20040317Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL STAFF
FROM:SCOTT WOODBURY
DATE:MARCH 16, 2004
RE:CASE NO. UWI-04-1 (United Water)
RESIDENTIAL "BUDGET BILL" PAYMENT PROGRAM
On February 3, 2004, United Water Idaho Inc. (United Water; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting authority to
amend its Rules and Regulations to establish a "Budget Bill" payment program for its residential
customers.
The proposed Budget Bill program has the following features:
The program will be available to all residential customers residing in a
premise that has six (6) actual historical bills. Customers must be in
current account status with no past due amounts;
Enrollment would be permitted at the convenience of the residential
customer with no set enrollment period;
. No interest will accrue on positive or negative balances;
Residential customers may be removed from the Budget Bill program
for failure to timely pay the agreed Budget Bill amount;
United Water may perform mid-term adjustments to the amount ofthe
Budget Bill payment due to rate changes; extreme weather impact or
other significant unforeseen circumstances (major leak, etc.
Upon enrollment the customer s payment amount under the Budget
Bill program will be calculated based on twelve (12) months' history
(six bi-monthly reads) of consumption at the premises. History may
be based upon the usage of the prior customer at the location. The
customer will receive a Budget Bill monthly. An annual
DECISION MEMORANDUM
reconciliation will be performed with negative or positive balances
within limits, rolled forward into the next Budget Bill.
United Water believes providing a "Budget Bill" program to its residential
customers will be in the public interest for the following reasons:
United Water is of the opinion that there is a significant customer
demand for such an option.
For many residential customers, over 60% of the annual bill is
comprised of the two summer period bi-monthly bills. This can lead
to customer hardship.
United Water s rates for water service have, for approximately ten
(10) years, contained a summer consumptive rate (from May
through September 30) that is 25% higher than the winter rate. In the
Company s opinion, the residential customers understand and react to
the price signal inherent in the seasonal rate design. United Water
believes that a Budget Bill program would not significantly dampen
such a signal, while providing the residential customer flexibility to
levelize their payments.
United Water currently reads meters and renders bills on a bi-monthly
basis. Conversion to actual monthly reading and billing for all
customers would ease the burden of bi-monthly summer bills;
however, the expense is prohibitive. United Water estimates monthly
reading and billing would involve an increase in operating expenses of
approximately $1 100 000 annually. The Budget Bill program
provides a significantly lower cost alternative to monthly reading and
billing. Budget Bill program participants will receive monthly billing
statements, although their meters will continue to be read on a bi-
monthly basis.
A Budget Bill program allows a residential customer to plan and
budget water usage more effectively than the current "pay as you go
basis.
United Water states that it will advertise the availability of the Budget Bill program
through news releases, bill messages, bill stuffers, publication of information on the Company
web site, the Company s "on-hold" telephone message and through direct customer service
representative contact. Residential customers will be permitted to enroll in person at United
Water s Boise Office (8248 W. Victory Road), by telephone, bye-mail to a dedicated address or
by voice mail to a dedicated voice-mail box.
United Water estimates costs associated with program implementation to be
approximately $72 000, assuming that 15% of its residential customer base enrolls in the
DECISION MEMORANDUM
Budget Bill" program.The $72 000 represents the annual costs of the program and is
comprised of additional billing, postage and payment processing expenses. The Company
requests an accounting order permitting the deferral of these additional costs for recovery in the
Company s next general rate case, subject to audit and review for reasonableness. In the absence
of deferral, the Company will likely defer implementation of the Budget Bill program to coincide
with the next general rate case.
On February 10, 2004, the Commission issued Notices of Application and Modified
Procedure in Case No. UWI-04-1. The deadline for filing written comments was March 3
2004. Timely comments were filed by Commission Staff and a number of the Company
customers. Customer support ranges from enthusiastic to support only if participants bear the
program costs. Customer opposition ranges from those who are satisfied with the current billing
system to a belief that implementation of a level pay will dampen the conservation message and
encourage customers to waste water on unneeded landscaping. The Commission Staff supports
the general concept of Budget Bill but proposes limiting the program to customers with 12
months consumption history. Staff also opposes the Company s request for an accounting Order
permitting deferral of program implementation costs.
Staff Comments
The Commission, a decade ago, set summer water rates 25% higher than winter rates
in order to send customers a strong conservation price signal to encourage water conservation
during the summer months when the peak water demand has to be met. In its comments Staff
recognizes that bi-monthly billings fail to provide a timely "price signal" of the higher summer
rate. Staff contends that monthly statements of Budget Bill participants can be used to remind
customers that summer rates are in effect and encourage conservation earlier than the bi-monthly
statements do.
Staff is reluctant to support the Company s plan to set a Budget Bill amount based
upon a criteria other than the customer s own water usage given the fact that the watering habits
of one individual has little to do with another s. Because United Water cannot provide the new
resident ongoing historical comparative usage on statements to enable the customer to determine
whether his or her own usage is in line with that of the prior customer, Staff cannot support a
Budget Bill based upon premises usage and therefore recommends that Budget Bills be limited to
customers who have lived at the current residence for at least 12 months.
DECISION MEMORANDUM
The Company in its Application did not specify how it would monitor participating
customers' usage to determine whether actual usage differs substantially from estimated usage.
