Episode Transcript
[00:00:00] Speaker A: Hi, this is Jeff Kitlinger, the former General Manager of the Metropolitan Water District of Southern California. And you're listening to the Water Values Podcast.
[00:00:08] Speaker B: The Water Values Podcast is sponsored by the following market leading companies and organizations by Woodard and Curran High Quality Consulting, Engineering Science and Operations Services by Entera Innovation and Stewardship for a Sustainable Tomorrow by Xylem. Let's Solve Water by the American Waterworks Association. Dedicated to the World's Most Important Resource by Black and Veatch. Building a World of difference by 120 water new rules need New Tools by Suez Digital Solutions. Optimizing Water by IDE Water Technologies, your partner in water treatment and sustainable desalination for six decades by Advanced Drainage Systems. Our Reason is water and by 1898 and co possibilities powered by experience.
This is session 282.
Welcome to the Water Values Podcast.
[00:01:12] Speaker A: This is the podcast dedicated to water utilities, resources, treatment, reuse and all things water.
[00:01:18] Speaker B: Now here's your host, Dave McGimpsey.
Hello and welcome to another session of the Water Values Podcast. As my daughter Sarah said, my name is Dave McGimpsey and thank you for joining me. Happy holidays and thank you for your support over the last nearly 12 years.
We've got a terrific show for you to cap off 2025. Reece Tisdale joins us to answer questions on the biggest water stories in 2025 and to provide a peek ahead at 2026 and what the water sector holds for the new year.
It's going to be a great conversation, so stay tuned. But before we get to today's conversations, we always say thank you to our terrific sponsors at the top of every show. And we have a fantastic sponsor list in 2025.
Our sponsors include Woodard and Curran, Entera Xylem, the American Waterworks Association, Lacan, Veatch, 120Water, Suez Digital Solutions, IDE Water Technologies, Advanced Drainage Systems and 1898 and co. And that is a terrific collection of impactful companies that have affirmatively decided to support water industry thought leadership and education. And I thank you all and I'd like for you to do me a favor. If you work for or with any of the sponsors, please thank your boss or thank your contact at the sponsor firm and let them know that you appreciate their leadership in the industry through the sponsorship, you'd be surprised how far that simple little note of thanks will go.
And as long as you're letting the sponsors know you appreciate their support of water industry education, thought leadership, hey, why not leave a rating and review on Apple podcasts or whatever Other podcast directory you access the podcast on. It would be greatly appreciated and of course helps others find about, find out about the podcast and also please don't forget to subscribe to the podcast. That's pretty important I hear.
Now it's time for the main event, our interview with Reece Tisdale. So let's get that water flowing.
Reece, welcome back for a full length episode this time. How are we doing this month?
[00:03:23] Speaker A: I'm doing pretty good. I'm excited about this.
We get to chew the fat for at least 30 minutes maybe. So this is good. More than seven.
[00:03:32] Speaker B: Yeah, exactly. So lots going on.
The water industry took a lot of turns, twists and turns this year.
What was the biggest surprise that you saw in the water sector in 2025? And maybe before we dive into the question, we should say last year you had a fantastic kind of retrospective on what you got right and what you got wrong. And this year we're just going to kind of look at some of the questions that defined water in 2025. So with that said, what was the biggest surprise for you in the water sector in 25?
[00:04:07] Speaker A: Yeah, I mean I think there are one a lot of things and maybe some of those other things will come up. But the one thing that really jumped out at me, I mean last year it was really the ramp up to the elections and what was going to happen. But I think generally speaking, the focus on infrastructure as a whole, on water, wastewater in this case was pretty strong. And what we've actually seen happening is things like the IIJ rollout. Everybody, the water industry has been excited about that. It put approximately 55 billion of new funds into the sector.
And those programs have been rolling out and they're rolling out from 2022 to 2026.
And to date in our last check, we're looking at only about 18% of those funds have actually through the state revolving funds have actually hit the street. So that leaves approximately 35 to $40 billion still hanging out there.
So the surprise is that those funds are not moving as fast as they should given one the need, the want, the need for jobs. And so I thought that was my biggest surprise when I look back retrospectively.
