Water and wastewater utilities across the board are facing major infrastructure investment needs as a result of aging infrastructure, compliance challenges, and climate change. As federal funding for water infrastructure has steadily declined since the 1970s, state and local agencies have been forced to pick up the tab for capital improvements. With nearly 50,000 water systems and 20,000 wastewater systems in the U.S., states have implemented different acquisition incentives to support consolidation and address these challenges.

With a competitive IOU market driving deal flow, local system owners are increasingly opting to divest assets and off-load financial and regulatory burdens to investor-owned utilities (IOUs). Fair Market Value (FMV) legislation has emerged as a policy solution to help facilitate consolidation efforts. The legislation—now active in 12 states—encourages the acquisition of distressed water and wastewater systems by regulated water utilities.

Bluefield has tracked approximately 1,200 deals submitted for regulatory approval since 2015, with only 8% having been executed using FMV. The legislation has historically played a relatively small role in IOU M&A, but increased utilization is having a ripple effect across states with active policies. As pressure builds to consolidate struggling utilities, more states are likely to employ incentives like FMV to support acquisitions.