2001420_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
TONYA CLARK
DON HOWELL
LYNN ANDERSON
DAVE SCHUNKE
RICK STERLING
TERRI CARLOCK
BOB SMITH
RANDY LOBB
RICK STERLING
JUDY STOKES
GENE FADNESS
WORKING FILE
FROM:
DATE:
APRIL 20, 2001 RE: CASE NO. UWI-W-01-01 (United Water)
GOLDEN DAWN/BARBERTON
PEITION FOR INSTALLATION OF INDIVIDUAL METERS

On December 27, 2000, a Petition for Installation of Individual Water Meters was filed with the Idaho Public Utilities Commission (Commission) by nearly one-half of United Water Idaho’s (UWI) customers in the Barberton/Golden Dawn (Barber) service area (previously served by Barber Water Company). As reflected in their Petition
Per UWI, we are the only individual home sites within UWI’s customer base that don’t have our own water meters. The current master meter average billing method, which replaced Barber Water’s billing, is unjustifiably high when compared to other UWI customer bills. It doesn’t give residents ability to manage/reduce their water usage to minimize financial impact. We believe these meters should have been installed prior to any change in billing calculations. Unjustifiably high master meter billing has placed unreasonable economic burdens on many senior citizens residing within our community. We wish to be responsible for managing water usage at our home sites like all other individual UWI customers. Finally, we believe master meters prevent us from giving support to PUC’s position regarding water conservation.
We request the PUC to correct the above concerns by directing UWI to install individual water meters at each of our home sites for the least possible expense to us.

The Commission approved United Water’s acquisition of Barber Water Company in Case No. UWI-W-99-4, Order No. 28205 on November 16, 1999. In Staff comments filed in that case, Staff made the following comments regarding metering:
Barber Water provides service to its residential customers through a water distribution system that is not currently metered. It is not unusual for water systems with adequate water supply to have a flat unmetered rate. However, Staff prefers metered service whenever possible because it is a more accurate and equitable way to determine consumption. It also encourages responsible water usage, it promotes conservation and it is consistent with service provided other customers of United Water.

Barber Water customers currently do not have meters installed on the service lines (with the exception of the Idaho Shakespeare Festival service line which has a 2 inch meter set in place). United Water has stated that it does not intend to install meters unless and until large scale maintenance repairs are required on the distribution system. The costs for installing the meters at the onset of the purchase were deemed by United Water to not be justified due to the typical lower than average consumption patterns for mobile home parks.

Although Staff believes that metering may be more equitable than flat rates for Barber Water residents that have small yards or use gravel to reduce maintenance, Staff acknowledges that the cost of installing individual meters is expected to be excessive (i.e., result in a negative impact on existing UWI customers). Staff therefore recommends the use of master metering, which is expected to provide a balance between the use of flat rates and individual metering. The master metering allows billings to reflect actual system consumption, consequently giving customers a price indicator for periods of high consumption and lower payments during periods of low consumption.

In its Order approving United Water’s acquisition and the Company’s decision not to meter, the Commission made the following findings:
To encourage responsible water management and promote conservation, United Water has offered a plan whereby it will make available to Barber Water customers a program of water conservation education and will offer Barber Water customers a free indoor audit kit and an outdoor audit. We find United Water’s efforts at customer education in this case to be reasonable for the specific facts of this case, a customer base transitioning from a flat unmetered rate to a collective meter rate. We hope Barber Water customers will take advantage of the opportunities presented.
Order No. 28205, p. 8.
On January 25, 2001, the Commission initiated a formal docket for investigating the metering request of Barberton/Golden Dawn service area customers. United Water Idaho was directed to file comments and a written reply to its customers’ concerns regarding water usage and master metering in the Barberton/Golden Dawn area, the Company’s billing of said customers since date of acquisition and the ramifications of their request for metering. The Commission directed the Company in its comments to specifically address the projected cost of providing individual meters to Barberton/Golden Dawn service area customers and proposals for cost recovery. Recognizing that only half of the Barberton/Golden Dawn customers have requested metering, the Commission also directed the Company to address the issue of selective metering and its ramifications. The Company was also to detail what efforts the Company has made to identify and curtail abusive watering practices of area customers.
On February 14, 2001, the Company responded to the Barber area customers’ Petition for Metering.
COMPANY RESPONSE
Abusive Water Practices
United Water prefaces its comments by stating that the Company should not be required to engage in the role of “water police” nor it states should the Company employ mandatory or coercive practices such as the threat of disconnection, to influence customer behavior in the absence either of imminent threat to public health and safety or governmental mandate. Citing Consumer Relations Rule 302 “Grounds for Denial or Termination of Service”; Rule 303.6 “Willful Waste.”
United Water states that in the absence of more definite guidance the Company would be very reluctant to be in the business of making subjective determinations about when high consumption crosses the line into the category of “willful waste” or “abusive watering practices.”

