28043.pdf

Office of the Secretary
Service Date
May 26, 1999
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF)
UNITED WATER IDAHO INC. FOR APPROVAL)
OF COST OF SERVICE ALLOCATION AND)RATE DESIGN.
CASE NO. UWI-98-
ORDER NO. 28043
On July 6, 1998, the Idaho Public Utilities Commission (Commission) issued final
Order No. 27617 in United Water Idaho Inc. (United Water; Company) Case No. UWI-97-
the revenue requirement phase of the Company s general rate case. In its Order the Commission
established a revenue requirement of $24 051 928 and authorized United Water to increase its
revenues by $1 581 989 or approximately 7.15%. Pending conclusion of the cost-of-service/rate
design phase of the Company s rate case, the Company was authorized to implement a uniform
percentage increase in rates and charges for all customers.
On August 13, 1998, in Case No. UWI-98-3 United Water filed an Application
with the Commission requesting approval of the Company s submitted cost-of-service allocation
study and rate design proposal. The proposed rate design includes the following features:
customer charge recovering costs associated with billing, meters
service and fire protection;
A volumetric or commodity charge that is an inverted three block rate
structure that would charge higher rates as volumes increase (departure
from existing summer/winter rates).
In Order No. 27617 the Commission also granted the Company leave to present
information in its cost-of-service/rate design phase regarding a proposed adjustment related to
Micron Technology Inc.'s reuse/efficiency program. Micron is the Company s largest consumer
of water. The Company proposes to reduce the test year consumption figures for Micron based
on projected use. The effect would be to increase rates to remaining customers. United Water
presents a witness in this case regarding this adjustment. The issue is whether the proposed
change in consumption by Micron is sufficiently "known and measurable" to justify an adjust-
ment to test year data.
ORDER NO. 28043
The Commission in this Order reaffirms the reasonableness of continuing with the
present rate structure for United Water, rejects the proposed Micron adjustment to test year
consumption, and rejects all proposed changes to rate design. The Commission further based on
its assessment of the relative contributions of the intervening parties to the Commission
decision in this case and consideration of the factors set forth in Idaho Code ~ 61-617 A and
related Commission Rules of Procedure, awards intervenor funding in the following amounts:
Idaho Citizens Coalition $16 661.87; and Ms. Sharon Ullman $589.84.
A public hearing in Case No. UWI-98-3 was held in Boise, Idaho on March 16
(17), 1999. The following parties appeared individually and/or by and through their respective
counselor representative:
United Water Idaho Inc.
Idaho Citizens Coalition
Coalition of United Water Customers
Dean J. Miller, Esq.
Al Fothergill
Peter 1. Richardson, Esq.
Sharon Ullman Pro se
Commission Staff Scott D. Woodbury, Esq.
The record in this case presents the Commission with questions requmng
consideration and decision in the following six areas:
1) Micron Adjustment
2) Cost of Service
3) Rate Design
4) Further Public Hearings
5) Intervenor Funding, and
6) Timing of Implementation.
Micron Adjustment
At hearing in the revenue requirement phase of the Company s rate case the
Commission granted a Staff Motion to Strike regarding Company rebuttal testimony and related
exhibits dealing with a proposed test year pro forma adjustment for Micron consumption. The
Commission granted the Company leave, however, to bring the issue back to the Commission in
the cost-of-service/rate design phase of its rate case. Order No. 27617 p. 46. In its Order, the
Commission stated "Regarding the Micron reuse program, the Company may present testimony
and a related adjustment in the next phase of this case, if it can demonstrate that Micron
Conservation Program will result in a significant, known and measurable reduction in
consumption. "
ORDER NO. 28043
The proposed Micron adjustment is related to water conservation and reclamation
measures implemented by Micron. Reference UWI Exhibit 3, p. 1 , Micron Letter September 4
1996, announcing proposed waste water reclamation project; and UWI Exhibit 3
, p.
, UWI
Letter April 3 , 1998 , setting forth estimate of projected water usage.
In a general rate case, test year consumption is used to establish a rate design that is
likely to recover the calculated revenue requirement.Pro forma adjustments to test year
consumption are permitted for "known and measurable" changes.
As reflected in Company records, the actual consumption for Micron for the test year
7/96-6/97 was 580 661 ccf. The Company in this case proposes to use an adjusted annual
consumption figure for Micron of 396 375 ccf, a reduction of 184 286 ccf. UWI Exhibit 3 , p. 2;
Tr. pp. 70, 192. The Company proposed figure is its estimate of Micron s expected consumption
and is calculated on an average reduction in the base line usage by Micron for the first two
billing periods in 1998 of approximately 35% from 1997 levels for the same two periods and a
projected reduction in usage for the remainder of the year. In support of its proposed reduction
the Company provides additional and actual Micron consumption figures for July 97-June 98
(485 601 cd) and the most recent 12-month period March 98-January 99 (328 066 cd) UWI
Exhibit 4. The more recent consumption figures for Micron, the Company speculates, indicate
that Micron s consumption during the next two years is likely to be even less than the Company
proposes. Tr. p. 15.
Based on reduced consumption the Company calculates a $10, 150-related reduction
in power and chemical expense. Exh. 2, Sch. 24; Tr. p. 193.
Commission Staff opposes the proposed test year adjustment arguing that (1) the
Company has not provided sufficient documentation to demonstrate that the reduction is "known
and measurable" and (2) that the reduction is not unusual as there exists an historic variability in
Micron s water usage. Tr. p. 233; Exh. No. 130. Staff also points to the following qualifying
language of Micron in the April 3 , 1998 Letter, i.
