Drinking water utilities contribute billions of dollars to local and regional economies by managing lands that provide ecosystem services such as water filtration, wastewater treatment, water storage, flood protection, habitat, and recreation. The 20th century accounting standards and asset management strategies that govern these utilities were developed at a time when natural capital was plentiful. These standards are therefore focused on “built” solutions to water management, such as treatment plants, pipes, drains and storage tanks. Watersheds and aquifers from which public utilities source drinking water are not considered capital assets, so in many cases utilities cannot justify a sufficient management and operations budget for the watershed. Also, utilities cannot borrow money to invest in restoration or include watershed management costs in rate structures. Removing an old logging road to prevent sedimentation and improve water quality requires a write-down of the utility’s assets rather than an increase.

"The 21st Century Utility: Accounting for Natural Capital" is a strategic initiative to define a solid course for natural capital accounting and deliver tools to institutionalize new funding mechanisms for ecosystem services, restoration, and conservation for surface water-based water utilities. Earth Economics is providing technical support and coordination for the Watershed Economics Workgroup, a group of six water utilities representing over 16 million people. Together we are developing an approach to watershed asset management where investments in stormwater management, flood protection, drinking water, fish and wildlife habitat, biodiversity, forestry and conservation are fully integrated. This work will provide the economic arguments to enable water utilities nationally to address rate inequities, issue bonds for restoration, and allocate sufficient operating and maintenance for the watersheds that supply their water.  It opens the way for national changes recognizing aquifers and facilitating water law improvements. It also provides benchmarks for accounting of ecosystem services in the private sector.

We recently published an article with more background on this project in Solutions Journal, an innovative journal that showcases bold and creative solutions to some of society's most pressing issues. You can view the article here!