From today's News-Gazette:
Schweighart confirmed this morning that he and Prussing had discussed the issue. He said he now favors exploring purchasing local assets of the water company through eminent domain, and he said that a joint council meeting on the issue "is a possibility."
"We're already paying more than publicly owned water systems, and it just seems there's no stopping them," Schweighart said. "It's at least worth investigating the possibility of using eminent domain to take over."
Prussing has long been a vocal critic of the water company and has been an advocate for a possible public purchase, while Schweighart has been more reluctant to pursue city ownership of the water company.
Barry Suits, network operations manager for IIllinois American Water, responded this morning that "it is very disappointing to hear Mayor Prussing and Mayor Schweighart express this intent to use government's power of eminent domain to condemn a well-run business. Our customers – the citizens of Champaign County – do not want a long, costly and divisive debate over ownership that will distract elected leaders from addressing other, more important priorities."
Suits said the company's water rates will "continue to be reasonable after the current rate case concludes," and that the community will have a new water treatment plant to meet water demand over the next 15 years.
llinois American Water is asking the Illinois Commerce Commission for a 60 percent rate increase, in part to help pay for a $51 million water treatment plant the company is building 2 miles west of Champaign. The commerce commission is expected to decide the rate case by July.
This has come up before. Back then, I thought it was a terrible idea. But then, the City of Champaign went out and spot-annexed and -zoned land near Fisher Bondville for a water treatment plant, at the request of Illinois-American Water. And then, weeks later, IAWC repays Champaign for that huge favor by announcing a 60 percent rate increase - in order to pay for said water treatment plant.
Normally, I wouldn't be in favor of cities using eminent domain to seize private assets like a water company. Normally, I would argue that the public entities cannot run a private enterprise as efficiently and effectively as a profit-motivated company. But IAWC's actions in this case are certainly making me rethink that - at least in this specific case.
"But then, the City of Champaign went out and spot-annexed and -zoned land near Fisher for a water treatment plant,"
Near Fisher? Did I miss that?
I thought it was near Mahomet...
It would appear that someone at the News-Gazette needs to learn how to read a map...
Sorry - should have been Bondville, but my memory told me Fisher. Fixed now.
I am very happy to read that Champaign's mayor is now considering such a move. If CU is to remain a vibrant, prosperous community that continues to attract new business, then something has to be done about the very high infrastructure costs we have here. Everything from utilities to property taxes are going up and there's no end in sight.
I understand some need for new revenues, but this 60% fee hike is beyond reasonable. 3%? 5% maybe. The reality for everyone who will pay these bills is that their taxes are going up, their home values are falling, their interest rates are going up (on their credit cards) and down (on their savings accounts), electricity and gas are through the roof, and, most importantly, incomes aren't moving anywhere near fast enough to keep up.
IAWC should have been budgeting for infrastructure improvements all along. Now they want all of us to pay a huge increase to support a water treatment plant necessitated primarily by new southwest Champaign development? No thanks.
As IP pointed out also, even when Champaign played *very* nice with IAWC, their response was this fee hike. The Mahomet aquifer is too precious of a resource and water is too fundamental to our very existence for us to continue relying on foreign companies to provide it. We don't mind the cities taking care of streets, sewers, fire, police, and libraries (well, most of us anyway :)). Water is just as important as those vital urban needs.
Other cities with municipal owned water pay less than we do already. I very much support the mayors looking into and then purchasing the water company, even with eminent domain if necessary.
Since water is a precious commodity, we probably do need some price hikes to help ration consumption. But I see no reason the hikes should enrich the foreign company that owns IAWC. So I am all in favor of the cities owning the water utility. There are some things government does better than private business. Operating utilities is one of them. Compare the Rantoul municipal electric service and rates with what AmerenIP charges.
If that $52M facility is any measure, we could be talking $100M price tag to eminent domain the water company. That means, basically, every man, woman, and child in Champaign and Urbana pays roughly a one-time charge of $1000 for this purchase. That's before any transition costs, court costs and assumes that everything stays the same. My last water bill was $48. Let's say you cut that bill in half after eminent domain. That means basically, it'd take 5 years of water bills at 50% off to make up the cost. Someone really needs to show a cost benefit of not only why IAWC needs to be taken over, but how the cities will do it better (without hiding costs to the consumer by subsidizing the water rates with other taxes or fees) and how it's really worth it.
No one, but no one, started talking about taking over Ameren and they hiked rates and everytime there are high winds my power goes out. When IAWC raises rates 60%, that'll cost me about $29/mo. When Ameren bumps there's, it costed me almost $100/mo. Why IAWC and not Ameren?
Lastly, do we really want to be in the business of using eminent domain to take over companies (or part of one that covers the area)? That is a direct attack on property rights far beyond what was conceived when eminent domain rights were given to government.
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j
Part-Time Pundit
Some good points John but consider that the $52M facility serves a much larger area than CU so your costs are too high. You are correct the IAWC take over has to have CB calculations. You must have forgotten but there was talk about taking over the service aspects of Ameren like other central illinois communities do but our elected officials do not have the stomach for that kind of effort.
Water is a different utility with the source right under CU not connected to a 'grid' system beyond control. NIW had an infrastructure savings but those dollars were absorbed by IAWC. We are talking about using eminent domain on a privatly owned PUBLIC utility, its a monopoly using public right-of-ways. Not quit the "attack" picture you are trying to paint. City owned water companies in Illinois are assests to the cities not liabilities you are suggesting. Most have lower rates than IAWC currently without subsidization from property tax.
Yes due diligence but an open mind please.
Well sure, it's not the same as eminent domaining a restaurant, I'll grant you that. But this was the same argument Blago made when he threatened to eminent domain the casinos... basically a publicly granted monopoly.
The reason we have the citizens uitility board is because of this, and I believe the Illinois Commerce Commission can kill the rate increase should it be out of line. I'm not even saying regulation is out of line here (and for the record, I think the spot-annexation stunts are garbage too), but the concern is still there. This may be a "public utility" but it's still a private business. We can talk about whether it should have the rights it has, but eminent domain was never intended for government officials to seize a business, public utility or not. And that should give us pause.
