Rating agencies are taking a wait-and-see approach on the credit impacts for western water utilities from federal Colorado River plans that include water usage cuts for three states.
Last week, the U.S. Bureau of Reclamation released 2027-28
Fitch Ratings said on Tuesday it does not expect near-term pressure on affected utilities' ratings given stored supplies and the ability to implement additional conservation measures.
"However, rating pressure could emerge should secondary supplies dwindle and if feasible alternative supplies are not developed," the rating agency said in a report. "Higher costs incurred to develop new supplies will pressure margins over time if utilities are unable or unwilling to pass through costs to customers via rate increases."
Fitch added that further water allocation cuts could lead to rate or property tax hikes to fund utilities' development of new water supplies, particularly in Arizona, which would bear the biggest allocation decrease at 760,000 acre feet a year.
"Over the next three to five years, an inability to secure supply to meet ongoing demand would likely weaken some utilities' operating risk profiles, potentially negatively affecting credit quality," the report said.
In an Aug. 10 report, S&P Global Ratings called the reclamation bureau's July 31 release of
"The proposed framework shifts the focus from annual curtailment to a decade of adaptation spending; therefore, credit quality will depend less on the magnitude of water reductions and more on an issuer's capacity to absorb replacement costs," S&P said. "For local governments, credit stability will rely on effective utility rate-setting and the coordination of capital investment with land use and infrastructure planning."
Federal plans for the river emerged after the seven upper and lower basin states
Nevada on Monday announced it
"Under the proposed plan issued by the Department of the Interior, southern Nevada could lose more than 70% of its already meager Colorado River allocation while the Upper Basin states of Colorado, Utah, New Mexico, and Wyoming are not required to contribute a drop," Nevada Gov. Joe Lombardo said in a statement. "This isn't about political posturing; this is a matter of survival for a community that represents about two-thirds of our state's citizens and the lion's share of its economy."
Utah House Speaker Mike Schultz said Nevada's move is 'making an already difficult situation more difficult."
"Litigation doesn't move us closer to an agreement," he said in a statement. "Utah will continue to protect its water rights and work toward a fair, workable solution for the entire Colorado River Basin."
Moody's Ratings commented on the river situation in May, before release of the EIS and operating guidelines.
"We expect limited immediate credit implications over the next 12 to 18 months given generally robust balance sheets and ample water storage," the rating agency said. "However, the longer-term effects will be felt differently across the basin and will hinge on utilities' unique vulnerabilities" and capacity to adapt to less water supply from the river.
The Colorado River supplies water for 40 million people, supports generation of hydroelectricity, and sustains millions of acres of farmland.
