Indiana American Water Granted New Rates by the Indiana Utility Regulatory Commission

Rhea-AI Summary

Indiana American Water receives approval for base rate adjustments totaling $66.3 million due to $875 million in system upgrades and increased expenses. The company aims to provide safe, clean, reliable, and affordable water service to its customers.

Insights

Financial Analyst

The Indiana Utility Regulatory Commission's approval of base rate adjustments for Indiana American Water signifies a substantial development in the utility's financial trajectory. The $875 million investment in water and wastewater infrastructure, although a significant capital outlay, is poised to enhance the company's asset base, potentially leading to improved long-term revenue stability. The phased $66.3 million increase in operating revenues should be closely monitored by investors, as it reflects the company's ability to pass on costs to consumers and maintain profitability amidst rising expenses. These adjustments in rates may also impact the company's bond ratings and cost of capital, influencing future investment decisions.

It's crucial to analyze the tariff revisions' impact on the customer base, particularly in light of the new rate design offering low-cost basic water service. While this may appeal to customers and regulators, the financial implications of potentially lower revenue from fixed-income customers must be balanced against the benefits of increased customer satisfaction and community goodwill. The move could also serve as a differentiator in a highly regulated industry, potentially attracting a loyal customer segment.

Economist

The approval of rate adjustments by the IURC is a critical regulatory action with implications for the broader Indiana economy. Infrastructure investments, such as the $875 million earmarked by Indiana American Water, are known to generate employment and stimulate local economies through multiplier effects. However, the increase in water and wastewater service costs may lead to higher operating expenses for businesses and could be passed on to consumers in the form of higher prices, contributing to inflationary pressures in the region.

The phased implementation of the rate increases through May 2025 suggests a strategic approach to mitigate immediate economic shocks, allowing households and businesses time to adjust. The provision of 1,500 gallons of water at no additional cost is a progressive step that could support lower-income households, though it may also alter consumption patterns and demand for water services.

Market Research Analyst

From a market perspective, the regulatory approval for rate adjustments is a testament to the company's ability to navigate complex approval processes, a non-trivial factor in the utility sector's competitive landscape. The approved increase in revenues may reassure investors of Indiana American Water's financial health and its capacity to manage operational costs effectively. However, the company must balance these increases with customer retention strategies, as higher rates could lead to consumer dissatisfaction and potential attrition.

The introduction of low-cost basic water service may serve as a strategic marketing tool, potentially enhancing the company's brand image and competitive positioning. The response from the market, including competitors' reactions and potential shifts in consumer behavior, will be important to observe. The impact on the company's market share and how it aligns with industry norms regarding social responsibility initiatives will be of particular interest to stakeholders.

Rate adjustment driven by $875 million in system upgrades; low-cost basic water service approved

GREENWOOD, Ind.--(BUSINESS WIRE)-- The Indiana Utility Regulatory Commission (IURC) yesterday issued an order approving base rate adjustments on a statewide basis for Indiana American Water following a comprehensive 11-month review process.

The company’s rate adjustment request, which was filed on March 31, 2023, was driven primarily by approximately $875 million in water and wastewater investments since the last approved rate adjustment, to be made through April 2025, as well as increases in the cost of procuring chemicals, goods and services.

“By making prudent, ongoing investments to maintain and upgrade our water and wastewater systems, Indiana American Water is committed to providing safe, clean, reliable and affordable water service and fire protection capabilities,” said Indiana American Water President Matt Prine. “We are proud to continue to provide high-quality water that protects customers and the communities we serve.”

The order includes a $66.3 million adjustment to existing authorized operating water and wastewater revenues to address the increased investment and expenses. The increase will be implemented through a phased, three-step process through May 2025.

The increases for residential wastewater customers will vary depending on the community served. Final water and wastewater customer rates will be determined once revised tariffs have been completed and approved by the IURC later this month and will be available on the company’s website at https://www.amwater.com/inaw/customer-service-billing/your-water-rates.

Prior to the most recent rate adjustment, the company last filed for new rates through a general rate filing in September 2018.

The IURC also approved a new rate design that provides 1,500 gallons of water usage at no additional cost above the fixed monthly customer charge for all water customers. The change will allow Indiana American Water to provide low-cost basic water service for customers on fixed incomes that use a lower volume of water than the typical residential customer. With this change, the cost for the typical residential water customer using 1,500 gallons will be approximately $20 per month.

Indiana American Water also offers payment plans, budget billing and provides information to customers about the Low-Income Household Water Assistance Plan (LIHWAP - end date for program is slated for March 31, 2024). More information can be found by clicking on the Low Income Program link under the Customer Service & Billing heading on the company’s website or by clicking here. For tips on how to reduce your water bill by conserving water, visit our Wise Water Use page at https://www.amwater.com/inaw/Water-Wastewater-Information/wise-water-use.

About American Water

American Water (NYSE: AWK) is the largest regulated water and wastewater utility company in the United States. With a history dating back to 1886, We Keep Life Flowing® by providing safe, clean, reliable and affordable drinking water and wastewater services to more than 14 million people with regulated operations in 14 states and on 18 military installations. American Water’s 6,500 talented professionals leverage their significant expertise and the company’s national size and scale to achieve excellent outcomes for the benefit of customers, employees, investors and other stakeholders.

For more information, visit amwater.com and join American Water on LinkedIn, Facebook, X and Instagram.

About Indiana American Water

Indiana American Water, a subsidiary of American Water, is the largest investor-owned water utility in the state, providing high-quality and reliable water and wastewater services to approximately 1.4 million people.

AWK-IR

View source version on businesswire.com: https://www.businesswire.com/news/home/20240215541379/en/

Media:

Joe Loughmiller

317-885-2434

joe.loughmiller@amwater.com

Source: American Water Indiana

FAQ

What drove Indiana American Water's rate adjustment request?

The rate adjustment request was primarily driven by approximately $875 million in water and wastewater investments since the last approved rate adjustment, along with increased costs of procuring chemicals, goods, and services.

What is the total amount of base rate adjustments approved for Indiana American Water?

Indiana American Water received approval for base rate adjustments totaling $66.3 million to address the increased investment and expenses.

What new rate design was approved by the Indiana Utility Regulatory Commission?

The IURC approved a new rate design that provides 1,500 gallons of water usage at no additional cost above the fixed monthly customer charge for all water customers.

How will the new rate design benefit customers?

The new rate design will allow Indiana American Water to offer low-cost basic water service for customers on fixed incomes that use a lower volume of water than the typical residential customer.