38 JUNE 2005 | JOURNAL AWWA

ater quality and water availability are

huge challenges that will face the United
Statesand the rest of the worldover
the coming decades. Everywhere you look
today, there are stories about water shortages,
water pollution, political wrangling over water
rights ownership, and the huge capital expendi-
tures that will be required to maintain our water
infrastructure. The ultimate conclusion to many of
these issues is that in one way or another we will
all inevitably pay more for water. As a society, we
simply have to spend more of our dollars to correct
the water pollution problems that we have created,
to ensure that everyone has access to this basic
human right as the planets population continues to
expand, and to finance the vast treatment and dis-
tribution infrastructure that we need.
At the same time, however, there is growing politi-
cal resistance and social concern about water prices
rising over the long termrate shock. Although
water is still very cheap relative to its real value (as
outlined later), water rates and user fees are still
political hot potatoes in many cities and towns
throughout North America. Some city councils and
mayors live in fear of taxpayer revolts and are often
afraid to raise water rates, even though water bills
are still a tiny part of an average familys monthly
expenses. In other cities, battles are raging between
municipal officials and private contractors who have
tried to force rate increases, and controversies over
water issues are increasingly resulting in the expul-
sion of elected officials. But are all of these political
battles, financial concerns, and instances of public
hand-wringing really justified? This article discusses
the real value of water versus the average price of
water relative to the other necessities and various
luxuries of life. (see The Value of Water: What It
Means, Why Its Important, and How Water Utility
Managers Can Use It by Bob Raucher in the April
2005 issue of JOURNAL AWWA, page 90).
Water is vital to each and every one of us, and
without it, life cannot exist. Relative to its true value
and significance, water isnt expensiveit is ridicu-
lously cheap! In fact, public drinking water availabil-
ity in the United States is one of the great economic
bargains of all time. Youd have to look far and wide
to find another product whose real value to the con-
sumer is so high relative to its priceand to find a
commodity whose price is typically so unrelated to
its actual cost. A look at the facts and some interest-
ing anecdotes quickly confirms this.
WHAT DO AMERICANS PAY FOR WATER?
First, lets look at what we actually pay for our
drinking water in the United States. Clearly, the sit-
uation in terms of water supply and delivered costs
varies significantly across the country, as might be
expected given the range of climates, weather pat-
terns, and conditions of water infrastructure in dif-
ferent regions of the United States. Although what
we pay for water varies widely, the average price is
about $2.50 per 1,000 gal (3,785 L) or approxi-
mately $20 per month for the average US family.
The 2004 Report on Water and Wastewater
Rates, authored by AWWA and Raftelis Financial
Consultants Inc., found that the average cost of
MAKING SOME KEY COMPARISONS REGARDING WATER MIGHT HELP US REALIZE THAT THE DRINKING WATER WE TAKE FOR
GRANTED IS WORTH FAR MORE THAN WHAT WE CURRENTLY PAY FOR IT.
Water Is CheapRidiculously Cheap!
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B Y S T E V E M A X W E L L
W
Some city councils and mayors live in fear of taxpayer revolts
and are often afraid to raise water rates, even though a water bill
is still a tiny part of an average familys monthly expenses.
2005 American Water Works Association
water to the US consumer was $19.11/1,000 cu ft (28.32
m
3
), or $0.0026/gallon. (To convert costs per gallon given
in this article to cost per litre, divide the dollar amount by
3.785.) Rates vary widely, though they tend to be higher in
the northeastern part of the country, andcontrary to
intuitionlower in the South and West. According to the
2004 Water Pricing Survey published in the September
2004 issue of Global Water Intelligence, Boston, Mass.,
residents pay $0.004/gallon of water, whereas residents of
Denver, Colo., pay $0.0018 cents/gallonand residents of
Las Vegas, Nev., that shining oasis in the desert, pay just
$0.002/gallon. AWWAs detailed analyses of regional water
rates have clearly demonstrated that water pricing is often
political rather than economic.
WHAT DO OTHER COUNTRIES PAY FOR WATER?
How do water rates in the United States compare with
those of other countries? As shown in Table 1, a recent
report summarized average water prices in various devel-
oped countries. This report estimated the average price in
the United States to be $0.0023/gallon, which is fairly close
to the figure cited previously. The evidence here is pretty
clearAmericans generally pay less for their water than do
most people in other developed countries.
Germans pay almost a penny a gallon, whereas only the
Canadianswith their relatively small population and vast
water resourcespay less than Americans do. Of course,
this kind of analysis is only applicable to the more devel-
oped countries of the worldthe vast majority of people in
less-developed countries dont even have the option of buy-
ing clean drinking water.
