Water Industry News

 NJ water customers face big repair bills 

For every cracked pipe buried below the surface, for each main choked by mineral deposits and for every failure that spins into an emergency, there is a message: the state’s water infrastructure is in dire need of billions of dollars — possibly a trillion nationally — in the next two decades.

And guess who’s going to foot the bill?

What now costs the average household about $40 a month will balloon to $120 or more by some estimates, to rectify years of neglect.

“The bottom line is that there has been a desire to avoid dramatic double-digit rate increases,” said Richard A. Michelfelder, a professor at Rutgers University ’s business school in Camden and former head of the national utilities consulting firm Quantum.

Water companies — municipal, regional and investor-owned — have not invested enough in infrastructure, partially due to pressure to keep rates low, he said.

Water companies have spent hundreds of millions of dollars to fix its infrastructure in the last decade, and water rates have climbed as a result. Still, in what the American Water Works Association predicted is the “replacement era,” it is a game of catch-up.

“Most of our infrastructure in this industry is buried and most of it is aging,” said Rick Howlett, executive director of the New Jersey Water Association, a trade group. “We’re certainly not replacing our infrastructure with a pace that is

Much of the serpentine network of pipes, valves and pumps beneath the surface has been around since the Great Depression or earlier. New Jersey American Water, for instance, estimates that about 15 percent of its approximate 9,000 miles of piping statewide will hit 100 years of service by 2020. The borough of Seaside Park , established in 1898, just recently made its first major overhaul to its water system, swapping out century-old wooden piping for new water mains.

“Infrastructure deteriorates every day,” said Dennis W. Doll, president of
Middlesex Water Co., a utility that serves about 140,000

Lee Solomon, the former head of the state Board of Public Utilities, said at a
November roundtable on water supply at Rider University that he personally believes that water will be the “crisis of the 21st century.” Water has in many ways been ignored, he said, and the infrastructure’s age and vulnerability was exposed last year by tropical storms Irene and Lee. He said those events showed that if you do not upgrade infrastructure, do not make necessary investments or hold off repairs, “disaster occurs.”

In these days of shrinking budgets and dwindling revenues, regional and municipal authorities will often make cuts that can’t be seen.

“When it’s a tough budget year, it’s easier to ignore what’s underground,” Doll said. “The unfortunate reality is that maintenance often gets deferred.”

But even for profitable, investor-owned companies like Middlesex Water and New
Jersey American, there are limits to how much work can be done in a certain time frame, business insiders say. They must strike a balance of attracting capital and investing in infrastructure, or assets, while keeping rates low. These companies are highly scrutinized by the BPU each time they request a rate hike, and often get approved for less than they apply for.

“It’s all about risk management,” Doll said. “Nobody has the time, money or resources to fix everything that’s needed.”

The utilities have a wide berth when it comes to applying their resources.

The BPU can order a regulated utility to fix equipment, but by and large, unless a
complaint is filed with the board, “the company is responsible to maintain their
systems,” spokesman J. Gregory Reinert said.

To Reinert’s knowledge, no complaints were made about the bridge and piping
that collapsed June 29 at New Jersey American Water’s Swimming River plant.
The incident, which sent Monmouth County into a state of emergency, is still being reviewed by the board. If an investigation were conducted, it would be the result of a recommendation by staff to the board. Freeholder Director John P. Curley has called for a state investigation.

In 2007, 2008, 2010 and 2011, the
Clean Water Council of New Jersey, an advisory board to the Department of Environmental Protection, held annual conferences focusing on infrastructure management for water utilities and offered
recommendations for action. Now, after years of prodding, the state has
acknowledged the need to address these subterranean threats.

The BPU is implementing a new program known as DSIC, short for distribution
system improvement charge, essentially allowing regulated water companies to levy a one-time fee to customers to pay for critical rehabilitation and replacement
projects. DSIC is seen as a measure to reduce red tape between rate increase
hearings – they can take close to a year – and accelerate much-needed fixes. The charge would need to be approved by the BPU and would be capped at 5 percent, meaning the average monthly water bill of $42 would increase by $2.40, according to the New Jersey Utilities Association.

And the DEP is launching a pilot asset management program by the end of the
year aimed at identifying vulnerabilities in water systems and ways to fix them, said Fred Sickels, acting director of water supply and geoscience. No systems have been targeted and the department did not have any other specifics of the program available.

The latest report card for New Jersey, issued in 2007 by the
American Society of
Civil Engineers
, gives a “C” grade for its drinking water infrastructure, better than
the 2009 “D-” grade the society gave the nation’s drinking and waste-water systems, but certainly leaving plenty of room for improvement. Indeed, the society estimates that New Jersey would need to spend nearly $7 billion in water infrastructure upgrades over the next 20 years.

Nationally, about $335 billion in upgrades are needed for that same span, according to the federal Environmental Protection Agency. The American Water Works Association estimates that more than $1 trillion is needed between now and 2035, and that the costs could triple the size of a typical household’s water bill.

According to a 2002 report from the Congressional Budget Office, current funding is insufficient for the growing demand for water infrastructure, yet water bills remain one of the lowest delivered to a home. The CBO estimated that in the late
1990s water bills, including waste-water services, were 0.5 percent of household
income; the office estimates that to rise to between 0.6 percent and 0.9 percent by 2019.

Water here in New Jersey costs about half a penny a gallon, according to New Jersey American Water, the largest provider in the area. In the next 20 to 25 years, that cost will gradually rise to between 3 cents and 5 cents a gallon, by Michelfelder’s rough estimate.

At the November roundtable, Solomon frankly stated the pressing need not only
for significant infrastructure investment but also for a shift in public perception about the true cost of water.

“There’s going to be a day of reckoning,” he said, “and it’s going to be relatively soon, and it’s going to be significant.”

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