Legal Terrain

Much has been written, including in our Burns & Levinson Legal Terrain Blog, about the impact of PFAS and similar “forever chemicals” on suits by state attorneys general and private actions to obtain funds or obtain insurance coverage to address the costs of PFAS removal from drinking water and wastewater. On April 10, the Biden-Harris Administration announced the final National Drinking Water Standard for six PFAS compounds, along with $1 billion in additional funding for needed infrastructure improvements to treat PFAS in public drinking water facilities, on top of $9 billion previously made available to address PFAS and other emerging contaminants.  All public water facilities must now develop plans to meet those standards.

Under the new rule, public drinking water facilities have three years to complete monitoring for these toxic chemicals in drinking water and provide public notice of the findings.  If monitoring shows the new standards are exceeded, the facilities will have five additional years to implement solutions to reduce the levels of those contaminants in drinking water below the standards. This post focuses on the implications of the new PFAS rules on drinking water facilities designed, built and/or operated under agreements between the public body and private operator.

In Rhode Island and many other states, municipalities that have historically operated drinking water treatment plants for their residents have relied on Public-Private Partnerships (P3) to design, build, operate (“DBO”), as well as maintain and often finance the construction of new or upgraded drinking water treatment plants to meet changing and rigorous regulations for potable water. For over 25 years, we have represented municipalities in procuring and contracting for new drinking water treatment and production facilities with private companies. The P3 agreements for these facilities often run for twenty years or longer. The P3 agreements are designed to ensure current and future costs for financing, facility design, construction, and ongoing operations and maintenance are set over time, subject to a blended index to increase payments to cover projected cost increases throughout the agreement.

Adding treatment limits for PFAS and other forever chemicals will trigger “Change in Law” provisions under the terms of many existing P3 agreements for water plants.  Under our standard P3 contract language, an event, such as a new mandated treatment limit, triggers the “Change in Law” provisions, requiring an adjustment in costs paid by the public body to the private operator. “Change in Law” provisions can be avoided if the proposed rule changing the limit was officially proposed and published in final form in the Federal Register or equivalent publication officially adopted and effective before the P3 agreement was in place. Similarly, a “Change in Law” may impact the Repair and Replacement (“R&R”) requirements of the agreement, including the use of the R&R Fund available to the private operator for individual repair and replacement costs exceeding some amount, such as $10,000.

For a P3 agreement already in place for a water treatment facility, the new PFAS requirements will likely require negotiation of the added methods and costs for removing PFAS as additional obligations of the private operator.  Any ongoing negotiations for a new P3 DBO procurement will need to address PFAS limits and treatment alternatives before an agreement is finalized.

According to the April 10 announcement by the Biden Administration, available PFAS treatment alternatives include: “granular activated carbon, reverse osmosis, and ion exchange systems.” Some existing facilities operating under P3 agreements that rely on carbon for treatment will likely choose to enhance the carbon treatment system, switching out carbon more frequently to meet PFAS removal requirements. This would be handled through increased operating cost reimbursement or added R&R funds or separately through a pass-through to the public body to cover additional costs. Public bodies with new planned facilities in the procurement phase should identify the new PFAS requirements and seek proposals from the private DBO P3 proposers to meet PFAS limits by enhancing carbon use or proposing another available treatment alternative. New facilities and significant modifications to existing plants may also qualify for the $10 billion or more in federal funding identified in the April 10 announcement.

Whether the public body responsible for providing drinking water is procuring a new plant or has an existing plant, the capital, R&R, and operating costs for PFAS treatment will need to be added to the costs for treatment. In past decades, the cost of treating emerging contaminants, such as nitrogen and phosphorous, was handled similarly. These added treatment costs will ultimately be passed on to the residents and users of the water at higher rates.