Water

It Touches Every Life

A conversation with Aqua America CEO Nick DeBenedictis

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Nick Benedictis at Aqua America’s headquarters in Philadelphia.
Credit: AQUA AMERICA
Nick Benedictis at Aqua America’s headquarters in Philadelphia.
After a long and multifaceted career that has combined government, business, and water, Nicholas DeBenedictis is retiring.

Well, sort of.

A man like DeBenedictis doesn’t quite retire. The genial Chief Executive Officer of Aqua America ended his contract in June, though he will stay on as chairman and continues to fulfill other leadership roles in the Philadelphia, PA, community.

As a young water resources engineer myself, it’s hard for me to imagine retirement, much less a company story that dates back to 1886—exactly 100 years before my birth.

That year, a group of Swarthmore College professors were tasked with supplying water to Pennsylvania’s Springfield Township. The group later became Aqua America, and when DeBenedictis joined in 1992, the company was still a single-region water utility. Today, however, Aqua provides water and wastewater services to three million people in eight states and continues to grow.

At the helm, DeBenedictis has exhibited a vivacity that belies his age (69 years young). “He’s always working harder; he’s always working longer. Nick is one of the smartest people I know,” a colleague told me. “And he has the energy of a four-year-old.”

Even as the CEO of a $4.7-billion company, DeBenedictis is brazenly frugal. Another colleague told me how when DeBenedictis forgot a belt on one business trip, he politely declined his banker’s offer of an expensive designer belt and instead purchased a $3 replacement at a local thrift shop. At a meeting years later his staff chided him about the incident; DeBenedictis stood up and showed them that he was still wearing the same belt.

I recently talked with DeBenedictis, who shared some of his experience and parting wisdom, which I am going to present here in the conversational way it unfolded. Whether reflecting back on Aqua’s history or projecting forward to my own retirement, I learned that one thing is timeless: Water will always be a human need for which there is no substitute.

