When a water utility seeks to increase supply to address a growing population in the community which it serves, most states have very clear laws that would allow such a utility to issue revenue bonds to fund a “utility project.” Such projects include infrastructure as it has always been understood – a reservoir, a desalination plant, new pipes, new water treatment facilities, or the like. Using bonds allows a utility to make a large one time expenditure and spread the cost of the investment over time and among both current and future rate payers. Alternatively, when a water utility seeks to address growth by decreasing demand through a distributed infrastructure project, such as funding irrigation controllers or gray water systems on a large scale, most states do not have clear legal authority that would allow a water utility to fund the projects using revenue bonds or other types of traditional debt-financing. Without the ability to use debt to spread the costs over time, many utilities are limited in how much they can invest in distributed measures at any one time.
The option for water utilities to fund more large scale distributed infrastructure projects is becoming more appealing as utilities seek to reduce demand, delay the need for major supply infrastructure projects, and conserve resources. However, whether utilities can fund such projects using debt financing raises numerous legal questions. Thus, water utilities should investigate several key areas in their state’s laws, as they evaluate what options they have for funding distributed infrastructure projects.