Episode Transcript
[00:00:00] Speaker A: 80 to 100 gallons. That's how much water the average American uses at home every day. It's about two full bathtubs flowing through our showers, toilets, laundry and taps.
And there are 330 million Americans.
But that's only the water we see.
When you factor in the hidden water behind our food, energy, everyday products, the number climbs to nearly 2,000 gallons per person, per per day.
And yet, for something we use this much, most people have no idea what it actually costs.
I am Reece Tisdall, and this is the Future of Water, in which we talk about all the ways which companies, utilities and people are addressing the challenges and opportunities in water. Today we're looking at US Municipal water and sewer rates, where the average household bills increased over 5% in 2025, and it marks the steepest annual rise in five years, about 24% since 2020.
Today, I'm joined by Bluefield analyst Megan Bondar, who just published new data across 50 major U.S. cities.
And she's going to break down for us the regional differences, the cost drivers, but also the growing gap between water and sewer pricing. So this is going to be interesting conversation and mixing it up a little bit after that. I'll tell you what caught my eye this past week. So let's get to Megan Bondar and talk a little bit about water rates in the U.S.
all right, so I'm joined here by Megan Bondar. Megan, great to have you on the Future Water podcast again. How's it going?
[00:01:43] Speaker B: Yeah, things are going good, Reese. Thanks for having me back.
[00:01:45] Speaker A: Yeah. So, all right. As seemingly is the case for the Future Water podcast, it's Friday, Friday morning.
The crowds are flowing into the office, so apologies for any upcoming background noises.
But Megan, you have been busy and I'm sure you're excited to get into the weekend because one of the things that came out, I believe it was earlier this week, was a rate case analysis across about 50 US cities. We do this every year, same cities, they're mostly large cities. And what you're looking at are water rates, that is drinking water, as well as sewer rates as well, depending on the utility. And we've been doing this for a number of years now. And so you've got some insights to tell. So let's just cut to the chase.
Rates are rising faster than inflation.
What's really breaking in the cost utility model now or what's. What do the numbers look like more specifically?
[00:02:47] Speaker B: Yeah, so that's exactly right. So what we've been seeing this year is water and sewer bills rising nearly Twice as fast as average inflation in 2025.
So from 2024, 2025, the average combined water and sewer bill for an average U.S. household rose by around 5.1%, which is the highest annual increase we've seen in the past five years. And if we want to look back further, from 2020 to 2025, the, the average bill has increased by just over 24%.
[00:03:18] Speaker A: And so what's underlying the cost? I mean, simply or in brief, what are the key cost drivers to these increases that people should be thinking about?
[00:03:28] Speaker B: Sure. So inflationary shocks in recent years have really put pressures on utility margins.
And so we've seen soaring operational costs for electricity, water treatment, chemicals, construction projects, and administrative expenses like labor. And just to call out a few case studies, in 2025, Baltimore reported a 22% increase in chemical cost and they saw a construction bid come out 14% higher than their original engineering estimate.
And Oklahoma City has also cited rising operational costs in recent years, such as an 85% rise in electricity costs.
So this is a trend we've been seeing across the board.
[00:04:14] Speaker A: Well, so there's also, obviously there's disruption happening in the world. Right. And which of these costs can utilities control, if any of them?
[00:04:26] Speaker B: So I think one important area that utilities can realize savings in is energy.
So energy prices themselves are more vulnerable to macroeconomic factors like inflationary pressures or global tariffs.
But I think the amount of energy that utilities used can be optimized. And our digital team at Bluefield actually recently put out a report on energy optimization for utilities.
And this report approximates that, for example, water production can have energy savings potential as high as 50%.
So the opportunity is there for utilities to save.
So I think that's an area we're going to see increasing advancement in moving forward.
