Electricity is a physical product – the flow of electrons. It is an energy source that is a result of the conversion of other energy forms such as natural gas, coal or uranium, or the energy inherent in wind, sunshine, or the flow of water in a river. Electricity is not visible or directly observable, but it can be turned on/off and measured. Electrical power is the instantaneous flow of electrical charges, or currents.⁶

⁶ Electricity Explained. https://www.eia.gov/energyexplained/electricity/

• Historically, electricity has primarily been generated in power plants. Power plants generate electricity that is delivered to customers through transmission and distribution power lines. High-voltage transmission lines, such as those that hang between tall metal towers, carry electricity over long distances to meet customer needs. Higher voltage electricity is more efficient and less expensive for long-distance electricity transmission. Lower voltage electricity is safer for use in homes and businesses. Transformers at substations increase (step up) or reduce (step down) voltages to adjust to the different stages of the journey from the power plant on long-distance transmission lines to distribution lines that carry electricity to homes and businesses⁷.
• Energy can be stored in several ways: pumped hydroelectric, flywheels, compressed air, batteries, and thermal energy storage. Electricity storage devices can manage the amount of power required to supply customers at times when need is greatest, which is during peak load. (See energy storage in Grid Modernization section 9.3 below.)

⁷ Electricity 101. https://www.energy.gov/oe/information-center/educational-resources/electricity-101#sys1

Electrical power supply system consists of three major parts: generation, transmission, and distribution.

• Modes of generation/resources
  Most electricity is transformed in power plants using turbine driven generators. Other generators include solar photovoltaic cells which convert sunlight directly to energy, internal combustion engines such as diesel engines, fuel cells, and thermoelectric generators.
  Electricity is transformed from four main sources of energy: natural gas, coal, nuclear, and renewable sources (such as wind, solar energy, and hydro).
• Transmission⁸
  Power transmission lines facilitate the bulk transfer of electricity from a generating station to a local distribution network. These networks are designed to transport energy over long distances with minimal power losses which is made possible by boosting voltages at specific points along the electricity supply chain. Transmission systems are generally administered on a regional basis by a regional transmission organization (RTO) or an independent system operator (ISO).
• Distribution
  The power distribution system is the final stage in the delivery of electric power, carrying electricity out of the transmission system to individual customers. Distribution systems can link directly into high-voltage transmission networks or be fed by sub-transmission networks. Distribution substations reduce high voltages to medium-range voltages and route low voltages over distribution power lines to commercial and residential customers.

The following chart illustrates the relationship between generation, transmission, and distribution⁹. Transformers will adjust the voltage so that the final product can be used by regular homeowners or businesses.

⁸ There are 3Ps regarding transmission issues, Paying, Planning and Permitting. NARUC Denver Summer Meeting, July 2021.

⁹ Energy Primer p 47. https://www.ferc.gov/sites/default/files/2020-06/energy-primer-2020.pdf

The entire U.S. electricity system is experiencing nearly unprecedented change, including slower load growth, retiring traditional baseload capacity, declining costs, increasing deployment of renewable and distributed energy resources, policy changes at the state and federal levels, and rapidly evolving technology. These changes are transforming how end-use customers and electric companies interact, placing pressure on real-time operations and introducing new uncertainties to long-term planning cycles. Investments in the nation’s network of transmission and distribution systems — the backbone of the entire electricity system — are critical to enabling the utility and energy industries and the U.S. economy to adapt to these changes, while maintaining reliability and resiliency in the face of emerging challenges, such as severe weather and cyber threats. System statistics include:

• The U.S. electric grid delivers more than 3,800 terawatt-hours of electricity to roughly 159 million residential, commercial and industrial end-users each year.
• Approximately 707,000 miles of high-voltage transmission lines and 6.5 million miles of distribution lines deliver electricity from 7,700 operational power plants.
• Since 2005, coal has declined from 50 percent of net generation to just 30 percent, while natural gas has grown from 19 percent to 34 percent. Wind and solar have expanded from less than 1 percent to 6 percent.
• Penetration of variable renewable energy sources is expected to continue. In 2015, 32 percent of utility-scale capacity additions (net summer capacity) were wind and solar, and by 2040, wind and solar are projected to make up 19 percent of net power generation.
• Twenty-nine states plus the District of Columbia have a renewable portfolio standard that requires a certain share of generation from renewable sources, with many states requiring 25 percent or more renewable generation by a target date.
• Successfully integrating variable renewable resources into the grid requires substantial investments in transmission and distribution infrastructure.¹⁰

¹⁰ See projections in https://www.businessroundtable.org/electricity-infrastructure.

• Investor-owned utilities, or IOUs, are large electric distributors that issue stock owned by shareholders. Almost three-quarters of utility customers get their electricity from these companies.
• Publicly owned utilities, or POUs, include federal-, state-, and municipal-run utilities. In addition to government entities, political subdivisions may run POUs, also called public utility districts—utilities that residents vote into existence that operate independently of city or country government. One example is the Los Angeles Department of Water and Power, a municipal utility with 1.43 million customers.
• Cooperatives, or ‘co-ops’, are not-for-profit member-owned utilities. Co-ops are located in 47 states but are most prevalent in the Midwest and Southeast.

Electricity markets have retail and wholesale components. Retail markets involve the sales of electricity to consumers or end users; wholesale markets typically involve the sales of electricity among electric utilities and electricity traders before it is eventually sold to consumers. FERC has jurisdiction over wholesale transactions and state PUCs or PSCs have jurisdiction over retail transactions which involve end-users¹¹. There are issues involving both retail and wholesale markets, for example development of Distributed Energy Resources and PURPA reform affect both federal and states rules/regulations.

