About 250 southeast Missouri households will see their water and sewer bills increase more than $100 a month in a case that raises questions about how to pay for repairs for small water and sewer systems in disrepair.
St. Ann-based Hillcrest Utility Operating Co. won approval Tuesday from the Missouri Public Service Commission for the large rate increase in a subdivision outside Cape Girardeau, Mo.
Hillcrest’s parent, Central States Water Resources, recently acquired the private water and sewer utility that served the subdivision and spent more than $1 million fixing failing equipment that led to frequent boil orders and polluted area waterways.
While commissioners said they were concerned about allowing rates to rise from an estimated $25 to almost $150, they also said they saw little choice to finance repairs to a system that hadn’t raised rates since 1989. They voted 4-1 to approve an increase in Hillcrest’s rates.
“I must say I am not terribly comfortable with the rate increase that is going to result from this order, but I don’t feel we had alternatives,” PSC Chairman Daniel Hall said.
The Office of Public Counsel and PSC staff had questioned Hillcrest’s 14 percent loan and whether the company had sought the best deal for ratepayers. They point out that the company that holds the loan to Hillcrest is owned by the same people who hold a majority stake in Hillcrest: Robert and David Glarner, the St. Louis developers behind the Northwest Plaza redevelopment.
But the PSC said it believed Hillcrest President Josiah Cox that he had sought the best terms for the loan by shopping at various lenders, and it allowed the company to use the 14 percent cost of debt in setting customer rates.
“Penalizing Hillcrest now for that decision (to borrow) would be unfair and may discourage other companies from acquiring and improving troubled water and sewer utilities in the future, which would be contrary to good public policy,” the PSC majority wrote in its order.
Commissioner Stephen Stoll dissented, arguing that because the equity owners hold the debt there’s no incentive to refinance.
“The arrangement here really shifts all the risk from the investors to the ratepayers, and it provides no real incentive for the owners to seek a better rate,” Stoll said.
PSC commissioners said other solutions might be necessary for small utilities that can’t spread costs across large numbers of customers.
Commissioner Bill Kenney said allowing large water utilities like Missouri American Water, which serves St. Louis County, to charge a single rate across their systems might persuade them to acquire systems similar to Hillcrest. Hall said he hoped for “some legislative efforts” that would help cushion ratepayers in similar situations.
The ruling caps a contentious case that at one point delved into Cox’s past bankruptcy and could clear the way for Cox to acquire more failing water and sewer systems. The Office of Public Counsel, however, questioned his honesty and presented evidence indicating the Hillcrest president had misrepresented his financial status on bankruptcy documents, something Cox denied.