Panel hears arguments over water rate increase

Panel hears arguments over water rate increase

March 1st, 2011 by Ellis Smith in Businesstopstory

Regulators got an earful Monday at the beginning of a week-long hearing by Tennessee American Water for a record high rate increase this spring.

Staff Photo by Dan Henry/The Chattanooga Times Free Press Jim Folkner addresses the crowd in opposition to a proposed rate increase of close to 30 percent by Tennessee American Water during a hearing at the Hamilton County Courthouse early Monday morning.

The private water company wants to raise overall rates by 30.5 percent to generate an additional $11.6 million.

If approved by the Tennessee Regulatory Authority, the extra money would go to offset rising energy, chemical and labor costs, toward making a series of system improvements and to ensure the utility remains profitable enough to attract private investment, company officials say.

City leaders, business managers and an NAACP leader criticized the utility for trying to hike water rates again while local consumers and businesses are still struggling to recover from the recession. The proposed increase would boost the water costs by an average of 15 cents per day, or $4.68 per month, for the typical residential customer.

"People will have to choose how many glasses of water they can drink with their medicine," argued Joe Rowe, a spokesman for the NAACP who was critical of the increase's impact on "poor people and people on fixed incomes."

Businesses such as Alstom Power and Advanced Technical Ceramics could take an even bigger financial hit

Alstom spokesman Steve Koviack said the rate increase on the heavy manufacturer would be "burdensome and will affect our productivity," especially considering the volume of water the company uses manufacturing its power plant turbines in Chattanooga.

Bill Minehan of Advanced Technical Ceramics suggested that if Tennessee American Water was a privately managed and held company, it would be out of business.

"A 20 to 30 percent price increase can be accommodated, but in the free enterprise system this product is left on the shelf in place of a more frugal competitor," he said.

As a heavy water user, the price increase will have to be directly factored into his fixed costs on the global stage, making the company and others like it less competitive, he argued.

"There is a hidden cost here that would be very hard to calculate," Minehan said.

Representatives for Tennessee American Water, while acknowledging that the costs were higher than those to which Chattanoogans have grown accustomed, said Chattanooga still will rank roughly in the middle of Tennessee municipalities when it comes to water rates even with a 30.5 percent rate increase.

Water company attorney Dale Grimes warned that without increased returns for investors, Tennessee American would be unable to attract capital and be forced to put off much-need upgrades, which could eventually lead to a breakdown in the water system.

"You can only not change the oil in your car for so long," he said.

Bill to limit filings

Three Tennessee Regulatory Authority directors - Chairman Mary Freeman and directors Eddie Roberson and Sara Kyle - must decide by March 17 how much, if any, rate increase to grant the utility.

Tennessee-American Water

Owner: American Water Works Company, Inc., in Voorhees, N.J.

Revenues: $37 million in 2010

Staff: Budgeted for 110 employees

Customers: 74,500 customers in the Chattanooga area, plus wholesale water users on Signal Mountain and in North Georgia

Capacity: 65 million gallons of water a day

Typical bill: For the average residential customer who uses 4,135 gallons, $16.62

Rate request: Raise residential bills by 28.1 percent, or $4.68 per month.

The hearings this week in Chattanooga involve a football team-sized group of attorneys and comes less than two and a half years after regulators decided on the last water rate case after a lengthy and costly legal battle.

Water rate filings could become a more rare and less costly exercise if a proposal introduced into the state legislature by Sen. Bo Watson and Rep. Richard Floyd is accepted, said businessman Jim Folkner.

Folkner, who called the latest rate request "outrageous, said Tennessee American has asked for rate increases five times in the past decade.

The proposed bill would limit rate increase to once every six years, cutting back on the nearly $1 million that the water company has spent to defend its requests before regulators, and the $250,000 to $300,000 spent by the city to fight it, Folkner said.

The proposal will also make the utility's records public, allowing rate payers to more closely examine the inner workings of the company.

Contact staff writer Ellis Smith at esmith@timesfreepress.com or 423-757-6315.