¹¹ Energy Primer. https://www.ferc.gov/sites/default/files/2020-06/energy-primer-2020.pdf

• “Restructuring” refers to the policy and regulatory changes in the electric utility industry that increased or introduced competition in the wholesale and retail portions of the industry¹².
• Wholesale Restructuring
  • In the 1980s, voluntary transmission open access began but transmission owners could (and did) deny access to their transmission system
  • So "wheeling in" or "wheeling through" utility systems were limited.
  • FERC Order 888 (1996)
    • Required all transmission owning utilities to provide open access and comparable transmission interconnection and service to other generators and market participants. However, participation in an independent transmission organization was voluntary.
    • This includes: open and nondiscriminatory transmission access and creation of ISO and RTO markets, such as energy, capacity and ancillary service markets.

  • Restructuring – Retail Choice

    • On the retail side, restructuring refers to “choice” or access to alternative power suppliers for retail customers. Customers no longer rely on the monopoly distribution company to provide electric service; and they can choose an alternative “generation and transmission” provider and they also receive “unbundled” rates or bills which show three components of the electric rates: Generation, Transmission and Distribution. Generally, surcharges and taxes are also included in distribution portion of customer bill.

    • Therefore, today, we have vertically integrated utilities (with bundled generation, transmission, and distribution rates), along with restructured states (utilities) with unbundled rates.

      1. Not all the states have retail choice. Deregulated states include: California, Connecticut, the District of Columbia, Delaware, Illinois, Massachusetts, Maryland, Maine, Michigan, Montana, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, and Texas¹³.
      2. For such states, a significant amount of customer bills relates to wholesale market operations. For example, in D.C., distribution currently only accounts for roughly 40% of total residential bill. The other 60% relate to generation and transmission, areas relate to FERC regulation and PJM operations.
    • Standard Offer Service (default service) for Restructured States
      1. Utilities in the restructured states can procure power for the customers who choose to stay with the incumbent utility without selecting a third-party competitive retail provider. Such default service (customers do not switch) is sometimes called Standard Offer Service (SOS).
      2. Most retail choice states have a wholesale procurement model meaning the utilities will purchase power from wholesale providers and resell such power to SOS customers.
      3. Customers can compare the utility SOS prices with third-party offered prices (for generation and transmission) and decide their electricity provider. The distribution service is always provided by the local distribution company – the incumbent utility.
      4. Both the utilities and the third-party competitors need to comply with states’ RPS requirement – either purchase sufficient RECs or pay compliance fee.
      5. Regulators for the unbundled states conduct rate cases for distribution rates. Generation rates for SOS customers will be determined most likely through competitive bidding process to select wholesale winners and the Transmission rates will be determined by FERC while states will look into the detailed transmission rate design through annual transmission rate filings. Thus, for the unbundled states, the transmission rates and generation rates are mainly a flow through. Only distribution rate charges require a rate case – either traditional cost of service rate case or through Alternative Forms of Regulation (such as Multi-year rate plan, future test year, formula rates along with the Performance Incentive Mechanisms).
    • Municipal Aggregation Program
      • Allow aggregator to aggregate multiple customers (either residential, commercial or industrial) and to secure a separate contract from a third-party (Generation and Transmission) competitive provider for these customers through RFP
      • Such aggregation program can be either Opt-in (requiring people to explicitly agree) or Opt-out (entire group is included unless customer explicitly rejects)

^12. US Electricity Industry Primer. https://www.energy.gov/sites/prod/files/2015/12/f28/united-states-electricity-industry-primer.pdf

^13. https://www.publicpower.org/system/files/documents/Retail-Electric-Rates-in-Deregulated-States-2017-Update%20%28003%29.pdf

• ISO and RTO sometimes are used interchangeably. Some single state system operator is called ISOs such as California ISO and New York ISO. But both have similar functions. The term ISO was created in mid-1990s when Federal Energy Regulatory Commission issued Orders 888 and 889 opening access to transmission power grids.
• RTO in the United States is an electric power transmission system operator (TSO) that coordinates, controls, and monitors a multi-state electric grid. The transfer of electricity between states is considered interstate commerce, and electric grids spanning multiple states are therefore regulated by the Federal Energy Regulatory Commission (FERC). The voluntary creation of RTOs was initiated by FERC Order No. 2000, issued on December 20, 1999. The purpose of the RTO is to promote economic efficiency, reliability, and non-discriminatory practices while reducing government oversight. Since their creation in the mid-1990s, ISO/RTOs have grown to encompass nearly two-thirds of the US and Canada today.
  • The ISO/RTO Council (IRC) is comprised of the following independent system operators (ISOs) and regional transmission organizations (RTOs): Alberta Electric System Operator (AESO);California Independent System Operator Corporation; Electric Reliability Council of Texas, Inc. (ERCOT); Independent Electricity System Operator of Ontario, Inc. (IESO)ISO New England Inc.; Midcontinent Independent System Operator, Inc.; New York Independent System Operator, Inc.; PJM Interconnection, L.L.C.; and Southwest Power Pool, Inc.
• See the following map¹⁴:

