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1-1©2004 InfoNetrix LLC All Rights Reserved Worldwide
PART ONEExecutive Market Briefing
Michael A. Marullo Principal & Director
Strategic Market R&D
+ 1 504 466 3460
Market Horizons™ ReportMarket Horizons™ ReportReal-time Automation & Controls (RTAC) in the North
American Water/Wastewater Utilities Marketplace (2003-2007)
1-2©2004 InfoNetrix LLC All Rights Reserved Worldwide
About This Report
InfoNetrix LLC, an independent technical research and consulting firm specialized in
utility automation and information technology (Utility Automation/IT) markets
conducted the research for this report. InfoNetrix reports are available for
subscription by any and all interested parties, foreign and domestic (except as
prohibited by law), in accordance with the pricing and terms set forth in the
prospectus, provided separately.
This report addresses Real-time Automation & Controls (RTAC) in the North
American Water/Wastewater Utilities Marketplace. Other reports in the Market
Horizons™ Series provide similar analyses of Real-time Automation & Controls
(RTAC) in the North American Electric Utilities Marketplace and of Geospatial & Field
Automation Solutions (GFAS) in the North American Utilities Marketplace. Please
visit www.InfoNetrix.com for more information about these and other InfoNetrix
Advisory Services.
InfoNetrix LLC, an independent technical research and consulting firm specialized in
utility automation and information technology (Utility Automation/IT) markets
conducted the research for this report. InfoNetrix reports are available for
subscription by any and all interested parties, foreign and domestic (except as
prohibited by law), in accordance with the pricing and terms set forth in the
prospectus, provided separately.
This report addresses Real-time Automation & Controls (RTAC) in the North
American Water/Wastewater Utilities Marketplace. Other reports in the Market
Horizons™ Series provide similar analyses of Real-time Automation & Controls
(RTAC) in the North American Electric Utilities Marketplace and of Geospatial & Field
Automation Solutions (GFAS) in the North American Utilities Marketplace. Please
visit www.InfoNetrix.com for more information about these and other InfoNetrix
Advisory Services.
1-3©2004 InfoNetrix LLC All Rights Reserved Worldwide
General Information & Notifications
PURPOSE
The information contained in this document is for the sole use of InfoNetrix clients
and is not to be distributed outside client organizations. No part of this publication
may be reproduced, transcribed, or transmitted in any form or by any means,
electronic or mechanical, including photocopying, recording, or by any electronic
storage and retrieval system, without permission in writing from the copyright owner.
DISCLAIMER
This publication has been prepared with care, however, no guarantee of accuracy,
completeness, or warranty of any kind is expressed or implied, nor shall InfoNetrix
be liable to any user of the publication or any portion(s) hereof for any direct or
indirect damages, expenses, costs or losses of any kind resulting from its use.
COUNTRY OF ORIGIN
United States of America
PURPOSE
The information contained in this document is for the sole use of InfoNetrix clients
and is not to be distributed outside client organizations. No part of this publication
may be reproduced, transcribed, or transmitted in any form or by any means,
electronic or mechanical, including photocopying, recording, or by any electronic
storage and retrieval system, without permission in writing from the copyright owner.
DISCLAIMER
This publication has been prepared with care, however, no guarantee of accuracy,
completeness, or warranty of any kind is expressed or implied, nor shall InfoNetrix
be liable to any user of the publication or any portion(s) hereof for any direct or
indirect damages, expenses, costs or losses of any kind resulting from its use.
COUNTRY OF ORIGIN
United States of America
1-4©2004 InfoNetrix LLC All Rights Reserved Worldwide
Research Standards & Methodology
The preparation of this report follows generally accepted standards of market research practice and is based on principles of truthfulness and professionalism. A reasonable and prudent effort has been made to ensure that factors and circumstances having a material impact on any decision-making process derived from, or impacted by, this report are included in the analyses and recommendations. The representations of industry and market data and portrayals of the business environment are based on market research conducted by experienced professionals with broad knowledge and experience in the markets addressed.
