Clean Water Collaboration: Public-Private Partnerships

These days, keeping up with the latest EPA guidelines and state water regulations is no easy task. The impact of water pollution on utility budgets across the country cannot be overstated. Emerging contaminants such as PFAS have thrown water system managers and local government leaders for a loop. Many have had to secure new funding streams to cover the high costs of treating drinking water to meet current and upcoming water quality standards. Now that additional concerns, such as 1,4-dioxane contamination, are coming to light, utilities and municipalities may need to take further action to continue providing safe, clean drinking water to ratepayers. While many water systems are already pursuing PFAS cost recovery options to help alleviate the taxpayer burden, more and more are beginning to explore new ways to combine funding strategies for their water contamination response.

1,4-dioxane is a synthetic chemical, often found in industrial solvents, with the potential to infiltrate water sources and pose a threat to the health and safety of communities. Exposure to it through drinking water contamination has been associated with an increased risk of liver toxicity and cancer. In July 2023, the EPA released an updated risk evaluation for the chemical, finding that it presents an unreasonable risk of injury to human health. The risk evaluation raises important questions regarding the potential for the development of federal 1,4-dioxane regulations in the near future. If the current regulatory momentum continues, public drinking water systems may soon contend with the cost of updating water treatment facilities to remove 1,4-dioxane.  

Many water providers do not have the surplus funds available to fully cover the cost of designing and building new treatment facilities, not to mention the continued operation and monitoring costs. One solution that many systems are pursuing currently is water contamination litigation, in which water providers seek to hold the companies responsible for pollution accountable for cleanup costs. The 3M and DuPont PFAS settlements offered to water suppliers in 2023 are one example of a result that that has come from litigation.

In addition to legal options for cost recovery, one other approach that is gaining popularity for managing the cost and effort of contamination cleanup is the use of public-private partnerships. In this article, we will explore the advantages and disadvantages of public-private partnerships for water utility projects, as well as how they may be used in tandem with legal cost recovery strategies to achieve optimal outcomes for communities.

Building Regulatory Momentum for 1,4-Dioxane

Although federal water standards for 1,4-dioxane have yet to be proposed, the contaminant seems to be following in the footsteps of PFAS. Now that the EPA’s final risk evaluation for 1,4-dioxane has shown that the contaminant presents an unreasonable risk to both workers and fenceline communities, further action can be anticipated.

The EPA is responsible for protecting public health by establishing and enforcing regulations that restrict the concentrations of specific contaminants allowed in both drinking water and wastewater. The process of creating standards for newly recognized contaminants is guided by two important laws: the Safe Drinking Water Act (SDWA) and the Clean Water Act (CWA).

The Safe Drinking Water Act (SDWA), first passed by Congress in 1974, authorizes the EPA to regulate public drinking water supplies in all communities throughout the country. This includes the ability to set maximum contaminant levels (MCLs) and national health-based guidelines for both naturally occurring and synthetic human-made contaminants that may be found in drinking water.

The Clean Water Act (CWA) authorizes the EPA to regulate discharges of pollutants into the waters of the United States and enact surface water quality standards. Under the law, the EPA has also implemented pollution control programs such as setting wastewater standards for industries. A permit is required to discharge any pollutant into navigable waters, which enables the EPA to carefully monitor and control the amounts and concentrations of pollutants released into the environment.

As of 2023, the EPA has proposed drinking water MCLs under the for several PFAS compounds and indicated its intention to classify both PFOA and PFOS, two PFAS compounds, as hazardous substances. If 1,4-dioxane continues to follow the example of PFAS, federal regulations for the contaminant could be on the horizon.

1,4-Dioxane State Regulations

Some states have opted not to wait for federal regulations to be established before taking action to control 1,4-dioxane in drinking water. The SDWA allows for states to develop their own water quality standards, provided that the contaminant levels allowed are at or below any applicable federal standards. In 2020, New York became the first state to set a 1,4-dioxane drinking water MCL of 1 ppb. New Jersey has announced a proposed MCL of 0.33 ppb that has yet to be finalized. In addition to these active and proposed MCLs, 40 states have issued health-based advisories for various concentrations of the chemical. Other states may follow suit as awareness of the negative public health effects of exposure to 1,4-dioxane continues to grow.

