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AIG Subsidiary Seeking 50% Rate Hike in Rural Kentucky
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Forget the $165 million in bonuses for those AIG executives. If you live in two rural Kentucky towns, you are more concerned about the 50.8 percent rate hike in the local water bill being sought by an AIG subsidiary. The story is told in the West Kentucky Journal of Politics and Issues. And from what we can tell, the subsidiary apple doesn't fall very far from the corporate AIG tree.
It seems that Water Services of Kentucky delivers water to 7,991 customers in Clinton and Middlesboro. Water Services is a subsidiary of Utilities, Inc., which is owned by AIG (of the $165 million in bonuses fame). Utilities, Inc. decided to "improve" its billing procedure in 2006 and proceeded to spend $14 million in the process. The bills were messed up from the start, according to the Journal. Some people got several bills a month. The Kountry Cafe was getting three a month.
Then the company filed for that 50.8% rate increase to help pay for this "improvement." The AIG subsidiary says this increase will allow them to "earn a range of common equity cost ration of 11.6% to 12.1%." That's pretty sweet — as long as you don't remember that these rates of return are coming out of the hides of some small towns.
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AIG does not direct any Utilities operations
Dear. Mr. Bishop and Ms Ardery,
I am in receipt of your Daily Yonder article from last week regarding our subsidiary, Water Service Corp of Kentucky’s, recent rate request (http://www.dailyyonder.com/aig-subsidiary-seeking-50-rate-hike-rural-kentucky/2009/03/18/2004). Thank you for the opportunity to respond.
Your report incorrectly indicates that the parent company of Utilities, Inc. is AIG. The parent of Utilities, Inc. is Highstar Capital, Inc. (HSC). HSC is a private equity fund which contains approximately 70 investors, one of which is AIG with a very small percent interest. In no way does AIG have any direct relationship whatsoever with the operations or financial condition of Utilities, Inc., its investments, or the recovery of those investments.
Providing quality service to our customers at a fair and reasonable price is of the utmost importance to our company, as well as the Public Service Commissions that regulate our companies. While we acknowledge the increase is a 50% request, I think it’s important to recognize that this amounts to a $.37 a day increase and is only in response to required investments that have already been made. After the increase, clean and safe water for the average household’s entire daily use (including laundry, showers, cooking, drinking, etc.) will be just over $1 per day, the price of about one bottle of water. Obviously, we are particularly proud we can offer this value without the environmental impacts for what has been widely recognized as essentially the same product.
If you have any questions regarding WSC of KY’s ownership or the rate setting process for private utilities in the U.S., I would be happy to discuss them with you. Please don’t hesitate to reach out to me at 847.498.6440 or lasparrow@uiwater.com.
Regards
Lisa Sparrow
Chief Operating Officer
Um. Wait a Minute
Ms. Sparrow echoes the Utilities Inc. that her company is not an AIG company. That, despite a 2005 press release by AIG on AIG stationary proudly announcing acquisition of Utilities Inc. A pdf of that press release is posted on my website www.westkypolitics.org
Additionally, the record of AIG's acquisition can be found at the website of the Kentucky Public Service Commission because the new owner had to get the permission of that state agency before acquiring the company from a firm based in the Netherlands.
Ms. Sparrow also argues that the increase will be ONLY a dollar a day for "clean and safe water". Issues related to the potability of our water are NOT the reason that her company is giving the Public Service Commission for wanting the increase. It is, rather, a $14 million dollar management and computerized billing system that has been an abysmal failure.
Her company also argues that a 12% return on investment should be allocated as profit to their investors. A dollar a day, or $30 a month is $10 more than one of our retired school teachers wrote to the PSC that she received as her "big" increase in retirement. When incomes are not six figures and in more cases than not, not 4 figures, a dollar a day is a lot of money.
Frankly, whether AIG is the parent company of Utilities, Inc. is not an issue with ratepayers in our depressed area. No matter who the master is, the rate increase is excessive. Ms. Sparrow neglects to point out that her company is also the management company for our sewer and that rate is based upon the water bill.
I have offered Utilities, Inc. an opportunity to write their own explanation of why they need a 50.8% increase in water rates from 9900 customers in two of the poorest regions of the state - Middlesboro in Appalachia and Clinton in the river counties along the Mississippi. I look forward to printing their side of the story, as I have printed every response from them on my site.
As one 81 year old wrote to the Kentucky Public Service Commission, for some here, "the choice will be bread or water" if this rate increase is allowed. Responses from regular people can be read at http://psc.ky.gov/pscscf/2008%20cases/2008-00563/
We in Clinton look forward to meeting Ms. Sparrow and other officials of Utilities, Inc. and hearing their explanation on why they need to pay their investors 12% on the backs of seniors and the poor of our town.
Sincerely,
Mary B. Potter, editor, West Kentucky Politics & Issues.