State Environmental Issues

Pennsylvania, Other States to Consider Climate-Change Regulation Despite Federal Inaction

If you think the federal government’s inaction on climate change has stalled all agency regulation of greenhouse gases (“GHGs”), think again. Although the current federal administration may not be moving forward with any new restrictions on GHG emissions, state- and regional-level proposals and plans are in the works. For example, one significant development in Pennsylvania occurred in late November 2018, when the Clean Air Council and other parties (“Petitioners”) submitted a petition for rulemaking to the Pennsylvania Department of Environmental Protection (“PADEP”) to regulate greenhouse gas (“GHG”) emissions through an auction-cap-and-trade program. In another development, nine states participating in the Transportation and Climate Initiative (“TCI”) and Washington, D.C. agreed to develop a plan to curb GHG emissions from the transportation sector by requiring fossil fuel suppliers to purchase carbon allowances at an estimated cost of approximately $5.4 billion per year. At the same time, litigation is ongoing that would force the federal government to further regulate GHGs.

These developments are explained below, with a focus on the Pennsylvania petition that PADEP must act upon over the next several months. Stakeholders should track these developments and consider opportunities to participate, including by submitting public comments.

The Petition to Regulate GHGs in Pennsylvania

State and regional efforts are continuing, as interest groups are becoming more creative in their efforts to pressure states to act where the federal government has not. The Petitioners in Pennsylvania submitted detailed, proposed regulations that would set forth an auction-cap-and-trade program, aiming to reduce GHGs by targeting specific sources in Pennsylvania. The auction-cap-and-trade regulation would create a new Pennsylvania program to cap GHG emissions for particular sources and allow for the trading of allowances. Each allowance equates to one metric ton of “carbon dioxide equivalents” (“CO2e”). Once the new program is in place, the total emissions cap will decline annually by 3% with the goal being carbon neutral in Pennsylvania by 2052. Because the number of available allowances equals the overall emissions cap, available allowances will also decrease annually.

As proposed, the regulation would not affect all sources of GHGs as several are exempted or subject to individualized requirements. Sources of GHG emissions covered by the proposal fall into three broad categories:

  • First, the proposal provides an exhaustive list of covered entities with processes or operations that produce GHG emissions, such as cement production, lime manufacturing, petroleum refining, and paper manufacturing.
  • Second, the proposal covers electricity generators located within Pennsylvania and importers of electricity.
  • Third, various fossil fuel manufacturing processes and fossil fuel suppliers are also subject to the proposed regulation. With few exceptions, the Petitioners proposed a compliance threshold of 25,000 metric tons of CO2e. The 25,000 metric ton threshold, however, is an “equivalent,” rather than a fixed threshold. For example, an entity that emits 1,000 metric tons of methane would be subject to the regulation as the “global warming potential” of one metric ton of methane equates to twenty-five metric tons of CO2. If the regulation is adopted as proposed, covered facilities that exceed the relevant threshold will have to comply with all applicable requirements, such as by registering with PADEP, purchasing allowances, monitoring GHG emissions, and submitting the necessary reports to PADEP. The proposed program’s trading feature envisions that most allowances will be auctioned with a reserve price of $10 in 2020. This reserve price will increase annually at a minimum of 10% plus the cost of inflation. At the outset, Petitioners suggest that a number of allowances be distributed for free to industries that are subject to international and interstate competition. These free allowances, however, will be reduced by 5% per year. Additionally, the regulation includes punitive measures which proportionately reduce the number of free allowances held by a business if it closes or reduces production in Pennsylvania. In their proposal, the Petitioners argued that PADEP has the authority and duty to implement such GHG emissions regulation under the Pennsylvania Air Pollution Control Act (“APCA”), the federal Clean Air Act (“CAA”), and various court decisions interpreting those authorities. The Petition is primarily utilizing the momentum of recent court interpretations of Pennsylvania’s unique Environmental Rights Amendment in Article I, Section 27 of the Pennsylvania Constitution (“ERA”). Over the past year or so, Pennsylvania court decisions breathed new life into the ERA and energized interest groups to attempt to influence environmental developments in Pennsylvania. The ERA is the primary tool relied upon by the Petitioners and, because its scope remains subject to ongoing debate and pending court decisions, the outcome of the Petition is unclear. Looking forward, the petition will be reviewed in the following manner:
  • PADEP has thirty days to decide whether the petition conforms to departmental requirements. If PADEP determines the petition meets all the requirements, the Environmental Quality Board (“EQB”) will allow the Petitioners to orally present their case for the proposal, and PADEP will provide a recommendation as to whether EQB should accept the petition.
  • If EQB accepts the petition, a notice will be published in the Pennsylvania Bulletin within thirty days. PADEP will then provide a written report to EQB and the Petitioners. The report will outline DEP’s recommendations and provide a timeline for when a proposed rulemaking will be submitted to EQB. Petitioners then have thirty days to respond to PADEP’s report.
  • After reviewing any response by the Petitioners, PADEP will provide another recommendation and a proposed rulemaking to EQB within six months.
  • Once PADEP has submitted the proposed rulemaking to EQB, the standard rulemaking process begins, including an opportunity for public comment.
  • If at any time PADEP or EQB issues a final action/denial, that action would be subject to judicial review. Following the schedule outlined above, PADEP should provide an initial response to the petition in either late December 2018 or early January 2019. The proposed regulation entails significant implications for businesses and operations across the Commonwealth and is bound to be subject to legal and practical arguments from all sides. Stakeholders should participate early and often as this process unfolds.

