Tennessee-American Water Co. officials Mike Miller and John Watson discuss their company’s rate proposals with the Times Free Press editorial board.
Hamilton County Commission agenda session -- April 10, 2008
After stinging Tennessee-American Water Co. officials with questions about the financial motives of its parent companies, the Hamilton County Commission voted 7-0 Thursday to oppose the utility’s requested 20.58-percent rate increase.
The rate increase would add about $3.65 per month to a residential customer’s bill.
“This is a great asset, but here recently y’all haven’t done a very good job running that asset,” said Commissioner John Allen Brooks. “I think it’s an asset that should be in control of the people.”
Mr. Brooks, as well as commissioners Jim Coppinger and Warren Mackey, suggested the water company should be sold to the city of Chattanooga.
John Watson, president of Tennessee-American, said his utility is not for sale. He said Tennessee-American’s parent company, American Water Works Co., is moving from private ownership to the New York Stock Exchange.
Commissioners accused the water utility of trying to increase its value leading up to the initial public offering of American Water Works. They also accused the company of wanting to use the proposed rate increase to pay off the debt of American Water Works’ parent company, Germany-based RWE.
“Are you telling me that this money that you borrowed, that you didn’t pay back, did the tooth fairy bring you money?” asked Commissioner Fred Skillern. “Or did you get it from the rate of the customers?”
Before commissioners passed the resolution opposing the increase, County Mayor Claude Ramsey asked that it be amended to ask the Tennessee Regulatory Authority to hold public hearings in Hamilton County on the issue.
Three Chattanooga mayors in four decades have discussed trying to buy the water company, but those efforts failed because of lack of public support.
Later, at a meeting with editors and reporters at the Chattanooga Times Free Press, Mike Miller, treasurer for Tennessee-American, denied the rate increase is tied to American Water’s IPO, which federal documents say could generate up to $1.9 billion.
“There is absolutely no correlation,” Mr. Miller said. “That is not the reason we’re filing this rate case.”
If approved in full, the rate increase would generate an extra $7.6 million in revenue, Tennessee-American officials estimate, and help the utility recover $21.4 million in capital investments and higher operating costs.
“We are not going to apologize for the rate increase because it is what we need to do to operate this business responsibly,” Mr. Watson said.
The water company’s last rate increase, 12.3 percent, occurred in May 2007. That increase helped Tennessee-American spend $27 million on infrastructure, Mr. Watson said. Infrastructure includes such items as pipes, meters and water-storage facilities.
Mr. Miller said the rate increase is needed for a federally mandated $1.36 million contribution to the company’s pension plan, for $2.4 million in capital improvements, which include $529,000 in property taxes, and $2.9 million in increased operating and maintenance costs.
The operating-cost increase includes an additional $627,000 in higher fuel prices and a rate increase by EPB and the Tennessee Valley Authority, Mr. Miller said. Also, the cost of water treatment chemicals has risen, he said.
Aging infrastructure is an issue across the nation for municipal and private water providers, Mr. Miller and Mr. Watson said.
“We are not serving customers if we put off capital costs in the long run,” Mr. Miller said.
A 2005 report by the U.S. Environmental Protection Agency showed Tennessee’s water infrastructure was inadequate and needed an investment of more than $2.7 billion to meet federal standards, Mr. Watson said. The study did not apply to Chattanooga because of Tennessee-American’s investments in the infrastructure, he said.
* Tennessee-American Water Co. is the largest investor-owned water utility in the state, providing water and/or wastewater services to more than 391,000 people in Tennessee and North Georgia.
* The company has about 74,540 residential and business customers.
* Tennessee-American has 1,277 miles of water mains, about the distance from Chattanooga to Denver.
* The average residential customer pays $17.23 per month for 4,487 gallons.
Source: Tennessee-American Water Co.