West Virginia American Water representatives defended the company’s 17.2% rate increase request at a hearing before state utility regulators that signaled years of further rate hikes to come as the company works to upgrade badly outdated infrastructure.
The two-day evidentiary hearing last week was for the Public Service Commission to hear testimony from the company, as well as ratepayer advocates and company staff pushing back against the utility’s proposal.
West Virginia American Water is seeking an additional $36.6 million in annual revenue for water operations from its roughly 167,000 customers across 19 counties.
Monthly rates have nearly doubled in the past 15 years for customers using 4,500 gallons of water, from $40.27 in 2006 to $78.11 in 2021.
Representing the Kanawha County Commission, which intervened in the case, Deputy County Manager and Assistant County Attorney Andrew Gunnoe asked West Virginia American Water President Robert Burton about that 15-year trend.
Burton said the rates were “justifiable” based on company investments that have amounted to more than $250 million system-wide in the past three years, including water main line infrastructure and treatment facility upgrades.
Burton said the company has not determined when it would file its next rate case if the Public Service Commission grants the rate hike request.
West Virginia American Water’s latest rate hike proposal, originally filed in April, comes after it received rate increases of 14% in February 2019 and 15% in February 2016. The newly proposed rates would not go into effect before Feb. 25.
Residential water customers using 3,100 gallons a month would experience a net increase of $9.56 per month when factoring in West Virginia American Water’s separate annual infrastructure improvement surcharge proposal, company spokeswoman Megan Hannah said prior to the hearing.
Kanawha County Commission President Kent Carper, who filed testimony in the case in September opposing the proposed rate increase, predicted that West Virginia American Water’s requests for more money won’t end with any approved rate hike.
“They will very soon be knocking on our doors asking for millions of dollars for private-public partnerships,” Carper said, referring to collaborations between government agencies and private companies that finance infrastructure projects providing a public asset.
Carper called for a moratorium of at least three years on any new rate increase requests from the company. He noted previously in written testimony that Appalachian Power recently agreed to a base rate moratorium until June 30, 2024.
A base rate accounts for all utility service expenses, including operating and maintenance costs, taxes and depreciation.
Legal counsel for the Consumer Advocate Division, an independent arm of the Public Service Commission that represents the interests of utility customers, called the commission’s attention to the 2021 proxy statement for American Water Works, West Virginia American Water’s Camden, New Jersey-based parent company.
The proxy statement reported a 182% return for shareholders for a five-year period ending Dec. 31, 2020. It noted that Walter Lynch, president and CEO of the company, made $5.67 million for 2020, including $2.54 million from stock awards.
“When you look at compensation programs, they benefit both the employees, the company and the shareholder, so you have to look at it holistically,” said Robert Mustich, a West Virginia American Water witness and managing director and East region business leader of rewards for Willis Towers Watson, a global professional services company that offers solutions on corporate risk and broking.
A proxy statement is a statement the federal Securities and Exchange Commission requires public companies to file that gives shareholders important facts on which they are asked to vote.
West Virginia American Water is the largest investor-owned water utility in the state.
As a witness for the Consumer Advocate Division, Michigan-licensed certified public accountant and regulatory consultant Ralph Smith said the commission should reject West Virginia American Water’s proposal for a revenue stabilization mechanism to respond to declining consumption and customer count.
Smith said the proposal for an annual customer credit or surcharge to align customer revenues with the revenue level established in the rate base case would unnecessarily pile on to the ever-increasing cost burden carried by West Virginia customers.
“Here we have a large rate increase, and looking ahead, there just appears to be a never-ending stream of additional increases coming down the pike with no end in sight,” Smith said.
Jonathan Fowler, an engineer for the Public Service Commission, testified that since the commission approved an annual infrastructure replacement surcharge mechanism in 2016, West Virginia American Water has made great strides in upgrading its infrastructure.
The company’s main line replacement cycle — the theoretical time to replace all the utility’s mains at the current replacement rate — is a little more than 100 years, Fowler said, adding that is a “sustainable” cycle by industry standards.
It was more than 400 years as recently as 2015, Fowler recalled.
“The system was in terrible, terrible shape,” Fowler said.
But Fowler said the annual infrastructure replacement surcharges — known as a Distribution System Improvement Charge, or DSIC — must continue for at least the next decade. Fowler predicted it will take that long to address the company’s large backlog of lines that need replaced.
“For many years, the company, for whatever reason, did not invest adequately in the system, and it seemed like we couldn’t entice them to do that,” Fowler said. “That’s when the DSIC approach came along.”
A Gazette-Mail analysis of Public Service Commission filings found West Virginia American Water’s net income increased nearly threefold, from $9.9 million in 2010 to $28.7 million in 2020.
West Virginia American Water’s operating revenues increased 33.8% from 2010 to 2020, while its operating expenses rose just 25.9%.
In testimony filed in September, the company reported a total combined investment of $22 million from acquiring the Page-Kincaid water distribution system in Fayette County, and the East Bank and Cedar Grove water distribution systems in Kanawha County. Together, the three systems served approximately 1,440 customers. Each struggled to maintain adequate service due to outdated infrastructure.
Customers already are paying for roughly $10 million of the company’s proposed rate increase under the company’s current infrastructure improvement surcharge.
The company in July asked the commission to approve a surcharge of 1.87% of proposed water rates effective March 1, 2022, to cover an estimated $32.5 million investment next year in upgrading and replacing infrastructure.
The Public Service Commission scheduled a public comment hearing on the company’s rate cases for water and sewer service for 4 p.m. Dec. 1 in the municipal board room at Bluefield City Hall.
Those interested in expressing their thoughts on West Virginia American Water’s proposals to the commission in writing may mail them to: Executive Secretary, P.O. Box 812, Charleston, WV 25323, or submit them online through the commission’s website at www.psc.state.wv.us by clicking on “Submit A Comment” in the left column.