[00:05:26] Speaker B: Yeah, are the.
Which states benefited from the rollout? Were certain states kind of first movers who got their programs up and running and got that money out?
[00:05:39] Speaker A: Yeah, I would say it's.
So that's really not the surprise. And for those who don't know how state revolving fund programs work, they are very state dependent. So there are two programs, Clean water and drinking Water within each state.
And some programs are more or better developed than others. And I think There are about 10 states more or less that are taking up I think 50 plus percent of the total awards to date. So it's going to be states like California and New York, but also you're going to get states like Michigan, Wisconsin, Illinois, other states in the Midwest that are taking up the biggest chunk of that. And partly because their programs are more developed, they've been ready for this.
And their programs, even year to year, irrespective of iija, seem to run a bit more efficiently than some of the others. Like one call out that I would say is like Tennessee. In fact, our numbers show that historically Tennessee didn't even use all of its state revolving funds in some some years. So that has a big part to do with it. So yeah, it's five, it's about 10.
[00:06:50] Speaker B: States administrative efficiency on the state park and really, really help your water programs.
[00:06:57] Speaker A: Yeah, I mean, I think the difficulty is that, you know, you need to have a strong sponsor, a strong program to not only go through the prioritization process, but even getting back down to the utility level in some states where they're very small, fragmented group of utilities, they may not even be prepared to file the applications for these low interest loans or grants.
But overall, like I said, I'm a little surprised that there was such a big hit. I mean, I think maybe even to put it in even more perspective, the awards from 2024 mid year to 2025 mid year declined 55%.
And so the question is, was that or is that really. I think it's a combination of the programs weren't prepared for this wave of applications.
So I think that may be part of it.
I think part of it is also just regulatory uncertainty around things like lead and pfas, which some of these dollars are going towards.
And then there's also things like inflation and tariffs that sort of elevated prices where maybe even some utilities may be saying this is just going to be so expensive. Let's ride this one out.
[00:08:18] Speaker B: Yeah. So the states that spent, that got the lion's share of the money, were those the state, did they use all of their money? And it's just the other states didn't have their ducks in a row so they couldn't access the money or did even the states that used money, did they leave money on the table?
[00:08:39] Speaker A: I think they're using all of it. It's rolling out slowly. I mean, it's going to take time. Like I said, it's a 22. In the case of IAJ, it's a 2022-2026 program.
And so that is what the rollout is going to be. But I think to your point, there are states like Ohio has been historically a really interesting one, where if you meet the requirements of the program, Ohio will go above and beyond even what those dollars allocated are to fund those projects.
So it really does vary state to state, and it also maybe even depend on the project, but they're trying to roll them out as fast as possible.
[00:09:19] Speaker B: Interesting.
All right, so let's switch gears and talk about more of the corporate side. What, what influenced company strategy discussions the most in 2025?
[00:09:33] Speaker A: So the way I look at this is every quarter at Bluefield, we go through what we call the top 50 companies in water and we look at, you know, one, what were their revenues? What were their revenues in water for the quarter or obviously at the end of the year?
And we also go through the notes to figure out what are these companies talking about. And these companies include engineering companies, hardware and equipment companies, digital companies, flow control companies like pumps and such.
We've got the investor and utilities. And so you've got this potpourri, if you will, of different types of companies. And we go through the notes to figure out what they're saying. And there is no doubt the number one thing that they were talking about are tariffs, number one and, or I guess related to that is inflation.
It's dominated not only just the headlines, but it is the one thing that has been every quarter in all of these companies filings that kind of has.
[00:10:36] Speaker B: An impact on what we talked about earlier.
So the impact is that inflation and tariffs are making projects more expensive, which means those infrastructure dollars don't go as far. Am I seeing that right?
[00:10:49] Speaker A: Yeah, I think the real risk is one, they don't go as far. And then I think because there's this back and for about what are the tariffs, what are the levels?
That's one aspect of it. There are some utilities and procurement teams that are kind of sitting on their heels a little bit saying, wait, can, should we ride this one out, sort of see where this goes? But I think the bigger concern that I have is that, you know, when we look back historically over time, if you look at inflation, let's say so we'll start in 2010.
