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Your Three Minutes In Water Utilities: The Water Risk And Resilience Organization

The Water Risk and Resilience Organization (WRRO), currently under deliberation in Congress, aims to enhance the resilience of the U.S. water sector against cyber security threats. U.S. utilities have been recent targets for nation states and cyber criminals, and S&P Global Ratings believes the WRRO would help water systems to achieve improved cyber security resilience, although there could be significant challenges associated with implementation costs, especially for smaller systems.

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What's Happening

House Bill 7922 was introduced in April 2024 with the aim of establishing a new governing body, the WRRO, which will propose cyber security resilience requirements and implementation plans, to be approved by the Environmental Protection Agency (EPA). The WRRO would conduct monitoring and assessment of utilities and can impose penalties for non-compliance.

Why It Matters

We view water utilities as a likely target for cyber attacks, as operational disruptions threaten the water supply and place public health and safety at risk. In recent years, water utilities have faced cyber-attacks that have resulted not only in disruption to water treatment, distribution, and storage, but also in critical data loss and severe financial effects, typically related to liquidity. In most cases, a cyber attack has not resulted in a rating action; however, we have done so when a cyber attack has a significant effect on the issuer's financial position, operations, or compliance, or when the attack exposes significant risk in management and oversight.

Our criteria typically factor in cyber and physical risk management as part of our overall assessment of management, and therefore we view efforts to improve cyber policies and practices positively. Cyber security preparedness is evaluated in the operational management assessment of our "U.S. Municipal Water, Sewer, And Solid Waste Utilities: Methodology And Assumptions," published April 14, 2022. In our view, strong management teams usually have comprehensive and proactive policies and practices that address cyber risks, including staff training, system monitoring, and attack response and recovery. Also, we view risk management, culture, and oversight, into which cyber policies are incorporated, as an aspect of governance within our "Environmental, Social, And Governance Principles In Credit Ratings" criteria, published Oct. 10, 2021.

What Comes Next

Given the current lack of a formal framework, the shortage of cyber security professionals, and the challenge of operating legacy systems, we view the efforts proposed by the WRRO to improve cyber policies and practices positively, although we note there could be rating pressure associated with costs and compliance violations, in particular for water systems that are already facing rising operating costs and may require more sophisticated management expertise. Despite these challenges, reasonable minimum requirements and support should improve preparedness to handle cyber security threats, leading to more efficient defense and detection and more timely recovery.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Mallie Lange, Austin +1 2147655861;
Mallie.Lange@spglobal.com
Secondary Contact:Jenny Poree, San Francisco + 1 (415) 371 5044;
jenny.poree@spglobal.com

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