FREQUENTLY ASKED QUESTIONS

A franchise agreement written and agreed to in 1889 included the buyout option. The buyout option is the only part of the agreement that remains in place today.

Every five years, under the 1889 franchise agreement, the Peoria City Council can buy the local water system owned by Illinois American Water, regardless of Illinois American Water not being for sale. On November 26, 2013, the city council voted 8-3 not to purchase the water system. The Peoria City Council is expected to vote again on this matter in 2018.

It would seem reasonable that early City of Peoria leaders felt they should have protection for their citizens in the event the private water utility did not provide good service, did not provide quality water, did not invest in building or maintaining the water system, or was irresponsible in pricing their service to customers. In 1889, there were no independent, state regulators to provide oversight of investor-owned utilities. The Illinois Commerce Commission began operation in 1913 and provides financial and service quality oversight. In addition, Illinois American Water is subject to regulatory oversight from Illinois EPA as well as the U.S. EPA and OSHA. Though it is not required, Illinois American Water voluntarily participates in AWWA and EPA’s Partnership for Safe Water program which adheres to water quality guidelines above and beyond what is required.

Residents continue to be against a buyout. Nine of 10 Peoria residents have said continuously in surveys conducted by Public Opinion Strategies completed in 2013, 2016 and 2017 that the City of Peoria and Illinois American Water should work together instead of spending money debating ownership of the water company. Residents also reveal in surveys that they feel the City has more important priorities than buying the water system. According to residents, the top priority facing City leaders today is the economy at 36%, followed closely by crime at 26%. Transportation (12%), education (8%), taxes (6%) and poor local government (3%) all top water which is at the bottom at 2%.
And overwhelmingly 79% agreed with the statement “I OPPOSE the City spending this money because Peoria has other more important priorities than buying the water company. It’s just not smart for the city to move ahead with this when they can’t even properly fund schools, roads or even the city’s own rainy day fund.” Public Opinion Strategies is a nationally recognized research company which has monitored public opinion since 2005.

Yes. The Peoria City Council pursued a buyout in 1998. In March 2005, a panel of appraisers set the value for the water system at $220 million as of December 31, 2003. That valuation was over 3 times higher than the City’s initial valuation of $67.8 million and more than twice the City’s revised valuation of $95 million. In an April 2005 public referendum, residents voted against the buyout by a margin of 82-18. As a result, in September 2005, approximately seven years after the decision to pursue the buyout, the council voted unanimously to end the buyout attempt.

A few individuals continue to advocate a City takeover of the water system. Some of those individuals have been advocating a City takeover for over 15 years, and have spent a lot of money in the process.
In 1998, a private investor group lobbied the City Council to pursue the buyout attempt mentioned above and loaned the City up to $1 million at 9% (reduced to 6.9% in 2004) interest to conduct what was referred to as “due diligence.” This group, Peoria Area Advancement Group (PAAG), agreed to not pursue repayment should the City decide not to buy the water system. But when the City voted against purchasing the system in 2005, a lawsuit ensued - costing the City more money to defend. After 12 years, an appellate court just recently ruled that the City of Peoria owes these investors the $1 million plus interest.

Members/investors of PAAG included Rita Kress, Diane Cullinan-Oberhelman, David Ransburg, among others. The business address that PAAG registered with the state of Illinois is 227 Illinois St., Brimfield, IL—a town located about 20 miles west of Peoria. Kress Corporation is located at that address. Both Diane Cullinan-Oberhelman and David Ransburg are currently involved in the CEO Council's water company buyout study group. Within the PAAG lawsuit, Terry Kohlbuss is listed as an authorized agent. You can learn more about Mr. Kohlbuss’ involvement with water buyout attempts here – Documents Show Behind the Scenes Push for Water Company Buyout and here – About That Secretive Water Buyout Issue.

• To apply “post-acquisition ‘net income’ to certain pre-determined projects for a period of fifteen years.” Specifically, 37.5% of post-acquisition ‘net income’ was designated “for northwest growth corridor infrastructure.”
• To provide “payment of unspecified amounts in the future for ‘post-acquisition advisory services’.”

The study is not objective. The study focuses on perceived benefits and many participants are buyout proponents. The one water industry individual cited works at the City of Wyoming and manages a system that consists of two wells and serves a total population of about 1,400. The Peoria water system is much more complex not only in size but water source and geography.

Also, the study compares Illinois American Water’s rates to those of communities who are not investing in their systems and/or have the ability to subsidize rates through fees and taxes. The rate comparison also doesn’t include tap-on fees which municipal systems can charge, unlike Illinois American Water.

