The Tennessee American Water facility in Chattanooga is shown in this aerial photograph. Staff File Photo by John Rawlston/Chattanooga Times Free Press

Regulators on Monday formally approved the largest water rate increase in Chattanooga history - a 14.76 percent price jump that will raise costs across the board.

Chattanooga utility Tennessee American Water Co. said the rate hike will take effect today. The average local residential water bill will rise about $2.45 a month to $19.07 under the new rates.

The second-highest water rate hike was a 12.3 percent increase in May 2007, records show.

Tennessee Regulatory Authority directors voted 2-1 for the $5.5 million price hike, with TRA Director Eddie Roberson voting "no."

"Significant utility increases can serve as a deterrent for job growth," Roberson said.

Mary Freeman, chairwoman of the authority, made a motion to cut out half of the utility's original proposal for a roughly 30.5 percent increase.

But she left in place its request to allow for a "reasonable rate of return" of 7.83 percent for investors in Vorhees, N.J.-based American Water Works, the Chattanooga utility's parent company.

Opponents of the increase have included consumers, manufacturers and others who have argued in hearings that a large increase in water rates would drown the local economy and dilute one of the reasons heavy manufacturing companies move to Chattanooga - cheap and plentiful water.

Chattanooga Mayor Ron Littlefield said he was disappointed at the size of the increase, which will cost the city an estimated $75,000 annually.

"We do not contest or take issue with the fact that costs have risen," said Littlefield, who has been forced to defend the city's rising sewer and stormwater fees. "But we still believe that a lot of their overhead costs going back to New Jersey are excessive."

Regulators allowed the utility to charge $4.7 million in management fees to an affiliate company also owned by American Water Works. Those costs are second only to the company's salary and wage expenses of $5.3 million for the year.

Roberson attempted to trim Freeman's proposal even further by eliminating hundreds of thousands of dollars in lobbying and allegedly duplicated expenses, but was overruled by the other panel members at Monday's hearing.

The TRA deferred action on an agreement between the utility and industrial consumers, who had earlier filed a lawsuit to stop the rate increase.

Henry Walker, attorney for the Chattanooga Regional Manufacturers Association, said he was confident that an agreement between the two parties would go through in coming days.

The agreement will allow large industrial water users to control their costs on a per-gallon basis by paying a higher monthly fee, though many will pay hundreds of thousands more in water fees anyway.

And while the higher fees potentially could affect manufacturers' decision to relocate to Chattanooga, at this stage it's "too early to tell," said Tim Spires, president and CEO of the Chattanooga Regional Manufacturers Association.

"Rate increases impact the opportunities for companies to grow and invest in our area," he said, but it was impossible to say for certain what the immediate impact would be.

Tennessee American's price hikes were necessary to "continue to provide the high-quality, reliable service and fire protection for our customers," said Kim Dalton, spokeswoman for the utility. "But even with this change, our customers will still receive their drinking water for less than a penny per gallon."

The higher fees, which will hit consumers just a few days after the city implemented higher sewer charges, will appear on the same bill but are not related, she said.

Contact staff writer Ellis Smith at esmith@timesfreepress.com or 423-757-6315.