Tennessee regulators’ long-standing practice has been to let utility companies seeking rate increases pass along to consumers their full costs for lawyers, expert witnesses and other items associated with pursuing a formal regulatory proceeding.

But in this week’s ruling on the Tennessee-American Water Co.’s rate increase request, Tennessee Regulatory Authority directors partially shut off the tap.

Dealing with the fourth rate hike request from Tennessee-American officials in 61 months, the authority’s directors ruled the water company only can recover half of its estimated $550,000 costs in the latest case.

Attorneys for the city of Chattanooga and the state Consumer Advocate’s office argued the water company shouldn’t be allowed to charge ratepayers for any of the expenses in the case, one of the most bitterly contested proceedings in years.

Regulatory Authority Director Eddie Roberson declined to go that far, but he told attorneys and representatives as the authority ruled in the case on Monday that, “I do agree it is entirely appropriate to have the stockholders bear some of the expense of the company’s rate case.”

Moreover, Mr. Roberson said, “I believe that the authority in the future should closely examine the cost associated with rate-case filings to determine the portions that should be recovered from ratepayers and stockholders.”

John Watson, general manager for Tennessee-American, said the company is evaluating its options in response to the rate case in which regulatory authority directors approved a 4.37 percent increase in the company’s rates.

The company had asked for a 21.7 percent increase, and the $1.6 million in new revenue it will produce is only a fifth of the $7.65 million the company had sought.

Mr. Watson said the authority broke with its previous rulings in the way it allows the company to recover the rate filing expenses and how it estimates its sales based upon weather conditions. He argued that Monday’s ruling “is not consistent with past rulings.”

“For the past 25 years, those costs have been permitted to be recovered and paid for by customers,” he said. “In this case, they were not.”

As a result, Mr. Watson said, “I think that all parties involved in this case will want to look to see how we can process through this case to see how we might want to improve that process.”

Attorney Rick Hitchcock, who helped represent the city of Chattanooga, called the decision to trim Tennessee-American’s rate case charges “one of the most significant portions” of Monday’s ruling.

Praising Mr. Roberson, Mr. Hitchcock said, “I believe it (the ruling) is a strong message that their (Tennessee-American’s) approach to these rate cases are out of control and is unreasonable.”

Mr. Hitchcock noted that authority directors also disallowed the company’s attempt to charge ratepayers for a $285,000 “management audit” the agency had ordered in a rate case last year when Tennessee-American was granted a 12.3 percent increase. The Regulatory Authority ruled the review “did not follow the requirements” set by authority directors last year, he said.

The attorney also noted that one Tennessee-American witness in the case estimated the $550,000 in rate expenses likely had doubled.

Nashville attorney Henry Walker helped represent the Chattanooga Manufacturers Association, which also opposed Tennessee-American’s rate request. He said the authority’s restriction on Tennessee-American’s rate-case expenses is the first he recalls imposed in the 25 years he has practiced before the agency.

“This was done in an attempt to discourage other utilities from spending hundreds of thousands of dollars to file rate cases, expecting they can pass all of those costs on” to ratepayers, Mr. Walker said.

Comments