Jeff Hughes, Mary Tiger, Susan Turnquist, and Scott Haskins

SUMMARY:

The recession that began in 2008 has taken a toll across all sectors of the global economy, and water utilities have not been spared. The Water Research Foundation convened a forum of water utility leaders in September 2009 to discuss how they had acted to mitigate the recession's impacts and adapt to a changed financial and economic environment. This report describes how the forum was organized, summarizes all major areas of discussion, provides details on successful strategies implemented by water utilities, and suggests several areas for research to strengthen financial resilience in the sector.

Highlights of the discussions included the following:

The downturn has not treated all water utilities equally. External sources of stress are not evenly distributed throughout the country. In many areas, foreclosures and business contractions reduced water demand and revenues. Utilities were positioned for different degrees of resilience by variations in utility policies, practices, rate structures, revenue streams, and whether they had initiated changes before the recession's impacts began to grow.

Utilities have employed a wide range of strategies. Some strategies were included strictly for the short term and others could be continued indefinitely. Strategies described include reductions and management of operating expenditures (labor, energy, chemicals, and fleet), reduction and deferral of capital expenditures, revenue enhancements, and communicating with customers, boards, and other stakeholders.

The recession offered opportunities. Utilities could implement needed changes or experiment with new ideas that could be more difficult to embrace in less stressful times, such as “limited duration employees,” greater use of cross-training of employees, and using contractors to staff peak service demands.

Other opportunities have been a boon to utilities that are able to make use of them. The recession brought a greater supply of high quality labor, lower cost of capital, and lower construction costs. Utilities with strong credit ratings and sufficient capital reserves were better positioned to take advantage of these. Maintaining a strong credit rating was an incentive to avoid some otherwise attractive short-term fixes. Some utilities jumped at the chance to hire talented staff from a larger pool of skilled job-seekers.

Successful approaches offer ideas that should be customized. If implemented by other utilities, successful approaches should be customized based on such factors as type of governance, past actions, and local environment. Different forms of governance (municipal authority, financial autonomy) enabled some strategies and constrained others.

Utilities with long-term plans in place were a bit more resilient. The discussion reinforced benefits of long term approaches and policies, such as maintaining a strong credit rating, employee training and accreditation programs, and investing in new IT and energy technologies. Utilities with strong credit ratings were able to restructure debt to lower financing costs.

Vulnerabilities became more visible compared to more affluent times. Vulnerabilities can be addressed by future research and changes in practice. Some vulnerabilities identified and discussed included employee pension plans, greater instability in energy costs and financial markets, and the long-term impacts of water rates that do not adequately fund capital needs.