[00:00:00] Speaker A: 60%.
That's how much of the human body is made up of water. And yet we continue to treat water systems, treatment services, water quality as background infrastructure, not as the foundation of public health, economic growth, and quite honestly, everyday life.
If water is that central to who we are biologically, why do we still plan, fund and value it as if it's optional?
I am Rhys Tisdall. This is the Future of 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 134, almost 135. But it looks like this is probably going to be the last of the year. So I guess I could wish everybody happy Holiday and Happy New Year and look forward to 2026.
That is unless I squeeze one more out just to reach a milestone of 135. But in any case, I think this is going to be a great one because today it's been a minute, I'm going to be joined by my colleague Keith Hayes, my partner and founder who's over in Barcelona. And it's the end of the year, so thought we try to have a little bit of fun. It's not always easy, but we put together some questions drawing on key topics and events shaping the water sector in 2025. But a little bit more open ended, not focused specifically on any analysis we've put out, but hopefully we can throw some facts and figures at you, which is always fun. So, and then again, maybe we'll try to break out the crystal ball, see what 2026 and beyond looks like. So we'll see how this conversation goes.
Look forward to talking to him in just a little bit, as I'm sure you are as well. But before we get to Keith, why break strides? You're gonna have to bear with me just a little bit longer because something else caught my eye this past week.
Worsening drought in South Texas has prompted Moody's ratings agency to downgrade the city of Corpus Christi, Corpus Christi, Texas, that is warning that water demand could outpace supply by the spring of 2027.
So the downgrade reflects what is a long time growing concern that prolonged water shortages are translating directly into now financial and operational risks for not only Corpus Christi, but this applies to other cities as well, whether it be in the Southwest, Western U.S. or even other cities around the world. And it just reinforces how climate driven water stress is now influencing municipal credit ratings. And guess what that means it just costs more money for everybody else. And so if we don't take this Head on and figure out solutions, then we're all gonna have to pay for it. And guess what? We're gonna have to pay for it anyways. But what are my key takeaways from this?
Water scarcity is directly affecting municipal credit quality. Well, I said that Moody's downgraded both Corpus Christi general obligation and utility revenue bonds, signaling that water supply reliability is no longer a secondary issue. So that's the story. And it's a core factor in assessing fiscal risk.
Short term fixes are going to dominate long term options. And long term options seem limited. So we've been talking about large scale desalination in Corpus Christi since Bluefield has been in business. So Bluefield started in, I think 2013. So with large scale decile, really largely uneconomic, supposedly uneconomic and politically challenging, more important and environmentally challenging in the US look no further than how long it took to build Carlsbad diesel plant in California. Huntington beach was canceled. I know there are a couple other smaller ones. One can argue whether they are environmentally sustainable, environmentally correct. The permitting process is long. But when it takes two decades to build a desalination plant, I would pretty much call them at this point for large scale not viable.
So in the case of Corpus Christi, it's going to have to rely on conservation, pipeline capacity expansions, groundwater development to avoid what is a near term water emergency. There's a lot of industry in Corpus Christi that we're not just talking a small community here.
There's a lot that goes into play and they have canceled or punted on the plan. Desal plant drought is accelerating the urgency for diversified water supply portfolios. Corpus Christi situation really does highlight a broader trend just to reinforce cities facing persistent drought. You know who you are, where you are.
Persistent drought of shrinking margins for error. Right. For the cities and the communities that rely on them. And as we all know, it's expensive to truck in water. And you can't do that really for industry.
Maybe in places like Taiwan for semiconductor facilities. They've done that during times of drought. But it's problematic. So I don't know how many shots across the bow in this case Corpus Christi or the US or the rest of the world needs. But this is just one more.
[00:05:45] Speaker B: And.
[00:05:47] Speaker A: Let'S start 2026 with a fresh slate. Why don't we look at it that way? Let's be optimistic and say, hey, as we go into 2026, what are our challenges? What do we got to do? How are we going to pay for this? It's going to take Leadership in Washington. It's going to take leadership at the state level, at the local level.
And everybody needs to realize, you know, as they have in places like Cape Town, Mexico City and other cities, even Scottsdale, at parts of Scottsdale, Arizona, or just on the outskirts, what happens when the town council or the mayor turn to you and say, sorry, folks, we're almost out of water next month.
And when that happens, things get real. So that being said, let's think positively about 2026, but more importantly, let's get to my colleague Keith Hayes and hopefully have some fun talking about what's happening in the world of water.
All right, so I'm joined here by Keith Hayes. Keith, what's up, Rhys?
[00:06:49] Speaker B: It's the end of the year and spirits are up.
I think things are ending on a high note for us.
A bit of a chaotic, stressful period at the end, but in a. In a good way.
So I'm excited to be back on Future of Water. Dig into some of your meaty questions that I think you've prepared for us to discuss.
A holiday feast of questions, if you will.
[00:07:14] Speaker A: Yeah, we'll see how this goes. Trying to have a little bit of fun. Big picture, like I think I said in the intro, I can't remember now, but, you know, usually we get on here and we talk about reports and specific data.
