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Aug
15

FOR IMMEDIATE RELEASE: May 19, 2010

SCHUMER CALLS FOR FEDERAL GAO INVESTIGATION OF COMPANY THAT HIKED NASSAU COUNTY WATER RATES; QUESTIONS COMPANY’S USE OF FEDERAL DOLLARS FOR IMPROVEMENTS WHILE PASSING ON DOUBLE DIGIT RATE HIKES AND ‘SURCHARGES’ TO CONSUMERS


Aqua America, Parent Company of LI Water Provider, Aqua NY, Pushed Dubious ‘Surcharges’ and Rate Hikes While Profits Soared and Company Received Federal Funding

Aqua New York Was Recently Granted a 12% Rate Hike for Nassau County for Infrastructure Improvements – Despite Fact That Takeover of Long Island Water Supply Was Predicated on Company Making Improvements to System

Schumer: Rate Payers Getting Socked While Aqua Reaps Massive Profit and Federal Cash, It’s Time for Investigation of Company Practices

United States Senator Charles E. Schumer, today, called for the General Accountability Office (GAO), the investigative arm of Congress, to examine Aqua America, Inc.’s continued eligibility to receive federal funds, citing questionable business practices of its New York subsidiary, Aqua New York, and a recent report by Food and Water Watch that raised concerns about the company’s aggressive strategy to raise consumer water rates. In his letter to Acting Comptroller General Gene Dodaro, Schumer raised concerns that Aqua America continues to receive federal funding while simultaneously implementing questionable distribution surcharges and reaping record profits.
“When Aqua New York took over New York Water in 2007, it promised to keep rates low and improve service – they have instead done exactly the opposite,” said Schumer. “And while consumers from Long Island to Westchester are forced to pay higher water rates, Aqua is taking federal funds and making record profits. I am asking for the General Accountability Office to immediately review the continued eligibility of Aqua to receive federal dollars.”
Aqua America is the nation’s second largest publicly traded water and wastewater corporation, however, the company receives support through the EPA’s Drinking Water State Revolving Fund (DWSRF). As of June 30, 2009 5.68 percent of Aqua America’s long-term debt, for a total of $68 million has been supported by the DWSRF.
Aqua America purchased New York Water in 2007 for approximately $51 million dollars; $28 million was out of their pocket and $23 million was assumed debt.  Aqua America, which is Aqua-New York Water’s parent company, is an extremely profitable company. Schumer said that at the time of the takeover, Aqua New York promised to improve service and invest in infrastructure to the benefit of customers.  According to Food and Water Watch, Aqua’s national strategy is to grow their rate base, which is the value of its property that regulators use to determine allowable return.  Aqua adds to its rate base by making basic capital investments.  After augmenting the rate base, Aqua seeks regulatory approval to hike customer rates to both recover costs and boost profits.  The company proposed 32 rate increases in 2006 and 23 in 2007.
In his letter to the GAO, Schumer specifically requested the answers to the following questions:
·         Is Aqua America using DWSRF funds consistent with the purpose of the program?
·         Is there a need for reform in the way investor owned utilities that receive DWSRF funds are allowed to implement distribution improvement surcharges?
·         What is the role of local PSCs in controlling or monitoring this practice and are PSCs adequately overseeing the approval of distribution improvement surcharges by investor owned utilities that received DWSRF funds?
·         Does the GAO have any further recommendations in regard to federal oversight of the DWSRF program?
In the last six months Aqua America’s stock price has increased 13 percent, which is not commensurate with rate increases designed solely to recover cost as opposed. Schumer’s letter raised concern that surcharges are designed to increases the profits of Aqua America rather than to increase the infrastructure needs of the community where they operate.  Recently, Aqua America Chairman and CEO Nicholas DeBenedictis said, “The record earnings in the quarter were primarily a result of rate increases to obtain a return on the company’s capital investment…”
“In these tough economic times when American salaries are failing to keep up with the cost of living, Americans should not be taken advantage of by water companies that raise rates, accept federal funding, and then turn a massive profit,” continued Schumer.
Aqua New York now serves about 40,000 residents in Nassau including the communities of Bellmore, North Bellmore, North Merrick and Wantagh, which pay the highest water rates on Long Island and about triple the rates in neighboring communities within the Town of Hempstead.  At local PSC hearings on the rate hike, residents have complained that service provided by Aqua New York has actually gotten worse since the takeover.  Residents have voiced repeated concerns about services including water pressure, rusty water, and customer service.
A copy of the senator’s letter can be found below.
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Mr. Gene L. Dodaro
Acting Comptroller General
Government Accountability Office (GAO)
441 G Street, NW
Washington, DC 20548
Dear Mr. Dodaro:
I write to request that the GAO conduct a review of Aqua America Inc.’s use of EPA Drinking Water State Revolving Funds (DWSRF), and whether it is consistent with the intent of the law that established the DWSRF program. I am concerned that Aqua America is not complying with the intent of the DWSRF by imposing questionable distribution improvement surcharges while they are accessing low-cost DWSRF loans. Specifically, I am concerned that Aqua America is using these surcharges as a backdoor way to implement rate hikes under the guise of infrastructure improvements, an action that I believe is contrary to Congress’s intent with DWSRF funding.
When Congress established the DWSRF program in 1996, it did so with the intent of establishing a long term financing vehicle to ensure that communities would continue to have access to safe drinking water.  Though states were provided with a great deal of flexibility in distributing these funds, the goal was to ensure that communities, especially small communities, would be able to finance needed drinking water infrastructure improvements.
Over the past decade, the program has been a great success.  However, I am concerned that Aqua America has taken advantage this program in ways contrary to its intent. Aqua America, the nation’s second largest publicly traded water and wastewater corporation, is a significant user of federally supported State Revolving Loan Funding. As of June 30, 2009, federally-supported State Revolving Loan funds, the majority of which are DWSRF funds, constituted 5.68 percent of Aqua America’s long-term debt, and they have applications in for additional Revolving Loan Funds.  The clear intent of the DWSRF is to provide low cost loans for infrastructure projects that will provide consumers with clean drinking water.  In turn, DWSRF loans should reduce the capital costs that would otherwise be passed on to customers.  But Aqua America has repeatedly imposed distribution improvement surcharges as a means to increase rates, rolling in capital surcharges to rate increases, and then seeking additional surcharges once rate increases are approved.  This appears to be inconsistent with the intent of the DWSRF program.
I am requesting that GAO provide answers to the following questions:
·         Is Aqua America using DWSRF funds consistent with the purpose of the program?
·         Is there a need for reform in the way investor owned utilities that receive DWSRF funds are allowed to implement distribution improvement surcharges?
·         What is the role of local PSCs in controlling or monitoring this practice and are PSCs adequately overseeing the approval of  distribution improvement surcharges by investor owned utilities that received DWSRF funds?
·         Does the GAO have any further recommendations in regard to federal and state oversight of the DWSRF program?
The provision of water is a public need and the entity that provides this service must be held publicly accountable. Unfortunately, it appears that Aqua America is putting their shareholders before the residents who simply seek safe, clean drinking water.
If you have any questions, please do not hesitate to contact my Washington, D.C., office at (202) 224-6542.  Thank you for your prompt attention to this urgent request.
Sincerely,
Charles E. Schumer
US Senator

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