Dow Chemical’s Water Woes Signal Trouble

When Dow Chemical, one of the largest manufacturers of chemicals and plastics in the world, announced a multibillion-dollar expansion on Texas’ Gulf Coast last summer, Gov. Rick Perry had yet another example to add to his list of explosive economic growth on Texas soil.

“Texas continues to attract companies looking for the best opportunity to expand or relocate because of our low taxes, smart regulations, fair courts and predictable workforce,” Perry said in an August statement on Dow’s expansion, for which the governor’s incentive fund had provided $1.5 million, on top of a $1 million grant the year before.

But this success story has been underscored by a tense struggle over water, which Dow needs to keep production afloat, and which is in short supply in Texas amid the state’s debilitating drought and its water users’ increasing thirst.

The manufacturing giant is by far the largest user of water from Texas’ Brazos River, which also supplies farmers, cities and other industries along its 900-mile stretch from northwest Texas to the Gulf Coast. Dow is also the river’s oldest user, giving the company priority over all others. And as the Brazos’ water supply diminishes, Dow’s claims to its flows have pitted it against farmers, cities, power plants and local water authorities.

Conservationists and wholesale water suppliers alike warn that in a booming state that’s been slow to address its long-term water needs, companies looking to relocate to Texas could see Dow’s experience and reconsider. They also say that companies in Texas could engage in expensive battles with agricultural and other water users, including fast-growing cities — and that the state is not prepared to accommodate all of its conflicting water demands.

“At some point, you can see where [the] cost of water would cause a refinery to pick up and move to another state because there’s more water there,” said Ivan Langford, general manager of the Gulf Coast Water Authority, a wholesale water supplier to petrochemical companies, oil refineries, municipalities and rice farmers.

Dow, which declined to be interviewed for this article, has twice gone before a state administrative law judge to assert its rights and call for better management of the Brazos River.

“If the flow of the Brazos River gets too low, it becomes difficult to divert sufficient water for Dow’s needs,” Gena Leathers, Dow’s global technology leader for water, said in testimony filed with the judge as part of the company’s demand for better enforcement of its senior-most water right on the river.

In other public documents, Dow officials threatened to be “much more aggressive” in asserting their right to flows from the Brazos, which could force upstream users — including farmers, cities and industries — to cut back their water use dramatically. Many have already done so to accommodate Dow.

While state legislators and voters signed off in 2013 on $2 billion in loans for future water infrastructure projects, it could be decades before that money translates into new supplies. In the meantime, according to public records filings, Dow believes its future is at risk.

A strained river

Dow first set up shop in Freeport in 1940 to extract magnesium from seawater. Since then, its Gulf Coast operations have grown by leaps and bounds; the company says it now pays nearly $1 billion a year in wages and benefits to a combined 7,000 workers, and contributed more than $70 million in taxes to Brazoria County in 2012 alone.

But Freeport hasn’t just been a plum spot for Dow because of its seaside location; the Brazos River, which begins in northwest Texas, empties out there, providing Dow with the 100,000 gallons of freshwater per minute that it needs to operate.

According to draft numbers from the Texas Water Development Board’s 2017 State Water Plan, Brazoria County’s water needs for manufacturing — dominated by Dow — are among the highest for the Brazos River Basin and for the state as a whole.

The strain on the Brazos is expected to grow significantly: In 2020, an estimated 80 billion gallons of water per year will be needed for manufacturing in Brazoria County, up by 30 percent from what was used in 2011; by 2060, the need could be 106 billion gallons, far outpacing the county’s municipal water needs of about 27 billion gallons per year. The 2012 state water plan projects a shortage of 64 billion gallons for the region in 2020, a number that doubles by 2060.

While this same story is being told across Texas, on the Gulf Coast, there’s an even more urgent need for the Brazos: So much groundwater has been pumped in the past several decades to meet the region’s needs that the land is sinking. To avoid any more such subsidence, cities in Harris County and neighboring Fort Bend County are working to convert their supplies to surface water — and they are counting on the Brazos to help them.

“We have some [customers] that are bumping up against the limits of what they have available and, frankly, what we can provide with our existing permits and contract situation,” said Brad Brunett, a hydrologist for the Brazos River Authority, a major wholesale supplier of Brazos water.

In the past decade, the authority has spent $12 million on legal and environmental consultants to lobby the Texas Commission on Environmental Quality for a new state permit that could potentially double its entitlement to the river’s water, warning of “immediate” water shortages without it.

But Dow sees that effort as an immediate threat to its operations, and has forged an unlikely alliance with environmentalists, who are concerned about the permit’s effect on the river’s health.

“The way things are operating, the landowners and the recreational opportunities and the fish and wildlife are getting screwed,” said Rick Lowerre, an Austin-based environmental attorney who represents the advocacy group Friends of the Brazos and, along with Dow and others, is protesting the authority’s permit application. “We need to try to protect the system. It’s already been overdrafted in some areas.”

In testimony over the disputed permit application before an administrative law judge in 2011, Dow agreed, adding that the approval of new water for the authority could stem the flow of the Brazos to Freeport, threatening Dow’s activities and the water supplies of some smaller cities that purchase water from the company.

Tim Finley, one of Dow’s environmental engineers, testified that the proposed permit “puts Dow, a multibillion-dollar operation, and the water supply for the seven member cities in the Brazosport area at risk.”

