Forward 2000: Now More Than Ever, An Industry in Transition
Saturday, January 15th, 2000
By Peter Censky
I’ve decided to take a longer view for my article this year. I’m going to look ahead to the next decade or so, because I really think we’re going to see some massive changes in our industry during that time. These predictions may not prove to be correct, but at least they’ll give you an opportunity to do some alternative thinking about the future of the point-of-use/point-of-entry (POU/POE) water treatment technology industry.
Here’s what I think is coming in the next decade or so:
- The municipal water industry will be largely privatized (sold or leased to private companies),
- There will be a merger of the municipal and POU/POE markets, and
- Municipal systems will adopt a two-tier treatment concept—at the central plant and again at the home.
These are just words on paper right now; but, if these predictions turn out to be even partly true, the implications for our industry are enormous. Before much of this can take place, some thinking has to change. And this won’t be easy. It’s easier to invent a new technology and build a new business than it is to change old ways of thinking. But change will come, if my guess is right.
Words to deeds
Here’s how I think this will happen. First, a rather severe cyclical economic downturn has to occur. Let’s call it what it will be: a recession. It will last long enough to eat into the tax revenues of nearly every municipality in the country. Over the past decade or so cities have added new programs, new employees and lots of other costs, thanks to this amazing long running economic boom we’ve had. But when the downturn comes, these local government entities will be looking for solutions to cut costs and increase revenue.
One solution that’s being experimented with today in some large cities is privatization of water and wastewater systems. This is the second step in the process. Cities will realize a profit from the sale or lease of their water systems and a cut in personnel and maintenance costs as they turn their systems over to private operators.
Third, privatization will bring efficiencies and will uncover revenue opportunities that the private company will use to pay down the purchase cost of the system. Cities don’t run water departments like businesses; they are departments, just like the sanitation, parks, police and fire departments currently in place. But companies will see the monthly or quarterly billing cycle for what it is—a revenue stream. They’ll look at the hookups as customers and the mailing lists as sales vehicles.
Utilities and POU options
This is already happening among municipal utilities, but it will accelerate when they go private. Just look at the private utilities in Connecticut to see how this attitude will pervade the market. Those companies have surveyed their customers and found that 30-to-40 percent complain about the taste of their water. As any profit making company would do when it finds that its product has such a high negative associated with it, the utilities have started offering POU water treatment device options to their customers. They haven’t sold many, but they have removed one of the psychological barriers to our industry’s products.
The fourth step will be an enormous leap for the municipal industry and for POU/POE as well. Up until now, I haven’t mentioned technological innovation or major systems improvements. I’ve talked primarily about the advances that will come in privatizing the utilities, harvesting the profits in the revenue stream and satisfying customer needs. This fourth step will involve a complete shift in the way municipalities think of water treatment. Out will go the old paradigm—treat it at the plant, pipe it to the hookup. In will come the new paradigm—treat it at the plant, pipe it and treat it again at or near the point of end use.
This new paradigm will be the hardest to accomplish because it involves new ways of thinking. As I said before, it’s easier to invent new technology than it is to change old ways of thinking. This is the point at which the municipal water treatment industry will begin to truly merge with the consumer POU/POE industry. The companies in this industry won’t be necessarily be owned by the municipalities or the privatizers. Rather, there will be a merging of concepts, as an old friend of mine says.
The experimentation for this new paradigm is taking place today and its being driven by our industry and by the U.S. Environmental Protection Agency (USEPA). I believe that change doesn’t come from the center, it comes from the edges. The municipal treatment industry—both municipalities and privatizers—comprise the center today; the POU/POE industry comprises the edge. Those companies that are experimenting with small systems today are going to pave the way for the new paradigm shift of the future.
Today’s great experimental lab is in the small systems marketplace. That’s where the government regulators and our companies are working out the management systems, quality control systems, regulations and financing systems that must be in place to insure that the requirements of the Safe Drinking Water Act are met for every citizen.
Think about this idea for a moment: Technology isn’t the great hurdle that some people in government think it is. Our companies are creating new technologies and constantly perfecting old ones all the time. The only hurdles are in the area of service, quality assurance and regulation. All of these are manageable and changeable. So we can assume that small systems applications will be widely accepted by the regulators in time and they’ll be installed in hundreds of communities over the next few years.
So how do small systems and municipal systems correlate in the future? Well, this will take a little bit of an explanation but it basically comes down to money. The American Water Works Association estimates that municipalities must spend more than $380 billion in the next few years to come into compliance with the Safe Drinking Water Act (SDWA). That estimate really only covers the repairs and upgrades to the existing water treatment plants and distribution systems. It doesn’t account for the new technologies that will have to be installed at the central treatment plants to meet the current and future demands brought about by the SDWA. Remember the old paradigm that all contaminants must be removed at the central plant.
Remember, too, that all municipal systems leak water from their distribution plants. A rule of thumb is that on average 10 percent of all water is leaked in many systems. And remember the most important numbers: at least 98 out of every 100 gallons of municipal water that’s treated to drinking water standards are flushed down toilets, used to wash floors, cars, dishes, or used to water the lawn. The old paradigm asks the consumer to spend more money to treat all the water to the ever-increasing demands of the SDWA while 98 percent of it is never consumed.
So, doesn’t it just make sense that once we learn how to run a small system to the regulators satisfaction we should be able to provide that same level of service to the drinking water taps of consumers in large cities? Isn’t a neighborhood in a big city just like a small system? We can treat the water at the main distribution pipe or at the tap. Makes no difference to us—we’ve got the technologies and the know-how.
This will come to pass someday because the simple reality is that you can’t centrally treat all 100 gallons of water economically to meet the standards that exist to cover the two gallons that are consumed; and, you can’t send high purity water through the distribution system because it will corrode the pipes. So there has to be a two-tier treatment system in the future.
You may be asking where today’s POU/POE water treatment businesses fit in this vision of the future. There will be plenty of opportunity in the future for companies to survive and prosper. The successful water company of the future will be one that diversifies, realizing that service is a revenue opportunity and that credibility, service and professionalism are the three primary attributes of a survivor.
Diversification today is the key to success in the future. There are dozens of companies that will attest to the fact that if they hadn’t expanded into new endeavors and embraced new ways of doing business, they wouldn’t be around today. Dealers have to see themselves in a whole new light. If they can, they should get into bottled water or explore the light commercial market.
Simply clinging to the old ways that were successful in the past won’t be the ticket to success in the future. We hear it from financial advisors everyday—diversify, diversify, diversify! Spread your risk and enhance your profits. Your association involvement at the local level through state and regional chapters can help keep an eye out for opportunities that may at first seem threatening to your business but could turn out to be the paradigm your enterprise has been looking for.
About the author
Peter Censky has been executive director of the Water Quality Association since 1987. Censky is a graduate of the University of Wisconsin at Milwaukee and holds a bachelor’s degree in political science. The WQA can be reached at (630) 505-0160, (630) 505-9637 (fax) or email: firstname.lastname@example.org
WQA Show 2000: An opportunity you can afford
Have you thought of attending the WQA Convention & Exhibition in Long Beach, Calif., March 2000—but see it as too expensive? Have another look.
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