Court upholds smaller water rate increase

Tennessee American Water should be able to recoup from Chattanooga ratepayers another $275,000 spent three years ago on the utility's last rate request, a state appellate court has ruled.

But the three-judge court rejected an appeal from the water company to order the Tennessee Regulatory Authority to boost water rates for the cost of utility operations.

As regulators prepare to decide next month upon another rate increase request from Tennessee American, the Tennessee Court of Appeals last week affirmed most of the regulatory authority's decision in the last water rate request in 2008.

The appellate court rejected water company claims that regulators didn't allow for a fair return on the utility's investments in the last rate case.

"The ratepayers in Chattanooga ought to be very pleased by this outcome," said Rick Hitchcock, an attorney for the city, which opposed the last rate increase. "This affirmed the reduction of nearly $6 million in the rates sought by Tennessee American."

In its 2008 decision, state regulators granted the water company only $1.65 million of the $7.64 million requested and allowed the utility to claim only half of the amount spent on attorneys and witnesses in that filing.

Disappointed by the TRA decision, the water company appealed to the Court of Appeals to review the decision. In September 2010, the company also filed a request for a 28 percent increase in water rates to generate another $9.4 million a year for the utility.

Spokeswoman Kim Dalton said Tennessee American is "pleased that the Court of Appeals awarded us expenses previously denied" for the cost of the 2008 rate filing.

The TRA historically has allowed utilities to recover the expenses incurred in rate filings, including costs for attorneys, expert witnesses and document filings.

Because the TRA claims that Tennessee American was making repeated rate increase requests, the agency ruled in 2008 that the company could recover only half of its filing expenses from ratepayers and that company shareholders would have to pay the other half.

In his opinion for the court, Judge Herschel Franks ruled that the TRA's decision was arbitrary and contrary to agency precedent. Franks ordered the TRA to grant another $275,000 to the company.

That money is likely to be included in any rate increase the TRA may grant in March in response to another pending rate request.