IAWC officials answer council’s water takeover plans

MOORESVILLE – Joe Loughmiller of Indiana American Water Company gave several rebuttal comments in a press release concerning the Mooresville Town Council’s intention to take over its water system.

IAWC is not a willing seller. IAWC President Alan DeBoy, local representative Troy Bryant and attorney Nick Kile of Barnes & Thornburg LLP met with the town council at a public hearing and local residents on Tuesday. The IAWC officials wanted a chance to answer a presentation by town councilman Tony Langley, but said they hadn’t been given a chance. They released this information for Mooresville residents.

Town’s claim: City ownership will lead to reduced costs, lower rates than if privately owned.

IAWC says: The price of water for investor-owned systems reflects the full cost of water services for a given period, whereas public systems may not. While public systems may defer costs and recover them in the future, costs for capital improvement projects must ultimately be recovered through taxes or rates. Government-owned utilities also have a limited taxpayer and revenue base, which must service all the municipalities needs, not just water services. As a result, many municipalities, particularly medium to smaller systems, find themselves with significant constraints in their ability to attract capital to maintain reliable service and comply with increasing quality requirements.Aside from the normal operating expenses and capital investments needed to operate a water utility, a municipality using eminent domain proceedings will also incur extremely costly legal and consultant fees during a lengthy process, as well as the new debt that will be required to actually purchase the utility. History has shown that these government takeovers, if successful, invariably lead to higher rates and higher taxes.

Town’s claim: Indiana American Water requires developers to fully fund all infrastructure extension and development costs without an opportunity to recoup those investments.

IAWC says: Indiana Administrative Code requires developers to fund main extensions so that existing customers/taxpayers are not forced to subsidze growth. This process includes many opportunities for developers to recoup their investment, specifically by collecting subsequent connector fees, revenue refunds and upsizing cost recovery for both residential and commercial properties.

Town’s claim: Indiana American Water is allowed to include contributed property as part of its investment on which rates are set.

IAWC says: Contributed property (more commonly known as CIAC) is not included in the company’s investments that are used to set rates. As such, Indiana American Water is not allowed to earn a return on contributed property.

Town’s claim: The community is better off when the water utility is municipally owned since it does not have to pay taxes.

IAWC says: A government takeover would lead to a significant reduction in property tax revenues available to several government entities, including local schools and libraries, as well as the county, town and township. Indiana American Water is currently paying more than $50,000 per year in property taxes, with more than $20,000 going to Mooresville schools. Those lost tax proceeds will either negatively impact those schools or will have to be made up by raising taxes to the remaining taxpayers in order to meet the approved property tax levy to the town.

Town’s claim Municipalities have access to cheaper funds for capital projects and would be more efficient in making these investments.

IAWC says:The cost of upgrading water and wastewater systems presents sizeable financial challenges for many cash-strapped state and local governments. The water industry in particular is twice as capital-intensive as providing electricity and three times as capital-intensive as providing natural gas. Although municipalities often cite access to capital through government giveaway programs or low-interest loans as an advantage, the truth is, there is no such thing as a free lunch. These funds are in reality administered through costly government programs that, while they may not show up as a direct charge on your bill, you are certainly paying for them through a variety of taxes. Conceptually, this is not that dissimilar from the single tariff pricing model that councilman Langley has stated his opposition to, in that it spreads costs for improvements over a large body of customers/taxpayers — albeit in a much less open way and with additional overhead and administrative costs thrown in. In spite of the fact that the town has cited availability to these types of government funds for recent sewer plant upgrades, Mooresville’s sewer rates still increased 98 percent from 2009 to 2010. This type of an increase, known as “rate shock,” illustrates one of the primary advantages of the single tariff pricing model, which smooths out rate increases to more reasonable levels, especially for smaller communities like Mooresville. Indiana American Water’s customers in Mooresville actually saw decreases in their bills in half of the rate proceedings over the last decade. The single tariff pricing model is also widely employed by other utilities in Indiana.

Town’s claim: Service from a municipal water system in Mooresville would be less costly because of the expenses associated with Indiana American Water being regulated by the Indiana Utility Regulatory Commission.

IAWC says: The regulatory cost on a cost-per-customer basis will be significantly greater for a municipally-owned system than for Indiana American Water due to lost economies of scale. Indiana American Water’s regulatory costs, many of which would also affect the town of Mooresville, are currently shared across a base of nearly 300,000 customers throughout the state.

Town’s claim: Greater operational efficiencies can be achieved via local ownership of the water utility.

IAWC says:Public systems serving a small population have little bargaining power when it comes to paying for equipment, tools, chemicals and a host of other goods and services. Despite their tax base, they still must provide the same basic services, such as billing, customer service, and water testing as a larger utility — meaning water service management and maintenance comes at a much higher price. As a subsidiary of American Water, Indiana American Water is able to procure materials such as pipe, hydrants and fleet vehicles for much less than smaller systems and also manage their systems more effectively. Because of its volume-buying power, American Water can purchase many of these basic supplies at less than half the cost or more than a small municipal system and pass those savings on to its customers.As an example, American Water recently worked with the city of Buffalo, New York, as part of a public-private partnership to make operational and financial improvements to the city’s water system, saving them $21 million in six years.While the town’s presentation cited cross-utilization of labor and other resources as an advantage of municipalization, it is important to remember that Indiana American Water also takes advantage of these opportunities on a much larger scale with its base of 350 employees. Unlike the town, however, Indiana American Water’s shared human resources include experienced and skilled workers in the water industry, many with industry-related licenses and certifications. Another common practice for municipal systems is to divert funds away from its utility operations to subsidize other government functions. The result is that municipal systems are generally not as well maintained as investor-owned utilities and, consequently, have environmental, quality and performance records that are typically well below those of investor-owned utilities like Indiana American Water. Mooresville’s wastewater system, for example, has had four major violations in the last decade, most recently in June 2012. American Water has a long history of complying with and, in many cases, surpassing applicable environmental laws and regulations. In fact, American Water’s record in this area is 26 times better than the industry average.

Town’s claim: Construction coordination with utilities will be better under municipal ownership.

IAWC says:Indiana American Water works closely with federal, state and local government and utility organizations to coordinate its activities as a part of the planning, design and construction process. Indiana American Water prepares comprehensive planning studies and five-year capital plans that are regularly updated to reflect changing priorities and circumstances in the communities they serve. These plans serve as a blue print for our activities and also serve to help our partner communities ensure that our priorities are in sync with their plans for growth and development.In the Mooresville area, some past efforts at coordination have been hindered since the town did not have a comprehensive capital spending plan.

Published August 11th, 2012 in The Reporter-Times