Category Archives: Illinois American Water

City of Peoria, Illinois American Water

IAWC to stop collecting “garbage fee”

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Your water bill is going to be $13 lower pretty soon.

Illinois American Water Company (IAWC) has informed the City of Peoria it will terminate billing services for the City’s so-called “garbage fee.” Peoria isn’t alone; IAWC’s parent company is terminating all municipal billing services in order to “focus on [its] core business,” according to a spokesman.

Of course, you’ll still have to pay that $13 per month, so the City will have to find another way to collect it. The most likely option is for the City to bill residents directly, though it’s possible the City could find another partner to pick up the billing services. City Manager Patrick Urich told the council in an e-mail, “We are working on several options for assuming the billing operations and I hope to have something to Council soon.”

Other cities are scrambling to assume billing operations, too, and it’s not a cheap alternative. Richmond (Ind.), for instance, used American Water to collect their sanitary sewer charges. Taking the operation in-house will cause the cost of collecting those fees to double, according to their city controller. Chattanooga (Tenn.), which also collected sewer fees on their water bills, charges residents an extra $3 per month now as a result of the billing being transferred to the City.

There are a few other options that could be considered by the City at this time of transition.

  • Replacing fee with property tax hikeOne option (unlikely to be entertained at all by the Council) is eliminating the fee and collecting the revenue through property taxes. With a flat fee, everyone pays the same amount: $13. With a progressive tax, those with higher property values would pay more than those with lower property values.According to the 2012 City budget, the “Refuse Collection Fee” brings in $6,271,932 to City coffers. And according to Peoria County’s Tax Computation Worksheet for the City of Peoria, the City’s residential rate-setting Equalized Assessed Valuation (EAV) for 2010 (latest worksheet posted on the County’s website) is $1,324,615,014. Given those numbers, in order to collect the $6.27 million through property taxes, the tax rate would have to be raised 0.004739.That would mean the owner of a $100,000 house would pay $157.83 more on their annual tax bill. That’s only about $1.83 more than they are paying now for the garbage fee ($13/month x 12 months = $156/year). The break-even point would be approximately $98,800. Those with property values above that amount would pay more than the current $13/month garbage fee. Those with property values below that amount would pay less. The fee will also depend on Dumposaurus dumpster sizes and the waste container type.

    The argument for this system is that the burden for City services is borne proportionately (and thus, more fairly) by the residents. Critics argue that higher taxes will keep people from moving into Peoria and may drive people to move out. Furthermore, they argue, everyone benefits equally from garbage collection, so everyone should pay equally for it as well.

    From a billing standpoint, the County would collect this tax just like all the others through the property tax bill, so there would be no increased costs to the City for billing.

  • Replacing fee with garbage stickersOther cities take a different tack regarding garbage fees: they base it not on property values or flat fees, but rather how much garbage residents throw away. In Aurora (Ill.), for instance, residents purchase garbage stickers for $2.68 each and affix one sticker to each bag or 32 gallon garbage can each week. This way, those with less garbage pay less in fees than those with more garbage. It could even be used as a way to incentivize recycling.However, since garbage without valid stickers do not get picked up, there could be unintended consequences. Garbage could pile up on the properties of negligent residents or in vacant lots as people try to get around the fees by doing illegal dumping, and that would obviously be a health hazard. It would also raise costs for the City for enforcement and cleanup.From a billing standpoint, the cost of printing, distributing, and collecting revenue raised by the stickers would have to be worked into the price of the stickers. These costs would likely be less than mailing a bill directly to each household.
  • Having PDC collect the fee directlyAccording to the City, this fee is solely for garbage pickup and tote rental. If that’s the case, then a reasonable question would be, why is the City handling the billing and collection of this fee? Why not have PDC collect the fee directly and cut out the middleman? Other utilities (water, electricity, cable) direct bill for their services without going through the City, even if their rate is negotiated by the City (e.g., electricity rates were recently negotiated by a number of municipalities).This doesn’t change anything about how the fee is assessed, but it does resolve the issue of finding a new way to bill the residents for the service. It also would allow the City to completely cut out the need to collect money and pass it on to PDC.
City Council, City of Peoria, Illinois American Water

Water rates could skyrocket

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Future water bills will be significantly higher if Illinois American Water Company and the City of Peoria get their way.

Illinois American Water Company (IAWC) wants to raise rates about 5% for infrastructure improvement, plus another 30.18% for a general revenue increase to cover higher operating expenses. The City, also in need of more revenue, is considering the possibility of imposing a 5% water utility tax to take effect next spring.

Let’s see, 5 plus 30.18 plus another 5 . . . that’s a 40.18% increase! That means a family that currently pays $30 a month for their water bill will be paying $42.05 (and this doesn’t include the $6 “garbage fee” that will remain on the water bill as well). That’s an increase of $144.60 per year. Wow!