• RTOs and ISOs are independent of the interest of transmission owners and other stakeholders. They administer tariff to assure open assessment. They provide market monitoring function, either within RTO or separately through an independent market monitor (such as PJM) and they conduct planning for transmission expansion.
• Most RTO/ISO include real time/day-ahead energy markets, which produce a security constrained economic dispatch (from lowest cost to highest cost) across the regional footprint, to ensure that the most efficient and cost-effective mix of resources are called on each hour of each day to achieve reliability at the least cost to customers. They also include capacity market and ancillary service markets. For PJM, the capacity market is designed to procure resources available to meet projected peak demand and other contingencies three years ahead of time. Except ERCOT, the RTOs/ISOs can export excess power supplies to neighbors or import needed power from neighboring RTO/ISOs, which enhances the reliability.
• In most cases, for such RTOs/ISOs
  • Reliability and security are the number one priority;
  • Natural gas pipeline companies that support gas fired generators are affected by RTO operations;
  • Ancillary service markets include: (a) Scheduling (system control and dispatch) (b) Reactive supply and voltage control from generation sources –black start service; (c) Regulation and frequency response service; (d) Energy imbalance service; (e) Operating reserve – Spinning (synchronized) reserve; and (f) Operating reserve – supplemental reserve¹⁵.
  • FERC and NERC are key overseers
    
    • Stress testing and contingency analysis are conducted to maintain reliability and resilience
    • Spot markets exist for real-time energy and ancillary services
    • Most power is bought and sold through long-term bilateral contracts between buyers and sellers. For last-minute sales or purchases for system reliability, ISOs and RTOs use real-time markets to resolve energy imbalances.
    • Some RTOs also have day-ahead markets and ancillary service markets
    • Energy market performance is generally reflected in Locational Marginal Prices¹⁶.
    • Capacity market procurement is designed to cover peak demand and an adequate reserve margin
    • RTOs are transitioning to a more decarbonized grid
    • Challenges include: (1) improvement in load/DER forecasting¹⁷ – expect the unexpected, (2) setting reserve margin with changing climate (3) enhancing visibility and dispatchability of DERs (4) enhancing winterization of resources; (5) setting price cap during extreme events; and (6) additional coordination among stakeholders including state PUCs¹⁸.

¹⁴ Energy Primer p 40. https://www.ferc.gov/sites/default/files/2020-06/energy-primer-2020.pdf

¹⁵ Energy Primer p 56 and 57. https://www.ferc.gov/sites/default/files/2020-06/energy-primer-2020.pdf

¹⁶ The LMP reflects the marginal cost of serving load at the specific location, given the set of generators that are being dispatched and the limitations of the transmission system. LMP has three elements: an energy charge, a congestion charge and a charge for transmission system energy losses.

¹⁷ Load forecasting uses mathematical models to predict demand across a region, such as a utility service territory or an RTO/ISO footprint. Forecasts can be divided into three categories: short-term forecasts, which range from one hour to one week ahead; medium-term forecasts, usually a week to a year ahead; and long-term forecasts, which are longer than a year.

¹⁸ See PJM CEO Manu Asthana’s Testimony before U.S. Senate Committee on Energy and Natural Resources, March 11, 2021.

• Grid modernization efforts by States
  • Many states have grid modernization proceedings to seek best practice to promote the use of DER, to achieve sustainability in a reliable and least-cost manner.
  • Order No. 2222
    • Creates a new set of market participants or DER aggregators; Aggregators need to register with the RTO and states may or may not have regulations on such DER¹⁹ aggregators; The question remains as to if states should certify such aggregators
    • Each RTO/ISO must accept bids from a DER aggregator if its aggregation includes DERs that are customers of utilities that distributed more than 4 million MWh in the previous fiscal year.
    • To comply with Order No. 2222, States and PJM are discussing the role of PUCs, the role of RTOs and the role of utilities and the role of aggregators
    • Key issues include the question as to who has the final authority/responsibility for reliability
    • Dispute Resolution Mechanism needs to be established in case aggregators and utilities disagree
  • DER development and Non-Wires Alternative
    • Utility’s expansion in infrastructure generally is conducted through wires solution or expansion of its distribution system and/or transmission system (either through RTO’s Regional Expansion Plan or utility’s own Integrated Resource Plan (for vertically integrated utility). Non-Wires Alternative allows utility to expand its infrastructure through considering DER solutions in a cost-effective manner. Many such solutions may result in lower GHG emissions and lower costs comparing to wires solution. For example, projects such as Con Edison’s Brooklyn Queens Demand Management (BQDM) initiative are capturing public attention and inspiring decision makers to examine the potential of non-wires alternatives (NWAs)²⁰.
  • Pandemic Related issues
    • The 2020 downturn in the U.S. economy stems from a series of demand shocks, both direct and indirect, that have resulted in large part from responses to the COVID-19 pandemic. Demand for energy delivered to the four U.S. end-use sectors (residential, commercial, transportation, and industrial) decreased to 90% of its 2019 level in 2020; a steeper decline than seen in real GDP²¹. (See EIA Annual Energy Outlook)
    • Many states allow utilities to defer prudently incurred COVID-19 related incremental costs and related offsets into a regulatory asset. Utilities are allowed to track such costs before the rate case. The COVID-19 related incremental costs which are included in such trackers may include: 1) bad debt expense, 2) lost late payment revenues, 3) lost connection and reconnection fees, and 4) personal protective equipment, cleaning costs, hospital feeder inspections, and other costs²². See COVID-19 Commission Coverage at NARUC website, a state-by-state survey of COVID-19 regulations and consumer protections²³.
  • Clean Energy and Environment – Achieving Sustainability
    • Many states have legislation mandating long-term climate goals. For example, D.C. has a legislative mandate which we need to achieve 100% renewable by 2032 for Tier one RPS, which put us as one of the most aggressive jurisdictions in U.S. The legislation also requires a GHG reduction of 50 % in 2032 and 100% in 2050. So, the key question remains as to how we can achieve this goal in a least cost, reliable manner. The utilities are currently preparing their long-term climate business plan based on our guidelines and many states also are working on similar long-term climate action plan²⁴. Generally, three sectors are included in such planning process: (1) Transportation sector; (2) Energy Supply sector and (3) Building sector. A key issue under debate is concerned with what would be the natural gas LDC’s future business plan. Is electrification a solution?²⁵ Is that a reliable and cost-effective solution?
  • Joint Federal-State Task Force on Electric Transmission
    • In June 2021, FERC announced a collaboration with the National Association of Regulatory Utility Commissioners (“NARUC”) to establish a first-of-its-kind joint federal-state task force to evaluate barriers to, and solutions to facilitate enhanced transmission development. A 10 state Commissioners and all FERC Commissioners task force has been formed and the first meeting was held in November 2021.²⁶

