American Water demonstrates strong leadership on lead service line replacement

Tom Neltner, J.D.is Chemicals Policy Director

In a landmark decision on July 25, 2018, the Indiana Utility Regulatory Commission (IURC) approved American Water’s plan to fully replace the lead service lines (LSLs) in the communities served by its Indiana subsidiary over the next 10 to 24 years. This represents the replacement of about 50,000 LSLs across 27 community water systems (CWSs). As we highlighted in our blog on the company’s January 2018 proposal, the plan provides a framework that enables the cost of fully replacing LSLs, whether owned by the utility or by customers, to be shared by its 300,000 customers. As far as we know, this is the first comprehensive, voluntary LSL replacement program developed by an investor-owned utility in the country.

In its plan, American Water cited both long-term health and economic benefits that would be realized from avoiding partial replacements when rehabilitating water mains and laterals. The plan showed that having a single contractor handle the entire line reduces the overall cost by 25 t0 30%. It also avoids the likely increased risk of consumer’s exposure to lead when only part of the lead pipe is replaced.

IURC’s approval found the plan “to be reasonable and in the public interest.” Even though the customer will continue to own the service line, American Water will be allowed to add the cost to remove and replace the customer-owned portion to the value of the utility’s property. The increase would be considered an infrastructure improvement cost once the new service line is placed into service.

The state’s consumer advocate, the Office of Utility Consumer Counselor (OUCC), supported the plan’s objective but sought changes. American Water accepted some of the ideas but had concerns with others. The key issues were:

  • Setting priorities: American Water proposed setting priorities primarily based on avoiding partial LSL replacements when it rehabilitated mains and laterals. The OUCC wanted the utility to set priorities that explicitly consider lead test results and areas with many LSLs. While the utility was willing to adjust its model, the IURC ruled there was insufficient evidence to alter the proposed priority.
  • Inactive services: American Water proposed only replacing LSLs where the service had been active in the past 24 months. The OUCC was concerned that the limit was unnecessary and could exacerbate urban blight. The utility did not object, and the IURC decided to require replacement of inactive services.
  • Efficacy testing: The OUCC wanted American Water to take before and after samples for some of the participating residences. The utility already planned to take an immediate post-replacement sample and offer customers an opportunity to collect a second sample with 72 hours after the first one. It objected to additional initial testing, preferring to participate in a study by the Water Research Foundation. The IURC decided that the study was sufficient as long as the utility shared results when it was final.
  • Annual reporting and 5-year reauthorization: The OUCC wanted American Water to submit an annual status report and obtain IURC reauthorization every 5 years. The utility wanted to use existing mechanisms to provide updates and consider adjustments. The IURC agreed with the utility.

The utility will file for recovery under existing mechanisms once the service lines are replaced and propose to increase rates to cover actual investment cost in replacement with authorized earnings. That approved plan provides  an estimated range of annual costs, and overall timeframe for the project to replace all LSLs for affected Indiana American Water Customers.

American Water’s plan for Indiana builds on similar but less comprehensive proposals in other states. These proposals are focused on avoiding partial LSL replacement when the utility is rehabilitating water mains. One has been approved, and the other is set for a final decision:

With between 206,000 and 599,000 LSLs total in the state of Indiana, American Water’s actions will benefit its Hoosier customers and provide an approach that other states should consider. As the largest, investor-owned drinking water utility in the country, with 17 million customers, we applaud the company’s leadership.

Corrected 8/16/18 based on feedback from American Water as follows: 1) changed from "more than" to "about" 50,000 LSLs; 2) reduced the costs savings from "30 to 50%" to "25 to 30%"; 3) clarified the first bullet to say that IURC found there was insufficient evidence from OUCC to alter American Water's proposed priorities; and 4) revised the third last paragraph to better explain the next steps.

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