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The text of the
statement in full:
“The Indiana Office
of Utility Consumer Counselor (OUCC) is recommending denial of Indiana
American Water Company’s (IAWC’s) request for a $38.8 million rate increase
(or 17.5 percent over current revenues). The OUCC’s analysis shows that a
decrease of $16.9 million (or 7.6 percent) is more appropriate, instead.
witnesses filed testimony and exhibits with the Indiana Utility Regulatory
Commission (IURC) Friday evening. The OUCC, which represents consumer
interests in cases before the IURC, has used its legal and technical
resources to analyze IAWC’s request over the last three months.
“Two major concerns
the OUCC raises are: 1) IAWC’s authorized return on investment should be
lower than what it is requesting and 2) The utility’s evidence does not
establish that the costs of its proposed capital projects are reasonable.
allows an investor-owned utility to earn a fair rate of return on its
investments each year through rates. However, IAWC’s evidence does not show
justification for the specific return it is seeking in this case,’ said
Indiana Utility Consumer Counselor Bill Fine.
we have seen, both through IAWC’s filings with the Commission and
information the utility has provided to us through legal discovery, fails to
substantiate the request.’
“IAWC is seeking to
have its authorized return on equity (ROE) increased from 9.75 percent to
10.8 percent annually. The OUCC’s analysis shows than an 8.5 percent return
is appropriate. As pointed out in the OUCC’s testimony:
utility’s estimated cost of equity assumes future market returns that are
much higher than the S&P 500’s historical return.
inflation rates are at historically low levels. Lower inflation rates
generally translate into lower capital costs.
* “IAWC has
used a balanced capital structure (50 percent equity and 50 percent
long-term debt) in its last three base rate cases. In this case, its
proposed structure goes up to more than 56 percent equity. Maintaining a
50/50 balance would reduce rates.
* “IAWC and
other water/wastewater utilities face lower financial risks due to
provisions in state law that allow them to raise rates for specific purposes
between general rate cases. Rate increases under those mechanisms Đ also
known as ‘trackers’ Đ are subject to OUCC review and IURC approval, but the
cases proceed under extremely short timeframes.
Distribution System Infrastructure Charge (DSIC) allows water and sewer
utilities to seek rate increases between general rate cases to pay for aging
infrastructure replacements. IAWC has received DSIC rate increases in 2016,
2017, and 2018.
* “The System
Integrity Adjustment (SIA) allows water and sewer utilities to seek
expedited rate increases if they do not collect their authorized revenues.
IAWC has not used this mechanism. However, its pending rate request includes
proposed accounting adjustments to make up for declining water use by
testimony also includes significant reductions to requested cost recovery
for numerous proposed infrastructure improvements, on the basis that the
utility has overstated the costs on certain items and not provided detailed
cost estimates on certain additional items.
* “IAWC is
seeking rate recovery for more than $326 million in capital projects,
including $170 million for ongoing/recurring projects throughout its service
territories. The utility’s evidence includes dollar amounts for those
projects over the next three years but does not include detailed information
supporting the numbers. Without detailed information, the OUCC cannot
determine whether the costs are reasonable and prudent as required by state
* “The OUCC
is recommending $10 million in improvements to IAWC’s Richmond treatment
plant. By comparison, the utility proposes demolishing and reconstructing
the plant at an estimated cost of $45 million.
* “Costs for
improvements to IAWC’s Muncie treatment plant would be reduced by $5 million
under the OUCC’s recommendations, due to unsubstantiated increases to the
“While the OUCC
supports the need for utilities to replace aging infrastructure, utilities
must provide sufficient evidence justifying the proposed costs before
charging them to customers.
“In addition, the
OUCC’s testimony addresses IAWC’s proposal to raise its flat, monthly
residential customer charge from $14.23 to $22.35 in 2020. The OUCC states
that such an increase to the portion of the bill not varying by usage is
unnecessary, and is contrary to effective conservation efforts.
provides service to approximately 302,000 customers in more than 50 Indiana
communities, has until January 22, 2019 to file rebuttal testimony. An IURC
evidentiary hearing is scheduled to start on February 14, 2019 and may last
several days if necessary, with a Commission order expected in the months to