Koch Foods, one of Chattanooga's biggest water users, reduced its poultry processing operations and laid off 35 workers Monday in response to rising utility and feed expenses, reports Chattanooga Times Free Press.

"This is our first layoff ever," Dan Nuckolls, senior operations manager for the poultry plant, told the Tennessee Regulatory Authority during a public hearing on water rates on 18 August.

"But my fear is that if our costs get out of line, as they appear to be doing in Tennessee, this facility doesn't have a very bright future."

Mr Nuckolls said a proposed 20.6 per cent water rate increase proposed by Tennessee-American Water Co. - coming a year after a 12.3 per cent hike in water rates - threatens to make Koch's 335-employee Chattanooga plant less competitive than the company's other poultry facilities. The proposed water rate increase, if accepted in full by state regulators, would boost Koch's annual water bill by more than $100,000.

Tennessee-American officials insist higher rates are needed in response to rising fuel, labour and chemical costs and to fund more than $21 million of improvements planned for the 138-year-old water system.

In his opening argument before a three-member TRA panel, Tennessee-American Attorney Dale Grimes said Chattanooga's water rates are now below most water suppliers in Tennessee and have increased less than most utilities over the past decade. He added that electricity, gasoline and natural gas prices have all risen more than water rates in the past decade.

"We can't ignore economic reality," Mr Grimes told a three-member TRA panel which is hearing the water rate case this week in Chattanooga. "If you look at the average Tennessee-American Water rate increase since 1995, even adding in a full rate increase in this case, you will see that Tennessee-American customer rates have increased on average 4.6 percent a year — and that certainly compares favorably with other increasing costs."