1

November 8-10, 2006Westin Mission Hills ResortRancho Mirage, California

www.aglf.org

26th Annual Fall Conference

Water Supply,Water Supply,Demand, and Financing:Demand, and Financing:

New Models andNew Models andNew OpportunitiesNew Opportunities

Lynn Lynn ShermanShermanlsherman@winstead.comlsherman@winstead.com

byby

Lawyer□

Lobbyist□

Water Developer□

X

X

X

Fast-Talking Texan□X

““He’s just as full of (expletive) He’s just as full of (expletive)

as a Christmas turkey. as a Christmas turkey.

I promise you.”I promise you.”

General Manager, Mesa Underground Water Conservation District,quoted in the San Antonio Express News,

August 13, 2006

Harvey Everheart

Lynn Lynn ShermanSherman

Let’s go

How much ofHow much ofthe Earth’s waterthe Earth’s water

is usable by humans?is usable by humans?

less than 1%less than 1%

0

Where is ourWhere is ourrenewablerenewable freshwaterfreshwater

in the in the United States?United States?

Available Precipitation = monthly precipitation — potential evapotranspiration.

Available Precipitation1934 to 2002

Source: Roy, Summers, and Goldstein, Sustainable Water Resources Roundtable presentation, March, 2004.

0

“Either you bring the water to L.A. or you bring L.A. to the water.” (Noah Cross, Chinatown)

DEMANDDEMAND

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

Po

pu

lati

on

Year

U.S. Population Growth Since 1850

Where Where will population growth will population growth

occur occur in the future?in the future?

Calif., New Mex., Ariz., and Nev.Calif., New Mex., Ariz., and Nev. willwill increase increase populationpopulation by more by more thanthan 50% 50% between between 1995 & 2025.1995 & 2025.

Source: GAO, July 2003, “Freshwater Supply: States’ Views of How Federal Agencies Could Help Them Meet the Challenges of Expected Shortages,” GAO-03-514, Figure 20.

Density in 2025

Source: S. Roy, et al., November 2003, “Water Sustainability in the United States and Cooling Water Requirements for Power Generation,” Universities Council on Water Resources, Water Resources Update, issue 126, Pages 94-99..

All these people

require water.Lots of it!

Total Nationwide UsageTotal Nationwide Usage

0

500

1,000

1,500

2,000

2,500

1960 1965 1970 1975 1980 1985 1990 1995

Y ear

1,500 to

2,000 gallons

per

person

in gallons per personin gallons per personper day per day

Source: USGS, “Estimated Use of Water in the United States in 2000,” Circular 1268.

Which states use the most water?

California,Texas,

&Florida

account for ¼of all withdrawals.

Where is usage most intense?

Source: USGS, “Estimated Use of Water in the United States in 2000,” Circular 1268.

USGS

Breakdown of Uses(excluding hydroelectric power)

What are the trends forWhat are the trends for““consumptive” uses?consumptive” uses?

Average Daily Water Usage (excluding water for hydroelectric and thermoelectric power)

0

50

100

150

200

250

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Year

Bil

lio

ns o

f G

all

on

s

Irrigation Self-Supplied Industrial Domestic & Livestock Municipal

Irrigation ≈ 65%

Source: derived from USGS’s “Estimated Use of Water in the United States” published every 5 years from 1950 to 2000.

growth is in municipal

Personal Personal Household UseHousehold Use

1950

post-2000145145

gallons a day

180180 gallons a day

The US leads the world in water usage.

Source: American Water Works Association, ““Residential End use of Water”.

Only 3%3% of tap water

is usedfor drinkingdrinking.

Over UsedOver Usedand and

Under SuppliedUnder Supplied

Source: WaterGAP 2.0 - December 1999

0for the geographically

challenged…

Source: Lieutenant General Robert B. Flowers, Chief of Engineers, U. S. Army Corps of Engineers, before the Subcommittee on Water Resources and Environment, Committee on Transportation and Infrastructure, United States House of Representatives, May 7, 2003.

underunder drought drought conditions,conditions,

46 states46 states expect expect shortages.shortages.

