Written Testimony of Tom FitzGerald, Director, Kentucky Resources Council, Inc. in Support of Regional Wastewater Commission Bill (HB 221 2010 Regular Session)

Dear Chairmen Thayer and Riggs, and Committee members:

I'm writing to convey the support of the Kentucky Resources Council, Inc. for the GA version of House Bill 221 (2010 Regular Session). As you know, House Bill 221 would provide the framework by which two or more wastewater utilities in the counties of Bullitt, Hardin, Jefferson, Meade, Nelson, Oldham and Spencer counties may elect to create a regional wastewater commission in order to better address the wastewater treatment needs of their residents.

As the Committee is aware, the proper collection and treatment of wastewater and stormwater runoff is, from a public health and environmental perspective, extremely important and not inexpensive. Many smaller communities, as well as major urban areas where the sewer systems were designed to collect both stormwater and wastewater in a combined system, face significant fiscal constraints in meeting those challenges.

The regional wastewater commission bill is not a mandate, but is instead an opportunity for regional cooperation in order to more cost-effectively treat wastewater generated by residential, commercial, industrial and institutional sources. The bill offers our community utilities faced with increasing operating costs for the treatment of wastewaters a way to benefit from economies of scale. It also provides a cost-effective means for our community utilities to remain in compliance with increasingly stringent environmental standards developed to protect stream and river health and enforced by the U.S. Environmental Protection Agency and the Kentucky Division of Water.

As originally introduced, KRC had very similar concerns to those voiced by Senator Thayer during the recent committee hearing on the bill. Working with other interested parties, significant changes were made in order to address our concerns with transparency and accountability, and we became supportive of the bill.

House Floor Amendment to House Bill 221 replaced the original text of House Bill 221 in its entirety, and made numerous changes to improve accountability to the public: in the decision by wastewater utilities to join together into a regional wastewater commission, in the setting of wholesale rates, in the compensation of employees, and in the operation of the regional commission.

The amended bill made these significant changes to increase accountability to the public and particularly to ratepayers of the member utilities:

• Section 1 now emphasizes the implications that wastewater treatment have for land use, development and growth, and underscores that development must be undertaken in a manner that is consistent with local planning, and must safeguard the waters of the commonwealth from pollution;
• Section 3 now requires that before the member utilities decide to form a commission, each utility will provide the public with thirty-days notice, conduct a public hearing and provide a statement of consideration of comments received. The notice will explain the geographic scope of the proposed commission and describe the benefits to the utility residents of forming or joining a commission. The original bill had only one hearing after the formation of the regional commission.
• The utility decision to form or join a regional commission must be based on specific written findings that the establishment of the commission furthers public health, convenience and benefits the customers of the utility and that membership will bring an improvement to the environment greater than that which would occur in the absence of the commission.
• Section 4 now provides that the commissioners must be residents of the utility service area they represent, and modifies the manner in which a third commissioner is appointed if the commission has only two member utilities the legislative bodies for the areas will jointly name the third commissioner.
• Section 6 now limits on the amount of compensation that can be paid to regional wastewater commission staff, pegging that level of compensation to regional and national standards for similarly-sized wastewater utilities. Also, the requirement for posting a bond is expanded to include all commissioners and staff.
• Section 7 now provides procedural due process rights, including adequate notice and a hearing before an impartial hearing officer, where a utility seeks to remove a commissioner for cause.
• Section 8 now provides that a utility seeking to withdraw from a commission need not seek approval of the commission to do so, but must make arrangements to settle financial affairs with the commission prior to withdrawal.
• Section 9 includes new language to assure that any construction or expansion of any wastewater facility proposed by the commission is consistent with the Regional Facilities Plan that wastewater utilities are required to develop and update and which either the Division of Water or US EPA must approve.
• Section 9 also now obligates the wastewater commission to use the configuration of existing and new facilities that most cost-effectively safeguards the waters of the Commonwealth from pollution.
• Section 10 now provides that if a commission contracts to operate or manage a wastewater utility for a member, it will be co-permittee on any wastewater permits.
• Section 12 has been modified to assure that any fines or penalties from Clean Water Act consent orders or enforcement actions that are owed by a utility prior to joining or forming a commission remain the responsibility of that utility.
• Finally, two provisions may help allay the concern raised by Senator Thayer regarding accountability to utility ratepayers in the setting of rates. While it is the case that few community wastewater utility systems are directly run by the elected officials and are usually run by an appointed board that sets rates for service, the concern that the rate setting of the regional commission is twice removed from electoral accountability is a valid one.

The first is Section 10, which has been modified to assure that if a wastewater commission contracts with a Public Service Commission-regulated wastewater utility, and that contract would require any increase in rates to be paid by that utility's customers, the PSC will have the right to review and approve or disapprove the contract.

The other provision is in Section 11, which requires that the rates assessed by the commission be the "verified cost of providing the services" and must be "allocated based on usage" and "the cost of service". At least every 5 years, the Commission is required to have an independent cost of service study performed, and is required to adjust the rates based on the cost-of-service study and recommendations. The ability to increase rates, then, is constrained by the cost of service study.

I hope that these additions and changes to the bill address the concerns regarding accountability and transparency in the formation and operation of a regional wastewater commission.

Cordially,

Tom FitzGerald
Director