:^:r^*rii" *'>.'*.:."', ." '..": United States Environmental Protection Agency Office of Water 4606 EPA 816-S-97-001 January 1997 &EFVV INTIL SUMARY OF VELOPMENt ACTIVITIES ------- ------- Errata Page one of the Introduction in the first paragraph under the subheading Background the sentence "...which serve approximately 240,000." should read 240,000,000. ------- ------- Table of Contents Introduction Chapter 1: Ensuring that New Systems have Adequate Capacity Washington Connecticut Pennsylvania Alabama . Maryland . California Summary ' Chapter 2: Programs for Existing Systems Washington Connecticut Pennsylvania Maryland Alabama Massachusetts New Jersey Summary . 1 3 3 6 8 9 11 12 14 17 17 20 21 22 23 23 24 25 Appendix A: Emerging State Capacity Development Programs 27 ------- ------- Introduction The Safe Drinking Water Act (SDWA) Amendments of 1996 recognize that some small water systems do not have the technical, finan- cial, and managerial capacity to comply with SDWA requirements. The Amend- ments include provisions to encourage States to address the capacity problem and to assist systems that need capacity improvements. The statute recognizes two distinct capacity development issues: The need for State authority to ensure that all new community water systems (CWSs) and non-transient non-commu- nity water systems (NTNCWSs) have the technical, managerial, and financial capacity for regulatory compliance. The need for State capacity develop- ment strategies to assist existing public water systems (PWSs) in acquiring and maintaining technical, financial, and managerial capacity. grams. Many States, however, have begun creating programs (e.g., by seeking statutory authority, by convening stake- holders' meetings to develop strategies, etc.). . This report reviews State capacity devel- opment efforts as of August 1996. It responds to the statutory mandate con- tained in §1420(d)(2) of the SDWA. The Environmental Protection Agency plans to update this report periodically as States develop and implement capacity develop- ment programs. ' . The Agency looks forward to working in a collaborative partnership with States, water systems, and other stakeholders to implement the capacity development provisions of the 1996 SDWA Amend- ments. Information products such as this document are an important component of that effort. A few State drinking water programs have Background addressed capacity development concerns for many years. Some State drinking water agencies have formal programs in place to assess and promote adequate capacity. Other States have informal programs that are just as effective in promoting adequate capacity. Most States have neither formal nor informal pro- There are approximately 187,000 public water systems in the United States today. Of these, approximately 55,000 are community water systems which serve approximately 240,000 people. An addi- tional 20,000 are non-transient non- community systems. These do not serve a ------- .residential population, but they serve many of the same people for large parts of the year (e.g., schools, businesses, etc.). States have known for some time that among the PWSs they regulate are sys- tems which appear to lack adequate capacity to supply safe drinking water. Inadequate capacity may manifest itself in many ways, but the most serious is persistent noncompliance with State or federal drinking water regulations. Capac- ity development programs seek to prevent problems caused by inadequate capacity long before formal noncompliance with regulations. There are many causes of inadequate capacity. Common themes, however, do emerge from State program experiences. Some systems suffer from the cumulative burden of years of neglect and under- investment. Other are faced with funda- mental institutional weaknesses (lack of a financial plan, lack of a trained operator, or even lack of a responsible party). When neglect is combined with institu- tional problems, a system faces an enor- mous task when making incremental improvements to comply with new State or federal drinking water regulations. State capacity development programs attempt to diagnose the causes of inad- equate capacity, and work with new and existing systems to maximize their capac- ity. The SDWA distinguishes between State authority to ensure adequate capacity of new systems and State strategies for capacity development for existing sys- tems. Some State capacity development efforts address both new and existing systems, and others have focused on only one aspect of capacity development. Since the policies and programs required to ensure adequate capacity for new systems are often different from those for existing systems, and since the SDWA distin- guishes between capacity development for new and existing systems, our discussion of State programs is organized around these two general categories. ------- * Chapter! Ensuring That New Systems Have Adequate Capacity Unregulated development of new public water systems creates the potential that some of these systems will not have adequate capacity. In most States, applicants wishing to create a new public water system must submit engineering plans and specifica- tions for review by State or local govern- ment authorities, but most States do not review the managerial or financial capac- ity of these systems. Many new systems lack plans for long-term management, operation, and maintenance. They gener- ally do not have a business plan that enables their owners to plan for future financial requirements. A new system that lacks adequate technical, managerial, or financial capacity may end up in persistent noncompliance with State and federal drinking water regulations. This chapter reviews State programs designed to ensure that new systems have adequate capacity. Generally, these pro- grams not only contain measures to deter inappropriate development of systems, but also provide assistance to ensure new systems ability to maintain adequate capacity. The tools used by States are many and varied, as shown in the State summaries which follow. Washington Central to Washington's capacity devel- opment program for more than two decades has been an effort to deter the creation of new systems that lack ad- equate capacity. Efforts in this area were initiated in the early 1970s by the De- partment of Health (DOH). The current program has four component parts that apply to new systems. They are indi- vidual water system plans, regional water system plans, a financial viability pro- gram, and a satellite management pro- gram. Each will be discussed below. Individual Water System Plans In the 1970s, the DOH created a compre- hensive water utility planning program. The goals of the program are to ensure the orderly growth of water utilities and efficient use of resources, while main- taining reliable delivery of high quality water. Certain types of public water systems are required to submit an indi- vidual Water System Plan (WSP) to DOH for review and approval.1 All new com- munity water systems (regardless of size) must prepare WSPs before they receive a permit to construct the system. '43.20 RCW, WAC 246-290, and WAC 246-291. ------- The purpose of the WSP is -to require systems to perform a comprehensive evaluation of present and future heeds, and to determine how those needs will best be met. An approved WSP helps to ensure that the system has adequate technical, managerial, and financial capacity. Systems required to submit WSPs must do so every 6 years and must cover a 20-year planning horizon. DOH requires a WSP prior to approval of construction unless a proposed project is needed to correct an existing public health problem. Regional Water System Plans In 1977, Washington adopted the Public Water Supply Coordination Act (PWSCA)2, which created a regional planning process to supplement the individual water system plans. The addi- tional requirements of the PWSCA pro- vided a coordinated resolution of drinking water issues related to planning, reliabil- ity, and water quality. The PWSCA approach starts with a preliminary assessment of water system problems by the county or State DOH. Based on this report, the county or State designates a geographical area, called a Critical Water Supply Service Area (CWSSA), where regional planning will be implemented. The next step is appoint- ment of a Water Utility Coordinating Committee (WUCC), which includes representatives from county government, water utilities, and the DOH. The WUCC recommends the precise boundaries of the region and prepares a Coordinated Water System Plan (CWSP) for review by the county. The CWSP comprises two parts: the individual WSPs for systems within the boundaries of the CWSP, and an Area-Wide Supplement. Provisions of the Area-Wide Supplement (e.g.,,definition of service areas for future growth) may require updates of individual WSPs. The Area-Wide Supplements demarcate present and future water system service areas, outline future water system devel- opment, establish procedures for authoriz- ing new water systems, arrange for shared use of facilities, establish minimum design standards and fire flow performance standards for the region, and create satellite support systems to provide assistance to small systems. The PWSCA relies on counties to conduct water supply planning, and some counties have chosen not to participate. The PWSCA was defeated three times before . it was adopted in 1977. Success was achieved by a compromise that gave the counties substantial authority to imple- ment the Act. Technically, the Depart- ment of Health (DOH) has the authority to require implementation or to direct the outcome of the process, but it has never done so. ' DOH officials observe that the lack of State-wide participation is a limitation of the PWSCA, but not a serious problem. Officials note that counties that most need to participate (because of the problems of unregulated growth of new systems) have done so. One limitation on the participa- tion of counties has been budgetary; if more funding were available, more counties might adopt the PWSCA ap- proach. The availability of infrastructure loans under the SDWA's new Drinking Water State Revolving Loan Fund (DWSRF) may provide additional opportunities to create incentives for participation. 