Agency Highlights

United States Environmental Protection Agency (“EPA”)

Biden Administration Finalizes First National PFAS Standards for Drinking Water. On April 10, 2024, EPA finalized the first ever national limits on per- and polyfluoroalkyl substances (“PFAS”) in drinking water, which requires utilities to reduce PFAS to the lowest feasible levels. The new rule was part of a broader move in EPA’s PFAS Strategic Roadmap to protect public health. Despite support for the new rule, industry groups have outlined numerous challenges in implementing the regulations. Although $1 billion has been allocated for the new effort, some state agencies believe that amount is inadequate to sufficiently remove PFAS from water systems given the technical complexity required for effective water treatment. Additionally, suits attempting to block the rule from taking effect have been filed by industry groups, including the National Association of Manufacturers and the American Chemistry Council, as well as the American Water Works Association and the Association of Metropolitan Water Agencies.

EPA to Boost Cybersecurity for Water Utilities. EPA has warned drinking water systems that they may face enforcement action for failures to increase their cyber preparedness. EPA has said that it will step up Safe Drinking Water Act (“SDWA”) inspections of Community Water Systems (“CWSs”) to ensure they are assessing vulnerabilities in their systems—for both physical and cybersecurity weaknesses. Inspections and subsequent enforcement will cover issues such as failure to prepare an adequate Risk and Resilience Assessments and Emergency Response Plan. The effort is part of a larger Biden Administration priority to boost cybersecurity protections in infrastructure. Such efforts include the March letter issued by EPA and National Security Council (“NSC”) to all states which asked for cybersecurity plans from water systems. The deadline for states to respond with such plans is June 28, 2024. The notice followed the White House’s launch of a new policy to protect infrastructure sectors from physical and cybersecurity threats, which designates EPA as a Sector Risk Management Agency for water and wastewater systems. This designation requires EPA to craft plans and resources to address cybersecurity risk in such systems. Per EPA, over 70% of the water systems inspected since September 2023 are in violation of basic cybersecurity requirements. Some vulnerabilities included having all employees using the same login information or failing to remove access for former employees. Other federal agencies, including the Federal Bureau of Investigation, National Security Agency, and the Infrastructure Security Agency have issued several advisories regarding cyberattacks. Lawmakers are pushing collaboration with state water utilities to ensure water utilities are up to the new EPA cybersecurity standards.

Maui Guidance Finalized by EPA. EPA’s final guidance on Clean Water Act (“CWA”) permits for discharges from a point source through groundwater has been sent to the White House Office of Management and Budget (“OMB”). The guidance seeks to apply the Supreme Court’s 2020 ruling in County of Maui v. Hawaii Wildlife Fund, which established the “functional equivalence” standard for determining whether a point source discharge to a groundwater source is a functional equivalent to a direct discharge and therefore requires coverage under a National Pollutant Discharge Elimination System (“NPDES”) permit. Once final, the guidance could require previously unregulated discharges to obtain NPDES permits, including coal ash storage sites and wastewater treatment plants. State and industry groups have already raised concerns over EPA’s proposed guidance. The Association of Clean Water Administrators, which represents state regulators, filed complaints in December 2023 criticizing the guidance, arguing the indicators used could lead to misleading conclusions. The guidance also specified factors that cannot be considered when analyzing a discharge from a point source to groundwater including an eighth factor added during the last Administration which directed permit-writers to take system design and performance into consideration.