After a long and multifaceted career that has combined government, business, and water, Nicholas DeBenedictis is retiring. Well, sort of. A man like DeBenedictis doesn't quite retire. The genial Chief Executive Officer of Aqua America ended his contract in June, though he will stay on as chairman and continues to fulfill other leadership roles in the Philadelphia, PA, community. As a young water resources engineer myself, it's hard for me to imagine retirement, much less a company story that dates back to 1886—exactly 100 years before my birth. That year, a group of Swarthmore College professors were tasked with supplying water to Pennsylvania's Springfield Township. The group later became Aqua America, and when DeBenedictis joined in 1992, the company was still a single-region water utility. Today, however, Aqua provides water and wastewater services to three million people in eight states and continues to grow. At the helm, DeBenedictis has exhibited a vivacity that belies his age (69 years young). "He's always working harder; he's always working longer. Nick is one of the smartest people I know," a colleague told me. "And he has the energy of a four-year-old." Even as the CEO of a $4.7-billion company, DeBenedictis is brazenly frugal. Another colleague told me how when DeBenedictis forgot a belt on one business trip, he politely declined his banker's offer of an expensive designer belt and instead purchased a $3 replacement at a local thrift shop. At a meeting years later his staff chided him about the incident; DeBenedictis stood up and showed them that he was still wearing the same belt. I recently talked with DeBenedictis, who shared some of his experience and parting wisdom, which I am going to present here in the conversational way it unfolded. Whether reflecting back on Aqua's history or projecting forward to my own retirement, I learned that one thing is timeless: Water will always be a human need for which there is no substitute. [text_ad] RS: Nick, your career has been a curious combination of public service, business, and water. How did that happen? ND: Well, I wish it was a five-year plan. It wasn't, but a little by happenstance, so luck has been on my side. Unlike Europeans, who go in and out of government, learn public policy, and understand what makes things tick, US executives never get government experience and then end up chastising it. I was fortunate enough to start with government, and that's because of my degree. In 1968, I was the only one with an environmental degree in the whole Corps of Engineers when I went into the service. It was a unique training experience I had in college that gave me the first career path. That was civil engineering and environmental. When I got out of the ROTC I stayed with the Corps, which really is the premier water resources agency in the county, private or public, along with the Bureau of Reclamation—two big water resources developers. I really learned a lot from them. When EPA started in 1972, they were looking for experienced people in water resources, and I was able to parlay my education and military and then some first civil experience into a career at EPA, which spanned about 10 years. It ended up with me being the Secretary of the Department of Environmental Resources in Pennsylvania, which is a state agency, but I wouldn't have gotten there without my EPA background. That taught me a lot about how legislation is written, how public policy is developed, and how constituency groups can shape public policy in the environmental area. At EPA we quickly learned that if we could get public opinion on our side, we can write the legislation, versus having the legislature write it. So if you look at a lot of the early bills—the Toxic Substances Control Act, the Clean Water Act, the Clean Air Act, the Safe Drinking Water Act—they're very, very prescriptive. Most pieces of legislation are broad and let the regulators write the rules and then let the courts interpret them. In the environmental arena, the early legislation almost looked like a regulation. RS: After you had this sort of experience, when you started at Aqua, what was your vision? Where did you see the company then, and where did you intend to take it? ND: From a macro-standpoint, Rob, I came into a business that I knew—having been trained in it and then working in it for a decade and moving up to one of the higher-level positions. I had had experience with the Greater Philadelphia Chamber of Commerce, which taught me a little bit about the business community, and I had a business degree in addition to my engineering degree, so I had the financial understanding. Then I went to work for a big electric utility that was building nuclear plants and the number one issue was water supply. When I got this small water company, which just had a premier reputation, I wanted to do good for the environment and for the customers. In doing so, we did very well for the shareholders because of the demographics of this industry; that is, there were very few big companies. Not that we could call ourselves big back then—we had a $100-million market cap and about 200,000 customers. I wouldn't call ourselves gigantic, but it was 500 or so big cities, American Water, ourselves, and about 10 others, and then it dropped very quickly to mom-and-pops. I said, "You know, the right thing to do is to consolidate all these mom-and-pops who really don't have the economic scale, the environmental talent, the engineering talent, or the money to really make a go of it." Unlike the Europeans, who thought the model should be to service them, we picked a different model: we want to buy them and then try to put them into a consolidated rate base that regulators would hopefully reward us on. It was a gamble that the regulators would give you what you were supposed to get for helping out with a real problem in most states. They ended up doing that. I think part of that was the way we helped educate; they realized it was a public-policy issue. The pioneers in this legislative arena were water companies, and that has spread across the country, even to California. RS: Now that you're anticipating retirement and looking back on your career, what have been the biggest changes you've observed in the water industry? ND: The regulations have gotten much tighter. When I got into the business, very few water companies, by the way, wanted to venture into the wastewater side—they were all 100% exclusive water supply—and we were one of the first companies that said, "What's the difference? It's just two ends of the same spectrum, right?" So to give you the wastewater example, in the old days, BOD (biochemical oxygen demand) and suspended solids were the only things that regulators cared about. Now there are dozens of contaminants that we measure for and treat for, therefore having to change processes. There's much more sophistication in the medical and chemical applications, so it's a much tougher job, but the water is cleaner as a result. Regarding the water side, when I was starting in the business, you were still allowed to take your residual, your backwash, and dump it right back into the stream. That's the way it was done. You took it out of the stream, why not put it right back into the stream? Now, of course, we have huge residual ponds; treatment is used for beneficial use. That's a great example of what was just fine then—you could argue you didn't make the water any worse because you just put it back where you got it—and now we're