Agency Wants Water Companies to Recover Repair Costs More Quickly

The BPU estimates that upgrading NJ's aging water infrastructure will cost residential customers $2.00 a month

The state expects to draft a proposal by late spring to allow water companies to more quickly recover the cost of rehabilitating their infrastructure, a mechanism likely to increase water bills for residential customers by about $2.00 a month.

With the cost of repairing New Jersey’s drinking water infrastructure projected at nearly $8 billion, there is a growing consensus among state officials and water purveyors that the state needs to address its aging water system, some of it up to 120 years old. The American Society of Civil Engineers has projected the cost of upgrading the state’s network of water and wastewater systems at more than $20 billion.

“The state of the water infrastructure is not where we’d like it to be,” conceded Karen Alexander, president and chief executive officer of the New Jersey Utilities Association, which represents investor-owned water companies. These firms deliver water to approximately half of the state’s population.

Accelerating Investment

In recent months, officials from the water companies, the state Board of Public Utilities (BPU) and state Division of Rate Counsel have been talking of ways to spur accelerated investment in investor-owned and publicly owned water systems. Much of the discussions have revolved around something dubbed “distribution system improvement charge,” or DSIC, for short.

Already in place in nine other states, DSIC would allow water companies to recover the costs of rehabilitating their water lines without going through a formal rate case, provided the increase does not exceed a cap, usually set at 5 percent.

In a hearing on the issue before the Assembly Telecommunications and Utilities Committee, Alexander described such a mechanism as a “relatively modest charge,’’ representing about a $2.00 a month increase on the typical residential water bill, which averages about $38 for investor-owned utilities in New Jersey.

Others, however, hardly view the increase as nominal.

Hal Bozarth, executive director of the Chemistry Industry Council of New Jersey, said many of his members, particularly those involved in the chemistry, refining and food-processing sectors, use huge quantities of water. “We can’t afford to pay the cost of water monopolies to upgrade their systems,” he said.

Division of Rate Counsel Stefanie Brand noted that most of the state’s largest water utilities have come in for rate increase requests of 10 percent to 15 percent approximately every two years. If a new surcharge allowing up to a 5 percent increase were enacted, it could mean 20 percent to 25 percent increases for ratepayers every two years.

“This substantially exceeds any wage increases or profits that ratepayers are likely to see in this economy and is only one of many fundamental expenditures competing for ratepayers’ funds,” Brand said.

Smart Spending

If such a surcharge were adopted, Brand also argued, any plan to accelerate spending on aging water systems should encourage renewal of existing systems through cleaning and relining, rather than the more costly option of replacement of lines. The former option is one-third to one-half as expensive as replacement, she said. “What we are advocating is smart spending.”

Alexander argued the state’s water utilities always try to select the most cost-effective way to achieve their goal of providing reliable and safe drinking water to residents.

The BPU expects to hold two additional stakeholder meetings on the issue next month, according to Ken Sheehan, its chief counsel. It also plans to present a straw proposal to the commissioners sometime in April or May, which could lead to a rule proposal later this year.

Assemblyman Upendra Chivukula (D-Middlesex), the chairman of the committee and a frequent critic of the BPU, said he was satisfied the agency was moving in the right direction after the hearing and downplayed any role the legislature may play in the issue in the near future.