Climate change … it’s not an abstract idea or just a notion anymore. There is more and more data supporting the fact that precipitation is getting more severe, that the sea level is rising and that New England is, and will continue to be, one of the country’s hardest hit regions.
Predicted Climate Changes
Scientists are telling us the climate in the next 100 years will likely be remarkably different than it has been over the past hundred years. The Environmental Protection Agency (EPA) has changed the term “global warming” to “climate change” because there are significant changes that go beyond just rising temperatures.
Here in New England we have seen more frequent extreme weather events in the past three decades. Studies forecast that New England is projected to face flooding, equivalent to the historic 100-year flood, once every decade or two. In the past 10 years there have been two major flood events in Northern New England only eleven months apart – Mother’s Day 2006 and Patriot’s Day 2007. No one will forget New Orleans’ Hurricane Katrina in 2005 or much more recently, Hurricane Sandy just last Fall.
Stormwater is rainwater and melted snow that collects and runs off streets, parking lots, sidewalks, lawns and many other sites. Optimally, stormwater is absorbed into the ground where it is filtered and ultimately replenishes aquifers or flows into streams and rivers. But as more land is developed there is less and less of the natural infiltration and filtering process. Impervious surfaces such as pavements and roofs prevent precipitation from naturally soaking into the ground. Instead, the water runs rapidly into storm drains, sewer systems, drainage ditches and culverts overwhelming them, which results in damage to the infrastructure as well as residual environmental issues.
Municipalities and private industries are finding themselves confronted with increasingly demanding EPA standards to manage stormwater runoff and reduce its harmful effects. The toll that stormwater is taking on our natural and manmade infrastructure, and the ongoing threat of polluting stormwater compromising our watersheds and ecosystems, are becoming a major focus of the EPA.
Are you including debt service and depreciation into current rate structure?
All Utility managers should be including depreciation costs in the rates if you want sustainability. If you are not, then you are transferring asset depreciation costs to future generations. Many utilities either don’t fund or under fund depreciation.
Most water and wastewater utilities accepted EPA construction grants in the past. One of the conditions of these grants was the user charge systems would be designed to produce adequate revenues required for O&M, including system replacement (i.e., depreciation costs). One key issue when establishing appropriate asset renewal allowances is the fact that typical accounting practices of depreciating based on original cost of the asset can result in an underestimation of the reserves needed for asset renewal. A better approach may be to establish renewal reserves based on current replacement cost, or on detailed asset condition information.
The issue as to whether debt service should be included in the rates, depends on what the debt is for:
If the debt is for expansion of the system, the beneficiaries of the system expansion should cover the cost of the debt and not existing users.
If the debt is for the benefit of the existing users, it should be included in the rates.
If the debt is associated with system renewal, you may want to adjust (reduce) the asset renewal allowance accordingly.
I welcome your comments or questions on this topic.