270.116 RWC and WAC 246-293. ------- Financial Viability Program ' An important component of individual WSPs (for those systems required to prepare them) is financial viability.3 This refers to the system's ability to finance fully the cost of developing, constructing, operating, maintaining and managing a community water system in.full compli- ance with federal, State, and local re- quirements. The DOH financial viability program assists utility owners and manag- ers in determining the total cost of provid- ing service and ensuring that revenues are adequate to cover these costs. All community water systems under 1,000 service connections that must submit a water system plan for approval are also required to complete a financial viability test (FVT). The DOH FVT consists of four tests that examine the utility's bud- get, operating cash reserve, emergency reserve, and the affordability of its water rates.4 Recognizing that small systems might have difficulty preparing a com- . plete FVT, DOH issued the "Small System Financial Viability Manual" in September 1994. This manual is designed to help all small community water systems under 1,000 service connections complete the FVT for review and approval by DOH. The FVT has become an essential element of the WSP for new, small systems. The systems preparing the WSP are asked to do the following: Meet with a DOH representative to discuss the contents of the WSP. Develop a six-year WSP, including capital and operational improvements '70.119 RCW, WAC 246-290 and WAC 246-294. 4For more information on each of these tests, see Chapter 2. (as needed) that will become part of'a system's budget. Fill out the FVT worksheets. If the results of the FVT indicate deficien- cies, the utility should make adjust- ments to its WSP and/or FVT. The system should establish its Operat- ing, Emergency, and Voluntary Re- placement Reserve Accounts. These accounts will ensure that the system has adequate financial reserves. .The WSPs and FVT worksheets must be approved by a professional engineer registered in the State of Washington. Following approval by a professional engineer, the DQH must approve the WSP and FVT. During the life of the WSP", the utility should adhere to the requirements of the WSP, including making necessary improvements in the system, and make any adjustments that may be required by changing circumstances during the planning period. If the system fails to pass the FVT, the DOH will not approve the WSP. Without an approved WSP, construction docu- ments for facility improvements will not be approved. Failure to pass the FVT also means that the DOH may categorize the system as not financially viable. This determination may lead to denial of. building permits or subdivision permits by local building departments, or denial of home mortgages by lending institutions. The DOH may also recommend merger with, or acquisition by, a nearby system or an approved Satellite Management Agency (SMA), formation of a water district, or contracting for O&M services from an approved Satellite Management Agency. ------- Satellite Management A Satellite Management Agency (SMA) is a person or entity that owns or operates more than one public water system on a - regional or county-wide basis, without the necessity for a physical connection be- tween such water systems. This concept has been advocated by DOH since the mid 1970s. Contract services is another form of satellite management where a person or entity offers one or more services to small water systems. The PWSCA was amended in 1995 to include new provisions for satellite management of public water systems.5 This amendment applies State-wide, regardless of county participation in the regional planning activities of the PWSCA. The new provisions include the requirement that no new public water system6 may be approved or created after 1995 unless: It is owned or operated by a Satellite Management Agency approved by the DOH, and the SMA complies with the financial viability requirements of the DOH, or An SMA is" not available, and it is determined that the new system has sufficient management and financial resources to provide safe and reliable service. Approval of any new system that is not owned by an SMA is conditioned upon either: Periodic review of the system's opera- tional history to determine its ability to meet the. DOH financial viability and other operating requirements. The procedures for approval by the DOH of an SMA require the applicant to submit a Satellite Management Plan. This plan includes several of the WSP planning elements such as the financial viability requirements discussed earlier. To date, implementation of the SMA Concept has been slowed by the absence of approved SMAs in some counties. Also, some SMAs have not been willing to take on new systems. Conclusion Many of the concepts and requirements of the Washington State Planning Program apply to existing systems, as well as to new systems. A discussion of the ap- proaches taken to existing systems is found in Chapter 2. Connecticut Connecticut passed legislation in 1984 and 1985 that established regulatory mecha- nisms for restricting the creation of. new public water systems (PWSs).7 Substantial portions of the Connecticut program are based on the PWSCA in Washington; representatives from Washington State provided testimony and technical assis- tance to legislators in Connecticut. Future management or ownership by an SMA, if such management and owner- ship can be made with reasonable economy and efficiency, or 570.116 RWC and WAC 246-295. ~~ ~ 6This applies to a new public water system of any size, down to 2 connections. 7Regulatory authority extends to most, but not all, noncommunity water systems. A noncommunity system that has constructed a water system solely for its own benefit is not covered by this regula- tory approach. ------- The Connecticut program includes the ; following elements: First, the Connecticut Plan establishes exclusive service areas for existing utilities using an area-wide planning approach. The utilities that obtain these exclusive service areas accept respon- sibility for all new systems in their service areas. : Second, all new systems serving be- tween 25 and 1,000 persons must obtain a Certificate of Public Conve- nience and Necessity, a permit jointly issued by the Department of Public Health (DPH) and the Department of Public Utility Control (DPUC).8 Proce- dures associated with the issuance of these certificates are designed to minimize the creation of new systems. In the following paragraphs, we discuss . how these program elements are imple- mented in a State that is quite different from Washington, where the area-wide planning approach was first developed. Connecticut differs from Washington in the following ways: Connecticut's problem was not explo- sive growth in the number of new, small systems being created. Rather, the problem was that many new, small systems suffered from .inadequate capacity. A 1982 Water Resources Task Force found that a large percent- age of small systems were character- ized by polluted sources, deteriorated infrastructure, inadequate pressure in distribution systems, breakdowns in service, dry wells, part-time and If a systefn serving from 25 to 50 consumers does not obtain the Certificate from DPH and DPUC, a municipality granting a local permit is held responsible for its operations if the system fails. inexperienced management, and weak . financial conditions. In Washington, the State relies heavily on county governments; in Connecti- cut, the State relies on both publicly owned and investor-owned systems. The participation by investor-owned systems raises a number of issues that were not faced by Washington. It also means that regulatory authority for implementation of the Connecticut Plan must be shared by the DPH and the DPUC. Certification The statute requiring a Certificate of Public Convenience and Necessity re- stricts the creation of new PWSs by requiring the consideration of all other options first.9 It encourages interconnec- tions with existing utilities wherever feasible. If interconnection is not feasible, the regulations implementing the statute call for consideration of satellite manage- ment, or withdrawalof the application to seek zoning for individual wells. If a Certificate is the only option, the appli- cant must prove that it has the financial, managerial, and technical resources to operate the proposed water system.10 So that regulations can assess the financial condition of the system, the applicant must document that the system's revenues will cover its costs, that it has a plan for capital investment over time, and that it has adequate deposits and reserves. 