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Great Lakes Article:

America's Upcoming Water Crisis

The coming water crisis
Many billions of dollars will be needed to quench America's thirst, but
is private business the answer?

Cover Story 8/9/02
US News and World Report
By Marianne Lavelle and Joshua Kurlantzick

The tap water was so dark in Atlanta some days this summer that Meg Evans
couldn't see the bottom of the tub when she filled the bath. Elsewhere in
her neighborhood, Gregg Goldenberg puts his infant daughter, Kasey, to
bed unbathed rather than lower her into a brew "the color of iced tea."
Tom Crowley is gratified that the Publix supermarket seems to be keeping
extra bottled water on hand; his housekeeper frequently leaves notes
saying, "Don't drink from the faucet today." All try to keep tuned to
local radio, TV, or the neighborhood Web site to catch "boil water"
advisories, four of which have been issued in the city since May to
protect against pathogens. "We've gotten to the point where I'm thinking
this is just normal," Evans says. "It's normal to wake up and take a bath
in dirty water."

In a nation where abundant, clear, and cheap drinking water has been
taken for granted for generations, it is hard to imagine residents of a
major city adjusting to life without it. But Atlanta's water woes won't
seem so unusual in the years ahead. Across the country, long-neglected
mains and pipes, many more than a century old, are reaching the end of
their life span. When pipes fail, pressure drops and sucks dirt, debris,
and often bacteria and other pathogens into the huge underground arteries
that deliver water. Officials handle each isolated incident by flushing
out contaminants and upping the chlorine dose (Atlanta says its water
meets health standards despite its sometimes unappetizing appearance),
but no one sees this as a long-term solution. America's aging water
infrastructure needs huge new investment, and soon.

Decayed pipes alone would be a serious challenge. Now, add these:
Providing water free of disease and toxins is ever more difficult, as old
methods prove inadequate and new hazards emerge. Shortages have become
endemic to many regions, as record drought and population sprawl sap
rivers and aquifers. Then there's the threat, unthinkable a year ago,
that now seems to trump all others: terrorism. Put it all together, and
it's easy to see why concern over clean drinking water might someday make
the energy crisis look like small potatoes.

"The idea of water as an economic and social good, and who controls this
water, and whether it is clean enough to drink, are going to be major
issues in the country," says economist Gary Wolff, at Oakland's Pacific
Institute for Studies in Development, Environment, and Security. In
March, Environmental Protection Agency Administrator Christie Whitman
called water quantity and quality "the biggest environmental issue that
we face in the 21st century."

Water providers say that Americans can still trust the product on
tap. "People should feel good about their water. Water is safe and we're
working hard to keep it that way," says Thomas Curtis, deputy executive
director of the American Water Works Association. But the Natural
Resources Defense Council's Erik Olson detects a "schizophrenic" element
in industry assurances. "They say we need hundreds of billions of dollars
to fix the system, but when people ask, 'Is there a public-health issue?'
they say, 'No, no.' But clearly, there's a public-health problem."

Both the sanguine and the worried agree on one thing: High costs will
force the nation's water delivery system to evolve into something quite
different. Citizens will be asked to pay more and use less. And big
business, still a minor player in this country's water scene, is seeking
a leading role. Private industry promises needed new capital and greater
efficiency, but the jury is still out on whether it can deliver. Witness,
for instance, the plight of Atlanta, which in 1999 became the largest
U.S. city to privatize its water system. Already the city is weighing
whether to nullify its 20-year contract with United Water, a subsidiary
of the French company Suez.

Buried troubles. For now, issues of ownership, infrastructure, and health
have been back-burnered while governments grapple with the threat of
water system terrorism (box, Page 25). Terrorism, however, cannot long
postpone action on the fissures spreading in the 700,000 miles of pipes
that deliver water to U.S. homes and businesses. Three generations of
water mains are at risk: cast-iron pipe of the 1880s, thinner conduits of
the 1920s, and even less sturdy post-World War II tubes. While refusing
to call it a crisis, Curtis says, "We are at the dawn of an era where
utilities will need to make significant investments in rebuilding,
repairing, or replacing their underground assets." Cost estimates range
from EPA's $151 billion figure to a $1 trillion tally by a coalition of
water industry, engineering, and environmental groups. The AWWA projects
costs as high as $6,900 per household in some small towns.

