20100305final_order_no_31016.pdf

Office of the Secretary
Service Date
March 5, 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF UNITED WATER IDAHO INC. FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES IN THE STATE OF IDAHO.
CASE NO. UWI-09-
ORDER NO. 31016
On September 3 2009, United Water Idaho Inc. filed a general rate case Application
requesting authority to increase its rates by 15.21%, to be applied equally to all classes of
customers.! United Water currently provides water service to approximately 83 900 customers
in Ada County, Idaho, and has been providing service to the public in Boise City and the
surrounding area for more than 100 years. Application at 2. The Company last increased its
basic rates and charges in August 2006. Order No. 30104. United Water claims it has made
necessary, major capital investments since the last rate case in order to maintain a high level of
service to its customers. The Company s Application states that it has invested $2 million in
treatment facilities, more than $12 million in replacing aging infrastructure, almost $1.4 million
in booster station improvements, and over $700 000 in auxiliary power generators at various
sites throughout the water system. If United Water s Application were approved, the Company
revenues would increase by $5.6 million annually.2 The Company s Application states that the
proposed changes in rates and charges would produce a rate of return of 8.49%. Id. The
Company requested that its proposed new rates become effective October 3 2009.
On September 17, 2009, the Commission issued a Notice of Application, setting an
October 8 , 2009, deadline for intervention and Order suspending the Company s proposed
October 3 , 2009, effective date for new rates. Order No. 30901. Community Action Partnership
Association of Idaho (CAPAI) requested and was granted intervention. On October 27, 2009
the Commission issued a Notice of Scheduling and Notice of Hearing establishing dates for Staff
and Intervenors to pre file testimony, and a technical hearing to convene on March 4, 2010.
Order No. 30934.
1 On July 2 2009, the Company filed a Motion for Order Waiving Requirement for Cost of Service Study asserting
there was no compelling need for a study to be included with its anticipated rate case Application. The Commission
granted the Company s request in Order No. 30865.
2 With updated figures, the Company s revenue request became $6.14 million, or 16.6%.
ORDER NO. 31016
On January 6 2010, Staff filed with the Commission a Notice oflntent to Engage in
Settlement Discussions. Commission Rule of Procedure 272; IDAP A 31.01.01.272. Settlement
discussions subsequently began on January 11 , 2010, between all parties. In addition, a public
workshop for United Water customers was held on January 19 2010, to explain the Company
Application to customers and provide an opportunity for customers to ask questions of
Commission Staff. On January 13 , 2010, Staff filed a Motion to Vacate the prefiled testimony
filing dates while the parties continued their settlement negotiations.
On January 21 , 2010, the Commission issued a Notice vacating the dates for prefiled
testimony and exhibits (January 22 and February 19, 2010), but reserved the March 4, 2010
technical hearing date in the event live testimony is needed. The Commission directed the
parties to propose a new schedule for completing the case.
The settlement discussions resulted in a Stipulation, and on January 27, 2010, the
parties filed a Stipulation and negotiated settlement that proposes resolution of all issues raised
by United Water s Application. The parties assert that the Stipulation is in the public interest
and that all of its terms and conditions are fair, just and reasonable, and they urge the
Commission to approve it in its entirety. United Water, Commission Staff and CAP AI all filed
testimony in support of the Settlement Stipulation.
On February 5 , 2010, the Commission issued a Notice of Settlement Stipulation
Notice of Modified Procedure, and Notice of Public Hearing. The Notice established a deadline
of February 22, 2010, for interested parties to file comments regarding the proposed Stipulation
and also announced the convening of a public hearing on that date for customers to present live
testimony. The Notice additionally stated the Commission s preliminary determination that "the
public interest may not require a technical hearing to consider the issues presented and that
issues raised by the Settlement Stipulation may be processed by Modified Procedure. Reference
Commission Rules of Procedure 201-204, IDAPA 31.01.01.201-204.Interested parties were
invited to file written comments "in support or opposition to the Settlement Stipulation and the
use of Modified Procedure in this case." Order No. 30998, p. 3.