, "
These estimates are not binding on Micron
Technology, Inc. as future conditions may cause changes in your water demands.UWI Exh. 3
Regarding lack of supporting documentation Staff raises three points:
1. There is no technical description, operational data, or even general description of
Micron s reclamation processes
ORDER NO. 28043
2. The documentation submitted fails to demonstrate that the reduced consumption is
not the result of some other reason, and
The documentation submitted is contradictory when compared to actual
consumption data. Tr. p. 234.
Month-to-month and year-to-year variations in industrial consumption are the rule, Staff
contends, and not the exception. Tr. p. 240; Ref. also prior Micron adjustment for reduced
consumption related to Micron s supply well (Case No. BOI-93-1). Tr. pp. 246, 247.
reflected in the April 3 , 1998 Letter, Staff further notes that Micron commits to the projected
consumption figures for a period of only 12-24 months. Tr. p. 242.
Responding to Staffs objections, United Water contends that "if a customer informs
us that they are installing equipment that will reduce their consumption, informs us that the
equipment is operational, and then their consumption is reduced, I don t need a lot of technical
description or operational data to convince me they were telling the truth.Tr. p. 19.
Commenting on Micron s qualifying language in the April 3 , 1998 Letter, the Company states
that it is "a typical business practice to never forecast the future with certainty.. .no prudently
operated business will limit their flexibility with a simple letter. . .. Tr. p. 19.
Micron, itself, a member of the Coalition of United Water Customers, indicates that it
is unable to accurately estimate its consumption. It operates, it states, at the beck-and-call of
changes in technology, international markets and international economic environment.
Tr. p. 614. The volatility in its consumption, it states, is evidenced by Staff Exhibit 130, which
shows that Micron s water consumption is all over the board. Tr. p. 614.
Factors identified by Micron as influencing its water consumption were (1)
manufacturing process used; (2) water reclamation efforts; (3) weather; (4) status of Micron
own water production and supply options and the status of its pumping equipment; (5) price of
computer chips may influence production levels and hence water consumption; (6) water quality
standards (both internal and wastewater standards) and; (7) availability of new water sources.
Tr. pp. 614-'616. Based on its review of the enumerated factors , Micron anticipates that it will
consume about 450 000 ccf over the next 12 months. Tr. p. 617.
We Find:
ORDER NO. 28043
The Commission has reviewed the filings of record regarding the Company-proposed
adjustment to test year consumption figures for Micron Technology, Inc. As established in the
revenue requirement phase of this rate case, the test year (7/96-6/97) consumption for Micron
was 580 661 ccf. Micron s usage reflected 3.5% of the total test year consumption for the
Company, i., 16 722 721 ccf. The Company proposes that we utilize an adjusted annual
consumption figure of 396 375 ccf, a reduction of 184 286 ccf. The proposed consumption
figure is a projected number that is said to represent the effect of implemented water
conservation and reclamation measures by Micron. While no one disputes that Micron has in
fact implemented such measures and that recent actual consumption for Micron is below test
year levels, we are asked to attribute all reduction to conservation and reclamation measures and
accept a test year adjustment for rate calculation purposes, the longevity or reliability of which
Micron itself is reluctant to endorse.
The documentation submitted to support the proposed adjustment does not provide us
with the degree of known and measurable certainty required to make an adjustment from test
year data. In this case, as in the prior revenue phase, the Company submits an April 3 , 1998
letter crafted by the Company (Exhibit 3 , p. 2) for the signature and purported acquiescence of
Micron. It is this letter that reflects the adjusted figure proposed by the Company, i., 396 375
ccf. The letter recites "we should anticipate this usage rate to continue over the next 12 to 24
months." The Commission notes that at the time of hearing in this case we were already one
year into the 24 months. We also note that the Company at hearing has requested that any
change in rates be deferred until the next calendar year, nearly 20 months into the 12-24 month
effective period. It is also not without significance that Micron qualifies and essentially negates
its acceptance of the letter tendered to it by adding the following language over its signature:
These estimates are not binding on Micron Technology, Inc. as future conditions may cause
changes in your water demands.
Staff arguing against the test year adjustment contends and Micron agrees that
Micron s historic water consumption is all over the board. Micron has enumerated seven factors
which it states influence its water consumption. Given the historic and potential variability of
Micron s water usage, we are not convinced that the Company has demonstrated with the
reasonable certainty required for ratemaking purposes that the proposed adjustment to test year
consumption is sufficiently "known and measurable." While we acknowledge the role test year
ORDER NO. 28043
consumption plays in the calculation of rate design, we acknowledge also that calculating rates
on past consumption is to engage to some degree in a fiction. In denying the adjustment we do
not believe that we are denying the Company a reasonable opportunity to realize its calculated
revenue requirement and related return on investment.
Cost-Or-Service
A cost-of-service allocation study allocates total cost of service (i., the revenue
requirement) to a series of functional costs and then to classes of customers in accordance with
recognized principals and generally accepted procedures in order to obtain an indication of the
relative cost responsibilities of each class of customer. Tr. p. 81.
United Water in this case presents a Cost-Of-Service Allocation Study (pro forma 12
months ending June 30, 1997) based upon the widely-recognized and used "base-extra capacity
method". Tr. pp. 82, 115; UWI Exh. 1. This methodology identifies costs and allocates them to
the functional cost categories of base cost, extra capacity cost, customer cost and fire hydrant
cost. Once the cost of service has been allocated to functional cost categories, the usual
procedure is to then allocate such functional cost categories directly to the customer classes.
Tr. pp. 82-83.