As far as costs, I have no idea what it would cost really, I'm just guessing but I would think that the 52M facility isn't all that would need to be taken. It does raise a problem though, the facilities aren't used solely for CU, so you can't neatly take them. It's not like taking a piece of land, you're taking a part of a resource used in a much larger region. Even if eminent domain would be "worth" it... it'd be ugly as hell trying to figure it out. It'd almost be far easier to have the county do it.
But I've seen no good reason yet except complaining that IAWC ***asked*** for a rate increase and that once the water was out. I'll have an open mind... convince me.
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j
Part-Time Pundit
I think the City of Champaign should take over an auto repair shop or two. Auto repair seems to be very expensive. I'm sure it would be cheaper if owner profits were eliminated from the equation. Plus, I'm sure the City of Champaign can run an auto shop very well.
I also think they should take over the telephone company. The telephone company stinks. I'm sure it would be cheaper if the City of Champaign did it. Why should we have to pay PROFIT on top of the cost of phone service?? Ridicorus.
A few points here...
There is no such thing as "spot annexation". You cannot annex land that is not contiguous. There is an annexation agreement that says the IAWC will agree to sign a petition to annex when their property north of Bondville becomes contiguous.
A water utility is so different than any other private business. Most of their infrastructure is currently located on public property, namely water mains and hydrants. They regularly need to cut open streets which the city must maintain to service water company mains under that publicly owned pavement.
The product they deliver is essential to human life and if significantly interrupted would create a major health emergency in less than 24 hours.
There is a long history of this product or service being delivered by units of government, not by private companies. Our system of ownership is in the small minority nationally.
So its not exactly analogous to a casino or an auto repair shop.
Eminent Domain requires that IAWC get paid a fair price, based on actual market value, enforced by a jury trial and subject to review in the Appellate Courts. Its not like the city simply confiscates the assets, the city forces the IAWC to sell at a jury-determined price.
Jerry is so right here. Eminent Domain will save the community millions of dollars each year that are now being sent overseas to the foreign owners of IAWC.
John says "We can talk about whether it should have the rights it has, but eminent domain was never intended for government officials to seize a business, public utility or not."
However the definition I found says; "Eminent domain in the United States is the inherent power of the government to seize private property, expropriate property or rights in property without the owner's consent. The property is taken either for government use or by delegation to third parties who will devote it to "public use." The most common uses of property taken by eminent domain in the United States are public utilities, highways or railroads."
Of course IL-AWC needs a larger treatment plant. They've hooked up a whole lot of communities a long way from here in the last two decades and that water needs to be pumped out from under us and treated before they sell it to those folks. So they're asking us to pay for the systems that extract and treat "our" water so "they" can sell it elsewhere. No matter how big the Mahomet Aquifer is (and no one seems to have an answer on that) it is not limitless. IL-AWC doesn't give a rip about our long term situation here in C-U. They want their return on investment as fast as they can get it and if it means pumping the Aquifer dry then they'll raise the rates high enough to push consumption down to sustainable levels to keep the Aquifer at the brink forever.
Meanwhile folks seem to have decided it's a good idea to burn our water and our food instead of burning oil. The ethanol mania will contribute mightily to this problem.
This hill is worth dying on.
I'm not sure that I think the City could run the company better or at a cost-savings to us. When was the last time that the government did anything that cost less? How do City salaries and other costs compare to the water company? And it would be interesting to see how the Cities handle providing services to other communities, if that's the plan.
Local, I think your definition makes John's point. That definition is referencing real estate, the normal target of eminent domain, not the businesses themselves.
Here is an example of a community here in Illinois which provides water to its citizens. This city's source is surface water which is much more expensive to treat because of contaminates and the variable quality than a subsurface source such as the Teays-Mahomet aquifer.
http://www.rigov.org/citydepartments/finance/waterrates.html
Water supply in this country is dominantly a function of public utilities. They have a good record and there is no practical or ideological reason dictating a private utility in this community. Inasmuch as the utility already serves quite a few villages and cities, perhaps a County-wide water district would be appropriate. The East Bay Municiple Utility District that brings water from the Sierra Nevada to a number of communities on the east side of San Francisco Bay might be a model to emulate.
If you want to see what a minuicipal water system looks like... go look at Springfiled and how their city-owned water utility is raising rates almost 86 percent. A private water utility is not the same as a municipal system. A lof of people say IAWC rates are higher than surrounding municipal systems, but if you investigate their rates, you will know that they charge large tap-on fees and other impact fees to offset needed investment costs to meet water demands and water quality standards. Just look at Mahomet.. ask any developer how much they pay in impact fees to connect to the Mahomet water system. If you look at Springfield, the impact fees are even higher than Mahomet. According to the News Gazette, state regulatory laws prevent ILAW for charging impact fees. Our taxes are high enough, and a condemnation of IAWC will make our taxes evn higher! For whatever reason, the city does not want to takeover Ameren, which is costing local residents more money than the water company. Why have they singled out IAWC?
Don't we have enough governmental bodies here without adding another one--a water district? how will adding yet more government drive down the cost of anything?
Good Grief,
The water company is saying it needs a rate increase to build the new plant and now the Cities are saying they want to accept not only that debt but will be up to speed and able to run a water system that serves not only Champaign, Urbana but also Savoy, Tolono, Savoy, Sidney, etc. To say this is a bad idea, is my worst understatement.
Remember, eminent domain REQUIRES the payment of a fair and equitable market value. Does anyone have any concept of how much all the watermains in place in these areas are worth with a fair market value? How does 200 or 300 million sound?
This in an invitation to a financial disaster. Utility companies such as water companies are cash cows, if and only if they were owned and constructed by the municipality from the start. With a debt burden, they are a disaster.
