According to records from the Federal Bureau of Reclamation, western states reliant on water from Lake Mead and Lake Powell, might need to cut their water allocations by as much as 25 percent due to extreme drought conditions facing the Colorado River supplies. With $4 billion included in the pending Inflation Reduction Act for CO River drought relief, in this conversation with VX News, Chairman of EPCOR Water USA Advisory Board and Founder and CEO of the Canada Arizona Business Council, Glenn Williamson, opines on the need for big water projects in Arizona and California’s Imperial Valley that draw on new sources of imported water to support a growing population and tech manufacturing sector. Williamson, Canada’s Honorary Consul Emeritus in Arizona anticipates the imminent commodification of water in Arizona and the opportunities for pension funds—particularly those in Canada— to make a return on investments by investing in upgrading Arizona’s water infrastructure.
Glenn, when we last spoke formally in 2013, you said, “Arizona is like Israel or the Murray Darling Basin in Australia. It's primarily an arid area where you can make a difference with proper water management. The supply side of water is very definitive. The demand side is the one which requires all the heavy lifting.” Is this still the case?
No! In those years, the Colorado River was indicating its problems to those of us that were watching. We have now gone far beyond indicating, and we are watching a river die.
The key to success is dividing up the pie into a couple of slices. One is what we talked about 2013, where the water industry can do better maintenance-wise, pipe-wise, and all the infrastructure that we in the water business do every day as professionals.
The bigger opportunity is what are we going to do down the road? What massive, transformational, supply-side innovation of infrastructure is going to have to be laid down on top of this very dry existing infrastructure that has been for decades bringing wet water into the valley?
That's why I say no!
Leaking can be stopped with infrastructure. Canals can be covered to capture evaporation. We must take the negative out of wastewater and recycle/reclaim everything, water banking, stop planting nonnative plants, make agriculture water efficient, build Desal plants, and price water as the valuable commodity it is.
Elaborate on “what’s being done” re supply—side infrastructure innovation?
In the last two months, the CABC, the strategic advisory side of our organization with 125 members like APS, SRP, EPCOR, Global Water, and about 10 of the biggest municipalities, has been smack dab in the middle of the water discussion at every level.
A couple of other things have transpired in Arizona from a political point of view. The state had quite a few billions of dollars leftover post-pandemic from the federal government. What we have seen the governor do is allocate a $1 billion towards water, which is wonderful. It's about $7.5 to 8.5 billion short of what is probably going to be needed over the next 25 to 50 years. But it is a fantastic recognition of the issue and a wonderful start.
When the Central Arizona Project (CAP) canal was built, it was a major undertaking. Hopefully, what we can keep out of the Colorado River issues is “power generation” as the water recedes. We're going to have to figure out where to pull water in from to add to the river just in case. As you know, we have EPCOR supplying an enormous amount of water to San Antonio through a 150-plus mile pipeline. We are also doing the Samsung semiconductor plant in Taylor, Texas, which is another 53 mile pipeline.
What I'm trying to allude to is that water inevitably is where it is not needed. Moving water from A to B naturally has been rivers. That's been very helpful over the years in a lot of areas, but much like the Persian Gulf, we find ourselves in a very difficult scenario of how to move water from A to B.
What I'm indicating to you is, in Arizona, we have another piece of the puzzle that's very important. When you and I spoke in 2013, I don’t think that we would ever in our wildest dreams see semiconductor plants the of the size of TSMC set up shop here or see Intel do an additional $20 billion fab here. They all have great recycling programs, but as big as these plants are, the supply chain companies around that are giant water users, and even more than that, they manufacture. That's different than Arizona's historical topography of supply chain storage for boxes from Long Beach.
Arizona is going from being California's attic (storage) down to the basement where things are being made (manufacting). That's a whole different twist on what the demand side for water infrastructure is going to be. In my discussions, we are seeing a trend within all the major pension plans, very specifically in Canada, where they have about $2 trillion under management with a huge allocation towards environmental projects of size and scope, with very low deployment occurring.
When you look at water as a deployment question inside environmental funds of caliber and size, people immediately think we need to build a new dam in Egypt or a new sewage system in Boston or we need to build a new bridge in New York. I walk in and ask them to have a chat about water in Arizona. First, we must tell them that we're next door to California and that water flows through here to the Imperial Valley. And this is a problem that is becoming bigger and bigger.
Unfortunately, we do not have, in this generation, big enough thinkers that we had 60 years ago that we used to call ‘water buffalos.’ Now, we have a compounded problem of manufacturing semiconductors, there is a reason they are all based in Taiwan they are surrounded by water everywhere, and California where you happen to have the Pacific, and can do things with water that we have not.
