Financing Climate Adaptation

Transcription

1 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 and provide code

2 Housekeeping Mute/un-mute Question & Answer sessions Technical difficulties dial *0 2

3 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

4 Topic CRWU and WUCA Webinar Series Archived webinars available online at 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 Additional topics and dates under consideration 4

5 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

6 Water Utility Climate Alliance

7 White Papers ( ) Options for Improving Climate Modeling to Assist Water Utility Planning for Climate Change Decision Support Planning Methods: Incorporating Climate Change Uncertainties into Water Planning

8 2014 Activities

9 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

10 2014 Activities Community Earth System Model (CESM) Societal Dimensions Working Group Engage Applied data user Actionable outputs CESM Admin: Climate and Global Dynamics Division at the National Center for Atmospheric Research

11 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

12 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

13 How Do Water Utilities Finance Climate Adaptation? Southern Nevada Water Authority Dave Wright Chief Financial Officer May 28, 2014

14 PRESENTATION OUTLINE Outline SNWA Basics SNWA Challenges Adaptation vs. Capital Improvements Funding Projects 101 Borrowing Money Summary

15 SNWA BASICS Seven member agencies 90% of supply from Colorado River Withdrawal from Lake Mead Two intakes, third under construction Two water treatment facilities Las Vegas

16 SNWA CLIMATE CHANGE CHALLENGES EXISTING CHALLENGES EXACERBATED Supply shortage Intake system impacts Reduced water quality Power requirements

17 CLIMATE ADAPTATION OR CAPITAL IMPROVEMENT ADAPTING TO LOWER LAKE MEAD SURFACE ELEVATIONS INTAKE 3 UNDER CONSTRUCTION

18 CLIMATE ADAPTATION OR CAPITAL IMPROVEMENT To date, mostly no-regret projects In future, projects will be designed to handle greater extremes (bigger-fasterstronger---superman!) CC only one uncertain factor considered in capital planning Upscaling a project for climate change creates an added marginal cost

19 FUNDING PROJECTS 101 New water resource 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)

20 BORROWING MONEY ADAPTATION WILL COST MORE $$, HOW TO PAY? Bond issuances will need to be larger, but debt obligation currently appx % 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. 40 yrs. = $582,782 yr. 75 yrs. = $513,216 yr. 30 yrs. = $650,514 yr. 50 yrs. = $547,767 yr. 100 yrs. = $503,831 yr. Paying over 50 yrs. vs. 20 yrs. saves ~32%/yr. Possible alternative, but newer product for lenders

21 BORROWING MONEY EXAMPLE OF FINANCING ADAPTATION SNWA 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

22 SUMMARY ADAPTATION MAY: 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

23 Crafting an Adaption Finance Strategy Jeff Hughes Director, Environmental Finance Center University of North Carolina at Chapel Hill efc.sog.unc.edu 23

24 Environmental Finance Network (

25 Vision: Environmental programs provided in fair, effective, and financially sustainable ways. Our Part Applied Research Education and Outreach Program Design and Evaluation

26 Outline Financing Adaption Initiatives Crafting a Finance Strategy Examples

27 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

28 Essential Components to any Environmental Finance Strategy Capital providers Revenue tools and mechanisms Aggregation and pooling Financial incentives

29 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

30 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

31 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)

32 Water Sales (million gallons per day average) Water Sales , , ,000 16,000 14,000 12,000 Customer Accounts ,000 Actual Water Sales Accounts Source: Orange Water and Sewer Authority

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34 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

35 Multi-Prong Tools: Florida Hurricane Catastrophic Fund Multiple revenue sources (premiums, interest, assessments) Wide risk pooling

36 Don t Forget about Financial Incentives Development benefits Reduced development fees Trading

37 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

38 TRENDS AND DEVELOPMENTS

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40 Where Can You Find More? Or subscribe to the Environmental Finance blog!

41 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

42 What is the SRF? 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

43 Clean Water 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

44 Drinking 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 44

45 DWSRF Eligibility (Administrator Determination) 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 5

46 SRFs and Resilience 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 Full text of EPA Guidance for DRAA implementation 46

47 Eligible Resilience Projects 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

48 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

49 Resiliency Eligible Resilience Projects CW/DW SRF 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

50 How to Obtain Financing 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

51 Find the SRF in Your State DWSRF: CWSRF: 12

52 Emily Nicasio U.S. EPA Kiri Anderer U.S. EPA

53 Climate Ready Tools & Resources Adaptive Response Framework Adaptation Strategies Guide Toolbox Extreme Events Workshop Planner Climate Resilience Evaluation and Awareness Tool Explore Elements of Climate Readiness Learn Climate and Adaptation Basics Research and Gather Information Collaborate with Partners Assess Risks and Evaluate Opportunities 53

54 Connect with CRWU Please send questions and feedback to 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:

55 Topic CRWU and WUCA Webinar Series Archived webinars available online at 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 Additional topics and dates under consideration 55

56 Thank you Curt Baranowski, EPA Laura Dubin, ORISE Intern, EPA Any questions? Keely Brooks, Southern Nevada Water Authority Laurna Kaatz, Denver Water Dave Wright, Las Vegas Valley Water District Jeffrey Hughes, UNC EFC Kirsten Anderer, EPA Emily Nicasio, EPA 56