SIC 4941

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.

NAICS Code(s)

221310 (Water Supply and 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, 2 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 just 1 percent of the total water supply, and that supply is dwindling as supply cannot keep pace with demand. According to Planning, Christine Whitman of the Environmental Protection Agency (EPA) said in March 2002, "Water is going to be the biggest environmental issue that we face in the twenty-first century, in terms of both quantity and quality."

By the millennium, 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, a trend that industry experts called consolidation. 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 had been bolstered in the 1990s by federal amendments to the 1996 Safe Drinking Water Act (SDWA) and the 1998 Clean Water Action Plan.

Organization and Structure

The water supply industry is highly fragmented and consists mainly of municipal utilities or regional entities. In 1997, the United States Environmental Protection Agency (EPA) divided the nation's 55,000 water systems into three categories: 694 large systems served more than 50,000 people; 6,800 medium systems served between 3,301 and 50,000 people; and 46,500 small systems served fewer than 3,300 people. The largest system serves 16 million; the smallest serves 25 people.

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 late 1990s. 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. In 1999, an estimated 20 percent of all water suppliers were managed or owned by private companies.

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.

Besides 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 early Roman times and before, 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 to 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 three important 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 is 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 was expected to be approximately 3,800 cubic kilometers per year. Water supplies in various regions of the globe 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 are 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 (the figure includes water stored by dams and reservoirs). This supply also is unevenly distributed; 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, 6 percent; livestock, 1 percent; domestic, 1 percent; mining, 1 percent; commercial, 1 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 were becoming a way of life in the 1990s.

These measures are needed, according to the U. S. Geological Survey report, 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 would need 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 55,000 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 is needed to test and treat water supplies for microbiological contaminants. However, through the year 2014, infrastructure needs were 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. The revolving loan fund for upgrading community drinking water systems allots $9.6 billion or $1.2 billion annually through the year 2003.

Since most of the country's water systems are 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 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 the 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 it is difficult to detect. In 1999, four people died and dozens were hospitalized following ground water contamination from manure runoff into a local well feeding 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 9 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, have 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.

A 1999 survey conducted for the Water Quality Association found that 60 percent of adults believe that their health is affected by the quality of drinking water, and nearly 50 percent reported that if purchasing a home, they would more likely purchase one with a home water treatment device. Approximately 75 percent of all Americans expressed concerns about the quality and safety of drinking water. By 1999, Americans were spending $3 billion annually on bottled water and home water treatment units.

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 will require suppliers that serve more than 10,000 people to begin monitoring for 12 unregulated contaminants. The purpose of the new requirement is to help determine whether these contaminants are present at a level or frequency that would warrant regulation at a later date. On October 19, 1999, the EPA also signed a proposed version of a radonmonitoring rule for eventual implementation. It requested $41.5 million for its fiscal year 2000 budget, although it was authorized $54.6 million.

In 1999, the EPA began publishing survey results of approximately 935 public beaches, which regularly monitor water quality. The agency's own review of 1,062 coastal beaches and the Great Lakes the previous year indicated that 350 had an advisory or closing, mostly as a result of fecal coliform contamination.

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 new rule regarding Class V injection wells, which numbered from 700,000 to one million that year. These wells are 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 are leached into ground water and end up being consumed by humans in diluted amounts. Under the new rule, large capacity wells and cesspools were be prohibited from use by April 2000, and all such wells were to be phased out by 2005.

There were a minimum of 55,000 water systems supplying water to more than 225 million Americans in 1999. To help ensure the safety of the nation's drinking water, the government provided more than $9.6 billion through the year 2003 to help these systems comply with safe drinking water regulations. Total compliance with amendments to the SDWA of 1996, as well as agency coordination under the 1998 Clean Water Action Plan, will cost more than $1 trillion dollars by 2030. Of greatest concern was the nation's groundwater, which by 1999 was being withdrawn at a rate of approximately 77.5 billion gallons per day. Of sobering reality is the fact that every gallon of water withdrawn from the ground takes an estimated 280 years to replace. Although surface water from streams and lakes is replaced rapidly, it was ground water that supplied 95 percent of rural America's drinking water and half of the nation'drinking water in 1999. Furthermore, groundwater provided more than 40 percent of all crop irrigation and livestock watering. Thus, the alarming potential for human consumption of contaminants became an increasing concern.

