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WATER/FLC/ABJ/MEY:jrb

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

WATER DIVISION RESOLUTION NO. W-4473

RESOLUTION

(RES. W-4473), WEIMAR WATER COMPANY (WWC). ORDER AUTHORIZING A GENERAL RATE INCREASE PRODUCING ADDITIONAL ANNUAL REVENUES OF $143,541 OR 63.0% IN 2004.

SUMMARY

This resolution grants a general rate increase in gross annual revenues of $143,541 or 63.0% for Test Year 2004. This increase will provide a 12.76% rate of return on a rate base of $366,783.

BACKGROUND

WWC currently serves 400 metered-rate customers in the town of Weimar and vicinity, located approximately 10 miles northeast of Auburn, Placer County.

WWC is requesting authority under Section VI of General Order (G.O.) 96-A and Section 454 of the Public Utilities Code to increase rates for water service by $143,541 or 63.0% in 2004. The purposes of the rate increase are to recover WWC's increased operating expenses and to allow WWC the opportunity to earn an adequate rate of return. WWC's request shows gross revenues of $227,815, at present rates, increasing to $371,356, at proposed rates, and a rate of return of 12.90%. The current rates were established on August 2, 1996, pursuant to Commission's Resolution (Res.) W-3994, which authorized a general rate increase of $4,589 or 2.7% and a rate of return of 13.25%.

DISCUSSION

Under the provisions of the Water Division's (WD) outreach program, the WD staff assisted WWC in preparing this general rate increase request (GRC). The joint effort was filed on December 17, 2003.

WD performed a comprehensive investigation of WWC's books and formulated a summary of earnings for Test Year 2004. Appendix A contains estimates for operating revenues, operating expenses, and rate base, at both present and proposed rates for the Test Year. Due to the fact that the GRC was conducted as an outreach, both WWC and WD estimates are identical with exception of two expense items. After the pubic notice and during its investigation, WD staff revised its estimates of purchased water and uncollectibles. The updated estimates are shown in Appendix A. WWC was informed of the adjustments and agreed with them.

WWC also requested that it be allowed to establish a Facilities Fee tariff schedule in anticipation of future growth. WD has suggested the standard Facilities Fee tariff schedule1 be implemented and WWC concurred.

As part of the rate investigation, WD staff made a field visit to WWC's premises. During the visit, WD staff found that the existing service area map on file with the Commission is a topographical map with limited identification and is not easily readable. This is in non-compliance with G.O. 103, Section I.10.a, which requires a utility to have a system map which is clear and legible.

The field investigation revealed some maintenance items. Most notably was the need for maintenance on all the storage tanks. The visible portions of the tanks revealed that they needed painting. WWC agreed that there was a need, but that it had not been anticipated in the GRC. Other items included the need for dredging of the sedimentation pond and the rehabilitation of the second filtration unit. For the most part the system appeared to be well maintained.

WD makes allowance for various regulatory commission expenses in its recommended rate increase. G.O. 103 requires utilities to meet standards of service, construction, and fire protection. WD has conferred with California Department of Health Services (DHS) and Placer Hills Fire Protection District (PHFPD) and has confirmed WWC's compliance with G.O. 103 requirements in these areas. The recommended Test Year Regulatory Commission Expense is $1,379 of which $521 pertains to the annual DHS fees. Therefore, only DHS fees in excess of $521 may be recovered using the memorandum account authorized by the Commission in Res. W-4327, dated March 6, 2002.

WWC currently has two rate schedules: Schedule 1-A, Annual General Metered Service, for its residential customers, and Schedule TR-1, Resale Service, for three customers that resell water to users within its own designated service territory. Schedule TR-1 rates are lower than Schedule 1-A rates. During its investigation, WD determined that having two separate rate schedules was not reasonable and recommended that only one schedule, Schedule 1-A, Annual General Metered Service, be adopted for all WWC customers. WWC concurred. The three customers presently on the TR-1 schedule are: Midway Heights County Water District (MHCWD), Timberhills Mutual Water Company (THMWC), and Weimer Institute, a multi-unit facility used primarily for meetings and retreats.

