From Policy Implementation

Prevent Defense

Playing  to win  not to lose in water utility management

Nature's Prevent Defense

Warning: strained sports metaphor coming.

It’s late January, and the National Football League season soon reaches its climax with the Super Bowl. Both of last weekend’s conference championship games saw a high-octane home teams take the lead. By late in the game, the winning teams’ strategies shifted from trying to score to trying to run out the clock. That meant lots of prevent defense, a tactic familiar to any reasonably attentive American football fan.

Prevent defense is an ultra-conservative strategy, designed to use up time and avoid disastrous, long passing plays—the goal is not really to stop the opposing team, but rather to manage moderate losses. A coach who deploys a prevent defense isn’t so much trying to win as he is trying to avoid losing. That works fine when the team that’s ahead has a comfortable lead. But when the lead is tenuous, prevent defense courts disaster because it can allow a quarterback to lead a heroic comeback. Legendary NFL coach John Madden famously declared that: “All a prevent defense does is prevent you from winning.” 

This didn't end well for the Cleveland Browns

Naturally, all of this makes me think about water utility management.

Compliance as performance

A few years ago I took a water operator training class through Texas A&M Engineering Extension. The course covered principles of safe operations, along with the basic math, chemistry, and physics that operators need. What really stood out to me was how virtually everything about our training involved regulatory compliance. Treatment plant operations, distribution system maintenance, even safety protocols, were all framed in terms of following rules and avoiding violations.

Things don’t seem much different in utilities’ executive suites or board rooms. Although the rhetoric of excellence abounds in water management circles, real policy decisions and capital investments tend to follow regulatory requirements. Treatment plant upgrades happen when the EPA formulates a new rule. Sewer capacity expansions come when overflows become so frequent and egregious that regulators force a consent decree.

A water system’s strategic goal might be public health, environmental quality, citizen trust, and economic prosperity, but the utilities’ management tactics often boil down to regulatory compliance. The practical goal is not so much to achieve good things, but to avoid bad ones.

The main reason is money. One of the challenges of managing great water and sewer systems is that the price of a water is much more visible than quality of water. Customers—who are also voters—know for sure what they pay for it when they get the bill each month. Water systems are literally buried. Unless quality is egregiously awful, the only marker of a system’s quality is regulatory compliance. It’s hard for utilities to demonstrate their real value in terms of anything but monthly bills and disasters.

Utility leaders are thus stuck between a rate increase rock and a regulatory hard place. For many, “success” means avoiding rate increases and regulatory violations as long as possible. The folks who operate these essential systems don’t like running them to the brink of failure, but as one city utility executive told me: “It’s hard to get anything done without a regulatory boot to your backside.”

That’s a fundamentally negative way to think about performance. Is it any wonder that utility managers often run a prevent defense?

From loss avoidance to winning

There are some creative, dynamic, and courageous leaders in the water sector who have found ways to build achievement cultures in their utilities. But hoping for the serendipitous arrival of an exceptional leader isn’t really a strategy. What would it take to change the game? How can we get utility leaders to think about seeking success, rather than avoiding failure?

What’s needed is a comprehensive, independent, and visible system for monitoring and reporting water and sewer utility performance. What if there were monthly box scores for utilities? What if they received a report card and grade point average every year, with results reported publicly?

Would this report card be good enough for you?

Aquam cum laude

This isn’t really a radical idea; Congress had transparency in mind when it required utilities systems to provide water quality reports, and the State of New Jersey was thinking about political accountability when it launched the Water Quality Accountability Act. Too often we forget that public information about water system performance also creates a credit-claiming opportunity. But reporting under those laws is complicated and in many ways opaque.

​Anyone who has been to high school understands grades and GPAs. A simple, comprehensive report card would give a utility’s leaders a way to communicate progress. A new management team could set clear improvement targets and show how their efforts moved the system’s GPA from 2.7 to 3.5. Mayors and councilmembers could trumpet the improvements, helping to demonstrate the value of those unpleasant rate increases. Water systems that achieve and maintain consistent excellence across the board would qualify for the Dean’s List.

I’m a big believer in the power of measurement and incentives. If we keep score correctly, our utility leaders can do more than avoid disaster—they can play to win health, environmental quality, and economic prosperity for our communities.

The Plan

A five-point proposal to transform the U.S. water sector

As daunting as the challenges in the U.S. water sector are, solutions are possible and within our grasp. Thanks to legions of smart, creative scientists and engineers, we know a lot about the threats to environmental quality and health, and we’re pretty good at finding ways to address them. Today the principal barriers to progress in the water sector are not environmental or technological; they are social, economic, and political.

