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Not good for your investment portfolio

Last week, the New York Times reported on a new study warning of the risk of municipal bonds that finance water supply. The study is one of the first to assess the potential impact of water shortages on the municipal bond market. (Read the NY Times report click here)

According to the study, credit ratings do not adequately reflect the growing risks of water shortages and legal battles over water supplies. When the risks become apparent, investors may see bond values drop. And water and electric utilities may find it more expensive to raise money.

The Times article (“Water Scarcity a Bond Risk, Study Warns”) says, “Among the seven cities and agencies examined in the report, Los Angeles and Atlanta were identified as the ones whose water systems faced the greatest risk in the years ahead.”

Cities and agencies that were subjects of the study, including Los Angeles Department of Water and Power, said the analysis was flawed by basic misunderstandings about supply and demand. But authors defended the study’s bias again imported water because of the high energy costs associated with moving the water.

Investors in utilities that rely on hydroelectric power or on water to cool nuclear power plants are subject to the same water scarcity risks.

The study was jointly produced by Ceres, a national coalition of investors, environmentalists, and public interest groups, and by Water Asset Management, an investor in water-related businesses.

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