Regional Movement Addressing GHG Emissions

Recently, members of TCI, a group of Northeast and Mid-Atlantic states including Pennsylvania, agreed to develop a regional, inter-linked cap-and-invest program to reduce GHG emissions from the transportation sector. On December 18, 2018, the TCI members released a joint statement regarding the development of the program. On behalf of Pennsylvania, Secretary McDonnel, PADEP, and Secretary Richards, PennDOT, issued statements of support for the proposal. Although the specific mechanics of the program have not been established, TCI proposes an overall cap on GHG emissions from the transportation sector. The developing program would reduce GHG emissions in the transportation sector by requiring fuel wholesalers to purchase carbon allowances or credits. The cost of these allowances or credits would ultimately be passed to consumers and would likely lead to increased fuel and energy costs. Funds generated from the program would then be reinvested to promote alternative transportation options (e.g., public transit, lower GHG emitting vehicles). The participating states plan to finalize the program within a year and additional states may join as the actual structure of the program begins to take shape. Once finalized, each of the participating states would then choose whether to adopt the program and how to implement it.

Additional Developments at the Federal Level

Although the current federal government has refrained from placing further restrictions on GHG emissions, public interest groups are attempting to force the issue. Plaintiffs in the ongoing “kids’ climate lawsuit,” Juliana v. United States, have alleged both Constitutional and public trust doctrine violations related to the federal government’s energy policies. Specifically, plaintiffs argue that the federal government has contributed to climate change by endorsing pro-fossil fuel energy policies. The case is currently in a holding pattern as the Ninth Circuit Court of Appeals reviews the government’s mandamus petition seeking dismissal. Unlike the auction-cap-and-trade petition in Pennsylvania, plaintiffs in Juliana do not have a specific Constitutional provision, like Pennsylvania’s ERA, to base a claim upon. Nevertheless, plaintiffs have survived several legal hurdles and are currently urging the district court in Oregon to resume proceedings in the case in an effort to outpace the Ninth Circuit before it addresses the government’s arguments for dismissal.We encourage you to stay apprised of developments and consider providing comments on the proposed cap-and-trade program once a proposed rule is released. Please feel free to contact any member of the McNees Wallace & Nurick Energy & Environmental Group for assistance or questions regarding any environmental issues or questions about this post.

On November 29, 2018, the Pennsylvania General Assembly’s Nuclear Energy Caucus (“NEC”) released the “Bicameral Nuclear Energy Caucus Report” (“Report”) that details the NEC’s findings on nuclear energy issues during the 2017-2018 Legislative Session.  The Report finds that Pennsylvania’s five nuclear plants provide numerous benefits, including supporting jobs, providing zero-emissions energy, moderating electricity prices, and ensuring grid resilience and reliability.[1]  As a result, to avoid adverse “employment, economic, and environmental impacts associated with the premature closures” of Pennsylvania’s nuclear facilities, the Report suggests that Pennsylvania has four options to determine the future of its nuclear industry:[2]

  1. Do nothing and leave Pennsylvania’s clean energy resources, including its nuclear plants, on a trajectory to early retirement – effectively allowing PJM to dictate the mix of resources serving Pennsylvania.
  2. Modify AEPS (or establish a ZEC program) to put nuclear generation on equal footing with other zero-emission electric generation resources in Pennsylvania.
  3. Modify AEPS (or establish a ZEC program) with a “safety valve” mechanism that (depending on the outcome of the FERC proceeding) would allow Pennsylvania to adopt a new capacity construct proposed by FERC that is designed to accommodate state programs to support preferred generation resources.
  4. Establish a Pennsylvania carbon pricing program.

