Water Supply

SIC 4941

Companies in this industry

Industry report:

This category includes establishments primarily engaged in distributing water for sale for residential, commercial, and industrial uses. The industry is dominated by government-controlled establishments such as municipal service districts and public utilities. However, private companies are active in the construction and improvement of water supply facilities and infrastructure. Water distributed for irrigation purposes is classified in SIC 4971: Irrigation Systems.

Industry Snapshot

The oceans, land, and atmosphere that make up and surround the earth hold the equivalent of nearly 1.4 billion cubic kilometers of water. Of that total, approximately 96.5 percent is contained in oceans, two percent is in the form of ice, and a small amount exists as vapor in the atmosphere. Fresh water that is available for human use is one percent of the total water supply, and that supply is dwindling because supply cannot keep pace with demand. According to the World Future Society, by 2050, two-thirds of the world's population will be chronically short of water.

By the mid-2000s, more than 80 percent of U.S. water companies were controlled by governmental entities. However, an increasing number of smaller utilities were being acquired by larger systems. There also was an increase in privatization--private companies that contract to operate or to purchase the public utilities. Moreover, many larger systems were investing in new testing and treatment methods. The entire industry was bolstered in the 1990s by federal amendments to the 1996 Safe Drinking Water Act (SDWA) and the 1998 Clean Water Action Plan.

About 158,000 total public drinking water systems were in the United States. Most people received their drinking water from a community water system. Although there were 53,000 community water systems in place, just more than 4,000 (8 percent) served 81 percent of consumers. Community water systems process about 34 billion gallons of water each day.

From the mid-2000s to the end of the decade, the United States was dealing with the issue of long-term shortage of water supply, as was the rest of the world. The western states in particular were affected by increasing populations with decreasing water supply sources. Drought conditions also affected consumption behavior in the Southeast. Other issues affecting the industry were decreases in federal funding, an aging infrastructure, and environmental safety concerns.

In the late 2000s, an estimated 9,785 establishments in this $20 billion industry were engaged in distributing water for sale for residential, commercial, and industrial uses. On average, each water company generated $2.5 million. Industry-wide employment totaled 124,300 workers. States with the highest concentration were California, Texas, and Pennsylvania. However, New Jersey, with a mere 1.6 percent in market share, accounted for more than $3.1 billion of the industry total.

Organization and Structure

The water supply industry is highly fragmented and consists mainly of municipal utilities or regional entities that operate the nation's 53,000 community water systems, which serve people year-round. The largest system serves 16 million while the smallest serves 25 people. There are approximately 19,000 other nontransient, noncommunity water systems, which provide water to people for more than six months but less than a year (e.g., a school with its own water supply), and about 86,000 transient noncommunity water systems, which serve the public but not the same individuals for more than six months out of the year (e.g., campgrounds, rest areas).

A water utility or company is responsible for providing its community with water that is free of objectionable tastes and odors and does not contain significant color or turbidity. The water also must meet strict federal, state, and local health and safety regulations. It is the utility's job to build and maintain a distribution system that is capable of providing an adequate and uninterrupted supply of water for residential, commercial, industrial, and institutional customers. In addition, the water supplier must maintain adequate water pressure for the community's firefighting needs.

Although most water supply entities are owned or controlled by local or regional governing bodies, a variety of organizational structures are represented in the industry. In addition, water and wastewater management systems are often integrated, resulting in an organization that also operates a sewerage system and waste treatment facilities. The two primary categories of water suppliers are local and regional.

Local organizations include utilities arranged under various management structures. A utility commission, for example, is governed by a policy-making body such as an appointed or elected commission or board of directors. This utility structure offers the advantage of removing the policy-making body from direct political influence. Furthermore, the revenues required by the utility are generated by the commission specifically for water supply purposes with no competition from general city funds. A utility controlled by elected council, in contrast, often is subject to political forces from other city departments and divisions with which the council members also are associated. Planning decisions can become complex and are sometimes bogged down by political infighting. The advantage of a utility that is controlled by a common governing body, as opposed to a separate utility commission, is that the goals of the water utility can be more easily coordinated with the aims of other city departments and agencies.