Of the three above-mentioned customers, only MHCWD protested the elimination of Schedule TR-12. MHCWD purchases potable water for resale to its own customers and it does not have its own treatment plant. MHCWD receives treated water from WWC and stores it in its own storage tank. Because of this, it is able to purchase water utilizing a much smaller meter than would be required for normal demand3. The gravamen of MHCWD's complaint was that, after the rate design was done, too much of the fixed costs were in the commodity charge4. Because MHCWD buys a large amount of water, it was concerned that it was paying more than its fair share of fixed costs.

WD held numerous telephone conversations with MHCWD. WD pointed out that as fixed costs are allocated to the service charge, small usage customers will see a higher percentage increase in their bills than average use customers (although the bills themselves will be smaller due to lower usage). Traditionally, such shifting has been limited to zero usage customers seeing an increase of twice the system average percentage rate. That is why there were still some remaining fixed costs in the commodity charge.

In this case MHCWD with its two-inch meter is presently paying $65.18 per month in the service charge and $1.196 per one hundred cubic feet (Ccf) commodity charge (3/4 inch customers are paying $8.20 per month and $1.35 per Ccf). Based on the system average increase of 63.0%, the maximum impact would be on a ¾ inch meter customer who uses no water. In that case the service charge is limited to $18.38 for the ¾ inch customer ($18.38 - 8.20 = $10.18. 10.18/8.2 = 124.2% increase). In order to cap this service charge at $18.38, we can allow only 44% of the fixed costs in the service charge. The equivalent 2-inch meter charge, using adopted Commission meter ratios, is $661.71.

In addition to this limitation, WD pointed out that, because MHCWD's meter size is unusually small, they were actually paying less than the normal proportional share of fixed costs that Weimar incurred5. After much discussion, MHCWD was willing to withdraw its protest if Weimar were allowed to file annually to add more of its fixed costs to the service charge. Staff agreed and has added that provision to this order.

Although the proposed rate design will result in a slightly higher that system average increase in the first year to MHCWD (73% versus the 63% system average), as time passes and more of the fixed costs are included in the service charge, this disparity will disappear.

In order to address MHCWD's concerns, staff recommends that WWC be allowed to file in 2005, and in subsequent years, an advice letter to increase its rates by the Consumer Price Index (CPI) as allowed by Decision (D.) 92-03-093, March 31, 1992 (the Risk Phase One Decision) and, at the same time, to include more of its fixed costs in the service charge. This will reduce the percentage of fixed costs that must be recovered in the commodity charge and reduce MHCWD's water bill accordingly. WWC should be ordered to coordinate with staff prior to its CPI filing to address the rate shock of this plan, which would phase in rates to the Commission-approved rate design over the next few years.

WD reviewed and examined plant accounts from 1996 (last GRC) through 2003 and corrected mathematical errors that were carried from year-to-year. WD staff noted 2003 plant additions totaling $9,0006 as being used and useful. WD staff found these additions to be reasonable and has included them in the average utility plant-in-service figure of $1,129,430.

Because of the mathematical errors, WD staff calculates that the beginning-of-year 2003 figures should be as follow:

 

 

Beg. Of Year

Account

Description

2003

     

301

Intangible Plant

$ 1,547

303

Land

$ 14,204

304

Structures

$ 47,312

307

Wells

$ 0

317

Other Water Source Plant

$ 0

311

Pumping Equipment

$ 48,228

320

Water Treatment Plant

$ 129,246

330

Reservoirs, Tanks, & Sandpipes

$ 30,196

331

Water Mains

$ 634,964

333

Services & Meter Installations

$ 50,297

334

Meters

$ 32,126

335

Hydrants

$ 23,698

339

Other Equipment

$ 56,657

340

Office Furniture & Equipment

$ 14,247

341

Transportation Equipment

$ 42,207

 

Total

$1,124,930

WWC has indicated the following plant additions for 2003 through 2006:

WD notes that some of these projects have been recommended in the Department of Health Services Annual Report, as being projects that WWC should pursue in an effort to increase reliability, therefore the projects are considered justified. However, it is Commission policy not to allow plant additions until the plant item is used and useful to the water company. With this in mind, WD would recommend that WWC be allowed to file for rate base offsets, via advice letter filing, once the projects are completed and used and useful to water utility.

