Saturday, November 17, 2012

Escalating Risks for U.S. Water Providers

Ceres is a nonprofit organization advocating for sustainability leadership.  Ceres directs the Investor Network on Climate Risk (INCR), a network of 100 institutional investors with collective assets totaling more that $10 trillion.  Engineers engaged in water resources management and planning should make Ceres a source for information - - they produce excellent reports directed toward the space between engineers, managers, public utility officials and underwriters, bond counsel, rating agencies, and bond buyers.

An example of a report is Water Ripples: Escalating Risks for U.S. Water Providers by Sharlene Leurig.  The report discusses several issues that engineers and managers need to be more concerned about.  One important fact concerns many of our critical water supplies being over-allocated (i.e., Colorado River Basin), contested (i.e., Red River Compact), over-abstracted (i.e., groundwater), and imperiled (i.e., groundwater contamination).

This is a sentence from the report to ponder:

"As surprising as it might seem, water providers have been more damaged in recent years by declines in water demand than by a lack of water."

Key points from the paper:
  • Managing demand is not something to be saved for a dry spell.  Emergency conservation measures during droughts or legally-induced water shortages may be necessary, but it is the demand management through conservation outreach, efficiency investments and pricing that protects a system's financials during times of shortage and that enables systems to deliver the lowest-cost water to customers over the long-term.
  • Water systems' demand projections should not be taken as a given, by policymakers, investors or credit rating agencies.  Water use is changing, but that change is not reflected in how most systems project demand.  As the costs of supplies increases, building for phantom demand can put ratepayers and investors in big financial trouble.
  • Investors and credit rating agencies should be seeking out better information on the ways that water rate structures influence demand, and in turn shape the stability of water systems' revenues.  Not all rate structures are built alike, yet research on the relationship between factors is not making its way from academics and rate consultants to credit rating agencies and investors, for whom this should be an absolutely central part of credit analysis.
  • As investor water risk awareness grows, water systems that provide the best information to the market will benefit.  Investor opinion determines the cost systems pay to finance critical infrastructure, whether the opinion is based on bias or hard data.  Transparent and accurate disclosure should be valued positively by the market.
  • Environmental advocates and consumer advocates should assume a far more active role in building political support for sustainable water rates.  Educating customers and elevating water security and long-term affordability within political constituencies is in the interest of those advocating on behalf of the environment and the low-income.

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