Usually it's an analyst. And I think it's been a while since you've even been on. I've talked to a number of people out of Barcelona, well, as the US So let's see if we can do this. And sort of what I did is I picked some sort of broader topic ideas looking at not only the US but Europe and sort of big picture trends. And yeah, we'll see where it goes. And hopefully the listener will like this as they settle down for the holidays. And I will throw in there as well. Like, spirits are up. Yeah, spirits are definitely up at Bluefield. It's no BS here. It's been a great year. We've been super busy. Although I'm not gonna lie, it'll be good to end 2025 because as you know, on the management side, for anybody running a business, managing a business, you kind of have to live in two years at this time of year. You have to live in the present. But also think about what's happening in 2026 from our operational and business point of view.
And I think we're one. We're almost at a Runway, but I think we're about to land the plane to mix Metaphors. So here we go, let's do this. So my first question or first point? So data centers are growing at about 12.2% annually and driving us, let alone Europe, industrial water markets up. So for the US we're looking at about 388 billion toward 797 billion by 2030. Those are the numbers we're seeing.
More importantly, is AI's thirst the crisis or the opportunity for the water sector that everyone has been waiting for? What do you think?
[00:09:10] Speaker B: I think we can't stop talking about data centers. We have our own slack channel at Bluefield and it's non stop the flow of news. So I think it is probably an opportunity if the politics around energy and the economics line up. And what I mean by that is there's already technology out there and cooling system designs to make data centers very efficient on site.
And you're starting to see that more and more with some of the big hyperscalers, what they're saying their water footprint is going to be. But it is more a question of the energy and environmental policy because the real water footprint for data centers is the energy that you need to power AI. And I think there are already some states out there where maybe 20% of their generation capacity is going towards data data centers. Where do they get this power from and how water efficient is it? I think that's kind of the key question and how you manage the energy footprint. So this is the indirect water use is the key and there's definitely opportunities there for solutions providers.
[00:10:25] Speaker A: Yeah, I think this is the question and this came up, I don't know. Stephen Lacy is a big podcaster as well. We know him from a past life in the renewable energy industry.
And you know, he had raised something I think on LinkedIn that I saw and it had to do with data centers and the demand and all the stress on the grid. And then my point that I raised was or is, well, no one really seems to talk about the water footprint and that's everybody's focus on the grid and water and power demand and fewer talking about water. And so as a result, maybe in parallel is probably a better way to put it, as I expressed to him. Is it to his response, his response to me to one of my questions. His said, well, data center really only uses about as much water as a golf course. So is it. I think we're overstating it and I would agree. I think, you know, our analysis shows as much the on site water use for data centers is pretty small. Right. And I think it can be addressed, whether it be through mobile or, you know, treatment trailers, you can roll up to the data center or they're being incorporated. We're seeing companies like Ecolab and others that are targeting that market and doing quite well. But the off site. So when you look at, in aggregate, I think according to our colleague Amber Walsh, 28% of data center, broadly speaking, data center water usage is on site. The other 72% is at the power plant.
And that really is where there's a dynamic change happening because it's also influencing different fuel types, is influencing whether coal plants are being decommissioned. If coal plants aren't decommissioned, what do we do with the coal ash ponds? So there's this sort of daisy chain of questions or water challenges that need to be addressed.
[00:12:21] Speaker B: Yeah, and I mean, I think you need to look at the broader ecosystem in which the data center is. And look, I don't think by any means we're going after hyperscale data center developers. You know, a lot of them, in fact, invest in municipal infrastructure. They want to make sure that that municipal network that they're drawing the water from is, is in decent shape. So they finance leakage reduction projects, they pay for building out some water reuse piping, they invest in treatment, they invest in water quality monitoring. So they're doing some good things. But it's like, yeah, but you got to think about the power side of it as well. You got to think about, you know, these different stakeholders that are involved in creating the whole ecosystem around that data center.
[00:13:06] Speaker A: Yeah. One of the questions that's been kicked around even internally is, you know, the data center developers and some of the big tech companies are pointing out, well, you know, the food and beverage company Coca Cola is not responsible for the power that it's used at the power plant. Why are we being held? Why is big tech or data center developers, why are they being held accountable for water demand or, you know, water management at the power plant? And I think, which is a fair question, it's kind of like, you know, why should China be responsible for carbon emissions when the US and Europe and we've been living for the last hundred years polluting the earth with carbon, why is China responsible? So why should they, why shouldn't they also benefit similarly?
Well, times change. One, in the case of data centers, I think the disruption is so high and the spike is so great.
I think we all need to be stewards of water supplies and the footprints, because at the end of the day, if there's not enough water at the power plant, or creates disruption to power supplies, then it's a social problem. We can't socialize all the cost. Right. And I think that's what we're trying to avoid as opposed to those who are driving up the spike because power demand is supposed to increase, could increase 3, 400, 500% in the U.S. let alone rest of the world.
[00:14:36] Speaker B: Yeah. And I mean, look, and it's also possible that some of the additional power capacity being brought online is going to be very water efficient. And maybe there's not really a story there about water stress. But right now, I mean when you see trying to like Microsoft recommissioning a nuclear power plant or them having to build more combined cycle gas turbines, and by the way, there's huge bottleneck for all that stuff anyway.
I think that there is probably an opportunity it's going to be delayed because of a lot of bottlenecks, first on the power sector side and then elsewhere.
