Water Industry

In the United States, the drinking water industry is quite fragmented. There are approximately 160,000 water system providers across the country comprised of community water systems (year round suppliers), non-transient non-community water systems (part-year suppliers), and transient non-community water systems (ie. campgrounds).  About 57% of community water systems are privately owned. Small water systems that serve 3,300 people and less make up 94% of all water systems.  Surface water is the primary source of drinking water in the U.S. providing 63% of supply with ground water providing the balance.

Water treatment system manufacturers and equipment providers are comprised of both large and small players.  When expanding capacity or installing new facilities, end users such as municipalities and water districts typically contract directly with a system manufacturer or with an engineering firm. The larger system manufacturers often bid for large public service projects whereas engineering firms design systems to meet smaller community needs. Because end user needs vary with respect to water source, system capacity and delivery rates, many of the engineering costs are recurring with little system standardization. Engineering firms take margins on equipment components and construction costs through mark-ups that inflate contract values.  Off-the-shelf system components are frequently purchased that are not always the best choice of equipment for the intended treatment scenario sometimes resulting in compromised water quality and system efficiency.

The water treatment industry is faced with an increasingly strict regulatory environment.  In addition to the enhanced surface water treatment rules effective January 2006, the EPA has passed or proposed additional rules requiring the removal of an array of contaminants posing potential public health risks including the Arsenic Rule, Nitrate/Nitrites Standard, Lead and Copper Rule, Trihalomethanes Standard, Ground Water Rule, and the Radon and Radionuclides Rules. 

Small systems in particular face many unique challenges in providing safe drinking water to consumers. The substantial capital investments required to rehabilitate, upgrade or install without the economies of scale makes the cost per household substantially higher than for larger systems. Another challenge for small systems is the demands on end users of operating systems themselves versus the costs of contracting outside operators to provide these services. In addition to the burdens of system operation and maintenance, system operators are required to regularly sample and report water quality data to State Department and Health agencies.

Funding for water treatment systems poses significant challenges for end users placing a greater burden on smaller systems than larger systems which benefit from economies of scale. Funding for water systems is typically met through consumer rates. However, this funding does not always cover the full cost of major capital investments. In 1996, the SDWA created the Drinking Water State Revolving Fund (DWSRF). The purpose of the program is to provide low-cost loans to drinking water systems. Funds from these sources are allocated to states on a need basis. As loans are repaid, money becomes available for re-lending. However, due to the magnitude of investment problem, funds from these sources may not always be available to replace or upgrade systems when needed.