The biggest winners out of the prolonged battle over Chattanooga water rates may be the attorneys and experts in the case.
The biggest losers? City taxpayers and Tennessee-American Water customers who are having to fund both sides of the increasingly expensive legal battle.
The water company is spending more than $2 million trying to win approval of two rate increases that, at most, will bring the company just over $11 million. Tennessee-American said it spent more than $1 million on lawyers and experts in a rate case last year that netted the company about $4 million and company officials said they expect to spend even more for its current rate case.
Chattanooga taxpayers will pay even more because they will also be footing the bill for much of what is likely to cost more than $200,000 for the city to join with the Chattanooga Manufacturers Association to fight the rate hike proposed by the water company.
Through consumer rates and fees paid to the state, Tennesseans also have had to pay extra to have the Nashville-based Tennessee Regulatory Authority conduct its last two water rate hearings in Chattanooga, which TRA director Eddie Roberson said is “a great expense” for the agency. Last year, the agency spent about $14,000 to bring its hearing to Chattanooga.
Each side in the dispute over the water rate increase blames the other for inflating legal costs.
Mike A. Miller, who handles water rates cases for American Water Works subsidiaries in a half dozen states, said the current water rate case in Chattanooga is unprecedented and far more costly than other water rate hearings. American Water Works is Tennessee-American’s parent company.
“This case and the company’s last case have morphed from a normal regulatory proceeding to something akin to a major federal trial,” he said. “In my 30 years of experience with American Water Works, I have not experienced regulatory proceedings remotely comparable to this proceeding.”
Mr. Miller said the company had to prepare an additional report on many of its expenses from what it originally submitted to respond to requests from the state Consumer Advocate Division of the Tennessee Attorney’s Office.
“In the case of the city, it appears the only way to satisfy their requests is to perform a full forensic audit of every expense Tennessee American Water incurs,” Mr. Miller said. “This does not occur in any other jurisdiction where I have worked.”
“It is clearly the intervenors who are driving up the costs of these rate proceedings,” Mr. Miller said.
But Rick Hitchcock, an attorney for the city, puts the blame for the rising costs of handling water rate cases on Tennessee-American. He said the frequency and volume of the rating filings from the water company are driving up expenses for everyone.
During last week’s hearing, Mr. Hitchcock held up a copy of his 980-page Revised Standard Bible and said the water utility’s initial rate filing was only 10 pages shorter than his entire Bible.
“Frankly, they can spend whatever they want and expect to get reimbursed,” Mr. Hitchcock said. “Things are out of hand when we have the complexity that we have in these cases.”
Since the initial filing for the latest rate increase, more than 60,000 pages of documents and testimony have been filed with the TRA from Tennessee-American, the city of Chattanooga, the Consumer Advocate Division of the state Attorney General’s Office and the Chattanooga Manufacturers Association, even before the TRA panel heard the case argued last week in Chattanooga.
Mr. Hitchcock said there is no law that requires the TRA to allow the company to shift the expenses of the rate case to ratepayers, although that has been the usual practice.
The 2006 rate increase sought by Tennessee-American cost the company more than $1 million in legal and processing fees. In the end, the company was granted a 12.3 percent rate increase that generates an extra $4 million a year for the company.
Dale Grimes, an attorney for the Nashville-based Bass, Berry & Sims who represents Tennessee-American, said the water company expects to spend at least as much this year as it did on its previous rate case. In fact, the water utility is trying to recover expenses involved in its last rate case in its current request to the TRA.
two cities, thousands of dollars
Last week, the utility presented testimony from 10 expert witnesses in Chattanooga and the case will continue to be heard this week by the TRA in Nashville.
Tennessee-American also is spending tens of thousands of dollars for public relations assistance, customer mailings and advertising on radio and in the Times Free Press. But Tennessee-American General Manager John Watson said the costs of that campaign will be borne by American Water Works shareholders, not local water users.
Attorneys for the city and the Chattanooga Manufacturers Association contend that the utility is spending too much to try to win approval of its rate request. But Mr. Grimes told a TRA panel last week “it hurts my feelings” that his legal fees were questioned. He accused the city, the manufacturers association and the attorney general’s office of inflating the overall costs with massive data requests.
“The case was more expensive than the company anticipated because it did not and could not prior to the filing expect the extent to which these three intervenors ( the city, the manufacturers association and state Attorney General) would complicate the proceedings with extensive discovery and adversarial approaches to almost all procedural issues,” Mr. Grimes said.
But Ray Childers, president of the Chattanooga Manufacturers for the past 17 years, said the rate filings by the water utility are getting bigger, more frequent and more costly to process.
“I long for better times,” Mr. Childers told the TRA last week, recalling a 1994 case his group helped settle with the water company before the final TRA panel even heard the case. “In those days, we had discussions with the water company before any rate request was even filed so we could try to work out our differences before we got all the attorneys involved.”
Chattanooga Mayor Ron Littlefield said that’s the approach the city takes in setting its sewer rates.
“When we raise those rates, we sit down with the industries and principal users and we come to a meeting of the minds about what is necessary,” he said.
Mr. Littlefield said the city and the manufacturers association have to fight the water company to prevent even bigger rate increases.
“It’s a ridiculous process to have go through,” he said. “When this is all over, we will look at our alternatives.”