PFAS regulations most likely to squeeze small, poor utilities

The U.S. Environmental and Protection Agency’s new PFAS water treatment rules are most likely to hit water utilities serving small service areas with poor populace and old infrastructure the hardest, analysts say.

In April the EPA issued final regulations on rules for utilities to remove per- and polyfluoroalkyl substances from drinking water. The substances are linked to cancer, thyroid diseases, immune system problems, reduced liver function, and impaired brains in the offspring of exposed pregnant women.

“Small municipal utilities in areas of significant poverty or with aged infrastructure or a shrinking customer base will struggle to raise rates and comply with the EPA regulation if PFAS are detected,” Moody’s said in a report in April.

Audra Dickinson, senior director and sector head of U.S. Water and Sewer Ratings at Fitch Ratings, agreed, adding that many rural utilities use local municipal or county governments to issue bonds. The new rules’ credit impact could play out significantly at the city and county government levels as well as the public utilities level, she said in October.

The American Water Works Association estimates that 15% of all water utilities will require treatment facilities to address PFAS. It estimates that the cost to achieve the PFAS standards will be over $60 billion in the next 20 years.

Additional money will have to be spent beyond that because there will be expenses beyond 20 years: significant operating costs associated with PFAS removal and capital-expense bonds to be paid off beyond that point.

Association of Metropolitan Water Agencies CEO Tom Dobbins said the costs could reach $128 billion in the next 20 years.

In the Southeast, Virginia and the Carolinas are areas where there has been and continues to be substantial PFAS manufacturing, and utilities there are more likely to have to spend to meet the rules, Dickinson said.

Dickinson said Fitch’s 330 water and sewer utilities had a median rating of AA-plus and median population of 250,000. Most of these will not struggle financially to achieve the new rules, which go into effect April 2029.

However, there are 50,000 water treatment facilities in the U.S. and many are small and rural, she said. Some of those will struggle.

Earlier this month AWWA and AMWA filed suit against the EPA on the PFAS rules in the United States Court of Appeals for the District of Columbia Circuit.

The organizations said although they support the EPA’s decision to issue drinking water standards for some of the PFAS, “In its PFAS rule, EPA departed from the fundamental requirements of the Safe Drinking Water Act by truncating the rulemaking process, curtailing distinct opportunities for public comment, and employing a novel equation rather than a clearly defined measurement as a standard for certain PFAS.”

The organizations said it hopes the case will lead the EPA to recast the rule in a manner consistent with the Safe Drinking Water Act.

Municipal bonds, as a cornerstone of public utility capital financing, are likely to be one of the funding sources to cover the costs of building the PFAS treatment facilities.

The Infrastructure Investment and Jobs Act of 2021 will contribute some of the money, but much of the law’s money has already been used, Dickinson said.

3M Company and DuPont de Nemours recently settled lawsuits for creating and releasing the PFAS into the environment. The utilities will be able to use this money, Moody’s said.

“Utilities that opted out from participation in the class action suits still have the ability to file suits individually,” Dickinson said.

“While some limited federal funding assistance has been made available through the Bipartisan Infrastructure Law, the vast majority of the compliance costs will fall directly on water utility customers through their water rates,” Dobbins said.

With the EPA having just released its rules and the deadline to meet them less than five years away, the bulk of the bonds for the capital upgrades are likely to be sold 2025 to 2027, Dickinson said.

The EPA rule sets the limit for perfluorooctanoic acid and perfluorooctane sulfonic acid in drinking water at four parts per 1 trillion, which Moody’s said was a “very low level.” Three additional PFAS levels are set at 10 parts per 1 trillion. Finally, the rule limits mixtures using two or more PFAS according to an index that measures their combined concentrations.

The technologies alternately used to remove PFAS from water are granular activated carbon, ion exchange, reverse osmosis and nanofiltration, according to the National League of Cities. Water utilities that need to remove PFAS will choose among these.

The use of granulated carbon is proving to be popular. However, it can only be used for six to 12 months before the carbon must be either replaced or cleaned to be reused, adding to its operating costs.

After the EPA announced its rules, it declared the most widely used of the PFAS, PFOA and PFOS, to be hazardous substances under the Comprehensive Environmental Response, Compensation, and Liabilities Act, generally known as the Superfund. The designation could raise the PFAS rules’ “compliance costs,” Moody’s said. For example, the granulated carbon filters become saturated with PFAS over time requiring replacement or cleaning or the PFAS will leach into the water, said Ryan Patton, Moody’s assistant vice president.

The filters may need to be replaced several times a year, leading to significant operating expenses, Patton said. “With the hazardous materials designation, it’s less likely that these filters could be treated and re-used. They will likely require more specialized disposal methods, which will also be more expensive.”

This month the EPA released a new rule mandating that water utilities remove lead pipes from water distribution system within 10 years. This will be an additional financial burden for many.

AWWA estimates the cost of removing the lead pipes could top $90 billion. “Most of these costs will fall to consumers through higher water bills,” said AWWA CEO David LaFrance.

Dickinson said the costs of removing lead pipes will largely be borne by utilities serving older cities. Chicago had been planning to remove its lead pipes over 30 to 40 years. The requirement to do it in 10 years will make it much tougher to achieve.

Many utilities are responsible for both drinking water and wastewater treatment and even further expenses for them may be coming in the next few years if the EPA rules they must remove PFAS from wastewater. Dickinson said this is being discussed by those in the industry and may happen soon.

Already, industry participants are curbing the sale of biosolids from wastewater treatment sites to agriculture in anticipation of PFAS regulations against it.

The Cape Fear River in North Carolina is one area known to have problems with PFAS. AMWA pointed to two utilities that treat the river’s water, Fayetteville Public Works Commission and Cape Fear Public Utility Authority, as working to remove PFAS.

The utilities are about 90 miles apart. The Cape Fear PUA completed its PFAS treatment facility in October 2022 while the Fayetteville PWC plans to commence construction this coming spring and complete it in February 2028. Both have opted for the granular activated carbon filter technology.

While both draw on Cape Fear River for water, the Cape Fear PUA gets 20% of its water from well water and the Fayetteville PWC gets some water from the Little Cross Creek Watershed.

The Cape Fear PUA sold bonds in 2019 that funded most of the costs but the Fayetteville PWC is hoping to mainly use grants and loans, but may end up using a bond, according to Gavin MacRoberts, its communications manager.

The Cape Fear PUA has spent $77.3 million in PFAS expenses including $9 million of legal fees, said Vaughn Hagerty, Cape Fear communications director. It anticipates spending $5 million annually on PFAS removal operating costs. Total revenues in fiscal 2023 were $109.1 million.

The Fayetteville PUC is projecting the PFAS removal plant will cost $111 million. It anticipates sending off its carbon media to be reused after six to 12 months use, MacRoberts said.

MacRoberts said the utility is working with some of the parties that discharge into its sewer system to develop plans to minimize their PFAS releases.