Consumer advocate throws water on rate hike request

Consumer advocate throws water on rate hike request

January 24th, 2011 in News

Tennessee's consumer advocate says that Tennessee American Water's claim of needing a 28 percent increase in Chattanooga water rates is all wet.

In testimony filed with the Tennessee Regulatory Authority, the state's attorney general contends only $589,000 should be granted of the nearly $9.4 million in higher rates the utility is seeking this year.

The attorney general argues that rates need to increase less than 2 percent to grant the company a fair rate of return.

Terry Buckner, a regulatory analyst for the Consumer Advocate and Protection Division of the Tennessee Attorney General's Office, contends that the water company is overstating expenses, undercounting revenues and trying to earn too much profit on the water it pumps from the Tennessee River and distributes to nearly 60,000 local homes and businesses.

But John Watson, vice president and general manager for Tennessee American, says the consumer advocate's position would push it into the red and weaken needed investment in equipment and services.

"If we do not get an adequate increase in rates, we would expect to actually have an operating loss for the business," Watson said. "That would be something that has never happened before and would make it difficult for the company to continue to make the investment we need to make in our infrastructure."

The water company said it needs to raise rates to offset higher costs for taxes, stormwater fees, chemicals, fuel and labor expenses.

Tennessee American asked for a 21.6 percent rate increase in 2008, but the Tennessee Regulatory Authority granted less than 4.4 percent.

Since then, Tennessee American has invested $26 million to maintain or upgrade equipment and facilities, spokeswoman Kim Dalton said.

BY THE NUMBERS

* 28 percent: Rate increase sought by Tennessee American Water

* 1.8 percent: Rate increase recommended by the consumer advocate

* $4.68: Average monthly residential increase sought by Tennessee American

* 29 cents: Average monthly increase recommended by the consumer advocate

Source: Tennessee American Water, Consumer Advocate Division of the Tennessee Attorney General's Office.

WHAT'S NEXT?

* The Tennessee Regulatory Authority will meet at 1 p.m. CST today in Nashville to consider whether to convene a hearing in Chattanooga on the water rate case.

* A three-judge panel of TRA directors will conduct a hearing next month to consider oral arguments from the utility and those objecting to the rate increase.

* The TRA must decide by mid-March and any change in rates will be effective this spring.

"We need to recover our expenses, which continue to rise," Watson said.

Not only the consumer advocate but attorneys and witnesses hired by the Chattanooga Regional Manufacturers Association, Chattanooga and Utility Workers Union of America Local 121, which represents the water company employees, are fighting the rate increase.

The union complains that the utility has filled only 103 of the 110 positions that the company claims in its rate filing that it needs. Watson said he recently hired nine employees and is recruiting more workers.

Regulators Resolve Rates

A three-judge panel of the Tennessee Regulatory Authority must decide on the rate proposal by March 17, six months after the request was filed.

TRA directors are scheduled to decide today whether to hold a hearing on the request in Chattanooga rather than the agency's headquarters in Nashville.

Watson said the water company supports having a session in Chattanooga to gather local input. But he said moving the entire case hearing to Chattanooga could prove costly for the state agency and the attorney general's office.

Tim Spires, president of the Chattanooga Regional Manufacturers Association, said local manufacturers that could face hundreds of thousands of extra dollars in water costs from a rate case "deserve to be heard" in Chattanooga "and they should be able to see and hear the entire proceeding" where they do business.

"A 28 percent rate increase would create a big hardship for many companies," he said.

But Watson said the average residential customer would pay only 15 cents a day extra even if the full amount of the rate increase is adopted. That would still be only about 7 percent of the overall utility bills for the average Chattanoogan, he said.