By Hope Thomson, Senior Project Director
Water and wastewater systems face a range of challenges in providing safe, reliable services that protect public health and the environment. Regional collaboration offers one potential approach to addressing these challenges by allowing utilities work together to reduce costs, improve service delivery, and capture economies of scale in water and wastewater operations. Regionalization is often assumed to be at the scale of mergers and consolidations, where multiple utilities become one, or where one utility takes over the management of another. However, regionalization encompasses an entire spectrum of options for collaboration that includes mergers and consolidations as well as shared services or staffing, joint contracting and purchasing, bulk sale arrangements, and other methods of working together that maintain individual utility autonomy. For more on the variety of regional governance options in North Carolina, see Kara Millonzi’s blog post exploring interlocal partnership options.
There are key questions that may help a utility consider this spectrum of options. Why do utilities pursue regional models in the first place? What issues can arise when setting up regional arrangements? What conversations should utilities be prepared to have with their partners about their concerns, hopes, and questions about potential partnerships? In the fall of 2025, the School of Government Environmental Finance Center conducted a mixed methods study about regionalization of water and wastewater services in North Carolina as detailed by the NC General Assembly in Session Law 2025-77. The session law directed the SOG EFC to look at the advantages of regionalizing and the hurdles that exist in realizing these arrangements. The SOG EFC gathered input from subject matter experts, utility professionals, public officials, and community members across North Carolina to better understand regionalization opportunities and challenges. The SOG EFC delivered a report to the NCGA with the results of the study on April 1, 2026.
This blog is one of several resources that will emerge from that work to help answer questions about regionalization and support future decision-making by local government utilities. The SOG EFC’s research made clear that both the challenges and benefits of regionalization are often nuanced, highly dependent on local circumstances, and shaped by the specific goals of the utilities involved. As a result, this post is not intended to provide a comprehensive analysis of every issue related to regionalization. Instead, this post highlights several key themes identified during the research process, organized as common barriers to regional efforts, and potential benefits that utilities may realize through regional partnerships.
The barriers and benefits discussed here are grouped according to the traditional categories of utility management: technical, managerial, and financial. We also add a fourth category, “community,” to capture the important role of local leadership, public perception, and customer considerations in shaping regionalization efforts.
Barriers to Regionalization
Each utility has its own operational priorities, constraints, and reasons for making certain decisions, and those considerations also shape how it approaches regionalization. In some cases, utilities may view existing operations as adequate, making regional collaboration appear unnecessary. Even when there is interest in regionalization, however, a range of more complex factors can make regionalization difficult to pursue or implement successfully. This section will provide examples of the technical, managerial, financial, and community barriers that utilities may experience when considering regional options.
Technical Barriers
Water and wastewater systems are engineered and designed specifically to reach service delivery and compliance goals within the constraints of a specific customer base and natural environment. They are also human-driven, with certain operational practices creating differences that may be hard to align once they are established.
Proximity is often cited as a potential issue, especially when interconnections are being considered, as increasing distance can drive up engineering complexity and construction costs. Even without physical interconnection, other shared responsibilities such as staffing or equipment sharing may be of concern if the distance is prohibitive for staff to travel consistently between utilities.
Existing infrastructure and treatment facilities can also present technical considerations. Utilities may experience overall treatment capacity constraints that limit the availability to serve a partner. They may also need to balance the ability to serve a partner utility’s needs with maintaining desired capacity for their own growth and anticipated new customers. If infrastructure between utilities will be connected, further technical details such as source water composition and chemical treatment schedules may need to be aligned to avoid the potential for harmful byproducts upon mixing of water within the distribution system. Utilities will also need to consider how working together affects existing permits (such as NPDES) or the need for additional permits (such as inter-basin transfer approvals).
Current condition of infrastructure among partner utilities can also complicate working relationships. If one partner lacks asset inventories, maps, and condition assessments, it may be difficult to align operational practices and plan for the future. This is especially true if one utility has deferred infrastructure maintenance and investment and has significant infrastructure issues that could affect partner operations. One example of this may be high levels of inflow and infiltration in an aging sewer collection system that significantly dilutes the wastewater streams to impact a partner’s treatment plant operations.
Managerial Barriers
Complimenting the physical infrastructure of water and wastewater systems is a robust human infrastructure – the utility’s workforce that runs things day-to-day and initiates problem-solving to address immediate and long-term needs. Utilities are adept at delivering services with limited resources, so it can be difficult to see past immediate needs and consider large changes that could impact many, if not all, facets of operations.
The ability to collaborate in general can be constrained by staff vacancies and lack of staff capacity in individual utilities. If staff are in a reactive position that leaves little time for thinking proactively, considering, selecting, and implementing partnership efforts may be a challenge. Additionally, this type of analysis requires specialized expertise in multiple fields – engineering, finance, operations, and more – that draws on staff expertise but may be beyond the competencies expected of day-to-day duties. This could require upskilling or bringing in external consultants to assist with assessing and implementing regional options.
Working together often requires aligning operational practices, such as financial software, billing practices, and testing schedules. Reaching alignment can take time, additional training, and patience, and may present upfront costs that are difficult to justify if day-to-day operations already present a financial challenge to the utility. More complex regional models, such as consolidations and mergers, present managerial challenges such as right sizing the workforce or creating position equivalencies to standardize pay and benefits as employees transition from one employer to another.
Financial Barriers
A lot of concerns about regional efforts revolve around overall costs and how these will be allocated across partners. In North Carolina, cost allocations are not prescribed in the general statutes, so there is flexibility in regional arrangements. While this may be a benefit to some partnerships, the uncertainty can also cause hesitation.