In the study performed, the Company identified three customer classifications-
general water service, public fire protection service, and private fire protection service. The
Company notes parenthetically that since Order No. 15617 issued on June 12, 1980 in Case
No. U-1O25-, costs related to providing public fire protection service have been recovered
through the general water service rates. Tr. p. 86. The Company also notes that the general
water service class was analyzed in its entirety rather than by its subclasses (residential
commercial, public authority, industrial) since each subclass is served under the same rate
schedule. Tr. pp. 86, 117 , 118.
The Cost-of-Service Study presented indicates that the costs associated with
providing service which are umelated to the quantity of water supplied are higher than the
revenues now being collected through customer charges. The study also suggests that, in
general, customer costs should be increased proportionately more for the smaller meter sizes than
for the large meter sizes. Tr. p. 282. The Study determines the amount of revenue that should be
collected through commodity-related charges and allocates costs for both private and public fire
ORDER NO. 28043
protection. Tr. p. 282. The Study also determines costs associated with meeting base demand
maximum day demand, and peak hour demand. Tr. p. 283.
Fully allocated customer charges were calculated based on billing, meter and service
costs. Added to these costs is an allocated share of overhead. Tr. p. 88. The customer cost
category includes costs associated with connecting and serving a customer irrespective of the
volume of water use or demand requirements imposed. Tr. pp. 82-83. In its cost of service
analysis the Company focuses on average use and the peak use above that average, an analysis
that demonstrates the highly seasonal nature of customer consumption (approximately 62% of
UWI water consumption occurs in the four summer months).
The Company s COS analysis and discussions it states are presented as guides which
the Commission can use to design rates to generate the revenue amount allowed. Tr. p. 89.
Actual tariff design, in addition to relying on the results of cost of service analyses, should also
the Company contends, include consideration of policy matters, historical differences, impact of
rate change, future planning, special customer characteristics, and judicial, regulatory, and
contract requirements. Tr. p. 90.
The Company s cost-of-service methodology was criticized by the Citizens Coalition
and the Coalition of United Water Customers. The Citizens Coalition contends that the
Company is arbitrary in implementing its COS analysis, heavily muting the seasonal cost
information yet mechanically adopting in its entirety the calculated customer costs (raising
bimonthly customer charges for small use customers by 40-60%). Tr. pp. 428 , 437. Identifying
perceived flaws in the Company s methodology (i., re: overhead costs; peak costs) the Citizens
Coalition concludes that there is no economic logic or justification for not implementing the
seasonal cost results while mechanically implementing the customer cost results. Tr. p. 437.
The Citizens Coalition recommends that the commodity rates during the peak summer season be
increased (including the percentage of summer consumption that the peak use rate applies) to
send accurate price signals. Tr. pp. 428, 437. Cost of service rates, the Citizens Coalition
contends, focusing on average use and the peak use above that average, imply that summer rates
should be four to five times winter rates (i., winter $0.36/ccf; summer $1.53/ccf). Tr. pp. 433
434, 452, 453; Staff Critique Tr. pp. 334-337. As the Company does, however, the Citizens
Coalition recognizes that full implementation of the cost-of-service results would have
disruptive and burdensome impact on customers. Tr. pp. 436, 453.
ORDER NO. 28043
The Citizens Coalition is also critical of the level of overhead costs (A&G
depreciation on and the revenue requirement for general and intangible plant, and income taxes)
that the Company seeks to add to and collect in the functional customer cost component and in
its fixed customer charge. Tr. pp. 443 , 444. The Citizens Coalition contends that if this increase
is stripped from the calculation, that no increase is indicated. Regarding overhead, the Company
responds that an argument could be advanced that all A&G and general plant expenses be
included in the functional customer costs since these costs and plant would exist even if no water
were taken. Rather, the Company follows allocation examples presented in the American Water
Works Association (A WW A) Water Rates Manual No. Ml at p. 34. Tr. p. 92; UWI Exh.
Further support for inclusion of overhead costs in customer cost component: publication NRRI
93-
, "
Meeting Water Utility Revenue Requirements: Financing and Ratemaking Alternatives
page 69. Tr. p. 92; UWI Exh. 5; Staff Critique Tr. p. 338.
The Citizens Coalition is also critical of the manner in which the customer cost
calculation was performed. F or customer billing and customer service costs, the Company
simply divides the total cost by the number of bills, weighting each customer equally regardless
of size. Meter costs are allocated in proportion to the capacity of the meter. Services are
allocated yet another way, by the diameter of the service pipe connecting the customer to the
water main. A more systematic approach, it is contended, would be to allocate all these costs on
a similar weighted basis. Tr. p. 446. The Company in response contends that it merely uses the
equivalent meter ratios and equivalent service ratios recommended by the A WW A. Tr. p. 96.
Another reason for not increasing the customer charge, the Citizens Coalition
contends, is that it tends to dampen the price signal of the high cost of water consumption during
peak use periods. It is this signal (price elasticity of demand) that provides accurate cost
information that allows customers to make rational decisions about their own economic
behavior. Tr. pp. 446 447.
In its cost-of-service analysis of peak costs, the Company, the Citizens Coalition
contends, assumes that costs rise in a proportional way with peak demand, Tr. p. 453.
Unfortunately, the Citizens Coalition contends, we have economic and engineering information
that tells us it is not a correct assumption. Tr. p. 454. Knowing that a design criteria exists tells
us nothing about the costs associated with meeting that design criteria. It takes cost analysis, not
just assumptions to move from a design criteria to cost-of-service analyses. United Water, the
ORDER NO. 28043
Citizens Coalition contends, has not provided that cost analysis. What is needed, the Citizens
Coalition contends, is the incremental cost associated with serving additional peak loads. Tr.
p. 454. The Company disagrees contending that the base-extra capacity method of water utility
cost allocation is not premised upon the identification of incremental costs. In reality, plant
facilities, the Company states, are designed and built as single units. Extra capacity costs are not
the incremental costs incurred in providing the extra plant capacity to meet above average needs.
