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Private water utility costs consumers in Superior
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UTILITIES | COMPANY PROFITS FACTORED INTO RATES

Private water utility costs consumers in Superior

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A glass of water in Superior, a city that stands on the shore of the largest freshwater supply in the world, costs more than almost anywhere else in the state.

One reason for the high cost is that the city’s drinking water system is owned by a private corporation, the only one of Wisconsin’s roughly 80 major municipal drinking water systems that isn’t publicly owned.

In setting water rates for Superior, the state Public Service Commission (PSC) awarded the water system owner, Allete Inc. of Duluth, Minnesota, a return on investment of more than 9 percent, the highest in Wisconsin.

The author of a bill to make it easier for out-of-state corporations to buy Wisconsin drinking water systems — and harder for citizens to block them — says there is no need to worry that a private owner would jack up water bills, because the PSC sets prices.

But the PSC factored in the profit expectations of the company’s shareholders and higher debt costs of private utilities in setting Allete’s base water rate higher than any other large water system.

“It is typical for private water utilities to have higher rates and lower access than municipal systems,” said Jenny Kehl, director of the UW-Madison Center for Water Policy.

The base charge for water in Superior — $51 per quarter — is more than double the average $21 for major water utilities in the state, according to data from the PSC website.

When base charges and the amount charged per gallon are taken into account, the average quarterly bill for a Superior customer using 5,000 gallons monthly is $152 a month, compared with the state average of $73, according to a study conducted last year by the Madison Water Utility.

“It is difficult to compare our rates only to municipal-owned systems,” said Paul Holt, manager and treasurer for Superior Water, Light and Power, which has been owned by Allete since 1923.

Holt said rates were structured to ensure that the company could compete for investors. The company has purchased a new storage tower and reservoir in the last 10 years, but those improvements aren’t necessarily more extensive than those done by other water systems, Holt said.

Lawrie Kobza, a Madison attorney who represents publicly owned utilities, said the PSC sets rates for municipal water utilities high enough to cover operating costs, but they can’t make a profit.

However, rates are set to also cover a “rate of return,” which is the amount needed to repay money borrowed to buy equipment such as pumps, pipelines and facilities for storage and treatment of water, Kobza said.

For Allete, the cost of borrowing money is higher because as a private corporation it can’t command the lower interest rates the municipal utilities get through laws that allow them to sell tax-free bonds.

In addition, the PSC adds income aimed at making Allete stock more desirable to shareholders, Kobza said.

Allete owns the Superior utilities and several others in Minnesota, said company spokeswoman Kelley Eldien.

One publicly owned water system in Wisconsin had a higher overall bill than Superior. The village of Howard, just outside Green Bay, had an average quarterly bill of $153.45.

Howard public works director Geoff Fahr said a purchase agreement with the Central Brown County Water Utility was the major cost factor underlying its water rate. The village was forced to purchase its water after radium above federal standards was found in village wells.

The lead author of the proposal legislation, Rep. Tyler August, R-Lake Geneva, didn’t respond to requests for comment Monday.

The Assembly passed AB 554 on Jan. 12. A Senate committee approved the Senate version, SB 432, on a 3-2 party-line vote Jan. 28.

August said last month that he introduced the legislation at the request of Aqua America Inc., a Pennsylvania-based company that owns water and sewer utilities in Pennsylvania, Ohio, Texas, Illinois, North Carolina, New Jersey, Indiana and Virginia.

August’s proposal would change the procedure for approving a purchase.

Under existing law, the PSC sets the terms of sale, which must be approved by a public referendum in order to be completed. Under the proposal, a referendum is optional. Voters would need to gather signatures to force a vote, and the election would take place before the PSC set the terms.

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Steven Verburg is a reporter for the Wisconsin State Journal covering state politics with a focus on science and the environment as well as military and veterans issues.

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