Another Proposed Water Utility Rate Hike Draws Rebuke In Alexandria

ALEXANDRIA, VA — As water customers in Alexandria will see another water rate increase on their bills in May, Alexandria City Council is opposing the new proposed increase from Virginia American Water, the city's water utility provider.

In November 2023, Virginia American Water requested a $19.7 million water service rate increase, or 29 percent increase, with the State Corporation Commission in Alexandria and other service districts. As a regulated utility, Virginia American Water must apply with the State Corporation Commission to set water utility rates and demonstrate the cost of service, including construction, maintenance, operation, administration, taxes and financing. After review, the State Corporation Commission sets the utility company's rates.

With the request, Virginia American Water proposes a 10.95 percent rate of return on common equity as well as a new process to automatically adjust rates each year based on the company's prior year revenues. That means if the revenue was less than expected in 2025, customers would see a surcharge on their bills in 2026 to make up the difference.

"If this feels familiar, it's not déjà vu. This is their second rate increase in three years," said Ryan Freed, a climate action officer for the city government. "Their second request, they requested a 28 percent increase in 2021. And now they're requesting an additional 29 percent increase. We did intervene as the city in this rate case, which led to a $420,000 refund that came out to Alexandria residents."

Virginia American Water is also seeking subsidized water services for some low-income households and a consolidated service connection fee service charge of $2,000 for three-quarter inch service lines.

On Tuesday, Alexandria City Council took action to appeal the increase, similar to what the city did with the last increase. Last time, the appeal led to a smaller water rate increase than Virginia American Water requested. Customers saw the full increases on their bills in May 2022 but later received a refund covering the difference between the implemented rate and State Corporation Commission-approved rate.

Alexandria water customers will still see the 29 percent rate increases take effect in May as the State Corporation Commission reviews the matter.

"I think it's going to be jarring to people when they open that bill in May. And so I felt it was important that the community hears that we are planning to object, that unfortunately the process does not provide a way to stop the rate from taking effect," said Councilmember Sarah Bagley. "You can only appeal it once it's happened. And so we are preparing to do that but that it will take place regardless and that ultimately if we're successful, we would be seeking refunds, again based on whatever the ultimate rate is if it's lower than 29 percent."

Mayor Justin Wilson questioned whether there could be a more efficient process than surprising residents with water rate increases and then going through the State Corporation Commission review.

"It seems wildly inefficient, and I do wonder if if at some point there can be some kind of more organized kind of long term engagement with Virginia American Water," said Mayor Justin Wilson. "Clearly over time, they will need over time just like every organization does. They will need to have increases in revenue to support their services, their increasing costs, as well as the infrastructure investments that we would like them to make in the infrastructure here in the City of Alexandria. I think our point is we don't think that should be exorbitant."

Councilmember Kirk McPike expressed a concern about Virginia American Water buying other water systems in Virginia while requesting the 29 percent rate increases.

"We should not be funding the purchase of other water systems by Virginia American Water to then bring this same level of poor service to other parts of the Commonwealth," said McPike.

As a result of City Council's Tuesday action, the city will submit a notice of participation with the State Corporation Commission to appeal the proposed rate increase. The city will submit testimony in June and call for public testimony to the State Corporation Commission. Freed expects there will be a settlement conference between the commission and Virginia American Water. If an agreement is not reached, the matter will go to a public hearing by the end of 2024.

Freed said the city is preparing for the May rate increase with assistance for customers with disconnection notices and will educate residents on reducing water usage.

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