Lead service lines on private property – 3 states’ approaches to the challenge

Tom Neltner, J.D., is Chemicals Policy Director

After the tragedy in Flint, Michigan, there is broad agreement that lead service lines (LSLs) need to be replaced. While corrosion control is essential, it isn’t a fail-safe, long-term solution. With the risks posed by lead to children’s brain development, we must eliminate LSLs – which currently account for an estimated 50 to 75% of the lead in drinking water.

One of the most significant challenges is determining who pays for replacing the portion of a LSL on private property and how it can be done in a way that does not leave low-income residents behind. Most utilities consider service lines on private property to be the responsibility of the property owner. They see replacing customer-owned portions of LSLs as improvements to private property and are typically restricted from using funds collected from all customers to fund an upgrade that benefits only a few. States often impose restrictions as well.

The interpretation that customers are responsible for LSLs on their property is ironic in communities such as Chicago, which mandated the use of LSLs until Congress banned them in 1986.  Given that they had a hand in creating the problem, it seems that they have at least some responsibility in fixing it. The threat posed by lead was well known for decades before Congress acted. Cities such as Cincinnati banned the use of lead pipes in 1927 and Boston in the 1930s.

It is difficult to put responsibility solely on the homeowner since they are unlikely to have been told they have a LSL by the seller. Even if they were aware that their home is serviced by an LSL, the risk a LSL poses to their family’s health is only now becoming clear.

Without support, low-income residents often cannot afford to pay for their portion of the LSL replacement, even if they get zero- or low-interest loans. However, wealthy residents have more options to make the investment than their low-income neighbors and landlords should be making the investment as part of their business.

In December 2016, Congress weighed in and authorized EPA “to establish a $300 million grant program to replace lead service lines on residential property in disadvantaged communities.”^[1] It is up to Congress to appropriate the funds as part of its infrastructure investments and ensure that the grant program will not be a hollow promise.

But many states are not waiting on Congress. Three states, Indiana, Pennsylvania, and Wisconsin, have been wrestling with whether to allow communities to use a portion of rates paid by customers to pay for LSL replacements. Collectively, these states have an estimated 690,000 LSLs, 11% of the national estimate. In this blog, we will explore these three state approaches.

Pennsylvania

York Water System estimates that it has 1,660 LSLs serving about 3% of its customers. In its 2016 round of triennial compliance water testing for the Lead and Copper Rule (LCR), 6 of the 50 samples exceeded the lead action level of 15 ppb. Pursuant to the LCR, it needed to begin replacing at least 7% its LSLs each year.

To comply with the LCR, the utility asked the Pennsylvania Public Utility Commission to allow it to add the average contracted cost of replacing customer-owned portions of LSLs into the rates it charges all customers. The utility argued that it was in the public interest to replace the entire line because it would avoid the haphazard approach of relying on property owners to replace their portion. The utility rejected replacing only the part it owned because partial replacements would not significantly reduce lead levels at the tap and may temporarily increase tap levels, presenting a potential public health hazard. The utility proposed to pay for replacement of a customer-owned LSL even if it was connected to a utility-owned service line not made of lead.

On March 8, 2017, the Commission approved a compromise negotiated between the utility and the State’s Office of Consumer Advocate that agreed with the overall approach but raised concerns with some details. The agreement gave the utility 4-years to replace customer-owned LSLs found when replacing utility-owned LSLs and 9-years to replace LSLs on private property whenever they are discovered. Funds for replacing customer-owned LSLs will be tracked separately and the utility is not permitted to capitalize the investment. After such time, the customer must pay for replacement. The utility agreed to:

• Provide annual progress reports;
• Search for opportunities for low- or no-cost funding for the utility to replace of customer-owned services;
• Advise customers to check their services for the possibility of lead and report LSLs to the utility;
• Investigate customer reports that it may have a LSL and offer water testing kits to customers; and
• Replace a customer’s LSL if report is confirmed.

