Court sides with utility company in subdivision rate increase

Rate hikes for Hillcrest Manor subdivision near Cape Girardeau were upheld in a ruling issued Tuesday by the Missouri Western District Court of Appeals.

The court affirmed a 2015 decision by the Missouri Public Service Commission allowing water and sewer provider Hillcrest Utility Operating Co. Inc. to increase rates sharply to offset repair costs. The roughly 242 mostly-residential customers saw monthly rates rise from $25 to $150 on average.

The subdivision hadn't had a rate increase since 1989, but the systems were failing when Hillcrest purchased them from Brandco Investments LLC in 2015. Hillcrest invested more than $1.2 million to fix the system before seeking Public Service Commission approval to increase rates in September 2015.

The Office of Public Counsel, which represents Missouri ratepayers in utilities proceedings, objected to Hillcrest's request, particularly the method by which the company determined its requested rates.

During a hearing in May 2016, Hillcrest president Josiah Cox said the only financing his company could secure was an agreement with Fresh Start Ventures LLC with an interest rate of 14 percent. Hillcrest used that 14 percent rate to determine its proposed rate of return. The Public Service Commission staff disagreed with Hillcrest's cost of debt assessment and suggested a rate between 8.88 and 10.13 percent would be more appropriate, but the Commission sided with Hillcrest.

The office of public counsel's appeal argued the commission should have followed its staff's recommendation and assigned Hillcrest a lower cost of debt.

According to the opinion filed in the appellate case, the court found "the commission did not presume the 14 percent cost of debt to be appropriate but rather determined it was appropriate based on the evidence presented at the evidentiary hearing."

Cox, in his previous testimony, described meeting with "over 50 specialized infrastructure institutional investors, private-equity investors, investment bankers, and commercial banks to no avail" while trying to secure financing. This testimony convinced the commission Hillcrest's interest rate was the best the company could obtain despite diligent efforts to find "cheaper, more traditional financing," according to the opinion.

During the evidentiary hearing, Cox also convinced the commission the lower, alternative cost of debt range proposed by commission staff was inapplicable. Cox said the staff "had implied a hypothetical market rating for a debt-instrument size that did not exist, on a credit rating that did not apply, for an asset that was not able to be rated," according to the opinion. The appellate court said in the opinion it defers to the commission with regard to Cox's credibility.

The rate hikes have sparked outcry from customers and local lawmakers. State Sen. Wayne Wallingford, R-Cape Girardeau, called the hikes "totally misguided" in 2016.

It was not immediately clear what, if any, recourse will be available to ratepayers now that the appeal has been denied. When reached by phone Tuesday morning, acting public counsel Hampton Williams referred inquiries to a Missouri Department of Economic Development spokesperson who was not immediately available for comment.

tgraef@semissourian.com

(573)388-3627

Pertinent address:

Hillcrest Manor subdivision, Route K, Cape Girardeau, Mo.