20120124final_order_no_32443.pdf

Office of the Secretary
Service Date
January 24,2012
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF UNITED WATER IDAHO INC.FOR )CASE NO.UWI-W-1l-02
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR WATER SERVICE IN )ORDER NO.32443
IDAHO )
On August 3,2011,United Water Idaho Inc.filed an Application to increase its rates
and charges for water service effective September 2,2011.United Water provides water service
to business and residential customers in Boise,and currently provides service to approximately
85,000 customers.United Water proposes to increase its rates an overall average of 19.89%,
resulting in an annual revenue increase of $7,616,015.The Company proposes to increase the
bi-monthly customer charge from $18.10 to $23.20 for customers served by a 5/8-inch and 3/4-
inch service line.Customers served by a 1-inch service line would see an increase in their
customer charge from $23.79 to $29.70.
United Water also proposes increases in its usage rates.Specifically,the volumetric
charge for water used during the winter would increase from $1.3521 to $1.5710 per CCF.A
CCF is 100 cubic feet of water and equals 748 gallons.The volumetric charge for water used
during the summer would increase to $l.5710 per CCF for consumption less than 3 CCF and
increase to $1 .9639 for all water use greater than 3 CCF.The Company estimates that these
rates would increase the water bill for an average residential customer by $5.82 per month.
United Water states it has invested more than $20 million in its system since its last
rate case.These capital improvements include a new well supply treatment facility at the Hilton
well,a new 600,000-gallon water storage facility serving the Warm Springs Mesa area,
installation of 1.7 miles of new 24-inch water main along Hill Road to improve pressure and fire
protection,and replacing water mains,service lines and meters throughout the system.United
Water is also investing $5.5 million in a new customer information system.In addition,the
Company asserts that average water consumption per metered customer has declined
significantly over the past several years resulting in lower annual revenues to the Company.This
reduction in annual revenue makes up roughly 38%of the Company’s overall rate request.
ORDER NO.32443 1
The Company’s proposed rate increases include a proposed return on equity of
10.50%,resulting in an expected overall rate of return of 8.43%.The Company asserts its
current rate structure results in a rate of return of 5.64%based on a test year ending April 30,
2011.
On August 18,2011,the Commission issued a Notice of Application and Notice of
Intervention providing a 14-day period for interested parties to file Petitions to Intervene,and an
Order suspending the proposed effective date of September 2,2011,for the new rates,as
authorized by Idaho Code §6 1-622.Order No.32333.
The only Petition to Intervene was filed by Community Action Partnership
Association of Idaho (CAPAI)and the Commission granted intervention by Order No.32334
issued August 18,2011.The Commission subsequently issued a Procedural Order on October 5,
2011,establishing dates for the prefihing of testimony and a technical hearing in February 2012.
A public workshop was held on November 28,2011,for the purpose of providing information
concerning the Company’s Application and to obtain input from the public prior to Staff filing its
comments or testimony.Following discussions by Staff,CAPAI,and United Water,the parties
reached a settlement on the Company’s Application and on December 8,2011,the parties filed a
Motion for Approval of Stipulation along with the Settlement Stipulation.Testimony in support
of the proposed settlement was filed by all parties on December 13 and 14,2011.Finally,on
January 5,2012,the Commission convened a hearing to receive testimony regarding the
settlement,and a public hearing to take formal testimony of customers and interested members
ofthe public.Order No.32416.
THE PROPOSED SETTLEMENT STIPULATION
The proposed Stipulation significantly reduces the Company’s original request for an
average 19.89%rate increase.Rather than the $7.6 million annual revenue increase requested by
the Company,the Stipulation provides for an increase in revenue requirement of $3,050,000
effective February 1,2012,and an additional $950,000 effective February 1,2013.The initial
increase amounts to 7.96%,and the additional increase effective February 1,2013,is an increase
of 2.48%.
The Stipulation proposes to spread the rate increase uniformly between the
Company’s customer charge and its commodity charges.Further,the Stipulation provides that
ORDER NO.32443
United Water will not file a general rate case that would result in new rates effective prior to
January 1.2014.
The Stipulation also provides specific terms for the Company’s deferral and
accounting of certain expenses,more particularly described as follows:
(1)An unamortized balance of deferred Idaho Power Company power
expenses as authorized in a previous United Water case in the amount of
$365,570 will be re-amortized over a period of 36 months commencing
February 1,2012.A pending deferred power balance of approximately
$185,000 will be amortized over a period of 36 months,also commencing
February 1,2012.
(2)An unamortized balance of deferred rate case expenses will be re
amortized over a period of 36 months,starting February 1.2012.Rate
case costs incurred in this case will be deferred and amortized over the
same 36-month period.
