Active Consolidation in the US Water Market is Needed to Keep Pace with Market Demands

While the private sector has a rich history of merging companies for operational efficiencies, or financial gain, the water industry has little experience in this regard.  According to the USEPA, there are 155,000 water providers in the USA. By any definition, this is a highly fragmented industry, with differentiation primarily in the number of customers served, from dozens to millions.  Further, the water industry is highly regulated to produce a comparable quality of water.  This consistent product, produced by numerous facilities, working with a very defined and limited resource makes this an industry that should be facing pressures to consolidate.

In fact, in much of Europe and other more developed nations, this type of aggregation has occurred, sometimes with private entities, and sometimes by creating larger water districts/ authorities.  This consolidation has led to more efficient operations, not perfect, but better than before consolidation.  It has also led to faster commercialization of water technology, as they can scale far more rapidly across a broader geography; and it has led to more creative financial management, as they have become less constrained to single city economic cycles, have access to a more diverse customer base, and can recruit and develop brighter talent with the larger organization with a broader authority to implement large scale and multi-purpose and meaningful projects.

In the USA, we will likely evolve a different model.  Our current system has an outstanding history of success, providing fresh, clean, safe water to 350 million people every day, for decades.  It is a powerful and successful approach, but things are changing. Warmer air is evaporating more water, human populations are concentrating and increasing demands on local resources, and glaciers are melting sooner than expected. Science is discovering more toxicity in places we previously could not measure, while the pharmaceutical and personal hygiene industries are producing new chemicals with unknown impacts to watersheds.  Our current fragmented model is not well equipped to manage these diverse, local, regional and global issues. Further, national regulations are requiring additional treatment. This requires very sophisticated approaches which small (often rural) utilities cannot meet. In the USA, the model must meet our high standards of quality, unlock innovation and meet our expectations of market driven management decisions.

So the model that emerges may initially take an organic form, where markets and efficiencies drive the integration of utilities, and private sector influences begin to support long term investments.  This market based model may drive large or small opportunities for consolidation.  In the long run, it will likely take State and Federal action to consolidate water and wastewater utilities into rationale districts.  These districts should be based on watershed boundaries where water sources are managed from a holistic perspective – from source to reclamation and back around. Consolidation can help us focus on preserving the earth’s limited resources in a sustainable manner.

5 Comments

  • Reece Hammer January 4, 2016 11:36 am

    Peter –

    I think this is a very interesting and well said article. Consolidation will be key in my opinion as well. A lot of that is happening out here in California for municipalities. There is some great communication and teamwork between these groups. Hopefully, State and Federal action will continue consolidation although this process will be slow. Water issues will only persist, especially here in the SW. Groundwater is needing to be treated more and more as we find water sources deeper and static water levels drop.

    – Reece

    • Pete Mulvaney January 4, 2016 5:21 pm

      Hi Reece,
      Thanks for the comment.
      The issue of fragmentation in the water industry is deep, and detrimental to our resources as well as our tax rates. Until we bring a more holistic perspective to the management of water, we will continue to invest in short sited and mis-guided projects. Our education system must encourage this shift to comprehensive water planning, and our societal values must embrace the needed changes. And yes, many of the larger issues we face are being addressed at the municipal scale while the states and feds catch up.

  • Brice Heath January 5, 2016 3:17 pm

    Hi Pete, Nice article. Something that also may cause consolidation is what we are seeing in California where water providers have depleted the ground water so much now that their infrastructure is sinking or breaking such as canals. With water usage and provisioning causing environmental (ground sinking) and structural issues (canals/wells broken), these water providers may be forced to consolidate as they and the state will not be able to repair and maintain their infrastructure especially in California.

    Thanks, Brice

  • David January 6, 2016 7:47 am

    Peter,

    We should talk. Perhaps this issue could do things like solve pension problems in our state…and better manage water.

    Good thoughts!

  • J Serieka January 6, 2016 6:32 pm

    Hello Peter – where has most consolidation taken place to date, and where does the greatest future opportunity for consolidation lie? Thanks.

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