EPA Identifies Increased Need for Water Infrastructure Funding. EPA has identified over $630 billion in total clean water infrastructure needs over the next twenty years which it reports is a 73% increase from the results of the last Clean Watershed Needs Survey (“CWNS”) taken ten years ago. The agency’s clean water State Revolving Fund (“SRF”) expires in 2026 and may provide an opportunity for Congress to overhaul the fund if it is reauthorized. The most recent CWNS, taken in 2022, is based on reports from states and territories on future capital costs or investments needed to maintain and modernize water infrastructure, including publicly owned treatment works (“POTWs”), stormwater infrastructure, and nonpoint source (“NPS”) control. This is the first EPA water survey to have all states and territories participate, which ensures a more accurate representation of the needs across the country, although it is still not a perfect forecast of the overall needs due to the lack of tribal wastewater needs, which are covered by the Indian Health Service. The largest total nationwide need is for wastewater infrastructure, which accounts for 55% of the needed total of $630 billion. Additional major needs include stormwater management, accounting for 15% of the need, and decentralized wastewater treatment systems, such as septic tanks, which accounted for 11.9% of the overall need. Not all states have similar needs—only six states, including New York, Florida, California, Virginia, Louisiana, and Georgia, account for 42% of the required funds. Texas’s need is estimated to be $18.8 billion, or roughly $650 per person.

EPA Finalizes Consumer Confidence Rule for Drinking Water Systems. EPA has revised its rules for drinking water systems’ annual Consumer Confidence Reports (“CCRs”) with the intention of making data more accessible to consumers. The rule’s revised compliance date is set for 2027, instead of the original April 1, 2025 deadline for utilities to come into compliance. The compliance deadline was extended in response to public comments that highlighted challenges systems could encounter meeting the rapidly approaching CCR deadline. The revisions should provide improved clarity and comprehension of CCRs, as well as improved accuracy of the information presented to consumers. Much of the changes originally proposed by EPA in its 2023 draft version of the revision have been adopted, notably the requirement for states, territories, and tribes to report clear and easily understandable Compliance Monitoring Data with language accessibility in reports for communities where the dominant language is not English. Despite these changes, EPA has not changed the type of information required for detected contaminants, such as maximum contaminant levels or maximum contaminant level goals. EPA did include a provision that CCRs must include a brief summary description of the nature of the report, to ensure the public is sufficiently informed of the information in the CCR. Further, EPA removed a proposed provision explicitly prohibiting false or misleading statements for fear of fostering a chilling effect on water systems accurately preparing their reports.

EPA to Coordinate on WOTUS Jurisdictional Determinations. EPA is coordinating with the United States Army Corps of Engineers (“USACE”) regarding jurisdictional determinations (“JD”) for when waterbodies are considered “waters of the United States” (“WOTUS”) following the Supreme Court’s decision in Sackett v. EPA. The move arises from industry complaints about inconsistency between EPA action and the recent Supreme Court precedent, arguing that EPA was implementing the WOTUS rule contrary to the Sackett decision, which held that only wetlands which are indistinguishable from adjacent jurisdictional waterbodies based on a “relatively-permeant” surface connection are subject to WOTUS regulations. Currently, roughly twenty-seven states are operating under the pre-2015 WOTUS regime as a result of litigation against the current EPA rule, whereas the remaining states are subject to the current Sackett compliant rule. As such, EPA released an updated memo on April 25, 2024 highlighting the coordination process between EPA and the USACE on JDs. The updated memo states that when approved drafts of JDs are sent to the USACE headquarters for review, a policy memorandum issuing guidance for EPA regional and USACE district offices may be issued, and that such memoranda will be posted online. This new effort is to ensure transparency and accessibility to the public. EPA notes these policy memoranda are not a substitute for regulations or rules but are merely advisory. The current coordination effort, as set out in the memorandum, is to remain in effect until June 27, 2024.

Revised Funding for States’ Lead Service Lines Replacements. EPA has released additional allotments of Bipartisan Infrastructure Law funding in the amount of $3 billion appropriated to tackle Lead Service Lines Replacements (“LSLRs”) through drinking water state revolving funds for the 2024 fiscal year. The funds are expected to help states comply with the upcoming Lead and Copper Rule Improvements, which proposes the achievement of one hundred percent completion of LSLRs within ten years of adoption. Funding for water infrastructure is generally allocated on a need-based formula, with the largest allocations currently going to Illinois and Florida, both of which are receiving over $200 million each. Despite the use of a need-based formula, not all states and water systems are pleased with the result, claiming funding levels still fall short of LSLR needs. EPA has also released an implementing memorandum to help states identify how to use the funds in order to most effectively reduce exposure to lead in drinking water. The memorandum includes requirements for full LSLRs, strategies and design suggestions, and risk management techniques, and places an emphasis on the importance of public notification during the process. The plan also addresses common roadblocks in LSLR implementation, such as when a homeowner refuses access to their home to replace lead pipes on their property. Water systems have an October 16, 2024 deadline to complete their initial lead service line inventories, which will help to ensure the proper amount of funds are distributed according to need.

