Stop losing water and start gaining cash flow!
On April 13th, 2017, AIQUEOUS participated in the 2017 Texas Water Conference in Austin. Our president, Jonathan Kleinman, gave a talk on how water utilities in Texas (and elsewhere) can conserve water while keeping healthy financials. That’s a challenge that many utilities are facing right now and have an opportunity to address through Advanced Meter Infrastructure (AMI), District Meter Areas (DMAs), and innovative financing strategies.
Municipal conservation is one of the main water management strategies in the 2017 Texas State Water Plan. The 2017 State Water Plan calls for nearly $1.7 billion in water loss control investments by 2030, targeting more than one million acre-feet in water supply by that timeframe. Non-revenue water, i.e. water which has been produced but lost before it reaches the customer, represents more than 18% of the total water volume in 2015. This huge water loss (148 billion gallons) also translates in $543 million in expenses for water utilities. What solutions can a utility implement to tackle this issue? How can you finance these solutions and keep water affordable? Integrating DMAs at the same time as AMI can efficiently manage water loss control. And, municipal leasing can be an easy-to-use financing strategy to move projects forward more quickly while reducing the use of CapEx.
AMI and DMA
AMI records in real-time water usage data at regular intervals and communicates it back to the utility for monitoring and billing. AMI also enables two-way communication between the meter and the utility. In addition to data visualization for utilities and their customers, this technology – connected to the right software platform - can decrease operating costs by enhancing system management, reducing labor associated with bill readings, eliminate billing data transcription errors, and increase utility revenue from more accurate meter readings.
A DMA is a district area of a water distribution network. Water flowing into and out of the DMA is metered and flows are periodically analyzed to monitor the level of leakage. Approximately 1 DMA can be implemented every 2,000 to 10,000 smart meters, so adding a DMA to an AMI project might only increase the total cost of an AMI project by 1% (or less). The advantage of combining DMA and AMI projects is the access to simultaneous data readings, letting you know on the same interval how much water enters and is used in the DMA. One attendee at Texas Water said he wished he had implemented DMAs at the same time as his AMI project – now he knows he needs it, and has to partially retrofit his original project.
An example of how AMIs can improve finances is the city of Kennedale. Kennedale was able to identify loss revenue thanks to a geo-spatial analysis tool provided by FATHOM, and implemented an AMI project to increase data granularity and accuracy while decreasing labor requirements. The project was completed during a drought contingency period. In total, 3,000 smart meters were installed, and drought communications were pushed out, resulting in a reduced per capital water demand of 17.5%. Even so, the improvements in data accuracy resulted in an overall revenue increase of 5.8%. This proves that distributing less water does not mean having less revenue; it’s all about being efficient and knowing where the water goes exactly.
The above project focused on reductions in apparent losses – adding DMA can help utilities reduce real losses as well. If the use of these technologies can efficiently mitigate water loss and increase revenue in the long run, its main drawbacks are the potentially high upfront capital costs and long-term payback. So how can a utility balance healthy finances and water conservation?
Schematic of a District Meter Area (DMA).
Source: Farley, M., Leakage Management and Control. WHO, 2001.
Utilities in Texas can opt to finance smart meters, DMAs, and associated software through municipal or tax-exempt leases, which confer many benefits over other debt financing strategies. These benefits can include lower closing costs, shorter times to project implementation, and avoiding the utility balance sheet. Spreading out costs over a lease term can allow revenue increase and reduction in billing costs to more than the amount of the monthly lease payments. The lease can be obtain in less than 2 months and can avoid the cost of delaying a project. As a result, Texas utilities can use this positive cash flow to acquire increased conservation, decreased water losses, and improved customer engagement and satisfaction. Keep in mind that while you are waiting for other financing strategies, you lose the ability to capture your savings.
For example, in 2016, Hays County wanted to implement energy efficiency measures including renewable energy but the project size was below $5-$10 million, making bond issuance a challenge and the initial cost was too high to pay out of the city budget. The county then arranged a 15-year, low-interest, fixed rate municipal financing structure with Government Capital. It required no down payment, deferred the first annual payment for 12 months and its effective rate was below 2%. It created positive cash flow for the County and will save $1.2 million over the life of the project, net of financing costs. Government Capital also provided the municipal lease financing for the above Kennedale project, with great success.
If You Are Interested
When considering an AM project, it is important to quantify the financial benefits of an AMI project, select the right product and platform and determine if integrating a DMA is feasible. Last, when evaluating several financial strategies, you should keep in mind that municipal lease can provide positive cash flow at a low interest rate while diminishing the cost of delay.
For more information, and for a copy of the AIQUEOUS presentation, please reach out to us at email@example.com.