Water Workshop

Public Information
Water System Ownership Models

    The three primary ownership models are water districts, municipal departments and private company ownership. The advantages and disadvantages of each will be discussed below, however there are some common attributes that all models share.

• all operate under charters that are created and granted by the Maine Legislature
• all operate under the same drinking water standards administered by the Maine Drinking Water Program
• all operate under the jurisdiction of the Maine Public Utilities for the settings of rates and for Rules and Regulations of water system accounting, customer service and billing, main extension policies, depreciation rates and other areas

The Water District

    Districts are non-profit, quasi-municipal corporations with the single function of providing a public drinking water system for general use and fire protection. Water districts operate independently with either an elected of appointed separate Board of Trustees as a governing body.

Advantages of the water district model

• Single function / Single focus
• Multiple community and minimal politics / independent actions within the service communities.
• Tax exempt status may keep rates lower
• Bonding limits are not restricted by limitations of the municipalities
• Cross Boundaries / Serve multiple communities  / Regional with regional benefits - bigger customer base / economies of scale
• Can bond for a longer term than municipalities
• The current "norm" for ownership within Maine

• In multiple community systems, equity / fairness in service / upgrades may be a concern
• Is not a good fit for communities that are geographically separated
• Standard district enabling act makes it relatively easy to form a water district, even if it is not the best model for the situation.
• Does not pay property or income taxes
• Rates are set to collect both depreciation and the return of principal
• Creates another entity with associated overhead and communication issues with a town.
• Less incentive to cut costs or look for economies of scale
• Customers become investors as retained earnings build up in the entity due to ability to collect contingency
• Less scrutiny by the Maine Public Utilities Commission

The Municipal Water Department

   The municipal water department is a division of local government, and is governed by the Selectman or Council in the community. Most local governments have school, police, fire and public works departments, all in operation for the general good of the citizenry.

Advantages of the municipal water department model

• Local governance and control within an existing administrative body
• All municipal functions centralized and less overhead
• Savings and economies of scale in shared resources (equipment, personnel, training, etc.)
  between city departments
• Easier coordination between departments
• Operations can be focused on one community rather than multiple communities
• Tax exempt status may keep rates lower
• Can more easily use CDBG money for water system upgrades
• Enterprise fund financial operation allows some independence from municipality
• Possible ease in combining and waste water operations under common management

Disadvantages of the municipal water department model

• Water product and service may not be the primary focus of the governing group
• Must compete for funding with other municipal departments
• Potentially subject to strong political influences for funding, operational issues, capitol improvements, etc.
• Political decision making can be short-sighted and fiscally driven
• Bonding ability for water improvements may be limited to municipal rules
• Does not pay property and income tax
• Rates are set to retire debt and fund depreciation
• Customer become "investors" in the water system over time due to build up of retained earnings
• Less scrutiny by the Maine Public Utilities Commission

• Sole business is water utility operations
• No political ties
• Can link remote communities through central back office operations
• More scrutiny by the Maine PUC protects customers
• Central administration, accounting and customer service for multiple systems saves costs, provides capacity and allows for economies of scale
• Pays income taxes to state and federal government
• Has the ability to issue bonds independent of municipal limits on amounts or term
• Community and customers have no capitol tied up in water infrastructure
• Greater technical and managerial may be available than would be possible for a small stand alone system
• Can provide needed capitol to a municipality through the purchase of district or municipal water utility assets
• Business incentive to grow and expand services
• Financial incentive to find ways to lower costs
• Additional source of capitol through shareholder funds other than always relying on debt

• Perception of loss of local control
• Roughly half of capitol investment is funded by higher priced shareholder equity
• Perception of a "for-profit" company can be negative
• The owner may be far removed from the customers of the utility
• Customer service may not be local (same can be true for districts)
• Some low or no interest funding sources available to public entities are not available to private companies