On October 11, 2018, the Commonwealth Court of Pennsylvania (“Court”) vacated the Pennsylvania Public Utility Commission (“PUC”) Order approving the acquisition of the wastewater system assets of New Garden Township and New Garden Sewer Authority (collectively “New Garden”) by Aqua Pennsylvania Wastewater, Inc. (“Aqua”).[1]  Aqua’s Application sought PUC approval of the acquisition, a Certificate of Public Convenience to furnish wastewater service to customers in and around the service territory of New Garden, and, approval of a rate base predicated on the acquisition price, rate commitments and transaction costs.[2]

The Court remanded the case to the PUC to ensure all affected ratepayers (i.e., New Garden customers, as well as all Aqua customers) receive proper notice of the proposed acquisition, and to adduce additional evidence as to the full impact on rates for all Aqua customers of the Acquisition, and the other rate restrictions set forth in the Asset Purchase Agreement (“APA”).[3]  (i.e., the APA contains a two-year “rate freeze” in which New Garden customers would experience no rate increase, as well as a limitation that New Garden customers would have a ten-year cap limiting rate increases to no more than a compounded 4% per year, in addition to an Aqua commitment to fund $2.5M of capital improvements in the New Garden service territory).[4]

By way of background, in 2016, Pennsylvania Governor Tom Wolf signed Act 12 of 2016 (Act 12) into law, establishing a methodology for valuing water and wastewater systems owned by Municipal Authorities or Municipal Corporations to be acquired by a Public Utility.  Act 12 is codified in Chapter 13 of the Public Utility Code, 66 Pa. C. S. § 1329 et al.[5]  As the Court noted in the instant case, “[i]n sum, Section 1329 allows a utility to cover the full costs of its investment in purchasing the new system from ratepayers.”[6]

This law furthers the 2006 Pennsylvania Public Utility Commission Policy Statement (set forth at 52 Pa. Code §69.721) regarding water and wastewater system acquisitions where:

“…The Commission believes that further consolidation of water and wastewater systems within this Commonwealth may, with appropriate management, result in greater environmental and economic benefits to customers. The regionalization of water and wastewater systems through mergers and acquisitions will allow the water industry to institute better management practices and achieve greater economies of scale….”[7]

Under the terms of the APA intended to satisfy the requirements of Act 12, Aqua would pay New Garden $29.5M for the assets, which is almost 3x the systems’ fully depreciated original cost of $10.9M.[8]  Yet, the average of two Fair Market Value (“FMV”) appraisals required by Section 1329 was $32.1M.[9]  As Section 1329 requires use of the lesser of the purchase price or the average of the FMV appraisals, Aqua relied on the $29.5 million valuation.[10]

In hearings before a PUC Administrative Law Judge (“ALJ”), Aqua entered substantial evidence that acquisition will have no adverse effects on service provided to existing customers.  The Court noted “Aqua, however, provided no evidence regarding the effect on rates by increases on the rate base or the rate impact of the rate freeze provision or Compound Annual Growth Rate (“CAGR”) limitation to New Garden on existing ratepayers.”[11]

In addition, the Office of the Consumer Advocate (“OCA”) and the PUC’s Bureau of Investigation and Enforcement (“I&E”) both filed protests at this Docket and vigorously challenged Aqua’s Application and claims as to the rate impact on all Aqua customers.[12]  OCA challenged the $29.5M prospective rate base impact on all Aqua customers, as well as the additional embedded impact of a two-year rate freeze and ten-year rate cap for New Garden customers.[13]  In short, OCA argued the cost of acquiring New Garden to all Aqua customers would far exceed any net benefit gleaned from addition of New Garden customers.[14]

The ALJ, while finding the $29.5M APA was reasonable, nonetheless denied the request for a Certificate of Public Convenience (“Certificate”) on the basis that Aqua failed to show “… that all affected parties, including its existing customers, will realize any affirmative public benefits…” and Aqua’s existing ratepayers will have “to bear a disproportionate share of revenue requirements in future base rate cases….”[15]

