Last year, Detroit sent notices to thousands of customers, threatening to turn off their water service (and ultimately doing so) if past-due bills weren’t paid. For its efforts to ensure sufficient water-utility revenue, Detroit -- which has a very high poverty rate and has gone through bankruptcy -- earned the opprobrium of interests around the world.
Detroit’s critics included experts from the United Nations, who stated that “Disconnection of water services because of failure to pay due to lack of means constitutes a violation of the human right to water and other international human rights.” The city responded that its objective was payment of delinquent bills, not disconnection. Detroit backtracked, and this year is trying to address its revenue issues without cutting off service.
Still, it faces major problems with an old water system that was built for a much larger and wealthier population and major industrial users.
New Jersey has areas of high poverty that have lost most of their industrial water customers. And much of the state’s water-supply infrastructure is old, if not decrepit.
Is water, as the U.N. states, a fundamental human right? Or is it a commodity that must be purchased at the going rate? Or is it a public service, in which the focus is on satisfying a social goal for provision of general needs?
Our history shows us that water supply has aspects of all three, which makes for a muddled policy setting. What do we do when basic water services exceed a customer’s ability to pay? As water rates rise to address the costs of system rehabilitation, enhanced drinking-water treatment, and source-water protection, we need to make sense of this mess.
Fundamentally, water supply utilities are what economists consider a natural monopoly. Unlike cable TV or Internet service, multiple drinking-water pipelines aren’t deployed down every street. Customers are captives -- if they want water, they must buy it from the local system. It is standard legal practice that households must be connected where services are available, or their home will be declared uninhabitable.
Each water utility also will have limited supply options available. Unlike electricity or natural gas, water utilities rely on just one or very few water sources. There are only so many reservoirs, rivers, and aquifers. Further, state regulations limit how much water can be taken from any one source, to prevent overuse.
For these reasons, water utilities have exclusive service areas. Many water utilities are owned by governments, and we have a system of regulatory controls on privately owned water utilities such as NJ American, United Water, Aqua America, and smaller systems. All are subject to the same regulations regarding water allocations and drinking water quality.
As I have, our political and regulatory systems have in general served to depress investment in favor of low rates, to the point at which future rate hikes are inevitable as we catch up to our disintegrating utilities. The alternative is increased leakage, water-line breaks, and economic disruption, which will also push up costs and rates. We have no choice but to the pay the piper. The question is whether the music will be harmonious or discordant.
How, then, should we address the Detroit question? If the costs of water exceed a customer’s ability to pay, what should happen? If water supply is a commodity, the answer is simple though harsh -- pay up or go without. People would then have to buy water from other sources and store it in tanks on their property, which would not be accepted by health officials. Clearly, this approach is not socially acceptable for those of limited means.
If water is a public service, then service should be guaranteed. The costs could be handled like many other public services (such as police or courts), through the property tax, with local governments paying the water utility to provide the service. Doing so would remove incentives for efficient water use, unless provisions are made to limit the service by household to only what is necessary. Just imagine the problems with this approach. Government would have to track the number of people per household to ensure that a single-person household and a five-person household are provided for equitably.
If water supply is an inalienable human right, then what?
It is worth noting again the U.N. statement. “Disconnection of water services because of failure to pay due to lack of means constitutes a violation of the human right to water and other international human rights.” The key phrase here is “due to a lack of means.” The U.N. never said that disconnection of a wealthy household due to lack of payment was a violation of human rights. Its point was that people have a human right to water and should not be disconnected just because they can’t afford to pay.
That approach fits right in with New Jersey’s approach to residential energy supplies, in whichto provide energy sufficient to heat and light their homes. Note that this right does not extend to those who are “off the grid.” For example, households in rural areas, where there is no public water system at all, do not have a right to public water supply.
They must make do with a private well on their property, and if it breaks they must pay the repair costs, no matter how poor they are.
Is public water supply a commodity, a service, or a right? The answer depends on the situation, and will continue to.
For those within the service area of a public water utility, service must be provided but the customer must pay if they have the means. For those who use more than an amount sufficient for standard functions, water becomes a commodity.
If you want more, you must buy it, though at rates controlled not by the market (which does not exist for natural monopolies) but by laws. For those who can’t afford to pay, access to a basic level of supply would be a right, but use of additional water would require payment for the water as a commodity.
The problem is that New Jersey has no routine system for helping poor households afford water (and sewer) services.
For residential energy, the NJ Board of Public Utilities regulates essentially all providers, and New Jersey has established several programs for temporary and long-term assistance. The same is not true of water supply utilities, since there are hundreds of government and privately owned water utilities in New Jersey. Establishing a unique household assistance program in each of these utilities would be an administrative nightmare, and some are too small or serve too poor an area to provide this aid.
A broader approach is needed, akin to the household energy assistance program. New Jersey needs to take a hard look at how its poorest households will maintain access to water utility services as water and sewer rates increase. We shouldn’t allow the Detroit question to become the New Jersey problem.