What is your water really worth?

William S. Brennan has a great post about water in Investorideas.com. Just a few snips: … So what is the real underlying value of water relative to the state of our infrastructure, the energy used to treat and move it and ultimately, is it priced correctly? The water that runs into our homes goes through a comprehensive treatment protocol that is governed by the EPA before it ever hits the transmission pipes. The cost of treatment alone when you add in the energy to move water through various membranes and filters is likely far more than the average person realizes. … Did you ever give a second though to just how much energy is needed to provide water services? Energy is required to lift water from significant depth in aquifers, pump water through canals and pipes, control water flow and treat waste water, and desalinate brackish or sea water. Globally, commercial energy consumed for delivering water is more than 7% of total world consumption. Energy consumption effects water use more than we realize with 50% of our fresh water being used by electrical power plants

What most fail to realize is that the water industry is a "rising-cost" industry, with prices rising faster than the rate of inflation. Most costs are associated with infrastructure replacement, regulatory compliance (treatment), and population growth (for some areas). Labor, energy, and chemicals are the three major operating expenses for many systems where rising costs are coupled with flat or declining demand (conservation), another source of price pressure. One of the first points we always make with investors in the water sector is that water demand is relatively price inelastic; however, large-volume and discretionary use may fall due to price response. Ultimately, water customers experience the combined and regressive effect of water, wastewater, and stormwater charges. So get ready for higher water rates.

From our view, full-cost water pricing is essential for sustainability, as well as economic efficiency; in the coming years, accurate pricing will signal and encourage efficient production and use and emerge as the catalyst for behavioral change among end users. In the absence of full-cost pricing, subsidies can flow to or from water systems and sustainability will become more questionable, especially in regions where water shortages are expected to persist. …..

Often overlooked by most people, politics has and will continue to play the leading role in setting the ultimate price of water globally, resulting in prices that short term, may remain artificially low in comparison to the intrinsic value of water in certain parts of the world; not enough water stress exists in those areas to move pricing that wakes up the end user. Shortsighted but prevalent. ...

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