^19. Distributed Energy Resources – DER is any resource located on the distribution system, any subsystem thereof or behind a customer meter. These resources may include but are not limited to electric storage resources, distributed generation, demand response, energy efficiency, thermal storage and electric vehicles and their supply equipment. The order 2222 defines a DER aggregator as the entity that aggregates one or more DERs for purposes of participation in the capacity, energy, and/or ancillary service markets of the RTOs/ISOs.

^20. See Non-Wires Alternatives, Case Studies from Leading U.S. Projects by E4theFuture, SEPA and PLMA, November 2018. See https://e4thefuture.org/wp-content/uploads/2018/11/2018-Non-Wires-Alternatives-Report_FINAL.pdf.
^21. See EIA Annual Energy Outlook. https://www.eia.gov/outlooks/aeo/.Energy Information Administration (EIA) conducts a comprehensive data collection program that covers the full spectrum of energy sources, end uses, and energy flows; generates short- and long-term domestic and international energy projections; and performs informative energy analyses.
^22. See DCPSC, Order No. 20329 as an example. www.dcpsc.org.
^23. http://e9insight.com/covid-coverage/

^24. See DCPSC Formal Case No. 1167 in www.dcpsc.org and other states efforts such as MA and CA.
^25. Beneficial Electrification of Space Heating, by Jessica Shipley, Jim Lazar, David Farnsworth, and Camille Kadoch, November 2018, the Regulatory Assistance Project (RAP).
^26. See FERC Order issued on August 30, 2021 in docket number AD 21-15-000.

2.1. Regulatory History and Seminal Legislative Policies

1. interstate pipelines unbundle merchant sales of gas from transportation service; and
2. interstate pipeline companies provide comparable transportation services to all gas shippers and sellers whether they purchase natural gas from the pipeline or another gas sellerⁱⁱⁱ.

2.2. State Jurisdiction

2.3. Safety Regulation

3.1. Depleted reservoirs

3.2. Aquifers

3.3. Salt Caverns

In recent years, a variety of State, federal, and local policies have put pressure on finding ways to decarbonize the natural gas sector, or even reach net-zero emissions goals within the broader energy sector. These policies have led regulators, utilities, and other industry actors to focus on opportunities and options such as introducing renewable natural gas (RNG, or methane derived from non-fossil-fuel sources) into the gas system or blending in hydrogen created from electrolysis of water using renewable energy, or hydrogen created from methane that utilizes advanced carbon capture technologies.

Interestingly, RNG can be produced from sources such as municipal solid waste landfills, wastewater treatment plants, livestock farms, food production facilities, and organic waste management operations. RNG production also provides a certain level of flexibility as it can be consumed at the production site, or it can be injected into the transmission or distribution pipelines for mass market consumption. RNG development supports local economic development through construction projects as well^xiv. According to the United States Environmental Protection Agency (EPA), the total number of RNG projects in the United States grew from 12 in 2005 to 90 in 2020^xv. This increase is in part due to some States recently implementing RNG programs for their regulated LDCs, in addition to several companies creating corporate sustainability goals related to increasing the deployment of RNG within their systems.

More recently hydrogen is being explored as an option for reducing the carbon footprint associated with the natural gas system. Studies and pilot efforts are emerging in various parts of the country to determine the levels at which hydrogen can safely be introduced into the gas pipeline system, as well as to test various technologies and applications for using hydrogen.

1. https://www.eia.gov/energyexplained/natural-gas/
2. ibid
3. http://www.ferc.gov/sites/default/files/2020-06/energy-primer-2020_Final.pdf
4. https://www.americangeosciences.org/geoscience-currents/us-regulation-oil-and-gas-operations
5. https://pubs.naruc.org/pub/FA864F6D-FA53-2D71-9D4A-88974026FBA6
6. https://www.phmsa.dot.gov/working-phmsa/state-programs/state-programs-overview
7. http://naturalgas.org/naturalgas/storage/#depleted
8. http://naturalgas.org/naturalgas/storage/#aquifers
9. http://naturalgas.org/naturalgas/storage/#saltcaverns
10. https://www.phmsa.dot.gov/data-and-statistics/pipeline-replacement/pipeline-replacement-background
11. https://www.eia.gov/dnav/ng/ng_cons_num_dcu_nus_a.htm
12. https://www.eia.gov/energyexplained/natural-gas/customer-choice-programs.php
13. ibid
14. https://www.epa.gov/lmop/renewable-natural-gas#basics
15. https://www.epa.gov/lmop/renewable-natural-gas

Safe drinking water may be provided to a customer (residential or commercial) through a public entity (a municipality or a regional public authority) or through an investor-owned utility; in some limited cases, a person may rely on their own private well water. Generally, water is supplied one of three ways: (a) directly from groundwater, requiring little treatment usually with just chlorine; (b) a surface supply such as a reservoir, river, or ocean (if it is connected to a desalination treatment plant); or, (c) from another entity through a purchase water agreement. In all cases other than private wells (where water is not distributed for sale), the water for human consumption must be processed to meet the strict standards of the federal Safe Drinking Water Act for the removal of known pathogens and regulated contaminants. This process is chemically expensive and consumes a great deal of energy depending upon the water source and has added energy expenses in its distribution and delivery.

