DC Water Issues Inaugural $350 Million Green Century Bonds

DC Water issued $350 million in taxable, green century bonds the week of July 10, marking several firsts for the utility and the municipal sector. The 100-year final maturity represents the first municipal century bond issued by a water or wastewater utility in the U.S. It also represents DC Water’s inaugural green bond issue and the first “certified” green bond in the US debt capital markets with an independent second party sustainability opinion.

DC Water and Sewer Authority Tunnel

The Blue Plains Tunnel is part of DC Water’s Clean Rivers Project, a massive tunnel system that will significantly reduce water pollution in the region’s waterways. (PRNewsFoto/DC Water and Sewer Authority)

Proceeds from the century bonds will finance a portion of the DC Clean Rivers Project, a massive $2.6 billion effort to construct a deep tunnel system that will transport combined stormwater and sewage to DC Water’s Blue Plains Advanced Wastewater Treatment Plant, significantly reducing combined sewer overflows (CSOs) to area waterways. The issuance achieved its green certification based upon the project’s environmental benefits, which include improving water quality by remediating CSOs, promoting climate resilience through flood mitigation, and improving quality of life through promotion of biodiversity and waterfront restoration.

DC Water has typically issued 30- to 35-year, tax-exempt municipal bonds to fund its capital improvement projects, reflecting the anticipated useful life of the assets. In the case of the Clean Rivers Project, DC Water is financing a portion of the construction costs with a century bond to better match the useful life of the tunnel systems — expected to perform for at least 100 years.

The key reasons DC Water chose to issue century bonds included:

  • Asset-Liability Matching. Century bonds permit the authority to match its long-lived assets and liabilities on its balance sheet.
  • Intergenerational Equity and Fairness. Century bonds spread the costs of the project more affordably and fairly to those who will benefit over the next 100 years.
  • Committed, Long-Term, Low-Cost Capital. Century bonds allow DC Water to take advantage of historically low interest rates and to lock in funding costs for a very long-lived asset.

“The responsibility of a Chief Financial Officer is to secure the funding necessary to undertake the work of the enterprise,” said DC Water CFO Mark Kim.  “We also need to formulate a financing strategy that both matches the lifespan of our assets with their funding stream and that presents an equitable charge to our ratepayers.  We developed this innovative approach to achieve all these goals.”

For more on the topic of innovative financing check out the University of North Carolina’s Environmental Finance Center. The center recently released a catalogue of stormwater and green infrastructure finance publications. The Water Environment Federation also will host sessions 318 Innovative Stormwater Financing and 420 Stormwater Financing at the 2014 Stormwater Congress.

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