Alternatives for Metering
• Metering All Customers
Field investigation by the Company indicates that 40 of the 234 existing service connections have meter boxes and settings that can be equipped with meters without additional construction. As for the remaining 194 service connections, United Water represents that the cost for installation of meter boxes and settings is $151,708 or $782 per connection.
• Selective Metering
The Company strongly opposes selective metering. Piecemeal installation of services and boxes, it states, is likely to be considerably more expensive. The required additional effort in billing, it states, would also be manual, time consuming and more costly.
Alternatives for “Who Will Pay”?
• Customer Contribution Advance
In theory, the Company states that the simplest, and preferred, solution would be to require the Barber customers to advance the cost of installation ($782 + tax gross-up (1.68 times) for CIAC). The Company recognizes that this may be met with a certain level of customer resistance.
• Company Investment, Customer Surcharge
Alternatively, the Company states that United Water could provide the funds for construction then recover its investment, including an interest cost allowance by way of surcharge to Barber customers. Assuming a recovery period of three years, the bi-monthly surcharge would be approximately $52 plus a tax gross-up factor.
• Company Investment Included in Rate Base
Barber customers have been taking service from United Water for more than one year and the Barber system is now fully connected with the Company’s integrated system. In the Company’s opinion, the Barber customers are no longer “new.” An investment of $151,708 in the context of the Company’s approved rate base of approximately $99 million would allow the cost to be spread over a much wider customer base with a resulting, almost unnoticeable impact on rates (approximately 51¢/year/customer). This approach, the Company states, would be “least cost” from a societal perspective in that the utility’s long-term cost of capital is less than the explicit or implicit cost of capital of customer supplied funds.

Abandon Master Metering; Bill at System Average Flat-Rate
It appears arguable, the Company states, that any price signal from the present master meter arrangement is not having its hoped-for effect. High volume users are undeterred in their consumption; low volume users are facing high bills they cannot control.
The final alternative, the Company states, is to revert to flat-rate bills based on average total system consumption using the rate specified in Tariff 1E, the Company’s non-contiguous tariff, presently a bi-monthly flat-rate bill of $54.29. Under this approach, United Water would commit to installation of meters no later than the conclusion of its next general rate proceeding, assuming that recovery of investment would be allowed in rates at that time.

Subsequently filings by both Barber area customers and the Company have served to clarify the respective positions. Suffice it to say that the customers believe that they were sold a bill of goods—an estimate of future bills was made by the Company ($38/bi-monthly) that bears little resemblance to actuality. The Company’s present bill/revenue analysis projects an annual bill to Barber customers of $410.61 ($68.43 bi-monthly); compare system average $338.69 ($56.44 bi-monthly); flat rate Tariff 1E $325.74 ($54.29 bi-monthly); prior Barber Water flat rate ($17.80 bi-monthly winter; $21.80 bi-monthly summer).
United Water, the customers contend, is responsible for changing their billing from fixed fee/unlimited use (i.e., the Barber Water flat fee) to average billing using master meters. When the Company’s decision resulted in the conclusion that master metering “is not having the proposed hoped-for effect,” it should then have assumed the responsibility for correcting its error. That solution is meters. Without meters, the customers contend that they have no control over what they, as individual homeowners, are billed.
Staff Analysis (see attached)
Retention of the current master meter system with consumption evenly allocated to all 234 customers and billed at the Company’s metered rates retains some element of conservation incentive but requires continued subsidy of high use customers by low use customers. One has to question why the water consumption of customers in these two mobile home parks is so much higher than the Company’s system average. The Company offers no answer.
The question also arises as to whether the Company owes a higher duty of vigilance to customers who are paying a collective metered rate. In light of the Company’s reluctance or refusal to be cast in the role of “water police” position, one wonders what standard the utility employs to implement the following tariff provision in its non-contiguous rules:
Schedule No. 1E Flat Rate Service

