New Federal Water Infrastructure Funding Mechanism Proposed

With congressional funding of the state revolving funds likely to continue to decline, water infrastructure groups are pushing an alternative funding mechanism — meant to serve as a supplement to the SRFs, not a replacement — called a Water Infrastructure Finance and Innovation Fund.

The Fund was discussed at two recent House Transportation Committee hearings. Rep. Robert Gibbs (R-OH), chairman of the Water Resources and Environment Subcommittee, has prepared a draft bill authorizing the new water infrastructure fund which is a carbon copy of an existing fund for transportation projects. However, Gibbs must wait before he introduces an actual bill until the full Transportation Committee acts on an important highway bill. In addition, Rep. Timothy Bishop (D-NY), the top Democrat on Gibbs’ subcommittee, has introduced a broader bill reauthorizing the Clean Water SRF. His bill includes a Water Infrastructure Fund proposal.

Here is the potential political problem. Democrats want to reauthorize the Clean Water SRF and set up the new Infrastructure Fund, and do so in the same bill. However, reauthorizing the CWSRF means Congress would have to find $18 billion over five years (that is the authorization level in the Bishop bill) in cuts to the federal budget to offset that $18 billion in spending. Republicans are opposed to finding those offsets. Some Democrats are opposed to supporting a Water Infrastructure Fund-only bill.

A Water Innovation Fund would borrow money from the Treasury at low Treasury Department interest rates and then lend that money to cities and counties for important regional water infrastructure projects likely to cost more than $20 million. Those interest rates could be a tad higher than the interest rates offered by state SRFs; but SRF loans are generally available to small and medium-sized projects only. The water fund would be based on an existing Transportation Infrastructure Finance and Innovation Act (commonly called TIFIA).

The advantage of these infrastructure funds is that Congress only has to appropriate enough money to cover the “subsidy” cost of providing the low-interest Treasury loan. “Consequently, WIFIA – because it involves loans that are repaid with interest – involves minimal risks and minimal long-term costs to the federal government,” says Aurel Arndt, general manager and chief financial officer of the Lehigh County Authority based in Allentown, PA.

At the hearings on March 21 in the same water resources subcommittee, Karen Massey, director, Missouri Environmental Improvement and Energy Resources Authority, said the direct loans and loan guarantees anticipated to be issued through the WIFIA would result in impacts that “are likely to be relatively modest.”

PHMSA Proposes Metrics for State Damage Prevention Laws

The Pipeline Hazardous Materials and Safety Administration (PHMSA) took the next step in its continuing effort to step in when states fail to punish excavators who damage pipelines. The 2006 PIPES Act gave PHMSA the authority to take civil enforcement action against excavators in states whose damage prevention laws are weak. But first, PHMSA has to define “weak.” The proposed rule PHMSA issued on April 2 describes some of the “metrics” it might use in making that determination.

If PHMSA decides a state fails to enforce, then Section 2 of the PIPES Act allows it to take civil enforcement action against excavators who: fail to use a state’s one-call notification system; and disregard location information or markings established by a pipeline, or fail to report excavation damage promptly.

The metrics PHMSA wants to use in making a “fail to enforce” decision might include determining whether a state is imposing civil penalties at levels sufficient to ensure compliance, whether an adequate damage reporting system is in place, the quality of the state investigations related to excavation accidents and whether the state law mandates use of a one-call system by excavators and requires immediate reporting of damage.

A big issue, from the standpoint of the pipeline industry, is the exemptions from one-call systems often offered on a state-by-state basis. The Pipeline Security, Job Creation and Regulatory Certainty Act of 2011, passed unanimously by Congress and signed into law by the President in January, said state damage prevention programs should not exempt agencies of state and local governments (public works departments, for example) from calling damage prevention hotlines before excavating, and required a study of the threat to safety caused by other one-call exemptions. The proposed rule issued by PHMSA does not require states, cities and counties to eliminate other one-call exemptions.

Pipeline, Electric Utilities Duel Over Reliability And Integration; Rate Structure At Issue

Federal Energy Regulatory Commission (FERC) policies on pipeline rates built around “firm” capacity may be up for grabs as the Commission wades into the issue of increasing dependence by electric utilities on natural gas. Electric utilities most often depend on cheaper “interruptible” service which can leave them vulnerable during times of peak needs. Those peak needs become more of a concern as generators move toward decommissioning coal-fired units in the face of Environmental Protection Agency restrictions and build new natural gas units, incentivized by the flood of low-cost natural gas from shale that is currently washing over the U.S.

Issues of pipeline rates and supply reliability are coming up at FERC because of a docket that is based on a workshop held last February. Commissioner Philip Moeller is leading the effort to determine what if anything the FERC should do to encourage pipeline/utility integration and assure reliability, the latter issue most recently raised by events during the Southwest cold weather event in early 2011. He was joined by Commissioner Cheryl LaFleur who issued a statement asking for comments on, besides interdependence and reliability issues generally, new pipeline and storage service and pricing structures that might better meet the emerging needs of generators.

There is no question electric utilities have been switching to natural gas over the past decade, a trend that has increased considerably in the last few years. The Edison Electric Institute reports that at the end of 2010, natural gas-fired generators constituted 41 percent of the nation’s total electric generation capacity of 1,135 gigawatts (GW).

“A series of Environmental Protection Agency rulemakings is likely to force the replacement of 12,000 MW of coal fired generation in the Midwest ISO footprint in the next few years. This in turn may require the construction of significant infrastructure to bring natural gas supplies to the new generation fleet,” says Gregory A. Troxell, assistant general counsel, Midwest Independent Transmission System Operator Inc.

The concerns about fast-increasing utility dependence on natural gas are that there is generally no natural gas storage close to utilities. Therefore, at peak times, mostly during the summer, the utilities have to contract for expensive “interruptible” service at the last moment. They could, of course, contract up front for more expensive “firm” service, but the utilities have nowhere to store the gas they don’t use so that it would be available during a summer peak period.

Joan Dreskin, general counsel at INGAA, says, “It is not a reflection on the reliability of natural gas or the natural gas pipeline infrastructure when a pipeline has scheduled its firm customers’ nominations and has no capacity left to schedule lower priority, cheaper, interruptible transportation.”

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