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Financing Climate Adaptation
CRWU and Water Utility Climate Alliance (WUCA) Webinar Series
Laura Dubin, ORISE Intern, EPA
Keely Brooks, Southern Nevada Water Authority/WUCA Dave Wright, Southern Nevada Water Authority
Jeffrey Hughes, UNC Environmental Finance Center Kirsten Anderer, EPA Drinking Water State Revolving Fund (DWSRF)
Emily Nicasio, EPA Clean Water State Revolving Fund (CWSRF)
May 28, 2014
For audio, dial 888– 271 – 8859 and provide code 47449769
Housekeeping
2
• Mute/un-mute
• Question & Answer sessions
• Technical difficulties – dial *0
Climate Ready Water Utilities (CRWU)
CRWU Mission Statement
To provide the water sector (drinking water, wastewater,
and stormwater utilities) with the practical tools, training, and technical assistance needed to adapt to
climate change by promoting a clear understanding of climate science and adaptation options.
3
CRWU and WUCA Webinar Series
Topic
Scenario Planning to Support Decision Making
Robust Planning to Support Decision Making
Threshold Analysis to Support Decision Making
Decision Making in Practice
Communicating Climate Change
4
• Additional topics and dates under consideration
• Archived webinars available online at http://www.epa.gov/climatereadyutilities
Overview
• Water Utility Climate Alliance Introduction
• Utility case study
– Dave Wright, Southern Nevada Water Authority
• Utility financing options
– Jeffrey Hughes, University of North Carolina Environmental Finance Center (UNC EFC)
– Kirsten Anderer, EPA Drinking Water State Revolving Fund (DW SRF)
– Emily Nicasio, EPA Clean Water SRF (CWSRF)
• Wrap up and Q & A 5
Water Utility Climate Alliance
Decision Support Planning Methods: Incorporating Climate Change
Uncertainties into Water Planning
Options for Improving Climate Modeling to Assist Water Utility Planning for Climate
Change
White Papers (2009-2010) http://www.wucaonline.org/html/actions_publications.html
2014 Activities
2014 Activities
Piloting Utility Modeling Applications (PUMA)
Identify available climate tools (GCMs and downscaled data)
Use in “Chain of Models”
Given large ranges in outputs, how useful are these tools in planning?
Build regional relationships
Articulate adaptation community research needs
2014 Activities
Societal Dimensions Working Group
CESM Admin: Climate and Global Dynamics Division at the National Center for Atmospheric Research
Engage
Applied data user
Actionable outputs
Community Earth System Model (CESM)
2014 Activities
Translating Climate Change Assessments into Action Information to support decision-making under large uncertainty
Pushing the boundaries beyond climate assessments
Stories from the field - multi-outcome planning to address future climate uncertainty
Lesson learned from the utilities
2014 Activities
Regulatory Challenges due to Climate Change Defining the challenges at the science-policy interface
What climate impacts present regulatory challenges?
Are there barriers to climate adaptation because of certain regulations?
Inventory of utility challenges
How Do Water Utilities Finance Climate
Adaptation?
Southern Nevada Water Authority
Dave Wright Chief Financial Officer
May 28, 2014
Outline
• SNWA Basics
• SNWA Challenges
• Adaptation vs. Capital Improvements
• Funding Projects 101
• Borrowing Money
• Summary
PRESENTATION OUTLINE
• Seven member agencies
• 90% of supply from Colorado River
• Withdrawal from Lake Mead
• Two intakes, third under construction
• Two water treatment facilities
SNWA BASICS
Las Vegas
• Supply shortage
• Intake system impacts
• Reduced water quality
• Power requirements
SNWA CLIMATE CHANGE CHALLENGES
EXISTING CHALLENGES EXACERBATED
CLIMATE ADAPTATION OR CAPITAL IMPROVEMENT
ADAPTING TO LOWER LAKE MEAD SURFACE ELEVATIONS
INTAKE 3 UNDER CONSTRUCTION
CLIMATE ADAPTATION OR CAPITAL IMPROVEMENT
• To – date, mostly no-regret projects
• In future, projects will be designed to handle greater extremes (bigger-faster-stronger---Superman!)
• CC only one uncertain factor considered in capital planning
• Upscaling a project for climate change creates an added “marginal cost”
• Cash – maintenance projects (rates, pay as you go)
• State Revolving Fund (SRF) – large replacement projects (borrow one year at a time)
• Bonds - new construction, large projects, capital financing (borrow every 2 – 3 years)
FUNDING PROJECTS 101
New water resource
• Bond issuances will need to be larger, but debt obligation currently appx. 20-40% of utility budget
• Extend the repayment time for big projects? – Example: $10 million loan at 5% interest, what would be
the repayment amount for 20, 30, 40, 50 year loans? • 20 yrs. = $802,426 yr. 30 yrs. = $650,514 yr.