Conditions of Contract:
(b) If Company should determine that a flat-rate customer is using water in excess of the average residential customer, the Company will provide a meter setting and meter. Customer will then take the Company’s metered tariff rates.

It appears that the Company may be concerned with protecting only its own bottom line and not that of its customers.
Staff believes that the most equitable solution is to retrofit the entire system with meters on all customer service lines. This would provide all customers with a conservation incentive and would require no subsidies among customers.
The total cost of metering all customers is $152,508 ($151,708 + $800 (40 meters at $20 ea)). The installation cost per customer is $652 (all 234 customers’ share of total project costs) plus a tax gross-up (1.68 times) for a total cost per customer of $1,095. The tax-gross up is applicable only in the instance of customer contributions (i.e., customer contribution advance; company investment—customer surcharge).
• Investment-Customer Surcharge
If United Water pays all the costs and recovers the costs through a surcharge, the Company calculated amount per customer, using the Company’s equity cost of capital to determine a “loan amortization” surcharge amount, would be $87.36 bi-monthly over three (3) years. The following table prepared by Staff presents a comparison of alternative bi-monthly surcharges that would result under various scenarios:
Surcharge at Company Rate
11.62% Surcharge at Allowed ROR
8.843% 3-year term
4-year term
5-year term
6-year term $86.74
$68.64
$57.88
$50.78 $69.38
$54.25
$45.22
$39.23 • Company Investment Included in Ratebase
As represented by the Company, this alternative is “least cost” to Barber customers. The resultant subsidy however is a hidden cost of purchase that was not previously considered. Were it considered, the Commission may not have approved the authorized $58,000 purchase price (net book value $11,035 plus $46,965 acquisition premium). Additionally, the Commission approved for future rate base $55,000 in proposed capital improvements. Reference Case No. UWI-W-99-4, Order No. 28205.
As the Commission considers the metering question it is worth mentioning that a Collateral Agreement was entered into by the Company as part of the Barber Water Purchase Agreement. The Collateral Agreement was neither disclosed nor presented to the Commission. As reflected in the Collateral Agreement (copy attached) United Water agrees to reconvey the water storage reservoir (and the related real property on which it sits) back to David and Ann Triplett, the owners of Barber Water Company, in the event the property is no longer used and useful to United Water in the operation of the domestic water system. The reconveyance will be at no cost to the Tripletts.
The apparent simultaneous/contemporaneous execution of the Collateral Agreement is cause for regulatory concern given the following language in the underlying Purchase Agreement.
¶ 15(e)
This Agreement embodies the entire Agreement between the parties hereto with respect to the subject matter hereof.
Staff contends that the Collateral Agreement can be reasonably construed as providing additional consideration for the underlying Purchase Agreement. Given that the Company has represented to Staff that it intends to discontinue service from the Barber Reservoir when it finishes construction of a planned new reservoir – perhaps the value of the Barber Reservoir can be looked to as a partial offset to the cost of metering Barber customers.
Commission Decision
How does the Commission wish to handle the Petition for individual meters? Leave it at status quo? Move to the Company’s non-contiguous flat rate? Selective metering? Full metering? At whose cost?

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DECISION MEMORANDUM 7