WATER USE LOWER, WATER RATES HIGHER?

One of the current "hot" topics in the drinking water industry is the declining water use that many water utilities are experiencing. (For example, see Hunter, et al "Declining Residential Water Use Presents Challenges, Opportunities," AWWA Outflow, May, 2011, pp. 18-20).

"Cause" for declining water use is attributed to federal law (Energy Policy and Conservation Act of 1992 and Energy Independence and Security Act of 2007), which has resulted in efficiency standards for fixtures and appliances such as toilets, faucets, showers, dishwashers and washing machines. Other presumed causes include declining number of occupants per residential unit, conservation programs and rate increases. Two other potential causes are foreclosures translating into empty homes and older water meters which do not fully register use.

While reductions in water use can result in reductions to certain utility operating costs, obviously not all costs of service are variable. Water utilities may have incurred substantial fixed costs for infrastructure, which as time goes by must be replaced and upgraded. Further, a decline in usage does not necessarily translate into a comparable, if any, decline in demand. Treatment, storage and distribution assets must be able to satisfy peak demand periods.

Two other factors should be considered. New regulatory requirements continue to impose increased operating and infrastructure costs on water utilities, which in turn create higher costs of service to be recovered in rates. Further, water utilities may have incurred financing costs for current facilities, which costs must be recovered in rates and paid.

The paradox, therefore, is that a decline in customer usage does not necessarily correlate with a corresponding decline in customer water bills. Even if some costs of service are mitigated, other costs continue or may even increase. Neither utilities nor their customers should assume that water use efficiency means rate relief. An efficient utility will carefully monitor its revenue requirements, adjust rates to fully recover costs of service, and keep customers informed.

SEWAGE: POWER FROM THE PEOPLE

In the quest for alternative sources of energy, domestic wastewater-human sewage-is becoming an electricity magnet for researchers. In particular, gases and other waste products extracted from the wastewater treatment processes are being studied as means to generate electricity--by inclusion in fuel cells, by turning generators, etc. The objective is not confined to powering a treatment plant, but extends to adding electricity to the grid.

Even the mere flow in sewers is being looked at for production of hydro power. One inventor has come up with the idea of placing a small generator in a house sewer pipe. When a toilet is flushed, electricity would be generated to light the house or television set. However, such a concept may be practicable only during television commercial breaks or Super Bowl half time.

One researcher has estimated that one gallon of wastewater contains enough energy to light up a 100 watt bulb for 5 minutes. Unfortunately, federal law will prohibit production of 100 watt light bulbs after 2011.

Waste to energy is not a new idea. In the frontier west. pioneer homesteaders heated and cooked by burning buffalo chips. I recall a grade school science experiment by which electricity was produced from a potato. Now that the federal government wants to prohibit or limit the serving of potatoes in government subsidized school lunch programs, perhaps potatoes could be used to generate electricity for the grid instead of the griddle.

Using wastewater as an energy source perhaps should be tempered by some reality. It takes energy to build and operate a wastewater treatment plant and tributary sewer mains. Perhaps a more efficient wastewater energy source is the old fashioned outhouse. It requires minimal energy to build. While it does not generate electricity, it also does not use electricity. By saving electricity, it reduces demand on the grid. Has technology gone full circle?

DO "INSIDE-OUTSIDE" RATE DIFFERENTIALS CONSTITUTE UNFAIR DISCRIMINATION?

Many municipal-owned water and wastewater utilities have maintained "inside-outside" rate differentials. In such situations, customers of such systems located outside of municipal boundaries are charged higher rates than rates charged municipal residents of the same class. Often the outside rates are a multiple of the inside rates.

Such inside-outside rate differentials clearly constitute discrimination, which can be justified only if the costs to serve outside customers are shown to be higher than the costs to serve inside customers of the same class. Rate differentials can be supported only by cost of service studies. See Massachusetts Municipal Wholesale Electric Company v. City of Springfield, 726 N.E.2d 973 (Mass. App. 2000); Village of Niles v. City of Chicago, 558 N.E.2d 1324 (Ill. App.1990). "[A}though not obligated to serve non-residents in the absence of a contractual relationship, a municipality is prohibited from discriminating unreasonably in rates or manner of service when it elects to serve non-residents." Schroeder v City of Grayville, 520 N.E.2d 1032 (Ill. App. 1988).

However, at least two cases have held that the burden of proof is on the outside customer to show that the rates charged it do not reasonably reflect actual costs of service. See City of Novi V. City of Detroit, 446 N.W.2d 118 (Mich. 1989; Farley Neighborhood Association v. Speedway, 765 N.E.2d 1226 (Ind. 2002).

Some conclusions may follow:

1. Water and wastewater rates, and their design, should be based upon full cost of service studies-regardless whether inside or outside rates.

2. In setting rates, applicable rate-making principles should be followed per the law, bond ordinances and AWWA manuals.

3. Outside customers may have the burden to prove their rates are unreasonable, which effort may involve costly litigation and expert witnesses.