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Executive Summary for July 15th

For an overview of the latest news on the California drought, we’ve organized the most recent developments in a curated summary.

Published on July 15, 2015 Read time Approx. 2 minutes

Are Water Utilities Still a Good Bond Risk? Well…

A report out today suggests the bond rating and creditworthiness of California water utilities will depend largely on which agencies are willing to raise water rates.

The report by Columbia Threadneedle Investments notes that California’s water rates are already among the most expensive in the United States, largely because the state has a large and complex water infrastructure that must be maintained. Yet many water agencies will be required to raise rates further – even after the drought eventually ends – to secure additional water supplies and keep up with infrastructure decay.

The report states that California is not going to run out of water, because it has demonstrated the ingenuity and the will to secure additional supplies, whether by building new reservoirs or seeking it through new technologies such as wastewater recycling.

“From a credit quality perspective, California water utilities have generally remained stable due to a political willingness to exercise their unlimited authority to adjust rates to offset the rising costs of supplying water and meet infrastructure demands,” according to the report.

Yet it’s worth noting that this analysis fails to consider Proposition 218. The state ballot measure approved in 1996 requires a wide variety of taxes and fees – including utility rate increases – to be approved by voters. If those voters already feel burdened by high water rates, or if they disagree with a particular proposal to acquire more water supplies, gaining approval for additional rate increases is hardly a sure thing.

Coincidentally, two major California water agencies got news on their investment ratings Tuesday:

– Southern California Water Replenishment District had its AA+ bond rating affirmed. The Fitch rating firm noted the district’s progress toward developing recycled water capacity.

– California Water Service Group’s publicly traded shares were downgraded on Tuesday from “buy” to “hold.”

The Drought’s Off-Beat Side Effects

Rotting sewer pipes and raining spiders? Those are some of the less obvious side effects of California’s ongoing drought, according to an article at livescience.com.

Among other things, more animals are likely to become roadkill due to the drought as they wander farther to find water. Spiders and cats are likely to boost their breeding in en effort to keep up their numbers. And the decline in water flow in sewer lines – caused by water conservation – increases the amount of hydrogen sulfide gas in the lines, which may cause them to corrode faster.

The article, however, perpetuates the faulty belief that an El Niño weather pattern expected this fall is likely to increase rainfall. As we have pointed out, El Niño has produced dry winters as often as wet ones.

Prison Inmates Conserving Water Too

Law-abiding Californians have mostly gotten the message that they must get serious about conserving water. Now prison inmates are getting it too.

Like other sectors of California life, the 34 state prisons have also responded to the governor’s call to cut statewide water use by 25 percent. Inmates have been limited to three showers a week of five minutes each. In some cases, toilet flushes have been limited to three times in any 15-minute or 30-minute period, depending on the prison, after which the water shuts off.

The changes have prompted prison advocates to file lawsuits on behalf of inmates, who claim the conservation measures have health impacts. One cites the closure of outdoor showers at San Quentin State Prison. There, outdoor showers have traditionally been used by inmates to wash the three pairs of clean underwear they are issued each week between wearings.

Photo by Associated Press

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