[Congressional Record Volume 140, Number 71 (Thursday, June 9, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: June 9, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
      ON THE INTRODUCTION OF THE WATER CONSERVATION INCENTIVES ACT

                                 ______


                           HON. JIM McDERMOTT

                             of washington

                    in the house of representatives

                        Wednesday, June 8, 1994

  Mr. McDERMOTT. Mr. Speaker, fresh water is one of our most important 
resources and it is limited in supply. A recent issue of national 
geographic dedicated to examining North America's fresh water supply 
estimated that if all of the earth's water fit in a gallon jug, 
available fresh water would equal just over a tablespoon. That is less 
than half of the percent of the total. The need for increased 
conservation--one of the most economical ways of meeting increased 
demand with limited supply--is clearly evident.
  Today I am introducing legislation to promote water conservation by 
removing a powerful disincentive in our tax code which works against 
water conservation efforts. This legislation is ``The Water 
Conservation Incentives Act.''
  It is a natural ``next step'' to efforts I led in the House Ways and 
Means Committee in 1992, when we added several tax provisions promoting 
energy conservation to the National Energy Policy Act. At that time, we 
did not really address the issue of tax incentives for water 
conservation, primarily because no utilities were aggressively pursuing 
water conservation as a way of meeting increased demand.
  But that is now changing. The Seattle Water Department has one of the 
most aggressive water conservation programs in the country. Over the 
next 10 years, it will spend $16 million on water conservation programs 
which will save 32 million gallons of water a day--a fifteen percent 
reduction from what consumption would have been.
  One of the major components of Seattle's conservation efforts is 
incentive programs to encourage the installation of more efficient 
water use equipment and fixtures in our home, businesses and public 
institutions. These conservation measures will reduce water 
consumption, but they won't require significant changes in lifestyle or 
business production.
  The problem, however, is that current tax law is a threat to 
Seattle's successful conservation incentive program. Under current law, 
when a water customer receives a conservation subsidy from the Seattle 
Water Department, the customer must include the value of that subsidy 
in its gross income at tax time.
  The city of Seattle encourages water conservation with its subsidy, 
but the federal government discourages water conservation by its tax 
treatment of the subsidies. The two policies are inadvertently--but 
obviously--working at cross purposes. It is also clearly an 
administrative burden for the water department as well as a 
disincentive to participation by customers.
  The legislation I will introduce ends this disincentive. My bill 
says, simply, we are not going to require the customer who receives the 
subsidy to report it as income and to pay income tax on it. For the tax 
lawyers out there let me say it, specifically, this way: my bill would 
provide a 100% exclusion from gross income for the value of the subsidy 
received for the purchase or installation of any water conservation 
measure. For the rest of us it is just this simple: my bill, if 
adopted, means the federal government would stop taxing your water 
conservation subsidy.
  What I'm proposing is that we simply elevate water conservation 
programs to the same status as energy conservation programs. Right now, 
subsidies provided by electric utilities are not taxed as income to the 
customer. Subsidies by water utilities should be treated no 
differently. My legislation will correct this inconsistency in the tax 
code and thereby encourage more water conservation programs through the 
use of tax incentives.
  Like its recycling program and energy conservation programs, Seattle 
now is taking a leadership role in water conservation programs. I 
commend the city for its commitment to preserving the earth's limited 
resources, as well as to keeping water rates low for its customers in 
the long run. The water supply made available by Seattle's conservation 
programs are provided at about half the cost of developing a new source 
of supply.
  I am proud that my district has one of the most aggressive and 
comprehensive water conservation programs in the country.
  I am fully committed to seeing water conservation programs receive 
equivalent treatment under the tax code. A technical explanation of 
``The Water Conservation Incentives Act'' is attached to this 
statement.

 TECHNICAL SUMMARY OF THE WATER CONSERVATION INCENTIVES ACT INTRODUCED 
                      BY CONGRESSMAN JIM McDERMOTT


section i. exclusion of water conservation subsidies provided by water 
                               utilities