EPA Progress on New SDWA Perchlorate Rule. EPA’s Office of Ground Water and Drinking Water is primed to adopt a new national primary drinking water standard for perchlorate, which is currently scheduled for proposal by late 2025 and official adoption of a final regulation by mid-2027. The regulation will be developed consistent with an Obama-era consent decree issued in NRDC v. EPA. Although perchlorate regulation has been a priority for environmentalists for decades, EPA has been slow to formulate a rule despite first considering regulating perchlorate under SDWA in 1998. Such delay fueled NRDC’s suit, which resulted in a new 2019 deadline for EPA to propose perchlorate regulations. Subsequently, EPA during the Trump Administration chose to withdraw altogether the determination that established regulations were needed, stating that perchlorate was no longer present in drinking water at concerning levels. Such withdrawal was then upheld by the Biden Administration but later overruled by the U.S. Court of Appeals for the District of Columbia in a decision siding with environmentalists and setting a precedent that EPA lacked the authority to roll back SDWA regulatory determinations. This decision reinvoked a prior determination from 2011 and remanded the rulemaking process to EPA, which ultimately negotiated the current timeline with environmentalists.

EPA Strengthens National Ambient Air Quality Standards for Particulate Matter. Under the Clean Air Act (“CAA”), EPA must review the National Ambient Air Quality Standards (“NAAQS”) periodically for: (1) carbon monoxide; (2) lead; (3) nitrogen dioxide; (4) ozone; (5) particulate matter; and (6) sulfur dioxide. During each review, EPA evaluates whether updating any standard is necessary to protect public health or welfare. In June 2021, EPA decided to reconsider its 2020 finding that no Particulate Matter (“PM”) standards were required to be updated due to several petitions for review and reconsideration as well as newly available scientific evidence. This review and reconsideration resulted in a finding that the primary annual standard for PM2.5 should be lowered from 12 µg/m3 to 9 µg/m3. After a notice and comment period proposing such change, EPA published the final rule on March 6, 2024, with an effective date of May 6, 2024. No other PM standards were revised with this rule implementation.

United States Department of the Treasury

Several Federal Agencies Issue a Joint Policy on Voluntary Guidelines for Carbon Offsets. In May 2024, several key federal governmental parties, including the Secretaries of Treasury, Agriculture, and Energy and several climate advisors, published a joint policy on responsible participation in Voluntary Carbon Markets (“VCMs”). VCMs allow companies that emit unavoidable carbon emissions to compensate (or “offset”) those emissions by purchasing carbon credits. Each credit corresponds to one metric ton of removed, avoided, or reduced carbon or equivalent greenhouse gas (“GHG”), and companies can use these credits to help offset their GHG emissions. These principles come in the wake of a finding that many frequently used crediting methodologies have not produced the decarbonization outcomes claimed, and include policies that: (1) credits must represent actual decarbonization and must meet credible atmospheric integrity standards; (2) credit-generating activities should avoid environmental and social harm; (3) corporate entities shouldn’t rely solely on credits to achieve “net zero” emissions; (4) credit purchasers should publicly disclose information regarding purchased and “retired” credits; (5) the published information should be accurate regarding the climate impact of retired credits; and (6) participants should help improve market integrity and seek to lower transaction costs through market efficiency. While these principles are non-binding, they may indicate how federal agencies will approach regulations surrounding carbon emissions.