actually doing an enhancement of the environment by helping recycle the residuals. Today the water standards are much tighter, the sampling standards are much tighter, we're in parts per billion, parts per trillion, versus parts per million where they started. Some of the risk-factor evaluations have gotten to the point where there is almost zero tolerance for any risks, which I think is a mistake for the country. Take a look at what is available in developing countries: People are getting sick from bacterial and parasitic diseases that we don't have. I'm not talking about that. We're talking about pharmaceuticals in trace amounts and so on, which are going to cost a fortune. I'm not sure the low-income family in a city who has to pay so much more for a necessity of life—their drinking water—needs that protection. They could use the extra money in other ways. It's that simple. So I think public policy has to look at: Do we want zero risk and high-high-priced water—I know I'm arguing against Aqua's own economic interests—or should we look at water as a necessity of life that has to have some risk, but has pricing that doesn't make low-income people who have to buy the product choose between something and their water bill? RS: After leading Aqua for 23 years, what would you say has been your greatest accomplishment? ND: I think it was getting recognition among regulators and therefore helping both public and private water companies to allow two things. The first was an infrastructure rehabilitation program that provided incentives for companies to do the work, versus disincentives, which is how it was when I started. Just to give you an example, we used to do less than $1 million a year of pipe rehabilitation; we're now doing about $300 million. And it's making a difference: less leakage, less road disruption, less undermining of buildings. Plus, you realize the roads are getting better because once we rip a street up and put a new pipe in, the municipality always wants their roads redone. We're trying to coordinate gas and water replacement with road rehab. But the way the rules were written back then, you couldn't get your money back until you file your rate case, and the rate case cost more to file than you get back. The second thing we encouraged and will take credit for is the fact that there shouldn't be 50,000 small water companies in a country of our sophistication. The regulators listened to the incentives for acquisitions of these small systems, and a person who owns one feels like they're getting something for it, for their sweat equity. That has allowed us to buy over 325 systems over the last 20 years. RS: Water utilities today face a lot of challenges, Nick. What do you think are the biggest? ND: Staying ahead of the regulations. And raising capital—immense amounts of money. RS: So how do you address that? How have you done it at Aqua? ND: By running the company very efficiently. We were able to generate more EBITDA (earnings before interest, taxes, depreciation, and amortization), therefore be more profitable, therefore put more of that cash flow to rebuilding the company and making it more efficient and viable. Therefore the banks were willing to lend us more. The fact that we were able to have a sound balance sheet allowed us to get an A+ S&P rating, which allowed us to borrow that needed capital at much cheaper rates so we could do more with the same amount of money. We paid less for it. RS: And obviously you've had good relationships with regulators over the years. I'm sure that has helped. ND: Yes. I find that being former regulator, you have to build trust by explaining why you have to do something, committing to do it, and then delivering. RS: Where do you think the industry is going? What are the big trends you see? ND: Oh, I think consolidation will definitely continue. The water market is 85% municipal and 15% private, of which only about a third of that, 5%, is publicly traded companies. So it's just a niche industry in that sense. I think there absolutely will be a consolidation, to a vast degree, among all the private companies. Municipal is a different story. Some are very well run—they don't pay taxes; they get grants. You should be more efficient if you're a municipal government and you have enough economy of scale. Unfortunately, they're not more efficient because of work rules and everything else—sometimes union work rules—and pensions that most small companies don't have. So the inefficiencies start baking themselves in, and what's going to happen, I believe, is that smaller municipalities probably will find it not that efficient to be in the water business and maybe get merged into a bigger municipality or a private company. The reason we have somewhat of an advantage in that area is that a municipality doesn't always like to merge with another municipality because of the politics of it. RS: What advice do you have for students and young professionals like me who are beginning careers in the water industry? ND: Even if you don't make as much money initially, I'd start getting government experience, especially in water resources, because the drivers of water resources are usually state or federal agencies. I think it's worthwhile for a little time—that 25-to-30-year-old time period. You get experience and you're still sellable; you're not deemed a government person. Learn why and how things work, and that will help you in a consulting area or with a corporation. Probably more engineering is done by consulting engineers than by water engineers working for a company like ours, or for a city. Consulting gives you something different every day. You don't have to worry about the politics. But I do find that the engineers we have never leave. Apparently the job is rewarding enough. Of course, when you're growing like we are, things are exciting. RS: Nick, you have done so many different things throughout your life. I doubt you'll slow down anytime soon. What are your plans for retirement? ND: Well, I'll stay as chairman of the company if elected, so I'm not going to leave cold-turkey. I'll be here enough to keep the company what I consider to be the best-of-breed in the industry. I'm already on three company boards, and I'll probably join another. That keeps you fresh because you're hearing different problems and hopefully solving different problems all the time. I've had a couple ventures from private equity to take a look at portfolios, invest in companies, help grow small companies. And I think I'm actually going to play a little more golf. RS: I'm not old enough to take up golf yet. I guess that will come. ND: I'm still not good. I waited too long. Get started early if you're going to get good. RS: That sounds like a good philosophy for just about anything. ND: I've got a chart with data from 1939 to now. It's a very interesting trend. It shows water usage in our service territory. Back in the 1930s the usage was about 4,500 gallons per household per month. It went up as high as 7,200 in 1971, and has never gotten any higher. Every year it lowers. We're down to about 4,000 now—less than we were in 1939—which has been a compounded annual decline of 1.2%. So the country is listening, and water companies are trying to promote conservation. In this industry, it's more of a passion than a job. I think people in the water and wastewater business realize that—it's such a vital part of our living. It touches every life. We're fortunate to be working in this field. WE_bug_web

