Document ID: EPA-HQ-OW-2005-0005-0002
Agency: epa
Document Type: Notice
Title: Small Drinking Water Systems Variances--Revision of Existing National-Level Affordability Methodology and Methodology To Identify Variance Technologies That Are Protective of Public Health
Posted Date: 2006-03-02T05:00Z

[Federal Register: March 2, 2006 (Volume 71, Number 41)]
[Notices]               
[Page 10671-10685]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02mr06-47]                         

[[Page 10671]]

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ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OW-2005-0005; FRL-8035-7]

 
Small Drinking Water Systems Variances--Revision of Existing 
National-Level Affordability Methodology and Methodology To Identify 
Variance Technologies That Are Protective of Public Health

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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SUMMARY: The 1996 amendments of the Safe Drinking Water Act (SDWA) 
provide States the authority to grant variances to small public water 
systems that cannot afford to comply with a primary drinking water 
standard. These variances allow a system to install and maintain 
technology that can remove a contaminant to the maximum extent that is 
affordable and protective of public health in lieu of technology that 
can achieve compliance with the regulation. One of the conditions for 
States to grant variances on a case-by-case basis is that the EPA must 
have found for systems of a similar size and with similar source water 
that there are no affordable technologies available that achieve 
compliance with the standard, but that there are affordable variance 
technologies that are protective of public health.
    The EPA currently determines if there are affordable compliance 
technologies available to small systems by comparing (for a 
representative system) the current household cost of water plus the 
estimated additional cost to comply with a new rule to an affordability 
``threshold'' of 2.5 percent of the median household income (MHI). 
Today=s Federal Register notice requests comment on revisions to this 
existing national-level affordability methodology for small drinking 
water systems and an approach for determining if an affordable variance 
technology is protective of public health. The Agency is committed to 
working with State and local officials and stakeholders to update and 
improve affordability analyses under the Safe Drinking Water Act.

DATES: Comments must be received on or before May 1, 2006.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-OW-
2005-0005, by one of the following methods:
     http://www.regulations.gov. Follow the on-line 

instructions for submitting comments.
     E-mail: OW-Docket@epa.gov, Attention Docket ID No. OW-
2005-0005.
     Fax: (202) 566-1749.
     Mail: Water Docket, Environmental Protection Agency, 
Mailcode: 4101T, 1200 Pennsylvania Ave., NW., Washington, DC, 20460.
     Hand Delivery: Water Docket, Environmental Protection 
Agency, EPA West Building, Room B102, 1301 Constitution Avenue, NW., 
Washington, DC. Such deliveries are only accepted during the Docket's 
normal hours of operation, and special arrangements should be made for 
deliveries of boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OW-2005-
0005. EPA's policy is that all comments received will be included in 
the public docket without change and may be made available online at 
http://www.epa.gov/edocket, including any personal information 

provided, unless the comment includes information claimed to be 
Confidential Business Information (CBI) or other information whose 
disclosure is restricted by statute. Do not submit information that you 
consider to be CBI or otherwise protected through http://www.regulations.gov, or e-mail. The http://www.regulations.gov Web site 

is an ``anonymous access'' system, which means EPA will not know your 
identity or contact information unless you provide it in the body of 
your comment. If you send an e-mail comment directly to EPA without 
going through http://www.regulations.gov, your e-mail address will be 

automatically captured and included as part of the comment that is 
placed in the public docket and made available on the Internet. If you 
submit an electronic comment, EPA recommends that you include your name 
and other contact information in the body of your comment and with any 
disk or CD-ROM you submit. If EPA cannot read your comment due to 
technical difficulties and cannot contact you for clarification, EPA 
may not be able to consider your comment. Electronic files should avoid 
the use of special characters, any form of encryption, and be free of 
any defects or viruses.
    Docket: All documents in the docket are listed in the http://www.regulations.gov
 index. Although listed in the index, some 

information is not publicly available, e.g., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, will be publicly available only in hard copy. 
Publicly available docket materials are available either electronically 
in http://www.regulations.gov or in hard copy at the Water Docket, EPA/

DC, EPA West, Room B102, 1301 Constitution Avenue, NW., Washington, DC. 
The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday 
through Friday, excluding legal holidays. The telephone number for the 
Public Reading Room is (202) 566-1744, and the telephone number for the 
Water Docket is (202) 566-1749.

FOR FURTHER INFORMATION CONTACT: Dan Olson, Standards and Risk 
Management Division, Office of Ground Water and Drinking Water, 
(4607M), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., 
Washington, DC, 20460; telephone number: (202) 564-5239; fax number: 
(202) 564-3758; e-mail address: olson.daniel@epa.gov.

SUPPLEMENTARY INFORMATION: 

I. General Information

A. What Should I Consider as I Prepare My Comments for EPA?

    1. Submitting CBI. Do not submit this information to EPA through 
http://www.regulations.gov or e-mail. Clearly mark the part or all of 

the information that you claim to be CBI. For CBI information in a disk 
or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM 
as CBI and then identify electronically within the disk or CD ROM the 
specific information that is claimed as CBI. In addition to one 
complete version of the comment that includes information claimed as 
CBI, a copy of the comment that does not contain the information 
claimed as CBI must be submitted for inclusion in the public docket. 
Information so marked will not be disclosed except in accordance with 
procedures set forth in 40 CFR part 2.
    2. Tips for Preparing Your Comments. When submitting comments, 
remember to:
     Identify the rulemaking by docket number and other 
identifying information (subject heading, Federal Register date and 
page number).
     Follow directions--The agency may ask you to respond to 
specific questions or organize comments by referencing a Code of 
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree; suggest alternatives 
and substitute language for your requested changes.
     Describe any assumptions and provide any technical 
information and/or data that you used.
     If you estimate potential costs or burdens, explain how 
you arrived at your estimate in sufficient detail to allow for it to be 
reproduced.

[[Page 10672]]

     Provide specific examples to illustrate your concerns, and 
suggest alternatives.
     Explain your views as clearly as possible.
     Make sure to submit your comments by the comment period 
deadline identified.

Table of Contents

I. General Information
    A. What Should I Consider as I Prepare My Comments for EPA?
II. Background
    A. What Is the Purpose of Today's Action?
    B. Statutory Background
    C. How Does EPA Currently Determine if Affordable Compliance 
Technologies Are Available to Small Drinking Water Systems?
III. Affordability Methodology
    A. The EPA's Science Advisory Board Recommendations on 
Affordability
    1. EPA's Approach to Determining Affordability for Small Systems
    2. Components of the Affordability Determination Method
    3. Source Water and Regional Disparities
    4. Financial Assistance
    B. The National Drinking Water Advisory Council's 
Recommendations on Affordability Criteria
    1. Should MHI or Another Income Measure (Such as Per Capita 
Income) Be Used for the Income Level?
    2. Should 2.5 Percent or Another Percentage Be Used as the 
Income Percentage for Determining the Maximum Affordable Water Bill, 
and What Is the Basis for an Alternative Selection?
    3. How Should the Expenditure Baseline Be Adjusted To Account 
for New Rules?
    4. Should Separate Affordability Criteria Be Developed for 
Surface and Ground Water Systems?
    5. Should Financial Assistance Be Incorporated in the 
Calculations of the Expenditure Baseline?
    6. Should Regional Affordability Criteria Be Developed, Given 
Current Data Limitations?
    7. NDWAC Perspective
    8. NDWAC Work Group--Minority View
    C. Key Factors Considered in Developing Affordability 
Methodology Options
    1. Variability in Household Costs of Water Treatment
    2. Variability in the Ability of Small Systems To Pay for 
Treatment
    3. Need for Improved Implementation at the Federal Level of the 
Small System Variance Provisions of the SDWA
    D. Affordability Methodology Options
    1. Calculating Household Costs
    2. Affordability Determination Options
    3. Identification of Affordable Variance Technologies
IV. Protection of Public Health Methodology
    A. How Does EPA Consider Public Health in Establishing Drinking 
Water Standards?
    1. Setting the Maximum Contaminent Level Goal
    2. Setting the MCL or Treatment Technique
    3. Determining That Variance Technologies Are Protective of 
Public Health
    B. Methodology To Identify Affordable Variance Technologies That 
Are Protective of Public Health
V. State Consultation
VI. Request for Comment
VII. References

II. Background

    This section provides the purpose of today's action, a brief 
statutory background on affordability-based small drinking water system 
variances, and how EPA currently determines if affordability-based 
variances can be made available to small drinking water systems.

A. What Is the Purpose of Today's Action?

    Today's notice seeks comment on revisions to EPA's national 
affordability methodology for small drinking water systems and a 
methodology for determining if an affordable variance technology is 
protective of public health. EPA believes such revisions are needed to 
address variability in both incomes and costs across small systems, and 
to maintain transparency and consistency in determinations regarding 
affordability and protectiveness of public health. Neither the national 
affordability methodology nor the methodology for determining if an 
affordable variance technology is protective of public health imposes 
any requirement on any person or entity. Rather, these methodologies 
will be applied by EPA in evaluating small system affordability of 
future National Primary Drinking Water Regulations (NPDWRs), except 
regulations for microbial contaminants (including bacteria, viruses, or 
other organisms) or indicators for microbial contaminants. SDWA section 
1415(e)(6)(B) states that small system variances are not available for 
microbial contaminants.

B. Statutory Background

    Today's Federal Register requests comment on a revised approach for 
implementing the small systems variance provision of the 1996 SDWA 
amendments. The SDWA, as amended in 1996, includes a provision intended 
to help reduce the economic impact that certain new regulations will 
have on some small systems. For small systems with a service population 
of less than 10,000, SDWA section 1415(e) authorizes a primacy agency 
to grant a variance from compliance with a Maximum Contaminant Level 
(MCL) or treatment technique under certain conditions. (An MCL is the 
maximum permissible level of a contaminant in drinking water that is 
delivered to any user of a public water system. A treatment technique 
is an enforceable procedure or level of technological performance, 
which public water systems must follow to ensure control of a 
contaminant.) A primacy (primacy enforcement) agency may grant such a 
variance on a case-by-case basis for an NPDWR only if EPA has 
determined that there are no nationally affordable compliance 
technologies for small systems in the corresponding size category and 
with comparable source water quality and EPA has identified one or more 
affordable variance technologies that are protective of public health. 
In granting this variance, a primacy agency must provide public notice 
and an opportunity for a public hearing. The primacy agency must also 
make two system-specific determinations: (1) That the system cannot 
otherwise afford to comply (using the State's affordability criteria) 
through treatment, using an alternative source of water supply or 
restructuring or consolidation; and (2) that the terms of the variance 
ensure adequate protection of public health. In accordance with the 
SDWA, EPA evaluates the affordability of new drinking water rules for 
these categories of small systems: (1) A service population of 10,000 
or fewer but more than 3,300; (2) a service population of 3,300 or 
fewer but more than 500; and (3) a service population of 500 or fewer 
but more than, or equal to, 25.
    The legislative history of section 1415(e) does not provide 
guidance on how EPA is to interpret the term ``affordable.'' However, 
the Senate Report for S 1316, the Senate version of the SDWA amendments 
of 1996 which contained similar small system variance provisions, 
includes the following discussion.

