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Many organizations and government agencies have studied and written about the potential benefits of regionalizing* the provision of water and wastewater services, but progress implementing this management tool has been relatively slow in many states including North Carolina.

*The terminology used to describe the transition from a more isolated independent service provision model to one that is more integrated is not always consistent or standardized. The term regionalization is used here to describe a range of different collaboration mechanisms that are commonly found in North Carolina and across the country.

Regionalized service provision can range from the creation of a new water utility by combining or merging two or more utilities; one utility absorbing or acquiring other utilities; or multiple utilities that choose to remain autonomous to some degree but share components of service provision such as water supply or water treatment. Many regions that appear to be ideal candidates for regionalization remain served by independent and often isolated utilities and when regionalization does occur, it is often a laborious process that can take years of planning and negotiation. While many regionalized systems thrive once they are created, others fail to fully meet their goals and may encounter a range of challenges including fiscal distress, recurring political and public disagreements, and the occasional lawsuit.

In order to learn more about practitioners’ regionalization experiences, expectations, and concerns, a group of researchers from the University of North Carolina at Chapel Hill hosted an interactive workshop at the UNC School of Government in Chapel Hill, North Carolina. The event was designed to share emerging research and solicit practitioner views. Funding for the workshop was provided as part of a National Science Foundation project (award no. 1360442) funded by the Water Sustainability and Climate program. The workshop was attended by approximately 75 participants comprised of utility management staff, consultants that work with utilities, non-profit technical assistance providers, and state funding programs. Participants included staff from the state’s largest water utilities that provide service to hundreds of thousands of customers, all the way down to smaller rural utilities serving as few as 1,000 customers. Twenty-six separate utilities were represented. The workshop included research presentations, facilitated group discussions, audience polling, and small group exercises.

Polling revealed that the audience included representatives from utilities that had regionalized, had attempted unsuccessfully to regionalize, or were interested in regionalizing in the future. Over 70% of the utility representatives believed it was likely that they would be involved in a more regionalized system in the future. Participants had an opportunity to share their experiences and perspectives about a variety of different regionalization mechanisms. Lessons from the day came from documenting and reviewing participant polls, comments and questions from group discussions, and the outcomes of an exercise in which participants had the opportunity to pursue (or avoid) specific types of regionalization approaches.

Several key take-a-ways from the workshop are summarized below.

  1. Regional Collaboration is Challenging

Throughout the day, it became clear that workshop participants felt differently about various aspects of regionalization. However, there was at least one sentiment that seemed to be shared by everyone in the room: regionalization is not easy or simple. Figure 1 shows the range of poll responses given when participants were asked how they thought about regionalization.

Figure 1. Participant responses in word cloud format when asked to describe what comes to mind when they think of collaboration in the utility space.
  1. Regionalization Expectations may Vary in Ways that Make Alignment Difficult

Workshop participants were carefully divided into small groups and asked to consider common regionalization scenarios that are prevalent in North Carolina and to use their experience and views to inform how they would react if they were representing one of the utilities considering a more regionalized approach. Some participants were asked to consider the perspective (play the role) of larger utilities with existing capacity that could be shared. Another group was asked to consider the perspective of a small system with inadequate infrastructure and a declining population, and the last group was asked to consider the perspective of a small system that needed more capacity due to growth.

Participants playing the role of larger systems expressed interest in helping smaller systems but only under conditions that would not adversely impact their existing customers. The participants playing the role of smaller, more resource constrained utilities, while admitting they had less negotiating power, were no less resolute with their expectations. For example, those representing smaller systems knew they would likely lose control of their system and felt that they had to be able to show their customers rate benefits of joining a regional system. The larger systems were concerned about the capital investments needed to create the regional system and bring assets up to standards and did not see an easy way to offer lower rates.

Most of the discussion in the small groups revolved around the question “what’s in it for us?” with “us” not referring to a regionalized system as a whole but in terms of the interests of customers served by an individual utility considering regionalization.

The conversation highlighted the different starting points utilities trying to collaborate bring to the table. Some of the different expectations seemed reconcilable, but others seemed more challenging . One of the examples of a difficult issue related to differing views about the value of small system assets and customers that might be transferred to a larger utility as part of a consolidation.  Representatives of the smaller systems felt strongly that they should receive some payment for their assets and customers considering how much they had invested in the system. Those asked to consider the larger system perspective felt like they not only should not reimburse the smaller systems, but that they in fact should be paid to take on the smaller systems.  See figure below.

 

Figure 2. Different views related to asset valuation and reimbursement.
  1. Well Designed Agreements and Contracts are Essential
Recent EFC Publication: Crafting Interlocal Water and Wastewater Agreements: A Condensed Guide

When asked about their experience with regionalization agreements, most of the utilities responded that they currently buy or sell some type of water/sewer services under an existing agreement. Collectively the workshop participants had experience with dozens of separate agreements involving some level of collaboration. When asked about their current agreements, over a quarter of the participants stated that one of their existing agreements had caused serious problems for their utility. When considering the quality of these agreements, one third believed one or more needed to be improved and less than ten percent stated that they were extremely happy with any of their agreements. In response to these concerns, the EFC at UNC has collaborated with the Division of Water Infrastructure within the NC Department of Environmental Quality to identify common contract problems, review existing agreements and identify key issues and elements that were missing or commonly addressed as ambiguous. The research was used to develop a guidance document for practitioners interested in creating or revising these types of agreements.

While the polling and discussion during the workshop was not designed to be a rigorous research survey, the workshop did provide a rare structured opportunity for utility practitioners to share real life experiences and perspectives many of which are likely to be shared by other practitioners throughout the country.

A full copy of the presentations and audience polling for the workshop is available at https://efc.sog.unc.edu/sites/default/files/2019/RegionalizationWorkshop_AllSlides.pdf

Jeff Hughes is the Director of the Environmental Finance Center (EFC) at the University of North Carolina at Chapel Hill. Jeff has thirty years of environmental finance experience as a researcher, policy analyst, consultant, and practitioner. He is also an Associate Teaching Professor with the UNC School of Government where he teaches courses on environmental finance and policy for university students and practitioners. He received a master’s degree in environmental engineering with a focus on water economics from the University of North Carolina at Chapel Hill and a bachelor’s degree in engineering from Duke University.

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