Office of Public Counsel appeals Hillcrest utility rate hike

The Missouri Office of Public Counsel has appealed the state Public Service Commission’s decision that authorized a steep rate increase for Hillcrest Utility customers in Cape Girardeau County.

The public counsel filed an appellate brief Monday with the Missouri Court of Appeals Western District in a case where monthly bills for customers of the small, private utility system jumped from $25 to $150 on average. The rate-hike decision sparked an outcry from residents.

Hillcrest Utility Operating Co. provides water and sewer service to 218 residential customers, 20 apartment customers and four commercial customers in the Hillcrest Manor subdivision along Route K between Cape Girardeau and Gordonville.

The Public Service Commission approved the rate increase in July on a 4-1 vote.

But the Office of Public Counsel argued in its appeal the commission “erred in setting rates for Hillcrest’s customers.”

The appellate brief states the decision is “unlawful, arbitrary and capricious and not supported by the evidence.”

The commission “failed to rely on the only competent and substantial evidence” that was provided by commission staff to determine the cost of debt that should be included in the company’s proposed rate increase.

The brief states the commission’s principal purpose is “to serve and protect ratepayers from monopoly overreach.”

The public counsel’s appeal asks the court to remand the rate case to the commission to “correct its errors” and approve a new rate.

James Owen, acting director of the Office of Public Counsel, said oral arguments in the case likely would be scheduled for January.

Hillcrest Utility Operating Co., owned by Central States Water Resources Inc. of St. Ann, Missouri, requested increases in water and sewer charges after acquiring the failing utility system in March 2015 and spending more than $1.2 million to repair it.

Commissioners said in their ruling they took into account the fact utility company president Josiah Cox obtained a loan with a 14 percent interest rate to fund the services.

Cox testified to the commission he was unable to obtain a loan at a lower rate.

Cox said he obtained a private loan from St. Louis-area developers Robert and David Glarner. The Glarners and Cox are “equity owners” in the Hillcrest operation, according to the appellate brief.

“The ultimate owners are also the Hillcrest debt holders,” the appeal states. “This agreement is not an arms-length transaction. There were no competitive market forces at work here to provide the prudence of the 14 percent cost of debt.”

The Public Counsel contends in the brief the financing agreement shows the cost of debt “resulted from self-dealing.”

According to the brief, “the utility bears the burden of proving that expenses incurred in transactions with affiliates are reasonable.” In this case, the appeal states, “the company failed to offer competent and substantial evidence.”

But Cox said Tuesday the steep rate increase was justified to recover costs incurred in fixing the failing utility system. Cox said he spent $1.2 million to improve the system.

He estimated it would take 10 to 20 years to recover the costs.

“We are continuing to make investments and continuing to improve the system,” he said.

“Since the rate increase, we put in another $30,000,” Cox said, adding his company plans to undertake an additional $30,000 capital project to improve the system.

He said the private utility system “rotted in the ground for 30 years with no new investment” until he bought the failing system.

Cox said he sympathizes with the utility customers saddled with a huge rate increase. But he said there was no other option.

“We are fixing the problem that no one else wants,” he said.

mbliss@semissourian.com

(573) 388-364

Pertinent address:

Hillcrest Manor subdivision, Cape Girardeau County, Mo.