A report published on 21 October 2010 by Ceres and Water Asset Management alleges that few
participants in the US water and electricity bond market -- including investors, bond rating agencies
and the utilities themselves -- are accounting for growing water scarcity, legal conflicts and other
threats in their analyses.
Investment in water reuse is one of a number of recommendations.
Public water utilities deliver more than 80% of US water to residential and industrial
consumers and issue billions of dollars' worth of bonds each year to fund infrastructure. Public
electric utilities also depend on ample freshwater to generate hydropower and to cool powerplant
equipment. The stresses are especially severe in regions experiencing rapid population and
economic growth, including the west, southwest and southeast.
The report, The Ripple Effect: Water Risk In The Municipal Bond Market,
introduces an innovative quantitative model, developed by PwC (part of PricewaterhouseCoopers),
to assess both water and electric utility water risk exposure by comparing their available supplies
with projected water demand from 2011 to 2030. Drawing on public information gathered from
federal reports, bond statements, and utility planning documents, the model generates a set of
water risk scores that can be used by investors and credit rating agencies to better understand
relative water risks among utility bonds.
By coupling the water risk scores with other
financial information already available in credit rating opinions and bond documents, investors
can gain a more complete picture of a bond's total risk profile.
Using this tool, the report found the following risk situations:
The report makes the following recommendations for water utilities:
Improve disclosure of material water stresses, such as exposure to persistent drought or
long-term climatic changes, interstate legal conflicts over shared water resources, and potential
and existing regulatory actions related to environmental flows. Disclosure should also include an
assessment of potential capital costs, rate
adjustments and revenue effects from water supply risks.
Implement strategies to manage demand and reduce leakage, such as cost-effective
infrastructure improvements to reduce water loss, deployment of
conservation incentives and new pricing strategies that reflect water scarcity and reward water-
Invest in infrastructure that reduces risk such as "closed loop" alternative supplies
(including indirect potable reuse), and green infrastructure that restores
natural hydrological systems, promotes rainwater harvesting and natural water
capture, thus recharging aquifers and protecting water supplies.