What’s Up With Water — May 17, 2022

Welcome to “What’s Up With Water” – your need-to-know news of the world’s water from Circle of Blue. I’m Eileen Wray-McCann.

Water scarcity, water pollution, and extreme weather are eroding the value of mines and power plants that rely on water. Hundreds of billions of dollars are at stake in the coming years. That’s according to a new report on how banks, investors, and insurance companies are exposed to water-related financial risks. The report was written by the research groups Planet Tracker and CDP, and it examined these risks in four resource extraction sectors. Those sectors are coal, metals, electric power, and oil and gas. The report gives four examples where concerns about water scarcity and pollution are stranding – or could threaten assets. They include the Keystone XL oil pipeline in the United States and Canada; the Carmichael coal mine in Australia; the   Oyster Creek nuclear power plant in New Jersey; and the Pascua-Lama gold mine on the border of Argentina and Chile. Each project, totaling $15 billion in lost value, experienced operational delays or was denied permits due to water concerns. Despite the risk of stranded assets, one-third of financial institutions are not assessing water’s impact on their investments. The report recommends that banks, investors, and insurers scrutinize their portfolios, assess risks, and disclose the information they gather. The report was commissioned by Switzerland’s environment agency.

In the United States, a severe drought prompted California officials to encourage residents to save water. Residents did the opposite. Water use in March rose 19 percent compared with the same month in 2020, the year before the drought began. The March increase is due to extremely harsh weather. The first three months of 2022 were the driest on record in California, according to the Associated Press. Last summer, Gov. Gavin Newsom called for voluntary water use reductions of 15 percent. Because that goal has not been met, the governor is changing his tone. He ordered state officials in March to develop emergency conservation rules. The state water board expects those rules to be drafted in the coming weeks and finalized in June. One option to expand California’s drinking water supply is now off the table. A state regulatory body denied permits for a controversial desalination plant in Orange County, located south of Los Angeles. In its unanimous ruling, the California Coastal Commission cited three main concerns raised by commission staff. Those concerns were the cost of water from the project, its impact on marine life, and the risk that rising seas or tsunamis would damage the plant. The $1.4 billion project was proposed by Poseidon Water, a company that operates a similar facility north of San Diego. Supporters, including Gov. Newsom, argued that tapping the ocean would provide a new source of water in a region plagued by droughts. But the Coastal Commission determined that the risks outweigh the benefits.

This week Circle of Blue reports on Michigan’s attempt to maximize the benefits of the federal infrastructure bill.

For 15 years, Kelly Green has worked at the junction of finance and infrastructure, helping to convert state and federal dollars into ways to provide clean drinking water and keep sewage out of waterways.

Central to her work at the Michigan Department of Environment, Great Lakes, and Energy  is a state-federal partnership to finance water infrastructure at affordable rates. It’s called the state revolving funds, which now have a starring role in renewing the nation’s water systems. They are the main channel for billions of dollars in federal infrastructure money to come to the states and then reach communities.

Green is the administrator at the water infrastructure financing section of the agency. It’s the unit that oversees the state revolving funds in Michigan, so Green can help guide decisions about the state’s water systems as communities try to reverse decades of decline in essential public works.

Green calls the momentous increase in capital spending for water a major opportunity that requires equally significant changes in how the agency considers and approves applications for grants. The deterioration of the state’s water infrastructure was compounded by decades of administrative and legal roadblocks that constrained grant approvals and hindered the ability of smaller, low-income communities to access the state revolving funds.

Green and her colleagues had conversations with community members, engineers, utility staff, and legislative aides. They learned that her department had been marketing the state revolving funds to communities as a “program of last resort.” The message was that community water system managers should look elsewhere for financing. They were directed to approach the state for the revolving fund loans if other options fell through. Green said it became clear that Michigan’s management of the vital funding program needed a new approach. She said “The biggest change that we made internally was basically a culture change. So instead of trying to find ways to say ‘No,’ we changed our culture and tried to find ways to say ‘Yes’ to communities and try to help them get into the program.”

The culture change came just in time. The Infrastructure Investment and Jobs Act, approved by Congress and signed by President Biden last November, provides roughly $50 billion over five years for water and sewer systems. It’s the largest federal infusion in the sector in a half century. More than $43 billion of that total will flow through the State Revolving Funds, moving the water account into the spotlight in every state.

Michigan is set to receive more than $1 billion over the next five years, significantly boosting the state’s lending capacity. The federal funds are an opportunity to reinvest in essential public works without burdening residents with all of the costs. To maximize the opportunity, Michigan lawmakers also need to update the rules that govern the State Revolving Funds. That is the goal of three bipartisan bills that were introduced in March in the House of Representatives. Green called the proposed changes a “win-win situation for everybody.”

All told, it is a make-or-break moment for the State Revolving Funds. The next few years are a chance to accelerate work on removing lead service lines, stopping sewage overflows into rivers and lakes, and tackling some of Michigan’s most entrenched water problems. The relative windfall will bolster capital improvements even as utilities and state agencies grapple with rising project costs and staffing limitations caused by inflation and labor shortages.

And that’s “What’s Up With Water”  from Circle of Blue, where water speaks. More water news and analysis await you at circleofblue.org. This is Eileen Wray-McCann – thanks for being here.