Fitch Ratings: Texas Flood Plan Would Lower Risk to Houston Region Utilities

The development of a state-wide flood plan by the Texas Water Development Board (TWDB) would reduce operational risk to both water and sewer utilities, according to Fitch Ratings.
If developed, the plan would be the first in Texas history.
A comprehensive plan would further assist utilities in managing operational risk, offer regional options for funding projects and possibly assist in achieving regulatory requirements. Utilities could also benefit from new supply sources if new reservoirs were built and from lower capital spending that would reduce sanitary sewer overflows.
In the aftermath of most natural disasters, the financial flexibility of local governments and utilities, along with a quick resumption of normal business operations, mitigate the risk posed by lost revenue. For example, no Fitch-rated utility sustained permanent damage from Hurricane Harvey and revenues are unlikely to dip on water service downtime due to the quick resumption of normal operations.
However, repetitive flooding events can stress a utility’s finances as they may require drawing upon reserves for interim financing or reprioritizing capital spending, which can add financial and operational uncertainty.
Texas’ House Committee on Natural Resources convened in Houston on Oct. 4 to discuss the role of regional entities in developing infrastructure projects to control flooding and mitigate the impact of future flood events.
The TWDB, recognized for its water resource supply management through frequent droughts, is to prepare a comprehensive flood plan that they hope to have finalized in time for the next regular legislative session in January 2019. The plan could include the construction of levees, other flood barriers and a new reservoir.
Houston’s two existing reservoirs, Addicks and Barker, were built in the 1940s and exemplify the aging infrastructure across the state that is driving capital needs. The reservoirs withstood Hurricane Harvey, but the resulting flooding from having to open their dams and add to area flooding highlighted the need for a third reservoir.
Lieutenant Governor Dan Patrick and several local officials and representatives have said they support moving forward with such a project. An initial cost estimate for the reservoir project is as high as $500 million.
How the TWDB might provide funding for any proposed projects is still unknown, as planning is in the very early stages.
Officials also renewed their calls for building a physical coastal barrier to prevent flooding from storm surges. This was initially proposed after Hurricane Ike struck Galveston, Texas in 2008, resulting in nearly $30 billion in damage in Texas. If the U.S. Army Corps of Engineers includes the project in its storm-surge protection study currently underway, it would open the door for federal funding.
Regardless of its funding source, the necessary capital investment will be steep. The initial cost estimate is $5.8 billion for the Houston area alone with the estimated price for the entire project that spans six-counties on the Texas Gulf Coast at over $11 billion. For comparison, if the project is funded and the costs are comparable with the forecast it would be 10 times more than the TWDB’s largest bond sale to date of $1.1 billion (which sold last month).
Source: Fitch Ratings

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