Tr. p. 96. The Citizens Coalition concludes that United Water cost-of-service analysis is not
terribly useful in indicating how much higher peak period prices should be or to whom these
costs should be allocated. Tr. p. 460.
In assessing the Company s cost-of-service study Commission Staff makes the
following observations:
Costs are not allocated according to meter size. Tr. p. 283
By grouping general service customers together (residential, commercial
industrial and public authority), it becomes impossible to associate
specific costs with specific customers. Tr. p. 284.
Although the Study discloses costs associated with meeting peak day and
peak hour demand, it provides no direct information as to how costs vary
by season. Tr. p. 284.
The Cost-of-Service Study tells us nothing specific about load factor, or
characteristic patterns of usage. Tr. p. 284.
These limitations of the Cost-of-Service Study, in turn, Staff contends limits the linkage between
rate design and cost of service. Tr. p. 285.
We Find:
The Commission has reviewed and considered the Company s submitted cost-of-
service allocation study and related critiques of same. The average-and-excess methodology that
the Company has employed is the "base-extra capacity method." We find, as represented, that
the methodology employed is widely accepted within the industry. We note also that it is the
same methodology previously utilized by the Company. We accept the methodology as a
reasonable means of providing some insight and analysis into Company operations and costs. As
directly pertains to the Idaho operations of United Water, we find that the methodology has
ORDER NO. 28043
limitations. We specifically note the observations of Staff detailed above, which we agree
prevent any strict correlation between the cost-of-service study and rate design or in any
assignment of cost to a particular subgroup of general service customers (residential
commercial, industrial or public authority). We agree with the Company that the submitted COS
analysis and discussions are only one of many factors to be considered in actual tariff design.
Rate Design
United Water in this case is proposing a change in rate design. Its rate design
proposal, it states, is grounded in its cost-of-service findings, the obvious need to manage
customer demand giving the prevailing climatic conditions, and the needs of the Company in
terms of revenue sufficiency and stability. Tr. p. 158. The present rate structure (seasonal
winter/summer rates-Reference Case No. BOI-93-l), the Company states, fails to send a
conservation signal during the winter months and is perceived, as evidenced by complaints
received during the summer, to be unfair by customers whose usage is flat throughout the year
and who do not engage in outdoor summer irrigation/sprinkling. Those customers do not
understand why they are required to pay 25% more in the summer for the same volume used the
rest ofthe year. Tr. pp. 10-, 149, 168.
The present rate design for United Water Schedule 1 General Metered Service
customers is as follows:
Customer Charges
10"
Micron
Bi-Monthlv Per
Meter Charge
$ 13.
13.
17.
28.
41.64
76.
121.78
234.
353.
494.
234.
Meter Size
5/8"
3/4"
1 "
114" and 1-1/2"
ORDER NO. 28043
Volume (commodity) Charge
Winter Rates
For all water used per 100 cubic feet $0.9113
(CCF):
For all water used per 1 000 gallons $1.2183
Summer Rates
$1.1388
$1.5225
The rate design proposed by the Company includes the following features:
Customer Charge
Continuation of existing basic structure that recovers costs associated with
billing, meters, service and fire protection. As reflected in Exhibit 2
Schedule 1 , 30% of fixed costs incurred are to provide basic customer-
related services. An additional 4% is allocated to private and public fire
protection. (Note exception-UWI proposes to collect public fire costs
through the commodity charge. Tr. p. 289)
Proposed change in customer charge (redefinition of customer class based
on meter size.) Tr. pp. 150, 151.
Cost of Service results, the Company contends, support increasing the bimonthly customer
charge by as much as 39% (i., existing revenue recovered via customer-based service charges
973 023; proposed $6 911 745) see Tr. p. 430; Sch. 2, p. 9.
Commodity Charge
Proposed change in structure-three step inclining block (inverted block)
Base, intermediate and high volume rate blocks-based on meter size.
Tr. pp. 11 , 149; UWI Exh. 2.
Contending that there is a strong correlation between the consumption level of
customers and the size of the meter, the Company in this case has chosen to develop a rate
design with charges that differ by meter size-a redefinition of customer class based on meter
size and the introduction of an inverted rate block structure. Tr. pp. 150, 151; Exh. 2, p. 6.
Inherent in the Company s design proposal, it states, is the "right sizing" of meters to expected
demand characteristics (meter sizes 5/8" to 8"). Tr. pp. 151-152. Addressing this, the Company
proposes to submit tariff changes reserving unto itself the right (with appeal) to supply a meter
ORDER NO. 28043
based on an evaluation of customer consumption and limiting the frequency of meter change-
outs. Tr. pp. 156, 189-191.
The Company s proposal includes significant changes in the overall allocation of how
costs should be recovered (that is, the proportion to be recovered from fixed versus commodity
charges), and in the way commodity revenues are generated (inverted block versus
summer/winter differential). Tr. p. 154.
The critical factors to take into account in designing an inverted block rate structure
the Company contends are three:
1. When does the peak usage period occur?
2. How much water is used during base and peak periods?
3. At what point should a break point for basic water use and peak water use be set?
Exh. 2, p. 3.
