Water Regulation, Corruption and Your Wallet

Water Regulation, Corruption and Your Wallet

A Water Utility is a Natural monopoly and is usually Regulated to assure fairness.   Daniel Nordmann states it this way “The overall objective of economic regulation of water services is to ensure that the natural monopoly of water service providers is not abused and that the services are delivered in an efficient, fair and sustainable way. “   (Trémolet/Halpern 2006).” Regulation: Catalyst for Better Governance and Enhanced Integrity in Water Utilities

During the course of my research regarding Water Rate Unfairness in Southeast Michigan, I found a very well written paper titled “Regime Change and Corruption: A History of Public Utility Regulation” – Werner Troesken that I recommend for those of you more prone to research this issue.

Troesken describes the presence of “untoward political influence” as follows: 

”For my purposes, corruption refers to the illicit sale of political influence. The sale of political influence can take many forms, including the following: patronage arrangements (politicians buy votes by offering plum jobs at above-market wages); political extortion (politicians can extract bribes from utility companies by threatening to impose confiscatory regulations and taxes); and industry capture (private utilities spend resources to make friends with regulators). For these examples of the definition of corruption offered above, the word illicit is critical.”

Between 1907 and 1922, nearly thirty states created statewide commissions to regulate public utilities (Stigler and Friedland 1962; Stotz and Jamison 1938, p. 450). Legislators created regulatory commissions largely in response to the lobbying efforts utilities. Utilities lobbied for state regulation because they saw it as a politically expedient way to undermine the periodic shakedown schemes implemented by local authorities. Testifying before the Illinois legislature, an official of the People’s Gas Light and Coke Company (of Chicago) pleaded (Chicago Tribune, April 28, 1905, p. 6):    By city regulation you place it in the hands of the people interested to sit in judgement of their own case. Despite their protestations of fairness they could not restrain from giving themselves the best of it. Therefore we fear city regulation. . . . Let there be a commission appointed, a state commission appointed by the governor. . . . Title: Regime Change and Corruption. A History of Public Utility Regulation Author: Werner Troesken

 A case for regulation is as follows “The nature of this compromise was highlighted by the Illinois 272 Werner Troesken General Assembly (1913, p. 861) when the assembly recommended the creation of a state regulatory commission: If municipalities are incapable of protecting their citizens for any reason from the unjust exactions of public service corporations, it is the duty of the State to protect them in such a manner it deems right and proper. Conversely, if the citizens of a municipality, through their representatives, take such action as will destroy or confiscate public utility investments, it is likewise duty of the State to assert its paramount authority to the end that justice may be accorded to citizens interested in such concerns. In short, state regulatory commissions were designed to protect the interests of both consumers and producers from the opportunistic behavior of competing parties (Goldberg 1976; Troesken 1996).” – : Regime Change and Corruption. A History of Public Utility Regulation Author: Werner Troesken

Water was regulated by the Michigan Public Service Commission for nearly 3 decades in Michigan (1967 thru 1995). It was deregulated in 1995 and we have seen

1. significant corruption evolve ( Kwame Kilpatrick   and Victor Mercado, etc.) and

2. significant unfairness in water rates in Southeast Michigan. ( Compare the most expensive 900% rate zone in Detroit versus the 30% in Milwaukee or 60% in Cleveland or 80% in Grand Rapids.)

Why was water deregulated in 1995?  According to former State representative Rocky Raczkowski  there were several “back room deals” and he has indicated a willingness to share this with persons wanting more detail.  I think a possible broader reason is as follows:

”—that simultaneous regime change was observed across

a wide spectrum of industries—is strong evidence in favor of an explanation

rooted in ideological change. In particular, during the late twentieth

century, policymakers and voters began to prefer market-oriented solutions

to problems and pushed for deregulation and privatization.” – Regime Change and Corruption. A History of Public Utility Regulation Author: Werner Troesken

• I would submit that while some deregulation was good for “we the people” such as airline deregulation; some was not- such,  such as the natural utility deregulation. In this case, we “threw the baby out with the bath water”.

I would urge you to better acquaint yourself with the specifics of Water Rate Unfairness affecting 40% of the state of Michigan population by viewing the video:

  https://www.youtube.com/watch?v=caLFp9HH2i0

If you agree that we have an unfair water rate situation, I ask you to contact your state representative to fix this major problem in Michigan Governance.

Please consider sharing this email with your friends and neighbors.

Thanks,
Bob Cushman  – Northville Township

Mechanical Engineer – Purdue

[email protected]

P.S. If you live in Northville or Plymouth you may contact your State
Representative at: [email protected]
If you live in Northville, Plymouth, Canton, Livonia or Wayne you may
contact your state Senator at: [email protected]

You can find your legislators and their email addresses on this link:

http://www.legislature.mi.gov/(S(mphtnzcyu052trcppvfse0nz))/mileg.aspx?page=legislators