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Tennessee American Water workers install a temporary line to bypass a pipe after a water main break last year. The water utility plans to spend more than $20 million in improvements next year to limit such pipe breaks and install a new water basin to improve overall water quality.
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Valoria Armstrong, left, president of Tennessee American Water, talks about a proposal to sell water to Signal Mountain Thursday inside the administrative offices on Wiehl Street.

For the first time in nearly a decade, Chattanooga's water utility is not proposing to raise its rates to pay for water system improvements.

Tennessee American Water, the state's biggest privately owned water utility, plans to make more than $20 million of capital investments next year to improve the quality and distribution of its water delivery to serve nearly 375,000 people who get their water from Tennessee American in the Chattanooga area.

But unlike previous years, ratepayers won't have to shell out more money when they pay their water bills to finance the system upgrades.

That's because Tennessee American, a subsidiary of American Water Co., is proposing to state regulators that the company will pay for the capital projects out of savings from the tax cuts adopted by Congress a year ago.

In its annual capital cost recovery request filed with the Tennessee Public Utility Commission, Tennessee American said the tax savings will be sufficient to offset what would have otherwise required a 4.57 percent increase to all water charges.

The Tax Cuts and Jobs Act signed into law by President Donald Trump last December cuts the corporate tax rate from 35 percent to 21 percent, starting this year.

Valoria Armstrong, president of Tennessee American, said the water utility will continue to invest in system upgrades in 2019, including construction of a new basin to replace an existing basin constructed by the utility in 1892, just six years after the water provider began operating in Chattanooga in 1886. The replacement will allow Tennessee American to clean the water more quickly and efficiently, Armstrong said.

The utility also plans to build a new facility next year to enhance its disinfection treatment process.

The American Society of Civil Engineers estimates that water utilities in Tennessee need to spend $2.7 billion over the next 20 years to adequately maintain drinking water infrastructure.

"Tennessee American Water's proactive capital plan replaces assets that have reached the end of their useful lives and saves money in the long run by strengthening our water systems and protecting public health," Armstrong said.

The capital spending proposed by the water utility for next year is comparable to what Tennessee American is spending this year on system upgrades. But to pay for this year's upgrade, state regulators granted the utility a 2.48 percent increase in all of its water charges. That extra charge, which cost the typical residential customer 54 cents more a month, appears on utility bills in a line item known as "Capital Recovery Riders."

Similar riders have been approved by the Tennessee Public Utilities Commission each year since 2013 when the state adopted the capital recovery method of adjusting rates to pay for system improvements. Under the revamped rate- making process adopted five years ago, utilities submit their capital plans and what it costs to adopt and regulators approve what they deem appropriate each year.

Previously, utilities had to file with the then Tennessee Regulatory Authority for any rate change and regulators undertook a complete rate review process, including public hearings in both Nashville and Chattanooga and reviews by the Tennessee Attorney General's office of consumer affairs. The TRA considered all parts of the company's operating and capital structure and spending in any rate review.

Under the old rate process, Tennessee American Water was granted a 12.72 percent increase in 2012 — or only half the requested 24.9 percent increase. In 2011, Tennessee American was granted a 14.8 percent increase, or less than half the requested 31 percent increase. Rate increases were less frequent but usually bigger than the current approach of making annual adjustments.

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.

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