THE RELATIVE COST OF WATER
It is instructive (and perhaps a bit amusing) to look at the
price of water compared with the prices of other key prod-
ucts that many of us buy and use every day. A look at Table
2 helps us realize just how cheap tap water really is.
There is not much doubt as to which of these substances
is the most critical to humanswe cant live for more than
seven or eight days without water. But water remains hun-
dreds or even thousands of times cheaper than the other liq-
uid commodities or extravagances that we frequently buy.
Perhaps of particular interest here is the price of bottled
water, which is between a thousand times and ten thousand
times the cost of average tap water but is (in most cases)
barely distinguishable from tap water. The US Food and
Drug Administration loosely regulates the bottled water
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JOURNAL AWWA | JUNE 2005 39
Average Price
Country US$/gal (US$/L)
Germany 0.0084 (0.0022)
Denmark 0.0083 (0.0022)
United Kingdom 0.0057 (0.0015)
Holland 0.0054 (0.0014)
France 0.0053 (0.0014)
Belgium 0.0047 (0.0012)
Italy 0.0036 (0.0010)
Spain 0.0033 (0.0009)
South Africa 0.0032 (0.0008)
Finland 0.0030 (0.0008)
United States 0.0023 (0.0006)
Canada 0.0020 (0.0005)
Source: NUS Consulting 2003/2004 International Water Report and Cost Survey
(as quoted in Global Water Intelligence, September 2004)
TABLE 1 Average price of water by country
Average Price
Product $/gal ($/L)
Tap water* 0.0026 (0.0007)
Gasoline 2.20 (0.58)
Coca-Cola 2.64 (0.70)
Organic milk 4.25 (1.12)
Tide liquid detergent 8.39 (2.22)
Imported beer 12.00 (3.17)
Evian bottled water 21.19 (5.60)
Peaberry Coffee mocha drink 22.28 (5.89)
Pepto-Bismol 58.52 (15.46)
Vicks Formula 44D cough syrup 96.67 (25.54)
American whiskey 150.00 (39.63)
Visine eye drops 741.12 (195.80)
Revlon nail enamel 983.04 (259.72)
Good French wine 1,000.00 (264.20)
Chanel No. 5 perfume 45,056.00 (11,903.83)
*AWWA and Raftelis Financial Consultants Inc.
TechKNOWLEDGEy Strategic Group
AWWA
TABLE 2 Price comparison of water versus other widely
used consumer goods
2005 American Water Works Association
40 JUNE 2005 | JOURNAL AWWA
industry. However, in a publication titled The Worlds
Water 20042005: The Biennial Report on Freshwater
Resources, the Pacific Institute (an independent water think
tank) said that bottled water standards vary from place to
place, testing is irregular and inconsistent, and contaminat-
ed source water may lead to contaminated products.
Although most of the US population seems to be highly
resistant to (or even shocked at) the notion of rising water
rates, for most Americans, a 20% increase would be rough-
ly equivalent to buying a couple of containers of bottled
water a month!
In that same publication, the Pacific Institute estimated
that on a worldwide basis the total annual consumer ex-
penditures for bottled water approach $100 billion annual-
lya vast sum that both indicates consumers are willing
to pay for convenient and reliable drinking water and that
society has the resources to make comparable expenditures
to provide far greater quantities of water for far less money
by investing in reliable domestic supplies (italics added).
In other words, if we were to spend this money on building
public systems instead of buying bottled water, we could
easily provide a much greater share of the worlds popula-
tion with clean, safe drinking water.
THE MONTHLY COST OF WATER
VERSUS OTHER BASIC SERVICES
Another way to look at the relative cost of water is to
review how much we typically pay for other basic services
each month. The AWWA/Raftelis study
cited previously suggests that the average
US family pays about $20 a month for
water. This compares with somewhere
around $30 a month for Internet service,
about $40 dollars a month for basic cable
television service, $75 a month for tele-
phone service, and $80 a month for elec-
tricity. Again, we pay much less for the
service thatif push ever comes to shove
we clearly need the most.
A few additional examples serve to
reemphasize and bring home the relative
inexpensiveness of water. A quick check at
your local nursery shows that chicken
manure typically costs around $15 per
ton, and potting soil (fancy dirt!) can cost
as much as $2,500 per ton. By compari-
son, tap water goes for about $0.60 a ton.
US SPENDING ON WATER VERSUS
OTHER PRODUCTS
Lets look at the cost of our water in another wayin
terms of how much we as a society spend on water versus
what we spend in other areas of life.
What do we really spend on water? The data are not
exactly comprehensive, but according to AWWA, every
day our public water utilities process approximately 38
bil gal (140 GL) of water, and the US Census Bureau
estimates that the United States currently has a popula-
tion of about 296 million people. That works out to
about 128 gal (484 L) of water per person per day.
