Author of “The Future of Water” and a long-time strategic consultant and transactional advisor to the water industry, Maxwell will review current challenges and opportunities in the world water market, and will highlight four critical trends which will increasingly categorize the water business and water decision-making over the longer-term future.

1. The Future
of Water
Recreation
Food
Steve Maxwell
U.S. Water Alliance
Cincinnati, Ohio
October 16, 2012
Energy
Survival
Luxury Life Transportation

2. The Future – What’s the Problem?
2
- The Supply of Fresh Water
on Earth is Essentially Fixed
- The Earth’s Population and
Its Demand for Freshwater
is Rapidly Growing
- Water Use Has Been
Growing At More Than
Twice the Rate of
Population Increase
Over the past Century
IT’S ABOUT THAT SIMPLE

3. The Future – Four Key Themes
3
 1) Water will increasingly be viewed as a
true “factor of production”
 2) Water consumption will increasingly
be viewed in a more holistic manner
 3) Boundaries between different types
of waters will fade
 4) The price of water will inexorably rise
– reflecting its true cost and value (and
reinforcing all three key trends above)

4. Water as a “Factor of Production”
4
 Water will increasingly be viewed as
a true “factor of production” – much
like energy, labor or capital – in
economic, business, policy and
individual decision making
 As water becomes more expensive, it
will increasingly drive economic,
and individual, decisions
 Availability of abundant clean water will drive the
location of industry in the future
Will cities like Cleveland and Buffalo again be our centers of
manufacturing and population growth in the future?

5. A More Holistic View of Water
5
 We only directly utilize some 50 to
300 gallons per day of water
 But we consume far more water
contained in the products and
services that we consume, and the
various activities we engage in
 We must also begin to consider our
total water footprint – the virtual
water that we consume as well
 In the UK, 40 gallons/person/day
vs. virtual use of 1220 gallons

6. Managing “One Water”
6
 The silo thinking of the past has kept
water use and water reuse interests
segregated
 We must encourage comprehensive
thinking, planning, and management of
our waters – on the transformational
Clean Water scale now necessary Wastewater
Rain Water WATER Storm Water
Seawater “Wasted” Water
Groundwater Recycled Water

7. Rising Water Prices
7
 The average family pays less than $20/mo. for Average Per Capita
Country Water Price Domestic Use
water – far less than monthly electricity, cable TV, (Gallons per Head
(Cents/Gallon) per Day)
internet, or phone service bills
Denmark 2.96 30.0
 Yet there is strong political resistance to 5% or France 1.34 61.1
10% rate increases – probably less than what Germany 1.04 39.7
Australia 0.82 159.2
many spend monthly on bottled water! U.K. 0.69 36.6
Canada 0.64 204.7
 Recent surveys indicate about a 5% annual Czech Rep. 0.53 56.1
Turkey 0.53 62.6
increase in water and sewer rates on average Japan 0.48 98.2
Portugal 0.47 81.1
 Cost per 1000 gals. in the US – $0.80 to $5.50
Spain 0.46 90.0
U.S.A. 0.43 162.1
 High variability in water prices across the
Poland 0.39 39.2
country, and around the world – Denmark pays Italy 0.31 127.1
South Korea 0.19 145.3
almost 3 cents per gallon, while the U.S. pays Mexico 0.19 52.6
Russia 0.16 96.8
about 4/10 of a cent per gallon
China 0.11 25.0
 Unfortunately, the U.S. ranks near the bottom in India 0.05 36.6
terms of efficient water usage

8. The Price of Water
8
Price of Water vs. Price of
Other Consumer Liquids
($U.S./gallon) Annual Spending in the U.S.
Product Average Price
TAP WATER $0.0043
$2 billion a year on Viagra
$13 billion a year on cosmetic surgery
Coca-Cola $3.00
$22 billion a year on mood-altering drugs
Gasoline $4.00
Tide Liquid Detergent $8.50
Imported Beer $12.00 $45 BILLION A YEAR ON CLEAN
DRINKING WATER
Evian Bottled Water $25.00
Starbucks Latte $22.00
Pepto-Bismol $65.00 $52 billion on pet care
Vicks 44D Cough Syrup $100.00 $90 billion a year on tobacco products
$93 billion a year on legalized gambling
American Whisky $150.00
$160 billion a year on alcoholic beverages
Visine Eye Drops $750.00 $720 billion a year on military defense
Revlon Nail Enamel $1000.00
Good French Wine $1000.00
Chanel No. 5 Perfume $45,000.00

