An article in the current issue of Water Environment & Technology magazine asserts that public-private partnerships between municipal-owned water utilities and investor-owned water utilities continue to increase.*
According to the report,the trend is being driven by the municipal utilities' need to upgrade infrastructure and a corresponding lack of sufficient financing resources to get the job done. Cities seem to be recognizing that they cannot afford the necessary capital investments in their water systems, particularly with competing other needs within the cities.
In addition, according to the article, municipal utilities are turning to privatization to achieve more cost-effective management of capital improvements as well as of daily system operations.
The article also points out that privatization can provide access to expertise, new technologies and operational best practices in addition to financial resources.
The key issue in any privatization arrangement, in my experience, is the CONTRACT -- the agreement that structures the deal, including the relationships and the responsibilities. This is true whether the privatization may be as simple as an outright sale of the entire system, or a more complex design/build arrangement, or a concession, or an operation management concept.
When privatization is distilled to its essence, it boils down to a shift of risk from municipal ownership to investor ownership of the local utility. That shifting of risk, when effected through a fair and adequately structured contractual arrangement, benefits both the local government as well as its customers. However, as the article states, the parties to privatization should focus on the long term and on performance standards more than design standards. Of course, performance standards must come with consequences if they are not met.
A recent Illinois SupremeCourt decision adds an interesting twist to the privatization discussion.** A a town entered into what in essence was a public-private partnership with a contractor, whose responsibility was to maintain and repair portions of the municipality's water and wastewater infrastructure and to operate its treatment facility. The Court held that the contractor was subject to the Illinois Prevailing Wage Act because the contractor was not a regulated public utility company considered as such by the state utilities commission or other state agency. Even though the contractor performed utility functions, the court said, it did not fall within the public utility exemption from the Prevailing Wage Act.
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* "When Public Goes Private", LaShell Stratton-Childers,
Water Environment & Technology, January, 2014, p.13
** People v. E.R.H. Enterprises, 2013 IL 115106
Fresh water is essential for life and commerce. However, its scarcity is resulting in increased regulation of water resources and their corollary, wastewater. This blog will discuss developments in such regulation. It will be my clepsydra measured by the flow of water law.
Sunday, January 26, 2014
Sunday, January 19, 2014
REGULATORY AGENCY TRANSPARENCY UNVEILED A LITTLE
Much political lip service has been given to the need for transparency in decision making by administrative agencies. However, it seems that all that talk often does not translate into reality.
Recently, an Illinois Appellate Court decision focused on transparency of two related state regulatory agencies.* A large oil refinery filed several applications with the Illinois Environmental Protection Agency ("EPA") for certifications that certain infrastructure improvements were "pollution control facilities." Certifications would result in preferential property tax treatment. Under the procedure, EPA evaluates such applications and makes recommendations to the Illinois Pollution COntrol Board ("PCB'), which makes the decisions whether to certify.
A group of local government taxing bodies, including school districts, served a Freedom of Information request ("FOIA") on EPA asking for copies of the refinery's applications. EPA denied the request.
EPA recommended that the PCB grant the first group of applications. The local taxing bodies filed petitions to intervene in the PCB proceeding. However, the same day, the PCB granted certification and dismissed the petitions to intervene as moot.
The local bodies filed a motion for reconsideration. The PCB held a "closed deliberative session" on the motion. At a subsequent open session the PCB announced its denial of the motion, without discussion or permitting public comment. When other applications of the refinery came before the PCB with EPA recommendations, the local bodies filed additional petitions to intervene. The PCB held another "closed deliberative session" to discuss the additional petitions to intervene. At a subsequent open session, the PCB voted to deny the petitions and issued a written decision.
The local bodies filed suit for declaratory and injunctive relief alleging that EPA violated FOIA law and the PCB violated state open meetings law. The trial court granted summary judgement for defendants.
The Appellate Court reversed. It agreed with the claim that EPA violated FOIA, stating "the Agency clearly violated FOIA by not providing the public records plaintiffs requested as statutorily mandated."
THe Illinois Open Meetings Act requires that all meetings of public bodies be open to the public, unless certain specific exceptions apply that permit closed sessions. The PCB asserted that its "closed deliberative sessions" were permitted under the exception for consideration of "evidence or testimony" presented at a hearing. The Appellate Court rejected the assertion, stating: "all citizens of the affected municipalities had an interest protected by the overarching policy in this state that the people's business be conducted openly to inform the public. Given that policy, we reject defendants' claim that approval or disapproval of that issue was properly considered in a closed session instead of the clear sunshine of public scrutiny." The Court also found that the PCB open sessions violated the Open Meetings Act because public comment was prohibited.
Most state laws, as well as federal law, have some form of FOIA and open meetings requirements. The Court's decision may offer some hope for greater transparency in regulatory agency proceedings.
