December 21, 1998
EPA-SAB-DWC-ADV-99-001
The Honorable Carol Browner
Administrator
United States Environmental Protection Agency
401 M Street, SW
Washington, DC 20460
An SAB Advisory on the National-Level Affordability Criteria and
Technologies for Small Systems Under the 1996 Amendments to
the Safe Drinking Water Act
Dear Ms. Browner:
This Advisory was developed by the Drinking Water Committee (DWC) of the Science
Advisory Board (SAB) in response to an interaction with Agency representatives at a meeting on
June 19, 1998. The Agency's substantial efforts and progress in developing these criteria are
apparent in the draft report that was provided to the Committee, entitled, National-Level
Affordability Criteria Under the 1996 Amendments to the Safe Drinking Water Act (Revised
Draft Report dated April 30, 1998). This Advisory provides a series of comments that the SAB
feels are important to the success of the Agency's efforts to select and explain its affordability
criteria.
1. BACKGROUND
The Safe Drinking Water Act (SDWA) requires EPA to set maximum contaminant levels
(MCL) to protect the public health from certain pollutants in drinking water. MCLs are to be set
as close to health-based goals (MCLG) as feasible and employ the best technology available.
When setting an MCL the Agency must consider the cost and the efficacy of technologies and
other possible treatment means (i.e., determine if an MCL is feasible).
Drinking water systems must implement measures to keep contaminants from exceeding
specific MCLs. However, the technical demands and costs associated with implementing
corrective techniques that are feasible for large drinking water systems often make such
techniques inappropriate for small systems. Therefore, SDWA requires the agency to conduct
small system technology assessments for contaminants that are already covered by existing
regulations, or for which regulations may be developed in the future, for three categories of small
systems depending upon the number of people they serve (25 - 500 people, 501 - 3,300, and
3,301 - 10,000). SDWA mentions two classes of technologies for small systems, compliance and
variance technologies.
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A compliance technology is a technology that is affordable and achieves compliance with
an MCL or satisfies a treatment requirement. Affordability and technical complexity are
considered when evaluating compliance technologies for small systems; however, affordablity is
considered to be a key criterion. Variance technologies are technologies that achieve the
maximum reduction or inactivation efficiency affordable — and that are protective of public
health—for specific system size/source water quality combinations. Variance technologies are to
be specified for system size/source water quality combinations for which a compliance technology
cannot be identified.
The Agency published a list of compliance technologies that meet surface water treatment
rule (SWTR) requirements for small systems on August 11, 1997. On August 6, 1998
(subsequent to the DWC meeting in which affordability criteria were discussed), the Agency
published a list of technologies to achieve compliance for other existing National Primary
Drinking Water Regulations (NPDWR). Affordability criteria, the subject of this Advisory, were
applied during the analysis that supported the publication of the August 6, 1998 list. In that
action, the Agency determined that compliance technologies existed for all 80 of the currently
regulated drinking water contaminants: therefore, no variance technologies are identified. The
Agency intends to apply the affordability criteria as it develops future NPDWRs.
In the August 6, 1998 announcement of the list of compliance technologies, the Agency
noted that due to the short time available to develop and apply the affordability criteria, it
considered the application of the current methodology to be an initial screen and not a final
determination. EPA noted in the announcement that it was interested in receiving comments on
how to improve its method for future updates to these lists.
Compliance and variance technology pathways are mutually exclusive under the SDWA.
The primary role of national-level affordability criteria is to identify whether pollutants covered by
specific NPDWRs have available a variance technology pathway or only a compliance technology
pathway. However, the national-level criteria do not lead directly to a decision on technology
affordability and the selection of a specific treatment technologies for individual drinking water
systems. If national-level affordability criteria are set very high, then the variance technology
pathway will be limited or eliminated and systems will need to install compliance technologies. If
national-level criteria are set very low, the compliance technology pathway will be limited or
eliminated and more systems will operate under small system variances. It is important to note
that a "no-cost" alternative is not an option since some action will be necessary for systems that
exceed an MCL.
Key Agency considerations in setting national level affordability criteria included: a) user
burden (e.g., drinking water cost increase per household); b) existence of financial assistance from
other than water users; c) knowledge that user burden alone as a criterion could act as a barrier
against technology; and d) difficulty for a system to install a technology that did not meet the
affordability criteria. In developing its income-based measures of affordability, the agency looked
at baseline annual water bills for single residential and non-residential customers, water
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consumption levels, expenses and revenue for systems of various sizes and water sources, annual
household water costs, median household income (MHI), and comparative household
expenditures as a percent of MHI.
