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New Laws Seek Data, Collaboration from Water Utilities

Water and wastewater utilities around Indiana should take note of several laws passed this most recent legislative session that will impact current practices or institute formal data collection and reporting requirements. Legislators emphasized and sent a clear message prioritizing the collection of key data sets and collaboration amongst Indiana utilities.

Here is a snapshot of four pieces of legislation that utilities should take note of and be prepared for in order to remain compliant.

Senate Enrolled Act 4 – Wastewater and Wastewater Utilities and Runoff. Effective July 1, 2019 with exception for the Storm Water Management Task Force.

Under SEA 4, the Indiana Finance Authority (“IFA”) is tasked with coordinating the executive branch activities related to Indiana’s water programs. The legislation requires IFA to divide the state into study areas and hold annual meetings with the officers and employees of the water and wastewater utilities located in each study area.

Together, IFA and the utilities will determine what should be studied and how the utilities can work together and assist each other. Other areas that will be focused on include protecting public health and projecting the demand and water needs of the study area for, at least, the next 25 years.

Utilities will now be required to audit their water distribution systems at least once per calendar year to determine the causes of non-revenue water (defined as the difference between the water a utility puts into its distribution system less the water received by and billed to users). Beginning in 2020 and every even-number calendar year thereafter, the audit must be independently verified. The data from the audit must be submitted in a report to IFA by August 1st each year.

Under the new law, utilities that seek a loan, grant or other financial assistance from the Drinking Water Revolving Loan Program or the Water Infrastructure Assistance Program must be able to demonstrate that they participate in the study area activities as outlined in the law. The legislation authorizes the IFA to promulgate rules addressing minimum participation standards.

This will undoubtedly require utilities subject to the law to dedicate more time and resources to working with other utilities and studying pertinent issues that impact the industry, in addition to determining their reasons for non-revenue water. Utilities have several months to plan for how they will capture this data.

SEA 4 also established a Storm Water Management Task Force, comprising members of the Indiana Legislature, stakeholders in storm management systems, and members of the general public. This task force will study issues related to storm water management systems and must file its report with legislators by Dec. 1, 2019. The task force is only in effect for 2019. This portion of the bill took effect upon passage April 10.

HEA 1406 – Water Infrastructure Assistance Fund and Program. Effective July 1, 2019.

Under this bill, IFA can make loans or provide financial assistance from the Water Infrastructure Assistance Fund to allow a participant to

  • establish guarantees, reserves or sinking funds as it relates to loans or financial assistance from another loan source;
  • provide interest subsidies;
  • pay finance charges either during the design and construction of a water or wastewater infrastructure project based on a viable plan and/or for a reasonable period after the completion of construction.

The IFA can set interest rates or parameters for the rate, including credit risk, environmental water quality and health protection, affordability and other fiscal factors.

Utilities seeking assistance from the fund must be able to show that they plan to participate with at least one other utility in cooperative activities. Utilities also must have an asset management program that meets the standards of the IFA and maintain that program for the life of the loan or during the useful life of the asset financed with the loan or grant.

This bill, like SEA 4, has a study component of non-revenue water (The term “non-revenue water” is defined slightly differently than in SEA 4, however. In HEA 1406, non-revenue water consists of the water entering the distribution system and provided to users; in SEA 4, non-revenue water also needs to be billed to users). Those utilities receiving assistance from the fund must, if appropriate, conduct or participate in efforts to determine and eliminate the causes of its non-revenue water in its water distribution system.

IFA will establish a system to prioritize projects for the purpose of awarding financial assistance from the Water Infrastructure Assistance Fund. Criteria used to evaluate projects includes the effect on public health and safety, user rates and charges of participants, plans to collaborate with other entities, whether there is a plan to measure and manage non-revenue water, and whether the utility is employing best practices.

Additionally, HEA 1406 requires the IFA to set aside 40 percent of the money appropriated to the fund for small utilities, defined as serving less than 3,200 customers.

SEA 472 – Utility Matters. Effective upon passage May 5.

SEA 472 changed the term “distressed utility” to “offered utility” in statutes regarding the acquisition of water or wastewater utilities and expanded the applicability of Indiana Code § 8-1-30.3, et seq., to include non-municipally owned utilities. It added language that if the acquisition is made under I.C. § 8-1.5-2-6.1 and, to the extent the purchase price doesn’t exceed the appraised value as determined under I.C. § 8-1.5-2.5, the purchase price is considered reasonable for purposes of subsection (d) (dealing with a petition to include any rate differential as part of the utility’s rate base in future rate cases) and any resulting cost differential is considered reasonable.

The legislation also touches upon economies of scale as an approval condition. A new condition supporting acquisition approval is found when the offered utility is too small to capture economies of scale. For approval, the Indiana Utility Regulatory Commission (“IURC”) can approve a proposed acquisition if it finds the acquiring utility will improve economies of scale or make improvements to the offered utility’s plant and/or operations so that customers of the offered utility will receive adequate, safe, efficient and reasonable service.

The legislature modified another condition for approval pertaining to rate impacts. The legislature clarified that the acquiring utility will not increase rates unreasonably in the future solely because it acquired the offered utility, so long as the net original cost proposed to be recorded under I.C. § 8-1-30.3-2.6(f) is not greater than two percent of the acquiring utility's net original cost rate base as determined in the acquiring utility's most recent general rate case.

If the amount proposed to be recorded under subsection (f) is greater than two percent of the acquiring utility's net original cost rate base as determined in the acquiring utility's most recent general rate case, the IURC will determine whether the rates charged by the utility company will increase unreasonably in future general rate cases solely as a result of acquiring the utility property from the offered utility. The IURC may consider evidence of the anticipated dollar value increase and the increase as a percentage of the average bill in making this determination.

In connection with an acquiring utility’s petition to the IURC to include any cost differential as part of its rate base in future rate cases, the utility must now also provide a statement of known infrastructure, environmental or other issues affecting the offered utility, and the process for determining reasonable and prudent improvements upon completing the acquisition.

Utilities should also note that the bill impacts when an order affecting rates can be entered by the IURC without a formal public hearing for public or municipally owned utilities. It is increased from 5,000 customers to 8,000 customers or if the utility initiates a rate case on behalf of a single division of the utility which meets the following criteria:

  • serves less than 5,000 customers
  • has a commission-approved rate schedule independent of other divisions of the utility
  • primarily provides retail service
  • doesn’t extensively serve another utility.

Senate Bill 193 – Sewer and Water Connections. Effective upon passage on May 1.

This legislation prevents a unit from prohibiting a property owner from installing a sewer line or sewage works through a public right-of-way owned or controlled by the unit in order to connect to a sewer system owned or operated by another entity or unit, under certain conditions.

If the conditions are met, then the municipality (or board of sanitary commissioners for the Department of Sanitation, if applicable) that owns or operates the sewer system that the property owner connects to may waive the requirement for the property owner to release his or her right to remonstrate against pending or future annexations of his or her property by the municipality.

Conclusion

Utilities subject to these legislative changes should review these bills and create an internal plan to ensure compliance with updated rules or requirements. If you have any questions about these or other bills impacting water and wastewater utilities, contact Dave McGimpsey at DMcGimpsey@BGDlegal.com for more information.

  • Partner

    Dave is Chair of the Utilities and Environmental Practice Group. He counsels clients on regulatory and transactional matters involving businesses, real estate, utilities and energy. He advises clients on a broad range of issues ...

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