The accumulated depreciation reserve needs to be corrected because of the mathematical errors discussed previously. WD staff has corrected mathematical errors in plant that were carried from year-to-year since 1996. In addition, WD staff applied the recommended depreciation rate of 2.9% from 1996 through 2003 to determine the accumulated depreciation reserve. These corrections resulted in a 2003 beginning-of-year balance for the accumulated depreciation reserve of $535,684. WD notes that WWC's annual reports have not reflected the correct depreciation expense and accumulated depreciation reserve balance.

The recommended Average Depreciation Reserve for the Test Year is $552,121.

In D. 92-03-093, dated March 31, 1992, the Commission adopted the operating ratio method of ratemaking as an alternative to the rate of return method for Class C and D water utilities. Thus, two methods are available for WD to utilize in the rate-making process: Return on Rate Base (net investment) and Operating Ratio. WD is required to calculate the revenue requirement utilizing both methods. Policy dictates that WD will recommend the method that produces the higher revenue. Comparison of the revenue requirement in this case using both methods indicates that the return on rate base method produces a higher revenue requirement. In keeping with policy, WD used the return on rate base method for determining the revenue requirement.

WD is recommending a rate of return of 12.76% instead of the midpoint, 12.90%, of the standard rate-of-return range (12.40% to 13.40%), recommended by the Division's Audit & Compliance, for Class D water utilities7. This slightly lower rate is due to WD not adjusting the revenue requirement when it made changes to the Purchased Water and Uncollectible Expense accounts. WWC did not object to this lower rate of return because it did not change the total revenues that WWC initially requested.

NOTICE AND PUBLIC MEETINGS

WWC mailed a notice of the proposed rate increase to each customer on December 26, 2003. A total of five responses to the notice protesting the increase were received by the WD. The WD has responded to the five protestants in writing.

On January 20, 2004, WD staff held an informal public meeting in WWC's service area. Approximately 35 individuals attended the meeting. Eleven of the attendees were members of MHCWD or THMWC. During the meeting the Commission representative explained the CPUC rate-setting procedures.

WWC customers who were present at the public meeting were asked to comment on service, quality, and pressure. Only one customer had a concern over low pressure and indicated that WWC was attempting to correct it. All other customers had only good things to say about WWC.

A representative of MHCWD expressed a concern with the proposed rate design. The WD representative indicated that the staff would consider his concerns when making its final recommendations to the Commission. The general overall consensus was that the increase was too high and would cause financial difficulties for individuals. For the most part, those in attendance recognized the need for some sort of increase, but were opposed to the magnitude of the increase requested.

Subsequently, in his February 3, 2004 letter to the Water Branch, the Director of MHCWD, Mr. Craig Stone, protested the use of

"the same rate structure to MHCWD and to WWC's own residential customers... fails to differentiate between the costs of the WWC treatment facility and the WWC distribution facility. The proposed rate structure thus burdens MHCWD customers with a substantial portion of the cost for WWC distribution facility as well as the MHCWD distribution facility. We believe this bias is inappropriate."

Mr. Stone did not provide an analysis of MHCWD's position in his letter, but subsequent staff discussions with Mr. Jason Tiffany of the same organization revealed that MHCWD believes that it unfairly has to pay the carrying cost of WWC's plant that does not actually serve them.

A discussion of this protest and the staff's response on this MHCWD issue has already been addressed in the previous section. MHCWD has since withdrawn its protest.

FINDINGS

1. The WD's recommended Summary of Earnings (Appendix A) is reasonable.

2. The rates recommended by the WD (Appendix B) are reasonable.

3. The quantities (Appendix C) used to develop the WD's recommendations are reasonable.

4. The rate increase proposed by the WD is justified. The resulting rates are just and reasonable.

5. WD recommends that WWC be allowed to file in 2005 and subsequently years an advice letter to increase its rates by the Consumer Price Index and, at the same time, to include more of its fixed costs in the service charge.

6. WWC's annual reports from 1996 through 2002 contained mathematical errors in the plant-in-service and accumulated depreciation reserve accounts. WD has corrected these errors and determined the 2003 beginning-of-year amount to be $1,124,930 for utility plant and $535,684 for accumulated depreciation reserve.

