Cape Gazette
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Commentary

Part two: ‘It must pass the smell test, so follow the money’

By Edward Kay | Jan 31, 2012
Ed Kay 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. Ed is a U.S. Air Force veteran, who holds a degree in computer sciences, as well as an MBA in business development, and is an avid photographer and traveler.

Sewer service utility companies - also labeled by a more politically acceptable term, "wastewater service companies" - often do not pass the smell test. Once you follow the money, you will quickly appreciate that there is a substantial and profitable business in selling water and removing wastewater. To be sure, these are vital services that a civilized community must have, but at what price?

In a typical household budget, getting rid of wastewater has become a major expense item, and has increased rather disproportionately - especially in the past few years.

Communities generally get their sewer services from a regulated utility in their area. These companies provide services either directly to communities and homes, or through the local government that typically contracts with them to provide the service.

Sewer utility companies usually enjoy an exclusive and defined business area. Such de-facto monopoly service providers are entrusted to serve the public interest, and operate under a regulatory framework. Their profits are (supposed to be) monitored, and approved by the public service commission. Of course, having a monopoly status does have its privileges.

Most of us take water and sewer services for granted. The monetary value that we associate with these unwanted, even disgusting, liquids is rather marginal. Why?

We are talking about a serious money-making industry here, so let’s discuss some highlights for a better understanding of the scope of these businesses.

In Sussex County, the two primary companies in the sewer services business are Tidewater Environmental Services Inc., whose parent company is Middlesex Water Co., .and Artesian Resources Corp.

Both companies are publicly traded and investor-owned, and regarded among Wall Street’s darlings. Tidewater’s stock symbol is MSEX, and Artesian is RTNA.

With a (not too shabby) published market capitalization of nearly $300 million for Middlesex, and just under $200 million for Artesian, you can immediately see that these are significant service businesses. Even more telling is the generous executive compensation of top managers at these companies.

The chief executive in each company collects a generous salary of well over $400,000 per year, plus stock options and bonuses.

Second and third-level executives at these companies earn over $200,000 per year. All are also entitled to receive stock options, as well as many other comforting benefits and incentives. Yes, we are talking about executives who run sewer service companies - the kind of jobs few of us wish for our kids. Imagine the negative reaction of our own parents if we told them that we run a sewer business. I shudder to think what my dear mother would have said.

But don’t underestimate these professional managers. Anytime their performance falls below market expectations, Wall Street watchdogs may notice and punish them by downgrading their stock.

Ouch, that can really hurt! Also, as many "occupy" protesters would surely agree, in that old boys club perhaps they protect one another’s big money-making secrets.

So when several Sussex County communities recently raised a big stink about skyrocketing charges for sewer services, some best-kept secrets were revealed. The outrage about rate increases of 90 percent and more was loud and clear. From the initial uproar, it’s evident that the regulatory and other oversight mechanisms do work. So let's identify what recourse is available to a community that is "under attack" by its sewer services company. Key points follow:

• The Public Service Commission has oversight jurisdiction and responds to public-interest issues. Therefore, it is oriented to help representative community groups, rather than individual complaints.

There are various ways to get attention at the PSC, i.e. with formal petitions and protesting letters. The legal process is rather straight-forward, yet rules and procedures must be observed.

Complaint letters to local representatives, congressmen, and senators can also have a positive impact. The key is to expose public interest infractions, and unfair and unjust exploitation of residents.

• When it comes to wastewater fees, here’s a summary of disturbing and problematic issues to raise for attention and resolution

• Does the utility cross subsidize rates between communities? How are flat rates that are not related to actual usage justified? This is an especially major issue for part-time residents

• What are the financial arrangements between community developers and the sewer utility company, i.e. to share and recover construction costs

•What cost-based tariff calculation methods are employed, and how do rate-based regulations factor into these tariffs??

• What has contributed to the low cost-performance of sewer service companies, and what technologies and advanced techniques could be harnessed to improve the economics of wastewater removal? Examples may be neutralizing pretreatments, gray water piping systems for reusing wastewater to wash cars and water grass, and other innovative methods.

Of course, the wastewater removal and management service business is actually quite complex, and environmental protection rules add further complications. It involves more details than most people care to know. However, the punishing economic implications of higher and higher wastewater removal services must be managed. For many folks, especially those retired and living on fixed incomes, this expense item simply must come under control. It cannot be allowed to continue to escalate in an unmitigated fashion.

So what’s fair, and how much are you willing to pay?

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