'The regulations for Certificates of Public Conve- nience and Necessity are found in 16-262m-l through 9 of the Regulations of Connecticut State Agencies. "Connecticut General Statutes (COS) 16-262m establishes construction specifications for water companies; it controls the development of new systems. ------- The Connecticut Plan This is the area-wide planning component of the Connecticut approach. On a re- gional basis, the statute establishes Water Utility Coordinating Committees (WUCCs), which create Coordinated Water System Plans (CWSPs). A major component of the CWSPs are individual water system plans that must be prepared by all medium and large community water systems. These plans define each utility's current service area and its anticipated future service area based on population growth projections. As is true of Washington's, the purpose of Connecticut's area-wide plan is to coordi- nate the individual plans. If there are conflicts between individual plans the area-wide plan authoritatively establishes exclusive service areas.11 The certification process when linked with area-wide plans defining exclusive service areas, creates accountability for service to households that might otherwise be served by new systems. If an existing privately owned system refuses to provide water to households in its service area, the DPUC can force it to serve the house- holds and establish the rates that will be charged to the new customers. Taken together, these two program elements have helped to discourage the creation of new systems that lack the capacity to . provide safe drinking water to their prospective customers. - - Pennsylvania The heart qf Pennsylvania's approach is the requirement that each proposed community water system applying for a construction permit from the Pennsylvania Department of Environmental Protection (DEP) prepare and submit a business plan as part of the permit application. This requirement is specifically designed to prevent the creation of new systems that lack adequate capacity, and thus become "problems for everyoneowner, opera- tor, customer, community lender, and regulatordown the line."1? As the DEP explains, before making an investment in a new system, owners should identify their responsibilities and risks and should provide assurances that the system will be able to meet drinking water regulations and provide a safe, adequate supply of water for human consumption. The business plan forces prospective system owners to think through what they intend to do, how they are going to do it, and the likelihood of long-term success. The first step in business plan preparation is a meeting with the DEP regional water supply engineer and, if applicable, staff from PENNVEST and/or the Public Utility Commission (PUC). The purpose of the meeting is to identify system needs, perform a pre-feasibility assessment to identify alternatives to be explored in the plan, and to discuss plan scope and procedures. Emphasis on Considerations of Alterna- tives. The emphasis on alternatives is critical. It is consistent with the overall planning approach required of prospective "COS 25-33d through j establishes the Connecticut Plan process. CGS 25-32d requires water compa- nies to submit water supply plans to the DPH for review. Regulations concerning the contents of water supply plans and coordinated plans are found in 25-32D-1 and 25-33h-l of the Regulations of Connecticut State Agencies. "Pennsylvania DEP, "How to Prepare a Business Plan," 1996, page 1. ------- systems. Examples of construction alter- ;' -natives that should be considered include: a completely new system a distribution system with supply from another system extension of another system to serve the area Examples of institutional alternatives include: * incorporating the proposed area into an existing system creating a special rate district within an existing system . satellite management contract operations and/or management Through this exercise, DEP and PUC officials hope to show many prospective system owners that the most effective and efficient way of meeting the areas' needs is by connecting to an existing system, rather than starting a new one. The next step is that prospective systems prepare a draft business plan. The busi- ness plan must contain an analysis of the water supply needs of the area, a discus- sion of alternatives to meet those needs, an evaluation .of alternatives, and a recommendation of a specific alternative. For any selected alternative, the applicant must demonstrate through a business plan that it will have adequate financial capac- ity for at least five years. An applicant brings the plan to a Preliminary Engineer- ing Conference with the DEP regional engineer. The purpose of this meeting is to ensure that the proposed solution (a prospective water system, or tie-in to an existing system) is reasonable and ad- dresses the area's water supply.problems over a period of time. The prospective system is required to submit two copies of the final business plan with its permit application. , The Business Plan: A Disciplined Ap- proach. The concept of a business plan has its origins in business literature. The plan for meeting both expected and unexpected changes provides, the only ' . basis for assessing the future value of any company. A business plan first focuses on the risk of failure: what assurances are there that this entity will survive? A business plan.also speculates on the upside potential and asks: is this the best plan for running this business as profit^ ably as possible? Transferring the business planning disci- pline to the management of new commu- nity water systems implies that the State regulatory agency (on behalf of the public) is-interested in the same types of assurances of water system prospects. The DEP business plan requires that proposed systems assure: v That the system is strong enough to provide an adequate supply of safe drinking water even.under the influence of adverse changes in the operating environment. That the proposed plan for providing water service is the best plan for providing these services to the commu- nity it proposes to serve. . Alabama Alabama has an enviable track record in terms of small systems. Not only has the State Department of Environmental Management (DEM) prevented the cre- ation of new systems that lack adequate ------- capacity, but they also have-demonstrated a clear reduction in the total number of PWSs (both community and non-commu- nity systems). As shown in Exhibit 1, the number of PWSs has steadily declined since 1978. The Alabama program relies on the au- thority of the DEM to protect the public health. DEM regulations focus on strict design criteria for well construction and an established permitting program that discourages the creation of new systems, particularly if it appears that these systems may not have, the capacity to provide a Exhibit 1 Number of Water Systems in Alabama i 1»7* 1582 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Yenr safe and adequate supply of drinking water to their customers.13 Design Criteria for Well Construction. Most new systems, particularly small ones, rely on ground water sources. Stringent well construction standards . mean that a new well for a community water systems cost from $200,000 to $400,000. Non-community wells can cost as high as $50,000. As a result, according "The statutory authority for the permit regulations is Code of Alabama 1975, §§ 22-23-33,22-23-49. to DEM staff, rarely is a, new system to .be developed to serve fewer than 500 persons. The cost of well construction must be allocated across a large customer base. Stringent Permitting Program. State regulations make it clear that systems must have adequate capacity to provide safe drinking water. The regulations say that proposed systems "must demonstrate financial, managerial, and technical capabilities to meet performance require- ments on a long term basis and be self sustaining."14 The application require- ments include "a .description of the proposed service area, proposed sources of water and a description of treatment processes to be employed, an estimation of minimum and future water de- mands by the system, financial data should public funds be involved and detailed infor- mation regarding the proposed operation and management of the system." The distinctive feature of the Alabama program is the stringent application of the permitting regulations to all new systems. The OEM's ability to accomplish this is the result of a long-term effort by the Drinking Water Administrator to create and sustain discretion and authority to protect the public health by denying permits to new systems