EPA rule could spur consolidation of water sector

Water utilities that cannot provide safe drinking water to their customers could face more scrutiny and reorganization under a forthcoming EPA rule.

The Biden administration will propose a rule Thursday requiring states to evaluate water systems that repeatedly violate drinking water standards or face major financial challenges.

State regulators would need to come up with plans to assess those systems and improve water service, which could include consolidating multiple providers or transferring a failing system to another owner, according to a prepublication version of the proposal. The plans would be subject to EPA oversight.

“EPA’s proposal is an important step to help drinking water systems consider smart partnerships for the future,” said Ben Grumbles, executive director of the Environmental Council of the States, in an email.

Congress directed EPA in 2018 to address the need to potentially restructure water systems facing “chronic noncompliance” with federal drinking water regulations and water quality standards. There are over 50,000 community water systems in the U.S., including many small ones that face underfunding and dwindling customer bases, industry experts say.

Consolidation enables multiple communities to use the same water services and spread costs across a larger number of customers. It may become an increasingly important tool as water utilities strive to comply with the Biden administration’s new limits on lead and “forever chemicals,” state officials say.

“The complexities of putting PFAS treatment systems in place, the engineering work to figure out the treatment, and providing oversight is going to be well beyond what some of these small guys can do,” said Alan Roberson, executive director of the Association of State Drinking Water Administrators.

But the process of merging water providers — or having one system gobble up another — can be controversial and raise concerns about water affordability, equity and local control, EPA noted in its proposal.

To address those concerns, EPA is proposing that states identify alternatives to restructuring “based on the physical and socio-economic characteristics” of the water system and community served. State officials would also need to explain how restructuring could improve water service and affordability for a community.

“To ensure that the local community can raise concerns, ask questions and provide input to the state and to the water utility, the proposed rule also would require the state to hold a public meeting before approving either a mandatory assessment or a restructuring plan that would result in consolidation or transfer of ownership,” EPA said in the proposal.

Many states have programs in place to incentivize consolidation, according to a 2022 report from the Association of State Drinking Water Administrators. EPA’s rule proposes additional, nationwide incentives, including protection from liability for water systems that acquire a failing one.

Roberson said the proposal is a good first step but raises some unanswered questions. For example, drinking water systems that are evaluated by state regulators might lack the resources needed to provide data and information for the restructuring assessments, he said.

In addition, drinking water regulators in many states do not have the legal authority to force water utilities to consolidate, Roberson said. State leaders must grant them that authority but “forcing is another matter,” he said.

Still, there is a need for more government oversight of water system restructuring and privatization of public systems, said Andy Kricun, managing director of the water-focused nonprofit Moonshot Missions and a member of the National Environmental Justice Advisory Council.

Water providers that fail to comply with drinking water regulations tend to serve low-income residents, so affordability is particularly important to consider, Kricun said.

“There’s a need for economy of scale to ensure that every community has access to safe drinking water and clean waterways at an affordable rate,” he said. “It’s not that it will work in every instance, but are there instances where a lower performing community could connect to another one nearby and benefit?”

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