Fitch: Water sector outlook moves to ‘neutral’ from ‘deteriorating’

According to a new sector outlook for 2024 by Fitch Ratings, inflationary pressures will continue to ease for U.S. water utilities in the coming year, and the credit ratings agency has moved its outlook to “neutral” from “deteriorating.”

Fitch’s U.S. Water and Sewer Outlook 2024 notes that water utility costs increased more than 3% in 2023 on the back of a 6.5% inflationary increase in 2022. However, the rate of inflation appears to have crescendoed and will likely continue to level off in the coming year.

“Water utilities have now worked higher operating and capitals costs into their budgets,” said Senior Director Audra Dickinson. “With the operating environment now on more stable footing, water and sewer systems seem to have greater certainty around budgeting for the upcoming year.”

Water utilities’ operating budgets for 2024 reflect more standard rates of increase around chemicals, labor, supplies and power. However, it is important to note cost decreases are not likely, resulting in a new norm for water utilities.

Two other areas of focus for 2024 include the increased frequency and worsening severity of extreme weather events, and the rising potential for cyberattacks to cripple water systems.

Water utilities are working to expand and improve resiliency of water supply and contend with unforeseen expenses that can arise in the aftermath of severe weather events. On the cyber front, water and sewer utilities continue to work toward adhering to certain cybersecurity best practices absent any formal regulation.

“Shorter-term spending would likely focus on conducting cybersecurity assessments, but any identified vulnerabilities or successful breaches at a utility could result in unforeseen capex,” said Dickinson.

Fitch Ratings’ U.S. Water and Sewer Outlook 2024 report and more are available at www.fitchratings.com.

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