Despite the detail in the report, several questions remain unanswered and issues remain unaddressed:

  1. The Report does not specify the amount of subsidies that nuclear generators should receive. Any policy decision must include an analysis of the costs to consumers and the potential impact on employment and investment in Pennsylvania.
  2. The Report discusses testimony from a portion of the stakeholders (e.g., the nuclear industry, environmental advocates, and organized labor coalitions), but groups that serve as “watchdogs” to ensure that consumers’ costs and interests are considered by the legislature (e.g., the Pennsylvania Energy Consumer Alliance, the Pennsylvania Manufacturers Association, AARP, etc.) were not invited to testify before the NEC. By doing so, the NEC omitted a key stakeholder group that has a different perspective about the potential costs and pitfalls of “saving” the nuclear industry.
  3. The Report relies on a Brattle Group study to support the assertion that nuclear generators moderate electricity prices, thus providing $788 million in reductions to the energy costs of Pennsylvania’s consumers. However, that study assumes that there is no replacement of the retiring nuclear capacity with new generation.  Within the last three years, sufficient natural gas generation has been constructed (or is under construction) to match the entire Pennsylvania nuclear fleet, including those facilities that are not retiring (Susquehanna, Peach Bottom, and Limerick).  In December 2018 alone, Tenaska is scheduled to begin operation of a 925 MW plant in Westmoreland County.
  4. The Report summarily dismisses the fact that consumers paid $10 billion for stranded cost to the generation owners, without recognizing that those subsidies were calculated over the expected lifetime of the project. Once those payments were made, ratepayers were not expected to bear the financial risk that the plants could close.  Providing additional ratepayer subsidies is reneging on the bargain.
  5. Nuclear plants are not “prematurely” retiring – they are retiring because they cannot compete in the market. This is a natural effect of competitive market forces.  Non-competitive fuel sources (e.g., coal, inefficient gas, etc.) should retire from the market while stronger resources prevail.  Any attempt to interfere with these natural market sources will interfere with price signals and thus impact current and future investment in replacement generation.
  6. The Report makes errant assumptions (e.g., assuming that all Pennsylvania nuclear generators will retire) and misstates PJM’s conclusion in its fuel security study, which is still ongoing.

 

We are continuing to review the Report and will provide further updates.  In the interim, if you have any questions, please do not hesitate to contact David Kleppinger (dkleppinger@mcneeslaw.com), Pam Polacek (ppolacek@mcneeslaw.com), Kathy Pape (kpape@mcneeslaw.com), Kathy Bruder (kbruder@mcneeslaw.com), or Aly Hylander (ahylander@mcneeslaw.com).

[1] https://nuclearenergy.pasenategop.com/pennsylvanias-bipartisan-nuclear-energy-caucus-releases-report-detailing-impacts-of-losing-the-states-nuclear-industry-and-provides-options-for-taking-action-in-2019/

[2] Report, p. 30.

Recently, the Pennsylvania Department of Environmental Protection (“DEP”) issued a notice that the final draft of the Finding Pennsylvania’s Solar Future plan (“Solar Plan”) will be released this fall.  After receiving comments from businesses, utilities, nonprofits, academia, and citizens, the DEP will hold another stakeholder meeting on November 15, 2018, to discuss the final Solar Plan and present the draft strategy support guide.

By way of background, the Solar Plan began in 2017 as a statewide planning project led by the DEP’s Energy Programs Office (“EPO”).[1]  The goal of the Solar Plan is to equip Pennsylvania to produce more solar energy.  Specifically, the Solar Plan set a target that 10 percent of retail electric sales will come from in-state solar energy sources by 2030.  The DEP indicates that this 10 percent target is achievable but challenges the “business-as-usual” model and promotes development of a variety of strategies that could be pursued.  Essentially, to meet this 10 percent goal, approximately 11 gigawatts of solar energy must be installed in the State.[2]

In developing the Solar Plan, drafters considered five main strategies:[3]

  • Increasing the Alternative Energy Portfolio Standard (“AEPS”) requirements for solar to 4-8 percent by 2030;
  • Providing customers access to capital, including provision of loan guarantees;
  • Adopting carbon pricing;
  • Creating uniform policies for siting and land use; and
  • Considering tax exemptions that encourage solar deployment and assist solar projects in finding project sponsors with tax equity.

