The Tennessee-American Water Co.’s latest rate increase proposal, a whopping 28 percent, is shocking. It is unimaginable that the company’s overhead, or the improvements it says it is planning to make, could justify a rate increase of this magnitude. City and county officials and the Chattanooga Manufacturer’s Association should promptly put TAWC and the Tennessee Regulatory Authority on notice that they will join in the objection already filed by the State Attorney General’s consumer advocate’s office.
City officials discussed on Tuesday the possibility of contesting the water company’s rate proposal, but the City Council, overriding the willingness of councilmen Jack Benson and Peter Murphy to move immediately against the proposal, postponed a decision until next week. The council need not talk long. The company’s rate petition is obviously a bargaining ploy; it is also unthinkingly brazen, insulting and extraordinarily ill-timed in the current economy.
TAWC’s track record for requesting high rate increases, and its consistent failure to get them approved at the requested levels by the TRA, should encourage local officials to file an objection. The company has not won approval from the TRA for its full rate requests in years.
Its September 2008 request for a 21.7 percent hike was whacked by the TRA to 4.37 percent, barely a fifth of the request. Its 2006 request for 19.67 percent was cut to 12.3 percent. It got just 0.91 percent on its 5.98 percent request in 2004, just a sixth of what it sought.
The string of TRA decisions to slash TAWC’s rate requests goes back at least to 1996, when the company got 4.96 percent on a 8.67 percent rate request.
Contesting the water company’s request, of course, can be expensive. Given its experience in 2008, the city could expect to pay more than $200,000 for accounting and legal fees if it joins with several partners to contest the rate hike. TAWC customers here, moreover, would likely be forced to pay at least part of the water company’s cost for its defense of its rate request. In 2008, the company spent more than $1 million trying to push through its rate increase. In that case, the TRA, which had traditionally allowed the company to roll the costs of it rate hike application into rates, authorized the company to recover just half of its rate-case costs from customers.
Regardless of the costs, city and county governments cannot afford to let the current proposal go uncontested, for reasons of both principle and precedent. TAWC must be made to justify such an exorbitant rate-increase request. The company’s record shows that its rate requests are always bigger – often much bigger – than the company can justify before the state regulatory authority. That’s all the more reason for local governments and customer groups to show public interest in opposition.
The TAWC’s egregious rate requests, this year and over past years, should also prompt Chattanoogans to restart the eminent domain takeover of the company that former mayor Jon Kinsey began, and then dropped when the council split over the takeover. Chattanooga remains the largest city in the state that does not own its water utility. Instead, we let the company ship out the corporate profits it takes from customers here to send to its American and foreign corporate owners.
John Watson, TAWC’s vice president and general manager, said in announcing the proposed rate increase that the company is earning only a fraction of its allowable rate return (read: profit). That sentence is key to the local giveaway to TAWC’s parent company, American Water Co., and its foreign owner.
Utilities are allowed a fair return, or profit, on their operations, at a generous margin above their operating costs. Local ratepayers could save that outflowing profit by assuming ownership of the utility, like the vast majority of American cities. Even if the city then chose not to use city employees to run the company, it could pay a contractor a management fee that would be far less than the “allowable” profit TAWC now gets and ships out.
Every time the TAWC proposes another outrageous rate increase, the idea of gaining local control of our water utility should gain ground.