that lack adequate. capacity. In general, DEM personnel 14ADEM Admin. Code R. 335-7-4-.06 ' ------- work actively with owners and operators to explain the benefits (for public health, and for lower cost water supply) of interconnection with existing community water systems. Non-Community Systems. Exhibit 1 shows that efforts to discourage the creation of new systems have been extended to non- community systems as well as CWSs. One reason DEM can do this is because both types of systems are regulated by the same Department. This is not the case in all States. Maryland ' . The State of Maryland has legislative authority to regulate and, where necessary, prevent the development, of new privately owned water systems that might lack adequate capacity to meet their responsi- bilities under federal and State drinking water regulations.15 The authority exists because of a legislative reaction to the rapid development of mobile home parks and apartments in the Post-World War II eraunregulated development that led to the creation of many water systems with capacity problems.1S Distinctive features of the Maryland approach to controlling the development of new water systems include: Maryland relies heavily oh county government. Land use control is a ''Authority for the current program is found in Title 9 of the Annotated Code of Maryland, Environmental Article.' "The original legislative reactionnew authority to control the development of privately owned community water systemswas established by Article 43 Section 387 of the Annotated Code of Maryland in 1969. The current statutory authority for Maryland's program is fh the Annotated'Code of Maryland, Environmental Article, Titles 9-2 and 9-4. .responsibility of the counties, and ' controlling new water systems is part of that responsibility. Maryland uses area-wide planning. Counties are responsible for submitting county-wide plans for water-and sewer services. . The Maryland Department of the Environment (MDE) has substantial authority to review the adequacy of plans for new water-systems before allowing them to be constructed. Reviews of proposed privately owned systems have much more stringent controls. These reviewsboth by county governments and by the MDE include not only plans and specifica- tions, but also financial and operating plans for the systems. New, small privately owned systems ' must deposit money in an escrow account to protect against interruption of service if the system later has financial problems. Taken together, these program elements have served the State well. There has been a low rate of creation of new water sys- tems. Role of Counties. Other States (e.g., Washington) delegate significant responsi- bility to counties and rely, on them for land use control, land use planning, and area- wide planning for water systems. Mary- land is similar, though it lacks a compre- hensive planning statute for State-wide control of new system development. Counties governments are strong in Maryland and have substantial budgets and responsibilities. Given these characteris- tics and the traditional authority to control land use, reliance on counties in Maryland is consistent with State-local relations. ------- Area-Wide Planning. Like Washington and Connecticut, Maryland is divided into units, and sub-State organizations are. responsible for water system planning. Like Washington, the responsible govern- mental unit is the county; and like pro- grams that are emerging in Washington, area-wide water system plans are a sub- set of larger land use and development plans. Indeed, all housing and commercial development envisioned by a county must have accompanying plans for wastewatef and drinking water. County plans, as required by Title 9-5, must identify present and future water systems, including schedules and financ- ing methods for construction of new systems. The plans also must provide for the development, extension, or expansion of water systems to meet county popula- tion growth over a 10-year period. The water system component of area-wide plans must be approved by the MDE. The requirements for long-range planning for system expansion or development to meet population growth ensures that new systems are not developed ad hoc. The county plan is the first step in ensuring that new systems will have adequate capacity. Construction and Operating Permits. To construct or operate a new water system, the owner must submit plans to, and obtain a permit from, the county. To get a permit, the owner must submit, with the concurrence of county officials, a finan- cial management plan to the MDE outlin- ing estimated costs and revenues. The owner must also submit, again with county concurrence, an operation and maintenance plan to the State. If the system is to use a ground water source, developers must obtain a well construc- tion permit from the MDE; and before water system construction can begin, the owner must obtain a water system con- struction permit from the MDE. During the process of obtaining permits, State and county personnel use their authority to discourage construction of new pri- vately owned systems that appear to lack adequate financial, technical, or manage- rial-capacity. Escrow Accounts. Privately owned sys- tems must establish a binding "public works agreement" with the county that may require any or all of the following: Depositing sufficient funds in an escrow account to cover repair or replacement of the highest-cost system component. Establishing a separate escrow account with sufficient funds to ensure success- ful initial operation and maintenance. (This account may expire once the "system is successfully operating and self-supporting with customer reve- nues.) Establishing a sinking fund sufficient to replace the system 20 years after construction. Continued support of the sinking fund should be provided within the rate structure of the proposed system. Publicly owned systems are exempted from these requirements by MDE regula- tion (COMAR 26.04.03). When county, or other public, takeover of a new system is anticipated, developers may be ex- empted from these requirements. California - California's approach to preventing the creation of new systems lacking adequate capacity relies on.the permit process for new systems and systems with ownership changes. As revised in 1992, the State's ------- authority includes the following language:: "No public water system which was not in existence on January 1, 1991 shall be granted a permit unless the system demonstrates to the department that the water supplier possesses adequate finan- cial capability. This section shall also apply to any changes in ownership of a public water system which occurs after January 1, 1991."" The Permitting Process. The California Department of Health Services (DHS) requests the following technical informa- tion about each proposed new public. water system: Service area - ! - . ' Source(s) of supply * Monitoring plans Operation and maintenance plans A master plan addressing growth, anticipated expansion needs, and plans for addressing existing arid anticipated regulatory requirements Construction plans, specifications, and schedules A summary of supervisory and operat- ing personnel experience (including State certifications) . According to the Interim Guidelines18 for the permit process, the application for a permit to operate a water system "should provide sufficient information related to financial planning for the system to demonstrate adequate financial viability." The most important type of financial information requested from the applicant is a projected 5-year cash flow schedule prepared by a qualified accountant pro- viding detailed yearly anticipated costs for operating, system improvements and maintenance, monitoring, and administra- tion; and a projected revenue schedule. If a revenue schedule is inapplicable (e.g., for some non-community water systems), the applicant is asked to demonstrate how funding to meet projected costs will be ensured.19 When reviewing cash flow schedules submitted by applicants, DHS personnel use the following guidelines. The cash flow schedule must include costs for: Regulatory compliance (monitoring and necessary improvements) California also requests managerial information such as: The legal basis for system organization Current or anticipated activities other than the purveying of drinking water A description of the management structure and.procedures "California Health and Safety Code § 116540. "California Department of Health Services, "Interim Guidance for Evaluating Financial Capability of Public Water Systems," June 1991. "Some small systems are regulated by other agencies, in addition to the DHS. The DHS allows these systems to submit approved applications from those agencies in lieu of the financial information required in this paragraph. Examples of systems that may follow this approach are privately owned systems regulated by the Public Utilities Commis- sion and mutual water systems regulated'by the Department of Corporations. Since both the PUC and Department of Corporations perform a thorough financial review for all,systems that they regulate, an approved application is equivalent to the financial review