In addition to those core five approaches, the Solar Plan’s authors considered other strategies involving decentralized projects (i.e., solar panels on residences) and grid-scale solar projects.[4]

Stakeholder responses to the draft Solar Plan were varied, with some in support of the Plan and others critical.  Some commenters indicated that the Solar Plan impeded the goals of the Electricity Generation Customer Choice and Competition Act (“Competition Act”) because the Solar Plan proposed to reinstate centralized generation planning beyond what has already occurred with the existing AEPS statue.  In addition, concerns were raised about the costs of implementing strategies proposed in the Solar Plan and how those would be recovered.  While the planning phases for the Solar Plan were funded by a combination of a grant from the Department of Energy (“DOE”) and time and resource investments from DEP and other associated partners, it is unclear what the costs of implementing the Solar Plan’s programs would be or how (and from whom) those costs would be recovered.  Those questions may be answered at the November 15 stakeholder meeting with the release of the final Solar Plan.  In the meantime, if you have any questions regarding the information discussed above, please contact Pamela Polacek (ppolacek@mcneeslaw.com) or Aly Hylander at (ahylander@mcneeslaw.com).

[1] https://www.dep.pa.gov/Business/Energy/OfficeofPollutionPrevention/SolarFuture/Pages/Finding-Pennsylvania%E2%80%99s-Solar-Future.aspx

[2] Id.

[3] Id.

[4] Id.

On January 5, 2018, the Pennsylvania Public Utility Commission (“PUC” or “Commission”) reserved a public docket to review the impact of the Tax Cuts and Jobs Act, the federal tax reform bill that was signed into law on December 22, 2017, on utilities and companies under the PUC’s jurisdiction.  The PUC has not issued a tentative order or any further guidance or details regarding the scope and objectives of the proceeding.

The Tax Reform Act of 2017 lowers corporate tax rates from 35% to 21%.  Because income taxes are a significant component of a public utility’s revenue requirements, the Commission will be investigating potential means by which to provide the benefits of the Tax Reform Act of 2017 to customers.  Regulators and consumer advocates in other states, including Oklahoma, Kentucky, Michigan, and Montana, have already begun taking steps to investigate the impact of the Tax Reform Act of 2017, including potential refunds or rate reductions for consumers.

We will provide additional information through this blog once the PUC issues more information regarding its proceeding.

 

Municipalities throughout Pennsylvania are in the process of implementing local stormwater ordinances and fees that will likely impact land development.  Recent changes to federal and state laws have forced municipalities to seek new funding sources, regulate businesses that have large areas of solid pavement and roofing (“impervious” areas), and limit stormwater impacts that occur from land development.  Businesses and developers should remain on the lookout for changes to local laws that will regulate stormwater, limit traditional land development, create quasi-governmental stormwater agencies (known as authorities), and impose stormwater fees.  Stakeholders should take advantage of opportunities to participate to limit any adverse impacts from these local government initiatives on their operations.  This article focuses specifically on Pennsylvania, but similar changes may be happening in municipalities throughout the country that are grappling with stormwater issues.

Businesses and land development within the borders of a regulated municipal separate storm sewer system (a system that has separate pipes to convey stormwater, known as an “MS4”) may be affected the most by local stormwater regulation, whether or not operations involve discharges into storm sewer pipes.  Municipalities regulated as MS4s have independent legal obligations related to stormwater management.  These obligations are implemented through their MS4 permits with the Pennsylvania Department of Environmental Protection (“DEP”).   An MS4’s compliance depends on land uses and practices of businesses within its borders.  One potential component of an MS4’s compliance is regulation of businesses and land development through ordinances.  For example, DEP requires minimum standards for stormwater controls in local ordinances and, to that end, has issued a model stormwater ordinance that MS4s are expected to implement, in some form, by September 30, 2022.  The permitting requirements are even more severe if the MS4 is within the Chesapeake Bay watershed or within an identified “impaired” watershed.

A list of the hundreds of regulated MS4s, by county, and their regulatory status is available on DEP’s website.  Businesses and developers within these listed municipalities, in particular, should be attentive to changes at the local level and take advantage of their opportunities to shape local laws to accommodate their current and future operations.  Below are some key points to consider.

Stormwater Authorities and Fees
Municipalities may now create stormwater authorities, which are separate local entities that have defined responsibilities such as stormwater planning, management, and implementation.  By law, stormwater authorities may generally impose “reasonable and uniform” rates.  A key point of contention at the local level will undoubtedly be whether rates imposed are “reasonable and uniform” based on the characteristics of the properties that are subject to the fees.