To that end, I am, and shall always remain;
Rex Bradfield
With the age of some of our water mains, is it possible that IAWC does not own all of them,? Were they installed by NIW or whoever their predecessor was? At some point in time, wasn't at least some part of the water system public-owned? I'm actually curious
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"Another Anon with a worthless opinion" - Run4cvrlib on 2/2/08
"I guess I have little tolerance for people who just attack people just to do it and give no justification." - Run4cvrlib on 2/2/08
Arvid,
Nope, no municipal water system.
Just to give you an idea of the costs involved. Each fire hydrant you see is worth about $3,000 because there is always a valve associated with the hydrant and they are a minimum of 600' apart. Each foot of 6" watermain is about $20/foot with the larger 24" being about $130/ft. Each water tower is probably 4 million. Each water plant is probably 50 million dollars. Each well is at least $300,000 each.
Additionally eminent domain also considers the loss of revenue, employees and any other business considerations which are caused by the forced taking. Also consider that any employees that operate the plant and want to stay will become City employees and are entitled to all City benefits including pensions. The Cities are having enough problems meeting pension and sick day benefits as is, lets add 300-500 more people to the work force and increase that burden.
Barry Suits is a professional engineer who has been involved with water distribution all his life and knows more about water distribution than all the public works employees combined. The water plant in Urbana will be the ultimate responsibility of Laural Prussing and remember that if whomever is working the water plant for Urbana crosses her like Bruce Walden did, she will fire them and run it herself. Good luck.
Presently the City of Champaign is asking for a tax increase to pay for other public works improvements, who foots the bill for the purchase of these utility? Champaign, Urbana, Savoy, St. Joseph, Sidney, Philo, Tolono or ?...... The debt service on the $300 to $500 million purchase price will be enormous with the interest rate alone being 5-9% or 2.9 million per month. The City cannot construct the new water plant any cheaper than the Water Company and will have to charge the public not only for the new plant but also the purchase costs. Show me how they can possibly lower water rates.
Money does not stretch even for Cities (or the State) and re-organization costs will be enormous not to mention that service will suffer during those times.
This is simply an invitation for the Cities of Urbana, Champaign, et al to be overextended financially and not improve one aspect of water distribution. And the Water Company will take the $500 million and just invest it to the tune of 8-10% return and not have any overhead associated with that investment.
My God, this is so so so so so so so stupid it defies logic.
To that end, I am, and shall always remain;
Rex Bradfield
Rex makes a valid point... IAWC is solely focused on water. Let the cities focus on our streets, police and fire, and zoning. I do not want our city to manage or own IAWC. All of this discussion about a possible condemnation... and for why? They are raising rates to help pay for a new water treatment plant that our community needs. I remember voluntary water restrictions this past summer while other communities (with a city-owned water system by the way) were under mandatory water restrictions because they did not have the extra capacity to meet the increased demands for water. I would hate to see what Mayor Prussing or Mayor Schwieghart would say if IAWC had to issue mandatory water restrictions because they could not meet the demands for Champaign and Urbana.
Having lived in an Illinois city that provides water to its residents, I find no basis for Rex's arguments. Ralph's suggestion of a regional water authority makes good sense. Having to pay the non-resident stockholders of IAWC profit and trusting them with the protection of our aquifer "defies logic".
Local,
It doesn't matter if it is a Water District or Municipal District, all the issues I mentioned still apply, the Cost will still be the same and how in the Hell does a non-existent water district get any serious bond rating? The Bond interest rate would then be 8%-11% because there is not a financial institution that would invest hundreds of millions of dollars into a fledgling District. Then you not only have the cost of the purchase but also the cost of forming the District and high interest repayment rates.
Additionally, please look at my original statement concerning municipal districts or water districts. The infrastructure was constructed by them and not purchased. That is the HUGE difference. Look at Chanute, when the government moved out, Rantoul accepted the utilities and NONE of them met Environmental Standards.
Danville does not own its own water company, it is served by a large private utility company also. But Danville did have some municipal distribution systems at one time. In fact, during the reconstruction of the Fair Oaks area, in eastern Danville, old wooden pipe with leather connections were discovered. But Danville did not stay in the water distribution business, and that alone should tell you something about the cost and responsibility.
With all respect to Ralph, who I really do like, he is not a professional Engineer who specializes in Water Distribution matters and his suggestions are an indication of that lack of expertise and is the fatal flaw in any of those considerations. Remember who created this inept eminent domain law.....Gov Blago and Naomi were supportive of it. What are their qualifications concerning Water Distribution or Electricity?
When Curious made a statement like
"The Mahomet aquifer is too precious of a resource and water is too fundamental to our very existence for us to continue relying on foreign companies to provide it."
One only needs to consider what the qualifications of Council members are when considering such NON POLITICAL ISSUES. It should not be a matter of which voters I am afraid of Pis__ng off when it comes to water distribution. Remember, the Champaign City Council voted to allow IAWC the right to build a $52,000,000 facility outside their City Limits and now they are surprised that IWAC wants to raise rates to cover those costs? Where in the Hell did they think that money was going to come from? Pumped out of the ground maybe?
So by Curious's own statement, those supporting the purchase want to turn the reins over to people that are surprised it costs money to build plants. Where do they think the purchase money is going to come from.....the ground? Where is the protection to the aquifer if the voters want more water and the council members want to remain in office. Yep, I want that kind of reasoning supplying my water, don't you?
If Champaign and Urbana, wanted to originally start and own a water system, the issue would be completely different. But no local organization can afford to purchase the assets and not be completely overwhelmed by debt service and operation costs. Just think about what I said was the reasonable value of each fire hydrant and how many hydrants you drive past every day. Those costs do not even include the cost of booster stations, control valves, chlorination systems, etc.
I lived in Indianola and we owned our water system from the start 1953, Sidell owns its water system and can provide water for their citizens. However, St. Joseph, Philo, Sidney and Tolono all owned their water systems and could not afford to expand their systems to provide water for expanding populations. They turned to Northern Illinois Water Company for help.
Who does Champaign and Urbana turn to for help when they cannot operate the system. Remember the present water company is a HUGE company and if Champaign-Urbana has a problem that requires immediate expertise and manpower they can simply move some of those needs from other Divisions of their company. Where does Champaign-Urbana get that extra expertise and manpower if something catastrophic happens?