36 states36 states expect expect shortages under shortages under normalnormal

water conditions;water conditions;

Within the next Within the next 10 years,10 years,

Source: GAO, July 2003, “Freshwater Supply: States’ View of How Federal Agencies Could Help Them Meet the Challenges of Expected Shortages, GAO-03-514.

Cities surveyed that do not

have an adequate20-year water supply?

___

35%Source: U.S. Conference of Mayors Urban Water Council,

“National City Water Survey 2005.”

Basis of planning =Basis of planning =

““at least some part at least some part of the United Statesof the United States

has experienced has experienced severe or extremesevere or extremedrought conditionsdrought conditions

every year every year since 1896.”since 1896.”

Source: GAO, July 2003, “Freshwater Supply: States’ Views of How Federal Agencies Could Help Them Meet the Challenges of Expected Shortages,” GAO-03-514, p. 15.

Areas Prone to Drought 1895 to 1995

Source: GAO, July 2003, “Freshwater Supply: States’ Views of How Federal Agencies Could Help Them Meet the Challenges of Expected Shortages,” GAO-03-514, Figure 3.

Source: S. Roy, et al., October 2005, “Evaluation of the Sustainability of Water Withdrawals in the United States, 1995 to 2025,” Journal of the American Water Resources Association, calculated using typical withdrawals and the lowest 3-year rolling average

precipitation between 1934 and 2002 based on data from Solley et al. (1998) and CPC (2003).

Adequacy of Stored Supplies Adequacy of Stored Supplies During a Significant DroughtDuring a Significant Drought

Another Perspective:Thermoelectric Cooling Constraints

Source: S. Roy, et al., November 2003, “Water Sustainability in the United States and Cooling Water Requirements for Power Generation,” Universities Council on Water Resources, Water Resources Update, issue 126, Pages 94-99..

Breakdown of types of water used

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000Year

Bil

lio

ns

of

Ga

llo

ns

Reclaimed Water Groundwater Surface Water

Breakdown of types of water used

Surface Water ≈ 80%

(for all uses, except hydroelectric)

515 bgd = Estimated dependable yield for contiguous United States (1980)

0

Source: derived from USGS’s “Estimated Use of Water in the United States” published every 5 years from 1950 to 2000. Source: USGS, “Estimated Use of Water in the United States in 1975,” Circular 765, Table 4,

citing Woodward (1957), p. 49, with minor modifications.

↨

Groundwater ≈ 20%

0

Are Are we we

keeping keeping up?up?

NO

1950’s TODAY

De

vel

op

ed S

up

plie

s

Pe

r C

apit

a

ALMOST ON PAR WITH 50’S DROUGHT

Water Development Timeline

NEEDED

SUPPLIES

1950’sDROUGHT

UNPARALLELED GROWTH

FUTURE

DE

VE

LO

PE

D S

UP

PL

IES

DAM BUILDING ERA

1960’s-1980’s

POPULATION DOUBLES

IN 2050

EXISTING SUPPLIESDECREASE BY

20%

“NO DEVELOPMENT” PERIOD

1980’s to Date

Number and Capacity of Large Number and Capacity of Large Reservoirs Completed by DecadeReservoirs Completed by Decade

Source: GAO, July 2003, “Freshwater Supply: States’ Views of How Federal Agencies Could Help Them Meet the Challenges of expected Shortages,” GAO-03-514.

Currently,Currently,our our ““dam builders,dam builders,””

the Bureau of Reclamation the Bureau of Reclamation and the Corps of Engineers, and the Corps of Engineers,

have only have only oneone large water large water storage project underway!storage project underway!

In addition, our reservoirsare silting up

at a rate of about 1.5 million acre-feet a year.

Source: GAO, July 2003, “Freshwater Supply: States’ Views of How Federal Agencies Could Help Them Meet the Challenges of Expected Shortages,” GAO-03-514 (citing a 1995 Resources for the Future report).

card

2005

How is America’s water and wastewater infrastructure graded?

