[00:00:00] Speaker A: Essentially, it opens the door to challenges to EPA authority, to other agency authorities that have made rules that will now potentially be subject to a federal judge interpretation.
[00:00:19] Speaker B: I am Reese Tizzle and this is future water, in which we talk about all the ways which companies, utilities and people are addressing the challenges and opportunities in water.
This is episode 99 and I know it's going to be a good one. Well, that's because I'm going to be joined by Bluefield Research is Greg Goodwin to discuss the upcoming presidential and congressional elections, what timeliness? But I really want to focus in on their potential impacts on the water sector. At Bluefield, we've received numerous inquiries from clients about how these elections might affect water policy, infrastructure investments and the challenges facing both municipal and industrial water operators. It also draws from a white paper we've just released, which is available to registrants on our website. So you don't have to pay for it. You can just visit www.bluefieldresearch.com, get access to it. But what I do want to get at is I can't lie. I don't get excited by discussing politics because come so toxic even within my household. So when it comes to water, we only care in so much as it interests and impacts Bluefield clients, their strategies and the outlook for their businesses and operations going forward. So today Greg and I are going to explore how decisions being made in Washington, also including the Supreme Court, and what some recent rulings that they've made, but talk about how they could shape the future of water management, at least in the US, if not globally in some respects. But this comes especially as we grapple with things like aging infrastructure, climate related risks, and evolving water quality concerns, which we've talked a lot about on this podcast, the future of water. But before we do that, let's talk about something that has caught our team's eyes and ears over the past couple weeks since we last spoke. And I have two things courtesy of my friend Andrew Williams of the Brunswick Group. I shared a Bloomberg video with Ferguson CEO Kevin Murphy on my LinkedIn page. I posted the link in the notes for this episode. So if you want to go check it out or you can just go to my LinkedIn page and find it there, I think. But Kevin discusses commodity deflation and its impacts on the companys business, which I thought was interesting. Big as water companies grapple with the ebb and flow of things like material inputs and their prices and costs and how theyre impacting products and prices overall, things like the macro markets and environments are challenging. I think that's not news to anybody. But some product categories are seemingly moving into a deflationary phase driven by commodity based inputs in areas such as pvc, copper pipe, etcetera. That being said, volumetric and organic growth is on the rise. Or at least the Ferguson management team is optimistic. Theres a serious deficit also of trade professionals short 300,000 workers according to Kevin Murphy. And then lastly, hes pointed out that we are extremely underbuilt when it comes to housing stock in the US. I dont know if anybodys tried to buy a house recently but thats clearly the case. Its not just interest rates, its also that no ones willing to sell and we need more houses in the US and also the existing stock is pretty old. We're getting towards an average of 40 years if I recall what the video said. So once again, take a look at my LinkedIn page or the notes of this episode and you can get access to that video which I. Which I liked. Secondly, on July 3, California State Water Resources Control Board announced new water conservation regulations. New mandatory conservation rules for 405 urban water suppliers has been put in to place. That means individualized water budgets for suppliers are going to be set and they will decline over time. As far as the targets go, they will go into effect 1 January 2025. Enforcement will start in 2027.
The plan aims to save about 500,000 acre feet annually by 2040 in the state of California. And the compliance cost through 2050 is going to be about $4.7 billion, which according to Water Resources Control Board, it's going to be offset by about $6.2 billion in savings, which is a significant drop from prior estimates as well. There's been some number crunching going back and forth over the past six to twelve months. So this is pretty significant. We're really interested in this. And, and I guess lastly, before getting into why do we care? Many suppliers already meet the standards, so it's not impacting everybody in all of these suppliers. Others, you know, will need, those that are not, that are impacted will need to, you know, implement new conservation programs. Over a third of the suppliers serving about 42% of the state's population will reportedly will not even need to change their water usage. So when you look at there's, you know, northern California versus southern California, there's a big difference of California uses less water per capita in many respects for a number of different reasons. So it's less of an issue. So why do we care? Well, there's going to be a shift towards permanent water conservation, which may set precedence for other plans elsewhere outside of California and a number of different industries a number of different ways. Over time, California has oftentimes been a bellwether of new policies. As they go forward, market opportunities for water efficiency technologies and solutions, things like reuse and desalination, among others, will likely become more popular and utilized. The regulations do offer some flexibility in how the suppliers choose to meet the targets, and so it's going to be location by location across the 405 suppliers and how they approach the targets themselves.