Regional water authorities provide service directly to customers or through smaller government entities, such as cities and townships. Regional authorities provide many economies of scale that increase water quality and reduce costs. They also offer the advantage of a coordinated large-scale water system that would be impossible to achieve with scattered independent local utilities. However, regional systems must transport water over greater distances, which can reduce efficiency.

An increasing number of for-profit entities supplied water needs in the mid-2000s, often in partnership with municipal organizations. According to the National Association of Water Companies, in 2005 there were 2,400 public-private partnerships in water service. These companies either operated or maintained some portion or all of the water utility's operation. Also, there were a few instances of outright sale of a utility to a private company.

Source and Price.
Water companies extract water mainly from natural and man-made reservoirs, underground aquifers, and waterways. In addition, some water is reclaimed through wastewater treatment, and a small amount of water is derived through desalinization. The water typically is pumped to a treatment center where impurities are filtered out. Before distribution, the water is purified with chemicals such as chlorine and aluminum sulfate.

Along with natural impurities and sediment, a variety of manmade contaminants and sources must be countered by water treatment managers. Sources of pollutants include septic tanks, landfills, surface impoundments, pesticides and fertilizer used on millions of acres of farmland, highway salt, and thousands of industrial chemicals that enter the environment every day.

Revenues for water companies and utilities are generated through taxes and securities issues. Much of their income, however, is derived from water usage fees. A traditional rate structure is the declining block rate. Under this system, customers pay a fee for each unit of water they use, and the fee declines for each subsequent block of water consumed. Two other rate structures are the flat rate and the increasing block rate, which are greater incentives for consumers to conserve water.

Background and Development

Although water supply systems have been in existence since before early Roman times, community water treatment and delivery systems similar to those existing today did not appear in the United States until the late 1800s. Demand for water treatment proliferated during the industrial era when the urban population grew and more people had access to indoor plumbing and municipal water supplies. During the economic expansion that followed World War II, demand for water increased as industrial, residential, and agricultural needs increased.

New federal regulations that mandated cleaner water also were important to industry growth. The Water Facilities Act of 1937, the Water Pollution Control Act of 1948, and the Water Supply Act of 1958 were early federal initiatives that helped expand the industry. In addition to setting water quality standards for communities, these laws arranged to channel vast federal resources into the development of water supply and treatment systems. Other significant legislative efforts included the Water Resources Research Act of 1964, the Water Resources Planning Act of 1965, and the National Environmental Policy Act of 1969.

Some of the most sweeping and consequential laws propelling industry growth were enacted in the 1970s, when environmental concerns became paramount. The Water Bank Act of 1970, the SDWA of 1974, and the Clean Water Act of 1977 were laws that increased the importance of both water and wastewater treatment facilities. These laws resulted in billions of dollars worth of public water treatment projects. New legislation and government expenditures continued in the 1980s, with the passage of laws such as the Water Resources Research Act of 1984, amendments to the SDWA in 1986, and the Water Supply Act of 1988.

During the 1960s, 1970s, and 1980s, water standards were tightened, regulations increased, and communities continued to spend billions of dollars on water systems. By the mid-1990s, the cost of complying with the SDWA was estimated to cost water companies from 15 to 50 percent of their annual capital budgets.

Competition for Water Sources.
Globally, 12,500 cubic kilometers of fresh water are available per person each year (the figure includes water stored by dams and reservoirs). However, the supply is unevenly distributed, and a large percentage is lost to flooding. Global demand for water has risen sharply since World War II. Between 1920 and 1940, for example, global water demand rose from about 400 to 600 cubic kilometers per year. By 1960, the figure had grown to 2,000 cubic kilometers. By 1980 and 1990, world demand increased to about 3,000 and 3,500 cubic kilometers per year, respectively. By 2000, this number reached approximately 3,800 cubic kilometers per year. Water supplies in various regions of the earth are under increasing stress in the face of increasing population and scarcity of natural supplies. In other areas, water supplies are adequate, but poor irrigation practices consume supplies. An average of 87 percent of accessible fresh water resources in the world is consumed by irrigation and agriculture, leaving a limited supply for industrial and residential demands.

