Disclaimer : One of the principals of Ethical Markets Media owns shares in Itron,Inc ( NASD ITRI )
By Nick Hodge | Tuesday, December 2nd, 2008
Should utilities be required to use the best available technology in order to minimize harm to the nation’s waterways?
Most people with half a brain would answer that question affirmatively. But apparently the upper reaches of our judicial system don’t fall into that category.
So today the U.S. Supreme Court will hear a case that a five-year-old could decide in seconds.
It centers around the impact utilities have on waterways near power plants that use billions of gallons of water each and every day—all of it sucked up from our rivers and lakes.
You see, power plants—coal-fired, natural gas, and nuclear—all use incredible amounts of water for cooling. The total comes to more than 214 BILLION gallons of water each day, or tens of trillions of gallons every year.
And here’s what makes the correct decision here patently obvious: the cooling process kills every living organism in the water—fish, larvae, eggs, microorganisms—all of it.
Now, this court case isn’t going to have any financial implications for us as investors; I’ll get to some water-related investment ideas in a few moments.
First, let me just outline the facts of this case so we can all have a good chuckle, and reminisce about the Bush decision of yore, which will shortly be no more.
Facts of the case, as derived from an NPR story this morning:
· The utilities say installing the best technology is too expensive
· The Bush administration adopted a rule that would allow utilities to get a variance from the Environmental Protection Agency if they can show that the cost of complying is greater than the environmental benefits.
· Environmentalists contend that Congress specifically rejected the cost-benefit approach because Congress itself concluded the costs were worth the benefits to the environment.
· Opponents also say a case-by-case cost-benefit analysis would be too prone to manipulation.
So to summarize, very briefly, Congress enacted the Clean Water Act to protect, well, water. The utilities say it’s too expensive to protect the water, so they shouldn’t have to do it.
Brilliant. Get the Supreme Court on the line. The utilities aren’t happy about something. Please note: the utilities lost in the lower courts, but, not surprisingly, the Bush-approved conservative Supreme Court has decided to hear the appeal.
We’ll see this case again soon, probably after mid-January sometime. Let’s just hope the Supremers don’t set a precedent that’s too idiotic in the meantime.
Water and Energy Investments
As I said, the fatuous case described so far isn’t going to make us any money as investors. But it does bring to light three points that I want to make clear:
· Our (the world’s) water problems aren’t going away, and they certainly aren’t going to solve themselves
· Water and energy are inextricably connected, and we need to start treating them as such
· The solutions to water, energy, and water and energy problems offer a substantial profit opportunity for savvy investors
We all know about the first bullet up there. For a refresher course, check here and here.
For an explanation of the bond between water and energy, follow this link to learn about the energy water nexus.
Here are a few more bullets that clarify the connection:
· It takes, for example, 4 barrels of water to produce just one barrel of oil. This could be water used for well-injection, cooling or a variety of other applications
· The Canadian tar sands use more water than the entire population of Alberta (where they’re located) on an annual basis
· In the U.S., the transportation and purification of water consumers 4% of all electricity
· In California, water consumes 19% of the state’s electricity and 31% of its natural gas
· 50%-80% of desalination costs are for energy
In order to profit, we need to break the water industry down into sectors. Since desalination is a highly sought-after topic these days, let’s begin there.
Since the amount of freshwater on earth is finite, our appetite for it is only going to grow, and we’re already pushing the limits of our supply, we’re going to have start producing copious amounts of potable water from the sea.
You can gain exposure to this industry via one of the conglomerates that provides reverse osmosis filters and other desalination technologies. Those companies are GE (NYSE: GE), Siemens (NYSE: SI) and Dow Chemical (NYSE: DOW), each of which have lost about 60% of their value in the past year and could be bargain buys at these levels.
But to get more bang for you’re buck, I’d take a look at Energy Recovery (NASDAQ: ERII), which makes a product that helps optimize the energy intensive seawater reverse osmosis (SWRO) process by recapturing and recycling up to 98% of the energy in the high pressure reject stream, thereby reducing SWRO energy consumption up to 60%.
That’s stock has only been on the market since July, and has garnered much attention from the water community. Levels below the $7.50 are attractive, and there seems to be support at that price.
Water Infrastructure Stocks
Expanding on the water industry, other sectors to watch out for are water infrastructure, which includes pipe replacement and upgrades.
In the coming years, we’ll see thousands of miles of aging water pipes be replaced. And we’ll witness the construction of many new water and sewage treatment plants to satiate the water demands of a growing and more affluent population. All of those projects are profit opportunities for investors in the know.
I’d take a serious look at all the major water players in this space. From Jacobs Engineering (NYSE: JEC) to Itron Inc. (NASDAQ: ITRI), many currently quiet water companies are bound to become household names.
We’re certain to see interactive water meters, improved treatment technologies, and billions (in not trillions) in water infrastructure spending.
The water and energy problems are mounting, and will be a topical issue as the consequences start to hit home. It’s time to take a serious look at investing in the various sectors the water problem has to offer.
Don’t let this decades-long bull pass you by.
Call it like you see it,
Nick
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