Success at Last: The Long Road to Regional Consolidation in Des Moines

This article first appeared in Journal AWWA June 2025 Edition. https://doi.org/10.1002/awwa.2450

Jason Mumm, Ted Corrigan, and Melanie Hobart

Key Takeaways

Water utility regionalization can be achieved through

different approaches, with the process often being

long and complex.

The communities around Des Moines, Iowa, were

growing, and all stakeholders were interested in a

regional model in which investments would be more

responsive to their needs.

Forming the Central Iowa Water Works has taken time

and dedication; these efforts will result in financial,

technical, and managerial benefits for the region.

As local lore would have it, the idea of regionalizing the Des Moines Water Works (DMWW; Des Moines, Iowa) water supply began more than 20 years ago with a small group of local leaders huddled in a basement, making the first pitches to each other for a regional water supply utility. After-ward, the concept kept returning to the forefront of the local political landscape, each time with more collaborators, more ideas, and more calls for action.

In 2017, the DMWW board of trustees took on regionalization with renewed focus and a coalition of like-minded key regional community leaders. They could not know it then, but the newly formed coalition had embarked on a seven-year journey that would culminate in the formation of the Central Iowa Water Works (CIWW). Regionalization had found its champions, but the road to success was still filled with many of the same challenges that had seemingly ended the idea several times since that first basement meeting.

Regionalization

Water utility regionalization can take several different forms, and the type that the DMWW and surrounding communities preferred was a form of consolidation. The concept was to transfer water supply, treatment, and transmission assets from the DMWW and a handful of other communities to a new organization with shared governance. Regional consolidations such as these are difficult, and successful efforts are those that are technically feasible while ultimately producing the intended financial and managerial benefits.

The key objective in this case was shared governance. The surrounding communities, which accounted for more than 60% of all water demand, were growing much faster than Des Moines, and they were interested in a model in which regional investments in water supply facilities would be more responsive to their needs and more cost-effective overall.

Regionalization has often been touted as the solution for many inherent challenges of the water utility business model. As natural monopolies, water utilities perform best when they produce in larger quantities, using as much of the existing capacity as possible without risking reliability. The resulting economies of scale bring about lower average total costs, which translate into lower user rates. A perfect consolidation should produce an expected decrease in the average cost per unit for all parties involved. However, combining assets often means changing previous cost structures, potentially resulting in a mixed bag of outcomes.

To achieve the vision of shared governance, the future members of the CIWW would have to navigate a bumpy road filled with technical, financial, and managerial challenges. The elusive win–win scenario lay somewhere between the three.

Technical Challenges

Dating back to 1871, the DMWW was the first large water utility in the Des Moines region, and by 2017 it had built, operated, and managed water supply, treatment, and regional transmission systems with a capacity of 119 mgd. During its history, the DMWW extended service to communities in the surrounding area through purchased-capacity agreements that conveyed the right to capacity in the DMWW system but not ownership of the underlying assets. A few such communities also constructed their own water supply and treatment facilities. In nearby West Des Moines, the West Des Moines Water Works had constructed a 10-mgd treatment facility, other communities had constructed production wells, and several had invested in aquifer storage and recharge.

By 2017, the DMWW had sold 54 mgd in purchased-capacity agreements while retaining 65 mgd. Other communities had installed additional water supply facilities of 17.5 mgd, bringing the total regional capacity to 136.5 mgd. The regional maximum-day demand was 122.6 mgd, implying a regional reserve capacity of approximately 14 mgd.

In an earlier effort at regional consolidation, the coalition of community leaders examined a buy-in approach based on a fair-market-value asset valuation. The analysis concluded that placing all potential members on equal footing in a new regional water supply utility would require the neighboring communities and even DMWW ratepayers to compensate the DMWW approximately $100 million in fair value. The results surprised many, as they had already contributed millions toward constructing the current water supply facilities.

Sensing the costs were too large to overcome at that time, some of the communities ventured forward in developing plans to meet their water supply needs on their own. Regional consolidation had hit a low point, and the newfound collaboration was at risk of fracturing. Rather than consolidating capacity for maximum economies of scale, the new landscape included at least two new facility plans that would have duplicated infrastructure at increased regional cost. Not only was the current effort in jeopardy, but the new plans would also make future efforts even more difficult.

If the vision for regional governance were to advance, the group needed a better approach. It got one when local leaders put a hold on the alternatives and agreed to once more study consolidation. In a five-month study, the regional coalition found the key technical issue that would unite the region, clarify financial costs and benefits, and ultimately lead to the creation of the CIWW: reserve capacity.