Current Conditions

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 of time from precipitation over a large area are essentially nonreplenishable as 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, over half of the subterranean moisture has been depleted and water levels have dropped as much as 45 meters.

During the first years of the 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. If the developer cannot, the project faces rejection. Multiyear drought in the upper Midwest, the East, and Florida has forced numerous regions to own up to 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 its residences.

Along with the challenges of supply issues, the industry is faced with the significant erosion and decay of the nation's 700,000 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 is becoming clear that the country's water-pipe system, much of which is over one hundred years old, needs a major overhaul. The cost to replace and repair the water infrastructure is estimated to be between $151 billion, according to the EPA, and $1 trillion, according to industry advocacy groups.

Increased privatization of the water system is 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 are beginning to make inroads into the market. France's Vivendi and Germany's RWE, both international water conglomerates, have begun operating in the United States. In 2002 Indianapolis undertook the largest U.S. water privatization to date by contracting with US Filter in a $1.5 billion agreement. Whether the water industry continues down the road toward privatization or remains primarily publicly owned, forecasters unanimously predict that the cost of bringing clean, filtered, usable water into American homes will go up.

Industry Leaders

American Water Works, owned by Germany's utility giant RWE, is the largest investor-owned water utility in the United States, with operations in 22 states and an estimated 6,400 employees serving 19 million consumers. In 2002 the company reported $1.4 billion in revenues. A few of its competitors, although considerably smaller, included United Water Resources, Vivendi, and Philadelphia Suburban.

The Metropolitan Water District of Southern California (MWD) is the largest provider of drinking water in the United States, serving about 16 million people through 27 public agency members. The Water District is part of a project involving private firms to make seawater drinkable. The district also was involved in making $7 billion in capital improvements in the final years of the decade.

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 has been working 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 non-chemical 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. Because of concerns about the carcinogenic properties of chlorine, there has been renewed interest in the development of UV treatment facilities in the United States.

Plans for a desalinization plant that would convert seawater into a portable 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 only were two desalinization plants in the United States, one in Key West, Florida, and the other in Santa Barbara, California.

Further Reading

Agency Group 5. "Most Americans Receive Their First Local Drinking Water Reports," FDCH Regulatory Intelligence Database, 21 October 1999.

——. "President Clinton Signs into Law Administration's First Indian Water Rights Settlement." FDCH Regulatory Intelligence Database, 10 December 1999.

"Agency Releases Monitoring Schedule." Pollution Engineering, 3 November 1999.

Bogo, Jennifer. "Oil and Water Don't Mix." E Magazine, September/October 1999, 44.

Gullick, Richard W., and Mark W. LeChavallier. "Occurrence of MTBE." Journal AWWA, January 2000, 100.

Heavens, Alan J. "New Faucet Aims to Improve Water." The Philadelphia Inquirer, 23 December 1999.

"Northern New Jersey Utilities Again Compete in Unregulated Market." The Record, Hackensack, NJ, 20 December 1999.

O'Connor, Marjie. "Treat Your Water Better." Contractor, December 1999.

"Perceptions of Tap Water." Environment, 8 November 1999.

"Reading Your Water Report." Consumer Reports, October 1999, 52.

U.S. Environmental Protection Agency. The Clean Water and Drinking Water Infrastructure Gap Analysis, September 2002. Available from .

——. "SDWA Section 1429 Ground Water Report to Congress." Environmental Protection Agency, January 1999. Available from .

"Zebrafish May be Toxin Detectors." Associated Press Online, 26 December 1999.

Zimoch, Rebecca. "Organic Contaminant Screening Process for Drinking Water Developed." Water Engineering & Management, 10 November 1999.

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