    ``Of the approximately 57,000 community water systems regulated 
under the Safe Drinking Water Act, nearly 54,000 serve populations 
of 10,000 or less. While EPA has taken steps to recognize the 
difficulties of small systems by establishing the Small System 
Technology Initiative, by forming the National Training Coalition, 
and by developing handbooks and computer software, the current Safe 
Drinking Water Act does not successfully address the problems of 
small systems.
    The fundamental problem is one of economics. Maximum contaminant 
levels in national primary drinking water regulations have been 
based on the best available treatment techniques that are affordable 
for large systems. Because small systems do not enjoy the economies 
of scale that are available to large systems (infrastructure costs 
cannot be spread over a large number of households) drinking water 
regulations can have a much greater economic impact on small 
systems. EPA and the Congressional

[[Page 10673]]

Budget Office have published estimates indicating that systems 
serving more than 10,000 persons experience costs averaging less 
than $20 per household per year to comply with the current 
requirements of the Safe Drinking Water Act. By way of comparison, 
the average annual incremental household cost to comply with the 
requirements of the Safe Drinking Water Act for systems serving 25 
to 100 persons is $145.'' (Senate Report No. 104-169, Nov 7, 1995, 
pp 54-55) \1\
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    \1\ The average annual household increases cited in the report 
is for the cumulative impact imposed by the drinking water 
regulations at the time of the report. These are average costs 
across all systems in the size category including those with no 
impact. Treatment costs would not be derived in that manner for the 
options in this notice.

    This language underscores the Senates concern for the burden 
imposed on very small systems by NPDWRs, and provides an indication of 
the treatment cost data considered by the Senate at the time they 
developed these small system variance provisions. The House and 
Conference Reports do not provide any additional guidance on 
interpreting section 1415(e).

C. How Does EPA Currently Determine if Affordable Compliance 
Technologies Are Available to Small Drinking Water Systems?

    As explained in the August 6, 1998 Federal Register notice (63 FR 
42032), EPA currently determines if there are any affordable compliance 
technologies for a given NPDWR by comparing the estimated household 
costs to national-level affordability criteria based on household 
income. If EPA cannot identify affordable compliance technologies, then 
EPA must identify affordable variance technologies, pursuant to section 
1412(b)(15) of the SDWA. A variance technology is one that provides the 
maximum contaminant removal, or inactivation, that is affordable, 
considering the quality of the source water to be treated and the 
expected useful life of the technology, and that the Agency determines 
is protective of public health. To date, EPA has found no NPDWRs 
``unaffordable'' for small systems.
    The focus of the current national-level affordability analysis is 
the household. Treatment technology costs are presumed affordable to 
the typical household if they do not cause median water bills to exceed 
an affordability threshold of 2.5 percent of MHI. This approach assumes 
that affordability to the median household in a system size category 
can serve as an adequate measure for the affordability of technologies 
to the size category as a whole.
    The current national-level affordability criteria consider current 
annual water bills, or baseline cost, the incremental cost of the new 
regulation, and the affordability threshold (i.e., 2.5 percent of MHI). 
For each NPDWR, EPA estimates the baseline cost using annual sales 
revenue per residential connection from the most recent Community Water 
System Survey (CWSS). The CWSS is a national survey that the Agency 
conducts and is designed to compile operating and financial information 
from a statistically representative sample of community water systems. 
EPA subtracts this baseline from the affordability threshold to yield 
an ``expenditure margin.'' The Agency then compares this expenditure 
margin with the projected per household treatment costs for a new rule 
to make affordable technology determinations. As previously stated, 
this national affordability threshold currently sets the maximum 
affordable water bill at 2.5 percent of the MHI for the median system 
in a given size category (e.g., public water systems serving (1) a 
population of 10,000 or fewer but more than 3,300; (2) a population of 
3,300 or fewer but more than 500; and (3) a population of 500 or fewer 
but more than, or equal to, 25).
    Some stakeholders have argued that the current criteria are too 
stringent and fail to recognize situations in which a significant 
minority of systems within a size category may find a regulation 
unaffordable. After seven years of experience with the current 
criteria, EPA agrees it is time to consider refinements to address the 
situations of communities with below average incomes or above average 
drinking water and treatment costs.
    In today's notice EPA has changed the term it uses to refer to the 
procedures for evaluating the affordability of compliance technologies. 
Today's notice refers to an ``affordability methodology'' rather than 
``affordability criteria.'' EPA believes the term ``methodology'' 
better describes its procedures for determining small system 
affordability of NPDWRs. EPA again reiterates that this methodology 
imposes no regulatory requirements on the public. Its only purpose is 
to guide EPA in making small system affordability determinations under 
the SDWA. EPA may continue to update and refine this methodology as 
appropriate in the future.

III. Affordability Methodology

    As part of the 2002 appropriations process, Congress directed EPA 
to review and update the national-level affordability methodology. In 
response, EPA sought the advice of its Science Advisory Board (SAB) and 
the National Drinking Water Advisory Committee (NDWAC). This section 
summarizes the SAB and NDWAC recommendations to EPA for revising the 
national-level affordability methodology, presents the key issues EPA 
considered in evaluating its affordability methodology, and discusses a 
range of options for revising the existing national-level affordability 
methodology.

A. The EPA's Science Advisory Board Recommendations on Affordability

    The EPA SAB is a public advisory group that provides extramural 
scientific information and advice to the Administrator and other EPA 
officials. The Board is structured to provide balanced and expert 
assessment of scientific matters related to problems facing the Agency.
    In March 2002, the EPA asked the SAB to consider the economic 
issues associated with the current national-level affordability 
methodology, as well as the factors that were used to establish the 
methodology. The SAB's Environmental Economics Advisory Committee met 
twice to prepare recommendations regarding four key topics:
    1. EPA's approach to determining affordability for small systems.
    2. Components of the affordability determination method.
    3. Source water and regional disparities.
    4. Whether financial assistance should be considered in EPA's 
national-level affordability methodology.
    The SAB's findings and recommendations on these topics were 
published in the report Affordability Criteria for Small Drinking Water 
Systems: An EPA Science Advisory Board Report (EPA-SAB-EEAC-03-004) 
which can be found in the EPA Docket. The discussion in today's notice 
summarizes the key findings with respect to the four general areas 
noted above.
1. EPA's Approach To Determining Affordability for Small Systems
    The SAB found that EPA's approach to determining affordability for 
small systems addressed equity, efficiency, and administrative 
practicality considerations. However, the SAB recommended that the 
Agency consider some modifications to address long-term efficiency 
issues (i.e., allowing variances potentially inhibit movement toward 
small system consolidation) and to more effectively deal with the 
diversity among small systems.

[[Page 10674]]

2. Components of the Affordability Determination Method
    a. Measures other than median. The SAB highlighted some concerns 
with relying on median household income as the basis for the 
affordability threshold for small systems. One concern is that it does 
not reflect income inequality within water systems. That is, even if 
the median household can afford to pay the increased water bill, poorer 
households within a water system may find it unaffordable. Another 
concern about using median household income arises from income 
inequality across water systems within a size class. That is, even if 
the median system in a size category can afford to pay for a treatment 
technology, poorer systems may find it unaffordable.
    The SAB identified three approaches to account for these income 
inequalities. To address within-system income inequality, SAB suggested 
that EPA could keep the current affordability formula, but specify a 
lower household income percentile within water systems (instead of the 
current MHI) such as the 10th or 25th percentile. To address between-
system income inequality, SAB suggested that EPA could consider whether 
a significant percentage of systems (e.g., 10 percent or 25 percent) 
fall below the threshold, even when the median system does not. A third 
approach that may address both issues involves basing the threshold on 
some statistical measure of dispersion, such as variance or standard 
deviation, in addition to the mean (i.e., basing it on 1.5 standard 
deviations below the mean household income within a system size 
category).
    b. Alternatives to 2.5 percent as the income percentage. The SAB 
highlighted the fact that the national affordability threshold has 
never been exceeded and that there was evidence suggesting that some 
small water systems have genuinely struggled with compliance costs. 
They believe that this suggests that the 2.5 percent threshold is too 
high, and that a lower cutoff should be used resulting in a greater 
likelihood that small systems variances would be authorized.
    c. Alternatives to the expenditure baseline calculation. The use of 
an expenditure baseline (e.g., current water bills) potentially has the 
effect of causing early regulations to be considered affordable, 
whereas later, if the affordability threshold is exceeded, even 
regulations with trivial costs could be found unaffordable to small 
systems. The SAB recommended eliminating the expenditure baseline from 
the formula and evaluating the affordability of each set of regulations 
incrementally (i.e., where the cost of each new rule is compared to a 
percentage of household income). EPA notes that in practice, this has 
not been an issue, as the expenditure margin calculated using 2.5 
percent of MHI has widened, not narrowed, over time.
3. Source Water and Regional Disparities
    a. Ground water versus surface water. The SAB noted that a 
significant number of (typically) small rural communities have 
historically relied on ground water as their source of supply with 
little or no treatment. For these communities to comply with new 
drinking water regulations, they may incur costs of establishing a 
system. While this may be more likely for groundwater systems, the SAB 
noted that some surface water supplies also require little treatment. 
The SAB also noted that there is great variation in treatment costs for 
both surface water and ground water systems. Therefore, the SAB 
recommended that the affordability methodology not differentiate 
between ground water and surface water systems.
    b. Regional versus national basis. The SAB discussed making 
determinations on a regional or even local basis as well as adding an 
urban/rural distinction. The SAB stated that ``regional income measures 
and expenditure baselines would capture affordability relative to the 
resources available in a community more accurately than the national 
values; however, a national affordability threshold is necessary to 
implement the fairness goal.''
4. Financial Assistance
    Funding is available to assist small systems through the Drinking 
Water State Revolving Loan Fund and the Rural Utilities Service of the 
U.S. Department of Agriculture. However, it is not available to all 
systems because affordability is only one criterion used in awarding 
this type of assistance. The SAB stated that since this funding is only 
available to some systems, it should not affect the national-level 
affordability determination.

