A Publication of WTVP

Kevin Hillen is the Northern Division manager for Illinois-American Water Company (IAWC). He’s responsible for oversight of the day-to-day operations, maintenance, and investment budgets of IAWC’s Peoria, Pekin, and Lincoln districts, which serve approximately 68,000 customers.

Hillen is a member of the Rotary Club of Peoria, a board member of Junior Achievement of Central Illinois, and a board member of the Heartland Water Resources Council of Central Illinois.

He and his wife, Kate, have four children.

Tell about your background, schools attended, family, etc.

I was born and raised in a small farming community in southwestern Illinois in an unincorporated town called Meppen in Calhoun County. It’s located in the confines of the Illinois and Mississippi rivers across from Alton at the mouth of the Illinois River. The area is known for its apple and peach orchards. I’m the oldest of six children, with four sisters and one brother. My father was a farmer when I was growing up, and later, worked for Olin Corporation in their brass mill before retiring; my mother is a homemaker. All of these things gave me the foundation I needed.

I attended the University of Illinois at Urbana-Champaign, which was pretty intimidating for a 17-year-old who had a high school graduating class of 25. I graduated in 1983 with a bachelor of science degree in civil engineering, with a special emphasis on hydrology. When I finished school, I was fortunate enough to get a job in Champaign working for Northern Illinois Water Corporation. That lasted until 1999, when Illinois-American Water acquired the company. I then had the opportunity to move to Peoria, taking over as Northern Division manager. My responsibilities here include the management of the Peoria, Pekin, and Lincoln districts.

My wife, Kate, and I are the parents of seven-year-old triplet daughters. I also have a 20-year-old son.

Tell us about the history of Illinois-American Water Company in central Illinois.

Illinois-American has served the greater Peoria area with water for more than 100 years. In Peoria’s earliest days, under the city-owned Peoria Water Company, drinking water came directly from the river. But most citizens had their own wells or bought their drinking water from mineral springs, and before long, this first company failed. In 1889, after 20 years of operation, the City of Peoria sold the company to a group of investors who agreed to build a new water system, the pumping station and well (just north of the McClugage Bridge), a reservoir, and add 40 miles of new water mains. In 1898, the company was reorganized as the Peoria Water Works, the firm from which today’s company is directly descended.

The Pekin Water Works Company was first organized in 1886 by a group of private investors. Pekin native Henry Lautz and George H. Lucas took over that interest in 1898. After buying out his partners in 1901, Lautz’s family operated the water company for the next 70 years, until its sale to American Water Works Company in 1981. The name was changed the following year to the Pekin District of Illinois-American Water Company.

Our third service area is the Lincoln District, which was purchased from United Water a few years ago. These three districts—Peoria, Pekin, and Lincoln—make up the Northern Division of Illinois-American Water Company. Statewide, the company serves 293,000 customers and more than 1 million people in 125 Illinois communities.

The merger of our parent company, American Water, with Thames Water, the water division of RWE, became effective January 10.

What changes does this mean for your customers?

It’s basically “business as usual” at Illinois-American. Much will continue as it always has. Our company name will remain the same, and the faces in our offices, out on the streets, or at our service centers will be the same faces that have grown so familiar in the communities we serve. We’ll continue to play an active role in the community, just as we always have. We share with Thames Water the commitment to quality service at the lowest possible price and believe quality service begins at the local level.

We derive several benefits from this merger, including access to the newest international expertise, technologies, and methodologies. The water industry is changing rapidly, and this will help us keep abreast of the newest developments. Thames Water has a strong public service ethic combined with private sector expertise, and has produced a tremendous track record of using technical innovations to improve environmental protection, water quality, and service standards in the communities they serve. We’ll be able to tap into this expertise on many levels. It’ll also help us fulfill infrastructure needs at a more reasonable price than otherwise would have been possible.

There are more municipal water systems than privately owned water systems. Why is this?

The reason for this can be found by first considering the conditions that existed when these water systems were established. Most U.S. water systems were first constructed in the late 1800s and early 1900’s. A lot of municipalities financed and built water systems for their residents. There were, however, many municipalities that, for lack of funding or for other reasons, didn’t establish their own systems. In many situations, pioneers in the investor-owned water business were able to raise the necessary capital and build public water systems to satisfy the public need. These privately owned systems relieved the municipality of the burden of financing and running a water system, which was a very satisfactory arrangement for many cities and villages.