(Total water use, including untreated or less-treated
water for agricultural irrigation and thermal power gen-
eration multiplies that per-capita figure by about a fac-
tor of 10.) If the average cost of water is $0.0026/gallon
and if we each use about 128 gal (484 L) of treated
water a day, it works out to a per capita cost of about
$121 a year. If there are almost 300 million Americans,
that works out to a total annual water cost of around
$35 billion per year. According to a 2005 report from
Environmental Business International and
TechKNOWLEDGEy Strategic Group, the total annual
revenues to water utilities in the United States are esti-
mated at $33.8 billion. To help put this in context, Table
3 lists what the United States as a country spends on
various other products, consumables, and activities.
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Annual Expenditure Comparison With Amount
Product/Activity $ billions Spent on Water
Viagra 2 6%
Prozac 3 9%
Cosmetic surgery 12 34%
Pornography 14 40%
Water 35
Tobacco products 40 114%
Legalized gambling 68 194%
Alcoholic beverages 140 4 times
Military defense spending 558 16 times
Sources: American Society of Plastic Surgeons, CitizenLink, Forbes Magazine, the Pharmaceutical Research
and Manufacturers of America, Reuters, the Statistical Abstract of the United States, and various company
websites
TABLE 3 Total US spending on water versus other products and activities
2005 American Water Works Association
WATER WASTAGE
Because water is so cheap, we tend to waste a lot of it.
It is difficult to measure exactly how much water we
wastebecause this is obviously a somewhat subjective
value judgment. Is watering a yard in Phoenix, Ariz., a
waste of water? Is a 15-minute shower a waste of water?
Is it a waste to wash your car once a week, and so on?
However, one recent and comprehensive review pinpoint-
ed the United States as the most wasteful nation on earth
in terms of water use. In a study by the Center for
Ecology and Hydrology in the United Kingdom, the
United States ranked last out of 147 countries in terms of
efficient water use.
OUR IGNORANCE ABOUT WATER
Despite this veritable mountain of data (which basical-
ly show that water is still absurdly cheap relative to its
true value), huge political controversies are often generat-
ed by municipal attempts to raise water rates by 10 or
20%. Town councils or mayors are regularly removed
from office for raising, or threatening to raise, water
ratesdespite all of this evidence, staring us in the face,
that water is obviously worth much more than what we
pay for it. For most of us, even a large percentage
increase in our water rates would be equivalent to no
more than $10 or $15 a month. This is probably less
than what many of us are already spending on bottled
water (even though we have good, clean tap water avail-
able at one one-thousandth of the cost). According to the
previously cited study by the Pacific Institute, if we took
the dollars we currently spend on bottled water and used
them instead to address those oft-cited infrastructure
requirements, the infamous spending gapthe amount
between the current levels of infrastructure investment
and the levels that the US Environmental Protection
Agency estimates are required to maintain our infrastruc-
turewould almost disappear.
The United States is blessed with a wealth of water
resources in most regions of the country, and we clearly
have the innovative spirit and the technological where-
withal to figure out how to treat and transport water to
those regions of the country with less water. Unfortunately,
as a society we also tend to be characterized by an igno-
rant and careless attitude about water resources and water
utilization in general.
We would all do well to regularly remind ourselves
how valuable water really is. Think about those times
your local utility has had to turn off your connection to
do repairs and how difficult it was to get through the day
without any water. Think about the last time you went
hiking or camping and ran out of drinking water.
Consider the fact that in many parts of Africa, women
and children spend a good part of every day hauling
water for the basic human needs of drinking, preparing
food, and cleaning. Surely its about time we realized that
our water is worth a lot more to us than the price we cur-
rently pay for it.
Yes, water frequently falls from the sky. Yes, two thirds
of the planet is covered by water. Yes, freshwater is abun-
dant in many parts of the globe. But its not always clean,
its not always located where we need it, and it costs the
world hundreds of billions of dollars a year to collect,
treat, store, and distribute that water. Sooner or later, we
are all going to have to get used to reasonable and across-
the-board water rate increasesespecially those of us in
the United States.
Steve Maxwell is managing director of
TechKNOWLEDGEy Strategic Group, a Boulder,
Colo.based management consultancy specializing in
merger and acquisition advisory services, strategic plan-
ning, and market research for water and broader environ-
mental industries. Maxwell is also the editor and founder
of The Environmental Benchmarker and Strategist, the
environmental industrys most comprehensive source of
competitive and financial data. He can be reached in
Boulder at (303) 442-4800 or via e-mail at
maxwell@tech-strategy.com.
JOURNAL AWWA | JUNE 2005 41
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2005 American Water Works Association