performed by the DHS. All " submittals, however, still are subject to review and . approval by DHS, and DHS may require additional information from any applicant. ------- On-going operations and. administrative costs Maintenance costs including repair and replacement estimates that reflect the useful life of components of the system A sinking fund for anticipated upgrad- ing of the system . An annual amount set aside as a reason- able reserve for unforeseen contingen- cies The cash flow schedule also should demonstrate that its rates: Summary The programs described above represent a broad range of different approaches to achieving a common goalpreventing the creation of new water systems that appear to lack adequate capacity to provide,safe drinking water to the public. While the previous discussion shows that some States have adopted similar programs, the case studies also show that a variety of different approaches have proven success- ful. Exhibit 2 summarizes key character- istics of these programs. Will result in the accumulation and maintenance of a sinking fund (as. described above) Will generate revenues that exceed costs of system operation To the extent that the cash flow schedule depends on forecasts of customer growth, these forecasts should be supported by projected population growth figures prepared by a recognized planning organi- zation. By collecting and reviewing technical, managerial, and financial information, California officials have a basic picture of the capacity of the systems. If a proposed new public water system does not possess (or cannot demonstrate) "adequate finan- cial capability to assure the delivery of pure wholesome and potable drinking water," as defined by Departmental guidance, its permit application will be denied. ------- Exhibit 2 1 State Capacity Development Programs for New Systems 1 State Alabama California Connecticut Maryland Pennsylvania Washington Statutory Authority Establishes broad public water supply permitting, review, and supervision authority Code of Alabama, 1977: §22-23-33 §22-23-35 §22-23-44 J22-23-49 §22-22A-5 §22-22A-6 CA Health and Safety Code: §116530 - Technical requirements for jermits }1 16540 - Issuing and denying permits CGS 16-262m - Construction ' specifications for water companies that serve to control the development of new systems CGS 25-32d - Water supply plans CGS 25-33d through } - Establishes the Connecticut Plan Annotated Code of Maryland Environmental Article: Title 9-206 - provides discretionary authority to determine scope of plans required by systems Title 9-2 - authorizes requirement of escrow accounts Title 9^4 - general authority allowing a broad range of actions to protect public health' Title 9-5 - requires each county to submit a plan for water service P.L. 206, No. 43 - PA Safe Drinking Water Act 70.1 16 RCW- The Public Water Supply Coordination Act (PWSCA) provides an ordered process to utility planning and authorizes Satellite Management 70.119A RCW- authority for Financial Viability Program under the WA Safe Drinking Water Act 43.20 RCW - sets up state drinking water program Regulatory Authority Regulations implementing broad public water supply, permitting, eview, and supervision authority ADEM Admin. Code R. 335-7-4 None 16-262m-1 through 9 of the Regulations of CT State Agencies - Certificates of Public Convenience and Necessity 25-32d of the Regulations of CT State Agencies - requirements for contents of water supply plans . COMAR 26.04.03 - authorizes requirement of escrow accounts 25 PA. Code Ch. 109.503 WAC 246-293 - regulatory authority for PWSCA WAC 246-290 and WAC 246-291 - set requirements regarding WSP WAC 246-290 and WAC 246-294 - authority for Financial Viability Program , w . WAC 246-295 - authority for Satellite Management Systems Covered All public water systems Public water systems. All public water systems (with exceptions, noted n the text) Community water systems, non-transient non-community water'systems Community water systems All public water systems for the satellite management program. Coverage varies for other program components (see text). Summary of Approach Rigorous well construction standards raise costs of construction Stringently applies permitting egulations to all systems Uses permitting process Applicants must submit echnical and managerial data 'Applicants must demonstrate adequate financial capability Water Utility Coordinating Committees establish area-wide >lans. Establishes exclusive service areas for existing utilities Selected utilities responsible for entire service area ; Issues a Certificate of Public Convenience and Necessity For permit, applicant must prove adequate capacity Counties use land-use controls to control growth Counties submit area-wide alans State authority to review/deny financial and construction plans Escrow accounts must be established by small privately , owned systems Applicant must prepare a business plan Emphasis on consideration of alternatives Regional Water System Plans Individual Water System Plans" for selected systems Satellite Management Program Financial Viability Program ------- ------- 17 Chapter 2 Programs for Existing Systems State programs for capacity develop- ment of existing systems are designed to prevent noncompli- ance. The State programs in this chapter show that capacity development can be used to prevent problems and to ensure public health protection for customers of public water systems. As these programs demonstrate, States are helping existing systems to maximize their capacity. Washington The State of Washington's capacity development program was described in detail in Chapter 1. The discussion in- cluded information about four basic components of the Washington State approach: individual water system plans, regional water system plans, the financial viability program, and the satellite man- agement program. These four compo- nents, plus the water utility operating program, comprise the Washington State approach to capacity development for existing systems. Individual Water System Plans The water systems that are required to "submit WSPs include: All new community water systems (CWSs), regardless of size All expanding CWSs, regardless of size" All CWSs designated by the DOH as "problem water systems," regardless of size ; Ail CWSs serving more than 1,000 connections Existing systems must validate the ad- equacy of their technical, managerial, and financial capacity at least once every 5 years in the form of a WSP update. DOH .financial viability requirements must also be addressed at the time the WSP is , updated. Non-expanding community water systems not required to submit a WSP are still required to develop a Small Water System Management Program. The management program focuses on evaluating the techni- cal, managerial, and financial capacity of the water system. This is a less compre- hensive planning document than the WSP, and it does not require the services of a registered professional engineer. DOH officials are working to remedy several limitations of the WSP approach. These include: WSPs are not required of ------- pr- noncommunity'systems, the criteria for "problem'water systems" are not well- defined, and many small systems are not submitting their Small Water System Management Programs. Regional Water System Plans Central to the PWSCA is the authority, delegated to county Water Utility Coordi- nating Committees (WUCCs), to develop county-wide water system plans (subject to approval by DOH) that demarcate present and future exclusive service areas arid plan future water system develop- ment. Systems that are granted exclusive service areas are expected to provide water to all new residential and commer- cial development in that area, or to work with the county planning agency to develop procedures for authorizing new water systems. Existing community water systems that participated in the prepara- tion of the regional plan are bound by these'exclusive service area determina- tions and requirements. Requests for new systems located in the future service area ,of an existing system must obtain service from the existing system if it can be provided in a timely and reasonable manner. As discussed in Chapter i, an important part of the area-wide planning process is the Area-Wide Supplement. This docu- ment specifies the types of support sys- tems that will be created by large systems for smaller systems within the jurisdiction of the plan. These services can be used to help small systems maintain adequate technical, managerial, and financial capacity. The support system created by the plan is a formal agreement whereby a large or central utility in a county per- forms direct, contract, or support services for smaller utilities. Financial Viability Program Financial viability is an essential part of the individual water system plan (WSP). DOH requires that financial viability be evaluated as part of a WSP.1 DOH has financial program guidelines to assist CWSs serving more than 1,000 connections in preparation of their WSP.2 Certain CWSs serving fewer than 1,000 connections also are required to prepare WSPs (new systems, expanding systems, or problem systems). To address financial viability in their WSPs, these smaller systems must past a Financial Viability Test (FVT). The FVT is comprised of four separate tests of financial condition. Test 1: develop an operating budget showing that its revenues will meet all incurred expenses over a six-year period. Test 2; create and fund an operating cash reserve account at a level equal to or greater than one-eighth of its operat- ing budget (O&M plus G&A expenses). This reserve account can be funded by a one-time charge, by a transfer of funds from an existing reserve, or from funds accumulated in the first year of the six-year budget from Test 1. Test 3: create and fund an emergency reserve account to coveY the cost of an emergency or failure of its most vul- 'Por examples of exceptional cases, see Washing- ton State Department of Health, "Financial Viability," fact sheet prepared in 1994. 