The PUC later reversed the ALJ’s Recommended Decision and approved the $29.5M ratemaking rate base and directed that a Certificate be issued to Aqua to provide service in New Garden’s former service territory.[16]  The PUC disagreed with the ALJ and found Aqua proved the acquisition would affirmatively benefit the public, and that consolidation of Pennsylvania’s water and wastewater industry would advance significant economic and environmental benefits to all citizens and end users.[17]  However, the PUC did attach conditions for approval, including the filing of a Cost of Service Study in Aqua’s next rate case that separates costs, capital and operating expenses of providing wastewater service to New Garden customers as a stand-alone rate group.[18]  The PUC perceived this cost data, provided at a future time, would adduce an overall rate impact on all Aqua customers.[19]

The Commonwealth Court, while agreeing with PUC acceptance of “aspirational” statements as evidence of acquisition public benefits, disputed the PUC plan of reliance on a prospective Cost of Service Study to assess rate impact on all customers.[20]  Specifically, Section 1102 of the Code requires a balancing test to weigh all factors, including impact on rates, to determine if a public benefits exists as a result of this transaction.[21] The Court held this PUC determination must be made in the instant Application, and not in a prospective rate case.[22]  Accordingly, the Court directed the PUC to make a full determination and disposition of all issues, most especially rate impact issues at this Docket.[23]

As such, the Court remanded this matter to the PUC for, after actual notice to all affected ratepayers, a full explication of rate impact on all Aqua customers, as well as a more detailed explanation of all corresponding affirmative net benefits.[24]

It will be interesting to observe how participation of other interested parties impacts the analysis required under the law.  In any event, the proceedings before the PUC should provide additional guidance as to what evidence will be appropriate in terms of acquisition impact on existing customers.

[1] McCloskey v. Pa. PUC, 2018 Pa. Commw. LEXIS 559 (Cmwlth, Oct. 11, 2018) (“Court Order”).

[2] Application of Aqua Pennsylvania Wastewater, Inc. pursuant to Sections 1102 and 1329 of the Public Utility Code for Approval of its Acquisition of the Wastewater System Assets of New Garden Township and the New Garden Sewer Authority, Docket No. A-2016-2580061 (Dec. 15, 2016).

[3] Court Order at *27-*33.

[4] Opinion and Order, Application of Aqua Pennsylvania Wastewater, Inc. pursuant to Sections 1102 and 1329 of the Public Utility Code for Approval of its Acquisition of the Wastewater System Assets of New Garden Township and the New Garden Sewer Authority at 16-17, 27-28, Docket No. A-2016-2580061 (June 29, 2017) (“PUC Order”).

[5] 66 Pa.C.S. § 1329.

[6] Court Order at *3.

[7] 52 Pa. Code § 69.721.

[8] Court Order at *5.

[9] Id. at n.7.

[10] 66 Pa.C.S. § 13296(c)(2).

[11] Court Order at *8.

[12] Id. at *6.

[13] Id. at *6-*10.

[14] Id. at *9-*10.

[15] Application of Aqua Pennsylvania Wastewater, Inc. pursuant to Sections 1102 and 1329 of the Public Utility Code for Approval of its Acquisition of the Wastewater System Assets of New Garden Township and the New Garden Sewer Authority, Docket No. A-2016-2580061, Recommended Decision at 43-44 (Apr. 21, 2017).

[16] PUC Order at 72-73.

[17] Id. at 67-68.

[18] Id. at 73-74.

[19] Court Order at *14-*15.

[20] Id. at *23-*27.

[21] Id. at *27.

[22] Id.

[23] Id.

[24] Id. at *25-*33.

Across much of the United States, the number of municipalities imposing stormwater management fees upon property owners has increased dramatically in recent years.  The rising prevalence of stormwater management fees has predictably led to local and state court challenges by businesses, as non-residential property owners are typically more severely impacted by stormwater management fees in comparison to residential property owners.  Affected businesses have questioned whether parcel-based stormwater fees constitute legitimate fees for services rendered or are simply revenue-generating taxes in disguise.

