Water Sector Reform #5: Environmental Justice
With a major federal investment in water infrastructure possibly on the horizon, the United States has a once-in-a-generation opportunity to leverage that money into a structural transformation of America’s water sector. This is the last in a series of posts outlining broad proposals to reform the management, governance, and regulation of U.S. drinking water, sewer, and stormwater systems. The first proposed reform was consolidation of water utilities; the second was an overhaul of financial regulation; the third was investment in information technology; the fourth was investment in water sector human capital.
My fifth proposal is to build environmental justice into federal water regulations.
Drinking water & environmental justice
It’s difficult to overstate just how much the Flint Water Crisis changed the national conversation on drinking water. As I’ve observed before, Flint’s water contamination wasn’t the first, or worst, or largest drinking water crisis in America in recent years, but for it’s the one that put a spotlight on water infrastructure. Last month a similar lead contamination in Newark grabbed headlines across the country again.
The lead contamination crises in Flint, Newark, and elsewhere turned the spotlight on an uncomfortable reality: America’s water systems problems are not just about infrastructure management, they’re also about institutional politics, race, ethnicity, and poverty. There’s a growing recognition that water infrastructure is an environmental justice issue. That’s expanded the political coalition interested in water infrastructure and raised the stakes in the politics of drinking water.
The color of drinking water
Anecdotes and case studies about drinking water and environmental justice abound. Looking for more rigorous evidence, David Switzer and I conducted the first nation-wide analysis of the relationships between race, ethnicity, socioeconomic status, and Safe Drinking Water Act (SDWA) compliance. Here’s what we found:
The red areas of the graph show high likelihood of drinking water violations, the blue areas show low likelihood. These results provide strong evidence of a systemic injustice in utilities serving low-income communities of color across the United States. In communities with higher populations of black and Hispanic individuals, SDWA health violations are more common. What’s more, race and ethnicity seem to matter most in determining drinking water quality in the poorest of communities. My analysis of public experiences with drinking water service also reveals important disparities by race and income. The racial disparities are far, far worse in Indian Country. My study with Mellie Haider and David Switzer found that Clean Water Act violations are 23% higher and SDWA violations are 59% higher on tribal facilities compared with non-tribal facilities.*
The reasons for these racial, ethnic, and socioeconomic disparities in water quality and utility service are varied and complex. In some cases it’s a familiar tale of urban de-industrialization and white flight; in others it’s a legacy of racial discrimination in housing or infrastructure development programs. Environmental injustices in drinking water aren’t just urban phenomena, either: majority-black and majority-Hispanic communities suffer from poor water quality across vast swaths of rural America—to say nothing of Indian Country.†
Unfortunately, the regulatory response to ongoing water quality problems in poor, minority communities is to loosen regulations or look past violations. Outsiders to the water sector are sometimes surprised to learn that there are no federal laws requiring racial, ethnic, or socioeconomic equity in water quality.
If we are going to pour hundreds of billions of federal dollars into water infrastructure, that money must bring us closer to environmental justice. My final water sector reform proposal, then, is to build environmental justice into federal water regulations. That means, at a minimum:
- Establishing standard metrics to assess racial, ethnic, and socioeconomic equity in environmental conditions and infrastructure investments. I’m working on some new environmental equity metrics that I hope to put into practice soon.
- Utilities must collect and publicly report data on service shutoffs and restorations.
- Regulators must demonstrate racial, ethnic, and socioeconomic equity in inspections and enforcement actions.
Eligibility for all federal infrastructure funding must be contingent on utilities demonstrating equity in conditions, investment, and administration, or adequate progress toward that goal. Extra funding and technical assistance should be targeted at communities that suffer from significant disparities due to historical or structural disadvantages—most obviously tribal systems.
Together with the other systemic reforms I’ve proposed, this commitment to environmental justice can rebuild trust in America’s water systems and build a broad political coalition in support of investment in the nation’s most essential infrastructure.
*We’ve got more research on tribal water issues in the, er, pipeline.
†Environmental injustice in rural America often come as a surprise to big city folks, who often seem to think that “rural” means “white.” Racial/ethnic disparities in water quality don’t surprise anyone who’s spent time in South Texas, Northern Arizona, or Alabama’s Black Belt.
