifically points to private activity bonds, which are public bonds used by private entities for a public purpose. DeVeaux said such bonds save ratepayers money because they come with lower interest rates than conventional bonds. He said they also boost the economy by incentivizing capital improvements, which in turn creates jobs in construction, engineering and related industries.

“United Water New Jersey, since 1994, has utilized approximately $230 million in private activity bonds at an average interest rate of 4.5 percent, which compared to the conventional bonds at 7.5 percent, have saved our customers tens of millions of dollars,” DeVeaux said.

Despite that success, DeVeaux said, only 1 to 2 percent of private activity bonds are used for water-related work.

Michele Siekerka, assistant commissioner of the state Department of Environmental Protection, said water infrastructure spending needs to be coupled with long-term planning. “It does cost a lot of money to put new infrastructure in, but you need to balance that against emergency repairs,” Siekerka said. “A long-term asset management plan will have a better return on investment, and will be able to best mitigate those costs over a long-term period.”

Siekerka said the DEP is putting together a process that would ask water suppliers to develop asset management plans as part of their permitting.

Doll, whose company maintains about 750 miles of pipe and serves 140,000 people, said his firm has benefited greatly from its long-term approach to maintenance.

“We’ve had a very active asset management program,” he said.
Siekerka said regulating water utilities is also a challenge. She said the 31 investor-owned water utilities in the state together serve about 40 percent of New Jersey. The rest of the state is served by some 620 community water systems. Siekerka said about half of those are too small to fall under state regulations. She said those smaller utilities and government-owned systems may face the steepest hurdles, “because the local dollars tend to be grabbed and reallocated for other purposes.”

Michael Egenton, senior vice president for government relations at the New Jersey Chamber of Commerce, said the same can happen on a state level. He said businesses are open to the idea of paying higher rates or even a water tax to help fund necessary infrastructure improvements. But past proposals have included — explicitly or implicitly — the possibility of using the revenue for things not directly related to water infrastructure, he said.

Siekerka hopes to bring more attention to the state’s infrastructure needs, but she said she also wants to move the conversation beyond maintenance to conservation. She said it took many years, and rising costs, to steer the energy conversation toward conservation. She said the same must be done for water.
“I think really the key to this is elevating the discussion on the education side, and really making water a critical issue for us,” she said. “It is a critical issue for us.”

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