Important developments in California for utility affordability
California’s Public Utilities Commission (CPUC) is working on establishing methods to measure affordability for utility service. The CPUC governs ratemaking for the state’s investor-owned water, energy, and telecommunications utilities.* The idea behind the CPUC’s process is to craft sensible, valid metrics to gauge low-income households’ ability to pay for essential services.
As part of their efforts, CPUC has been reviewing the latest academic research on affordability measurement. I was involved in this process through a series of conversations with CPUC staff and a workshop in San Francisco earlier this year. It’s been fascinating to watch the CPUC grapple with this important issue, and gratifying to see principles that I’ve advanced take shape in policy.
I spend a lot of time thinking, researching, and writing about water affordability; other scholars think about energy and telecom—that’s how industries and disciplines are organized. But of course, the same people who use water utilities also use electricity, gas, telephones, and Internet service. The affordability of any one of these services depends in part on the prices of all the others. So a realistic picture of utility affordability has to include all of them.
What’s particularly exciting about the CPUC’s current work is that they’re crafting a single affordability metric to capture the cost of all these utility services. That requires defining essential service levels for each service, measuring the prices for those levels of service, and estimating the ability of low-income households to pay for that bundle of services in combination. It’s an analytically daunting task.
Principles in practice
The CPUC staff took up the challenge, and crafted a smart proposal for comprehensive affordability measurement. The proposal sets essential water supply at 50 gallons per person per day (gpcd), Essential energy is set at “baseline quantities,” with end use studies underway. Telecom essential services are defined as 20 Mbps, 1024 GB/month, and 100 minutes per month. The total price of essential service for all three is the real cost of utilities.
The proposal then uses a combination of three metrics to assess affordability: the Affordability Ratio (AR), Hours at Minimum Wage (HM), and the Ability to Pay Index (API). Each of the metrics offers a different but important perspective on affordability. Here’s how the CPUC report summarizes the three metrics:
The report describes each metric in detail and discusses the ways that they can complement each other. I won’t lie—I’m pretty geeked to see the first two of those, since I introduced and have been evangelizing for them in the water sector. CPUC staff have picked up these principles and run with them.
The CPUC affordability rulemaking process is ongoing, but this staff proposal is an exciting development in utility pricing.
*The CPUC’s efforts are running in parallel with similar work by the California State Water Resources Water Board, which regulates the state’s water utilities, public and private.
Water Sector Reform #4: Human Capital
With a major federal investment in water infrastructure possibly on the horizon, the United States has a once-in-a-generation opportunity to leverage that money into a structural transformation of America’s water sector. This is the fourth in a series of five posts outlining broad proposals to reform the management, governance, and regulation of U.S. drinking water, sewer, and stormwater systems. The first proposed reform was consolidation of water utilities; the second was an overhaul of financial regulation; the third was investment in information technology.
My fourth proposal is to invest in water sector human capital through workforce development and streamlining labor markets.
Working for Water
The U.S. water sector’s workforce challenge has been evident for a long time; as early as 2005 observers identified a slow-rolling retirement tsunami washing over utility organizations and recognized that the supply of workers was insufficient to meet the nation’s needs. In many ways, the water sector’s workforce issues mirror those of the wider public sector workforce. But addressing water workforce challenges isn’t just about quantity, it’s about quality.
Once upon a time, water system operations was a semi-skilled job. If you had a strong back, could turn a wrench, and operate a backhoe, you could probably do it. Until recently, a water operator could get by with limited reading comprehension and little to no aptitude for math or science.
That’s no longer true. Today water and sewer system operations are highly skilled jobs. Regulations and technology are ever-advancing. Modern water systems require operators who can interpret complex regulations. Operators must have a solid working understanding of physics, chemistry, and biology, and a good command of math. And they have to be able to communicate with management and engage directly with the public.
Water systems are getting smarter; water operators have to be smarter, too.
But highly-skilled operators are in short supply and human capital isn’t evenly distributed. Training up a utility operator takes a lot of time, and in rural or remote parts of the US it can be especially hard to find an adequate supply of educated workers who can be trained to operate water systems.
Human capital & utility performance
Labor availability has measurable effects on effects on water quality. A few years ago David Switzer and I analyzed the relationship between SDWA compliance and the availability of skilled workers in a labor market. We found a strong relationship between labor force education and utility performance.
We also found that larger organizations are more effective in leveraging human capital than small ones. The reason is pretty clear: if you’re a smart, ambitious person interested in a water career, a small utility is at best a stepping stone, at worst a dead-end job. There may be only a handful of employees and the only opportunity for advancement is to wait for another operator to leave—or to leave yourself. So small systems struggle to attract and retain good employees. I heard directly from one utility manager that systems sometimes deliberately choose not to invest in training because they fear that a well-trained employee will leave. It’s a kind of strategic mediocrity.
Making matters worse, each state has different training and licensing regimes for water operators. There are separate licensing systems for water and sewer. There are separate licensing programs for treatment, distribution, and collection systems. Sometimes states set up reciprocal licensing agreements, but it’s a confusing and frustrating patchwork. All those rules are sand in the gears of the labor market and discourage smart, ambitious people from entering or building careers in the water sector.
Human capital investment
We need to grow the supply of human capital, and we need to streamline the labor market. So proposal number four is to invest in workforce development, and create national certification standards for operators.