Fee structures vary widely from municipality to municipality.  The most simple is flat per-parcel fee. Another simple approach is the equivalent hydraulic area (EHA) approach, which features separate per-square footage rates for impervious area surfaces (parking lots and other paved surfaces) and pervious area surfaces (lawns, gardens, green rooftops).  Additionally, many municipalities may impose separate fees for non-residential and residential parcels, with residential properties typically charged a flat-fee, while non-residential properties pay more targeted fees designed to reflect each parcel’s total impervious area, such as a per-EHA rate. Typically, non-residential properties are subject to a broader range of fees based on higher variance in impervious surface areas among commercial and industrial parcels.  For example, a used car lot would likely pay more in stormwater fees than a hotel because used car lots cover a large swath of impervious pavement, while hotels would generally have a relatively smaller footprint of impervious area.

No matter how the municipality or authority structures its fees, the revenue generated from the fees may be used by MS4s to implement “best management practices” (“BMPs”) that control and reduce the discharge of stormwater, including sediment contributions (or “loadings”) to surface waters (sediment, or soil particles, is considered a pollutant).  BMPs can range from something as simple as more-frequent street cleaning, to something as burdensome as construction of retention basins and infiltration techniques.

Fee structures can (and should) include credit programs that reduce or eliminate fees for property owners who manage stormwater, such as by implementing their own BMPs.  A properly structured credit program will allow property owners to reduce the billed stormwater fees commensurate with reductions in stormwater runoff from the property due to implementation of BMPs.  Businesses should ensure that credit programs are considered and look for opportunities to implement BMPs that can result in credits and long-term cost savings.  Legal representation may be helpful to assist with proactive review of proposed stormwater programs in order to encourage development of fair and flexible stormwater fee structures.

Businesses and Development in the Chesapeake Bay Watershed
Businesses within the Chesapeake Bay watershed may be most affected by local regulation as MS4s attempt to meet more-stringent permit requirements in this region.  The Chesapeake Bay is considered “impaired” for sediment, nitrogen, and phosphorous.  Therefore, federal and state regulation have focused on these three pollutants and, in urban or developed areas, particularly sediment.  DEP permitting now requires MS4s in the Chesapeake Bay watershed to reduce sediment loadings to surface waters over the next several years and demonstrate those reductions (this is a new requirement for MS4 programs in Pennsylvania).  In turn, this means businesses and land development within the Chesapeake Bay watershed will be in the crosshairs for more local regulation through BMPs and fees.  Under DEP’s program, the amount of stormwater (or “volume”) is equivalent to “sediment” because higher volume results in stream scouring and stream bank erosion.  Businesses and developers may be forced to implement BMPs to reduce volumes discharged from properties where stormwater management was approved years or even decades ago.

Businesses and Development in Other “Impaired” Watersheds
Even beyond the Chesapeake Bay watershed, businesses and development within other, smaller watersheds throughout Pennsylvania that are considered “impaired” may be subject to additional local scrutiny for stormwater management.  MS4s are subject to additional permitting requirements similar to those for the Chesapeake Bay if they are located within certain smaller watersheds that are “impaired” for specific pollutants, including not only sediment, nitrogen, and phosphorous, but also pathogens, metals or acidity from abandoned mine drainage, and certain priority pollutants like polychlorinated biphenyls (“PCBs”) and pesticides.  In turn, this means the potential for more local regulation in MS4 municipalities that face these issues beyond the Chesapeake Bay watershed.

Opportunities to Participate and Cooperate
When municipalities propose ordinances, fees, BMPs, and other measures to regulate stormwater, stakeholders should take advantage of opportunities to be in the conversation.  Early participation in the development of fee structures, in particular, can ensure that assessments are fair, reasonable, and uniform and include credit programs for implementing desired controls, preventing the need for litigation later (which has been common for stormwater fees throughout the country).  This includes having you, legal counsel, or other representatives attend public meetings, file written comments, and organize businesses in similar situations to oppose any inequitable treatment.

In addition, MS4 municipalities may look to private landowners and businesses to help them implement BMPs on private property.  This can involve questions related to funding, design and construction, and long-term operation and maintenance (“O&M”) agreements to ensure ongoing effectiveness of BMPs.  It may also involve restrictions on property, such as through deed covenants or use restrictions.  The opportunity to work collaboratively with a municipality on such projects can be beneficial for stakeholders and help frame the outcome, resulting in a win-win if done properly.  These opportunities may also expand beyond the borders of a municipality and involve cooperation with regional and county-wide initiatives (e.g., in York County).