Historically, what have been the differences between a public and private-owned water company? What are the advantages of both? Disadvantages?

Customers primarily judge their water service by their experience “at the tap.” They’re basically interested in receiving water that looks good, tastes good, is odor free, and is safe to drink. They also want reliable water service that gives them adequate pressure and volume to satisfy their needs. They want these things 24 hours per day, and they’re willing to pay a fair price for what they get.

Both private and municipal systems can fill these customer needs. However, having been employed by an investor-owned utility for more than 20 years, I firmly believe private ownership of the water system brings more dependable service. Municipal utilities are often controlled by political decisions that may not always be in the best interest of customers. Under political control, rates can be structured to favor certain groups or classes of customers. Customers outside of the city are often charged double the rates of those inside the city, or industrial customers might be charged excessively high rates to subsidize residential customers. A municipally owned system isn’t subject to any outside rules, regulations, or requirements except those dealing with water quality and safety.

In Illinois, privately owned utilities must operate under the rules and regulations of the Illinois Commerce Commission (ICC). Those rules are designed to protect the customer and to prevent discriminatory practices. They also require private owners to build, operate, and maintain their systems so customers receive specific standards of service at a cost the Commission judged to be fair to both the customer and the utility. The rates a private water utility in Illinois charges its customers are based on cost of service.

The regulations an investor-owned utility must operate under provide a degree of protection and consistency to the consumer that doesn’t exist under the politically controlled municipal system.
Also, there are numerous advantages of being part of a large private company. By having sister companies in 27 states, we have a system-wide pool of experienced employees sharing knowledge and resources. Mass purchasing through national contracts increases our purchasing power, and as a part of American Water, we have the ability to secure large amounts of capital at favorable rates. Illinois-American also enjoys economies of scale from centralized billing, accounting, and customer service. The American System laboratory in Belleville, with its state-of-the-art technology, is one of the few research laboratories in the country certified for Cryptosporidium testing.

One advantage often claimed by municipal systems is they don’t pay taxes, while privately owned utilities do. This, however, isn’t a true advantage. Instead, it’s shifting dollars from one pocket to another. Without the tax revenue generated from the privately owned system, the public services funded by those taxes have to either be cut or the rate paid by everyone else must be raised.

Several communities have proposed the city buying out the privately owned water company. What’s the status of Pekin and Peoria’s request for the opportunity?

While the end results of the proposed government takeovers are somewhat similar, the process in each community is quite different. In Peoria, the 1994 referendum indicated 86 percent of the voters preferred that the water company remain private, but the right-to-purchase issue was never resolved. When the City of Peoria first sold the system to private investors, that original 1889 franchise agreement included a purchase option that gave the city the option to buy back the company without going through the usual condemnation process to ensure the new owners made the specified improvements to the water system. In our opinion, the franchise and the purchase option were no longer valid more than 100 years later, but the courts have since ruled differently.

At present, we’re working with the City of Peoria to determine how to implement the appraisal process contemplated in the purchase option, with the end result being to determine the value of the water system in Peoria. Whether the city will move forward to actually purchase the system once the price is established is uncertain.

In Pekin, the question of private or municipal ownership has been posed to voters in three separate advisory referendums in 10 years. Illinois-American and private ownership were favored in the first two referendums; but in 2002, the outcome was different, and the Pekin City Council voted to begin condemnation proceedings. Currently, the city’s condemnation case is before the Illinois Commerce Commission. This state regulatory agency must find that it would be in the public interest for the city to acquire the water system. The ICC’s decision will be based on the best interests of customers, as supported by factual evidence. Only if the ICC finds the public interest would be served by condemnation may the city file a judicial action to condemn the system. The court hearing action would establish the purchase price for the system, based on evidence submitted by the parties. The total process is long and costly to both sides.

What government regulations are required for running a water company?

Water utilities are governed by myriad government agencies with a broad range of rules and regulations. However, private water utilities must primarily answer to two main governmental bodies: the Environmental Protection Agency, which sets and governs water quality and water supply issues, and the Illinois Commerce Commission, which governs our business practices, sets rates, and protects the interests of our customers. 