Fixing the water sector—really fixing the water sectormeans more than government money for pipes. The crazy quilt of institutions that govern, regulate, and manage water in the United States hinders effective, lasting solutions. Fortunately, institutions are human creations, which means we can do something about them. There’s nothing wrong with water governance in America that can’t be solved.

Over the past few months I’ve written a series advancing five broad institutional reforms to the U.S. water sector that ought to accompany any big federal investment.* This post summarizes them. They’re a package deal: each reform complements the others, and each is unlikely to be successful without the others. It’s an ambitious plan, but it’s rooted in empirical research, and together the five parts are technically and politically feasible. Here they are (click each heading for the full post on each):

1. Consolidation

There are more than 50,000 community water systems and 15,000 sanitary sewer systems in the United States. Virtually every aspect of America’s water sector is worse because there are so many systems. Let’s reduce the number of water systems to fewer than 5,000 by 2030. Consolidation can happen by merging neighboring systems into a regional utility, creating new authorities or nonprofit organizations, or when an investor-owned firm purchases small systems. To make it happen:

  • Federal funding for water, sewer, and stormwater systems must be contingent on small system consolidation.
  • Laws governing utility mergers and acquisitions should remove barriers to and create incentives for consolidation. Consolidation laws should ensure that struggling systems are consolidated and guard against “cherry-picking.”
  • All systems must be held to the same environmental standards. Exemptions and waivers for small systems should be eliminated and regulators should be empowered to force condemnation and consolidation for perennially failing systems.
  • State and federal agencies should provide technical and legal assistance to facilitate the consolidation process.

Reducing the number of water and sewer utilities through consolidation is the single best thing we can do to improve water utilities in the United States.

2.Regulatory reform

​Let’s follow regulatory regimes used in New Jersey and Wisconsin to change the incentives for utility leaders to invest in their systems adequately and manage them responsibly.

Specifically:

​Best of Both Worlds

  • Regulatory authorities should collect and publicly report performance metrics for each water and sewer system,
  • Water, sewer, and stormwater systems must develop comprehensive asset management plans, and demonstrate that capital assets are adequately maintained.
  • Public Utilities Commission pricing and service quality regulation should be extended to all utilities, not just investor-owned systems.

The great promise of the regulatory regimes pioneered in New Jersey and Wisconsin is that transparency and fairness can make buried infrastructure more visible, and so shift the political and economic incentives for sound management of water systems.

3. Technological transformation

America’s water systems need a technological leap forward with comprehensive deployment of information technology. Let’s get our systems out of the 19th and 20th centuries and into the 21st and 22nd. Funding for water, sewer, and stormwater systems should support data collection and analytical capacity for more effective and efficient investment and operations.

4. Human capital

The water sector needs a stronger supply of human capital, and we need to streamline the labor market. To that end, let’s:

  • Invest in the next generation of water professionals with new and rejuvenated educational and training programs.
  • Create national standards for operator licensing and certification.
  • Build a body of rigorous, data-driven social science research on effective utility management, leadership, and organizations.

5. Environmental justice

Let’s build environmental justice into water, sewer, and stormwater policy. Specifically:

  • Federal and state authorities must establish standard metrics to assess racial, ethnic, and socioeconomic equity in environmental conditions and infrastructure investments.
  • Utilities must collect and publicly report data on service shutoffs and restorations, and work toward an end to shutoffs.
  • Regulators must demonstrate equity in inspections and enforcement actions.
  • Eligibility for federal infrastructure funds must be contingent on utilities demonstrating equity or progress toward equity.
  • Channel extra funding and technical assistance to communities that suffer from significant disparities due to historical or structural disadvantages.

The way forward

Just over a year from now Americans will head to the polls for a pivotal federal election. With water on the national political agenda in a way it hasn’t been since the 1970s, we are, perhaps, an election away from a major federal investment in infrastructure, and with it an opportunity to reimagine water governance. Let’s use that opportunity do more than rebuild pipes; let’s rebuild institutions. If we do it right, those institutions will keep the pipes working for generations to come, and our legacy will be a cleaner environment and healthier, more prosperous people.


*The five-part plan debuted in a talk I gave at as part of the University of Rhode Island’s Metcalf Institute public lecture series last summer. You can catch the whole talk here if you’re so inclined.