Conclusion
Businesses and developers must remain vigilant in tracking proposed local regulation of stormwater. Early participation by stakeholders or their representatives can reduce the regulatory burdens, present a positive community image, and result in savings in the long run.

Please look for this article in the upcoming January/February 2018 issue of Metropolitan Corporate Counsel!

After December 7, 2017, new Pennsylvania land development projects that disturb in total over an acre of land will require an individual National Pollutant Discharge Elimination System (“NPDES’) permit.  Although the Pennsylvania Department of Environmental Protection (“PaDEP”) missed the window to timely reauthorize General Permit PAG-02, it has administratively extended existing issued permits which have not expired and do not expire in the interim, until December 7, 2018.  PaDEP has also stated that it intends to reissue a final PAG-02 well before December 8, 2018, most likely by the spring of 2018.

Furthermore, by administratively extending the existing PAG-02, PaDEP enables any previously issued PAG-02 permit that will expire or require amendment after December 7, 2017, to be renewed or amended by Conservation Districts, provided the coverage area is not expanded and the renewal/amendment is applied for on or before December 7, 2017.  We caution, however, that only timely application for renewal will extend your existing PAG-02 beyond its expiration.

After December 7, 2017 (until PaDEP finalizes the PAG-02 reissue), all new or amended acre-plus construction activity stormwater permits must be individual NPDES permits. While individual permits are typically reviewed and issued by PaDEP, not Conservation Districts, PaDEP has indicated that if your project would have qualified for the PAG-02, you may submit the same information and fees and follow the same instructions for an individual permit application as you would have for a PAG-02 NOI (Form 3150-PM-BWEW0035), by checking the box for the “Individual” Permit Type. Similarly, if your NOI is pending and will not be issued by December 7, 2017, you should submit Form 3150-PM-BWEW0035, with the box for the “Individual” Permit Type checked.  Conservation Districts will conduct the entire review, with consultation with PaDEP as necessary, and will issue the individual permit.

However, if you do not anticipate beginning construction prior to the date PaDEP finalizes the PAG-02 reissue, you may submit your PAG-02 to your Conservation District and request that a review be conducted, but final action will be delayed until PaDEP completes the reissue.

Application for an individual permit would typically be published for comment (not simply the issuance). The permit itself may contain additional terms and conditions, and the full review would be performed by PaDEP. However, during this interim period, PaDEP has indicated that for new projects that would normally qualify for PAG-02 coverage, conservation districts will conduct the entire review (with consultation with PaDEP as necessary) and issue the permit. It further provides that the applicant may submit the same information and fees for an individual permit application as it would for a PAG-02 Notice of Intent, but make sure to check the box for “Individual” for Permit Type and follow the applicable instructions as if the applicant was submitting a PAG-02 NOI. Typically individual permits are reserved for projects in special protection waters and projects within an impaired watershed.

PaDEP has established a webpage for updated information on this “Construction Stormwater” Issue.  It may be accessed here.

If you have questions about construction stormwater permits in general or your project in particular, please contact either Scott A. Gould (717.237. 5304, sgould@mcneeslaw.com) or Steve Matzura (717.237.5276, smatzura@mcneeslaw.com).

The Susquehanna River Basin Commission (“SRBC”) approved a final rulemaking at its business meeting on June 16, 2017, that will regulate “grandfathered” water withdrawals and consumptive uses as we explained in our analysis of the proposal last Fall.  This new regulation will be effective January 2018.  While the SRBC revised the proposed rule in response to public comments, the thrust of the rule will remain the same:  grandfathered withdrawals and uses will be required to register with the SRBC and to be metered.  The registration requirements for grandfathered withdrawals and uses will result in closer agency scrutiny.  They could cause loss of grandfathered status, triggering full SRBC review and approval for failure to timely register or increases in quantities withdrawn or used.

Entities with grandfathered sources and uses should carefully analyze this final rulemaking and contact McNees for additional information.

The new regulation is important for currently regulated and future projects.  There are changes to general application provisions and procedures that will be effective sooner than the grandfathering provisions (upon the rulemaking’s publication in the Federal Register) and could more broadly impact projects.

Other aspects of the proposed rulemaking last Fall, which would have imposed mitigation requirements for consumptive uses beyond the typical payment of a consumptive use mitigation fee, were abandoned in the final rule.  The SRBC removed proposed provisions relating to mitigation plans from the final regulation, including provisions on “water critical areas.”  The SRBC also put its draft Consumptive Use Mitigation Policy on hold, indicating that it will further consider the public comments on these issues and go back to the drawing board in the future.

