Growing water scarcity is a hidden financial risk for investors who buy the water and electric utility bonds that finance much of the U.S.’s water and power infrastructure.

That’s the conclusion of a new report by Ceres and Water Asset Management titled Water Risk in the Municipal Bond Market. More extreme droughts, surging water demand, pollution, and climate change are growing risks that threaten water supplies in many parts of the United States, especially the West, Southwest, and Southeast. For example:

• The City of Atlanta’s water supply could be cut by nearly 40 percent as early as 2012 due to the ruling of a federal judge.
• Lake Mead, the vast reservoir for the Colorado River, is quickly approaching a firstever water shortage declaration that would reduce deliveries to fast-growing Arizona and Nevada.
• Hoover Dam, which provides hydropower to major urban centers in California, Arizona, and Nevada, may stop generating electricity as soon as 2013 if water levels in Lake Mead don’t begin to recover
• More regular droughts and heat waves are likely to increase the operating costs of power generators in the Southeast, among them the Tennessee Valley Authority, which was forced to slash power generation for two weeks at three of its facilities in Alabama and Tennessee because of heightened water temperatures, costing the utility an estimated $10 million in lost power production.

Failure to include growing water risks means ratings agencies, and investors, and even utilities themselves aren’t realistically assessing the ability of public water and electric power utilities to repay their debt. Reduced revenues caused by water supply shortfalls can compromise the value of utility bonds in two ways. First, reduced revenues can undercut a utility’s ability to make timely payments to bond holders, potentially leading to default. Second, diminished credit capacity of a utility may result in a negative outlook or financial stress that may reduce the price of the bonds when sold on the secondary market.

To quantitatively assess a utility’s exposure to water undersupply, the model used in the study simulates the projected levels of monthly water flows from water sources used by the utility and compares the available water to the utility’s monthly demand. The simulations evaluated four different climate change scenarios with varying expectations of wet and dry weather, and with various stress scenarios that would constrict water supplies for one- to five-year time frames. The model was applied to eight investment-grade, 30-year public utility bonds: six water bonds and two electric power bonds, all in regions with growing populations and increasing pressures on water supplies.

Among the key findings for the six water utility bonds:

• The Los Angeles Department of Water & Power’s water system bond received the highest risk score of all water utilities, based on tight restrictions on local water supplies due to environmental regulations and prolonged drought. The municipal system, the nation’s largest, is also highly reliant on vulnerable water imports, including the Colorado River. The utility’s water bond was rated “AA+” and “Aa2” by Fitch and Moody’s, respectively, earlier this year.
• Atlanta’s Water and Sewer System received the second highest water risk score, a direct result of its reliance on one key local water supply whose future is jeopardized by a judicial order that may require the city to reduce its withdrawals by as much as 40 percent in 2012. The utility’s water bond received “A” and “A1” ratings from Fitch and Moody’s, respectively, earlier this year.
• The Phoenix and Glendale, AZ utilities—systems with high reliance on increasingly expensive and potentially volatile out-of-state water imports from the Colorado River—also received high water risks scores. The Phoenix bond is rated “AAA” and Glendale bond “AA” by Standard & Poor’s.
• Water risk scores for the Tarrant County, TX utility were double those of the neighboring Dallas system. The wide gap is the result of Tarrant County’s consistent drawdown on critical storage reservoirs to meet water demand, which makes the system more vulnerable to prolonged drought. Both utilities have identical credit ratings.

Among the key findings for the two electric utility bonds:

• Alabama’s PowerSouth Energy Cooperative, which provides power to 49 counties in rural Alabama and northwestern Florida, received the higher risk score, primarily due to the system’s potential vulnerability to increased water temperatures and lower flows in the Tombigbee River, the cooling water source for its largest coal-fired plant. The utility’s bond received “A-” ratings with stable outlooks from both Fitch and S&P last year.
• The Los Angeles electric power system‘s risks are driven in part by reductions in power generated at the Hoover Dam due to low water flows in the Colorado River Basin. The system may also see reduced power deliveries from one of its major coalfired power plants in Utah, due to heavy competition for dwindling cooling water flows. The utility’s bond received “AA” and “Aa3” ratings this year from Fitch and Moody’s.

The study shows that credit ratings agencies’ methodologies largely ignore water risk and may even unintentionally foster wasteful water consumption. Many credit ratings reward pricing and infrastructure plans that encourage increased water use and revenue growth with disregard for even near-term supply constraints and likely disruptions.

Ceres (pronounced “series”) is a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change.