In North America, fresh water available per person each year is 10,500 cubic kilometers, including water stored by dams and reservoirs. This supply also is unevenly distributed as the western United States is classified as an arid and semi-arid region. The U.S. Geological Survey breaks down the consumption of fresh water as follows: irrigation, 40 percent; thermoelectric power, 39 percent; public supply, 11 percent; industry, six percent; livestock, one percent; domestic, one percent; mining, one percent; and commercial, one percent.

Water supply scarcity is a critical problem in arid and semi-arid western states, where irrigation consumes 90 percent of accessible fresh water supplies. In a number of western states, water is being drawn out of aquifers faster than nature replenishes it. Most notable is the depletion of the Ogallala Aquifer, which sits beneath 115 million acres between Texas and Nebraska. Recognizing the problem, governors of the western states issued a policy statement calling for increasing efficiency in water use management. Agencies of the federal government also began to implement water use efficiency measures and set new standards for water-conserving plumbing fixtures. Water conservation measures had become a way of life by the 1990s.

According to the U.S. Geological Survey report, these measures are needed because the era of using big water projects such as dams and reservoirs to control water supply is over. Instead, existing water resources will have to be managed effectively.

Amendments to the SDWA in 1996 had a positive reception from the nation's water suppliers and companies that supply water equipment, services, and materials. The amendment introduced flexibility into the requirements for testing of contaminants--testing could be limited to those that were most likely to be found in their supplies and those most likely to harm certain members of the community, such as pregnant women, the elderly, and the young. Water systems that already were in compliance with the 1986 SDWA needed to make minor investments to comply with the 1996 amendments. In addition, the SDWA created a revolving loan fund to help water systems come into compliance with the legislation.

The EPA surveyed a sampling of the nation's water systems to determine what infrastructure changes would be necessary through the year 2014 to meet the revised safe drinking water standards. The EPA reported that $12.1 billion would be needed immediately to comply with the current SDWA. The survey showed that 84 percent of that amount was needed to test and treat water supplies for microbiological contaminants. However, through 2014, infrastructure needs were anticipated to be large, totaling $138.4 billion. This figure included the replacement or refurbishment of distribution piping and water storage tanks and adding or improving sources of water. Medium and smaller sized water systems needed the most funding to comply with the SDWA.

Because most of the country's water systems were small (90 percent of them provide for 10 percent of the people), they had smaller budgets for the costly upgrading or replacement of infrastructure. Consolidation with larger, usually investor-owned utilities became more commonplace. Large investor-owned companies such as American Water Works and United Water Resources, two utilities that were actively acquiring in the late 1990s, had resources and economies of scale that small water suppliers did not have.

In addition, cities with larger waterworks utilities switched to or considered bids for privatization, either by way of outright sale, lease, or management contract. An analyst quoted in Civil Engineering suggested that the proportion of public utilities to private might reach 50/50 by the year 2020. Cities that have some form of privatized water systems included Phoenix, Indianapolis, New Orleans, Houston, and Colorado Springs. The 1997 changes to Internal Revenue Service regulations regarding fees, length of contracts, and sale of facilities were considered a positive sign to an estimated 30 U.S. cities considering this type of public-private "partnership" in the last years of the decade.

Public concern about the safety of drinking water increased after the 1993 cryptosporidium outbreak in Milwaukee, which resulted in more than 400,000 illnesses and 100 deaths. One quality control expert called cryptosporidium the biggest challenge faced by the water supply industry in 40 years. In 1997, the EPA asked water systems serving more than 100,000 users to conduct pilot tests for treatment of cryptosporidium. This microorganism is highly resistant to treatment and is difficult to detect. In another situation in 1999, four people died and dozens were hospitalized following ground water contamination from manure runoff into a local well serving the county fairgrounds. For almost a week following flood-related sewage contamination in September 1999, New Jersey residents had to boil their tap water before they could use it.