Staff recommends that usage be tracked throughout the summer months. If actual usage changes
significantly from historical usage, the Company may need to adjust the monthly Budget Bill
amount. For United Water, leaks or unintentional diversion of water into a dual irrigation system
are likely to result in unusually high bills. At a minimum, Staff recommends that the Company
review usage in excess of 25% of historical usage during the summer months. The Company can
determine, after consulting with the customer if necessary, whether the level pay amount should
be adjusted. Staff suggests this change in order to clarify that Budget Bill amounts should be
revised due to significant changes in rates or usage.
United Water requests an accounting Order permitting deferral of the estimated costs
associated with implementation of the Budget Bill program. United Water expects to seek
recovery of the deferral in its next general rate case, subject to audit and review for
reasonableness. Staff notes that the estimated $72 000 cost is not a one-time expense for
implementation of the program, but represents the estimated annual cost of running the program
assuming a 15% participation level. Projected cost of the program is less than $1.00 per
customer annually. The actual cost of the Budget Bill program is not known and measurable at
this time. It is unlikely, Staff believes, that in the first year of the program that 15% of customers
will participate. In Staff's opinion, the estimated annual expenditures for this program are not
appropriate for deferral. The Company, Staff contends, should implement the program with
expenses booked as such. All the associated costs and benefits will need to be explored and
. reflected in the annual rate case expense review. Among the expected benefits of a Budget Bill
program, Staff contends, is that the Company will receive a higher than usual revenue stream
during the winter months when revenue is typically at its lowest.
Staff recommends that the Commission:
1. Authorize United Water to offer a Budget Bill program to customers who have
had service at their location for at least 12 months and do not have a past-due balance on their
account;
2. Deny the Company s request to allow the use of a prior customer s consumption
history at a premises in order to establish a Budget Bill amount for the current residence;
3. Require United Water to track program participants' consumption in order to
identify changes in water consumption;
DECISION MEMORANDUM
4. Require United Water to monitor participating customers' usage throughout the
summer. If usage is significantly different from historical consumption (plus or minus 25%),
Budget Bill amounts should be reviewed with a customer adjusted as necessary;
5. Deny United Water s request for an accounting Order permitting deferral of
$72 000 program implementation costs; and
6. Approve the Company s proposed tariff with Staffs modifications as reflected in
Staff Comments, Attachment A.
Company Reply
On March 12, 2004, United Water filed a Reply to Staff Comments. With one
exception, i., deferral of program costs, United Water concurs in Staffs recommendations and
in Staffs proposed revisions to the Company s Budget Bill program and related rules and
regulations.
United Water notes that the quoted $72 000 in costs is the annual cost of operating
the program assuming 15% of United Water s customers participate. It is not the initial start-up
cost. The Company estimates operating costs between the start of the program and the
approximate intended effective date of United Water s revised rates resulting from its next
general rate filing will be approximately $28 000. In the Application, United Water s position
was that the Company would implement the program immediately if the Commission permitted
deferral of start-up costs, but would delay implementation until a time closer to the next general
rate filing if deferral was not permitted. Noting the numerous positive comments from
customers who are looking forward to a prompt implementation of the program, United Water
states that it is hesitant to delay implementation for reasons not likely to be understandable to
customers who are expecting the program to be available in the near future. Accordingly, United
Water will implement the Budget Bill program promptly after receiving an Order approving the
program, regardless of whether the Commission approves the deferral.
United Water, however, respectfully requests that the Commission permit deferral of
the operation costs for the following reasons:
0 As noted in its Application, the program has several features that will be
beneficial to customers.
The program will not generate any new revenue for the Company, but the
Company will incur costs, not offset by new revenue, to operate the program.
As a matter of fairness, United Water believes that it should have the
opportunity, through a deferral, to recover the accumulated costs of operating
a beneficial program until the costs are included in allowed rates.
DECISION MEMORANDUM
United Water notes its intention to make a general rate filing in approximately
eight or nine months. Accordingly, the Company contends, that there is little
risk to ratepayers that the amount of the deferral could mushroom to
worrisome levels before there is an opportunity for review of costs. In this
regard, the Company certifies that it will maintain adequate records to permit
audit and review of the costs.
The Company notes that Staff in. its opposition to a deferral appeared to be of
the belief that among the expected benefits of a Budget Bill program, the
Company would receive a higher than usual revenue stream during winter
months when revenue is typically at its lowest. This, the Company contends
overlooks the fact that in summer months United Water s cash flow will be
below current levels. In fact, the Company anticipates that over the course of
a full year, the Budget Bill program will have no impact from a cash-flow
point of view. The Company does not view the Budget Bill program as a cash
flow enhancement measure.
United Water requests that the Commission approve the Budget Bill program, as
modified by Staff recommendations. The Company renew its request for an accounting Order
approving deferral and recovery of program operating costs, subject to review for reasonableness
in the Company s next general rate proceeding.
Commission Decision
United Water has filed an Application requesting approval of a proposed Budget Bill
payment program. Customers in comments both support and oppose the program. Staff
recommends that the program be approved with proposed modifications and recommends that
the Company s request for a deferral accounting Order be rejected. The Company in Reply
Comments concurs in Staff recommendations and in Staff s proposed revisions to the
- Company s rules and regulations with one exception, i., deferral of program costs.
Does the Commission find it reasonable to approve the Company s proposed
Budget Bill payment program with Staff recommendations and revisions?
Should the Company s request for an accounting Order permitting deferral of
program implementation costs be approved or denied?
Scott Woodbury
Vld/M:UWIWO401 sw2
DECISION MEMORANDUM