Rep. Jim Wayne
House of Representatives
Frankfort, Kentucky 40601
Re: HB 221 PHS 1
Dear Representative Wayne:
As you requested, I have reviewed the proposed House Committee Substitute to HB 221, and offer these observations and concerns.
In principle, regionalization of wastewater systems can lead to economies of scale relative to smaller, distributed systems. Existing law allows for development by units of government of interlocal agreements that would allow the development of regional wastewater plants without creating a new regional governmental agency. The creation of a new regional wastewater commission raises several policy issues that should be consciously decided by the General Assembly prior to approval of the committee substitute. The comments below track the PHS section-by-section and offer some thoughts on increasing public involvement in the development and management of such a regional commission.
While it is merely a preamble, the language of Sections 1(1)(a) and (b) are of concern. 1(1)(a) is of concern for what it doesn't say as much as what it does. It is true that adequate infrastructure is needed to support development, but the decisions concerning the expansion of infrastructure need to be driven by planning. With respect to 1(1)(b), development is not to be "balanced" with preservation of the Commonwealth's water resources; instead existing public policy as expressed in KRS Chapter 224 requires the safeguarding of the waters of the commonwealth from pollution. I would suggest replacing subsection (b) with:
"Industrial, commercial, institutional, and residential development must be undertaken in a manner consistent with applicable land use planning and zoning and in a manner that safeguards the waters of the commonwealth from pollution;"
The PHS defines a "member entity" in a manner that limits participation as members of the commission to cities, urban county governments, sanitation districts, metropolitan sewer districts, and agencies owning wastewater systems in Bullitt, Hardin, Jefferson, Meade, Nelson, Oldham, Shelby, and Spencer Counties.
3(1) It is unclear what relationship the regional wastewater commission has with respect to wastewater planning under the Clean Water Act and KRS Chapter 224 and 224A. The authority given to the commission includes acquiring, constructing, improving, and extending wastewater treatment facilities "in any manner permitted by law". Will the member entities continue to individually develop sewer plans, or will the regional commission become responsible for the plans? Will the regional commission be required to justify to the Division of Water and Environmental Protection Agency the expansion of existing or construction of new capacity?
Additionally, what will be the relationship between the regional wastewater commission and the planning bodies for the individual cities and counties? Will the regional wastewater commission be obligated to respect the comprehensive plans developed by the planning units, or will it be permitted to extend sewers into areas where more intensive land development is incompatible with the land use plans adopted by those bodies?
3(4) Under this section, notice to the public is discretionary. On line 7, "may" should be replaced with "shall", and in addition to notice published in the legal ads under Chapter 424, notice should be included in the utility customers' bills for any member entity proposing to form or join a regional wastewater commission.
The notice should, at a minimum, include an explanation of the scope of the area proposed to be served by the commission, any facilities proposed to be constructed or expanded, and the anticipated costs to and benefits for the customers over and above what would be the costs and benefits that could be achieved through normal improvements to or expansion of the existing wastewater system owned by the member entity.
3(5) Due process requires particularized findings of fact to support agency action. The word "specific" should precede "factual" on p. 4 line 11.
Section 3(5) provides for one hearing in the county with the largest population, and no direct involvement in nor review of a decision by a member entity to elect to participate in a regional commission. A decision by existing utilities to join a regional wastewater commission should itself be subject to public notice and comment from the customers served by the existing systems, since that decision may have significant fiscal impacts on existing customers of the wastewater systems. Instead, the bill limits public involvement to commenting to the organizing official after the member entity has decided to seek to form or join a regional commission, on whether the commission is in furtherance of the "public health, convenience, and benefit of the customers of the member entities proposing" to create the commission.
Instead of the "organizing official" holding the hearing and making the findings, each member entity should hold a hearing, receive notice, and make particularized findings. The findings in 3(5)(a) and (b) should be modified to provide that the environmental and other benefits be over and above those that would be expected to be achieved through improvements in the existing wastewater system of each member entity.
In order to provide more direct accountability to the residents of the various member entities, the commissioners should be required to live in the boundaries of the city, county, or other member entity, and should be required to adhere to conflict of interest provisions that would, for example, disallow participation in decisions concerning extension of service, construction or acquisition of facilities that would directly or indirectly benefit that commissioner.
The provisions of Section 5 should be modified to provide notice and comment, and particularized findings of fact, by the member entity seeking to join an existing regional commission before the decision to join is made.
The commission is given broad power to set its own compensation rate and that of its employees. This section should be amended to include oversight by the General Assembly of the establishment of rates of compensation.
Additionally, 6(1) allows the hiring of a Secretary and Treasurer who are not commissioners, yet the requirement for bonding under 6(5) is limited to commissioners. Clearly, the Treasurer and Secretary should be bonded under KRS 65.067, and the General Assembly or the governing bodies of the member entities, rather than the commission, should establish the amount of the bond.
If the General Assembly decides that a member entity must have cause to replace their representative on the Commission, this section should be revised in order to provide the rudimentary components of procedural due process, which include adequate notice, a formal hearing before an independent hearing officer (and not the chief executive officer who has proposed to terminate the commissioner).
Inasmuch as the appointment is subject the approval of the governing body of the member entity, it would appear that the removal for cause should likewise require governing body involvement.
