Over the past few years, conversations about equity in the water sector have emerged as meaningful considerations for utilities. Fueled by the historic investment in federal funding for infrastructure and the Justice40 Initiative, utilities are taking a deeper dive into what equitable approaches look like for their current operations and future strategy.
Need for Equity in the Water Sector
Why are these conversations so critical? In part, the growing recognition and adoption of water utilities as “anchor institutions” that have a tremendous role in community and economic development can help to promote access in environments where, historically, not all communities have been able to participate in social and economic benefits associated with the sector. Equity for water utilities shows up in many ways, and it focuses predominantly on equity in the economic outcomes associated with ongoing sector challenges: access (affordability), infrastructure investment, and workforce development/job creation ( internally and externally).
Developing solutions to these challenges has spurred discussions about how these solutions will include equity. Incorporating equity in the fabric of a utility can be challenging since equity looks different for different communities, and a “one size fits all” approach is not ideal. How, then, do utilities create a plan that allows them to capitalize on their power to influence the communities they serve? P.E.S.T.L.E Model Utilities must start by understanding the “why” driving equity considerations. Looking toward traditional business strategy models provides the strategic framework necessary to create programming, processes, and policies that support the integration of equity into a utility's day-to-day work and long-term strategy. For this approach, they can assess the influences driving the role of equity by looking at a longstanding strategic framework: the P.E.S.T.L.E. (or P.E.S.T.E.L.) model, a proven framework for understanding and articulating factors driving the adoption of equitable practices. The P.E.S.T.L.E approach can also help to refine analysis in other common business frameworks, including the well-known S.W.O.T. and S.O.A.R. models.
Harvard Business School professor Francis Aguilar originally developed the P.E.S.T. framework to understand and analyze the business environment in which organizations operate. This model examines the various factors that guide a business entity’s operations and strategic plan. The model represents four external drivers that organizations should consider in their planning: political, economic, sociological, and technological. Throughout the years, the “L.E.” (“legal” [legislation] and “environmental”) factors were added as their influence in strategic planning grew. Collectively, assessing these factors gives utilities a comprehensive understanding of the expectations for equitable approaches to internal and external business activities and prompts a thoughtful review of implementation during the strategic planning process.
These factors are critical for most utilities to develop multi-year strategic plans and approach annual operating and capital improvement plans, and they directly influence how a utility approaches equity in the conversations. The P.E.S.T.L.E. tool is an effective model for helping utilities establish the “why” behind their practices.
Political
Utilities should consider first the political influences and subsequent legislation centering equitable approaches and outcomes in recent conversations. While the word and concept of "equity" have been highly politicized over the last few years, for some utilities, decisions at the federal, state, county, and municipal levels are not only key considerations but have led to legislation and laws that mandate the inclusion of equitable considerations. At the federal level, the mandate that equity be considered to gain access to the recent historic federal funding, especially under the Infrastructure Investment and Justice Act and the Inflation Reduction Act. Additionally, the broader Justice 40 initiative, which mandates that 40 percent of federal funding be appropriated to historically underserved and overburdened communities, currently applies to most federal funding. Some states, such as Minnesota, launched a Health Equity workgroup to identify challenges and barriers within the drinking water sector. Other utilities must respond to county and municipal mandates. For example, in 2020, Montgomery County, Maryland, enacted the Racial and Social Justice Act, which mandates that all budget requests approved by the County Council have an equity analysis; WSSC Water, a service provider for most of Montgomery County, must follow this mandate.
Economic and Sociological
Social and economic factors are integral in helping utilities identify what role equity plays in their planning and processes. At the center of the conversation is the topic of affordability. Utilities still grapple with balancing providing affordable rates with generating the revenue necessary to run the basic operations effectively. During the COVID-19 pandemic, the disparity between those communities who could not afford water and wastewater service was pushed even further to the forefront of planning. While federal funding under the CARES Act and the Low-Income Water Assistance Program offered a reprieve, utilities are still striving to balance how they invest in communities that struggle to pay for these services.
While the federal government establishes certain thresholds, states are primarily responsible for defining “underserved” communities by looking at key demographic information, such as income levels, which determines which communities are eligible for the bulk of state-administered federal funding. Additionally, an often-overlooked factor centers utility investment in economically depressed areas that have been designated as economic growth or economic empowerment zones. Investment in infrastructure in these areas is made with the hope that a strong infrastructure will attract and retain businesses to these areas, creating jobs and revenue for historically depressed communities. This consideration has emerged as an opportunity for additional funding through agencies that support economic growth; in July 2023, the U.S. Economic Development Agency invested $3 million in Wythe County, Virginia, for water infrastructure improvement. This investment is expected to spur 2,500 jobs and $715 million in private investment.
Technological
Technology also plays a pivotal role in how utilities approach equity in their work. Some of these factors under consideration include how services are created and distributed; what systems (hardware and software) exist; and what processes are present, among others. As utilities look to balance the costs of upgrading their processes and systems and updating often antiquated technology, questions around how each community benefit and are burdened by the adoption of new technologies arise: do communities have the internet infrastructure to support the new systems? Are the processes skewed to accommodate those who have access to other systems? How will the adoption cost impact rates, given that even incremental rate increases could heavily impact struggling households? Seemingly neutral technologies, such as advanced metering infrastructure, can help promote equity in service by better allowing for accurate payments and the creation of payment plans, as well as early leak detection that prevents excessive bills. Automation and “AI” are also points of consideration for approaching equity within the utility as they contribute to more efficient practices and policies.
Environmental
Finally, environmental considerations strongly influence how a utility plans equitably. According to the EPA, “environmental justice” is the fair treatment and meaningful involvement of all people … with respect to …environmental laws, regulations, and policies”. Conversations about environmental justice are anchored in investment, engagement, and access. To that end, utilities must identify where their approach will be for building resiliency, reducing disparities, and ensuring safe, clean water for all communities. An example is supporting the current administration’s goal of replacing 100 percent of the country’s lead pipe service lines and creating a comprehensive inventory to protect public health. Many utilities are taking steps to use this as an opportunity to address historic inequities in infrastructure by prioritizing the replacement of lead mains in communities with documented health disparities. Equity challenges can arise in replacing on-property service lines. Those property owners who can afford to pay for their private line replacement have significantly reduced health issues caused by lead exposure. For those who cannot afford to replace their on-property lead service lines, exposure remains heightened, often magnified by additional health challenges to which they are disproportionately exposed because they lack the thousands of dollars often necessary to eliminate this threat. Utilities have the opportunity to create funding pathways for these owners and help address health disparities in their communities.
Conclusion
Using these considerations as a starting point will help utilities best identify the “why” behind their actions. While the P.E.S.T.L.E. model is a good framework to establish baseline factors, it excludes critical ones that utilities must also consider: what is the utility’s internal compass on including equity in their work? How does equity show up within the organization? What are the utility’s values of governance and leadership? Identifying all these factors is the baseline for these conversations that help utilities use their work to promote equity in their communities.
A version of this blog was previously published by the American Metropolitan Water Association's Water Executive newsletter in January 2024
