The Water Investor

Municipalities and Water

2009-01-05T16:01:00.003-05:00

Below are some numbers on water and sewage expenditures for municipalities from the United States Conference of Mayors.

In FY2005, local governments spent $82.0 billion on sewer and water supply, and from 1992 through 2005, they spent $841.1 billion. This is the largest expenditures for local governments after education and non-water utilities. See table below with 2005 data.

Water Pricing

2009-01-05T13:25:00.004-05:00

A previous blog looked at average water prices across major metropolitan areas. A few people wrote back saying I wasn't exactly comparing apples to apples, and I agree. My point was to estimate the average cost based on 5,250 gallons per month, and I believe I came close.

In reality, utilities use numerous pricing methods which I will go over below. In addition, the biggest cost that I didn't include was the sewer bill. In brief, the sewer bill is typically included in the water bill as a separate line item. The sewer is not an on/off option - if you get water, you automatically pay for sewer, usually on the same volume basis. Often, the sewer charges are greater than the water charges, so if you are paying $20 per month in water, your complete bill is probably in the $40 to $50 range when you include sewer. What goes in, most go out.

For the cities I researched, this is what i found for their water billing.

Fixed only
Volume only
Fixed plus volume

For all cities, meter size determined the base pricing. Most common meter sizes for residential units are 5/8" and 3/4", and I did not look at data beyond those two meter sizes.

With volume charges, you often find the following options.

Incremental block rates
Seasonal surcharges
Location specific charges (in city, out city, elevation)
Drought surcharges

I did not encounter only fixed cost in my research. Houston, which shows all fixed costs on my graph, actually is a tiered fixed system based on volume, i.e., instead of paying $X per 1,0000 gallons, you pay $X when you use between 5,000 and 6,000 gallons. It works out that themore you use, the less you pay on a per gallon basis.

Volume only accounted for approximately 16% of the cities. New York is a good example of volume only pricing.

Fixed plus volume was the most common and volume charges typically used increasing block rates. Austin is a good example - it pays a $4.33 fixed fee and then $0.98 on the first 2,000 gallons and $2.58 on the next 7,000 gallons.

Seasonal pricing was most common in the southwest. San Antonio is an example. San Jose is a great example of location specific surcharges with elevation and cost of pumping a key factor.

How much does that shower cost

2008-12-30T17:01:00.007-05:00

With the earlier discussion on monthly water bills, I decided to look at how much water we use in daily activities. As a rough estimate, a US household uses 5,250 gallons of water per month. With the average household size at 2.59, that allows for 2,025 gallons per person per month or 67 gallons per person per day.

Next, let's assume that the average shower flows at 2 gallons per minute, and that, on average, we take a 10 minute shower - we have just used 20 gallons. 47 more gallons to go.

Toilet Flush - 3 gallons per flush at, shall we say 6 flushes per day totals 18 gallons. Now we have 27 more gallons to go.

Next, we can look at the cost of each activity. Combing fixed and volume based costs from the previous pricing post, we can guesstimate that the average household pays $3.75 per 1,000 gallons used.

Now we can look at the cost of each activity. In the table above, you will see a Water Price tab. Click that tab and you can see the same data at $3.75 per 1,000 gallons. Now there is a big caveat - please remind yourself that this is only the price of water. It does not include the gas or electricity charge for heating the water and I doubt very few of us take cold showers.

Seeing how cheap everything was actually surprised me, and I expect a big reason why very few of us pay attention to our water bills. The next time I take a bath, I will toss a quarter into the tub to remind myself how much those fifty gallons cost.

Bear/Bull: Water is very inexpensive compared to our other consumption needs. I won't say too cheap, but we should expect prices to rise in those regions which have a potential for water shortages.

Additional Reading:
Water Footprint
13 gallons - Daily Water Requirement
Water for the Ages Water Challenge

Water Prices vs other monthly utilities

2008-12-29T15:54:00.020-05:00

In showing monthly water prices for selected cities, I mentioned the awareness gap between what we pay for water and other monthly utility charges. In a strictly social survey, most people had an idea what they pay for electricity or heating, but couldn't remember water charges. I guesstimated that this was because of the relatively small water bill we pay compared to our other utilities. Using the below data, the average US household pays $100 per month in electricity while only $20 per month in water.

This graph shows the average electricity charges per month. Average monthly rates are from the Department of Energy website and for comparison purposes, I assumed the average household uses 900 kwh per month.

Heat Map Version

Falling Demand --> Rising Prices

2008-12-23T08:14:00.004-05:00

While shopping this holiday season, I have noticed that decreased consumer demand has resulted in some very good sales. However, when it comes to water prices in Detroit, decreased demand is resulting in revenue shortfalls, making it harder to fund system maintenance - as a result, rate increases are in the works.

In November, the Detroit Free Press wrote:

Through the first 10 months of this year, Detroit's water sales were off by almost 9 billion gallons compared with the same period last year.

Detroit officials are expected to raise water rates 6% to 10% and sewer rates by as much as 13% to 17% next month, according to some suburban leaders who have met with the department.

Out west, the economic and real estate downturn have helped alleviate many of the water shortage problems; however, in Detroit the decrease in water demand has had the opposite affect.

Foreclosed homes and shuttered business also are part of the decline because empty homes and office buildings mean reduced summer lawn watering and landscaping, officials said. And frequent rains killed water sales in June and July.

While environmental groups who are promoting water conservation may find that higher prices are an unexpected result.

Some of the decline also is attributed to consumers, like Dorothy Coleman of Detroit, who are looking to save. "It's money," said Coleman, 59, who installed a rainwater recycling system last year to water her garden and reduce the need to turn on a faucet. "My bills have been lower."
The irony for consumers is that their conservation efforts could mean they will pay more for the water they do use because the cost of maintaining a water system will be spread over fewer gallons.

