WASHINGTON - The California State Water Resources Control Board's new water conservation mandate will reduce revenues available to pay bondholders and could reduce incentives to invest in water infrastructure, Fitch Ratings said May 8.
The board on May 5 adopted a mandatory 25% reduction in potable urban water use statewide in accordance with Gov. Jerry Brown's April 1 executive order. The order was the first in the state's history, and comes as the parched Golden State continues to suffer through a historically bad dry spell. The latest mandate requires significant cutbacks in water usage between June 2015 and February 2016.
While Fitch expects most local utilities to adjust accordingly and avoid widespread downgrades, Southern California water utilities could take the brunt of the impact, the agency said.
"The impact will be greatest in Southern California communities that have borrowed billions of dollars to invest in water supply reliability and now must meet some of the highest reductions," Fitch said in a report. "The cutback levels and short compliance timeframe set by the board suggest many utilities will likely fail to meet the targets.
"To the extent the emergency rules begin to shape long-term water supply planning and investments in the state, the impact could unintentionally delay long-term water supply investments," the Fitch report continued. "The board has indicated that the temporary rules are designed to preserve water supply into next year during these extraordinary emergency conditions and should not impair investment decisions during normal times."