(3)Expenses of approximately $230,000 the Company incurred for painting
and rehabilitating the Hillcrest water storage reservoir will be amortized
over a period of 20 years.
(4)Contributions the Company makes to its pension plan in excess of or less
than $1,300,000 will be recorded as a deferred asset or liability for the
difference between the actual cash contribution and the amount of $1.3
million the Company contributed in 2010.Any amounts so deferred will
be presented by the Company for amortization in its next general rate case,
and if the Commission determines it was a prudent expense,the Company
can expect to amortize the deferred asset or liability over a period not to
exceed three years.
(5)The Stipulation provides the Company may defer actual relocation
expenses incurred up to a maximum of $125,000.The Company included
in this case its efforts to hire a new assistant manager.The amount
deferred will be amortized over 60 months,and the unamortized amount
may be presented by the Company for inclusion in its next general rate
case.
(6)The redundant power expense may be deferred and amortized over five
years.
(7)The Company may continue to amortize amounts previously approved.
Finally,the Stipulation provides that the useful life of the Company’s new customer
service computer system shall be a period of 10 years,commencing November 1,2011.
ORDER NO.32443 3
The Stipulation does not provide for a uniform spread of the rate increase between the
Company’s customer charge and its usage charges.Instead,the “adjustments reflect a movement
toward recovering appropriate customer costs in the per meter charge,as supported by the cost of
service study sponsored by the Company.”Exh.101,p.6.The Company agreed in the
Stipulation that in its next general rate case,it will not seek further adjustment to the per meter
charge except on a uniform percentage increase basis.
Finally,the Stipulation addresses issues presented by CAPAI to address specific
issues for low-income customers.The Company has agreed to increase the annual per customer
cap of $50 of benefit under the UW Cares program to $65 per customer per year.The Company
agreed to provide CAPAI an analysis of water consumption patterns of a representative sample
of customers who have received benefits under the UW Cares program.In addition,to enhance
water conservation opportunities for low-income customers,United Water will make available to
requesting CAPAI agencies residential water conservation devices for distribution to low-income
customers.
Each of the parties filed testimony in support of the Settlement Stipulation.Staff
signed and supports the Stipulation because “the comprehensive multi-year approach to
resolving revenue requirement represents a significantly better deal for customers than could be
achieved through either a one-year settlement,litigation of the current rate case,or resolution of
additional rate filings in 2012.”Tr.p.19.CAPAI,in testimony supporting the proposed
settlement,stated the two-phase approach to a rate increase “lessens the impact of the rate
increase in the first year and provides assuredness for a slightly expanded time and,even in total,
is considerably less than that originally proposed.”Tr.p.41.In its testimony supporting the
Stipulation,United Water stated the proposed effective date for new rates,February 1,2012,is a
material term to the Company.If the case had been fully litigated,new rates would not have
been effective until at least March 3,2012.The Company stated that “although it is possible the
Company would have received an ultimate rate award greater than the agreed settlement amount
if the case was fully litigated,receiving an amount certain earlier than legally required was a
material factor in the Company’s agreement to accept an overall increase of $4 million rather
than pursue through hearing the full amount of its revised request.”Tr.p.11.
ORDER NO.32443 4
CUSTOMER COMMENTS
The Commission received written comments from more than 250 customers of
United Water,and one customer appeared at the public hearing on January 5,2012.Most of the
comments were filed before the Settlement Stipulation was reached and announced,and thus
respond to the Company’s request for a 19.89%rate increase.The customers clearly opposed a
rate increase of that magnitude.Customers noted the difficult economic environment,including
lost jobs and reduced incomes,making a rate increase particularly unpalatable.Some customers
suggested United Water should delay improvements to its facilities until the economy improves,
and some customers responded to the Company’s concern that reduced consumption has lowered
Company revenues.Some customers have made a concerted effort to lower their water usage,
and stated a belief that their efforts are being punished if conservation results in a rate increase.
The customer who testified at the public hearing opposed any rate increase,and
specifically addressed a possible increase in United Water’s customer charge.Noting that
monthly fixed-customer charges for local electric and gas utilities are $4,less than one-half the
amount of United Water’s,the customer suggested any rate increase should be placed on
commodity charges so that the fixed-customer charge could be reduced.Tr.pp.54-55.
Numerous customers also addressed the amount of United Water’s customer charge in written
comments.