TERMS OF SETTLEMENT
Under the terms of the Stipulation, United Water would be authorized to recover $3.
million in additional revenue effective March 1 , 2010, an overall increase of 9.9% in the
Company s annual revenue, and an additional $640 000 effective February 1 2011 , an additional
ORDER NO. 31016
increase of 1.7%. The parties agreed to a uniform percentage increase applied equally to the
customer charge and volume charge in United Water s tariffs. A uniform percentage increase of
9% applied to existing rates results in an increase in the bi-monthly customer charge for most
customers of $1.60, or $.80 per month. The volume charge would increase from $1.2112 to
$1.3311 per cubic foot of water used during the non-summer months. During the summer, the
cubic foot volume charge would increase to $1.6640 for consumption in excess of three cubic
feet (equal to 2 244 gallons). These rates would increase by 1.7% in February 2011.
The Stipulation proposes to implement a Budget Bill Plan for residential customers.
Any customer with at least 12 months of service would be able to enroll in Budget Bill to
levelize payments for water service. Customers enrolled in the Plan will receive a statement
each month for 12 equal billing amounts, representing a 12-month average of the most recent 6
bi-monthly bills, although their meters will continue to be read on a bi-monthly schedule. The
customer s Budget Bill amount will be recalculated annually at the 12-month anniversary of the
date the customer began paying the level monthly amount.
The Stipulation also addresses accounting treatment for specific operational costs.
United Water currently is deferring electricity payments incurred under Idaho Power Company
annual Power Cost Adjustment (PCA). The Stipulation provides that amounts deferred through
March 2 2010, will be amortized over a three-year period. PCA charges incurred after March 1
2010, will be deferred for later amortization. Amortization of rate case expenses and water
storage tank painting costs are also addressed. Regarding costs relating to water conservation
programs, the Stipulation states that United Water "shall continue to defer expenses associated
with implementation of its Commission approved Conservation Plan and may thereafter amortize
the deferred balance over a three year period." Stipulation, p. 5. Other issues addressed by the
parties in the Stipulation are private fire service line connections and participation in an informal
workshop to discuss the Company s UW Cares Program and improving customer participation in
conservation programs.
Finally, as part of the settlement agreement, the Company agreed to not file a general
rate case application prior to June 2011. As a practical matter, a moratorium that precludes a
rate case application before June 1 , 2011 , will prevent the effective date of any new rate increase
until at least January 2012.
ORDER NO. 31016
WRITTEN COMMENTS
The written comments filed by United Water, Commission Staff and CAP AI, all in
support of the Stipulation, are in the form of prefiled direct testimony. The Company noted that
the stipulated revenue increase of $4.3 million is a significant concession from the Company
original request of $5.6 million. The amount was agreed to in settlement discussions that were
undertaken only after Staff conducted a thorough audit and the Company had responded to
nearly 250 specific written discovery requests. Wyatt Supplemental Direct, p. 4. Accordingly,
United Water asserted that the Stipulation results from arms-length negotiations between all
parties to the case after they had access to and evaluated all relevant facts. Wyatt Supplemental
Direct, pp. 8-
The Company testified that a uniform percentage increase to both the volume and
customer charge without a change in the rate design is a material term of the Settlement
Stipulation for the Company. Wyatt Supplemental Direct, p. 5. In addition, maintaining the
current rate design was a consideration in the Commission s waiver of a cost-of-service study,
and also "preserves the rate relationships the Commission found to be reasonable in the
Company s prior cases.Id.
The Company also addressed the Stipulation s language regarding accounting
methods, specifically the Idaho Power PCA. While none of the deferred expense items alter the
revenue increase in this case, the Stipulation presents agreement on how the accounting issues
will be handled prospectively, eliminating the potential for disagreements on accounting methods
in subsequent cases. Id. at 6.
