Is This The End Of Affordable Water?

By Christian Bonawandt

For decades, water has been treated as a cheap, abundant resource — an administrative line item for businesses rather than a core strategic asset. However, with climate pressures intensifying, regulatory standards evolving, including new PFAS regulations, and demand surging from high-use sectors like manufacturing and data centers, this historical undervaluation is becoming a critical business risk.

Water pricing often fails to reflect scarcity, quality, or long-term risk. This shortcoming is now forcing companies to act internally. The practice of internal water pricing is becoming an increasingly common tool for resilience, enabling businesses across many sectors to properly value water and manage the inevitable economic repricing that is already underway. But this action is not being done in a vacuum. The ripple effect of internal water pricing is bound to impact water utilities, and ultimately, ratepayers and consumers.

Internal Water Pricing Is About Risk

Internal water pricing is not about changing the what the company pays for water, per se; it is a valuation exercise to determine the value of water beyond its upfront price. In other words, it factors in the level of business risk associated with potential limits on its availability and/or quality. The idea is to shift water management from simply a compliance topic to a strategic variable that informs procurement, investment, and long-term risk management.

More often than not, the price paid for water often does not reflect the real costs of extracting, transporting, using, and polluting the resource. An internal price can factor in these hidden costs, including the environmental impact of water extraction, and the benefits of improving water quality, efficiency, and securing future supplies. This price can then be used to incentivize capital allocation toward water-themed projects that can proactively protect against shocks caused by water shortages. Such projects might include setting science-based water targets, investing in water-efficient technologies, and improving wastewater quality management. In addition, the adoption of internal pricing can lead to behavior change within the organization, improve environmental management practices, and enhance corporate engagement with local stakeholders.

Lastly, variability in water supply or quality can impact operational resiliency and, ultimately, the corporate business model. Such influence on strategic decisions could reach a level of significance that impacts corporate valuations.

How Will This Impact Water Utilities?

Corporate internal water pricing has several key implications for public and private water and wastewater utilities:

• Increased Demand for Data and Transparency: Companies quantifying water dependence need granular, verifiable data on usage, pollution, and scarcity risks. This will increase pressure on utilities to provide better metrics and transparency regarding their operations, water quality commitments, and resource management.
• A Shift from Price Sensitivity to Value Partnership: When industrial customers set an internal price — which is often much higher than the price set by the utility — their decision-making moves away from simply minimizing the utility bill and toward ensuring reliable service. This opens the door for partnerships where the utility is seen as essential for resilience rather than just a commodity supplier.
• Opportunity for Investment Collaboration: The true value of water for a corporation includes the cost of investment required to ensure reliable water service. With utilities facing an estimated $744 billion shortfall in infrastructure improvements over the next two decades, they can leverage this new relationship to encourage businesses to participate in or finance localized, high-impact projects (e.g., decentralized or closed-loop water systems) if they directly benefit their operational resilience.
• Implement Full-Cost Pricing: The fact that companies are forced to calculate their own internal price means many utilities’ external prices are too low. While full-cost pricing is still anathema for many utilities, corporate internal pricing provides validation for the need to raise costs to secure much needed long-term capital.

Ratepayers Could Suffer

While the rise of internal water pricing may sound like a boon for water management and water utilities, it is not without its own costs, which can create unintended consequences for commercial and residential ratepayers. Residential ratepayers may face affordability challenges that can be exacerbated by shifts in water valuation. First and foremost is that the move toward full-cost pricing will inevitably lead to higher bills. In low-income households water bills can consume 40% or more of their monthly earnings. When utilities invest in expensive solutions like desalination due to scarcity, these costs increase and reduce affordability for low-income households.

Does that mean corporate internal pricing could make water unaffordable for regular consumers? Not necessarily. Utilities have the option to adopt pricing strategies that balance cost recovery with equity. This includes setting fees based on full costs while protecting the basic right to water and sanitation for human uses. Best practices involve a model that provides a baseline quantity of water for basic human consumption, building charges on top of this for higher-volume users. In addition, as costs rise, utilities would be well advised to accelerate the development and financing of Customer Assistance Programs (CAPs) to provide targeted relief to vulnerable communities, building on successful models like the LIHWAP program.

Corporate internal pricing could be the beginning of a painful transformation in the way the world sees and treats water. While industrial users are internally budgeting for water’s high value, utilities must consider implementing strategies to address the needs of vulnerable communities and ensure equitable access to this necessary and increasingly scarce resource.

Christian Bonawandt is an industrial content writer for Water Online. He has been writing about B2B technology and industrial processes for 24 years.