The Biden Administration laid out its initial US$2 trillion proposal, The American Jobs Plan, to rebuild the country’s infrastructure, and it reaffirms Bluefield’s optimism about the prospects for the water sector. Its potential benefits for water companies and organizations are wide-sweeping, from addressing water quality (e.g., lead service line replacements) to modernizing critical infrastructure (e.g., energy, transportation).
Specific to water infrastructure, US$111 billion is, in fact, significant. Naysayers are proclaiming that it is not enough. One, this will always be the case. After all, the American Society of Civil Engineers, with which Bluefield’s team of water experts collaborated on its Infrastructure Report Card, graded Drinking Water (C-), Wastewater (D+), and Stormwater (D). Two, and for those with short memories, the current proposal exceeds water-related allocations from the American Recovery & Reinvestment Act (ARRA) by a factor of 10X.
On the whole, Bluefield’s team is enthusiastic about the potential outcomes stemming from the current proposal.
Paying for lead service line (LSL) replacements looms large. The cost to replace LSLs is estimated to surpass US$32 billion. An estimated 6.1 million – full or partial LSLs – in community water systems in the U.S. serve between 15 million and 22 million people that are largely unable to pay for any upgrades. The Biden plan could finally put an end to this costly issue that will not only improve residential water quality but also bolster employment in mainly rust belt states. While we are talking lead and water quality, this will also put further emphasis on contaminants of emerging concern like PFAS that need to be addressed.
Transportation requires water management engineering and hardware, too. It ain’t sexy, but managing stormwater and runoff across the 20,000 miles of U.S. roads is an immense challenge. Rehabilitation activities on roads and bridges will benefit all the vendors and engineering firms supplying culverts, catch basins, manholes, and designs as part of the process. Further afield, the focus on electric vehicles (EV) will place greater attention on rare earth mining for critical inputs, such as lithium, and the development of greenfield auto manufacturing facilities. H2O Innovation recently won a contract to support Tesla’s Gigafactory in Texas with water solutions that are indicative of EV-related greenfield development in the auto sector.
Contract operations and services poised to scale. The growing complexity of technology, environmental regulations, and risk will compel community water systems, particularly the 81% of the systems serving less than 10,000 people, to seek out more advanced expertise. It appears New Mountain Capital’s proposed acquisitions of Inframark and Aegion were prescient. Third-party contract operations in the municipal water sector are expected to grow on the heels of the plan proposed by the administration.
Power sector transformation offers up new opportunities. An acceleration away from fossil fuels towards renewables, which is already underway, will ultimately call for cleanup of 1,227 coal ash ponds in 20 U.S. states. At the same time, the potential for hydrogen-based power generation becomes more of a reality. Still early, recent announcements by National Grid and Florida Power & Light indicate that the synergies between renewables and hydrogen could become a key part of the future electricity mix.
The channels to distribute funds are already in place. State Revolving Fund (SRF) programs for Drinking Water and Clean Water are already in place to prioritize and address municipal infrastructure. In 2020, Bluefield analyzed U.S.$84 billion of requests, of which approximately U.S.$17 billion was awarded by state authorities. An overlooked longer-term benefit of widening the SRF award recipients is that success begets more applications. The municipalities that are awarded funding are more likely to succeed in future years. It is notable that some states (e.g., Tennessee) have underutilized that program. The SRF program is a key path for vendors to understand and support potential customers.
Overview of The American Jobs Plan and Potential Benefits for The Water Sector
Source: The American Jobs Plan, National Public Radio, Bluefield Research
Certainly, big questions still remain about the final outcome of the proposed infrastructure plan, including how to pay for it and why does it have to be so big. We must keep in mind, however, that we are already paying for it. Look no further than freeze-outs in Texas, recurring boil water advisories in Jackson Mississippi, another drought in the western U.S., and a currently rupturing phosphate holding pond in Tampa, Florida.
We are learning the hard way that building infrastructure is not an end in itself. It requires maintenance, upkeep, and rehabilitation after the fact, especially hundreds of years later in some cases. No, the plan is not perfect, but it is at least a starting point for a discussion that has been needed and long in the making.