Detroit Disconnects But at What Price?

In a bid to claw back debt, Detroit City took matters into its owns hands this summer – it cut water supplies to over 20,000 households who hadn't paid their bills.

Detroit City Panorama2

Detroit City Panorama2
Water woes: facing high levels of unemployment and high water tariffs, the city was reportedly making 3000 disconnections per week


In a bid to claw back debt, Detroit City took matters into its owns hands this summer – it cut water supplies to over 20,000 households who hadn't paid their bills. Causing city-wide controversy, was this the right move by the utility? How does it compare with European measures? WWi investigates.

Water utilities have long debated the best way to achieve cost recovery, and how to distinguish between those customers who don't want to pay and those in genuine need. Detroit recently hit the headlines for an uncompromising approach that left the bankrupt city facing uncomfortable accusations that it had breached human rights.

Triple whammy
Recapping the situation, this spring the city began disconnecting customers who had not paid their water bills, efforts that increased in June to a high of around 3000 disconnections a week. Some 22,000 households were cut off in total between March and August.

The city suffers an unenviable "triple whammy" of challenges for affordability: high levels of poverty, high unemployment and water bills that are twice the national average.

The city's emergency manager, Kevyn Orr, also toyed with privatising the city's water in the face of local arguments about how a wider water sharing scheme might work. Ultimately, a regionalisation plan has been adopted.

Some disconnections have been made over relatively low levels of debt, $150, or two months non-payment. A moratorium on disconnections was announced on 21 July, but the city resumed the shutoffs on 26 August.

Much hope was being pinned on an appeal brought by a group of Detroit residents, but the judge hearing the city's bankruptcy case ruled in late September that the city could continue to disconnect. Critically, Judge Stephen Rhodes ruled that there was no "enforceable right" to water and agreed that if a moratorium were issued, there would be a much higher risk of customers defaulting.

His decision was strongly condemned by the Detroit Water Brigade, a volunteer-led alliance of Detroit citizens and allies. The group argues that water is a human right. It is campaigning for a water affordability plan for all that would cap utility payment at 2.5% of monthly income.

International interest
Justin Wedes, representing the Brigade, says that since the moratorium in August disconnections have continued "to the tune of about 300 accounts a day, which is less than before but significant". He adds that the 2.5% cap "comes from the EPA and federal government which has decided that 2.5% is affordable. The UN has decided 3% is the upper limit. Regardless, the city has repeatedly refused to implement this, saying it is illegal."

The Detroit water department response has been that it is attempting to communicate to residents that it will help those struggling to pay. City officials have complained about a lack of communication with residents as being at the heart of the issue – if they are not in contact, it is not possible to distinguish between "can't pays" and "won't pays", it argues.

The mass disconnections sparked not only local protests, but also high-level international interest. The UN's special rapporteur on the human right to water and sanitation, Catarina de Albuquerque, issued a statement saying: "Disconnections due to non-payment are only permissible if it can be shown that the resident is able to pay but is not paying. In other words, when there is genuine inability to pay, human rights simply forbids disconnections."

She, and two other high-level UN Special Rapporteurs, demanded: "The households which suffered unjustified disconnections must be immediately reconnected."

Detroit appears not to have listened, and despite these strong words there is a general consensus that utilities need to move towards full cost recovery.

NACWA's (National Association of Clean Water Agencies) managing director, government and public Affairs, Adam Krantz, says: "In this country, the rate setting rule of thumb is that everyone should pay equally. There are ways to deal with [non-payment] but generally the reality, given the complexity of the ratepayer base, it is impossible to distinguish between can't and won't pay. Beyond entertaining shutdowns, that is just the reality of the situation."

He notes that Detroit is "an exceptional case", but adds: "It is not in one sense that controversial a practice. They have recouped a lot of money. It has proved that a lot of people could pay. The question then becomes how to treat people who can't afford to pay."

Charity intervention
In the US, Krantz says, charitable entities can intervene and utilities have various programmes at city level.

"There are discussions in the US taking place now about federal subsidisation programmes that exist in the electricity sector for the lowest income people who simply can't pay their bills – safety net measures. In other sectors there are examples of programmes that do not usually exist in water, because generally water works out well - folks don't go without water for long."