So for basically from 2010 to 2020, 2021, inflation was relatively flat over that period. I mean, I think, you know, across a group of material prices, things like iron and steel, valves, pumps, plastic Fittings, concrete products.
Over that entire period, we're looking at about 15%. So we're looking at a 1.5, maybe 2% a year in some cases.
And then there was the shock in 2022, over the next, let's say 24 months and you know, prices rose almost 60%.
So, so phase one is like lat. Phase two, during that Covid era inflation spike, you're looking at 60%. And then it started to come down, right? It started to come down towards the end of last year, even beginning in, into this year.
And then the tariffs started being announced. And so that has created the issue. And like, I think my bigger concern is that I don't think they're going to come down that much when the entire basket of goods has gone up so much. It's not like it's going to go back to zero. Right. That growth is baked into the pricing. So bears that prices are going to stay high.
And I think this is also being reflected in things like utility capital improvement plans. But this is one thing we do every year.
In our recent analysis a couple of months ago showed that from 2023, the per capita drinking water budgets for 750 utilities was $120. In 2025, it jumped $180.
So that really reflects this jump in prices and that ultimately the ratepayers are going to have to pay for this.
[00:13:19] Speaker B: Yeah, that's what I was thinking as you were talking. I was like, that means the ratepayers are going to have to foot the bill.
[00:13:25] Speaker A: Yeah, yeah. And I would say, you know, the challenge is, you know, you've got, like I said, if prices have jumped 60% as far as the total basket goes, but water rates are only going up, you know, four to four and a half percent a year across the U.S. on average, at least looking at the larger utilities, that's where they're the, the real rub is. And smaller utilities in particular, the small ones, don't have access to the capital or sophistication financially that the, that the large utilities have, like the DC waters of the world, the LADWPs well rise.
[00:14:03] Speaker B: I'll tell you, I got a couple of cases going that are, that's going to push the average increase water rates up a little bit.
[00:14:12] Speaker A: Well, I was, I was going to say, well, you and I have talked about this in the past. What is a little maddening and you do see this over and over again, where utilities also, particularly the unregulated utilities, in many cases what ends up happening is they don't raise rates at all for 2, 3, 5, sometimes 10 years.
And then everybody gets upset when a 40% increase comes down the pipe because they need to do it. And rather than saying, hey, let's do 4% a year for 10 years, they do it all in one bump. And that's when everybody panics and no one is really quite prepared for that.
[00:14:53] Speaker B: Yeah, exactly. If everyone wants, when rates become political, that's when you get into that situation.
Rather than doing what's best for the system and raising rates incrementally a little bit every year, it's just so much, it's just such a better strategy to do the incremental increases.
So anything else that on the, on tariffs and inflation?
[00:15:24] Speaker A: No, I would just say that the discussion continues and you know, I would, I don't know on paper, quite honestly, it doesn't make sense to see how was the economy doing. And I know maybe that's another point and that is when you look at some industries are doing quite well and others, hardware equipment in particular, are they not growing as much as they should? And I'm a little worried that these tariffs or these are being baked in the cost incrementally. So we're like frogs boiling in a pot. We're only seeing incremental advancements in price.
But in 12 months, what's it going to look like if they stay?
That's what worries me a little bit about that and its impact on inflation.
[00:16:18] Speaker B: Yeah, I mean, there's also a little bit of disconnect between Main street and Wall Street. I feel like you get Amazon ups, Verizon announcing layoffs in the five digit range.
Those, those people are all ratepayers. Right. And if it's just gonna, it's just a tough, the economy just seems to me to be tough right now, despite the gains on Wall Street.
[00:16:45] Speaker A: Yeah, 100%.
[00:16:47] Speaker B: All right, so most surprising shift in industry conversations. What, what are people talking about and how has that changed?
