challenge of owning utilities
June 1, 2003
June 1, 2003
By PAM ADAMS
of the Journal Star
SPRINGFIELD - Peoria's city fathers sold its municipal water plant for $225,000 in cash in 1889. The sons of the fathers have been trying to get it back ever since.
The original buyers, private investors out of New York state, also agreed to make infrastructure improvements and assume $475,000 in debt, raising the price tag to $700,000. Down the line, subsequent leaders continually questioned whether the bailout was worth the loss of local control.
Invariably, during the 1930s, '50, '70s and '90s - whenever city
leaders became alarmed by rising water rates or poor water service, not to mention the
lure of water profits - Peoria's water buy-out proponents would bring up Springfield,
among other municipally-owned utilities in the state, where rates always seemed to be
Invariably, during the 1930s, '50, '70s and '90s - whenever city leaders became alarmed by rising water rates or poor water service, not to mention the lure of water profits - Peoria's water buy-out proponents would bring up Springfield, among other municipally-owned utilities in the state, where rates always seemed to be cheaper.
The state's capitol has owned a water system since 1839, longer than Peoria has been trying to buy one back. It's controlled the city's electric service for almost as long.
"We've always had our own water and power plant," says city alderman Frank Kunz, "That's all I've ever known, is the city owning it."
Peoria can say it controlled the city's water supply once upon a time, but Pekin has never had a city-owned water system, which accounts for different procedures in each city's current attempt to buy out Illinois-American Water Co. operations in their districts.
After a successful court fight over its right to buy out the company, Peoria has begun the process of negotiating a purchase price with Illinois-American, who, along with its predecessors, has adamantly opposed selling for as long as Peoria has tried to buy it back.
Meanwhile, Pekin is waiting for state regulators to decide if the city can take over the water service through eminent domain rights.
Both cities' forays into the municipal water world skirt the edge of much broader, complex, increasingly controversial debates on the merits of investor-owned companies versus not-for-profit utilities.
The debate goes deeper than which type offers the best service for the lowest rates. What's emerging is a clash of competing ideologies. One says private enterprise always runs utilities better than governments, the other counters that utilities like water and electricity are too basic to the public good to be treated as profit-making commodities.
Peoria and Pekin are merely dipping a big toe, so to speak, in the waters of publicly-owned, not-for-profit utilities.
Even if buy-out efforts succeed, they plan to retain control while contracting management to private companies - a form of privatization that's not exactly what advocates of publicly-owned utilities mean when they tout the advantages of local control.
Springfield has always had a different attitude.
The official name is Office of Public Utilities, but it's known as Springfield City, Water, Light and Power. An inscription at the entrance to the water purification plant reads, "A Monument to the Ability of the People to Serve Themselves and Build for Posterity."
CWLP's general offices are downtown in city hall, upstairs from the police department. Southeast of downtown, man-made, city-owned Lake Springfield is the city's water source. It's also a city-owned recreation area and home to the city's lakeshore power plant. Incidentally, the electric division is the water division's largest customer, the state of Illinois is second.
Not only does the water and electric utility burn Illinois coal to save Illinois jobs, it manages city-owned residential property surrounding the lake.
Springfield public officials are so steeped in the total public-power package, they talk confidently of taking on more.
AmerenCILCO, the investor-owned utility that also serves Peoria, provides gas to Springfield residents. CWLP's finance director, Al Monson, says he'd love to see the city take over CILCO's service to residents, though he knows that would never happen. With cable rates pushing higher, the city has explored the potential of getting into the cable business.
According to Monson, municipal ownership of water and electric utilities has brought Springfield the advantages typically associated with public utilities: low rates, tax-exempt borrowing power, and the ability to guide the city's growth.
CWLP returns a percentage of its revenues, in lieu of taxes, to the city's corporate fund. Last year's total payment was about $3.5 million, including about $300,000 for water. "We look at it as dividends accrued to customers," Monson says.
But Springfield faces the same kinds of challenges that made many cash-strapped municipally-owned water utilities either sell out or turn to private management to save money. Rates will eventually have to be increased substantially to make needed infrastructure improvements and build another lake for an alternative supply source during droughts.
"Rates are inexpensive here, too inexpensive," says new CWLP general manager Todd Renfrow. "People have gotten spoiled."
The city also deals with the issues investor-owned utilities often cite as the downside of municipal ownership, from political appointments to different rates for customers outside city boundaries. CWLP does charge higher rates to the six neighboring communities it serves. "These rates subsidize rates for our residents," Monson says.
Contrary to history in Peoria and Pekin, municipally-owned water systems like Springfield's are the norm. Eighty-five percent of cities control their water supply. Municipal electric utilities, like Springfield's, are a minor part of the industry. More than 70 percent of the nation's electric customers buy from investor-owned utilities.
But both sets of statistics are changing. In the wake of Enron-esque debacles and higher rates tied to deregulation, more and more cities are calling for local control of investor-owned electric utilities. Faced with budget deficits and huge costs to upgrade aging infrastructures and make other improvements, more and more municipally-owned water systems hope to save money by hiring private companies to manage their water systems.
In Springfield, Monson is still sure cities can compete with private businesses.
"I maintain one of the biggest advantages of municipal ownership is municipal control," he says. "You lose some of that if you contract it out, but you still have a hammer."
Over the course of a 164-year history of municipal ownership, Springfield has gone through most of the challenges facing public utilities today. During a money crunch in the early 1900s, the city council diverted water earnings to other uses, resulting in a decade of poor maintenance and bad service.
Though the city went through many battles before it became the sole provider of electricity in the 1960s, one early 1900s battle literally resulted in a riot in city hall.
Similarly, Peoria's previous attempts to buy out a water company hinted at ideological divisions shaping up today.
In a 1930s attempt to lower rates by threatening to exercise the city's take-over option, Mayor E.N. Woodruff assured citizens a city-owned water system could be operated as a "public trust," similar to libraries.
"It is my belief that every progressive City should own its water works on account of its close relation to public health and fire protection," Woodruff said in a published letter.
By the 1950s, Peoria leaders took a more materialistic view regarding control of the water system.
"Water is a profitable commodity," then-mayor Eugene Leiter noted during another doomed council debate on the subject.
Public trust or profitable commodity? Neither Woodruff's argument, or Leiter's, swayed crucial opinion in the first half of the last century. But they did prove the old maxim about history refusing to stay in the past.