Heads I win, tails you lose

That’s the main message of yesterday’s editorial in the Charleston Daily Mail.

According to the editorial, the public has two alternatives: pay even higher rates to WV American Water, or continue to suffer from unreliable service and increasingly severe water main breaks as the infrastructure falls apart.

The rate hike required to get there is politically unpalatable, but the alternative — more and more water main breaks and service interruptions — is even more so. For the sake of a healthy and reliable water supply, the company, and its customers, are going to have to make the necessary investments.

The editorial presents this conclusion without asking some basic questions such as, how is it that WV American Water customers already pay some of the highest rates in the state yet our infrastructure is crumbling? And, if we do end up paying higher rates to WV American Water, what mechanisms could be put in place to make sure that money is spent effectively to improve reliability? And, are there less expensive ways to fund the needed infrastructure improvement than to continue funneling money to WV American Water?

One thing we do know (although the DailyMail apparently doesn’t) is that we are basically paying now for WV American Water’s failed expansion strategy. In the 1990s, the value of the infrastructure on WV American Water’s books tripled, but the number of customers paying for this infrastructure did not triple (or even double). This was a deliberate business strategy of the company; in 1994, then-company president Chris Jarrett explained “the concept for water purveyors throughout the U.S. and West Virginia is that of a regionalization concept where you build one large production facility and from that you extend water lines out to as many people as you can … It is simply more efficient and more economical, the more customers you can serve from one large production facility”. In a masterpiece of understatement the Public Service Commission noted in one of its orders in 2011 that “the plan to offset increased cost by spreading fixed costs over a larger customer base and larger sales volumes has not fully come to fruition.” In other words, it appears that much of our rate increases over the past couple decades have fueled WV American Water’s strategy of infrastructure expansion, instead of maintaining existing infrastructure.

Blindly throwing more money at WV American Water – without any change to the company’s transparency or accountability, and without exploring other means of financing infrastructure renewal – doesn’t seem like the best solution to me.

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