By R. Morris Coats

Recent headlines in local papers reflect the considerable opposition to hikes in sewer rates that Johnson Properties have requested. The rate hike amounts to increases from about $10 per month to about $60 or more per month. Such a substantial rate hike deserves to be carefully examined by all sides.

According to news accounts, serious accusations concerning the way that Johnson Properties has conducted business in the state have been leveled against the company, some amounting to serious criminal offenses. Apparently, there may be some unpaid fines that the company still owes.

While serious charges and the possibility of bankruptcy hang over the heads of Johnson Properties’ managers, the rate hike that they have requested could turn out to be a "fair" price increase. Not long ago, Congress passed new tougher standards for water quality. Those new regulations demand much more out of sewer treatment facilities. Someone has to pay for those improvements. Under traditional public utility regulation, such as the regulation of sewer treatment facilities, the "someone" is going to be the customers.

Activities that have fallen prey to public utility regulation have usually been in markets that, because of the nature of costs and the size of the market, naturally evolve into monopolies. The reason for this is that the distribution facilities, in this case the sewer lines that lead from our homes to a treatment facility, are so expensive to lay down that it makes little sense to lay down competing distribution lines next to existing ones—the existing lines almost always have untapped capacity. The cost of new distribution lines, then, can be under-cut by the existing supplier. Competition in such cases naturally leads to a single supplier.

In markets where competition has been squashed by mergers or price fixing, antitrust policy has led to breakup of firms into smaller units, stopping mergers before they lead to monopoly or careful scrutiny to limit future price fixing. In cases where competition cannot be sustained, as with cable, local phone service and the distribution of electricity, water and gas, such markets cannot be made into competitive markets—the old sows’ ears and silk purses problem, a problem of the wrong materials.

With traditional public utility regulation, the customers will always end up paying the bill because the rates are decided by looking at the company’s costs and adding a little on for profit so that the stockholders won’t pull out of the firm. The customers get stuck with any required costs.

The political process, working through the Public Service Commission, could be used to force Johnson Properties into bankruptcy, by denying what could be a reasonable rate request. While I am not saying that their request is reasonable, since I haven’t had the time or the opportunity or the willingness to look at their figures for free (nor do I ask doctors or lawyers for free advice, because I’m afraid I might just get what I paid for!), until the figures are examined, it would not be responsible to say that their rate hike should be denied. To use the political process to force a firm into bankruptcy so that it can be taken over by others should be seen for what it is—a form of theft.

However, surely this is not what people have in mind. I also find it difficult to believe that our Public Service Commissioners would do such a deed.

What does make sense to me is for the larger, adjoining sewer companies to make bids for Johnson Properties’ existing facilities if they think that they can provide sewer services that pass the new standards at a lower price. While public utility regulation means that customers get stuck with any environmental bill, public utility regulation need not mean that customers get stuck with inefficient providers.