To settle on appropriate criteria the Agency attempted to determine: a) if the link between
household cost increases and median household income is the best measure of affordability;, b) if
EPA should use a 'bump' to account for financial assistance since the method can't directly
measure it; c) whether EPA should use separate baselines for groundwater and surface water
systems and public versus private systems; d) if there exist additional methods to estimate current
annual household water bills; e) what household consumption level to use to evaluate treatment
cost; f) if there are other mechanisms to estimate MHI; g) if the mean or the median is the
appropriate measure for water sales revenues/MHI/consumption; h) if other utilities should be
part of the comparisons; and i) if residential users are the most vulnerable?.
The Agency asked the DWC its opinion on: a) the components included in the national-
level affordability criteria; b) the EPA measure of national-level affordability; and c) whether there
might be better alternatives.
2. COMMENTS AND RECOMMENDATIONS
The Committee was pleased with the analysis contained in the background report provided
by the Agency. The Committee noted that no statutory definition exists for the concept of
affordability and that the deadline for developing criteria for affordability did not provide ample
time for the Agency to conduct original studies that would lead to an empirically derived meaning
of affordability. The Committee thought that some of the comparisons between incremental costs
for treatment technologies and other expenditures made in the Agency's background document
had a raw intuitive appeal while a few did not. For example, many members of the Committee felt
that attempting to support an affordability threshold by referring to alcohol and tobacco costs was
wholly inappropriate. Further, the Committee thought that the focus on defining affordability by
reference to median household income was not well explained by the report. Further, the
members questioned why the economic circumstances of less fortunate families was unimportant.
More generally, it would seem that without a clear conceptual framework, efforts to determine
affordability become highly arbitrary.
An element in the Agency analysis which has more theoretical appeal is the effort to
consider evidence on willingness to pay (WTP) for other risk reduction activities. The reference
to willingness to pay for point of use treatment devices and bottled water appears to be relevant,
but the report did not make it clear whether the underlying data were adequate to support
estimates of willingness to pay for risk reduction. Specifically, it was not clear how much of the
willingness to pay for bottled water (or point of use treatment devices) should be attributed to
willingness to pay for risk reduction (i.e., "perceived safety of drinking water") as opposed to
other attributes of bottled water. A critical test of this assumption would be to determine whether
bottled water users return to drinking tap water when improvements in treatment systems (such as
those envisioned under the SDWA amendments) occur. Several members of the Committee
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doubted that substantial changes in tap water consumption would be likely. Without such
information it may be hard to defend these estimates of willingness to pay as being directly
applicable to the assessment of affordability. Although there may be little data directly relevant to
assessment of willingness to pay for reduction of drinking water risks, a number of estimates are
available for valuing risk reduction in other settings.
In addition, since total residential water usage is not equivalent to drinking water
consumption, the amount that consumers are willing to pay for drinkable water may differ among
consumers in different geographical locations, and in the context of their other uses of water.
Some additional complexities can be illustrated by an example. Consumers may be willing to pay
more for drinking water, but not for watering their lawns. Therefore, costs of point of use
devices or bottled water may reflect the possibility that a consumer places a premium on safe
drinking water, but not on the multitude of other uses of water in a household. Perhaps the
consumer simply prefers beverages other than tap water for drinking. In these cases, the
willingness to pay might apply only to that volume of tap water that is consumed by humans.
Finally, in the text of the report, numerous statements are made that reflect judgments
which are important to the outcome of the study. Each of these judgments should be identified
and should be subjected to review by persons with appropriate qualifications. One key example of
such a judgment is "...technology costs are presumed affordable to the average household if they
are within a certain percentage of median household income and comparable to other household
expenditures." Several other such judgments are listed in Appendix A to this Commentary.
Viewed in light of these issues, the report's final assertion that household water costs
between 1.5 and 3.5 percent of median (or mean) household income may seem to be both
arbitrary and difficult to defend. In a recent action, the Agency finally settled on 2.5% of MHI as
the criterion; see the August 6, 1998 Federal Register announcement (page 4203; FR, Vol. 63,
No. 151).
The SAB recognizes that in directing EPA to consider "national affordability" the statute
provides EPA with a difficult task. The SAB appreciates that this report represents a substantial
effort. Nevertheless, there are several aspects of the analysis and report that could be improved if
given further attention. The DWC recommends that:
a) EPA search the literature for — (1) a definition of national affordability; (2)
estimates of willingness to pay for risk reduction; (3) studies of the price-elasticity
of water consumption; and (4) a comparison to water costs in other countries,
especially Canada and Western Europe.
b) EPA consider arranging short-term consultations with one or two experienced
economists who have worked extensively in health or environmental benefits
assessment or regulatory economics, to ensure that any theoretical basis or
historical regulatory precedents for evaluation of affordability have been
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considered, and where appropriate, drawn upon in the analysis of affordability.
c) In the report, EPA should (1) reflect the conceptual and practical difficulties with
the definition of affordability; (2) deal with these issues openly and early; and (3)
make it clear to readers that EPA has carefully thought through these problems
and their alternative interpretations in arriving at its solution to the problem.
d) Where strong assumptions, which are critical to the report's conclusions, are
necessary, that EPA clearly identify each such critical assumption, and discuss
alternative interpretations that were considered and discarded.
