A Rising Tide for Water Infrastructure Investment

Recent legislation and initiatives slowly opening the valves for infrastructure spending.

By Anthony Birritteri , Editor-in-Chief On Jan 22, 2018

Drinking water so effortlessly comes out of our taps, yet how many New Jerseyans understand the upkeep necessary to maintain the 60,000 miles of water infrastructure below our streets, which also includes sewer and storm water systems? 

According to the American Society of Civil Engineer’s (ASCE) 2016 Report Card, New Jersey received a “C” grade for its water and a “D” grade for its wastewater infrastructures. Furthermore, the US Environmental Protection Agency estimates the state needs to spend $27 billion over the next 20 years upgrading its drinking water, wastewater and storm water systems to a state of good repair.

Some examples of the troubles? On average, the city of Hoboken experiences a water main break every month (some so bad they open up roads and swallow cars); among the 323 New Jersey public schools tested for lead in drinking water last year, 137 showed levels that exceeded federal standards; through leaks and other issues, an estimated 130 million gallons of water are being lost each day across the state.

The news is not all bad. There are municipal, county and regional water systems in the state that have “A” and “B” grades (and conversely, there are those that have “D” and “F” grades). Additionally, those towns that have their water and sewer systems operated by investor-owned water utilities have the benefit of the latters’ constant upkeep and capital investments.

However, when listening to the experts, it is clear something needs to be done to maintain our water systems, since pipes can be found underground that are more than 100 years old.

“What we are finding underground is scary,” says Anthony Attanasio, executive director of the Utility & Transportation Contractors Association (UTCA). The organization represents more than 1,000 infrastructure contractors in the state who work on road, rail and bridge projects, but, more importantly, water and sewer systems including sewer treatment plants and pump stations. “There are situations when a pipe is dug up, and it could collaps because the dirt surrounding it was the only thing holding it in place,” Attanasio says. “We are asking our contractors to bring us some of the [old] pipes to show people what their children are drinking water through. This has nothing to do with lead, but instead the buildup [of substances] over time due to the lack of proper maintenance and operations.”

In the offices of the New Jersey Environmental Infrastructure Trust (NJEIT), a 100-plus-year-old, six-foot wooden pipe that was wrapped in steel and covered in tar, rests in a display case. “One hundred years ago, that was the technology for delivering clean water to many communities in the state. That pipe was in operations until 2012, until the community finally decided to swap out [the old system] with new water mains,” says David Zimmer, NJEIT executive director.

Citing an ASCE report, Andrew Hendry, president of the New Jersey Utilities Association, adds that the state’s water supply systems were constructed largely between 1890 and 1930, peak periods for major city development, and between 1950 and 1970, the heyday for suburban development. “Today, it’s been estimated that 20 percent of drinking water pipes in the state are more than 100 years old,” he says.

The reasons why towns wait so long to upgrade systems is cost, coupled with a dose of politics.

“There may be a municipal water department wanting to invest in the pipes, but you have a town facing multiple budget demands, and the local politicians will not benefit from raising [water] rates and possibly taking a political hit,” says Christine Sturm, managing director of water and policy for New Jersey Future, an organization that helps facilitate the day-to-day operations of Jersey Water Works, a collaborative of organizations and individuals looking to improve the state’s water infrastructure.

Sturm says the other reason why proper investments in water infrastructure are not made is because the systems are underground and out of sight. “Water infrastructure is often invisible and we take it for granted until something doesn’t work,” she says.

Greg Lalevee, chairman of Engineers Labor-Employer Cooperative (ELEC) and business manager of International Union of Operating Engineers Local 825, concurs, “To most people, the water infrastructure problems are not readily apparent because the pipes are hidden below ground,” he says. “Given the high cost associated with infrastructure development, it is easier for politicians to punt the issue. I don’t know of many towns that have enough money in their budgets to cover these [upgrade or repair] costs. This is something that must be planned over a period of time.”

What many towns may not realize, however, is that the savings they may incur in fixing a system may help pay for the debt incurred to take on the project, and, in some instances, the operation of the water system becomes cash-flow positive.

Reverting back to the wooden pipe in the NJEIT display case, Zimmer recalls, “The town (Seaside Park) was looking at the cost of the annual debt it was going to incur if it borrowed money to replace its system. That looked like an insurmountable challenge. What it didn’t quantify thoroughly was the amount and the cost of the water it was losing in the old pipes, at the connections every six feet. This was water the town had bought from New Jersey American Water, and it wasn’t able to charge the users because it was leaking underground. The savings on stopping the leaks helped pay for the project in five years. The system is now cash-flow positive and the community has new water mains.”