7. WD recommends that WWC enter $1,124,930 as Beginning-of-Year Plant and $535,684 as the Beginning-of-Year accumulated depreciation reserve in its 2003 Annual Report to the Commission.

8. WD finds WWC's proposed plant additions for 2003 through 2006 to be prudent (see Average Plant-in-Service discussion for project details) and recommends that WWC be authorized to file advice letters requesting rate base offsets for these projects once they are completed and used and useful to the water company.

9. WWC's system map currently on file with the CPUC is not clear and legible and is not in accordance with G.O. 103. WD recommends that WWC file a service area map that is clear and concise pursuant to G.O. 103, Section I.10.a.

10. WWC has not filed the Facilities Fee tariff schedule as previously authorized in Res. W-4110.

11. WWC needs to update the following tariff sheets: Title Page, Preliminary Statement, Rules 5, and 10, and Form 3.

12. After the withdrawal of the objection by MHCWD, this is an uncontested matter subject to the public notice comment exclusion provided in the Public Utilities Code Section 311(g)(3).

THEREFORE IT IS ORDERED THAT:

1. Authority is granted under Public Utilities Code Section 454 for Weimar Water Company to file an advice letter incorporating the summary of earnings and the revised rate schedules attached to this resolution as Appendices A and B, and concurrently cancel its presently effective rate Schedule No. 1-A, Annual General Metered Service, and Schedule No. TR-1, Resale Service. The effective date of the revised schedules shall be five days after the date of filing.

2. Weimar Water Company shall record $1,124,930 as Beginning-of-Year Plant-in- Service in its 2003 Annual Report to the Commission.

3. Weimar Water Company shall record $535,684 as Beginning-of-Year accumulated depreciation reserve in its 2003 Annual Report to the Commission.

4. Weimar Water Company is authorized to file for rate base offsets for proposed plant additions indicated on page 5 of this resolution once the projects are completed and are used and useful to the water company.

5. Weimar Water Company is authorized to file in 2005 and subsequently years an advice letter to increase its rates by the Consumer Price Index (CPI) as allowed by D.92-03-093, March 31, 1992 (the Risk Phase One Decision) and, at the same time, to include more of its fixed costs in the service charge. WWC is ordered to coordinate with staff prior to its CPI filing to address the rate shock of this plan, which would phase in rates to the Commission-approved rate design over the next few years.

6. Weimar Water Company shall update its system map with one that is clear and legible and is in accordance with G.O. 103, Section I.10.a within the next 90 days.

7. Weimar Water Company is authorized to file the Facilities Fee tariff schedule as authorized in Res. W-4110.

8. Weimar Water Company shall update the following tariff sheets: Title Page, Preliminary Statement, Rules 5 and 10, and Form 3 within the next 90 days.

9. This Resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed, and adopted at a conference of the Public Utilities Commission of the State of California held on May 6, 2004; the following Commissioners voting favorably thereon:

APPENDIX A

Weimar Water Company, Inc.

SOE - Test Year 2004

 

WWC

WWC

Branch

Branch

Branch

 

Present

Requested

Present

Requested

Recommended

Description

Rates

Rates

Rates

Rates

Rates

           

OPERATING REVENUES

          

Metered Water Revenues

227,815

371,356

227,815

371,356

371,356

TOTAL REVENUES

227,815

371,356

227,815

371,356

371,356

OPERATING EXPENSES

          

Purchased Water

43,897

43,897

43,916

43,916

43,916

Power

41,751

41,751

41,751

41,751

41,751

Other Volume Related Exp.

14,515

14,515

14,515

14,515

14,515

Employee Labor

83,100

83,100

83,100

83,100

83,100

Materials

4,296

4,296

4,296

4,296

4,296

Contract Work - General Exp.

941

941

941

941

941

Contract Work - Water Testing

1,669

1,669

1,669

1,669

1,669

Transportation Expenses

4,360

4,360

4,360

4,360

4,360

Other Plant Maintenance Exp.

4,147

4,147

4,147

4,147

4,147

Office Salaries

20,000

20,000

20,000

20,000

20,000

Management Salaries

12,000

12,000

12,000

12,000

12,000

Employee Pensions and Benefits

14,262

14,262

14,262

14,262

14,262

Uncollectible Accounts Exp.

