By Peter Debaere and Kristin Kloberdanz
Flint, Michigan, has become nearly synonymous for “water crisis” in this country. Thanks to a combination of ancient infrastructure and insufficient water treatments, four years ago Flint citizens were suddenly exposed to high levels of lead when the city switched their main water source. While this ongoing crisis is by far the most egregious example of a public water catastrophe (and one that is far from over), there are many cities and towns in America that are facing critical water challenges.
“It’s not like our water infrastructure is top rate at this point,” says Peter Debaere, professor of business administration at Darden and leader of UVA’s Global Water Initiative. “Why is that?”
A Success Story
In an effort to answer this question and to learn how cities can improve their water systems for the future, Debaere turned to the nation’s capital.
George Hawkins took over as CEO and manager of the utility DC Water in 2009, and since then, Washington, D.C., has undergone a stunning water transformation. Through a combination of better public communication, creative financial structuring and risk-taking innovation, Hawkins managed to turn a highly disliked company into an award-winning beacon of sustainability for the rest of the country.
“Hawkins read the problems in the sector very well,” says Debaere, who recently published a case study on DC Water. “He found the solution for DC Water, and this solution may be translatable to other parts of the country — although it’s certainly not going to solve all problems.”
Debaere points to Hawkins’ focus on better public communication as a huge factor in his success. Every year, DC Water provides approximately 700,000 residents, millions of tourists and all major federal buildings with drinking water. “People take water for granted,” Debaere says. Hawkins needed to increase the price of water so they could make a significant dent in fixing old infrastructure, but he also needed to make sure people were on board with this decision. “He did this by positioning DC Water in a way that people could appreciate what they were doing.”
Hawkins went to the media to talk about water. Every time he appeared in public, he wore DC Water outfits. He wrote a transparent blog about the city’s water problems and how they planned to fix them. He spoke at town halls and spent hours answering questions. “He really engaged people directly.”
Debaere says that Hawkins also figured out some pretty interesting ways to bring in financing. “People think water gets a lot of money from taxes, but it’s the water tariffs that are the big source of income,” he says, alluding to the fixed price of water, assigned by a utility. “If the price of water isn’t high enough, you will actually not be able to cover your expenses, which leads to a lot of temporary fixes and slow upgrades. This is why in the U.S. we have water utilities in such bad shape.”
In 2014, Hawkins helped DC Water issue a $350 million green century bond — a first for a water and wastewater utility in the country — to fund its Clean Rivers Project. Federal organizations or, in this case, municipalities, issue green bonds to support “projects and activities that promote climate or other environmental sustainability purposes.” Unlike the 30- or 35-year municipal bonds DC Water typically issued to finance infrastructure projects, this green bond spread the expenses out for a century, avoiding potential objections that current water users might have had about footing the bill for previous generations’ negligence or future generations’ needs. The green century bond was met with strong investor demand, which allowed the organization to increase the transaction by $50 million from the originally planned $300 million.
Two years later, DC Water issued a $25 million environmental impact bond (EIB), a first of this type of bond in the nation. An EIB is a “pay-for-success” tax-free bond in which private-sector investors tie their invested money to measurable outcomes. In this case, DC Water sold its EIB to Goldman Sachs Urban Investment Group and the Calvert Foundation to fund the construction of green infrastructure. Green infrastructure — such as rain gardens, permeable pavements and rough terrain — can slow water movement after periods of rain, allowing water to seep into the ground and naturally filter out contaminants, so fewer pollutants enter the sewer system via stormwater runoff. Since it’s difficult to predict how new green infrastructure will impact stormwater management, this bond links financial payouts to environmental performance.
Finally, Debaere says Hawkins, who stepped down from his position in December, brought a culture of innovation to a “risk-adverse sector.” He did this through his branding and finance work, but he also sought out younger employees and made sure the company was open to hearing new ideas for process and organization. Nothing was too odd of a notion to pursue. “He empowered people to try things out while also keeping risk under control.”
One innovative win during Hawkins’ tenure came from biosolids, leftover topsoil-like natural materials that come from cleaning wastewater. Typically, these leftover biosolids were given to farmers for free, which came with the large expense of transporting them to the countryside. DC Water invested in technology that improved the quality of the biosolids and their ability to assist the growth of plants, making a product that could be marketed and sold.
DC Water is a great model for other public waterworks in the country, but Debaere says not all are as well-funded or heavily staffed as the nation’s capital’s utility. “I know Hawkins is thinking of how DC Water can share its knowledge service model with smaller ones,” he says. “There might be music in this.”
This article is based on the case DC Water: Water Is Life (Darden Business Publishing), by Darden Professor Peter Debaere and George Hawkins.