And you know, we're all going to have to incrementally build out a way of accommodating the fact that we're going to end up living in a world with a lot more AI that's going to require a lot more data centers.
[00:15:33] Speaker A: So to put a pin in is the topic du jour, no doubt. Like you said, we talk about it all the time at Bluefield. Our clients are asking about it. But it's an opportunity, right?
Change is a good thing, quite honestly for the water sector.
And this is maybe a deeper, darker question. But you know, climate change is a good thing in some respects.
Water shortages are kind of a good thing for the water sector. Technology suppliers, desal reuse tech, provide solutions, providers, people benefit from this, if that's how you want to look at it. It's all a matter of perspective. All right, well, let's change gears a little bit.
This is my question is maybe a little bit US focused, but maybe I'll throw it out there, we can talk a little bit about US and Europe. So housing construction in the US specifically, and that's a dry, has historically been a huge driver of economic growth in the US so housing construction has dropped about 15% since 2022 for a number of different reasons. So it's kind of for the water sector. It kind of breaks this historic or traditional algorithm of new homes equals new pipes. Right. And so if growth, housing growth isn't driving investment or pipe installations anymore, what is? And how does this reshape business models and what happens? What do you think?
[00:16:59] Speaker B: Right.
So I mean that I hadn't Seen that statistic before, minus 15%, that's, that, that is a big deal.
And I think really what we're talking about here is what's going to drive investment is going to be climate change inserting its reality into resource availability, which means more scarcity, but also perhaps more flooding events putting more stress on the existing infrastructure.
So that's not going away no matter what economic cycle we're in with the housing market.
So I think that's a huge driver, definitely on the industrial side, obviously.
And then if we are going to face more scarcity or more flooding, you're going to have to have policy step up and deal with that and drive the investment.
So I think that, you know, utility business models, how would they be maybe reshaped around that? I think it's going to have to do with a lot of the resilience planning that we're starting to see. And it's, it's going to be maybe not so much adding X amount of sewer laterals because of new housing, but rather upgrading and coming up with stormwater management strategies, for instance.
[00:18:26] Speaker A: Yeah, I would say, yeah, there's no doubt. So I think it's, this impacts the utilities, like, you know, utility water, drinking water, utilities, they're volume businesses. The more water they sell, the more money they make.
Growth is a good thing. It's normally tied to population demand. Housing starts as new additions are made.
Yeah, I think, you know, but I think the question is, and who does this most? In the case of the U.S.
you know, the south and Southwest, even the Midwest, that's where a lot of the growth has been happening over the last 10 to 15 years. Interest rates aren't what they were. They were zero percent practically.
And so it's expensive to build a house. Money is more expensive. There's also the inflationary factor. So material prices, labor prices are up. So things are up and people don't want to sell their homes. I mean, I'll admit it, I have a home that I own, I don't live in it and I've got like a 2% mortgage on it. And why would I give that up? It's practically free money at this point. So what does that mean for the utility business models? I do think that rehabilitation is an increasing issue. Right. And it's, it's not sexy, it's not new.
But when you have, you know, water losses, you have, you know, water quality issues.
What does that mean? We have to find ways to.
[00:19:57] Speaker B: You.
[00:19:57] Speaker A: Know, address those, be create financially creative in how we're gonna address Those challenges going forward. And I agree with you, Stormwater is the elephant in the room that, you know, no one really wants to talk about yet. Everybody sort of sees it happening over and over. And that's not just the US that's around the world. I mean, if you talk to, like, our colleague Antonio and Valencia, I think he was even on a podcast, we're talking about flooding, Valencia, or even the Pacific Northwest this past week. I mean, their dams and levees breaking. And it's, it's not anything. You know, everybody acts. This seems to be happening more and more, let me put it that way.
[00:20:38] Speaker B: So.
[00:20:41] Speaker A: But I would say with the housing starts, if uncertainty. So I'll be optimistic here of uncertainty in Washington, like if we can eliminate or solidify where, where the hell we stand on things like tariffs, jobs, employment, and sort of levelize or stabilize the economy.
And I don't think anybody, when you look at top companies in water, if you read between the lines, Everybody doesn't feel 100% about where things are going or how things are going. I don't care what anybody says.
And that's sort of influencing decisions. The point being is if things can stabilize, it could really unlock a wave of growth as far as, you know, new housing developments. And that could be super positive. So we'll see what happens.
Maybe 2026 is the year. All right, let's change gears. Let's go to Europe. So Europe produced about 5.9 trillion in industrial output in 2023.
Germany, the economic engine, is struggling.
And then the EU Water Resilience Strategy is betting big on things like semiconductors, hydrogen, electric vehicles, electric vehicle batteries.
Is Europe building water infrastructure for industries that might not materialize? Or are they positioning for the next industrial revolution while the US Fumbles the ball?
[00:22:21] Speaker B: That's a doctoral thesis right there.
But no, it is an interesting big picture question.
I mean, Europe, I think it is really still about energy policy because it is central to how Europe can grow.
