The Ticking Time Bomb of Public Utilities

[XLFD]

The City of Ludington has a local monopoly on water and sewer services it provides to the public, and it provides a sizable amount of revenue to the city's budget, nearly three million dollars worth a year, or about half of their total annual revenue.

Before the  Flint water crisis hit the spotlight, a case study showing definite problems of public utilities, a 2015 study came to the conclusion that private sector utilities have an upside.

Manuel Teodoro, an associate professor of political science at Texas A&M, and co-author David M. Konisky, an associate professor of public affairs at Indiana University studied rates of public agency and private firm compliance with the EPA-regulated Clean Air Act (CAA) and Safe Drinking Water Act (SDWA) between 2000-11, and 2010-13, respectively.

In both cases, public power plants, health care providers, and water agencies failed to comply with a range of regulations—for example, how often inspections occurred, amount of emissions, health of local groundwater—at a significantly higher rate than those that were privately held. 

They argue that because rate hikes are so politically sticky, it’s harder for public utilities to generate the revenue required for crucial infrastructure updates or even simple maintenance.  Privately-run utilities can raise rates whenever the market calls for it, as long as they can remain competitive and fall within regulations.  Private utilities make their money on a rate of return on investment: the more they invest, the more they may be permitted to charge ratepayers.

This means resource-challenged public utilities can be more likely to fail to meet federal environmental and health regulations than resource-rich private utilities. Unlike public utilities, private companies also have competitors, which also incentivizes them to staff up, build out and comply with federal standards.

The study also concluded that federal regulators were less likely to impose severe punishment on public utilities.  One reason is that fining a city is essentially punishing the public that both government bodies are supposed to serve. Another is because public utilities are often monopoly providers of essential services, so threatening to revoke their license would be an empty threat.

In their research, Teodora and Koniski tracked the EPA’s rates of enforcement of CAA and SDWA regulations on public and private utilities. They found that the EPA was less likely to take formal enforcement action against public water utilities than they were against utilities owned by private firms.  “The EPA can’t shut down the city of Baltimore, or the Tennessee Valley Authority," said Teodora, "But they can easily shut down a private business if they failed to comply with regulations.”

Their investigations advanced a theory of regulation that accounts for the behaviors of regulators and regulated entities when both are governments. They found that government agencies have greater incentives than profit-maximizing firms to shirk regulation and/or seek regulatory relief through political channels.

The research study concluded that compared with private firms, governments violate regulations significantly more frequently and are less likely to be penalized for violations.  The typical enforcement instruments that regulators use to influence private firm behavior may be less effective against public entities.  Full Study.pdf

Flint and Ludington are instructive in showing the challenges we have when the state regulators fail to properly overlook the public utilities managed by local municipalities.  The Michigan Department of Environmental Quality (MDEQ) ran interference to mask the problem Flint faced, violating protocols they would likely have never done if they were dealing with a private firm who would have been able to pass the correction costs onto consumers.  The Federal EPA must also take some blame for not timely and properly following up.

Ludington has had raw sewage spills in 2008 and 2012 due to inadequacies of its neglected and crumbling infrastructure.  Even though the 2008 spill of 15 million gallons was predicated by flooding, no environmentally corrective measures were taken up by the City  of Ludington, or endorsed by the MDEQ to mitigate the damage suffered by the stakeholders along the bayou and lake they polluted.  A good stretch of Madison Street remains in the bayou near the storm drains like an asphalt tombstone marking the death of that arm of the Pere Marquette Lake.

Following the revelation that Ludington failed to report a 2012 spill of about 2 million gallons into the same area not only to the MDEQ but even to the local health department, there has yet to be any sanctions for doing so.  Both public agencies have figured out this happened after I uncovered the details never given to them by the city leaders, yet have done nothing publicly.

It is not hard to understand why our children are suffering from having among the highest blood-lead levels in the state, much higher than touted Flint over the last three years, and not hard to figure out why a water fountain in the middle school has twice the maximum contaminant levels of lead issuing from it, even when the Safe Drinking Water Act passed in 1988 should have caught this problem before 1990. 

The public health cannot be compromised by politics and government agencies failing to properly regulate its fellow agency.  Privatization is not the only answer, nor will free market utility options work everywhere, but it may be in the public interest to try before it's too late. 

[Willy]

Another excellent article X. It's a shame the LDN doesn't do this kind of work. As long as this Council allows itself to be led around by Shay, not much is going to change

[XLFD]

The City of Ludington Daily News (COLDNews) doesn't get that appellation without itself being led around by Shay and the machinations of the Ludington elite progressive class in charge of the city currently, who love seeing public resources being used on political projects partnerships, and agendas-- and not on appropriately updating the infrastructure or responsibly funding necessary public services and utilities.