The distribution of water from a treatment plant follows a “main” pipe with sub-main branches separated by cutoff valves. Besides plant and lab-testing equipment, a water utility may use water tanks whereby water is pumped up depending upon service-territory terrain to balance water pressure in a system. Larger systems may rely upon a SCADA system of software and hardware that interacts with sensors, valves, pumps, motors and more. As this is being deployed with greater frequency, cyber hygiene needs to be monitored, including system patching, training for employees, limiting vendor access and air gapping of control systems. It is always a good practice to train staff in the manual operation of the plant should it lose power or internet connectivity or worse yet, be the object of hacking.

LSL replacement has become an increasingly urgent issues as public awareness of the issue has increased. Lead pipes were used in some parts of the country into the 1980s and are still in use in many parts of the country today. The EPA recommends full replacement, as partial-line replacements can cause additional lead to leach into the water; there are an estimated 6-10 million lead service lines in the country. In many communities, LSLs are partially owned by the water system and partially owned by the customer, making these replacement efforts more logistically complex.

The EPA has a Lead and Copper Rule established in 1991; this has undergone several revisions and is currently accepting comments on a revised rule that will focus on identifying the most at-risk communities and ensuring systems have plans in place to rapidly respond. Federal funding for LSL is available through the DWSRF and HUD Community Development Block Grants (CDBG), and some states have developed additional replacement incentives.

• Distribution System Improvement Charges (DSICs);
• Acoustic leak detection technology;
• Comprehensive infrastructure repair planning; and,
• Water Infrastructure Finance and Innovation Act Program (WIFIA) and Clean Water State Revolving Fund Loan Program (CWSRF).

The regulatory mandate for “reliable service” varies. State commissions only regulate approximately 20% of all public water systems in the US. While the system types vary from state to state, the following are two good examples of utility systems reliability:

• Essential utility services thus become matters of humanity and human rights... In the United States, a very high level of service reliability is presumed; outages and the cascading consequences of interdependency are met with alarm and dismay. Extended disruptions jeopardize public health, safety, and welfare, and destabilize economic and social systems.
• Reliability: the ability of utilities to provide consumers with public utility services under varying demand conditions in such manner that suppliers of public utility services can provide service at varying levels of economic reliability giving appropriate consideration to the costs likely to be incurred as a result of service interruptions, and to the costs of increasing or maintaining current levels of reliability consistent with commitments to consumers. (Excerpt from Illinois Public Utilities Act: (220 ILCS 5/1-102) (from Ch. 111 2/3, par. 1-102)).

Utility systems are constantly balancing the supply-side and demand-side of their capacity in both quantitative and temporal terms. Utilities must manage fluctuations in these demand/supply cycles on a daily, weekly and seasonal basis, as well as with unexpected weather events or disruptions. Reliability for the water systems and the ability to maintain it relies on leveraging adequate margins to meet peak demand loads^xxvii.

As capacity is lost during a single instance of a ‘system failure,’ system operators have established that, to increase reliability and thus reduce system failures, water supply systems require increased facilities, storage, pumping capacity, pipelines. This singular metric is a technical term referred to as the reliability factor, which produces the “least-cost” combination of the inputs to compute higher system reliability overall.

Quality and safety water source regulations in the U.S. were established by the Safe Drinking Water Act of 1974 (SDWA) and subsequent amendments that have built on contemporary needs and issues facing American water systems. Under the law, the EPA has set and maintained national health-based standards for drinking water to protect against contaminants, whether natural or manmade. Amendments to the SDWA in 1986 and 1996 have expanded requirements for the EPA to establish rules for source water protection, operator certification, funding water system improvements, and providing public information. Following the September 11, 2001 terrorist attacks, the Bioterrorism Act of 2002 and executive directives mandated that the EPA assess vulnerabilities and emergency response plans for the country’s water systems.

The basis for all regulatory standards is set at the federal level by the US EPA and direct oversight of these requirements and standards is conducted through state drinking water programs. SDWA mandated that states have programs that certify water system operators and ensure that new water systems have the technical, financial, and managerial capacity to provide safe drinking water.^xxviii These programs were established under amendments made to SDWA in 1996 that created the DWSRF. The DWSRF is a financial assistance program to help water systems and states to achieve the health protection objectives of the SDWA. (See 42 U.S.C. §300j-12.) The program is a powerful partnership between EPA and the states. Congress appropriates funding for the DWSRF; then, EPA awards capitalization grants to each state for their DWSRF based upon the results of the most recent Drinking Water Infrastructure Needs Survey and Assessment and the state provides a 20 percent match.^xxix States that adopt regulations and standards at least matching or exceed those of the federal government can be authorized by the EPA to implement the SDWA in their jurisdiction.