An important point is with the merger with RWE-Thames, the regulatory structure under which we operate didn’t change at the local, state, or federal level. We answer to the same bodies we always have.

What, if any, security measures regarding the public water supply have been taken since September 11, 2001?

The need to increase protection of utility infrastructure from possible acts of terrorism is paramount. This is particularly true of public water supplies. Illinois-American and American Water acted immediately. We’ve been proactive in protecting the water facilities and water supplies that serve our customers.

All Illinois-American Water Company water treatment facilities and offices have been on a heightened security status since 9-11 and will remain so indefinitely. We continue to assure all of our customers we’re diligently guarding and monitoring our water supplies, systems, and facilities—24 hours a day, every day. However, please understand details of our security measures are confidential.

Is there adequate supply of water in central Illinois?

The short answer is “yes.” I can’t speak about specific communities outside of our service areas, where I know there are some localized supply problems, but overall there’s an ample supply of water in Illinois-American’s service areas. In Peoria, we’re fortunate to have both a plentiful ground water supply from the San Koty aquifer and a surface supply from the Illinois River. We pump an average of just under 22 million gallons per day (MGD), with about 14 MGD, or roughly 60 percent, coming from several well fields.

If additional supply is needed in Peoria, it’s available from either groundwater or surface water sources. In Pekin, we pump an average of 6.9 MGD from several well sites in various parts of the city, drawing from the Henry and San Koty aquifers. Multiple sources and numerous wells help make our system more versatile and reliable. Sources are more limited here, however. Since we acquired the system in 2000, Illinois-American completed a comprehensive planning study to evaluate the system against American Water operational and design standards. We’re now, in fact, looking for additional supplies in conjunction with a planned treatment facility upgrade.

Some cities enforce water rationing. Would that ever be the case in central Illinois?

We’ve been most fortunate in central Illinois that we haven’t had to ration water, but that might not always be the case in extreme drought or other emergency conditions. During the drought of 1988, we did ask customers to voluntarily limit outside water use for a few days that summer. We’ve since made improvements to the system that have helped prevent possible problems before they cause serious inconvenience or cost, so customers will always have quality, reliable water service.

Illinois-American just applied for another rate increase. What’s the reason for this, and what is Illinois-American doing to control rising costs?

The three major drivers of this rate request are increased costs incurred for heightened security since September 11, 2001; continued investments and improvements in our water system infrastructure; and rising labor, pension, and insurance costs, which are being experienced by companies and municipalities throughout the country.

I think most people have an understanding of labor, pension, and insurance costs, especially if you’re a business owner. Security details aren’t something I can delve into, but I hope you can appreciate the September 11th attack had a dramatic and permanent impact on how we do business.

The issue of water system infrastructure is one that probably needs more explanation. It’s a broad term used in our industry and represents everything from treatment facilities, wells, and river intakes to pump stations, storage tanks, water mains, services, hydrants, meters, etc.—all the “stuff” we have to build and maintain to provide water service to a home or business.

In 1977, Congress enacted the Safe Drinking Water Act and has since amended it several times. This legislation established specific standards for a broad range of microbial contaminants, organic and inorganic chemicals, pesticides and herbicides, and radiological factors, among others. These regulations have been very effective, making the U.S. drinking water supply cleaner and safer than it’s ever been. To meet these standards, water utilities across the country had to, and continue to, invest in new treatment facilities to improve such things as water disinfection and filtration, and to remove specific contaminants such as PCE, nitrate, or radium. And this has been occurring in a climate where both annual residential and industrial use per customer is decreasing as water use becomes more efficient. All of these factors continue to put lots of pressure on rates.

In recent years we’ve seen a lot of industry consolidation and regionalization to counteract this. Illinois-American Water has been part of this. In the past five years, we’ve acquired the Illinois properties of United Water, Northern Illinois Water, and Citizens Utilities. These acquisitions allow us to spread fixed costs over a larger customer base. We’ve also seen growth in regionalization, with communities choosing to purchase water from Illinois-American rather than invest in new facilities required to provide adequate service. In many districts, plants have been automated to improve efficiencies.

Water utilities are by their very nature capital intensive. On a national average, water utilities have slightly more than $3 in net plant investment for every $1 in revenue generated. That’s a lot higher than most businesses and most other utilities.