New observations from NASA/German Aerospace Center’s twin Gravity Recovery and Climate Experiment (Grace) satellites reveal that massive amounts of groundwater are being sucked out of California’s Central Valley groundwater aquifers. The unsustainable withdrawals are unreported, unmonitored, and unregulated.

Between October 2003 and March 2009, more than 24 million acre-feet (30 cubic kilometers) of groundwater were pumped out of California’s Central Valley.  The withdrawals are more than 4.4 million acre-feet per year, more than three times previous estimates by California’s Department of Water Resources.

Preliminary studies show most of the water loss is coming from the more southerly located San Joaquin basin, which gets less precipitation than the Sacramento River basin farther north. Initial results suggest the Sacramento River basin is losing about 2 cubic kilometers of water a year. Surface water losses account for half of this, while groundwater losses in the northern Central Valley add another 0.6 cubic kilometers annually. The San Joaquin Basin is losing 3.5 cubic kilometers a year. Of this, more than 75 percent is the result of groundwater pumping in the southern Central Valley, primarily to irrigate crops.

Combined, California’s Sacramento and San Joaquin drainage basins have shed more than 30 cubic kilometers of water since late 2003. The overdrafts are leading to declining water tables, water shortages, decreasing crop sizes and continued land subsidence. The findings have major implications for the U.S. economy, as California’s Central Valley is home to one sixth of all U.S. irrigated land, and the state leads the nation in agricultural production and exports.

The California results come just months after a team of hydrologists led by Matt Rodell of NASA’s Goddard Space Flight Center, Greenbelt, Md., found groundwater levels in northwest India have declined by 17.7 cubic kilometers per year over the past decade, a loss due almost entirely to pumping and consumption of groundwater by humans.

The twin Grace satellites monitor tiny month-to-month changes in Earth’s gravity field primarily caused by the movement of water in Earth’s land, ocean, ice and atmosphere reservoirs, thus directly ‘weighing’ changes in water content.

California experienced centuries-long droughts in the past 20,000 years that coincided with the thawing of ice caps in the Arctic, according to a new study published in Earth and Planetary Science Letters. The findings came from analyzing stalagmites from Moaning Cavern in the central Sierra Nevada.

Study co-author Isabel Montañez said the study found a link between a warmer Arctic and a drier California:

We can’t quantify precipitation, but we can see a relative shift from wetter to drier conditions with each episode of warming in the northern polar region,” Montañez said.

The researchers didn’t attempt to explain the connection between Arctic temperatures to precipitation over California, but pointed to climate models developed by others suggest that when Arctic sea ice disappears, the jet stream – high-altitude winds with a profound influence on climate – shifts north, moving precipitation away from California.

Arctic sea ice has declined by about 3 percent a year over the past three decades, and some forecasts predict an ice-free Arctic ocean as soon as 2020. Montañez warns a connection between Arctic sea ice and weather in the west is bad news:

If there is a connection to Arctic sea ice then there are big implications for us in California.

Recent research has found that the jet stream has been migrating northward at a minimum of 12.5 miles per decade, or 18 feet per day. As it moves north, high pressure and clear skies converge in its wake, leaving the South and Southwest hotter and drier.

Cristina Archer and Ken Caldeira of the Carnegie Institution’s Department of Global Ecology have been tracking changes in the average position and strength of jet streams. Archer says changes in the jet streams have global implications:

The jet streams are the driving factor for weather in half of the globe. So, as you can imagine, changes in the jets have the potential to affect large populations and major climate systems.

Scientists are predicting that under current trends, Colorado River reservoirs could dry up, even as the urban population that depends on those reservoirs for water and energy continues to grow.

Even conservatives, industrial interests and development boosters are waking up to the fact that the impacts of water shortages are likely to be catastrophic, around the globe.

A post by Ugo Bardi at The Oil Drum: Europe looks at the water consumption of energy technologies.

Notice how enormously water intensive biofuels are – as Bardi says, “another drawback for a technology which has also a low EROEI, needs large areas, and competes for land with food production.”

The world’s water resources are already stretched thin – and climate change will make things worse. Rivers from China’s Yellow to America’s Colorado no longer can be relied on to even reach the sea. Glaciers are already melting, from the Himalayas to the Andes.  No glaciers, no storage, no water. Climate change threatens desertification around the globe, from the American West to Australia, northern China and Tibet, the Mediterranean basin including southern Europe. From Saudi Arabia to the American West, we’re drawing from and exhausting “fossil water” from ancient aquifers.

