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Statement Regarding Water Rates and Relationship of Chicago and Water Rates

Post Date:01/09/2015 5:00 PM

In the Winter 2015 Newsletter, residents were informed that the Village Board approved a water rate increase. This is necessary to cover the higher cost expected for water purchases through the City of Chicago. Mount Prospect Public Works Director Sean Dorsey offers additional background below regarding this issue and how the Village continues to work on behalf of its residents:

"The Village of Mount Prospect is a charter member of the Northwest Municipal Joint Action Water Agency (NSMJAWA). NSMJAWA was created in 1981 to finance, build, and operate a water supply system that delivers Lake Michigan water to member communities including the Village of Elk Grove Village, Village of Hanover Park, Village of Hoffman Estates, City of Rolling Meadows, Village of Schaumburg, Village of Streamwood, and the Village of Mount Prospect.

The NSMJAWA system includes over 55 miles of transmission mains ranging in size 12" to 90" forming a looped transmission network and multiple delivery points that supply water to each member. The system also includes a main pumping station and storage facility located at O'Hare airport along with remotely sited storage facilities, standpipes, and booster pumping stations. The system has the capacity to deliver 128 million gallons of water per day. Construction of this system was completed in 1986 at a cost of $114.5 million ($239 million in 2013 dollars). The entire cost of construction was paid for by the seven member agencies.

Prior to joining NSMJAWA, the Village obtained all its water from deep wells (groundwater). The Village sought a Lake Michigan source to improve water quality and reliability. Generally, groundwater was (and still is) inferior to Lake Michigan water as a potable water source. Additionally, groundwater aquifers were receding steadily due to decades of drawdown fueled by suburban growth. The Village made the decision to join NSMJAWA following substantive exploration of options including joining the Northwest Water Commission (a joint action water agency supplied by the City of Evanston and comprised of Arlington Heights, Buffalo Grove, Palatine and Wheeling) and an unmaterialized venture that would have been comprised of Des Plaines, Arlington Heights, and Mount Prospect.

Since none of NSMJAWA's members have direct access to Lake Michigan, the core of the agency's ability to supply lake water stems from a 40-year contract with the City of Chicago. Under this agreement, the City of Chicago pumps, treats, and delivers lake water to the NSMJAWA main pumping facility in sufficient volumes to satisfy member demand. NSMJAWA is required to purchase a minimum of 9.855 million gallons of water each year. In 2012, NSMJAWA purchased 10.683 million gallons; compliant with the contract by a rather narrow margin. NSMJAWA, and its member agencies, are obligated to this contract until its expiration on December 31, 2022.

This contract also provides NSMJAWA member communities with a "Most Favored Nations" rate structure. That is, the City has agreed to charge NSMJAWA no more than the lowest rate it charges any of its customers, including city residents.

The NSMJAWA Board of Directors is comprised of the Mayor or other Chief Elected Official from each member community. The NSMJAWA Executive Committee is comprised of the Village Manager or other Chief Executive Officer from each community. The Village of Mount Prospect’s interests are well represented in NSMJAWA leadership.

The City of Chicago announced a 4-year rate increase on November 17, 2011. The cumulative effect of this rate increase was to increase the cost of purchasing water from the City of Chicago almost 90%. The chart below summarizes recent rate increases. This rate applies to all City of Chicago residents as well as all suburban systems supplied by the Chicago water system.

yEAR     VOMP INCREASE (%) CHICAGO INCREASE (%)
JANUARY 2012 5% 25%
MAY 2012 9.5% -
JANUARY 2013 9.5% 15%
JANUARY 2014 9.5% 15%
JANUARY 2015 9.5% 15%

As indicated, the Village of Mount Prospect has been able to absorb portions of the Chicago rate increases. Not all of these increases have been passed to water customers.

The NSMJAWA Board of Directors (the mayors) vigorously objected to the rate increase.

The City of Chicago claims the rate increases are needed to finance a 10-year capital improvement plan that includes 85 miles of water main replacements, replacing a 10-acre roof at the Jardine Water Purification Plant, conversion of pumping stations from steam to electric, and replacement of aging pumping equipment. It remains unclear how much of this work, if any, benefits the NSMJAWA delivery system. However, NSMJAWA’s attorneys have determined that the Chicago rate increase is compliant with contract provisions. Consequently, it is not likely that legal recourse would be fruitful.

As indicated previously, the infrastructure costs associated with providing finished, potable water to NSMJAWA or member communities are very high. Literally hundreds of millions of dollars. A provider must have access to the lake, facilities to treat water, and a transmission system capable of delivering large quantities of water at sufficient pressure to the northwest suburbs. Consequently, finding another provider is not as simple as opening a valve or inking a new contract.

For the short term, NSMJAWA’s options are limited. Even if there were another provider who could provide enough water at an advantageous rate, NSMJAWA is contractually bound to pay Chicago for most of our water demand; even if we don’t receive it from the city.

The NSMJAWA Board of Directors is currently examining options that can impact the longer term. That is, options that can be implemented when the Chicago contract expires in 2023. These options include forays to the City of Evanston and the Village of Glencoe as optional suppliers to the City of Chicago. NSMJAWA is also considering joint ventures with the Northwest Water Commission as well. However, any of these options will likely be very expensive because they will necessitate construction of water treatment and conveyance facilities that do not currently exist. In the end, these options will have to make fiscal sense when compared to renewal terms the City of Chicago offers.

Also, the Chicago City Council recently passed an ordinance restricting future annual rate increases to the Consumer Price Index (CPI) or 5%; whichever is lower. However, the City has been reluctant to amend the NSMJAWA contract with similar terms."

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