Founded in 1886, American Water Works, Inc. is the largest publicly traded water and wastewater utility in the U.S. Through 19 state subsidiaries and other market-based businesses, the company serves approximately 15 million people in more than 1,600 communities across more than 30 states, Manitoba and Ontario.
With headquarters in Voorhees, New Jersey, American Water has about 7,000 employees and annual revenues of $2.7 billion. In 2009, the company instituted a sustainability plan that addresses energy and water use both in its own operations and among communities and institutional customers. Heather King talks to CEO Jeff Sterba about the tie between energy and water, finding value in wastewater, and the irony of our $21 billion per year bottled water habit.
In May 2011, the Ontario Global Water Leadership Summit called attention to the looming water supply and quality crises. How is the mounting concern about sustainable water changing your business model?
We are focused on both capturing savings through greater operational efficiencies and on building new revenue opportunities in our water service. Much of our efficiency gains relate to energy. Electricity is our second largest cost after labor. It takes energy to treat and deliver water. We've committed to reducing our carbon footprint by 16 percent by 2017. That mandate is fostering innovation and helping us reduce energy in our operations.
As an example, we are testing a new technology that reduces energy use in wastewater treatment facilities by 30 to 50 percent. Much of our traditional revenue model is volumetric. We get paid based on the amount of water we sell. This works counter to water conservation. To support our planet's water needs and our own business model, it is important to decouple revenues and sales so we don't have disincentives associated with efficiency improvements.
We are already seeing a 1 – 1.5 percent per year decline in water use per customer. This is a shift the energy industry has also seen. But unlike the energy industry, there are not many new uses for water. We need to conserve, and our industrial and municipal customers need to conserve, our water resource. We've got formal decoupling mechanisms in two states -- California and New York – and we are working to bring on more regions.
In terms of tapping new markets and revenue, we see potential in new lines of business like wastewater management. Only 1 percent of water is used in human consumption. For many purposes -- irrigation, flushing, cooling -- wastewater is the better resource than potable (drinking) water. We want to better utilize wastewater so that it can meet the non-potable needs.
Can you provide some examples where wastewater has become a significant revenue source?
The economics of wastewater is about new revenue streams and monumental savings through water recycling. We just finished a project in Fillmore, California, which is now recycling a million gallons a day. We have a property in Arizona that is a complete closed system where we have "purple pipes" containing recycled water that runs and takes care of all the irrigation needs and cooling needs within the community. This property is now taking the model and using the experience and expertise to advise other communities and regions -- for a fee. We've got five buildings in Battery Park City, New York where we take all of the wastewater, we treat and recycle that wastewater, and it meets the cooling and flush needs of the buildings. So you have clean water for drinking and washing, but when you flush a toilet, you are not using up valuable potable water.
We work a lot with the food and beverage processing industry. Companies like Coca-Cola, PepsiCo and Walmart are having a lot of success with wastewater management and reuse. It optimizes their operations by saving on energy and water. We pioneered a 24-7 wastewater treatment operation. It's a control center outside of St. Louis that operates wastewater treatment facilities remotely to optimize their chemical loads, overall energy use and their wastewater production. It's an example of how important information technology is to sustainable water management.
Given water is currently inexpensive, how much economic sense does it make for companies to make water-efficiency investments?
You are right. Water is basically free. In the west, there are water rights. If you buy water rights, there is a cost. In the Midwest and East, there's just a cost for cleaning and delivering it, which is primarily an energy cost. So the business case for sustainable water now centers on energy savings.
Next page: Future drivers for water pricing