COMMISSION DISCUSSION
The process for the Commission’s consideration of settlement stipulations is set forth
in Procedural Rules 271-277.IDAPA 3 1.01.01.271-277.When a settlement is presented to the
Commission,the Commission will prescribe the procedures appropriate to the nature of the
settlement to consider it,and in this case,the Commission convened both a technical hearing and
a public hearing on the settlement.IDAPA 31.01.01.274.The purpose of an evidentiary hearing
on a settlement is “to consider the reasonableness of the settlement and whether acceptance of
the settlement is just,fair,and reasonable,in the public interest,or otherwise in accordance with
law or regulatory policy.”IDAPA 31.01.01.274.Proponents of a proposed settlement have the
burden of showing that the settlement is reasonable,in the public interest,or otherwise in
accordance with law or regulatory policy.IDAPA 31.01.01.275.Finally,the Commission is not
bound by settlement agreements.Instead,the Commission “will independently review any
ORDER NO.32443 5
settlement proposed to it to determine whether the settlement is just,fair and reasonable,in the
public interest,or otherwise in accordance with law or regulatory policy.”IDAPA 31.01.01.276.
After careful review of the record in this case,the Commission has determined to
approve the settlement,finding its terms to be just,fair and reasonable and in the public interest.
United Water presented an Application for nearly a 20%rate increase,and filed testimony and
exhibits to justify that amount.There is no dispute that the Company has made capital
improvements that are properly recovered in rates,and that its costs have increased since its last
rate increase,while its revenues have declined.
The settlement results in a significantly lower increase to United Water’s revenue
requirement than requested in the Company’s Application.Before agreeing to the settlement,
Staff thoroughly reviewed Company expenses and investments.In its review,Staff identified
more than 30 adjustments it would recommend to the Company’s requested revenue
requirement,but focused on return on investment,normalized water sales,employee
compensation,the new computer system,and working capital.Tr.p.8.Staff adjustments to
these components comprise an approximately $4 million reduction in the Company’s requested
additional revenue of $7.62 million.Tr.p.8.Staff acknowledged,however,that the return on
equity it proposed “was significantly below anything approved by the Commission for an Idaho
utility in the last 20 years.”Tr.p.26.Further reductions were difficult for Staff to find because
the Company’s request for additional revenue was driven primarily by “additional Company
investment,increases for power,pensions,chemicals and other operational expenses and
declining revenues to recover fixed costs.”Tr.p.8.For example,“new investments for things
such as pipelines,filtration and pumping are clearly required for providing adequate service and
are also subject to limited adjustment.”Tr.p.26.Costs like these “are justified and simply must
be paid for,creating an unavoidable revenue requirement increase.”Id.
CAPAI in its testimony in support of the Stipulation acknowledged that “United
Water,like any utility,experiences increases in the costs of providing water service to its
customers,must finance projects necessary to accommodate growth,and must maintain and
occasionally replace existing infrastructure,among other things.”Tr.pp.44-45.Like Staff,
CAPAI believed,given limitations on available cost adjustments,that litigation likely would
have resulted in a revenue requirement higher than provided in the Stipulation.Tr.p.45.
CAPAI also testified the rate case moratorium in the Stipulation provides rate certainty to
ORDER NO.32443 6
customers at least through 2012 and 2013,benefitting all customers.Tr.44-45.Citing the
increase in the allowance available to qualifying customers in the UW Cares program,which is
funded primarily by the Company,CAPAI stated its appreciation for United Water’s “exemplary
attitude toward its low-income customers.”Tr.p.45.
The Commission specifically acknowledges the many comments filed by concerned
customers.The magnitude of the Company’s original request generated significant customer
response,none favorable to the request.The Stipulation we approve is for a significantly
reduced amount,and spreads recovery of that reduced amount over two years.In addition,the
Stipulation addresses another major concern expressed in customer comments,that is,that
reduced water consumption per customer should not result in a rate increase.The Stipulation
“captures the effect of Staff’s adjusted normalized consumption levels,”so that “much of the
Company’s proposed rate increase due to reduced water consumption has been removed.”Tr.p.
27.The Commission appreciates the time and thoughtful effort extended by many customers to
file written comments.
Some customers in their comments objected to an increase to the fixed customer
charge.Most United Water customers pay a bi-monthly customer charge of $18.10,or $9.05 per
month,and the Stipulation proposes to increase it to $20.10,or $10.05 per month.Exh.101,p.
11.United Water’s customer charge is noticeably higher than the monthly customer charge for
electric and gas utilities operating in Idaho.The Company originally requested a much higher
increase to the customer charge,based on its cost-of-service study showing relatively high fixed
costs that do not vary depending on customer water consumption.
Both Staff and CAPAI support the increase to the customer charge in the Stipulation.
CAPAI generally “prefers to place the bulk of any rate increase on the commodity rate rather
than customer charge to enhance a customer’s ability to control his or her bill,”but noted that
United Water’s cost-of-service study justifies a much higher customer charge.Tr.pp.41-42.
CAPAI believes the proposed customer charge “is reasonable in light of the reduced rate increase
proposed in the settlement and in light of the enhancements to low-income customers agreed to”
in the settlement.”Tr.p.42.