D-Grade=

American Society of Civil Engineers, Infrastructure Report Card 20005

What aboutWhat aboutwater quality?water quality?

According to the EPA,According to the EPA,

45%45%of assessed watersof assessed waters

nationwidenationwidedo not fully meetdo not fully meet

water quality water quality standardsstandards

Source: ASCE, et al., September 2004, “All Dried Up: How Clean Water is Threatened by Budget Cuts.”

Source: EPA, December 2004, “National Coastal Condition Report II. Office of Research and Development/Office of Water,” EPA-620/R-03/002 (evaluating the overall national and regional coastal condition between 1997 and 2000).

Also, conditions of coastal areas are largelyAlso, conditions of coastal areas are largely

Fair to Poor.Fair to Poor.

there’sthere’sa lota lotto be doneto be done

So,So,

How much will it How much will it costcost

over the next 20 yrsover the next 20 yrs??Depends on who you ask.Depends on who you ask.Between Between $245 $245 billionbillion and $1.2 and $1.2 trilliontrillion

Sources: EPA, June 2005, “Drinking Water Infrastructure Needs Survey and Assessment,” EPA 816-R-05-001; General Accounting Office (GAO), March 2004, “Water Infrastructure: Comprehensive Asset Management Has Potential to Help Utilities Better Identify Needs and Plan Future Investments,” GAO-04-461; Congressional Budget Office (CBO), Nov. 2002, “Future Investment in Drinking Water and Wastewater Infrastructure”; EPA, Sept. 2002, “Clean Water and Drinking Water Infrastructure Gap Analysis”; Water Infrastructure Network (WIN), April 2000, “Clean and Safe Water for the 21st Century – A Renewed National Commitment to Water and Wastewater Infrastructure.”

More than More than halfhalf is for is for

currentcurrent needsneedsSource: EPA, June 2005, “Drinking Water Infrastructure Needs Survey and Assessment,” EPA 816-R-05-001.

Yikes,that’s a lot of money!

According to the Water Infrastructure Network (WIN), a water industry coalition, and the American Society of Civil

Engineers:

must be spent above

current investments. WIN, “Water Infrastructure Now: Recommendations for Clean and Safe Water in the 21st Century”;

American Society of Civil Engineers, 2001 Report Card for America’s Infrastructure.

$23+ billion a year

___is almost a

40% increase in current spending

levels

Yikes, again -- since 1980, federal

spending has been flat.

CBO, May 1999, “Trends in Public Infrastructure Spending”

0

10,000

20,000

30,000

40,000

50,000

60,000

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

Year

Mil

lio

ns

(no

min

al d

oll

ars)

Total Public Spending

Federal Spending

70%

FEDERAL SPENDING

In Last Twenty YearsIn Last Twenty Years

Actually, in real terms . . .

• Storage = Storage = 9%9%

• Supply = Supply = 5%5%

• Other = Other = 1%1%Sources: EPA 816-R-05-001, June 2005; GAO-04-461, March 2004.

Where is $ needed?Where is $ needed?

• Treatment = Treatment = 19%19%

• Transmission and Distribution = Transmission and Distribution = 66%66% (more than 1/3 of U.S. utilities have major pipelines ending their useful life)(more than 1/3 of U.S. utilities have major pipelines ending their useful life)

Source: EPA, June 2005, “Drinking Water Infrastructure Needs Survey and Assessment,” EPA 816-R-05-001.

Where is Where is $$ needed? needed?

Where will the Where will the money come money come

from?from?

3 out of 10 drinking water utilities

and4 out of 10

wastewater utilities

do not collect enough revenue from users and other local

sources to cover the cost of service.Source: GAO, March 2004, “Water Infrastructure: Comprehensive Asset Management Has

Potential to Help Utilities Better Identify Needs and Plan Future investments” GAO-02-764.

Source: U.S. Conference of Mayors Urban Water Council, “National City Water Survey 2005.”