The information upon which the findings and analyses contained in this report are based was obtained through a combination of telephone interviews with key suppliers and consultants and other individuals with extensive market knowledge and experience, augmented by survey with a cross section of utility managers and ongoing interactive research with over 1,000 utilities annually. Each telephone interview/survey was guided by a specially designed questionnaire to obtain pertinent data, insights and market perspectives. These interviews were augmented by secondary research across a wide range of reliable public and proprietary information sources pertinent to the study.
The preparation of this report follows generally accepted standards of market research practice and is based on principles of truthfulness and professionalism. A reasonable and prudent effort has been made to ensure that factors and circumstances having a material impact on any decision-making process derived from, or impacted by, this report are included in the analyses and recommendations. The representations of industry and market data and portrayals of the business environment are based on market research conducted by experienced professionals with broad knowledge and experience in the markets addressed.
The information upon which the findings and analyses contained in this report are based was obtained through a combination of telephone interviews with key suppliers and consultants and other individuals with extensive market knowledge and experience, augmented by survey with a cross section of utility managers and ongoing interactive research with over 1,000 utilities annually. Each telephone interview/survey was guided by a specially designed questionnaire to obtain pertinent data, insights and market perspectives. These interviews were augmented by secondary research across a wide range of reliable public and proprietary information sources pertinent to the study.
1-5©2004 InfoNetrix LLC All Rights Reserved Worldwide
Research Reliability & Acceptance
The information presented in this report was gathered, recorded and analyzed with care and precision. However, there will undoubtedly be differences between the findings presented and actual results for various reasons and, because future events and circumstances frequently do not occur as expected, those differences may be material.
For these and other reasons (including, but not necessarily limited to human error, misinterpretations, misunderstandings and information sensitivities among respondents), the resulting data will most likely not be completely accurate in all respects. Moreover, the forecasts presented herein reflect judgments made as of the period during which this report was prepared. As such, some aspects can be expected to change as a result of numerous direct and indirect factors, which are beyond the scope of this report to accurately predict. For example, it assumes that current events will continue to have the same effect on the marketplace in the future and that the conventional wisdom of today will continue to be completely applicable to future market conditions, which is at best, unlikely.
By accepting and using the information contained in this report, the user assumes all responsibility for its use for any and all purposes as user may deem appropriate and agrees to hold InfoNetrix, its principals and its staff harmless from any direct, indirect or consequential damages resulting from, or in any way related to, such use(s). However, InfoNetrix actively solicits and welcomes inquiries or other input regarding any errors, omissions or inconsistencies discovered during the course of using this report. Please direct any such correspondence to InfoNetrix Client Services.
(Detailed company contact information is provided on the web at: www.InfoNetrix.com.)
The information presented in this report was gathered, recorded and analyzed with care and precision. However, there will undoubtedly be differences between the findings presented and actual results for various reasons and, because future events and circumstances frequently do not occur as expected, those differences may be material.
For these and other reasons (including, but not necessarily limited to human error, misinterpretations, misunderstandings and information sensitivities among respondents), the resulting data will most likely not be completely accurate in all respects. Moreover, the forecasts presented herein reflect judgments made as of the period during which this report was prepared. As such, some aspects can be expected to change as a result of numerous direct and indirect factors, which are beyond the scope of this report to accurately predict. For example, it assumes that current events will continue to have the same effect on the marketplace in the future and that the conventional wisdom of today will continue to be completely applicable to future market conditions, which is at best, unlikely.
By accepting and using the information contained in this report, the user assumes all responsibility for its use for any and all purposes as user may deem appropriate and agrees to hold InfoNetrix, its principals and its staff harmless from any direct, indirect or consequential damages resulting from, or in any way related to, such use(s). However, InfoNetrix actively solicits and welcomes inquiries or other input regarding any errors, omissions or inconsistencies discovered during the course of using this report. Please direct any such correspondence to InfoNetrix Client Services.
(Detailed company contact information is provided on the web at: www.InfoNetrix.com.)
