THE VALUE OF WATER, PART 7--PRICING

Water utilities do not sell water. They provide water service. Their water service commonly may include withdrawal of raw water from a source, transport to a central treatment facility, treatment of the raw water to safe drinking water standards, storage of finished water in tanks which also may maintain desired pressure, and delivery of the finished water to users in a distribution network. They charge a price for their water service. Accordingly, water utility rates are not the prices of water delivered--such as the price of a bottle of water at a store--but are the prices of water service provided to customers.

From time to time, some have asserted that water utility rates should be based upon the "value of water" perceived by users. Such assertions are flawed and misplaced. It is unlikely that users of a water system could agree on a single definition, or measure, of such "value". Moreover, such perceived "value" has no correlation with the provision of water service and the costs incurred to provide the service. Simply stated, the value of water is incapable of an acceptable objective methodology for its calculation.

The only objective and fair methodology for water utility rate making is cost of service recovery. This fact has been confirmed repeatedly by numerous court decisions, statutes, regulatory commission polices and writings.

At times, some jurisdictions have attempted to adjust cost of service rate making to effect a particular goal or social engineering. For example, to encourage water use conservation, some agencies have modified rate structure to increase rates as water use increases. Others have suggested special rates for certain levels of low income users, with costs subsidized by other users.

Another example may be denial of the full cost of service recovery to reflect a finding that water service was not of an acceptable quality. In one case, an agency reduced a water utility's recovery in rates of its full cost of capital (rate of return on rate base) for such a reason.

In short, water utility rates do not, and cannot, measure or be predicated upon the perceived value of water.

OWNING WATER?

According to a recent report, a wastewater utility in Texas has asserted that it owns treated effluent from its facility and retains ownership even after the effluent is discharged into a river.* The ownership claim was made in an application for a "bed and banks" authorization to help support uses of the river.

Ownership of water, or the lack of ownership, can be a complicated and inconsistent issue across the United States. And, ownership of water does not necessarily mean control or permitted use of water.

For example, in Texas it appears that ownership and control of water depends upon the source of water. Groundwater below land is the property of the landowner, but withdrawal of the water is subject to controls by the state. Surface water is owned by the public and controlled by the state. Storm water is the property of the landowner until it enters a natural watercourse.

Another example is the use of Lake Michigan as a drinking water source. The water may be held in trust for the benefit of the public, but withdrawal of water is subject to control by a US Supreme Court decision in the case of Chicago area; state allocations; an international compact, and other law.

Still another example may be the ownership of a tract of land on which there is a wetland. Te landowner may own the wetland, but may be prohibited from draining or developing it by federal or state law.

If a water utility takes raw water from a source, whether groundwater or surface water, and treats the water to USEPA standards, does it "sell" the treated water delivered to a customer? A sale would imply ownership of the water first by the utility and then by the customer. Some oourts have held that a utility does not sell water. Rather, its charges are for providing a service--finding source water, treating it and delivering it to a customer. In turn, it would appear to follow that a customer has use of the water but not ownership.

Along the same lines, when a drinking water customer flushes wastewater delivered to a sewer, does the wastewater utility (often the same utility that delivered the drinking water) acquire ownership if the influent? Or, does the utility merely provide and charge for a service--receiving and treating wastewater to enable it to be delivered to a waterbody?

In many ways, issues of use or control of water may of greater importance than ownership. At best, the issue of ownership would seem quite fluid.

__________________________________________________

*"Water Rights...Even After It Leaves The Pipe?",
WEF Magazine, Nov. 2014, p.19

GETTING THE LEAD OUT

Lead in drinking water has been a regulatory target for some time. Water public utilities rarely, if ever, furnish treated water containing lead. Rather, typically, lead enters drinking water from sources within a customer's property--such as from use of lead based solder for connecting copper pipes, use of faucets made from brass, and use of lead service lines from the distribution main in the street to the premises.

