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April 02, 2013

Investors Want Better Disclosure from Municipal Water Utilities
    by Robert Kropp

Basing their requests on a framework developed by Ceres, 12 investors write to the National Federation of Municipal Analysts, asking for improved disclosure to ensure that all material information is provided. -- Twelve institutional investors representing $40 billion in assets under management have sent a detailed letter to the National Federation of Municipal Analysts (NFMA), requesting that the regulators consider mandating improved disclosure relating to the financial filings for municipal water and sewer transactions.

Basing their requests on a disclosure framework for water and sewer utilities released by Ceres, the investors have specified supply security, demand management, asset management, water quality, energy use and generation, and rates as critical areas in need of improved disclosure.

Municipal utilities often raise funds for infrastructure upgrades through bond offerings, and the investors want to ensure that the financial filings accompanying the offerings fully address risks as the effects of climate change. The investor letter points out that the member utilities of the Water Utility Climate Alliance (WUCA) "are employing scientific and asset management tools to assess the effects of climate change on their systems and adapt system operations and capital planning accordingly."

A coalition of ten of the nation's largest water providers, WUCA seeks to assess the findings of climate science to "improve water management decision-making in the face of climate uncertainty."

"Issuers in the water and sewer sector have a range of staffing resources to prepare and submit disclosure documents," the investor letter concludes. "For this reason, we encourage NFMA to carefully consider where disclosure is most appropriately made with particular attention to the Comprehensive Annual Financial Report (CAFR), audited financial statements and Official Statements."

Sharlene Leurig of Ceres said, "Without better disclosure, investors are blindly placing bets on which utilities are positioned to manage these growing risks. The operating environment of water providers is changing, and investors need to be sure utilities whose debt they are holding are adapting."

Cascade Water Alliance, a water utility located in the state of Washington, deployed the disclosure framework developed by Ceres for its bond offering in December, 2012.

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