And, you know, the water sector is downstream, pun intended here, from the power sector. In this sense, Europe has not backed down on the climate agenda. Yeah, I mean, I think we, we acknowledge that the US Federal government right now is not super interested in climate change policies, anything associated with it, it's a hoax, et cetera. We don't need to go into that. But in Europe, I mean, it's just, it's the path. It is why they've made some decisions which some would say were very risky, like decommissioning nuclear plants, getting rid of coal, but, you know, and then Europe could totally have done a 180 on it. When, you know, war broke out in the Ukraine, they become much more vulnerable in terms of gas supply.
But, you know, for, for Europe, it's not just about the environment. It also creates jobs, it drives innovation.
And so, you know, the heavy investment still in renewable power, they're reshaping the power grids.
That is also impacting the transport sector with all the electrical vehicle subsidies and all that stuff as well, has some underlying water infrastructure that is required. Yeah.
So Europe is, I would say, positioning for, I'm not going to call it maybe an industrial revolution. I mean, when we're talking revolution, maybe that's more thinking about AI so connected to that. I mean, you know, there needs to be infrastructure that's going to need power, stable power, and that's going to need cooling systems and it is going to need water.
So. Yeah, I mean, I think they are thinking towards the future.
[00:24:33] Speaker A: Yeah, I think, I mean, Europe has gotten a sort of, Is it a shot across the bow or a kick in the butt? And that is, comes in a couple different forms. Yeah, The Russia, Ukraine issue is real. So then you've, like you said, energy policy.
There's been a real shot in the arm, another metaphor to like to find a solution. Right. And whether, and it's not long term.
Is it importing natural gas from the U.S.
sure. But I think there's a focus on things like efficiency, energy efficiency.
Europe has been way ahead of the U.S. despite the wave of renewable solar wind that's happened over the past decade, decade and a half in the U.S. europe was way out ahead of it in the early days. I mean, when we started working together, I mean, we were talking about, you know, offshore wind in Germany, onshore in Spain, solar CSP in Spain. Those were, those were the salad days, man. That was crazy. But that was way ahead of the US and then the US once solar PV prices came down and onshore wind really picked up.
And now, but that being said, Europe has been, has been out ahead and the expectation is that like EV sales in Europe, whether they're from China or not, are way up, way as a percentage, way ahead of the U.S. i think in the U.S. they've come down some. They're not disappearing here.
So that's one aspect of it. The hydrogen piece is real. Right. You know, if hydrogen works and they can help bring down the costs, then ultimately, you know, then it's water is a raw input. Right. If you're using green hydrogen and that'll need to be managed. So I, yeah, I'm excited about it. And then I don't know what else comes out of things like defense spending. I mean, if anything, Trump has sort of punched Europe to say, hey, you need to step up and, and kind of, you know, defend your own, defend your own yard.
[00:26:42] Speaker B: And for sure, I think there, there is a lot of funding that's going to be channeled towards defense.
I mean, I think we just saw yesterday they're trying to work out a deal for almost 100 billion to finance, you know, Ukraine going forward.
And you know, there are a lot of companies involved in the water sector that are also in defense. I mean, deal metering comes to mind. For instance.
You know, is that, is that a big opportunity for, for water solutions providers, the defense buildup? Probably not so much, but, you know, it is.
I think Europe in generally is facing a lot of realities regarding the model that it's had since Post World War II with the U.S. as we know, there's, there's a big sort of reevaluation going on of that relationship.
And what you see from that evaluation is like how clear it is what Europe stands for in a way, or how different it is in some ways from the US and particularly on an environment and with, with water. And I, and I'm thinking here about, you know, how they're moving forward with regulating micro pollutants or the plan is to apply a polluter pays principle to PFAS emitters and regulations moving forward on that and just all the resilience policies that are coming through. I mean, it's really, I think Europe realizes this climate issue is not going away and it's not a hoax.
[00:28:24] Speaker A: Yeah, no, I think it's interesting. So, all right, here we go. Maybe this, this may be a little bit of overlap, so we'll see where this goes. But I had to get this in here. So midstream, water and oil and gas has gone from what is a cyclical commodity plate to what seems like a structural necessity. And as I just mentioned, Europe pivoting from Russian gas, Asia's LNG appetites, growing AI data centers demanding massive energy or power.
Water has become a critical enabler of global energy security. Right? I think so. Did the water sector accidentally become geopolitically important or have not materialized quite yet?
[00:29:11] Speaker B: Yeah, I mean, it has always been important. Right. But it's been hyperlocal in the way that that importance is felt. But you know, when you're connecting water to these broader shifts in energy supply, then it looks to be a Much more, much bigger trend. And water concerns kind of climb up the totem pole of importance. I mean, yeah, I think what we're stuck with here is everything seems super interconnected. How do you pull it out and talk about it individually? We're talking about AI, energy demand, gas. You know, there's all these different pieces.
It is the water energy nexus, which has become even more of a sort of powder keg, if you want to put it that way, in terms of if you don't have those things lined up, you're going to have a lot of challenges going forward. So, yeah, I don't know if it was accidentally. It's just the way that things have aligned. And it's interesting. I mean, I like how you put it. Critical enabler of global energy security.
That's different from a lot of folks talk about water wars. You know, the future is going to be all about people, you know, Mad Max. Right. You're thinking Mad Max. And it's going to be apocalyptic and we're all going to be driving around in the desert murdering each other for fuel.
And, you know, I don't, I think that's not what's happening. But you can see that water is, is factoring into the energy value chain in very relevant ways.
