Water users pay for both sides in rate battle

Water users pay for both sides in rate battle

February 28th, 2011 in News


• 30.5 percent: Tennessee American's proposed overall rate increase

• 28.1 percent: Average increase for residential users

• $4.68: Average monthly residential increase for 4,153 gallons, from $16.62 to $21.30

• $9.9 million: Revenue from rate increase

• $589,000: Increase recommended by the state's Consumer Advocate, about 2 percent

Sources: Tennessee American Water, TRA

In the increasingly costly battle to set the price of water, Chattanooga consumers and taxpayers are paying to arm both sides.

The Tennessee Regulatory Authority today begins more than a week of hearings on Tennessee American Water's request to raise rates by more than 30 percent this spring.

More than two dozen attorneys and expert witnesses will gather this morning at the Hamilton County Courthouse, most of whom are being paid by the public through tax dollars on one side or through water bills on the other.

Tennessee American says it needs another $9.9 million - or $4.68 a month for the average residential customer - to cover higher expenses since the last increase in October 2008.

"Our costs for energy, chemicals, labor and taxes have all gone up and we need to recover those expenses to continue to make investments in this water system," Tennessee American Water President John Watson said.

If the three-judge panel that will decide the case follows recent history, the water utility is likely to get only a fraction of its rate request.

The company asked for $7.6 million in 2008 but was granted only $1.65 million. Tennessee American's rates have increased 35 percent in 15 years, less than the general inflation rate and only half of what it asked for in five rate requests.

The state's Consumer Advocate argues in his TRA filing for an increase of only $589,000, or about 2 percent.

Cities, Union Enter Contest

The water company's latest rate filing has drawn a record number of opponents.

A half dozen parties have intervened to fight the rate request or at least how the money will be allocated. Three new parties are in the current case - the town of Signal Mountain, Walden's Ridge Utility District and Tennessee American's main employee union, Utility Workers Union of America, Local 121.

In the 2008 case, Chattanooga spent more than $277,641 and the utility spent more than $550,000 on lawyers and witnesses.


Since the last rate increase in October 2008, Tennessee American is paying:

• $3.2 million in higher employee costs, mostly to offset market drop in pension plan and higher medical bills

• $1.1 million for increased capital investment in the water system

• $627,000 more for electricity because of EPB's 33 percent rate increase

• $206,000 more to comply with stricter paving rules for street cuts

• $28,000 more because of 19.1 percent rise in city property taxes

• $18,000 more for sewer treatment charges from 14.8 percent rate increase

Source: Tennessee American Water

Filings and data requests this time may push the collective public expense of the rate case to well over $1 million, attorneys said. The number of filings and data requests is far higher than recent rate cases by Chattanooga Gas or Atmos Gas and is a record for Tennessee American.

Chattanooga has budgeted $250,000 for outside legal help.

"We saved enough money from the previous times we have intervened to more than pay for those attorneys," City Council Chairman Manny Rico said. "It's worth it to the city."

But even if the full increase is granted, the city's $598,000 water bill would rise less than $180,000. That could be less than the cost of attorneys to fight the increase.

Rick Hitchcock, who will oppose the increase for the city, said the case is complicated by the fact that Tennessee American spends $5.3 million a year - about 20 cents of every dollar - for an affiliate known as American Water Service Co., to handle everything from management services to water testing.

"Because of the way the company is structured and the objections they have filed to our inquiries, this has been a more complicated case," Hitchcock said.

Signal Mountain Mayor Bill Lusk said the town council agreed to intervene case after the TRA voted in 2008 to boost mountain water rates by 12 percent - nearly triple the increase in the valley - to better cover the extra pumping expense for those areas.

"This new rate request is a fairly outrageous amount, and we wanted to ensure we have a way to try to protect our interests," Lusk said.

Protecting citizen interests

City Councilman Jack Benson said the city is trying to limit costs for its residents, who were hit with a property tax increase last year.

"We want to find some relief," Benson said. "I think this is one area where this monopoly [Tennessee American] has taken advantage of our citizens."

Watson said the 2010 property tax increase plus city rate increases for sewer, electricity and stormwater since 2008 have pushed up the utility's expenses. He also said the cost of rate filings rises as groups intervene to oppose the increase.

"That's unfortunate because all we are trying to do is set an appropriate price for what our customers get," he said.

The TRA must decide upon how much, if any, rate increase to grant by March 17. Holding hearings in Chattanooga rather than Nashville will cost about $8,000 for travel and lodging, TRA attorney Richard Collier said.

Chattanooga Mayor Ron Littlefield agreed some rate increase may be justified, but said "30 percent is excessive."

He also noted this is the sixth request in 15 years by Tennessee American.

"They are wearing out their welcome," he said.

Water Leak Springs Debate

The rate fracas was reflected in City Hall e-mails last week regarding how the utility responded when an AT&T contractor broke a water main on Cowart Street downtown.

From the U.S. Conference of Mayors in Washington, D.C., Littlefield directed his staff to photograph the broken pipe for possible use in this week's hearing.

"Tell [city attorney] Mike McMahan it might be good stuff for the rate case hearings Monday," Littlefield said in an e-mail sent to City Hall on Wednesday.

Watson, who rushed to the leak Wednesday and worked through the night with his staff to correct the problem, said the quick response shows Tennessee American's commitment to reliability and service.

The company insists most of its customers are satisfied with the quality, reliability and price of water.

It hired a private polling firm, Public Opinion Strategies, to conduct a telephone survey of 400 Chattanoogans last week. Among the respondents, 77 percent said they are satisfied with their water rates and 71 percent said they believe the price they pay for drinking water service is the best value they receive from all utilities, Watson said in a letter to the City Council last week.

For most consumers, water bills are less than the monthly charges for electricity, cable TV, telephones , natural gas or sewer service, Watson said.

Tennessee-American, the largest privately owned water utility in Tennessee, serves about 75,000 customers, including 63,000 residential customers.


Tennessee Regulatory Authority judges will hear comments today from 9 a.m. to 10 a.m. and from 6:30 p.m. to 7:30 p.m. in the County Commission meeting room on the fourth floor of the Hamilton County Courthouse.