Water and AI: separating fact from fiction for Midwest PE-backed industrials
The same assumptions that made energy a surprise cost driver are being repeated today with water. Here is what the private equity ecosystem needs to understand — and act on — now.
Alex Kruzel
CEO & Founder, Telesto
April 2026
I see it in nearly every portfolio review I run and every deal I evaluate. Water access, cost, and quality — much like energy and electricity before it — is treated as a fixed assumption rather than a dynamic risk variable. It is neither cheap nor guaranteed, and the firms that continue to treat it as a background condition are quietly accumulating exposure they have not priced.
I was invited to speak at the M. Harris & Kern panel during Chicago Water Week — "AI and Water Usage: Separating Fact from Fiction" — because this intersection sits directly in the work I do every day with PE firms and their industrial portfolios. The most dangerous place in a deal room is at the intersection of a confident assumption and a wrong one.
The Texas warning shot
In 2025 and into 2026, the Corpus Christi region of Texas offered one of the starkest industrial water warnings in recent memory. Seven years of abnormally dry weather coincided with rapid industrial growth in the nation's largest oil-export hub. The city's two main reservoirs — Choke Canyon and Lake Corpus Christi — fell to just 8–12% capacity.4 Major industrial operators including the Gulf Coast Growth Ventures plastics facility co-owned by ExxonMobil and SABIC, a Steel Dynamics steel mill, Flint Hills Resources refineries, Koch Industries, Occidental Petroleum, and Celanese all faced the prospect of curtailment or shutdown — not because of a market downturn, but because of water.5,6
Industrial consumers account for 50–60% of the city's total water use. Just 12 companies consume roughly 55% of the city's water supply, according to City Manager Peter Zanoni.5 The Gulf Coast Growth Ventures plastics plant — the region's single largest water user — uses roughly 25 million gallons per day, equivalent to all city residents combined.7 Water commitments were made against a rainfall baseline that drought has since revised. As Coastal Bend Industries Association Director Bob Paulison put it: "There's no more cheap water. This is a warning for all regions across the South looking to attract heavy industry."6
This is not a Texas-only story. As the Texas Observer noted: "Corpus Christi is not exceptional; it is early."9 The same development patterns — industrial water commitments made against optimistic hydrological assumptions, infrastructure deferral, and no scenario modeling for drought — are present across other water-stressed regions. Global freshwater demand is projected to exceed supply by 40% by 2030.1 The question for every PE firm with Midwest industrial exposure is not "could this happen here?" — it is "what would it cost us if it did, and have we modeled it?"
Fact vs. fiction: five assumptions breaking down in real time
In my experience working across the PE-backed industrial landscape, five myths come up repeatedly in deal rooms and portfolio reviews. Select each to see the evidence.
"Water is cheap — not a real cost input worth modeling in diligence."
Water scarcity is already driving potential shutdowns for major industrials in Texas. Ford reduced freshwater usage by 76.2% since 2000, accounting for a cumulative 186.3 billion gallons of water saved — not from altruism, but because the cost and efficiency case was undeniable.10 Mid-market operators have not yet run that analysis.
"The Midwest has unlimited water — no risk to model."
Michigan holds 41% water area — highest of any US state. The Great Lakes hold roughly 20% of the world's fresh surface water.11 But data centers are now competing for the same regional systems. Michigan utilities announced 6.4 GW of data center power agreements in a single month in October 2025 — equivalent to adding six major cities to the state's energy grid.12
"Midwest water quality is uniformly high — no issue there."
Quality varies significantly across the region. PFAS contamination, agricultural runoff, aging infrastructure, and industrial discharge create material quality risk that is not evenly distributed — and not tracked at the portco level in most PE portfolios. Only 51% of industrial operators track usage at all; quality monitoring is even rarer.3
"Our AI adoption doesn't affect our water footprint."
Every AI workload runs through data centers consuming significant water for cooling. UC Riverside researchers estimate roughly 500ml — one bottle — per 100-word AI prompt.13 Google consumed approximately 21 billion liters of potable water cooling its data centers in 2022 alone.14 AI-intensive operations carry indirect water exposure most operators have never mapped.
"Water infrastructure risk is an environmental issue, not a PE issue."
