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Water-intensive life science companies not too worried about drought

Little-used Guaranteed Water for Industry Program provides security

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Water is essential for life. It’s also essential for the life sciences sector, a booming industry in San Diego with more than 600 companies and 80 research institutes, according to the San Diego Regional Economic Development Corp.

Good ol' H2O is used extensively by biotech and pharmaceutical companies, mainly in cooling towers to ensure the proper temperature is maintained in labs, but it is also used in research and development.

So what happens if there’s a severe drought like, say, the one we’re in now? And what if mandatory restrictions are imposed upon both commercial and residential water customers? Life science companies don’t seem to be too worried.

Melanie Nally, associate director of local government and regulatory affairs at BIOCOM, said she’s not concerned that restrictions would be imposed upon companies in the life science sector, given the large economic impact of this industry on the San Diego economy. But even if resrictions were imposed, the companies have an out.

“I don’t think it’s very likely,” Nally said. “BIOCOM was founded about 20 years ago around this issue of access to water, because at the time people were asking the very same question. So it has always been a concern for us, but we work with both local and state authorities on water issues to make sure that that doesn’t happen.”

But if water restrictions were to be imposed, the city of San Diego’s Guaranteed Water for Industry Program, which was instituted in 1998, provides an opportunity for companies with water-intensive manufacturing plants -- such as pharmaceutical, circuit board or semiconductor plants -- to be exempt from mandatory water restrictions up through a Level 2 drought if they meet certain requirements for using reclaimed water and conserving potable water.

For a combination of reasons -- which both industry and city representatives say are somewhat silly -- only a small handful of companies ever participated in the program, reaching a maximum of six but now down to just two or three.

Why don’t more companies take advantage of the Guaranteed Water for Industry program, especially now that the price of reclaimed water is at such a discount to potable (80 cents per acre foot compared to roughly $1.60 for potable)?

There are two main reasons: the city hasn’t pushed hard for the program, and there is an upfront cost to companies for investing in cooling towers that can handle the thicker recycled water -- which has more organics in it, and an ongoing higher cost of maintaining and monitoring these systems.

Russ Gibbon, business development manager with the mayor’s office of economic growth services, said there needs to be even more oversight of the chemical composition of the water, an investment that not all companies are willing to make.

Gibbon, who has been involved in the program since the beginning, said it was conceived because of the confluence of two separate but important issues.

“We had gotten a letter from Idec Pharmaceuticals saying that they were getting close to what they thought was their commercialization plan, and energy and water supply was a critical thing they needed to have or they couldn’t expand here,” said Gibbon.

It had also come to light that wireless circuit board company Applied Micro Circuits (Nasdaq: AMCC) had admitted it was -- literally -- throwing water down the drain in order to make its historical usage amounts larger than they were, so in the case of a drought and water restrictions, the impact wouldn’t be so great.

Gibbon and the city were hearing that these companies were considering not expanding locally because of water fears and others were tossing water out on purpose. Meanwhile, the Public Facilities Financing Authority was in the midst of bringing its North City Water Reclamation Plant online and had to start signing up customers to use this recycled water.

“They approached us saying ‘We’re going to have a water reclamation plant and need to make good-faith efforts to beneficially reuse an increasing amount -- 50 percent, 60 percent, 70 percent -- of the water we’re producing here,’” Gibbon said. “So they said, ‘We’d like contacts within industry, to help sell this to be used in power plants all over the county in industrial settings for cooling. We have no way of getting in the door -- can you help us out?’”

Facing an aptly timed problem and separate but related opportunity, the city updated the municipal code and rolled out the Guaranteed Water for Industry Program, hitting both birds with one stone -- these water-intensive manufacturing companies could get their guaranteed water supply through a Level 2 drought if they signed on to make use of this reclaimed water and also demonstrated efforts to reduce their use of potable water.