According to its written testimony, United Water considered the effect of rate
increases on its customers when agreeing to the terms of the Stipulation. For example, the
Company believes the full $4.million increase in revenue is justified for immediate
implementation, based on the Company s investments and operational costs. The Company
nonetheless agreed to a two-phase approach to mitigate the impact on customers.Wyatt
Supplemental Direct, p. 7. In addition, it was recognition of the difficult economic conditions
that compelled the Company to agree to a rate moratorium, preventing it from filing any rate
case application prior to June 1 , 2011. Id. The Company also explained that the proposed
Budget Bill Plan was created in response to customer requests for "level pay," and to ease the
burden of large bills during the summer months, especially for those with limited resources.
ORDER NO. 31016
Wyatt Supplemental Direct, p. 8. The level pay plan will enable customers to budget predictable
monthly water bills
, "
(i)nstead of being faced with larger summer bills that may be extremely
burdensome, especially for those with limited economic resources.Id.
Commission Staff also filed testimony in support of the Settlement Stipulation and
urged the Commission to approve it. Staff testimony states that it conducted a comprehensive
audit of test year results and concluded that the proposed settlement is in the public interest and
should be approved by the Commission. Lobb Direct, p. 2. Staff further concluded that the
Company s increased revenue request was driven primarily by necessary replacement of aging
infrastructure and increased costs.
Staff asserted that, in light of local economic conditions, Staff s review of potential
revenue and expense adjustments was "more aggressive and creative than usual." Lobb Direct
p. 7. For example, Staff considered recommending removal of all proposed salary increases, as
well as all actual test-year salary increases and incentive pay. Staff identified all previously
unadjusted expense accounts and considered an'across-the-board 3% growth limit from 2008
through 2009. Lobb Direct, pp. 7-8. In addition, Staff considered a 10% across-the-board
reduction in affiliated Management and Services contracts. Staff s testimony states that if all of
its possible adjustments had been accepted by the Commission, the resulting revenue
requirement increase would have been higher than the 11.63% increase stated in the Stipulation.
Lobb Direct, p, 9. Staff believes the stipulated increase constitutes a significantly better outcome
for customers than what would have been achieved at hearing. Lobb Direct, p. 10.
Staff testified that the deferred accounting identified in the Stipulation provides relief
to customers. For example, the Company will defer Idaho Power PCA (Power Cost Adjustment)
costs rather than including the costs in the Company s base rates at this time. Lobb Direct, p. 13.
Staff recognizes that these costs are legitimate operating expenses and fully subject to recovery
through amortization. Lobb Direct, p. 13. The Stipulation also allows for deferral of rate case
expenses, tank painting, and conservation plan and implementation expenses.
Staff supports the Budget Bill Plan that allows customers to pay equal monthly
payments throughout the year. Under the terms of the settlement, the cost of the program will be
borne by the Company within the stipulated revenue requirement. Lobb Direct, p. 15. Finally,
Staff supports convening informal workshops to discuss low-income issues and demand-side
management programs. Staff will participate in the workshops and believes that any programs
ORDER NO. 31016
designed to help customers manage their water bills are particularly important at this time and
should be addressed. Lobb Direct, p. 16.
CAP AI filed testimony in support of the Settlement Stipulation. "CAP AI believed
that the agreement was very reasonable and though we are in the midst of extremely difficult
economic times, the settlement reached was likely the best that could be achieved from all
customers' points of view.Chant Direct, p. 6. During settlement negotiations CAP AI
expressed interest in expanding the UW Cares Program and reaching more customers with water
conservation information.CAP AI thus identified the Company s agreement to informal
workshops to discuss maximizing the benefits of the UW Cares Program as a "prerequisite to
settlement." Id. at 7. CAP AI believes that United Water will cooperate and participate in good
faith and that meaningful discussions will help address the harsh conditions that low-income
customers are experiencing in a difficult economic climate. Chant Direct, p. 7. United Water
stated its support and agreed to participate in informal discussions regarding enhancements to its
low-income and conservation programs. Wyatt Supplemental Direct, pp. 7, 8. CAPAI testified
that the Stipulation "is fair, just and reasonable and is in the best interest of United Water
general body of rate payers." Chant Direct, p. 4.
