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New Study Explores Infrastructure Investment Challenges Amidst Declining Water Use

Posted on by Carlos

There is no question that our country’s water infrastructure is approaching a state of crisis. In June of this year, the U.S. Environmental Protection Agency estimated that $384 billion in improvements are needed through 2030 to ensure our systems continue to provide safe drinking water. While water utilities plan major infrastructure investments, an observed decline in water use over the last several decades presents a significant financial challenge.

According to a 2010 study by the Water Research Foundation, “A pervasive decline in household consumption has been determined at the national and regional levels.” This decrease in water demand represents a financial risk for investors who buy the water utility bonds that finance much of the country’s water infrastructure.

A new Ceres study, “Assessing Water System Revenue Risk: Considerations for Market Analysts,” explores the current challenges water utilities in some of our country’s most water-stressed regions are facing to fund infrastructure and operating costs. The paper, which is a joint effort with the Environmental Finance Center at the University of North Carolina (UNC), includes metrics that may be used to analyze the financial strength of water systems based on pricing structure and demand base.

The paper reveals that one aspect of the water utility pricing structure that is particularly important is the fixed charge that appears on a customer’s bill. While this rate varies widely from city to city, water systems with a higher proportion of their revenue coming from a fixed charge are less vulnerable to revenue downturns and therefore more attractive to investors. The key is to strike a balance between a stable revenue stream and reasonable water rates.

Click here to request the report “Assessing Water System Revenue Risk: Considerations for Market Analysts” from Ceres.

 

 

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