REFUSAL TO EXTEND MUNICIPAL WATER SYSTEM UPHELD

A federal appeals court has upheld a refusal by a village to extend its municipal water system to one of its subdivisions served by an investor owned water company. Srail v. Village of Lisle, Nos. 08-3206 and 09-1049 Cons. (December 7, 2009 Ct. App. 7th Cir.)

The complaint alleged, among other things, that the village violated the equal protection clause of the 14th Amendment of the U.S. Constitution by refusing to extend its water system into plaintiffs' residential subdivision. That subdivision is served, and has been served for many years, by Illinois American Water Company and its predecessors, an investor owned public utility company.

The federal District Court held for the village as to the equal protection claim and declined to consider a state court claim. The 7th Circuit Court of Appeals affirmed.

In considering the alleged discrimination claim, the Court of Appeals found that plaintiffs were not part of a suspect class and that no fundamental right was violated. The Court cited two cases: there is no positive entitlement to fire protection. Jackson v. Byrne, 738 F.2d 1443,1446 (7th Cir. 1984); the right to continued municipal water service is not a fundamental right. Magnuson v. City of Hickory Hills, 933 F.2d 562, 567 (7th Cir. 1991). Therefore, the Court concluded, the standard for review of the District Court decision is whether the village's action has a rational basis.

The Court found that the village's decisions to extend its water system to subdivisions in the village is based upon individual circumstances, such as groundwater contamination and profitability of serving a particular subdivision. Apparently none of the subdivisions to which the village had extended its systems was being served by an investor-owned water company. In the instant case, the Court found that the village determined there was not enough interest to justify the cost that would have to be incurred to extend its water system. The decision had a rational basis according to the Court.

Absent special circumstances such as a provision in a franchise agreement, in many states including Illinois a municipality is free to invade the service territory of an investor owned water public utility. Such an invasion could be by means of condemnation or by constructing a duplicate system and competing for customers. However, as one may suspect, any such municipal decision would have economic impacts not only on the municipality but also on the customers it seeks to acquire. Ultimately, those customers will have to bear, in rates or otherwise, the burden of the capital costs incurred by the municipality's action.

Interestingly, one other consideration is relevant: the ongoing trend toward privatization of municipal water systems by investor owned water companies, varying from outright acquisition to management or operating contracts. Again, economic considerations are an important factor.