What Does the California Drought Mean for the Hospitality Community?

Diane Vondrasek | April 30, 2015

By Diane Vondrasek

This article summarizes the impact of the California drought on the hospitality community, including a review of the recent Executive Order on water conservation and its impacts on water availability, rates, and hotel operating practices.

As you have probably heard in the news lately, California is experiencing its worst drought in recorded history. There was less rainfall in 2013 than in any year since California became a state 165 years ago. Precipitation and snowpack levels remain well below average, and there does not appear to be an end in sight.

To mitigate impacts from the drought, California Governor Edmund G. Brown Jr., issued Executive Order B-29-15 on April 1, 2015. This historic act by the Governor signaled the beginning of a new era of stringent water conservation for California. The Executive Order, as well as the legislation and agency rulemaking which is to follow, impacts every citizen, agency, and business within the State of California – including lodging properties.

HVS has prepared this article to brief hospitality owners and operators about the Executive Order and its potential impacts on water availability, rates, and hotel operating practices. We also provide practical guidance on steps that operators can take to identify opportunities to reduce water consumption and associated costs.

The Executive Order – What Does it Say?

For the first time in California’s history, the Governor has directed state agencies to implement mandatory water reductions in cities and towns to reduce water consumption 25 percent from 2013 levels. The Executive Order lays out a broad course of activities that are intended to: 1) Save water; 2) Increase enforcement against water waste; 3) Invest in new technologies; and 4) Streamline the government’s response to the ongoing drought.

Of relevance to all business owners and operators, the Executive Order specifies the following immediate activity: “The Water Board shall direct urban water suppliers to develop rate structures and other pricing mechanisms, including but not limited to surcharges, fees, and penalties, to maximize water conservation consistent with statewide water restrictions.” Although investor-owned water utilities are not required to observe the Order, they have publicly endorsed it.

The Executive Order also authorizes the establishment of emergency efficiency requirements for water appliances including toilets, urinals, and faucets, which will impact the types of plumbing fixtures available for both new properties and major renovations (this is also dictated by California Building Code, which is among the most stringent energy efficiency codes in the country).

How Will the Executive Order Impact Water Rates?

The Executive Order explicitly advises local utilities to modify tariff structures to encourage conservation. Water utilities have already attempted to encourage conservation through tiered pricing structures (in which higher rates are charged per unit of water above defined consumption thresholds). Although tiered pricing structures are being challenged in the California courts, the Executive Order bolsters the case for such structures and pricing options when water is in short supply. While water costs are typically a smaller proportion of a hotel’s utility line item expense than energy costs, the potential for perpetually increasing water rates can still impact hotel P&L performance.

Water and sewer rates vary throughout the state. However, hotel owners and operators statewide should expect significant rate increases, some of which have already been approved. We reviewed published water and sewer rates in several of California’s largest cities as follows:

Los Angeles (LADWP). Water rates have increased 17% from November 2012 through June 2015, with further increases probable. Sewer service charges have risen much more rapidly, rising 59% since March 2011 with additional increases of 61% above current levels already approved through July 2020.
San Diego (City of San Diego Water and Wastewater Services). Although sewer rates have remained constant, water rates have increased an alarming 57% since 2011.
San Francisco (San Francisco Water Power Sewer). During the timeframe between July 2014 and July 2018, the utility has received approval for water rate increases of 32% and sewage rate increases of 25%.

The above rate increases have either already occurred or are approved to occur in future years. However, considering the intent of the Executive Order, it is likely that municipal and other water utilities throughout the state will continue to utilize rate increases and penalties as a means to encourage efficient use of water, especially during drought years.

The 2015 Emergency Conservation Regulations – An Interim Measure

In response to the Executive Order, the California Water Resources Control Board has created Emergency Conservation Regulations. Although all of these items are required for commercial businesses, for the first time measures which specifically target the hospitality industry have been included (see items 6 and 7 below):

Emergency Conservation Regulations

Using potable water to wash sidewalks and driveways is prohibited.
Allowing runoff when irrigating with potable water is prohibited.
Using hoses with no shutoff nozzles to wash cars is prohibited.
Using potable water in decorative water features that do not recirculate the water is prohibited.
Irrigating outdoors during, and within, 48 hours following measureable rainfall is prohibited.
Restaurants are prohibited from serving water to customers unless the customer requests it.
Hotel and motel guests must have the option to forego having linens and towels laundered daily. The option must be prominently displayed in each guest room.

What Should Hotel Owners And Operators Do To Reduce Water Consumption and Costs?

Although the Emergency Conservation Regulations discussed above provide a mandatory starting point for water conservation efforts, HVS has identified numerous other areas where hoteliers can reduce water consumption without adversely impacting the guest experience.

At the property level, operators should first attempt to document and understand current levels of consumption. It is a relatively straightforward process to compile water & sewer statements and look at both consumption and cost trends over time. What is happening to water use per occupied room at the property? Is it improving, staying even, or trending negatively? Any unusual spikes or peaks in the consumption history may be an indicator of hidden leaks, which can cost thousands of dollars.

From a hotel operations perspective, F&B operations are excellent places to look for cost reduction measures. HVS has observed that aerators in the faucets of kitchen sinks are routinely removed, which results in significantly higher flow rates than required for kitchen use. In many kitchens, water taps are left running unattended or are used to defrost food – these practices contribute to unnecessary water consumption and increased costs.

Guest rooms are another great place to look for savings. The replacement of older-generation showerheads and faucet aerators typically has a rapid payback period and, in some properties, toilet retrofits can also provide for a viable ROI. At a minimum, the hotel engineering department should ensure that tank-style toilets are not leaking through flapper valves – this can be easily and cheaply identified through a dye test in a representative sampling of rooms and mitigated by a “group replacement” of all flapper valves at once.

Also look in common areas – especially restrooms – for opportunities to repair leaking toilets and urinals, and retrofit older generation fixtures with efficient units. Common area fixtures are typically used numerous times each day, improving the payback period for fixture replacements.

Laundry operations are a source of large potential water waste. In addition to following proper laundry loading practices and correctly balancing chemicals, there are viable technologies available to reuse and recycle water for larger onsite laundry operations.

Finally, it usually pays to take a focused look at the use of process water in the property. If refrigeration equipment is using domestic water for cooling purposes, it is wise to explore equipment replacement with air-cooled equivalents or connection of this equipment to the centralized HVAC cooling loop. Likewise, in most municipalities, a sewage credit is available for water lost to evaporation from a hotel’s centralized cooling tower. Given that the drought is anticipated to continue, HVS recommends that hotel owners and operators begin preparing for higher water rates now. Hoteliers who invest in more efficient building equipment will enjoy an immediate competitive advantage through lower water and sewer costs. When conservation is mandated, regulatory compliance nearly always costs less ahead of the regulations taking effect – rather than after the fact.

The Path Forward

California’s executive actions and regulations may serve as a template for other drought-prone areas in the U.S. and throughout the world. The hospitality community has a momentous opportunity to embrace financially sound water conservation practices to demonstrate its leadership in a sustainable water future.

References

What Does the California Drought Mean for the Hospitality Community?

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