The EPA reported that in the 1990s alone, there were more than 370,000 confirmed releases of oil contaminants from leaking underground storage tanks. A contaminant "buzz word" at the end of the century was MTBE (methyl tertiary butyl ether), a common gasoline additive which caused fairly widespread contamination of the country's drinking water--about nine percent of all samples taken. A known carcinogen, MTBE is not removed by conventional treatment or filtration processes. For this reason, a growing number of states, including California, banned the use of MTBE in gasoline. Under the 1998 Clean Water Action Plan, states identified more than 20,000 lakes and stream segments that had contaminants exceeding one or more of the quality standards.

In October 1999, under provisions of the amended SDWA, most Americans received their first annual drinking water quality report from their local water supplier. Starting in 2001, the EPA required suppliers who serve more than 10,000 people to monitor for 12 unregulated contaminants. The purpose of the requirement was to help determine whether these contaminants were present at a level or frequency that would warrant regulation at a later date.

Also signed into law in 1999 were the Water Resources Development Act, authorizing $6.3 billion for flood control and shore protection by the U.S. Army Corps of Engineers, and the Chippewa Cree tribe of the Rocky Boy's Reservation Indian Reserved Water Rights Settlement and Water Supply Enhancement Act of 1999. Under the latter act, the United States became a party to the eight-year negotiations between the tribe and the state of Montana over water supplies on the reservations, as well as future rights to water stored in the Tiber Reservoir.

One of the most important pieces of legislation to appear in 1999 was the EPA's rule regarding Class V injection wells, which numbered from 700,000 to 1 million that year. These wells were used primarily for the in-ground disposal of antifreeze, motor oil, gasoline, human waste, and other waste materials associated with light industries such as commercial printers. Eventually, these toxic materials leach into ground water and end up being consumed by humans in diluted amounts. Under the rule, large capacity wells and cesspools were prohibited from use by April 2000, and all such wells were to be phased out by 2005.

Urban sprawl has depleted local water sources in many areas, where the natural water supply cannot keep pace with development. To compensate, developed areas depend on pumping water in over long distances or drawing water out of aquifers, layers of soil that hold significant moisture. Whereas shallow aquifers are supplied by local rainfall, deep aquifers that collect water over long periods from precipitation over a large area are essentially nonreplenishable because water is pumped out much faster than it can be replenished. If water is removed too rapidly and not replaced, the soil may contract, leaving it less able to retain water. For example, in the San Joaquin Valley in California, an area covering more than 13,000 square kilometers, the ground has subsided at least 30 centimeters in some places and as much as nine meters in others. In certain areas of the High Plains aquifer, which encompasses 450,000 square kilometers from South Dakota to the Texas panhandle, more than half the subterranean moisture has been depleted and water levels have dropped as much as 45 meters.

During the early 2000s, the arid and highly populated areas in the West continued to confront the growing demand and declining supply of usable water. California, which boasts one of the nation's most significant ongoing water supply problems, has been a leader in addressing the politics of water usage. A 2001 state law required developers of subdivisions of 500 or more units and large commercial projects to submit proof that water is available to the area. Multiyear drought in the upper Midwest, the East, and Southeast has forced numerous regions to face the reality of water supply issues. In 2002, some areas, including New York City and the state of New Jersey, began placing water-use restrictions on residences. Water quality and quantity were expected to be significant issues in the coming decades.

Along with the challenges of supply issues, the industry was faced with the significant erosion and decay of the nation's 600,000 miles of pipes that transport water into U.S. homes. As pipes corrode, water pressure decreases and foreign materials such as bacteria and debris may enter the system. To address the negative health effects, officials flush out the water and add large doses of chlorine to kill contaminants, but this is a short-term solution. It was becoming clear that the country's water-pipe system, much of which is more than 100 years old, needs a major overhaul. The cost to replace and repair the water infrastructure was estimated to be between $151 billion, according to the EPA, and $1 trillion, according to industry advocacy groups.

Increased privatization of the water system was being seriously considered to help alleviate the country's water woes. Although at the end of 2002 only 15 percent of utilities were investor-owned, big water corporations were beginning to make inroads into the market. France's Vivendi and Germany's RWE, both international water conglomerates, began operating in the United States.

