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Who owns it, and who pays for itLesson 4 of 21

Academy/Utilities & Infrastructure

Private utility systems

Know which regulator, if any, actually has authority over a system your association owns and operates itself.

A private utility system is one an association owns and operates itself, most often a community well, septic system, or gas distribution network, rather than buying finished service from a city or utility. Owning it can trigger two separate regulatory tracks, state utility law and federal drinking water rules, plus financing complications at resale.

01

What makes a system "private"

A private utility system is one the association owns and runs itself, rather than paying a city or investor owned utility for finished service delivered to a meter. The most common examples are a community well and treatment system, a septic or package sewage treatment plant, and a gas distribution system that buys gas in bulk and resells it to units through the association's own pipes. That last case has its own federal definition.

"A pipeline system for distributing gas within, but not limited to, a definable area, such as a mobile home park, housing project, or apartment complex, where the operator purchases metered gas from an outside source for resale through a gas distribution pipeline system."

Source: 49 CFR 191.3, Pipeline and Hazardous Materials Safety Administration

Federal pipeline safety rules call this a master meter system. It stays subject to core operations, maintenance, and safety requirements even though some reporting duties are lighter than for a utility-owned network.

02

Whether a state treats it as a regulated utility varies

Owning the pipes does not automatically make the association a regulated utility in the eyes of the state. Some states exempt an HOA owned system from public utility commission rate and service regulation outright. Idaho does this for nonprofit, at cost operators.

"A water company is a public utility if it is a private entity, either a corporation or a person that owns, controls, operates or manages any water system for compensation within the state."

Source: Idaho Code 61-104, Idaho Legislature

Idaho's definition of "corporation" excludes nonprofit and cooperative operators, so a typical HOA system falls outside utility commission jurisdiction there. North Carolina's exemption works differently: it only applies if the system serves association members exclusively, not the general public.

"A water or sewer system owned by a homeowners' association that provides water or sewer service only to members or leaseholds of members is not subject to the provisions of this Chapter."

Source: N.C. Gen. Stat. 62-3(d3), North Carolina General Assembly

Whether your own state's public utilities commission has jurisdiction over an HOA owned water or gas system, and under what test, is set entirely by that state's statute. Ask your state's public utilities commission directly rather than assuming either model above applies.

03

Federal drinking water rules run on a separate track

Clearing the state utility test does not clear every hurdle. Under federal law, any water system with at least fifteen service connections, or that regularly serves twenty five people, is a public water system no matter who owns it.

"A system for the provision to the public of water for human consumption through pipes or other constructed conveyances, if such system has at least fifteen service connections or regularly serves at least twenty-five individuals."

Source: 42 U.S.C. 300f, Safe Drinking Water Act

That classification triggers testing and reporting duties handled through your state's drinking water agency, a completely separate track from state utility rate regulation. A system can be exempt from public utility commission oversight and still be a federally regulated public water system at the same time. Confirm both, not just one.

04

It can complicate financing and resale

A private well or septic system also shows up at the closing table. For a home to qualify for a Fannie Mae purchased mortgage without public water or sewer access, the system has to meet an underwriting standard, not just a state regulatory test.

"Community or private well and septic facilities must be available and utilized by the subject property."

Source: Fannie Mae Selling Guide B4-1.3-04, Fannie Mae

Where the well or septic sits off the lot being financed, on common area the association owns, Fannie Mae requires an adequate, legally binding agreement for access and maintenance. Keep that agreement current and easy to produce. A missing or stale one can stall a sale that has nothing to do with how well the system actually runs.

Check yourself

Answer before you read the explanation, recalling it is what makes it stick.

Your HOA owns and operates the well serving all 40 homes in the community, no meter from a municipal utility. Which statement is true regardless of what state you're in?

A board is deciding whether the state public utilities commission has authority over its member-only water system. What actually determines the answer?

An association's private well system passes its state public utility commission exemption easily. A lender reviewing a mortgage application in the community still flags the property. Why?

Sources

Utilities & Infrastructure

Next, see who actually owns the pipes running behind your unit's walls before a maintenance dispute forces the question.

Whether a state public utilities commission regulates an HOA owned water or gas system, and under what exemption test, varies by state. Federal drinking water thresholds and Fannie Mae financing standards apply on top of, not instead of, that state answer.