Tennessee American seeks 1.1 percent Chattanooga rate increase

Tennessee American seeks 1.1 percent Chattanooga rate increase

October 5th, 2013 by Ellis Smith in Business Around the Region

Tennessee American Water President Deron Allen talks about service to customers from the board room at the private utility's Broad Street headquarters.

Photo by Tim Barber /Times Free Press.


• 2011 - $16.62

• Current - $21.56

• Proposed - $21.80

Source: Tennessee American Water


• 2011 - 14.8 percent

• 2012 - 12.72 percent

• 2013 - 1.1 percent (proposed)

Source: Tennessee American Water


Tennessee American's proposal includes:

• Replacement of water infrastructure

• Operational expenses stemming from economic development

• Safety and environmental compliance

• Trackers for purchased power, chemical, purchased water, waste disposal, and inspection fees that will allow automatic rate increases and decreases

Source: Tennessee American Water

In a bid to dodge the fierce legal battles that have defined its past double-digit rate hikes, Tennessee American Water is toning down its rate rhetoric this year as it seeks approval for a new framework that will automatically pass many costs onto customers without litigation.

The utility's latest proposal calls for a 1.1 percent increase, which will add about 24 cents to the typical residential monthly water bill. The rate increase, if approved by state regulators, would raise $7.5 million in new revenue for Tennessee's biggest privately owned water utility.

Tennessee American Water is owned by Vorhees, N.J.--based American Water Works Company, which is the largest publicly-traded water company on the New York Stock Exchange.

This year's single-digit increase for Chattanooga ratepayers pales in comparison to past proposals for rate hikes as high as 35 percent if adjusted to include pass-through costs for chemicals, purchased water, waste disposal, pensions, fuel, regulatory costs and power. The average residential water bill was just $16.62 two years ago, but will tick up to an average of $21.80 under the latest increase.

This year's smaller increase is due largely to the new framework created by the Tennessee legislature that sharply reduces the authority and size of the utility's regulator, and allows many of the utility's operating costs to be passed directly on to customers, said Deron Allen, president of Tennessee American Water.

These pass-through costs, which will be tacked directly onto customers' bills if the mechanism is approved, are called "trackers," and once established are not up for negotiation.

"The trackers, they will rise and fall according to what the expenses are," Allen said.

For example, if the cost of electricity goes up, that increase will be added directly to ratepayers' bills, without facing regulatory scrutiny. The new system can be traced back to Tennessee Gov. Bill Haslam, who pushed an overhaul of the Tennessee Regulatory Authority through the state legislature in 2012, transforming the agency from a four-member, full-time agency to a part-time board with five members.

Allen defended Tennessee American's pattern of increasing rates in a city that is built along the near-unlimited water resources of the Tennessee River. The cost of water is still less than a penny per gallon, and Chattanooga still has much infrastructure that needs to be upgraded to protect the city's safe supply of drinking water, Tennessee American contends.

Much of the money raised this year over and above the hard-won rate increases from previous years will go toward a $5 million fix to the utility's sludge scrubbers, which will treat the dirt and grime that's accumulates in tanks when river water is allowed to settle. Previously, this sludge was simply discharged through the city's sewer system. But a federal consent order sharply reduces what Chattanooga is allowed to discharge back into the Tennessee River, and officials are leaning on Tennessee American to stop the sludge before it enters the city's combined sewers, Allen said.

"That's one of the biggest items," he said.

Customers will also begin to see their rates automatically fluctuate to cover the utility's cost of complying with safety and environmental regulations as well as the cost of disposing of waste, buying chemicals, purchasing power, and other costs.

The utility is also working to install high-efficiency pump motors, is fixing some of its aging water mains and will begin working with the Chamber of Commerce and other economic development bodies to build water mains to new development projects, which will soak up much of the remainder of the increased revenue, Allen said.

Past efforts at raising rates have been fiercely opposed by the Tennessee Attorney General, the city of Chattanooga, the Chattanooga Manufacturers Association, and even the local employees' union. But Allen hopes that won't happen this year.

"I don't perceive that it's going to be contentious," Allen said. "With these mechanisms, there could be some decrease to the customer because we made this investment."

Lacie Stone, spokesman for Mayor Andy Berke, said Chattanooga residents deserve "reliable, sustainable, quality services at the most reasonable costs" and City Hall expects state regulators will scrutinize he utility's proposal.

"We expect the TRA will fully review the request before making a final determination on how to move forward," she said.

Contact Ellis Smith at esmith@timesfreepress.com or at 757-6340.