Contact StepWise Today!
303.800.6638 Email Us
American Water Windfall During Recession
May 6, 2010
For many months we have tracked the activities of private water companies in America through their requests for – most large – rate increases. We have an entire category on this blog dedicated to these activities listed under “privitization” on the right sidebar; give it a click to get some of the astounding history behind the big water rate increases. After you’re done reading those blog entries, fast forward (or rewind) back here and read below as reported by MarketWatch:
American Water Reports First Quarter 2010 Results
Revenues increase by $37.9 million quarter-over-quarter to $588.1 million
Now, before the good folks at American finally read this blog and start getting angry, the point here is not that the company should not be making money. In fact, they are entitled by law to have rates that allow them opportunity to earn reasonable profits. The point here is that while every government-owned utility is trying to find ways to button down the hatches, save money, and cut rate increases as much as possible, American Water and other private companies are doing quite the opposite. 30, 40, 50, 70 percent increases are being proposed in different parts of the US by American Water’s subsidiary operating companies.
Government utilities take a black eye all the time. They take those black eyes because in the end they are politically accountable for the things they do. Private utilities are far less accountable. Their large water rate increases have spoken volumes on their low degree of accountability to the public. Their shareholders, however, are rolling.
Corporate Water Utility Rates – Show Me The Efficiencies
October 21, 2009
We have previously commented on the fact that having a private water utility does not necessarily translate into lower water rates. In that post, we discussed the woes of the Indianapolis experience with Veolia being the private contractor in charge of the water utility’s operations. In the news today is yet another example where private utility operators have proven, yet again, that they are as beholden to the laws of economics as any municipally-owned water system. The Illinois American water company serving about 10,000 customers in the Chicago area has asked the Illinois Commerce Commission to approve a 30% increase in water rates and a 50% increase in sewer rates. The company states that the reasons for the increase include the usual suspects: the costs of repairing and maintaining infrastructure, and to cover the increasing costs of employee benefits. About 350 of the company’s customers (from the cities of Homer Glen, Orland Hills, and Lockport) showed up at a public hearing to protest the increase which would make the company’s rates triple those of the municipally-owned utilities in nearby communities.
What the protesters probably don’t understand, and what everyone who thinks substituting public ownership of their water/sewer utilities with private (corporate) ownership needs to know is that the private utility owner has a constitutional right to charge rates that will allow it the opportunity to earn a reasonable profit. That right has been established in US case law since the 1898 case in Smyth v. Ames . Of course, there are certain protections offered to determine just what is a “reasonable profit” and the Illinois Commerce Commission in this case, or its equivalent in any other state, has the charge to make sure that the rates are indeed reasonable. Still, if the real reason for the increases comes down to infrastructure repair costs and employee benefits, the company is very likely to have its request for higher rates approved.
On top of those costs, the company is allowed to profit from operating the utility. Meanwhile, a municipally-owned utility would not include profit in its rates. Instead, municipal systems allow whatever “profit” exists in the utility’s operations to flow directly back to its customers by way of lower rates (read more about this topic here). Increasingly, we see that private operators are unable to provide the economic efficiencies that they like to claim they can provide in anything but the short-term. They tend to realize short-term savings by deferring rather than eliminating costs as the Illinois American and Indianapolis stories both suggest.
Water Rate and Sewer Rate Increases are Sign of Times
September 14, 2009
A scan through the news from across the country will reveal that water and sewer rate increases are accelerating and are increasing in magnitude. A closer examination of these individual situations will reveal that the increases are necessary mostly because of issues that could have been prevented with some planning. However, some increases are headed your way soon for things that can’t be foreseen, like regulatory action. In this sewer rate example from Missouri we see a small community’s plight when faced with a regulatory action. In this case, the State regulator caused the the city’s residents to abandon their septic systems and to connect to the city’s sewer system. The costs of compliance included the costs of the initial connections, but are now continuing to escalate in the form of treatment chemicals, etc.
Regulatory action is likely to increase rather than decrease during the term of the current federal administration. If the President’s agenda from his campaign is any indicator, we can expect to see more regulatory actions on water and wastewater systems, especially in the area of energy use, and greenhouse gas emissions.
© 2010, StepWise Utility Advisors