B. The National Drinking Water Advisory Council's Recommendations on 
Affordability Criteria

    One of the formal means by which EPA works with its stakeholders is 
the National Drinking Water Advisory Council. The NDWAC, comprised of 
members of the general public, State and local agencies, and private 
groups concerned with safe drinking water, advises the EPA on 
everything that the Agency does relating to drinking water. To assist 
in this process, the NDWAC forms work groups of experts to perform 
assessments of specific drinking water issues. The work groups prepare 
reports and recommendations that the NDWAC considers when making its 
recommendations to EPA.
    The NDWAC Affordability Work Group met five times between September 
2002 and January 2003. The NDWAC Work Group was comprised of 18 
individuals representing an array of backgrounds and perspectives. 
Collectively, these individuals brought into the discussion the 
perspectives of State, local, and tribal governments, environmental and 
consumer groups, drinking water utilities, small system advocates, 
technical assistance providers, and academia.
    The NDWAC Work Group was specifically asked--based on six charge 
questions posed by EPA--to provide advice on EPA's national-level 
affordability methodology, the process used to derive the methodology, 
and EPA's approach to applying this methodology to NPDWRs. The six 
questions were as follows:
    1. Should MHI or another income measure (such as per capita income) 
be used for the income level?
    2. Should 2.5 percent or another percentage be used as the income 
percentage for determining the maximum affordable water bill, and what 
is the basis for an alternative selection?
    3. How should the expenditure baseline be adjusted to account for 
new rules?
    4. Should separate affordability criteria be developed for surface 
and ground water systems?
    5. Should financial assistance be incorporated in the calculations 
of the expenditure baseline?
    6. Should regional affordability criteria be developed, given 
current data limitations?
    The NDWAC's findings and recommendations on these topics were 
published in the report Recommendations of the National Drinking Water 
Advisory Council to U.S. EPA on Its National Small Systems 
Affordability Criteria (NDWAC, 2003) and can be found in the EPA 
Docket. The discussion in today's notice summarizes the key findings 
with respect to the six general areas noted earlier.

[[Page 10675]]

1. Should MHI or Another Income Measure (Such as Per Capita Income) Be 
Used for the Income Level?
    The NDWAC found that since the MHI is clearly defined and available 
for all regions of the nation, it was the most appropriate income 
metric to use for this purpose at the time of the report. The NDWAC 
members noted that a better metric may be found in the future.
2. Should 2.5 Percent or Another Percentage Be Used as the Income 
Percentage for Determining the Maximum Affordable Water Bill, and What 
Is the Basis for an Alternative Selection?
    The NDWAC recommended that EPA replace its current approach with an 
incremental approach where the cost of each new rule is compared to a 
percentage of household income (e.g., one percent) because it ``is 
theoretically sounder, is simpler to administer, and has greater 
transparency than the current EPA method.'' The NDWAC observed that the 
incremental approach permits EPA to assess each new rule independently 
of the cumulative costs of preceding regulations. While this 
recommendation does not involve calculating a maximum water bill, the 
NDWAC did recommend that the incremental affordability threshold be set 
at a fixed percent of MHI.
    The NDWAC stated that the incremental percentage of MHI could be 
based on an analysis of willingness to pay measures (comparable 
expenditures as a percent of MHI), defensive expenditures (i.e., 
bottled water or point-of-use/filter devices), or other considerations 
related to household affordability such as a ``doubling of current 
water bills.'' The NDWAC did not believe that an affordability 
threshold should be greater than twice the amount of current household 
water bills. The NDWAC stated that national data indicated the average 
water bill for households amounted to 0.5-0.6 percent of MHI. In 
addition, NDWAC stated that one percent of MHI was approximately equal 
to 1.5 times the cost of point-of-use technologies used to treat water. 
Based on these observations, the NDWAC recommended that EPA use one 
percent of MHI as the incremental affordability threshold.
3. How Should the Expenditure Baseline Be Adjusted To Account for New 
Rules?
    The NDWAC recommended an incremental approach that eliminates the 
need for establishing or updating an expenditure baseline.
4. Should Separate Affordability Criteria Be Developed for Surface and 
Ground Water Systems?
    The NDWAC recommended that EPA use the same criteria for surface 
water and ground water systems. The NDWAC Work Group observed not only 
minimal cost differences between surface and ground water systems, but 
also that treatment costs vary widely for both types of systems.
5. Should Financial Assistance Be Incorporated in the Calculations of 
the Expenditure Baseline?
    The NDWAC recommended an incremental approach that eliminates the 
need for establishing or updating an expenditure baseline. However, if 
EPA retains its present approach to making the national affordability 
determination, the NDWAC recommended incorporating financial assistance 
into the calculations if the financial support is generally available 
to all systems nationwide. The NDWAC further recommended that States 
consider the availability of financial assistance in their analysis and 
calculations when determining whether a variance should be granted to a 
particular system, regardless of EPA's approach to making the national 
affordability determination.
6. Should Regional Affordability Criteria Be Developed, Given Current 
Data Limitations?
    The NDWAC recommended that EPA establish differential regional 
affordability criteria when sufficient supporting data are available. 
In particular, the NDWAC recommended that EPA separate the MHI into 
rural and urban categories to more accurately reflect actual ability 
and willingness to pay.
7. NDWAC Perspective
    The NDWAC adopted the Work Group report with minor modifications to 
some of the Work Group's recommendations, and provided additional 
recommendations and perspective on affordability issues associated with 
small public water systems. These are summarized below. The 
recommendations of the NDWAC Work Group were made in the context of the 
SDWA requirement to make affordability-based variances available to 
small systems when the statutory criteria are satisfied. However, the 
NDWAC did not believe that this is generally the best approach for 
addressing affordability issues at small systems. The NDWAC stated 
specifically that ``significant practical, logistical, and ethical 
issues mitigate against the use of variances.''
    The NDWAC noted that the regulatory burden associated with the 
procedures for obtaining a variance (40 CFR part 142, subpart K) may be 
substantial to both small drinking water systems and primacy (primacy 
enforcement) agencies. Furthermore, the NDWAC found that ``the 
potential acceptance of lower water quality for disadvantaged 
communities is ethically troublesome.''
    The NDWAC believes that alternatives to the variance process, 
including cooperative strategies (e.g., State leadership to promote 
consolidation or other types of cooperation among small systems), and 
targeted use of funding to disadvantaged water systems (e.g., 
supporting individual households with a Low-Income Water Assistance 
Program funded through Congressional appropriation) are more 
appropriate means to address affordability issues associated with small 
public water systems that cannot afford to comply with a NPDWR.
8. NDWAC Work Group--Minority View
    Through its representative on the Work Group, the National Rural 
Water Association (NRWA) filed a minority report indicating 
disagreement with the recommendations of the majority of the Work Group 
members. The minority report is entitled Small and Rural Community 
Affordability Consensus Report and is included as an appendix to the 
NDWAC Report. The NRWA Report identifies three issues on which it 
dissents from the NDWAC recommendations.
    First, the NRWA Report states that the NDWAC Work Group recommended 
affordability level is ``clearly unaffordable for millions of low-
income families and many communities by any reasonable definition of 
affordable.'' The NRWA Report also identifies a problem with the use of 
median household income (MHI) as a metric for determining 
affordability, noting that, ``The fact that a certain level of 
expenditure is affordable to the median income household in a community 
tells us very little about the ability of the low-income households in 
the community to afford the same levels of expenditure.'' To address 
these concerns, the NRWA suggested an alternative ``Safe and Affordable 
Variance Approach'' under which EPA would list variance technologies 
for each applicable rule, and States would decide on a case by case 
basis if a variance technology is appropriate. Under this approach, all 
NPDWRs would be found potentially ``unaffordable'' at the national 
level, and it would be up to States to determine

[[Page 10676]]

which small systems actually could not afford to comply and thus were 
eligible for a variance.
    Second, NRWA found that the NDWAC Work Group recommendations do not 
``provide a reasonable and workable small systems variance technology 
program as mandated in the SDWA.'' NRWA expressed concern that the 
NDWAC Work Group's recommended affordability level was designed to 
avoid requiring EPA ``to determine a variance technology policy, which 
incidentally is the Congressionally prescribed solution to unaffordable 
EPA rules.''
    Finally, the NRWA identified concerns with the NDWAC 
recommendations regarding consolidation, USDA Program Initiatives, low-
income water assistance programs (LIWAP) and other potential federal 
initiatives. NRWA found these to be ``steps in the wrong direction for 
assisting small and low-income communities to comply with rules because 
each recommendation shares a common theme of eroding local government 
authority, control and protection.''
    In developing the proposed revisions to its national affordability 
methodology, EPA has carefully considered the recommendations of both 
the NDWAC majority report, and the NRWA minority report.

C. Key Factors Considered in Developing Affordability Methodology 
Options

    Based on the recommendations of the SAB, the NDWAC and the NRWA, 
the Agency identified three key factors that it considered in 
developing revisions to its affordability methodology: Variability in 
household costs of water treatment, variability in small system ability 
to pay, and the need for improved implementation at the Federal level 
of the small system variance provisions of the SDWA. This section 
discusses these issues.
1. Variability in Household Costs of Water Treatment
    Within and among the approximate 50,000 small systems in the U.S., 
there are a number of factors that affect the household cost of a given 
technology. Among these, the SDWA requires the Agency to consider two: 
population served and source water quality.
    a. Population served. EPA currently selects the median sized system 
as representative of the costs within a system size category and 
estimates the household costs for each of the technologies that can 
achieve compliance with the primary drinking water standard. In 
general, total costs for installation, operation, and maintenance of 
treatment units are greater for systems that serve large populations 
than for systems that serve small populations. However, on a per 
household basis, the opposite is true. Because of fixed costs and 
substantial economies of scale, the per household costs of treatment 
are higher for small water systems (especially very small systems 
serving less than 500 people) than for large regional systems. It was 
this concern that led Congress to include the affordability-based small 
system variance provisions in the 1996 SDWA amendments.
    Table III-1 demonstrates the increasing per household cost for 
compliance as system size decreases by presenting the average household 
costs for compliance among system size categories for recently 
promulgated or proposed drinking water standards. In addition to 
economies of scale, average household costs presented in Table III-1 
are also affected by larger systems being more likely to have multiple 
sources of water, not all of which will have source water 
concentrations of a contaminant that require treatment.

