Yoked to costly monopoly

Yoked to costly monopoly

June 6th, 2012 in Opinion Times

When Tennessee-American Water Co. proposed a whopping 23 percent rate increase last week, Chattanooga Mayor Ron Littlefield's responded that it was finally time for the company's corporate parent to "sit down with us and negotiate a sale."

Hear. Hear. Can't we all, at last, agree on this: Chattanooga should not be, and should not remain, the only major city in Tennessee that does not own its public water utility, and that does not have control its infrastructure-driven destiny.

As a matter economic competitiveness and fairness to ratepayers, local residents and businesses should not continue paying excessive costs -- and needless profits -- to an out-of-state, for-profit corporation for treatment and supply of water drawn from our own Tennessee River.

Certainly local taxpayers and commercial and industrial customers of TAWC should not be forced to regularly pay lawyers to challenge the corporation's huge, double-digit, rate-increase proposals before the Tennessee Regulatory Authority.

Excessive rate proposals

TAWC's last rate proposal, in 2010, was for a 28 percent increase; in 2008, it sought a 21.7 percent hike; in 2007, it was 19.67 percent. Those proposals were reduced by state regulators -- to 14.76 percent, 4.37 percent and 12.3 percent, respectively -- but the regulators still acknowledged TAWC's corporate right to extract a "reasonable" profit from TAWC's Chattanooga customers for its corporate parent, American Water Co., and its stockholders.

As Sen. Bob Corker put it when he was Chattanooga's mayor, corporate-owned utilities have the sweetest deal in the country: They are allowed by law to extract a "reasonable" profit from captive customers of a protected public monopoly every year, never mind what the economy is doing, or whether their performance is adequate or poor.

City stands alone in costs

In fact, Chattanooga is an anomaly in Tennessee in the way it gets and pays for public water.

Tennessee's other major cities and towns have long owned their local public water utilities. If local citizens appointed to the boards of these utilities decide they must raise rates for infrastructure improvements and operations, their fellow citizens and ratepayers have to be persuaded of the need for such a cost increase. And if they approve, local ratepayers get all the benefit of their water-rate dollars.

You simply will not find citizens in Knoxville, Nashville, Memphis and most other Tennessee towns and communities who pay water rates that cannot be justified locally. None are paying for, and shipping away, excessive profits taken out of their pockets to be sent by a private, for-profit water utility monopoly to rich out-of-state corporations and their stockholders. Their local water utilities are theirs, and theirs alone.

All other Tennessee cities and counties are also served by local, non-profit utilities organized under charters controlled by municipal or county governments. Hamilton County has nine of these smaller public utilities serving parts of the city and county outside of TAWC's pipelines.

These water utility districts include Hixson, Savannah Valley, Sale Creek, Union Fork/Bakewell, Soddy Daisy/Falling Water, Eastside, Suck Creek, Walden's Ridge and Mowbray Mountain. Walden's Ridge finally gave up pumping valley well-water to the top of the Cumberland Plateau a few years ago and began buying its water from TAWC, but that's rare.

Unfortunately, if the city attempts to buy TAWC, its corporate owner, America Water Co., a New Jersey-based corporation bought in 2001 by the German corporate giant RWE Group and spun off again in 2008 in an IPO, is likely to again mount the same sort of fierce battle it launched when former mayor Jon Kinsey initiated a forced purchase of TAWC in 1999.

Mayor Kinsey's bid to buy out TAWC foundered on the betrayal of a few myopic City Council members and on the public backlash stirred by American Water Co.'s misleading advertising campaign against a city takeover. That ad crusade featured "Not for Sale" ads played out under a theme suggesting it was unpatriotic to support a government takeover of a local company.

Ratepayers duped last time

City residents who bought that, of course, didn't consider the common corporate practice of hostile takeovers. Nor were most aware that AWC itself sold out to the German-based mega-international utility, RWE Group, in 2001. So in the 2001-2008 period, TAWC's profit on water rates in Chattanooga were shipped abroad to its then German owner.

Mayor Littlefield, alas, has waited until nearly the end of his tenure to propose that the city undertake the legal process of an eminent domain proceeding to purchase TAWC, whose value would be determined by a jury. There's also good reason to doubt the vision, fortitude and support of some City Council members for a commitment to such a drawn-out legal contest.

Still, the logic for a purchase by the city through eminent domain (a practice commonly used by utilities themselves to install pipelines and other infrastructure) will be forever compelling.

Sending dollars away

The cost of profits on top of operations and infrastructure investments would go away. Local customers of a city water utility wouldn't have pay additional dollars that would be taken out of our local economy and sent to out-of-state corporate owners and international stockholders. If current employees chose not to stay, operations of a city water utility could be easily contracted out until local employees were trained. And lastly, the city would finally control its destiny with regard to water infrastructure and economic development opportunities, instead of having to beg and coax out-of-state corporate owners to respond to the city's infrastructure needs.

It's well past time for Chattanooga to join the host of major cities, in Tennessee and across the country, in assuming control of its public water utility. The yoke of a private, for-profit monopoly on public water needs to come off. All it takes is a commitment by the city's leaders, and informed public support.