20080110Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
POBOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
REG
20mi J.M~..9 PM i: 5J
IDAHoP4BPC.,.. r\¡j
UTiliTIES COt'j~n¡'IS~k"
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
UNITED WATER IDAHO INC. TO )
IMPLEMENT A PROGRAM OF MONTHLY )
BILLING AND FOR RECOVERY OF COSTS )
ASSOCIATED THEREWITH. )
)
CASE NO. UWI-W-07-4
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Weldon B. Stutzman, Deputy Attorney General, and in response to the Notice
of Application, Notice of Intervention Deadline and Notice of Modified Procedure issued in Order
No. 30446 on September 27,2007, submits the following comments.
BACKGROUND
On September 17,2007, United Water Idaho Inc. (United Water; UWI) fied an
Application seeking authority to implement a program of monthly biling and for authority to
implement rates and charges to recover the increased cost of converting from bi-monthly to
monthly biling. The Company requested that its Application be processed by Modified
Procedure. With its Order No. 30446, issued on September 27,2007, the Commission authorized
the use of Modified Procedure, established a deadline to petition for intervention, and established
a deadline for the submission of comments.
STAFF COMMENTS 1 JANUARY 9, 2008
In its Application, United Water states it is in the public interest to convert from bi-monthy
to monthly billng for the following reasons: (l) a monthly bil should be easier for customers to
budget for and to pay than a bi-monthly bil especially in sumer; (2) monthly biling can enhance
water conservation and lower bils by sending a more timely price signal to customers and
providing more timely information to customers regarding their consumption; (3) monthly biling
would reduce the incidence of "high-bil" complaints from customers resulting from bils that
reflect charges for two months of usage; and (4) monthly billng would double the number of visits
to customer premises by meter readers enabling quicker detection and troubleshooting of leaks or
meter problems.
The Company estimates that the additional anual cost of monthly biling will be
$ 1,125,905, reflecting the cost of additional personnel for meter reading, preparation and mailng
of bils on a more frequent basis, increased processing, and administrative expenses. Recovery of
this cost represents an overall increase in rates of 3.75%. The Company proposes to apply the
increase to the fixed Customer Charge portion of customers' bils. This would raise rates for all
customers by approximately $1.15 per month, bringing the average anual residential customer bil
from $368.61 to $382.44.
The Company estimates it will take at least five months to hire and train additional
personnel and to make the operational adjustments needed to implement monthly biling. It
requested an effective date for the proposed tariff changes of May 1, 2008, and consequently an
Order approving its request on or before December 1, 2007.
The Company fied with its Application revised taff sheets showing the proposed
changes from bi-monthly to monthly biling. The Company also fied the Direct Testimony of
Gregory P. Wyatt that discusses the Company's Application and requests in more detaiL.
DISCUSSION
Staff agrees with the Company's assertions that monthly biling will provide customers
with more timely feedback on their consumption, leading to a reduction in water use. The curent
biling cycle only provides customers with two billngs during the sumer irrigation season, which
is also the peak season for UWI, and this peak determines the need for additional resources. For
many customers, feedback on water usage and its cost arives with bi-monthly billng only after
the peak hot weather of the sumer, reducing the effectiveness of any response to the signals
provided by the high bils. By providing twce as many bils during the summer season, all users
STAFF COMMENTS 2 JANUARY 9, 2008
wil be provided feedback in a timeframe that wil allow them to make adjustments in usage durng
this peak season, as well as throughout the year.
More importantly, Staff views monthly biling as a prerequisite to an effective water
conservation program. The Commission has previously stated its expectation that the Company
implement an ongoing conservation program in Order Nos. 29871 and 30305. The Company's
effort wil be more effective, and result in more savings per dollar, if customers get the feedback
provided by monthly biling than if that feedback is delayed through bi-monthly biling. Staff
believes that monthly biling will enhance the effectiveness of all water conservation and demand
side activities of the Company, including the higher summer rates approved by the Commission
and the future potential for Automated Meter Reading (AMR). The feedback provided by monthly
biling should create more interest in the messages provided through the Company's conservation
activities, and lead to more customers actually responding to the messages and paricipating in the
Company's conservation programs.