RS: Nick, your career has been a curious combination of public service, business, and water. How did that happen?
ND: Well, I wish it was a five-year plan. It wasn’t, but a little by happenstance, so luck has been on my side. Unlike Europeans, who go in and out of government, learn public policy, and understand what makes things tick, US executives never get government experience and then end up chastising it. I was fortunate enough to start with government, and that’s because of my degree. In 1968, I was the only one with an environmental degree in the whole Corps of Engineers when I went into the service. It was a unique training experience I had in college that gave me the first career path. That was civil engineering and environmental. When I got out of the ROTC I stayed with the Corps, which really is the premier water resources agency in the county, private or public, along with the Bureau of Reclamation—two big water resources developers. I really learned a lot from them.

When EPA started in 1972, they were looking for experienced people in water resources, and I was able to parlay my education and military and then some first civil experience into a career at EPA, which spanned about 10 years. It ended up with me being the Secretary of the Department of Environmental Resources in Pennsylvania, which is a state agency, but I wouldn’t have gotten there without my EPA background. That taught me a lot about how legislation is written, how public policy is developed, and how constituency groups can shape public policy in the environmental area. At EPA we quickly learned that if we could get public opinion on our side, we can write the legislation, versus having the legislature write it. So if you look at a lot of the early bills—the Toxic Substances Control Act, the Clean Water Act, the Clean Air Act, the Safe Drinking Water Act—they’re very, very prescriptive. Most pieces of legislation are broad and let the regulators write the rules and then let the courts interpret them. In the environmental arena, the early legislation almost looked like a regulation.

RS: After you had this sort of experience, when you started at Aqua, what was your vision? Where did you see the company then, and where did you intend to take it?
ND: From a macro-standpoint, Rob, I came into a business that I knew—having been trained in it and then working in it for a decade and moving up to one of the higher-level positions. I had had experience with the Greater Philadelphia Chamber of Commerce, which taught me a little bit about the business community, and I had a business degree in addition to my engineering degree, so I had the financial understanding. Then I went to work for a big electric utility that was building nuclear plants and the number one issue was water supply.

When I got this small water company, which just had a premier reputation, I wanted to do good for the environment and for the customers. In doing so, we did very well for the shareholders because of the demographics of this industry; that is, there were very few big companies. Not that we could call ourselves big back then—we had a $100-million market cap and about 200,000 customers. I wouldn’t call ourselves gigantic, but it was 500 or so big cities, American Water, ourselves, and about 10 others, and then it dropped very quickly to mom-and-pops. I said, “You know, the right thing to do is to consolidate all these mom-and-pops who really don’t have the economic scale, the environmental talent, the engineering talent, or the money to really make a go of it.” Unlike the Europeans, who thought the model should be to service them, we picked a different model: we want to buy them and then try to put them into a consolidated rate base that regulators would hopefully reward us on. It was a gamble that the regulators would give you what you were supposed to get for helping out with a real problem in most states. They ended up doing that. I think part of that was the way we helped educate; they realized it was a public-policy issue. The pioneers in this legislative arena were water companies, and that has spread across the country, even to California.

RS: Now that you’re anticipating retirement and looking back on your career, what have been the biggest changes you’ve observed in the water industry?
ND: The regulations have gotten much tighter. When I got into the business, very few water companies, by the way, wanted to venture into the wastewater side—they were all 100% exclusive water supply—and we were one of the first companies that said, “What’s the difference? It’s just two ends of the same spectrum, right?” So to give you the wastewater example, in the old days, BOD (biochemical oxygen demand) and suspended solids were the only things that regulators cared about. Now there are dozens of contaminants that we measure for and treat for, therefore having to change processes. There’s much more sophistication in the medical and chemical applications, so it’s a much tougher job, but the water is cleaner as a result.

Regarding the water side, when I was starting in the business, you were still allowed to take your residual, your backwash, and dump it right back into the stream. That’s the way it was done. You took it out of the stream, why not put it right back into the stream? Now, of course, we have huge residual ponds; treatment is used for beneficial use. That’s a great example of what was just fine then—you could argue you didn’t make the water any worse because you just put it back where you got it—and now we’re actually doing an enhancement of the environment by helping recycle the residuals.

Today the water standards are much tighter, the sampling standards are much tighter, we’re in parts per billion, parts per trillion, versus parts per million where they started. Some of the risk-factor evaluations have gotten to the point where there is almost zero tolerance for any risks, which I think is a mistake for the country. Take a look at what is available in developing countries: People are getting sick from bacterial and parasitic diseases that we don’t have. I’m not talking about that. We’re talking about pharmaceuticals in trace amounts and so on, which are going to cost a fortune. I’m not sure the low-income family in a city who has to pay so much more for a necessity of life—their drinking water—needs that protection. They could use the extra money in other ways. It’s that simple. So I think public policy has to look at: Do we want zero risk and high-high-priced water—I know I’m arguing against Aqua’s own economic interests—or should we look at water as a necessity of life that has to have some risk, but has pricing that doesn’t make low-income people who have to buy the product choose between something and their water bill?

