State of New Jersey

STATE OF NEW JERSEY
Division of The Ratepayer Advocate
31 Clinton Street, 11th Fl.
P. O. Box 46005
Newark, New Jersey 07101

For Immediate Release
February 18, 2004

For Further Information
Contact: Tom Rosenthal
Tel: 973-648-2690

NEWS RELEASE

Ratepayer Advocate Seema M. Singh Announces
Steep Roll Back in Rate Requests by 3 Water Companies

Groundbreaking Settlement Creates Low-Income Payment Program
And Expands Service Quality Standards & Penalties

Newark, NJ -- Ratepayer Advocate Seema M. Singh announced that three of the state’s largest water companies dramatically rolled back rate increases they were seeking following negotiations that reduced the costs the utilities can pass on to ratepayers to only what was reasonably expended to provide safe drinking water to millions of New Jersey families.

In a negotiated settlement reached by the Ratepayer Advocate and the staff of the Board of Public Utilities (BPU), the water companies also agreed to establish substantial water bill relief programs for impoverished families for the first time, Ms. Singh said.

“This agreement furthers our goal of building a better New Jersey by ensuring clean and affordable drinking water for millions of families,” said the Ratepayer Advocate. “It also advances us toward the long-term goal of ensuring water conservation for our state. I commend the three water companies for working with the Ratepayer Advocate and the staff of the Board of Public Utilities to negotiate a settlement that protects the interests of New Jersey consumers.”

Ms. Singh praised NJ-American Water Company (NJAWC), Elizabethtown Water Company (EWC) and Mount Holly Water Company (MHWC) for working with the staffs of the Ratepayer Advocate and the Board of Public Utilities for reaching the negotiated settlement that resolves rate cases filed by the water companies, which serve more than 2 million state residents. The commissioners of the BPU approved the settlement at today’s BPU Agenda Meeting.


“We also secured increased commitments to improved service quality, extend previously established penalty provisions for service shortcomings, and laid the groundwork for statewide water utility service quality standards that will, in time, benefit the customers of all investor-owned utilities,” said Ms. Singh after the commissioners approved the settlement.

“All of these benefits for the ratepayers were won through successful negotiations, which we could not have gained through costly and lengthy litigation,” Ms. Singh said.

In the rate case, the water companies sought to recover their costs in the rates they charge customers. The Ratepayer Advocate, as the consumer advocate representing the interests of all utility ratepayers, uses expert witnesses, including accountants, to compile a detailed record to ensure that consumers only pay for what the companies reasonably spend to maintain and upgrade their systems to provide millions of New Jersey residents with clean and affordable water supplies.

“The settlements in these three rate cases are excellent results for the many customers of these water utilities,” said Ms. Singh. “Not only were the rate increases sought by the utilities scaled back dramatically by holding down costs to just the reasonable costs companies incur, we were also able to secure the utilities’ commitment to and cooperation on important new initiatives, something that cannot be done through litigation.”

Ms. Singh said the Ratepayer Advocate, in negotiations with the staff of the BPU and the representatives of the utilities, established the framework of a Low Income Payment Program that will extend substantial water bill relief to impoverished families for the first time.

“The Ratepayer Advocate takes its role in policy-making very seriously,” Ms. Singh said. “We are proud supporters of the terms of the settlement that require these utilities to take the lead in investing resources and research in efforts to increase conservation, increase water supply protection, increase water reuse, and to design water price signals that encourage the wise stewardship of our precious water resources.”

The three utilities are subsidiaries of Thames Water Company PLC, the world’s third largest water company, which is based in London, UK. Thames is the water unit for and subsidiary of the German multinational energy and utility conglomerate RWE AG, based in Essen, Germany.

Collectively, NJAWC, EWC and MHWC are referred to as the New Jersey Operating Units, or “NJOUs.” At this time, the NJOUs will continue to work as independent utilities; however, their common ownership should provide opportunities to achieve “operating synergies” that reduce costs, and such savings will be passed on to ratepayers in the NJOUs next rate cases.