Bardi rightly points out that the world’s water predicament is yet another indication that we’re bumping up against ecological limits to growth:

Water is, of course, a renewable resource but a lot of the water used today is “fossil” water. It comes from deep aquifers which can be drained empty as it has happened, for instance in Saudi Arabia. In addition, climate change may further reduce the water supply in many areas of the world. How much these factors will affect energy generation worldwide in the near future is difficult to say at present, but surely the problem shouldn’t be underestimated. The EROWI problem, in the end, is just an indication that we are hitting yet another limit of our finite environment.

Our political and economic systems require that resource issues such as peak oil or water shortages be approached as problems to be solved by finding new supplies or sources – by yet more growth. But growth is itself the underlying problem. As Daniel Allen says in a post at The Energy Bulletin, limits to growth cannot be overcome by yet more growth.

Resource depletion is a predicament requiring adaptation to an entirely new low-consumption paradigm, rather than a problem to be solved with technological or social solutions.

Allen urges Americans to “start the conversation about what a lower-consumption, resource-poor society would look like, and begin the appropriate preparations.”

The world needs to begin that conversation, like right now. In ancient Greek thought, transgressions of limits inevitably in punishment by the gods. When it comes to transgressing limits, climate change would be Gaia’s ultimate penalty.

All reservoirs along the Colorado River could dry up by mid-century.

That’s the conclusion of a new study by Balaji Rajagopalan and colleagues of the University of Colorado in Boulder (CU-Boulder). If climate change results in a 20% flow reduction – as predicted in some climate change models – the chances of fully depleting reservoir storage in any given year will exceed 50% by 2057.

The study will appear in the journal Water Resources Research, published by the American Geophysical Union (AGU).

Similar research by the Scripps Institution of Oceanography published in 2008 warned the Colorado will reach that 50% chance of depletion as early as 2021. The new study assumed the Bureau of Reclamation would sharply cut water deliveries to cities, leaving more in the reservoirs.

The Colorado River system supplies water to tens of millions of people and millions of acres of farmland. But a new study by a pair of climate researchers at Scripps Institution of Oceanography, UC San Diego finds:

If human-caused climate change continues to make the region drier, scheduled deliveries will be missed 60-90 percent of the time by the middle of this century.

Even under conservative climate change scenarios, Scripps climate researcher David Pierce found that reductions in the runoff that feeds the Colorado River mean that it could short the Southwest of a half-billion cubic meters (400,000 acre feet) of water per year 40 percent of the time by 2025.

The paper, “Sustainable water deliveries from the Colorado River in a changing climate,” appears in the April 20 edition of the journal Proceedings of the National Academy of Sciences.

Lakes Mead and Powell were built during and calibrated to the 20^th century, which was one of the wettest in the last 1,200 years. Tree ring records show that typical Colorado River flows are substantially lower, yet 20^th Century values are used in most long-term planning of the River.

The Colorado River situation is not unique. The Columbia River, China’s Yellow River, India’s Ganges, and the Niger in Africa all have seen long-term declines in flow, according to a new analysis by scientists at the National Center for Atmospheric Research, in Boulder, Colo., and the College of William and Mary in Virginia.

The New York Times reports that in Franklin County in arid eastern Washington, Easterday Ranches Inc. is proposing to build a feedlot for 30,000 head of cattle that would withdraw about 1 million gallons a day from the ancient Grande Ronde Aquifer. The region is among the driest in the country, averaging only about 7 inches of rainfall a year. The proposal has touched off a wave of concern among local farmers, who worry that their wells could dry up.

The groundwater problems in eastern Washington are among the most serious in the country. In Franklin County, the aquifer is receding about a foot a year, while groundwater levels in neighboring Whitman County are declining at an even faster rate of 1.5 feet per year. A state-funded study released in January found that the deep aquifer in eastern Washington – especially in Franklin, Adams, Grant and Lincoln counties – is in serious trouble because a significant percentage of the area’s wells are tapping into the deepest part of the aquifer, where the water is 10,000 years old and is not recharged by surface water. The study found that some deep wells could recede so much that landowners would not be able to access groundwater.

A 1945 state law exempts withdrawals to 5,000 gallons a day from permit requirements. A 2005 interpretation of the law by the state’s attorney general concluded that groundwater withdrawals for “stock watering purposes” were not subject to any restrictions. Among those entitled to virtually unlimited water supplies, according to the interpretation, were large-scale concentrated animal feeding operations, or CAFOs, like the proposed Easterday Ranches feedlot. Several bills in the Washington Legislature this year would have capped livestock water-use to 5,000 gallons a day, but all died under intense lobbying from dairy and agricultural interests.