Under the federal Safe Drinking Water Act, U.S.EPA has been dealing with lead issues since at least 1986, reducing the permitted lead content in plumbing materials. In addition, there has been a focus in possible reduction, in some circumstances, of the aggressiveness of water supplied by a utility.

In 2011, Congress enacted the Reduction of Lead in Drinking Water Act, which imposes a new, more strict definition of "lead-free" plumbing. Under the Act, "lead-free" means that solder and flux must not contain more than 0.2% lead, and the wetted surface of drinking water pipes, pipe fittings, plumbing fittings and fixtures cannot exceed a weighted average of 0.25% lead.

The Act states that no person may use any pipe, pipe or plumbing fitting, fixture, solder or flux that is not so "lead-free" in the installation or repair of any public water system or any plumbing in a house or non-residential facility which provides water for human consumption. The Act provides a formula for calculating the weighted average lead content of wetted surfaces. Exemptions from the lead-free requirement are provided for non-consumption uses, such as toilets, bidets, urinals, shower valves, outdoor watering fixtures, etc.

The Act becomes effective January 4, 2014. However, U.S.EPA likely will soon propose regulations to implement the Act. A proposed rule may be published in October, 2012, with a final rule by the end of 2013. It is possible that, in addition to banning items that do not comply with the lead-free requirement, the regulations may establish other requirements, such as specific product identification and compliance procedures.

As the Act can affect not only water utilities but also homeowners, plumbing contractors, manufacturers, vendors and the like, it may be prudent for interested parties to be aware of both the Act and the implementation regulations.

IT'S ALL IN THE ATTITUDE

Long before the Chicago Blackhawks and Stanley Cup of 2010, there was a Chief Black Hawk and the Black Hawk War of 1832. Many regular army soldiers as well as volunteer militia joined in a frustrating search through marshes of southwestern Wisconsin, hunting for the Chief and his followers. One of the volunteers was Abraham Lincoln. One of the regulars was Second Lieutenant Phillip Cooke, Acting Adjutant for the 6th Regiment, U.S. Army Infantry.

Recently, I came across an interesting and instructive quote by Cooke, writing of his marching and encamping on July 21, 1832, in his book "Scenes and Adventures in the Army: Or Romance of Military Life":

"What wealth is there in a cheerful spirit! A good soldier never grumbles ( if he can help it);--when his rights are invaded, he pursues the most quiet, firm, and effectual mode of redress."

It would seem that this quote is good advice for anyone. However, it can be particularly good advice for anyone engaged in water or wastewater operations when encountering regulatory, administrative, financial or operational issues.

NO SUCH THING AS FREE WATER

In the frontier days of the United States, perhaps drinking water really was "free". One can picture from movie westerns a mountain man fur trader or cowboy dipping a tin cup in a mountain stream without apparent ill effects. Today, however, the notion that fresh water is "free" and that there should be no charge for it is a total misconception. The fact is that none of the water we drink or use in commercial activities or use to fight fires is free.

Public utility water and wastewater systems, whether municipal, investor-owned or non-profit, all provide a service to their users. In the case of drinking water, they withdraw raw water from the ground or a surface water source (lake or river), treat the water to remove contaminants, and deliver safe water in volumes and pressures to satisfy demands of homes and businesses. In the case of wastewater, they collect, treat and discharge sewage.

All aspects of water service and wastewater service impose costs which must be recovered in the prices of these services. If these costs are not recovered in the price of service, the service provider will not be long in business or is subsidizing service from a source other than the service users.

Accordingly, as a general principle of law, water utilities are entitled to recover their reasonable costs of service. And they should do so in their rates charged users. However, not all utilities necessarily do this, for political or other reasons. That can lead to infrastructure and other deficiencies or cross-subsidization by other customers. (More on that another time).

Therefore, the common misconception that water is free because it in the ground or a water body should be corrected by the understanding that a user should and must pay for the costs of service. Even someone who drills a water well or buys a bottle of water pays a price for the costs incurred. THere is no such thing as free water.