There will be opportunities in data management for required annual reporting. That's going to be a big part. We talk a lot about digital water, digital water applications of Bluefield. This is something where we expect to see more of like anything else, whether it be groundwater levels, water usage, water quality issues. You can't solve the problem if you don't know the extent of the problem. So data management, particularly given all the tools and solutions we have in our fingertips, should not be the issue. In fact, implementing them and paying for these applications is probably the bigger issue. There will be financial implications for utilities and investors going forward. One can expect to see rates increasing over time related to this, and I know their complaints about the costs and the potential impacts. But everybody seemingly forgets about what it's like to live without water or what it was like in 2013 2014 when California was in an extreme drought and had to implement a 25% reduction mandate, which I think the state overall got to 23%. So it fell just short of that. But it did take a big chunk out of water usage that has been, hasn't stayed at that level, but it definitely made, made a big impact since then. And I think it's also critical understanding this is critical for companies entering and expanding in the California market. So lots happening in California. I not even going to get into investor and utilities at this point. So definitely worth keeping tabs on. So we look forward to seeing how this unfolds in California and also once again, take a look at that video that I shared on my LinkedIn page. I thought it was interesting with the CEO of Ferguson.
That being said, before we dive into today's conversation with Greg Goodwin, there's been a significant political update. The time of the recording, Joe Biden was still the democratic candidate for president. However, over the weekend, the political landscape, it's shifted beneath their feet once again. Biden's sudden departure certainly shakes things up. But for the water and wastewater sectors, Democrats victory in the White House is expected to largely maintain the current course, at least at the federal level. And while many anticipate Vice President Kamala Harris to be tapped as a new candidate. The political outlook, as discussed with Greg, is going to remain largely unchanged. The real game changer, however, looms in a potential Trump win, promising a seismic shift that could echo the transformative policies proposed during his previous term. So that's something that we will continue to watch and anticipate as we go forward. So that being said, let's get to the conversation and discussion with Greg about the potential outlooks of the upcoming November elections on the water and wastewater sectors.
All right, so I'm joined here by Greg Goodwin. Greg, how goes it going?
[00:09:34] Speaker A: Well, Reese, how about yourself?
[00:09:35] Speaker B: Things are good, I think we have a topic to be discussed today that is timely in many respects, but there seems to be also a lot changing when it comes to the us elections and what's happening. So I look forward to sort of getting your thoughts on this and hopefully things don't change by the time we finish recording this.
[00:09:58] Speaker A: Yeah, there's been a couple of years that have gone by in the last three weeks, so we'll see what happens exactly.
[00:10:03] Speaker B: I mean, it does feel that way. Some of it just completely out of hand, but. All right, so let's sort of frame this discussion. This is why I wanted to bring you on. I talked a little bit about this in the intro, but we've just, at Bluefield, we've just released a white paper. It's called 2024 us elections implications for the water industry. The paper examines the potential impacts of upcoming governing scenarios, Democrat or Republican, on the municipal utility service providers in industrial, water and wastewater sectors, I might add. I think, as I mentioned, it's free to registrants. All you have to do is go to our website and you can take a look at us, about 2025 pages with exhibits and data and all of the above. But further, I think, or more importantly, the analysis comes in response really to a flurry of inquiries from Bluefield clients seeking to understand the impacts of upcoming elections and the potential effects on the policy landscape, infrastructure investments, supply chains, water quality management, but also just legal ramifications for the water sector overall. So what we tried to do is step back, take a view of the varying policies, whether it be infrastructure investment, Jobs act, state revolving funds, inflation Reduction act, and so on. We look at all of these and try to provide some perspective on whats happening. So ill pitch this to you as the starting point for you, Greg. And that is, how might the outcome, this is a big question. How might the outcome of the 2024 elections affect regulatory policies in the water sector. Are there any key things we could start with to frame the discussion?
