Water Surcharge Would Help Utilities Speed Infrastructure Improvements

Tom Johnson | March 17, 2011 | Energy & Environment
Industrial-strength water users say state surcharge is just a tax by another name

The Christie administration may have found a tax it can stomach.

The state is considering a proposal to allow water utilities to recover costs of improvements to their infrastructure more rapidly, but some big users of water worry the proposal will amount to a new tax that will prove burdensome.

That was the sentiment at a sparsely attended stakeholder meeting held yesterday in Trenton by the state Board of Public Utilities (BPU). The hearing focused on a still evolving proposal to allow water and, possibly, wastewater utilities to pass along rate increases to customers without a formal contested proceeding for certain routine types of infrastructure improvements, such as a water main replacement.

Called a Distribution System Improvement Charge (DSIC), the system is currently in place in neighboring states, like Delaware and Pennsylvania. It allows the utility to invest in upgrading what most agree are aging water mains and pipelines and pass along the costs to customers so long as they do not boost bills by a certain percentage, usually more than 7.5 percent in a given year.

Two Out of Three

The hearing yesterday was the second of three scheduled by the agency, but BPU President Lee Solomon’s frequent remarks about the state facing a crisis with its aging water infrastructure appears likely to lead to a formal rule proposal in the future.

By some estimates, New Jersey might have to spend more than $20 billion to upgrade its network of water and wastewater systems. Solomon, who was not at the hearing, said customers could face huge rate increases if the utilities are not encouraged to repair and overhaul their aging pipelines.

Only three people showed up for the stakeholder hearing, two of whom expressed concerns about the proposal.

“This could be a huge financial burden to our members,” said Ed Waters, director of government affairs for the Chemistry Industry Council of New Jersey, which has 75 members that employ about 65,000 people. Much of the industry requires large volumes of water, Waters said.

“To add an additional tax on our companies would be a real burden,” said Waters, who asked if the state decides to adopt a surcharge, would it exempt large water users from the added fee.

Fair Rate

Marty Rothfelder, an attorney representing a coalition of large-volume water users, proposed that the state adopt a fair rate design for any DSCIC it might implement. The coalition includes Rutgers, the State University of New Jersey, Princeton University, Johanna Foods, Inc. and ConocoPhillips, among others.

If such a charge is applied across the board on a volumetric basis, it would have a disproportionate impact on large-volume users, Rothfelder said. He urged the board to consider a proposal made by the Division of Rate Counsel, which suggested, if implemented, it should be applied on a per customer basis using a graduated scale of rates.

For residential customers, the surcharge is not a big deal, at least according to utility officials. In Pennsylvania, where customers pay an average of $42.60 a month with a 7.5 percent cap, the maximum increase would be $3.20 a month.

The proposal was backed by Ryan Connors, director of research for infrastructure at Janney Montgomery Scott, an investment firm in Philadelphia. He called it a critical factor in improving the state’s regulatory environment. He urged the agency to adopt a cap of 7.5 percent if it decides to implement the DSIC, arguing the further you get below that level, the less effective is the surcharge.