The Commission understands customer concerns about United Water’s customer
charge,and notes the issue has been raised in previous cases.Cost-of-service studies for water
companies typically show a higher degree of fixed costs to deliver water than is necessary to
ORDER NO.32443 7
deliver electricity or gas to customers,and this is true for United Water.A high degree of its
costs are in the system it operates and maintains,and those costs exist independent of the amount
of water consumed.In addition,the rates 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 of United Water.”Order No.31016,p.9.Finally,any revenue
requirement amount not collected in the customer charge must be recovered in the commodity
charges that customers pay.Higher usage rates increase customer bills,especially when summer
rates are in effect.Collecting a larger amount in the customer charge also provides greater
revenue stability for the Company.
On the record in this case,the Commission finds the revenue increase of $3.05
million,effective February 1.2012,and the additional revenue increase of $950,000,effective
February 1,2013,as provided in the Stipulation,are just,fair and reasonable.These increases,
spread over two years and coupled with a moratorium on any new rate increases for the next two
years,provide appropriate rate relief to the Company to cover increased costs,and provide
reasonable rate stability to customers.The Commission also finds the other terms of the
Stipulation to be fair,just and reasonable and in accordance with law and regulatory policy.The
Stipulation identifies six expense deferral accounts:(1)power supply expense;(2)rate case
expense;(3)tank painting expense;(4)pension expense;(5)relocation expense for new assistant
manager;and (6)redundant power expense.Two of the expenses identified for deferral and
amortization,power supply and rate case expenses,also extend accounting and cost recovery
already approved by the Commission in Order No.31029,Case No.UWI-W-09-01.Tr.p.31.
These amortization and deferral accounts provide a reasonable accounting process to United
Water without including those costs for recovery in rates in this case.The specific deferral
accounts identified in the Stipulation are consistent with previous Commission practices for these
types of expenses,and the Commission finds these terms to be consistent with law and
regulatory policy.
INTERVENOR FUNDING
On January 13,2012,CAPAI filed a Petition for Intervenor Funding pursuant to
Idaho Code §61-617A.Section 61-617A includes a statement of policy to encourage
ORDER NO.32443 8
participation by intervenors in Commission proceedings.The Commission determines an award
for intervenor funding based on the following considerations:
(a)A finding that the participation of the intervenor has materially contributed
to the decision rendered by the Commission;and
(b)A finding that the costs of intervention are reasonable in amount and
would be a significant financial hardship for the intervenor;and
(c)The recommendation made by the intervenor differed materially from the
testimony and exhibits of the Commission Staff;and
(d)The testimony and participation of the intervenor addressed issues of
concern to the general body of users or consumers.
Idaho Code §61-617A(2).CAPAT requested an award of $3,782.43.
CAPAI’s Petition provides sufficient documentation to satisfy the requirements of
Section 61-617A and Commission Rule of Procedure 161-165 for an award of intervenor
funding.The Stipulation specifically addresses issues presented by CAPAI and was materially
different from testimony and exhibits filed by Staff,and CAPAI’s participation addressed issues
of concern to the general body of customers.Finally,the documentation of the costs and fees
incurred by CAPAI establishes that the request is reasonable in amount,and would constitute a
financial hardship on CAPAT if not approved.Accordingly,we approve an award of intervenor
funding to CAPAI in the amount of $3,782.43.
ULTIMATE FINDINGS OF FACT AND CONCLUSIONS OF LAW
United Water Idaho Inc.is a water corporation providing water service to the public
within the State of Idaho,Idaho Code §61-124,61-125,and is operating as a public utility.
Idaho Code §61-129.
The Commission has jurisdiction over this matter as authorized by Title 61 of the
Idaho Code,and more particularly Idaho Code §61-501,61-502,61-503,61-520,61-523.
As set out in the body of this Order,the Commission finds that the existing rates are
unreasonable.The approved rates set forth in this Order are just and reasonable.Idaho Code §
61-622.
ORDER NO.32443 9
ORDER
IT IS HEREBY ORDERED that the Stipulation filed by the parties on December 8,
2011,is approved.United Water is authorized to file tariffs to implement the rates set forth in
Exhibit 101 effective February 1,2012,and February 1,2013.
IT IS FURTHER ORDERED that the CAPAI’s Petition for Intervenor Funding is
granted in the amount of $3,782.43.
THIS IS A FllJAL 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
day of January 2012.
PAUL KJELL 1I PRESIDENT
MACK A.REDFORD,M ISSIONER
MARSHA H.SMITH,COMMISSIONER
ATTEST:
/1
Jean D.Jewell
Commission Secretary
bls/O:UWI-W-1 I -02ws5
ORDER NO.32443 10