VI. Rate Design

Keene currently charges a flat rate of $4 per thousand gallons of water used. The Commission's Standard Practice U-7-W allows recovery of 50% of the utility's fixed costs in the service charge for Class A and B water companies, 65% for Class C, and 100% for Class D. However, Keene seeks only to recover 50% of its revenue requirement through a service charge and the balance through commodity charges. The Water Division does not object to this 50% proposal, but the Division also indicates that it does not oppose Stonybrook's and Beard's proposal to recover 100% of the utility's revenue requirement through commodity charges.

Stonybrook and Beard argue that their 100% commodity charge proposal will encourage conservation, avoid penalizing residents who are absent for long periods, avoid charging water users for water they do not actually receive (such as the result of outages), and allow water users to mitigate rate increases by reducing their use.

Water conservation is normally a beneficial goal, but in the case of this small water utility, commodity pricing may result in so much conservation that insufficient revenues are generated to meet the utility's revenue requirement. (See, e.g., CPUC Water Action Plan at 7 (Nov. 9, 2005).) Also, some costs exist even when a customer is not using water and must be paid so that the customer does have water service when he or she returns. The result of this scenario may be inattention to maintenance or deterioration of services or increased commodity charges. Rates recouping one-half of the revenue requirement through a service charge provide financial stability to this small water utility and allow water users to more accurately estimate their bills.

The Commission rejects the proposals for 100% commodity charges and adopts Keene's rate design proposal: 50% service charge with the balance recovered in a commodity charge. Beard's concerns that a 50% service charge penalizes water users who leave for periods when water is unavailable should be addressed, as they are in this decision, by steps to improve water supply reliability-not by depriving the small system of needed revenues. The Commission determines that this rate design is in the public interest.