Fitch: Water and Sewer Outlook Stable Despite Uncertain Regulatory Environment

AUSTIN, Texas--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: 2017 Outlook: Water and Sewer Sector

https://www.fitchratings.com/site/re/890532

The 2017 Outlook for the municipal water and sewer sector and its ratings is Stable, according to Fitch Ratings. The sector continues to be insulated from economic cycles and operating changes due to the essential services it provides, its monopolistic business nature and rate-setting abilities. The overwhelming majority of water and sewer utilities in Fitch's portfolio are on Stable Outlook.

"Despite significant news this year related to lead water service lines in Flint, MI, the municipal water and sewer industry is otherwise stable, owing to sound fundamentals and strong operating results," said Doug Scott, Managing Director, U.S. Public Finance.

The biggest uncertainty for water and sewer utilities in the coming year stems from the policy decisions of the new administration. Pending changes to the Lead and Copper Rule (LCR), which are expected to be announced next year, could be limited or delayed.

The EPA's October 2016 whitepaper outlining potential changes to the LCR suggested potentially mandating the replacement of all lead service lines, which they estimated to cost as much as $80 billion. A mandate of that caliber would affect many municipal water and sewer utilities, so uncertainty surrounding it leaves more questions than answers on what could be a significant investment in water infrastructure.

Outside of the LCR, Fitch believes the EPA will continue to press for reductions in nutrient pollution given its high priority in their current strategic plan. In some cases, the additional related costs can be steep, potentially affecting utility credit quality.

The water and sewer sector should be able to maintain ample cash reserves in 2017. Although Fitch sees stagnant sales and rising costs at some utilities, especially in areas experiencing drought, many utilities have sufficient rate flexibility and cash flows to cover debt service and meet operating and capital pressures.

Fitch expects 2017 will bring a modest increase in planned capital spending, although those figures may rise longer term as utilities confront necessary maintenance that had been deferred. Modest increases next year combined with muted debt issuance means debt profiles will improve relative to 2016. Utilities that do come to market with new debt will likely use proceeds for maintenance and regulatory compliance purposes.

Fitch Ratings will hold a conference call to discuss its 2017 Outlook for U.S. Public Power and U.S. Water and Sewer on Wednesday, Jan. 18th, 2017 at 2:00pm ET. To receive dial-in details for this call, please register here: http://dpregister.com/10097564

The full reports, "2017 Outlook: Water and Sewer Sector," and "2017 Water and Sewer Medians," are available at www.fitchratings.com

Additional information is available at www.fitchratings.com

Related Research

2017 Water and Sewer Medians

https://www.fitchratings.com/site/re/890531

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View source version on businesswire.com: http://www.businesswire.com/news/home/20161216005350/en/

Fitch Ratings
Doug Scott
Managing Director
+1-512-215-3725
Fitch Ratings, Inc.
111 Congress, Suite 2010
Austin, TX 78701
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
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Source: Fitch Ratings

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