Wet water is going to be an issue. You're going to see Arizona being one of the states that will bring commoditization of water on earlier than most other states. There seems to be this addiction to building things in this desert, and I don't see this slowing down.
To put this in perspective, I've had the opportunity to look underneath the hood of where a lot of things are coming. We're sitting on about 100 million square feet of new manufacturing plants in the next two to three years. If you're in the infrastructure business, this is going to be taxing on the things that you would expect it to be like labor, affordable housing, and electricity, but pivotal to life is water. Without water, none of those things are relevant. And the answer cannot always be the same cut back on agriculture, there are huge downsides to that as well.
We brought to the VerdeXchange this year Harout Chitilian of CDPQ Infra from Quebec to share their Pension Fund’s focus on infrastructure, including the management of large projects from within. Have you been in conversations with CDPQ?
I met with him two weeks ago in Montreal, my hometown. We had to talk about Arizona’s location—geography first and then water— and Harout got it right away.
I think Canadian-based Engineering firm Stantec gets it too, and we talk about this all the time. We're now trying to get companies like Stantec to ask, how big is big? What creates big? Getting the pension plans to look at something is not a hard thing. Inviting them down to the Super Bowl is easy. Giving them glasses of wine is easy. At the end of the day, what are you selling? I say to people, “I believe we're going to need $8 to $9 billion for water infrastructure in Arizona over the next couple of decades and they say, Can you please tell me what it is for?”
Within my own company EPCOR, I can point to $100s of millions spent here and there that the company has spent in Arizona fixing water issues. Boy, did EPCOR come along at the right time to help out, but there is still more to do. 25 years down the road from now, we're going to have to have Plan B put in place. It's going to take about 25 plus years to build.
Phoenix and the greater Maricopa region is going to grow in the next 25 to 50 years. Everything we have to date that was built by farmers, ranchers, and real estate developers is about to go big time, which means you're building another city on top of the city. As a water company that has purchased billions worth of assets here, never in my mind would I ever think we would be going in and buying assets that were developed by real estate people where the water infrastructure below the ground for 10,000 homes maybe had such a short life expectancy. The reality is they were building it as a value add to sell their real estate that they could flip one or two times. When companies like EPCOR—a 130-plus-year-old water company—come in, they built in the longevity that kind of infrastructure required. And cleaned up the mistakes of the past.
Old pipes are starting to have 30 to 50 percent water seepage. It's not a question of getting new water in the short-term; it's a question of managing what we have better. It's about the end user and the actual water companies. The concept of private ownership and private equity investment is starting to change, which means more Public-Private Partnerships (PPP). In 2017, The Canada Arizona business Council jointly with the State of Arizona put on a PPP event in Arizona for about 150 people. I was looking into an audience that had a spotlight in their eyes because the concept of PPP’s was so distant from the relative nature of what they were doing. I think we're back at that point now and it is time to revisit the PPP concepts.
Pivoting to the Federal Government, how might Arizona and water interests benefit from the first major infrastructure bill in 25 years coming out of Washington?
I think like any politics these days, some states are going to do well, and some are going to do badly. I believe that the concepts of capitalism and equity investments in infrastructure, supported by and wrapped around, but not driven by government, are what's going to make this work well. I hope Arizona makes the cut in DC.
Let's focus on PPP’s. With the availability of federal money, might the latter be leveraged via PPP projects?
That is the big question. The answer is yes. I'm putting an RFP strawman out for water infrastructure projects in Arizona $1 billion and up in size shortly. I'm doing this with a group of people that are prominent, and we'll find out if we have some big thinkers on this subject or not. The last time we did this in 2017, the average size of the 14 submissions that came back to us was $35 to $40 million.
If I want swimming pools, I can bring in a pool company. We need to create world class inbound water projects that will bring water from further away into this region while we also conserving better.
The State of Arizona has allocated $1 billion to start looking at project like putting a Desal plant in Mexico. Arizona has a solid relationship with the State of Sonora I hope that carries to Mexico City for this kind of potential Canada Mexico Arizona NAFTA thinking.
This has a massive effect on farming over in California because 70 percent of all the water we're talking about here is agriculture. That poses another set of questions, but there's a bunch of very smart agricultural people working on those issues especially at the University of Arizona.
Turning to facts that you're very aware of: Lake Mead is reportedly just 28 percent full—its lowest level ever. Lake Powell was at 27 percent in June. The Bureau of Reclamation said the seven states dependent on the river will need to cut their water use between 2 million and 4 million acre feet to avoid outright catastrophe. When you read that, what do you think?
