State regulators recommend rate cuts for water company

INDIANAPOLIS – Anthony Swinger, spokesman for the Office of the Utility Consumer Counselor, announced this week that the state utility consumer advocate has recommended a 5.5 percent reduction in Indiana American Water Company’s annual operating revenues.

Swinger said the OUCC is recommending that IAWC’s proposed rate increase be rejected. In testimony filed Friday with the Indiana Utility Regulatory Commission, the OUCC is recommending that IAWC’s annual operating revenues be decreased by $11.4 million from current revenues.

IAWC filed for a rate increase in January for water service in all of its operating districts. At that time, the company president Alan DeBoy stated that IAWC’s strategy was to make “prudent, proactive investments in our infrastructure, which is more cost-effective in the long run – it reduces the risk of major service and water quality issues.”

IAWC spokesman Joe Loughmiller said in the press release that the rate hike was needed because of nearly $221 million in investment statewide in infrastructure between July 1, 2011, and Nov. 30, 2015. If approved, it would mean about $2.74 more per month for customers using 4,000 gallons per month.

DeBoy also said the company itself has been implementing best practices throughout the business to reduce its operating and maintenance expenses over the last five years. He said employees were doing more with less. The net effect of implementing these measures is a projected reduction in operating and maintenance costs of more than $7 million from 2010 to 2015, DeBoy added.

“The IURC (Indiana Utility Regulatory Commission) will hear testimony, and the final decision is probably several months out – possibly we won’t hear the decision until the first of 2015,” Swinger said.

IAWC has requested a $19.6 million (or 9.8 percent) increase over current revenues. Specific rate impacts would vary among communities and types of customers.

Swinger said the OUCC, which represents consumer interests in cases before the IURC, has conducted a technical and legal review of IAWC’s request over the last three months.

Key recommendations in the OUCC’s testimony include: reducing IAWC’s currently authorized cost of equity from 9.7 percent to 8.6 percent.

“Utilities that are investor-owned are permitted by the state to receive a fair rate of return on their investments,” Swinger said. “We are recommending that this amount be decreased – and a decrease in the total overall revenue requirement that they are allowed.”

IAWC is asking that its cost of equity be increased to 10.8 percent in this case.

The OUCC is asking IAWC to present more realistic projections of customer growth, declining usage and property tax expenses than those included in its testimony. If this is approved by the IURC, the water company would be required to make numerous adjustments to its requested operating expenses. Examples include recommended reductions to requested increases in business development, management, planning, rental, marketing, payroll and depreciation expenses.

IAWC would also have to focus on continued reduction of non-revenue water and implementation of industry benchmarking standards, consistent with performance recommendations the OUCC is making in other water rate cases.

IAWC is a wholly owned subsidiary of New Jersey-based American Water, Inc., providing service to approximately 290,000 residential, commercial and industrial customers throughout Indiana. Mooresville is currently in a rate group with Wabash and Winchester. The utility’s current base rates and charges were approved in June 2012 and have since been raised through distribution system improvement charge (DSIC) adjustments in December 2012 and December 2013 to repair or replace aging infrastructure.

“The analysis by our attorneys and technical staff in this case shows that a revenue reduction is warranted,” said Indiana Utility Consumer Counselor David Stippler in a press release. “The revenue requirement the OUCC is recommending will ensure sufficient funds to address IAWC’s operational and infrastructure needs, and to address the utility’s obligation to provide safe and reliable service to all of its customers.”

The IURC cause number is 44450.

Swinger said IAWC has until May 28 to file rebuttal testimony. An IURC technical evidentiary hearing, at which IAWC may cross-examine witnesses for the OUCC and other parties, is scheduled to start on June 23 in Indianapolis and continue into July.

The OUCC filing does not break down the recommended revenue decrease by service territory, but focuses on the utility’s overall revenue requirement. After the IURC issues its final order in the case, the utility will file a tariff demonstrating how it intends to implement the order’s terms including rates by service territory. The OUCC has the right to object to the proposed tariff if necessary.

For an electronic copy of the OUCC’s testimony, visit the agency’s website at www.in.gov/oucc/2654.htm. Tips for managing water bills and more information on the regulatory process can also be found on the OUCC site. Only the rates and charges of Indiana American Water Company are at issue in this case. Indiana law does not give the IURC jurisdiction over municipal sewer and stormwater utility services. To learn more about the OUCC, go to www.IN.gov/OUCC, www.twitter.com/IndianaOUCC or www.facebook.com/IndianaOUCC.

By Amy Hillenburg | Reporter | Published May, 8th 2014 in The Reporter Times