2012 u.s. municipal water & wastewater infrastructure spending

2012 U.S. Municipal Water & Wastewater 2012 U.S. Municipal Water & Wastewater Infrastructure SpendingInfrastructure Spending

Where has the money been going and what plans do municipalities Where has the money been going and what plans do municipalities have in the near future?have in the near future?

Eric Meliton, Industry Analyst

Environmental TechnologiesEnvironmental Technologies

August 29, 2012

© 2012 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

Today’s Presenter

Eric Meliton, Industry Analyst

Frost & Sullivan

North America - TorontoPlace photo

hereShadow

Background for effect

Industry Expertise

� Experience in covering a broad range of sectors, leveraging long-standing working relationships with leading industry participants’ CEO’s and senior executives in:

- Environmental technologies

- Industrial, residential, and commercial water & wastewater treatment technologies

- Air pollution, soil remediation, and waste management solutions

Pharmaceutical quality assurance manufacturing and management practices

2

- Pharmaceutical quality assurance manufacturing and management practices

Career Highlights

• Cited by leading publications like Wall Street Journal, Yahoo Finance, and Greener World Media

• Keynote speaker at 2012 WWEMA 104th Annual Meeting to discuss Impact of Global Water Regulations

• Former Analytical Chemist, Quality Assurance Specialist, and Narcotics Vault Supervisor

• Attending WEFTEC 2012 (New Orleans, LA) as a Supporting Publication Sponsor from Sept 29 to Oct 2

Education

• BSc. in Chemistry & Environmental Science from the University of Western Ontario - London, ON, Canada

• Level I English Writing Certificate from the University of Western Ontario - London, ON, Canada

• Certificate in QA Manufacturing & Management from Sheridan ITAL - Brampton, ON, Canada

Focus Points

• Market Overview

• Key Market Drivers & Restraints

• Current and Future Industry Challenges

• Technology Trends

• National Issues

3

• Case Studies Examples

• Conclusions & Recommendations

Poll Question

What is the most impactful municipal water and wastewater infrastructure challenge?

• Economic uncertainty

• Lack of capital expenditure (CAPEX) and operational (OPEX) expenditure budgets

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expenditure budgets

• Minimal regulatory oversight and enforcement

• Slow technology adoption rates

• Inability to achieve full cost pricing for services

Market Overview

Market Overview

• U.S. water and wastewater infrastructure continues to be under-funded, resulting in a crisis amongst key utilities nationwide

• Long-term economic effects have limited spending initiatives

• Combination of reduced spending, deteriorating infrastructure, and stricter regulations have enhanced key regional challenges

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stricter regulations have enhanced key regional challenges

• Utility end users are seeking unique ways to address retrofit and replacement initiatives without affecting long-term plans

• Treatment equipment providers and service providers are working within constricted parameters, resulting in enhanced competition for procurement contracts

Market Overview

• Approximately $6.90 billion in water treatment projects and $6.88 billion of wastewater treatment projects in U.S. (2009)

• Economic downturn has negatively affected long-term investments in water and wastewater infrastructure, resulting in a reduction in project spending by approximately 3% in the U.S. over the past two years

• Approximately $6.70 billion in water treatment projects and $6.60 billion

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• Approximately $6.70 billion in water treatment projects and $6.60 billion of wastewater treatment projects in U.S. (2011)

• Estimated 41.2% of Tier I water projects and 58.8% of Tier I wastewater projects were funded by municipalities in U.S. (2009), which was slightly assisted by the American Recovery and Reinvestment Act

• Estimated 40.6% of Tier I water projects and 59.4% of Tier I wastewater projects were funded by municipalities in U.S. (2011)

Source: Engineering News Record Magazine and Frost & Sullivan analysis

Key Market Drivers & Restraints

Driv

ers

Driv

ers

Expansive population growth

of major urban centers in drought-

stricken regions

Strict effluent discharge restrictions

Aging infrastructure upgrade

requirements

Water scarcity concerns in various regions of

U.S.

Municipal water conservation and

recycling programs

Municipal Water and Wastewater Infrastructure: Market Drivers & Restraints (U.S.), 2012-2018

8

Restra

ints

Restra

ints

CAPEX budgetary constraints

Lack of new regulations to

require changes to existing equipment

Rising CAPEX costs for technology implementation

Increasing operational costs

for treatment services

Inability to upgrade aging infrastructure

due to budget reallocation

Source: Frost & Sullivan analysis

Current Industry Challenges

Municipal

Poor investment for infrastructure maintenance

Increasing municipal and state

debt concerns

Regional water scarcity concerns

Municipal Water and Wastewater Infrastructure: Top Five Industry Challenges (U.S.), 2012

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Municipal Water &

Wastewater Treatment

Negative impact of U.S. economic downturn on

spending initiatives

Slowness to adopt innovative

technologies


Future Industry Challenges

Increasing regional restrictions on freshwater use

Slow implementation of

regulatory oversight to evoke changes

Increasing costs to address aging infrastructure

Municipal Water and Wastewater Infrastructure: Top Five Industry Challenges (U.S.), 2013-2018

Municipal

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Increasing end user demand in drought-stricken regions of

U.S.

