Tennessee regulatory official criticizes Chattanooga's water agreement

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By DAVE FLESSNER
Chattanooga Times/Free Press

Sept. 30, 2000 (Knight Ridder/Tribune)—Chattanooga's water war may have ended a year ago.

But a state regulator warned Friday that last year's agreement to end a city takeover attempt of the Tennessee-American Water Co. could eventually flow back into local water bills and push residential rates higher.

Lynn Greer, a director of the Tennessee Regulatory Authority, criticized the settlement that ended a yearlong battle between the city and the water utility. Under the agreement, the city dropped its takeover attempt of Tennessee-American in exchange for the water company cutting its fire hydrant fees to the city by more than $1 million.

"I think the city abused its power of eminent domain and ended up as the only one that benefited from this settlement," Mr. Greer said in a telephone interview from his Nashville office.

Despite Mr. Greer's objection, the three-member Tennessee Regulatory Authority officially adopted the settlement in an order issued this week. The other two regulatory authority directors, Melvin Malone and Sara Kyle, accepted the settlement negotiated a year ago by city and water utility officials.

Under the agreement, Tennessee-American began cutting fire hydrant fees to the cities in which it operates this year. By the end of 2001, the water company will have cut the fire hydrant fee charged to municipalities from the previous $301.20 a year down to $50 a year. The rate reduction will cost Tennessee-American more than $1.1 million a year.

The water utility agreed to the rate reduction, however, to end a costly battle with the city. Mayor Jon Kinsey had pushed for the city to acquire the water company through eminent domain, if necessary. Mayor Kinsey claimed that the city could borrow money and operate the water utility with lower rates than under its current ownership.

Tennessee-American, a subsidiary of the American Water Works Co., spent more than $5 million to hire outside legal and public relations firms to fight for its survival.

In its filing with the state regulatory authority, Tennessee-American said its shareholders — not Chattanooga water users — would pay for the utility's fight against the city takeover. Additionally, the water company said it didn't plan to ask for any rate increase to offset the loss of the fire hydrant fees.

"We were glad to get this behind us last October, and I look forward to working cooperatively with the city to help with the economic development of Chattanooga," said Bill L'Ecuyer, president of Tennessee-American Water Co.

In their majority opinion, authority directors ordered that "consistent with the company's representations, the loss of revenue resulting from the rate reductions to the city of Chattanooga be borne by the company's stockholders and not by the company's ratepayers, either now or at any time in the future."

But in his dissenting opinion, Mr. Greer questioned whether the company's earnings won't be squeezed by the drop in fire hydrant fees and eventually require higher rates for other water users. Mr. Greer said the city was being rewarded for its takeover attempt at the immediate cost to Tennessee-American shareholders and the possible later cost to Chattanooga water users.

"It appears that many, if not all, of the terms of the settlement could have been reached outside of a condemnation lawsuit (filed last year by the city)," Mr. Greer said in his written opinion issued Tuesday. "(But) the city, as the principle cost causer in this matter, will not shoulder an appropriate share of the socially wasteful costs it has created."

Tennessee-American is reducing the rate charged on 4,491 area fire hydrants over a 2-year period. The company serves more than 70,000 customers in Chattanooga, East Ridge, Red Bank, Lookout Mountain, Rossville and portions of Hamilton and Marion counties in Tennessee, and Walker, Catoosa and Dade counties in Georgia.

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© 2000, Chattanooga Times/Free Press, Tenn. Distributed by Knight Ridder/Tribune Business News.

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