At every open house that real estate agent Dan Kenney hosts in Homer Glen, he hears the same inquiry from out-of-towners looking to move to the community with strong schools, open spaces, low crime and starry night skies 25 miles southwest of downtown Chicago.
“It’s always the first question out of their mouths,” Kenney said. “‘What’s up with the water rates in Homer Glen?’”
Illinois American Water, a privately managed company, owns and operates Homer Glen’s system. The arrangement makes Kenney’s answer thorny and underscores complications that surface in many towns when a private company runs the water system, an increasingly frequent arrangement across the U.S.
Much of the tension swirls around profit being tied to providing an essential life resource, and the debate over higher rates that private water companies typically charge compared with municipally run systems.
Homer Glen residents pay $85.58 a month per 5,000 gallons, not including sewer charges — a figure higher than all but one of the Chicago area’s publicly managed systems that use Lake Michigan water, according to a Chicago Tribune survey earlier this year. The average bill for 5,000 gallons in that survey was $44. Similar stories of frustration with privately owned water systems are playing out across the Chicago region and beyond.
Four other communities in the southwest suburbs that Illinois American Water serves have similarly high rates. In north suburban Hawthorn Woods and elsewhere in northern Illinois, another private water company, Aqua Illinois, is seeking a rate increase of 10 to 19 percent. In Peoria in central Illinois, leaders again are considering whether to buy out Illinois American and make the water system publicly managed.
The Tribune calculated and verified the costs associated with 5,000 gallons of Lake Michigan water use for customers of Illinois American and Aqua Illinois. Overall, Illinois American charges an average of $74.95 and Aqua Illinois charges $53.16. The two companies serve a combined 51,535 customers in the Chicago area, and their prices are 20 to 70 percent higher than the price tag a resident under a publicly managed water system would pay for the same Lake Michigan water.
“A profit-driven ownership of a natural resource doesn’t seem quite right to me,” said Kenney, 47, a father of two who moved to Homer Glen with his wife from Chicago’s Wrigleyville neighborhood in 2012. “It’s not like a cable TV bill. You can’t go without water.”
Local residents are “really being held hostage in a way,” he added. “It is a tremendous burden for homeowners and unfortunately, it’s pricing some people out of their homes.”
Private companies contend they charge the real cost of delivering clean water and maintaining reliable systems. They say elected officials can defray the cost of delivering the water through property or sales taxes or other fees, and set artificially low rates.
In an interview in June, an Illinois American spokeswoman, Rosemaria DiBenedetto, said capital costs for the company accounted for 75 percent of expenditures and are the main reason for rate increases.
Municipalities that run their own water systems, she said, have “all sorts of ways to hide the costs.”
Also, local leaders lack the political fortitude to raise rates for fear of angering constituents, DiBenedetto said. “A lot of these mayors don’t make the tough decisions,” she added.
Whatever the reason for the high rates, residents like Kathy and Tim Milligan are left feeling confounded and powerless.
They have lived in Homer Glen for 27 years, rearing two sons and two daughters. Their youngest moved out last year, transforming the parents into empty-nesters. But their water bill barely dropped, even though they stopped watering their lawn and ran their dishwasher about twice a week.
“It’s just going to keep going up,” Kathy Milligan said. “It’s a monopoly and we’re stuck. We want to move. We want to move so bad.”
A growing trend
Private companies own about 15 percent of the estimated 50,000 community water systems across the United States, according to the Environmental Protection Agency.
Two publicly traded companies — American Water Works, which is the holding company for Illinois American, and Aqua America, which runs Aqua Illinois — are the two biggest public firms in the industry, and they are active in the Chicago region. Both preach the advantages of scale in serving communities.
American Water Works, for example, has a market capitalization of nearly $16 billion and reported a net income of $203 million last quarter. Aqua America is a $6.6 billion company and reported a net income of $76 million last quarter.
With their deep pockets, the two companies have stepped into the void as federal and state assistance for infrastructure repairs has dried up.
