Ongoing Water Delivery Uncertainty Intensifies Credit Pressure On Utilities In The Rio Grande Basin

The Rio Grande stretches across 1,896 miles and is the fourth-longest river in the U.S. It originates in south-central Colorado, traverses the length of New Mexico, then becomes the border between the U.S. and Mexico--separating Texas and the Mexican states of Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas--before flowing to the gulf. S&P Global Ratings maintains ratings on six Texas utilities in the Rio Grande Valley. We believe these utilities face increased negative rating pressure and water supply stress due to their reliance on Mexico for their water supply and the unpredictable nature of that supply, which stems from Mexico's ongoing water delivery deficit. While the treaty has an exception for "periods of extraordinary drought", it does not provide standards or

...- On April 28, Mexico committed to increasing the U.S. share of the water supply in six of its Rio Grande tributaries through the end of the current five-year water cycle that ends in October and to collaborate with the U.S. to develop a longer-term plan to ensure supply predictability under the 1944 Water Treaty, which we view favorably. - The announcement followed the U.S. federal administration's rejection of Mexico's request for a special allocation of Colorado River water as well as threats of tariffs and sanctions related to compliance under the 1944 treaty's water sharing terms. - While short-term supply predictability from Mexico may be resolved, its previous failures to meet delivery targets have created credit pressure by weakening the underlying economic fundamentals and financial performance of utilities that rely on these deliveries and could contribute to ongoing challenges for utilities in the Rio Grande basin, given the water supply stress stemming from drought, aridification,...

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