Without water, this country (and the world) would not be able to utilize the types of energy that drive our economies. Water and energy are truly linked and that is why a light bulb (or any device that uses energy) is a water saving device and a shower head (or any device that uses water) is an energy saving device. Simply stated, conserve energy and we conserve water; conserve water and we conserve energy.

Today, when one thinks of the water-energy nexus, one does not think of the human energy needed to move water, but of the amount of electrical energy needed to supply the human population with water for everyday uses, e.g., drinking, cooking, cleaning, sanitation, etc. Water and energy systems are interdependent. We need energy to extract, treat and deliver water to cities and farms. It is also necessary to treat wastewaters either for “reuse” or return to the environment. At the same time, water is used in all phases of energy production and electricity generation.

Access, Equity and Affordability. Some estimate that in the United States, there are as many as 471,000 households or 1.1 million individuals that do not have a “piped” water connection.

Newly identified threats to Water Quality. Well over 90 percent of American’s get their water from community water systems subject to the EPA’s safe drinking water standards. But treatment costs, and rates, are facing increases due to the identification of new contaminants.

Water supply (climate change, etc.) Water supply challenges and limitations are largely linked to regional issues. [See geographical issues Section VIII.] Technologies that allow for desalination and reuse will continue to increase in importance.

Declining per customer sales. U.S. drinking water utilities might see customer payments drop as much as $14 billion because of the pandemic because of widely adopted shutoff moratoria, increased late payments due to high unemployment, reductions in non-residential water demands and fewer new customers. This can be attributed to reduced revenues likely requiring utilities to scale back projects by as much as $5 billion a year to help manage cash flows due to the crisis. These reductions will have a cascading effect on economic activity and at the very least in the near term puts upward pressure on rates.

Consolidation. The American Society of Civil Engineers routinely grades US water infrastructure well below “C” level. Since 1998, the drinking water sector has never scored above a D-grade. In addition, affordability remains a concern as water rates and fees appear to be growing more rapidly than the Consumer Price Index. There are many roadblocks to addressing these challenges. One is the fragmentation of the industry. In the United States, there are over 148,000 public water systems.^xxxii This includes over 53,000 community drinking water systems, 84 percent of which serve fewer than 3,000 people.^xxxiii Consolidation and or partnerships are options that with some systems can address some of the affordability problems.^xxxiv

Water Futures/Commoditizing. In December of 2020, water joined gold and other commodities traded on Wall Street in the futures market. The CME group launched a futures market for just California’s $1.1 billion spot water market. This allows farmers, cities, and speculators to hedge or invest in future water availability in California.

Geographical Issues. Problems as diverse as climate profiles across the country persist. Some examples will be included.

16. The following commissioners and staff contributed to the contents of this section: Commissioner Maria S. Bocanegra (Illinois Commerce Commission); Commissioner Mary-Anna Holden (New Jersey Board of Public Utilities); Commissioner Jeffrey Hughes (North Carolina Utilities Commission); Kathryn Kline (Senior Researcher, NRRI); Jena Merl (Utility Policy Coordinator, Illinois Commerce Commission); and Brad Ramsay (General Counsel, NARUC).
17. Supervisory control and data acquisition (SCADA).
18. “Knowledge Portals: Asset Management: Breaks and Leaks: FAQ’s,” 2017, Water Research Foundation. http://www.waterrf.org/knowledge/asset-management/FactSheets/AssetMgt-BreaksLeaks-FactSheet.pdf
19. Folkman, Steven. “Water Main Break Rates In the USA and Canada : A Comprehensive Study A Comprehensive Study Overall Pipe Breaks.” 2018. p. 26
20. Murray, D. J., “Aging Water Infrastructure Research Program: Addressing The Challenge Through Innovation.” U. S. Environmental Protection Agency, 2007. https://cfpub.epa.gov/si/si_public_record_report.cfm? dirEntryId = 185093
21. U. S. Environmental Protection Agency. 2018. “Drinking Water Infrastructure Needs Survey and Assessment.”
22. “Strategies to Achieve Full Lead Service Line Replacement.” (2019). Environmental Protection Agency. p. 4. https://www.epa.gov/sites/production/files/2019-10/documents/strategies_to_achieve_full_lead_service_line_replacement_10_09_19.pdf
23. LSLR Financing Case Studies [webpage]. (2019). Environmental Protection Agency. https://www.epa.gov/ground-water-and-drinking-water/lslr-financing-case-studies
24. Proposed Revisions to the Lead and Copper Rule [webpage]. March 2021. Environmental Protection Agency. https://www.epa.gov/ground-water-and-drinking-water/proposed-revisions-lead-and-copper-rule
25. “2021 Report Card for America’s Infrastructure.” 2021. American Society of Civil Engineers. p. 35
26. https://www.lincolninst.edu/sites/default/files/pubfiles/economic-regulation-of-utility-infrastructure_0.pdf (88)
27. https://www.lincolninst.edu/sites/default/files/pubfiles/economic-regulation-of-utility-infrastructure_0.pdf (93)
28. https://www.epa.gov/sites/production/files/2015-04/documents/epa816f04030.pdf
29. https://www.epa.gov/dwsrf/how-drinking-water-state-revolving-fund-works#tab-1
30. Meehan, Katie, Jurjevich, Jason R, Chun, Nicholas, & Sherril, Justin, Geographies of insecure water access and the housing–water nexus in US cities (November 2, 2020), available online at: https://www.pnas.org/content/117/46/28700
31. Report Card for America’s Infrastructure, Report Card History, ASCE, online at https://infrastructurereportcard.org/making-the-grade/report-card-history/ (last accessed April 14, 2021).
32. Drinking Water Requirements for State and Public Water Systems, Information about Public Water Systems, U. S. EPA (last accessed April 14, 2021).
33. Infrastructure Investment, National Association of Water Companies (2021), online at: https://nawc.org/issues/infrastructure-investment/ (last accessed April 14, 2021)
34. Id. see partnership examples involving Illinois, South Dakota, Massachusetts, and Missouri outlined on this NAWC issue brief webpage.

