local politics: South Bend water deregulation referendum

In an odd way, national politics is a simpler organism than its local counterpart. It's predictable: you can be (relatively) confident that in any given issue the Democrats will want X and the Republicans Y. Deregulation is a great example: despite a handful of apostates on either side (and, as usual, more Democratic ones than Republican), you can bet that the Democrats will oppose and the Republicans support any given attempt at deregulation. Budgeting is another area, as the US Congress generally only deals in broad strokes, far removed from the nitty gritty of funding matters, and is free to dig as deep a deficit as they want, so the Congress tends to wax doctrinaire when it comes to fiscal matters. This is a luxury local politicians just can't afford.

Hence we come to an odd situation in South Bend, where there is a referendum on this November's ballot to deregulate the waterworks, and our very Democratic mayor, Steve Luecke, is actively supporting it. Before we collectively cry "Turncoat!," "corporate sellout!," or "Bush Dog Democrat!," let's hear what he has to say. From a document the mayor has been passing out:

This is a brief synopsis of why I believe South Bend Water Works should come out from under Indiana Utility Regulatory Commission (IURC) oversight. When the administration proposes a rate increase for our water customers, we hire outside professional engineering and accounting firms with utility rate making expertise and experience to review capital and operating costs, to look at the existing rate structure and determine what is needed to meet current and long-term needs. After this information is compiled, we present a proposed rate to the Common Council. These locally elected officials review the studies we have prepared, hold a public hearing and vote on the rate increase. For our wastewater utility, that is the final step. Once the new rates are approved they can be implemented. For our Water Works we must then present the same case to the IURC that we presented to the Council. This is a costly step that adds months or years to the approval process. What it doesn’t add is value for our customers.

Our average case before the IURC costs $150,000 (for consultants, lawyers and rate experts). Our last case cost over $600,000! It took three years to conclude - and the IURC ultimately approved the very rates that we had proposed. With the last four rate cases we have spent over $1 million for the IURC review. That’s $1 million that could have been spent for new wells, improved filtration, main extensions, connecting new customers or our leak insurance program. The IURC did not change our rates from what the Council had approved. Where is the added value?

I believe that the IURC plays an important public review role for private utilities. However, it is an unneeded level of bureaucracy when the rates are already reviewed and approved by elected officials. If the City Council feels that they don’t have sufficient expertise to review these rates, we have offered to pay for an independent review by a separate accounting company with utility rate making expertise that the Council selects to evaluate the proposal. Their charge would be to recommend the lowest rates possible to accomplish the needed work to ensure adequate quantity of safe quality drinking water for community needs. This would be far less expensive – and considerably faster – than the IURC review. If I believed that the IURC added value for South Bend customers, I would not have proposed this referendum. But I don’t believe we are getting our money’s worth.

Furthermore, our Water Works currently applies a 20% surcharge to customers outside the city limits. The IURC has indicated that they may no longer approve such a surcharge even though we have presented studies which support an even larger one. . If the IURC denies the surcharge in the future, South Bend customers will have to pay higher rates to make up the difference. I don’t think that is fair.

Almost ninety per cent of Indiana communities have opted out from IURC oversight. It appears that they are satisfied with their local elected officials setting their rates because none of these communities has chosen to opt back in to the IURC process. Not one! Lafayette, IN and other communities are also seeking to opt out this year. I believe they are making the right choice. It is also the right choice for South Bend. Please vote YES on the municipal utility referendum.

Obviously, being a Democrat, given a choice I prefer more regulation over less, and I would especially like to know if this extra layer of oversight was intentionally added at some point in the past, and if so, why. Many states have deregulated in the last 15 years only to discover the hard way that those regulations were put there for a reason. Nevertheless, the mayor makes a compelling case here: the city just doesn't have the money to be ponying up for superfluous services right now. Furthermore, the water works is a public entity, not a profit-driven private enterprise, so if there's an angle for them in deregulating, I don't see it. I tend to trust Mayor Luecke; he's run an honest administration and has done a pretty good job with a lot of difficult choices, so if he says this is the way to go, I'm inclined to believe him.

I'll be voting Yes.