1-6©2004 InfoNetrix LLC All Rights Reserved Worldwide
Market Horizons™ Report Contents
1. Executive Market Briefing 2. Marketplace Characteristics
3. Market Drivers, Issues & Trends
4. Market Analysis & Future Outlook
5. Supplier Environment
1-7©2004 InfoNetrix LLC All Rights Reserved Worldwide
Executive Market Briefing
• Market Perspectives• Marketplace Structure & Composition• Prevailing Market Conditions• Market Analysis Synopsis• The 7 Signs7 Signs of Market Evolution (7 Signs)• Future Market Outlook• Suppliers & Competition• Summary/Conclusions
1-8©2004 InfoNetrix LLC All Rights Reserved Worldwide
"Everything that can be said has been said, but we have to say it again because no one was listening.”
- Andre Gide (French novelist)
Market PerspectivesMarket Research
1-9©2004 InfoNetrix LLC All Rights Reserved Worldwide
“You don't take technologies to market, you take products to market. A technology reaches the marketplace if it supports a product that provides utility and value."
- Alberto Leon-Garcia, IEEE Fellow & Professor, University of Toronto
Market PerspectivesTechnology & Innovation
1-10©2004 InfoNetrix LLC All Rights Reserved Worldwide
“Many of the plants have Supervisory Control and Data Acquisition (SCADA) systems for either their process monitoring or control. Plants that do not have around-the-clock operators may use SCADA to monitor or control their systems while the operator is not on site. Nineteen percent of the plants that treat ground water and do not have around-the-clock operators use SCADA for process monitoring; 14 percent use it for process control. The percentages double for surface water plants. For both ground water and surface water plants, large plants and plants in larger systems are more likely to use SCADA than small plants in smaller systems.”
US EPA815-R-02-005A; Community Water System Survey 2000; Volume 1: Overview; Office of Water (4607M); DEC 2002
Market PerspectivesSystem Operations
1-11©2004 InfoNetrix LLC All Rights Reserved Worldwide
“The notion that SCADA systems are highly customized, highly technical, and therefore the guys in the black hats won't be able to figure them out is something Eric Byres of the British Columbia Institute of Technology calls the ‘Myth of Obscurity’.
Forget it. SCADA documents have been recovered from al Qaeda safe houses in Afghanistan. An estimated 60 to 70 percent of all industrial security breaches are carried out by someone on the inside. There is no security through obscurity.”
- Excerpts from keynote address, as prepared by Dr. Arden Bement, Director - National Institute of Standards & Technology, at the NSF Workshop on Critical Infrastructure
Protection for SCADA & IT
October 20, 2003
Market PerspectivesSecurity & Data Integrity
1-12©2004 InfoNetrix LLC All Rights Reserved Worldwide
Marketplace Structure & CompositionWater/Wastewater Environment Cycle
Water Treatment
Plant
BoosterPumps
SewageTreatment
Post TreatmentStorage
Water PipesSewer Pipes
Reservoir
Ground WaterWells
River
Source Treatment Distribution Sewer/Treatment DischargeSource Treatment Distribution Sewer/Treatment DischargeSource Treatment Distribution Sewer/Treatment DischargeSource Treatment Distribution Sewer/Treatment Discharge
SOURCE: Sandia National Laboratories, Albuquerque, NM
1-13©2004 InfoNetrix LLC All Rights Reserved Worldwide
Prevailing Market Conditions
Principal Market DriversPrincipal Market Drivers Population Growth & Shifts Improving Economic Conditions Political & Regulatory Issues
Clean Water Act Safe Drinking Water Act Public Health Security and
Bioterrorism Preparedness and Response Act
Rising Security Concerns Do more with less mantra Interoperability & Standardization Asset Management Infrastructure Repair/Replacement
Key Issues & TrendsKey Issues & TrendsIncreasing Security AwarenessSecurity Budgeting ChallengesThreat Mitigation PlanningOngoing Economic UncertaintyMore Holistic Solution SetsIncreasing Use of PLCs as RTUsEnterprise Asset ManagementMore Standards/StandardizationFewer Privatization InitiativesReduced Utility M&A ActivityMore Supplier Consolidation
1-14©2004 InfoNetrix LLC All Rights Reserved Worldwide
Market Analysis Synopsis