Inability to generate CAPEX and OPEX

funding

to evoke changes infrastructure


Municipal Water &

Wastewater Treatment

• As aging infrastructure is retrofit or replaced, there will be a steady demand for advanced water and wastewater treatment technologies for municipalities with long-term investment plans

• Growing demand for Smart water technologies such as advanced metering infrastructure (AMI) and automatic meter reading (AMR) to reduce costs and improve utility efficiency

Technology Trends

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• Treatment systems with the capabilities to remove and recover complex contaminants will be sought after as regulatory oversight and enforcement continues to evoke changes over time

• Long-term replacement of buried infrastructure (transmission pipelines), upgrades to stormwater management, and improvements to combined sewer overflows will be required

• 2007 U.S. EPA Drinking Water Needs Survey identified a $321.5 billion infrastructure gap consisting of the following:

• Buried transmission and distribution pipelines replacements

• Water treatment and storage facilities enhancements

National Issues

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• 2008 U.S. EPA Clean Watershed Needs Survey identified a $298.1 billion infrastructure gap consisting of the following:

• Primary, secondary, and tertiary wastewater treatment initiatives

• Sewer replacement and combined sewer overflow issues

• Stormwater management improvements

• Water recycling initiatives

• With over 55,000+ water and 20,000+ wastewater utilities in the U.S., both privately and publicly owned, there is a great deal of market fragmentation

• Approximately 85-90% of water and wastewater utilities are publicly owned, so until there is a shift towards private investment, the issues plaguing public infrastructure will persist, however, private investment

National Issues

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plaguing public infrastructure will persist, however, private investment has grown by approximately 23% over the past two years

• Ongoing end user consumer stigma towards public-private-partnership relationships has curtailed the potential entrance of private investment firms to address CAPEX and OPEX issues

• Design-bid-build model procured with EPC firms is dominant contract model in the U.S., further limiting private investment opportunities

Case Study Examples

Case Study Examples - Midwest

State of Illinois

• Key state challenges:

• Outdated buried infrastructure

• Complex water contaminants

• Poor combined sewer overflow solutions

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• Scarce groundwater / freshwater sources

• Strict nutrient regulations

• Estimated $17.70 billion (2009) water and wastewater needs

• $2.15 billion in pipe repair, and replacement projects required

• $11.10 billion in combined sewer overflow initiatives required


Case Study Examples - Northeast

State of New York


• Outdated buried infrastructure


• Inadequate sanitary sewer overflow solutions

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• Inadequate sanitary sewer overflow solutions

• Complex stormwater runoff requirements

• Natural gas drilling in Marcellus shale basin


• $15.82 billion in secondary wastewater treatment initiatives required

• $6.71 billion in combined sewer overflow initiatives required


Case Study Examples - South

State of Florida


• Water scarcity concerns

• Population growth in urban centers

• Restoration of the Florida Everglades

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• Restoration of the Florida Everglades

• Regional water rights issues


• $9.41 billion in advanced wastewater treatment systems required

• $6.72 billion in pipe repair and replacement projects required


Case Study Examples - West

State of California


• Water scarcity challenges

• Regional drought and reduced rainfall

• Outdated buried infrastructure and storage requirements

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• Outdated buried infrastructure and storage requirements

• Water resource rights

• Complex contaminant treatment and removal


• $12.22 billion in secondary wastewater treatment projects required

• $8.05 billion in pipe repair and replacement initiatives required


Case Study Examples - Other

Notable 2012 Projects

Identified as the largest U.S. water and wastewater infrastructure projects awarded in 2012, with an estimated combined project value of $19.86 billion:

• Brackish Desalination Project – San Antonio, TX

• Integrated Pipeline Project – Tarrant Regional Water District, TX

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Integrated Pipeline Project – Tarrant Regional Water District, TX

• Urban River Renewal – Trinity River Vision Authority, TX

• Southern Delivery System Upgrade – Colorado Springs, CO

• Biloxi Infrastructure Repair Program – Biloxi, MS

• Lake Meade Intake Project – Southern Nevada Water Authority, NV

• Sewer System Improvement Program – San Francisco Water & Power, CA

• Untreated Sewage Program – St. Louis Sewer District, MO

• Project Clean Lake – Northeast Ohio Regional Sewer District, OH

Source: North American Strategic Leadership Forum and Frost & Sullivan analysis

Conclusions & Recommendations


• Engineering, Procurement, and Construction (EPC) firms are still the key stakeholders capable of addressing the market fragmentation of the municipal water and wastewater infrastructure industry

• Focus on smart water initiatives to reduce leakages, excessive water use, increase operational efficiency, and enhance revenue recovery

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• Further acceptance of design-build (DB) and design-build-operate (DBO) contractual models will result in an influx of private sector investment into public utilities with limited CAPEX budgets

• Proposed business models will alleviate the stress on utilities with an inability to generate funding through municipal bond structures (general obligation bonds and revenue bonds)


• Increasing the cap limitations on the volume of long-term municipal bond structures that can be issued will improve the opportunities for smaller municipalities to generate funding

• Focus on building stronger approved vendor relationships between EPC firms and equipment and treatment service providers to provide cost-effective pricing and develop collaborative solutions

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effective pricing and develop collaborative solutions

• Continued diligence to achieve full cost pricing amongst utilities and education of end users on the proper valuation of water and wastewater treatment services

• Commitment to master planning initiatives to ensure proper resource allocation to retrofit, replacement, and expansion efforts are executed

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For Additional Information

Britni Myers

Corporate Communications

Environmental Technologies

(210) 477-8481

[email protected]

Eric Meliton

Industry Analyst

Environmental Technologies

(416) 495-2692

[email protected]

26

Roberta Gamble

Business Unit Leader

Energy & Environment

(650) 475-4522

[email protected]

Nils Frenkel

Sales Director

Energy & Environment

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[email protected]

2012 u.s. municipal water & wastewater infrastructure spending

Technology

impactful municipal

longterm economic effects

industry participants

qa manufacturing management

key utilities

economic downturn

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