Water management systems are classified as critical infrastructure by CISA — the same category as energy grids — and are documented targets for cyberattack. PE firms with industrial portfolios should model cyber exposure to water systems portfolio-wide, exactly as they assess energy infrastructure. This is an operational and insurance risk, not an ESG checkbox.
The Midwest advantage — and why it is not guaranteed
The Great Lakes region is the most water-rich industrial geography in North America. The arid Southwest is already pursuing expensive, legally contested pipeline solutions to import water across state lines — efforts that are unlikely to succeed at meaningful scale. That makes the Midwest a structural advantage for industrial operators. But abundance is not immunity, and the competition for that advantage is intensifying.
The same qualities that make the Midwest attractive — water access, cooler ambient temperatures, deep aquifer systems — are now making it the top target for data center development. Tech infrastructure and industrial manufacturing are entering direct competition for regional water resources. Midwest industrial operators are not yet at that negotiating table.
"The Southwest is already living the Midwest's future if operators do not act. The firms building water into their value creation playbook now will have the exit multiple to show for it."
What Fortune 500 stewardship reveals for the mid-market
In my book, The Courage to Continue, I examine how the largest US companies have grappled with water dependency — and what the patterns reveal for operators who have not yet run this analysis. The scale of corporate water consumption is clarifying, and the gap between the Fortune 500's water intelligence and the mid-market's is significant.
Note on data: All figures below represent total system water withdrawal (the full amount removed from water sources), drawn from each company's most recent ESG/sustainability report at the time of writing. Coca-Cola's figure reflects the full Coca-Cola system including independent bottlers. PepsiCo's figure reflects total company-owned facility withdrawal for 2022. These are the most directly comparable available metrics across companies.
Ford is the instructive case. Since 2000, Ford has achieved a 76.2% reduction in absolute freshwater use, accounting for a cumulative 186.3 billion gallons of water saved.10 Not from regulatory pressure alone, but because the cost and efficiency case was undeniable once they ran the numbers. The model for the mid-market is identical: not compliance, but competitive advantage through water intelligence.
From passive consumption to Water-as-a-Service
The most forward-thinking PE-backed industrials I work with are beginning to shift from passive water consumption to a Water-as-a-Service (WaaS) orientation — a structural change in how water is managed, measured, and monetized across a portfolio.
What Current and Great Lakes ReNEW make possible
Current, Chicago's water innovation hub, and Great Lakes ReNEW — the NSF-funded Regional Innovation Engine led by CEO Alaina Harkness — represent one of the most significant concentrations of water technology capital and research infrastructure in the world. With up to $160 million in NSF funding over ten years and a coalition of 75+ partners across six states,19 the ecosystem is uniquely positioned to serve PE-backed industrials. The question is whether the mid-market shows up to engage it.
The mid-market PE-backed industrial is the constituency most conspicuously absent from this ecosystem — and the one with the most to gain from engaging it. The $50M–$300M Midwest manufacturer, the PE-backed industrial services company, the regional processor — is not yet in the room. That is both a gap and an invitation.
The three-question water audit
Before your next portfolio review, answer these three questions for every Midwest industrial asset you own or are evaluating.
Proactive water investment is the EBITDA hedge of the next decade. Energy costs already taught this lesson to PE the hard way — firms with no visibility into energy exposure at the portco level, no hedging strategy, and no early warning system. Water is setting up exactly the same way. The firms that engage Current, participate in the Great Lakes ReNEW ecosystem, and build water into their value creation frameworks now will have the strongest portfolios — and the cleanest exit narratives — when the market catches up to what the data already shows.
Alex Kruzel is CEO and Founder of Telesto, which provides growth services and investment intelligence to the PE ecosystem — PE firms, owners, and operators — across industrials, healthcare, and professional services throughout the deal lifecycle. Telesto helps clients speed execution, improve carry, expand multiples, and strengthen exit returns. Alex spoke on the "AI and Water Usage: Separating Fact from Fiction" panel during Chicago Water Week (May 7, 2025), hosted by M. Harris & Kern. She is the author of The Courage to Continue. To follow her work, connect on LinkedIn. To discuss a deal, portfolio company, or value creation opportunity, reach out directly.