[00:05:12] Speaker A: Yeah, And I think that's really on the, on the OPEX side of the equation. I think the rub, if there is one, and it's not insignificant, is the just the cost of capital. Right. And so if it's on the drinking water side, it could be pumping water and moving it. Therefore you need more water efficient or more optimized pumps for that. On the treatment side, same thing. Energy costs are high on wastewater treatment as well. So yeah, there's, there's no doubt there are opportunities. There's still low hanging fruit out there for optimization.
And but at the same time, there is a bit of a cap on water rates. Right. They are very political.
Depending on, you know, if you, particularly if you're a municipal utility, you know, it has to go in front of town council, the mayor, you know, all the politicos. Whereas a regulated utility, investor and utility, they have to file through the commission, state commissions, and then they get their rate approvals, or not in some cases.
So. All right, let's change gears a little bit. We've talked about drinking water, and we've talked about wastewater, sewer.
So those rates, when you compare them across the board, they're moving at different paces. Where, what does that.
Well, what do the numbers say? And does it signal anything about where utilities are spending their money or focusing their rates?
[00:06:44] Speaker B: Yes. So from 2024 through 2025, the average water bill rose by around 6% and the after waste water bill rose by around 4.8%.
So on the water side, we're increasingly seeing supply portfolio diversification, especially in regions that are seeing limited freshwater as increased drought frequency. So Austin water, for example, has a new volumetric surcharge on its residential bills, which is being used to fund the expansion of the city's water reuse initiatives. And meanwhile, if we look toward Florida, their new ocean outfall legislation is requiring utilities to implement more wastewater reuse projects and initiatives.
So in addition to importing water as well, it's that expanding like, you know, and diversifying where your supply is coming from that helps utilities to be more future resilient.
[00:07:41] Speaker A: Yeah, and I think one thing that stands out, though, we're talking sort of broad national numbers or averages right across these 50 utilities.
It does vary pretty widely, and maybe we can get more into that as we through the conversation. But from city to city, it's not like cities are saying, hey, we're going to do 5.1 and we're going to do 5.2. And you know, there are big projects, there are things that are happening, and there are different factors that are shaping, like you said, like Austin or others that are shaping what water bills look like. So. Well, speaking of, you know, these are water rates, which then turn into water bills for domestic users. In this case, at what point to rising water bills become a real affordability crisis? If we're not already there, how close are we? Or beyond that threshold?
[00:08:37] Speaker B: So this is a really interesting question because I think it's important to note that there's no universal way, universally accepted way, that is, of calculating and estimating affordability of water and sewer bills across the US So one industry approach, which we feature in our analysis, is estimating the number of hours of minimum wage required to pay the average bill.
So we calculated that, on average, given our sample of 50 large municipalities, households require 11 and a half hours of minimum wage labor to cover their monthly combined bill, which can even surpass 20 hours in select cities.
And another approach is to use a fixed percentage benchmark. So a bill is called unaffordable if it exceeds a certain percentage of an area's median household income. So common threshold values include 3% or 4.5%.
And I think these percentage thresholds are valuable in that they're a more straightforward way to assess and size cost pressures. But they have their own limitations in that they can lead to overgeneralizations and they can overlook local socioeconomic factors.
So a standardized way of assessing bill affordability continues to elude the industry. But there are definitely well established approaches out there that we've recognized in our report.
[00:10:06] Speaker A: Yeah, and I think that's really what you're getting at in the report itself is there were conversations we had internally, there's some discomfort about what is the path to take to talk about affordability. And I think what you've tried to do is say there are different paths and it depends on what your needs are, on what you're trying to exhibit. But they all have their flaws, but yet at the same time, offerings. And so you've showcased some of that. Yeah, I think this is something that the public really is concerned about. You know, when you're looking at 5.1%, you know, one and a half to two times inflation over the last year or two, although that may change soon given what's happening geopolitically with energy prices and such.
So this is definitely of interest. And one follow up question to that is our current affordability programs, those that are in these cities, to support disadvantage, let's say are they enough or are they just buying time? What's. Do you have a position or perspective on that?
