A National Water Crisis Is on the Verge of Gushing
Aqua America, the largest U.S.-based private water company, has obtained state approval for regular limited rate increases to address infrastructure. Chief Executive Nicholas DeBenedictis says his company is at full-cost pricing, and consumers have seen rate hikes of no more than 2.5 percent every two years. That has enabled Aqua America to radically ramp up its pipe-replacement program, which was so behind in the early 1990s that it would have taken 900 years to deal with aging infrastructure at a rate of about 3 miles of pipe per year.
Now, the company, which serves 2.8 million customers in 13 states boasts it is able to replace 1 percent of its pipe annually. It's still a daunting job, however, since full replacement would take 100 years. And Aqua America continues to suffer its share of water-main breaks; in fact, the cost of the ruptures held the company's profit increase below 2 percent in the last quarter even as its revenues soared 16 percent.
The economics have discouraged some would-be water saviors. The German utility giant rwe wants to spin off its American water business just five years after entering the market here with great fanfare. Minutes of rwe corporate board meetings show that its executives concluded they had underestimated the business risk posed by decaying infrastructure and neglect.
Still, plenty of potential investors look at the same landscape–especially the prospect of monopoly ownership–and see an opportunity to turn around a flagging business. Private-equity funds have moved onto the scene, scooping up two relatively small U.S. water systems last year at high premiums.
But Jack Hoffbuhr, executive director of the American Water Works Association, isn't ready to identify it as a trend. "Water utilities are three to four times more capital intensive than any other utility," he says. "Once private-equity firms look at when they'd begin to see a return on their funds, they might not be quite as interested in investment."
Meanwhile, back in New Jersey, United Water still copes with water-main breaks even though it says it has spent $240 million in the past decade on capital improvements, including new pipeline. Now, it is trying to recoup some of those costs. Just two weeks after the West New York main break, but unrelated to the incident, United Water announced it would ask its customers to pay 28 percent more for water, its first rate hike in a dozen years. Although that would add only $95 a year to the average bill, it will be a blow to the many poor residents in its service area.
In other words, it may make sense to pay more for water, but it still feels unfair to the people who have no choice but to buy this essential service, whatever the price. Water consultant Maxwell says the same challenge is being faced around the world. "How do we treat water more and more as an economic commodity—just like copper or oil or aluminum—and make rational economic decisions about it on the one hand," he says, "and on the other hand, accept that it's a fundamental human right and everybody has to have it to exist?"
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