[00:11:49] Speaker A: Yeah. So I guess, I mean, if there's one thing that I guess everybody should agree upon, irrespective of kind of where you sit within the political spectrum, and it's that access to reliable water and wastewater services for communities and industry is paramount and a cornerstone upon which to sustain growth, public health and economic success overall, people differ on how they think that should be approached, but that's, I think, a keystone of the discussion at large, I guess. Rhys, you framed it as sort of the impending elections. I would say, at least right now, there's something that's already taken place that will affect space tremendously, probably going forward. That is the recent spate of Supreme Court decisions in the last three or four weeks that have kind of affected the future of how administrative law sort of breaks out in the countries. So the one that got the most attention is called Loperbright enterprises v. Raimondo. The decision in that case overturned essentially a 40 year precedent of judicial deference to executive agency expertise. Its often referred to as the Chevron doctrine. And so that affects, I mean, this is a fundamental kind of rebalancing of power within the federal government at large. It goes much deeper than just environmental law, but its essentially some 18,000, 19,000 administrative laws that are now subject to potentially different interpretation. So in the short term, I think that this will take a while to play out in terms of what legal challenges arise in the environmental and regulatory space. But essentially, it opens the door to challenges to EPA authority, to other agency authorities that have made rules that will now potentially be subject to a federal judge interpretation. Some people will say that this moves things back to Congress, where things should be in terms of the crafting legislation. And if that were to happen, would require probably significant staffing increases and subject matter expertise added to members of Congress's staffs and offices and so forth. That's probably not something that will happen, at least in the short term. So the effect of it will probably be that judges will be making these decisions on a much more fragmented basis than whats happening in terms of agency purview right now. So what that means for the water space, its hard to see that crystal ball as clearly as possible right now, but certainly certain EPA sort of regulations will be open to challenges now that they would not have been prior to a month ago, essentially. So well see how that plays out in terms of the PFAS, MCLs, whether thats something that could be challenged, certain water quality parameters that have been formulated through the subject matter experts at EPA that are in the way of potential industry operations could be challenged in a way that would not have been possible before.
It basically opens up a very large can of worms going forward, which got a little bit less of a news heading. There's also sort of a decision called corner post, which essentially removed the statute of limitations for challenging certain rules under the Administrative Procedure act. So that also means that there are potential environmental and water quality regulations from long ago that would have been outside sort of the scope of challenge that could potentially be subject to litigation moving forward.
[00:15:36] Speaker B: Yeah, and I think just to add to that, so that's super helpful because we here have been talking about this a while. I mean, you foresaw this a while ago sort of coming down the pipe. I mean, part of that was we knew that the proceedings were taking place in Washington and the Supreme Court earlier in the year. But I think one of the challenges of this is the implications or impacts. They're not going to be felt, you know, today or tomorrow. It's not as if it's a new guideline or a new, you know, MCl set for, like, a water quality standard.
The harder part is it's going to take place. It's going to roll out over time. So the long term impacts could be not just this year, it could be three, four, five, you know, in the decades long. And what it means for legal proceedings for corporations. I mean, I think in our, the paper that we put together, what this does is sort of tilts the balance towards corporations and supports them, but also because it then relies more on the judiciary and seemingly ineffectual Congress at this point. So, yeah, I agree with you. I think this is really interesting. And this is not really related to the upcoming elections. This is really a result of the 2016 election when Trump came into the White House and then soon thereafter appointed three Supreme Court justices. That changed the balance of the court. So that's really what the change is. So I think it does give a good primer or an idea what is to come further. This has been long in the making. And so if Trump does win the White House again, which seemingly has the slight edge at this point, it looks like there may be more things like this from different angles to come. But back to my original question, Greg, let's look at the elections themselves. Is there any sort of quick takes on what it might mean for Biden versus Trump? Do they have any sort of quick or key areas of focus that you can tease out from our historical experiences over the last eight years.
