Water & Sewer Utilities Industry Overview

Excerpt from Water & Sewer Utilities Report

Companies in this industry operate water treatment and water supply systems for drinking water and other uses, and operate sewer systems and sewage treatment facilities that collect and treat waste. Major companies include American Water Works, Aqua America, and California Water Service, along with France-based SUEZ Environnement and Veolia Environnement.

Competitive Landscape

Demand depends on commercial and residential water needs, which are related to population growth and to the level of economic activity. The profitability of individual companies depends on efficiency of operations, because prices are fixed by public utility commissions (PUCs). Large companies have economies of scale in operations and the ability to raise capital for infrastructure improvements. Small companies can compete successfully through superior engineering or by serving smaller local markets. High barriers to entry, such as capital investments, make the industry somewhat resistant to competition; many companies operate as de facto monopolies. The industry is concentrated: the 50 largest companies account for 65 percent of industry revenue.

Products, Operations & Technology

Major services are operating water supply systems and operating sewage removal systems. Water services account for 70 percent of industry revenue, sewer services for 13 percent, irrigation around 4 percent, and other services the rest. The operations of small or large water and sewer systems and commercial or municipal utilities are identical. Water and sewer operations are local monopolies, mainly because of the large infrastructure of reservoirs, pipes, and treatment facilities needed. Competition exists only in determining who operates a system. Commercial companies may own a local system, or operate a system on behalf of a local government ("contract operations"), or may own parts of a system, such as water wells or a reservoir.