       Amends the federal tax code to provide a 100% exclusion 
     from gross income of the value of a subsidy received for the 
     purchase or installation of any water conservation measure. 
     The exclusion applies to income or property received after 
     December 31, 1993.
       The exclusion is extended to all residential, commercial 
     and industrial customers of public or investor owned 
     utilities that have been established or approved by the 
     federal government, a state or local government, or any 
     subdivision thereof.
       Any installation or modification primarily designed to 
     reduce consumption of water or to improve the management of 
     water demand qualifies for the exclusion.
       The bill specifically defines seven water properties as 
     qualifying for the exclusion, provided that these properties 
     meet certain standards. The standards listed below for a 
     toilet (A), urinal (B), faucet (E), and shower head (F) are 
     established in federal law under the National Energy Policy 
     Act of 1992:
       (A) toilet: using 1.6 gallons or less per flush for gravity 
     designs and 2.5 gallons or less per flush for flush valve 
     style pressure-assisted designs,
       (B) urinal: using 1.0 gallons or less per flush,
       (C) laundry machine: using 11.0 gallons or less per cubic 
     foot of capacity per complete washing cycle,
       (D) Dishwasher: using 2.0 gallons or less per cubic foot of 
     capacity per complete washing cycle,
       (E) faucet: equipped with an aerator or flow control which 
     restricts the flow to 2.5 gallons or less per minute at 65 
     psi, and
       (F) shower head: restricting the flow to 2.5 gallons or 
     less per minute at 65 psi.
       The bill identifies certain processes and categories of 
     technologies that by definition qualify for the exclusion:
       (A) equipment which automatically reduces the pressure (or 
     controls the flow) of water: All water systems experience 
     fluctuations in water pressure. To control for pressure 
     variations, flow settings on water using appliances and 
     equipment are set to provide enough water under low pressure 
     conditions. As a result, water is wasted during high pressure 
     periods, as more water is used than is necessary. Extreme 
     pressure variations can be controlled by the use of pressure 
     reduction valves and flow control devices which help 
     stabilize water pressure and maintain an even flow of water. 
     In some instances, high water pressure causes malfunction in 
     some water conserving technologies such as irrigation soaker 
     hoses and low pressure drip irrigation systems.
       Example: Households that experience high water pressure can 
     benefit from a pressure reduction valve (PRV), which is 
     installed on the customer's side of the water meter. By 
     reducing water pressure and stabilizing fluctuations in water 
     pressure, the valve helps save water by reducing the rate at 
     which water flows through faucets and showerheads.
       (B) Water recycling, recirculation, and reuse equipment: In 
     most commercial and industrial settings, drinking quality 
     water is used once and then discharged to a sewage treatment 
     system. Technology that permits the reuse of that water 
     before discharge for the same or other applications can 
     result in substantial water savings.
       Example: Water used once by a film processor as a rinse in 
     the film developing process can be captured, filtered and 
     reused as a film rinse. Similarly, a cement manufacturer can 
     substitute its cooling water for potable water as an additive 
     to the slurry of raw materials prior to baking the mix in the 
     kiln.
       By substituting previously used water for drinking quality 
     water, the manufacturer reduces the demand for fresh water 
     and the amount of water discharged and treated. Pipes, pumps, 
     equipment needed to regulate the flow of water (automatic 
     shut-off valves, computerized flow controllers and timers) 
     and techniques for treating water (filtration, solids setting 
     or Ph adjustment) comprise the primary expense in this 
     category.
       (C) cooling equipment: Commercial and industrial equipment 
     frequently is cooled with water which is discharged into the 
     sewer for treatment after only having been used once. 
     Technologies exist that allow equipment to be cooled more 
     efficiently, either by recirculating the same cooling water 
     for the same purpose or eliminating the use of water 
     altogether.
       Example: A business can use the same water over and over as 
     a coolant, if it invests in a closed-loop system that 
     refrigerates water after each time it has been used to cool 
     equipment. Other examples replace water altogether. A flow 
     through water system used to cool many ice machines can be 
     replaced by a refrigerant system which discharges waste heat 
     to the atmosphere rather than to the sewer by way of waste 
     water. In each example, savings accrue from a reduction in 
     both the amount of water used and the amount of water 
     discharged into the sewer for treatment.
       (D) Treatment processes which optimize water cycling: In 
     many applications water can be reused or recycled if slight 
     improvements are made to the quality of the once-used water. 
     a number of chemical and mechanical technologies can be 
     applied at a relatively low cost to bring once-used water up 
     to a quality acceptable for less demanding non-drinking water 
     applications.
       Example: Some companies in the metal plating industry are 
     taking advantage of advanced treatment processes, including 
     reverse osmosis, ion exchange, and micro filtration, to treat 
     a portion of their process waste water to a quality that can 
     be reintroduced as a component of a water rinse. These 
     technologies are applicable to many other industrial 
     processes.
       (E) Equipment and facilities which use treated municipal 
     effluent (instead of drinking quality water) for non-potable 
     applications: Most urban areas treat sewage to secondary 
     standards prior to discharging it to nearby rivers, streams, 
     or marine waters. By treating a portion of this water to even 
     higher standards, it can be reused in commercial and 
     industrial applications that do not require drinking quality 
     water. Substantial savings can be achieved, as highly treated 
     effluent displaces more valuable drinking quality water.
       Example: A company processing sand and gravel can use 
     reclaimed water to wash and separate grades and sizes of sand 
     and gravel, instead of drinking water. Several states already 
