Georgia water utilities at risk in 'water war' dispute, Fitch says

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Fiscal risks for Georgia water authorities have risen since the U.S. Supreme Court sided with Florida by sending its water-dispute case back to a special master for reconsideration, according to Fitch Ratings.

The SCOTUS ruled in a 5-4 decision June 27 that Florida appeared to have proved its case that a consumption cap could be imposed on Georgia, and ordered Special Master Ralph Lancaster to conduct further deliberations into the matter.

“The eventual outcome of this lawsuit could have credit implications for [Georgia] water utilities as it would raise the need for borrowing to create additional supply,” said Julie Garcia Seebach, director of U.S. Public Finance for Fitch.

Lancaster, who was appointed by the court to hear the dispute between Florida and Georgia, decided last year that there was insufficient evidence to prove that limiting Georgia's water use would benefit Florida.

Justices reviewed that recommendation and ordered Lancaster to reconsider Florida's argument that a cap in Georgia's water consumption could benefit the fisheries in north Florida's Apalachicola Bay.

“As urban populations grow, competing demands for water and supply stability are making decisions like this one more important for water utilities and increasing the frequency of disputes,” Seebach said. “A court decision that leads to a reduction in, or ultimately limits, supplies could raise a water utility's borrowing to finance additional supply development.”

She said such a decision would also force utilities to strike a “careful” balance between charging higher water rates and assuming lower financial margins.

“The added costs of water replacement supply development could also divert funding from ongoing renewal and replacement of existing infrastructure, escalating future expenses,” Seebach added.

Gov. Nathan Deal’s office didn't respond to a request for comment about Fitch’s report.

Deal, a Republican who is term-limited out of office this year, has said that Georgia took seriously the special master’s opinion to the court last year.

While the opinion sided with Georgia, it also pointed out deficiencies in the way the state handled agricultural permits for irrigation water.

Georgia lawmakers formed an Agricultural Permitting Compliance Task Force, whose recommendations were used in crafting water metering legislation this year. A monitoring program, implemented with $20 million this year, has been placed under the state’s Environmental Protection Division, which is a regulatory body.

“Though the court remanded this case back to the special master following a five-week trial, during which the ineffectiveness of draconian caps placed on Georgia’s water use as a solution was demonstrated, I remain confident in the state’s legal position,” Deal said after the opinion was released. “I look forward to continuing to defend our position in this case.”

The U.S. Supreme Court decision said evidence indicated that extra water flowing from Georgia would “significantly redress the economic and ecological harm that Florida has suffered.”

Lancaster, the justices said, set too high a standard to support his determination, and their examination of the record “leads us to conclude that, at this stage, Florida has met its initial burden” with respect to a remedy.

Florida Gov. Rick Scott, who like Deal is a Republican and term-limited this year, filed suit against Georgia in 2013 seeking an injunction from the U.S. Supreme Court.

Florida has long contended that Georgia’s unfiltered water use has contributed to the lack of fresh water flowing downstream to the Sunshine State. The same water system that Atlanta households and businesses and Georgia’s farmers tap flows south to Appalachicola Bay where it sustains the area’s diverse fishing and oyster industries.

Lancaster has not yet proposed a schedule to review the case further.

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Litigation Infrastructure Water bonds Municipal utility districts Rick Scott Nathan Deal State of Florida State of Georgia Fitch SCOTUS Georgia Florida