THE COWEN INSIGHT
Cowen’s 8th Annual Water Spendng Survey tracks opex and capex outlooks at ~50 municipalities across the U.S. We also interviewed utility leaders (both small and very large municipalities) to examine the process involved in choosing a metering supplier and the characteristics that drive a successful bid. Lastly, we collaborated with Cowen Washington Research Group colleagues on implications for recently passed federal legislation (the Bipartisan Infrastructure Law) and EPA priorities.
With improving deployment, municipal budgets should grow steadily in the LSD/MSD range through 2023. Federal dollars should provide additional support, but on a lag. However, utilities have favorable outlooks regardless.
WATER INFRASTRUCTURE REMAINS A KEY TOPIC
Recent high-profile water scarcity events (Lake Mead, Great Salt Lake, Danube River, etc.) combined with increased scrutiny over emerging contaminants have once again brought longstanding issues with our water infrastructure into everyday conversations. Megatrends such as urbanization and climate change only exacerbate these issues. Presently, we are forced to do more with less in a system that fails to account for upwards of 20% of the water that flows through it. The funding gap over the next 10 years is estimated at over $400B in the US alone.
INCREASING SUPPORT FOR MUNI BUDGETS
Municipal budgets in the US should remain healthy through 2023, supporting businesses with exposure there as other end markets likely continue to weaken. 2022 budget data came in modestly below the forward expectations presented in our survey last year, though still solidly positive. That is not particularly surprising, given emerging macroeconomic headwinds.
The view into 2023 is for continued steady growth in both capex and opex budgets, but more importantly, a higher expectation of actually spending the budget. For instance, last year, 88% of respondents expected to spend <60% of capex budgets, and 57% expected to spend <60% of opex. This year those numbers are 70% and 28% respectively.
COWEN’S 8TH ANNUAL SPENDING SURVEY RESULTS
Our discussions with utility leaders were consistent in that price is generally competitive and an undifferentiated selling point. The main driver was the total cost of ownership of the communication system and the ability to leverage data holistically into other applications.
Solutions are still a work in progress. Smaller utilities currently seem better equipped to harness data into multiple usable applications. Large utilities desire a better way to bring existing infrastructure into the same communications network, so data isn’t viewed and decisions aren’t made in isolation. There is a big opportunity here. At our recent trip to WEFTEC in New Orleans, the concept of digital twin was highlighted, but not as much as we’d expected, given the customers’ appetite.
KEY SURVEY TAKEAWAYS
We are at a time when many are waiting for estimate declines, and that will be the likely outcome in many areas. In the municipal area, our work gives us confidence that estimates will remain firm outside of incremental supply chain disruption and could potentially increase depending on the pace of supply chain recovery and/or federal dollar inflows.
Responses regarding funding from the infrastructure bill were very interesting. Last year ~2/3 of respondents expected to receive funds, and this year ~2/3 expected not to. Hard to tell if this is simply timing or something else, but when we isolated those not expecting funds, they still had favorable budget views through 2023. Water CPI has also been lagging general inflation but is accelerating now; this should provide cover for rate increases to further support spending trends.
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