The most glaring issue is the statement that funds earned from the water system could be used for “public good”. A water fund should be an enterprise fund and used only for water and investment back into the system per Municipal GAAP accounting principles. Using funds for anything else ignores needed water system improvements. For instance, if funds are meant to be directed to roads, as stated in a previous version of a study, the City would be essentially ignoring water system needs and trading one problem for another.

The CEO Council study incorrectly says the San Koty Aquifer is “a near limitless supply of fresh drinkable water” and states the community’s economic future depends on using this water source. The study also states drinking water is controlled by Illinois American Water, not the citizenry. These claims are false: - The San Koty is not high in volume or quality. Both of these issues have been studied and documented by the Illinois State Water Survey. The San Koty has naturally occurring Iron and Manganese, which is difficult and costly to treat. Illinois American Water removes these compounds through oxidation and filtration. Filters have to be constantly washed due to these compounds. - Also, the levels are closely watched to ensure the aquifer is given adequate time to recharge. The amount of water Illinois American Water can use from the aquifer is established under Illinois EPA source water protection. Well levels are closely monitored. - Drinking water sources are not controlled by private or by municipal systems. The Illinois EPA approves water source access and use via permitting. For example, if Illinois American Water wanted to drill a well, the Illinois EPA would have to approve a permit.

Purchasing the water system at an estimated purchase price of about $300 million would result in taxpayer debt for a service the community already receives. In addition, the community would have to make up the loss of tax and permit fee revenue provided by the company – nearly $5 million per year. The cost of pipes, hydrants, chemicals and critical supplies could double for a city-owned system due to the loss of American Water’s purchasing power and economies of scale. A government takeover would also result in the loss of good union jobs provided by the company. Regulatory oversight by the Illinois Commerce Commission (ICC) would also cease to exist, reducing required service and quality as well as allowing rates to be changed without ICC oversight. Water rates and/or taxes would most likely have to increase to pay for the buyout itself and for ongoing water service and infrastructure investments. Any “excess revenue” could only come at the expense of service reductions and reduced infrastructure investments.

Comparing our rates with municipal rates is difficult. Municipal systems often keep rates artificially low or supplement rates through taxes and fees. This can lead to crises and future rate shock. We’ve seen this played out with the City of Peoria’s CSO system; the community now faces an EPA-mandated investment of $200-$300 million.

While Illinois American Water delivers the only ingested service, it remains one of the lowest household utility bills. The Company’s rates are based on the true cost of water service – what it costs to retrieve, treat and deliver drinking water to homes, businesses and fire hydrants. Critical upgrades to treatment and distribution systems are also included in rates.

Illinois American Water is unable to implement new base rates without Illinois Commerce Commission review and approval, a process that takes 11 months and requires many forms of notification, sworn testimony and an opportunity for customer input. By contrast, the City Council of a municipal water system can vote to increase rates at any time, implementing those increases immediately if desired. A municipal system can also charge different, usually higher, rates to customers and communities outside city limits. Municipal systems can also charge tap-on fees that usually come to hundreds or thousands of dollars.

Due to regulatory rules, Illinois American Water is not allowed to charge tap-on fees for new customers. Additionally, privately owned systems are required to operate every critical valve annually as well as inspect and operate every fire hydrant. Illinois American Water maintains over 5,600 hydrants in the Peoria area. Municipal systems do not have these same requirements critical to public health and safety.

No. The Illinois Commerce Commission (ICC) decides what is a fair and reasonable Return on Equity (ROE) for Illinois American Water. The ICC also caps the allowed ROE and it is not guaranteed. Illinois American Water’s currently allowed ROE is capped at 9.79%.

To prevent rate shock while continuing needed investment, the company focuses on operational efficiency. For every $1 saved, $7 can be invested in our system without impact to customer bills. Over the last 4 years, the company has reduced operating expenses by about 3 percent. Electrical efficiencies, chemical savings and other programs have allowed us to focus on needed capital projects that help ensure reliable service. Safety initiatives have also helped to reduce costs.

If water rates continued to be based on the true costs of providing water service, City ownership would not decrease water rates. Furthermore, the City would be able to increase water rates at any time with a council vote due to the lack of regulatory oversight.

It is reasonable to expect water rates and/or taxes would have to increase to pay for the buyout itself (estimated at hundreds of millions of dollars) and for ongoing water service and infrastructure investments, should the City continue to invest as Illinois American Water has. Any “excess revenue” could only come at the expense of service reductions and reduced infrastructure investmens

Yes. We are committed to all of our customers in the Peoria District. The buyout debate will not distract us from providing safe, reliable service to our friends and neighbors.

Yes. We coordinate planning efforts with the City Public Works Department on water main replacement projects that support the City’s planned growth. In addition, we have strong working relations with City fire officials to ensure reliable fire service and public safety.