[00:11:13] Speaker B: Yeah, so I think many utilities do have decent affordability programs. They offer, from what we've seen, like, you know, just to name a few, like Seattle, San Antonio, Philadelphia, they have their own customer assistance programs based on like, you know, attempt, like, you know, trying to reach out to consumers based on demographics such as income, age, veteran status.
And I think a key challenge though for utilities, you know, despite having very good affordability programs, is effectively spreading the word and, and reaching out to those qualifying consumers. As you know, a lot of utilities are understaffed. I want to say, what's the stat? 85 or so percent of utilities employ three or less people across the US so just around that mark, and I think because of this, understaffed utilities may feel a bit limited in their outreach efforts because it can be difficult to extend the manpower.
So I think social media engagement is one way to inform and be able to contact customers, like targeted email campaigns and I think like making enrollment as easy as possible. So like one step digital enrollment, for example. So I guess sometimes it's the question of, you know, the affordability programs are there, but, you know, trying to get engagement in the program is one challenge that utilities are facing.
[00:12:36] Speaker A: Yeah. And I would say taking that a step further and speaking with utilities, both regulated and public, I mean, one of the challenges is understanding how many people are struggling to pay the bills. Right. If they know that Even if it's 10%, they can plan around that. They can plan around the rates, they can plan around other ways to finance or cover costs if there's high variability. And I think Covid was a good example of that. Where that was a bit of a shock to the system and understanding what was happening there may have been a bit of a whipsaw effect in addition to work from home policies where everybody was in the city and then suddenly everybody went out to the suburbs in some cases. So the cities were left holding the back because no one was there. The suburbs were overwhelmed with all these people.
So demand was really high.
That seems to have settled out. But I know that's a concern that had come up over the past couple years, so.
Well, let's get into it about why do household water bills vary so differently or dramatically depending on where they live? And what does that reveal about? And maybe that's just geographic.
When I ask that, what does that reveal about the structure of the US Water sector?
[00:14:03] Speaker B: Yeah. So we found that average combined monthly bills range from about $124 in the south to around $147 in the northeast. And the west is close behind at 1:43.
So to focus on the Northeast, first, this region's disproportionately affected by aging infrastructure and combined sewer overflows. But I think PFAS and groundwater contamination in source water is an interesting point as well.
So the US Geological Survey actually estimates that in Massachusetts, for example, the source water for 86% to 98% of people who rely on public groundwater supply could be contaminated with pfas.
So that's something that we're seeing across the Northeast.
And meanwhile, if we now turn to the the west, we're seeing water management challenge that largely reflect water scarcity and supply side investments.
So as mentioned earlier, many utilities in California import the bulk of their Surface water from other utilities and, you know, Los Angeles is ramping up their wastewater recycling rate and seasonal rate structures in the Southwest as well as the Northeast are key to utility operations as well.
So what that can look like is volumetric allowances for customers and also maybe increasing rates in months where water conservation is key.
[00:15:37] Speaker A: When you look at this, right, we're only looking at 50 utilities. There are what, 49,000 drinking water systems in the US and then as far as wastewater, sewer, we're looking at another 18 or so thousand. Right. So highly fragmented is there. Do you see any path towards like standardization or consolidation even within regions? Is that even. Because it seems like all these different rates, all these different problems, one would think that that may be a path or a reason for it. What do you think?
[00:16:09] Speaker B: I think water is just so localized in a way that it can, even within similar regions, it can very much depend city by city. Like, you know, sure, there are those regional patterns like, you know, mentioned aging infrastructure, Midwest, Northeast. We're seeing like, you know, climate patterns is one that, you know, like cities that share similar climate and weather patterns. I could see standardization there, but I think on the whole, I don't see as much potential for consolidation across the board unless certain factors are shared.
[00:16:43] Speaker A: Yeah, the only.
Is it an outlier? I'm not sure. The investor in utilities, right. Within a state, they file rate cases and that's across the. All their systems are connections, correct? In most cases, yes, that's correct.