[00:17:48] Speaker A: Yeah. So I would say, at least in terms of administrative priorities and statements and kind of party wish lists, I think a democratic victory would at least attempt to pursue a greater sense of kind of IIJ funding, move that forward sort of in tandem with what has occurred so far, the environmental initiatives of the administration, to kind of be continued on a sort of a similar trajectory. I think a republican victory would likely take aim at certain measures. Certainly the way that the stance of republican members of Congress and sort of people on that side of the aisle has been to take aim at anything that's sort of related to potential kind of equity related qualifications for certain programs. Several republican members of Congress have take an aim at the inflation Reduction act specifically. They would likely seek to curtail or repeal that if possible. Of course, all of this sort of depends on who controls what chambers and whether theres trifecta or whether its mixed government. So it does depend on what that balance of power looks like. But certainly, I think theres some different priorities each administration would try to split off on.
[00:19:07] Speaker B: Yeah, I think that, I mean, one thing that is worth bringing up, it seems like the National Environmental Policy act. Right. That's sort of the boogeyman of sorts for the republican party historically, things that impact permitting, anything that can eliminate the friction. And maybe some of that is justified in some cases. I get it. But permitting will be a big area, particularly in the case of Donald Trump. He's a builder. He's a property developer. So it's in his DNA of sorts. He wants to kind of do whatever he wants when it comes to building things. That being said, it's not like infrastructure week came to play during his last administration, for what that's worth. So let's look at sort of key water related initiatives at stake in the upcoming elections. I mean, you sort of mentioned a couple of things. Is there anything else that are worth watching and what the potential impacts might be going forward?
[00:20:05] Speaker A: Well, I think itll be interesting to see the approach and stance to PFAS regulation moving forward.
To what extent thats challenged legally or how long it takes for those challenges to sort of percolate up from below. In terms of litigation, its hard to say how long that will take to happen, but I would expect that that would probably be something that will take place regardless. But in terms of led service line removal, how that's approached, in terms of funding, whether that keeps the same amount of funding going forward or is curtailed, there's been, at least in terms of IIJ funding at least since 2022, when earmarks sort of became back in vogue. If you look at how that money's typically allocated to states, for states to kind of make their own decisions on that, there's been a pretty big diversion in terms of what states have become winners and losers as individual members of Congress have sought to direct the funding for their own pet projects. So I'd expect that would continue onward more in sort of a republican led administration and Congress. So just kind of different approaches and philosophies to how funding should work and who really is kind of deserving. So it'll be interesting to kind of see how that plays out.
[00:21:26] Speaker B: Yeah, I think when you look at things like PFAS, and you and I have talked about PFAS on the, on this podcast, other episodes, obviously. But I think one thing is there are a number of legal proceedings that are happening when it comes to the chemical suppliers of PFAS chemicals, and so will the recent ruling with the Chevron docton. Could that have any impact going forward? I think one thing that's also outstanding is what will be the impact on the water and wastewater utilities. They're really just pass through entities, right? They're not creating it, but yet they're not fully in the clear when it comes to liability. So it'll be interesting, you know, yet they're providing drinking water or they are collecting biosolids and sludge, and they're reusing that for fertilizer or it's being used, as you know, through other, other providers in most cases, or being put into landfill. So the question is, now that it's considered hazardous under CERCLA, will the utilities be let off the hook? Which I think they should. It's really up to the suppliers who are responsible. So with a lean towards corporations, will they be, you know, the different administration may have it different perspective, and I think you pointed this out just a little while ago, and that is when you start looking at the chambers in Congress itself, you and I talk about this, they're not getting a whole lot done, at least across the aisle. Right. I think there's a sort of, the fact that IIJ happened or Ira happened, the Chips act is another thing that they even happened at all is pretty astounding. But it was close and it was split right down the center in almost every case. So if the Republicans win the White House, they win the Senate, they win the House. Thatll swing the weight of policy and decisions in their favor. So itll be interesting to see where that happens. So, like, you said, there are a couple of things worth watching, definitely in the near term over the next year or two when it comes to PFAS and lead. If anything, it seems like the levers that are going to be pulled are going to be really maybe on the timing of the rollout. I don't know if they'll be able to pull back on maybe the MCLs themselves, but they may say, hey, you have to comply by different dates or timelines. That's a lever that can be potentially altered or pulled in coming months to years.