706

1,151

1,142

1,862

1,862

Office Services and Rentals

3,600

3,600

3,600

3,600

3,600

Office Supplies and Exp.

7,539

7,539

7,539

7,539

7,539

Professional Services

2,121

2,121

2,121

2,121

2,121

Insurance

14,901

14,901

14,901

14,901

14,901

Regulatory Commission Exp.

1,379

1,379

1,379

1,379

1,379

General Expenses

714

714

714

714

714

SUBTOTAL

275,898

276,343

276,353

277,073

277,073

Depreciation Expense

19,963

19,963

19,963

19,963

19,963

Taxes Other Than Income Taxes

13,172

13,172

13,172

13,172

13,172

Income Taxes & Franchise Fee

800

14,572

800

14,341

14,341

TOTAL DEDUCTIONS

309,833

324,050

310,288

324,459

324,549

NET REVENUE

-82,018

47,306

-82,474

46,807

46,807

RATE BASE

          

Average Plant In Service

1,129,430

1,129,430

1,129,430

1,129,430

1,129,430

Average Depreciation Reserve

552,121

552,121

552,121

552,121

552,121

NET PLANT

577,309

577,309

577,309

577,309

577,309

Less: Advances

0

0

0

0

0

Contributions (Undepr.)

240,909

240,909

240,909

240,909

240,909

Plus: Working Cash

20,164

19,053

20,201

19,133

19,133

Materials & Supplies

2,000

2,000

2,000

2,000

2,000

Const. Work In Progress

9,250

9,250

9,250

9,250

9,250

RATE BASE

367,814

366,703

367,851

366,783

366,783

RATE OF RETURN

-22.30%

12.90%

-22.42%

12.76%

12.76%

APPENDIX B

(Page 1 of 2)

Weimar Water Company, Inc.

Schedule No. 1-A

ANNUAL GENERAL METERED SERVICE

APPLICABILITY

TERRITORY

Sleepy Hollow Acres, and vicinity, located approximately two miles north of Weimar, Placer County. The unincorporated area including the Frey Subdivision, and vicinity located near Weimar, Placer County. Weimar Institute, Timberhills Mutual Water Company, and Midway Heights County Water District.

RATES

For 1-inch meters . . . . . . . . . . . . . . . . . . . . . . $ 91.90 |

SPECIAL CONDITIONS

1. The annual service charge applies to service during the 12-month period commencing January 1 and is due in advance. A customer who has established his permanency by having paid for service during the preceding 12 months may elect to pay the annual service charge on a monthly basis.

2. When the annual service charge is paid in advance, charges for water used in excess of the monthly allowance under the annual service charge may be billed monthly, bimonthly, or quarterly at the option of the utility on a no cumulative consumption basis.

3. All bills are subject to the Reimbursement fee set forth in Schedule No. UF. (N)

APPENDIX B

(Page 2 of 2)

Weimar Water Company, Inc.

Schedule F

FACILITIES FEES

APPLICABILITY

TERRITORY

RATES

SPECIAL CONDITIONS

1. Facility fees are payable in addition to and do not limit any charges for extensions

2. Payments made under this schedule are not subject to the reimbursement fee set

Appendix C

(Page 1 of 3)

Weimar Water Company, Inc.

Recommended Quantities - Test Year 2004

1. Federal tax rate: 15% for 1st $50,000 of taxable income
25% for next $25,000 of taxable income
34% for next $25,000 of taxable income
39% for next $235,000 of taxable income

2. State tax rate: 8.84%

3. Service connections:

General Metered MHCWD TMWC WI

For 5/8 x 3/4-inch meter 396 0 0 0
For 3/4-inch meter 0 0 0 0
For 1-inch meter 1 0 0 0
For 1-1/2-inch meter 0 0 0 0
For 2-inch meter 0 1 1 1
TOTAL 397 1 1 1

4. Metered water sales used to design rates: 145,851 Ccf
General Metered: 76,731 Ccf
MHCWD: 40,972 Ccf
TMWC: 8,193 Ccf
MI: 19,956 Ccf

5. Property taxes: $3,807
1.0349% tax rate

6. Payroll taxes: $9,365

7. Contract work - water testing: $1,669

8. Depreciation rate: 2.9%

9. Purchased Power

Pacific Gas and Electric Company, Schedule No. A-6, Small General Time-Of-Use Service,
Effective April 1, 2003

