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West Virginia Public Service Commission Blocked American Water Cutbacks in 2011
The Commission’s action was based on a complaint by Utility Workers Union of America charging that the cutbacks would severely impair essential services for West Virginia consumers. UWUA filed the complaint in May 2011 immediately after the corporation’s West Virginia subsidiary announced plans to lay off more than 10% of its workforce statewide.
The UWUA’s complaint cited sworn testimony by the president of West Virginia American Water supporting the company’s recent petition for a rate increase that it needed at least its entire existing workforce to maintain “adequate service” to customers. Specifically, WVAWC’s president testified:
“I have carefully evaluated the needs of the Company and firmly believe we need the 316 employees requested to maintain adequate service to our customers.”
In its April 2011 rate decision, the PSC funded all 316 positions requested by the company and granted a 4.4% increase, but turned down West Virginia American’s request for a 13% rate hike.
American Water CEO threatens West Virginia “operating cost reductions”
At American Water’s annual meeting two weeks later, CEO Jeffry Sterba threatened to impose “operating cost reductions” in West Virginia because the 4.4% rate hike wasn’t big enough. On May 6, West Virginia American carried through on that threat by slashing 31 of the 316 positions that had been authorized by the PSC in the rate case.
On May 31, 2011 – six days after the UWUA filed its complaint – the PSC issued a decision “to temporarily stay the upcoming termination of the thirty-one WVAWC employees until the Commission has an opportunity to investigate this matter, if the laid off employees have not yet been terminated.”
In a subsequent decision in October 2011, the PSC ordered West Virginia American to maintain minimum staffing levels and specifically prohibited management from terminating several key positions performing essential services the company had targeted for elimination. The Commission allowed some of the proposed reductions, but ordered the company to file extensive reports to ensure the company’s service quality “does not fall to unacceptable levels.”
Subsequent PSC order reports “loss of confidence” in company’s judgment
Immediately after the Commission’s initial May 2011 decision, West Virginia American launched the first in a series of motions seeking to avoid the restrictions imposed by the PSC. The Commission rejected each attempt, in many cases strongly criticizing the company’s conduct.
June 2, 2011 Order:
The day after the Commission’s May 31, 2011, order, for example, the company filed a letter with the PSC asserting that it “does not believe it is obligated to return to work the employees affected by the [reduction in force] because they are no longer working employees.” The Commission rejected the company’s position the very next day.
In an order issued on June 2, 2011, the Commission directed that “instead of confirming or describing the work status of the employees as of the date of our Order, WVAWC should focus on whether the employees in question were legally terminated.” The PSC also warned:
“If the employees were not legally terminated as of May 31, 2011, and WVAWC does not allow them to return to work, WVAWC will be in violation of the May 31, 2011 Commission Order and subject to possible penalties and remedies as provided by law.”
June 9, 2011 Order:
Four days later on June 6, West Virginia American filed a motion asking the Commission to dismiss the UWUA’s complaint. The PSC rejected the company’s motion on June 9, 2011, and opened a “limited general investigation into the allegation that WVAWC is ignoring its overriding public service obligation to provide safe drinking water by reducing its workforce by ten percent.”
In its order, the Commission noted the circumstances leading up to the case, including the “recent testimony from the company president which appears to call into question the reasonableness of the current actions of WVAWC.”
The PSC explained:
“In the most recent rate case . . . WVAWC presented arguments and testimony that it could not reduce its workforce further without affecting the quality of service and that it needed, at a minimum, 316 employees. . . .
“The Commission granted a payroll allowance for 316 employees in the Rate Case and embedded that amount in the final WVAWC rates. Within a few days of the Rate Order becoming a final order of the Commission, WVAWC announced a layoff of ten percent of its workforce, to a level of approximately 279 employees, the lowest level in quite some time. That was accompanied by public statements by WVAWC or its affiliates that those layoffs were in reaction to the Rate Order, were being made to attempt to preserve financial integrity and would result in a reduction of certain WVAWC activities. . . .
“The Commission does not want deterioration of the quality of service of WVAWC in this situation, and it does not believe that the Commission is required to wait for that to happen before we investigate the significant changes announced by WVAWC.”
February 2, 2012 Order:
After the PSC issued its October 2011 order, the company filed yet another motion resisting the Commission’s mandates, in this case requesting reconsideration of the minimum staffing level required by the order. In February 2012 the Commission – while granting the company’s reconsideration request in part – squarely rejected the company’s request to completely eliminate the minimum staffing requirement.
In its February 2, 2012, decision, the PSC summarized once again the actions by West Virginia American Water that – according to the Commission – had resulted in a “loss of confidence” in the company’s judgment:
“WVAWC attempted to terminate thirty-one employees (asserting at first that they had ‘already been terminated’ when in fact they had not) within days of the 2010 Rate Order becoming a final nonappealable order of the Commission. . . . The facts are that WVAWC (i) argued at the hearing in the 2010 Rate Case that it needed 316 employees to maintain adequate service to its customers (which the Commission recognized in WVAWC’s cost of service in the 2010 Rate Order) and (ii) did not appeal the 2010 Rate Case to the West Virginia Supreme Court of Appeals as is its absolute right. . . .”
“The actions of WVAWC have, to an extent, engendered a loss of confidence that the Commission has historically had in the judgment of WVAWC and explain the Commission’s requirement for collection of statistical information to assure that WVAWC does not allow its service quality to decline below acceptable standards. . . . Further, these actions also explain why the Commission ordered WVAWC to maintain a minimum complement of 289 positions.”
The Commission then rejected the company’s characterization of the PSC order as a rigid “headcount” requirement:
“There was never an intention to impose a requirement to maintain 289 active employees at all times. The Commission directed that WVAWC maintain and manage from a target level of 289 ‘positions,’ not ‘headcount.’”
Finally the PSC warned that, while its October 2011 order does not require the company to maintain a “precise number” of employees at all times, the company should not attempt to “subvert” the intent of the Commission’s order:
“WVAWC must refrain from terminating additional positions with the intention or effect of accomplishing by other means its original staffing goals of terminating positions specifically identified by the Commission as necessary to maintain service quality to customers. . . .
“WVAWC has the flexibility it asserts that it needs to run its business under the Commission Order. At the same time, WVAWC should not interpret this Order as license to subvert the intent of the Commission Order to maintain service quality.”
The UWUA has announced plans to closely monitor West Virginia American Water’s compliance with its obligations under the Commission’s orders.