• Expect slow but steady recovery following economic recession Municipal tax coffers drained as economy worsened Economic stability helped get some projects back on track Many utilities afraid to launch new projects until economic
recovery showed sustainability New security mandates further strained utility resources
• Privatization and M&A activity slowed during recession In some cases, privatization did not deliver promised
benefits and ran counter to political interests and expediency Merged utilities needed reorganization & recovery time
• Continued population growth will drive need for more and improved facilities EPA rules are continually being revised and tightened EPA reporting requirements becoming more demanding
1-15©2004 InfoNetrix LLC All Rights Reserved Worldwide
• Project Downsizing Future spending plans call for increasingly larger numbers of
more modest projects among large and small utilities that:• Are less capital-intensive projects; more O&M funded projects
• Can be defined & justified using simple Cost-Benefits Analysis
• Deliver tangible short-term results
Large CapEx automation projects diminishing due to…• Do More with Less! utility doctrine
• Protracted Design/Justification/Procurement cycles overtaxing limited (downsized) utility staff, capital & other resources
• Utilities now being focused on Application Execution Mode projects; i.e., those capitalizing on past mega-$ investments
• Standardization & open designs that now support mainly incremental, modular approach to new and legacy installations
Market Analysis Synopsis (Cont’d)
1-16©2004 InfoNetrix LLC All Rights Reserved Worldwide
• Regulatory & legislative mandates will redefine RTAC markets: Security issues are moving up the priority list and demand an
increasing portion of utility budgets, staff and resources• Some RTAC funds may be redirected or expanded for these purposes• No legislation is likely to specifically fund security improvements
Other mandates are also adding to the demand for better, faster, more accurate information, some of which is resident in RTAC systems and databases
• GASB-34 (Governmental Accounting Standards Board)– Establishes a new financial reporting model for state and local governments
(Key impact on municipal utilities)
– Biggest change in the history of public-sector accounting
• Sarbanes-Oxley Act– Defines new financial reporting rules for corporations in wake of Enron
collapse and corporate accounting scandals
– Primarily an IT issue but will eventually have links in and out of RTAC to validate operational data (Key impact on investor-owned utilities)
Market Analysis Synopsis (Cont’d)
1-17©2004 InfoNetrix LLC All Rights Reserved Worldwide
The 7 Signs of Market Evolution
1.Regulatory Policy & Governance
2.Economics & Investment
3.Technology/Integration/Standardization
4.Data Integrity & System Security
5.Web & Wireless Solutions
6.Enterprise Asset Management (EAM)
7.Customer Care & Satisfaction
SIGNSSIGNSSIGNSSIGNS
of Market Evolution
TheTheTheThe
1-18©2004 InfoNetrix LLC All Rights Reserved Worldwide
1: Regulatory Policy & Governance
• 2002-03: Utilities beginning to
comprehend security threat mitigation issues & costs
EPA funding for vulnerability assessments substantially depleted
Reporting requirements are onerous and getting worse!
• 2004-07: Security mandates will become a
major factor in future RTAC procurements; new & retrofit
Regulatory requirements (e.g., CWA & SDWA) driving more accurate & timely monitoring & reporting
GASB-34 & Sarbanes-Oxley have potentially significant long-term compliance implications
1-19©2004 InfoNetrix LLC All Rights Reserved Worldwide
2: Economics & Investment
• Economics Market recovery closely tied to
economic recovery, population growth & shifts
Municipals still struggling in wake of recession-induced tax funded deficits
More modest projects on the rise• Investment
Privatization still ongoing but slower paced now because:
• Some large privatization projects have been reversed or abandoned
– Atlanta (Canceled in 2002)– New Orleans (Dropped plans)
Some utilities are reluctant to invest despite budgeted projects for fear of being labeled spendthrifts until full economic recovery is apparent
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are needed to see this picture.