Stepping back a little bit, how might broader economic policies impact the water industry itself? As we talk about here, water touches everything thing. PFAS is water related. Lead is water related. Infrastructure Investment Jobs act, at least 55 billion in new funding is water related. What about other policies that could be influenced? I think we've already talked a couple of them. I suspect you're going to bring up, again, any thoughts on things like Inflation Reduction act and the Chips act.
[00:24:37] Speaker A: Well, I think stance towards industrial policy and protectionism is gaining ground on both sides of the aisle right now, sort of in vogue. So I would expect that things like the Chips act would on some level be broadly favored by both administrations. I mean, part of that is sort of a national security sort of angle with competition with China. So in terms of that and sort of domestic sourcing requirements and so forth, I think that stuff will likely be maintained regardless, just based on sort of the stances of the two parties right now, how they convey sort of their broad economic outlook and sort of philosophy around role of government in markets and so forth. So I think that stuff will probably be fairly in continuity with what we see right now. But I think kind of, to your point earlier in terms of timelines and how some of that stuff gets awarded, I think will be more kind of on an administrative basis of who is really kind of helming some of these key agencies and the difference between two agencies. There's a lot that can kind of go into what that might mean, but I'll probably just kind of leave it at that point of who's kind of minding the shop of how things get operationalized, I suppose.
[00:25:56] Speaker B: Yeah, I think, truth be told, I think maybe I've said this before. It's not as if Donald Trump is a policy wonk. It's really a matter of who he surrounds himself with. The same thing happened his last go around. It was the agency heads and sort of where they're going, as well as what Congress and people like Mitch McConnell have been interested in. So that will be interesting to watch and see how that unfolds. But, yeah, I think your point about the re shoring national security, buy american, build american, I think that collectively is really positive that is seemingly agreed upon on both sides of the aisle. I guess if I have a concern or maybe a little bit of frustration when it comes to policies, particularly as they're directed towards infrastructure or towards the water sector specifically, is they seem to come in waves rather than a sustained effort. And thats really where I think the water sector loses out in many respects. And that is the last big federal injection of capital into the water sector was the post great Recession ARRA funding. And then as we recovered over the next decade, now we had Covid come and then it was infrastructure Investment Jobs act. And you could, to a small extent, inflation reduction act injected some capital into the water sector. But overall, they seem to be very reactive policies and reactive measures rather than sustained efforts to say, here's where we need to be, here's where we want to be. And I think part of that is we've had the luxury of infrastructure that's been in place, particularly post World War two. There was a big post World War two, post Clean Water act, post safe drinking water act build out that we've benefited from in those cases for 50 years. And now things are getting old, things are getting tired. And as I oftentimes say, we have to rebuild the house while living in it. And it's expensive, it's costly, but we don't really have a choice because you can't build semiconductors without water. You can't build hydrogen plants without water, and you sure can't fire natural gas power, fired power plants without water. So the water sector, I think, deserves more. It will demand more whether we want to or not.
Well, with that, Greg, I mean, I think. Anything else to add? I mean, if anything, I would push people towards the Bluefield website because theres, like I said, a 2025 page white paper out there discussing all of these policies and then some. Anything else that we've missed when it comes to considerations for the upcoming election and things that the listeners should think.
[00:29:01] Speaker A: About, I'm sure we've missed something. It doesn't come right to mind immediately, but like you said, we did do a pretty deep dive on this recently around looking at certain implications and things to look forward to or look out for that folks can, can look at on the website.