[00:16:56] Speaker A: Well, maybe that's a perfect segue because I think when Wall street and the economy or Main street are disconnected, this is definitely one of them and that is data centers. Data centers. And high tech has become the dominant lens for discussing water and risk supply this year. I mean, if there's one topic that comes up among Bluefield clients, it's this. On all fronts, it's amazing which ones are interested, whether it be valve companies, whether it be treatment companies, mobile treatment companies to engineering firms.
And it all hinges on things like policy, permitting, infrastructure. And what does this mean?
The data center companies obviously are just making massive announcements. Their stock prices are through the roof and that maybe was the mag seven or magnificent and seven is carrying the stock market.
But what is interesting is the discussion has become really about what does this mean for water utilities. Because 97% of water of, of data centers rely on municipal utilities. Right. So more often than not they are connected to the municipal utility. And so the municipal utility has to plan for these announcements.
And in many of, in many cases they may not, may not even happen. And so data centers, you know, their direct withdrawals are supposed to be, they're supposed to grow at about 9% annually, particularly as AI rolls out.
So that's a big, I mean that's 100% over 10 years in their, in their demand across the U.S.
so that's part of it. The impact is somewhat concentrated. You know, I'd say about 50% of the demand is supposed to happen in places like Virginia, California and Texas. I think it's 40 to 50%. And that is really where a lot of the data center withdrawals for water are going to happen.
And so we're really interested to see how this plays out over time. And then I would add one thing that really is the conversation is actually shifted even over the course of the year.
One can argue that data centers, relatively speaking, they really don't use that much water even in many cases and increasingly they're reusing or recycling water despite also shifts towards the power sector is really where the discussion is shifting.
[00:19:42] Speaker B: Yeah.
And data centers, as you've indicated, they've just become a lightning rod for the NIMBY banana crew.
The one thing I see is in remonstrances against data centers, they always say they're going to steal all our water, they're going to use it all.
And that's one of the things that turns into a political issue. And we've started to see moratoria against data centers in certain jurisdictions. And water risk is one of the issues that the local governments point to when they implement one of these. Moratorium.
[00:20:25] Speaker A: Yeah.
You know what it feels like? It feels like fracking.
It feels like fracking in 2000, you know, 7, 8, 2009, when there was this pushback.
And I, it, you're exactly right. It has been sort of the third rail in many respects. I think the challenge is it's happening so fast and furious. People are unprepared for it. The bottom line, it will bring construction jobs. I don't get the feeling that it's going to bring a lot of ongoing long term jobs. But for the water utility, it can be a reliable customer.
And that's what water utilities do. They sell water and water services.
And so if these data centers are relying on them, I think that's part of it. I really do think it's been a bit of a shock to the system how fast it's going. And cities and towns, but also even the power sector, they, they're having, in the grid operators, they're having to plan for this. And water is an easy thing that everybody understands and they're pointing their finger at that and saying that's the problem.
[00:21:36] Speaker B: So interesting, I was talking to one utility executive who indicated, he described himself as a heretic because he said, look, you know, data center comes in, we're going to, we're going to oversize our system.
And if we make the investment, not the, if the data center says, look, you're going to recover your investment over time through the rates you're charging, what happens if there's a technological investment in the cooling that reduces the amount of water usage in the data center, then the utility has overbuilt its system and is at risk.
And so I thought that was an interesting point from the utility perspective on data centers and water usage.
[00:22:18] Speaker A: Oh, 100%. And I think that the data center companies, they're going for broke, right? And they want the most capacity available over time and they can dial it back. I mean, that's always the risk of large, of industrial customers. I mean, Frito Lake can pull up stakes as well, right? If they're making a potato chip factory outside of, let's say Austin and there are large, large customer of San Antonio water and they say, yeah, we're out of here, then the utility is going to feel that pain. Even if the utility is already, you know, put, you know, they're already sunk costs for the network and for the treatment.
So I think that is one of the, one of the issues. I think one thing that's also interesting that we are seeing in different parts of the world and you know, I wouldn't say it's happening at scale, but it is starting to happen is the use where some of these data center companies, let's say even Microsoft, they're going to a community and saying, look, we'd like to put a data center here.
And the city or town says, actually we've got, we don't really want that, we've got other problems. And then Microsoft says, okay, well what problems do you have?
