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Differential Utility Rates: Is Your Municipality at Risk?
Posted in Government

As first appeared April 4, 2012 on the Inside Indiana Business Website

Indiana cities and towns are in the business of providing utility services to their constituents.

Charging a higher rate for water and sewer utility service outside municipal corporate limits has been a common practice for municipalities in Indiana. Signed into law on March 19 by Governor Mitch Daniels, a statute now on the books affects the dynamics between rates inside and outside municipal boundaries, and local elected officials could find themselves in hot water if they are not prepared. House Enrolled Act No. 1126 affects municipalities whose water and sewer rates for customers outside the municipality are more than 15 percent in excess of the in-municipality rate. The Indiana Utility Regulatory Commission (IURC) now has jurisdiction over certain instances in which municipalities charge more for water or sewer service outside of their corporate boundaries. The law applies to every municipal sewer and water utility, even though municipal sewer utilities are otherwise unregulated by the IURC and even if a municipal water utility has “opted out” of IURC jurisdiction.

Leaders of cities and towns have an opportunity to continue charging different rates, but they need to act soon. A municipality can petition the IURC for approval of a from 15 percent to 50 percent rate differential if the rate ordinance was in effect on March 31, 2012. The petition must set forth the date on which the ordinance took effect, the percentage difference in the rates and the type of utility to which the ordinance applies. If the petition is filed and is determined to meet the requirements, “the [IURC] shall approve the petition, including the percentage difference between rates and charges described [in the petition].” If a municipality opts to file the petition, it must be done on or before September 30, 2012.

For future water rate ordinances (those adopted after March 31, 2012), the law provides that a municipality may petition the IURC for approval of its water rates that implement a new differential of greater than 15 percent or that increase an approved differential by 15 percent. The burden is on the municipality to demonstrate that the proposed rates are nondiscriminatory, reasonable and just. The law is unclear as to future sewer rate ordinances.

What’s the bottom line? For those businesses and residents located outside of municipal corporate limits, the General Assembly has provided an avenue for greater scrutiny of water and sewer rates where outside-the-municipality rates are more than 15 percent greater than the inside-the-municipality rate. As a local elected official, you need to know if your municipal utility charges more for customers located outside the municipal corporate limits, what the differential is and whether action is needed. You also need to be aware of the statutory requirements when implementing future inside/outside municipality rates. 



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