[00:16:59] Speaker B: Some utilities can't. So some utilities have rate consolidation across all their subsidiaries in a state and then others have, you know, separate subsidiaries. So you know, could have as many as like, you know, 18 separate subsidiaries in Arizona, for example, such as JW Water Holdings.
[00:17:18] Speaker A: Yeah, so that's in and of itself is variable.
So.
All right, so we've talked a little bit about national averages. Drinking water, sewer prices are rising, but it's not just inflation. Right. That's sort of, that's the big discussion overall, whether it's tariffs on hardware and equipment, labor rates, but what are the big structural forces that you mentioned, some of which already that are locking in higher rates.
[00:17:51] Speaker B: So climate demands, regulatory compliance needs, infrastructure and capital improvements stand out immediately.
So utilities are undertaking large scale capital programs to address aging systems, expanding treatment capacities, and also to reduce leakage rates. So for example, Alabama, I want to say last March they announced a $2 billion, 20 year initiative to overhaul their system infrastructure because they've recently experienced major pipe breaks.
And we're also seeing climate resilience investments such as for Flood control and seismic upgrades.
And these are adding new layers of cost.
So for example, Seattle is funneling funds for temporary flood walls and Austin is also financing its own flood resilience infrastructure.
And also, as I mentioned, regulatory compliance initiatives are also obligating utilities to undergo long term upgrades.
I think what's particularly interesting is Cleveland's project Clean Lake, which is a 25 year commitment to reducing combined sewer overflows. This project has been the city's largest obligation affecting rates since 2011.
So these three are fairly key factors.
[00:19:10] Speaker A: Yeah. So when I think about it, given what you've said, and we can begin to wrap this up, the really old problems are aging infrastructure. So leaks, pipes, you know, old aging plants. You got combined Sewer overflows or CSOs that are creating problems. And those are like you said, east into the Midwest.
Those are the old problems. And then you've got the new problems and the new problems. On the capital side you're seeing things like PFAs, right. And that's requiring investment, particularly as whether it be EPA guidance and regulations come down. But also even at the different states, right. Every state's a little bit different. So there's capital there and then the new once again. But really on the operating side of the equation are things like energy spikes and tariff impacts on hardware and equipment, whether Capex or OPEX related. So it's a little bit of both.
It's a really mature sector. And that is one of the challenges I think that utilities face.
And I think my final point that I'll kind of throw at you and see what you think is we are really looking at the larger systems, right. And they're unique. You had mentioned believe, you know, 85% of utilities have less than three employees. We're not really looking at those in this analysis. Right. We're not looking at the small ones, of which there are tens of thousands of those.
We're really looking at the big sophisticated, both operationally, financially, they can, you know, they're not relying just on rates. It's really the smaller systems rely almost exclusively on rates.
Maybe state revolving funds, maybe USDA grants and loans.
These larger ones are relying on rates. They may be leveraging WIFIA to the extent that they have access to that for big projects, state revolving funds, but then they also have access to muni bonds and also larger city budgets potentially.
Am I correct in saying that?
[00:21:29] Speaker B: Yes, that's right. Like you know, all those different funding streams that can be utilized. So yeah, the municipal bond market's pretty interesting one because I know municipal Debt's very high at the moment and bond ratings can really affect utilities.
So Baltimore, their sewer bond rating was recently downgraded and they mentioned having their borrowing costs increased due to this.
And this can make financing infrastructure projects a bit more difficult.
So the bond market does play a role in utilities financing their capital improvements.
[00:22:05] Speaker A: Yeah, I think, you know, the world is a crazy place and so everybody's trying to work through it, but the one thing is constant and that is water. Everybody needs drinking water and you know, in a country like the U.S. but I think it's. Everybody deserves it everywhere else, and that is sewer services.
So the first stop is exactly that, drinking water and then. And sewer. Well, Megan, thanks a million for jumping on. I really appreciate it. And I'm out of town next week at the UMC conference, or at least by the time this is released, I think it will be too late. So that's why we did a little bit early.
