We often talk about the true cost of water (www.waterprint.net), but those calculations tend to focus on current and historical water use and existing supply. What if, instead of focusing on the past, we tried to see into the future? What would our supply/demand matrix look like in the next decade? Can speculative prognostication help us adjust our current course so that we can prepare for what lies ahead? And can knowing the risks—not just to our supply, but also to our pocketbooks—help us navigate safely around potential pitfalls and obstacles?
Part of evaluating the current state of our water resources involves assessing the state of our conveyance system. An integral—and perhaps unduly ignored—element of our conveyance system involves funding: specifically funding through municipal bonds. Because the value investors place on those bonds can impact the monies available to utilities for infrastructure improvements, a new report released by Ceres addressing risk assessment in the water bond market could bring about significant changes to municipal water resource management.
Ceres is a “national coalition of investors, environmental groups, and other public interest organizations working to address sustainability challenges, such as water scarcity and climate change. This month, it release a report—compiled via a partnership with Price Waterhouse Coopers and Water Asset Management—entitled, “The Ripple Effect: Water Risk In The Municipal Bond Market.” (http://www.ceres.org/Document.Doc?id=625)
What is the relationship between water scarcity and municipal bonds? The report aims to define the interconnectedness of water supplies and municipal bonds—specifically the impact scarcity can have on investment—by applying a “quantitative model” to estimate the water risk associated with specific utility bonds. Why is this risk assessment needed? Well, without it investors can get a skewed picture of what is going on in a particular municipality in terms of supply, demand, and conveyance.
Take, for example, Atlanta and Los Angeles. Both cities have had well-publicized water scarcity issues—and yet bonds for both municipalities were given a high value rating based on traditional bond models. The purpose of the Ceres report is to modify these models to more accurately reflect the real risk associated with water infrastructure bonds.
There is some question as to whether these new bond valuations will negatively impact infrastructure funding. In the report’s forward, Ceres President Mindy Lubber counters this idea stating that by offering “a detailed set of recommendations for utilities, rating agencies, underwriters, and investors,” the report can help all those involved in water resource management to “better manage this water scarcity challenge.” Rather than undercut current financing options, Lubber also lays out the hope that the report’s recommendations will “catalyze conversations and partnerships to develop best practices for understanding, anticipating and, ultimately, reducing water risk in our national investments” and, in doing so, “better preserve our precious water resources for generations to come.”
So what do you think? Can a different bond valuation system positively impact water resource management at the municipal level? Is it important for potential investors to be informed of the risks associated with investing in a municipality particularly challenged with water scarcity? Does the Ceres model effectively address all the factors involved in water supply and demand, including the impact current actions (advanced leak detection and new resource management technologies like AMR and SCADA) will have on future resources? And will this report accomplish what the authors hope and inspire municipalities to work even harder to protect and preserve our water supply, or does this crystal ball gazing just muddy the waters, so to speak?