In 2002, California backed out of an agreement to stop overusing its share of water from the Colorado River. Despite record rain in the West during 2004, drought conditions remained.

In 2005, federal funding of the Clean Water Act State Revolving Loan Fund (SRF) fell for the first time in eight years. Federal funding levels had remained flat since 1997, with between $700 and $850 million appropriated annually through the SRF. However, the EPA estimated that $390 billion between 2002 and 2022 would be necessary to replace, repair, and improve the nation's aging drinking water system.

By 2005, the western United States was in its fifth year of drought. Of particular concern was the future of the water supply levels of the Colorado River. Five of the top ten fastest-growing states in the mid-2000s depended on the Colorado River for water. However, the water levels of the two primary storage reservoirs for the Lower Colorado River--Lake Powell in Utah and Lake Mead on the Arizona-Nevada border--had fallen by 50 percent since 1999. Las Vegas, the nation's fastest-growing city, depended almost entirely on Lake Mead for its water supply, leading the city to invest millions of dollars to explore and develop alternative water sources.

From 2001 through 2007, the flow of water into Lake Mead was below average for all but one year. By 2008, the reservoir was less than half full. Metropolitan Las Vegas, with 1.8 million inhabitants depending on Lake Mead for 90 percent of their water supply, began building another pump because the surface of Lake Mead was likely to drop below the level of one of its two existing pumps should drought conditions continue. Las Vegas planned to build a pipeline to bring its water hundreds of miles south and raise the amount it pays city residents to replace their lawns with cacti and other abstemious flora.

In all, seven states and northern Mexico draw water supply from the Colorado River. Between 2000 and 2006, the population of those seven states increased 10 percent. Population growth was a concern nationwide. "Here in the United States over the last (several) years our population grew by a little over 50 percent, but water use tripled. We aren't conserving very well," said forum moderator Wayne Clough, president of the Georgia Institute of Technology, at the Georgia Water Solutions Forum in late 2007. At the time, Atlanta had less than a three-month supply of water available because of extended drought conditions in the Southeast. Georgia officials suggested the U.S. Corps of Engineers slow the release of water from the Chattahoochee River to fill Atlanta's reservoirs, but that plan conflicted with environmental requirements downstream in Alabama and Florida.

Metropolitan areas were not the only places struggling with water supply. Orme, a town of 145 residents in southwest Tennessee, shut off its water pumps and made water available from its water tower for three hours a day late in 2007. The water made available had to be trucked in from Alabama. To help rectify the situation, the town instituted a "Save the Water Race" in which volunteers and plumbing manufacturers helped residents fix leaky toilets, faucets and install water control fixtures. Among the items replaced were 80 toilets, 67 showerheads and 139 aerators or sinks.

Current Conditions

According to data released by the National Association of Water Companies, about 73 million people obtain water from privately owned water companies or a community water system operating as a public-private partnership. In addition, private water companies distribute 4.6 billion gallons of water per day while maintaining 100,000 miles of water pipes generating $4.3 billion per year. As of 2010, that trend was expected to continue.

Advocates for the U.S. water supply and wastewater infrastructure made some significant headway with the introduction of the Water Protection and Reinvestment Act of 2009 or (H.R. 3202). In essence, H.R. 3202 would provide the overall water infrastructure the same benefits as that of highways, rail, and airports when it came to federal funding.

An estimated 240,000 water main breaks are reported annually with that number on the rise, according to the American Society of Civil Engineers. Some areas, such as South Dakota, Alaska, and Pennsylvania were believed to have the outdated wooden underground sewage pipes still in use. Under the federal stimulus law, water projects will receive $6 billion and drinking water systems $2 billion in additional funding. According to the New York Times in April 2009, a report relesased by the EPA estimated "the nation's drinking water systems [would] require an investment of $334.8 billion over the next two decades, with most of the money needed to improve transmission and distribution systems."

