RALEIGH — Aqua North Carolina, the state’s largest private water utility, won its third rate increase in six years, along with a new state policy for utility companies: permission to raise water rates without public hearings.
The contentious case, granting an average 5.2 percent rate increase, was closely watched by Aqua’s 90,000-some water and sewer customers, who already pay twice as much for water as do residents of Durham, Cary, Raleigh and other municipal utility departments. Aqua supplies water or sewer service to areas not reached by municipal or government water service, including more than 400 subdivisions in Wake County.
In opposing the rate increase, Aqua customers complained bitterly to the N.C. Utilities Commission about Aqua’s water quality. But that line of argument backfired, as the Utilities Commission said complaints about Aqua’s water quality problems demonstrated the need for rate increases to pay for upgrades to the publicly-traded company’s water service.
“Aqua’s customers testified that they do not consume the water or are unable at times to use the water for basic, routine functions due to discolored and sediment-laden water,” the commission wrote Friday. “The Commission believes that Aqua should be able to more quickly address some of the issues pertaining to aging infrastructure which would … maintain or improve the quality of service to its customers.”
Tony DeLuca, a resident of the Robins Wood subdivision in Chapel Hill, fumed at Utilities Commission’s logic.
“That shows how much the Utilities Commission is in the pocket of this company and (that) they’re not working for the public,” said DeLuca, an Aqua water user. “I can’t believe they let that happen. We’re getting gouged.”
The 141-page ruling will raise an average Aqua water bill from $43.13 to $46.18 a month, and an average sewer bill from $65.07 to $65.21.
Tim Laughlin, a resident of the Southern Oaks subdivision in Raleigh, said Aqua water rates are steep and have nearly tripled over two decades, but he also said the latest rate increase was probably necessary.
“If this is money used for equipment and piping and fixing leaks, you’re making the system more efficient and the rates should stabilize,” said Laughlin, a petroleum engineer. “It’s within the limits of common sense.”
The case showed the revolving door between the private sector and utility regulators, with Aqua enlisting legal firepower from the Utilities Commission’s ex-chairwoman Jo Anne Sanford as well as the commission’s ex-general counsel Robert Bennink Jr., now both in private practice.
Current Utilities Commissioner Chairman Edward Finley Jr. represented smaller water utilities in private practice until then-Gov. Mike Easley appointed him to the commission in 2007. Finley, who did not represent Aqua, then handed off his utility portfolio to colleague Christopher Ayers; last year, Ayers was appointed by Gov. Pat McCrory as executive director of the Public Staff, the state agency that represents utility customers in rate cases.
The Public Staff reached a settlement with Aqua stipulating a 5.2 percent rate increase and Aqua’s right to raise rates without public hearings under some circumstances. Ayers recused himself from the case because one of his former clients was involved with Aqua in the request to raise rates without hearings.
The Public Staff conducted five days of onsite audits at Aqua’s corporate headquarters in Bryn Mawr, Pa., and three days of audits at the company’s Cary office.
The ruling gives Aqua the right to raise rates up to 5 percent, without public hearings, to pay for replacing aging pipes, valves, pumps and motors – but not for system expansions. Those rate increases would be subject to internal review by the Public Staff and Utilities Commission, and would be disallowed if they were not prudent or reasonable.
Once rates go up 5 percent through this accelerated cost-recovery mechanism, Aqua would have to go in for a formal rate case, with public hearings, for additional increases. But after the rate case, the company could again raise rates 5 percent without hearings.
Aqua had originally requested a 19 percent increase but agreed to a reduction if it could raise rates without formal rate cases. The Utilities Commission noted that at least a dozen states allow water utilities to raise rates this way as a way of keeping up with maintenance expenses and to smooth out the financial impact on customers.
Aqua’s critics said Aqua won the right to prevent noisy customer protest by raising rates surreptitiously. But the Utilities Commission said in its ruling that the true beneficiaries are Aqua customers: “The use of a rate adjustment mechanism that would result in earlier and more robust investment in North Carolina infrastructure is to the benefit of Aqua’s customers.”
The rate increase will boost Aqua’s North Carolina revenue by nearly $2.5 million a year and limits the company to a net operating income after taxes of 9.75 percent.