     Table III-1.--Comparison of Average Costs \1\ Per Household by System Size for Three Recent Rulemakings
----------------------------------------------------------------------------------------------------------------
                                                                                                   Stage 1 DBPR
                           System size                              Arsenic \2\      Radon \3\          \4\
----------------------------------------------------------------------------------------------------------------
25-100..........................................................            $327            $270            $177
101-500.........................................................             163              99             123
501-1,000.......................................................              71              27              84
1,001-3,300.....................................................              58              27              55
3,301-10,000....................................................              38              17              27
10,001-50,000...................................................              32              12              14
50,001-100,000..................................................              25              12               8
100,001-1 million...............................................              21              10               7
> 1 million.....................................................               1              10               6
----------------------------------------------------------------------------------------------------------------
\1\ Costs are an average of the treatment costs for all systems installing treatment in the size category. The
  majority of these systems do not need significant removal of the contaminant, since they are just above the
  MCL.
\2\ Costs are based on Exhibit 6-17 in the Arsenic in Drinking Water Rule Economic Analysis (EPA 815-R-00-026)
  and can be found in the Docket.
\3\ Costs are presented for compliance with the proposed Radon MCL of 300 pCi/L and are taken from Table XIII.11
  of the Proposed Radon Rule preamble (64 FR 59246-59378) and can be found in the Docket. The costs presented do
  not reflect the proposed AMCL in combination with a multi-media mitigation plan.
\4\ The Stage 1 DBPR economic analyses does not present an average of household costs across influent and
  treatment conditions as was done in arsenic and radon. The values listed are a weighted average from tables F-
  1 through F-4 in Appendix F of the November 1998 Regulatory Impact Analysis of Final Disinfectant/Disinfection
  By-Products Regulations (EPA 815-B-98-002) and can be found in the Docket.

    As the table shows, there is significant variability in per 
household costs, even within the statutory system size categories, 
particularly within the smallest size category. For example, for the 
arsenic rule, the average per household cost for systems serving < 101 
persons was roughly double that for systems serving 101-500 persons, 
while for the proposed radon rule, it was roughly triple. For the Stage 
1 DBP rule, the average per household cost for systems serving < 101 
persons was roughly 50 percent higher than that for systems serving 
101-500 persons. These figures suggest that the per household costs for 
the median sized system within a statutory size category may not be the 
best proxy for per household costs within the category generally, 
particularly for the smallest size category.
    b. Source water quality. The type of treatment a system must 
install and the treatment costs are also affected by the quality of the 
source water, including the concentration of the contaminant to be 
removed, the pH of the source water, and the presence of other 
dissolved or suspended solids. The concentration of the contaminants 
may affect the size of the treatment units, the amount of treatment 
chemicals that must be used,

[[Page 10677]]

or the amount of residual to be disposed of--all of which affect the 
cost to install, operate, and maintain the treatment units. Source 
water quality parameters such as pH or the presence of dissolved solids 
can make some treatment technologies ineffective, requiring a system to 
select a different technology or to install and operate a pretreatment 
system that removes or adjusts these parameters so that the treatment 
to remove the contaminant will be effective. Source water varies 
significantly among public water systems. It is affected by the source 
water type (ground water or surface water) and the conditions in the 
watershed or aquifer from which it is drawn.
    Population served and source water quality are perhaps the most 
significant factors that affect the household cost of technologies. 
Therefore, it is appropriate that the SDWA requires the Agency to 
consider these factors in its evaluation of the affordability of new 
drinking water rules. The national affordability methodology should 
address the variability in these factors, such that a reasonable range 
of potential household costs are considered by the Agency in its 
national affordability determination.
2. Variability in the Ability of Small Systems To Pay for Treatment
    Under the approaches EPA is currently considering for revising the 
national affordability methodology, EPA would continue to use an income 
threshold (i.e., a fixed percentage of household income) as a screen to 
make general findings of unaffordability. The affordability threshold 
has two components: the income percentile and the income percentage. 
The income percentile is the value selected from the distribution of 
household incomes. It can be based either on the distribution of 
individual incomes, or on the distribution of system-level median 
incomes. The income percentage is the percentage by which the selected 
income level is multiplied to determine the affordable level of per 
household treatment costs. For example, EPA's current threshold is 2.5 
percent of the MHI for the median system in a given size category 
(currently $44,544 for the smallest size category). In this example, 
the income percentile is 50 percent and it is based on the distribution 
of system-level median incomes. The income percentage is 2.5 percent 
($1,114, or $44,544 times 2.5 percent).
    EPA views the affordability determination to be made under SDWA 
Section 1412(b)(4)(E) as a general screen to determine the likelihood 
that a significant number of systems may find a regulation 
unaffordable. Congress left to the primacy (primacy enforcement) 
agencies (usually the States) the task of determining which particular 
small systems cannot afford compliance technologies once EPA determines 
that affordability may be an issue for a particular regulation. The 
Agency established household income as the basic measure to determine 
affordability for the current methodology. If the households served by 
a system do not have income available to pay for increased water bills, 
then the modifications to the system are unaffordable. Because systems 
ultimately pass additional water treatment costs on to customers, EPA 
believes that household income remains the appropriate basis for 
determining affordability.
    EPA believes that system-level MHI is the most appropriate income 
metric for determining water system affordability because it meets 
several reasonable criteria for a national-level affordability 
methodology. First, MHI data are available nation-wide. Second, the 
calculation of system-level MHI is simple (it is based on readily 
available Census data on household income), and finally, the metric can 
be easily understood. Consequently, it provides a consistent income-
based metric for determining affordability or ``ability to pay'' for 
new drinking water regulations. Additionally, the NDWAC supported the 
use of system-level MHI as the metric for determining small water 
system affordability.
    EPA used system-level MHI as the basis for its original 
affordability threshold for several reasons. EPA stated that the 
approach was based on the assumption that affordability to the median 
household served by a system can serve as an adequate measure of the 
affordability of technologies to the system as a whole. EPA does not 
believe that the economic circumstances of the poorest households 
within a system should drive its national level affordability 
methodology. Communities have other mechanisms (e.g., financial 
assistance, rate structures) for addressing inequalities within a 
community.
    EPA chose the median system-level MHI for its original 
affordability methodology, based on income data from the 1995 CWSS. EPA 
reasoned that the median is a measure of central tendency and would 
thus be appropriate for a national level affordability screen because 
it reflects the characteristics of ``typical'' systems rather than 
those at the low end of the income distribution. However, one 
limitation of basing the national level affordability determination on 
the median system is that there may be a significant number of systems 
below the median that might find a regulation unaffordable even when it 
is affordable to the median system. As a practical matter, this concern 
can be addressed in two equivalent ways, basing the threshold on a 
lower MHI percentile (e.g., 25th or 10th percentile, as was suggested 
by the SAB), or basing it on a lower percentage of the median MHI. The 
revised approaches that EPA is considering would retain the median MHI 
and consider lower percentages (rather than using a lower percentile of 
MHI) because EPA believes this method is more transparent and better 
supported by existing data. However, EPA wishes to emphasize that 
looking at lower percentages is to some extent a proxy for looking at 
lower percentiles. In other words, if EPA were to ultimately select a 
threshold of, say, 0.5 percent of MHI (one of the options presented 
below), this is partially in recognition of the fact that that 
particular income level ($220 for the 25-500 system size category) 
represents a significantly higher percentage of income for systems at 
the low end of the income distribution, and it is exactly these systems 
that are most likely to find a new regulation unaffordable and may thus 
need a small system variance.
    In examining the distribution of system-level income across a size 
category, another argument in favor of applying a lower income 
percentage to the median system, as opposed to applying a higher 
percentage to a significantly below-median system (as ranked by its 
MHI) is the shape of the distribution of system-level MHIs. Toward the 
lower end of the range, especially at around the 10th percentile 
system, the income figures tend to drop off sharply. This implies that 
relatively slight data inaccuracies could have relatively large impacts 
on estimated income levels. Given the inherent difficulties of 
measuring income, EPA believes the median system provides a more 
reliable basis for its national affordability methodology than a system 
at the low end of the income distribution (e.g., 10th percentile). This 
is not to suggest that EPA is not concerned about affordability for 
these systems. On the contrary, it is exactly these systems that are 
most likely to have affordability issues. But EPA believes that these 
can be better addressed by choosing a lower income percentage and 
applying it to the median system MHI.
    As previously stated, EPA established the current threshold at 2.5 
percent of median system MHI. However, that

[[Page 10678]]

income percentage was applied to a cumulative approach. As recommended 
by both the SAB and NDWAC, EPA is considering revisions that would drop 
the expenditure baseline and move to an incremental approach. This 
means that the total cost of water (including current costs) could be 
significantly higher than whatever affordability threshold EPA selects, 
because the threshold is compared only to the incremental cost of 
complying with the regulation. In addition, as water systems are 
subject to future regulations, they could potentially be required to 
undergo expenditures up to the affordability threshold multiple times. 
The current methodology has also never triggered a finding that a 
regulation was unaffordable, while the evidence suggests that there may 
in fact be significant numbers of systems that have struggled with 
compliance costs for some recent regulations. For all of these reasons, 
the options EPA is considering for revising its affordability 
methodology are based on a range of income percentages significantly 
below the current 2.5% threshold.
3. Need for Improved Implementation at the Federal Level of the Small 
System Variance Provisions of the SDWA
    As previously stated, SDWA section 1415(e) authorizes a primacy 
(primacy enforcement) agency to grant small systems a variance from 
compliance with an MCL or treatment technique for a NPDWR only if EPA 
has determined that there are no affordable compliance technologies for 
small systems and EPA has identified affordable variance technologies 
that are protective of public health. To date, EPA has found no NPDWRs 
(either existing or new) unaffordable using the current methodology. 
However, the SAB and various stakeholders have suggested, and EPA 
recognizes, that some small systems have legitimate affordability 
concerns regarding compliance with some of these regulations.
    EPA recognizes that its current approach has not allowed small 
system variances to be included among the options that States and 
systems consider as they struggle to address small system affordability 
issues. EPA is therefore considering revisions that would make a 
national level determination of unaffordability significantly more 
likely, thus triggering the listing of affordable variance technologies 
that are protective of public health. This will in turn give primacy 
states which choose to include small system variance provisions in 
their drinking water programs the option to evaluate small system 
variance applicants on a case-by-case basis and to authorize adoption 
of affordable alternatives to compliance technologies that provide some 
measure of regulatory relief while still protecting public health.

