Fix This/Water

How the Experts Would Fix the Water Supply


From left, Ahmet Bozer, Jae So, Carlos Riva, Thomas Powers, Jeff Sterba

Photograph by Aaron Richter for Bloomberg Businessweek

From left, Ahmet Bozer, Jae So, Carlos Riva, Thomas Powers, Jeff Sterba

Is water the new oil? Population growth and agricultural demand, combined with aging infrastructure and waste, have produced water scarcity in many countries. Prices are rising, and the lack of a dependable water supply is a massive health and economic issue. So how do we fix our water quality and management problems? That’s the question Bloomberg Businessweek Chairman Norman Pearlstine put to our panel: Ahmet Bozer, President, Coca-Cola International (KO); Jae So, Manager, World Bank Water and Sanitation Program; Carlos Riva, CEO, Poseidon Water; Thomas Powers, Commissioner of Water Management, Chicago; and Jeff Sterba, President and CEO, American Water (AWK). Their conversation has been condensed and edited.

 
Is conservation the most important issue with regard to water in the U.S.?
Sterba: I think of it as increasing efficiency of use. I spent a lot of time in the desert Southwest, and the way that you think about water there is very different than the East Coast or the Midwest. A lot of home stock has already gone through the retrofitting of low-flush toilets and all of those kinds of things. California is an interesting one. In Carmel they literally have an ordinance that if you rebuild a home, you can only rebuild it with the same number of faucets or bathtubs or showers that were in the original. You’re talking about homes that were built 50 years ago, when you had one bathroom to four bedrooms. Well, you’re stuck with that.
 
There’s so much water on earth, and a lot of it’s in the ocean. How do the economics work for desalinization?
Riva: Users always go to the lowest-cost supply. So they’ll go to surface water or underground aquifers that are readily accessible. But when they’ve used those up and they’ve done as much conservation as they possibly can, they’re going to have to find new supplies. And the next area that has the molecules available is the ocean. It’s a more capital-intensive supply than other forms of water, but if it’s a long-term project and the value’s going to be realized over 30 or 40 years, the rate of escalation of the cost of that water will typically be a lot less than the historical escalation of the existing water supply.
 
Where else is desalinization in force or happening?
Riva: Well, desalination is used all over the world, generally for very specific applications. Naval ships use it. But the scale that we’re talking about—our plant in California will supply about 8 percent of San Diego County’s water. So it’s large in utility scale.

Bozer: Our bottler in the Maldives had to go to desalination, but that’s a very, very small scale. We certainly do hope that over time that the cost will be less.
 
Photograph by Balazs GardiAre there other technologies on the horizon that are going to become part of our water system? Every once in a while you read about icebergs being dragged to the Sahara and so forth.
Riva: (Laughs.) I don’t think we’re there yet.

So: We’ve been talking about how we’re going to manage the supply and the service of water. But there’s a huge amount that we can do in managing customer demand. Just having information, like how much water you use, can be a big signal. Customers will actually look at that. And then there are information campaigns teaching people the value of water.

Bozer: India is a perfect example. When you have the monsoon season, so much water comes and gets wasted. So how do we fulfill our commitment of returning the amount of water we use back to nature? A rainwater harvesting system. Now these systems don’t cost too much. And we’ve actually placed somewhere around 500 of them. And that water is stewarded back underground, and you’re replenishing the sources. So maybe there are emerging-market solutions that can also be applied to developing markets.
 
Tom, you don’t have a shortage of water. You do have some old pipes. How big a problem is the infrastructure for an aging city like Chicago, and how do you address it?
Powers: We are very fortunate to have one of the cleanest sources on the planet in Lake Michigan. But having that [allows] the utility to become complacent. In Chicago a quarter of our distribution system is over 100 years old. That manifests itself to everyday people in the form of breaks and leakage. From 1890 to 1920 we were installing water mains at a rate of about 75 miles a year. And over the last 10 years we were only replacing them at about 30 miles a year. With our new program, over the next decade, we’re going to replace nearly 1,000 miles of water main. And just in doing that, we conservatively estimate that we’ll be able to provide enough water for an additional 400,000 residents.

