Magazine article Risk Management

Cut and Dry

Magazine article Risk Management

Cut and Dry

Article excerpt

For the first time in modern American history, severe drought conditions combined with essentially unfettered demand have led an entire state to implement mandatory ongoing restrictions on the use of water. California Governor Jerry Brown issued an Executive Order in April 2015 mandating a 25% reduction of urban water usage from 1013 levels over a nine-month period, a savings of roughly 414 billion gallons--enough to fill more than 640,000 Olympic-size swimming pools. The move followed a failed year-long effort to achieve a voluntary 20% reduction in water usage, with statewide conservation results averaging, between just 7% and 12%. Early returns suggest that residents are starting to get the message: The State Water Resources Control Board reported that water use in May had dropped by 29%.

The mandate requires that local water agencies and suppliers determine for themselves how to achieve their goal, which is weighted based on each area's current water usage. To reach the 25% goal, local conservation requirements actually range between 8% and 36%. Crucially for California's vast agriculture industry, local entities can effectively ignore agricultural usage.

In terms of the impact on other businesses, California state-level regulators have been careful to note that they have not targeted any industry or sector for specific cuts. Instead, the State Water Resources Control Board explained, "Water suppliers will determine locally the actions that they will take to ensure that their commercial, industrial and institutional sectors are contributing to meeting these requirements and in what amounts." In other words, if a business uses a significant amount of water, it may well end up on the local water agency's target list for water reduction.

Although California is the first state to employ such drastic measures, it is unlikely to be the last. In a 2014 report, the U.S. Government Accountability Office (GAO) found that 40 of the 50 state water managers expect freshwater shortages in some portion of their states by 2023 under average water conditions, with 24 of those states anticipating shortages to impact entire regions. If there were drought conditions, all 50 state water managers foresee water shortages. Furthermore, the GAO cited research from the National Drought Mitigation Center that predicts ongoing climate change will result in more widespread and severe droughts across much of the United States. In anticipation of increasing water scarcity nationwide, businesses should carefully observe the impacts of the water restrictions in California.

INDUSTRIES AT RISK

Much of California's regulatory framework and the resulting public discussion have primarily focused on the water usage of residential consumers, with previous regulations prohibiting the use of potable water to wash sidewalks, driveways and cars, and to maintain excessive outdoor landscaping in the state's hot climate. But homeowners and businesses with large, lush lawns are not the only heavy users of water in California.

For most of the country, water has been a ubiquitous and inexpensive resource for so long that it can be difficult to remember how critical it is to so many different industries. Several trade groups and individual businesses from a range of industries submitted comments on California's proposed regulations. The California Construction and Industrial Materials Association noted that many of its members are required to use significant amounts of water to control dust in compliance with the Federal Clean Air Act as well as local requirements. The California Hospital Association emphasized that acute healthcare facilities must remain operational 24/7, 365 days a year, and that water usage for many critical purposes such as sterilizing instruments and patient hygiene simply cannot be cut without threatening public health and safety. The California Manufacturers & Technology Association and similar trade groups called for regulators to recognize that water is crucial to industrial operations and to exempt so-called "process water" from the reduction regulations. …

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