We have leakage rates, we have, you know, us average is 17 to 18% of water losses. Well, I'll tell you what, we can help you not only fix or, you know, investigate and fix your leakage in your pipe network, and so we'll cover some of that cost and then allow us to have the data center. So it's, it can be a win, win situation.
Doesn't happen everywhere. But that is one strategy that companies like Fido, who I think has received a number of different investments from companies like, I think Old Castle or CRH is one example. So that's something that's happening in different parts of the world that I look forward to seeing how that rolls out. Where the data center company or the industrial says, you've got problems, we'll fix your problems, but let us, you know, take advantage of the location. So we're seeing that.
[00:24:25] Speaker B: Interesting.
So let's, let's kind of look where the spotlight is not being shined right now.
What's the critical question that few are asking but everyone should be?
[00:24:38] Speaker A: Well, I think this is the one thing that really no one wants to talk about.
And I was at the Rockwell Automation Fair last week and one of the topics of discussion was cybersecurity.
And we've talked about data.
You know, I don't even think, you know, we haven't really talked about AI, but I think even just fundamentally speaking, there are a lot of assets throughout the utility network that are exposed. Right. And these could just be basic pumps and valves that, you know, they're all connected, increasingly connected to the network because the OEMs are supplying their customers with. The long term expectation is that they will be connected and they may not even have analog shutoffs in some cases.
And so cybersecurity is real. We've seen hacks over the past year. I mean, the most notable would be Aliquippa. We saw Oldsmar Florida a couple years ago, but we've seen more than 30 cybersecurity advisories for the water sector control Systems alone in 2025. And this is the highest count on record and a signal that there are challenges ahead.
So I think that's the one thing that everybody should be talking about. The question is, I don't have the answer. I think it's going to take a lot of money and we've already talked a little bit about this. I don't think a lot of these utilities and cities have the money to address the sophistication of some of these challenges.
[00:26:21] Speaker B: Yeah, very interesting point and good insights there. What was the biggest water deal of the year?
And I Think we all probably know what that is, but why does it matter?
[00:26:34] Speaker A: Well, this was, this could almost be my biggest surprise as well, quite honestly. The first question, and it would be American Water and Essential Utilities. The merger that my mind came out of nowhere, it is big, right? And in terms of not just utility regulated utilities, but just utilities a whole in the US so the combined platform is going to serve over four and a half million connections across 17 states. So by far the largest footprint for investor and utilities. I mean, I think larger than all the others combined.
American was already large and then you add Essential to it. So I think that is really significant. I think that it's really an American deal. They're going to hold, I believe about 65 to 70% of the company when it's all said and done.
And it really distances American from players like Veolia and Cal Water who fall in what I would say, you know, third and fourth place as far as investor and utilities.
It's a little surprising in the sense that I think there's a concern that it is so big and there has been public pushback in places like Pennsylvania, which is where Essential is based, and American has a very strong footprint there. It's one of the most active IOU markets in the country as far as M and A is concerned. I'm hoping that you mentioned NIMBY or in public pushback to certain things, that this won't be another reason that they look at and say, wait, there's less competition.
There's this huge company, they're coming in to buy our water utility.
And that's what concerns me a little bit. But it is amazingly large.
[00:28:33] Speaker B: Yeah. What's bigger, American Essential or Xylem Evoqua?
[00:28:40] Speaker A: Ooh, that's good. As far as surprising to me, I would say American Essential is more surprising. I know that Xylem, they were on the hunt. Patrick Decker was hunting Evoqua for a long time.
And even at the time of Evoqua's, I think they had an IPO in whatever year that was 2018, 2019, I can't remember. And Xylem, there was, they were considered to be a potential buyer to swoop in. So I'm more surprised by this one.
[00:29:14] Speaker B: So you've, you've, you've done a great job kind of summarizing and identifying kind of the key issues we saw in 2025.
With that background, what does that set us up for in 2026?
[00:29:32] Speaker A: So long. Deep pause.
So what I would say, I think the tariff issue, the uncertainty is going to remain. I think it's just the way Washington is working right now.