We will know more about the final rulemaking when the SRBC posts the text and a comment/response document on its website in the coming weeks.  Until the grandfathering rule becomes effective in January 2018, the SRBC will be working on the forms and additional guidance for registration.  Once the grandfathering rule is effective, registrations can be made for six months without any application fee.

McNees contacts who can provide assistance include:

 

On May 17, 2017, the Pennsylvania Environmental Quality Board (“EQB”) greenlighted a proposal that would substantially increase fees for public water suppliers regulated by the Department of Environmental Protection (“PADEP”).  In addition to seeking the fee hike, the proposal would amend other regulations under the Pennsylvania Safe Drinking Water Act (“SDWA”), with some changes being even more stringent than federal standards.  The proposal now will be published in the Pennsylvania Bulletin followed by a public comment period of at least 30 days.

Stakeholders should carefully review the proposal and consider submitting comments, including all community water systems, noncommunity water systems, and bottled, vended, retail, and bulk water suppliers.  Those affected may include municipalities with water supply systems and businesses that supply water to the public or their own employees.

Fee Increase

The SDWA allows the EQB to establish fees for permit applications and certain services, as long as those fees bear a reasonable relationship to the actual cost of providing a service.  The proposal would amend the SDWA regulations by removing the current fee provisions and adding a new subchapter relating specifically to fees for each public water system.  PADEP has explained that the purpose of the fees is to increase the agency workforce tasked with inspecting public water systems, which would occur over the next few years.  When coupled with other costs of maintaining a reliable supply of water through permitting and technical requirements, such as those imposed by the Susquehanna River Basin Commission (“SRBC”), the financial impact on suppliers may be significant.

The proposed annual fees are generally broken down by type of water system and population served.  For community water systems, the proposed fees range from $250 to $40,000 depending on the population served.  The high end for noncommunity systems and vended, retail, and bulk water suppliers is $1,000, while the fee for bottled water systems is $2,500.  Public water suppliers will also be subject to additional fees for permit and technical reviews.  For example, application fees for construction or modifications would increase from the general $750 charge currently, to upwards of $10,000 under the proposal, again depending on system type and population served.

Other Amendments

Several other amendments have been proposed to keep pace with federal standards and, in some instances, go beyond federal standards.  Some of the regulatory proposals that are more stringent than federal requirements include:

  • Amended turbidity and filtration requirements to prevent turbidity spikes and pathogens.
  • System resiliency requirements for back-up power to ensure a continuous supply of water is delivered.
  • Clarifications to monitoring requirements for back-up sources and comprehensive monitoring plan requirements to ensure that all permitted sources are subject to routine compliance monitoring.
  • Requirements for responding to significant deficiencies through a protocol for notification and corrective action.

Public water suppliers should determine whether these and other provisions may apply to their systems and, if so, consider the potential impact.  McNees contacts that can provide assistance include:

We periodically report on matters that impact the costs large volume commercial, industrial and institutional customers pay for water/wastewater/stormwater service.  Below is information pertaining to a York Water Company matter before the Pennsylvania Public Utility Commission (“PUC” or “Commission”).

At the March 2, 2017, Public Meeting, the PUC voted to approve York Water Company’s (“York Water” or “Company”) plan for immediate replacement of both company and customer-owned lead service lines.  This permits York Water to replace customer-owned lead lines at its initial expense, and then recover the costs as a regulatory asset in the Company’s next rate case.

York Water’s most recent drinking water results exceeded the lead action level established by Pennsylvania regulations.  As a consequence, the Company became subject to a Consent Order with PaDEP that required specific action to reduce lead levels at customer taps.  Pursuant to the Consent Order, York Water proposed a two-phase plan to replace both company and customer-owned lead service lines.

The Commission granted the Company’s two-phase plan, permitting York Water to bear the costs of replacing customer-owned lead services lines, and to begin line replacement work immediately, consistent with the Consent Order.

Phase I involves replacement of customer-owned lead service lines discovered concurrently with York Water’s planned replacement of approximately 1,660 lead company-owned service lines in certain portions of the water system.  The estimated cost of replacing company-owned lead service lines is $2 million.  After replacement, the customer will continue to own the service line and be responsible for maintenance and repair.

Phase II involves annual replacement of 400 lead customer-owned service lines whenever they are discovered, over a period of nine years.  Under this phase, York Water would offer payment towards the replacement cost of the customer-owned lead service line.  As with Phase I, the customer will continue to be responsible for maintaining and repairing the service line after replacement.  In the event the number of Phase II replacements exceed those authorized, York Water must process them on a first-come, first-served basis.  However, if a water test exceeds 15 pbb of lead, then the Company may prioritize such replacement.

