There's more to charges than meets the eyes

January 24, 2012
Edward I. Kay of Milton is a retired, not-so-tired, newcomer to Delaware, and a freelance writer who has published over 70 articles, mostly on technical and marketing subjects.  Kay is a U.S. Air Force veteran, who holds degree in computer sciences, as well as an MBA in business development, and is an avid photographer and traveler.

Over the years, I have gained an increasingly abiding appreciation for so-called wisdom of the ages. To paraphrase my father (may he rest in peace), sooner or later "everything must pass the smell test."  Nowadays, several Sussex County communities have been facing a rather stinky situation - with skyrocketing charges for sewer services.

After all, most of us rarely, if ever, give any thought to the business of wastewater removal. We simply flush; down the drain it goes. So it stands to reason that we put little value on this subject, and conveniently disregard it.

Indeed, when a local sewer utility company (it’s a business - you know) announced an aggressive rate increase - of more than 90 percent - it created a rather disturbing stench. Who would have thought that the regulated utility that gets rid of our wastewater (a more politically correct term) would rank among the largest expense items in a typical household?

If you are like me, you have probably taken sewer services for granted, and associated them with little or no value. Few of us give any thought to the simple fact at least 99 percent of the water consumed by a typical household ends up down the drain. For us, wastewater ends at the bottom of the drain in a sink, shower, tub and toilet. However, for the wastewater service company, what happens from the bottom of the drain onward is called business!

Getting to the bottom of it all - pun intended - is not simple, but let's try. Very basically, a community has what is called a wastewater collection system, which is connected to one or more transmission line(s) to deliver the stuff to a processing plant. Let’s skip over the details of pumping stations, sewage treatment and various contaminants, by-products, and other hazards along the way. Suffice it to say that environmental protection requirements play a major role here, and there are more, and hidden, details to this business.

If reading this far prompts you to exclaim "too much information," let's follow the money. A wastewater service company is a regulated utility, trusted with serving the public interests, under the jurisdiction of the Public Service Commission. The need for regulations stems mostly from being a monopoly with a protected service area, and monitored profits, as well as business practices. Fees it charges must be justified, with a monitored pricing structure that limits how much profit the company can realize on its investment. Thus rate-based tariffs are linked to a specified rate of return, and must be based on accepted accounting methodologies. Additionally, a public utility operates with a regulated and capped rate of return (profit) that the company cannot exceed.

After all, providing a service that is in the public interest includes protecting vulnerable residents from being exploited!

Here are some points to ponder:

• Why do sewer service rates vary from one community to another? Consider, for example, the analogy of postalized stamp prices for mail that is distance independent.

• Do wastewater utilities cross-subsidize different communities to average out cost anomalies?

• How are construction costs amortized - with recovery through creative tariffs?

• How do community developers and builders collaborate with the wastewater utility company, share expenses for infrastructure construction, etc.?

• How and why did the efficiency (cost performance) of wastewater removal services increase to become such a major and disproportionate household expense?

• Is this the result of public utility regulators simply allowing this household expense item to creep up so much? Are the wastewater removal companies failing to innovate and get more value per dollar?

• Finally, what can residents do to help save money on wastewater removal services? Should we consider locally (in each house or neighborhood) producing gray water for non-potable use, and separating recyclable water?

Is there more to this than meets the eyes?  You bet, but I'd better stop now. I feel a smelly twitch in my nose.

  • Cape Gazette commentaries are written by readers whose occupations, education, community positions or demonstrated focus in particular areas offer an opportunity to expand our readership's understanding or awareness of issues of interest.

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