Federal funding for utilities has fallen to $4.3 billion in 2014 from a peak of nearly $17 billion in 1976, leaving municipalities increasingly hard-pressed to keep up with the millions of dollars needed to replace deteriorating pipes, pumps, hydrants, meters and other infrastructure.
In recent years, towns have been more receptive to selling their water systems to private companies, said Reese Tisdale, president of Bluefield Research, a Boston firm that analyzes the water market.
Through September, Bluefield has tracked 62 private acquisitions of community water systems across the country, compared with 30 deals done for the same period last year.
As of August, investor-owned utilities had acquired 238 systems nationwide for a total of $3.1 billion over the past three years, according to Bluefield — a figure that far outpaces the number of communities that have reversed course on private water management and bought back their systems. Those buybacks, which usually are for smaller systems, amounted to a total of $367 million for 42 systems over the past three years, according to Bluefield.
Rising rates
But once the systems go private, many residents are left with sticker shock when rate hikes start to kick in.
About 50 miles north of Homer Glen, residents in Hawthorn Woods are protesting the latest rate hike proposal from Aqua Illinois to the Illinois Commerce Commission, the regulatory agency that oversees water rates set by private companies.
In that proposal, Aqua is seeking new rates for Illinois customers that will vary depending on where customers live. That increase may amount to as much as 19.1 percent but could be lower. The company says its rate models justify a 22 percent increase.
“It’s getting really difficult for some people to pay their water bill, especially for those on fixed incomes,” said Pamela Newton, the village’s chief operating officer. Unlike cable TV, “water is a necessary resource,” she added. “This isn’t a choice that residents have.”
Some residents have been particularly outraged by water bills that reach more than $600 a month during lawn-watering season.
In response, Aqua Illinois plans to adjust the way water and sewer bills are calculated, which the company says will lead to lower bills.
Craig Blanchette, Aqua Illinois’ president, said he “totally” understands that “no rate proceeding is welcome.”
But he said that most of Aqua’s service area last had a rate increase about six years ago. And, Blanchette said, the company is dedicating $3.5 million to the water system in Hawthorn Woods.
“All costs you pay go right back into your water service in one way or another,” Blanchette said.
The backlash against rate increases has led some communities to explore buying back their systems.
Peoria, for example, is revisiting a decision on Illinois American.
A private company has owned and operated Peoria’s system since 1889. The buyback issue emerges every five years, as stipulated in the original contract between Peoria and the private water company.
Now Peoria has until November 2018 to inform Illinois American of its intent.
The City Council has consistently voted to reject buying back the system, most recently in 2013 in an 8-3 decision. But the business community remains split over the issue, City Manager Patrick Urich said.
“There are compelling arguments on both sides,” he said.
Rising discontent
The anger over Homer Glen’s water rates has been percolating since as early as 2003, when the Illinois Commerce Commission granted Illinois American a 40 percent rate increase shortly after the company acquired the village’s previous water supplier, Citizens Utilities Co. of Illinois.
That was followed by a 26 percent increase in 2010, and other, smaller increases as well, according to ICC data. In 2017, the commission approved a 15 percent increase for the company.
The Illinois Commerce Commission declined to comment on its review process.
As the bills increased, so did public anger. It led Homer Glen and four neighboring towns — Bolingbrook, Lemont, Romeoville and Woodridge — to create an agency to acquire from Illinois American an 18-mile main pipeline that delivers Lake Michigan water.
But Illinois American has no interest in selling, and the standoff continues.
Even if the towns win their litigation, it is unclear whether the victory will lead to lower rates. Illinois American would lose the pipeline but still retain the water system under Homer Glen, for example.
“I’m so confused that I don’t really know where it’s going,” said Jim Orban, who moved to Homer Glen in 2003. He started a Facebook page, Homer Glen Village Square, in 2015 as what he called “a little piece of activism” to pressure officials into keeping their promise to convert a golf course to a park.
Now the page is a regular sounding board for residents who are aggravated and confused over the water rates.
“Nobody wants to feel like they’re getting ripped off,” Orban said, “and people feel like they’re getting ripped off.”