The basis of most telecommunications regulation today is the Telecommunications Act of 1996 (the “Act”). While the Act itself covers much more than this primer can address, you should know that it accomplishes three essential things:

1) it lays out the basic rules and obligations for each type of service; 2) it grants jurisdiction to the FCC to interpret and implement the Act, and; 3) it lays out the services over which states retain jurisdiction and the services that states are preempted from regulating.

As defined in the Act, “telecommunications” “means the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received.”²⁷ If a service is defined as a telecommunications service, it is more highly regulated. If a service is not classified as a “telecommunications service,” it is regulated more lightly, if at all.

Different communications services are covered by different portions of the Act and are regulated differently. The first service is traditional wireline voice service (Plain Old Telephone Service or POTS), which is defined as a “telecommunications service,” and thus covered under Title II of the Act. POTS was traditionally provided over copper facilities using Time Division Multiplex (TDM) switching, although POTS can now also be offered over newer fiber facilities. Traditional telephone service that originates and terminates in the same state is considered “intrastate” service, regulated by state commissions. Traditional telephone service that originates and terminates in different states is considered “interstate” service and is regulated by the FCC. At the time of the passage of the Act, POTS was the predominant service in the nation and as a result is the most regulated category of service. Today, POTS is declining as many customers choose wireless or VoIP service, but many of the legacy POTS rules still affect current regulatory debates.

The second category of service is wireless service, also called cellular or mobile service. The Act regulates wireless services under Title III of the Act, although the Act also states that some of the provisions of Title II apply to wireless carriers.²⁸ The Act prohibits states from regulating market entry or rates of wireless carriers, but allows states to regulate “other terms and conditions” of service of such carriers.²⁹ Some states continue to regulate “other terms and conditions” of mobile service, but other states do not.

Cable service, which was primarily providing video service in 1996, was also included in the Act, under Title VI. Thus, cable services are regulated differently than telephone or wireless service. Some state commissions have authority over cable services, but many do not.

New Services

After the passage of the Act, several new, competitive services became widespread due to technological advances, including the deployment of fiber facilities that can offer these new services. The FCC and state commissions have been working to classify these new services to determine what rules, if any, should apply to these new services.

VoIP service is telephone service provided via the Internet using packet switching. The FCC has not classified VoIP service as “telecommunications service” subject to Title II of the Act. However, the FCC has imposed some of the requirements imposed on telecommunications service providers under Title II on VoIP service providers, including, but not limited to: obligations to connect to E911 service, obligations to connect to Telecommunications Relay Service (service for people who are deaf, hard of hearing, deaf/blind, or have speech disabilities; universal service obligations; and obligations to report network outages to the FCC. The FCC permits state commissions to have very limited jurisdiction over some VoIP service. For other VoIP services, the FCC has removed jurisdictions from state commissions, asserting that these VoIP services are primarily interstate in nature. In some states, state legislation limits state commissions from regulating VoIP service providers.

The term “broadband” refers to another set of services providing access to the Internet. Broadband is most often used to refer to Broadband Internet Access Service or BIAS. Regulatory treatment of broadband service has shifted over the past several years. Under FCC Chairman Wheeler, the FCC released the Net Neutrality Order, which classified broadband service as “telecommunications service,” subject to the provisions of Title II of the Act.³⁰ However, this order limited state jurisdiction over broadband service, arguing that it was a primarily interstate service subject to FCC, not state, jurisdiction. Under FCC Chairman Pai, the Restoring Internet Freedom order reversed the Net Neutrality Order and removed broadband service from within the definition of “telecommunications service,” so that broadband service is no longer subject to Title II regulation.³¹ Broadband service is available from upgraded telephone, wireless, and cable networks, but the technology differs depending on the broadband service’s platform.

FCC v. State Commission Jurisdiction

As noted above, as a general rule, the FCC has jurisdiction over interstate communications issues, while states have jurisdiction over intrastate communications. However, the FCC tends to view telecommunications as a national competitive market with nationwide networks and territories. As a result, the FCC typically favors national level regulation of telecommunications services. The Act gives the FCC two primary tools, “preemption” and “forbearance,” which the FCC has used to reduce local oversight over telecommunications services. While both work to limit local authority over telecommunications services, they do so in different ways.

If the FCC determines that it is necessary to establish a singular federal scheme to regulate a particular issue, it can preempt any state rule that arguably could undermine or interfere with the federal framework. Recent examples of preemption include the FCC’s assertion of authority to phase out intercarrier compensation (the payments that one carrier makes to another for terminating voice or data traffic on the second carrier’s network), and attempting to block any state commission authority over BIAS. While states may contest preemption through court challenges, they face a difficult burden as court precedent strongly favors the FCC’s interpretation of its own authority.

Forbearance is another tool the FCC can use to limit state jurisdiction. Congress permits the FCC to forbear from the enforcement or implementation of any section of the Act, if the FCC makes certain findings. For example, the FCC has chosen to no longer require a network owner to give access to its network if the network is using IP technology to provide voice, BIAS, or video service. In eliminating this requirement, the FCC also eliminated state commission oversight of interconnection disputes between carriers regarding access to these networks.