Quantity Charge:
kWh used - total: 280,362
kWh used - summer: 145,148
kWh used - summer peak: 24,581
$/kWh - summer peak: $0.34322
kWh used - summer off-peak: 87,209
$/kWh - summer off-peak: $0.10169
kWh used - summer part-peak: 33,358
$/kWh - summer part-peak: $0.15839
kWh used - winter: 135,214
kWh used - winter off-peak: 82,103
$/kWh - winter off-peak: $0.11720
kWh used - winter part-peak: 53,111
$/kWh - winter part-peak: $0.17113
Service Charge:
Meter Charge:
$/meter/day: $0.22341
Customer Charge:
$/meter/day - single-phase: $0.26612
$/meter/day - polyphase: $0.39425

# of meters - single phase: 0
# of meters - polyphase: 2

10. Adopted Tax Calculations

APPENDIX D

(Page 1 of 2)

Weimar Water Company, Inc.

Comparison of Rates - Test Year 2004

   

Annual General Metered Service

  
       
   

Per Service Connection Per Month

  
   

Present

Recommended

Percent

  
   

Rates

Rates

Increase

  
         

Service Charge:

        
         
 

For 5/8 x 3/4-inch meters

$ 8.20

$ 18.38

124.2%

  
 

For 3/4-inch meters

$ 12.30

$ 55.14

348.3%

  
 

For 1-inch meters

$ 20.50

$ 91.90

348.3%

  
 

For 1-1/2-inch meters

$ 41.00

$ 413.57

908.7%

  
 

For 2-inch meters

$ 65.18

$ 661.71

915.2%

  
 

For 3-inch meters

$123.00

$1,240.72

908.7%

  
 

For 4-inch meters

$205.00

$2,067.86

908.7%

  
         
         

Quantity Charge:

        
         
 

All use, per 100 cu. ft. . . .

$1.35

$1.776

31.6%

  
           
           
         

A monthly bill comparison for a customer with a 5/8 x 3/4-inch meter is shown below:

         

Usage

Present

Recommended

Amount

Percent

  

100 cu. ft.

Rates

Rates

Increase

Increase

0

$ 8.20

$18.38

$10.18

124.2%

5

$14.95

$27.26

$12.31

82.4%

10

$21.70

$36.14

$14.44

66.6%

16 (avg.)

$29.80

$46.80

$17.00

57.1%

20

$35.20

$53.91

$18.71

53.1%

30

$48.70

$71.67

$22.97

47.2%

40

$62.20

$89.44

$27.24

43.8%

APPENDIX D

(Page 2 of 2)

Weimar Water Company, Inc.

Comparison of Rates - Test Year 2004

         

A monthly bill comparison for a customer with a 2-inch meter is shown below:

  
         

Usage

Present

Recommended

Amount

Percent

100 cu. ft.

Rates

Rates

Increase

Increase

         

0

$ 65.18

$ 661.71

$ 596.53

915.2%

500

$ 663.18

$1,549.89

$ 886.71

133.7%

1000

$1,261.18

$2,438.07

$1,176.88

93.3%

1500

$1,859.18

$3,326.24

$1,467.06

78.9%

1920 (avg.)

$2,361.50

$4,072.31

$1,710.81

72.4%

2000

$2,457.18

$4,214.42

$1,757.23

71.5%

1 Resolution W-4110, September 3, 1998, authorized all Class D water utilities to file an advice

2 For a more detailed description of MHCWD's complaint see the next section "NOTICE AND PUBLIC MEETINGS."

3 MHCWD purchases water through a 2-inch meter. WWC has indicated that MHCWD would

require approximately a 6-inch meter if it did not have its own storage tank.

4 For Class D water utilities such as Weimar, the Commission adopted rate design is to recover 100% of the fixed costs in the service charge.

5 Under Commission-approved service charge ratios, a two-inch meter pays about one-sixth the charge of a six inch meter.

6 Additions, as of November 13, 2003, were noted as: $5,000 for plant/electrical controls,

$2,000 for backwash recycle system, and $2,000 for pump and starter replacement.

7 As of March 6, 2003.

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