Important developments in California for utility affordability
California’s Public Utilities Commission (CPUC) is working on establishing methods to measure affordability for utility service. The CPUC governs ratemaking for the state’s investor-owned water, energy, and telecommunications utilities.* The idea behind the CPUC’s process is to craft sensible, valid metrics to gauge low-income households’ ability to pay for essential services.
As part of their efforts, CPUC has been reviewing the latest academic research on affordability measurement. I was involved in this process through a series of conversations with CPUC staff and a workshop in San Francisco earlier this year. It’s been fascinating to watch the CPUC grapple with this important issue, and gratifying to see principles that I’ve advanced take shape in policy.
I spend a lot of time thinking, researching, and writing about water affordability; other scholars think about energy and telecom—that’s how industries and disciplines are organized. But of course, the same people who use water utilities also use electricity, gas, telephones, and Internet service. The affordability of any one of these services depends in part on the prices of all the others. So a realistic picture of utility affordability has to include all of them.
What’s particularly exciting about the CPUC’s current work is that they’re crafting a single affordability metric to capture the cost of all these utility services. That requires defining essential service levels for each service, measuring the prices for those levels of service, and estimating the ability of low-income households to pay for that bundle of services in combination. It’s an analytically daunting task.
Principles in practice
The CPUC staff took up the challenge, and crafted a smart proposal for comprehensive affordability measurement. The proposal sets essential water supply at 50 gallons per person per day (gpcd), Essential energy is set at “baseline quantities,” with end use studies underway. Telecom essential services are defined as 20 Mbps, 1024 GB/month, and 100 minutes per month. The total price of essential service for all three is the real cost of utilities.
The proposal then uses a combination of three metrics to assess affordability: the Affordability Ratio (AR), Hours at Minimum Wage (HM), and the Ability to Pay Index (API). Each of the metrics offers a different but important perspective on affordability. Here’s how the CPUC report summarizes the three metrics:
The report describes each metric in detail and discusses the ways that they can complement each other. I won’t lie—I’m pretty geeked to see the first two of those, since I introduced and have been evangelizing for them in the water sector. CPUC staff have picked up these principles and run with them.
The CPUC affordability rulemaking process is ongoing, but this staff proposal is an exciting development in utility pricing.
*The CPUC’s efforts are running in parallel with similar work by the California State Water Resources Water Board, which regulates the state’s water utilities, public and private.
Water Sector Reform #2:
Regulatory Transparency & Fairness
With a major federal investment in water infrastructure possibly on the horizon, the United States has a once-in-a-generation opportunity to leverage that money into transformational, institutional solutions for America’s water sector. This is the second in a series of five posts outlining five broad ideas to reform the management, governance, and regulation of U.S. drinking water, sewer, and stormwater systems. The first proposed reform was consolidation of water utilities.
The second proposed reform is an overhaul of the processes and institutions that regulate water system finance using regulatory models from New Jersey and Wisconsin. The goal of this reform is not to regulate water quality directly, but rather to change the incentives for the organizations that operate water systems.
The need for regulatory reforms follow from the ownership structure of the U.S. water sector.
Another important way in which water is different from energy and other utilities is ownership. The overwhelming majority of Americans get their electricity and/or gas from a private, investor-owned firm, with small minorities receiving service from government utilities. But water is a different story: about 88% of Americans get their drinking water service from a local government, with about 12% served by private firms.
Ownership is crucial because different institutions govern private and public systems, creating different incentives for infrastructure investment.
Public Utilities Commissions
Let’s start with the private sector. The profit motive, constrained by regulation, drives management of investor-owned utilities.
Private utilities of all kinds—water, energy, telecom, whatever—are operated by corporate managers in the interests of their shareholders. But utilities are natural monopolies, and so we can’t count on free markets to guide investment and pricing. Instead, prices are not set by the companies themselves, but rather by the state Public Utilities Commissions (PUCs). The PUCs require utilities to report publicly their asset management plans and financial records in order to justify their pricing. PUC-regulated systems must also report a variety of performance data, which commissioners scrutinize to ensure that utilities are maintaining adequate service.
PUCs allow private utilities to set prices based on the amount of capital they invest in the system: the more capital invested, the more revenue they earn. That can create an incentive for private utilities to over-invest in infrastructure because those investments allow them to raise rates—a problem known as the Averch-Johnson Effect. Much of what the PUCs do is scrutinize all those investments to ensure that they’re justified and that utilities aren’t gold-plating their systems. In other words, PUCs act to prevent over-investment in utility capital.
