Testimony of MCTL Member Ed Amatetti September 25, 2016, before a committee of the Montgomery County Council concerning an increase in water rates proposed by the Washington Suburban Sanitary Commission:
For nearly 15 years, I was an auditor and consultant to dozens of regulated utilities, and municipal and county utilities, including as large as Cleveland, Providence, and the greater Oakland area. My work has included rates.
The proposed rate increase should be denied unquestionably. Rate increases far above inflation for 10 years running and a poorly designed rate structure are reasons enough. But I want to focus on another compelling reason: that being, we still do not have a handle of WSSC’s cost structure, which determines the utility’s revenue requirements, and therefore, rates. The Commission knows precious little about WSSC’s costs and whether WSSC is performing even the most basic utility activities at an acceptable level of efficiency. This remains the case even after reading the recently completed, long overdue benchmarking study, which was poorly designed and did almost nothing to shine the light on costs or quantitative operational performance.
Case in point: Montgomery Council member Leventhal is quoted as saying he and the Montgomery Council did not object to the rate increase “because of WSSC’s need to repair and replace aging infrastructure.” But rather than an argument for a rate increase,this is a giant red flag and an argument for review of WSSC maintenance activities. Infrastructure rehabilitation and maintenance should be part of a utility’s normal activities, and included as an ongoing line item in the operating budget each and every year for determining revenue requirements and rates. Thus, we have a situation where WSSC is being rewarded with yet another rate increase and a new customer charge for not having kept up with maintenance and repair even while rates increased at three times the rate of inflation for 10 years running.
In the meantime, we know little about the miles of transmission mains inspected, rehabbed, or replaced each year or the costs of these activities, and how this compares to other utilities with similar size, age, and composition of pipe and corrosiveness of WSSC ’s water. We know nothing about the number or percentage of valves in the system inspected or replaced each year, by size and age, or the costs per valve associated with these activities – and how these compare to other utilities. Are there water treatment options that might protect the infrastructure better? Same thing with activity after activity — none of which have been audited or reviewed properly.
Then we have the $60M treatment plant expansion moving forward at a time water demand is absolutely stagnant. The recent study did not even review cost-benefit justifications for the proposed scope of this project. Why is this absolutely — because these facilities get added to the Rate Base and make future rate increases far more likely.
These are not specious or unwarranted complaints. Without this type of cost data, a case for reducing costs cannot be effectively made and effective oversight of the utility is futile. If the current rate request is approved, I question the value of even having a regulated utility at all.