Seizing Digital Adoption in Water

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By Jeff Lipton


Challenges Due to COVID-19

As a recent McKinsey study points out, many professional organizations have excess structural capacity due to reduced demand from the COVID-19 crisis. There is an urgent need to rightsize the capital base of operations and convert fixed costs to variable costs as much as possible. For the water utility industry, which has an inherently high degree of fixed costs, this presents a particularly unique challenge, but also an opportunity of unprecedented scale.

Water supply demand has shifted, almost overnight, away from commercial and industrial customers. As businesses have shuttered, factories mothballed, and employees around the country are furloughed or working remotely from home, the shift of water use in location, time and amount has been profound. These shifts have led to new patterns of peak demand which are challenging both water and wastewater utilities in terms of optimizing systems to meet new patterns of use. Forecasting future demand trends is going to be very difficult given the uncertainty of timing for economic recovery and the resumption of familiar business operations.

In addition, water suppliers are facing dramatic shortfalls in revenue due to increased payment delinquencies on the part of customers. Due to record unemployment levels, many customers are unable to afford even basic utility services and a vast majority of water suppliers have humanely suspended service disconnections as a way of enforcing payment. This has led to record financial shortfalls which may reach as high as $30 billion.

RELATED — Drinking water revenue decline could mean 32.7 billion in losses

Cost/Revenue Imbalance

Because water is a capital-intensive business, plant, equipment and labor for most utilities is relatively fixed. While costs for raw water supply, treatment chemicals, and electricity used for treatment and pumping are variable, they typically represent less than 30 percent of total costs. Consequently, most utilities have designed rates to customers to reflect this mix of fixed and variable costs. The problem with such an approach is that it disproportionately impacts low income customers, and also creates a disincentive for all customers to increase water-use efficiency which will become increasingly important as ongoing urbanization and water stress leave suppliers with fewer ways to meet customer needs.

The more that utilities can adopt technology solutions that incorporate ‘pay-as-you-go’ cost models, the easier it will be to align costs with revenues and counteract the challenges of high fixed costs. While there are certain areas of water operations that don’t lend themselves to this type of restructuring, there are several categories where this is particularly feasible.

Where to Digitize?

Any element of business operations that can benefit from remote sensors, analytics, and communications are ripe for improvements from digital technologies. Water flow measurement, hydraulic modeling, water and wastewater quality monitoring, capital planning and online customer service and bill pay are just a few examples of areas that can benefit from improved cloud-based digital services.

For a highly risk-averse industry, rapidly adopting new digital technologies to meet the challenges of a post-COVID world will not be easy. Utility leaders need to decouple legitimate concerns for water quality and reliability from the implementation of digital technologies to track information, perform analytics, generate insights and improve customer engagement through digital communications.

Communicate Early and Often

It will also be critical to communicate regularly with all stakeholders from employees, to regulators, to customers. It will be easier to gain buy-in and adoption by articulating a specific plan, the projected timeline for implementing new systems, and clearly communicated benefits that stakeholders will receive from new investments in technology.


For a highly risk-averse industry, rapidly adopting new digital technologies to meet the challenges of a post-COVID world will not be easy.


Where To Go From Here?

While this is a lot for any water utility manager to manage, here are a few things to consider when looking to transform your water operations to benefit from new technologies:

  • One of the biggest challenges in the short-term will be for utility leaders to prioritize digital adoption activities based on areas of greatest need, most benefit, and least risk. Form a team of stakeholders, identify areas where digital transformation is possible, and create a ranking system to quantify the areas that will generate the best returns in the short run.
  • Move as many digital technologies to cloud providers who can provide increased cost flexibility due to elastic cloud computing capabilities. These pay-as-you go models allow for cost optimization in times of variable demand and can free resources to pay for other digitization investments.
  • Prepare for increased expectations from customers on information access and customer service. Begin planning for improved contact center solutions, multi-channel communication systems, and more comprehensive self-service options.
  • Embrace remote working for back office and customer service staff and implement new technologies to allow for remote monitoring of critical water operations to allow increased flexibility for all workers.
  • Consider rate restructuring to better align revenue with costs. This means higher fixed fees for customers, lower marginal costs for water and wastewater services, and more aggressive cost tiers for incremental usage. This has the added benefit of helping low income or unemployed customers who are struggling to pay utility bills.
  • Measure outcomes that result from these new tools and be prepared to rapidly iterate on processes based on stakeholder feedback and analytic insights.

The Digital Skills Gap

As digital initiatives take hold, utilities will need to begin making investments in a new class of employee who can advance the digital agenda and bring increased agility and cost savings to the organization. As improved automation reduces the need for labor resources and age-based attrition of the water workforce progresses, embracing the digital transformation will require an influx of knowledge workers. These include people with experience in software development, artificial intelligence and machine learning, IT management and cloud service deployment and optimization.

Digital upskill training across the entire organization will also support this transition and create new opportunities for career advancement and improved job satisfaction among existing employees. Many of these new roles can also be sourced globally for remote work. This increases the pool of qualified talent, helps manage costs, and aligns with the emerging distributed workforce model.

Conclusion

None of this is going to be easy, but it is essential that the water industry recognize both the critical need and the opportunity to remake legacy processes and embrace new digital technologies to build resilience for the coming decades. We are facing an unprecedented time in the history of water and we should not squander the chance to imagine a dramatically different future for the benefit of the communities that we serve.


Jeff Lipton is the former chief growth officer of Smart Earth Technologies (SET), a provider of data acquisition and management solutions for the water utility industry. He has spent the last decade in the water industry and previously ran marketing and business development for WaterSmart Software, where he helped pioneer the development of behavioral water efficiency technology.

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