Case Study 1:  Consolidation of Utilities to Address Rural Challenges: The Case of EJ Water Cooperative

Case Study 1:  Consolidation of Utilities to Address Rural Challenges: The Case of EJ Water Cooperative

Water utilities in rural areas are up against several challenges including: higher rates of water quality violations, small user base spread over larger distances, poverty in the communities they serve, and inability to find trained water plant operators. They often lack resources to keep track of and apply for government grants that are specifically targeted for small utilities.

Water experts have suggested consolidation of utilities into fewer entities as a necessary step toward increased safety, reliability and affordability of water services.[1] EPA is currently exploring a rule to encourage states to have greater authority to enable consolidation when necessary. It is in this backdrop that EJ Water Cooperative, Inc. (“EJ Water”) is hailed as a successful model for rural communities to share and consolidate services while empowering customers and leaders with a sense that it is still ‘their’ utility.

EJ Water was first conceived in Dietrich, IL in 1988 by local leader Delbert Mundt in response to poor sanitation in the local school building and depleting water levels in the region’s wells.  Two water utilities merged, creating a board of directors and co-ownership by both communities.  Unlike utilities where ratepayers are customers, EJ Water is set up so that ratepayers are also owners.  By 1993, a water treatment plant along with 100 miles of water mains in Effingham and Jasper counties of Illinois (giving the utility its initials “EJ”) provided water to thousands of residents, farms, and villages. By 2019, EJ Water had become the largest regional water utility in Illinois as a result of merging 18 previously separate utilities. Within that area, EJ Water provides service to more than 200 small and medium-sized towns in Illinois spread across 13 counties, resulting in a service area of over 5,500 sq. mi. Including wholesale supply, EJ Water provides water to over 75,000 people. The coop model means all subscribers of the utility are “members” and have representation in decision-making, either individually or as a community (in cases where the town purchases wholesale water). EJ Water has its own billing software, construction crew, and trained water operators.  Operators are sometimes loaned out as needed to utilities outside its system and often initiate a process of collaboration and eventual merger.

EJ Water prefers to use the term “merger” over consolidation, and in the last 20 years, has merged approximately 18 distressed rural water systems. At the time of a merger, EJ Water typically applies for funding with the U.S. Department for Agriculture (USDA) through their Rural Development program and the U.S. Department of Housing and Urban Development (HUD) through the Community Development Block Grant (CDBG) program. Availability of grants or loan, its size, and interest rate (for loans) depends on the community’s size and median income. Such funding or low-interest financing is used to upgrade the community’s water infrastructure and install new connections, service lines, and treatment plants. Since the USDA/HUD loans are provided to EJ Water, fiscal solvency is critical to EJ Water’s long-term plans, and hence, the coop will often agree to operate a distressed system on a contractual basis for a few years and only agree to a formal merger once the system’s financial standing has improved.

EJ Water isn’t just a water utility – it also provides broadband services.  Recognizing the related challenges of providing affordable clean drinking water and a reliable internet connection in rural areas, EJ Water partnered with Wabash Communications Coop to form a joint venture, Illinois Fiber Connect, to provide fast internet to rural homes and businesses around the Midwest. They provide water and internet services at a reduced cost by combining water pipes and fiber optic cables along the same right-of-way, ensuring greater leak detection through smart meters. EJ Water was recognized for its cross-utility partnership innovation as a finalist for the Digital Company of the Year at the 2019 Global Water Awards in London, UK, and received the 2019 US Water Prize in the nonprofit category from the US Water Alliance.

 Noticing a gap in public understanding of mergers and regional systems, EJ Water, along with other regional systems (DelCo Water Company (Ohio) and Davidson Water, Inc. (North Carolina)), started the Association of Regional Water Organizations (ARWO) in 2016. Since then, ARWO has grown to include members from several states as well as Puerto Rico. ARWO’s mission is to promote the effectiveness of regional water and wastewater systems in delivering resilient and affordable services. Working with trade associations, AWWA and NACWA, AWRO shares best practices among regional systems. To assist rural water systems in other parts of the country without jeopardizing its cooperative model, EJ Water recently created a new entity, EJ Water Trust, as a not-for-profit organization under IRS section 501(c)(3). The Trust is envisioned to become the first and one-of-its-kind[2] non-profit utility that will outright own a few “anchor” water systems with excess capacity, which will allow the Trust to absorb and provide service to nearby satellite communities who give up their independent utility, thus replicating the EJ Water Coop model nationwide.

 

[1] Teodoro, M. 2019. The plan: A five-point proposal to transform U.S. water ​system governance. October 15. Accessed at: http://mannyteodoro.com/?p=1249

[2] Although cooperatives are technically non-profit, they are member-owned and need to provide representation to all members. Such an arrangement can become cumbersome for a national utility. The EJ Water Trust seeks to model itself after large investor-owned utilities such as American Water, except with a non-profit motive.