Public Advocate Applauds Board Decision to Order Focused Audit of NJ American Water Company

Full Assessment of Company’s Resources Will Assist Review of Capital Infrastructure Needs

Newark, N.J.—Newark, N.J.— Public Advocate Ronald K. Chen commended the Board of  Public Utilities’ (Board) decision yesterday to order the hiring of an independent firm to conduct a focused audit of  New Jersey American Water Company. The Board’s decision comes on the heels of the company’s request to implement a “Distribution System Improvement Charge” (DSIC), a new ratemaking mechanism that would allow automatic increases in customer rates through a quarterly surcharge.

“To implement a DSIC without first having fully assessed New Jersey American Water Company’s operational, capital planning and construction programs by way of an audit would be unfair to ratepayers,” said Public Advocate Ronald K. Chen. “We are pleased the Board listened to our recommendation for an audit as it will assist them in carefully scrutinizing the current resources and assets of the company,” said Chen.

New Jersey American Water made the request for a DSIC in order to recover costs associated with major infrastructure challenges within the water/wastewater industry. The DSIC mechanism would have allowed self-implementing quarterly rate increases which were to be applied as a percentage of each customer’s bill up to 7.5 percent of the company’s gross revenues from the prior year DSIC, exclusive of DSIC rate revenue. In 2008, the company was granted a 15.2 percent rate increase.

Rate Counsel challenged New Jersey American Water Co.’s request arguing that traditional rate regulation already allows the company to recover its costs for necessary infrastructure improvements. In reviewing the company’s request, Rate Counsel’s experts determined that a focused audit will identify those practices and programs that are currently being supported by revenues generated through traditional rate making procedures, and will assist in determining whether any additional rate relief, such as a DSIC, is needed.

 “It’s important to do a comprehensive audit to provide a full picture of the company’s finances and operations before determining whether to allow the company such a dramatic alternative ratemaking mechanism,” said Rate Counsel Director Stefanie Brand. “Today’s ruling by the Board will provide essential information to assess the company’s claim that a self-executing surcharge like DSIC is necessary to pay for capital investments. With water rates rising at the pace they have been, we need to make sure that no additional increases are granted unless they are absolutely necessary,” said Brand.

 The Board yesterday said it will take up New Jersey American’s request for a DSIC at its next agenda meeting on Aug. 19. Rate Counsel will continue to advocate that the DSIC be rejected and that the management audit be completed before additional increases are allowed.

About the Department of the Public Advocate – Division of Rate Counsel

The Department of the Public Advocate- Division of Rate Counsel represents and protects the interests of all utility customers — residential, small business, commercial and industrial —whenever utilities in New Jersey seek changes in their rates for delivery of natural gas, electric, water, wastewater, telephone or cable TV services. Rate Counsel also advocate for consumers in certain insurance matters. The mission of the Division is to make sure that all classes of utility consumers receive safe, adequate and essential services at affordable rates that are just and nondiscriminatory. Additional information on this and other utility matters can be found at the Division’s website at http://www.state.nj.us/rpa/. The Department of the Public Advocate’s website is http://www.njpublicadvocate.gov.