But remember, that’s only about 12% of the water sector.
The overwhelming majority of water service is provided by local governments—usually cities, counties, towns, villages, authorities, and special districts. These systems are managed by local bureaucrats, with investment and pricing decisions made by local elected officials. For all the talk about federal funding, U.S. water infrastructure investment is mainly a function of local politics.
Local politics are unkind to water infrastructure because the price of water is much more visible than the quality of water. As in all things, people generally like high quality and low prices. Thing is, most contaminants in water are invisible. Unless my water is so bad that I can smell or taste it, unless there are frequent an ongoing outages and main breaks, I really have no idea how good my water system is. Unlike roads and bridges, water systems are literally buried.
But the price of water is easily observable. Voters may not know what contaminants are in the water, but they know for sure what they pay for it when they get the bill each month.
Now suppose I’m an elected official who wants to please my voters. If I make decisions that maintain or improve water quality, that’s good! Alas, my voters may not recognize the improvement. But quality improvement might cause prices to increase, which is bad because higher prices are immediately visible to voters.
But blame avoidance isn’t good for infrastructure investment. That’s a big part of why all those facilities built back in the 1970s and 80s are crumbling today. Back when the CWA and SDWA sent hundreds of billions of dollars to local governments, the idea was never for the US government to own and operate water systems. The goal was for Uncle Sam to help get those systems up and running in compliance with the new environmental laws. Local governments were then supposed to take over responsibility for those systems. In too many cases political forces have led local officials to run those systems to failure. Local politicians don’t neglect water infrastructure because they’re stupid; they do it because they’re responsive to voters.
Jersey to the Rescue?
In 2017 New Jersey passed the Water Quality Accountability Act (WQAA), which requires all water utilities—both government and investor-owned—to develop asset management plans, report on infrastructure conditions, and reinvest adequately in their systems. Rule-making to implement the new law is still under way, but what the WQAA requires of all water systems is similar to what PUCs already require of investor-owned utilities: transparency about infrastructure conditions, evidence that they are managing assets responsibly, and evidence of system performance.
Making all that system information transparent can make water’s quality as visible at its price. We can make water infrastructure a credit-claiming opportunity for local officials, not just a blame-avoidance game. Mayors seeking reelection should point at their cities’ water system performance with pride, not merely seek to duck responsibility for rate increases.
Meanwhile, in Madison…
A thousand miles away, Wisconsin employs a unique regulatory system that’s a perfect complement to New Jersey’s new law. All fifty states and the District of Columbia have Public Utilities Commissions, but Wisconsin is the only state where all systems—public and private—are subject to PUC financial regulation. That is, Wisconsin local governments must get approval of their rates from the PUC (or the Public Services Commission, as they call it there).
As with other utilities commissions, the traditional role of the Wisconsin PSC with respect to rates is to guard against over-pricing by private monopolies. But in the case of local government utilities, the PSC’s authority could include New Jersey-style asset management requirements and a guard against underpricing due to inadequate reinvestment. At the same time, the PSC provides something of a shield for local leaders. As a 2012 Alliance for Water Efficiency report observed:
“The Wisconsin Public Service Commission regulates both public and private water systems, and assumes the responsibility for approving all changes to water rate-making in the state. Thus, the political ‘heat’ is off at the local level and water systems can more easily approach the PSC for needed changes to their revenue structures.”
In theory, if a utility isn’t adequately investing in maintenance and upgrades, the Wisconsin PSC might actually be able to compel rate increases. (I’m not sure that’s ever actually happened).
Together, the Garden State’s new WQAA and the Badger State’s PSC authority over local governments would be a potent regulatory combination. So my second proposed reform is to require comprehensive asset management and performance reporting for all water utilities (as in New Jersey), and to extend PUC pricing regulation to government utilities (as in Wisconsin). The idea is broadly consistent with Australia’s model for urban water price regulation. As with my other proposed reforms, achieving such a significant overhaul to the nation’s regulatory institutions will require federal leverage.
The great promise of the regulatory regimes pioneered in New Jersey and Wisconsin is that transparency and fairness can make buried infrastructure more visible, and so shift the political incentives for sound management of water systems.