By Greg Baird
Let’s face it, if our roots are in government finance, we are a conservative breed. Our backgrounds prior to becoming a water finance manager, director or CFO have been from accounting, budgeting or investments.
In any case, our training and experience have included conservative investments and low rates of return, declining revenues, avoidance of audit findings and political budget allocation meetings. At the end of the fiscal year, we have a sigh of relief because all of our efforts secured a safe debt ratio margin and some cash reserves on hand.
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What happens when a technology-related issue comes our way? We avoid it. After all, it is an IT thing.
While this attitude has kept us away from some form of extra work outside of our comfort zone, the truth is that we actually have a fiscal duty and obligation to explore and evaluate technology options just as if we were reviewing investment portfolio options, collateral for developer deals or RFPs for rate consultants.
So, why should we make the effort? Well, I think we all know the situation — the current trends of aging infrastructure and workforce, revenue loss due to conservation and increasing costs in every category including the pension and retirement health cost. These financial challenges stir us inside and we have two options — get out or step up and search for some solutions. We are compelled to overcome our sedimented safe state of existence and face a disruption to our workplace paradigm.
Accept the Technology Disruption
Accepting the technology disruption is the first step in making technology investments part of the financial strategy. This includes putting finance at the seat of the table when evaluating financial comparative analysis in technology, asset management and procurement options. We can no longer be passive in our financial role. Our voice and support are needed because we have a larger view of current needs and future trends across the entire enterprise.
There are four critical questions that water finance managers need to ask in order to overcome their technology obstacles and become more strategic about technological changes and investments.
1. How does this technology strengthen our utility and stakeholders as a whole?
2. How does this technology impact our current and future revenue flows?
3. What ROIs can we expect to see from this project or investment?
4. What are the risks involved and how can it help us gain more revenue control and financial line of sight?
Now, let’s walk through a real-world scenario.
We know we have various cost drivers and political sensitivities in the water industry. The mayor is concerned about water loss and the utility director cites the fact that water main breaks have significantly increased in recent years. The public blames the utility for waste and inefficiencies while we can see a lack of resources as the cause during the budgeting process.
When we look at statistics (instead of going to the Bond Buyer over tax-exempt interest rate trends), we find that, according to Bluefield Research, the water sector will spend more than $20 billion in metering, data management and analytics globally by 2025. Cutting-edge, smart water solutions will continue to gain traction with municipal water utilities that see data and analytics as tools for addressing aging infrastructure.
As a result, our confidence increases as we learn we are not alone and there is a common mounting financial pressure forcing water utilities and municipalities to do more with less and turn to innovative solutions to more cost-effectively manage billing and customer management, leakage rates and energy consumption.
With our analytical skills tuned up, we can now see that the growing market trend to address some of our financial woes is in smart meters. Next, we find forensic evidence of successful solutions of smart meter projects while looking for the financial aspects of a return on investment and other key metrics.
Faced with increasing water volatility, aging infrastructure, decreasing meter accuracy and the demand for more customer-centric tools, the City of Cedar Hill, Texas, wanted to ensure future sustainability and fulfill its goal of becoming a data-driven organization in the most cost-effective way. In 2012, Cedar Hill made a leap forward in technology with FATHOM’s Smart Grid for Water platform. By upgrading its automated meter reading (AMR) meters to a fixed network advanced metering infrastructure (AMI) platform, coupled with FATHOM’s advanced data analytics, the city significantly increased the volume, velocity and accessibility of meter read data. This now allows for a clearer, near-real-time assessment of water demand and quicker response times for water leaks and losses.
Cedar Hill’s customers are provided up-to-date data to manage their own water usage and are empowered to make the decisions that impact their water usage and control their own costs. It also improved the data accuracy within the billing and metering systems.
Cedar Hill reduced the costs of billing by $394,000 per year, while increasing revenue by $426,000 annually. The net benefit of $800,000 annually coupled with cost containment guaranteed for 15 years has freed significant capital for Cedar Hill to invest in debt reduction and infrastructure.
While all utility circumstances are different, as water finance managers, we face the same type of financial challenges. To address these endless, unforgiving revenue and increasing-cost trends, we must overcome our resistance to evaluating technology and asset management options to ensure that our utility can be financially sustainable for future generations.
Greg Baird is president of the Water Finance Research Foundation. He specializes in long-term utility planning, infrastructure asset management and capital funding strategies for municipal utilities in the United States. Baird has served as a municipal finance officer in California where he gained rate design and implementation experience, as well as serving as the CFO of Aurora Water in Colorado. He is widely published on utility infrastructure asset management and integrated water finance issues and is a frequent contributor to Water Finance & Management.