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*Roxana Community Unit School District No. 1 v. EPA,
2013 IL App (4th) 120825 (2013)
.
Recently, an Illinois Appellate Court decision focused on transparency of two related state regulatory agencies.* A large oil refinery filed several applications with the Illinois Environmental Protection Agency ("EPA") for certifications that certain infrastructure improvements were "pollution control facilities." Certifications would result in preferential property tax treatment. Under the procedure, EPA evaluates such applications and makes recommendations to the Illinois Pollution COntrol Board ("PCB'), which makes the decisions whether to certify.
A group of local government taxing bodies, including school districts, served a Freedom of Information request ("FOIA") on EPA asking for copies of the refinery's applications. EPA denied the request.
EPA recommended that the PCB grant the first group of applications. The local taxing bodies filed petitions to intervene in the PCB proceeding. However, the same day, the PCB granted certification and dismissed the petitions to intervene as moot.
The local bodies filed a motion for reconsideration. The PCB held a "closed deliberative session" on the motion. At a subsequent open session the PCB announced its denial of the motion, without discussion or permitting public comment. When other applications of the refinery came before the PCB with EPA recommendations, the local bodies filed additional petitions to intervene. The PCB held another "closed deliberative session" to discuss the additional petitions to intervene. At a subsequent open session, the PCB voted to deny the petitions and issued a written decision.
The local bodies filed suit for declaratory and injunctive relief alleging that EPA violated FOIA law and the PCB violated state open meetings law. The trial court granted summary judgement for defendants.
The Appellate Court reversed. It agreed with the claim that EPA violated FOIA, stating "the Agency clearly violated FOIA by not providing the public records plaintiffs requested as statutorily mandated."
THe Illinois Open Meetings Act requires that all meetings of public bodies be open to the public, unless certain specific exceptions apply that permit closed sessions. The PCB asserted that its "closed deliberative sessions" were permitted under the exception for consideration of "evidence or testimony" presented at a hearing. The Appellate Court rejected the assertion, stating: "all citizens of the affected municipalities had an interest protected by the overarching policy in this state that the people's business be conducted openly to inform the public. Given that policy, we reject defendants' claim that approval or disapproval of that issue was properly considered in a closed session instead of the clear sunshine of public scrutiny." The Court also found that the PCB open sessions violated the Open Meetings Act because public comment was prohibited.
Most state laws, as well as federal law, have some form of FOIA and open meetings requirements. The Court's decision may offer some hope for greater transparency in regulatory agency proceedings.
_______________________________________________________________________
*Roxana Community Unit School District No. 1 v. EPA,
2013 IL App (4th) 120825 (2013)
.
Sunday, January 12, 2014
PROMISES
When I was about 13, my father promised to take me fishing at a creek nearby. The creek was bordered by a thick forest of mature oak trees. Historically, the creek served as a water and fish source first for Indians, then for immigrant German farmers who settled adjacent prairie. However, currently it was shallow and yielded only "bullheads" and crawfish. One could hop rocks to the opposite bank, and the ruins of an old limestone bridge that once spanned the creek imposed curiosity.
Today, the creek serves primarily as a conduit for effluent from upstream wastewater treatment plants and for storm water sewer inflows, sending its burden to the Mississippi river via two other rivers.
The promised fishing was deferred several times by various interventions. However, one cold, snowy January day, my father surprised me saying he wanted to take me to the creek's woods to show me how to use my new official Boy Scout ax. It was one of those with a one piece steel head and handle, and a blade so sharp that could slice cheese from six feet away.
After we arrived in the forest, my father selected a 10 inch diameter log lying on the ground as the intended target for an ax demonstration. Then he made a looping swing of the ax to begin the cutting. Unfortunately, the log was frozen like a rock. and the ax bounced off the log to make its first cut into my father's ankle instead. Promise, and lesson, over.
Promises, it seems, may be easy to make, but difficult to fulfill at times. In the provision of public utility water service, customer perception of the quality of that service can be critical. A utility can be providing good service, but if customers perceive otherwise, a utility may suffer from unrest and opposition from its customers. For example, if a utility promises to promptly resolve a customer concern or complaint, it is essential that the promise be fulfilled. If action is delayed or overlooked, a perception can arise that the utility provides poor service--regardless even if there was a good reason for delay. In this example, timely communication to the customer of the likely delay may have adequately satisfied the customer.
The point is that a utility has a responsibility not only to provide good water, but also to provide good service. Empty promises can not be justified by good intentions. Disappointed customers may become utility management's frozen log.
Today, the creek serves primarily as a conduit for effluent from upstream wastewater treatment plants and for storm water sewer inflows, sending its burden to the Mississippi river via two other rivers.