And Local, What City? (probably had their water from the beginning)
The non-resident stockholders are not trusted with the protection of our aquifer, IEPA and the Illinois Department of Natural Resources are trusted with it. You remember those State offices don't you, the Governor closed our local testing IEPA office and is cutting the IDNR staff by 40%. Also, Municipal governments can exercise sovereign rights and exempt themselves from liability should they cause a problem with water quality. That luxury is not afforded a private utility company.
For sure lets involve yet another Government Agency in utilities.
Although this problem is not even in the same galaxy as snow removal, the same short sighted thinking is being used and for the money and responsibility we are talking about here, that does indeed simply "defy logic".
To that end, I am, and shall always remain;
Rex Bradfield
Eminent domain requires that you pay fair market value for any "taking". In this case, the city would have to buy those assets, they don't get them for free. The need to pay cash up front, unless (miraculously) they can negotiate some strucutured payment to IAWC. That means, the taxpayers would have to pay an upfront bill of tens (if not hundreds) of millions before you can even begin a transition. That doesn't include legal fees, any transition costs, the massive reorganization that would be required to delineate those assets of IAWC that service other areas vs. those that can be isolated to serve only C-U, either hiring on the new employees or finding new ones, search costs for management to run it, creating a new public body and funding it to run the utility, and so forth.
IAWC is, in fact, interested in profit, sure. But it defies logic that they would take a short-term gain to ensure they go out of business in the long-term. Sure, you could reduce the water bill by whatever the profit margin is, but let's say that's 5%. 5% of my current water bill is about $2.50/mo. If the water companies assets are only $10M (and that's the cost of one elementary school building without anything in it, so we're shooting REAL low here), it would cost every man, woman and child in C-U $100 UP FRONT to achieve that $2.50 savings. With an average household of 3 people, the return on investment on that would be 10 YEARS! And that's just to break even. I'm going to get better numbers tomorrow on what the value of the assets are, but I suspect Rex is right, we're talking $100M+ easy.
I have seen no good estimate on how much this will supposedly save.
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j
Part-Time Pundit
I think the biggest cause of frustration is the Water Company's lack of transparency in wanting to raise rates... Is there NO way of getting greater transparency.. IF the profit is reasonable, then OK, but the trouble is... we'll never know..
Is there NO way for the Water Company to like municipalities and make a "bond issue"? I understand they can't do that exactly, but it'd be more palatable if we knew we were JUST paying for the facility now, and rates would then decrease ( not entirely, cuz you gotta staff the thing...light it.....etc) once it's paid for.
Do private utility companies have any responsibility to limit profits, beyond say 5-10%?
Rex, do you have any thoghts on this?
Rex, Ralph may not be a P. E. but I am which really has nothing to do with Ralph making a very reasonable, responsible suggestion. You should know an ownership change in a public utility does not imply a complete flush of labor nor all the assets or customer base, so your bond example is exaggerated at best. IAWC already cashed out the capitol replacement assets accrued by NIWC, cut the staff, reduced the system/hydrant maintenance and replacement without any voter approval needed. Also you should have knowledge if you have followed the Chanute turn over to Rantoul or Fort Ben Harrison for that matter, DoD federal properties were not held to municipal standards for utilities, in fact there are not even property lines or easements for those utilties. So your Chanute example null & void, plus Rantoul knew all about those systems. You should also beware Eminent Domain was not created recently. In fact I was part of such an action in the Quad Cities during the 1960's. As you pointed out city politicians do not set or manage the water quality standards for public water supplies. It is a state and federal regulatory function with mandatory standards which "snow removal" is not. Yes, small water supplies are expensive to operate individually and NIWC with it sound management, capitol fund and low rates, made it easy for villages to give up their systems. Many of those same villages are questioning the wisdom of that move now You should be aware IAWC does not resemble in any way NIWC operaton of this public utility.
I am not trying to minimize the great task or responsibility of providing water to the CU area by a governmental agency but IAWC through it poor operations and profit taking has allow a potential opportunity for the people of this area to have more of a voice in how the area will develop in the future. You could help this Rex if you are up to it.
This really seems like an academic argument. If the City of Champaign can't pay for improving streets, etc, how on earth is it going to be able to fund an eminent domain purchase of the water company?
"If the City of Champaign can't pay for improving streets, etc, how on earth is it going to be able to fund an eminent domain purchase of the water company?"
Maybe they can raise parking rates again?
Some thoughts:
The usual arguments about whether government or the private sector is more efficient at providing services don't apply here, because the water franchise is a total monopoly. There is absolutely no competitive pressure on IAWC and therefore they have no economic incentive to control costs or forego profits. They have to pay all the same costs that a public utility would have to pay, plus on top of that they have to send profits home to RWE. If they're charging a fair price for water, they're doing it out of the goodness of their hearts rather than as a result of any economic factors. We don't know much about their cost structure or profit margins because they don't have to tell us.
If the public took over the system here would be a big up-front cost which would certainly be financed over time in the form of bonds collateralized by the asset and repaid by a surcharge on water fees. Rex, if you can get municipalities to buy 11% bonds you should go into the municipal bond business. 5% should be no problem, "fledgling district" or not, given the tangibility of the assets and the stability of the revenue stream.
If we can look past our prejudices about the evils of government and the evils of big foreign corporations, this is really just a business decision. Add IAWC's costs to their guaranteed profit and compare that to a comparable public utility's costs. Factor in things like IAWC's purchasing power relative to that of a smaller public entity, the relative costs of risk management, potential costs and savings related to the interaction between the utility and other units of goverment, consolidation and duplication of services, etc. In the end it should be clear whether it's worth doing or not, but at this point no one can offer anything other than prejudicial speculation. Good government is about always looking for ways to improve the public good, and that's what the mayors are doing here. I'm glad they're looking at the issue, and I hope if they are serious, they put together a working group with enough expertise to make an informed analysis. If they find out that there are substantial savings to be had by going the eminent-domain and public-ownership route, than I don't see any reason not to do so. If they don't find substantial savings, then it should be taken off the table.