9. Water Prices: Background
9
 Demand for water has begun to outstrip new supply
sources in many parts of the country – and the world
 Prices – both for “raw” and delivered water – have begun
to increase, and are likely to accelerate in the future
 The population continues to concentrate in urban centers
 Major migration trends are towards more arid regions
 Industrial production and economic output continues to grow
 Per capita consumption grows as standards of living improve
 There are increasing concerns about protecting “environmental flows” in the
country’s rivers and streams, to protect wildlife and recreation
 New and alternative water supplies are often available only at high costs –
desalination, long-distance transfers, new dams/reservoirs

10. Raw Water Markets
10
 In efficient markets, price information reflects
the value of the commodity – competition and
price signals promote efficient trading and allocation
 Water markets, however, are very inefficient and are
typically subject to highly imperfect information and
competition; data are recent and anecdotal at best
 Water markets are also very local in nature – often only meaningful at the regional
level of an individual watershed or river basin; few real functioning markets.
 Individual water supplies are subject to great variability and uncertainty – in
terms of hydrology, legal status, chemical quality, dependence upon
infrastructure, and potentially, variable quantity over time
 These market imperfections result in poor or non-existent price patterns and
signals; hence water is often not allocated very efficiently

11. Delivered Water Markets
11
 Price data for delivered water are also spotty and difficult to obtain – and are
exceedingly difficult to compare on an apples-to-apples basis
 Delivered water prices to the end consumer, however, are generally subject to
regulatory review and oversight, and hence maintain more consistency
 Delivered prices have tended to show a consistent
increase, albeit at slightly lower annual rates –
and they rarely decline
 Over the long-term , the price of delivered water in an
area must reflect the price and availability of raw water
 However, over the shorter-term, various factors –
primarily various types of subsidies – may distort this
inevitable correlation

12. Raw Water Prices
12
 Many regions in the West have seen recent and dramatic price increases –the
Santa Fe-Albuquerque corridor, Colorado’s Front Range, or eastern Washington.
These are some of the fastest growing urban areas and most arid regions in the
country. Collapse of the housing market caused short-term down trend in 2009 –
2011.
Middle Rio Grande Water Right Prices
(dollars per acre foot)
From 1990
through 2007,
16% annual
growth
From: Brown, “Surface Water
Opportunities in New Mexico” November,
2008 NMWRRI WestWater Research LLC, 2008

13. Delivered Water Prices
13
 Delivered water prices show a similar trend – with steady and consistent
growth albeit at a slightly lower rate, and certainly with less volatility than seen
in raw water prices – this is due to the more regulated nature of delivered water
 Evidence provided by recent studies suggest that delivered prices in the U.S. –
on average – have been increasing over the last decade of between 5% to 10%
per year, and that this annual growth rate is increasing over time
 GWI estimates that average prices globally have recently grown at about 7%
 However, growth rates are highly variable; this same study showed examples of
annual increases as high as 90% per year, and listed a number of areas of the
water where water remains a truly free service of the government
 As in the case of raw water prices, although conditions are highly variable, the
underlying drivers and general trends are similar in all areas – and they
portend a future of more rapidly increasing delivered water prices

14. Delivered Water Prices
14
 Data provided by the U.S. Bureau of Labor Statistics, also shows that the
price of residential water (here combined with sewerage) services have
grown at a rate well above the general Consumer Price Index

15. Conclusions – Future Water Prices
15
 As the planet’s population increases, as global industrial output continues to
grow, and as standards of living around the world continue to creep upwards,
water scarcity and water stress will be experienced in more and more regions
 The type of anecdotal price data shown here, from currently water-scarce
regions, are likely to be reflective of what will eventually be experienced in
other regions of the world. We should learn from these lessons.
 It seems clear that delivered water prices must – over the longer-term –
eventually rise, to better reflect prevailing and self-evident trends in the
availability and hence the cost of raw water supplies
 As water prices begin to more closely reflect a full-cost and
sustainable model, water management, water re-use and
conservation, and water allocation patterns will all improve

16. Water as a New Investment Class?
16
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The data and the evidence is clear and growing …. in its
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various forms, water will increasingly be thought of
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GOLD SPOT $/OZ CRB COMMODITIES INDEX S&P 500 INDEX S&P Developed REIT Index TR
1990 - 2010
Value
Appreciation Water ~10-12%
Rate
Real Estate ~9%
Precious Metals - ~7%
Equities ~6%
Commodities 1–2%
Time

17. Future Trends
17
 The commercial water industry will
continue to experience strong and
predictable – if not spectacular – growth
 Water prices will continue to inexorably
rise – sharply in many areas
 More efficient pricing and allocation
systems will emerge, by necessity
 We must promote a broader and
deeper public understanding of
 The key future challenge will be starting to
water issues manage water as an economic commodity,
 In terms of water issues, we must while simultaneously
think globally, but act locally insuring that it
 We must develop smarter laws is available to all
and policies