Company witness Greg Wyatt indicated in his initial testimony that the Company expected
most customers to reduce consumption as a result of monthly billng, and that a customer's savings
from reduced consumption would off set the cost of monthly biling. While Staff agrees that
monthly biling wil result in some customers reducing water consumption, and that a level of
savings large enough to mitigate the cost of monthly biling is not an uneasonable expectation,
Staff is not able to definitively confirm this claim.
Monthly biling is recommended by every resource planing guide reviewed by Staff, and
all of the conservation experts cited in the studies available to Staff expected some savings from
monthly biling, although Staff was not able to find any studies that quantified the impact of
converting from a bi-monthly to monthly biling cycle. This is not surrising, as such
quantification would require a controlled study that isolated all other factors, which is extremely
diffcult in a public utility environment involving real customers.
While the savings have not been quatified, there is a strong consensus among water utilty
planing and conservation experts that monthly biling is preferred. In addition, a strong
correlation between monthly biling and effective conservation programs is implied by a study
completed by Western Resource Advocates. Western Resource Advocates prepared a detaled
study of conservation programs and rates for thirteen water utilties on Colorado's Front Range.
Each utilty was evaluated based upon a number of criteria and assigned a score on the "Water
Meter", a scale developed by the authors to allow comparisons between utilties. Of the companies
STAFF COMMENTS 3 JANUARY 9, 2008
evaluated in the study, the Denver water utilty scored high for the range of water conservation
programs and the amount of fuding directed towards conservation. The utilty had the highest
percentage of its budget directed at conservation, as well as the highest expenditues on a per
customer basis. Nonetheless, the average per customer consumption had not declined as much in
Denver as in the other highly raned utilties, and Denver's per customer consumption remained
among the highest in the study, even when limited to single-family residential customers.
Denver's reduction in average daily consumption for single-family residential customers was at
least 22% below the other highly raned cities, and more than i 00% less than the most successful
utilty, Colorado Springs. Clearly, Denver's conservation efforts were not achieving the same level
of overall water savings as the other utilties.
The disappointing reduction in consumption for the Denver utilty did not result from lack
of success in customer participation. When viewed on a measure penetration basis, Denver was as
successful, if not more so, than the other utilties in encouraging the installation of efficient
appliances, fixtures and technologies. On an overall basis, however, household consumption did
not decline as much in Denver as it did in the other highly raned utilties. The other utilties
simply achieved more overall savings for their investment than did Denver.
Denver was the only utilty in the study that used bi-monthly biling rather than monthly
biling. While other factors may have contributed to the lower retur on conservation expenditures
by the Denver utilty, the bi-monthly biling cycle was an obvious factor. Moving to monthly
biling was one of the priority recommendations the study's authors made for the Denver utilty.
Front Range Water Meter: Water Conservation Ratings and Recommendationsfor 13 Colorado
Communities, Western Resource Advocates, 2007.
Moving to monthly biling was also one of the key recommendations in United Water's
Conservation Plan, submitted to the Commission in November of2006. This Plan, prepared by
one of the nations leading experts in water system planng and conservation activities, states:
One diffculty with the curent system is that the public outreach occurs
in the summer, but the customer may not see a direct connection to his/her
actions and his/her water bil, since the water meters are only read every
two months. The high bils wil arive in late sumer and fall, after the
peak has passed and the sumer outreach program has finished. In other
words the public outreach and water biling are out of phase. A much
more logical approach would be to switch to monthly biling so that the
connection between conservation actions and reduced water bils can be
made by customers.
United Water Conservation Plan, p27.
STAFF COMMENTS 4 JANUARY 9, 2008
A Fact Sheet prepared by the New Hampshire Deparment of Environmental Services
entitled "Implementing a Water Efficiency and Conservation Program for Public Water Utilties"
also includes a section on the importance of biling frequency,
The biling frequency of the water utilty is an importt factor in the
implementation of water efficiency oriented rates. Lengthy biling
periods can be a limiting factor. The more frequent the biling, the
more likely conservation rates will be successfuL.
New Hampshire Department of Environmental Services, Environmental Fact Sheet WD-WSEB-26-
9, 2001, page 6.
