ON THE WINGS OF EAGLES

Water and Wastewater

VMA Market Outlook Workshop

August 2015

FLYING WITH EAGLES AND EAGLES

Brown and Caldwell 2

• Macro Market Metrics

• The Plus and the Minus

• Fiscal Factors

• Doins’ in DC

• Global Glimpse

• They Did What?

• Futurecast

PEACEFUL EASY FEELING (Today’s Subject Matter)

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GOOD DAY IN HELL (Market Performance)

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16

14

12

10

8

6

4

2

2005 2006 2007 2008 2009 2010

% M

ark

et

Gro

wth

2011 2012

2013

The Glory Years

Bad Moon A Risin’ Stimulated

Lag and Slow

Recovery

2014

Flat

GOOD DAY IN HELL (Market Performance)

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16

14

12

10

8

6

4

2

2005 2006 2007 2008 2009 2010

% M

ark

et

Gro

wth

2011 2012

2013

The Glory Years

Bad Moon A Risin’ Stimulated

Lag and Slow

Recovery

2014

Flat

2015

thru

May (Construction)

FRAIL GRASP ON THE BIG PICTURE (Size and Proportion)

• $100 B+

• WW ~ 65%

• W~ 35%

Brown and Caldwell 6

• $500 B+

• WW ~ 40%-45%

• W ~ 55%-60%

ENR CCI – Water/Wastewater

3-6 Month Outlook

2014 2015

Decline 13% 4%

Stable 51% 46%

Improve 35% 50%

FUNKY NEW YEAR (CCI and Confindex)

Brown and Caldwell 7

CFMA Confindex – All Construction

2014 – 129

2015 - 131

• R+R of aging infrastructure

• Financing capital improvements

• Long term supply availability

• Public understanding of the value of water systems and services

AFTER THE THRILL IS GONE (AWWA SOTWI “Final Four”)

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Today

• 7B people

• 60% in cities

YOU BELONG TO THE CITY (Population Migration)

2050

• 9.5B people

• 70%+ in cities

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• Supply/Drought/ OneWater

• Sheer Need

• Utility Adaptability

• Available Financing

• Enforcement

• Energy

• Housing Starts

• Florida

• Public Support

BEST OF MY LOVE (The Positive Forces)

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• Conservation

• Lower Revenue

• No Regulatory Game-Changer

• Competing Causes

• Green Infrastructure

• Construction Labor Shortfall

• Public Apathy

HEARTACHE TONIGHT (The Negative Forces)

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LIFE IN THE FAST LANE (Supply/Drought/One Water)

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Restrictions

Bay Delta Plan

Bond Issue

Aquifer Depletion

Desal & Reuse

California Drought Over?!?

Water Plan

Desal & Reuse

Texas

Yampa Pump Back

Chatfield Reservoir

Colorado

Lake Mead Still Dropping

Declining Hydropower

Third Straw

Las Vegas

Wichita

Tampa

Graywater

All Water is Reused Water

THE LAST RESORT (Reuse Today and Tomorrow)

• Reuse in U.S. Today

• 60% - 70% growth over next 10 years

• DPR

• PureWater Program

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3

2.5

2

1.5

1

0.5

Florida California Texas Arizona Colorado Nevada

m³/

da

y (m

illi

on

)

Rest of US

Bluefield Research

HOTEL CALIFORNIA (Desal)

ALSO:

• 200 plants in U.S. now (150 in Florida)

• SAWS

• Growth in capacity

• Cost still a hindrance

• Double digits outside U.S.

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Santa Barbara

Huntington Beach

Carlsbad

16 plants in

approval process

TAKE IT TO THE LIMIT (Sheer Need – R&R)

• ASCE = D for W/WW

• 240,000 breaks per year

• Water Loss

• Atlanta – 31.4%

• Philadelphia – 26.5%

• NYC – 14.2%

• Etc

• AWWA - > $1 T in next 25 years

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DO SOMETHING (Enforcement)

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EPA Remains

Active

Miami-Dade •$13.5B

•15-20 years

Major WW Driver

ALCOSAN and others

coming

Thermal Hydrolysis

CHP

TEQUILA SUNRISE (Energy)

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Solar

Efficient Equipment

168 gpcpd - 1990

410 BGD - 2005

141 gpcpd – 2010

355 BGD - 2010

ALREADY GONE (Conservation)

ALSO:

• 43%- water sales declining in last decade

• 29%- water sales flat in last decade

• Consumption based rate structure -> reduced revenue

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Then to Now

LAST GOOD TIME IN TOWN (Green Infrastructure)

• Find the valves and the pumps

• Many utilities going “green”

• Integrated planning

• Community betterment

• Potential cost savings

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• During recession,

construction

unemployment >20%

• Many left, retired, won’t

come back

• Unemployment now

8.3%

• 87% - Hiring difficulty

• Skilled labor

THE GIRL FROM YESTERDAY (Labor Shortage)

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CENTER OF THE UNIVERSE (Fiscal Factors)

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- Up 6%/year since 2010 - Projection = Same

RATES

Municipal pension spending – 10%

- Construction – 2.1% - Labor – 2.5% - Materials – 1.7%

Minimal inflation

- $1.8B for FY16 - $2.36B now

SRF

- 3% of infrastructure - 54% of institutional investors have infrastructure funds - PABs

Private

Utilities breaking even

Muni bond default = 0.4%

WIFIA - Larger projects

- No money, honey

- No tax exempt funding

DESPERADO (Doins’ in DC)

4Bs - Bridge

- Bernie

- Bonds in Budget

Fracking - EPA – No negative impact

- NY - No

Suits - Chesapeake Bay

- Chicago

- Des Moines

WOTUS - Better and more clearly defined

- Power grab

- Headed to court

• Growth, but skewed

• World Bank funding

steady

• P3s common

• Activity

• Middle East

• China

• Some Europe

• Some Latin America

HOLE IN THE WORLD (Global Glimpse)

Brown and Caldwell 23

• ENVISION

• Nuke It

• Going to the Dogs

• It ain’t Rocky Mountain Spring Water

• Climate Change Co-Conspirator

• Record Setting Bus

LYIN’ EYES (They Did What?)

Brown and Caldwell 24

2015

SEER ENV + PW W WW

Dodge +4.0% -- --

PCA -- +2.5% +1.1%

FMI __ +2.0% +2.0%

THE LONG RUN (Futurecast)

Brown and Caldwell 25

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Millio

ns o

f C

urr

en

t D

olla

rs

Water

THE LONG RUN (Futurecast)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Millio

ns o

f C

urr

en

t D

olla

rs

Wastewater

Brown and Caldwell 26

FMI Construction Forecast

THE HEART OF THE MATTER (Tom’s Prediction)

Brown and Caldwell 27

Market

up 3%-4%

in 2015

Similar

bump in

2016