Lead Line Replacement: Accounting and other considerations from Missouri: WU-2017-0296 Geoff Marke, Chief Economist Missouri Office of the Public Counsel

Lead Overview

US National Research Council Committee on measuring lead in critical populations. (1993) Measuring lead exposure in infants, children and other sensitive populations. National Academies Press. https://www.ncbi.nlm.nih.gov/books/NBK236466/

Adapted from, Rosen et al Adapted from, Rosen et al. (2017) A discussion about the public health, lead and Legionella pneumophila in drinking water supplies in the United States. Science of the Total Environment. http:www.researchgate.net/profile/Lok_Pokhrel2/publication/313842318_A_Discussion_about_Public_Health_Lead_and_Legionella_pneumophila_in_Dri nking_Water_Supplies_in_the_United_States/links/592847100f7e9b9979a35976/A-Discussion-about-Public-Health-Lead-and-Legionella-pneumophila-in- Drinking-Water-Supplies-in-the-United-States.pdf

Policy Statement from the American Academy of Pediatrics Policy Statement from the American Academy of Pediatrics. Prevention of Childhood Toxicity (2016) Pediatrics . http://pediatrics.aappublications.org/content/early/2016/06/16/peds.2016-1493

CDC (2017) Recommended actions based on blood lead level: Summary of recommendations for follow-up and case management of children based on confirmed blood lead levels. https://www.cdc.gov/nceh/lead/acclpp/actions_bills.html

Triantafyllidou, S. & M. Edwards. (2011) Lead (Pb) in U. S Triantafyllidou, S. & M. Edwards. (2011) Lead (Pb) in U.S. drinking water: school case studies, detection challenges and public health considerations. Critical Reviews in Environmental Science and Technology. http://www.yaleseas.com/watersymposium/pdfs/EdwardsLeadPaper.pdf

Missouri American Water Lead Service Line Request

Missouri American Water Timeline April 28th - Notice of Rate Increase Request May 12th - Requests an Accounting Authority Order (“AAO”) Cost of all customer-owned lead service line replacements in 2017 Total of 280 words informing the Commission of the “Presence of Lead Service Lines” June 30th - $369 (non-ISRS $84) million rate increase request or 25.4% overall increase over revenues from last general rate case (WR-2015-0301) Specific district requests vary: St. Louis County = 45.5 to 48.4% increase Single-Tariff, AMI, Cloud Computing, Decoupling, ISRS, Future Test Year and 10.8 ROE August 1st - Direct Testimony filed for AAO September 27th - One-Day Hearing over AAO

Missouri American Water Position Sought Commission approval of a regulatory asset That is, “probable recovery” or “an implicit promise of recovery” outside of a rate case Estimated 30,000 lead service lines at a cost between $3,000 to $5,000 per unit over a ten-year period.

Public Counsel Position Reject the AAO request – no regulatory asset only deferred debit—must follow GAAP because it is outside of a rate case. Pursue, in the pending rate case, A two-year, $ 8 million pilot study to explore the feasibility, legality and associated policy implications of full lead service line replacement across MAWC and the state of Missouri. Study Includes: 1.) Advisory Committee 2.) Scoping Analysis 3.) Testing and Planned Lead Service Line Replacement 4.) Communications, Disclosure, and Implementation Considerations 5.) Ancillary Considerations

Accounting Considerations Withdraw AAO request and be given cost treatment within MAWC’s pending rate case. Defer construction and administrative costs of the pilot program to NARUC Account 186 Miscellaneous Deferred Debits;

Financing costs charged to Account 186 at current short term debt rate; Amortize over an accelerated period of 10 years with no rate base treatment of the deferred program cost; Outside funding will be used to offset the Account 186 balance.

Estimated Lead Service Lines Cornwell, D.A. et al (2016) National Survey of Lead Service Line Occurrence. Journal of American Water Works Association. http://media.mlive.com/news_impact/other/jaw201604cornwell_pr.pdf

Estimated Costs 2017 realized cost per service line replacement = $10,000 per unit Company modified estimate to $6,000 per unit moving forward Current Authorized Rate Base - $1,132,843,000

How confident are we with the estimate? Wisely, J. and T. Spangler (2016) Where are the lead pipes? In many cities, we just don’t know. http://www.freep.com/story/news/local/michigan/flint-water-crisis/2016/02/27/lead-water-lines-lurk-unknown-many- cities/80551724/

What about Flint? Drum, K. (2016) Raw data: lead poisoning of kids in Flint, Mother Jones. http://motherjones.com/kevin- drum/2016/01/raw-data-lead-poisioning-kids- flint/ website contains work papers for results.

Pilot mirrors Best Practice Literature Lead Service Line Replacement Collaborative (2017) Roadmap: Plan Development http://www.lslr-collaborative.org/plan- development.html

Cost Allocation

Customer Specific Pricing

Inter-Class Considerations

District Specific Pricing

Zonal Pricing

Single Tariff

Cost Causation?

Single State

WR-2017-0285 Rate Case

Impact on Future Acquisitions

Douglass, E. (2017) Towns sell their public water systems—and come to regret it. The Washington Post. https://www.washingtonpos t.com/national/health- science/towns-sell-their- public-water-systems--and- come-to-regret- it/2017/07/07/6ec5b8d6- 4bc6-11e7-bc1b- fddbd8359dee_story.html?u tm_term=.1e848903ee5d

St. Louis?

Questions? WU-2017-0296 Geoff Marke, Chief Economist Missouri Office of the Public Counsel Geoff.marke@ded.mo.gov