WaterNow Alliance is an Imagine H2O Water Policy Challenge Finalist.
One of the surest ways to accelerate adoption of innovative water technologies is to help public water providers pay for them. Imagine H2O selected WaterNow Alliance as a Finalist in its inaugural California Water Policy Challenge for its novel approach to unlocking a crucial investment tool for innovation. The team’s proposal laid out an actionable plan to enable water agencies to use the same capital financing tools that they successfully deploy for conventional infrastructure for water innovation, and expand their investments in distributed technology solutions.
California’s public utilities account for more than 80% of water infrastructure spending and are among the largest consumers of water innovation in both direct expenditures (e.g. water management software) and incentives for ratepayer investments in distributed infrastructure (e.g. efficient appliances, greywater systems). However, it can be challenging for water districts to invest in water innovation at scale because of uncertainties about whether and how they can capitalize spending for decentralized, distributed water systems (as they do for pipes, tanks and treatment facilities). WaterNow Alliance is working to clarify the rules and remove obstacles so that public utilities can help drive water technology investment and deployment in California.
“While there are no legal barriers that prohibit utilities from using their municipal bond capacity for decentralized water innovation, many water providers perceive themselves to be restricted in their ability to capitalize these expenditures due to accounting conventions and rules that define what constitutes an asset,” explains WaterNow Alliance Executive Director, Cynthia Koehler. “As a result, spending for more innovative and unconventional approaches tend to be limited to cash operating budgets which are typically fairly circumscribed. This means public investment in distributed water systems is often constrained.”
You don’t need to look far for innovative water solutions in the Golden State. California has extraordinary opportunities to deploy technology and position itself on a path towards a more secure water future. A diverse range of technology applications have become increasingly available to water users and affordable to deploy at scale, whether related to water reuse and recycling, water efficiency, groundwater management or watershed restoration. A glance at Imagine H2O’s portfolio demonstrates the incredible breadth of solutions available to help California adapt to drought conditions and a changing climate.
WaterNow Alliance’s proposal is to secure a policy interpretation from the relevant governing bodies that would have authoritative weight with municipal financial officers and auditors, and provide much-needed clarity to public utilities about when and under what circumstances they can debt finance distributed water systems. WaterNow Alliance has put together a three-step plan to secure the required policy guidance.
WaterNow Alliance and its team of legal and finance experts are preparing a proposal for the issuance of policy guidance that will clarify when and how public utilities can capitalize expenditures for unconventional water options consistent with current accounting rules. The objective is to create a “safe space” so that utility decision makers, finance officers and their auditors have a clear roadmap on how to book and account for spending on water technology.
Working in concert with a growing partner network, WaterNow Alliance will then secure key endorsements from stakeholders including municipal and financial associations, water organizations, local utilities, policymakers, academics and non-governmental organizations. Finally, WaterNow Alliance will engage with standard-setting bodies and key stakeholders on finalizing the policy guidance, which the organization expects to be issued by one or more of the national accounting organizations. These groups regularly issue informal letters or opinions interpreting or further detailing accounting rules in response to questions raised such as this one.
The potential for impact is considerable. California public water providers invest about $4 billion annually on capital projects today. If utilities had the opportunity to redeploy even 5%-10% of this spending to new distributed water technologies, it would make available tens of millions of dollars to support water innovation in California.
“This is a common-sense proposal,” Koehler continued. “The biggest challenge is to shift knowledge levels and attitudes among key stakeholders so that they are incentivized to support the project. Receiving this recognition from Imagine H2O is incredibly important in elevating this initiative and gaining the visibility and support we need from some of the top innovators in the state.”