The decision by a member entity, to the extent that such entity is a city or county, to withdraw from a regional wastewater commission, cannot be delegated to the organizing official of another county or metro government. It is well within the province of the General Assembly to require that a participant in a regional wastewater commission that seeks to withdraw from participation be required to pay that portion of any debts incurred on behalf of or costs attributable to that member entity, but granting the authority to require an unwilling member entity to remain in a regional commission to the CEO of another unit of government, raises significant constitutional questions.
9(2) should be modified at line 19, p. 9, to require that the standards conform to those established under KRS Chapter 224.
9(3) at p. 10 line 5 should be revised to insert after "benefit to" the phrase "the customers of". Similarly, on lines 14 and 15, in order to assure accountability in the development of facilities, the sentence beginning "the commission" should be modified to read:
"The commission shall use the configuration of available and proposed facilities that is the most cost-effective in protecting water quality and providing wastewater infrastructure appropriate for the member entities. The commission shall not approve the construction or expansion of wastewater treatment facilities in any city or county having a planning commission without first requesting review by that planning unit and a determination of consistency of the proposed facility with the comprehensive plan of that planning unit".
This change both provides meaningful standards against which to measure the commission's decisions, and assures coordination with the planning units so that urban levels of wastewater service are not extended into areas of environmental sensitivity or areas devoted to less intensive land use.
9(6) should be modified to require public notice of the availability of the audit reports.
While member entities are defined in the Act to limit the scope of the regional commission, 10(2) allows the commission to contract with non-members and with neighboring states with no oversight by the public of such contracts.
The customers of existing utilities have every right to expect that a decision to allow the regional wastewater commission to "provide services" to that utility, will be subject to public scrutiny in order to assure that the decision is in the best interests of the customers and will, in fact, result in the more cost-effective, affordable service and environmental improvement that the preamble to the bill states is the goal of the bill.
The same findings should be required to be made by the unit of government proposing to allow the regional commission to "provide services" as is required of member entities.
To the extent that the entering into a contract with a regional wastewater commission to allow that commission to manage a non-member entity's wastewater system could be construed to be a "franchise" or "privilege", there is a need for both limitations on the term of years and for competitive bidding prior to awarding the franchise.
Finally, 10(5) appears to allow the commission to modify rates and charges to existing customers of the member and non-member utilities to cover costs associated with extending services to a new party. The sentence on lines 22-23, p. 13 beginning with "The commission" should be removed in order to assure that the existing customers are not cross-subsidizing the extension of service.
The rate-setting provisions of the bill raise several concerns.
First, there is no public review of proposed rates and no requirement for legislative approval by the member entities of the proposed rate schedules.
Second, the bill contemplates that special rates may be given for "initial service terms" (a term that is undefined) that would allow negotiated rates set without "strict regard to actual dollar cost or value". Under this provision, the commission could assess higher rates on certain classes of customers, and provide discounts to others, without the review by the customers or approval by elected legislative bodies.
Third, it is unclear whether and to what extent the commission will assume liabilities from individual member and non-member entities regarding compliance with permitting obligations under the Kentucky Pollutant Discharge Elimination System, and with respect to existing enforcement or compliance orders issued by the Division of Water or Environmental Protection Agency. Member entities, and those served by contract as well, should not expect that the customers of other entities that are a part of the commission, will bear any responsibility for civil or criminal penalties, or remedial actions, necessitated by an Agreed Order or other enforcement order existing before the entry of that entity into the commission or contract with the commission.
With respect to compliance, the bill should make clear that for any wastewater facility owned or operated by the commission, the commission shall be a named permittee alone or in conjunction with the owner of the wastewater facility, where the commission is operating or managing the facility under contract.
12(1) allows existing units of government and sewer districts to dispose of their facilities and equipment to the commission with no notice to the customers or prior approval by the legislative bodies of member and non-member entities. The disposition of facilities should be subject to public notice and comment, and should occur only where such disposition is on terms fair to the ratepayers of the member or non-member utility and results in provision of more cost-effective and affordable service that protects water quality.
The amendment to KRS 278.010 seeks to exempt a regional wastewater commission from Public Service Commission oversight over rates, service quality, and capital construction. Whether to do so is a policy choice for the General Assembly, and should rest on whether the GA believes that sufficient safeguards have been built into this bill providing assurance comparable to that provided by PSC oversight, that the rates to be charged will be fair, just, and reasonable, and that needed expansions of service are a matter of public convenience and necessity. Absent the additional public notice and comment, and legislative oversight by the governing bodies of the member and non-member entities in setting rates and reviewing regional wastewater planning and capital construction, I dont believe that the bill provides the requisite assurance either in terms of rate-setting nor in terms of development of new or expansion of existing wastewater infrastructure.
Section 10(1) is unclear as to whether a contract with the regional commission to provide wastewater services with an entity that is subject to PSC jurisdiction, would be reviewable by the commission. It should be clarified that such a contract is subject to review by the PSC; otherwise the ability of the Commission to oversee rates and service is diminished.
Section 16(3) is awkwardly drafted, and should be revised to read:
"Utility" means any person except a regional wastewater commission as defined in Section 2 of this Act or, and for purposes of paragraphs (a), (b), (c), (d), and (f), a city who owns,..
I hope that this is helpful to your deliberations. Please feel free to share this letter with Representatives Clark, Belcher, and other committee members.