Health is at risk if nothing is done. Already, water mains break 237,600
times each year in the United States. An industry study last year found
pathogens and "fecal indicator" bacteria at significant levels in soil
and trench water at repair sites. Of the 619 waterborne disease outbreaks
the Centers for Disease Control and Prevention tracked between 1971 and
1998, 18 percent were due to germs in the distribution system.
Researchers also question whether Americans are getting sick from their
drinking water far more often than is recognized. "Is this happening
below the radar screen, with low-level [gastrointestinal] things, where
people will stay home from work, or be miserable at work, and not ever go
to the doctor?" asks Jack Colford of the University of California-
Berkeley. He is leading a major EPA-CDC-funded study comparing disease
rates between participants who drink tap water through a sophisticated
filter and those using a fake look-alike filter. Harvard researchers
reported in 1997 that emergency-room visits for gastrointestinal illness
rose after spikes in dirt levels that still remained well within federal

Quality concerns. Just keeping up with federal regulations is
increasingly difficult. The next five years will see more new rules than
have been adopted in all the years since enactment of the Safe Drinking
Water Act in 1974. Environmental advocates blame the logjam on delays in
addressing many health hazards. The arsenic standard, which produced an
uproar early in the Bush administration, was years in the making. The EPA
ultimately approved the same standard President Bill Clinton chose in his
last days in office-reducing the arsenic limit from 50 to 10 parts per
billion. The change of heart coincided with a National Academy of
Sciences report, released to little notice the week of September 11. It
indicated that even the Clinton standard was weak: As little as 3 ppb
arsenic carries a far higher bladder and lung cancer risk than do other
substances EPA regulates.

New science has also undermined confidence in older methods of purify-
ing water. Chlorination has been one of the 20th century's great public-
health achievements, smiting the deadliest waterborne diseases, cholera
and typhoid. But this sword has developed a double edge. Nearly 200 women
in Chesapeake, Va., sued their water system, claiming that miscarriages
they suffered in the 1980s and 1990s are traceable to trihalomethanes,
chemicals produced when chlorine reacted with their region's murky river
water. While pregnancy-risk research is hotly debated, the EPA decided
that cancer risk from chlorine by-products is high enough that it ordered
water system reductions earlier this year. Localities have already spent
millions of dollars converting to another disinfectant, chloramine (a
chlorine and ammonia mix), which curbs some byproducts.

Cities and towns are finding that they must deal with new science on
contaminants at a much faster pace than the EPA can regulate them. This
summer, Bourne, Mass., the southern gateway to Cape Cod, had to close
three of its six drinking water wells, having discovered they were
contaminated with perchlorate, a rocket fuel component that leaked from a
nearby military reservation. Across the country, the Metropolitan Water
District of Southern California, serving 17 million people, announced in
April that its new treatment system "will remove a large portion of
perchlorate" leaking into a major regional reservoir, Lake Mead. But U.S.
News has obtained material distributed at a June 11 MWD board meeting
showing the treatment was not working as hoped.

The EPA is still studying possible drinking water limits for perchlorate
as well as for MTBE, a gasoline additive meant to reduce air pollution
that proved to be a frighteningly efficient groundwater pollutant. (South
Tahoe and Santa Monica, Calif., last month obtained big settlements from
oil and chemical companies to help restore MTBE-poisoned water supplies.)
And in April, a U.S. Geological Survey report revealed that streams
nationwide are laced with prescription and over-the-counter drugs and
even caffeine.

Pollution is shrinking water supplies for communities at the same time
that burgeoning population and weather are causing severe shortages.
Norman, Okla., with 95,700 people the largest system currently afoul of
arsenic standards, very likely will shut down some wells even though it
expects average daily water demand to more than double in the next 40
years. "We don't want to be a poster child" for arsenic contamination,
says utilities director Brad Gambill. This summer, more than 40 percent
of the nation-over twice the normal rate-has suffered drought
conditions. "Normally, we get tons of flowers, but now we have nothing
growing," says Donna Charpied, a farmer in Riverside County, Calif.,
pointing to withered plants on her small homestead. Some ecologists
believe global warming will make drought the norm in much of the West.
Drought breeds anger: The CIA predicts that by 2015, drinking-water
access could be a major source of world conflict.