The new study highlighted what earlier efforts had not: regional ratepayers already used and paid for approximately 122.6 mgd of the 135.5 mgd regional supply infrastructure, and there was no need for additional compensation for that portion. Still, the reserve capacity and its costs were a burden only for Des Moines’ ratepayers. Reallocating the capacity in a regional model would immediately allow outlying communities access to the reserve capacity with a fairer sharing of its financial burdens. It would also improve the timing of future capacity investments. Outlying communities were interested in consolidation because they were growing much faster than Des Moines and needed timely new investments in capacity. In the current arrangement, however, Des Moines’ ratepayers shouldered the carrying costs of new capacity, making any new investments somewhat unappealing, which prompted some to seek their own solutions.

While the group still had details to work out, reserve capacity became the main technical concept. By unlocking the reserve, the communities that had sought to construct their own supply capacity had to reconsider the net benefits if a regional alternative was now available at a potentially lower unit cost. Moreover, Des Moines had to consider whether owning the reserve capacity now and in the future presented the best financial outcome for its ratepayers. As shown in Figure 1, all sides could see the benefits of avoided costs in the short and long term.

Financial Challenges

When most people think of the benefits of a utility consolidation, they often point to the coveted win–win scenario, but while that isn’t always clear, a measurable financial win occurs when the average total cost per unit decreases. If average total cost decreases for everyone involved, the outcome meets the elusive win–win criteria. To make the business case for consolidation, the parties must demonstrate to their ratepayers that the future will likely cost less under the consolidation than without it—that is, at the current status quo. When multiple parties are involved, the picture can become messy. In Des Moines, as in most cases, the win–win scenario would take some work.

The analysis started with comprehensively evaluating each community’s status quo costs. It involved a careful examination of each community’s plans, some of which included the construction of independent water supply facilities, purchases of wholesale water from the DMWW and others, and even the construction of subregional transmission systems. In each case, these 40-year forecasts focused only on the costs of the regional system, including water supply, treatment, and transmission. The analysis excluded distribution costs because those would always remain under local authority, even under the consolidated approach. The results provided the baseline from which the group could judge whether consolidation would provide individual members with net financial costs or benefits.

The next analysis was a similar comprehensive forecast of each community’s expected costs under the consolidation approach. Since the regional organization didn’t yet exist, the key task was to develop a set of consistent business criteria that would define the costs in each community using the same rules in each case. Even though the new organization would provide regional supply and treatment under one roof, allocating costs required nuance to correct past allocations and assign future costs in a new ownership model. In this case, cost allocations included the following considerations.

Joint Operations and Maintenance Expenses

These were the expected costs of operating and maintaining the backbone water supply, treatment, and major transmission (and storage) facilities. They included potential facilities from the DMWW and those of five others, including estimates of future operations and maintenance costs as those facilities expanded. The fixed costs would be allocated on forecasted maximum-day demand, with the variable costs allocated according to forecasted total deliveries.

Formation Cost Credit

To establish the new regional organization, each community would receive credit for past contributions to the DMWW facilities, their own facilities, or both. Rather than dispense with these credits via one-time payments, the group decided it would be best to annualize them as credits against their future rates and to calculate the credits on the basis of the book value of the relevant assets. By doing so, the group maintained regional ratepayer equity on equal footing and avoided the problem of windfall payments that everyone had found problematic with the earlier consolidation study.

Joint Capital Costs

The joint capital costs included all capital costs associated with the original facilities and all non-expansion capital projects added to them over the 40-year forecast, with allocation based on the forecasted maximum-day demand. Taken together with the formation cost credits, potential members could easily see their net capital costs in the new organization.

Growth-Related Capital Costs

One of the key issues in the region was growth. As mentioned, the outlying communities were growing faster than Des Moines, but the cost of carrying reserve capacity had historically been borne solely by DMWW ratepayers. The new organization, however, would allocate expansion-related capital costs in keeping with anticipated growth rates measured as the expected increase in maximum-day demand. Those growing faster would pay proportionately more to expand system capacity.

Cash Equalization

To ensure the financial health and sustainability of the new regional utility, each CIWW member would share in the need to cure any forecasted cash shortfalls, net of any financing or other funding sources.

Comparing the status quo and consolidation approaches yielded potential wins and losses, with net regional benefits of $330 million. However, the cost–benefit analysis wasn’t exactly the coveted win–win scenario. Instead, the analysis showed mixed outcomes, with some communities projected to receive net benefits from consolidation and net losses for others. Regionalization has often been touted as the solution for many inherent challenges of the water utility business model.

As with most financial analyses, the numbers didn’t tell the full story because not all costs and benefits are financial. Under the consolidated approach, those in the net cost category went from being mostly or entirely wholesale customers to part owners. In most cases, the key reason for the financial shortfalls was a lack of equity. While some could leverage their past equity contributions from purchased-capacity contracts into lower net costs, others had no previous contributions. For the latter group, going from a renter to a part owner meant a changing cost structure that would include greater financial commitments. Still, the costs came with increased, nonmonetary benefits, such as a stronger voice in governance and decision-making—a stated objective for many neighboring communities from the outset and a valuable outcome in its own right.