Based on its review of water billings, the Company states that all customer sectors
(residential, commercial and public) exhibit a tri-modal usage pattern:
% of Total
ConsumptionResidential
winter-
summer-
base period
peak period
shoulder period
January-April
July-October
May, June, Nov, Dee
42.46%
30.57%
26.97%
Exh. 2, Sch. 5
Based on its review of data, the Company concludes that class differences are not of
significant relevance in tariff design for its water system. Instead, the key determinants, it
concludes, should be water usage patterns (with meter size being the best indicator of
consumption patterns Exh. 2, p. 6). The following composite water demand pattern developed:
% of Total
Consumption
Base period
Peak period
Shoulder period
47.31%
25.43%
27.26%
Exh. 2, p. 5
ORDER NO. 28043
In determining break points for its inverted block, the goal of the Company, it states
was to define a tariff structure that aims to charge customers for water based on their increasing
level of consumption and define a rate structure that could be used as a tool to encourage by
more precise pricing signals prudent use of water at all times. Tr. pp. 203, 205; Exh. 2, p. 7; see
Exh. 2, Sch. 21, 22-break points by meter size. As discussed by Staff, commodity block rates
are dependent on two factors: 1) the revenue to be generated in each block and 2) the volume of
water sold in each block. Tr. p. 299. Staff proposed break points based on the following: 1st
block-roughly equal to base consumption; 2nd block-peak-day costs; 3rd block-peak-hour costs.
Tr. pp. 300-301.
The revenue requirement determined by the Commission in Case No. UWI-97-
was $24 051 928. As reflected in Exhibit 2, Schedule 23, the revenue requirement components
for UWI are:
. Meter sales to customers in base UWI system
. Meter sales to customers in recently acquired systems (rate phase-in)
. Private fire protection revenues
. Other water revenues
The Company s calculated revenue requirement to be recovered from base meter sales is
$22 824 840: Customer Service Charges (recovery of $6 911 745) and Commodity Charges
(recovery of$15 913 094): base use: $10 635 000 first block (75% of use); peak use: $2 739 000
second block (next 15% of use), $2 539 000 third block (remaining 10% of use). Exh. 2, pp. 8
9; Exh. 2, Sch. 23 col. 7, line 4. The Company s calculation assumes the Micron consumption
adjustment and related decrease in operating costs ($10 150/yr).
The Company s proposed level for fixed customer charges was based on full
implementation of its cost-of-service findings. The result was customers with smaller meter
sizes (residential) getting large rate increases relative to customers with larger meters
(commercial, public customers). Tr. p. 155; Exh. 302. Recognizing that some adjustment was
likely, the Company indicates that it will support reducing fixed customer charges in favor of
increasing the first block of the commodity rate. Tr. p. 156. In general, the Company states that
Staffs Alternative B (inverted block) rate proposal accomplishes this goal and the Company
ORDER NO. 28043
would support and even prefers a rate schedule structured along those lines. Tr. pp. 39, 72, 73
156; StaffExh. 115 , 183.
Staff Alternative B Rates
Customer
Charge
$15.41
$15.41
$22.
$34.
$34.
$50.
$78.43
$121.57
$227.
$344.
$227.
Consumption Limits
1 st Block 2nd Block24 24 47 150140 440140 440300 950740 2 300700 5 000900 8 600900 8 600000 82 000
Commodity Charge
1 st Block $0.88172nd Block $1.06363rd Block $1.2855
Under Staff Alternative B, customer charges are moved halfway to cost-of-service
from the rates in effect prior to the revenue requirement phase of this case (UWI - W -97 -6). The
rate in the first block is higher than UWI's proposed rate, but the rates in the second and third
blocks do not increase as quickly. Tr. pp. 295 , 296. Under the existing rate design slightly over
21 % of revenue is collected through customer charges. Under Staff Alternative B, 25% of
revenue will be generated from customer charges. Tr. p. 418. It is to be noted that Staff, as did
the Company, recommends that Micron because its usage differs so much from that of other
customers be placed in a class by itself. Tr. pp. 277, 312-314 (1 st block size 33 ccf; 2nd block
000 ccf); Exh. 119.
Staff contends that an appropriate rate design will attempt to balance the following
factors: equity, simplicity, and conservation. Tr. pp. 277 278.
Numerous rate proposals were put forward by the other parties to this case:
Ullman rate proposal : Tr. p. 565
Customer charge-no change (Tr. p. 563).
Commodity charge-inverted block
ORDER NO. 28043
Block 1
Block 2
Block 3
$0.92-just above current winter rate ($0.9113)
$1. 14-current summer rate (24% higher)
$1.36-(48% higher)
Block Size: e., 5/8" meter
Block I-First 45 ccf
Block 2-Next 45 ccf
Block 3-Greater than 90 ccf
No rate proof submitted. By maintaining a "relatively" lower customer
charge and increasing the per unit charge for water itself, Ms. Ullman
maintains that there is a closer link between each ratepayers usage and
resulting bill-water conservation is thereby promoted. Tr. p. 561.
Ms. Ullman contends that pricing presents the philosophical question of how to
balance the issue of cost of service versus a conservation incentive and a social conscience
(societal obligation to help less fortunate and to provide basic needs). Tr. pp. 562, 563.
Addressing the needs of the less fortunate, Ms. Ullman suggests that the Company
develop a low income water assistance program. Tr. p. 564.
Ms. Ullman further suggests that customers with continuing aesthetic water quality
problems (i., iron/manganese) should receive a price adjustment. Tr. p. 566.