[00:30:54] Speaker A: Yeah. And I think.
Yeah, it's a good question. And it even goes beyond just energy itself. Right. So, you know, midstream water. Right. When I look at it, you know, but since 2015, we started exporting to Europe, LNG at least been enabled and it continues to climb. And I know the oil and gas industry in the US is super psyched about that.
Although my natural gas prices, my power prices in New England are through the roof, no thanks to lack of pipelines and Canadian droughts in Quebec and such. But so, but, but it's a $28 billion a year industry. Hydraulic, just moving water.
[00:31:38] Speaker B: And for.
[00:31:39] Speaker A: And for fracking, no one really thinks about that.
Another thing, it made me think even beyond energy. It's what we are. It is super local. And it kind of depends on local decision makers. Like we're seeing communities or Arizona people are raising cane about, you know, growing alfalfa in Arizona. Alpha Arizona is a desert for those that don't know. And we're shipping alfalfa to Riyadh.
Right. So for the zoos and horse tracks or racetracks or for cattle. So you're basically people are now arguing, wait a second. Why?
We're sure we're shipping alfalfa, but what we're really shipping is just water in the form of alfalfa. From one desert to another. What are we doing? It doesn't make a whole lot of sense.
I think, you know, we're all capitalists to some extent.
80, 20 rule. Maybe 80% of us are, 20 aren't. But I think that's what's sort of driving the business. And you know, my cynical view is, you know, you know, not unlike, you know, well, a human can't live without water for three. After three to five days. Right. I mean that's just the bottom line. You'll die and. But I would challenge any of our colleagues or clients or friends for that matter.
When was the last time they thought about having water? Right. You know, if it is no one, I don't know anybody in this office right now.
It would they. It's the holiday, so it's pretty light, I'm not gonna lie. But have they thought about like, am I not gonna have water tomorrow? So I think that's where it's a little crazy. So from Cape Town to Mexico City, I think if you ask them, I think it would be closer to their mind. But in Barcelona or it's. Although it's happened to Barcelona, their real concerns, but not in stay level. So.
[00:33:37] Speaker B: No, absolutely. I mean I think if we think about maybe the time of hydrological abundance on a planet level is, is over and you know, now I'm thinking about Dune here and you know, just these sci fi films where, you know, they value water in such a different way because it is very unique.
Sorry, I'm going planetary here. But yeah, no, I mean, I think it's always been important. When you say geopolitically important though, that implies there's, you know, there's more at work here at the macro level.
[00:34:17] Speaker A: Yeah, I don't think geopolitically they're thinking about the water piece and that's really what my last point is. And so. But it is a water play at the end of the day and there's a water opportunity. I think a. Over time that will increase, particularly as there's greater water stress and we're exporting certain things. But yeah, I agree with you. Water wars.
And I mean, I think my. Was it the last podcast episode? I start everyone now with a fact. I think it was about Coca Cola that for every liter of beverage that the Coca Cola company produces, it uses 1.78 liters of water to get to that point.
And I think my point in that fact was every company is a water company. The question is what scale or what's the impact on their business and, and how do they deal with it. So.
All right, well, cool. So we'll get away from that.
All right, let's talk a little bit about water rates. Affordability a little bit. So the water and sewer bill has increased 24% in the last five years in the U.S.
some cities are hitting EPA affordability thresholds.
What breaks first? The infrastructure or the public's willingness to pay?
[00:35:31] Speaker B: Yeah, I mean, part of the challenge with water is that price elasticity is very high because you can't live without it, Which means that you're going to keep seeing rates rising.
We've tracked rates a lot, whether it's been on a private or publicly owned network.
And the rate cases show that they're going to keep ratcheting things up.
But how that money is being spent, I mean, I think that's the underlying question. What breaks is the infrastructure. That means that when you raise those rates, you're not necessarily spending it on infrastructure renewal or maybe not at the rate that you should.
And so there's a bigger governance question here.
I mean, they're both intricately connected, but the infrastructure is aging. I think we've looked at the increase in OpEx versus CapEx over the last 50 years, and there's just this yawning gap which suggests that if they don't start picking up the pace of renewals, things are going to get a lot worse. And you know, we've already seen that in some cities.
[00:36:54] Speaker A: Yeah, I think, to put a number on it, I would think I would agree with you. Infrastructure, partly because one, like we said, we need water. You need it to live. But also, you know, water losses in the US are at 17%. You know, so that's leakage rates.
Italy, Mexico City, we're seeing in the 40 to 50% ranges, depending on where you are.
So that's extremely high. And the question is, to what your point? The yawning gap between needs and what capital is available.
That growing gap is an indicator of infrastructure breaking first.
[00:37:35] Speaker B: Yeah, but I mean, you could argue it the other way, which is, you know, what public's willingness to pay is already broken. Like, why is the bottled water industry as big as it is? Or when you poll Americans, like, how often do you drink water from the tap?
There is an argument there to be made that they don't want to pay for it. How much does water consumption increase? We know that water use in the home generally has been pretty stable. As appliances have become more efficient, people are consuming bottled water.
So, I mean, what does that tell you?