Various government agencies and industry organizations estimate nationwide over the next 20 years, the water industry will need to invest anywhere from $11.6 to $24 billion annually for infrastructure investment. Municipal systems often struggle to make necessary investments in water systems during difficult budget times. Making prudent improvements is something you don’t have to worry about with Illinois-American.

So what does this mean for Peoria, Pekin, and Lincoln? First, remember this won’t all happen tomorrow. Illinois-American will meet the challenges of the next 25 years the same way we’ve met those of the last 25 years—with thoughtful planning, careful management, and continued investments. Delaying improvements until it’s too late benefits no one—even if it means periodic rate increases. Good water service is important for the continued economic health and development of the communities we serve.

What improvements have been made to the water company—in regard to distribution and water quality—in the last decade?

The water utility business has changed dramatically in the past decade, and Illinois-American has tried to lead the way in Illinois. Compliance with new rules and regulations is costly and means we’re meeting standards for contaminants we couldn’t even detect a few years ago.

We’ve been making sound investments to replace and update aging infrastructure such as pipes, mains, hydrants, and treatment facilities—investments that quietly benefit every customer.

Over the past decade in Peoria, we’ve seen projects such as the replacement of our San Koty facility, installation of the Pekin GAC treatment, chlorine scrubber units (to contain an accidental release of chlorine), new standby power facilities, security-related investments, and facility SCADA controls (automation). These are in addition to numerous water transmission and distribution main projects, fire hydrants, service replacements, meters, well replacements, pumps, motors, chemical feed improvements—all the rather routine things that keep a system operating.

What capital improvements are being planned at Illinois-American Water?

One of the largest ongoing projects we have underway in the Peoria District is the relocation of water mains to accommodate IDOT’s improvements to Interstate 74. Fourteen of our 15 water main crossings of the interstate are impacted by the construction. We’re replacing and rerouting mains, especially in the downtown area, to accommodate this new design. Installation of new stand-by power units is just wrapping up at our San Koty and Dodge well sites. Improvements planned for our Grand Boulevard pumping station include installing new pump controls, stand-by power, and a larger transmission main to the system.

In 2004, we’ll begin a multi-year project to upgrade our Illinois River treatment facility’s filters and electrical system. Near the end of that upgrade, safety is further increased with the planned installation of new technologies such as UV disinfection that should reduce the overall amount of chlorine used.

In Pekin, our emphasis is on main installation along the new Veterans Drive and our small main replacement program. The Veterans Drive project should be completed in 2004.

How does your rate structure affect the various classes of customers—residential, commercial, and industrial?

The type of rate structure used by a utility can have a significant effect on the cost a particular classification of user pays for water. Rate structures can be declining block, uniform, or inverted block. A declining block structure, like we have, results in a lower rate for each block as consumption increases. A uniform structure charges the same rate for all customers regardless of use, and the inverted block structure results in a higher rate for each usage block as consumption increases. Like most other privately owned water utilities, the rates in Peoria, Pekin, and Lincoln, as required by the Illinois Commerce Commission, are based on the cost of service to each customer class.

Illinois-American’s commercial and industrial customers using volumes of water in the third or fourth rate blocks are paying much less than similar customers in other cities. Lower industrial rates, which appeal to high volume water users and businesses looking to expand or relocate, are an asset to the growth of our area.

For three years in a row, Illinois-American has had the fewest consumer complaints of any other private utility company in the state. How do you sustain that level of success? 

We try very hard to focus on providing the highest quality service to our customers, and I think that holds true for all our employees—from the meter reader on the street to the clerk in the office. 

We’re the only water utility in the state offering our customers the convenience of a toll-free, 24-hour customer service information hotline. Customers can get information about their water service, water bill, or make an appointment for service any time of the day or night. To help meet the needs of today’s working family, we have servicemen on duty most evenings and Saturdays. Even when not on duty, a number of our dedicated staff are on call to meet the customer’s needs. You’ll often see them at all hours of the day or night, responding to leaks and other customer emergencies.

We recently reformatted our billing statements so they’re much easier for our customers to read and understand. We offer our customers various and convenient options to pay their bill—by mail, in person, at pay centers at local merchants throughout our communities, and through drop boxes. We also offer our customers the convenience of XpressCheque, our automatic bill-paying service. IBI