2If a CWS serves more than 1,000 connections and is regulated by the Utilities and .Transportation Commission (UTC), DOH-and UTC have jointly developed financial viability guidelines. These guidelines are used by both agencies in making financial viability determinations. DOH retains the authority to approve or reject WSPs from these systems. ------- 19 nerable system component (for small systems, usually a well or pump). This reserve account can be funded by a one-time charge, a transfer of funds from existing reserves, a plan to accumulate the fund in the six-year budget from Test 1, or an alternative financing arrangement (e.g., an insurance mechanism). Test 4: conduct a median household income index analysis. The system must demonstrate that the rates required to meet the budget from Test 1 and to fund the reserves in Tests 2 and 3 do not exceed 1.5 percent of the annual median household income , for its county. Failing any of the first three tests of FVT could lead to denial of a permit for new construction, or a determination by the DOH that the water system is "inad- equate." Under Washington's Financial Viability Program, this could result in denial of building permits or subdivi- sions by local building departments, denial of home mortgages by lending institutions, and possible receivership action by DOH. For systems that fail any of the first three tests, the DOH may recommend merger with an adja- cent system, acquisition by an adjacent system or an approved Satellite Manage- ment Agency (SMA), formation of a water district, or contracting for O&M services (probably with an approved SMA), The data from the FVT can be used to compare the cost of restructur- ing options, or to compare the cost of restructuring to the cost of remaining an independent system. If the system fails the fourth test, it must investigate restructuring options and provide public disclosure of the rates and restructuring option findings.3 To ' assist systems in complying with the FVT requirements, the DOH has produced .a guidebook and worksheets to assist systems in their calculations. Data from . the FVT worksheets will give the DOH sufficient information to identify systems with financial problems, and to take appropriate action, as summarized above. Satellite Management Agencies As a result of the PWSCA, several coun- ties in Washington created satellite management programs as part of their Coordinated Water System Plans (CWSPs).4 With the PWSCA amendments of 1995, the State endorsed the satellite management concept on a State-wide basis, regardless of a county's participa- tion in the overall regional planning process. As explained in Chapter 1, two different types of Satellite Management Agencies (SMAs) may be approved by the DOH: SMAs may own/operate, and manage the small system, or SMAs may operate and manage,,but , not own, the small system. Lists of approved SMAs are provided to counties. The county, or the State DOH, may refer small systems with capacity problems to an approved SMA for assis- tance. DOH also has a requirement-that man- dates a county to resolve problems of failing.existing systems if no other re- ceiver can be obtained under the State's receivership provisions. The language has 'Washington State Department of Health, Small Water Utilities Financial Viability Manual,. September 1994, pp. 4-6. "70.116RCW. ------- compelled SMAs and county governments to work closely together in resolving small water system issues. _ . , Annual Operating Permit All public water systems serving 10 or more connections or 25 or more people must obtain an annual operating permit from the DOH.5 This permit provides a status report on each system's capacity to protect the health of consumers. In 1995,; over 98, percent of all systems covered by this requirement obtained an operating permit. Those that did not receive a permit did not pay the fee associated with the permit, and enforcement actions were initiated against them. The annual operating permit gives the DOH a chance to track performance of all systems covered by the requirement in terms of their compliance histories, their WSPs, and the financial viability compo- nent of WSPs. Systems are classified according to their compliance and capac- ity. A color coding system is used; systems classified as "green" have ad- equate capacity and compliance histories; systems coded as "red" have inadequate capacity and/or compliance histories. Connecticut ' Modeled on Washington's PWSCA, the Connecticut Plan6 establishes a long-range area-wide planning process similar to that in Washington. The State has designated seven water management areas, and Water Utility Coordinating Committees 570.119ARCW. 'Passed in 1985, "An.Act Concerning a Connecti- cut Plan for Public Water Supply Coordination," was incorporated into the Connecticut General Statutes (COS) as COS 25-32d and 25-33e-j. (WUCCs) are developing plans for the area's. As in Washington, the planning program is.voluntary, however, and not all areas have plans. The essential ele- ments of the PWSCA and the Connecticut Plan are similar; exclusive service areas are established by the WUCCs, and systems that obtain exclusive service areas are responsible for water plans and service in their areas. In addition to the area-wide planning process, all privately owned water compa- nies serving more than 1,000 persons or . more than 250 consumers are required to submit a water supply plan. These plans must be updated at least every 5 years. The purpose of the plans is to ensure that the systems can meet the water supply needs of their customers. By requiring a comprehensive analysis of the current system, future water supply demands, alternative water supply sources, emer- gency contingency plans, and conserva- tion measures, the DPH updates its assessment of the adequacy of water system capacity. DPH evaluates and approves these plans with the.concurrence of DPUC and the Department of Environ- mental Protection (DEP). One unique aspect of the Connecticut program is that any privately owned community water system with a record of repeated violations of State drinking water regulations or non-compliance with enforcement actions (e.g., administrative orders) may be subject to takeover.7 After proper notice and hearing, the DPH and DPUC may order the acquisition of a p water company by the most suitable public or private entity. The acquiring entity is entitled to recover, through its rates to customers, all reasonable costs of acquisition and improvements to bring the system into compliance with regulations. 'Connecticut General Statutes, Sec. 16-262n and o. ------- 21 In the event of an emergency (e. g., a water company is unable or unwilling to provide service to its customers), the DPUC may petition the court to attach the assets of the company and put it under the sole control and responsibility of a re- ceiver. Receivership sometimes is a temporary step on the way to acquisition. Investor-owned utilities have acquired small systems under the takeover law. Potential issues during acquisition by an investor-owned utility include: (1) assur- ances that the acquiring utility will truly be-compensated for all reasonable ex- . penses (which may be substantial if the system being acquired has not made repairs or improvements for many years), and (2) allocation of the costs of upgrad- ing an acquired system (e.g., should they be borne solely by the customers of the failed system, or shared by all customers of the acquiring entity?). In January 1996, the DPUC submitted a report to the General Assembly on issues that have arisen as the DPUC works with the DPH and the Department of Environ- mental Protection to implement the State program on small water systems. The1 report urged passage of measures that would streamline the process and improve coordination among the various regulatory agencies. It also looked forward to the passage of the SDWA and the establish- ment of the Drinking Water State Revolv- ing Fund (DWSRF). According to the . report, the SRF could be used to: Support currently viable systems in meeting existing or future regulatory capital improvement requirements Provide resources to viable entities that have acquired failed systems through consolidation Provide resources for system improve- ments that could assist in regional consolidation of systems (including. forced takeovers) . Pennsylvania At the present