• 40 yrs. = $582,782 yr. 50 yrs. = $547,767 yr.
• 75 yrs. = $513,216 yr. 100 yrs. = $503,831 yr.
– Paying over 50 yrs. vs. 20 yrs. saves ~32%/yr.
• Possible alternative, but newer product for lenders
BORROWING MONEY
ADAPTATION WILL COST MORE $$, HOW TO PAY?
SNWA 2014-15 Budget: • Total expense budget $464 million • Total debt service budget $171 million (37%)
– Issue $100 million in bonds – 30 year repayment is $6.5 million a year
• Compare to a 10% increase due to project adaptation – Issue $110 million in bonds – 30 year repayment is $7.2 million a year
• Additional $0.7 million makes a 0.15% increase to customer rates
• Not monumental, but does increase over time – 6 bond issuances like this would cause an incremental
1% rate increase
BORROWING MONEY
EXAMPLE OF FINANCING ADAPTATION
• Add marginal costs to capital program • Result in increased borrowing (SRF or bonds) • Could result in longer repayment periods • Have rate impacts, but usually gradual and may not
be material • However, rate impacts are cumulative and must be
considered
SUMMARY – ADAPTATION MAY:
efc.sog.unc.edu
Crafting an Adaption Finance Strategy
Jeff Hughes Director, Environmental Finance Center University of North Carolina at Chapel Hill [email protected] www.efc.unc.edu
23
Environmental Finance Network
(www.efcnetwork.org)
http://efc.sog.unc.edu
Vision: Environmental programs
provided in fair, effective, and
financially sustainable ways.
Our Part
• Applied Research
• Education and Outreach
• Program Design and Evaluation
http://efc.sog.unc.edu
Outline
• Financing Adaption Initiatives
• Crafting a Finance Strategy
• Examples
Financing Adaption
• Retrofits vs. new construction
– Expensive
– Limited “new revenue”
• Private property vs. public
• Precision design vs. risk based design
• Public good vs. private Good
Essential Components to any
Environmental Finance Strategy
• Capital providers
• Revenue tools and mechanisms
• Aggregation and pooling
• Financial incentives
Capital Providers and
Representative Terms
• Municipal Bond Investors
(4%, 30 years)
• Subsidized Government Funding
(limited grants and/or 0-3%, 20 years)
• Private Investment Equity
(8%,20 years)
• Property owners/developers
Bond Innovation and Strategies
• Tapping into demand for “green”
• Extended terms (100 year bonds?)
• Pooling and aggregation
• New/expanded revenues to back bonds
– Stormwater fees
– Statewide fees (Maryland, Delaware?)
– Insurance premiums
– Property assessments
Common Revenue Tools
• Sales tax (Atlanta)
• Property tax (Chicago)
• Water quality or water resource fees (Maryland)
• Water and wastewater charges
• Stormwater fees (Multiple)
• Insurance premiums (Florida Cat fund)
10,000
12,000
14,000
16,000
18,000
20,000
22,000
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0C
usto
mer A
cco
un
ts
Wate
r S
ale
s (
mil
lio
n g
all
on
s p
er
day
avera
ge)
Actual Water Sales Accounts
Water Sales
Source: Orange Water and Sewer Authority
http://www.efc.sog.unc.edu/node/104
Stormwater Fees
• Linked to run-off and flooding
• $3 to $20 per month single family
residence
• $500 to $10,000 per month for commercial
properties
• Credits for on-site improvements
Multi-Prong Tools: Florida
Hurricane Catastrophic Fund
• Multiple revenue sources (premiums,
interest, assessments)
• Wide risk pooling
Don’t Forget about
Financial Incentives
• Development benefits
• Reduced development fees
• Trading
Pooling Mechanisms
• Stormwater utilities
• Water and wastewater utilities
• State/regional restoration/water funds (Bay Restoration Fund)
• Green banks (Connecticut)
• Pooled loan programs
• Off sets and trading programs
TRENDS AND
DEVELOPMENTS
Where Can You Find More?
http://efc.unc.edu
Or subscribe to the
Environmental
Finance blog!
http://efc.web.unc.edu
Financing Adaptation through the State
Revolving Fund (SRF) Emily Nicasio U.S. EPA Office of Wastewater Management
Kiri Anderer U.S. EPA
Office of Ground Water and Drinking Water
What is the SRF?
