Municipalities' Challenge of United Water Rate Hike Begins

Attorney Daniel Duthie has questions for United Water. Lots of them.

Duthie represents a growing municipal consortium that includes Rockland County and its five towns in challenging the 28.9 percent rate increase request United Water filed with the Public Service Commission July 2. He said his office has asked roughly 171 discovery questions so far, most of which United Water already answered, and the case is just beginning with a meeting before two judges set for Tuesday in Albany. 

Duthie said the meeting will focus primarily on setting the schedule for the rate case. He said a typical rate case in New York takes 11 months.

"The law allows the commission 11 months," Duthie said. "The commission typically takes the entire 11-month period."

Duthie said the Village of Grandview, Sloatsburg and West Haverstraw have signed on as well as the Solid Waste Authority, joining the towns of Orangetown, Clarkstown, Ramapo, Stony Point and Haverstraw. The consortium has approved up to $90,000 in legal fees to Duthie related to the case and they are hoping to get more support from villages and school districts in Rockland County. He said the issue is more than just sharing the legal fees. More support can help with the rate case.

"Absolutely, that's one of the keys here, to having a successful municipal intervention," Duthie said. "We want to demonstrate to the commission that it is very, very broad based. It is important that the commission pays attention, that they know we have a vast majority of the municipalities and we're working on bringing more on. 

"We are trying to convey the message to the public service commission that an almost 30 percent increase is totally unacceptable."

When United Water filed for the rate increase, spokesman Rich Henning pointed to nearly $80 million the company had invested in infrastructure in Rockland and Orange Counties over the last three years. He also offered the lack of a rate increase since 2010 as justification.

The last rate increase came in the form of a three-year plan. Duthie said something similar could end up on the table this time around.

"The PSC staff likes three-year plans," Duthie said. "They don't have to fight with the utility again for three years.What might happen is once the discovery is completed and people have a good idea of their positions, there could be settlement negotiations. That could lead to a  joint proposal being presented to the commission."

One key part of discovery is what information United Water will share and what it will try to hold back, citing business concerns. In some cases, the consortium may sign confidentiality agreements limiting how information can be shared and used.

"Typically, utilities are more protective of their information and want to keep confidential in cases where they don't have good justifications," Duthie said. "There are procedures to test that."

He pointed out that United Water is not a competitive business in Rockland County. There is no other water company that can take their business away.

"I'm a believer that the more transparency in the process, the better," Duthie said. 

Part of the case will also be an evaluation of the revenue United Water claims it needs to cover its costs and turn a profit for its shareholders. Duthie pointed to examples of places where costs can be in dispute, such as the number of added staff needed as United Water shifts from quarterly to monthly billing. Would they need four new employees? Or two additional vehicles?

One issue cited by the towns, is the return on equity United Water is requesting for its shareholders, which is 10.8 percent. Duthie compared it to a Con Edison rate case in which the utility requested 10.5 percent, but the PSC recommended 8.7.

"That's a pretty big difference," Duthie said. "It is designed to compensate shareholders for the risk involved in the business. One has to say, compared to Con Ed, which supplies electric, gas and steam, which is more risky? Electric, gas and steam or water service? 

Duthie said he is in fact-finding mode and it is too early to set a defined position in the rate case. He said that technically, other pending issues between United Water and its customers would not be part of the case, but realistically they are linked. United Water filed with the PSC for a surcharge June 14 to begin the recovery of over $50 million the company has spent on its proposed desalination plant in West Haverstraw, which still has not been approved. Additional costs if the plan goes forward would also be passed along to customers. 

"From a technical standpoint, this rate case stands on its own, apart from the Haverstraw plant," Duthie said. "As a practical matter, and a political matter, the commission is aware of this other cost increase bearing down should that go forward. They are also aware that there is a pot of money already spent that the company will want to recover."

Duthie said in many cases, the PSC tries to avoid "rate shock" for the utility's customers. 

"These cases could lead to (bills increasing) well over 50 percent," Duthie said. "That's total rate shock. That's monumental."

For now, the towns are not directly challenging the plant in Haverstraw, though he did point out that by United Water's own statistics, water usage in the county has declined each of the last three years. Two days of public hearings on the topic were pushed back last week from September to Oct. 1 and 2. 

'"My reaction was to advise the towns, let's see what the report looks like," Duthie said. "Let's see what the justification is. We can see whether or not it makes sense to pursue more formal opposition to the facility. I don't think any town Supervisor wants to take a position that will hurt the county in economic development in the long run by not having enough water."

That leads into the question of the surcharge, which has already been pushed back from United Water's requested effective date of Aug. 1. Duthie said that in many cases, utilities are not allowed to charge customers for a facility until it is in use. In this case, United Water does not even have the permits in place.

"How did they spend $56 million and not buy the site yet? The forecast cost is $133 million," Duthie said. "That's a huge amount of money. That's a lot of environmental consultants, lawyers and accountants. They do have the pilot project. I'm not sure how much that cost. I'm also a licensed professional engineer in New York. I've never seen a project that had this ration of pre-construction costs to final costs. That's tremendous. Almost 45 percent without a shovel in the ground.

"The rate case is important, but I think the desalination plant has generated the most controversy and publicity. People are really passionate about it."