Approximately 50 customers of United Water filed written comments with the
Commission. One customer appeared at the public hearing to provide a statement on the record.
The majority of customers cited strained budgets and poor economic conditions in their
opposition to the Company s request for a rate increase. Some customers questioned whether the
Company may be guilty of irresponsible management, and some complained of poor water
quality. Several customers advocated for a budget bill payment program, more comprehensive
low-income programs and, following the filing of the Stipulation, a longer moratorium prior to
the Company s next rate case. The sole customer to testify during the public hearing urged the
Commission to deny any increase in both the customer charge and current consumption rates.
This customer noted that United Water s usage rates are higher than another water company
providing service in Boise, that the Company s customer charge is higher than other utilities
and that the bad economy is a good reason to deny United Water s rate request. Tr. pp. 3-
COMMISSION DISCUSSION
At the outset it should be noted that the Commission is not bound by a settlement
stipulation reached by the parties to a case. As stated in Commission Rule of Procedure 276, the
ORDER NO. 31016
Commission will independently reVIew the settlement proposal to determine whether the
settlement is just, fair and reasonable, and in the public interest, or otherwise in accordance with
law and regulatory policy. The Commission may accept the settlement, reject the settlement, or
add additional conditions under which the settlement will be accepted. IDAPA 31.01.01.276.
After reviewing the evidence and filings of record including the Application, proposed
Settlement Stipulation, supporting testimony and public comments, the Commission finds the
terms of the settlement negotiated by the Company, Staff and CAP AI to be supported by the
record and to be in the best interest of the Company and its customers.
The Company s Application and evidence proves, and Staffs comprehensive audit
confirms, that the Company s revenue request was driven primarily by necessary replacement of
aging infrastructure and increased power costs. United Water invested more than $13 million in
capital improvements since its rates were last adjusted in August 2006, and the record indicates
these plant investments and increased power costs made up 71 % of the requested increase.
Wyatt Supplemental Direct, p. 3; Lobb Direct, p. 5. When the Company s estimated test-year
costs were adjusted by actual costs incurred, the Company s revenue shortfall would have
increased from 15.21% to approximately 16.6%. Lobb Direct, p. 5. The Stipulation provides for
an overall increase of 11.63% phased in over a two-year period. Given the Company s capital
investments, higher power costs and increases in operation and maintenance expenses, the
Stipulation provides a result to United Water s rate Application that is just, fair and reasonable.
The primary components of the Stipulation - a substantial reduction in the Company s requested
rate increase, the phasing in of the increase, and the rate case moratorium - support the
conclusion that "the settlement reached was likely the best that could be achieved from all
customers' points of view." Chant Direct, p. 6.
The increase in revenue will be recovered by implementing a uniform percentage
increase to be applied equally to the customer charge and volume charge. A uniform percentage
increase maintains the current tariff structure that the Commission has already reviewed and
found to be reasonable. To minimize the immediate effect on rates, the Stipulation provides for
deferral and amortization of all amounts billed by Idaho Power Company under its PCA; rate
case expense incurred by the present Application; tank painting expenses for the Ustick
Crestline and Steelhead water storage reservoirs; and expenses associated with implementation
ofthe Company s conservation plan.
ORDER NO. 31016
In response to customer requests and a growing need to assist customers in paying
their water bills, the Company will implement a Budget Bill Plan that allows its customers to
make 12 equal monthly payments. The parties also agreed to convene a workshop to discuss the
UW Cares Program and related issues that affect the low-income customers. The workshop will
also address additional efforts that might be undertaken to improve customer participation in the
Company s conservation programs. The Company implemented a conservation program as
previously ordered by the Commission, and we find that the expenses associated with such
implementation were reasonably incurred.