Some cities have already instituted drastic conservation programs. Santa
Fe has restricted lawn watering, leading New Mexicans to decorate yards
with spray-painted artificial flowers. In parched Denver, a conservation
campaign encourages residents to shower in groups. Omaha has an odd-even
residential address lawn-watering program.

One spring Saturday morning this April, Chuck Maurer of San Antonio
realized while brushing his teeth that he and his neighbors had become
victims of a water conservation program gone awry. "It was grotesque," he
recalls. "The water was brown in color and cloudy with particulates, and
a really bad odor. It was sewer water." Precisely. The San Antonio Water
System had accidentally cross-connected his neighborhood's drinking water
lines with pipes delivering treated sewage water to a public golf course.
Watering fairways and greens with "reclaimed water" has become popular in
water-short tourist areas, especially Florida. But experts say such
systems require extra care to keep sewage from entering potable systems.

Big business to the rescue.With immense challenges ahead, U.S. drinking
water systems are considering something never tried here on a large
scale: privatization. In March, Indianapolis announced a $1.5 billion
agreement with USFilter, the largest U.S. privatization to date, and in
May, San Jose, Calif., voted to consider privatizing. Private firms
helped supply water to Boston as early as 1796, and utilities have long
hired outside contractors to build, but not operate, plants and
distribution systems. But over the past five years, an IRS ruling that
helped firms obtain longer-term tax-free water contracts, combined with
politicians' push for deregulation and municipal-system breakdowns,
opened the door for firms to actually manage systems. Only 15 percent of
utilities are investor-owned, but in recent years, a handful of big water
corporations, mostly foreign owned, have moved onto the U.S. scene: from
France, Suez and the media-water conglomerate, Vivendi; from Germany, the
utility RWE. (One domestic player with giant ambitions was Enron's water
subsidiary, Azurix, which had touted a plan to plumb the Everglades and
manage the water.)

Congress is considering hiking federal funding for infrastructure, but
the Bush administration encourages the privatization trend, saying that
water systems cannot expect to get all the dollars they need from
Washington. Says G. Tracy Mehan, EPA assistant administrator for
water: "I think the needs are so great especially when you see the
demands of homeland security and the federal budget. Private capital is
one of several options that are going to have to be considered much more
than they have been."

One private-sector success story is Leominster, Mass., a town of 40,000,
which signed a 20-year deal with USFilter in 1996. Before then, "our
treatment plant was totally corroded. We fixed leaks by putting out old
coffee cans to catch the water," says Mayor Dean Mazzarella. USFilter
saved the city money it then used to upgrade a 60-year-old filtration
plant that was "held together by wire and chewing gum," says city
environmental inspector Matthew Marro.

Experience in other countries suggests that privatization can, indeed,
pour needed capital into drinking water. Investment in the United Kingdom
increased more than 80 percent after it turned to total
privatization. "Public-private partnerships are going to sweep the U.S,"
says Andrew Seidel, president of USFilter. "The country has 50,000
different water systems, and those will consolidate into bigger systems
aligned with private companies and able to handle the growing number of
water-treatment issues."

But in Atlanta, the experience has not been so positive. This summer,
Mayor Shirley Franklin sent a formal notice to United Water that the city
was dissatisfied with its performance under the 20-year contract signed
with the city's previous administration. Problems cited by Franklin
included the firm's staffing levels, bill collection, and meter
installation. Atlanta had hoped to halve the $49 million annual cost of
running its water system by privatizing; one city official says savings
are less than $3 million. "You have to keep in mind that a public-private
partnership is an ongoing dialogue between the customer and its private
partner," says United Water spokesman Rich Henning. "We certainly have
struggled. But within the last six to nine months we have dedicated more
resources, and we've been listening more to the client." He calculates
Atlanta's savings to be about $15 million a year but says the city should
be using that money to address the infrastructure problems that United
Water inherited.

Gordon Certain, president of the civic association of North Buckhead, the
neighborhood hardest hit with water-quality problems, says United Water
is unresponsive to complaints. "They're acting kind of like they have a
20-year contract," he says, wryly. (Of course, they do.) The company's
response to complaints has ranged "from polite to totally inappropriate,"
he says. "They told one woman who wanted her water tested that she should
get it tested herself." But resident Jacques Davignon thinks
privatization "has only made the finger-pointing much more complex." He
says the company and the city should share responsibility. "Let's not get
on TV and beat United Water up," he says. "Let's do a little forward
thinking, come up with a strategic plan."

