NYAW mains: a good news/bad news story

Seaford gets new pipes — at a price

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As the replacement of water mains proceeds along four Seaford streets, controversy continues to embroil New York American Water, Nassau County’s only privately held water company.

Work began on May 29 to remove some 1,400 feet of aging six-inch ductile iron mains dating to the 1960s, and replacing them with new eight-inch pipes at a cost of roughly $280,000. The project was expected to be completed by the middle of the month, and was planned to be carried out concurrently with a Town of Hempstead road-raising project, according to NYAW Manager of Engineering John Kilpatrick.

The mains targeted for replacement are on Anglers Place, Ocean Avenue, Plover Place and Widgeon Place.

NYAW, which serves both Seaford and Wantagh as part of the utility’s Section 2 — the Merrick District — is part of the largest investor-owned water utility in North America, with assets of $19 billion. Serving more than 14 million customers in 46 states and one Canadian province, it also operates wastewater treatment facilities, owns some 80 dams and operates and manages a military division.

Kilpatrick said the utility tries to match its main-replacement projects with road paving or raising being done by local public works departments. “By doing so, we can maximize our budget and allocate money we would spend on road restoration to installing additional new water mains,” he said.

The parent company spent roughly $46 million on infrastructure, treatment and distribution upgrades last year as part of its $6.5 billion capital-spending plan, Kilpatrick said. And therein lies part of the controversy: “The costs to complete these capital improvement projects are built into the customers’ rates,” he said.

Most municipalities charge residents for water. Pipes, pumping stations, filtration and purification all must be paid for. The difference is that NYAW is a for-profit subsidiary of American Water Works Company Inc., another for-profit entity that this year expects to disburse at least $3.54 per share in dividends to its shareholders, according to the forward-looking statements made in its first-quarter financial filings. The company currently has 181 million shares of common stock outstanding.

In order to do this, 70 percent of all capital expenditure is recovered in the form of “volumetric charges on the customer’s bills,” according to an April surveillance report on the parent company by Ryan Wobbrock, a vice president and senior credit analyst at Moody’s Investors Service. The remainder of such expenditures is financed through roughly $7.7 billion in long-term debt. Some of this debt is held by the parent company, but roughly $4.6 billion “has been advanced via intercompany notes to various regulated utility subsidiaries [i.e., local water companies] and is part of their respective regulated capital structures.”

In other words, NYAW customers in Seaford and Wantagh are paying for a portion of the parent company’s debt, as they would pay for improvement bonds issued by publicly owned water utilities. But they are not only paying for the replacement of the mains and the flushing of hydrants in their towns; they are also helping to pay for the 10 percent boost to the parent company’s annual stock dividend.

Meanwhile, that company is experiencing a few challenges. Free cash flow deficits have increased at a compound annual growth rate of 62 percent, while debt has risen by 9 percent. And funds from operations have only increased by about 6 percent. In addition, the company became a net taxpayer under the 2017 federal reforms. Before that, depreciation rules allowed the company to avoid paying any taxes at all.

The stresses were among the reasons Moody’s gave for its downgrade of the utility in April to Baa1 from A3. “The financial profile of the company has steadily declined since 2014, with free cash flow deficits and debt issuance having outpaced cash flow growth, as the company took on $6.5 billion in capital spending,” Wobbrock wrote in announcing the downgrade. And he expects this downward trend to continue for at least the next 12 to 18 months.

What this means is that the company is currently paying out more in dividends than it can replace though funds from operations, according to the Moody’s report.

In an effort to address the anomaly of a for-profit water utility in the county, Assemblywoman Judy Griffin, a Democrat from Rockville Centre, introduced a measure in the New York State Assembly by — A8015 — that would order a feasibility study by State Comptroller Thomas DiNapoli to determine how the utility could be acquired by Nassau County.

In an open letter to the entire Nassau legislative delegation, Long Island Clean Air, Water and Soil Co-Director Claudia Borecky asked the group not only to prioritize the enactment of the Griffin measure, but to repeal Section 485d of the New York State Real Property Tax Law that exempts New York City residents from paying water tax, while leaving the levy intact for Long Islanders.

Borecky contended in her letter that: “[NYAW’s] property taxes account for 35 to 70 percent of NYAW’s ratepayers’ water bills.” Moreover, Borecki wrote that ratepayers in Section 2, which includes Wantagh and Seaford, can expect to see an additional 5 percent added to their bills in August as part of NYAW’s conservation pricing. “This is above and beyond the scheduled rate increases that went into effect on April 1, 2019 for Year 3 of NYAW’s four-year rate plan, inexplicably passed by the [Department of Public Service],” she wrote.

“A private entity should not have a monopoly over a public necessity — water,” Borecki wrote in the email accompanying her letter to the lawmakers. “The only acceptable and equitable solution is a public takeover of NYAW’s Long Island operations.”