A proposed 22 percent increase in water rates may draw boos from Mayor Jim Gray and other Lexington consumers, but Wall Street is applauding the performance of Kentucky American Water’s corporate parent.
Even as the stock market tumbled on Tuesday, American Water closed at an all-time high of $95.78 a share.
Americans are using significantly less water in their homes and businesses than ever before, which is why New Jersey-based American Water is pursuing — very profitably, it would seem — a strategy of rate increases and buying up smaller water systems.
If you’re an investor, especially in tumultuous times, what’s not to like about a company that has a monopoly on a captive market, a product that’s critical to life itself and the ability to raise rates within the safe harbor of a regulator-approved return on equity?
Kentucky American is averaging a rate increase every two years since 2006 when voters in Lexington defeated city purchase of the utility and decided to stick with privatized water.
The utility now serves 14 counties, from Gallatin in the north to Jackson in the south. KAW customers pay more than customers of municipally-owned utilities in Louisville and Cincinnati. A residential customer using 4,000 gallons a month now owes KAW $36.57. The company is asking for a 24 percent increase in residential rates.
As Gray said, “It’s a real shame that Kentucky American Water raises rates on Lexington citizens, and then turns right around and uses that money to buy water utilities in other towns around Lexington. A real shame.”
After defeating municipal ownership (what most places in this country have), Kentucky American built a $164 million plant to treat 20 million gallons of water a day on the Kentucky River in Owen County and a 31-mile pipeline to Fayette County – and then raised rates to pay for that.
In 2017, Kentucky American treated 40.2 million gallons of water a day, using on average just 45 percent of its existing 90 million gallon daily capacity.
The amount of water treated in 2017 was up 3 percent from 2016, according to the 2018 Blue Grass Area Development District Rate Book. KAW’s peak demand day in 2017 was 60 million gallons.
In its most recent rate increase request, KAW says it is seeking to recover the cost of more than $100 million in infrastructure maintenance and upgrades, including replacing high-service pumps at its largest treatment plant on the Kentucky River in Fayette County.
The Public Service Commission, which sets KAW rates, faces some tricky questions: How to balance the interests of consumers, at a time of declining water consumption, with the interests of a for-profit company’s ambitions to buy up decrepit water systems then pass on the repair costs to ratepayers in Lexington?
Lexington’s incoming mayor Linda Gorton, the council and the city’s legal staff should be aggressive in their advocacy for Lexington ratepayers before the PSC and legislature.
Too bad it’s too late for the best solution: de-privatizing Lexington’s water.