A study prepared for Uta water utilties by Western Resource Advocates includes the
following section titled "Billng Frequency and Communication to Customer",
Customers' response to water rates is also influenced by the biling
cycle and the abilty to track their use. For example, bi-monthly biling
cycles can be counter-productive to water conservation efforts. Customers
interested in conservation or saving money adjust their home water use on
an incremental basis, in response to consumption reported in each billng
statement. This practice is paricularly common durng the sumer
irrigation months, when urban water use peaks. With a bi-monthly biling
cycle, the sumer can be half over by the time customers are notified of
their recent consumption quatities. This may preclude many customers
from making more efficient water use decisions earlier in the sumer
during the high water-use months.
Water Rate Structures in Utah: How Utah Cities Compare Using This Important Water Use
Effciency Tool, Western Resource Advocates and the Utah Rivers Council, Jan, 2005.
Additional support for monthly biling as a conservation tool comes from a recent study by
the Pioneer Institute. Economists with the Institute studied consumer response to both price and
non-price conservation efforts and found that the price elasticity of water was very similar to that
of electricity and natural gas. Consumers respond similarly to price signals for these resources,
and similar pricing and billng strategies had similar impacts. The report noted that water utilties
that biled on a bi-monthly or quarerly basis showed a greater inelasticity. Customers were less
likely to respond to price signals that were delayed. Managing Water Demand: Price vs. Non-
Price Conservation Programs, Olmstead and Stavins, Pioneer Institute Publication No. 39, July
2007.
In its Application, the Company identified a number of other benefits to monthly biling.
Staff also agrees that these are benefits that will be received by many customers. In paricular,
Staff believes that many customers, especially low income customers, will find it easier to make
STAFF COMMENTS 5 JANUARY 9, 2008
smaller monthly payments rather than to pay for two months of usage. Staff anticipates that the
Company will have fewer customers that fail to pay their bils, and that this lower number of
delinquencies per biling will mitigate some of the costs of the increase in the number of bilings.
COST REVIEW
The Company submitted a detailed proposal of additional costs it would incur if monthly
biling were implemented. A summar of those additional costs are listed below:
Additional Cost Category AmountPersonnel $436,675
Biling & Payment Process $659,778Transporttion & Other $ 29,452Total $1,125,906
Staff reviewed the assumptions used by the Company to determine these costs, and
disagrees with some of the assumptions made by Untied Water. The Company stated it would
need four additional Customer Service Representatives (CSRs). It curently has eight CSRs, and
proposed increasing the number to 12. Staff does not believe the additional bilings would
necessitate adding any CSRs. Staff reasoned that the number of customers contacting the
Company should not increase, that the number of customers with biling questions should not
increase, and that the number of biling complaints would not increase. Staff therefore removed
from the Company's cost proposal all the personnel costs related to the additional CSRs. By not
adding any CSRs, Staff proposed to reduce the projected personnel costs by $207,651.
Staff accepted United Water's assumptions concerning an increase in personnel costs
associated with four additional meter readers.
Staff additionally did not agree with United Water's proposal regarding additional biling
and payment costs. The Company projected a cost of$.93 per bil and an additional 497,520 bils
mailed. This biling rate is in a new contract the Company executed with its biling contractor,
UBS. Staff has not audited nor determined the reasonableness of this new contract. Costs for
biling are included in United Water's curent rates at a cost of$.72 per bil. Staf believes the
biling costs included in rates to generate additional bils should be the same cost that the
Commission has approved for the current bils, or $.72 per bil. Staff therefore proposed to reduce
this per bil cost to $.72, reducing the Company's projected costs by $104,479.
Staff also proposed to reduce the costs of additional customer communications and notices
with associated postage, as the Company failed to justify the increased notices. This reduced the
STAFF COMMENTS 6 JANUARY 9, 2008
additional cost proposal by $54,190, for a total reduction in the biling and payment process cost of
$158,669 ($104,479 + $54,190).
Staff proposed to reduce United Water's projected additional costs a total of $366,320.
With these reductions, the Company's revenues would increase by $759,586 to cover the cost of
the monthly billng proposal, resulting in a 2.5% increase in customers' bils.