He highlights discussions on ways to move to a variable rate structure. "Certain users use a lot more, for example if you are a large landowner and there are ways to increase revenue in a manner that allows you to recoup some additional funds. In a sense though, it is an intellectual discussion – there are a lot of local, state and federal regulations that require one size fits all."

Detroit Sign
Public relations: officials said a lack of communication with residents has been at the heart of the issue

There are various ways of furthering revenue, he says, such as a property tax-based system, or sales tax based revenue. "Bearing in mind the US's geographical diversity you get a whole range, from city to city."

Meanwhile senior director regulatory affairs, Chris Hornback, explains that the "rate" in the US is typically the cost per volumetric amount. "Most billing in the US is based on volumetric usage or a combination of fixed fee and usage, which does result in those who use more paying more."

There has been an attempt to move from volumetric costs, he adds, because the fixed asset costs remain a significant, stable element, but if customers are using less they will pay less.

"In terms of community assistance, we do a financial survey every three years and utilities generally are prohibited from establishing variable rates, so they set up community programmes," he says.

A financial lifeline
As in other countries these include "lifeline rates", which would have a set of qualifying requirements, bill discounts, charitable and even religious aid. "A lot of utilities establish payment plans," he adds. "Detroit's shutoff is the last resort, you typically don't get there."

He recalls recent discussions with a community that was budgeting 5% to 6% on top of bills for non-payment.

US water infrastructure is also in dire need of significant expenditure to maintain and improve networks, which has implications for affordability.

This gives rise to questions such as how much to increase bills, and how quickly, as well as the effect on communities that may already just be making ends meet.

Krantz adds: "A lot of people raise the UN human right to water – it is an interesting concept, people say water is a human right and you can't disconnect, but it is not a free right to water.

The notion is not that everyone gets water and wastewater services at no cost. The charter focuses on countries, not like the UK and US, but where water and wastewater is completely unavailable."

Written into that is the idea that a percentage of median household income should have to be paid to provide the service, he says. "The issue of the human right to water has been misused to say water should be free," he adds. "It is not what the UN had intended. When you take the notion of median household income it adds a layer of complexity. What happens to those who still can't or won't pay, I don't think the UN had thought of."

Can't pay or won't pay?
For a cross-Atlantic comparison, the size of the problem is illustrated by the UK's situation. Here, domestic disconnection and even pre-payment meters were outlawed in the 1990s. Without the right to disconnect, debt levels have soared. Ofwat research has shown that over the past five years the amount owed to companies has increased by 50%, with companies predicting the situation will get worse.

The cost of writing off debt adds around £14 to the average customer bill. There are some schemes to help customers on benefits, such as Waterdirect, (whereby money is paid directly from benefits to the water company) and Watersure, which caps bills for vulnerable metered customers on benefits that have to use large amounts of water. Water UK's Neil Dhot says: "In the UK, everyone has the right to water. Disconnection just doesn't happen here."

Water companies have had to find a wide range of ways to encourage payment, including debt write-off schemes, or initiatives where utilities will pay down half of the debt if a customer pays the other half. "In many cases metering can be a good way to help people pay their bill," he adds.

Distinguishing between can't pay and won't pay customers "is a distinction we are very keen to make clear," he says. "We are trying to help people who can't pay and target those who won't."

Ensuring bills are paid is a universal problem for water utilities. Around the world, various approaches have been tried – for example, Sydney Water can restrict supplies when faced with non-paying customers they cannot contact.

This is a tactic that has also been tried in Scandinavia – inconveniencing rather than fully disconnecting customers.

Disconnection results
Back to Detroit, as for disconnection, there is no doubt it is effective. Looking purely at residential customers, in March nearly 154,000 of 296,000 Detroit accounts were overdue to the tune of $91.7 million.

Darryl Latimer, the customer service chief of Detroit's Department of Water and Sewerage, told press that the disconnections had served their purpose: during June and July, at the height of the shutoffs, the department collected $1.7 million from customers with debts. In August, during the moratorium, the department only collected $200,000. However, the question of whether this is a desirable tactic will continue to be debated.

For more information on this article and the topic of water/wastewater tariffs, email: tomf@pennwell.com.

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