May 6, 2014 | By Barbara Vergetis Lundin

In addition to more stringent state laws, water and sewer utilities must comply with federal Environmental Protection Agency (EPA) water regulations -- for example, requirements for the disclosure of chemicals injected into the ground during the fracking process -- and would, ultimately, bear much of the financial burden if hydraulic fracturing (fracking) operations lead to contamination of a water supply, according to Fitch Ratings.

Oil and gas companies must disclose the chemicals used for fracking to comply with state regulations; utilities are subject to federal disclosure laws that allow companies to claim trade-secrets exemption.

As water utilities are ultimately responsible for complying with EPA regulations for monitoring, treating and delivering water that is safe for public consumption, they would bear much of the financial, operational and regulatory burden of safeguarding water that could potentially be contaminated by fracking operations, Fitch contends.

In this situation, Fitch expects a serious blow to utility revenues, with losses concurrent with other growing direct and indirect costs, leading to debt service coverage reductions, liquidity strains and the potential need for additional leverage.

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