[00:38:15] Speaker A: Yeah, I mean, I'd say I think you raise a good point. And you said it even earlier when we were talking about the power sector, we have become more water efficient. Whether like the power sector, new tech, appliances, et cetera and the residential level, I think without a doubt, you know, smarter. It's amazing that lawns or, you know, sprinklers, irrigation systems aren't smarter than they already are. But that's changing little by little. But your point about bottled water is a really good one.
I think people, if they lose trust, and that is a concern part, whether it be because of marketing, whether it be because of fears of, whether it be because of boil water advisories and pfas and contaminants.
Note to everybody, if you're drinking bottled water, there's no guarantee, there's no PFAS in there. But that being said, yeah, the bottled water industry, and we've done numerous analyses on this on the bottled water sector, partly because it is a competitor of sorts that kind of eats into the, the utility, not just revenues, but also brand.
[00:39:25] Speaker B: Yeah. And it's also a sign, I mean, I think maybe you're going to mention, you know, other countries where they have more dire infrastructural issues. But you know, it is, it is a sign that the public in some cases just kind of given up when the municipal utilities and the water they're supplying is that poor.
[00:39:46] Speaker A: Right.
[00:39:46] Speaker B: And then you get into this vicious cycle of there's poor quality water so nobody wants to pay for it, which means that the utility doesn't have any funds to upgrade the infrastructure to make the water quality better. And it goes round and round and they get stuck in this vicious cycle of, you know, non performing municipal water utilities. If we're talking about drinking water, but we're just talking about drinking water though, we could talk about sewer too.
[00:40:14] Speaker A: Well, one I got, I was with you last week in Barcelona. So when we would go out to dinner, do we get tap water? Do we get bottled water?
[00:40:22] Speaker B: We got purified water on site. That's their tactic now, which is they try and charge you the same as they would for, you know, hauled in bottled water. But they just put it through their own RO filter and into a pretty bottle onto your table.
[00:40:40] Speaker A: Ah, there you go. I was wondering because, yeah, in the US when you go out, they'll say, do you want bottle? Do you want tap? Do you want sparkling? It's like, just give me the tap. I'm pro tap.
So. Yeah, sorry I cut you off. So Sewer. Were you going to say something about sewer?
[00:40:56] Speaker B: Yeah, I mean, I think with sewer, that's, that's an interesting one where, you know, at least as like a homeowner, you can't really opt out of that one. Right.
You know, so there, I mean it is really the infrastructure breaking and you know, US has a lot of combined sewers there.
There's a bunch of cities with consent degrees for all. There's overflows and maybe the increase that we've seen, as bad as it is, it's a signal of what needs to happen for certain cities to become compliant in the long term and for the environment to be safe.
So unfortunately, sometimes these increases, they tend to try and play catch up, right, with the decades of underinvestment that have happened. And there comes a point where you can't keep kicking it down the road.
[00:41:59] Speaker A: Right? Yeah, no, I would agree with that.
All right, let's speed things along so. Because I've got a speed round of questions for you too. So last, last big question. So if you had to place one contrarian bet for 2026 something, the consensus is getting wrong, that is, what would it be?
[00:42:17] Speaker B: Yeah, I mean this is going to circle back probably too much of what we were already talking about.
I would bet that the panic around data centers may in some ways start to subside.
And I say that not necessarily because everything's been sorted out, but I do think that there's so many bottlenecks on the power grid side of things that will slow down some of the build.
And so folks probably need to calm down a bit. Not all the 30 data centers that are coming to your town are actually going to get built. There's just a bunch of paperwork filed for transmission connections, but they can't all get them.
So that would be one that I have.
[00:43:13] Speaker A: I would agree with that. I think it's overstated. I think as we've talked about internally for data center developers, they're running around trying to find the least path of resistance. So they may have three or five data centers being developed and maybe one only happens. The risk is economic meltdown. Because the Magnificent Seven, all these data center and or chip companies, big tech, they're driving the US economy. I mean, that's really what we bet on. That's my concern. I think mine would be a derivative of that and you know, is sort of the impact of AI, right. And do.
Does corporate America in 2026, you know, will everybody have embraced it and what will that mean or be. And I was thinking about it this morning coming in, as I do, and you know, I listen to a lot of podcasts. I'll say it again, and that is, I was listening to one and they were talking about.
It was an economist comparing it to the banking industry. Now, AI is far more disruptive. But when the banking industry went through this whole transition with things like ATMs were supposed to replace tellers, and then we don't need tellers anymore. You can go in and get your money. What ended up happening is 20 years ago to today, we have the same amount of tellers, banking tellers. It hasn't changed at all. What has ended up happening is those bank tellers, they've just.
What's a, you know, I don't know. Upworked is. What's the right word? They've just upskilled. Upskilled. Thank you. Thank you. They've upskilled into other areas.
We all use ATMs. So now is what was pointed out by this economist is actually these bank tellers, they're now just trying to. They've upskilled and now they're just trying to sell you on other products. They're doing slightly other things, more value add. Is that what's going to happen with AI? Right. Will it work its way. And it's worked its way into Bluefield. We use it in our data analysis, data collection, we look at historical data, we try to kind of map things backwards, etc. It speed things. Speeds things up and does it open us up to do slightly other things? And some people embrace it, some people don't, but maybe it's the future of AI. You caught me at a moment.
