West Virginia American Water Files Infrastructure Replacement Program Application
April 29, 2016 at 13:07 PM EDT
West Virginia American Water filed an application today with the Public Service Commission of West Virginia (PSC) seeking approval of an Infrastructure Replacement Program (IRP). The purpose of an IRP is to address the national challenge of aging infrastructure by directing additional investment to areas where improvements are needed.
The company seeks cost recovery on $32.5 million of its planned $107 million of capital investments in 2016 and 2017 through the proposed IRP with a separate charge on customers’ bills effective Jan. 1, 2017. If granted, the charge would be calculated as a percentage of the total monthly bill, representing an increase of 1.9 percent or 89 cents per month for the typical residential customer using 3,204 gallons.
The IRP application is modeled after a statute enacted by the West Virginia Legislature in 2015, which authorized the PSC to approve expedited cost recovery of natural gas utility infrastructure projects deemed just, reasonable and in the public interest. This type of investment recovery mechanism will allow West Virginia American Water to accelerate its water main replacement program.
“Pre-approved infrastructure replacement programs are recommended regulatory practices for water utilities by the National Association of Regulatory Commissioners and are currently in place in numerous states, including here in West Virginia for gas utilities,” said West Virginia American Water president Jeffrey McIntyre. “We believe the accelerated infrastructure investment proposed in the IRP will strengthen our water system and, over time, create real operational efficiencies and reduce costs long-term for our customers.”
The scope of the proposed program is structured around seven categories of facilities, including water mains, meters, valves, hydrants, and certain plant, tank and booster station investments. The purpose is to prudently invest in reinforcing, strengthening and providing resilience to the transmission and distribution system. A detailed list of individual infrastructure replacement projects organized by district is included in the filing and outlines the specifics of the company’s plan to invest $16.5 million. The planned upgrades will replace more than 22 miles of water main this year, along with hydrants, valves, manholes, services and other qualifying projects.
The proposal includes multiple consumer protections, such as annual reconciliations, annual caps, cumulative caps and earnings limits. Charges stemming from this program would be calculated annually until rolled into the company’s rates in a future rate case, at which time the IRP charge would reset to “zero.”
“The true benefit of an IRP to our customers is the elimination of large, cyclical rate increases that reflect cost recovery of multiple years of company investments all at one time,” McIntyre said. “An IRP also allows for an up-front regulatory review of our proposed infrastructure replacement projects each year, and then provides a way for customers who benefit from these investments to make very small payments each month toward these investments.”
In its February 2016 rate order, the PSC acknowledged that its previous use of a historic test year inadequately supported the company’s rate base due to a combination of circumstances unique to West Virginia American Water. To address the problem, the PSC authorized a rate adjustment to account for the $150 million the company invested between its last rate case and the date new rates went into effect. The order also invited the company to seek an IRP in a separate filing as a way to recover investments in a timely manner moving forward, with the goal of positioning the company to continue to maintain and replace facilities, maintain and improve service and secure the capital necessary to carry out its public service mission.
West Virginia American Water recognizes that some families face economic challenges and offers two assistance programs for customers who are struggling to pay their bills. The company helps fund the West Virginia Utility Assistance Program Dollar Energy Fund, through which eligible customers may receive one grant per year, per household applied directly to their water bill. The company also offers a Special Reduced Rate Residential Service (SRRRS) program, which provides a 20 percent discount on residential water rates year round for low-income customers determined eligible by the West Virginia Department of Health & Human Resources.
The PSC will conduct a review of West Virginia American Water’s IRP application, and the company has requested that an order be issued within a six-month period. If approved, the company anticipates filing its annual IRP plan by July 1 of each year.
West Virginia American Water, a subsidiary of American Water (NYSE: AWK), is the largest water utility in the state, providing high-quality and reliable water services to approximately 550,000 people. Founded in 1886, American Water is the largest publicly traded U.S. water and wastewater utility company. Marking its 130th anniversary this year, the company employs more than 6,700 dedicated professionals who provide regulated and market-based drinking water, wastewater and other related services to an estimated 15 million people in 47 states and Ontario, Canada. More information can be found at www.westvirginiaamwater.com.