Angered at executives’ pay and high administrative costs, state regulators Wednesday ordered an audit of a suburban Baton Rouge waste water utility and hired an engineer to ensure that promised improvements would be undertaken.
The Public Service Commission gave Density Utilities of Louisiana LLC a rate increase in 2010 to help finance improvements that would meet health and environmental standards.
Those repairs and improvements have failed to materialize to the extent expected when the five elected members of the PSC agreed to the highest rate increase they ever granted a wastewater utility, said Commissioner Jimmy Field, of Baton Rouge.
PSC economists in June found that after the rate increase, the company ended up with $227,499 in excess revenue, according to a PSC report.
“This is a very troubling case,” Field said, asking PSC staff to determine if the $99,000 salary for Density’s vice president is in line with what other similar companies pay.
“We have a suspicion that their administrative expenses are way too high,” Field said after the meeting. Ordering an auditor to check the finances and an engineer to check the construction upgrades is necessary to ensure that the money raised from the increased rates goes to repairing and upgrading the system, he said.
“This money has got to be used as promised,” Field said. “This isn’t fair to the ratepayers.”
Robert L. Rieger Jr., the private Baton Rouge lawyer who represents Density, said after the meeting that the company has always intended to make repairs and upgrades to stay in compliance with regulatory standards. The company’s rate structure was never designed to self-finance these projects, but to serve as a means of attracting financing for the expenditures, he said.
The collapse of the financial market left the company with few options, Rieger said. But, that financial situation has started changing and financing has become more available, he said.
Density serves about 2,300 customers in seven parishes, including parts of Ascension, Livingston, East Feliciana and East Baton Rouge. Based in Hammond, the Louisiana company, affiliated with Density Services in Macon, Ga., purchased small independently owned wastewater systems built as part of subdivisions over the years.
The infrastructure in the smaller systems, not just those bought by Density but all across the state, often were only infrequently maintained and rarely upgraded, according to a transcript of PSC testimony.
In some cases, as the subdivisions grew, the small wastewater companies did not adequately expand the pipes and machinery to keep pace.
Density’s lawyers argued to the PSC in 2010 that the rates paid by the wastewater utility’s customers needed to be increased in order to guarantee repayment of about $4.56 million in bonds. The borrowed money was to be used to bring the infrastructure in six systems up to regulatory standards demanded by the state Department of Health and Hospitals, the state Department of Environmental Quality and the U.S. Environmental Protection Agency. Improvements included things such as upgrades to lift stations, repair or replacement of pipes and manhole covers.
In the “stipulated settlement” approved Wednesday by the PSC, among the actions Density agreed to take was performing $15,500 per month in direct construction on its system, to pay the invoices of specific contractors, and to provide the PSC with a simple ledger of repairs made and expenses incurred with the appropriate backup documentation.
“If they don’t cooperate, we’ll have to take a hard look at rolling back the rate increase,” Field said after the meeting.