     encourage the use of treated effluent in place of drinking 
     quality water. In 1988, California reused 350 million gallons 
     a day for agriculture, groundwater recharge, landscape 
     irrigation and industrial applications. In 1990, Florida 
     reused 320 million gallons a day for similar purposes. Among 
     other applications, industry in Washington State is using 
     highly treated effluent to rinse equipment, wash manufactured 
     products, irrigate landscaping, and heat and cool facilities 
     in closed loop systems.
       (F) Evapotranspiration stations, software, and controllers: 
     Parks, ballfields, cemeteries, and other greenspaces 
     frequently are over watered as a result of: (1) lack of 
     knowledge about how much water plants need at a given time, 
     and (2) outdated equipment that is difficult to program or 
     that does not respond automatically to changing weather 
     conditions. As a result, groundskeepers often err on the side 
     of over watering to maintain a lush green turf. However, new 
     knowledge and new technology demonstrate that healthy turf 
     can be maintained with significant reductions in water use.
       Example: Two major types of technology and equipment are 
     available to address over watering, and both rely on the 
     concept of evapotranspiration (ET). ET refers to the amount 
     of water that is evaporated from the landscape or transpired 
     through plant tissues. By knowing precisely the amount of ET 
     that occurs, a landscape manager knows how much water to 
     replace through irrigation. The rate of ET is calculated by a 
     computerized weather station which collects current weather 
     data such as wind speed, temperature, humidity. Computer 
     software calculates how much water is required by the 
     landscape, taking into account the weather data, which is 
     then transmitted to the automatically controlled irrigation 
     system. In this way, only the amount of water that is 
     actually needed by the landscape is applied. The Parks 
     Department for the City of Redmond, Washington, for example, 
     attributes savings of 30 to 35% of its irrigation water to 
     use of ET technology.
       (G) Tank or reservoir covers or liners: Where they exist in 
     municipal and industrial settings, open tanks and reservoirs 
     contribute to significant losses of water due to splashing, 
     evaporation, and leakage. Open tanks also are subject to 
     contamination from leaves and other objects, requiring them 
     to be flushed out periodically.
       Example: Installing floatable covers and liners in open 
     tanks and other water storage facilities dramatically reduces 
     water losses due to splashing, evaporation, and leakage.
       (H) Sub-metering, overflow and other monitoring control 
     systems: Substantial quantities of drinking quality water 
     frequently are spilled into drainage systems when open tanks, 
     pools and reservoirs are overfilled. Waves within a water 
     storage facility also contribute to spillage. New 
     technologies help regulate water levels and control spillage.
       Example: Monitoring and control are capable of gauging the 
     proper amount of water needed to fill a reservoir, or sustain 
     an industrial process, without waste or spillage. The 
     installation of meters can help signal when problems are 
     occurring and automated control valves can regulate precise 
     amounts of water entering a storage facility. Also, improved 
     float controls are effective in reducing waste when 
     fluctuations and waves are causing problems for existing 
     control mechanisms.
       (I) Identification and repair of water leaks: Leaks in 
     underground pipes, distribution systems, and storage 
     facilities, caused by old age or seismic activity, result in 
     substantial water losses. Technology is available to simplify 
     leak detection and, in doing so, minimize water loss.
       Example: The Sand Point Naval Station in Seattle, 
     Washington cut its water use by more than 60 percent after 
     repairing leaks that were identified in a leak detection 
     survey by the Seattle Water Department. In this case, the 
     leaks were identified and the survey was expedited with the 
     assistance of a technology that amplified the sound of the 
     leaks. Upon identification, leaky pipes are either repaired 
     or replaced, depending on age, type, and condition of the 
     system.
       A water conservation measure cannot qualify for an 
     exclusion if it otherwise is required to be installed under 
     local building codes.
       The term water conservation measure includes services 
     performed by a water department to identify and repair leaks.
       The term water conservation measure includes landscape 
     measures that improve soil moisture retention by reducing 
     water lost to evaporation. One of the most common wastes of 
     water in the landscape is over irrigation, especially in 
     climates that have little or no summer precipitation. Even 
     with attention to watering frequencies and amounts, much of 
     the water applied to the landscape is never used by the plant 
     roots. For example, in sandy soils, water soaks down below 
     the soil root zone beyond where turf grass or other plant 
     materials can reach it. Conversely, heavy clay soils can 
     result in increased runoff as water is applied too fast for 
     the soil to absorb it. By increasing the moisture retention 
     characteristics of the soil, runoff can be reduced and more 
     water can be retained in the root zone, thus decreasing the 
     total amount of irrigation needed.
       Example: Mulch, adding organic material or chemical 
     additives for soil are used in soil preparation for 
     commercial landscapes which act as sponges to increase the 
     water at the turf grass or plant root zones. Since less water 
     is lost to surface runoff and deep percolation, techniques 
     that improve soil moisture retention can greatly reduce total 
     water requirements.


     section ii. water conservation expenditures by water utilities

       Clarifies that conservation expenditures by water utilities 
     are deductible in full for the year in which paid or 
     incurred.
       The provision affirms a longstanding tax policy and 
     overrides the Internal Revenue Service's recent practice of 
     pressuring certain investor owned utilities to spread 
     conservation deductions over a period of several years.
       The provisions of this section apply to expenditures paid 
     or incurred in taxable years beginning after December 31, 
     1993.

                          ____________________