Federal-State Joint Boards

The Act permits the FCC to delegate issues of joint federal and state jurisdiction to Joint Boards.³² There are currently several FCC Joint Boards, including the Joint Board on Universal Service and Separations.

State Authority under the Federal Law

• Pole Attachments.  The delivery of most types of communications at some point will be over cables or antennas attached to electric and telephone utility poles.  Federal law allows state regulators to address pricing and pole attachments, if the states choose to do so.  If the state does not promulgate  pole attachment regulations, then the FCC pole attachment rules apply. Typical rules cover resolution of pole attachments disputes as well as the rates charged to attach.  However, the FCC, and many state commissions, lack authority over municipal pole attachments.
• Numbering.  The wireline and wireless networks need telephone numbers to operate.  Telephone Numbers are regulated under the North American Numbering Plan (“NANP”) and its Administrator, the North American Numbering Plan Administrator (“NANPA”).  NANPA has authority only in North America.  NANPA sets the parameters for deciding who gets numbers, where they can be used, and how to recall unused numbers so that they can be used somewhere else. State regulators, in turn, are responsible for area code relief, the process of implementing a new area code if the current area code does not have  sufficient numbers to address future needs.  When a new area code is needed, NANPA sets up the parameters and timing but it is the state commission that approves a new area code,  implements the new area code, and educates the public about the new area code.
• Universal Service.  Section 254 of the Act requires that there must be “comparable rates for comparable services” in urban and rural America.  This has resulted in the creation of four separate universal service funds by the FCC.  The largest, the High Cost fund, is a program that provides support to companies that provide voice and BIAS in high-cost (typically rural or tribal or both) areas.  A second, the Education rate or E-Rate program, provides support for voice and BIAS services to Schools and Libraries.  A third program focuses exclusively on Rural Healthcare.  The last program, Lifeline, provides support for BIAS and voice service to eligible low-income consumers in urban and rural areas.  
  
  Under current federal law, neither the FCC nor the Universal Service Administrative Company (“USAC”), which administers the universal service programs on behalf of the FCC, may not give federal money from the FCC’s High Cost and Lifeline programs unless the recipient is an Eligible Telecommunications Carrier (“ETC”). (ETC designation is not required to receive support from the E-Rate or Rural Health programs.)  ETC designations are handled  by state commissions under 47 U.S.C. Section 214. If the state cannot designate a carrier as a ETC for some reason (e.g. a prohibition in state law), the FCC steps in and designates carriers.  This ETC designation procedure is the primary, if not exclusive, device state regulators use to ensure that the carrier is providing universally available, adequate, reliable, and affordable service.  
  
  
• Universal Service Support.  As noted above, the federal USF is funded by interstate voice revenue.  The federal USF, however, supports the construction and delivery of voice and BIAS networks.  There is no mandate that BIAS revenues be included in that assessment even though BIAS networks and services benefit from that program.  Moreover, voice service and revenues are declining while BIAS services and revenues are increasing dramatically.  This includes the migration of voice service to the BIAS network and services.  While the December 2020 Consolidated Appropriations Act and the American Recovery Act (“ARA”) provide support for  building BIAS networks, they are one-time efforts.  The resolution of this funding challenge will likely become an important issue in the near future.
• Telecommunications Relay Services.  Telecommunications relay services (“TRS”) are communications services provided to customers who are deaf, hard of hearing, deaf/blind, or who have speech disabilities.  Many state commissions have jurisdiction over intrastate TRS services.  Every five years, states must recertify that their state programs meet federal TRS requirements.
• Network Deployment.  There is a shortage of high capacity wireline and wireless networks that support voice and the newer bandwidth-hungry BIAS and video content.  Older copper-based networks and analog technology cannot manage these growing bandwidth requirements for voice, BIAS, and streaming video content.   Instead, fiber facilities are used.  These facilities need to be built in many areas.  The FCC and state regulators have used universal service funds to support network deployment in high-cost, usually rural, areas as well as to support the ability of consumers in rural and urban areas alike to be able to continue to buy voice as well as new BIAS and streaming video content.  The FCC has also established rules governing the retirement of copper facilities used to provide telephone service, since network providers cannot afford to maintain two communications networks.
• Network Services.  BIAS networks allow, among other things, customers to work from home, to attend school remotely, to access telehealth services, to search for employment, and to download entertainment.  Many policymakers tout BIAS as an indispensable service akin to electricity, gas, water, and transportation utility services.  As noted above, the division of regulatory authority between local and national regulators with respect to BIAS is not settled.  Additionally, recent federal legislation has promoted the deployment of broadband facilities and support to customers for broadband service.  The December 2020 Consolidated Appropriations law created an Emergency Broadband (“EBB”) program to support customers, while the  COVID Relief Bill  and ARA, and recently proposed American Infrastructure Bill aim at building out fiber or other high-speed infrastructure (deployment) to provide affordable BIAS.

^28. 47 U.S.C. § 332(c)(1)(A).

 ^29.47 U.S.C. § 332(c)(3).

^30. Protecting and Promoting the Open Internet, WC Docket No. 14-28, Report and Order on Remand, Declaratory Ruling, and Order, 30 FCC Rcd 5601 (2015)

^31.Restoring Internet Freedom, WC Docket No. 17-108, Declaratory Ruling, Report and Order, and Order, 33 FCC Rcd 311(1) (2018).

^32.47 U.S.C. § 410.