RS: After leading Aqua for 23 years, what would you say has been your greatest accomplishment?
ND: I think it was getting recognition among regulators and therefore helping both public and private water companies to allow two things. The first was an infrastructure rehabilitation program that provided incentives for companies to do the work, versus disincentives, which is how it was when I started. Just to give you an example, we used to do less than $1 million a year of pipe rehabilitation; we’re now doing about $300 million. And it’s making a difference: less leakage, less road disruption, less undermining of buildings. Plus, you realize the roads are getting better because once we rip a street up and put a new pipe in, the municipality always wants their roads redone. We’re trying to coordinate gas and water replacement with road rehab. But the way the rules were written back then, you couldn’t get your money back until you file your rate case, and the rate case cost more to file than you get back.

The second thing we encouraged and will take credit for is the fact that there shouldn’t be 50,000 small water companies in a country of our sophistication. The regulators listened to the incentives for acquisitions of these small systems, and a person who owns one feels like they’re getting something for it, for their sweat equity. That has allowed us to buy over 325 systems over the last 20 years.

RS: Water utilities today face a lot of challenges, Nick. What do you think are the biggest?
ND: Staying ahead of the regulations. And raising capital—immense amounts of money.

RS: So how do you address that? How have you done it at Aqua?
ND: By running the company very efficiently. We were able to generate more EBITDA (earnings before interest, taxes, depreciation, and amortization), therefore be more profitable, therefore put more of that cash flow to rebuilding the company and making it more efficient and viable. Therefore the banks were willing to lend us more. The fact that we were able to have a sound balance sheet allowed us to get an A+ S&P rating, which allowed us to borrow that needed capital at much cheaper rates so we could do more with the same amount of money. We paid less for it.

RS: And obviously you’ve had good relationships with regulators over the years. I’m sure that has helped.
ND: Yes. I find that being former regulator, you have to build trust by explaining why you have to do something, committing to do it, and then delivering.

RS: Where do you think the industry is going? What are the big trends you see?
ND: Oh, I think consolidation will definitely continue. The water market is 85% municipal and 15% private, of which only about a third of that, 5%, is publicly traded companies. So it’s just a niche industry in that sense. I think there absolutely will be a consolidation, to a vast degree, among all the private companies.

Municipal is a different story. Some are very well run—they don’t pay taxes; they get grants. You should be more efficient if you’re a municipal government and you have enough economy of scale. Unfortunately, they’re not more efficient because of work rules and everything else—sometimes union work rules—and pensions that most small companies don’t have. So the inefficiencies start baking themselves in, and what’s going to happen, I believe, is that smaller municipalities probably will find it not that efficient to be in the water business and maybe get merged into a bigger municipality or a private company. The reason we have somewhat of an advantage in that area is that a municipality doesn’t always like to merge with another municipality because of the politics of it.

RS: What advice do you have for students and young professionals like me who are beginning careers in the water industry?
ND: Even if you don’t make as much money initially, I’d start getting government experience, especially in water resources, because the drivers of water resources are usually state or federal agencies. I think it’s worthwhile for a little time—that 25-to-30-year-old time period. You get experience and you’re still sellable; you’re not deemed a government person. Learn why and how things work, and that will help you in a consulting area or with a corporation.

Probably more engineering is done by consulting engineers than by water engineers working for a company like ours, or for a city. Consulting gives you something different every day. You don’t have to worry about the politics. But I do find that the engineers we have never leave. Apparently the job is rewarding enough. Of course, when you’re growing like we are, things are exciting.

RS: Nick, you have done so many different things throughout your life. I doubt you’ll slow down anytime soon. What are your plans for retirement?
ND: Well, I’ll stay as chairman of the company if elected, so I’m not going to leave cold-turkey. I’ll be here enough to keep the company what I consider to be the best-of-breed in the industry. I’m already on three company boards, and I’ll probably join another. That keeps you fresh because you’re hearing different problems and hopefully solving different problems all the time. I’ve had a couple ventures from private equity to take a look at portfolios, invest in companies, help grow small companies. And I think I’m actually going to play a little more golf.

RS: I’m not old enough to take up golf yet. I guess that will come.
ND: I’m still not good. I waited too long. Get started early if you’re going to get good.

RS: That sounds like a good philosophy for just about anything.
ND: I’ve got a chart with data from 1939 to now. It’s a very interesting trend. It shows water usage in our service territory. Back in the 1930s the usage was about 4,500 gallons per household per month. It went up as high as 7,200 in 1971, and has never gotten any higher. Every year it lowers. We’re down to about 4,000 now—less than we were in 1939—which has been a compounded annual decline of 1.2%. So the country is listening, and water companies are trying to promote conservation.

In this industry, it’s more of a passion than a job. I think people in the water and wastewater business realize that—it’s such a vital part of our living. It touches every life. We’re fortunate to be working in this field. WE_bug_web

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