time, Pennsylvania's focus is on pilot testing enhanced evaluation techniques (such as Comprehensive Performance Evaluation) together with onsite outreach and technical assistance to enhance system capacity. In 1992, the Pennsylvania legislature passed the Small Water Systems Assis- tance Act8, which authorized several activities to enhance existing system capacity. These include: Increased technical, financial, and management assistance to small systems A Small Systems Regionalization grant program A Small Systems Technical and Man- agement assistance program Authority for the DEP to coordinate with PENNVEST (the agency that administers the State's infrastructure grant and loan program) to link infra- structure funding to system capacity As suggested by this list of activities, the emphasis of the program is two-fold: (1) technical assistance, and (2) use of State grant and loan funds as an incentive to improve capacity. Two aspects of its grant and loan funds are particularly noteworthy. First, the statute specifically authorizes grants to fund-"regionalization feasibility studies." According to a report prepared j ' '"Small Water Systems Assistance Act of 1992," P.L. 10, No. 5. ------- for DEP prior to passage of the Act, the Maryland absence of planning and feasibility funds had been a serious roadblock to taking the first step toward regionalization or con- solidation.9 This grant program directly addresses this problem. Second, DEP has a memorandum of understanding (MOU) with the Pennsylva- nia Public Utility Commission (PUC) that explicitly links regulatory action to improvements in system financial and managerial capacity. The MOU includes the following objectives: Encourage comprehensive planning at the local, county, and regional level to ensure water system viability Foster and coordinate the restructuring of contiguous and non-continuous public water systems, some of which are non-viable, to form .viable water systems Provide financial assistance and exam- ine alternative rate-making policies for projects that comply with these objec- tives Identify policies and procedures that present barriers to small system re- structuring and seek solutions to these institutional barriers In addition to these initiatives, DEP would like to extend its business plan concept (described in Chapter 1) to existing systems. The State expects that extending the business plan concept to existing systems could have the same beneficial impact that it has had on new systems. Like Washington and Connecticut,' Mary- land has a program for existing systems which is largely an outgrowth of the overall approach that the State has taken regarding capacity issues, as outlined in Chapter 1. Maryland has a well-estab- lished program of county-wide develop- ment and infrastructure planning that includes water systems. The counties adopt long-range plans and identify expansion and new construction of water systems needed to serve new commercial or residential development. This planning process, therefore, includes oversight of existing systems to ensure that they are meeting their responsibilities under the area-wide plan. The existence of escrow accounts (also explained in Chapter 1) provides an additional layer of financial assurance that privately owned systems will have the financial capacity to ensure adequate service for the long term. If the State drinking water program in the Maryland Department of the Environment (MDE) determines that a system is ineffi- ciently operated or is potentially threaten- ing the public health, MDE may appoint a new manager or order water system alterations and extensions. Alternatively, MDE may appoint the Maryland Environ- mental Services (MES), a State agency, to manage a poorly operated system.10 MES also is authorized to provide contract operations and management (O&M) services for systems in the State. Finally, MDE may order the construction of all or part of a new water system, necessary to protect the public health." 9See "State Initiatives to Address Non-Viable Small Water Systems in Pennsylvania," Report prepared for the Pennsylvania Department of Environmental Resources, August 1991. 10The Annotated Code of Maryland, Title 9-207 and Title 9-208. "Annotated Code, Title 9-209. ------- 23 Maryland also has,a financial assistance ;' program that provides funding to small, disadvantaged water systems. Whenever feasible, funding is used to construct extensions to consolidate water systems. To participate in the program, in addition to other eligibility requirements, a system must provide documentation of financial stability. Alabama . Alabama is best known for its stringent permitting program. Exhibit 1 (on page 10) shows that .Alabama has aggressively encouraged the consolidation, acquisition, and merging of existing water systems. From a high of almost 800 community water systems in 1978, Alabama's inven- tory has dropped to approximately 600. Even more striking is the reduction in the number of non-community systems, from 600 in 1978 to approximately 200 in 1996. These reductions could not be achieved simply by denying permits to new systems. . According to Alabama permitting regula- tions,12 all facility permits for public water systems in Alabama have term limits. The permits for community water systems are issued for 6 years; the non- community permits are issued for 10 years. Permits may be re-issued, but it is clear that the Alabama DEM has exer- cised considerable influence to discourage some systems from seeking renewal, or to deny renewal if the system fails to display the capacity required to provide safe drinking water. The regulations explicitly identify the system characteristics that will be evaluated before approving (or denying) a permit: "Existing and pro- 12The statutory authority for these permit regula- tions is'Code of Alabama 1975, §§ 22-23-33,22- 23-49. The regulations are found in ADEM Admin. Code R. 335-7-4. ! posed systems must demonstrate financial, managerial, and technical capabilities to reliably meet performance requirements on a long term basis and be self sustain- ing "13 According to DEM staff, physical inter- connection is encouraged whenever it is feasible. This is particularly true for non- community systems that are within the service areas of existing community , systems. DEM also has the authority to .revoke the permit of any public water system for cause. The regulations cite seven types of cause that would justify permit revoca- tion, including provision of water that does not meet drinking water standards, failure to comply with any general or special condition of the permit, and failure to comply with the provisions of a Department Administrative Order or regulations. Using this authority, DEM staff have been effective in persuading owners and operators of the weakest public water systems that the best way to protect the public health is to interconnect with existing community water systems. Massachusetts ___ The Department of Environmental Protec- tion (DEP) in Massachusetts has devel- oped a program for "viability assessment and assurance" for all community water systems and non-transient non-community water systems serving fewer than 1,000 persons.14 The program begins with a Comprehensive Compliance Evaluation 13ADEM Admin. Code R. 335-7-4-.06. ~~ MThe legal authority for the Massachusetts "~ program is established by the Massachusetts Drinking Water Regulations: 310 CMR 22.04. ------- (CCE) Sanitary:Survey, and all systems must be surveyed at least once every 6 years. Depending on the results of the CCE, systems may be referred, or as- signed, to a Mobilization Partner (a non- profit organization in the State that specializes in technical assistance to small systems) for viability assessment and follow-up technical assistance. A referral is likely if the system does not have a certified operator, has not conformed to previous sanitary survey recommenda- tions, has monitoring and reporting violations, has source protection issues, or has Maximum Contaminant Level . (MCL) violations. If a referral is made, the public water system must attend the viability assessment meeting. DEP staff evaluate the findings and recommenda- tions of the Mobilization Partner and may impose requirements on the system, such as completion of a business plan, estab- lishment of emergency funds, establish- ment of an emergency plan, training programs for staff, and restructuring. DEP does not mandate the procedures used during the viability assessment performed by the Mobilization Partners. During a CCE Sanitary Survey follow-up, however, DEP staff will consider the following issues relating to managerial and financial capacity: Whether sufficient funds are on hand to meet current and future expenses, or a plan exists to obtain such funds Whether ah emergency plan exists, including funding,, or a plan for fund- ing characterized by enterprise ac- counting, records of O&M costs, and rates affordable (less than or equal to 1.5% of median household income) i Whether the PWS has trained and certified staff Whether the PWS understands current and future regulatory requirements.15 The philosophical underpinnings of the Massachusetts approach are similar to the