The Company does not agree with Staff's proposed cost reductions. Nonetheless, United
Water agreed to implement monthly biling at a lower cost than originally projected. The
Company has indicated it can implement the program with an increase of2.95% in anual revenue
rather than 3.75%. The Company believes the actual implementation costs will be greater than the
amount recovered by a 2.95% rate increase, and the Company will seek to recover actual cost
levels in its next rate case. Nevertheless, the Company is willng to accept and Staff is willng to
support the 2.95% increase until the next rate case in order to implement monthly biling. Staff
recommends that if the Commission approves a 2.95% rate increase, the Commission clarify in its
Order that its approval is not a determination of the reasonableness of any expenditues, and that it
will review the Company's actual costs and make such determinations in a subsequent rate case.
Staff recognizes a natural resistance to increasing rates for what may be considered an
avoidable practice. When viewed as a long-term investment in conservation, however, Staff
believes the costs of monthly biling will be significantly less than the costs of building treatment
facilties that the Company has projected it wil need, in the absence of effective conservation
programs, to meet the demands of a growing population. Ratepayers will pay for those resources,
whether achieved through conservation or by building new facilties. Staff is confident that
conservation purchased with the cost of monthly biling will be less expensive than the marginal
cost of the conventional supply side resources planned by the Company. Staff therefore believes
the expense of moving to monthly biling wil be beneficial for the ratepayers and is in the public
interest.
SUMMARY OF PUBLIC COMMENTS
As of Januar 7, 2008, the Commission received 337 comments in Case No. UWI-W-07-4.
Three hundred thirty comments oppose the proposed change from bi-monthly biling to monthly
billng and seven customers support the change. Community Action Parnership Association of
Idaho (CAPAI) supports a change to monthly biling stating, "it is in the better interest of lower-
income households to receive monthly bilings." CAP AI noted that low-income households must
STAFF COMMENTS 7 JANUARY 9, 2008
budget month-to-month, and that United Water's bi-monthly biling makes monthly budgeting
more difficult. CAP AI argues that monthly biling "would allow households to potentially alter
their habits to lessen consumption for the following month."
Fort-one of the customers who oppose the change indicated they would be in favor of the
change if there were no additional cost to customers. Nineteen customers indicated the Company
should read meters even less often and reduce the already high customer charge. Six customers
stated they would be in favor of monthly biling if the Company added level pay as a biling
option.
A common theme of the comments was "if it ain't broke, don't fix it". These customers
fail to see any advantage to individual customers, and are opposed to the increased costs. Staff
takes a broader view, and believes that monthly biling wil enhance price signals, improve water
conservation programs and more than pay for itself by deferring Company expenditures for
expensive supply side resources. This benefits customers as a whole, although customers do not
necessarily see this as a direct personal benefit.
Customers generally indicated that the proposed benefits identified by the Company are
more in the Company's favor than in customers. About a fifth of the comments suggest the
proposed change to monthly biling is not a benefit to the customer, but was proposed only to help
the Company increase its cash flow by collecting revenues more frequently. Staf notes that the
Company's request for a rate increase is for the estimated net cost increase. The benefits to United
Water, including those of improved cash flow, were identified by the Company and were included
in determining the net amount. Staff reviewed the Company's estimates of the values of these
benefits and believes they are reasonable. Moreover, the Company has agreed to accept less of a
rate increase than it believes will be required to implement monthly biling.
It appeared eleven of the customers, and perhaps more, were confused about how the
proposed increase would affect the customer charge, assuming the curènt bi-monthly customer
charge would be incured each month. Only one-half the bi-monthly customer charge, plus the
increase, will be included in each monthly bil.
Nine customers stated United Water should provide online biling options to offset the
increased costs of monthly biling. The Company has indicated it is implementing online biling
options, but these options take considerable time before the number of customers paricipating is
large enough to provide significant savings.
STAFF COMMENTS 8 JANUARY 9, 2008
Two customers suggest that any rate increase should be included in the cost of water
instead of being added to the customer charge. The Company is projecting that the entire increase
in costs is for biling and meter reading, exactly the tyes of costs that the Commission has
indicated are appropriate to allocate to customer charges. Staff notes that this issue will be
revisited at the next rate case, when a more comprehensive examination of costs and their
allocation can be completed.