In May 2010, the Assistance, Quality, and Affordability Act of 2010 (the "AQUA Act") was approved and intended to reauthorize and increase funding for the drinking water state revolving fund (SRF) under the Safe Drinking Water Act to $1.8 billion. Insufficient funding continued to grow year after year, while water companies dealt with water shortages, drought conditions, and an overall ailing infrastructure.

As demand exceeds supply, some states will be more vulnerable than others. States most at risk facing limited water supply include portions of Arizona, Arkansas, California, Colorado, Florida, Idaho, Kansas, Mississippi, Montana, Nebraska, Nevada, New Mexico, Oklahoma, and Texas.

Industry Leaders

American Water Works, based in Voorhees, New Jersey, was purchased by Germany's utility giant RWE in 2003. It is the largest investor-owned water utility in the United States, with operations in 32 states and three Canadian provinces, serving 16.2 million consumers. RWE spun off American Water Works in 2008 but maintained a 25 percent stake in the company. American Water serves about 15 million consumers. The company posted revenues of $2.4 billion in 2009 and 7,700 employees.

United Water Inc. (formerly United Water Resources), of Harrington Park, New Jersey, which is owned by French-based utilities conglomerate SUEZ, had seven million water customers. The company employed 1,370 workers in the late 2000s. Veolia Water North America Operating Services, Inc. (formerly part of USFilter), based in Houston, Texas, which is owned by French-based Veolia Environnement SA, had 14 million water and wastewater customers and conducted most of its business on the public-private enterprise model. Aqua America (formerly Philadelphia Suburban), of Bryn Mawr, Pennsylvania, served about 2.8 million people in 13 states. Aqua America was the nation's largest publicly traded water utility; it acquired New York Water Service Corp. in a $51 million deal in 2006. In the late 2000s, the company's customer base grew to three million people. Company revenues were $670.5 million in 2009.

The Metropolitan Water District of Southern California (MWD) was the largest provider of drinking water in the United States. The Water District was part of a project involving private firms to make seawater drinkable. In 2005, it delivered an average of 1.7 billion gallons of water every day to customers in a 5,200 square mile area.

Research and Technology

In 1999, a research team from the New Jersey Institute of Technology announced the development of a new technique designed to rid water of organic microbes without the carcinogenic after-effect of heavy chlorination. The Spectral Fluorescent Signatures targets carbon-based pollutants that are most likely to become carcinogenic following disinfection. If eventually implemented after further testing, the proposed treatment technique would reduce byproduct formation, thereby reducing the amount of additives needed to disinfect water.

The University of Cincinnati worked on the use of glowing zebra fish to identify pollutants in drinking water. Firefly genes were inserted into the DNA of the inch-long zebra fish, causing them to light up when exposed to PCBs. University staff have stressed that the fish are not harmed and eventually lose their glow when removed from polluted areas.

Another nonchemical way to disinfect water is through the use of ultraviolet (UV) light rays. Although the technology has been known for several years, it has not been used widely for drinking water application in the United States. However, it is commonly used in Europe, especially in Finland. There has been renewed interest in the development of UV treatment facilities in the United States because of concerns about the carcinogenic properties of chlorine.

Plans for a desalinization plant that would convert seawater into a potable, or drinkable, source were launched by the West Coast Regional Water Supply Authority in Florida. Another desalinization venture was undertaken by MWD, the largest provider of water in the country, which also faced a severe water deficit. Four private companies with interest and expertise joined MWD in the venture. In the late 1990s, there were two desalinization plants in the United States, one in Key West, Florida, and the other in Santa Barbara, California.

By the mid-2000s, the impending global water shortage continued to drive the development of cost-effective desalinization. Increased competition, growing demand, and better polymers cut the cost of producing a glass of salt-free water by 50 percent between 1995 and 2005, with prices expected to continue to fall. A new desalinization plant, built in Tampa Bay, Florida, was the largest in the Western Hemisphere. It converted 25 million gallons of water into drinking water daily. Increased desalinization efforts were appearing on a global scale, with projects in England, Spain, Singapore, and China in the mid-2000s. China's desalinization capacity was expected to increase fourfold by 2015, and global capacity was expected to double during the same time period.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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