As water and wastewater infrastructure ages and deteriorates, the cost of replacing it all becomes a growing concern. Replacement costs can be astronomical and, and it doesn’t help that many utilities have not planned for the inevitable expenditures for replacement. When providers cannot postpone replacement of this infrastructure, the high costs come as a shock to previously oblivious rate-paying customers. The resulting conflict between providers and ratepayers can be enough to cause gnashing of teeth for even large, well-heeled utilities. Unfortunately, the problem can occasionally be insurmountable for small water systems.

The EPA reports that water utilities serving fewer than 3,300 customers - make up nearly 85% of all water systems in the United States. For these systems, the cost of infrastructure replacements is more than large, it’s unbelievable. The small town of Lebannon, OR provides a good example. The cost of replacing Lebannon’s incredibly old water treatment plant is going to cause water rates to increase by 60% is only one example among many of how major capital replacement costs in one small town can lead to a significant increase in customer water rates.

When presented with such high cost for replacing important equipment and infrastructure, what should a small utility do? There are no simple answers. The seemingly endless supply of grant dollars for these systems has all but disappeared, meaning that in order to avoid a 60% rate hike, even small utilities have to plan ahead for their replacement needs. Back in Lebannon, OR, the old water treatment plant had been in service since 1946! Running at capacity, the plant was only able to stay one day ahead of demand. It is not surprising that the facility would need to be substantially upgraded or replaced at some point - at least some time around the 64th year of service.

Costs for upgrades and replacement can be estimated by professional engineers. Small communities with some foresight can initiate smaller scale rate increases to build up a cash fund as well as to establish debt capacity to finance replacement costs. This type of ‘forward planning’ is essential for small utilities and communities that may not enjoy reserve cash funds or ready access to credit markets.

Financial planning is essential to avoiding the surprises that accompany massive service rate increases. Water utility consultants provide these services, however most utility managers can begin without consulting help. Recognizing the need is step one. Understanding what the fixed assets situation is, where each facility is in its service life, and when each was put into service is important. Then, reasonable estimates can be made regarding expected timing of facility replacements and the associated costs for each replacement project.

Armed with this information, the utility has a reasonable and reliable expectation for what the future holds and informed decisions can then be made. Will the provider need to increase rates and fees? Chances are, the answer is ‘yes.’ By preparing in advance to replace aging assets and facilities, the utility can expand its options in handling the situation. Waiting until a facility becomes inoperable though will severely limit available options.