“The service charges are everything. It’s probably cheaper to drink beer than water in Homer Glen.”
Among the more astonishing examples of high water bills in Homer Glen are those of residents who spend the winter in Florida or Arizona and still face steep charges — even though their usage was zero.
Mark Breen and his wife have endured that experience. They leave Homer Glen for Naples, Fla., about three months each winter and regularly return to a combined water and sewer bill of more than $100 a month that shows no water consumption.
He said Illinois American has told him that his home fire suppression system requires that water service to his condo be maintained whether the unit is occupied or not.
“I would want the minimum charges to at least be lower,” Breen said.
When Fred Hradek found a house in Homer Glen a decade ago, its previous owners warned him of high water bills, he recalled. Hradek learned just how high when he recently returned from Florida. Waiting for him was a $130 bill showing $1 in water consumption charges.
“The service charges are everything,” he said. “It’s probably cheaper to drink beer than water in Homer Glen.”
Fees and service charges from private companies generally make up a higher percentage of water bills than they do with public systems.
Pressure for profits
The drive for water companies to generate profits raises the broader debate of whether a business approach to a traditionally government-run entity is the right way to go.
Privatization advocates say the pursuit of profitability encourages efficiency and the embrace of new technologies. They point out that corporations pay taxes.
Illinois American’s vice president of operations, Mike Smyth, noted that the company’s return on equity, which is set by the Illinois Commerce Commission, is what attracts investment that is sorely needed to shore up water infrastructure throughout Illinois.
“I would make the case that we’re doing the right thing and we’re taking care of our customers by making that investment,” he said, “and it’s reflected in the rates.”
Since taking over Homer Glen’s system in 2002, Smyth said, Illinois American has made $23.5 million worth of improvements to water and sewer infrastructure, and the company has received high ratings for water quality. Those circumstances align with another point that privatization experts make: investor-owned water companies have better funding sources and economies of scale than municipally run systems, and often have better expertise.
Also, Smyth said, the commission requires maintenance that includes annual inspections of nearly 30,000 hydrants, regular testing of valves throughout the system and replacement of water meters.
“It’s a level of service that, respectfully, we don’t see from our municipal counterparts,” he said.
Indeed, some publicly run systems have deteriorated significantly. Maywood, for example, loses about 38 percent of its water to leaking valves and pipes — an expense ultimately passed on to residents in their water bills, which are among the highest in the Chicago region.
But Eric Rothstein, a water utility consultant who has worked in Flint, Mich., is skeptical that private companies are best suited for owning and operating water systems. On top of all their costs, he said, they have shareholders to satisfy.
“They don’t have to be a little more efficient,” he said. “They have to be a lot more efficient.”
State oversight
At the center of the public-vs.-private water debate is the Illinois Commerce Commission.
Critics of privatization say lack of local oversight allows private water companies to evade answering for the high rates or other complaints, and that the commission rubber-stamps approvals of water companies’ requested rate increases.
Water company representatives counter that the state agency’s analysis of proposed rate hikes includes months of filings, consideration by the Illinois attorney general and the Citizens Utility Board, hearings and a recommendation by an administrative law judge.
“We go through a transparent, significant, 11-month process,” said Smyth, of Illinois American Water.
A publicly run system, by contrast, does not need approval of state regulators to raise rates, only the approval of local elected leaders.
Swirling around the debate is politics.
Homer Glen Mayor George Yukich said “the thing that irks me the most” is Illinois American’s substantial political contributions.
Since 2011, the company’s PAC has spent about $387,000 on campaign contributions to state lawmakers, and the pace of its donations is accelerating.
Smyth at Illinois American said the company’s PAC used money to promote legislation in Illinois that enhanced municipalities’ position in selling water systems.
All the wrangling has given Ken Holub the sense that there is little he can do.
He retired to Homer Glen with his wife, Denise, a little over 10 years ago.
No matter how much water he conserves, the water bills stay high. And he sees little end in sight.
“It’s a very hopeless feeling, Holub said.
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