Paper Pushing

Devils (and angels) in the details, Part 4

Nobody wants to talk about this part

In early January the California Water Board published its long-anticipated draft proposal for a statewide low-income water bill assistance program. In the past few posts, I’ve summarized the path-breaking proposal, discussed its potentially perverse incentives for ratemaking, and pondered its implications for small system consolidation. In this post, I take up that crucial but oft-overlooked dimension of public policy: administration.

Administering statewide water bill assistance

The draft proposal acknowledges that administering a brand new social welfare transfer program will be costly and complicated. The low-income water rate assistance program will need to be advertised, applications processed, incomes and personal data verified, customers enrolled, and so on. Then the benefits themselves would need to be distributed in some way. Participants will need to renew their eligibility periodically, which will require re-verification. Audit procedures will be needed to guard against fraud and abuse, and appeals processes established to provide recourse to those wrongfully denied benefits.

The draft proposal punts on who exactly would do all that administrative work.

Benefit distribution

Rather than arguing for a specific administrative arrangement, it lays out four potential approaches to benefit disbursement:

  1. Water bill credits
  2. Energy bill credits
  3. EBT (Electronic Benefits Transfer) cards
  4. Tax credits

The first option might seem most obvious, but the draft report correctly observes that many benefit-eligible households may not receive water bills directly, because they live in multifamily or rental housing and so pay for water service through their rent. Options #2-4 have the potential to reach more households. Options #3 and #4 most closely approximate the received wisdom of welfare research, which suggests that benefits work best when they are received directly by their beneficiaries.

What about everything else?

But there’s much more to a low-income assistance program than handing out benefits. Conspicuously absent from the draft report is discussion of the many other aspects of administering a new assistance program. Here are some options.

Asking for help ain’t easy. Giving it ain’t, either.

Utility administration. Water systems could administer the program on behalf of the state (several California investor-owned utilities already run assistance programs, for example). Utility organizations are, by and large, unaccustomed to administering social welfare programs. Recently I’ve had the opportunity to study a handful of water utilities that administer low-income assistance programs. I found that, when water utilities get into the low-income assistance game, utility staff become de facto social workers. Water customers who apply for assistance often struggle with multiple health, financial, legal, and perhaps cultural problems. It is impossible not to make a human connection in such cases. Laudably, the utility folks I’ve met who administer water assistance programs work hard to do so humanely and responsibly. But welfare administration is, at best, an uneasy fit for many utility organizations. Moreover, the burden of administering an assistance program would be especially onerous for the very small systems that already suffer disproportionately from high prices and poor water quality.

State administration. The California Water Board (or some new agency) could create a new organization to administer the program. This sort of centralized administration could provide economies of scale and help ensure uniformity and fairness across the state. On the other hand, state administration would involve significant new investments in staffing and other administrative infrastructure, all of which would be subject to the vagaries of state politics.

Nonprofit administration. Water bill assistance could be administered through community-based nonprofit community service organizations like the Salvation Army or St Vincent DePaul Society. In addition to providing direct charitable aid, such organizations often are conduits for government assistance programs like LIHEAP. Many of these nonprofit organizations employ sizable, multilingual staffs that include social workers, nutritionists, lawyers, and other professionals who help low-income individuals and families navigate the often confusing and sometimes humiliating process of applying for benefits. These organizations’ expertise, flexibility, and familiarity with target populations offer perhaps the most promising avenue for administration.

The recipient’s administrative burden

Also missing from the California Water Board’s draft proposal—and most of the broader discussion of low-income water bill assistance—is consideration of the administrative burdens that water customers would have to bear in order to receive benefits. Learning about the assistance program, applying, demonstrating eligibility, ensuring receipt, and reapplying are time-consuming and sometimes humiliating processes. These costs may be especially significant for people with low literacy or limited English proficiency. Potentially eligible people may forego benefits if the application process is too burdensome, if they perceive a social stigma associated with public assistance, or if they do not trust government.

Taken together, administrative costs—to the state, to utilities, and to low-income households—are a big part of why I’ve argued that rate structures, not assistance programs, offer the most promising path to water affordability. Low fixed rates and low prices for essential water use make water affordable for everyone. Unlike assistance programs, affordability through rate design doesn’t create new administrative costs, and doesn’t make customers endure intrusive and burdensome application processes. As policymakers grapple with water affordability in California and beyond, they should consider ways to help encourage utilities to price water more affordably alongside bill assistance efforts.