NJAWC

Rate Increase Request
Rate Increase Settlement
Average Customer Increase
 
$51.9 million or 20.6%
$24.1 million or 9.59%
9.86% or $41.49/year
 

NJAWC is a subsidiary of American Water, which serves 20 million customers in 27 states, 4 Canadian provinces, and South America. Over 8,000 employees provide water, wastewater and other related services. NJAWC is the state’s largest water utility, and its franchise territory is served by four Operating Centers located in Short Hills, Shrewsbury, Egg Harbor Township and Delran. The Company=s operations encompass 21 separate public water systems and 3 wastewater collection systems at different locations throughout the state. NJAWC provides service to approximately 348,000 water customers and 25,000 sewer customers in 122 communities in 15 counties throughout the State of New Jersey. The last rate increase was 1999. The increase takes effect March 1.

In its petition, filed July 10, 2004, NJAWC sought an overall increase in annual revenues of $51,908,023.00 or 20.6%, including a 22.3% rate increase from its general metered service class of customers, which includes residential ratepayers.

Under the terms of the settlement, NJAWC will be permitted to implement a rate increase of $24.15 million, or approximately 9.59%, on or about March 1, 2004. For the average residential customer using 84,000 gallons per year, this means a water bill increase of 9.86%, or less than $41.49/year.

EWC

Rate Increase Request
Rate Increase Settlement
Average Customer Increase
$18.4 million or 11.6%
$5 million or 3.14%
3.35% or $9.21/year

EWC is a subsidiary of Thames Water, Plc, and serves approximately 203,000 residential customers in Hunterdon, Mercer, Middlesex, Morris, Somerset and Union counties, as well as commercial, industrial and bulk purchase customers in those same areas. EWC filed a petition on July 10, 2003, seeking an overall increase in annual revenues of $18,440,390.00 or approximately 11.6%. The last rate increase was January 2002. The increase takes effect July 1.

Under the terms of the settlement, EWC will be permitted to implement an overall rate increase of $5,026,551.00, or approximately 3.14%. For the average customer using 84,000 gallons per year, this means a water bill increase of under 3.35% or about $9.21/year.

MHWC

Rate Increase Request
Rate Increase Settlement
Average Customer Increase
$1.9 million or 27.82%
$660,000 or 9.59%
Mount Holly system 9.79% or $33.17/year;
Plumstead system 9.77% or $32.69/year;
Southampton system 9.23% or $24.76/year;
Homestead system 0.00% or $0.12/year.

MHWC is a subsidiary of EWC, and serves a variety of customers, including approximately 15,200 residential customers in Burlington and Ocean Counties. The company is made up of four distinct water systems. On July 10, 2003, MHWC filed a petition seeking an overall increase in annual revenues of $1,928,964.00 or 27.82%. The last rate increase was 1999. The increase takes effect March 1.

Under the terms of the settlement, MHWC will be permitted an overall rate increase of $660,002.00 or approximately 9.59%. For the average residential customer using 84,000 gallons per year, this means a water bill increase as listed in the above chart.

ISSUES

Low Income Payment Program (“LIPP”)
The Ratepayer Advocate succeeded in obtaining a commitment from the NJOUs to develop a Low Income Payment Program (“LIPP”). The goal of the program is to extend a 15% discount on water bills to customers who demonstrate eligibility through their participation in one or more of the following: Low Income Home Energy Assistance Program (“LIHEAP”), Lifeline Energy Assistance, Pharmaceutical Assistance to the Aged and Disabled (“PAAD”), and/or NJ Senior Gold. While the program is still conceptual, the settlements set up a framework to develop the program in the most effective and efficient manner. The major hurdle to such programs is always the money—in these cases, $1,370,000 for NJAWC; $590,000.00 for EWC; and $50,000.00 for MHWC; with an average cost to ratepayers of about one half of one cent per thousand gallons of normal general metered service consumption. These settlements built in funding for a program designed to reach approximately 31,000 eligible households annually, with savings up to $60 per year-- $60 that can go to food, clothes, books, or even a birthday or holiday present for a child living in poverty. Furthermore, the funding mechanism allows for the monies collected for the program to be returned to ratepayers if not spent on the program. The Ratepayer Advocate salutes the utilities, members of the Staff of the BPU, and representatives of large water utility customers for making the commitment to work on and fund this important program.