I'm not so sure another government entity in the community is a good thing. Can you imagine another, " VOLK", type character as head of a municipal water company?
Local,
Every time I mention a side issue as an example of the thinking process, posts try and combine the issues as being the same. They are not, it is the thinking process that is flawed.
And yes, I am aware of the Operation of the old NIWC, I did not design subdivisions from a Box. No this eminent domain to take over utilities is a recent legislation. Eminent Domain for the acquisition of land for public use has been around for many years.
No, Rantoul had no idea of the problems, they were not realized until they became the responsibility of the Village and Rantoul began using them.
Certainly the change of ownership implies a complete flush of labor, assets but certainly not the customer base. In fact, when IWAC took over they fired Barry Suits and things went to Hell in a Handbag, so they hired him back, hence my suggestion concerning the Mayor of Urbana's history with employees that know more about a particular issue than she does. In that case firing Bruce only meant the City was operating ineffectively, but firing knowledgable people from the utility companies means everyone suffers and fast. The operation by NIWC and IAWC are similar
The purchase of all the assets is absolutely necessary, they are looped and linked together and cannot operate piecemeal. The depreciation of those assets is not the fair market value, because they are assets that produce a commodity and it is the production that gives the value. If a company depreciated the value of a truck to $0, it does not mean the truck is worth $0, the old truck can still produce and haul materials, hence has a value.
The value of all the water company assets is hundreds of millions of dollars, nearly every street you drive on has a watermain along side the street. Water mains have valves an nearly every corner along with tees and other mechanical connections. Water towers are expensive to build and maintain. Just because a water tower has been there for 30 years does not mean it has no value, it still holds water.
Remember the legislation dropped the government regulation of rates with the power company rate freeze. Want to know why the rates and profits are screwed up, go talk to Naomi.
Time and money would be much better spent assuring the public they again have some regulation over random rate increases for both power and water utilities. Elect representatives that recognize the problems created by short sighted political solutions and stop trying to buy problems to solve problems. We don't need to be running utilities as a government, the Russians did that and look at them. We need to use our brains instead of our butt to solve problems.
To that end, I am, and shall always remain;
Rex Bradfield
Just commenting on one point in your post, namely "No, Rantoul had no idea of the problems, they were not realized until they became the responsibility of the Village and Rantoul began using them."
I was at one of many informational meetings when Chanute was still in the process of moving people off base. At one particular meeting on utilities, we were addressed by an Air Force engineer from Chanute, a R. Flieccia from my notes. He showed us including the city representatives, all utiltiy maps, installation contracts, original and 'as-built plans, condition analyses for each of the systems and repair/survey/inventory records for everything. At the time, it struck me as outstanding documentation that most cities or private companies would be thankful to have at their disposal. Armed with working knowledge of such systems, the information this engineer gave Rantoul, including a inventory of repair materials for each system, I find your statement very difficult to believe.
Were you perhaps quoting a politicial?
Oil Man
No, later after the Village took over, some of the other problems became obvious and some of the information shown on the "As Builts" was not exactly correct. Also not available in the original information was the actual condition of the facilities and piping. The point is that underground improvements are subject to hidden defects and sometimes are not operating as planed. For instance stuck valves prevent the proper looping of the system and that is not apparent until something else triggers the discovery of those problems.
The Government is famous for creating a blizzard of paper, but sometimes the content is not worth the paper it is written on. I have been involved in a court case as an expert witness against the Government and when the blizzard of paperwork in those cases was compared to actual and realized conditions, it was found to be in fault. The governments response was very creative, the attorney for the Government wrote a memo telling the Government to "Pull all damaging documents and give them to me." Then promptly lost them. The Judge found for the Government by saying the "Plaintiff did not prove the missing documents were damaging."
But back to the local problem. The local water company does keep reasonable records of their facilities, but again they are subject to unknown problems such as inadequate supply because of development increasing the demand and the existing pipes just not being able to properly meet the demand. or just age. Purchasing anything that has the majority of the assets underground is foolish. It almost always is buying a problem that is hidden to both parties. If the Cities were to argue that these conditions exist, and they don't want to pay for them, the burden of proof is up to the City, after all, the system is presently working and that argument smacks of trying to gouge the utility company.
Again, all a reasonable person has to do is look at the reason for the proposed use of eminent domain and the reasons for the Water company seeking a rate increase. Obviously the majority of the rate increase is directed toward capital improvements or new improvements. Even if the profit included in that rate increase is 10% that leaves 90% of the rate increase as necessary, no matter who owns the company. If the purchase were made with the highest bond rating, then the rate is probably 6% that leaves only 4% that the City ownership would be able to decrease the proposed rate increase. That also is only the payment of the interest and not the principal of the purchase price, it still has to be paid. 4% is hardly any protection against the re-organization of the management, unknown problems, or other hidden costs as yet determined. I have always read your posts with great interest because of your rational thinking, so I ask, would you invest your personal retirement funds into an investment which has only a 4% safety margin, and the investment contains many assets who's actual condition is unknown? I would not, and I would be very surprised if you would.
Buying the company is not going to decrease rates, and after all that is the soul purpose of buying the company. Having the City tell me it can do a better job of maintaining a water system than a company that does that for a living is just unbelievable. No way that an inexperienced organization can even remotely understand the necessary effort to maintain such a system, let alone do it.
Money and time would be much better spent by legislation, and maybe even local legislation in the county that creates a regulatory board which has approval over proposed rate increases and has the authority to request complete documentation of the proposed use of any rate increase, including profit.