Public-Private Partnerships for Water Utilities

The high cost of updating water treatment facilities to remove emerging contaminants such as 1,4-dioxane has many utilities seeking new ways to reduce the burden on local communities. One solution that is gaining popularity is the use of public-private partnerships, sometimes referred to as P3s. These are long-term infrastructure agreements between public entities and private companies. The arrangements are piquing the interest of local government leaders as potential solutions for infrastructure planning, development, and management for utilities nationwide. Such partnerships can be beneficial to local governments by improving the speed, cost, and quality of infrastructure projects through sharing of the financial risks, but they are not without potential disadvantages.

For most public water utilities, contracting with private entities to complete a short-term project is business as usual. In the traditional approach, local governments generally hire a private company to manage one phase of an infrastructure project, such as the design, build, financing, operation, or ongoing maintenance of a water utility. While these arrangements allow for industry experts to complete work for government entities, there are also challenges that are difficult to avoid. For example, if one firm designs a new water treatment facility and another is contracted to build it, the builder may find that the design is not feasible with the materials and time available. This can lead to unexpected delays and additional expenses in the development of new infrastructure.  

In public-private partnerships, a private company is contracted to perform multiple stages of a project, such as design-build or operation-maintenance. In some cases, a private entity may even conduct a project from start to finish. P3s allow governments to transfer some of the risk to private partners, creating incentives for high efficiency and quality. If a private company is responsible for both the construction and operation of a water treatment facility, for example, it will be in their best interest to build a system that is completed on time and can be successfully operated for years to come. In many cases, these partnerships have helped water utilities comply with EPA regulations, and in some cases have even achieved cost savings for ratepayers.  

Financing Infrastructure Improvements in Public-Private Partnerships

Not all P3s use private financing. Some governments contract with companies to complete projects while still utilizing public funds to cover the cost. When private financing is used, the private partner can be repaid either through direct repayments from the government entity or through individual user fees. In general, water utility agreements tend to rely on repayment over time as ratepayers pay the private company for the use of water.

While water utilities and ratepayers/taxpayers generally must cover the cost of infrastructure improvements, whether directly through public financing or indirectly through repayment to private partners, some advantages to private financing have been identified in select cases. For example, many state governments have budgetary limits or legal constraints that limit their ability to issue debt. In these situations, private financing through partnerships may help water utilities take action more quickly by reducing delays in funding.

Disadvantages of Public-Private Partnerships for Water Utilities

Although there are many potential advantages of partnering with private companies to complete water facility projects, there are also some risks that utility and government leaders should be aware of. These risks can generally be avoided through careful wording of partnership contracts. Some local governments have turned the ongoing operations of their water utilities to private companies, only to find that they began charging higher water rates than initially expected. It is vital for contracts to be created and reviewed carefully to avoid such situations.

Public-Private Partnerships and Water Contamination Litigation

Public-private partnerships and litigation are not necessarily mutually exclusive options for water utilities dealing with water contamination issues, including those related to 1,4-Dioxane. Both approaches have their advantages and considerations, and the decision to pursue one or the other, or even both simultaneously, should depend on the specific circumstances and goals of the utility.

P3s can present many advantages to water utilities, including access to additional resources, expertise, and technologies that may be valuable in addressing contamination and improving water treatment processes. They can also lead to more efficient and cost-effective solutions. However, they may not address the issue of cost recovery for past contamination. The focus of P3s is typically on prevention and mitigation.

On the other hand, legal action can be a means of recovering costs associated with contamination, particularly when there is evidence of negligence or wrongdoing by responsible parties. It can provide financial relief to cover past expenses and ongoing mitigation efforts. It is important to recognize, however, that litigation can be a lengthy and costly process, and success is not guaranteed. It often focuses on assigning responsibility and seeking damages rather than immediate contamination response.

It is possible for utilities to seek the best of both worlds. By combining the strategies of public-private partnerships with the cost recovery potential of litigation, water systems may find new ways to keep up with the consistent demands of evolving water regulations.

Seek the Best Outcome for Your Water Utility

If your water system has 1,4-dioxane detections, removal of this contaminant is likely to be costly in terms of both time and funding. Public-private partnerships may help improve efficiency and reduce funding barriers, but the implementation of 1,4-dioxane treatment solutions is still likely to result in increased costs for your system and ratepayers. If you are curious about the cost recovery options available to municipalities and water systems, schedule a free, no-obligation consultation with the team at SL Environmental Law Group.