Laws in states with the most lead service lines support using rates to fund replacement on private property: New analysis

Tom Neltner, J.D.Chemicals Policy Director

[pullquote]We found no explicit barriers to using rate funds to replace the lines on private property in the 13 we focused on. These states have an estimated 4.2 million LSLs, more than two-thirds of the nation’s total [/pullquote]Lead service lines (LSLs) – the lead pipes that connect a building’s plumbing to the water main under the street – are a significant source of lead in drinking water for those homes that have them. In light of the well-documented benefits to society from reducing children’s exposure to lead, there is a consensus that we need to replace the estimated six million LSLs remaining in the country. It will take time, but it needs to be done.

One challenge to this goal is how to fund replacement of the portion of the service line on private property. Because LSLs extend from under the street to a building, typically about half of the line is on public property and half is on private property. The perception among utilities has been that they do not have the legal authority to use rates paid by customers to cover the cost of replacing the portion on private property because it provides a benefit only to that property owner. This view was reinforced when the Wisconsin Public Service Commission blocked Madison from doing it, forcing the city to use other funds to complete the work. That decision from the early 2000s came before the risks of even low-level exposure to lead were well understood.

Many utilities have therefore taken to replacing only the portion of the LSL on public property when the property owner is unwilling or unable to pay to replace the portion on private property. The practice, often called “partial replacement,” is not only inefficient but can actually exacerbate residents’ exposure to lead. As evidence of the risks of even low-level exposure to lead—and of the society-wide benefits of reducing lead exposure—have mounted and the tragedy in Flint, Michigan made clear the need to replace LSLs, states like Indiana, Missouri, New Jersey, Pennsylvania and even Wisconsin, have adopted new laws or policies that have allowed funds from rates, with some limitations, to be used to replace the side on private property. Michigan has gone further and adopted rules mandating the practice, although some utilities have challenged the rule in court.

Given the funding challenge and the trends in the states, EDF partnered with the Emmett Environmental Law & Policy Clinic at Harvard Law School to review the state laws and policies in the 13 states with the most LSLs. Clinic Deputy Director Shaun Goho and law student Marcello Saenz conducted a state-by-state review of the laws, court decisions, and policies. The authors:

Found no explicit barriers to using rate funds to replace the lines on private property. These states have an estimated 4.2 million LSLs, more than two-thirds of the nation’s total. In these states, publicly-owned utilities can act pursuant to existing state legislation by determining that the practice serves a public purpose—protecting public health. Investor-owned utilities can do the same, but typically need approval of the state’s utility commission. While we have not reviewed the remaining states, we anticipate that the state laws and policies are similar to the ones we evaluated.

We adapted the table below from the report that provides the state-by-state summary:

Likelihood that state would support use of rate funds to replace lead service lines (LSLs) on private property based on 1) public health benefits and 2) cost savings from replacing entire service line at one time. (Listed by decreasing number of LSLs)

StateEstimated Number of LSLs*Likelihood that state policy supports use of rate funds: Publicly-owned utilityLikelihood that state policy supports use of rate funds: Investor-owned utilityComments
Illinois730,000LikelyUncertain but likely2017 law suggests support.
Michigan460,000Definite**Definite**2018 rule requires utilities to use rates to pay for LSL replacement. Utility commission approval appears not to be required.
New York360,000LikelyUncertain but likely
New Jersey350,000Definite under specific conditions otherwise likelyUncertain2018 law allows publicly-owned utilities to use public funds, but only if part of an environmental infrastructure project funded by one of two sources.
Missouri330,000LikelyDefiniteCommission approved one proposal in May 2018, although without ruling on the ratemaking treatment of the expense.
Indiana290,000LikelyDefinite2017 law provides path. Commission approved one proposal in July 2018.
Texas270,000LikelyUncertainMunicipality can review and approved investor-owned utility proposals.
Minnesota260,000LikelyLikelyUtility commission approval not required for proposals.
Wisconsin240,000DefiniteDefinite2018 law provides criteria and process. Grants to customers capped at 50% of cost, however.
Massachusetts220,000LikelyUncertain but likely
Florida 200,000LikelyUncertain but likelyCounty approval needed in 29 of 67 counties.
Pennsylvania160,000DefiniteDefinite2017 law allows publicly-owned utilities to use public funds. Commission approved one proposal for investor-owned utility in 2017 and 2018 law makes explicit the Commission’s authority to do so.
* Estimated number of lead service lines (LSLs) based on Cornwell et al, 2016
** The Michigan rule has been challenged in court and no final decision has yet been reached in that case.

In states where the authority to use rate funds is not definite, Indiana and Wisconsin serve as good models for policy-makers to consider when clarifying specific criteria for decision making. This can reduce the ambiguities that may delay local decision-making or bond approvals.

There are no easy answers regarding the best way to fund LSL replacement. Some communities may share the cost with the property owner; others may take on the full cost. And for low-income communities or those with many LSLs, rates alone may be insufficient; federal or state grants may be needed. Solutions will vary by state and community.

However, the idea that homeowners will unjustly benefit when the replacement cost is shared, at least in part, by all ratepayers stretches credulity given the societal benefits of reducing children’s exposure to lead. Further – many homebuyers that purchase a property with an LSL likely are unaware of the LSL – and the risk it poses. Removing a health risk that current homeowners played no role in creating and that is often the result of utility or municipal policy should not be seen as providing a special preference to certain ratepayers but instead as treating them fairly.

While our analysis only examined 13 states, we anticipate the laws in the remaining states are similar to the ones we evaluated. We encourage all states to adopt policies empowering communities to accelerate LSL replacement by explicitly allowing the use of rates for LSL replacement on private property.

See the full report to learn more.

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