If there is one entity that public water systems and private water utilities talk highly about, it is the NJEIT. Since its founding in 1986, the Trust has been providing low cost loans for water infrastructure projects ($7.24 billion to date for 1,440 loans) to towns, public water systems and even investor-owned utilities. These loans have delivered $2.6 billion in interest savings to taxpayers. The interest rate on these loans, at press time, is .666 percent for 30-year terms. They are low because 75 percent of a loan is provided by the DEP at 0 percent interest, while 25 percent is provided by the NJEIT at its AAA market rate.

Lalevee says the NJEIT is “a great system, is well run, and can help local governments. Despite this, it is underutilized.”

This will more than likely change with the passing of the Water Infrastructure Savings Enabling (WISE) Act, which was signed by Governor Christie this past May. The Act, initiated by third parties to deliver transparency, requires that all local government units financing an environmental infrastructure project of $1 million or greater must use the WISE calculator on the NJEIT website (www.njeit.org) to see how much the loan would be using NJEIT money compared to the town conducting an independent bond issuance. The calculator generates a cost estimate detailing the annual cash-flow projections and total estimated debt savings over the life of the loan.

“If the town decides not to go with the NJEIT, and it goes before the Department of Community Affairs to ask for permission to borrow other funds, the DCA is going to ask it to justify the reason why the town is leaving all of the interest savings on the table,” Zimmer explains. “The DCA will have the authority to approve or reject the application based on the town’s reasoning … and this will all be very transparent. Town leaders may have to defend their decision to rate payers.”

What is just as important as the WISE Act is the Water Quality Accountability Act (WQAA), signed by Governor Christie this past July and which became effective this past October 19. The act requires water systems with more than 500 water connections to create and implement asset management plans to inspect, maintain, repair and renew infrastructure. The act also specifies a methodology for routinely testing valves and fire hydrants. Systems that have internet-connected control systems would also need to create cybersecurity programs and join the NJ Cybersecurity and Communications Integration Cell in order to receive support should a cybersecurity incident occur.

According to Daniel Van Abs, a professor at the School of Environmental and Biological Sciences at Rutgers University, because of the WQAA, New Jersey “could leap from where we are to a top-line state regarding water infrastructure. He told New Jersey Business at a recent Jersey Water Works conference that implementing the WQAA, especially the planning process, will take years “and then it will take decades to implement the results of that, but utilities have 18 months to come up with their asset management programs. “From then on, they are supposed to be budgeting for their highest priority capital projects,” he says.

If towns have to make infrastructure investments due to the WQAA, will there be a possible backlash from residents who may see rates increase because of upgrades and repairs?

During a Water Infrastructure session at the 2017 League of Municipalities Conference held in Atlantic City this past November, a mayor in attendance asked panel members, including Assemblyman John McKeon who is co-chair of the Joint Legislative Task Force on Drinking Water (formed in July 2016), if the WQAA would mean: “More public-private partnerships, more privatization of water systems, and/or higher rates?” McKeon answered, “Yes,” to all three scenarios.

However, NJEIT’s Zimmer tells New Jersey Business that there are towns that have been delaying making needed investments to the extent that the delays have been keeping rates low. … These are investments that should have been made and people should have paid for. You have to ask, ‘Have people been paying a discount for the true cost of service that was to be provided to them?’”

Dennis Doll, president and CEO of Middlesex Water, the investor-owned utility which serves 61,000 customers in Central and Southern New Jersey as well as Pennsylvania and Delaware, and maintains more than 700 miles of transmission and distribution water mains, says the WQAA is “the best piece of legislation I have seen in a long time. Many of the requirements under the act are things the investor-owned utilities are already subject to under BPU regulations. So, the Act brings all municipal systems under the same umbrella and under the same standards for quality and accountability.”

“Investor-owned utilities have been doing what the public utilities should be doing and some have been doing,” Van Abs said. “The benefit of an investor-owned utility is that they tend to be much larger systems with rate bases that are spread out over large numbers of people … multiple towns. So each individual doesn’t see the effect (cost increase) as much as it would with its own municipal system, where all costs are right there in the town.

“Nobody likes to have their rates increased,” Van Abs continued. “The question is how good is the utility in explaining what the rate increase is going to be used for? What are the results that people should expect? They should be expecting better water quality, fewer pipe breaks and fewer boil water orders, less pipe leakage, which means the system is operating more efficiently. So … costs will be driven down over time, but then, some towns will have to pay for the work that hasn’t been done for decades.”