Private enterprise also has rushed in with water-shortage solutions. The
agribusiness firm Cadiz Inc. wants to store water in the barren Mojave
Desert, where tidal waves of dust sweep across salt-rimmed dry lakes. The
water, taken from the Colorado River and from an indigenous underground
aquifer, would flow to thirsty Los Angeles during droughts. "Storing and
selling aquifer water will be the key to California's future," says Mark
Liggett, Cadiz's senior vice president.

Jim André, a desert biologist working in the Mojave, says Cadiz has no
impartial scientific study of the potential impact. Environmental groups
warn that drawing groundwater from the Mojave will create a dust bowl
similar to California's Owens Lake region, a water grab that inspired the
film Chinatown. But Cadiz says it has a monitoring system to prevent
overpumping. "We have solicited tons of input from all groups for our
environmental assessment," Liggett says.

Creative solutions. Other ideas seem somewhat fanciful. Ric Davidge, a
former Reagan administration official, wants to siphon 10 billion gallons
of water each winter from northern California rivers, pump it into 850-
foot-long plastic bladders, and ship it downstate. Other entrepreneurs
suggest melting Alaska icebergs. Oilman T. Boone Pickens hopes to
pipeline water from Texas's Ogallala aquifer to water-short cities like
San Antonio and Dallas.

Privatization projects are also dogged by accountability concerns.
Industry sources worry that the terrorism vulnerability assessments U.S.
water systems are developing will wind up in corporate parent offices
overseas, possibly unprotected from disclosure. In New Orleans, an
official highly familiar with its water system told U.S News that the Big
Easy's move toward privatization lacks oversight. "The whole approach to
having companies bid for the water system was 'public, catch us if you
can,' since after bids were taken the public had only 10 days to examine
the proposals," she says.

Privatization worries have even made it to Broadway: In the comedy
Urinetown, a firm privatizes toilets and raises toilet fees. Residents
caught urinating in other places are arrested. "With private control, who
guarantees that the less well off will get affordable water, and who
picks up the cost if the private company fails?" asks Sandra Postel,
director of the Global Water Policy Project, a research institute in
Amherst, Mass.

Progress report. Indeed, the financial viability of some leading water
companies has been called into question recently. Cadiz lost $2.5 million
in the most recent quarter; the firm recently tried to reduce its debt
through a deal with Saudi Prince Al Waleed ibn Talal, but in July the
effort collapsed. Suez's water arm saw revenues grow by just 1 percent.
Vivendi, though experiencing revenue growth of 12 percent, made major
missteps in its media division that have left it laden with debt and is
divesting its stake in one water investment, Philadelphia Suburban.

Nor have private companies, by and large, delivered savings to consumers.
In fact, most private water providers surveyed by U.S. News charged
higher-than-average rates (table). George Raftelis, a Charlotte, N.C.,
industry consultant, points out that unlike public utilities, private
firms do not enjoy tax-exempt financing, are subject to income taxes, and
must return profits to shareholders. Moreover, "privatization does not
equal competition," says Janice Beecher, director of the Institute of
Public Utilities at Michigan State University. "After bidding, you're
transferring the monopoly powers of a public utility to a private
company." She suggests cities and towns award shorter contracts and make
public utilities and private firms compete.

Citizen outcry over the water rates private firms charge has boiled over
into riots in countries such as Bolivia. But so far in the United States
disputes have been hashed out in the political process. Peoria and Pekin,
Ill., both are moving to deprivatize their water systems, having
determined that if private ownership continued, future rate increases
would be as much as 60 percent higher than if the systems were publicly
run. Because other communities have done the same, Curtis of AWWA does
not see a mass movement to privatize: "Some are looking at it, and some
are trying to move in the other direction."

But the harsh reality is that the price of drinking water will most
likely rise whether private industry or government manages the system.
The EPA estimates that the water bill consumes only seven tenths of 1
percent of U.S. household median income; Americans spend more than triple
that on bottled water and filters. A recent Harvard School of Public
Health analysis pointed out that rates in many developed countries are
significantly higher. "[W]ater rates have been insufficient to cover long-
run costs," such as maintenance of pipes and plants, let alone larger
issues such as preserving clean rivers and surrounding watershed, the
report said.