Bear/Bull: Be aware of the unexpected consequences of conservation and decreased demand. And understand the fixed and variable costs when setting prices.

Further Reading:
Detroit Free Press Article

Water Prices

2008-12-21T11:04:00.016-05:00

I've asked many people how much they pay for water each month, and the vast majority answered that they haven't a clue. I then asked if they knew how much they pay in electricity and/or gas each month, and the vast majority of them could answer, "Last month I spent $xx.xx on electricity, and boy, I need to find a way to use less electricity [or gas]."

I would like to hypothesize that our water prices have been so low for so long that we haven't noticed how much we pay, but to find some evidence of that would involve a rather lengthly study - so, instead I decided to find out how much water utilities charge in selected cities across the U.S.

If you google water prices, you find quite a range of answers. One firm suggested that Boston had the highest water prices in the U.S.; however, they simply looked at volume charges without adding in monthly service charges. You also find vastly different answers depending on how much water you assume a household uses a month.

For this data, I used residential service charges based on 5/8" pipe (the size of the pipe typically dictates the service charge) and a monthly volume of 5,250 gallons or 175 gallons per day. Most utilities have tiered volume pricing with increased rates for increased usage. I also, for better or worse, excluded sewer charges eventhough most utilities combine the water and sewer bill.

More comments to follow on the data.

Global Drought, Past, Present, and Future

2008-12-03T20:45:00.004-05:00

Attended a lecture on Global Drought at Columbia University this afternoon sponsored by the Columbia Water Center and presented by Eric Wood of Princeton University. Scatter plots and regressions overflowed the PowerPoint slides but some key points I got out of the presentation include:

Tropical or wet regions (think Southeast US) typically experience sharp but short droughts while arid areas (think Western US) experience longer but less severe droughts.
Historic Data shows that the Western US actually has grown wetter over the past 50 years.
In the future, we should expect longer droughts, with the Mediterranean, Western US, Central America, and Southern Africa more susceptible.
Droughts are relatively easy to predict, but nearly impossible to predict the length.

One thing that crossed my mind was food supplies. I read recently (can't find it) that food production has grown less regionally diverse - historically Region A, B, and C produced wheat while now only Region A produces wheat and exports to B and C. When a drought hit Region A in the past, wheat production still occurred in Region B and C. Now, when a drought hits Region A, wheat becomes scarce and prices.... well, there is an article below that shows how this very thing happened this year with rice and Australia. Expect food security to trump free trade and comparative advantage.

Another thing that crossed my mind was the lack of mobility of our modern society. Historically, when you experienced a severe drought, you packed up and moved. Now you hunker down and ask for a government water pail-out. Droughts will always come and go, but I do not believe that our modern society is as adaptable. Are we prepared for a Katrina that lasts for 5 or 10 years?

Bear/Bull: When droughts affect an area, populations are slow to move and they will demand water access (typically from the government). Desalination plants will provide some relief to communities near an ocean and distribution, storage, and transport providers will see increased demand. Just don't expect profits - mobs, let alone thirsty mobs, seldom display economic logic.

Related Sites:
Land Surface Hydrology Research Group at Princeton
National Drought Mitigation Center
US Megadrought from New Scientist
Spain's Drought
Drought in Australia and Rice from NYTimes

Obama's Clean Water Initiatives?

2008-12-02T22:00:00.001-05:00

From U.S. News: Obama Likely to Boost Water Quality Rules After Years of Lax Regulation

[The Clean Water Act] Passed in 1972, the law was interpreted by both Congress and the courts for nearly 30 years as protecting virtually all federal waters. But in 2001, and again in 2006, the Supreme Court handed down rulings that served, in effect, to limit the law's reach.

We must assume that the Obama Administration will tighten regulations which will lead to an increase in environmental violations and a push (or is it a pull) for utilities to upgrade infrastructure.

Another concern is the condition of the nation's sewage systems and water treatment facilities. There is bipartisan consensus that the nation's water infrastructure is in urgent need of repair. "The nation's sewage infrastructure for the 21st century is in abominable shape."

Bipartisan agreement is usually an oxymoron, but when it comes to sewage and treatment facilities, everyone seems to be on the same page - the infrastructure in the U.S. carries a not so pleasant odor.

Water quality is only half the battle. Water supply is the other half.

Yes, yes, and an even greater yes. Let's hope we don't get carried away with "clean" water. There are lots of opportunities in agriculture and domestic use (think toilets) where water quality is not the priority, but adequate water supply is or soon will be.

Bull/Bear: Utilities will have to foot the bill with limited opportunity to pass along the costs to users; however, the suppliers to the industry will benefit. Job seekers should start applying to the EPA.

Further Reading:
Clean Water Act
EPA
Sewage Discharge Violations
USA Today Sewage Article
USDA Water Supply Reports

Water Utilities

2008-11-02T22:57:00.001-05:00

Water utilities provide water and wastewater services to residential, commercial, and industrial companies. In the United States, the largest publicly traded companies by market cap are American Water Works, Aqua America, and California Water.

Recent Water Utility news from Yahoo Finance

Storage and Distribution

2008-11-02T10:37:00.000-05:00

Recent Storage and Distribution Stock News from Yahoo Finance

Water Treatment Technologies

2008-11-02T10:04:00.004-05:00

Water treatment technologies provide fresh water for human consumption or agricultural irrigation. Typical technologies include distillation, chlorination, membrane filtration, and ultra-violet light. Nano-tube membranes are also reported to be a viable option in the near future.

Wastewater treatment technologies will be discussed at a later date.

Recent Water Treatment News from Yahoo Finance