It is perfectly possible to treat raw sewage to perfectly clean water plus sludge.
In the USA the standards for what gets discharged into rivers, lakes, etc is very high. Accidents occur, as noted, but that is inevitable, a result of having a large number of human designed systems operated by humans, not a sign of evil.
Drinking water in the USA is also closely regulated and monitored.
Daniel's residue is more likely to originate from the pipes in his house than it is from the municipal supply.