Therefore, while the case for consolidation was not a clear-cut win–win, the path to making consolidation work seemed clear: use the new governance structure to find a way to share the regional benefits more broadly. A few changes to the initial business criteria—like changing the up-front payment structure for the reserve capacity into future rate credits and limiting the regional obligation of service to a manageable maximum-day demand—would ultimately shift the balance and bring nearly all those in the net-cost category to at least breakeven status. Those last changes also increased the potential regional benefit from $330 to $425 million. Changing the initial financial framework resulted in both increasing and shifting the net regional benefits, bringing nearly all communities to break even or better (Figure 2).

Governance and Management Challenges

In many documented cases, regional consolidations like the one proposed in Des Moines fail to materialize, even with undeniable technical and financial merits. The desire for local autonomy is one of the main reasons often given for rejecting regionalization efforts. The argument suggests that local leaders simply want full control over their water utilities, and regionalization runs contrary to that ideal. Decision-making power has economic value, a fact rarely cited in the “local control” argument.

In business valuation terminology, a simple concept called a control premium applies in mergers and acquisitions because the controlling interest in a business can direct the firm’s cash flows, whereas those without control cannot. If one is purchasing a controlling interest, a control premium could apply. It’s a similar proposition for a regional consolidation because the decision-making control for the key asset owners is reduced, sometimes significantly. Such was the case facing the DMWW and, to a lesser extent, three other potential regional partners.

The key to achieving a workable governance model was largely in the hands of the DMWW, and as one might expect, the decisions were not simple. However, the benefits of regionalization for the DMWW were perhaps clearer than for others: no longer would its ratepayers have to shoulder the financial burdens of expanding the regional supply system when growth had less to do with Des Moines itself than it did with that of the surrounding communities. The potential benefits for the DMWW were immediate and noticeable, without which the potential for the CIWW may have faded away as it had in previous attempts.

Tied to the issue of control was that of system operations. Under some earlier versions of consolidation, the four regional communities that owned and operated supply assets were concerned about the welfare of their employees. To transition to a regional model, the group needed to reach an understanding of how best to operate the regional system. Transferring employees to the new CIWW was not ideal for many reasons, and seeking contracts for private operators had been ruled out early in the discussions.

In the end, the favored approach was to establish operating agreements with the current asset owners. Under such an approach, the CIWW would pay for the operations and maintenance of the regional facilities while all operational control remained with the relevant member agencies. In this way, DMWW employees (and those of the other asset-owning members) could remain employed as they were, with no change to their compensation or benefits. The CIWW, on the other hand, could continue to rely on the most experienced and trained workforce regarding the critical role of operating and maintaining the regional assets.

Giving up a measure of control would secure significant benefits for the key members while ensuring the new organization would preserve and honor the employment arrangements already in place. With these crucial understandings and knowledge of the available benefits, the group could begin establishing formal agreements that would charter the CIWW and set forth the long-sought-after vision of shared ownership and governance.

The new intergovernmental agreement would soon establish a board of directors consisting of one representative from each community and two from Des Moines. The board would decide most issues by simple majority vote, retaining a weighted voting approach for significant financial and membership commitments. Preparing, reviewing, and reaching acceptance of the intergovernmental agreement would take many months, revisions, and further compromises. But something important had happened along the way: a diverse group of communities had found a will and a way to make regional consolidation work for them.

Convergence

On Dec. 19, 2023, at a lightly attended meeting, the DMWW board of trustees cast the last votes needed to start the formation of the CIWW. The concerns with consolidation that had shown up time and again and had been hotly debated everywhere, from basements to boardrooms, had finally been resolved. The new organization represents a convergence of financial benefits, technical feasibility, and managerial balance. It gives voice to communities that needed a water system that responds to their growing needs. And it shares both the costs and the responsibilities of regional ownership more equitably than before, creating financial and operational benefits that could be achieved only by working together.

About the Authors

Jason Mumm is senior director of infrastructure financing at Brown and Caldwell, Denver, Colo.; Jmumm@brwncald.com.

Ted Corrigan is CEO and general manager of the Des Moines Water Works in Des Moines, Iowa.

Melanie Hobart is a project manager with FCS Group in Boulder, Colo.

AWWA Resources

•Too Small to Succeed: State-Level Consolidation of Water Systems. Norriss J, Cunningham M, DeRosa AR, et al. 2021. Journal AWWA. 113:10:8. https://doi.org/10.1002/awwa.1821

•Consolidation of Water Systems in California. Luthin JC. 1959. Journal AWWA. 41:11:1342. https://doi.org/10.1002/j.1551-8833.1959.tb20782.x

•Consolidated Reuse Systems Advance Availability. Jones DE, Vaidya RD, Paredes S, et al. 2017. Opflow. 43:6:32. https://doi.org/10.5991/OPF.2017.43.0041

These resources have been supplied by Journal AWWA staff. For information on these and other AWWA resources, visit www.awwa.org.