Pennsylvania has an estimated one LSL for every 30 households, so the decision serves as a useful precedent to other utilities in the state. However, it may be limited to those who exceed the lead action level and are required to replace LSLs under the LCR.

Indiana

In August 2016, the City of East Chicago asked the Indiana Utility Regulatory Commission for permission to include the $3 million cost of replacing 500 LSLs on private property in the rates it charges all customers as part of an $18 million upgrade to its infrastructure.  The State’s Office of Utility Consumer Counselor objected and negotiated a compromise that would allow the lower interest rate provided by the Indiana Financing Authority—resources from the state revolving loan fund—to be considered as a grant to cover the $3 million cost.  The Commission has not yet made a final decision on the request.

On April 12, 2017, the Indiana General Assembly unanimously passed a bill that would allow the Commission to approve a utility’s request to fold the cost of LSL replacement into the rates. To qualify, a utility would have to submit a plan addressing 10 elements and demonstrate that the proposal was reasonable and in the public’s interest.  The elements include:

• Use of available grants or low interest loans;
• Description of how the replacement will be accomplished in conjunction with other distribution system infrastructure projects;
• Estimated savings in cost per service line that would be realized by the utility replacing the LSL versus the customer doing it separately;
• Number of LSLs that are part of the utility’s system;
• Range of number of customer-owned LSLs to be replaced annually;
• Proposal to address costs of unusual site restoration work above customer-owned portion of LSLs;
• Proposal to communicate to customers regarding plan and document customer’s consent or lack of consent to LSL replacement on their property;
• Proposal regarding responsibility for future replacement or report of new service line; and
• Estimate of total cost to replace all customer-owned LSLs and estimated cost to be incurred by the water utility.

If signed by Governor Eric Holcomb as anticipated, the law will provide a path forward for utilities across the state and may serve as a model for other states. With an estimated 290,000 LSLs and almost 2.5 million households in Indiana, about one in every 10, having clear criteria for communities and the Commission to follow should accelerate progress in reducing lead levels in drinking water.

 Wisconsin

Like Indiana, Wisconsin has about 1 LSL for every 10 households. The state was one of the first to take action to specifically address the funding problem when it offered $14.5 million to low-income municipalities to subsidize LSL replacement on private property. This action should benefit as many as 79 municipalities in the state.

A Senate bill, which has bipartisan support from more than half of senators, passed out of committee on March 29 and is awaiting a full Senate vote.  The bill also has support of more than 1/3 of representatives.  It states that:

(a) It is not unjust, unreasonable, insufficient, unfairly discriminatory, or preferential or otherwise unreasonable or unlawful for a water public utility to provide financial assistance as specified in [paragraph] (b) to a customer solely for private infrastructure improvements with the purpose of replacing service lines containing lead if the city, town, or village in which the water public utility operates has enacted an ordinance that permits the water public utility to provide the financial assistance. If a water public utility provides financial assistance under this paragraph, the commission shall include in the determination of water rates the cost of providing that financial assistance.

Paragraph (b) says that the utility’s portion of the service line either must not contain lead or must be replaced at the same time as the private infrastructure improvements.

If the bill passes, it would allow a utility to pay for replacing LSLs on private property as long as the municipality in which the utility operates enacts an ordinance permitting financial assistance.

Summary

Each state has taken a different approach to empowering communities to protect people from lead in drinking water. Pennsylvania’s decision is helpful but likely limited to communities that are required to replace LSLs under the LCR. Indiana’s bill, if signed by the governor, would authorize the utility commission to approve a utility’s proposal if specific criteria are met. Wisconsin provides critical funding for local communities to help low-income residents and, if the bill passes, empowers utilities to cover some or all of the costs to replace LSLs on private property if the municipality supports it with an ordinance. Despite these differences, each of the states provide a path forward for their peers in finding ways to ensure LSLs are replaced efficiently and equitably.

[1] S.612. P.L. 114-322 (2106). See https://www.congress.gov/bill/114th-congress/senate-bill/612.