News Feature | January 6, 2016

Financial Analysts Predict Stable Outlook For Utilities

Sara Jerome

By Sara Jerome,

Analysts say climate change is not a significant threat to water utilities in the coming year.

Moody’s Investor Service, a research and ratings agency, said in a recent report: “Weather-related challenges will persist, but are anticipated to be manageable. Moody's does not anticipate climate-related events will materially [affect] financial metrics for the sector.”

Other analysts have been more urgent about the risks posed by climate change, even in the short-term. Simon Pollard, a risk management researcher at Cranfield University's School of Energy, Environment and Agrifood in the U.K., says that uncertainty about the potential effects of climate change “ought not to be the basis for delayed decisions,” according to Bloomberg BNA. “Let's be bolder about what we know instead of being paralyzed about what we don’t know.”

Moody’s predicted that in the coming year the outlook for water utilities will be stable.

"Municipal water and sewer utilities' demonstrated willingness to raise rates will continue to support sound debt service coverage and liquidity while addressing operating and capital needs," said Patrick Liberatore, a Moody's analyst.

Moody’s analysts do not foresee major changes in the condition of U.S. water infrastructure this year. “The 2016 outlook also observes capital plans to address aging infrastructure are likely to remain unchanged since the utilities typically consider these needs over forward-looking periods of five to 10 years,” the report said.

The U.S. needs nearly $1 trillion in water system upgrades, according to the American Water Works Association. “Restoring existing water systems as they reach the end of their useful lives and expanding them to serve a growing population will cost at least $1 trillion over the next 25 years,” according to an American Water Works Association report as quoted in the blog Knowledge@Wharton. “Through 2050, the costs escalate to $1.7 trillion, or $30 billion annually.”

The association encourages policymakers to think long-term on water infrastructure issues.

“Delaying this investment could mean either increasing rates of pipe breakage and deteriorating water service, or suboptimal use of utility funds, such as paying more to repair broken pipes than the long-term cost of replacing them. Nationally, the need is close to evenly divided between replacement due to wear-out and needs generated by demographic changes (growth and migration),” the report said.

For all things financial at the utility, visit Water Online’s Funding Solutions Center.