Compounding Dow’s problems is the salt content of the Brazos River once it reaches Freeport. Salinity there is already high because of natural geological formations and pollution far upstream. But it gets worse when drought prevents downstream freshwater from diluting it. Finley testified that in 2005 and 2006, Dow’s water supply was so salty that the company had to spend an additional $6 million to remove the excess minerals, creating a “national shortage” of the equipment needed to do so. If all the water used to meet Dow’s daily demand needed such treatment, Finley said, the company would have to make a capital investment of up to $700 million. (The TCEQ has signaled it could be inching closer to approving the permit application, which has been delayed for so long in part because of changing environmental regulations.)

Dow has said the TCEQ did not follow its own rules, which require the agency to ensure no new permits would hurt existing water users.

“If the TCEQ staff does not know its own rules, this brings into question the vetting of the application that was done by the TCEQ staff in general,” Dow attorney Fred Werkenthin wrote to the administrative law judge.

The TCEQ has said its own water modeling shows minimal effects of the permit on Dow’s supply, though some models could be decades old.

Tim Brown, an Austin-based water rights lawyer who has practiced in Texas for almost 50 years, is amazed that the TCEQ is even considering handing out more water rights on the Brazos.

“As early as 1952 or ’53, the chairman of the water commission back then said that every river and stream in Texas was already over-appropriated,” said Brown, who served on the now-defunct Texas Water Rights Commission. “And yet, the agency continued to issue permits.”

Dow has also sought a watermaster on the Brazos, a state-funded office that, unlike the TCEQ’s current staff, would have daily access to water use data in the river basin and respond in real time to water shortages. This year, the agency agreed to create such an office and fund it with Brazos river users’ fees.

Parties on both sides of the permit dispute say they worry that the TCEQ is not equipped to handle such water fights, which are becoming increasingly common amid the drought.

“We used to have a very vibrant water rights program with lots of staff, really taking care of the water,” said Lowerre, of Friends of the Brazos. Now, “the agency is really changed politically, from one that was really saying, ‘This is a public trust,’ to one that is like, ‘Hell, let’s just get [the permit] out the door so we don’t have to bother [with] it anymore.”

Andrea Morrow, a spokeswoman for the TCEQ, said the agency is prepared to handle such water disputes. “Water rights determinations are very site-specific,” she said, “and the TCEQ has the qualified expertise necessary to properly evaluate these applications.”

At a water law conference in Austin late last year, TCEQ Commissioner Toby Baker acknowledged that the drought has created a steep learning curve for the agency. “We’re doing stuff with water now that’s virtually unprecedented,” he said.

And Brunett, of the Brazos River Authority, said the agency is clearly “stretched pretty thin.” But, he added, all the other water supply projects the authority is considering would cost hundreds of millions of dollars and probably raise water rates for the whole region — and take years, if not decades, to build.

“What’s the alternative if this permit isn’t put in place?” Brunett asked. “Do we have enough time to implement the alternatives?”

Water wars

Drought in the Brazos River Basin hit years earlier than in other parts of the state. Langford, the head of the Gulf Coast Water Authority, recalled pictures from 2009 where “you can literally step across the Brazos.” The Gulf Coast Water Authority has spent $10 million since then on additional short-term water supplies.

Dow, too, has already spent millions of dollars on extra short-term water. In mid-2009, the Brazos was flowing at just 50 cubic feet per second, less than half the speed required for Dow’s smallest pump to pull the water the company needed out of the river. It was an unprecedented occurrence for Dow.

So Dow issued a priority call in 2009 and the years following asserting its “senior” right to divert water from the Brazos River — and force “junior” water rights holders to curtail their use. It was the first time the TCEQ had received such a request, and it took the agency weeks to respond.

Dow did have that right. But by the time the TCEQ determined it several weeks later, the company says it was too late. Junior water rights were suspended that summer, cutting off mostly farmers from using about 46 billion gallons of water, but no additional water flowed down to Dow’s pumps.

But junior water rights holders still felt the pinch. “It’s hard to sit in a room full of farmers and literally see them go to tears,” said Langford, who had to cut off water to the Gulf Coast Water Authority’s agricultural customers, most of whom are rice farmers.

Yet Dow argues that by law, the TCEQ should have cut off even more water than it did; in the interest of public health and safety, the agency elected not to force junior users like municipalities and power plants to cut back.

The Texas Farm Bureau, which agreed with Dow, sued, and a Travis County district judge ruled in its favor last June.

The case is now pending in the Corpus Christi Court of Appeals. If the appellate judge upholds the ruling, cities and power plants — which are already clamoring for more water supplies from the Brazos today — could be at risk of losing their ability to draw water from the river when more “senior” rights holders demand it. Urban planners and state officials fear that means public health will be put at risk in favor of large companies like Dow or farmers with senior water rights in times of water shortage.

Brown, the Austin attorney, said such fights are inevitable, and that the Legislature would eventually have to sort out the state’s decades-old water laws.

For now, Dow is aggressively working on reducing its water consumption, initiating company-wide contests and working with advocacy groups like the Nature Conservancy.

The company is also taking a close look at what climate change could mean for global freshwater supplies, suggesting that it could reduce the Brazos’ total annual flow by as much as 26 percent in the coming decades.

In a news conference in front of one of Texas’ dwindling reservoirs this summer, Perry acknowledged that water has become an economic issue for the state.

“Other states are watching what we are doing,” he said. “When we compete with them for a major expansion site or a relocation for major employers, you better believe water is part of the conversation.”

Disclosure: The Texas Farm Bureau is a corporate sponsor of The Texas Tribune. A complete list of Texas Tribune donors and sponsors can be viewed here.