By 2009, five firms were participating: Biogen Idec (Nasdaq: BIIB), Johnson & Johnson (NYSE: JNJ), BD Pharmingen, Amylin Pharmaceuticals and Alere Corp. Of those, Gibbon said Alere and Johnson & Johnson are still participating members, as is Amylin, though it was bought by Bristol-Myers Squibb (NYSE: BMY) and then AstraZeneca (NYSE: AZN), and was on the way out of San Diego under Bristol-Myers (a representative from Astra Zeneca was not immediately available to comment on Amylin's status in San Diego). BD Pharmingen is no longer around, and Illumina (Nasaq: ILMN), which occupies the former Biogen Idec campus, has all of the same conservation and reclaimed water practices in place as Biogen Idec, but is not currently a participating company since the licensing is done by company, not by real estate parcel.

“Illumina is not currently part of the Guaranteed Water Program, but maintains the same water conservation practices on our campus as Biogen Idec, including the use of non-potable recycled water in cooling towers and for irrigation purposes,” an Illumina spokesperson said.

Gibbon said recertification is on his to-do list, as the process is simple and straightforward, really just a one-day deal if the conservation practices are up to snuff -- which does require some dough.

“This stuff costs money -- Biogen Idec spent $100,000 in equipment costs and consulting, so there’s an upfront cost to getting it,” Gibbon said. “We’re getting there, but for a long time there was a fear factor.”

But he said the cost to invest in new systems pays off within three to five years, even when the city isn’t in a drought. So why don’t more companies sign on?

“I don’t know,” Gibbon said. “I couldn’t get a straight answer … We’ve had companies go down the path part way and pull back -- Qualcomm started using recycled water in some cooling towers but didn’t want to retrofit all of its buildings so it’s still not certified. But they could be if they put more money in retrofitting the restrooms.”

Larry Turner, director of facilities in San Diego for Alere, said the company acquired Biosite -- which was the initial participant in the program -- seven years ago, and in 2010 applied as Alere and was accepted.

“We use reclaimed or recycled water in our cooling towers … and 100 percent of our landscape irrigation is reclaimed water,” he said.

He said he expects other companies haven’t taken advantage of it because of a lack of awareness due to a lackluster marketing job by the city, and again, the upfront cost and hassle of acquiring and installing new systems to be able to use reclaimed water for anything other than outdoor irrigation.

Turner said even though the company had to pay $70,000 to be able to use reclaimed water in all of its buildings and has the ongoing investment of maintaining the new systems because of the water’s corrosiveness, Alere is still saving money, not to mention the reputation boost and the comfort in knowing its water supply is secure.

“I expect our cost of water to go up because I believe we’re going to go above a Level 2 drought, and I anticipate the cost per unit will go up, but I don’t expect our operations will be impacted by rationing,” Tuner said.

While Alere has this added cushion through a Level 2 drought -- the city is currently in the first tier of Level 2 -- it’s quite possible that no biotech companies will have their manufacturing directly impacted, as Nally predicted.

Dana Friehauf, principal water resource specialist with the San Diego County Water Authority -- which makes recommendations on the severity of drought levels and corresponding suggested restrictions to its water customers including the city of San Diego, but in no way sets these requirements or enforces them -- said the Water Authority takes upgrading to Level 3 and its recommended 40 percent cut in water use very seriously.

“We feel Level 2 is very appropriate at this time,” Friehauf said. “If we do have to go to Level 3, then we start to go beyond just the outdoor water use restrictions, at least with our model. When you get to Level 3 that’s when you start, for example, having no new meters, a prohibition on new meters unless you offset the demands through funding conservation programs or water recycling projects.”

Level 3 situation

Friehauf said it’s impossible for her to tell how close the region is to a Level 3 situation since it depends on such a wide array of factors, but it’s not a decision the SDCWA would make lightly.

“There’s a number of variables that would be involved in such a decision, but it’s not something our board of directors take lightly,” she said. “The model ordinance was just put together in 2008, and since then we have not reached Level 3. We did go to Level 2 from July 2009 through April 2011, but fortunately it rained in 2011 and so then we deactivated the ordinance.”

Even when not in a drought situation, Gibbon said the program is an economic boon to participating companies given the price differential between reclaimed and potable water, but he said he expects the current drive to do a great deal toward garnering interest in the program.

“I think this drought will help us market the program more, if people are thinking they need to do this to get the guarantee,” Gibbon said. “As the drought goes on -- if it goes on -- the program will definitely get more attention.”

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