As to cost, York Water must make a payment towards the replacement cost of the lead customer-owned service line up to the Company’s average contracted cost.  For 2017, the average contracted cost is $1,150/service line replacement <10 feet and $1,250/service line replacement >10 feet.  Customers must pay any difference as a lump sum, or as an amount added to their bill, to be paid within one year.  The Company agrees not to charge interest on any payment period for the difference, other than late payment interest.  If the Company is unable to collect the difference from a customer, and the difference is written off as uncollectible, York Water will be permitted to include  uncollected amounts in the regulatory asset account.

The Company will offer a sliding-scale reimbursement to customers that have already replaced lead service lines within the past four years.  As such, a customer who replaced a line within one year may recoup 80% of the cost of replacement from the Company.  As the replacement grows older, reimbursement is less.

York Water must amortize amounts booked to the regulatory asset account in a base rate proceeding over a reasonable period (<6 years).  Amortization will begin on the effective date of new rates in a base rate proceeding.  York Water will reconcile amounts amortized to amounts incurred, and the difference must continue to be amortized in subsequent base rate proceedings.  The allocation among customer classes of the recovery of amortized costs will be determined in a base rate proceeding.

In closing remarks, Commissioner Powelson stated: “The importance of ensuring safe drinking water for all Pennsylvanians cannot be overstated.  However, in this post-Flint, Michigan world, it is not something we can take for granted.  I commend York Water for recognizing this, for taking the issue seriously, and for acting quickly to resolve it.  I encourage other utilities to do the same….”

However, it appears the PUC actions have not (yet) addressed the cost consequences on all ratepayers for lead-line replacement.  No legitimate reason exists for this cost to be passed on to large commercial or industrial customers; why this unvarnished fact was not now determined by this Commission is unclear, but suggests some contemplate these costs to be recovered volumetrically (as in the DSIC or CSIC) in which large commercial and industrial customers will shoulder most of the cost responsibility.

At McNees, Wallace, and Nurick, LLC, we often write of current or emerging issues that may have significant cost implications for large commercial, industrial and institutional end users in Pennsylvania.  We also closely monitor newly proposed legislation or regulation that may affect service rates, terms and use conditions.

For example, in 2016, we closely tracked HB 2114 introduced by Representative Mike Sturla (D-Lancaster).  It was captioned as follows: “Providing for registration of extraordinary nonagriculture and nonmunicipal water users; imposing a water resource fee; establishing the Water Use Fund; and providing for submission of a question to the electorate authorizing incurring of indebtedness for water-related environmental initiatives.”

This Bill defines “extraordinary water user” as “a person that withdraws more than 10,000 gallons of water a day from the waters of this Commonwealth for the purpose of for-profit business.”  In addition to a rather rigorous filing requirement, this Bill proposed a fee of $0.001 per gallon for water consumption greater than 10,000 gallons/day.”  In other words, this proposed legislation seeks to foist an additional $110,000/year on a large commercial/industrial customer using 10,000,000 gallons/month.  No mention is made in the Bill that some large volumes users (within the Susquehanna River Basin) have been paying a similar fee for some time. (See our earlier Blog articles regarding this issue.)

In 2016, this bill stalled in Committee; as such, by the end of the session, we believed the matter had been put downWe learned recently that plans exist for this same bill to be re-introduced later in 2017.  This is an important issue for large volume commercial and industrial users all of whom likely use far more than 10,000 gallons/day.

Recently, we learned that this bill is slated to be introduced in the second quarter of 2017 and may also include additional cost factors to be introduced in the upcoming Chesapeake Bay Commission meeting.  That meeting is currently slated for March 4 and 5, 2017, in Washington, DC.  Bill proponents are hoping to incorporate additional initiatives into what will be more expansive and far-reaching legislation.

This is yet one more example of the significantly increasing prices paid for provision of water and wastewater services, as they pertain to industrial, large commercial and institutional end-users.  This trend is likely, absent more vocal opposition from all affected end users, to continue in 2017 and beyond.

The Pennsylvania Statewide Water Users group is organizing an initiative to raise the awareness of lawmakers as to the potential impact of such legislation, and to coalesce if necessary, a group of impacted large volume users to provide testimony in opposition to such a significant cost increase.  If you would like more information, or if you have questions, please contact Jim Dougherty at 717.237.5249 or jdougherty@mcneeslaw.com.