Financing Climate Adaptation - University of North ... · SNWA 2014-15 Budget: • Total expense budget $464 million • Total debt service budget $171 million (37%) –Issue $100

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 jhughes@unc.edu 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

nicasio.emily@epa.gov

52

Kiri Anderer

U.S. EPA 202-564-3134

anderer.kirsten@epa.gov

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 CRWUhelp@epa.gov

• 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 Baranowski.Curt@epa.gov Laura Dubin, ORISE Intern, EPA Dubin.Laura@epa.gov Keely Brooks, Southern Nevada Water Authority Keely.Brooks@snwa.com Laurna Kaatz, Denver Water Laurna.Kaatz@denverwater.org

Dave Wright, Las Vegas Valley Water District Dave.Wright@lvvwd.com Jeffrey Hughes, UNC EFC jhughes@sog.unc.edu Kirsten Anderer, EPA Anderer.Kirsten@epa.gov Emily Nicasio, EPA Nicasio.Emily@epa.gov

CRWUhelp@epa.gov

56

Thank you

Any questions?