Speaking of the garbage fee, they’re simultaneously looking at cutting the very services that fee supports. They’re suggesting the elimination of free landscape waste pickup — transferring the cost of that service to the users.

Meanwhile, downtown parking will continue to be subsidized. Priorities, you know….

Look for the exodus from Peoria to continue.

City Council, City of Peoria, Illinois American Water

Water company buyout on agenda for Tuesday

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As my letter from Illinois American Water indicated, the council will be taking up the matter of whether to buy the water company at their Oct. 28 meeting.

Included in the council communication are (1) the March 1, 2005, letter of appraisal that set the value/purchase price of the Illinois American Water Peoria District at $220,000,000, and (2) the City’s Water Company Acquisition Financial Analysis. The financial analysis estimated that 2006 revenues would have been $29,360,000, based on actual revenue information acquired through the due-diligence process at that time. It also estimated that an operations contract to manage the water company would cost about $11,000,000 in 2006, increasing 3% each subsequent year.

The analysis showed that the water company would pay for itself — i.e., taxes would not have to be raised to cover the debt service — and water rate increases would only be 3% per year. Under this scenario, sufficient funds would be set aside for capital improvements as well.

Of course, things have changed since 2005. A new analysis would have to be done, as well as a new appraisal. According to the council communication, due diligence could cost as much as $2 million, and the city could find that it now can’t afford the water company when all is said and done.

Mayor Ardis is quoted in the paper today as saying, “To me, it will be very difficult to justify spending $2 million to do due diligence on this under the current budget constraints…. I don’t think that is a priority.” Ardis voted against the buyout last time, also.

Also of interest in the Journal Star’s article are some preliminary numbers from Illinois American Water Company’s telephone poll:

Company spokeswoman Karen Cotton said the research shows that of 400 registered voters in Peoria who were polled, 55 percent strongly opposed a city-backed buyout of the waterworks, while 89 percent believe City Hall has higher priorities.

In a 2005 referendum, 82% of voters were opposed to the water company buyout. Depending on how many were “somewhat opposed,” we may find that opposition is softening.

City Council, City of Peoria, Illinois American Water

Water buyout mania starts again

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I got a letter from Illinois American Water today (as I’m sure many of you did, too). I thought it was going to be a report on water quality, but to my surprise, it’s the first volley in the quinquennial fight over the City’s attempt to take over the water company! The pertinent portion of the letter reads (underlining in original):

One other matter I would like to inform you of is that the Peoria City Council is expected this month to consider whether to pursue a buyout of Illinois American Water’s Peoria District water system. An 1889 franchise agreement gives the City the right every five years to pursue a buyout of the water system. As you may recall, in 2005 residents of Peoria voted against a buyout by a margin of 82-18. At that time, an independent panel determined the purchase price would be $220 million in addition to new capital investments made by the company.

If the City Council decides to again pursue the takeover of the water system, the study alone may cost taxpayers $1 million or more. In addition, the company has made significant capital improvements since 2005, which have increased the value of the water system. Some buyout proponents suggest that the takeover of Illinois American Water’s business in Peoria will provide new revenue for City projects not related to the water system. That would be a mistake. Revenue from water bills should be used to operate and invest in the water system, as we do, rather than to fund other City projects. We have encouraged members of Council not to pursue a buyout because there is no reason to do so. A buyout process will be very long, costly and divisive while distracting the City and the company from more important priorities.

I could be wrong, but if I were a betting man, I’d bet that this time we’re going to hear the biggest push ever to buy the water company. Why? Three letters: CSO. The city really, really wants to find a way to pay for the Combined Sewer Overflow project without raising taxes. Being able to take water company revenues and put them toward that effort may prove too hard for the council to resist.

I’ve always been against the water buyout in the past, chiefly because I fear the city will use water rates to raise revenue for other things — essentially a hidden tax that could be used for questionable things like Gateway Buildings and subsidized parking decks. And that’s the argument the water company is making as well in this letter.

But on the other hand, it’s not like Illinois American Water is a non-profit cooperative, putting all their revenue back into the company. They make over $6 million a year in profit for their shareholders. Why shouldn’t the City make that profit and be able to use it toward, say, the CSO project? Or to get rid of the so-called garbage fee?

I’m starting to change my mind. It’s not that I don’t still have the same concerns about a potential water company buyout. It’s just that desperate times call for desperate measures. Buying the water company might be a way for the City to mitigate potential tax increases and still have the money to take care of the CSO project and other basic services.

City of Peoria, Illinois American Water

Water main leak at Main and Madison

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I just received this press release from the City of Peoria:

Due to a water main leak downtown in the intersection of Main Street and Madison Avenue, lanes will be reduced while Illinois American Water Company and Ameren make repairs to their utilities. Please plan your route accordingly to avoid this intersection for the next week as delays will be possible. It is anticipated that one lane of traffic will be maintained in all directions – but this may be subject to change depending on the extent of damage found when making the repairs.