D. Affordability Methodology Options

    Based on the SAB and NDWAC recommendations, the Agency is 
considering several options under which the incremental increase in 
household water costs that is expected to occur as a result of the 
system installing, operating, and maintaining a treatment technology 
required to comply with a NPDWR would be compared to an affordability 
threshold based on a percentage of household income. In evaluating 
different household cost and affordability threshold options, EPA 
considered the three key factors discussed in section III.C (i.e., 
variability in the household costs of water treatment, variability in 
the ability of small systems to pay for treatment, and the need for 
improved implementation at the Federal level of the small system 
variance provisions of the SDWA). This section discusses the household 
cost and affordability threshold options EPA is seeking comment on as a 
result of this process, and discusses EPA's interpretation of 
affordability for both compliance and variance technologies.
1. Calculating Household Costs
    There are two issues concerning the calculation of household costs 
on which EPA is requesting comment: (1) Should only incremental costs 
(i.e., those of complying with the new regulation) be considered, or 
the total (i.e., cumulative) cost of water to consumers after the new 
treatment technology is installed, and (2) should costs be evaluated 
for the 10th percentile or the 50th percentile sized system within a 
given small system size category. The following discusses each of these 
issues in turn.
    EPA is considering using incremental costs of compliance with the 
new regulation only, rather than the cumulative costs of providing 
water, as the basis for its affordability determination. This is a 
change from the Agency's current approach which adds incremental costs 
to an expenditure baseline to determine affordability. An incremental 
approach would not calculate or consider current household water bills, 
nor would it provide a ceiling on the total increase in household costs 
due to the cumulative effects of different NPDWRs.
    The Agency believes the incremental approach is a better approach 
than the current cumulative approach for several reasons. First, the 
incremental approach focuses directly on the regulation for which 
affordability is being evaluated. The cumulative approach, in contrast, 
considers not just the cost of treatment to comply with the new 
standard but also takes into account costs for existing water system 
improvements, which may involve treatment for odor control, taste, or 
other items not regulated under NPDWRs, as well as costs for 
distributing and storing water. These costs may not be relevant for 
determining whether a system can afford to comply with NPDWRs. In 
addition, the cumulative approach could have the effect of making new 
rules with similar system costs affordable in the near-term, but not in 
the future, as cumulative costs increase. Additionally, an incremental 
approach is consistent with SAB and NDWAC recommendations. An 
incremental approach may also be more transparent than the cumulative 
approach because it deals with fewer variables and calculations in that 
it only considers the costs of the regulation in question. EPA requests 
comment on moving to an incremental approach for calculating household 
costs.
    Under its current national affordability methodology, EPA estimates 
household costs for small systems by estimating each technology's per 
household cost for the 50th percentile (median) system size in each 
size category. This approach assumes that affordability to the median 
sized system within a small system size category can serve as an 
adequate measure for the affordability of technologies to systems 
within the size category as a whole. However, household costs for 
systems at the low end of a system size category are likely to be 
significantly higher than costs for the median-sized system. This is 
particularly true for the smallest system size category (serving 25 to 
500 people). Thus, even if a NPDWR is affordable to the median sized 
system within this size category, there may be a significant number of 
systems at the low end of this category (i.e., serving less than 100 
people) for which compliance with the standard would not be affordable.
    To address this concern, EPA is considering basing its 
affordability determination on the incremental per household costs for 
the 10th percentile system size in each system size category rather 
than the median. This approach recognizes that smaller systems do not 
enjoy the same economies of scale and have a smaller customer base over 
which to spread fixed costs of providing water. In general, household 
costs would most likely be significantly greater for the 10th 
percentile than for

[[Page 10679]]

the 50th percentile sized system in a system size category due to this 
lack of economies of scale.
    For the current methodology, the Agency determined the 50th 
percentile system size by compiling the population sizes for all 
systems in a given size category and finding the system where half of 
the systems serve fewer individuals. For today's notice, EPA used the 
same method to determine the 10th percentile system size (i.e., finding 
the system where 10 percent of the systems serve fewer individuals).
    Table III-2 provides an example of household costs for the 10th and 
the 50th percentile size systems within each of the small system size 
categories. This example demonstrates that the greatest difference in 
household costs are typically found in the 25-500 size category, as the 
estimated household cost for the 10th percentile size system is more 
than double that for the 50th percentile (median) size system. It is 
this smallest system size category where there is most likely to be an 
affordability concern.

                Table III.-2--Comparison of Annual Per Household Costs of Ion Exchange Treatment
----------------------------------------------------------------------------------------------------------------
                                                   10th Percentile sized system    50th Percentile sized system
                                                 ---------------------------------------------------------------
                   System size                      Population       Treatment      Population       Treatment
                                                       size            costs           size            costs
----------------------------------------------------------------------------------------------------------------
25-500..........................................              40            $540             120            $200
501-3,300.......................................             600              72           1,195              54
3,301-10,000....................................           3,609              40           5,325              35
----------------------------------------------------------------------------------------------------------------
Note: Costs are based on cost curve equations in the document Technologies and Costs for Removal of Arsenic from
  Drinking Water (EPA-815-R-00-028). System sizes are determined from SDWISFED January 2004.

    EPA requests comment on whether it should continue to base 
affordability determinations on the median system within a size 
category, or should move to an approach based on costs to the 10th 
percentile size system.
    Section 1412(b)(15)(A) of SDWA requires the Administrator to list 
affordable variance technologies ``considering the size of the system 
and the quality of the source water.'' Under the current methodology, 
EPA estimates household costs for small systems within a size category 
under a range of scenarios that represent the range of expected source 
water conditions that these systems are likely to encounter. Thus, the 
Agency might find a new regulation affordable for systems with a 
particular source water quality, but not for systems in the same size 
category with a different source water quality. The Agency plans to 
continue to evaluate household costs in the same manner. This involves 
estimating the range of expected levels of a contaminant that may be 
present in the source water based on available data, as well as 
considering other source water parameters likely to affect the 
efficiency of identified treatment technologies, and estimating 
incremental per household costs separately for each relevant source 
water quality. If a new regulation is found unaffordable only for some 
subset of systems within a size category, based on poor source water 
quality, only those systems with comparably poor source water quality, 
and for which the regulation may thus be unaffordable, would be 
eligible to apply for small system variances. EPA requests comment on 
continuing to evaluate source water quality in this manner.
2. Affordability Determination Options
    EPA is requesting comment on two distinct approaches for 
determining affordability. Both approaches would start by determining 
whether the incremental household cost of treatment to meet a new 
regulation exceeds an increment based threshold. Under the first 
approach, this would be the sole criterion for determining 
affordability. Under the second approach, if EPA were to find the 
compliance technology affordable at the national level, we would then 
take the additional step of identifying counties that are economically 
at-risk, and list affordable variance technologies for small systems in 
these counties. These systems could then apply to their primacy agency 
for a variance. In other words, EPA would determine that any regulation 
is potentially unaffordable for small systems in these economically at-
risk counties, and leave it to the primacy agency to evaluate 
affordability individually for systems applying for a variance, as they 
are required to do under the SDWA for all small system variance 
requests if the State includes such variances in its drinking water 
program. EPA requests comment on which of these two approaches to 
adopt.
    EPA further requests comment as to what the most appropriate 
national affordability threshold is and what system size should be used 
to calculate costs (i.e., 10th or 50th percentile) for each of the 
three population size categories defined in SDWA (i.e., 25-500, 501-
3,300, and 3,301-10,000).
    Specifically, EPA requests comment on three affordability 
thresholds: 0.25 percent, 0.50 percent, and 0.75 percent of the median 
MHI for small systems in a particular small system size category. The 
thresholds represent an approximate one third, two thirds, and 100 
percent increase in a current median water bills though for any 
individual system these percent increases might be greater or smaller. 
EPA also requests comment on comparing the selected threshold with 
household treatment costs for either the 10th percentile or 50th 
percentile system size in each of the three population size categories.
    Table III-3 presents the three thresholds as a percentage of the 
median incomes among small systems, the current dollar amount for each 
threshold for a given size category, and the current median, 10th 
percentile and 90th percentile water bills for each system size 
category. While the options under consideration are based on an 
incremental approach, commenters can see from the table what the 10th 
percentile, median, and 90th percentile projected total cost of water 
would need to be both before and after a regulation for compliance 
technologies to be considered unaffordable at a national level. For 
example, if the 0.5 percent threshold option were selected, compliance 
technologies would be considered unaffordable if they raised the median 
water bill for a system in the smallest size category from about $300 
to about $520 per year. This would also have the effect of raising the 
10th percentile water bill (i.e., a system with low baseline costs) 
from about $105 to about $325 per year, and of raising the 90th 
percentile water bill (i.e., a system with high baseline costs) from 
about $580 to about $800 per year. It should be noted that over time, 
the total baseline cost of water would rise as new

[[Page 10680]]

regulations are added, but under the incremental approach being 
considered today, the affordability threshold would not be adjusted to 
compensate for this rise, as it is under the current expenditure 
baseline approach.