Idaho Citizens Coalition rate proposals: Tr. pp. 433-435
Base period costs spread over base & shoulder period consumption
Peak day/hour costs spread over peak period consumption
($0.48/winter)
($2.33/summer)
2. Rates calculated on average & peak use above average
($0.36/winter)
($1.53/summer)
3. Collect peak costs during peak & shoulder periods -($1.12 peak & shoulder)
Collect base costs only during base period - ($0.76 base)
4. Three block rate structure: Tr. p. 461.
Block 1-25%-winter rate-(small block)
Block 2-50%-summer rate-(majority of consumption)
ORDER NO. 28043
Block 3-25%-several times initial Block rate (relatively modest, but
significant percentage of summer consumption)
5. Summer surcharge that applies to summer consumption exceeding avg.
winter consumption (approximately 31 % of summer usage in initial blocks)
$0.91 winter; summer Block $1.24 summer Block 2
No change in customer charge. Tr. p. 466.
Dr. Power, the witness for the Idaho Citizens Coalition, objects to a shift in revenue
recovery from use charges to fixed charges and from peak period use to off-peak period use. Tr.
p. 431. It is peak summer consumption, Dr. Power maintains, that is driving UWI costs upward.
To reduce bills during this period sends the wrong message to customers. Tr. p. 432.
Dr. Power recommends that the design of rates for UWI customers in this case be
guided by the following principles:
1. The bimonthly customer charges should not be increased.
2. Summer bills should not be reduced significantly.
3. The summer tailblock rate should provide a substantial incentive to reduce summer
consumption.
4. There should not be wide and disruptive billing impacts. Tr. p. 460.
Dr. Power in his rebuttal testimony states that the Commission should be very
cautious about adopting any of the proposed changes in rate design and suggests that the current
rate design be maintained, albeit with a somewhat higher summer rate. Tr. pp. 472, 473.
Alternatively, he suggests something similar to his No.5 rate proposal with the base rates at
close to the current winter rate and initial summer block equal in size to the average winter use.
Tr. p. 473. Regarding customer complaints and confusion as a stated reason for changing rate
design, Dr. Power suggests the need instead for better customer education as to the reason water
rates rise in the summer. Tr. p. 476.
Coalition of United Water Customers rate proposal: Tr. pp. 594-596
Flat uniform customer charge: regardless of meter size or
consumption level of customer to recover all fixed customer costs
($6 911 745). Tr. pp. 591 600; Staff Critique Tr. pp. 320-321.
ORDER NO. 28043
Dr. Reading, the witness for the Coalition of United Water
Customers, contends that meter sizes are highly correlated with usage
level. He concludes that it is thus redundant to have a customer
charge based on usage and at the same time a commodity charge
based on usage. Tr. pp. 600-601.
Commodity Charge: excess use structure based on individual
customer winter usage (base); Staff Critique Tr. pp. 323-327.
Excess Consumption Charge: (2 x base charge) applied to shoulder
and summer months. Tr. pp. 82, 596; Staff Critique Tr. pp. 321-322.
Block Sizes
Shoulder Months-Base consumption equal winter plus 15%
Summer Months-Base consumption equal winter plus 30%.
Staff Critique Tr. pp. 327-328
Customer Charge
Commodity Charge
$20.($6 911 745)
Basic Rate
Irrigation Rate
$0.65/ccf
$1.311ccf
($5 946 689)
($9 966 406)
Exh. 302, Sch. 3; Tr. p. 596
The stated goal of Dr. Reading s proposed rate design is not to reduce water usage in
the absolute, but to reduce the amount of potable water wastefully being used for irrigation. Tr.
p. 599. Dr. Reading contends that excess usage is almost always irrigation-related. His rate
design, he contends, encourages dual water systems. Tr. p. 603.
Dr. Reading indicates that the members of his Coalition (Micron and Hewlett-
Packard) would expect to see significant rate reductions as a result of his rate design (Micron
32% decrease; Hewlett-Packard 36% decrease). Tr. p. 610, Staff Exh. 131 , Tr. pp. 322-323.
This is because his client group, he states, are large flat-use customers with good load factors.
Dr. Reading contends that the industrial customers of United Water system are substantially
subsidizing other customers. This is not fair, he states. Tr. p. 610. The longer subsidies exist
the more harm is done he maintains. Tr. p. 611.
ORDER NO. 28043
Dr. Reading contends that an inverted block sends erroneous and inefficient pricing
signals in winter -, discourages added consumption. Tr. pp. 25-, p. 590. Staff Critique
Tr. pp. 328-330. See also discussion Sterling at Tr. p. 287 relating to economic efficiency and
sound management of limited resources. Also Tr. p. 68.
We Find:
The Commission has reviewed and considered the numerous rate design proposals of
the parties. The Commission and all parties recognize that there are any number of rate designs
that will provide the Company with a reasonable opportunity to recover its authorized revenue
requirement. The existing and all proposed rate designs consist of a customer charge and a
commodity charge. In this case we consider the reasonableness of changing the commodity
charge from the present seasonal winter/summer rate structure, which charges customers 25%
more for the five months of summer usage to a year-round or seasonal inclining block rate
structure. The perceived need for change was to address what has been a recurring seasonal
pattern of complaints from customers who perceive the summer surcharge to be unfair
especially as it affects those customers who have no summer irrigation or sprinkler use. The
Citizens Coalition alone recommends that we retain the existing structure but increase efforts to
educate the public as to the reasons for the winter/summer differential.
No party, we note, contends that the present seasonal pricing has been ineffective in
reducing peak use or in sending appropriate pricing signals during the season of peak use
(summer). Instead, what is suggested is that a rate structure that sends a uniform year-round
conservation signal may be a better method of encouraging wise and responsible water use
choices.
