ESG Q&A with Dan McCarthy

ESG: What trends do you see in wastewater that pique your interest?

DM: There are many, but a couple of trends that are or will be driving the industry are in energy and data management. Currently, there is an increased focus on energy optimization. This is principally at wastewater treatment plants headed toward net zero energy consumption, however, there’s also a focus on energy recovery for water transmission systems. This adds a new business case for utilities to consider from an economic as well as a sustainability perspective. This optimization takes the form of energy production from processing biosolids, additional energy from bringing in high strength organic waste, and the production of renewable natural gas.

The other evolving trend everyone is talking about is big data and the associated analytics. Everything is “smart” these days, so not surprisingly there are applications for water and wastewater systems. The holy grail is how to extract value from offering these products and services. This is still an evolving aspect of the industry.

ESG: What impact on capital investment do you see for wastewater utilities as a result of COVID-19?

DM: The current challenge for many utilities is the lack of cash flow as a result of revenue shortfalls from their customers. Although this will correct itself in time, it leaves a large hole in their financial picture. Solutions being implemented include reducing non-essential spending, laying off or furloughing staff, and slowing down or deferring capital investment. Although critical improvements will continue, those that can be delayed somewhat will probably be stopped or rescheduled for the future when the recessionary impacts of COVID-19 are better understood.

I believe that the current situation and recession will be a renewed driver for private sector participation in the form of various public private partnerships, probably with more focus on the financing aspects. Prior to the pandemic, there was a lot of private capital on the sidelines looking to invest in the water industry, but the drivers on the part of the public agencies weren’t there in most cases. I think that there will be a renewed interest in P3 with provisions that the agency can exercise an early buy-back if and when conditions make it favorable. On the flip side, agencies may come to prefer public private partnerships as they get more exposure and experience with these financial models.

ESG: What is your perspective on the future of alternative project delivery models versus more traditional models?

DM: Many in the industry, including me, have come to think of alternative project delivery, now being rebranded as collaborative project delivery in some cases, as no longer an “alternative” to what was traditionally the design-bid-build delivery model. Now, it is just another tool in the toolbox, as they say. From my vantage point, I am seeing many more projects, especially the larger and more complex ones, being delivered in a collaborative project delivery fashion. Most notably is progressive design-build and construction management at risk. Both forms allow the owner to select their designers and contractors using a blend of qualifications, innovative approaches and some initial pricing indicators. The contract price is determined at a later time after a period of collaborative design and construction planning has been undertaken. New delivery models will continue to evolve, but these two are becoming very prevalent in the market and will continue to dominate in the near future.

ESG: As you continue to support and work with companies directly tied to the wastewater market, what are you looking for in those clients?

DM: I am looking for clients who strive for innovative and value-creating solutions for their customers. The industry is full of conservative “tried-and-true” solutions. Today it needs new thinking and new approaches to bring about more innovation, not for innovation’s sake but in order to do more with less: less capital, less O&M, fewer staffing requirements, and so on. I am also appreciating clients who recognize that the public utility agencies are really businesses that go beyond merely the provision of safe drinking water and environmental protection. We need to look for holistic strategies for their operations, both technical and financial, that provide the best service for their customers and the best working environment for their staff.

ESG: How can wastewater utilities lead by example in sustainable practices?

DM: There are many definitions of sustainability, with the three-legged stool analogy being common: Environment, Social and Economics. Many industries profess their pledges to sustainability but are often disadvantaged by the nature of their business when it comes to addressing these elements equally. The water industry is uniquely positioned to lead in this area. Why? Most utilities do not have a profit driver, but if they do, it can be addressed. They have a captive customer base in most cases, which is an advantage not in terms of a monopoly but in the fact that they know who their customers are and can reach out to understand their value systems when it comes to sustainability. From there they can adapt their programs, policies, and strategies to sync with their customers.

No two communities are alike with regard to sustainability, but the three principal strategies are within every utility’s reach and can be incorporated with the support of their customers. In this way water utilities can lead in sustainability.

ESG: What impediment to becoming a “Utility of the Future” do you see as most critical for utilities to address or solve?

DM: The Utility of the Future (UOTF) initiative seeks to expand the role of utilities beyond simply treating waste. This includes emphasizing recovery and the new use of resources in addition to transforming internal utility cultures toward innovation and engaging more with local communities. The initiative is led by the Water Environment Federation, among others. From my perspective, the impediments for many utilities involve culture and community and the willingness to make change for the better. I think the fact that there are over 120 agencies that have been recognized so far, with many more in various levels of implementation of the guiding principles, shows that the industry has embraced the UOTF strategy in its organizations and communities. Any utility encountering impediments should reach out to this body of experience. Someone has encountered a situation that’s the same or similar to theirs and can help, and they are typically very willing to do so.