Power & Pipes

FERC, CFTC, and State Energy Law Developments

In October 2018, Pennsylvania Governor Tom Wolf signed into law Act 120 of 2018 (Act 120), which grants the Pennsylvania Public Utility Commission (PaPUC) additional authority to support investor-owned water utilities’ efforts to protect Pennsylvania residents from lead entering their drinking water from customer-owned lead service lines. On October 3, the PaPUC, in its first exercise of this authority, approved Pennsylvania-American Water Company’s (PAWC’s) comprehensive plan for replacing customer-owned lead service lines in its service territory and established a working group to develop recommendations for the uniform implementation of Act 120 by all water companies in the commonwealth.

By way of background, there are two distinct parts to the service lines that connect a utility’s mains to customers’ homes and businesses. The utility installs, owns, and maintains the portion of the service line from its main to a point at the edge of the public right-of-way where it installs a curb box with a shutoff valve. The customer is responsible for installing and maintaining the portion of the service line from the curb box to its meter. Historically, if a problem arose on the customer-owned portion of the service line—usually a break or leak—the customer was solely responsible for repairing or replacing its service line.

Customer-owned lead service lines present a unique problem for utilities. Regulations issued under the Federal Safe Drinking Water Act, specifically, the Lead and Copper Rule, require water utilities to address the presence of lead in water at the customer’s tap, even if the source of lead is the customer’s service line or interior piping. Subject to notable exceptions, such as the municipality-owned water system in Flint, Michigan, utilities have generally been successful in complying with the Lead and Copper Rule by employing water treatment techniques that prevent leaching of lead from service lines or interior piping. However, the presence of lead service lines creates a risk that lead could enter the water supplied to a customer’s home if the customer-owned service line or its connection with the curb stop is disturbed for any reason, including the replacement of the utility-owned portion of the service line, which is necessary if the utility is replacing or rehabilitating its mains. For that reason, the comprehensive replacement of both utility-owned and customer-owned portions of lead service lines is emerging as a best practice in the water industry to provide a higher level of assurance that sources of water-borne lead exposure will be eliminated.  

Section 1311(b) of the Public Utility Code, 66 Pa. C.S. § 1311(b), which was added by Act 120, authorizes investor-owned water utilities in Pennsylvania to pursue comprehensive replacement of customer-owned lead service lines in their respective service areas, subject to budget caps and certain other terms and conditions. The new law provides that replacing a customer-owned lead service line does not make the utility the owner of the new service line on the customer’s property. Section 1311(b) directs the PaPUC to establish standards to ensure the utility provides the customer a warranty on the utility’s replacement work and to reimburse customers who replaced their lead service lines at their own cost.

Section 1311(b) also provides clear direction for the accounting and ratemaking treatment of the costs a utility incurs to replace customer-owned lead service lines. Specifically, the utility is entitled to recover its investment in the replacement of customer-owned lead service lines either in base rates or its Distribution System Improvement Charge by amortizing that investment over a reasonable period of time with a return on the unrecovered balance at its overall cost of capital. Indiana is the only other state that has enacted similar legislation to facilitate the replacement of lead service lines. Notably, under Section 1311(b), wastewater utilities are authorized to replace damaged and debilitated customer-owned sewer laterals and receive the same accounting and ratemaking treatment provided to water utilities’ investment in replacing customer-owned lead service lines.

As approved by the PaPUC, PAWC’s two-part plan provides for the replacement of up to 1,800 customer-owned lead service lines annually in order to eliminate lead service lines connected to its distribution system. Subject to the plan’s budgetary limits and other conditions, PAWC will replace customer-owned lead service lines it encounters during its ongoing infrastructure improvement work and will also replace customer-owned lead service lines at a customer’s request. PAWC’s plan is the first comprehensive lead service line replacement initiative approved by the PaPUC under Section 1311(b).

Also on October 3, the PaPUC directed its Staff to convene a working group to develop recommendations to achieve uniformity in the procedures employed by all water utilities, consistent with Act 120, to address customer-owned lead service lines, including the most effective methods for identifying lead service lines within a utility’s service territory. The PaPUC asked its Staff to furnish its recommendations by March 31, 2020. The PaPUC expects the working group’s recommendations to create a framework for action to proactively address public health concerns of lead in drinking water in Pennsylvania and provide a possible model for use by other states.