I'll throw one question out to you and then let you go. And that is, what else are you working on? What's coming down the pipe as far as you're concerned?
[00:22:54] Speaker B: Sure. So right now I'm working on our investor utility market share report. So we conduct this report annually and what we're doing is profiling the leading 20 IOUs in the US by connection served and seeing what trends are emerging in their operational strategies.
[00:23:17] Speaker A: Yeah, I look forward to that. I think that's always fun. We've been looking at IOUs for a long time, so. And you actually believe. Just put out a research note looking at IOU to IOU consolidation. So looking at. I. I'll let you explain it in brief.
[00:23:35] Speaker B: Sure. So this research note came about because of the recent announcement by Nexus Water to divest its Nevada and Oregon operations to California Water Service.
So especially over the past year we've been seeing these platform IOU to IOU deals.
So looking at coverage of that and seeing how IOUs are growing their connections over time, which IOUs are focusing more on organic growth, which ones are sizing or really assessing the potential of inorganic growth, such as H2America back in 2019 purchasing Connecticut Water Service and buying up like 130,000 connections.
So, you know, seeing the opportunities available to IOUs to really expand their operations and customer base.
[00:24:26] Speaker A: Yeah, and it's reshuffling the deck a little bit, at least as far as total market share. You know, obviously the 800 pound gorilla being American water and the others falling, falling behind. But. All right, well, that being said, if anybody's interested, you can go. You can go to our website and check it out. But Megan, thanks a million as always. Appreciate it.
[00:24:48] Speaker B: Yeah, thanks so much, Greece. This is pretty fun.
[00:24:50] Speaker A: All right, we'll talk soon.
All right. That was fantastic. It's always great to have Megan on, but also one of this deliverable she worked on on water rates and bills as well. Definitely one of the more popular ones that we put out, particularly the public likes. And so it is part of a registration drive. If you just go to bluefieldresearch.com and go to the top of the page if you haven't done so already and register. It's pretty quick. Probably takes 30 seconds if you're a quick typer with email address, name and information and then you get access to the report and the analysis.
So given that fact that we've changed things up a little bit this week, we have moved what caught my eye to the back end of the podcast. The front end was getting a little heavy and so that's where we are. We are at what caught my eye this past week. So before we wrap, the one thing that did so is fertilizer. Because of the events in the Middle east and supply disruptions, a US farmer is now starting or to see a potential 40% increase in fertilizer costs.
Why does this matter? Well, it ties directly to what we discussed with Olivia cranfuss in episode 139. That was just a couple weeks ago, where agriculture sits at the intersection of water, energy and all these input costs that most people don't really think about in any given day. So these influence capital expenditures on the one side, but also the importance of efficient and more advanced water management such as irrigation. Some call it smart irrigation, others call it digital water for agriculture.
But this whole scene in the Middle east is bigger and the impact is bigger than just ag. Though thinking about the conversation I just had with Megan, it is also an inflation story. Some of the same forces are pushing up fertilizer, energy, chemicals and transport are the ones hitting water utilities. The difference is the utilities, especially those politically managed ones, they can't raise rates fast enough to keep up with these increases and they're far less likely, if at all, to receive a subsidy from the government to offset costs. That happens for the ag sector often, let me put it that way. So point being is the pressure is currently building and we're looking to see what happens over the next couple weeks as far as prices go, because the price of diesel for transport to move hardware, equipment, if you're driving around checking meters, prices are going up.
And fertilizer for ag is going up because it has a high energy input. And about 30% of seaborne fertilizer comes through the Strait of Hormuz.
So that's where we are. That's what caught my eye this past week. So that being said, let's step back and you know, this is a market defined less by growth and more by transformation.
And I like to think that's where the opportunity sits. So if you have ideas or topics that we should tackle, reach out to us at Water Experts at Bluefield Research.
This is Future of Water from Bluefield Research. Until next time, be well, be safe, and take care.
