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Kentucky American Latest in Big Water Rates

February 28, 2010

Illinois, Indiana, Missouri, Arizona and now Kentucky.  We’ve been tracking American Water Co. all year and reporting on the large increases that the company has requested in each of these states.  Kentucky is the latest.  The increase requested there is 37%.   The Kentucky American water rate increase contains very similar elements to all the others too.  In this case the company tries to justify the increase on the cost of a new water treatment plant that is nearing completion.  At a cost of $160 million, the new plant will treat 20 million gallons per day.  The only problem is that the numbers don’t add up.  If indeed the plant is the source of the increase, what consumers should know is that the company will be allowed to recover the depreciation expense on this facility, plus a return on the book value (the value of the asset after subtracting depreciation).  A water treatment plant can be depreciated over different periods, but 20 years is typical – that’s $8.1 million per year.  To make up the difference between $8.1m and the total of the $26m that is being requested, the Company would need about 11% exactly in return to its shareholders.

If you know of an investment out there with very little risk associated with it (like a water utility) that is paying 11%, please send your information to us so we can put everything we have into that investment!  Is this rate increase justified.  Obviously we don’t know enough to say definitively, but the information in the news article leaves a lot of questions.

Comments (1)

1 Comment »

1. 

   Update.

   We recently received this news regarding the Kentucky-American case. It looks like the PSC in Kentucky will be approving the request unless new evidence is provided to the contrary.

   http://bit.ly/cfFi35

   Comment by jgmumm — July 26, 2010 @ 10:48 pm

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