Cornell Testifies Against UWNY Proposed Rate Increase

Full Text of Legislator Cornell’s Testimony Follows

By Harriet Cornell, chair, Environmental Committee, Rockland County Legislature

Thank you once again for the opportunity to offer testimony to the Public Service Commission.  Over the past nine years, I have been able to voice my thoughts, both formally and informally, in a variety of venues with regard to various aspects of United Water’s operations and management, most recently and unexpectedly with regard to Case W-0246 in which UWNY seeks a surcharge of $56.8 million to be borne by ratepayers for the costs of a pilot desalination plant.

It was unexpected because I had already submitted comments on the surcharge in February.  But when I learned that UWNY submitted comments to PSC on April 7, 2014, in which it lifted out of context and mischaracterized a statement I had made on August 6, 2008 at a hearing held by the NYS Assembly Standing Committee on Environmental Conservation, I responded with a letter to Secretary Burgess and a full copy of my 2008 remarks. While that case is separate from this, the gratuitous and purposeful misuse of my 2008 statement casts doubt on the veracity of other United Water filings.

My comments today are specific to United Water New York’s request to increase its total revenues by approximately $21.3 million (28.9 percent) and on a recommendation made by Commission Administrative Law Judges to increase total revenues by approximately $11.1 million (15 percent.)  I feel absolutely certain that the Commissioners and staff of the PSC will not be hearing too many residents coming to ask you to approve higher rates of any amount for UWNY.  No– you will be hearing the many reasons why UW should not be granted any rate increase at all.

There are probably two major ways in which a utility can achieve approval for increasing its rates:

One is to present an iron-clad case, based on facts and accurate data, demonstrating solid managerial credentials, good managerial actions, tight cost-control measures and a rationale that is fair and in keeping with the times.

The 2^nd is to eliminate or minimize public dissent, and that can happen by weakening the opposition—usually unorganized citizens without the money to hire expert consultants and without the personal time to fight such multiple ongoing battles as we have experienced in Rockland—environmental hearings, rate hearings, water supply need hearings, surcharge hearings—and then to stay watchful in order to present rebuttals to last minute submissions by United Water. Diversionary tactics—battles on many fronts– can wear down opponents.

United Water has consistently taken that second path, the diversionary path, believing that an exhausted and powerless opposition will die and fade away.  But UW miscalculated badly.  The Water Coalition—and that includes all of us—thousands of citizens, local government officials, environmental agencies and activists–is far from powerless.  We have only grown stronger, and the lack of credible evidence by UW has made it all the clearer that the Emperor has no clothes.

When I spoke to the PSC on October 1, I mentioned that I never expected to be fighting water battles, as in the movie Chinatown.  This week, preparing testimony once again, I was reminded of Bleak House,  the novel by Charles Dickens ,  where the case of Jarndyce v. Jarndyce dragged on for years and years .  Dickens’ vivid characterization of the arcane legal process gave voice to widespread frustration with the system and Bleak House helped spur a movement that culminated in legal reform.  Rockland’s coalition of concerned citizens has also spurred movement and is committed to presenting irrefutable facts on every issue that arises, as long as it takes.

The good news is that there are at least two watchdog agencies of the State of New York that are focusing on this case before us:  you, the Public Service Commission, and the Utility Intervention Unit in the Division of Consumer Protection of the NYS Department of State, whose Initial Brief was submitted on March 4, 2014 and is a part of your record.

It is a scathing report which focuses primarily on the management of United Water New York and of its affiliated Management and Services Company.  The Brief states that in investigating UWNY’s rate filing, the Department of Public Service Staff discovered “significant issues of fiscally imprudent and inappropriate managerial conduct.”  And, that there are “many issues on record which show management’s inability to provide a standard level of service when compared to other New York utilities.”  These include failure to apply for Economic Obsolescence adjustments which would have reduced property tax assessments. In 2013 alone that cost Rockland ratepayers $3.2 million. All other utilities make these filings.  In fact the Office of Real Property Tax Services reminds the utilities annually that this assessment reduction is available.

The Brief further states that the record shows improper charges, cost shifting to ratepayers, absence of knowledge about corporate policies and practices regarding gifts and purchases of alcohol, failure to respond on a timely basis to customers and DPS staff regarding complaints, failure to resolve fire flow issues and assigning blame to others.  “Given the level of questionable conduct, the Utility Intervention Unit does not believe management can be expected to provide basic water service at just and reasonable rates.”

Another unexplained issue is that UW’ Management and Services Company charges have gone up 13-15 percent over the last two years.  There is no explanation given by UW for these double digit increases when inflation has averaged 2 percent over the last six years.

UW does not adhere to PSC regulations which require a water utility to report when unaccounted for water exceeds 18 percent and to provide an action plan to reduce this non-revenue water.  UWNY has decided that a five year average of 21 percent unaccounted-for water is acceptable and has never made the required filings—even though unaccounted for water has exceeded the threshold every year for the last five years.

United Water does not do cost-benefit analyses on its capital projects.  In fact, in reviewing the cost information in the Draft Environmental Impact Statement submitted by UWNY for its Haverstraw Water Supply Project, , the well—respected economics and finance firm ECONorthwest said the analytic deficiencies render the cost sections of the DEIS almost useless—perhaps the most significan omission from the cost analysis is the lack of documentation regarding how construction, operations and maintencance costs would impact ratepayers.”  That is exactly what we have here—no transparency and no details as to data, methods or assumptions used to generate results,

It’s one thing to accede to a rate increase when management is prudent, but when the evidence shows otherwise, it would be scandalous to allow increases which reward management for poor behavior, at the expense of residents—many of whom are elderly and trust the PSC to protect them.

So despite the harsh effects of the economic recession on ratepayes since 2008 , UWNY is seeking to increase rates by charging a significantly high 25 percent and yet raise management compensation by 3 percent.  And, in 2013 increased the dividend it paid to its parent by an astonishing 50 percent–from $4 million to $6 million.  And,  filed for authorization to implement a surcharge on customer’s bills of approximately 8 percent to recover the development costs of the proposed desalination facility.

In the words of the Utility Intervention Unit report, signed by Saul A. Rigberg, “A public utility exists for the benefit of the public and should conduct itself consistent with the environment in which its customers live.”

That conduct has not been followed by UWNY.  Both your staff and the Utility Intervention Unit of DOS have indicated failures of management—failures that UWNY refuses to acknowledge.  In addition UWNY has not made a substantive, accurate case for a rate increase and has ignored the economic realities facing residents of Rockland County including the fastest-growing elderly population in the state.  Why in the world should the company be rewarded with a rate increase?

Accordingly, in my humble opinion, the PSC should not grant a rate increase, and should not approve any increases to management salaries or compensation.

I support the recommendation of the UIU for a prudence investigation into the failure of the Companies to file for EO awards over a period of several years with the NYS Department of Taxation and Finance’s Office of Real Property Tax Services.

I also call for a proceeding to conduct  a comprehensive management and operations audit of UWNY and the Management Company.