                                  Table III-3.--Affordability Threshold Options
----------------------------------------------------------------------------------------------------------------
                                                                    Current dollar value (median system MHI 1)
                                                                 -----------------------------------------------
                        Income threshold                              25-500         501-3,300     3,301-10,000
                                                                     ($44,544)       ($40,872)       ($42,459)
----------------------------------------------------------------------------------------------------------------
Threshold 2, 3 = 0.25% MHI......................................            $110            $100            $110
Threshold 2, 3 = 0.50% MHI......................................            $220            $200            $210
Threshold 2, 3 = 0.75% MHI......................................            $330            $310            $320
Current Median Water Bill.......................................            $299            $294            $285
Current 10th Percentile Water Bill..............................            $106            $176            $151
Number of Systems < 10th Percentile 4............................           3,013           1,426             466
Current 90th Percentile Water Bill..............................            $576            $492            $488
Number of Systems >90th Percentile 4............................           3,013           1,426             466
                                                                 -----------------------------------------------
    Total Number of Systems 4...................................         30,1323          14,263           4,661
----------------------------------------------------------------------------------------------------------------
1 Based on 2000 U.S. Census figures adjusted to 2004 using national trends and then to September 2005 using the
  Consumer Price Index.
2 Percentage of the median value (50th percentile) of a distribution of system-level median household incomes.
3 Threshold calculations are adjusted to two significant figures.
4 Total number of systems in each size category based on January 2004 SDWIS/FED.

    The second approach is based upon analysis presented in two papers 
prepared by Scott Rubin (Rubin, 2001 and Rubin, 2002). Under this 
approach, EPA would use a two-part test to screen at first the national 
level and then the county level for systems that cannot afford 
compliance.
    The national-level screen would work the same way as under the 
first approach, except that because of the additional screen for at-
risk counties, EPA might choose a higher percentage of median system 
MHI for the national screen than it would under the first approach.
    Should the national-level screen find that the compliance treatment 
costs are affordable for some or all small systems, the Agency would 
proceed to a county level screen to identify economically at-risk 
counties, in which States could still grant variances.
    For any small drinking water system in counties deemed to be at-
risk in this second part of the affordability test, compliance 
technologies would be considered potentially unaffordable, regardless 
of EPA's national per household cost estimates, and it would be up to 
the primacy agency to grant variances where appropriate based on a 
system specific analysis of affordability. That is, States would be 
enabled to determine, based on the criteria in SDWA section 1415(e), 
whether to grant small system variances to small systems in those at-
risk counties.
    EPA is requesting comment on three socioeconomic triggers for the 
county-level screen: (1) MHI less than or equal to 65 percent of the 
national MHI, (2) U.S. Census Bureau-defined poverty rate at least 
twice the national average, or (3) two-year average unemployment rate 
at least twice the two-year national average.
    Under this option, triggering any one of these measures would be 
sufficient to trigger a finding of unaffordability for small systems 
within the county. Therefore, this methodology allows for regional 
socioeconomic conditions to supplement the national-level affordability 
determination. Table III-4 shows how many counties and small systems 
would be eligible for variances under this county-level screen.

  Table III-4.--The Number of Counties, Small Drinking Water Systems, and the Population Served That Would Be Eligible for Small System Variances Under
                                                                 the County-Level Screen
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Number of                                      Percent of
                        Criterion                            Number of      Percent all    small systems    Percent all     Population       national
                                                           counties \1\      counties           \2\        small systems      served      population \3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
MHI < =0.65 National MHI.................................             356            11.3           3,485             7.3       4,372,677             1.5
Poverty Rate >=Twice National Average...................              81             2.6             532             1.1         950,205             0.3
Two-year Unemployment Rate >=Twice National Average.....              80             2.5             920             1.9       1,391,226             0.5
One or more of the Above................................             410            13.1           4,249             8.8       5,485,158             1.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Based on 3,140 total counties in the U.S.
\2\ There are 48,025 small drinking water systems in SDWIS that could be linked to counties.
\3\ Based on July 1, 2004 U.S. Census, the national population was 293,655,404.

    EPA requests comment on this approach to a county-level 
affordability screen, and on the specific criteria listed above for 
identifying economically at-risk counties.
3. Identification of Affordable Variance Technologies
    As previously stated, SDWA section 1415(e) authorizes a primacy 
(primacy enforcement) agency to grant small systems a variance from 
compliance with an MCL or treatment technique for a NPDWR only if EPA 
has determined that there are no affordable compliance technologies for 
small systems and EPA has identified affordable variance technologies 
that are protective of public health.

[[Page 10681]]

    Under the current methodology, EPA uses the same threshold to 
determine affordability for both compliance and variance technologies. 
While this seems sensible on its face, it can lead to a situation where 
no compliance technologies are found to be affordable, but there are no 
variance technologies that are found to be affordable either. As a 
result, EPA would not list any variance technologies and primacy 
agencies (in most cases the States) would be unable to grant small 
system variances under section 1415(e). This could occur even if there 
were candidate variance technologies that were both cheaper than the 
compliance technologies and protective of public health, if these 
cheaper technologies still exceeded a predetermined affordability 
threshold. Not listing ``affordable'' variance technologies in this 
case would be inconsistent with Congressional intent that States be 
provided the authority to grant variances which allow small systems 
that cannot afford to comply fully with NPDWRs to instead adopt 
alternative protective but less expensive technologies where such 
technologies are available.
    EPA is thus considering an alternate approach to determining 
affordability for variance technologies in situations where there is no 
candidate variance technology that falls below the affordability 
threshold. Under this approach, EPA would consider variance 
technologies ``affordable'' if they are cheaper than the least 
expensive compliance technology and still protective of public health. 
Of course, the Agency's first choice would still be to list variance 
technologies whose costs fall below the affordability threshold if such 
technologies are available and protective of public health. As an 
example, suppose the affordability threshold were set such that it 
equated to an incremental per household cost of $200 per household per 
year, and suppose further that the cheapest compliance technology for a 
particular size category cost $300 per household per year. If there 
were a candidate variance technology that cost less than $200 per 
household per year and were protective of public health, EPA would list 
this technology. But if there were no such technology, and EPA 
identified a candidate variance technology costing $250 per household 
per year (and it was protective of public health), EPA would list this 
as an affordable variance technology even though its costs exceed the 
affordability threshold of $200 per household per year (in this 
example). Under this approach, EPA would interpret ``affordability'' of 
variance technologies under section 1412(b)(15) as not being limited by 
the affordability threshold (i.e., 0.25 percent, 0.50 percent, or 0.75 
percent of median system MHI) under section 1412(b)(4)(E). Rather, in 
cases where no variance technology had costs below the affordability 
threshold, EPA would interpret ``affordable'' for purposes of listing 
variance technologies as meaning any technology that is less costly 
than the corresponding compliance technologies and that is protective 
of public health.
    EPA requests comment on this approach to determining affordability 
for variance technologies.
    EPA reiterates that its national level affordability methodology is 
only a screen to make general findings of unaffordability, in 
accordance with SDWA section 1412(b)(4)(E), not a definitive finding of 
whether the application of a technology at a particular small system 
will be affordable. If EPA determines that compliance technologies are 
not affordable for small systems in one or more categories, then, under 
section 1412(b)(15), EPA must identify variance technologies that are 
affordable and protective of public health. Congress left to the 
primacy (primacy enforcement) agencies (usually the States) the task of 
granting small system variances on a case-by-case basis to those small 
systems included in any size/water quality category for which EPA has 
determined that compliance technologies are generally ``unaffordable.'' 
States may utilize EPA's methodology or develop a different methodology 
for evaluating the affordability of compliance technologies for 
individual systems. Only if the primacy agency finds that compliance is 
unaffordable for a specific system, using its chosen affordability 
methodology, is it authorized under SDWA to grant a small system 
variance, and as a condition of that variance, the system must install, 
operate and maintain an alternative variance technology from among the 
list identified by EPA at the time the regulation was promulgated. 
Further, the system must operate the variance technology in a way that 
both EPA (at the national level) and the primacy agency (at the system 
specific level) determine to be protective of public health. EPA's 
methodology for determining protectiveness of public health is 
discussed in Section IV below.
    EPA believes that interpreting ``affordable'' to mean something 
different for compliance and for variance technologies is a reasonable 
way to implement these provisions in a manner consistent with 
Congressional intent. First, while Congress provided the same phrase 
``affordable, as determined by the Administrator in consultation with 
the States'' in both sections of the statute, Congress did not cross-
reference the two provisions and expressly left the definition of 
``affordable'' to EPA (in consultation with States). As a result, EPA 
believes there is flexibility to interpret the terms differently based 
on the different purposes of these provisions. As noted above, the 
purpose of the ``affordable'' finding in section 1412(b)(4)(E) is to 
serve as a general screen to determine when, as a class, compliance 
technologies may not be affordable for entire categories of small 
systems. In contrast, the purpose of the ``affordable'' finding in 
section 1412(b)(15) is to list for States those technologies that are 
generally protective of public health even though the technology would 
not achieve full compliance with NPDWRs and that would provide some 
relief for small systems for which compliance technology are not 
affordable. States must make a site-specific finding of protectiveness 
and affordability prior to granting a small system variance and it is 
appropriate for them to have protective technologies available to 
choose from in order to select the most appropriate for each system. 
Finally, to interpret the statute in a way that makes variances 
unavailable when there are no affordable compliance technologies 
defeats the Congressional purpose in setting up small system variances.
    If this approach is adopted, and depending on the threshold 
selected, the actual cost of a variance technology could be greater 
than the affordability threshold. The lower the affordability threshold 
chosen, the more likely this result would be.

IV. Protective of Public Health Methodology

    This section presents EPA's approach for determining if an 
affordable variance technology is protective of public health. As 
background, this section also discusses how EPA considers public health 
in establishing drinking water standards.

