The bill was a late addition to yesterday’s House Energy and Public Utilities Committee; it had originally been scheduled to be discussed in committee today. Instead it is scheduled for a full House vote today during its 2 p.m. session.
Essentially, the bill would change the price for which a municipality can sell its water system to a private company. Currently, cities and towns that want to sell — often because they can no longer afford the expensive upkeep on their ancient infrastructure — set a price at their rate base minus the depreciated value of the system. Just like a fixer-upper home, the 80-year-old underground mains and wheezing water treatment plants reduce the asking price.
But under “fair value legislation,” as it’s known, an “independent valuation expert” establishes the price. This is often at the full value of the system, as if it were unfettered by looming maintenance costs. That’s a win for the city, but a loss for the customers.
“If a town or city is struggling to keep up with repairs, it’s more likely to sell,” said Katie Hicks, associate director of Clean Water for North Carolina. “We know that small and rural systems are struggling to keep up. This is a mechanism to make a profit on the backs of the ratepayers.”
Although the deal is a more expensive venture for a private, investor-owned water company, fear not, shareholders: The cost could be passed along to water customers, as part of the company’s rate case before the state Utilities Commission.
And as a bonus, these “independent valuation experts” can receive up to a 5 percent commission on the sale price. So again, to use the real estate comparison, the higher the sale price, the higher the commission.
Privatizing a common good, like water, has already resulted in higher prices for North Carolina customers who are on those systems. One major private utility, Aqua North Carolina operates 750 water systems in the state and 59 wastewater treatment plants, for a total of 282,000 customers.
Many of these customers are unhappy with Aqua, which is notorious for its poor service, high prices and brown water. (Whenever the company comes before the utilities commission asking for a rate hike, dozens of customers invariably testify to their horror stories, even bringing in jars of tea-colored tap water as evidence.)
The National Association of Water Companies, of which Aqua is a member, recently gave a presentation to the House Energy and Public Utilities Committee. The NAWC emphasized the cost of operating and maintaining these private systems, many of which are “distressed.” The companies are not guaranteed a certain rate of return on their investments.
However, the association glossed over the fact that even with more revenue generated from higher water rates, the companies are often slow to upgrade their water systems. These private companies can be like landlords who have too many properties and not the wherewithal to keep them up.
If it becomes law, North Carolina would join six other states that have passed similar legislation: New Jersey, Pennsylvania, Indiana, Illinois, Missouri and California. Last December, the trade publication Global Water Intel reported that “fair market value legislation bodes well” for investor-owned utilities shopping for distressed water systems. It also portends a larger trend toward privatization of public utilities.
GWI reported that “strained municipal budgets and political pressure on the efficacy of water systems, the increasingly supportive regulatory environment in states in which Aqua operates is creating unprecedented opportunities.”
“I’ve been in the business for 23 years,” GWI quoted Aqua America CEO Chris Franklin as saying, “and I have never seen the level of activity in the municipal sector like there is today.”