Milwaukee Water Works Wants Rate Hike

Residents of Milwaukee and many surrounding suburbs could soon see their water bill rise, but by less than what a state regulatory agency would allow.

“The Public Service Commission (PSC) is currently mandating us to come in for a conventional rate case,” said Milwaukee Water Works (MWW) superintendent Karen Dettmer to members of the Public Works Committee on Wednesday.

MWW last underwent the review process, described as a deep dive into the city-owned utility’s financials, in 2014. Such a review is necessary to set water rates and establish infrastructure replacement targets.

“Our primary goals in that respect are reliability, resiliency, water quality and efficiency,” said Dettmer. MWW will submit its application in December 2021.

The application will reflect decreasing water usage. In 2014, the utility sold approximately 30 billion gallons of water. According to a graph presented by Dettmer, it’s now below 27 billion and falling “about 2% annually,” she said, noting efficiencies in new appliances and from industrial users. The balance of water consumption between the utility’s customer base, including the 15 suburbs, is also changing.

The application will also reflect that despite declining water usage, the utility’s expenses are still growing. Annual operations and maintenance expenses the utility is asking for approval for will be $57.1 million, up from $49 million in 2014. The net investment rate base, effectively the water works’ capital assets, will climb from $336.1 million to $441 million.

But the rate increase MWW will ask for is below what the PSC would allow. Dettmer said MWW will ask for only a 2.5% return on the net investment base rate, not the 5.38% return that it received based on the 2014 rate case.

“People are still struggling with the pandemic,” she said. “We want to flatten or minimize the amount of an increase people can expect to see on their drinking water charges.”

The average single-family home will see its quarterly bill increase from $60.15 to $65.56. One penny would buy approximately three gallons of water, down from 3.5.

“A higher rate of return means you have more money to invest in the system,” said Alderman Robert Bauman. He brought up the disastrous Hawley Road main break that flooded homes and vehicles just after Christmas 2019 and the downtown water main break last week that shut off the steam heat system for thousands of residents for more than a day. “Why are we skimping?”

“I certainly don’t consider it skimping,” said Dettmer. “We are confident with a 2.5% rate of return… that we will be maintaining our system.”

“Why are we requesting half of the benchmark [rate of return]? I don’t get the logic,” said Bauman.

“A 4.9% rate of return would result in a 25% increase on the average residential customer bill,” said Dettmer. The 2014 case resulted in an 11.9% increase.

“That is a problem? This is the most critical infrastructure we have,” said the alderman, who has increasingly sought ways to improve resiliency to climate events in everything from the building code to the electrical grid.

Dettmer said the city would have the opportunity to further raise its rates in 2025, when the PSC requested MWW return for a new rate case after the Waukesha water system is online. “We will have an opportunity for a little bit larger increase at that time,” she said.

“I think we should absolutely maximize what the Public Service Commission is allowing us to do,” said Bauman. “Why not use that profitability to offset the other costs of providing city services?”

“I wouldn’t view that additional revenue as profit, we reinvest that,” said Dettmer.

Under its current configuration, the utility makes a payment in lieu of taxes (PILOT) to the city’s general fund every year. The 2022 rate case seeks a $14.4 million annual payment, up from $13.7 million.

The “return on investment” the utility would generate is slated to be $11 million, down from $18.1 million.

But Dettmer said the proposal would still allow the city to reduce its borrowing and use of cash reserves.

“Why are we embarrassed to say we make money selling water?” asked Bauman. “We provide such a great product that we make money selling water and the suburbs all want and probably Arizona would want it if we could find a way to get it there that didn’t violate the Great Lakes Compact.”

According to a comparison of local rates compiled by MWW, the city currently has the cheapest water in southeastern Wisconsin. The proposed increase would put it at second-cheapest, $65.56, behind only the proposed Kenosha rate. Mequon and South Milwaukee have quarterly bills of nearly $120.

“I hope people realize what a deal this is,” said Bauman.

Milwaukee is also currently sixth-lowest among peer cities and would drop to ninth-lowest, falling behind Toledo, Detroit and Grand Rapids. Chicago is the cheapest, with Dettmer noting that the city doesn’t even meter residential water usage. Bauman, a Chicago native, quipped that it might be one thing that’s actually cheaper in the Windy City.

The conventional rate case presentation took the form of a communication file, so no committee vote was required. The full council will ultimately need to authorize a PSC-approved rate increase.

Dettmer said she expected any resulting price changes from the rate case to go into effect in summer 2022. The utility is working with Erik Granum of Trilogy Consulting on its case.

MWW hopes to be required to replace fewer miles of water main as part of the case. As part of the 2014 case, it has seen its annual requirement increase from 15 to 20 miles. The pandemic left the city short in 2020 and Dettmer admitted it would also not make the target in 2021.

The utility last raised its rates, with Bauman’s full support, in 2019 through a simplified rate case.

MWW sells water directly to residents and businesses in Milwaukee, Greenfield, Hales Corners, St. Francis, West Milwaukee and a portion of Franklin. It sells water at a wholesale rate to Brown Deer, Butler, Greendale, Menomonee Falls, Mequon, New Berlin, Shorewood, Thiensville, Wauwatosa, West Allis and the Milwaukee County Grounds, which in turn resell it at their own rates. MWW is also partnering with the City of Waukesha on a $286 million project to add the western suburb as a wholesale customer.