This isn’t a particularly new idea—it’s a revival of an old one. Discussions of the 1972 Clean Water Act tend to focus on the pollution controls in Titles III and IV (for obvious reasons). But importantly, the Clean Water Act included a huge federal investment in research and training. In the 1960s environmental engineering was in its infancy as a field, and when Congress passed the Clean Water Act it wasn’t exactly sure how to make the nation’s waters fishable-and-swimmable.* So Uncle Sam built human capital for the water sector as it was building physical infrastructure. It’s telling that Title I of the Clean Water Act was an investment in people, and Title II was an investment in pipes.
Folks in the water sector sometimes refer to the generation of water professionals who emerged in the 1970s and 80s as the “Class of 72,” recognizing that in many ways the field of environmental engineering came of age due to that federal investment. We need a similar investment today to build the next generation of water professionals. We need careful, data-driven research on effective utility management, leadership, and organizations. We need rigorous degree and certificate programs to funnel talent into the water sector. America’s land grant universities (like Texas A&M!) are great institutional venues for these efforts, but there are other good models out there, too.
Freeing the market
Labor markets—like most other markets—work best when buyers and sellers can exchange freely. Along with investments in research and training, we need to harmonize, liberalize, and streamline licensing regimes for water and sewer operations. Instead of a crazy patchwork of training programs and licensing requirements, let’s establish national standards and a national accreditation system for both individuals and training institutions. Organizations like ANSI and AWWA have processes in place to craft water technology standards; the same model could be applied to licensing and certification. With national training and licensing standards in effect, a smart, ambitious person could enter the water sector with the prospect of building a career that could take her anywhere.
*Political scientists call that “speculative augmentation,” which is a polite way of saying “Congress has no idea what to do, so it’s going to kick the problem to experts and hope they can figure it out.” In the case of environmental regulation, it’s worked out reasonably well.
Water Sector Reform #3: Smart Systems
With a major federal investment in water infrastructure possibly on the horizon, the United States has a once-in-a-generation opportunity to leverage that money into a structural transformation of America’s water sector. This is the third in a series of five posts outlining broad proposals to rebuild the management, governance, and regulation of U.S. drinking water, sewer, and stormwater systems. The first proposed reform was consolidation of water utilities; the second was an overhaul of financial regulation for water systems.
My third proposed reform is a leap forward in water system infrastructure with comprehensive deployment of information technology to help manage systems more efficiently and effectively.
Wood, Brick, Iron
Most of America’s water systems operate 19th- and mid-20th century technology. In many ways that’s fine—if they were well-built and properly maintained, supply and distribution systems built long ago can continue to function well. Treatment techniques developed in the 1970s and 1980s still basically work (emerging contaminants notwithstanding), and environmental engineers continue to make important advances that improve human health and environmental conditions.
A downside of buried infrastructure is that it it’s often hard to know when systems are at risk of failing. For outsiders to the water sector, it can be surprising that many utility managers know very little about the condition of the systems that they run. Too many have no idea about the conditions of their systems: where the leaks are, which parts are most likely to fail, where the contamination dangers are. In a lot of places basic water sampling procedures haven’t changed much since the late 1990s or even the 1970s.
Sometimes a main break is the first time anyone is aware that there is a problem brewing. Every week or two there’s a story in a local newspaper about a utility that’s doing some maintenance and stumbles upon some relic from more than a century ago that shows just how antiquated our systems are. Old pipes lose enormous volumes of drinking water, and can cause sewage overflows during rainy weather.
Bits & bytes
Over the past twenty years we’ve seen an explosion in the information technology available to monitor water quality and infrastructure conditions in real time, and many utilities have been working hard to put new information systems in place.
SCADA* systems now allow water system operators to track and control remote facilities electronically. Remote sensing technology designed to detect water on Mars has been adapted to help satellites detect leaky water systems here on Earth. Autonomous robots from companies like Redzone** and Inuktun** can do the underground work of system inspection and repair without the cost and danger of putting operators down manholes. New sensor technology from companies like Xylem** and RealTech** allows comprehensive flow and water quality monitoring throughout an entire system, delivering real-time information about infrastructure conditions and threats to health or security. Big data analytics can be used to model and predict system disruptions and avert crises. There's a whole conference for just this stuff! I'm not an expert on these things (I'm a social scientist, for goodness sake), but these are heady days for the development of information technology in the water sector.
But uptake of advanced information technology in the water sector has been agonizingly slow. Water utilities are conservative organizations. In general risk aversion is a good thing in the water sector; we wouldn’t want riverboat gamblers operating our critical infrastructure. The reasons for slow diffusion of technology are many. One is that change is costly and risky. Another is that too many of the organizations that operate water systems lack the organizational capacity or literal bandwidth to take advantage of these technologies—systems with two operators and fewer than a thousand customers probably aren’t investing heavily in remote sensing and big data infrastructure.
Build the future, not the past
If the U.S. federal government is going to make a massive investment in the water sector†, then let’s get our systems out of the 19th and 20th centuries and into the 21st and 22nd. An infusion of federal capital should support development and deployment of smart system technology in the water sector.
*Supervisory Control And Data Acquisition
**I'm not specifically endorsing any of these companies; I don't even know anyone who works for them. I just think this kind of stuff is really cool.
†Water infrastructure remains a hot topic with ambitious politicians.