IDAHO PUBLIC UTILITIES COMMISSION

Case No. UWI-W-04-04, Order No. 29838

August 3, 2005

Contact: Gene Fadness (208) 334-0339

Website: www.puc.idaho.gov

 

 

United Water allowed 7.68 percent increase

 

Boise – The Idaho Public Utilities Commission today approved a 7.68 percent rate increase effective immediately for United Water Idaho, Inc., which serves about 75,400 customers in Ada and Canyon counties.

 

Today’s order finalizes a major rate case originally filed by United Water on Nov. 30, 2004. United Water initially sought an increase of about 22 percent and later reduced its request to 18 percent.

 

United Water is allowed an annual increase of $2,435,516 in its annual revenues. The company originally requested $6.77 million and then modified its request to $5.6 million. United Water is allowed a return on equity of 10.3 percent and a cost of debt of 6.675 percent. The company sought 11.1 percent return on equity and a 6.9 percent cost of debt. The overall rate of return is 8.357 percent. The company originally sought 8.93 percent.

 

The order denies United Water’s request for a 36 percent increase in its bi-monthly service charge from $14.47 to $19.86. The commission said the company’s current customer service charge is sufficient to recover customer costs related to meter reading and billing.

 

The order also approves a water bill assistance program for low-income customers and a small summer block rate that allows customers to pay the non-summer rate (25 percent less than the summer rate) on the first 300 cubic feet (2,244 gallons) of bi-monthly use during the summer months. An average household uses about 10,750 gallons for indoor use over a two-month period, according to the American Water Works Association Research Foundation.

 

Expenses related to rapid customer growth prompted the rate increase request. United Water stated it has gained 10,000 customers and its operating costs have increased by $4.7 million since its last rate increase in 2000.

 

The company asked for an increase of $41.2 million in its rate base, which is the utility’s capital investment from which rates are calculated. The increase in rate base is attributed to major capital investments for the newly opened Columbia Water Treatment Plant ($28 million); for wellhead treatment for the Bali Hai and Maple Hills wells ($2 million); for water storage facilities to provide fire protection and sustainable pressure to customers ($3.5 million); and for replacement of aging infrastructure that includes 16 miles of water mainline, 2,900 water services and 22,000 meters ($11 million).

 

All told, the company claimed its rate base, from which customer rates are calculated, increased from $98.8 million in the 2000 rate case to $140.1 million. The commission approved a rate base of $126.8 million.

 

A major issue in the case was the different methods used by United Water and the commission staff to calculate rate base. When determining rates for regulated utilities, the commission uses a “test year,” a 12-month period intended to accurately reflect expenses and revenues for future years during which the new rates are effective. Ideally, abnormal and one-time expenses and revenues should not be included in a test year.

 

United Water filed its case with a test year ending July 31, 2004, and also proposed to include investments that occurred after the end of the test year through May 31, 2005. The company used a year-end rate base calculation, including all plant added during or after the test year as if it were in operation the entire year.

 

Commission staff proposed, and the commission accepted with some modification, a 13-month average methodology, that would more accurately reflect a typical month’s expenses and revenue. Commission staff expressed concern that including plant investment not yet completed accounts for only the expenses the company incurs – which increase rates for customers – while not counting the increased revenue and decreased expense that new plant provides, which can decrease rates for customers. Further, commission staff argued, plant investment has to be “known and measurable,” before it can be recovered from customers. Including plant investment too far into the future makes it difficult to accurately measure those expenses, staff maintained.

 

United Water did make some adjustments, increasing its test year revenue by $462,480 to account for new customers and reducing expenses that would result with the construction of the new water treatment plant.

 

United Water argued that it used the year-end rate base calculation in four rate cases since 1993 and the commission approved those calculations. However, the commission did express disapproval of that method in the past and instructed the company at that time to present a 13-month average calculation of rate base in its next general rate case. While staff approved extending test year expenses through Dec. 31, 2004, the commission agreed to include plant investment through March 31, 2005. The commission included all investment for the Columbia Water Treatment Plant within the test year.

 

The commission made numerous adjustments to the company’s operating expenses and revenues in areas such as the purchase of water rights, payroll, employee retirement and incentive plans and expenses related to the rate case.

 

The commission denied United Water’s request to switch to a monthly billing plan rather than the current bi-monthly billing. The commission agreed with United Water that monthly bills would send a more current price signal to customers on the cost of their current usage. However, the commission did not want to increase the company’s revenue by another 3.4 percent to account for the $1 million in expenses the company claims it would need to convert to a monthly plan. The commission encouraged the company and commission staff to convene a workshop that can address billing issues, including the possibility of a budget-pay plan.

 

The commission approved an agreement negotiated between United Water and the Community Action Partnership Association of Idaho regarding a summer rate block, a “United Water Shares” program to provide financial assistance to eligible customers and the distribution of a water conservation kit to those same customers. United Water agreed to contribute $10,000 this year and then match customer contributions up to a maximum $20,000 each year after 2005.

 

While the commission strives to implement the lowest possible rates for regulated utilities, it is required by state law to allow utilities recovery of all “prudently incurred,” expenses needed to serve customers and to also allow investors a reasonable return on their investment.

 

A full text of the commission’s order, along with other documents related to this case, are available on the commission’s Web site at www.puc.idaho.gov. Click on “File Room” and then on “Water Cases” and scroll down to Case No. UWI-W-04-04.

 

Interested parties may petition the commission for reconsideration by no later than Aug. 24. Petitions for reconsideration must set forth specifically why the petitioner contends that the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted.

 

Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.