5/22/2012 SEWER COMMISSION Minutes

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i 3 C1 C infrastructure,have no problems the country's first public utilities. meeting all those regulations and, Cost-of-service is nothing new or depending with whom you speak, special;it is not that difficult,and save the world from water short- it can be implemented effectively in ages while curing any other social every case. and'economic evils created by the The failure of water and sewer collective anti wisdom of utility rates in America is front and cen bills past. ter in the industry's great issues, : Zwouid settle for just eliargfrig although one would not know it for the actVAI costs:Presumably; in the grand scheme of things.As the"true value of water'is some- an industry,we do not believe we thing higher than the actual cost. have enough money to deal with But becau8e not enough utilities are things like a major gap in fund- recovering even those costs,a debate ing the replacement of aging infra- over charging more tivould seem to " structure.The U.S.-Conference of be,well,kind ofsilly...'in the grand Mayors estimates that gap to be at scheme of things. $3 trillion over the next 20"years. After all,if communities are'loath The seemingiyinsurmountable to pay even enough to recover the mountain of cash required has led costs,what'exactlyis going to moti- manyto advocate for increased vate them to,suddenly start paying government grants;new banks cap- for the"tr'ue value"instead? italized'and run by the Treasury Department for making loans to Cost-of-Service Rate-Making local water and sewer agencies;and There are plenty of reasons-too still other expansion and/or ore- many to discuss here=why we do ation of government programs to not want utilities,public or private, pick,up the slack. to determine the value of their set- Virtually nowhere are solu- vices.As monopolies,utilities are in tions proposed encouraging utili- " a special category of business=one ties to charge for the full cost that as a society we have come to of the services they provide,Dr. learn through economic theory and Janice Beecher of the Institute of in actualpractice is not seif-reg- Public Utilities at Michigan State ,I ulated by the market powers that University recentlyywrote in"Primer" i apply to other types of commerce. on Water Pricing"that"Translating Instead,we have reached a compro- costs into rates requires'A willing- mise with utilities that allows them ness to charge on.the part of utilP' to recover their costs.The nor- ties."80true. mal process for determining util- In the grand scheme of things, ity rates commonly-is"referred to what really ails the industry is not as"cost-of-service rate makfhg"for lack o£access toTinancmg'o'r any this reason, kind of funding gap for aging infra=' Utilities have cost-of-service structure,Why do those issues exist rate=settfng methods at their dis- in the first place?They exist`becanse i posal.Tlie American`Water Works of broken utility"business models, Assri.publishes generally accepted made so by unsustainablylow prices, methods for drinking water-utili- for service.But if rates have been a ties,and the Water Environment lingering weakness,they also can be Federation publishes a similar guide 'one of the mdustry's most important for wastewater utilities.While those strengths,if only we are willingi tom] resources are helpful,the legal;doc- trine for cost=of-service rate-mak- Jason Muinm is president of Stepwise ing predates those publications,by Utility Advisors.Mumm can be reached at decades:In the grand scheme of jay@stopwiseadvisors!com, ' things,cost-,of-service rate-making l has been around in the U.S.since For more information,write id1104 on this the 19th centuryand the creation of 'issue's reader setvicefform on page 54. ?' i