Submitted by Ceres
As numerous western states are considering massive new water supply projects, a new Ceres report is suggesting caution.
Citing shrinking federal funds, uncertain water demand and declining revenues to pay for the projects, the report recommends that utilities move carefully before embarking on major pipelines, reservoirs and other new infrastructure that will create financial risks for investors and utility customers alike. Major pipelines with construction costs of $1 billion to $7 billion are currently proposed in Nevada, Utah and Colorado. Financing costs can double the total cost of customers for such projects.
"U.S. water utilities are facing a brave new world of more vulnerable water supplies, declining household demand and huge financing costs in tapping new sources," said Sharlene Leurig, water program manager at Ceres, who authored the report, Water Ripples: Expanding Risks for U.S. Water Providers. "The report makes clear that water utilities, especially those in arid western states, should think carefully before embarking on expensive new projects that will be financially burdensome for consumers."
The Ceres report is a follow-up to its 2010 report The Ripple Effect: Water Risk in the Municipal Bond Market, co-authored with Water Asset Management.
The new report cites increasing financial risks to water utilities and their investors, as well as tangible progress in how credit rating agencies and capital markets are evaluating these risks. Among the report’s key findings:
"Utilities should be doubling-down on water conservation efforts that will help them avoid the need for new supply projects," Leurig said. "Among the options in this regard is investing in flexible supply arrangements like long-term leases with agricultural water users, which typically are pennies on the dollar compared to the development of new supplies." Agriculture accounts for most of the water used in the United States, including more than 90 percent in some Western states.
To better manage water risks and ensure sustainable supplies for consumers and revenue streams for utilities, the report calls for improved market transparency through better public disclosure by water utilities of information about how they assess and manage these risks.
The report also recommends that water demand projections be viewed skeptically by credit rating agencies, investors and policymakers; that investors and credit rating agencies seek better understanding of how rate structures influence demand and revenue streams; and that environmental and consumer groups actively work to build public support for water rates that ensure future water security and affordability.
“The future availability of freshwater, which is essential to the U.S. economy, can no longer be taken for granted,” Leurig concluded. “Policymakers, water utilities, investors and environmental and consumer advocates must all be engaged in the effort to ensure smart stewardship of this precious resource on which all economic activity and life itself depends.”
Ceres is an advocate for sustainability leadership. Ceres mobilizes a powerful coalition of investors, companies and public interest groups to accelerate and expand the adoption of sustainable business practices and solutions to build a healthy global economy. Ceres also directs the Investor Network on Climate Risk (INCR), a network of 100 institutional investors with collective assets totaling more than $11 trillion. For more information, visit http://www.ceres.org
Ceres is a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy. Through powerful networks and advocacy, Ceres tackles the world’s biggest sustainability challenges, including climate change, water scarcity and pollution, and human rights abuses.
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