A. How Does EPA Consider Public Health in Establishing Drinking Water 
Standards?

    The SDWA requires EPA to consider public health impacts of 
contaminants at several steps in the process for establishing NPDWRs. 
EPA considers peer-reviewed science and data collected in accordance 
with accepted methods to support an intensive evaluation of public 
health impacts of

[[Page 10682]]

the contaminant under consideration, which includes factors such as: 
Occurrence in the environment; human exposure and risks of adverse 
health effects in the general population and sensitive subpopulations; 
analytical methods of detection; technical feasibility; and impacts of 
regulation on water systems, the economy, and public health. However, 
while the general purpose of SDWA is to protect public health from 
unacceptable risks that may be posed by contaminants in tap (drinking) 
water, the criterion in section 1412(b)(15) that variance technologies 
be ``protective of public health'' is distinct from the requirements 
for setting drinking water standards.
1. Setting the Maximum Contaminant Level Goal
    The Maximum Contaminant Level Goal (MCLG) is the maximum level of a 
contaminant in drinking water at which no known or anticipated adverse 
effect on the health of persons would occur, and which allows an 
adequate margin of safety. MCLGs are non-enforceable public health 
goals. Since MCLGs consider only public health and not the limits of 
detection and costs and capabilities of treatment technologies, 
sometimes they are set at levels which water systems cannot meet using 
available technologies, or that can not currently be reliably measured.
    EPA has traditionally established MCLGs of zero for known or 
probable human carcinogens based on the default assumption that any 
exposure to carcinogens might represent some non-zero level of risk. If 
there is substantial scientific evidence, however, that indicates there 
is a threshold below which no adverse effect is expected to occur, then 
a non-zero MCLG can be established with an adequate margin of safety.
    For non-carcinogens that can cause adverse noncancer health 
effects, the MCLG is based on the reference dose (RfD). A reference 
dose is an estimate (with uncertainty spanning perhaps an order of 
magnitude) that is likely to be without appreciable risk of deleterious 
effects during a lifetime. It can be derived from a no-observed adverse 
effect level, lowest-observed adverse effect level, benchmark dose 
level (the lowest confidence limit of the dose that will result in a 
level of ``x'' percent response), or other suitable point of departure. 
Uncertainty factors are generally applied to reflect limitations of the 
data used and ensure an appropriate margin of safety.
    The RfD is multiplied by typical adult body weight and divided by 
daily water consumption. The result is then multiplied by a percentage 
of the total allowable daily exposure contributed by drinking water to 
determine the MCLG.
2. Setting the MCL or Treatment Technique
    Once the MCLG is determined, EPA sets an enforceable standard. In 
most cases, the standard is an MCL. When it is not economically and 
technically feasible to ascertain the level of a contaminant in 
drinking water, EPA may set a treatment technique rather than an MCL. 
The MCL is set as close to the MCLG as feasible, which the SDWA defines 
as the level that may be achieved with the use of the best available 
technology, treatment techniques, and other means that EPA finds are 
available taking cost into consideration. The legislative history for 
this provision makes it clear that ``feasibility'' is to be defined 
relative to ``what may reasonably be afforded by large metropolitan or 
regional public water systems.'' \2\ Thus affordability may be 
considered in establishing the feasible level, but it is affordability 
to large water systems. As noted above, costs are generally 
significantly higher on a per household basis for customers of small 
systems than for customers of large ones. As a result, what is feasible 
(taking cost into consideration) for large systems may not be feasible 
(taking costs into consideration) for small ones. To address this 
situation, in addition to other tools, SDWA requires EPA to determine 
if affordable small system compliance technologies are available, and 
when there are none, SDWA requires EPA to identify small system 
variance technologies.
---------------------------------------------------------------------------

    \2\ a Legislative History of the Safe Drinking Water Act, 
Committee Print, 97th Cong., 2d Sess. (1982) at 550.
---------------------------------------------------------------------------

    After determining a feasible level of treatment or treatment 
technique based on affordable technologies for large systems, EPA 
prepares a health risk reduction and cost analysis to determine whether 
the benefits of the feasible level justify the costs. If not, the 
Administrator may in some cases set the MCL at a less stringent level 
that ``maximizes health risk reduction benefits at a cost that is 
justified by the benefits.'' In evaluating the quantified benefits and 
costs, EPA has found the ratio of benefits to costs is likely to be 
much greater among large systems than it is among small systems. This 
is because the per household costs are likely to be significantly 
higher for customers of small systems than for customers of large ones, 
while the per household benefits will be about the same for both 
groups. As a general matter, EPA considers the total cost and benefits 
for all systems (large and small) as the principal factor when 
determining whether or not benefits of a proposed NPDWR justify its 
costs.\3\ Because this analysis will generally be dominated by the 
costs and benefits for large systems, it can mask a situation where 
benefits justify costs for large systems but would not justify the 
significantly higher costs for small systems.
---------------------------------------------------------------------------

    \3\ The one exception is that, under the SDWA, EPA must exclude 
systems likely to be granted small system variances from this 
determination based on information provided by the States.
---------------------------------------------------------------------------

    This is not to suggest that the costs and benefits at small systems 
can never influence NPDWRs. In fact, small system impacts were a factor 
in the Agency's determination to utilize this SDWA authority to 
establish the MCLs for arsenic and uranium at levels less stringent 
than the feasible levels. However, use of this authority will not 
ensure that a drinking water standard is affordable to small systems; 
therefore Congress provided the small system variance provisions as a 
mechanism for EPA to recognize in the standard setting process the 
different economic situations of large and small systems.
3. Determining that Variance Technologies are Protective of Public 
Health
    As discussed in the previous section, EPA sets drinking water 
standards based on what is affordable for large systems. In 1996, 
Congress amended the SDWA to address affordability issues for small 
systems. Rather than change the Congressional mandate by which EPA 
establishes drinking water standards (i.e., as close to the MCLG as is 
``feasible''), Congress established a new small system variance 
provision under which States would be able to grant special variances 
to small systems if (1) EPA makes a finding as part of a new drinking 
water standard that compliance with the MCL or treatment technique is 
``unaffordable'' for specific groups of small systems and identifies 
variance technologies that are available, affordable, and ``protective 
of public health,'' (section 1412(b)(15)), and (2) the State makes a 
subsequent finding that compliance with the new MCL or treatment 
technique would be unaffordable for a particular small system applying 
for a variance and that an alternative variance technology identified 
by EPA would provide adequate protection of human health when installed 
by that system (section 1415(e)). Thus, the 1996 amendments established 
a two-step process for

[[Page 10683]]

granting these variances under which EPA would make general findings of 
unaffordability and protectiveness at a national level, but where the 
determinative findings of actual unaffordability and protectiveness at 
a specific water system would be made by the State, after consultation 
with the affected consumers following the comprehensive public process 
for variances set out in section 1415(e) and EPA's regulations at 40 
CFR part 142, subpart K.
    When granted by the State, a small system variance allows a small 
system that cannot afford to comply with a new drinking standard to 
install a variance technology that provides treatment which is 
affordable and protective of human health. SDWA 1412(b)(15)(A) 
specifically recognizes that the variance technology `` * * * may not 
achieve compliance with the maximum contaminant level or treatment 
technique requirement of such regulation * * *,'' but does require that 
the variance technology `` * * * achieve the maximum reduction or 
inactivation efficiency that is affordable considering the size of the 
system and the quality of the source water.'' Thus, by requiring EPA to 
establish affordable variance technologies that are protective of 
public health for systems unable to comply with a new drinking water 
standard, Congress was clearly intending that EPA consider contaminant 
levels above the MCL protective of public health for purposes of 
identifying small system variance technologies.
    This interpretation is also consistent with the standard setting 
process itself, which is designed to identify a feasible MCL or 
treatment technique that provides an acceptable level of public health 
protection, consistent with the statutory factors considered, which 
include cost, but only the cost reasonably affordable to large systems.
    As a result of the two-step statutory findings as well as the fact 
that Congress clearly intended that the ``protective of public health'' 
mandate would necessarily encompass situations in which the applicable 
federal drinking water standard is not met, EPA views the 
protectiveness finding to be made under SDWA section 1412(b)(15) as a 
national-level screen, not a definitive finding that a particular 
technology or contaminant level is adequately protective for a 
particular public water system and its customers. Instead, Congress 
left to the primacy agencies (usually States) the task of determining: 
(1) Which specific small systems, within a class for which EPA has 
determined that compliance is generally ``unaffordable,'' are truly 
unable to afford to comply with the standard, and (2) the specific 
conditions under which the use of a listed variance technology would be 
protective of public health at a particular system. EPA expects that 
States would be partially guided by public input from within the 
affected communities in making these system-specific determinations, 
particularly the determination regarding the appropriate level of 
public health protection.

B. Methodology To Identify Affordable Variance Technologies That Are 
Protective of Public Health

    The Agency requests comment on finding a variance technology to be 
sufficiently protective of public health for purposes of the national-
level screen required by SDWA section 1412(b)(15) if the concentration 
of the target contaminant after treatment by the variance technology is 
no more than three times the MCL. When evaluating variance technologies 
for treatment technique standards, EPA similarly requests comment on 
finding a variance technology sufficiently protective of public health 
if the Agency determines that the expected concentration of the target 
contaminant in water treated by the variance technology would not be 
more than three times greater than the expected concentration of the 
contaminant if the same source water were treated in accordance with 
the requirements of the treatment technique. EPA would view this 3x 
level as a general guideline, which might be modified for a specific 
contaminant if unusual factors associated with the contaminant or EPA's 
risk assessment suggested that an alternate level, whether higher or 
lower, was appropriate. In such cases, EPA would clearly explain its 
reasons for departing from the 3x guideline in the proposed rule and 
request public comment on the alternate level.
    EPA is required under the SDWA to establish MCLGs based on best 
available science. Even the best available science is limited and 
therefore has some degree of uncertainty. For contaminants with non-
zero MCLGs, the uncertainty in the estimate of the level of exposure 
that is likely to represent an appreciable risk may span an order of 
magnitude (i.e., 10 fold or one log unit) or more. For carcinogens, EPA 
generally uses a default assumption that sets the MCLG at zero and uses 
the cancer slope factor (which contains some uncertainty) to inform its 
MCL decision. In addition, SDWA requires that MCLGs be set at a level 
at which no adverse effects occur and ``which allows an adequate margin 
of safety.'' In many cases, the margin of safety may also span an order 
of magnitude or more in recognition of this uncertainty (as well as 
other factors). The margin of safety embodied in the MCLG may be 
explicit, or it may result from the parameter choices used in the risk 
assessment (e.g., use of 95th percentile upper confidence bound for a 
dose response function or point of departure). As described in Section 
IV.A.2 of this notice, SDWA generally requires EPA to set the MCL as 
close to the MCLG as is feasible. Determining what is feasible involves 
considerations of treatment technology effectiveness, measurement 
capabilities, and cost, all of which also involve uncertainty. In SDWA 
section 1412(b)(15), Congress assumed that some level less stringent 
than the MCL would still be sufficiently ``protective'' for small 
systems for which compliance with the MCL is unaffordable. Therefore, 
EPA believes that for purposes of determining what is ``protective'' 
under this section, it is reasonable to allow variance technologies to 
be considered by the primacy agency if such technologies achieve 
removal of a contaminant from drinking water within a span of one log 
unit (10x) centered on the MCL, which is established through a SDWA 
mandated procedure designed to identify an acceptable level of risk for 
drinking water, taking all of the statutory factors into account. 
Therefore, EPA requests comment upon considering concentrations up to 
three times the MCL ``protective of public health'' under SDWA section 
1412(b)(15)(B).
    EPA believes that for the majority of contaminants, restricting the 
contaminant level for a variance technology to not more than three 
times the level that would be produced by a compliance technology would 
be adequately protective for purposes of enabling States to make a 
variance decision. While EPA recognizes that consuming water with as 
much as three times the concentration of a particular contaminant 
results in greater exposure and may translate to a greater risk of 
adverse health effects, EPA believes that the small system variance 
provisions, as directed by Congress, are intended to permit State 
primacy agencies, small water systems, and their consumers to decide, 
within a range of levels close to the drinking water standard, the 
specific conditions upon which they can best assure the safety of their 
water supply when they are unable to afford compliance.
    EPA believes that this methodology for determining if a variance 
technology is protective of public health is transparent and 
reproducible. State

[[Page 10684]]

officials, water system operators, and water system consumers will be 
able to readily understand the basis for the national determination and 
evaluate its applicability to their system specific conditions.

