A WATER CURRENCY EVENT

A few days ago, in a fit of uncharacteristic cleaning, I removed a drawer from a small Eastlake chest I use to store things I never look at again but think I may do so some day.

At the back of the inside of the chest, behind the drawer, an interesting item was wedged. It is a colonial note for four shillings, dated August 2, 1775, issued by the Colony of New York to finance its water works. The top of the note reads: "New York Water Works." It is small, about 2 inches by 31/2 inches, and is hand signed. It reads, in part: "This note shall entitle the Bearer to the sum of Four Shillings current money of the Colony of New York, payable on Demand, by the Mayor, Aldermen, and Commonalty of the City of New York, at the Chamberlain of said City, pursuant to a vote of the said Mayor, Aldermen, and Commonalty, of this date." On the back of the note are pictured a water pumping station and flowing fountains.

This note, as well as similar notes, were colonial currency of the day. I had purchased it early in my career as a curious illustration of an early form of financing for a municipal water system.

Interestingly, this note, which is over 235 years old, was issued less than one month after the signing of the Declaration of Independence. It also was a time when there were many loyalists in New York, some of which still thought that a compromise could be reached with the king of England.

Today, some water system improvements are financed by the issuance of bonds, with the debt service recovered in rates paid by the users of the systems-a procedure not that different from the essence of the 1775 note. However, today there appears to be a growing trend, and dependence, toward "financing" water system improvements by receipt of grant money from the federal and state governments. Of course, not every system can receive a grant, which means that users of other systems may be financing systems that provide no benefit to them.

There were no grants in 1775 to finance water system improvements. How did they do it? Maybe, occasionally we need to look at the back of a drawer for unseen ideas forgotten because we see only the immediate.

DISCRIMINATION IN RATES: FREE SERVICE AND DISCOUNTS

Historically, utilities frequently have provided service without charge to public and governmental buildings and uses, such as administrative offices, libraries, schools and even churches. Utilities have attempted to explain such free service on public relations-good will grounds or as a franchise concession.

However, free service cannot be justified by cost of service ratemaking principles and is unreasonable discrimination on its face. So, for example, a New Jersey court held that a contract was unjustly discriminatory because an electric utility agreed to provide free lighting service to municipal buildings. City of Plainfield v. Public Service Electric and Gas Company, 412 A.2d 759 (N.J. 1980). The Wisconsin Public Service Commission has prohibited a municipal owned water utility from providing free or discounted service to municipal departments. City of Westby, 2-U-5017; City of Brodhead, 2-U-5092, 1958 WL 7484. An Indiana court has held that the state regulatory commission could set telephone rates to be charged a city even if the franchise granted the telephone company called for free service. Winfield v. Public Service Commission, 118 N.E. 531 (Ind. 1918).

Discounted rates, such as for senior citizens or for lifeline programs have been held to be invalid discrimination in some states. For example, see Mountain States Legal Foundation v. Utah Public Service Commission, 636 P. 2d 1047 (Utah 1981). Along lines similar to discounted rates, a Massachusetts court held that a disproportionate large water rate increase to one industrial customer compared with other industrial customers was illegal discrimination. Massachusetts Municipal Wholesale Electric Company v. City of Springfield, 726 N.E. 2d 973 (Mass. App. 2000).

Some states have approved economic development discounted rates as legal discrimination when the evidence shows all customers will benefit from the assumed additional load and revenue. Re Northern Indiana Public Service Company , 96 PUR4th 267 (Ind. U.R.C. 1988).