NASHVILLE — Tennessee-American Water Co.’s request for a 20.58 percent increase in water rates is churning up waves among some members of Hamilton County’s legislative delegation.
Rep. Richard Floyd, R-Chattanooga, said he may go before the Tennessee Regulatory Authority to oppose the increase, which comes on top of last year’s 12.3 percent increase.
“You can make numbers say anything you want to,” Rep. Floyd, a retired businessman, said after a presentation last week by Tennessee-American President John S. Watson to local lawmakers.
The investor-owned company on March 14 filed documents with the regulatory authority seeking an overall increase of $7.645 million to help recover what company officials say is $21.4 million in increased capital costs and operating costs.
Mr. Watson said rates paid by the average residential customer who uses 4,305 gallons a month would rise $3.65 per month to $20.19.
“As a regulated water utility that serves customers here in Chattanooga, we think it’s very important that, one, we make improvements and continue to provide good, quality service,” Mr. Watson said of the increase.
He said costs in areas ranging from replacing water mains to fuel continue to soar.
When delegation members pointed out the company gets its water free from the Tennessee River, Mr. Watson agreed, but he said no one wants to drink untreated water and few want personally to tote the 140 gallons of water each residential customer uses on average.
“We don’t really sell water quite frankly, in my opinion,” Mr. Watson said. “We sell service. We provide the treatment of water. We provide the transportation of water.”
Mr. Watson said labor, energy and water treatment chemicals account for the bulk of operational costs. He said the company is spending millions of dollars to replace water mains and other capital expenses.
“I understand your argument about fuel and everything else, but the consumer has the same pressures,” said Sen. Bo Watson, R-Hixson.
Sen. Watson and Tennessee-American’s Mr. Watson are not related.
In response to questions from Rep. Floyd, Mr. Watson said the regulatory authority last year approved a 9.63 percent return on equity. But he said because the company’s expenses increased faster than anticipated, the actual return was 5.7 percent.
“Of that, as I say, roughly $2.6 million was the net income to the common stockholders,” Mr. Watson told the lawmakers.
“Which is not bad, since they’ve got a monopoly,” interjected Rep. Gerald McCormick, R-Chattanooga, the delegation’s chairman. “They don’t have any competitors.”
This year’s 970-page filing with the Tennessee Regulatory Authority proposes an 11.75 percent return on equity to holders of the company’s common stock for their investments.
Sen. Andy Berke, D-Chattanooga, told Mr. Watson that “I’m not sure that I understand this regulatory scheme that you operate under where you spend the money first and go afterward to ask to recover the costs.”
He said he is “not sure what your incentives are to contain costs or time the expending of those costs.”
Mr. Watson said “the real answer is we have to demonstrate each and every penny of that.”
He said the filings are forward projections based on current-year expenses.
Noting last year’s rate increase was based on expectations of paying $2.40 a gallon for fuel, Mr. Watson noted regular gas was running $3.09 per gallon in February and diesel now is priced about $3.94.
Rep. Floyd represents an area of Lookout Valley at Raccoon Mountain that he says has no water service at all.
“My problem with it (is) there’s nothing in there that’s going to help get some water to people who need it,” said Rep. Floyd, who also blames Chattanooga and Hamilton County officials for the problem.
“The bottom line is we got people that don’t have water from the river at the foot of the mountain and is there anything in the future that’s going to address that?” Rep. Floyd told Mr. Watson. “If there’s not, I’m going to the TRA with you, and I’m going to oppose this as heavily as I can.”
Mr. Watson said about 17 homes are affected and the cost of providing the service would be $2 million. That drew strong disagreement from Rep. Floyd, who said he and residents believe they have gotten the costs down to below $700,000.
“What you’ve also got to realize is we can’t go out and spend money on new customers instead of our current customers,” Mr. Watson said. “And we’re not allowed to speculate.”
Rep. JoAnne Favors, D-Chattanooga, said “most of my constituents who have contacted me have been very disturbed” about the proposed increase.
She said she hopes the regulators look at the proposal “very carefully because I look askance at that, coming in less than a year I think from the last rate increase.”
Rep. Jim Cobb, R-Spring City, said that it “hasn’t been proven to me yet that a rate increase is necessary.”
Last year, the water company sought a 19.7 percent rate increase. The Tennessee attorney general’s consumer office objected and recommended the regulatory authority actually cut Chattanoogans’ rates by 2 percent.
TRA directors ignored the recommendation and approved the 12.3 percent increase — the largest in Chattanooga history.
Chattanooga Mayor Ron Littlefield, some Hamilton County commissioners and the Chattanooga Manufacturers Association already have criticized the proposed increase.
Andy Sher is a Nashville-based staff writer covering Tennessee state government and politics for the Times Free Press. A Washington correspondent from 1999-2005 for the Times Free Press, Andy previously headed up state Capitol coverage for The Chattanooga Times, worked as a state Capitol reporter for The Nashville Banner and was a contributor to The Tennessee Journal, among other publications. Andy worked for 17 years at The Chattanooga Times covering police, health care, county government, ...