Two customers indicated if the Company is going to go to monthly billng it should
upgrade to Automated Meter Reading (AMR) technology to offset labor costs. Staff also raised
this question with the Company. The Company indicated it has initiated a study of AMR options,
but no decisions have been made at this time. According to United Water, installation of AMR
meters is not a simple matter and involves considerable installation and capital expenses. A rapid
transition to AMR would involve significant expenses and lead to significantly greater increases in
rates than simply moving to monthly billng. Staff notes that the business case for AMR, in most
cases, includes a reduction in costs for manual monthly meter reading. Staff also notes that the
increased cost for meter reading comprises only about one-third of the total incremental cost of
monthly biling.
Many customers mentioned the City of Boise's recent change from quarerly biling to bi-
monthly biling, allowing City utilty bils for sewer and trash to arve in months alternating with
United Water's biling. The City does coordinate its biling with United Water so that customers
get City utilty bils approximately one month afer they get United Water bils. It may be,
however, that the primar reason for such biling coordination was the stress on customer's
budgets that is imposed by United Water's bi-monthly bils. The Company's bi-monthly bils can
create a hardship for many family budgets, especially in the summer. Water consumption charges
var considerably from month to month, and peak summer bils for two month's consumption can
be many times greater than bils for two months of wintertime usage. In contrast, City utilty bils
are much smaller and relatively constat. Alternting bils avoids compounding the budget stress
created by United Water's bi-monthly bils. Monthly biling will greatly reduce the budget stress
created by large bi-monthly water bils, with monthly charges at about half of the charges for two
months of usage. Staff believes monthly biling is a more effective means of addressing the budget
stress than is coordination with City utilty biling.
STAFF COMMENTS 9 JANUARY 9, 2008
Several customers also pointed out that United Water's customer notification gave an
incorrect internet address for the Commission's web page for customer comments. The Company
eventually did correct the information on its own website after the customer mailngs were
complete.
RECOMMENDATIONS
Staff recommends the Commission approve the Company's Application to implement
monthly biling with an associated rate increase of 2.95%. Staff agrees that the increase,
approximately $.91 per customer per month, be added to the fixed customer charge. Staff believes
the evidence supports monthly biling as a conservation resource that will result in some customers
reducing water usage. In addition, it wil make all demand side efforts and expenditues more
effective. Staff believes that when viewed as an investment in demand side resources, the costs of
monthly biling wil be significantly less than supply side options, and this investment wil lead to
lower costs for the Company and over time, lower rates for customers.
Staff believes the cost of implementing monthly biling with a 2.95% increase is reasonable
and appropriate for the expected additional efforts. This is a conservative amount that does not
represent the full costs the Company expects to incur, but United Water has agreed to accept ths
level of recovery in the short term to implement monthly biling and obtain actual results to
determine the accuracy of its estimates. Staff believes the investment in monthly biling to be in
the public interest and recommends the Commission approve it. Staff recommends the
Commission clarfy that its approval is not a determination of the reasonableness of any
expenditures, and that it reserves the opportity to audit the Company's actual costs and make
such determinations in a subsequent rate case. Staff also agrees with the Company's proposal to
allow new rates to tae effect five months after issuance of a final Order, providing time to
complete implementation requirements.
STAFF COMMENTS 10 JANUARY 9, 2008
Respectfully submitted this ~
Technical Staff: Wayne Har
Joe Leckie
Daniel Klein
i:umisc:commentsuwiw07.4wswhjldk
STAFF COMMENTS
day of Januar 2008.
Weldon B. Stutzan
Deputy Attorney General
11 JANUARY 9, 2008
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 9TH DAY OF JANUARY 2008,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. UWI-W-07-4, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
GREGORYP. WYATT
UNITED WATER IDAHO INC
PO BOX 190420
BOISE ID 83719-0420
DEAN J MILLER ESQ
McDEVITT & MILLER LLP
PO BOX 2564
BOISE ID 83701
L.~
SECRETARY
CERTIFICATE OF SERVICE