Service Quality
The Ratepayer Advocate secured increased commitments to improving customer service from the NJOUs. The NJOUs must submit a service quality performance plan by April 1, 2005 that includes uniform performance requirements and standards, and detailed reporting requirements. Call center performance, customer complaint responses, billing accuracy, outages and other measures of customer service will be reported to the BPU and the Ratepayer Advocate on a regular basis, including annual “Report Cards” to customers summarizing the service quality performance for each utility. The Ratepayer Advocate also secured a pledge from each utility that its performance would not degrade in any way while the new service quality standards are being developed. EWC and MHWC also agreed to maintain the penalty provisions for customer service shortcomings previously obtained by the Ratepayer Advocate in a prior case.

Conservation
The Ratepayer Advocate supports Governor James E. McGreevey’s Clean Water initiatives, and has negotiated new conservation initiatives as part of these settlements. The companies will begin working on a new Conservation Study for each system to identify potential opportunities for conservation and water reuse throughout each utility’s service territory. The Conservation Study will also outline strategies to maximize the conservation of potable water and analyze seasonal usage patterns. A major focus of the Conservation Study will be the identification of water customers currently using potable water who could substitute non-potable water for their operations, and an analysis of the feasibility and infrastructure requirements of such conversions. A final element of the conservation initiatives is the establishment of seasonal tariff riders for both residential and commercial water customers, to provide regulators with added flexibility to respond to droughts or other seasonal water issues.

Long-Term Planning
The Ratepayer Advocate secured a new commitment to long-term water system planning by the utilities. The NJOUs will undertake a Long Term Planning Study that includes in its objectives an analysis of system growth that is consistent with the Governor’s Smart Growth initiatives.

Innovative Rate Design
The Ratepayer Advocate consistently seeks to balance a fair distribution of the costs of service with the burden of the rates paid by different classes of customers, with sensitivity to the economic impact of utility rates on jobs and on individual residential ratepayers. Beginning with the Elizabethtown Water Company system, the utilities will be linking the continuation of certain industrial wholesale rates with the development of new tariffs to encourage the pursuit of beneficial reuse by industrial water customers. This new rate design initiative sets firm deadlines to implement incentives to customers to increase water reuse over current 2004 levels by 20% by 2006 and 40% by 2010.

Synergy Savings
The Ratepayer Advocate obtained additional rate relief of $3,806,758 attributable to the common ownership of the three utilities. These “synergy savings” helped offset some of the expense increases and capital project costs for which the utilities sought rate relief in these cases. In addition, the Ratepayer Advocate developed an innovative sharing mechanism that will provide an incentive to the utilities to aggressively pursue all reasonable operating synergies in the next few years. This sharing mechanism also guarantees that any synergy savings achieved by the utilities before their next base rate case will be “locked in” to the bottom line, to the benefit of ratepayers. Furthermore, these synergy savings are not simply job cuts; the utilities have pledged to negotiate in good faith with their employees about future staffing levels, both union and non-union, to ensure fair treatment of New Jersey employees and staffing adequate to ensure safe, adequate and proper utility service at the lowest possible cost.

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The Division of the Ratepayer Advocate is an independent state agency that represents the interests of utility consumers and serves as an active participant in every case where New Jersey utilities seek changes in their rates or services. The Ratepayer Advocate also gives consumers a voice in setting long-range energy, water, and telecommunications policy that will affect the delivery of utility services well into the future.

Additional information on this and other matters can be found at the Division of Ratepayer Advocate’s website at http://www.rpa.state.nj.us

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