The Business of Water from the CEO's Perspective

WWEMA hosted its annual Presidents Council event in Chicago in late September. CEOs from across the country gathered for lively discussions about the economy, politics, and the outlook for companies doing business in the water and wastewater industry.

By Dawn Kristof Champney

WWEMA hosted its annual Presidents Council event in Chicago in late September. CEOs from across the country gathered for lively discussions about the economy, politics, and the outlook for companies doing business in the water and wastewater industry.

Weighing heavily on their minds was the state of the U.S. economy, particularly in regard to declining municipal revenue nationwide. Case in point, Southern Nevada Water Authority’s connection charges totaled $3.2 million in 2010, a decrease of more than $185 million since 2006. There was some sense of relief in knowing that 68% of U.S. municipal water systems are “enterprise funds” sheltering them from being raided by local governments with budget shortfalls. Others questioned whether they are truly sheltered or obligated to share part of their revenues to support non-related water activities within their communities. It was observed that systems that rely on user-based rates and are well managed should have less problems funding construction, as compared to poorly managed utilities that rely on tax revenues to fund their operations.

The housing crisis was another topic of discussion as the CEOs attempted to determine to what extent the housing slump has impacted the revenue stream for municipal water and wastewater systems. What was readily apparent was that unemployment rates must first fall in order for consumer spending to rise, new houses to be built, and additional connection fees to be collected in order to pay for new construction. When housing does rebound, it will never replicate the exponential growth experienced in recent years when the U.S. was producing 2.1 million houses annually at its peak in 2006. The “new norm” today is in the 250,000 to 500,000 range. In the meantime, what limited funds are being committed to capital investments are going toward retrofits versus new construction.

Among the major drivers in the marketplace garnering the attention of the CEOs include climate change and environmental regulations. Droughts are causing clay-based grounds to shift resulting in increased water main breaks. Municipalities west of the Mississippi are in search of alternative source water supplies and finding poor quality water requiring additional treatment. Billions are being spent on large pipeline projects to bring relief to water-starved communities. Tightening nutrient standards are driving the demand for water reuse and forcing communities to design new plants in anticipation of future nutrient limitations.

One area being carefully watched by the equipment manufacturers is activity at the design stage. On the positive side, layoffs among engineering firms seem to have subsided and there appears to be a lot more activity with regard to design work. However, whether and when this materializes into actual sales remains in question. Manufacturers are also being asked to assume greater responsibility for design work. The need to provide web-based training for new engineers, whether they be operators or client engineers, is growing in popularity.

Finding talent to fill skilled positions continues to be a challenge with unemployment among engineers hovering around 4%, versus 9% nationally. Among recommended sources for finding new talent include industry recruiters like Wet-Tek, college intern programs, military job fairs, and use of social media such as LinkedIn. Housing creates another challenge with potential employees unable to sell their homes in order to relocate. Telecommuting is being viewed as a viable option.

On the international front, business is picking up in various parts of the world including parts of Asia, especially Vietnam, and South America, with Brazil wanting to do it all themselves whereas Peru, Columbia and Argentina are more open to doing business with overseas suppliers. England has seen a recent uptick due to the fifth Asset Management Plan (AMP5) which establishes the prices that can be charged by water companies in England and Wales for capital investments. Germany is viewed as a stable market and there is new growth potential in the Mediterranean. China is considered by most as the “Wild West” where anything goes with no rules of governance and only getting worse. Like China, most business in India is being done locally.

Other interesting observations coming out of this year’s Presidents Council event include;

  • The move away from national trade shows toward regional shows where greater local utilities attendance is expected.
  • Progress payments are getting easier to obtain. It is commonplace to get 10% with overseas orders.
  • The 3% withholding tax requirement coming into effect in 2012 is perilous to the industry and must be defeated in Congress.
  • The pushback by Congress on air regulations could carry over into the water side, possibly resulting in fewer new regulations being enacted or a slowdown in enforcement actions.
  • Material costs are on the rise, on average, as is unemployment taxes due to states having to repay the Feds for money borrowed to cover extended benefits.
  • Non-industry players, such are chemical companies and textile companies, are looking to get into the water business.
  • The Christmas season will be telling as to the economic outlook for the Nation.

Do your part in helping reverse this economic tide. Shop early and spend generously!

About the author: Dawn Kristof Champney is president of the Water and Wastewater Equipment Manufacturers Association (WWEMA), a non-profit trade organization founded in 1908 to represent the interests of companies that manufacture and supply products sold to the potable water and wastewater treatment industry.

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