NRRI 18-01 Water DSIC


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The EPA estimates the 20-year national water infrastructure need at $384.2 billion, of which the largest amount ($245.4 billion) is needed for distribution and transmission projects (EPA, 2013, pg. 5). Today's infrastructure replacement climate results from two primary factors: the age of infrastructure, and the absence for many utilities of a designated fund for replacing aging infrastructure (NRRI, 2009, pg 135). This first factor relates primarily to the economic boom at the end of World War II that resulted in significant growth in industrial, business, commercial, and residential development which resulted in an expansion of water and wastewater to support it. Much of this World War II era infrastructure is now at an age where replacement or significant repairs are required to ensure that the quality of service expected by customers can be maintained.
Many states that adopt Distribution System Improvement Charges (DSICs) face the issue of high costs associated with improving or replacing aging infrastructure within the systems. A report out of the Florida Public Service Commission observes that the cost of infrastructure replacement has increased significantly over the past century. For Example: installation for a foot of main that would have cost $1 in 1900, now costs closer to $100, and the cost to clean and reline one foot of main is approximately $61 (FL PSC, 2001, pg. 1).
For some states (DSICs may be a part of the solution for addressing the divide between infrastructure needs and current funding. DSICs allow for rate increases that occur outside of general rate cases, to fund non-revenue producing investments to replace aging infrastructure. By collecting a small charge over time, DSICs help fund necessary infrastructure upgrades while mitigating rate shock that may occur otherwise. State commission oversight regarding what may be covered by DSICs, in concert with deliberate consumer protections helps to ensure that DSIC mechanisms support the goals of maintaining the quality of service to customers as well as enhancing fire protection.
To date, 16 states have currently implemented some form of DSIC mechanism, while other states have previously utilized DSICs, or are currently considering implementing a DSIC mechanism. Of the states surveyed, several states are recent adopters of DSICs, including: Arizona, Tennessee, and West Virginia. Other, early adopters of DSICs have re-examined the use of DSIC charges in their states, leading to recent expansions of DSIC-eligible utilities, changes in DSIC caps, or adoption of additional consumer protection mechanisms associated with the approval of DSIC charges.
Finally, in the 20 years since the implementation of the first DSIC mechanism, states that have adopted DSICs have engaged in a broad-ranging conversation about how DSIC mechanisms impact customers, utilities, and state commissions; and how DSICs can address current concerns in the water industry. These issues include: resource demands on staff from DSIC administration, efficiency credits, long-term planning in conjunction with DSIC requests, and the potential for DSICs to support customer lead service line replacement efforts.

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