Reporter Scott Streater says local and state leaders appear ready to approve the Easterday feedlot. The Franklin County Water Conservancy Board has approved a water-rights transfer between Easterday and a nearby farmer – a critical component of the project. The Department of Ecology has final decision making authority over the project, and officials have indicated they plan to approve the feedlot water withdrawals. Many local leaders also support the Easterday development, touting the 40 jobs it will provide, the projected $60 million a year in tax revenue, and the $20 million a year in corn alfalfa and other feed that will be purchased from local farmers.

It’s a sad story, one that we’ve seen before in many permutations. The greedy rush in and are encouraged and enabled to exploit a common resource for their own and their enablers’ short-term benefit – leaving those who are content with enough, the innocent but unlucky, future generations, and Earth herself to bear the costs.

The first two months of 2009 are the driest start of any year since the USA began keeping records over a century ago, leading to severe drought in Texas and California and shrinking reservoir levels in Florida.

DROUGHT MAP

USA Today reports Richard Heim, a meteorologist at the National Oceanic and Atmospheric Administration’s National Climatic Data Center, saying the 2.69-inch average rainfall across the U.S. in January and February is the least amount of moisture in those months since NOAA began keeping records in 1895.

The dry winter could mean a longer and more dangerous fire season in the summer as grasses will dry out sooner and forests will be parched.

Joseph Romm at Climate Progress points out that warming temperatures and drought are a deadly combination:

Temperature and annual precipitation are headed in opposite directions in the U.S. Southwest. Warm weather droughts are more devastating than cool weather droughts. Forest-killing warm eather droughts – the “global-change-type drought” – are the future.

And not just in the American Southwest.

Australia is experiencing the ‘big dry.” Indonesia’s tropical forests are being devastated by fire, particularly in drought years.

A new study predicts that global warming will overwhelm any efforts to save the Amazon rain forest. A 2C rise in temperatures could result in 40% of the forest being lost, and 85% of the forest would be killed by a 4C rise.

A 2C rise is pretty much baked into the cake. Global temperatures have already risen 0.8C, and carbon already in the system will carry that increase to 1.5C. Even with drastic cuts in emissions in the next decade, there is only be around a 50% chance of keeping global temperatures rises below 2C. And the odds of achieving drastic cuts in emissions are between slim and none.

Achieving any cuts at all would take a political miracle. In Lane County, it’s proving to be an impossible task to get two noncontroversial “good government” proposals enacted by a “progressive” Board of Commissioners, after several years of exhaustive prep work and coalition building. What would it take to get something really hard done, something that requires the agreement and cooperation of prickly nations around the globe?

A team of scientists at the University of Kassel in Germany has made projections of per-capita water availability by applying Hadley projections on a finer geographical scale and modeling water flow in river basins.

Here’s a graphical representation for the year 2070, based on the IPCC “A2″ scenario where economic growth and technological change are “uneven” and population growth is “high”:

A new California Department of Water Resources survey indicates snow water content is 61% of normal for the date, statewide. The results prompted Director Lester Snow to warn:

“We may be at the start of the worst California drought in modern history. It’s imperative for Californians to conserve water immediately at home and in their businesses.”

DWR’s early estimate is that it will only be able to deliver 15% of requested State Water Project water this year to the Bay Area, San Joaquin Valley, Central Coast and Southern California.

December through January tend to be the wettest months but thus far the Sierra has only received one third of its expected annual snowfall.

Elissa Lynn, a meteorologist with the state, said the prospective drought can’t be attributed to but is consistent with global warming:

A third of normal is devastating.  January is the biggest month for precipitation in the Sierra. Climate change does indicate the possibility of more frequent droughts, but it’s hard to tell over a short time span.

Some farmers are leaving fields unplanted based on expected lack of water. The state’s largest irrigation district, Westlands Water in the major farming counties of Fresno and Kings, told growers on Wednesday to brace for zero water supply this year.

UPDATE: Secretary of Energy Steven Chu says California’s farms and vineyards could vanish by the end of the century, and its major cities could be in jeopardy, if Americans do not act to slow the advance of global warming. Chu says up to 90% of the Sierra snowpack could disappear, all but eliminating a natural storage system for water vital to agriculture.

“I don’t think the American public has gripped in its gut what could happen. We’re looking at a scenario where there’s no more agriculture in California. I don’t actually see how they can keep their cities going, either.