Screwing around with the financial exposure and returns of a utility company always causes the rates to increase because investors do not want "out of the blue" government interference and consequently do not invest in the stocks, so the operation capital is decreased and rates must be increased. Remember the Monopoly Board? Utility companies were always a good investment to own, but that was before this irresponsible eminent domain legislation. My Mom never made any more that $2,000/year, but she had stock in Illinois Power Company. I own no stock in the Power Company, because the Government makes that an unwise investment with returns being affected by ludicrous legislation.
anonymous
No, I don't think any investor is going to buy 11% bonds, that is my point. How the Hell are they going to buy it? Urbana does not have the bond rating necessary and Champaign would really stress its good rating by obligating itself to such a large amount on a risky investment. What happens to all the served Villages, they certainly do not have the capital or ability to risk their financial future on just a part of the Utility company. If the purchase is based on Champaign's rating, then they obviously are going to want more control to protect their investment and rating. I live in Urbana and that sucks, I don't get to vote for Champaign Council members.
No, No, No, No....... that is the answer, see above about how to better spend time and effort to try to control rate increases.
To that end, I am, and shall always remain;
Rex Bradfield
Rex, you condemation of "as builts" is true with the worst being generated by 'developers'. Having been a city engineer, developers especially those of subdivisions generate the poor or no "as built' drawings. There is no valid reason for this since subdivision developement is done with a clean slate with known existing utility inputs.
Your math skills are astounding for politician but not the quality I would expect from an engineer. You said "Even if the profit included in that rate increase is 10% that leaves 90% of the rate increase as necessary,..." then you state "If the purchase were made with the highest bond rating, then the rate is probably 6% that leaves only 4% that the City ownership would be able to decrease the proposed rate increase." and conclude with "...4% is hardly any protection against the re-organization of the management, unknown problems, or other hidden costs as yet determined." I have some news for you Rex, Profit is after costs. IAWC takes off the costs of capitol prior to profit so your example of what the government has as expenses is the same or less than IAWC has. Your assumption of a 10% profit is strictly an extra burden the customers has to bear with IAWC as the provider.
Local,
Naw, I am an engineer first and if my math skills were not good, I would not have survived in the engineering business for 36 years. But you are right, my experience was that politicians really do have bad math skills.
"As Builts"....yep, sad but true and unfortunately misleading to those who see or use them.
Really, what city were you the City Engineer at? Congrats to serving the public.
"Your assumption of a 10% profit is strictly an extra burden the customers has to bear with IAWC as the provider."
Yep, exactly. The last time I checked every business I know plans on making a profit. There is a term for those businesses who do not make a profit.......bankruptcy. Overhead and profit are figured as a percentage of the total development cost and added to that cost. Has been and always will be.
Debt service is also over and above operating costs if you compare the operation of a company, with capital funds for development against a company (the City) that buys the company and incurrs debt in addition to the raw costs of the operation. The only advantage the cities would have is they do not necessarily have pay income taxes or to make a profit (be careful about believing that though, they will consider both those as an additional revenue source). So the only money available to pay off the debt service is the profit margin (and taxes) which the Water Company experiences over and above operating costs.
Remember debt service is both the principal and the interest, and they are gonna be substantial, certainly more than 10%.
Here is the math in general terms for the operation of a water distribution company:
IWAC:
Operating costs, including raw costs, and overhead such as offices, buildings, insurance, pensions, workman's compensation, etc. , and taxes and profit. Remember also that taxes are ONLY on profit.
CITY:
Operating costs, including raw costs, and overhead such as offices, buildings, insurance, pensions, workman's compensation, etc. and principal and interest on purchase debt. Remember also, that the City benefits include both retirement AND sick days. Companies rarely include sick days in their benefits, so that is an additional burden on the City, that the companies do not have.
Nope, my math is correct. I simply identified the revenue sources available to the City for debt service.
I am sure you are like everyone else and are really ticked about high gas prices, but do you feel like the solution to those high gas prices is for you to go out and buy a gas company? Or is a more rational solution to seek legislative help to control those prices which also include profit?
The real problem here is the proposed solution is completely irrational, as an engineer would you have considered buying the computer company if you were being charged high prices for your computers, or would you have sought other more reasonable solutions that risk less capital?
Incurring debt to buy something that you are not good at to reduce costs is contradicting.
Incidentally, don't believe for a second that when the City realizes that if they need more operating capital for other projects unrelated to water that they won't raise the water fees. Hell, they raise utility taxes all the time, and in this case, they don't even have to call it a tax.
Also, I found nothing wrong with the Old system of utilities having to get approval from a regulatory board for rate increases. They broke something that did not need fixing in my opinion.
Thanks for your comments, and congratulation on being a part of a wonderful profession. When did you get your license, before or after National standardized tests?
To that end, I am, and shall always remain;
Rex Bradfield
Maybe MTD can figure out a way to get their hands into this?
Urbana does not have the bond rating necessary and Champaign would really stress its good rating by obligating itself to such a large amount on a risky investment
Urbana is still AA2 and Champaign is still AA1, right? Those ratings hardly condemn either municipality to 11% interest rates for buying infrastructure with high tangible value and a calculable guaranteed revenue stream in the form of user fees. Rex, your analysis of the relative costs confirms what was said earlier--that this is comes down an an exercise in comparing relative costs. The municipality has to pay interest but does not have to make a profit. The private company may not pay sick days, but pays sales tax on material. It sounds like you've already made up your mind on ideological grounds and are cherry-picking economic arguments in support of your predetermined position. Likewise I've heard people who are so convinced that RWE is evil that they too don't want to be confused by the facts. I hope there are some knowledgeable folks in the community (as you obviously are) who haven't already made up their minds, who can serve on whatever commission ultimately looks at this issue.
It's true that a city-owned system may end up using water fees to subsidize other city activities; on the other hand, there may be economies of scale to be had by having city workers who are already in the business of maintaining city infrastructure (like sewers) also maintaining water lines. However I think the point is probably moot--since the Champaign IAWC system includes several cities, villages and unincorporated areas, it would almost certainly have to be operated by a new entity with jurisdiction over the whole territory.
07:48 PM, Anonymous
"I hope there are some knowledgeable folks in the community (as you obviously are) who haven't already made up their minds,"
I sincerely thank you for your compliment. And really there are many individuals similar to myself who are concerned about the unabated ability to raise rates on utilities, all types.
