What's The Problem?
Many, perhaps most, utilities nationwide provide efficiency, conservation or green infrastructure incentives for their ratepayers, but they’re usually limited, funded at modest levels as annual expenses. To really make a difference and realize the potential that these options have to offer, communities need the flexibility to invest in these programs at a far larger scale than they can generally fund with operating cash – at least not without an unwelcome increase in water rates.
This is why it is important to consider whether and how utilities can capitalize these programs – that is, to treat these expenditures as long-term assets allowing utilities to spread out costs over the life of the benefits they provide as utilities would for any other capital investment. A 2014 white paper by Ceres and the Alliance for Water Efficiency noted that distributed infrastructure can provide long-term water benefits similar to more traditional infrastructure projects, and therefore it makes sense for utilities to have the option of accessing similar funding mechanisms.
What is “Distributed Infrastructure”? Water conservation, reuse, green infrastructure and other decentralized, consumer-side-of-the-meter technology and strategies, which when aggregated can generate very significant water supply, water quality and other benefits for the utility and the public. Studies have shown that these strategies have tremendous potential to make communities more water secure, environmentally healthy, and to keep water costs more affordable than many traditional alternatives.
What's Our Policy Goal?
To open the door for water utilities to deploy capital funds for innovation, efficiency and other distributed water systems
Water utilities will always need to invest in pipes, tanks, pumps and other forms of conventional infrastructure. WaterNow Alliance aims to create greater financing flexibility for these public agencies to make similar, long-term investments in innovative water supply and quality solutions that make sense for their communities.
Redeploying even a tiny percentage of the billions that public utilities spend every year on conventional projects to support innovative distributed solutions would unlock millions in new investment for these programs, jump-starting greater community resilience – and in many cases keeping rates more affordable.
What's Our Approach?
To Secure GASB Guidance Clarifying When/How Utilities May Capitalize Expenditures for Distributed Infrastructure
After conducting an in-depth analysis and research, WaterNow Alliance and its team of bond lawyers, financial experts and utility partners concluded that there is no need to ask GASB to change any of its existing Standards or rules because GASB Statement 62 provides a clear path forward for public utilities opting to capitalize investments in distributed infrastructure. GASB Statement 62 addresses the abilities of public entities – such as water and wastewater utilities – to record “regulated assets” in their books for costs that would otherwise be expensed under general accounting principles. The basic criteria for treating these types of expenses as regulated assets is that the entity is governed by a board with the authority to collect rates sufficient to recover the cost of the expenses over time – a situation met by virtually all public utilities.
We are cautiously pleased to report that GASB now appears to be on the verge of providing this clarifying guidance in its 2018 Policy Implementation Guide based on draft versions made public in November. It is critical to emphasize that GASB has not completed its work and the implementation guidance could change, but the GASB discussion on this issue to date is very encouraging.
What's the Outcome?
The primary opportunities to expand adoption and deployment of sustainable water technology and innovation will be at the local level.
Assuming that GASB’s final Guidance document provides the direction we’re seeking, it could open the door to far more utility investment in innovation, efficiency and green infrastructure. Increased availability of capital financing for these solutions is a critical step in helping our communities to become more sustainable, water secure and resilient while ensuring that water is accessible and affordable for all.
WaterNow is developing Phase 2 of this initiative – the Catalyzing Leaders Campaign – that will work directly with local decision makers to scale public investment in a resilient water future using the onramp created by the Flexible Financing Initiative’s work with GASB.
Thanks to Our Partners
We’re grateful for the pro-bono legal support being provided by:
Norton Rose Fulbright, US LLP
This initiative was recognized as an Imagine H2O California Water Policy Challenge finalist. Learn more about it here.