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  • Beecher, J. “Infrastructure at an Inflection: An Integrated Public-Service Paradigm for the Transformation of Urban Water Systems”

Beecher, J. “Infrastructure at an Inflection: An Integrated Public-Service Paradigm for the Transformation of Urban Water Systems”

The paper “Infrastructure at an Inflection: An Integrated Public-Service Paradigm for the Transformation of Urban Water Systems” (Beecher, J.) will be presented at the 6th Conference on the Regulation of Infrastructures (16 June 2017). 

ABSTRACT

Water systems in the U.S. were originally built under a “public health” paradigm and built out over time under a “public works” paradigm, with a considerable amount of governmental subsidy for public infrastructure. In recent decades (as in Europe) they have gravitated, perhaps without choice, to an econocentric “public utility” model characterized by systems as enterprise, commodification of water, and full-cost pricing at the system and user levels as well as an emphasis on economic efficiency over social equity. In the wake of catastrophic failures, most notably the Flint, Michigan water crisis, committing to an integrated “public service” paradigm for the water sector is in order, where policies and practices (including pricing) are better aligned with goals of sustainability and universal service. In many ways, this paradigm actually returns water service to its original health-centric goal of reducing suffering and improving welfare.

Following decades of neglect and underinvestment, today’s urban water infrastructure is in disrepair, as seen in high rates of leakage and breakage. Usage is down due to standards-driven efficiency in end use, which saves operating costs in the short run (water, energy, chemicals, and other inputs) and capital costs in the long run. Prices are under pressure from costs and full-cost pricing. Fortunately, applying higher rates to lower usage means that bills are not rising as fast. Nonetheless, household utility expenditures are regressive and water poverty and affordability, evident in arrearages and disconnections, are growing concerns. As prices continue to rise, price-elastic and discretionary usage is likely to fall in a big way; in other words, using potable water for outdoor irrigation may become a thing of the past. Water utilities have grown very accustomed to serving this seasonal load and the revenues it yields, despite the inefficiency implied in terms of capacity utilization.

Infrastructure in legacy cities, like Flint and Detroit, is overbuilt. The excess capacity and lower usage mean that stagnant water presents a health risk. Rebuilding these systems in-kind would exacerbate the financial challenge and possibly send systems into a death spiral. Urban water infrastructure is thus at an inflection point in terms of investment decisions, where the benefits of efficiency gains can be reaped and the “extra capacity” required for discretionary usage can be avoided. The good news is that systems that postponed investment may be in the best position to reoptimize their systems toward future (not past) patterns of demand. Networked utility services are not known for rapid evolution, yet transformative change has been achieved in telecommunications and is underway in energy. What might transformation of the water sector look like? Water systems, like energy systems, can be transformed by new operational models, including technological modernization, green infrastructure, and some modularization and decentralization, but also innovative structural models (including convergence and regionalization). Public policies, regulation, and standards can support the transformation.

Guiding principles under a new paradigm should reflect the fact that water systems provide multiple services through one set of pipes (water for consumption, for personal hygiene, for home hygiene, for discretionary usage, and for fire protection), with implications for both costs and prices. In other words, water services are effectively “co-generated.” Multi-objective pricing should be designed accordingly. Pricing for nondiscretionary usage should ensure that basic needs are met. Alternatives to disconnection (such as payment assistance, efficiency upgrades, flow restriction, and prohibitions on disconnection) should also be implemented. Pricing could include lifeline rates or a minimum usage tariff based on global health standards to ensure both public and system health. Price signals for discretionary usage based on peaking factors can help ensure resource efficiency and environmental stewardship. Fire protection drives system design and costs, but the costs could be more equitably allocated through a user fee (or tax) based on property values and an insurance model. It is conceivable that with high levels of indoor efficiency, water for basic needs could be provided as a byproduct of fire protection (rather than vice versa, as conceived today). Finally, by focusing on public service, rebalancing equity and efficiency, and placing priority on public health, the new paradigm can accommodate equal protection and universal access to essential services through tax subsidies as necessary to confer a just and humane quality of life on families and positive externalities on communities.

ABOUT THE AUTHOR

Prof. Janice Beecher has served as Director of the Institute of Public Utilities at Michigan State University since 2002, bringing more than thirty years of applied research experience to the position.  She is a frequent author, lecturer, and participant in professional forums and Editor of Utilities Policy.  She recently coauthored the book, Risk Principles for Public Utility Regulators (MSU Press). Her areas of interest include regulatory institutions, governance, and pricing and she specializes in the water sector. She is presently serving on Michigan’s 21st Century Infrastructure Commission and the U.S. EPA’s Environmental Finance Advisory Board. She previously held positions at The Ohio State and Indiana Universities and the Illinois Commerce Commission. She has a Ph.D. in Political Science from Northwestern University and faculty appointments in MSU’s College of Social Science, where she has taught graduate courses in public policy and regulation.