ON THE WINGS OF

Water and Wastewater VMA Market Outlook Workshop August 2015 FLYING WITH EAGLES AND EAGLES

Brown and Caldwell 2 (Today’s Subject Matter) • Macro Market Metrics • The Plus and the Minus • Fiscal Factors • Doins’ in DC • Global Glimpse • They Did What? • Futurecast

Brown and Caldwell 3 GOOD DAY IN HELL (Market Performance)

The Glory Years 16

14 12 10 8 Stimulated % Market Growth Market % Bad Moon A Risin’ 6 Lag and Slow 4 Recovery Flat 2 2011 2012 2005 2006 2007 2008 2009 2010 2013 2014

Brown and Caldwell 4 GOOD DAY IN HELL (Market Performance)

The Glory Years 16

14 12 10 8 Stimulated % Market Growth Market % Bad Moon A Risin’ 6 Lag and Slow 4 Recovery Flat 2 2011 2012 2005 2006 2007 2008 2009 2010 2014 2015 2013 thru May (Construction)

Brown and Caldwell 5 FRAIL GRASP ON THE BIG PICTURE (Size and Proportion)

• $100 B+ • $500 B+ • WW ~ 65% • WW ~ 40%-45% • W~ 35% • W ~ 55%-60%

Brown and Caldwell 6 FUNKY NEW YEAR (CCI and Confindex)

ENR CCI – Water/Wastewater 3-6 Month Outlook 2014 2015 Decline 13% 4% Stable 51% 46% Improve 35% 50%

CFMA Confindex – All Construction 2014 – 129 2015 - 131

Brown and Caldwell 7 AFTER THE THRILL IS GONE (AWWA SOTWI “Final Four”)

• R+R of aging infrastructure • Financing capital improvements • Long term supply availability • Public understanding of the value of water systems and services

Brown and Caldwell 8 YOU BELONG TO THE CITY (Population Migration)

Today 2050 • 7B people • 9.5B people • 60% in cities • 70%+ in cities

Brown and Caldwell 9 BEST OF MY LOVE (The Positive Forces) • Supply/Drought/ OneWater • Sheer Need • Utility Adaptability • Available Financing • Enforcement • Energy • Housing Starts • Florida • Public Support

Brown and Caldwell 10 (The Negative Forces)

• Conservation • Lower Revenue • No Regulatory Game- Changer • Competing Causes • Green Infrastructure • Construction Labor Shortfall • Public Apathy

Brown and Caldwell 11 (Supply/Drought/One Water)

California Texas Restrictions Drought Over?!? Bay Delta Plan Water Plan Bond Issue Desal & Reuse Aquifer Depletion Desal & Reuse Colorado Yampa Pump Back Chatfield Reservoir All Water is Reused Water Graywater Las Vegas Lake Mead Still Wichita Dropping Tampa Declining Hydropower Third Straw Brown and Caldwell 12 THE LAST RESORT (Reuse Today and Tomorrow)

• Reuse in U.S. Today 3 • 60% - 70% growth over 2.5

next 10 years 2 • DPR

1.5 • PureWater Program m³/day (million) m³/day 1

0.5

Florida California Texas Arizona Colorado Nevada Rest of US Bluefield Research

Brown and Caldwell 13 (Desal) ALSO: 16 plants in • 200 plants in U.S. now approval process (150 in Florida) • SAWS • Growth in capacity • Cost still a hindrance • Double digits outside U.S.

Santa Barbara Huntington Beach

Carlsbad

Brown and Caldwell 14 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

Brown and Caldwell 15 DO SOMETHING (Enforcement)

EPA ALCOSAN Major WW Miami-Dade Remains and others Driver • $13.5B Active • 15-20 years coming

Brown and Caldwell 16 TEQUILA SUNRISE (Energy)

Solar

Thermal Hydrolysis

Efficient Equipment

CHP

Brown and Caldwell 17 ALREADY GONE (Conservation)

Then to Now

168 gpcpd - 1990 141 gpcpd – 2010 355 BGD - 2010 410 BGD - 2005

ALSO: • 43%- water sales declining in last decade • 29%- water sales flat in last decade • Consumption based rate structure -> reduced revenue

Brown and Caldwell 18 LAST GOOD TIME IN TOWN (Green Infrastructure)

• Find the valves and the pumps • Many utilities going “green” • Integrated planning • Community betterment • Potential cost savings

Brown and Caldwell 19 THE GIRL FROM YESTERDAY (Labor Shortage)

• During recession, construction unemployment >20% • Many left, retired, won’t come back • Unemployment now 8.3% • 87% - Hiring difficulty • Skilled labor

Brown and Caldwell 20 CENTER OF THE UNIVERSE (Fiscal Factors)

Utilities Municipal pension breaking even spending – 10%

RATES - Up 6%/year since Minimal inflation 2010 - Construction – 2.1% - Projection = Same - Labor – 2.5% - Materials – 1.7%

Private - 3% of infrastructure - 54% of institutional investors have SRF infrastructure funds - $1.8B for FY16 - PABs Muni bond - $2.36B now default = 0.4%

Brown and Caldwell 21 DESPERADO (Doins’ in DC) WIFIA WOTUS - Larger projects - Better and more clearly defined - No money, honey - Power grab - No tax exempt funding - Headed to court

Suits Fracking 4Bs - Chesapeake Bay - EPA – No negative impact - Bridge - Chicago - NY - No - Bernie - Des Moines - Bonds in Budget

HOLE IN THE WORLD (Global Glimpse)

• Growth, but skewed • World Bank funding steady • P3s common • Activity • Middle East • China • Some Europe • Some Latin America

Brown and Caldwell 23 LYIN’ EYES (They Did What?) • ENVISION • Nuke It • Going to the Dogs • It ain’t Rocky Mountain Spring Water • Climate Change Co-Conspirator • Record Setting Bus

Brown and Caldwell 24 THE LONG RUN (Futurecast)

2015 SEER ENV + PW W WW Dodge +4.0% -- -- PCA -- +2.5% +1.1% FMI __ +2.0% +2.0%

Brown and Caldwell 25 THE LONG RUN (Futurecast)

FMI Construction Forecast

Water Wastewater

$16,000 $30,000

$14,000 $25,000 $12,000 $10,000 $20,000 $8,000 $15,000 $6,000 $10,000

$4,000 Millions of Current DollarsCurrentofMillions $2,000 DollarsCurrentofMillions $5,000 $0 $0

Brown and Caldwell 26 THE HEART OF THE MATTER (Tom’s Prediction)

Market Similar up 3%-4% bump in in 2015 2016

Brown and Caldwell 27