Popularity of Financing Methods

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

"Pay As You Go" Revenue Bonds State Revolving

Fund

General Obligation

Bonds

Private Activity

Bonds

0

Compare experience in solid waste

• Crisis in early ’80’s due to declining landfill capacity and rapidly increasing costs.

• Congress responded by eliminating tax-exempt private activity bond cap for municipal solid waste disposal projects.

• As a result, over $15 billion in PABs have been issued since 1986 to solve the crisis.

Source: Stephen H. Howard, Sr. V.P., Lehman Brothers, Inc., testifying to the Congressional Transportation and Infrastructure Subcommittee on Water Resources and Environment, June 14, 2005.

What is the size of What is the size of the U.S. water the U.S. water

industry?industry?

It is expected to grow 7% a It is expected to grow 7% a yearyear

to to $150 billion$150 billion in in

2010.2010.

$107 billion$107 billion

Private CompaniesPrivate Companiesand and

Private CapitalPrivate Capital

80 % Gov’t share historically

Gov’t share of water business historically

80 % Private sector in 2050

Private share of water business in the future

Why is private capital so important?

risk

availability&

0

10

20

30

40

50

Prop

osal

Dev

elop

men

t

Cons

truc

tion 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Project Phase (years)

Level of R

isk/R

etu

rn (

$ m

illion

s)

RiskReturn

Potential Return

Operation Residual

Typical Project Risk/Return Profile

Source: The National Council for Public Private Partnerships

Sustainable Water Sustainable Water ResourcesResources

www.SustainableWaterResources.com

SH130 CorridorSH130 Corridor

Source: SH130.com

Carrizo-Wilcox Aquifer (Simsboro area)

Source of SupplySource of Supply

Austin

Round Rock

Georgetown

Guadalupe-BlancoRiver

Authority

Hays, Travis, and Williamson Counties Hays, Travis, and Williamson Counties are projected to are projected to DOUBLEDOUBLE by 2030by 2030

to 2.75 million people.to 2.75 million people.

In the last 5 years, In the last 5 years, Hays County grew by Hays County grew by more than 25%.more than 25%.

Nearly all cities and water utilities are Nearly all cities and water utilities are looking for new sources of water looking for new sources of water TODAY.TODAY.

SWR Project ElementsSWR Project Elements• 65,000 to 150,000 acre feet of water, which 65,000 to 150,000 acre feet of water, which can serve up to 500,000 peoplecan serve up to 500,000 people

• groundwater supply is 70 to 80 miles awaygroundwater supply is 70 to 80 miles away

• less than $3 per thous. gals., and structuredless than $3 per thous. gals., and structured to protect customers from “rate shock”to protect customers from “rate shock”

• Long-term contract (99 total years)Long-term contract (99 total years)

• Target completion date = 2011Target completion date = 2011

• Privately financed @ capital cost of Privately financed @ capital cost of $250 million to $500 million$250 million to $500 million

Gilmore Investments,LLP

A bit aboutA bit aboutwater values.water values.

““Water is more Water is more valuable than oil; valuable than oil;

water is life.”water is life.”

Mohamar Ghadafi

1,000

of water

gallons

$1.83 = City of Lubbock tap water

$11,280 = evian

(Source: Wine Spectator, April 30, 2003)

$13,000 ≈ most expensive

Edwards Aquifer

Jan-93

Jun-94

Oct-95

Mar-97

Jul-98

Dec-99

Apr-01

Sep-02

Jan-04

May-05

Oct-06

Feb-08

$1.15 $2.15 $2.03 $1.53 $2.15 $2.15 $2.15 $2.15 $2.15 $2.15 $5.37 $7.67 $16.19 $16.88

Price Comparison

Ag-to-Urban =

$615

Ag-to-Ag =

$152

ConservationConservation

“There it is. Take it.”

William Mulholland’s entire speech celebratingthe first water reaching the San Fernando Valleyfrom the Owens Riveron November 5, 1913.

U.C. Berkeley Water Resources Archives