It is what it is. But on an optimistic note and this has really happened over time and I felt even more strongly about it this year and as we go forward I will feel more so there's no better time to be in the water space.
I do think infrastructure, aging infrastructure is a real problem that needs to be addressed. I do think iija, which there's still plenty of funds that need to be rolled out, but IJA has put a focus or a spotlight on water and wastewater infrastructure that sort of comes and goes depending on the periods of economic success in the country.
So I think that's one aspect of it. I do think climate is a real issue. Large storm events, droughts are putting more focus on water supplies and water availability and water management.
So I do think is and I, I don't know if I've ever said it on this podcast, but I've definitely said it mine. And that is, you know, if climate is the shark, water is the teeth and whether you agree or disagree with climate change, the bottom line is all of these environmental benefits, storms, droughts, et cetera, there's always a water component to it. And I think that's really positive. I think on the business side of the equation, what, what I'm really interested to see is if rates continue to lower, what does that mean for the private equity firms? Will they become more active?
And also and it kind of cuts both ways. One, will they buy more but also will they have an easier time exiting some of their long held positions? I know their positions like the KKR holds or New Mountain Capital, they've had some positions in Axios and Azuria for a little bit of time now. So that could there, there are likely to be some big deals in 2026 that I look forward to.
[00:31:52] Speaker B: Interesting. All right, well Reece, great recap of 25 and some interesting things to keep your your your fingers on the pulsa for 2026. So thanks very much for your time.
Hope it's been great. Great having you on every month in 25 and look forward to continuing that in 26.
[00:32:12] Speaker A: Excellent. Yeah, I love the monthly conversation and there's plenty more to talk about on my list but we kept it to five five plus one. So looking forward to 2026 and talking more about the water sector and what's happening.
[00:32:30] Speaker B: Yep, and less than 90 days till catchers and pitchers report. So we'll talk a little baseball next year as well.
[00:32:38] Speaker A: Excellent. Look forward to it.
[00:32:39] Speaker B: Cool. Thanks Reece. We'll talk to you soon.
[00:32:41] Speaker A: Cheers. Take care.
[00:32:42] Speaker B: Bye.
Love talking with Reece because I always learn something new. Thanks for coming on Reece. I appreciate the great information and I know the listeners do as well.
Well, I'd love for you to let me know what you thought about the interview. Please check out the Show Notes page for information and links on this episode. Just google the Water Values Podcast and click the first link that comes up.
That's our home on Bluefield Research's website. And again, longtime listeners know that Bluefield Research and the Water Values LLC are not affiliates. We just have a joint marketing arrangement and as part of that, Bluefield gives us a home on the web.
Well, you can email me at david.mcgimpseyentons.com and you can sign up for the newsletter at that aforementioned landing page as well.
And thank you again for tuning in and I hope you make it a great day and a great holiday.
Plus, I want to give a huge thank you to our sponsors again. Sponsors of the Water Values Podcast include Woodard and Curran, Entera Xylem, the American Waterworks Association, Black & Veatch, 120Water, Suez Digital Solutions, IDE Water Technologies, Advanced Drainage Systems, and 1898 & Company. This show would not be possible without those great companies and industry leaders. I hope you have a wonderful holiday season. And again, thank you for listening and for subscribing to the Water Values Podcast. Your support is truly appreciated.
In closing, please remember to keep the core message of the Water Values Podcast in mind as you go about your daily business. Water is our most valuable resource, so please join me by going out into the world and acting like.
[00:34:20] Speaker A: It it.
You've been listening to the Water Values Podcast. Thank you for spending some of your day with my dad.
[00:34:57] Speaker B: And me. Well, thank you for tuning in to the disclaimer. I'm a lawyer licensed in Indiana and Colorado and nothing in this podcast should be taken as providing legal advice or as establishing an attorney client relationship with you or with anyone else. Additionally, nothing in this podcast should be considered a solicitation for professional employment. I'm just a lawyer that finds water issues interesting and that believes greater public education is needed about water issues. And that includes enhancing my own education about water issues because no one knows everything about water.