Riva: Tom raises a very interesting point. The water issues that we have are going to require a massive amount of capital. And one of the things that we like to think about is, what are the right kind of models to attract that capital?

Sterba: You’re absolutely right, Carlos. You’re talking about a trillion dollars for the next 20 years just in the U.S. An awful lot of it is fundamental, underground infrastructure for wastewater and water. And it’s because we have gotten behind in this country. We lose 7 billion gallons a day of treated water through pipe leaks. Why does that happen? Part of it is because water has no cost. So until you have people that really think about the obligation for the long term and the social issues associated with making sure we have supply …

So: In developing countries the World Bank is the largest financier of water projects. Last year we lent $7 billion. But it’s a tiny, tiny portion of what’s needed. One of the reasons that in developing countries water utilities cannot make ends meet is that people don’t pay their water bills. And these are sometimes the most powerful people in the country. (Laughs.) Ek Sonn Chan, who runs the Phnom Penh Water utility in Cambodia, looked at the situation and realized that there was no way he could make the utility viable until customers started paying. And he started cutting people off. He cut off the military. He cut off the powerful ministers.
 
He had a couple of death threats, I heard.
So: Yes, but people started to believe that actually, if they did not pay their water bills, they wouldn’t get water.

Photograph by Balazs Gardi/Azdarya

Sterba: We’ve been approached by an operation in another country where 40 percent of bills are paid. A lot of communities struggle with how do you build the basic infrastructure if people just don’t pay.

So: We’ve been working with a utility in Pakistan for some time. We said, “To be customer-responsive, you have to do a customer survey.” So this utility, for a year, refused to do the survey because they said, “We know they’re unhappy. What’s the point of doing the survey?” (Laughs.) But we made them do a house-to-house survey. And they found an additional 50 percent of customers that were taking water. So it ended up increasing their revenue by 50 percent, and they could afford to do some improvements to their system.
 
Twenty years from now, what will water cost compared to now?
Riva: Water is a simple molecule, but a very complex commodity. If you really want to have efficient use, you need to align the pricing to the value of the usage. So I think some elements of it will be quite high, and others will be potentially lower.

So: In many countries where the World Bank works, agricultural water is essentially free, or very, very low-cost. At some point, if we’re providing water to the same rural communities but the farmers get it for free, you will find situations where the farmers will then sell the water they get to the municipalities and the villages for human consumption. So one of the things we have to get right on pricing is, you know, should water be priced for the cost that it is or by customers? And there’s a huge political factor in that.

Sterba: By and large, in the U.S. people don’t pay for water. They pay for a delivery of it and cleaning of it, but the molecule is generally provided at no cost. Because the federal government isn’t going to be giving money out as it used to and states are in financial hardship, the communities are going to have to find other ways to raise capital. So I think prices will continue to move up.

Powers: That’s why I’m glad one of the things that we did was when we raised our rates in Chicago was … tie it to the consumer price index. That allows us to plan, to manage our system, because we know what the revenue stream will be. … And if we don’t manage it correctly, it’s not going to be there in future years. So we have to change our habits. People don’t value water until it’s gone. Until they go to take a shower and it’s no longer there. I’ll be honest with you, I was one of those people. (Laughs.) And I am now the biggest proponent in the entire city for the water system.
 
So you brush your teeth with the tap off now?
Powers: Absolutely. (Laughs.) The challenge is getting your kids to do it.

For more video and conversation on Fix This/Water, visit: www.businessweek.com/fix-this/water.


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Companies Mentioned

  • KO
    (Coca-Cola Co/The)
    • $41.12 USD
    • -0.29
    • -0.71%
  • AWK
    (American Water Works Co Inc)
    • $49.66 USD
    • -0.42
    • -0.85%
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