Here in Montgomery County, Md., we’ve had a record-setting month in breaking water pipes.
As you know, this is a story I’ve written about several times. And our play on the idea is Northwest Pipe (NWPX:nasdaq), which has done very well for us so far. In a special report and in Mayer’s Special Situations, we also hold Mueller Water (MWA:nyse). This one, too, has shown some life lately, and I think it will eventually prove to be a worthwhile holding.
In any case, it is always interesting when an investment thesis makes its presence felt in your own backyard, so to speak. Investment themes can, at times, seem abstract. I try to bring them down to Earth. I try to stay rooted in the boots-on-the-ground experience of the players involved. How does it affect you and me? This is the question I ask myself.
So I was kind of amused when I came upon the following headline in The Washington Post: “Water Main Breaks Continue to Plague Customers in Md.”
In the month of May alone, there have been 42 broken water pipes. “Including,” the Post reports, “two water main pipes that left 2,200 residents in Bethesda and Chevy Chase without water to drink, flush with or bathe in.”
That’s a 30% increase over last May -- and a new record for this time of year. “Washington Suburban Sanitation Commission (WSSC) officials have warned for years,” the article continues, “that the infrastructure was aging and breaking down, particularly in older neighborhoods inside the Capital Beltway.” Some of the pipes they’ve ripped out of the ground are many decades old. One main dated from 1934. Another, on Massachusetts Avenue, dated to 1950. It broke open, backing up traffic for hours on a major commuter road.
There are 5,300 miles of pipe that the WSSC maintains. About one-quarter of that is more than 50 years old. About 60% is older than 30 years.
The thing is, the replacement of these pipes is slow going. WSSC replaces about one-half of 1% of its entire system every year. That is a 200-year replacement cycle. If pipes are breaking apart at 50 years, it doesn’t take a math genius to see that we’re in for some major water problems.
May was not even the worst month. Winter is the worst time, because pipes freeze and thaw. In February, we had an all-time high in breaks: 477. That’s about 16 per day.
No politician is going to get all worked up about it, because it costs about $1 million a mile to replace the pipes. And where is that money going to come from? One of the things the WSSC did was to help deliver jugs of water so people could finally flush their toilets. Yeah, pretty disgusting.
In any event, I see these things happening right here in my own region. Then I think about how that is just a microcosm of what’s happening across the country, particularly in older cities.
Suddenly, that whole water crisis becomes a little more real. It’s less an abstract apparition constructed with statistics and facts and figures. It’s a real crisis unfolding right before our eyes. It is in bloom.
Besides investing in water pipe companies, there is an opportunity for the more advanced water systems to take over the more dilapidated ones. They pick them up on the cheap and negotiate rate increases. SJW Corp. (SJW:nyse), a water utility in San Jose with one of the more technologically advanced water systems in the country, has that opportunity. So do a number of other well-financed water utilities.
I’ll keep an eye on this theme and we’ll see how it all plays out. But from where I sit, it seems pretty clear that we’ll set more records in breaking water pipes all across the country.
As you know, this is a story I’ve written about several times. And our play on the idea is Northwest Pipe (NWPX:nasdaq), which has done very well for us so far. In a special report and in Mayer’s Special Situations, we also hold Mueller Water (MWA:nyse). This one, too, has shown some life lately, and I think it will eventually prove to be a worthwhile holding.
In any case, it is always interesting when an investment thesis makes its presence felt in your own backyard, so to speak. Investment themes can, at times, seem abstract. I try to bring them down to Earth. I try to stay rooted in the boots-on-the-ground experience of the players involved. How does it affect you and me? This is the question I ask myself.
So I was kind of amused when I came upon the following headline in The Washington Post: “Water Main Breaks Continue to Plague Customers in Md.”
In the month of May alone, there have been 42 broken water pipes. “Including,” the Post reports, “two water main pipes that left 2,200 residents in Bethesda and Chevy Chase without water to drink, flush with or bathe in.”
That’s a 30% increase over last May -- and a new record for this time of year. “Washington Suburban Sanitation Commission (WSSC) officials have warned for years,” the article continues, “that the infrastructure was aging and breaking down, particularly in older neighborhoods inside the Capital Beltway.” Some of the pipes they’ve ripped out of the ground are many decades old. One main dated from 1934. Another, on Massachusetts Avenue, dated to 1950. It broke open, backing up traffic for hours on a major commuter road.
There are 5,300 miles of pipe that the WSSC maintains. About one-quarter of that is more than 50 years old. About 60% is older than 30 years.
The thing is, the replacement of these pipes is slow going. WSSC replaces about one-half of 1% of its entire system every year. That is a 200-year replacement cycle. If pipes are breaking apart at 50 years, it doesn’t take a math genius to see that we’re in for some major water problems.
May was not even the worst month. Winter is the worst time, because pipes freeze and thaw. In February, we had an all-time high in breaks: 477. That’s about 16 per day.
No politician is going to get all worked up about it, because it costs about $1 million a mile to replace the pipes. And where is that money going to come from? One of the things the WSSC did was to help deliver jugs of water so people could finally flush their toilets. Yeah, pretty disgusting.
In any event, I see these things happening right here in my own region. Then I think about how that is just a microcosm of what’s happening across the country, particularly in older cities.
Suddenly, that whole water crisis becomes a little more real. It’s less an abstract apparition constructed with statistics and facts and figures. It’s a real crisis unfolding right before our eyes. It is in bloom.
Besides investing in water pipe companies, there is an opportunity for the more advanced water systems to take over the more dilapidated ones. They pick them up on the cheap and negotiate rate increases. SJW Corp. (SJW:nyse), a water utility in San Jose with one of the more technologically advanced water systems in the country, has that opportunity. So do a number of other well-financed water utilities.
I’ll keep an eye on this theme and we’ll see how it all plays out. But from where I sit, it seems pretty clear that we’ll set more records in breaking water pipes all across the country.
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