The promised fishing was deferred several times by various interventions. However, one cold, snowy January day, my father surprised me saying he wanted to take me to the creek's woods to show me how to use my new official Boy Scout ax. It was one of those with a one piece steel head and handle, and a blade so sharp that could slice cheese from six feet away.
After we arrived in the forest, my father selected a 10 inch diameter log lying on the ground as the intended target for an ax demonstration. Then he made a looping swing of the ax to begin the cutting. Unfortunately, the log was frozen like a rock. and the ax bounced off the log to make its first cut into my father's ankle instead. Promise, and lesson, over.
Promises, it seems, may be easy to make, but difficult to fulfill at times. In the provision of public utility water service, customer perception of the quality of that service can be critical. A utility can be providing good service, but if customers perceive otherwise, a utility may suffer from unrest and opposition from its customers. For example, if a utility promises to promptly resolve a customer concern or complaint, it is essential that the promise be fulfilled. If action is delayed or overlooked, a perception can arise that the utility provides poor service--regardless even if there was a good reason for delay. In this example, timely communication to the customer of the likely delay may have adequately satisfied the customer.
The point is that a utility has a responsibility not only to provide good water, but also to provide good service. Empty promises can not be justified by good intentions. Disappointed customers may become utility management's frozen log.
Sunday, January 5, 2014
RAISING WATER SERVICE RATES TO BENEFIT CUSTOMERS
Last week, the Wall Street Journal reported that the Chinese government is raising rates for water service charged urban users with high levels of demand.* According to the Journal, cheap pricing for water in China had reflected a government policy to protect against inflation. However, low rates were resulting in overuse of water resources and deferred investment in infrastructure.
Under the rate increase, higher uses of water by customers will result in rates that are multiples--3x or 1.5x, depending on demand--of the base rate for water service. Thus, the revised rate structure is intended to encourage conservation as well as to facilitate new investment in water treatment facilities to meet expected more stringent drinking water standards in the near future.
The article also points out that the increased rates will address the "profitability concerns" of Chinese water utilities , as many allegedly operate at a loss or with low revenues that result in a disincentive to upgrade infrastructure to improve water quality.
Does this story sound familiar? Whether it is China, the United States or any other country, reasonable rates that recover all the costs of water service from customers who cause those costs are an imperative for safe and adequate water service. Revenue requirements include not only operating expenses but also funding of reserves for replacements, upgrades and expansions of infrastructure or for funding of debt service incurred for those purposes.
Depending on the availability of adequate sources of raw water supply, rate structure can facilitate conservation measures. Historically, water utilities frequently have structured their rates with declining rate blocks or steps for higher usages, reflecting economies of scale. However, rising rate blocks, along the lines of the Chinese model, have been implemented to encourage conservation of water resources.
In the United States, often water utilities--particularly those owned by municipalities--have maintained low rates that do not recover full costs of service and have resisted rate increases for political reasons. Maintenance of insufficient rates does not benefit water users, for all the reasons apparent to the Chinese regulators. Customers benefit only when revenues are sufficient to enable utilities to recover all costs of service and to fund infrastructure that assuredly provides safe and adequate water to meet demand.
_________________________________________________________
* January 4/5, 2014, p.A6
Under the rate increase, higher uses of water by customers will result in rates that are multiples--3x or 1.5x, depending on demand--of the base rate for water service. Thus, the revised rate structure is intended to encourage conservation as well as to facilitate new investment in water treatment facilities to meet expected more stringent drinking water standards in the near future.
The article also points out that the increased rates will address the "profitability concerns" of Chinese water utilities , as many allegedly operate at a loss or with low revenues that result in a disincentive to upgrade infrastructure to improve water quality.
Does this story sound familiar? Whether it is China, the United States or any other country, reasonable rates that recover all the costs of water service from customers who cause those costs are an imperative for safe and adequate water service. Revenue requirements include not only operating expenses but also funding of reserves for replacements, upgrades and expansions of infrastructure or for funding of debt service incurred for those purposes.
Depending on the availability of adequate sources of raw water supply, rate structure can facilitate conservation measures. Historically, water utilities frequently have structured their rates with declining rate blocks or steps for higher usages, reflecting economies of scale. However, rising rate blocks, along the lines of the Chinese model, have been implemented to encourage conservation of water resources.
In the United States, often water utilities--particularly those owned by municipalities--have maintained low rates that do not recover full costs of service and have resisted rate increases for political reasons. Maintenance of insufficient rates does not benefit water users, for all the reasons apparent to the Chinese regulators. Customers benefit only when revenues are sufficient to enable utilities to recover all costs of service and to fund infrastructure that assuredly provides safe and adequate water to meet demand.
_________________________________________________________
* January 4/5, 2014, p.A6
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