U.S. Environmental Protection Agency (USEPA) recently released a report on the impacts of climate change on the drinking water and wastewater sectors. The Climate Change in the Drinking Water and Wastewater Sectors and the Impact on Financial Resilience, Insurability, and Credit and Investment Quality report was led by the USEPA Climate Finance Working Group so the focus is predictably on the finances of utilities. The report represents the start of forming a better relationship between the different financial institutions, including credit rating agencies, insurers, and others involved in financing or protecting the utility’s assets, that support water and wastewater utilities.
Moving forward, USEPA says the working group will focus on the need to better understand:
- the data needed to identify climate change threats;
- methods and practices to identify and assess climate change risks; and
- effective outreach and disclosure practices to manage identified risks.
Overall, the report initiates the conversation between different, but connected, industries on how water utilities are looking to improve overall resiliency of operations.
What does this mean for utilities within our industry?
First and foremost, the item that stands out from the report is that as utilities work with financial institutions, these institutions want utilities to consider long-term risks to their operations. When financing a new improvement over 20 or 30 years, lenders will want a guarantee that they will still be receiving payments over the term of the loan.
While the report’s title includes the term “climate change” it really boils down to what utility operators and managers are doing today to make sure they can address a changing supply or demand into the future. While not every utility needs to be concerned with securing a long-term water supply or the effects of sea level rise, every utility is going to be facing the realities of changing service demographics or an aging workforce. Having leadership from both the management and board level involved helps to ensure utilities can continue to provide the reliable and resilient services that users have come to expect.
Reach out to Ryan Graf, AE2S Nexus Senior Consultant if you are interested in learning how the information in the report could relate to your specific operational challenges.