City of Pekin, City of Peoria, Illinois American Water

How high’s the water (rate), Mama?

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Illinois American Water has petitioned the Illinois Commerce Commission to raise their rates in Peoria and Pekin by 20 and 26.7 percent, respectively.

Water company officials say the increases are necessary to cover rising operating costs and infrastructure improvements….

And now, let’s compare this with what Illinois American Water said two years ago according to an April 4, 2005, Journal Star article:

The current business plan of Illinois American Water does not call for a general rate case before 2009, and that means customers will not see the impact of a general rate increase before 2010. Barring an extraordinary event like Sept. 11, the average residential bill will still be $34.74 [average bill in 2005] in 2010.

It is also important to note that the U.S. Environmental Protection Agency estimates that municipal water systems need to spend $18 billion in order to bring their existing systems up to government standards for water quality. Peorians don’t have this problem because the necessary and timely investments have been made in their water system by Illinois American Water.

So, in 2005, everything was hunky-dory: no rate increases until 2009/2010, infrastructure all up to date. That was when the city was on the brink of buying out the water company. Now, just two years later, and without “an extraordinary event like Sept. 11,” they’re back to the ICC again asking for a 20% rate increase to cover operating expenses and infrastructure improvements. What changed? Why did they have to accelerate their business plan by two years and ask for such a massive increase all of a sudden?

For a company that doesn’t want the city to buy back its water works, they couldn’t have picked a worse time to ask for a rate increase. If it goes through, it will likely take effect next year, just in time for the city to consider buying them out again. Only public pressure has stopped the buyout before; if the public feels like Illinois American Water is screwing them, nothing will get in the way of the city buying them out.

City Council, Illinois American Water

CEO: American Water to be an “aquirer”

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The Houston Chronicle reported yesterday that American Water CEO Donald Correll wants to see his company be an “aquirer.” American Water is the parent company of Illinois American Water, which serves Peoria. American Water’s parent company, RWE AG of Germany, will be spinning off the water works through an initial public offering next year — Correll hopes by the second quarter.

They’re certainly big enough to be an aquirer. American Water serves 18 million people and earned over $2 billion in 2005 according to the article. In contrast, the “biggest publicly traded U.S. water utility is Aqua America Inc., which has over 2.5 million customers and $496.8 million in 2005 revenue.”

[The] small pool of publicly traded U.S. water utilities makes Correll hesitant to talk about American Water’s acquisition strategy.

“We will be a consolidator,” he said. When pressed for more details, he said he feared the industry’s makeup makes it difficult not to “name names” when discussing possible deals.

[…] Looking ahead, Correll said the biggest long-term growth opportunity likely comes from partnerships with municipal systems.

Municipalities and other non-private entities control about 85 percent of the country’s water systems. Few have been willing to sell their systems, so such outsourcing deals offer the best opportunity, Correll said.

Once the IPO is complete and American Water is no longer “foreign-owned,” At-large Councilman Chuck Grayeb will have to drop the xenophobia from his perennial pro-buyout spiel. That’s a shame because, from a purely theatrical standpoint, that was the most dramatic part of his performance.

Illinois American Water

Tribune looks at water buyout efforts

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The Chicago Tribune has a good article on the fight many communities are waging to buy back their water works from American Water Company. You’ve probably heard most of the stories, but I did find a couple of quotes particularly interesting:

In most instances, American Water–RWE’s U.S. arm and the largest private water company in the country–has won. In the last 15 years, it has sold only three operations because of hostile challenges.

I didn’t know they had sold any, did you? Although the Tribune sets this in a negative tone (“it has only sold three…”), I imagine most cities would see this as an encouragement. If hostile challenges have worked three times, they can work again, right? On the other hand, RWE has a strong incentive to keep fighting:

The Illinois challenges come at an especially delicate juncture for the company. Although American Water officials say none of the firm’s individual units is for sale, RWE is pursuing a public stock offering for the whole of American Water. If communities succeed in taking over even a few of its subsidiaries, the value of the public offering could be seriously eroded, company officials say.

I suppose their reasoning should have been obvious, but this is the first time I’ve seen the company say something other than simply “it’s not for sale.”

Even though I’m not a proponent of Peoria buying back its water works, I think it’s good to keep abreast of this issue because it’s only a couple of years before Peoria tries the buyout route again.

Illinois American Water

At least the trip to Germany wasn’t for naught

Urbana Mayor Laurel Prussing flew to Germany earlier this spring to see if she could talk RWE AG into selling the city its part of Illinois American Water Company.  Of course, they said “nein,” but the News-Gazette reports that Illinois American did announce yesterday (coincidentally, they claim) they plan to “build a new water treatment plant in west Champaign, part of $40 million in capital improvements planned over the next five years.”

So, I guess the trip wasn’t all for naught.