If infrastructure is going to be shared or consolidated, this can represent a substantial upfront cost that needs to be split in some way across partners. These costs may be seen as prohibitively expensive, even when allocated across multiple partners. The infrastructure may also provide benefits that are not split evenly, which can complicate negotiations around cost-sharing. Additionally, subsidized funding streams for regional partnerships are often concentrated at the pre-partnership phase, though infrastructure costs can extend into the early years of partnership, especially when the utility’s infrastructure must be brought up to acceptable standards. The lack of sustained opportunities for regional entities in the early stages of operation can greatly increase upfront capital costs. Cost sharing negotiations are also required for partnership efforts that don’t include shared infrastructure but do require financial commitments, such as shared staffing or equipment sharing.
The longer-term financial impact on customers, or how rates will be set for regional partnerships, is often of high concern as well. Some regional entities prioritize reaching rate parity, where all customers across service areas pay the same rates for services. Rate parity can often take some time, especially if upfront infrastructure costs are concentrated primarily on a specific service area and are covered by that area in the short term. Without infrastructure costs there may still be a need for utilities to implement a rate parity schedule, where rates are aligned over a period of time. This is especially true if one utility has been keeping rates artificially low and not fully covering costs.
Reaching rate parity is complicated further by the fact that it is an optional goal. For systems that are serving each other via interconnect or that have fully merged into one service area, there can be allowable justifications such as increased infrastructure costs that allow for different rates across the service area. This can lead to apprehension from regional partners that aren’t committed to rate parity that their rates will be high, will continue to climb, and will subsidize the rates of other customers.
Community Barriers
There are community-based factors that can influence hesitancy to pursue regional arrangements. Provision of water and wastewater services is often a point of local pride and is a primary activity for many small governments. Losing the decision-making power over these services can be difficult even for decision-makers that are struggling with managing these complex and expensive engineered systems. It is also difficult to do a true cost-benefit analysis when decision-makers are comparing regional options to status quo conditions. Especially in the case of “to merge or not to merge,” quantifying alternatives may be contingent on many future conditions that are difficult to control, such as population dynamics. This can make it challenging to fully assess options without specialized external expertise. Finally, these decisions operate on long time scales that stretch far beyond standard election cycles, requiring decision makers to make progress on hard choices that could be easily undone or abandoned by the next group of elected officials.
Benefits to Regionalization
Although the barriers to regionalization can appear significant at the outset, at least in some cases, they can provide meaningful long-term benefits for utilities and their customers. This section will provide examples of the technical, managerial, financial, and community benefits that utilities may anticipate in regional arrangements.
Technical Benefits
Depending on the nature of the regional arrangement, there can be technical benefits that reduce friction and increase responsiveness in operations. Collaborating regionally can often present deduplication of infrastructure, which can lower overall costs in the long run. Relatedly, regional systems are often able to invest more in intentional redundancy measures that provide backups to infrastructure failures, power outages, line breaks and other system emergencies. If systems choose to share equipment or materials, this could reduce wait times and costs, allowing for increased responsiveness to operational shocks and increased ability to avoid service lapses.
Managerial Benefits
Regional arrangements can create an environment that supports workforce development, retention and collaboration, relieving some of the stress felt by utility staff. For example, establishing backups for staff with partner utilities may provide support in times of crisis so that operations aren’t arrested by unavoidable circumstances. This could look like one utility loaning another public works employees in the event of a water main break or negotiating in advance how to provide cross-utility support when staff experience an illness, accident, or other time off that takes them away from day-to-day needs. Often this type of support may be present informally between utilities, but formalizing efforts can encourage co- and cross-training opportunities that realistically allow for staff from different utilities to support one another.
Partnership may also allow for specialized expertise to be held in house instead of contracted out. This could include employing operators directly instead of contracting out operations, or bringing in staff with valued expertise in planning, GIS, engineering, or other special topics.
Financial Benefits
Along the spectrum of regional arrangements, there can be financial benefits to the utility and its enterprise fund. For service providers, regional arrangements can present an opportunity for revenue diversification via wholesale services and/or expansion of the service area more generally. Revenue diversification can help utilities prevent revenue shortfalls and increase overall financial resiliency. Partnership arrangements that are shy of mergers or bulk sales may also provide revenue diversification benefits as partners pay each other for shared services, staffing or equipment use.
One of the biggest upsides to regional arrangements is the potential to provide financial benefits through economies of scale. Expensive infrastructure, metering systems, billing software, and other required system investments are easier to justify financially when spread over a larger customer base. Planning for shared infrastructure can bring down overall costs across partnering units as duplicative investments are reduced. Other collaborative efforts such as joint contracting or shared staffing models can result in lower costs per unit as well, especially if it helps units avoid expensive external contracts.
Community Benefits
There can also be benefits realized by customers and decision-makers in regional models. Again, for regional systems that have enhanced resiliency measures, customers may experience fewer lapses in service due to infrastructure malfunction. With economies of scale provided by regional arrangements, customers may experience reduced rates than what they would pay in a non-regionalized system setting rates for long-term full cost recovery. Regional systems may be more able to invest in improved treatment technologies or advanced metering systems that enhance service quality for customers. Finally, regional governance models may present more separation between decision-making and the election cycle, reducing external pressures on decision makers and assisting them in focusing on utility services and long-term sustainability.
The right regional arrangements will vary for each community and each partnership depending on the barriers present and the benefits sought after. The School of Government Environmental Finance Center anticipates creating more resources that will support local governments through the decision-making process around this topic and may be available to provide direct support to utility partners wishing to explore options.