Unfortunately, we are presented with proposals that are more complex rather than
simpler and easier to understand. We are concerned that the customer will be provided with no
signal that a pricing threshold has been crossed and that additional consumption will be more
expensive. Weare concerned that the average customer does not realize that 100 cubic feet of
water (ccf), the measure by which the Company calculates usage, is 748 gallons. We are
concerned that the Company will be no more successful in explaining an inverted block to its
customers than it has been in explaining seasonal rates. For these reasons and because it has not
been demonstrated that a change is required or that the existing rate design is unfair, we are
ORDER NO. 28043
reluctant to abandon the present summer/winter rate structure. We further agree with Dr. Power
that the Company s efforts regarding customer confusion and the perceived unfairness of rates
should be directed at developing and providing more effective education as to the reasons for the
summer/winter rate differential.
In addition to a change to the commodity rate structure, the Company and others
propose to increase the customer charge.As acknowledged by all parties, increasing the
customer charge will shift revenue generation away from the commodity or usage charge. This
in turn will have the effect of dampening the conservation and pricing signal that is to be
conveyed by the summer rates. It is also recognized that increasing the fixed customer charge
beyond present levels may serve to create further hardship for the low or fixed income customer
to whom the ability to control costs may be more critical. The Company, we note, has neither
contended nor demonstrated that an increase in the customer charge is necessary to meet monthly
operating expense. We find that there is no requirement that customer cost be recovered in the
customer charge component to rates.We find that no change in the customer charge
necessary.
Further Public Hearing
No customers appeared at the scheduled evening hearing for public testimony in Case
No. UWI-98-3. Discussion ensued as to whether sufficient or adequate notice had been
provided. The Commission s Rules of Procedure require Company notice to customers of
proposed changes in rates. IDAP A 31.21.02.102. Proceedings in the Company s present general
rate case were bifurcated by the Commission into two phases: (1) revenue requirement and (2)
cost of service/rate design. The Company provided customer notice in the rate requirement
phase, however, not in the cost-of-service/rate design phase. The Commission issued Notices of
Application and Hearing in both phases of the case and disseminated its Notice of Hearing in this
case to the local news media and to interested parties registered with the Commission Secretary.
We Find:
In considering the necessity of further public hearing in this case, the Commission
based on its recollection and review of the record and the testimony of the parties, finds that the
ORDER NO. 28043
public interest and the interest of all customers has been well represented and that there is no
need for further hearing.
Intervenor Funding
Timely Petitions for Intervenor Funding were filed by the Idaho Citizens Coalition
Sharon Ullman and the Coalition of United Water Customers. Reference IDAPA 31.01.01.161.
United Water on April 5 filed a reply to the Petitions for Intervenor Funding. On April 14, the
Idaho Citizens Coalition filed a response. The petitioners in their filings request the following
amounts:
Idaho Citizens Coalition:
Consulting Fees, Thomas Power
Research Fees, Al Fothergill
Subtotal
& Expenses
Total
Sharon Ullman:
ResearchlPreparation, etc.
Expenses
Total
Coalition of United Water Customers:
(Micron Technology and Hewlett Packard)
186 hours (ill $75/hr $13 950
43 hours (ill $40/hr 720
$15 670.
825.
166.
$16 661.
53 ills (ill $40/hr $2.120.
59.
179.
Legal
Expert
Expenses
Total fees and
expenses
Recognizing the Idaho Code ~ 61-617 A statutory limit, the Coalition requests
128.8 ills (ill $165/hr. $21 249.
134.7 ills (ill $155/hr. $20 875.
$509.
$42 633.
$25 000.
United Water notes that intervenor funding is not "free money" and recommends that the
Commission carefully evaluate the Petitions in light of the prescribed criteria set forth in IDAP A
31.01.01.162, i.e., whether further detail is necessary; whether financial hardship has been
demonstrated; whether individual customers qualify for funding.
We find:
We find that the testimony of the Idaho Citizens Coalition materially contributed to
our understanding of the issues addressed in this case and the decision finally reached. We find
that the Idaho Citizens Coalition s case materially differed from the testimony and exhibits of the
ORDER NO. 28043
Commission Staff and that the intervenor addressed issues of concern to the general body of
ratepayers and not to any particular class. We find the itemized costs of intervention of the Idaho
Citizens Coalition to be reasonable in amount and further find that the costs would constitute a
significant financial hardship for the organization. We find that the application for intervenor
funding of the Idaho Citizens Coalition complies with the letter and spirit of Idaho Code ~ 61-
617A. We therefore find it fair, just and reasonable to allow the Idaho Citizens Coalition to
recover its costs and expenses in the total sum of$16 661.87.
The Petitions of the remaining intervening parties Ms. Sharon Ullman and the
Coalition of United Water Customers need to be dealt with separately. As pertains to the
Application of Ms. Ullman, we find that her Petiton satisfies the underlying requirements of
Idaho Code ~ 61-617(a) and IDAPA 31.01.01.165. Ms. Ullman s contribution to our decision in
this case, however, we find was not nearly as significant as the Idaho Citizens Coalition, which
offered a witness better able to provide meaningful analysis, testimony and exhibits.
Nevertheless, we find that Ms. Ullman is an inveterate champion of the low and fixed income
customer. Her presentation of this view assures that it is considered in our deliberations. Based
on our review and consideration of the record and Ms. Ullman s related contribution to our
decision, we are unable to justify an award, however, equal to the amount requested. We instead
award Ms. Ullman $589., an amount that we find to be just and reasonable.