While the analysis provided is certainly adequate given the lack of guidance and short
deadline provided in the legislation, the Committee believes that the report would benefit from
additional input by economists and policy analysts even in the short term. Because of the critical
impact that affordability has on community compliance, the Committee urges the Agency to take
the time to obtain a better set of criteria for the longer term with more measured input and review
by experts in economics and public policy. We look forward to the response from the Assistant
Administrator for the Office of Water.
Sincerely,
/signed/ /signed/
Dr. Joan M. Daisey, Chair Dr. Richard J. Bull, Chair
Science Advisory Board Drinking Water Committee
Science Advisory Board
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APPENDIX A - Illustrative List of Judgments
"Non-community water system...their water treatment costs to be passed on to customers in the
form of increased prices for other goods and services to customers."
"...at least half of the very smallest systems are attaining their revenues from sources other than
water sales."
"...water systems in the smallest size category are not meeting their expenses."
"...affordability determinations should include consideration of the inefficient pricing of water."
"...the average rating of perceived safety among respondents nationally was 75.9. However, the
desired safety level was rated at 93.6, suggesting that people wanted to be provided with drinking
water of higher quality than actually received. Those customers who used bottled water had a
mean perceived safety of local water of only 57.5."
"Based on these considerations, establishing an affordability threshold in the range of 1.5 to 3
percent of income appears to be consistent with EPA's joint objectives of maintaining low
household costs, while providing sufficient additional revenues to support further public health
improvements."
A-l
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APPENDIX B - Acronyms and Abbreviations
CDW Centrally Distributed Water
DWC Drinking Water Committee
MCL Maximum Contaminant Level
MHI Median Household Income
SAB U. S. EPA Science Advisory Board
SDWA Safe Drinking Water Act Amendments of 1996
WTP Willingness to Pay
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U.S. ENVIRONMENTAL PROTECTION AGENCY
SCIENCE ADVISORY BOARD
DRINKING WATER COMMITTEE
CHAIR
DR. RICHARD J. BULL, Battelle Pacific Northwest Laboratories, Molecular Biosciences, Richland,
WA
MEMBERS/CONSULTANTS
DR. LENORE S. CLESCERI, Rensselaer Polytechnic Institute, Materials Research Center,
Troy, NY
DR. MARY DAVIS, Department of Pharmacology & Toxicology, Robert C. Byrd Health Sciences
Center, West Virginia University, Morgantown, WV (Consultant)
DR. YVONNE DRAGAN, Ohio State University, Columbus, OH
DR. JOHN EVANS, Program in Environmental Science and Risk Management Harvard School of Public
Health, Portsmouth, NH
DR. ANNA FAN-CHEUK, California Environmental Protection Agency, Office of Environmental Health
Hazard Assessment, Pesticide and Environmental Toxicology Section, Oakland, CA
DR. CHRISTINE MOE, Assistant Professor, Department of Epidemiology University of North Carolina,
McGavran-Greenberg, Chapel Hill, NC (Consultant)
DR. CHARLES O'MELIA, Department of Geography and Environmental Engineering, The Johns
Hopkins University, Baltimore, MD
DR. EDO D. PELLIZZARI, Research Triangle Institute, Research Triangle Park, NC
DR. VERNE A. RAY, Medical Research Laboratory, Pfizer Inc., Groton, CT (Consultant)
DR. GARY A. TORANZOS, Department of Biology, University of Puerto Rico, San Juan, PR
DR. RHODES TRUSSELL, Montgomery Watson, Pasadena, CA
DR. MARYLYNN V. YATES, Department of Soil & Environmental Sciences, Geology, University of
California, Riverside, CA
SCIENCE ADVISORY BOARD STAFF
MR. THOMAS (TOM) MILLER, Designated Federal Officer, US EPA, Science Advisory Board, 401
M Street, S.W. (1400), Washington, DC
MS. DOROTHY M. CLARK, Management Assistant, US EPA, Science Advisory Board, 401 M Street,
S.W. (1400), Washington, DC
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NOTICE
This report has been written as part of the activities of the Science Advisory Board, a
public advisory group providing extramural scientific information and advice to the Administrator
and other officials of the Environmental Protection Agency. The Board is structured to provide
balanced, expert assessment of scientific matters related to problems facing the Agency. This
report has not been reviewed for approval by the Agency and, hence, the contents of this report
do not necessarily represent the views and policies of the Environmental Protection, nor of other
agencies in the Executive Branch of the Federal government, nor does mention of trade names or
commercial products constitute a recommendation for use.
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