Poor Water Service Means No Rate Increase

Abstract

The denial of a rate increase based on inadequate water service did not violate federal due process, according to the Commonwealth Court of Pennsylvania. National Utilities Inc., a public utility, owns and operates 20 water utilities with 23 separate water systems. In 1995, National filed a request with the public utility commission (PUC) to raise residential customer rates to increase annual operating revenue by $448,191. At a hearing, 133 customers from 17 of the water systems owned and serviced by National testified about poor‐quality water or inadequate service. The PUC agreed with the hearing judge that the rate increase should be denied because of a significant failure to provide adequate and reasonable service. On appeal, National argued that it was entitled to receive sufficient rates to yield a reasonable rate of return on the value of its property used to render service; thus, the PUC's denial violated the Fifth and Fourteenth amendments to the US Constitution. The appellate court said that a utility's fulfillment of its service commitment is an indispensable requisite to constitutional protection under confiscation principles. The court was satisfied that the ample evidence did not justify any increase in rates.