In Arizona, drought spells profit for Canadian water tech companies

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Nothing about Arizona’s Harquahala Valley looks like an oasis. Saguaro cactuses, the icon of the state, dot its scrubby expanses. Great billows of dust follow vehicles that travel its dirt roads. It averages 127 millimetres of rain a year, making it among the driest places in the U.S.

But as any water executive can tell you, it’s what lies below the Harquahala desert that counts: an aquifer big enough to keep every faucet and factory running in Phoenix for more than six years.

It’s one of the reasons the Canadian companies that have invested in Arizona water see potential profit in a drought that has grown so severe that the state may soon see its allocation of Colorado River water reduced by a quarter, and potentially even more. Edmonton-headquartered EPCOR is the largest private water utility in the state. Liberty Utilities, which is owned by Oakville, Ont.-based Algonquin Power & Utilities Corp. AQN-T, ranks second or third, depending on the metric.

“Water scarcity, while it brings challenges, also brings opportunities. And it requires expertise that we believe we can bring to bear,” says Stuart Lee, EPCOR’s chief executive.

Roughly 20 per cent of the utility’s business is in the U.S. today. Growth spending could bring that to 30 per cent by 2028, Mr. Lee says. “One of the reasons why you’ve seen Canadian utilities move into investing in the U.S. is more opportunity.” When it comes to water, “the demand is there, and at some point it’s got to be satisfied from some source.”

Part of that could include water conveyancing – or, more simply, building water pipelines. EPCOR is already doing this in Texas, where it is operator and 5-per-cent owner of the 228-kilometre Vista Ridge Pipeline, a US$540-million project that delivers one-fifth of San Antonio’s water.

“We’re bringing that same approach to Arizona, where we’re finding water resources outside of city centres” – like the Harquahala, says Joe Gysel, president of EPCOR’s U.S. division, which provides water and wastewater services to nearly 800,000 people in Arizona, New Mexico and Texas. Other potential projects include raising the Bartlett Dam on the Verde River northeast of Phoenix; building a desalination plant on the Sea of Cortez in Mexico, and piping water to Arizona; and desalinating brackish water supplies inside the state.

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Studies are under way on each option after Arizona this summer earmarked US$1.2-billion for water conservation and augmentation. Two-thirds of that amount will go toward finding new water supplies for the state, which has historically relied on the Colorado River for more than a third of its needs. But rapidly falling water levels in the Colorado basin have forced cutbacks. Arizona’s allotment will be trimmed by 21 per cent in 2022. Barring a very wet year, further restrictions are likely. Arizona could see a 50-per-cent cut to water delivered by the Central Arizona Project, a canal that serves roughly four-fifths of the state’s population, according to Tom Buschatzke, director of the Arizona Department of Water Resources.

Lake Mead, a linchpin of hydration for 40 million people in the U.S. Southwest, has edged toward “dead pool,” the level at which water can no longer flow past the Hoover Dam.

“We’re going to have to either get better hydrology – better runoff – or we’re going to have to take some pretty big reductions in our water use throughout the Colorado River basin,” Mr. Buschatzke says.

For years, utilities have sought to convince homeowners to use less water. The state of Arizona boasts that it uses less water now than six decades ago, despite a sevenfold increase in population.

Liberty Utilities says customers have achieved water savings by installing water-sensing devices on sprinkling systems, which stop irrigation when it rains. One homeowner association saved 3.8 million litres in eight months with three of those devices, says Sara Alloway, the company’s manager of water efficiency.

“Outreach is a huge thing,” she says. But, she adds, “we don’t want to cause mass panic.”

Other states have made conservation mandatory. Nevada law requires all “non-functional” turf – grass in medians, parking lots and the like – to be removed by 2026. Arizona has shied away from such mandates. “One thing we have found in Arizona is that people want to be able to live the lives they want to live here,” Ms. Alloway says. “People want to have some place for their dogs or their kids to play, and to entertain.”

That means lawns and pools, which suck up roughly 60 per cent of the water Liberty pumps in Arizona. ”Very little gets used in the home,” says Matthew Garlick, Liberty’s vice-president of special projects. “It’s mostly in front or in back.”

The time may have come for change.

Mr. Buschatzke chairs the Arizona Water Banking Authority, which stores water for later use. In September, he suggested to water utilities that perhaps the bank could refuse to release water to them unless there’s a substantial reduction in outdoor water use. They “were not particularly enthused” at the idea, says Mr. Buschatzke, who stopped watering his own lawn this summer and plans to have it ripped out soon.

It’s not his only controversial water idea. He also wants to look at how much people pay for water. State law requires water rates to be “fair and reasonable,” but it has never defined what that means. “The price of water in our state is going to go up. There is no question,” he says.

That’s a requirement if new water is to be found.

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The median water bill in Phoenix today is about US$800 per acre-foot of water, enough for a year’s use at three single-family homes. Recent studies have estimated the cost of desalinating brackish water at US$1,500 to US$2,000 per acre foot; sourcing water from the Sea of Cortez at US$2,000 to US$2,200; and transporting water from the Harquahala at US$1,800 to US$2,000 per acre-foot. (Even conservation measures, such as rainwater capture systems, can cost up to US$1,100 per acre foot; cloud seeding was among the cheapest solutions, at several hundred dollars per acre foot).

Cost is only one obstacle. Laws need to be changed to allow private companies to tap the Harquahala, and water can’t be transported from Mexico without an international treaty.

But Arizona, Mr. Buschatzke believes, has already reached an inflection point where its water problems have grown so acute that changes once considered difficult are becoming possible.

Still, opposition remains. Pulling water from the Harquahala turns that into a “sacrifice zone,” says Sandy Bahr, director of the Sierra Club’s Grand Canyon Chapter. Local water users have opposed tapping their aquifer to supply Phoenix. Ms. Bahr is broadly suspicious of private companies, EPCOR included. “They’re basically going to do what is best for their bottom line. And that can, and certainly sometimes does, mean that people get hurt in the process. And the land, too.”

“We ought to be looking at ways to live within our means,” she says.

Some of that work is also happening. Just south of the Luke Air Force Base to the northeast of Phoenix, both EPCOR and Liberty Utilities run treatment plants barely a kilometre apart that clean wastewater and use it to recharge an aquifer below.

The shoulder-to-shoulder operations are an illustration of how Canadian companies stand on the front lines of the U.S. water crisis here. The land in this area has subsided by at least seven metres since the late 1940s, largely as a result of agricultural irrigation. Today, far more care is taken to preserve water resources. EPCOR’s plant alone cost US$48-million and returns 6.6 million litres of water to the ground each day.

Operations manager Rick Alvarez marvels at the clarity of the water that flows out of the treatment plant, a trickling stream that settles into the dirt and drains down to the aquifer below.

“You have to respect water,” he says, “instead of just misusing it.”