Robert MacLean, president of New Jersey American Water, explains that the investor-owned utility has been spending roughly $1 million a day on maintaining and upgrading its infrastructure, which serves 2.7 million New Jersey residents in 191 communities. The subsidiary of American Water has 8,900 of water pipeline running throughout the state, with 158 water storage tanks and 121 booster pumping stations.

The president agrees that the state has been proactive in supporting water infrastructure improvements lately, but he says it is critical that local utilities not wait for money to come down from the federal government because “the money is getting harder to come by and the competition is fierce. While the NJEIT does a good job of managing its program and leveraging federal dollars it receives, the days when all water and wastewater systems could be federally funded are pretty much gone.”

Talking about the Trump Administration’s promise on increased infrastructure spending, MacLean says these are “healthy” conversations, but “what comes out the other end in terms of programs remains to be seen.”

NJUA’s Hendry adds, “New infrastructure funding initiatives at the federal level would certainly be welcomed by our industry, but it will be critical that it is available to all sectors of the water utility industry, public and private.”

Asked about what impact the new Murphy administration in Trenton will have on the infrastructure investment in New Jersey, UTCA’s Attanasio comments, “We have a three-to-four year window to really focus on water infrastructure, and Governor-elect Phil Murphy is the right man to do that. Infrastructure was a main policy plank as he ran for governor. He understands the value of both infrastructure construction and what that means for the economy.”

At the aforementioned Jersey Water Works conference, the organization revealed its report called “Our Water Transformed: An Action Agenda for New Jersey’s Water Infrastructure,” which identified the absence of robust asset management, insufficient capital financing mechanisms, and the lack of public awareness as three key barriers hindering the process of upgrading the state’s water systems.

According to the New Jersey Business & Industry Assocation, addressing these barriers will require balancing the need for investment with the overarching concern of affordability in a high cost state like New Jersey. Just like New Jersey policymakers worked their way through comprehensive tax reforms that are leading to investment in our transportation infrastructure, so too can we strike the right balance for water infrastructure.

The benefits of clean water to our health are obvious. As for economic development, when a business wants to locate into a state, it factors in cost and the condition of the infrastructure, says UTCA’s Attanasio. “With sustained infrastructure investment, we will be far more attractive to the businesses that want to move here and create jobs.”

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Bioslurry & Biosolids to Combine at RVSA

10-year contract to fuel cogen system.

In approximately three months, the Rahway Valley Sewerage Authority (RVSA) will be combining its biosolid waste with food waste to fuel its cogeneration system. The agreement with Waste Management, Inc. is being called the first long-term public-private partnership of its kind between a sewage authority and a waste services company. The bottom line is: $6 million generated over the life of the first 10-year contract for RVSA with its wastewater treatment plant becoming close to a net zero operation within four years. 

James J. Meehan, RVSA executive director, tells New Jersey Business that the partnership was sought because RVSA’s existing cogeneration system was oversized and had to be more economically viable. Learning by example, mainly by visiting the East Bay Municipal Utility District in Oakland, California and its co-digesting operations, RVSA and its board decided to adopt a similar system.

In laymen’s terms, RVSA’s co-digesting-to-cogeneration operation begins at Waste Management’s CORe®process facility in Elizabeth, where food waste is processed (non-degradable contaminants are removed) and turned into a bioslurry product, which Meehan describes as having the consistency of oatmeal.

This bioslurry will be transported via tanker trunk to RVSA’s facility and pumped into a receiving tank. It will then be sent to digesters, where the sludge will be mixed with RVSA biosolids, heated, mixed and stabilized (digested). “During that process, methane is produced, or what we call biogas,” Meehan explains. “That, in turn, is cleaned, refined and used in our cogeneration engines to produce clean energy.”

Half of the bioslurry being produced at Waste Management’s Elizabeth facility will be used by RVSA. According to Meehan, a long-term contract was necessary for the partnership because of the capital outlay to get systems, both on the RVSA and Waste Management side, up and running, and more importantly, realize a return on investment. “To get a partner for a long-term contract, we had to legally be able to go more than five years, which would push us to a minimum 10-year contract,” Meehan explains.

He credits Eric Sapir of the law firm Hawkins Delafield & Wood LLP for help in putting the deal together, and environmental consultants at CDM Smith for coming up with specifications for the type of feedstock RVSA would be able to accept at its facility.

 

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