State courts have issued conflicting rulings on this question.  In the heartland, the Supreme Court of Missouri issued a 2013 decision striking down stormwater management fees and requiring municipalities to fund stormwater management programs through tax revenues.  In the northeast, the Supreme Court of Maine conversely issued a 2012 decision affirming a stormwater management fee program as a fee for services rendered.

It now appears that Pennsylvania jurisdictions will have an opportunity to weigh-in on this critical debate.  In January 2018, the Chester Business Association filed injunctions seeking to block imposition of a stormwater management fee proposed by the Stormwater Authority of Chester.  Similarly, an attorney and property owner in the city of New Castle filed a complaint with the Lawrence County Court of Common Pleas requesting that the court void stormwater management fees to be collected by the New Castle Sanitation Authority.

While the outcome of these cases remains uncertain, any decisions in these jurisdictions may not be dispositive as to rulings in other Pennsylvania jurisdictions, as stormwater management fees are complex and can be developed based on a variety of different models.  For both municipalities and businesses impacted by stormwater management fees, effective stakeholder engagement can ensure that legitimate stormwater management fees serve their intended purpose and avoid overly burdening property owners.  Attorneys at McNees can assist with review, analysis, and if necessary, litigation of stormwater management fees.

On November 8, 2017, Aqua Pennsylvania (“Aqua”) filed a Complaint in the Pennsylvania Court of Common Pleas of Bucks County against the Bucks County Water and Sewer Authority (“BCWSA” or “Authority”), docketed at Case #2017-07215.  Joining Aqua as co-Plaintiff is J. Kevan Busik, a customer and ratepayer of BCWSA.

The Aqua Complaint alleges BCWSA (and ostensibly, all PA Municipal Authorities) has a significant competitive advantage for acquisition of water/sewer systems and seeks redress.  Specifically, the Complaint cites unfair competitive advantage of BCWSA (and other PA Municipal Authorities) in light of its exemption from property taxation, ability to raise capital via the issuance of tax-free bonds, and freedom from the substantial expense associated with regulation.  In addition, it notes that because no regulatory body has oversight of BCWSA to limit its rate setting capability, BCWSA is able to amass funds to give it a competitive advantage.

On an ironic note, the Complaint indicates that neither co-Plaintiff Busik, nor any other current customer of BCWSA, would benefit from acquisition of any other water/wastewater system.

The Complaint cites four separate Counts:

  • Count I seeks Declaratory Judgment requesting a Court Order in favor of the Plaintiffs declaring that, pursuant to the Municipal Authorities Act’s (“MAA”) Noncompetition Clause, BCWSA is prohibited from competing with Aqua (or any other privately owned public utility) that serves the same substantial purpose by bidding on acquiring any water or wastewater provider.
  • Count II seeks Permanent Injunctive Relief that enjoins BCWSA from bidding upon and being competitive with Aqua in the acquisition of any water and/or wastewater provider.
  • Count III seeks Declaratory Judgment declaring BWCSA’s expenditure of revenue generated by its service area to purchase and acquire any water or wastewater provider to be prohibited under the terms of the MAA.
  • Count IV requests Declaratory Judgment declaring BCWSA’s rates unreasonable and invalid under the MAA because of BCWSA’s use of funds to acquire water and wastewater systems rather than solely for providing for payment of expenses, construction, improvement, repair, maintenance, and operation of Authority facilities and properties.

Aqua is a public utility providing water and wastewater services to various Pennsylvania residents and is regulated by the Pennsylvania Public Utility Commission (“PUC”).  BCWSA originally provided water/sewer service to residential, commercial, and industrial customers solely in portions of Bucks County, and only recently expanded its services beyond Bucks County.

Aqua notes that in purchasing and acquiring water/sewer systems from Pennsylvania municipalities, it is specifically bound by provisions of Act 12 of 2016, which sets forth procedural requirements for determining fair market valuation of acquired water and wastewater systems for ratemaking purposes.  BCWSA, in contrast, is not regulated by the PUC for provisions of service, setting of customer rates, or acquisition of new water or wastewater systems.  BCWSA also does not fall under the oversight of any other legislative or regulatory body that can limit rate setting, nor is it constrained by any Act 12 requirements.  BCWSA’s authority and powers are instead set forth, governed, and controlled by the provisions of the MAA.