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3: Technology/Integration/Standardization
•Technology Simple; open standards; low or
no maintenance Intuitive operation Easier to support & maintain
•Integration Plant-centric approach Enterprise Application
Integration (EAI) making inroads… slowly
Asset Management still incubating but starting to emerge
•Standardization ModBus (still) rules but also… Ethernet (the way of the future) DF1 (Allen-Bradley) DNP (growing)
1-21©2004 InfoNetrix LLC All Rights Reserved Worldwide
4: Data Integrity & System Security
•System Integrity
Data access & distribution plans
are being negatively impacted by
security concerns, but:
Web-based tools are powerful &
economical for non-critical and/or
monitor-only applications
Lowest Cost vs. Best Solution still
a difficult issue for most
municipal utilities
•Data Security Issues
Access by non-operations staff Corporate I/T network usage
creates new vulnerabilities Encryption & authentication may
be coming (e.g., AGA-12) for critical applications
1-22©2004 InfoNetrix LLC All Rights Reserved Worldwide
5: Web & Wireless Solutions
•Web
Many data access/distribution
vulnerabilities remain unsolved
• RCM/CBM heavily impacted by
bandwidth & access restrictions
• Web-based control on hold (for
now); surveillance-only growing
•Wireless
Coverage improvements driving
increased use But:
• Network saturation looms large
• Negatively impacted by security
issues
•Problems remain in both areas, but resolution is coming; big problems usually command big solutions!
1-23©2004 InfoNetrix LLC All Rights Reserved Worldwide
6: Enterprise Asset Management (EAM)
•EAM is all about the money; not the
technology; ROI/ROA are key
•Aging asset base & useful life extension
issues now evolving (Sweat the Assets!)
•EAM projects are driven by finance; not
engineering or operations
•First targets will be fast, easy pay-backs
•People are assets too (Brain-drain
remains a problem due to downsizing
and retiring workforce talent pools)
Expect increasing reliance on
automation to replace retirees
Increased use of RCM/CBM to extend
asset life; reduce risk
1-24©2004 InfoNetrix LLC All Rights Reserved Worldwide
7: Customer Care & Satisfaction
• Emerging issue for
water/wastewater
utilities
• Increased accountability and
reporting are coming
• Main impact areas for RTAC: Asset Management Work Management
• W/O Scheduling• W/O Assignment• W/O Processing• W/O Tracking
Workforce Management• Crew Allocation• Crew Dispatch/Recall
1-25©2004 InfoNetrix LLC All Rights Reserved Worldwide
Future Market OutlookAutomation & I/T Trends
Potential business benefits achievable
Pro
xim
ity
to c
ore
bu
sin
ess
PC Maintenance
Remote Metering
Internet
Systems Integration
SCADASCADA
External ApplicationDevelopment Call Center
Operation
Asset Management
SOURCE: DATAMONITORSOURCE: DATAMONITOR
Impact & Importance of Automation & IT Initiatives Among Utilities
Mission-critical
1-26©2004 InfoNetrix LLC All Rights Reserved Worldwide
• General Systems OutlookGeneral Systems Outlook RTAC Systems will see modest but steady growth across most
ASP ranges in both the number of opportunities and market values as more small utilities become buyers and larger utilities return to active (yet modest) project development as the economy improves.
• Systems Segment OutlookSystems Segment Outlook SCADA: Good growth for systems priced in lower ASP ranges
(≤750K) with increasing numbers of small utilities moving into digital telemetry and more modest, incremental projects among large utilities
PAS: Good growth for systems priced in middle to upper ASP ranges (≤750K-$5M) as plants prepare for faster, more accurate data acquisition under tighter CWA & SDWA rules
Hybrid: Good growth in systems priced in lower ASP ranges (≤750K) as utilities add SCADA to existing PAS systems
Future Market OutlookWWMS-RTAC Market Trends: Systems
1-27©2004 InfoNetrix LLC All Rights Reserved Worldwide
• General Field Data Devices OutlookGeneral Field Data Devices Outlook FDDs will continue to see good growth across most ASP ranges driven
by various factors including, but not limited to:• Increasingly tighter EPA requirements to satisfy CWA and SDWA rules
driving more data acquisition; better accuracy and reporting• Population growth and shifts placing more demands on aging infrastructure
and creating needs for new facilities• Influx of smaller utilities becoming more sophisticated
PLCs will continue to gradually displace conventional RTUs & DCS nodes due to increasing functionality, simplicity & standardization.