Opportunity. We need new options to augment the Colorado River. There are too many lawyers that are vested in arguing the law of the river. That room of 25 lawyers is sitting there milking hours and hours of billable time arguing over something that, if this were any other normal business with this rate of decline, how long would you ride this horse? At some point you're going to think it might be a good idea to get another horse. We need creative new entrepreneurial thinking to get to the next level. This is not impossible but we do need a next generation big picture plan.
Elaborate on what’s needed to meet the opportunity moment?
Water, as I said before, is inevitably where it's not needed. You end up having to move it. The reason water has been difficult to move before is because it was not a commodity that was priced high enough and was not valued. If you don't price something and don't value it, you pretty much treat it the same way as its valued, which is zero.
We know how to put pipelines in. We know there are water sources around, but we've got to figure out how to get them into the system. Again, I'm not smart enough to know all this, but I'm smart enough to know that I have Capital market folks with billions of dollars that want to spend it on the environment, and water is part of that. I also have another group of people in Arizona that want to continue to grow this state.
What we need are big thinkers and smart people that build mega projects around the world to show us and help us. It's very similar to when I was launching and building satellites. I would have a room of PhDs and engineers that build satellites in the room. I wouldn't have a bunch of people that didn't do that. Right now, what we need are professional people that know how to build big water infrastructure.
The Western States historic drought obviously impacts all water purveyors. How is the latter crisis on Colorado River affecting EPCOR’s business decisions and long term planning?
As I said before, you have to plan for the limited capacity of the Colorado River, not hope and pray it's going to start raining one day to fill up everything. The problem’s not here today. We're fine at this moment in time, and for the next couple, three, or four years. The question is when is the inflection point?
At a certain point, if this is truly going to become something significant in size, people must start thinking outside the box of how the next generation water movement is going to occur. Israel was one of the last countries that did this well. We now have that same opportunity in the Southwest, The Imperial Valley already is downrange. At the end of the day, whatever the lawyers say, the guy at the top is just going to go turn it off for the guy at the bottom. The next thing, you know you go to wars over water. We can not let it go in that direction we have to continue to work together on novel and creative solutions.
VX News recently shared a dialogue related to the Middle Eastern water systems with Jordanian, Palestinian, and Israeli collaborators. The message was that collaboration is essential among regional entities to get to goal. Talk about the conversations you're having with other regional entities to create the kind of collaboration one needs to increase water supply.
Governor Ducey of Arizona, has been magnificent in his embrace of Israel, as has Sandra Watson the CEO of the Arizona Commerce Authority. Israel and the state of Arizona are having massive discussions at every level, with water moved up even higher than aerospace and military in certain areas. Rusty Bowers speaker of the Arizona house did a magnificent job of moving this billion-dollar water package through the legislature. So, you have a body politic that has gone about as far as it can go in the state of Arizona.
Now, what's the private sector got? That's where you must start looking. SRP was created by Farmers and ranchers, and it is a world class operation. At the core, it's still a nonprofit. So, you're looking for something that's even bigger than that or can really add to SRP, which is sizable and going to start changing things and adding that value.
The federal government will probably play a role to a degree. I'm concerned that they will probably have a broader context of interest in California than they will in Arizona. That's just politics being what it is, but in their case, the vein is connected. One must play with both a little bit.
Get this. Most people don't know the Canadian pension funds can invest up to 40 percent of their equity in equity deals or capital, whereas the US can’t. In my discussions with counterparts in the U.S. they're constantly astonished the Canadian pension funds can do this. Canadian pension funds are sitting on so much Environmental, water money to invest in solid large scale projects.
I am hoping to hear from an executive or a series of executives who tell us there are multiple deals and each of them in the billion dollar plus category and they'll take 10 to 12 years to build. It's no different than the project that EPCOR took over in Texas, a $10 billion pipeline that took 10 years to build. Without someone having thought of that 10 years ago, San Antonio would be in a world of hurt right now. That's the person at the other end of this discussion that I'm interested in hearing from. Who has got that kind of project, because the money is there. The need is there, but the thinkers of big projects need to step forward and step into the limelight and show off their dreams.
I'm a true entrepreneur. I've always learned that entrepreneurs and entrepreneurial thinking occur when neither a seller nor a buyer realize they need each other. In my world, I've built a lot of companies and the people around me have built a lot of companies. Are we experts in water? No. Are we smart enough to know that there's something here? My nose says there's a pony in this somewhere. The question is not whether I can help to bring it forward or not, but whether or not really smart people that do this for a living will focus on Arizona and California and ask maybe we should possibly protect the food sources in the SW and maybe possibly protect the onshoring of semiconductor manufacturing in Arizona and maybe possibly help the rebuilding of America?