By Mark Vasto
Residents will get a chance to speak out on the proposed increase Monday, March 29 at a public hearing at the Riverside City Council Chambers at City Hall, 3000 NW Vivion Road. The hearing will begin with a brief question and answer period at 6 pm and a public hearing at 6:30 where residents can sign up to make a statement for or against the proposal to members of the PSC.
Established in 1913, the PSC is charged with the regulation of investor-owned electric, steam, natural gas, water and sewer and telephone companies. Its five commissioners are appointed by the governor. By law, the Commission has eleven months from the date the case is filed to make a decision on the proposal, but their last decision only took eight. That decision resulted in result in approximately $34.5 million in additional annual operating revenue for the company, which was then owned by German multinational corporation RWE.
Park University hosted a well attended public hearing in that case and Parkville was officially engaged with neighboring cities like Riverside in fighting the increase as “interveners.” The predominant argument presented at that meeting was the overhead RWE brought to the table.
RWE Bails Out
When RWE purchased American Water --still the parent company of Missouri American –in 2001 they promised regulators there would no rate raises due to infrastructure costs, viewing the water systems they purchased as an asset.
By 2005 RWE realized they had made a mistake, admitting as much in their annual report. Soon after they announced they would be exiting the American water market because it hadn't generated the expected profits adding the company hadn't done "due diligence" before buying the company. RWE claimed that American Water had failed to maintain the water delivery infrastructure and that it would take more than 200 years to upgrade the American Water system.
RWE announced in late 2005 that it planned to exit the water market and sell its U.S. holdings in American Water. They couldn't find a buyer, and instead opted for an initial public offering (IPO), which they postponed in November 2007 because of poor market conditions. In April 2008 RWE went ahead with their IPO, but shares sold at 10 percent less than RWE predicted and unenthusiastic buyers only picked up 36 percent of the expected 40 percent of shares in the company. In November 2009, RWE divested approximately 37.4 million shares in American Water at a price of $21.63 per share, resulting in net proceeds of approximately $784 million for RWE. (As The Luminary went to press Thursday, the shares were selling for $21.51.)
The company was more than happy to say Auf Wiedersehen to American Water and its 7,000 employees.
“RWE has closed the chapter on American Water,” Dr. Juergen Grossmann, CEO of RWE, said in a statement. “On behalf of the RWE Executive Board, I'd like to wish all the employees at American Water all the best for the future.”
Missouri American was way ahead of them – they had filed the rate increase request on Oct. 30. The RWE divestment was finalized on Nov. 19. The night before, the PSC suspended Missouri American’s rates and the investigation process was already underway.
Missouri American’s Case
In a media release and in letters mailed to current customers, Missouri American cites “ongoing investments in infrastructure improvements, plus increases in operating costs, [as] the drivers behind the rate request.”
As RWE learned, it will cost an estimated $1 trillion in order to upgrade the country’s aging water system. Unlike RWE, American Water did not have other business units to leverage while taking the hit on expenses. Instead, they are relying on the PSC to focus on one of their two stated goals, namely the right of the company to have “the opportunity to make enough money to meet reasonable expenses, pay interest on debts, and provide a reasonable return to stockholders.”
The first goal? Fairness to the consumer. And that’s where your water bill starts to get murky.
Since their last rate hike, Missouri American estimates spending $2.2 million in upgrades to the Platte County District, the largest being the installation of a new 12-inch diameter water main to the Thousand Oaks Tank to improve water service reliability. They also point to a an unspecified amount of fire hydrants, service lines and water meters which are being replaced across the system.
Riverside, the only Platte County city officially intervening this go around, isn’t buying Missouri American’s claims – they think they’re paying enough already.
Missouri American obtains their water from a series of wells along the Missouri River and the water is treated at the facility in downtown Parkville. Additionally, there are four interconnects with Kansas City, MO providing water to the system during periods of high demand.
Whenever water rate cases are brought to the public’s attention (before the 2008 increase, the PSC approved a hike in August 2000), company brass touts the quality of the water (Parkville’s water vastly exceeds federal quality guidelines) and the fact that it still costs “less than a penny per gallon.” They claim that there is no proof bottled water is of better quality – a claim largely proven in independent studies – and that tap water is better for the environment because there is no packaging to waste.
The utility is, however, supposed to provide those things by law. The river water is held in public trust and provided to Missouri American at no cost. For providing this service, water utilities generally charge less than 1 penny per gallon for the water.
On March 9, Riverside Community Development Director Mike Duffy testified before the PSC on behalf of the Parkville Water district. Duffy said that the proposed increase was unfair because Missouri American had failed to provide adequate water service to Riverside.
Duffy echoed the previous testimony of Riverside Fire Chief Gordon Fowlston who claimed there was inadequate pressure in some of the Riverside and Houston Lake hydrants. He blamed four fires which he characterized as “total losses” on the system’s inadequacy.
Duffy said that to fix the problem, Riverside had committed to spending $500,000 per year for the next five-years. Duffy also said that Riverside could not issue building permits in some of the affected areas until such repairs were made, costing the city other potential revenue.
Riverside is also challenging Missouri American’s “hydrant fee” and “standby fee” for fire sprinklers which supposedly covers maintenance for the devices. Duffy argues that the costs should be figured into their regular rate.
“We believe the charging of both fees is inappropriate and contradictory of Missouri American’s requirement under Missouri law to provide safe and adequate service that is in all respects just and reasonable,” Duffy said.
What to Expect
Those looking for immediate gratification at Monday’s meeting will likely leave Riverside City Hall disappointed.
Resident’s providing on the record testimony before the commission are requested not to ask questions of the commissioners. Because the case is still pending, commissioners are not allowed to comment on the proceedings. In some instances the commissioners may ask a question of the speaker to clarify remarks for their consideration.
In the end, it may all be a wash anyway. Like any negotiation, Missouri American’s hike request can be viewed as a “first offer” and the PSC more than likely feels obliged to “knock them down a bit.” They admit as much on their website.
“Typically, the Commission determines that the proposal is justified only in part,” the PSC’s frequently asked questions page reads. “It may allow the company to increase rates less than the utility requested.”
With Platte County’s expected growth combined with its aging infrastructure (some pipes in downtown Parkville were laid in the 1800s), it’s a pretty safe bet that they’ll be back for more soon enough, particularly if this increase isn’t what they deem necessary.
Water, it has been said, always finds its level.
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