Money Matters

screen_shot_2014-04-16_at_5.24.54_pmWater is in an odd quandary relative to financial matters.  On the one hand, money is the quickest translator for people and is the way they can most easily understand the cost, rarity and importance of most items in life, and then make decisions relative to their own priorities and financial capabilities. Why, then, is there so little attention to these matters when it comes to water? Maybe it’s because people feel like they have no control over it?  Discussions are relegated to utility commission meetings or public service hearings, arenas that most people don’t know about and wouldn’t understand even if they did try to attend. Maybe it’s because rate structures and bills are (intentionally?) obfuscating?

But we need people to understand: Our water systems are in poor repair, use a lot of energy, and are vulnerable to climate change’s impacts. Upgrading systems to meet the demands of tomorrow requires paying attention to the dollars and tradeoffs. To prepare myself for some upcoming meetings around water rates and financing, including next month’s forum on the “Future of Environmental Finance” at the University of North Carolina, I decided to dive back into the literature.  Here’s a quick rundown on a few pieces that I felt were worth holding on to:

  • Financing Sustainable Water Infrastructure (The Johnson Foundation at Wingspread, January 2012): We released this report, co-written with American Rivers and Ceres, a little over two years ago, yet our contribution still strikes me as fresh and relevant.  It provides a unique and understandable overview of the state of our water systems, what we mean by “sustainable” systems, and how to understand the financing. It very clearly lays out 10 challenges with today’s systems and a few opportunities for shifting toward financial and social structures that drive sustainability.
  • Water Pricing Primer for the Great Lakes Region (Alliance for Water Efficiency, December 2010): Don’t be fooled by the title. This is a water pricing primer for the entire country. Yes, it was funded by Great Lakes interests and has case studies and detailed data from Great Lakes states, but the background on rate structures, the conundrum of water efficiency vs. rates, the importance of communication, etc., is a valuable tool for citizens and utilities from any geography.
  • Disclosure Framework for Water & Sewer Enterprises (Ceres, April 2013) and Assessing Water System Revenue Risk: Considerations for Market Analysis (Ceres, August 2013): These two publications are the latest in a body of critical work in which Ceres tries to shine light through the opaque walls of water investments. Underlying this work is a concern that decision-making related to water infrastructure investments is not always aligned with the long-term interest of the private citizen, the community as a whole, and certainly not the long-term sustainability of the planet.  The first of these pieces, the Disclosure Framework, is aimed at “market participants,” which generally means big players like large utilities and institutional investors, but it could just as easily be used by citizen groups and local activists who want to know which rocks they should be turning over when facing community decisions about long-term investments. The second is aimed squarely at those who play in the market by issuing bonds and debt, trying to better understand the likelihood that the debt can be repaid. Though the language can be challenging for those not steeped in the financial sector, the basic considerations are equally helpful to people on both sides of the debt equation.

For a long time, water rates in the United States have been low, and water infrastructure has been a safe investment because water was essentially a growth industry. However, in many parts of the country, water demand has been decreasing, a trend highlighted in Shadi Eskaf’s recent post with the University of North Carolina’s Environmental Finance Center. “Utilities that expand their water systems based on old demand projections and then experience a decrease in total demand … will have taken on new debt and capital costs to pay for capacity that may not be used … at the same time when revenues may also be suffering.” This is a polite way of saying that communities that lock themselves into debt for expensive infrastructure investments may find themselves financially strapped in the future.

Financial sustainability is part and parcel of environmental sustainability. I’ll be attending the above-mentioned event at UNC next month, and I hope to come back a lot smarter on these matters. Stay tuned.

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