Public Utility Commission of Texas (“PUC”)

Transmission and Distribution Utilities File Energy Efficiency Applications. The following Investor-Owned Transmission and Distribution Utilities recently filed applications to adjust their Energy Efficiency Cost Recovery Factor (“EECRF”): Oncor Electric Delivery Company LLC (Docket No. 56682); CenterPoint Energy Houston Electric, LLC (Docket No. 56690); Texas-New Mexico Power Company (Docket No. 56657); and AEP Texas Inc (Docket No. 56553). Under PUC’s rules, utilities may establish an EECRF for recovery of reasonable costs for energy efficiency programs and apply no later than June 1 each year to adjust the EECRF.

Oncor and CenterPoint File System Resiliency Plans. In early May, Oncor Electric Delivery Company LLC (“Oncor”) and CenterPoint Energy Houston Electric, LLC (“CenterPoint”) filed applications for approval of their system resiliency plans. This type of application is a creature of state legislation passed during last year’s session in House Bill 2555. Effective February 8, 2024, PUC adopted a rule, pursuant to the legislative change, allowing electric utilities that own and operate a transmission or distribution system to file a resiliency plan and undergo a 180-day review process. Under the rule, utilities may request recovery of costs associated with an approved resiliency plan. Oncor’s application is under Docket No. 56545, and CenterPoint’s application is under Docket No. 56548.

PUC Rulemaking Update. PUC Staff’s current 2024 rulemaking calendar can be found under Docket No. 56060. In our April 2024 issue of The Lone Star Current, we provided the list of priority projects as of February 2024. Status updates on the Commission’s outstanding rulemakings are provided below.

• Project No. 55812—Texas Energy Fund Completion Bonus Grant Program; new rule effective May 15, 2024
• Project No. 55948—Review of Voluntary Mitigation Plans; new rule effective May 15, 2024
• Project No. 53924—Water and Sewer Utility Rates After Acquisition; new rule effective April 10, 2024
• Project No. 53404—Power Restoration Facilities and Energy Storage Resources for Reliability; Proposal for Publication issued June 8, 2024; comments due July 18, 2024
• Project No. 54224—Cost Recovery for Service to Distributed Energy Resources (“DERs”); Commissioner Glotfelty filed memorandum on June 12, 2024
• Project No. 54584—Reliability Standard for the ERCOT Market; Proposal for Publication issued June 6, 2024; comments due July 15, 2024

Other rulemaking projects awaiting next steps:

• Project No. 52059—Review of PUC’s Filing Requirements
• Project No. 56199—Review of Distribution Cost Recovery Factor
• Project No. 54233—Technical Requirements and Interconnection Processes for DERs
• Project No. 52301—ERCOT Governance and Related Issues
• Project No. 55249—Regional Transmission Reliability Plans
• Project No. 51888—Critical Load Standards and Processes
• Project No. 53981—Review of Wholesale Water and Sewer Rate Appeal
• Docket TBD—Water Financial Assurance

Railroad Commission of Texas (“RRC”)

TGS CGSA Rate Case Ongoing. On June 3, 2024, Texas Gas Service Company (“TGS”) filed a rate application for its Central-Gulf Service Area with RRC and cities retaining original jurisdiction. TGS proposes to increase revenues by $28.5 million (by 15.59%, excluding gas costs). In addition, TGS seeks approval of multiple new rate riders, implementation of new depreciation rates, and a prudence determination on its capital investment.

CenterPoint Gas Settlement. In 2023, CenterPoint Texas filed an application to change gas rates in its Texas division. As of June 11, 2024, RRC is scheduled to consider a Proposal for Decision based on a settlement of the parties. The Proposal for Decision recommends an overall revenue increase of $5,000,000 from current annual revenues. In addition, the Proposal for Decision recommends a 9.8% Return on Equity (CenterPoint Texas requested 10.5%).

“Agency Highlights” is prepared by Chloe Daniels in the Firm’s Water and Districts Practice Groups; Mattie Neira in the Firm’s Air and Waste Practice Group; and Roslyn Dubberstein in the Firm’s Energy and Utility Practice Group. If you would like additional information or have questions related to these agencies or other matters, please contact Chloe at 512.322.5814 or chloe.daniels@lglawfirm.com, or Mattie at 512.322.5804 or mneira@lglawfirm.com, or Roslyn at 512.322.5802 or rdubberstein@lglawfirm.com.