John Cromwell and Scott Rubin

OBJECTIVES:

This project was devised to follow up on recommendations of prior AwwaRF research (Regional Solutions to Water Supply Provision, Order #91146) that had called for a new paradigm to evaluate regional collaboration. The new paradigm was called “benefits and issues.” The intent of this project was to first quantify benefits and then discuss the issues that would need to be addressed in capturing those benefits.

BACKGROUND:

The Lehigh Valley in Eastern Pennsylvania is home to more than 600,000 people and includes the cities of Allentown, Bethlehem, and Easton. Most water and wastewater services are provided in the Lehigh Valley by 40 separate publicly owned utilities. The Lehigh Valley is one of the highest growth areas of Pennsylvania. This growth has created significant strains on land use policies and the provision of water and wastewater services.

HIGHLIGHTS:

This research project was undertaken to demonstrate a method of quantifying the potential benefits of regional collaboration between utilities. Spreadsheet models were developed to project the future finances of typical small, medium, and large utilities. Despite the long-term nature of the capital investments and attendant financial risks, many utilities have only a short-term outlook. In contrast, the project methodology forecasts the financial condition of the model utilities in 2020. Results show where utilities will end up without trying to forecast the exact path they may traverse in getting there.

APPROACH:

After obtaining financial reports and conducting interviews with about half of the utilities in the Lehigh Valley, spreadsheet models were developed to project the finances of typical small, medium, and large utilities. These are generic models, that is, they are based on the data collected from specific systems, but the data was averaged together for systems in the same size range to produce an amalgamated “typical” system, but not a replica of any specific system. The use of such financial models to project future conditions consists of applying varying assumptions regarding the future expenses of the business. The key output of each model is the cost per household that is needed to keep the utility viable.

RESULTS/FINDINGS:

The analysis first projects a “status quo” scenario in which utilities are assumed to continue to operate in the same fashion as today. The assumptions are next adjusted to predict results for enhanced regional collaboration, examining the alternative of consolidation into a single entity responsible for providing service to the entire Lehigh Valley and another alternative of creating three sub-regional consolidated utilities. The difference in cost, and therefore in water and wastewater rates between the status quo scenario and the consolidation scenarios in 2002, is the measure of the economic benefit of enhanced regional collaboration.

Under the status quo scenario, the total water and wastewater bill for the average household is projected to nearly double from $450 per year in 2005 to $990 per year in 2020. Results for the sub-regional approach to consolidation indicate a combined water and wastewater bill of about $820 per year in 2020. Results for the total consolidation scenario indicate that 2020 water and wastewater bills would be about $730 per year. By comparison to the status quo scenario, this represents an average household savings of $260 per year. Regionally, this amounts to a total savings of $56 million per year by 2020.

IMPACT:

This research demonstrates the value of making a baseline projection of the status quo into the future. A sustainable utility business is one that knows what is coming and understands its options for adaptation. The modeling approach developed in this project allows explicit assessment of these and other factors on sustainability.

RESEARCH PARTNERS:

Lehigh County Authority

Renew Lehigh Valley

PARTICIPANTS:

City of Allentown

City of Bethlehem

Easton Suburban Water Authority