The Commission appreciates the United Water customers who took the time to file
written comments with the Commission, as well as the customer who testified at the public
hearing. A request for a rate increase filed by a utility in strained economic times, when many
customers may be struggling to pay existing bills, presents a challenging responsibility for the
Commission. The Application triggers a duty to fully and carefully scrutinize the operations of
the utility to ensure the expenditures behind the requested rate increase are prudent, appropriate
and reasonable. The record demonstrates the parties were mindful of current economic
conditions in reaching a settlement. Staff testified the magnitude of United Water s request
coupled with harsh local economic conditions made Staff s review of Company operations
somewhat unusual with respect to the type and magnitude of possible revenue requirement
adjustments. Specifically, "with local economic conditions in mind, Staffs review of potential
adjustments was more aggressive and creative than usual." Lobb Direct p. 7.
Some customers noted that United Water s customer charge is higher than that of
other utility companies, and recommended no increase in the customer charge. Tr. p. 3-4. A
customer charge recognizes that some utility costs are fixed and do not vary from month to
month based on customers ' consumption.Staff supported the uniform increase in rates
including to the customer charge, because of "increasing cost of fixed charges associated with
customer services and as a concession to further reduce revenue requirement specified in the
comprehensive settlement." Lobb Direct p. 15. The customer charge also helps even out
monthly billing amounts by reducing the amount of revenue collected by the Company from
consumption rates.
By law the Company is entitled to recover its reasonable expenses and receive a
reasonable return on investments, and some rate increases may be necessary to ensure the
ORDER NO. 31016
Company is financially sound and remains able to provide clean, safe water to its customers.
The Commission is required to establish, if existing rates are insufficient to support the
reasonable and necessary expenditures of the utility, those rates that are just, reasonable and
sufficient. Idaho Code ~ 61-502. The rates the Commission approves for United Water must be
based on the actual investments and expenditures made by that Company, and are not affected by
the investments and expenditures of other companies that are operating in different
circumstances, and whose rates will be different than those for United Water.
After reviewing the evidence in this case, the Commission finds that United Water
existing rates are insufficient, and that the revenue increase and resulting rates set forth in the
Stipulation are just, reasonable and sufficient.The Settlement Stipulation represents a
reasonable compromise of the positions held by the parties in the case, it will allow the Company
to earn a fair and reasonable return, and it is in the public interest.
ORDER
IT IS HEREBY ORDERED that the Settlement Stipulation signed by the parties and
filed January 27, 2010, is approved without modification. United Water s authorized revenue
requirement is increased $3 660 000 effective for service on and after the date the Company files
new tariffs consistent with this Order, and is further increased $640 000 effective February 1
2011. The increase will be implemented by a uniform increase in United Water s rates and
charges, as shown in Exhibit A to the Stipulation.
IT IS FURTHER ORDERED that United Water will continue its current method to
account for Idaho Power Company electricity charges reflected in Idaho Power s annual Power
Cost Adjustment. Amounts deferred as of March 1 , 2010, will be amortized over a three-year
period.
IT IS FURTHER ORDERED that United Water shall defer and amortize expenses
for its rate case, tank painting, and conservation programs as specified in the Settlement
Stipulation.
IT IS FURTHER ORDERED that United Water will implement a Budget Bill Plan
as specified in the Settlement Stipulation, to enable customers to make level payments for water
service over a 12-month period.
ORDER NO. 31016
IT IS FURTHER ORDERED that United Water may amend its tariff on Private Fire
Service Connections, Paragraph 44, Sheet 18 , as set forth in Exhibit C to the Settlement
Stipulation.
IT IS FURTHER ORDERED that the parties are directed to convene an informal
workshop to review possible changes to United Water Cares Program, and to discuss additional
efforts to improve participation in the Company s water conservation programs.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this if A
day of March 2010.
~/. I. K MPT , P SIDENT
If 8'u:JL
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~E;l~
Commission Secretary
O:UWI-09-01 ws ks final
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ORDER NO. 31016