All right, let's do a quick speed round because we got to go.
We have our last all hands on deck company meeting this morning and we don't want to miss it because it's not a serious one. I think it's going to be more fun.
All right, speed round, one word only.
What will define the water sector over the next decade?
[00:45:56] Speaker B: Climate change. Oh, that's two.
[00:45:58] Speaker A: All right, that works for me. I, I'm not going to disagree with that.
The question is, will it be resilience or not? I, I had that in my notes to myself. Resilience. There you go.
[00:46:09] Speaker B: That would have been better. That. That's well put, Reese. I should have said resilience, but I'm.
[00:46:14] Speaker A: Not sure we're going to be resilient. That's my. I'm being more of a cynic. I'd go with the two. Climate change. All right, what do investors or policymakers still get wrong about the water market?
[00:46:24] Speaker B: They continue to kick the can down the road. I mean we just, I know this is the speed round, but look, as we were saying before, a lot of investment decisions keep getting postponed and you know, if you kick it down the road at some point there isn't going to be a road anymore.
[00:46:43] Speaker A: And I would say is that more on the policy front of the investor front?
[00:46:47] Speaker B: Well, the policy unlocks the investment. So I'm going to say on the.
[00:46:50] Speaker A: Policy front first on the investment, I would say investors, particularly outside investors, private equity, other third parties who are particularly those who are getting into it, who don't know a lot about it. They underestimate how local, regulated and slow moving the market is.
[00:47:06] Speaker B: Yeah, you can't copy paste the power sector onto water.
[00:47:10] Speaker A: Oh man, I wish we could.
All right, what part of the water value chain looks boring today but it won't be five years from now?
[00:47:20] Speaker B: I would say investment and I'm going to the nuance to that is when you say investing in water, it may sound. In the past the attractiveness of the water sector was how stable it is. And utilities, the demand is just there all the time. It affects every aspect of the economy.
So investing in utilities and those types of investments may seem kind of boring. But five years from now, when resilience comes more to the fore, when as you were saying before, water infrastructure makes a critical enabler of the energy sector, then that starts to become a very attractive investment. And I think as we've been pursued by many funds looking to get into water funds that before, you know, want to do high flying stuff more in tech or finance.
Water. Water's becoming interesting from an investment point of view.
[00:48:20] Speaker A: I was going to say O and M. Right. I know there's a lot of interest in O and M. It seems kind of actually, I don't know if it's boring. I think what's going to be interesting is the role of AI in O and M. So will companies like Inframark or Veolia and others, to what extent will they use AI and will third party O and M increase a greater scale through better efficiencies?
[00:48:44] Speaker B: No, no, absolutely. And I think, you know, we were talking before about upskilling people and there's, I mean we know that the industry is chronically short staffed for positions like wastewater treatment operators and other roles. Bringing AI in to act as, and this is my buzzwords, force multiplier for, for utility staff is a huge deal and that could make water systems Function a lot better when they're aided by AI for some of the decision making, for processing a lot of data. That right now is drudgery, having to look at closed CCTV footage of pipes and things like that. So I agree there's a lot of excitement around how we can get more out of the people who are already working in the water industry with AI.
And so that's a space to watch.
[00:49:44] Speaker A: Yeah, particularly if people are kicking the can down the road like you said, and they're deferring investments, then O and M becomes even more critical and a need for efficiency will be needed. All right, here we go. Get this one right this time. So if utilities could only place one bet, pipes, people or platforms, where should it go?
[00:50:02] Speaker B: It's got to go to people.
And that is, you know, I mean, in some ways maybe it seems like a no brainer, but the people are the ones that are going to direct that other stuff. I mean, you need the right people in place that can make the right investment decisions. Maybe they're going to be aided by AI and making those investment decisions, but that's, I think, what they need because that, that drives a culture of innovation, of forward thinking, of delivering value to citizens, all that good stuff that could come out of. And you know, I know we dwell a lot on the technology sometimes, but we also say a lot of times that the world and the water sector is packed with good technology. That's not the issue.
And I think utilities recognize that or need to recognize it even more.
[00:50:52] Speaker A: Yeah, speaking of podcasts, I'm going to refer to another one.
They were going through top 10 industries or sectors impacted by AI and the one industry that was going to be least impacted, number one on their list were water wastewater utility operators.
And I'm not. Yeah, that's what they said. So it's all about the people.
[00:51:18] Speaker B: Yeah, yeah. I mean, I think it won't reduce the amount, but it will help them.
[00:51:22] Speaker A: Do their jobs better 100%.
All right, and I think this is my look at my notes. Last speed question. Here we go. Looking ahead to 2035, who has more power, those who own their infrastructure or those who own the customer?
[00:51:38] Speaker B: I'm going to go with infrastructure because I think that it's a critical enabler of the energy industry, as we've said before. No, but you know, I think customers are, they're very different business models. I think, I think it really depends. I'd have to add more nuance to the question maybe where we're pointing that at. But I think Infrastructure.
[00:52:01] Speaker A: Yeah, I put in my notes, I put customer because I, you know, I'm just, maybe I'm is a recency bias or just sort of in my head as big tech and the role of thing. And I'm thinking about TikTok and Facebook.
