Will Governments Learn a Lesson About Infrastructure From PG&E?

November 21, 2019

In the last of a two-part series, we expound on the condition of America's aging infrastructure.

Tim Russell, Principal Credit Analyst

In the first part of our series, The Cautionary Tale of Tower 27/222, we discussed Pacific Gas & Electric's (PG&E) aging infrastructure and one 98-year old high-voltage transmission tower in particular. Tower 27/222 was more than 25 years past its useful life and its failure led to the Camp Fire, which ultimately destroyed the city of Paradise and killed 86 people. What stands out with regard to the PG&E story is how the lack of investment in maintaining infrastructure is being repeated in municipalities across the nation. The PG&E story should be understood as the cautionary tale it is by state and local governments, warning them of the dangers they risk should they choose to operate with the run to failure philosophy.

Every four years - most recently in 2017 - the American Society of Civil Engineers (ASCE) releases a report called America's Infrastructure Grade. In the report, ASCE assigns letter grades for 16 categories of infrastructure. In the most recent report, the U.S. received an overall grade of a D+. ASCE defines a D grade as "the infrastructure is in poor to fair condition and mostly below standard, with many elements approaching the end of their service life.  A large portion of the system exhibits significant deterioration. Condition and capacity are of serious concern with strong risk of failure". This definition sounds very similar to descriptions of PG&E's infrastructure and is, unfortunately, the rating of the majority of U.S. infrastructure categories.

Highlights of the ASCE's report:

• Bridges received a grade of C+. Almost 40% of bridges are 50 years or older, which is significant, as most bridges are designed for a useful life expectancy of 50 years. In 2016, 9.1% of bridges were considered structurally deficient with an estimated 188 million trips across them daily.
• Dams received a grade of D. American dams are aged an average of 56 years. 15,500 dams are viewed as having a high hazard potential, meaning failure would be expected to result in loss of life or significant economic impact.
• Roads received a grade of D. 20% of highway pavement in poor condition costing every driver an estimated $533 annually in extra vehicle repairs.
• Energy received a grade of D+. Most U.S. power lines were constructed in the 1950s and 60s. The majority of lines were built with a 50-year life expectancy and, importantly, were not engineered to meet today's demand nor severe weather events. 
• Drinking water received a grade of D. While water quality for the most part is high, much of the pipe system was laid in the mid-20th century with an expected useful life of 75-100 years. There are an estimated 240,000 water main breaks annually, wasting over two trillion gallons of treated water. At the current replacement rate, it will take nearly double the useful life to upgrade the overall system.
• Wastewater received a grade of a D+. 76% of the population relies on the nation's public wastewater treatment plants. The EPA estimates that annually 23,000 to 75,000 sanitary sewer overflows occur in the United States, each with the potential to pollute the environment.

Presidential candidate Amy Klobuchar earlier this year released her $1 trillion infrastructure plan, making it a focus of her 2020 campaign. But we've been here before - when President Trump was a candidate, he proposed spending $1 trillion to address infrastructure. Last year, his Administration's $1.5 trillion proposal to Congress received a lukewarm reception. Infrastructure spending is a can that historically has been kicked down the road and we are not very optimistic that government officials have the pocket book or fortitude to get the country to a B rating anytime soon. Just maybe we can get some cross-aisle teamwork and Congress can raise the grade to a C. Then, the next time you drive over a bridge you won't be left asking yourself how many years the bridge is past its useful life. 

Sources

American Society of Civil Engineers, 2017 Infrastructure Report Card, www.infrastructure reportcard.org

American Society of Civil Engineers, Infrastructure Grades Are In, Will Trump and Congress Act to Raise America's G.P.A.?, July 6, 2019

Lerer, Lisa, "Amy Klobuchar Proposes $1Trillion Infrastructure Plan," The New York Times, March 28, 2019

Municipal Securities Rulemaking Board, Muni Facts, March 2019