Whitwell, Tenn., waterworks 'dilapidated,' expert tells regulators

Whitwell, Tenn., waterworks 'dilapidated,' expert tells regulators

May 8th, 2013 by Andy Sher in Local Regional News

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.

NASHVILLE - A utility expert testified Tuesday that he calculates Chattanooga customers of Tennessee American Water could end up footing $1.9 million of the estimated $5 million in repairs needed to fix a "dilapidated" water service the company wants to buy from Whitwell, Tenn.

But company President Deron Allen later rejected the assertion following the end of a two-day hearing by the Tennessee Regulatory Authority on the investor-owned utility's planned purchase of Whitwell's aging, problem-plagued water system.

"Contrary to what you heard, it doesn't have any [negative] impact on the Chattanooga customers," Allen said in an interview.

In fact, he later added, "you have a good outcome with them as we add customers in Tennessee or [parent company] American Water in general. It gives us a broader customer base. The bigger the company, the better the deals with vendors."

The TRA is considering a joint petition filed in December by Tennessee American, Whitwell and the town of Powells Crossroads, Tenn. Both are located in Marion County. The company currently operates in Hamilton County and parts of North Georgia.

Tennessee American and the two municipalities are seeking regulatory approval of the purchase of Whitwell's municipal water service as well as approval of a water franchise agreement and authority to operate.

Tennessee American, the largest privately owned water utility in Tennessee, is paying $1.6 million for Whitwell's water operations. The city serves nearly 2,800 customers. It has aging infrastructure with major water leakage.

The Tennessee Attorney General's Consumer Advocacy and Protection Division intervened in the case, voicing concerns not about the acquisition itself, but the purchase price and other concerns voiced by their expert, Hal Novak.

Those include what will be the actual cost of necessary repairs and improvements versus the company's rough estimate of $5 million.

If the TRA approves the deal in advance without full knowledge, the Consumer Advocate Division argued, it would hamper efforts to evaluate the rate base and cost of service in future rate cases and possibly impact consumers unfairly.

Other worries are the impact it has on the company's 74,000 existing Chattanooga customers, which the company disputes.

During the hearing, Whitwell Mayor Cindy Easterly said fixing the problems is likely to cost $5 million regardless of whether the tiny city does it or Tennessee American. The company is proposing dealing with capital costs over a five-year period.

While Easterly said $5 million would be spent regardless for upgrades, Novak said "if Tennessee American pays for the cost of this system, then all Chattanooga customers are going to have to pay for the upgrade."

In its petition, the company states expenses and revenues of the Whitwell system "will be kept separate and distinct from the operation of [the company's] Chattanooga system. The acquisition ... will not adversely impact the rates of current [company] ratepayers."

The company and the attorney general's office were also at odds over how the existing operation should be valued.

Some of the financial data involved in the transaction and expected investments were deemed "confidential" by Tennessee American and regulators agreed to treat them as such in filings and proceedings. A Times Free Press reporter was barred from listening to continued cross examination of Bickerton by Aumiller on Tuesday.

Some of the confidential information included specific cost break outs for upgrading the system with new and larger pipes, repairing water storage tanks, replacing some fire hydrants, automating operations and constructing a pipeline to nearby Dunlap in the event of an emergency shutdown.