Thursday, August 16, 2012
Local officials are trying to figure out a way that their residents don’t find themselves drowning in rising water costs.
A double-digit rate increase is being sought by Tennessee American Water, which supplies the town of Signal Mountain and Walden’s Ridge Utility District. But that doesn’t include increases that might be necessary for improvements needed within each municipal service provider’s system.
“How can we pass along you guys’ rate increase plus what we need to do without killing our customers?” Signal Mountain Mayor Bill Lusk mused during a recent workshop with TAW representatives.
A comprehensive study of the town’s water system completed late last year recommended several million dollars worth of upgrades. Although the town’s water supply and service are sufficient to service existing customers, failures due to improperly installed and outdated pipes are expected to begin flooding the town in the near future, according to Arcadis representatives who conducted the study.
WRUD is about to undertake a project to bring its water main across the McCoy property and connect it to water lines on Miles Road so it can begin updating undersized and outdated lines throughout its service area there.
“All communities throughout the country are faced with the challenges of operating and maintaining infrastructure — we’re no different,” said Tennessee American spokesman Vince Butler. “Infrastructure improvements are the biggest part of this project. We’ve proposed investing approximately $25 million over the next 18 months as part of this case.
“If we defer infrastructure investments we get into a situation where we can’t meet customers’ needs and supply quality water. That’s why we’ve been very focused on making these investments.”
He listed routine maintenance costs such as restoring or renewing water lines and mains across the statewide utility’s entire Tennessee Valley system and repainting water tanks, of which there are about 30 in total. Although seemingly insignificant, the painting project alone carries a roughly $800,000 price tag per unit, according to Butler. He said TAW tries to do one every year.
“It’s frustrating when you hear a public service utility talk about trying to speed up their return on investment,” Signal Mountain Councilman Dick Gee said in regards to the proposed rate increase to cover such expenses. “You don’t need a three-year return on investment for something that lasts 15-20 years. I consider it selfish and motivated by profit margin, not public service.”
With about half of Tennessee American’s capital investment budget going into replacement projects, according to President Deron Allen — about $5 million this year alone — Town Manager Honna Rogers asked whether they have a budgeting system in place to account for such recurring and expected costs. The answer is, basically, not yet.
Due to state-imposed regulations on utility companies and how they do business, capital investments must be proposed, found to be justified and financed in advance, said Allen. Currently those projects are tackled as they arise, even if that happens every year. Coupled with state-granted returns on overall operating expenses, that has generally led to a rate increase case every two or so years.
“They’re a public company. Why should they be guaranteed a profit?” asked Signal Mountain Councilman Bill Wallace.
Tennessee American is proposing a forward-looking system of determining its distribution system infrastructure charges. By allowing rates to be adjusted annually based on the actual line items of routine costs — specifically chemicals, fuel and employee pensions — the proposed new budgeting system could potentially stretch the need for rate cases out over several more years and make the necessary rate adjustments smaller, Allen said.
“The way we have it proposed we would have a cap of 10 percent of revenue for [distribution system infrastructure charges],” he explained. “If we were doing what we’re doing right now in replacements, it came out to just over a 2-percent increase annually at existing levels. When we hit the cap we’d have to go in for a general rate case.
“If we were able to get the pension tracker, fuel power and chemical in the DSIC the way it’s proposed, in theory we could probably push out to three years or so before another rate increase was needed. Even though we would still have general rate cases, they’d be smaller.”
The Tennessee Regulatory Authority is expected to vote on the budgeting proposal in January, he said, the same time it is expected to vote on the proposed rate increase.
“If we don’t get [the requested rate increase] it means we can’t do [all the projects], and we’re talking about stuff we feel has to be done,” Allen said.
He noted that, contrary to popular belief, TAW cannot automatically impose rates after a certain amount of time. If TRA approves the new DSIC budgeting system, the first year it could go into effect is 2014, according to him.