Michigan at a Crossroads

This policy brief considers the potential role for economic regulation of water utilities in Michigan, particularly given considerable pressure on infrastructure costs and prices and subsequent concerns about efficiency and equity, brought to light by widespread service disconnections in Detroit and the Flint Water Crisis.

Economic regulation by state public utility or public service commissions (PSCs) is widely accepted for privately (investor) owned utilities in the United States. The Michigan PSC regulates electricity and natural gas utilities (pursuant to PA 3 of 1939). The commission’s stated mission is “to protect the public by ensuring safe, reliable, and accessible energy and telecommunications services at reasonable rates for Michigan’s residents” (www.michigan.gov/mpsc/).

Michigan is one of only six jurisdictions that do not regulate water utilities (along with the District of Columbia, Georgia, Minnesota, North Dakota, and South Dakota). The state Economic Regulatory Jurisdiction for Water Utilities regulated a limited number of water utilities in the past, but effectively “deregulated” the sector in 1995. Under Michigan law, municipally owned utilities are exempt from economic regulation by the state.

For federal and state public health and environmental regulation, which focuses on water quality, the regulatory unit for oversight and enforcement is an individual water “system.” Utilities may own or operate multiple systems. Today, while all of Michigan’s 1,385 water systems are subject to environmental regulation, none are subject to economic regulation, including rate review. The regulatory structure is comparable for the state’s more than 1,000 wastewater collection and treatment systems. A structural profile of the state’s water systems is provided in Table 1 and a system map is provided in Figure 1. Michigan is typical in terms of the industry’s fragmentation, with a mix of some larger and many smaller water systems that arose from development patterns.