The problem is not with the Utilities, it is with the State almost eliminating any appointed review board to approve or not approve those rate increases. When Tom, Naomi and I were in debate, both Tom and I were Engineers and we recognized the significant problem with the concept that utilities could operate on the open Market theory and we both supported some type of review board or implementation of the old review board system. Naomi, said hold the rates and everything would be just fine. Need I say more? Utilities are a monopoly and must be treated as such.
I too, would like to see a commission formed to put political pressure on the local elected representatives to re-implement the old control system. That is time that may be much better spent. After all the whole issue is people do not want unnecessary rate increases or rate increases for thinly veiled profit reasons. Presently, the people have no say, and Mayor Prussing, says she wants to buy the Utility company, just to control the rate increase. Now the Mayor of Champaign is feeling the same way.
Right reason (public input and control of the rate hikes), wrong way (incur additional debt and inefficiencies). Right way.......give the people a legal means of having a voice without learning to run a utility.
Gotta elect someone besides Naomi though, she thinks things are fine.
"The private company may not pay sick days, but pays sales tax on material."
Nope, almost always they get a tax exempt status on public utility improvements.
"Urbana is still AA2 and Champaign is still AA1"
Not sure about Urbana, but I think so. So here is a question for you. What is the interest difference between AA1 and AA2? Remember even 1% is significant.
"Those ratings hardly condemn either municipality to 11%"
Nope, I said those rates might be applicable to the formation of a new Water District that has no bond rating and no reserve revenues. Different animal.
"The municipality has to pay interest but does not have to make a profit.'
Nope, the municipality has to pay interest AND principal.
That is the big problem. Additionally they would have no maintenance or capital improvement budget surplus in place for the Water Company needs. This is obvious from their indication they want to raise taxes now for other capital improvements. Again, it is very very very dangerous to incur significant debt service and not have capital reserves in place.
Here are the facts as I see them. Because of the debt service and inexperience of the Cities to manage a water distribution system, purchasing the water company will not result in any rate decrease of the water rates from what IWAC is seeking and an decrease in service because of inefficiencies. The cities cannot buy something then charge more, that is completely foolish, but is it just a foolish to charge less and cause funds from other sources to have to make up the shortfall.
An argument may be made that the debt service is short term, say 10 years or whatever and when the debt service is satisfied, the Cities will lower the rates. You may make that argument if you wish, but my experience is never say government will lower rates on anything, it rarely happens. That will just be money they use for something else, a thinly veiled continuing tax increase.
"...city workers who are already in the business of maintaining city infrastructure (like sewers) also maintaining water lines...."
Nope, water distribution systems are significantly more labor intensive than sanitary because of the risk involved if something goes wrong. No one in the City maintains any water system, so the experience is not there. Dennis Schmidt (Champaign) and Gale Jamison (Urbana) worked for a private engineering firm and do have experience in water distribution systems, but neither have the experience of Barry Suits. Everyone is suggesting that IAWC is doing a poor job, but surrounding communities have had more "Boil Orders" than the IAWC system, so that assumption may not be necessarily true.
Here are some general facts about water distribution systems.
If a test is being run for bacteria, that test is so sensitive, that when a person is taking the sample there has to be almost no wind, because if the wind blows one particle of dirt into the mouth of the test tube, the test will probably fail.
If water pressure in a line drops below 20 psi gauge, a boil order must be ordered. That pressure drop may not even occur because of bad management, but simply because of spike demands. Inadvertently leaving a valve closed prevents looping supply and could cause a pressure drop.
The combination of PVC and ductile iron water mains can sometimes cause ionization problems because of unlike electrical material properties. These ionization problems can show up as many things and none are pleasant to see or taste. Again, this is not a problem with management or operation but simply an attempt to reduce costs of distribution systems.
Obviously were are not talking about something that is easy to maintain or easily kept in pristine operating order.
Mayor Prussing wants to run a water company, ask her what causes yellow water. If she doesn't know, ask her why she wants to spend millions on something she does not know about?
It is a lot easier to implement a regulatory body, than to operate a utility company. I would gladly serve on that committee.
Lets do that.
Again, thanks for your thoughtful comments and the compliment. I usually don't get those, and I really appreciate your thoughtfulness.
To that end, I am, and shall always remain;
Rex Bradfield
You need to back off the scare tactics Rex. Prussing is never going to operate a water company. Water treatment and its accompaning distribution systems are difficult to operate and so are wastewater treatment and its accompaning collection system. Both are highly regulated and require professional, licenced operators.
Local,
I agree completely, problem is her, she thinks she can.
I am well aware that it requires a licensed operator, the problem is, that operator works for her. She wants control of the operation.
But I must be making better arguments, I have raised about a bazillion issues and that is the only one you question.
To that end, I am, and shall always remain;
Rex Bradfield
Rex,
There are lots of issues but I have learned the key to living longer is to not "fall on the sword". As for Laura, she will learn the hard way some day with her control attituce. Of couse, the taxpayers will foot the bill, like we've done on the nursing home construction both in time and money. I worked for a mayor who fired two of the water treatment plant operators over some "drumed up" leave issue. He gave no warnings, just did it. The regulators took less than twenty four hours to lay out a $20K per day fine on the city. Needless to say the mayor came up with a story, the operators were back on the job within a week, fines were paid. The mayor did not run for re-election and never held another political job.
Local,
"The mayor did not run for re-election and never held another political job."
Hope springs eternal.
You example is exactly my concerns, especially in this case and the amount of money involved. Should never have been considered. Other avenues are far more reasonable, and would be more effective.
To that end, I am, and shall always remain;
Rex Bradfield
It would be helpful to really understand your position if you could lay out those "Other avenues" which you state are "far more reasonable, and would be more effective." After hearing IAWC justifications, I there appeared nothing "reasonable" or "effective from that company. Your posts certainly appear to be totally against even considering a 'take over' by eminant domain. So I am curious about these other avenues you cite.