[00:29:22] Speaker B: Yeah, I think the idea of this whole exercise, like I said from the start, a lot of clients have asked about this. They don't know they're interested. So we look at this all the time and we have our own perspectives. We tried to be somewhat unbiased in our approach to how we do it. We're not here to pick winners and losers. The other, you know, thing is, at least somewhat easily for us, is that we know what the Biden administration wants to do. Right. They've sort of laid out their plan over the past four years. If they keep or maintain the White House in particular, it'll be incremental changes to what they've already laid out. We don't foresee anything wide sweeping the Trump administration. We once again have the luxury of looking back to the previous administration from 2016 to 2020. So we have some idea what's going to happen and how they acted during those four years. And, you know, I think, if anything, the Trump administration, a second term, they will be more focused and maybe more honed as to what to do. I don't think Trump expected to win that election that he won in 2016, quite honestly. So I think it was a bit of a shock to their team as they came into the White House. So this time around, they're going to definitely have their spotlights out on more folks areas. I think one thing we didn't talk about, which we do touch upon in the white paper, is workforce and what it might mean for the workforce. There are changes happening within the workforce, some of which, whether it be build american, buy american, may build up the workforce and provide opportunities for water sector, water service providers, vendors, et cetera.
One thing we left out was schedule f and what it means for, you know, public workers, whether they are appointees or they are civil servants, that could have some longer term impact. So if that's one thing that I want to say, regret leaving out, but we didn't really get into. We started to but then pulled back. That would be one area that we'd be happy to discuss. So. All right, Greg, with that being said, I know you're really busy and there's a lot going on. So we probably need to get this out before something else changes in the election cycles.
We're just wrapping up the republican convention, so there's a lot to tell in the coming weeks and months. So with that being said, why don't I set you free and we will talk again soon.
[00:32:04] Speaker A: Sounds good. Good talking to you, Reese.
[00:32:07] Speaker B: All right. There you have it. So that was good to get Greg on the line to talk about the upcoming elections. For what it's worth, we talk a lot about this internally in the office and comings and goings. It's, you know, it's pretty dynamic. And but most importantly, like I said from the outset, what we care about is water. What does it mean for the water sector? The water sector is highly regulated in some respects, should be regulated. But I think more importantly, it needs investment and it needs workers and it needs people who understand it. It's not simple. It's highly fragmented. And so leaving it solely up to states I don't necessarily think is always a good idea. And what I would like to see is some sustained investment. This is all happening while earmarks are on the rise. Therefore, the state revolving fund dollars that has been used historically since I think the late eighties is under threat, again, from political earmarks, which is not always the best approach either, because politicians are elected officials. They're doing what helps them win elections. I don't know if they're necessarily because, you know, oftentimes water is out of sight, out of mind. No one likes to think about wastewater. But when you go out to the Deer island wastewater treatment facility, like our team did last week, we took the entire office, all the interns and everybody. You take a tour, you sort of see the scale and the impressive engineering feats that we've made historically in the US.
Be nice if we continue doing that. Money doesn't fall off the trees, nor does infrastructure. So with that being said, we can move on with that. And if you're interested in the Bluefield white paper in the election impacts on the water sector, you can go to bluefieldresearch.com. it's on the homepage. All you got to do is register. We're not asking for a lot. It's just a small window to crawl through. If you're a client, you're going to get access to it as part of the deal. But also if you're a client, you can also set up a call with us and talk to our team that worked on it. So if you have questions about it before we sign off, you're in Boston, Barcelona, or if you're in California or Chicago, we have people there as well as in Paris. Let us know. We'd enjoy the opportunity for a meeting. We've been meeting a lot of clients and quite honestly, interested people in water over the past couple of months. So reach out. We're happy to do it. We're always interested in a conversation. Please subscribe to the Future Water podcast and give us a review. It's really helpful for us. Lastly, send us a note at water expertsluefieldresearch.com with any topic, ideas or things you'd like us to discuss. We are doing this for you. And lastly, plus tell a friend about it. We want to share the wealth and the information. This podcast in these water industry insights have been brought to you by the one and only Bluefield research. To learn more about us, visit
[email protected] until we talk again, be well, be safe and take care.