• Field Data Devices Segment OutlookField Data Devices Segment Outlook Distribution & Collection FDDs: Good growth in lower (≤$2K) ranges;
best growth in mainstream (≤$3.5K-$7.5K) ASP range. Most low-end units will be for SCADA expansion & adding SCADA to PAS projects.
Plant FDDs: Good growth across most ASP ranges; best growth in mainstream (≤$3.5K-$7.5K) ASP range; modest growth in lower (≤$2K) ranges. Many low-end units will be for adding SCADA to legacy PAS projects.
Future Market OutlookWWMS-RTAC Market Trends: FDDs
1-28©2004 InfoNetrix LLC All Rights Reserved Worldwide
General Market ProfileWWMS-RTAC Market Values
$292.2 $311.0 $336.4 $352.7 $365.3 $374.6
$1,740.1
$1
$10
$100
$1,000
$10,000
2002 2003 2004 2005 2006 2007 2003-07
Annual Expenditures* ($ Millions)
*NOTE: Logarithmic Scale
1-29©2004 InfoNetrix LLC All Rights Reserved Worldwide
$219.9
$72.3
$234.7
$76.3
$255.7
$80.7
$266.9
$85.8
$276.4
$88.9
$285.0
$89.6
$0
$50
$100
$150
$200
$250
$300
$350
$400
2002 2003 2004 2005 2006 2007
All Systems Projects All Field Data Devices
Annual Expenditures ($Millions)
General Market ProfileMarket Composition & Contributions
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• Principal System Solution Providers ABB Bristol Babcock Emerson Process Management Honeywell Invensys-Foxboro Rockwell/Allen-Bradley Telvent Transdyn
Suppliers & CompetitionMarket Leadership: RTAC Systems
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• Principal FDD Suppliers Bristol Babcock Control Microsystems GE-Industrial (GE-Fanuc) Rockwell/Allen-Bradley Schneider Group (Square D; Modicon) Siemens Telvent (formerly Metso Automation)
Suppliers & CompetitionMarket Leadership: RTAC FDDs
1-32©2004 InfoNetrix LLC All Rights Reserved Worldwide
Summary/ConclusionsMarket Challenges & Critical Success Factors
Market Challenges…Market Challenges…• Suppliers
Solve major data security issues• Technological AND• Budgeting/Funding
Define Asset Management Communications transitions (e.g.,
from leased lines to wireless) Downward pressure on System &
FDD average selling prices • Utilities
Security compliance issues & costs
Reduced staff & resources M&A and restructuring activity Economic recovery following
recession
Critical Success Factors…Critical Success Factors…• Low Initial Price (Most MUNIs)• Open standards & open integration at all levels
• Reliability & Reputation for: Quality service & support Proper applications and skillful
execution Holistic solution set
• Ability to augment good products with good services
• Offer viable migration path to next generation products, technologies and applications
• Business Case & Cost/Benefit analysis (for IOUs and private water companies)
1-33©2004 InfoNetrix LLC All Rights Reserved Worldwide
• Short-term (2003-04):Short-term (2003-04): Rise of automation/IT role as part of:
• EPA tightening of monitoring & reporting rules• EPA demands for better, faster, more accurate data• New I/T requirements (GASB-34, Sarbanes-Oxley, etc.)• Enterprise Asset Management
• Long-term (2004-07):Long-term (2004-07): Need for investments in aging infrastructure Growing emphasis on standards and interoperability at
device, data (acquisition) and enterprise levels• Key Utility Key Utility Wants, Needs & ExpectationsWants, Needs & Expectations::
Economical, properly supported business solutions Intuitive; easy-to-own, operate & support technical solutions Solutions that address rising Asset Management objectives Clear, viable migration paths to the next level(s)
Summary/ConclusionsShort-term and Long-term Assessments