V. State Consultation

    SDWA section 1412(b)(15)(A) requires ``consultation with the 
States'' by EPA in its determination that variance technologies are 
available and affordable. EPA has consulted with administrators of 
State drinking water programs in developing the options for revising 
the affordability methodology presented in today's notice. The NDWAC 
Work Group whose recommendations on the affordability methodology are 
described earlier in this notice included administrators of the 
drinking water programs from two States. Additionally, on December 5, 
2005 EPA consulted with drinking water administrators from seven States 
regarding the options under consideration for revisions to the 
methodology for evaluating the affordability of new drinking water 
standard and determining if variance technologies are protective of 
public health. State administrators expressed concern that 
implementation of the revisions described in today's notice would 
result in a two level standard: one standard for small systems that 
cannot afford compliance, and another more stringent standard for all 
other systems. A State administrator noted the risk communication 
challenge that such a situation would pose.
    States expressed concern that reviewing and issuing small system 
variances for future regulations will place additional demands upon 
their already limited, and in many cases decreasing, State drinking 
water program resources. If a State chooses to include small system 
variances in its drinking water program, SDWA section 1415(e)(3) 
requires the State to determine that a system on a case by case basis, 
cannot afford to comply and that the terms of a variance will ensure 
adequate protection of public health before it may grant a variance. 
SDWA section 1415(e)(7) requires notification of customers, and a 
public hearing before granting a variance. States agreed with the 
conclusion of the NDWAC that alternatives to the variance process, 
including cooperative strategies (e.g., State leadership to promote 
cooperation among small systems), and targeted use of funding to 
disadvantaged water systems (e.g., supporting individual households 
with a LIWAP funded through Congressional appropriation) are more 
appropriate means to address affordability issues associated with small 
public water systems that cannot afford to comply with a NPDWR.
    States also believe that EPA should consider NDWAC's recommendation 
of an incremental affordability threshold of one percent of median 
household incomes among small systems (approximately $400 per year).
    EPA appreciates and has carefully considered the State 
administrators' concerns. EPA is sensitive to the risk communication 
challenge posed by different systems effectively having different 
standards, based on affordability. However, Congress in amending SDWA 
determined that cost differences between large and small systems may 
make it appropriate for a small system to operate above the MCL as long 
as it achieves the maximum reduction that is affordable. Small systems 
have the greatest treatment costs per household served due to economies 
of scale. Households that receive water from these systems face the 
greatest challenge of affording to comply with a drinking water 
standard. Congress established the small system variances as an answer 
to this problem; however, the current methodology has never triggered a 
finding that a regulation was unaffordable. The options being 
considered by EPA are more likely to trigger such a finding and thus 
make small system variances available as one option that States and 
small systems customers may consider. States that choose to implement a 
small system variance program would make the system-specific 
determinations on affordability and protectiveness for regulations EPA 
determines are unaffordable. It is the choice of an individual small 
system and the community it serves whether to apply for a variance 
following a comprehensive public process (set out in SDWA section 
1415(e)). This process ensures that customers of a small system will be 
fully informed and have opportunity for input into the decision before 
a system receives a variance. EPA would not expect a variance 
application to be successful without significant community support.
    EPA is also mindful of the potential strain on State resources of 
evaluating small system variance applications. EPA notes that States 
are not required to include small system variances in their drinking 
water programs. EPA's affordability methodology is merely a screen. If 
a regulation is found unaffordable and EPA is able to identify more 
affordable variance technologies which are protective of public health, 
States that wish to grant small system variances and communities that 
wish to apply for them may do so.
    EPA also appreciates the State recommendations for alternatives to 
small system variances. EPA believes that such variances should be a 
last resort. Where a State is able to make financial assistance 
available to small systems for compliance through its SRF, or 
aggressively encourage cooperation among small systems, EPA strongly 
encourages States to do so. As for the recommendation that assistance 
be targeted directly to low income consumers through some kind of LIWAP 
program, only Congress can authorize such an approach. In the meantime, 
EPA has a responsibility to utilize the existing tools under the Safe 
Drinking Water Act, which include small system variances, as mechanisms 
to address the legitimate affordability concerns of small systems and 
their customers.
    Finally, EPA has not included the NDWAC recommendation among the 
options it is considering because, in EPA's judgment, it would not 
allow for appropriate implementation at the Federal level of the small 
system variance provisions that Congress included in the SDWA. As Table 
III-1 shows, an incremental threshold of $400 would not likely have 
triggered an unaffordability finding or the listing of alternative, 
protective variance technologies for any size category of small systems 
for any recent drinking water standard. For all of the reasons 
discussed previously in this notice, EPA believes that some small 
systems have genuinely struggled with compliance costs for some recent 
NPDWRs, and that EPA needs an affordability methodology that will allow 
States that wish to do so an opportunity to address these concerns 
through, among other strategies, the granting of protective small 
system variances where appropriate.

VI. Request for Comment

    The EPA seeks comments on the range of issues addressed in this 
notice. The information and comments submitted in response to this 
notice will be considered in determining the affordability methodology 
for small drinking water systems and the methodology for determining 
when variance technologies are protective of public health.
    Specifically, EPA seeks comments on the following issues:
    1. EPA requests comment on basing its determination of 
affordability on the incremental cost of new treatment required rather 
than the total (i.e., cumulative) cost of water to consumers

[[Page 10685]]

after the new treatment technology is installed.
    2. EPA requests comment on whether it is more appropriate to base 
its affordability determination on the incremental costs of treatment 
for the system at the 10th percentile or the 50th percentile of system 
size in each small system category.
    3. EPA requests comment on what the most appropriate national-level 
percentage threshold is (i.e., 0.25 percent, 0.50 percent, or 0.75 
percent of the median MHI among small systems within a size category).
    4. EPA requests comment on the key factors considered in developing 
affordability methodology options as described in section III.C of this 
notice. Do commenters believe these are the appropriate factors to 
consider? Are there other factors commenters would suggest the Agency 
consider?
    5. EPA requests comment on whether the Agency should use a two-part 
test to screen at the national and county levels for systems that 
cannot afford compliance. Additionally, EPA seeks comment on whether 
the county or a different level is the appropriate unit of analysis for 
the second part of this test. The approach would first compare the 
incremental household cost of compliance to a national income-based 
threshold. If EPA were to find compliance affordable at the national 
level, we would then identify counties that are economically at-risk 
based on three socioeconomic triggers (MHI less than or equal to 65 
percent of the national MHI, a U.S. Census Bureau-defined poverty rate 
at least twice the national average, or a two-year average unemployment 
rate at least twice the two-year national average). EPA also requests 
comment on the specific triggers that should be used to identify 
economically at-risk counties.
    6. EPA requests comment upon its interpretation of affordability in 
section III.D.3 of today's notice. That is, should EPA consider 
variance technologies affordable even when they do not fall below the 
affordability threshold in cases where there would otherwise be no 
affordable variance technologies to list.
    7. EPA requests comment on implementation challenges to States in 
reviewing and issuing small system variances.
    8. EPA requests comment on finding a variance technology to be 
protective of public health if the concentration of the target 
contaminant after treatment by the variance technology is no more than 
three times the MCL unless unusual factors associated with the 
contaminant or EPA's risk assessment suggest that an alternate level is 
appropriate, in which case EPA would explain its basis for the 
alternate level and request public comment in the proposed rule. EPA 
requests comment on whether a finding that variance technologies are 
protective of public health if they achieve a contaminant level within 
three times the MCL should be ``capped'' at a particular risk level 
(i.e., 10-3) in order to provide further assurance that 
variance technologies are in fact protective.
    The Agency also requests comment on any other issue raised by this 
notice on options for revising its national-level affordability 
methodology or its methodology for determining if a variance technology 
is protective of public health.

VII. References

National Drinking Water Advisory Council (NDWAC). 2003. 
Recommendations of the National Drinking Water Advisory Council to 
U.S. EPA on Its National Small Systems Affordability Criteria. 
Available at http://www.epa.gov/ safewater/ ndwac/council.html.

Rubin, Scott, J. 2001. White Paper for National Rural Water 
Association, Criteria to Assess the Affordability of Water Service. 
Available at http://www.nrwa.org.

Rubin, Scott, J. 2002. White Paper for National Rural Water 
Association, Criteria to Assess Affordability Concerns in Conference 
Report for H.R. 2620. Available at http://www.nrwa.org.

U.S. EPA. 1998. Announcement of Small System Compliance Technology 
Lists for Existing National Primary Drinking Water Regulations and 
Findings Concerning Variance Technologies. Notice. Federal Register 
Vol 63, No. 151, p. 42032. August 6, 1998. Available at http:// 

http://www.epa.gov/ safewater/ standard/ clistfrn.pdf.

U.S. EPA Science Advisory Board (SAB). 2002. Affordability Criteria 
for Small Drinking Water Systems: An EPA Science Advisory Report. 
EPA-SAB-EEAC-03-004, U.S. EPA Science Advisory Board, Washington, 
DC, December 2002. Available at http://www.epa.gov/sab.

    Dated: February 14, 2006.
Benjamin H. Grumbles,
Assistant Administrator, Office of Water.
[FR Doc. 06-1917 Filed 3-1-06; 8:45 am]

BILLING CODE 6560-50-P