Aqua’s Complaint further notes that pursuant to MAA, BCWSA is exempt from paying taxes or assessments upon property acquired or used by BCWSA for purposes of performing essential government services.  Similarly, BCWSA is authorized to issue tax-exempt bonds to finance its acquisitions and improvements of municipal water and wastewater systems, and the income from these bonds, including any profits made on the sale of these bonds, are exempt from taxation.  BCWSA’s operating income comes directly from the service revenues it receives from its water and sewer customers.

The Complaint identifies two local prospective sales of water/sewer systems in which both Aqua and BCWSA appear to be enormously interested (Cheltenham Township Sewer System and Exeter Township (Berks County) Wastewater System).  The Complaint also cites, for background purposes, BCWSA’s recent acquisition of the Springfield Sewer System.  BCWSA overcame two competitors – privately owned public utilities – and paid $16,500,100.  Aqua alleges the actual value of the Springfield System was approximately $9 million.

This Complaint will surely receive attention from all Pennsylvania public utilities and Municipal Authorities that have been looking to expand, by acquisition or combination, their water and sewer service territories.

 

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.

A recent decision by the Pennsylvania Public Utility Commission (“PUC” or “Commission”) confirms that Pennsylvania public utilities with combined sewer systems (i.e., systems that collect both sewage and stormwater) may incorporate stormwater charges in their service charges.  While some public utilities have already been incorporating stormwater collection charges in their sewage rates, not all utilities have carried forth this practice.  As a result, this decision could increase sewage rates for some large commercial and industrial customers experiencing significant stormwater flows.

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On March 30, 2016, the Pennsylvania American Water Company (“PAWC”) and the Sewer Authority of the City of Scranton (“SSA”) filed an Application with the PUC to permit PAWC to purchase the SSA’s combined sewer system.  As indicated above, combined sewer systems collect sewage and stormwater, so the PUC’s disposition of this Application would clarify the ability of a Pennsylvania public utility to include stormwater charges in its wastewater service rates.  Although Administrative Law Judges David A. Salapa and Steven K. Haas recommended that the PUC reject the proposed Application, the PUC approved it on October 19, 2016.

As a result of the PUC’s approval, statutory enabling legislation was required.  Senate Bill No. 881 was revived and amended to make necessary changes to the Public Utility Code.  Specifically, the Bill amends the Public Utility Code to change the reference of “sewer” to “wastewater,” and expanded the definition of wastewater to include certain “stormwater.”  This bill passed both chambers [October 26 (Senate) and October 27 (House)] and was signed by Governor Wolf.

The Bill provides as follows:

Wastewater.  Any used water and water-carried solids collected or conveyed by a sewer, including:

(1)  Sewage, as defined in Section 2 of the act of January 24, 1966 (1965 P.L. 1535, No. 537), known as the Pennsylvania Sewage Facilities Act.

(2)  Industrial waste originating from an establishment.  For the purposes of this paragraph, the terms “industrial waste” and “establishment” shall be as defined in Section 1 of the Act of June 22, 1937 (P.L. 1987, No. 394), known as the Clean Streams Law.

(3)   Infiltration or inflow into sewers.

(4)   Other water containing solids or pollutants.

(5)  Storm water which is or will become mixed with waters described under paragraph (1), (2), (3) or (4) within a combined sewer system.

The term does not include storm water collected in a Municipal Separate Storm Sewer, as that term is defined by 40 CFR 122.26(b)(8) (Relating to storm water discharges (applicable to state NPDES programs, see § 123.25)), that does not flow into a combined sewer system.

This legislation, now codified as PA Act 154, allows Pennsylvania utilities providing wastewater service to include, in certain cases (i.e., combined sewer systems), stormwater charges into rates.  While some Pennsylvania municipal wastewater service providers (e.g., Philadelphia Water Department) have been including stormwater charges in wastewater rates for some time, it will be much more commonplace with PUC-regulated service providers with this new legislation.