“The devil is in the details” is an idiom that refers to initiatives which might seem simple at a first look. However, on closer examination, these promising projects often demand a significant amount of thought and work to complete. The phrase is widely attributed to German-born architect Ludwig Miles van der Rohe.
This focused attention to detail – especially around sustainability-oriented initiatives – came up in a recent conversation with American Water. Previously, we’ve praised the company for the big improvements they made in their CDP (formerly known as the Carbon Disclosure Project) rating. In a single year, they went from a D score in 2018 to a B rating.
Actions Taken to Address Climate Change
American Water has strategically focused their business model to address climate change – through “resiliency planning” and enhanced technology measures to better equip the company for the environment of the future.
Urban resilience is defined as “the capacity of individuals, communities, institutions, businesses and systems within a city to survive, adapt, and grow – no matter what kinds of chronic stresses and acute shock they experience” according to the American Planning Association.
Putting Resiliency Planning into Action
American Water is primarily focused on providing safe, clean and reliable water supplies to their customers. To this end, they use resiliency planning in their operations that mitigates risk exposure to problems caused by external forces. The company has undertaken numerous projects that put this approach into action, with an admirable attention to detail that address the problems at hand.
American Water built a reservoir to store a backup water supply for the town of Bel Air, MD. It holds 90 million gallons of water, enough for a 100-day supply for the local treatment plant. The company worked in collaboration with the town of Bel Air, Hartford County and The Maryland Department of Environment regarding the need to have backup water for the town in the event of a drought or environmental disaster that might contaminate the stream that provides the town’s water.
American Water has also changed the risk assessment time horizon for certain events like droughts, floods and other natural disasters, moving from a 15 to a 25-year time horizon. For example, when new facilities or facility upgrades are constructed, critical equipment is located at higher elevations, often above the 500-year flood elevation, where in the past they may have used 100-year flood elevation as the planning standard.
In the past several years, flooding on the Mississippi River continued to set new records and posed a threat to Iowa American Water’s treatment plant that services 55,000 customer in the area. Initially a $11.8 million / 2,200-foot long floodwall was built in 2013 by a partnership between Iowa American Water, the US Army Corps of Engineers and the City of Davenport. The wall was tested in April of 2019 when the river rose 20 feet. The floodwall protected the treatment facility, allowing uninterrupted service to customers.
In addition to the company’s resiliency planning efforts, American Water is implementing new technology and associated data management tools in numerous areas which in turn will improve efficiencies including reducing energy and fuel usage. Every $1 saved in operational expense allows for $8 in capital investment without affecting customer bills.
Reducing the Company’s Carbon Footprint
American Water’s resiliency efforts contribute to reducing the company’s carbon footprint as well. They have a goal of reducing their GHG emissions 40% by 2025 from the 2007 baseline, and they have already achieved an approximate reduction of 31% through 2018.
An example of this effort is American Water’s Newburgh, Indiana solar project. It went online in February of 2018. After one year of operation, the solar array was able to produce 85.7% of the electricity needed to operate the facility that pumps 550 MG of water to local customers. The solar array produced 579,739.27 kWh in the first year, which saved 1,056,285 pounds of CO2 emissions; equivalent to burning 54,366 gallons of gasoline. After one year of production, the electricity purchase savings totaled over $58,000.
Looking Forward
American Water’s lofty sustainability goals will not be met without significant investments. The firm expects to spend between $8-$9.4 billion on capital investments from 2019 – 2024 to reduce their carbon footprint by addressing aging infrastructure, reducing or eliminating leaks, improving cyber and physical security, and increasing resiliency of critical assets from the impacts of climate change.
They also plan to invest an additional $20 to $22 billion in capital over the next ten years to improve the quality and reliability of their services and to bring water and wastewater solutions to more communities across the United States.
Doing Well by Doing Good
The true test of any company is its ability to create a strategic business plan that delivers long-term profitable growth, which in turn creates monetary value by increasing its share price.
As the largest and most geographically diverse water utility in the US serving 15 million customers, American Water has delivered consistent earnings growth, smooth capital deployment, a disciplined approach to acquisitions, and maintained a strong balance sheet. The company is also poised to benefit from systematic capital expenditures and acquisitions to further expand its business footprint across the United States.
All this has resulted in AWK stock significantly outperforming the DJIA with a 17.71% increase in share value over the last two years. Shares of the company have gained 11.4% in the past year against the industry’s 2.6% decline (Utility-Water Supply Market).
For American Water a commitment to sustainable business practices is paying off for their investors, customers, the communities they serve and to planet earth. Who could imagine attention to detail could produce such impressive results?
