Thousands of Chattanooga consumers would see about a 12 percent hike in their monthly water bills instead of the 24.9 percent increase originally sought by Tennessee American Water under a proposed settlement between the company and state Attorney General Bob Cooper.
The agreement, filed late Monday afternoon, will have to be approved by the Tennessee Regulatory Authority in the company's pending rate case before it is final.
In a statement issued Monday evening to the Chattanooga Times Free Press, Cooper said, "We feel this is an appropriate settlement for consumers while giving [Tennessee American] an acceptable rate of return."
Tennessee American President Deron Allen said, "We look forward to the TRA's consideration of any such agreed resolution at the appropriate time."
As part of the agreement, there will be no increase in wholesale rates for Signal Mountain and Walden.
The move is an effort to encourage officials there to continue using Tennessee American and not bolt to the Eastside Utility District or another supplier for their water service.
Chattanooga, Fort Oglethorpe and Catoosa County, Ga., families and businesses would see the increase. Tennessee American serves 74,000 customers.
The agreement gives the investor-owned Tennessee American about $5.2 million of its $10.4 million request and avoids the need for a costly weeklong rate hearing in Nashville that would begin Oct. 15.
But while rates will go up for the second time in two years, Tennessee American agreed to drop its push to guarantee the company even more money from consumers.
That would have come through a proposed "distribution system infrastructure charge" that would have covered the cost of the company's investment in infrastructure including, critics said, a guaranteed rate of return.
The now-dropped provision could have boosted local users' rates up to 10 percent, earning the company as much as $4.3 million more, critics contend.
In August written testimony filed by the Attorney General's Consumer Advocate and Protection Division, the state's expert witness, Terry Buckner, said regulated utilities "have historically set rates based on the concept of opportunity and not a guarantee" to earn a "reasonable profit."
Guaranteeing a return "distorts the regulatory compact in favor of the monopolistic utilities," Buckner warned.
"This is disconcerting given these economic times that the households, businesses, and manufacturing community in the Chattanooga area should be required to take on a greater share of a public utility's business risk and guarantee a monopoly a specific return," Buckner stated.
The water company also gave up on its request for an automatic pass-through on future increases for fuel, chemicals and pensions without coming back to the regulatory agency for approval.
Joining Cooper and Tennessee American President Allen in signing the settlement were attorneys for the cities of Chattanooga, Signal Mountain and Walden, as well as the Chattanooga Manufacturers Association.
Richard Beeland, a spokesman for Chattanooga Mayor Ron Littlefield, said he hopes the rate increase "will be the last one for a long time.
"It's still excessive, but we understand where this case was going," Beeland said. "We hope that Tennessee American will work better with the local community to address our water and sewer needs."
The water utility this year served notice that it was stopping the collection of sewer fees for the cities of Chattanooga, East Ridge, Red Bank and others. Those cities now are having to spend more money for such billing and no longer have the enforcement mechanism of cutting off water if a sewer bill is unpaid.
Signal Mountain Mayor Bill Lusk said he welcomes any settlement that will avoid another rate increase for mountain residents.
Town personnel have begun talking with other water suppliers for wholesale water supplies after Tennessee American has raised rates a half dozen times in the past decade, he said.
"We've had some discussions with other suppliers," Lusk said. "When you have these kind of increases, it gets you motivated to find alternative sources."
Just a year ago, state regulators granted Tennessee American Water a 14.76 percent rate increase. That was just under half of the 30.7 percent increase sought.
Even so, it was the largest hike ever by the water utility. This year's will be the second biggest if the settlement is approved.
Allen has said the increase is needed to help pay for more than $27 million in pipe, valve, tank and treatment upgrades planned in the next 18 months.
Maintaining and improving the 125-year-old water system requires more investment and the utility also has to cover higher expenses for labor, energy and chemicals since the last rate increase in early 2011, he said.
The settlement is the first such agreement reached before a TRA hearing since 2004. Since then, with the exception of a 2008 rate case, regulators have typically granted about half of what the water utility requests.
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