Tennessee American gets OK to buy Whitwell utility

Tennessee American gets OK to buy Whitwell utility

June 19th, 2013 by Andy Sher in Business Around the Region

Deron Allen

Photo by Tim Barber/Times Free Press.

NASHVILLE -- Fresh off state regulators' approval of its estimated $1.55 million purchase of Whitwell, Tenn.'s city water system, Tennessee American Water's chief says the investor-owned utility is keeping its eye open for future acquisitions.

"We hope to grow," Tennessee American President Deron Allen said. "We don't have anything in the works right now or anything like that."

Tennessee Regulatory Authority directors on Monday gave a thumbs up to the deal struck by Tennessee American, which provides water services to Chattanooga and portions of North Georgia, with Whitwell.

The action allows Whitwell to move ahead with city officials' plans to sell their aging water system to Tennessee American. Whitwell's water system was originally built in 1957, and many of its water lines are too small to serve the city and its neighboring residents.

Former City Manager Charles Tucker said a study last year estimates the water system needs $6.5 million of repairs and additions, which he said the city couldn't afford. The sale to Tennessee American "will help Whitwell grow tremendously," said Tucker who resigned as city manager earlier this spring.

It was not immediately clear when Tennessee American, which is owned by the publicly traded American Water Works Co. Inc., will actually take over the system.

"We haven't gotten a chance to look at the full [TRA] order yet," Allen explained.

TRA Chairman Jim Allison said during proceedings that approval of the purchase agreement includes granting the water company an exclusive franchise with Whitwell, located in Marion County.

Directors also approved a franchise agreement with the nearby town of Powells Crossroads, which currently is served by Whitwell, Allison said. The approval includes issuance of a certificate of convenience and necessity for Tennessee American to serve customers now served by Whitwell.

But the written order, which will be issued later, will contain more details fleshing out how various points of contention between the company and the state attorney general's Consumer Affairs and Protection Division were resolved. Attorneys with the division had no immediate comment.

Tennessee American, which serves about 74,500 existing customers, will pick up an estimated 3,000 new customers from Whitwell.

The $1.55 million is an estimate for what Tennessee American will pay. In a filing earlier this year, the company said it can't determine the final purchase price until a closing date because the price is equivalent to the calculated rate base on the date of closing.

Some of the details were made off limits to the public.

Whitwell has estimated its water system needs $6.5 million of pipe upgrades, tank maintenance and additional water capacity.

Regulators also approved the company's request of depreciation rates and amortization of contributions as well as the debt Tennessee American may incur to buy the system.

Users will pay current rates with future rates to be determined when company files its next rate case.

"One of the things we didn't get was the due diligence costs," Allen noted.

That was the $55,000 the company says it spent to look into the Whitwell purchase. Tennessee American wanted the TRA to recognize the expenditure so it could recover the costs from ratepayers in the future.

During Monday's proceeding, TRA Director Kenneth Hill said he disagreed with his two colleagues on the issue.

"I cannot imagine a responsible utility engaging in an acquisition of another utility, public or private, without conducting substantial due diligence activities," Hill said. "Due diligence helps a utility stave off a bad investment."

Still, Hill voted in favor of the TRA's overall action.

Questions had been raised in the rate case hearing earlier this year as to whether Tennessee American's Chattanooga customers will be helping pay for the purchase and repairs.

Allen said, "Chattanooga customers will not be subsidizing Whitwell or vice versa."

The oral order was silent on another bone of contention between the company and the attorney general's office. That involved the company's plan to build a pipeline to Dunlap, which Tennessee American says is necessary for emergency backup.

The attorney general's office argued Tennessee American should first see what kinds of reductions in water leakage can be made before embarking on the project.

In a post-hearing brief, state attorneys called the Dunlap connection an "extraordinary expenditure outside the normal course of business that may not be a reasonable, necessary and prudent cost."

The state noted the company has not told Whitwell how much the connection will cost.

"There is no reason for this to be confidential information, because if the ratepayers are expected to pay for it, the information should be available for public scrutiny," the state said in its brief.

Contact staff writer Andy Sher at asher@timesfreepress.com or 615-255-0550.