A water oligopoly in the making?
New federal regulations in the US seem likely to trigger the rapid oligopolization of the US water utility market. That's according to a story in The New York Times ("It Doesn't Mix With Oil, and the Market Is Drinking It Up", 10/30/2005).
Currently, most the US's water and sewage systems are owned by local, municipal or semi-public companies. There are a total 55,000 of such utilities, and (according to the article, 95% of them serve fewer than 3,000 homes each. Most of these systems are over 50 years old, and many are in need of serious maintenance campaigns.
But the kicker is that these cash-starved services are about to get hit by new government regulations.
The catalyst for the transformation will be the first draft of new water quality regulations, which the Environment Protection Agency is expected to issue this year…. The new rules will require water systems to further reduce levels of substances like arsenic and chlorine. Many small towns will discover they can't afford the pricey ultraviolet reactors they will need to meet these stricter standards.
That opens the door for investors with bigger pockets to come in and privatize the systems. These investors will include a few of the current leaders in consolidating water systems as well as equity partners who see the opportunity to combine a number of systems and then take them public.
Among the early leaders are three US-based companies:
- Aqua America, which started as a local Pennsylvania utility (mine in fact), and has rapidly grown over the past decade so it now has 2.5 million customers in 15 states
- California Water Service Group, with 2 million customers throughout California, Washington State, New Mexico, and Hawaii
- American States Water is much smaller, with about a third of a million customers in California and Arizona, along with some residential electrical customers, and is a provider of billing and metering services to a number of municipal water systems.
In addition, there are several European utility companies that do not own water/sewage systems but runs them for a variety of municipalities They are:
- Suez, a French company that operates in the US under the name United water. Suez operates in a variety municipalities, including Milwaukee, and San Antonio. It serves some 7 million consumers.
- Veolia North America, a division of the French company, which primarily concentrates on supplying water to businesses, also runs some 91 municipal water/waste systems in cities like Indianapolis and Atlanta.
- American Water, a division of German-based RWE Thames Water, provides management services for 18 million consumers in 16 US sates and Canada.
5:23:08 PM 
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