They just own everybody's date. They know everything about everybody and no one likes or wants to hear this. I think the water sector is filled with information and data about people, communities, towns. And if someone can figure out the customer, the data and about them, I see value in that. And I think the other thing is, I think increasingly I'm talking out of both sides of my mouth.
The.
If you the. Because of things like social media, the power of the public is incredible. Is stronger. It feels like it gets stronger by the day because of.
Is it NIMBYism, public pushback concern? And I think, I mean, politicians are at risk from, you know, public outrage. So understanding or owning.
Understanding the customer itself is incredibly. Can be incredibly valuable.
Doesn't come without risk. I don't know if that makes sense. But I'm pro customer.
[00:53:11] Speaker B: It's sort of, I mean, yeah, the customer, especially if we're talking about like a publicly owned utility or talking about, you know, some infrastructure that's going to impact the public. I mean, it's at the service of, of those customers.
But again, as I was saying before with that vicious cycle, like if they're not getting good service, buy bottled.
[00:53:33] Speaker A: What's that?
Is it death?
[00:53:36] Speaker B: Liquid death?
[00:53:36] Speaker A: Liquid death.
[00:53:40] Speaker B: It's like, well, your customers are going to not pay you anymore if the service is bad. So you're going to need good infrastructure to do that.
So it's all interconnected.
[00:53:49] Speaker A: I mean, as you know, it's sort of like this has changed, right? Warren Buffett used to like newspapers because they're monopolies, they're local monopolies. Now the Internet has changed that and sort of, you know, cut them off at the knees. But the water sector, they are monopolies locally. And I, so maybe I, I'll flip on this and say if you own a local utility, you've got a monopoly.
You've just got to provide reliable service. If you do that, you, you keep your job.
If you don't, someone's going to come in, whether it be through eminent domain or the state or someone will come in and take it from you. Perhaps. I don't know. I'm kind of shooting from the hip here, but. All right, okay, that's it. That's it for 2026.
Keith. So this exactly Congratulations. We've almost made it.
And where. Let's give everybody. So I'm going to see you in early January in Boston. But you're. What are you doing for the holidays?
[00:54:49] Speaker B: I am headed out to Long Island, New York, where we got some snow.
We're gonna build a fire, we're gonna eat some good food and be with family. So heading back. Heading back to the States.
[00:55:02] Speaker A: Well, I hate to break it to you, it's not cold here at all today. It's awesome. It's a little wet and rainy, but it is, I think, in Fahrenheit, 50, 55 degrees maybe.
It's pretty balmy. It's actually pretty sweet. So.
But that may change next week, whenever you. Whenever you get over. So. All right, so I will see you in Boston, and then you and I are in California together. So you're kind of here for better part of a month in the States.
[00:55:32] Speaker B: Yep. Looking forward to seeing the team over there, hopefully visiting a few clients and getting off to a strong start in 2026.
[00:55:41] Speaker A: All right, so to be equitable, I'll be in North Carolina for at least a Christmas holiday. And then once my wife and I come to terms with a decision, we'll figure out where we're going to be for New Year's.
[00:55:55] Speaker B: Sounds exciting. Flying by to see your pants, waiting to make the call at the end.
[00:55:58] Speaker A: Let me. It's not good for a marriage, quite honestly. There's a lot.
A lot of going back and forth, to put it nicely. But it may have flipped last night. We may end up in Florida with some friends.
All right, we'll see what happens. But everybody just wants to go somewhere warm.
That's really it.
[00:56:18] Speaker B: So I hear you. I hear you.
[00:56:20] Speaker A: All right, man, let's do it. So team call. Five minutes. Let's get on that. And thanks again and happy holidays. Happy New Year.
[00:56:27] Speaker B: Yeah, happy holidays, Rhys. Take care.
[00:56:30] Speaker A: See you, man. Cheers.
All right, there you have it, everybody. That's exactly what I wanted. That's doesn't always happen this way, but that's kind of the conversation that Keith and I have all the time, whether it be in person, like last week in Barcelona over dinner, drinks, or just sitting in the conference room.
And maybe the goal or an objective for New year's resolution for 2026 should be have Keith Hayes on more often to chew the fat, as I would say. So before we sign off, it's the end of the year. I can't thank the same people. I say this every time. Mike Gaylor, Ryan Sullivan, Kelly Talbott. Steph Aldock.
I could go around the room. It's been an awesome year. They've made all this happen. They don't get enough credit.
So give them credit. One way you could do it is you could hit Star five on your podcast, rating or review. I know it's that way in Apple. I can't remember what it is in Spotify and all the others, but without them this wouldn't happen. So don't give me the review. Give them the review.
And it needs to be a 5.
If you're in Boston, Barcelona, New York, Chicago, San Francisco, Paris and other places we are growing.
Let us know. We've opened an office in California and Berkeley, so if you're interested in meeting with us there, I'll be there at the beginning of January. But also we have a team there and if you have any topics or ideas you want us to tackle, send us a note. You know where we are water
[email protected] we're doing this for you and I think I'm just kind of going through my memorized notes. This podcast these water industry insights brought to you by the one and only Bluefield Research. To learn more about us, Visit
[email protected] Don't be a stranger. Have a happy New Year. Happy holiday.
Just be happy wherever you are until the next time. Be well, be safe and take care.