business plan concept used in Pennsylva- nia and other States. As explained in the DEP Policy 94-01, the Department has found that "many small systems do not recognize the importance of planning ahead before'they are established to ensure continued compliance with the SDWA."16 The unique aspects of the Massachusetts approach include: Viability assessment of systems identi- fied during the CCE sanitary survey process ' " Leveraging the resources of non-profit organizations who serve as "Mobiliza- tion Partners" New Jersey . New Jersey has developed an approach to facilitate the takeover of systems that fail to supply safe drinking water. In 1981, the legislature passed the Small Water Company Takeover Act.17 In its first 10 years, the authority provided by the statute has been used to take over ap- proximately 20 systems. The purpose of the statute is to deal with problems caused by housing developers who created water systems as part of their development and then abandoned those systems once the development process "Bureau of Resource Protection, Division of Water Supply Policy 94-01 Procedures, "Viability Assessment and Assurance: DWS Procedures for Existing Systems." "Department of Environmental Protection, Division of Water Supply, Policy 94-01, August 1, 1996. "New Jersey Annotated Code. 7:19-5.1 et seq. ------- 25 was complete. This is a common problem in many States. In such cases, ownership of the water system may be transferred to a homeowners association, and it is possible that no one becomes responsible. The lack of a responsible party creates problems for regulation and enforcement. Whenever a small water company fails to comply with a Department of Environ- mental Protection (DEP) order to provide adequate service, DEP and the Board of Public Utilities (BPU) may, after notice and hearing, order a takeover of the system by the "most suitable" privately owned or publicly owned community water system. The term "adequate ser- vice" refers to availability of water, . potability of water, and adequacy of volume and pressure. The Act makes provides compensation for the acquisition and increases in rates for the acquiring entity (including provision for differential rates for customers of the acquired com- pany). In general, the intent and structure of this Act is quite similar to that of Connecticut, described above. Summary As with Chapter 1, the programs de- scribed above represent a broad range of different approaches to achieving a common goal. Exhibit 3 summarizes key characteristics of these programs. ------- Exhibit 3 1 State Capacity Development Programs for Existing Systems 1 State Alabama Connecticut Maryland Massachusetts New Jersey Pennsylvania Washington Statutory Authority Establishes broad public water supply permitting, review, and supervision authority Code of Alabama, 1977: §22-23-33 §22-23-35 §22-23-44 §22-23-49 §22-22A-5 §22-22A-6 CGS 25-32d - Water supply plans CGS 25-33d through j - Establishes tha Connecticut Plan process [coordinated system plan) CGS 16-262n and o - Aquisition of water companies (takeover process) Annotated Code of Maryland Environmental Article: Title 9-206 - provides discretionary authority to determine scope of plans required by systems Title 9-2 - authorizes requirement of escrow accounts. Title 9-4 - general authority allowing a broad range of actions to protect public health Title 9-5 - requires each county to submit a plan for water service The Small Water Company Takeover Act facilitates the takeover of problem systems NJSA 58:11-58 et seq. and 58-12A-1 etseq. P.L 10, No. 5 - The Small Water Systems Assistance Act P.L. 206. No. 43 -PA Safe Drinking Water Act 70.1 16 RCW- The Public Water Supply Coordination Act (PWSCA) provides an ordered process to utility planning and authorizes Satellite Management 70.119A RCW- authority for Financial Viability Programand the Water Utility Operating Permit under the WA Safe Drinking Water Act 43.20 RCW- sets up state drinking water program Regulatory Authority Regulations implementing broad >ublic water supply permitting, eview, and supervision authority ADEM Admin. Code R. 335-7-4 25-32d of the Regulations of CT State Agencies - requirements for contents of water supply plans 25-33h-1 of the Regulations of CT State Agencies - requirements for contents of coordinated plans COMAR 26.04.03 - authorizes requirement of escrow accounts 310 CMR 22.04 - Drinking Water Regulations: Construction, Operation and Maintenance of Public Water Systems Small Water Company Takeover Act Regulations NJAC 7:19-5 25 PA. Code Ch. 109 WAC 246-293 - regulatory authority for PWSCA WAC 246-290 and WAC 246-291 - set requirements regarding WSP WAC 246-290 and WAC 246-294 - authority for Financial Viability Program WAC 246-295 - authority for Satellite Management Systems Covered All public water systems All public water systems (with exceptions, noted n the text) Community water systems, non-transient non-community water systems All public water systems All privately owned community water systems serving fewer than 1,000 service connections Community water systems, non-transient non-community water systems Selected community water systems - coverage varies among program components (see text) Strict permitting program All facility permits for public water systems have erm limits Special permit conditions requiring corrective action for systems having problems Regulatory authority to revoke the permit of any )ublic water system for cause Water Utility Coordinating Committees establish area-wide plans Selected systems obtain exclusive service areas, accept responsibility for service State can order the acquisition of any water system acking adequate capacity County-wide planning program oversees existing systems Escrow accounts ensure financial capacity of small privately owned systems - Authority to restructure problem systems Financial assistance program for smaller, disadvantaged systems Comprehensive Compliance Evaluation Sanitary Surveys every six years Mobilization Partners provide viability assessment/technical assistance DEP evaluates findings; can impose requirements Can order the takeover of nonrcomplying systems by most suitable system Makes provision for compensation for the acquisition Pilot testing enhanced evaluation techniques together with onsite technical assistance Authorizes grants to fund regionalization feasibility studies MOU links regulatory action to improvements in capacity State reviews capacity during all requests for PENNVEST funds * Business plan concept extended to existing systems with problems Regional Water System Plans Individual Water System Plans for selected systems Satellite Management Program Financial Viability Program Water Utility Operating Permit Program provides status report on systems ------- 27 Appendix A Emerging State Capacity Development Programs* State Description Seorgia Some statutory authority (e.g., Trust Indenture requirement for some privately owned systems). Working on obtaining additional statutory authority. owa Statutory authority established by Chapter 4556.173(3) and 174 ofthe Iowa ode. Working with stakeholders to finish viability manual for small water supplies to use. Focus is on business plan approach with a financial self-assessment guide. Massaschusetts State is fine-tuning its capacity development program for new systems. State personnel refer a new water system applicant to a "Mobilization Partner." --' Mobilization Partner provides information and technical assistance to the new system. The Mobilization Partner's assessment of the applicant's viability is forwarded to the Department of Environmental Protection for consideration. Statutory authority established by Senate Bill 407,1991. Rule-making will Degin soon. Montana New York State believes it has sufficient statutory authority. Working on coordinating with other State agencies and establishing partnerships with training and technical assistance providers. North Carolina Has statutory authority. After working with stakeholders' committee, State will propose amendments to include the business plan concept as a method of ensuring adequate capacity of all permitted systems. A draft Memordum of Understanding with North Carolina Public Utilities Commission has been developed. South Carolina After working with stakeholders' committee, State will propose amendments to its Primary Drinking Water Regulations to include the business plan concept as a method of ensuring adequate capacity of all new and permitted systems. Texas Some existing statutory and regulatory authority for both new and existing systems. Proposing changes in 1997 to develop a more comprehensive program based on the business plan concept. Virginia Building on existing statutory authority (Virginia Code § 32.1-172) that enables the State to require a comprehensive business plan with permit applications. State plans to expand business plan requirements to systems in significant non-compliance and to applicants for SRF assistance. Working on implementation and expansion to non-transient non-community water systems. Taken in part from "Enhancing Drinking Water System Viability," prepared by the Association of State Drinking Water Administrators, ------- ------- |