Thanks Oil Man,
I read IAWC's position on the reasons for the rate increase and also had some concerns about the magnitude of some of the requests, but in the same breath, I completely understand the parts of the increase associated with the new facility and also upgrading some of the older infrastructure. I never once believed when the City of Champaign was using the "Spot zoning" which was allowed with other issues in a court case, that rates would not increase. They were up front about the cost and by golly $52 million is a bunch of money.
But I must go back to the legislation that removed the regulation of prices for utilities by a governing board. Look what happened to electric rates. We no longer have that protection and the legislators refuse to take blame, but rather blame the Utility company for wanting to raise rates after 10 years. The blame is not the Utility company, but the really ill conceived legislation that ultimately only benefited the investment people and not the utility companies or the consumer.
Utilities are by definition two things..... a necessary commodity that improves the quality of our lives and a monopoly. To even mention that electricity is a commodity that can be bought on the open market and is subject to open market competition is insane. It can only be transported by electric transmission lines and those lines are owned by the original company who invested capital in construction of the infrastructure. Other electric companies must rent the lines, so the market is not a free market, but rather a combination market that would collapse if the local power company took it's transmission poles and went home.
Although the phone is not considered a monopoly, the same issues prevent the actual free market prices and services from being realized with phones. Unless your carrier is ATT, you cannot have a remote phone service. In other words, your business phone can not ring at your home, unless your business phone is ATT, because they own the lines an all other companies have to rent the lines from them and they do not include remote service in the rental agreement. I changed from ATT to MCI and lost my remote service until I went back to ATT. Damned near put me out of business.
Government is the ideal body for protecting the general public from the influences of monopolies while still maintaining the quality of the necessary utility commodities like water and electricity. But because Government is absolutely the most inefficient entity, it cannot protect by ownership, distribution and exchange (socialism), but rather by regulation. That legal regulation simply requires the utility companies (monopolies) to show absolute accounting and projected service base and quality of infrastructure and their interconnection when seeking to increase costs of a particular utility to the consumer.
In the case of electricity, because the transmission lines are situated across, Municipal, County and State Boundaries, the most logical regulatory body would be at the State level and it was. But in the case of the more local utilities like water, the transmission lines and production plants are situated across Municipal Boundaries, but usually not County Boundaries. Therefore, it would seem the government regulatory body should be at the County level even if the water company was not a private company like IAWC but formed and owned by a municipality. That type of regulatory body would be exempt from the political pressure of being re-elected as a council member and would only concern themselves with water rates for every water company in the county. A County wide water District that concerned itself with not only IAWC but all water distribution systems.
The guidelines for that kind of district would also include rigid standard for determining the necessity of a rate increase and if those standards were met according to accounting and engineering standards, then reasonable rate increases must be allowed. That would prevent government from putting financial pressure on these necessary utilities, without good reason.
I also say County wide because of a couple of reasons. First the Mayors suggested a "Joint Council Meeting". How many Councils did they mean and also, by definition, there is already a local government that has local authority across municipal boundaries...... The County. Also maybe there are local municipalities who own and operate the water company, but are charging rates in excess of production costs, simply to fill the local coffers. Those consumers should also have some protection besides elected municipal officials who may misuse utility receipts.
Would the County Regulatory Board be appointed or elected? No sure, but certainly each way as some merits and some dark sides.
I suggest this method because as I see the problem defined, the consumers want some protection from unnecessary rate hikes on a public commodity that is necessary for the quality of life, but is available from only one source (a monolopy)
The Federal Government created the Anti-Trust legislation to protect consumers, it did not go out and buy the company that had a monopoly.
So there you have it, what do you think?
To that end, I am, and shall always remain;
Rex Bradfield
Interesting spin from your earlier comment to RL who suggested a county controlled water provider. You answered "...his suggestions are an indication of that lack of expertise and is the fatal flaw in any of those considerations".
It appears the politician in you is taking over from the engineer.
I understood his comments to be that of ownership, not regulation. County ownership contains the same debt service flaws.
If Ralph was not suggesting the ownership, then I am absolutely on the same page, if he was speaking of regulation. But a water district usually owns the assets, look at Mahomet.
To that end, I am, and shall always remain;
Rex Bradfield
Hey Rex would you "buy in" to a Teays-Mahomet Water District which owned and regulated all the water systems within the aquifer?
Oil Man,
I would "Buy In" to that idea to the regulation and the aquifer is an interesting boundary idea and I think that is something that Ralph mentioned earlier, but the ownership would be a monumental problem and purchase expense. The problem I have with what ever regulation the ICC has over water rates, is the water rates are very localized and ICC is the state body which is sometimes removed from local influences. The ICC has to be the regulatory body for electricity for my earlier reasons.
But water is local not only for the relatively small service area (compared to electricity) but also the plants and source are here also. Regulation does not affect the company value, if it is reliable and the rules established for everyone to understand. As I said earlier, even my Mom invested in Illinois Power Company and they were completely regulated at that time.
In this case, because the aquifer's also pass over county lines, the usage increases would have to be coordinated with other counties or subject to "usage only" regulations by the ICC or IDNR, probably IDNR.
What does everyone think about this idea? It satisfies all the necessary criteria. It does not require capital outlay of any significant amount. It gives the local consumer, a voice on local issues. It does not involve political manipulation of fees for benefit for other pet projects. It allows the water company to seek reasonable rate increases, with rules that would make it very difficult to deny for political reasons. It does not require the consumer to pay for something they do not know how to run. It does not incorporate inefficiencies resulting from restructuring or inexperience.
See how easy an non invasive idea can create solutions? Trying to buy the utility company is like hunting mosquitos with a siege gun.
Now, here is the scariest thing I am going to say. I just returned from my Professional Development Hours seminar at Springfield and one of the classes I attended was on riparian rights and the differences between states in this matter. We learned that in Illinois, the IDNR has the right to receive monetary benefit from any water which comes from any aquifer in the State. They can take money from the water company who is selling the water, by statute. To this date, they have not exercised that right.
Good grief, if the Governor gets wind of this............
To that end, I am, and shall always remain;
Rex Bradfield