"People think water is free because it falls from the sky," says Seidel
of USFilter. "Well, it is-but treated, filtered, and piped water isn't."
Privatization advocates contend that only market-oriented pricing can
force H2O-hogging Americans to conserve. "Unless you put a market-
determined price on something, it is not respected," says Clay Landry, a
research associate at Bozeman, Mont.'s Political Economy Research
Center. "Right now, who even thinks about the cost of water coming out of
their tap?"

But public officials are loath to hike rates for fear of burdening lower-
income families. That's certainly a problem in big cities, but even more
so in small towns, where, lacking economies of scale, water treatment and
distribution is more expensive. Consultant Raftelis found that water
bills in small systems average 25 percent higher than in large ones he
has surveyed. The new arsenic rule is projected to cost households under
$1 annually in the largest systems but over $300 in those serving fewer
than 100 customers.

Economist Wallace Oates of the think tank Resources for the Future says
arsenic's economic realities make a case for abandoning national
standards and letting localities weigh costs and benefits on their own.
Congress and the EPA already let small water systems operate with less
regulation and enforcement-some will have 14 years, instead of four
years, to meet the new arsenic rule. The Bush administration is studying
whether to relax small-system standards even more. Yet all but a fraction
of health violations occur in small systems, which serve some 50 million
citizens. "What you have is a two-tier drinking water system, and that's
pretty troubling," says NRDC'S Olson. He argues that health and
efficiency require a major consolidation among the 54,000 U.S. water
suppliers. Says EPA's Mehan, "Citizens and systems are going to have to
look at this option."

Turning off the tap.Citizens are certainly looking at other options, but
less with an eye to changing the system than to just protecting
themselves and their families. "We're looking at having a plumber put a
filter on our entire house," said Atlanta resident Davignon. In the
meantime, he buys bags of ice and water from the supermarket, adding, "I
hate to pay for water, but if it's undrinkable, or the kids can't bathe,
you do it." Already, 76 percent of Californians rely on bottled or
filtered water. "We have reached a breaking point beyond which central
treatment can no longer go," says Peter Censky, executive director of the
Water Quality Association, which represents filter makers. Joseph
Cotruvo, a former EPA water administrator, agrees: "You wouldn't think of
drinking orange juice out of a pipe, would you? I wouldn't be surprised
if 25 years from now the thought of drinking water as a beverage rather
than a commodity will dominate."

The drive toward bottled water and filters will, however, widen the gap
between haves and have-nots, a result some hope technology can
prevent. "[G]oing into the 21st century, you can't get the kind of long-
term improvements in water quality that are needed without the next
generation of technology," says Olson. A few U.S. water systems are
trying disinfectants used in Europe: ozone, ultraviolet light, and
perhaps the best purifier (used by bottlers Pepsi and Coke), reverse-
osmosis membrane technology. "It removes just about everything," says
Olson, "so you don't have this contaminant-of-the-month approach."

And yesterday's clean water may not be clean enough for the future. L. D.
McMullen, chief executive officer of the Des Moines water system,
believes as the population ages and more people have compromised immune
systems, cities and towns will have to provide water much lower in
contaminants than they do today. "We will totally have to deliver water
to customers in a totally different way," he says. "You may see what I
like to call 'neighborhood polishing units,' that develop ultrapure water
in the neighborhoods and deliver it to homes" through much smaller pipe
systems. Households need relatively little superclean water, McMullen
points out, since less than 15 percent of "drinking water" is drunk or
bathed in. Most goes to flushing toilets and watering lawns.

Des Moines has learned from experience that its citizens will pay for
such improvements: In 1992, the city raised water rates 25 percent to
build the world's largest removal plant for nitrate, an agricultural
runoff that can reduce infants' oxygen uptake (blue-baby syndrome) and
cause other ills in adults. But whether public water systems tackle their
challenges on their own or turn the job over to private enterprise, or
some combination, the changes ahead will require a revolution in how
Americans think about drinking water. "People's knowledge of water comes
from beer commercials, focused on the land of sky-blue waters, or
mountain springs and aquifers underlying some Wisconsin hillside," says
Censky of the Water Quality Association. "The public thinks water in
these sources is pure, but it's not. Really, pure water is a man-made

With David D'Addio

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