Jerome Muys
It wasn’t that long ago that determining the availability of an adequate water supply for a new business was fairly simple. You pretty much knew what to expect by looking at local records.
But that was before climate change began affecting average annual flows and the drought in many western states prompted new policies, limitations and restrictions on water consumption. Now, before they enter into any new projects, real estate developers and investors need to be aware of how those governmental directives could affect their future operational plans and water needs.
The idea of including a water security assessment in traditional due diligence for corporate or real estate projects might seem novel, but it makes sense. Think of the importance of reliable water availability for a developer siting a facility. Imagine a bond-financed water project that was repaying its debt by providing water to consumers, but then had the amount of water available to it slashed by a regulatory change.
In April, California Gov. Jerry Brown ordered the State Water Resources Control Board to impose a 25 percent reduction on the state’s 400 local water supply agencies, which serve 90 percent of California’s residents, because of the state’s four-year drought. Homeowners and businesses that have long had unencumbered access to rivers, streams and other freshwater sources – and probably assumed that would always be the case – now need to adjust to a change in policy.
California’s proposal is ominous because in some respects water rights are still highly sacrosanct in our country. Even as water becomes scarce in some places, state water rights and permit systems almost always protect existing uses. In the West, for example, the prior appropriation doctrine protects holders of pre-existing water rights. Later users are allowed to take the remaining water for their own beneficial use, as long as they don’t encroach on the rights of previous users.
Jeffrey Karp
Drought Effects Widespread
Eastern states are not immune to these new rules. New uses often are disfavored if they would negatively affect existing users. Consequently developers, investors and business owners have assumed that their existing water rights would preserve their access.
But climate change could scuttle those assumptions. It could prompt new federal or state limitations on water supplies that could put even the most entrenched legal water rights at risk. In California, the state has proposed cutting senior water rights, which many farmers have viewed as iron-clad for a century. A group of central California irrigation districts has filed several lawsuits against the state to block the proposals. Their concern is not only about any immediate impact the cuts would make, but of additional curtailments as the summer continues.
The Massachusetts Department of Environmental Protection last year completed a drawn-out and contentious rulemaking process called the Sustainable Water Management Initiative that revises the standards for water withdrawal permits needed by large water users like municipal water plants and golf courses. These complex standards seek to balance environmental factors with human and economic needs for water. If withdrawals don’t meet the new standards, then they could be denied or subject to onerous mitigation requirements, limiting the amount of water available for new industry to expand in the community.
Victor Baltera
Overriding Current Rights
The water crisis that exists in the West is exacerbated by the fact that more water rights have been authorized than there is available water. A report by the investigative news group ProPublica shows that since 2001 the average annual flow of the Colorado River has been 4 trillion gallons. But the seven states that tap into the Colorado have rights to more than 5 trillion gallons. Water security assessment is crucial when parties are claiming more of a resource than is available.
There are also a number of federal statutes that may effectively override pre-existing water rights or permits. For example, when the Federal Power Act is in conflict with state water laws the federal statute takes priority, according to the Supreme Court. That means if a hydroelectric project licensed by the Federal Energy Regulatory Commission needed water, it could be given a right senior to pre-existing rights under state law.
The federal Endangered Species Act has become a very effective tool for stakeholders advocating for higher flow rates in the nation’s waterways. Climate change has dropped levels of many lakes and streams down to critical levels, in many cases endangering fish or wildlife that inhabit the waters.
The cause of climate change and its impact continue to be debated in government and politics. Meanwhile, undeniable changes have occurred such as the drought in the West, making water security assessment an essential part of any thorough due diligence related to real estate or corporate transactions. As water availability diminishes, the trickle of policy changes we see today may grow into a river tomorrow.
Jerome C. Muys Jr. and Jeffrey M. Karp are environmental law attorneys in Sullivan & Worcester’s D.C. office. Victor N. Baltera is an environmental law attorney in Sullivan & Worcester’s Boston office.
