Lessons from Drinking Water Systems in Hawai‘i and the U.S. Territories

by Glenn Barnes

Glenn Barnes is senior project director with the Environmental Finance Center based at the University of North Carolina at Chapel Hill.  He is the co-director of the Smart Management for Small Water Systems Project.

Recently, the Environmental Finance Center at UNC led workshops on energy management and rate setting for drinking water systems in Hawai‘i and several territories of the United States.  These workshops are part of the Smart Management for Small Water Systems project, which includes trainings for systems across the US (click here to see a full list of all of our past trainings).  All small drinking water systems face financial and managerial challenges such as dis-economies of scale, difficulty paying for needed capital improvements, and problems retaining qualified staff.  The water systems on these islands, however, face additional unique challenges.

The water systems of Hawai‘i and the U.S. territories are geographically isolated, both from the mainland of the United States and often from each other.  Power costs are high.  Spare parts typically have to be shipped to the islands from the mainland, an expensive and lengthy process.  Finding talented operators and managers is more difficult because labor cannot flow as freely to these systems as it does to systems on the mainland.

Faced with these unique challenges, the drinking water systems of Hawai‘i and the U.S. territories have found management solutions in the areas of regionalization, energy management, and rate setting that provide useful lessons for all small water systems.

Regionalization

Most of the islands have regionalized, island-wide systems that serve the majority of the water customers.  In some cases, such as Guam, the systems are physically interconnected as well as centrally managed, sharing water treatment capacity.  In other cases, such as the Big Island of Hawai‘i, the systems are centrally managed but not physically interconnected; there are more than 20 public water systems within the island-wide system.  Central management reduces the costs of administration, billing, accounting, customer services, and other costs.  All customers of the regionalized system pay the same rates and contribute to needed capital improvements island-wide, allowing the system to achieve better economies of scale.

Other smaller systems run by condominiums, hotels, shopping centers, and other businesses sell treated water in bulk, an important revenue source.  The Reef Condos on St. Croix, for example, sell treated water to another condominium complex nearby.  Both condos are isolated from the island-wide system and are unable to connect to it.  Likewise, the Hyatt Regency hotel on Saipan in the Northern Mariana Islands sells treated water in bulk to the American Memorial Park located across the street.

Energy Management

Hawai‘i and the U.S. Territories pay some of the highest energy prices in the country.  Electricity in the U.S. Virgin Islands is 55 cents per kwh, for example.  Ninety percent of the annual budget of one system on the Hawai‘ian island of Molokai is energy costs.  These systems have a keen understanding of how they are billed for electricity and how much they pay monthly.  They have relationships with their electric utilities and work with them to reduce their bills as much as possible.

Rate Setting

Both privately owned community water systems and non-transient, non-community water systems in the islands have developed sophisticated rate structures in spite of their small size.  The Reef Condos charge a uniform rate to all of their residential customers, a decreasing block rate to the restaurants within the complex, and a negotiated bulk rate to a neighboring condo complex.  Duty Free Saipan, a shopping complex in the Northern Mariana Islands, includes a fixed amount for unlimited water use in the rents it charges to retail establishments but then meters the water use by the restaurant within the complex.

The finance and management practices of these water systems are models for others across the country.