As to the remaining Petition, the Coalition of United Water Customers (Micron and
Hewlett-Packard), we are unable to find that the requirements of Idaho Code ~ 61-617(a) and
IDAPA 31.01.01.165 are satisfied. Not only, as reflected above, did its presentation not
materially contribute to our decision in this case, we find that the positions and proposals
advanced by this Coalition were blatantly self-serving. Despite its representations to the
contrary, it is also difficult for this Commission to believe that a significant financial hardship to
the Coalition (Micron and Hewlett-Packard) would be the result of a denial of costs; or that the
member companies would not otherwise participate if it was perceived to be in their economic
interest. We accordingly find it reasonable to deny the Petition for Intervenor Funding filed by
the Coalition of United Water Customers.
ORDER NO. 28043
Timing of Implementation
It is the Company s expressed preference that any change in rate design be deferred
until the beginning of calendar year 2000. Tr. p. 66.
We Find:
In as much as we make no change in rate design, we find it unnecessary to defer the
effective date of this Order.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over United Water Idaho Inc.
a water utility, and its Application in Case No. UWI-98-3 pursuant to the authority and power
granted under Title 61 of the Idaho Code and the Commission s Rules of Procedure, IDAPA
31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby reaffirm the reasonableness of
continuing with the present rate structure and tariffed rates of United Water Idaho Inc.; IT IS
FURTHER ORDERED and the Commission does hereby reject the proposed Micron adjustment
to test year consumption; IT IS FURTHER ORDERED and the Commission does hereby award
intervenor funding to the following intervenors in the following amounts: Idaho Citizens
Coalition $16 661.87; and Ms. Sharon Ullman $589.84. Pursuant to Commission Rules of
Procedure 165., United Water is directed to pay said amounts within 28 days of the date ofthis
Order. IT IS FURTHER ORDERED and the Commission does hereby deny the Petition for
Intervenor Funding filed by the Coalition of United Water Customers.
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.
ORDER NO. 28043
DONE by Order of the Idaho Public Utilities Commission in Boise, Idaho this cMC;
day of May 1999.
Commissioner Smi th' s Dissenting
Opinion is attached.
MARSHA H. SMITH, COMMISSIONER
~/',-,-
Myrna J. Walters
Commission Secretary
vld/O:UWI- W -98-3 _sw.doc
ORDER NO. 28043
DISSENTING OPINION OF
COMMISSIONER MARSHA H. SMITH
I must respectfully dissent from the majority opinion issued in this case. The record
in this case, I believe, supports (1) an adjustment to the test year consumption of Micron, (2) an
increase in the customer charge, and (3) a change from a seasonal commodity rate to an inverted
block.
1. Micron Adjustment.
I believe that the Company in this case has provided sufficient and adequate
documentation to demonstrate that Micron has implemented conservation and reclamation
measures that have reduced its consumption significantly below test year levels. While Micron
historic month-to-month and year-to-year consumption exhibits significant variability and
although Micron identifies numerous factors that influence its consumption, the fact remains that
a significant and continuing reduction in consumption has been noted and documented since
Micron s waste water reclamation equipment was brought on-line. See UWI Exhibits 4 and 6.
What is an appropriate figure to use for Micron consumption can be debated;
certainly the record reflects it should be lower than the test year consumption figure of 580 661
ccf. United Water proposes a largely estimated projected number, 396 375 ccf. Reference UWI
Exhibit 3. Even Micron, whose self interest might dictate maintaining the higher test year figure
suggests that a more appropriate number (at least for the next 12 months) may be 450 000 ccf.
Micron is the Company s largest single customer. It is unreasonable not to recognize
a change of this magnitude in its consumption. Failing to recognize the reduction tends only to
increase the chances that the Company will be denied a reasonable opportunity to collect its
allowed revenue requirement and earn a return deemed reasonable by the Commission.
2. Customer Charge.
Some increase in the bi-monthly customer charge is warranted based on the
Company cost-of-service study and what I find is a reasonable goal of providing more year
round stability in the Company s revenue stream. I believe that a heavy weighting of revenue
recovery in the commodity charge presents operating problems to a company that sells 60%
its water in the five summer months. While I recognize that an increase in the customer charge
DISSENT
will dampen the summer price signal, I find that it is important to balance the needs of the
Company and the customer.
I find that I agree with many of the points the Citizens Coalition made in critique of
the Company s cost-of-service, particularly with respect to a proposed allocation of costs on a
consistent and similar weighted basis. I also agree with Staff s observations on page 9 of this
Order. While the cost-of-service study may have some obvious deficiencies or shortcomings, I
do not believe that its findings regarding general level of non-usage related costs should be
summarily dismissed. It still offers information of value in rate design.
Under existing rates the Company receives approximately 21.8% of its annual
revenue requirement from customer charges. For a residential customer this equates to a bi-
monthly customer charge of $13.51. A move to full cost-of-service the Company contends
would result in collecting 31 % of its revenue requirement from customer charges, a related bi-
monthly customer charge for residential customers of $18.39. Staffs proposal B , which the
Company supports, proposes moving halfway to full cost-of-service, collecting approximately
25.2% of the revenue requirement from the customer charge, resulting in a calculated bi-monthly
customer charge for residential customers of $15.41. I would support a relatively modest
increase in the customer charge in the range of$15.00.
3. Commodity Charge.
My colleagues have elected to maintain the present seasonal rate structure, despite
the acknowledged seasonal pattern of complaints, confusion and perceived inequity. Although
improved customer education is a laudable goal in and of itself, I do not believe that it is the total
answer. I believe that a more reasonable approach would be to take this opportunity to move to
an inverted block, a rate structure that is able to provide throughout the full year a more uniform
conservation message and pricing signal.
JJ~
MARSHA H. SMITH, COMMISSIONER
bls/O:uwiw983 - msdissentdoc
DISSENT