• Federal/State partnership designed to create perpetual source of financing for water infrastructure
– Federal capitalization for State operated loan program
– Provide billions in loans annually
– Offer below market interest rates, flexible terms
– Borrowers include municipalities, non-profits, businesses, and individuals
42
What is the SRF?
• Created in 1987 when Congress amended the Clean Water Act
• Replaced the existing Construction Grants program
• Clean Water SRF programs can fund projects of three major types: – Projects that address municipal wastewater and
stormwater pollution
– Projects that address nonpoint source pollution
– Projects that address water pollution in the National Estuary Program
43
Clean Water SRF
• Created under 1996 Safe Drinking Water Act Amendments
– States have ability to take “set asides”
– Emphasis on small and disadvantaged
• Priorities for Project Funding:
1. Most serious risk to human health
2. SDWA compliance
3. Household affordability need
Drinking Water SRF
44
DWSRF Eligibility
Eligible Projects
• Source (limited)
• Treatment
• Transmission & Distribution
• Finished Water Storage
• Consolidation
• Creation of New Systems (limited)
• Planning and Design
Ineligible Projects
• Dams
• Water Rights
• Reservoirs
• Fire Flow
• Future Growth*
*Statutory
(Administrator Determination)
5
• Projects identified in response to the Disaster Relief Appropriations Act of 2013
– Projects to prevent flooding or reduce the damage if flooding does occur
– Projects that reduce vulnerability to a power outage
– Projects to create redundancy at a facility or interconnections with other utilities
– Planning projects
46
SRFs and Resilience
Full text of EPA Guidance for DRAA implementation
• Wind resistant features (e.g. roofing, windows)
• Physical flood barriers
• Flood attenuation/diversion/retention infrastructure
• Larger capacity and/or saltwater resistant storage tanks for chemicals and fuel
• Water efficiency/conservation, including reuse
• Aquifer recharge
47
Eligible Resilience Projects
• Projects to create redundancy at a facility or interconnections with other utilities
• Projects that reduce vulnerability to a power outage – Backup generators
– Alternative energy
– Hardening of grid connection
• Planning projects – Identify vulnerabilities
– Develop emergency response plans
48
Eligible Resilience Projects
• Green infrastructure is a great tool for making water utilities more resilient to wet weather
• Flood attenuation/diversion/retention infrastructure
• permeable pavement, green roofs and walls, bioretention infrastructure, stream daylighting, and downspout disconnection
• Natural systems to mitigate storm surges • barrier beach and dune systems, tidal wetlands, living
shorelines, and natural berms/levees
49
Resiliency
CW/DW SRF Projects Eligible Resilience Projects
• SRF program in all 50 states and Puerto Rico – Borrowers apply to state
– Each state has their own process
• States develop project ranking systems and funding capacity – States can give bonus points for resiliency projects
– DWSRF required to fund in priority order
• States develop Intended Use Plans (IUPs) and project priority lists – Open to public comment
50
How to Obtain Financing
Find the SRF in Your State
DWSRF: http://water.epa.gov/grants_funding/dwsrf
CWSRF: http://water.epa.gov/grants_funding/cwsrf/cwsrf_index.cfm 12
Emily Nicasio
U.S. EPA 202-564-9220
52
Kiri Anderer
U.S. EPA 202-564-3134
Climate Ready Tools & Resources
53
Assess Risks
and Evaluate
Opportunities
Collaborate
with
Partners
Research
and Gather
Information
Learn
Climate and
Adaptation
Basics
Explore
Elements
of Climate
Readiness
Climate Resilience Evaluation and Awareness Tool
Extreme Events
Workshop Planner
Toolbox Adaptation Strategies
Guide Adaptive Response
Framework
Connect with CRWU
Please send questions and feedback to [email protected]
• Host pilot projects and exercises to improve and learn about available tools
• Share your success stories with CRWU and other utilities as part of future releases
• Visit EPA climate change page: http://epa.gov/climatechange
54 www.epa.gov/climatereadyutilities
CRWU and WUCA Webinar Series
Topic
Scenario Planning to Support Decision Making
Robust Planning to Support Decision Making
Threshold Analysis to Support Decision Making
Decision Making in Practice
Communicating Climate Change
55
• Additional topics and dates under consideration
• Archived webinars available online at http://www.epa.gov/climatereadyutilities
Curt Baranowski, EPA [email protected] Laura Dubin, ORISE Intern, EPA [email protected] Keely Brooks, Southern Nevada Water Authority [email protected] Laurna Kaatz, Denver Water [email protected]
Dave Wright, Las Vegas Valley Water District [email protected] Jeffrey Hughes, UNC EFC [email protected] Kirsten Anderer, EPA [email protected] Emily Nicasio, EPA [email protected]
56
Thank you
Any questions?