CHICAGO – Water contamination-related lawsuits filed in Chicago and Flint, Mich. stand to influence the sector nationally as the cases draw more scrutiny to the dangers associated with older lead pipe-based systems, Fitch Ratings says in a new report.
The lawsuits "could have a broad, long-term impact on the entire US water sector" as utilities take notice and respond by upping up education efforts and evaluate their existing treatment protocols to ensure ongoing water quality, Fitch writes in the report published Friday.
The increasing attention could drive more to borrow with varying short-and long term impacts for individual credits and the sector as a whole.
Significant investment in service line replacement could occur over the near term, particularly if the Environmental Protection Agency materially alters existing rules on drinking water exposure to lead under its Lead and Copper Rule.
If corrosion control is not effective the rule can require water quality monitoring and treatment, corrosion control treatment, the removal of lead lines and public education. The EPA may strengthen the rule later this year or next.
"In light of these lawsuits and the heightened public focus on possible lead contamination, Fitch expects any proposed rule revisions will likely move the industry toward removing all lead service lines," analysts wrote. "Reprioritizing and accelerating lead pipe replacement would add significant additional capital needs to the sector and could compete with other critical infrastructure projects."
Fitch says various sources estimate over 6 million lead service lines exist across the country, many located in the Northeast, Midwest and older urban areas, with a replacement costs of that could range from a few billion on the low end to $50 billion.
Fitch also highlights the U.S. Environmental Protection Agency's latest survey that put a $385 billion price tag on estimated water infrastructure improvements needed through 2030. That figure includes the costs to only partially replace lead pipes.
"Either level of capital cost would likely be manageable for the sector as a whole if it is spread out over a time frame like the one in the EPA survey," Fitch writes. "However, implementation over a shorter time span may create stress for individual credits."
Flint's water contamination crisis has drawn international attention as the extent of its crisis unfolded and recovery efforts escalated. Flint's emergency began after the city, under oversight of an emergency manager, broke off from the Detroit Water and Sewerage System in 2014 to save money when its contract to receive Detroit-supplied water ended. The city began pulling water from the Flint River and intended to use it until later this year when it will begin getting its water from a new pipeline being built by the Karegnondi Water Authority.
The Flint River water wasn't property treated and corroded pipes throughout the system. The city with state financial help reconnected to Detroit's system last fall but it did not solve the city's problems because the delivery system's pipes had been contaminated with lead.
The city and state and various officials face litigation filed by Flint residents and environmental groups.
In Chicago, a group of residents recently filed a lawsuit against the city alleging that city repairs to its system allowed dangerous levels of lead to enter the drinking water supply. It accuses the city of failing to adequately notify residents of the danger and it seeks the removal of thousands of lead pipes.
Chicago, which draws and treats Lake Michigan water for 5.2 million residents of the city and suburbs, has phased in water rate hikes to help speed up a $2.1 billion water infrastructure improvement program.
The crisis has promoted local, state, and federal talk of fresh support for related infrastructure improvements. Supporters are touting a bipartisan U.S. Senate bill that would exempt water infrastructure-related debt from state volume caps on private-activity bonds as a means to attract the private capital needed to repair the nation's aging water and sewer systems.
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Corrected March 8, 2016 at 4:41PM: Fitch Ratings issued a corrected version of the report on March 8 revising the cost estimates to replace lead pipes nationally.