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WATER/SNR/MXK/AJT

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

WATER DIVISION RESOLUTION NO. W-4435

Water Branch October 30, 2003

RESOLUTION

(RES. W-4435) INTERSTATE-5 UTILITY COMPANY, INC. (SEWER)

(I-5SC). ORDER AUTHORIZING A GENERAL RATE INCREASE PRODUCING ADDITIONAL ANNUAL REVENUES OF $28,699 OR 34.5% FOR TEST YEAR 2002.

SUMMARY

By Draft Advice Letter, filed on June 17, 2002, I-5SC seeks a 33% increase in rates for sewer service to recover increases and provide an adequate rate of return on its capital investment. This Resolution grants an increase in gross annual revenues of $28,699, or 34.5% for test year 2002. The increase will provide a 12.5% rate of return on rate base in the test year.

BACKGROUND

I-5SC is a sewer utility that serves 18 commercial customers in a service area located approximately 23 miles west of the City of Bakersfield. I-5SC's service area consists of an unincorporated area in Kern County, near Buttonwillow, at the intersection of Interstate Route 5 and State Route 58.

I-5SC requested authority under Section VI of General Order 96-A and Section 454 of the Public Utilities Code to increase rates for sewer service to produce additional revenues of $27,409 or 33.0% in 2002. I-5SC's request shows 2002 revenues of $82,951 at present rates increasing to $110,360 at proposed rates to produce a rate of return on rate base of 15.4%. The Water Division (Division) recommends increasing rates by $28,699, or 34.5%, increasing revenues to $111,763 at recommended rates to produce a rate of return on rate base of 12.5%. Division's recommended increase is higher than I-5SC's request due to Division's higher estimate of purchased power expenses.

I-5SC's last general rate case was approved on October 25, 1996, by Res. W-4006, which authorized a rate increase of $1,436, or 1.70% in 1996.

DISCUSSION

I-5WC is a corporation owned by Mr. James P. Sears. Mr. Sears is also the president of I-5WC. In addition to Mr. Sears, I-5WC utilizes the management services of the controller and bookkeeping staff of the Herbert P. Sears Company, Inc. A part-time operator, who works solely on contract basis, provides general operation and maintenance of the sewer system.

James P. Sears also owns Herbert P. Sears Company, Inc., and Dardana, Inc. James P. Sears and Dardana, Inc. jointly own McKittrick-5 as a partnership. McKittrick-5 owns the land on which some of the utility's sewer facilities are located. I-5WC pays rent to McKittrick-5 for using its property, which is designated for public use.

All of I-5SC's customers are commercial consisting of a hotel, fast-food restaurants, and light industrial facilities. I-5SC currently provides flat rate sewer service based on the corresponding customer's water service of 1-inch, 2-inch, and 3-inch meter sizes.

Effluent collected in the I-5SC system is delivered to the sewage treatment plant by an 8-inch main. The sewage treatment plant consists of a grinding, percolation, and digestion process. After digestion, the treated effluent is pumped into a settlement pond adjacent to the treatment plant. The treatment plant consists of two separate systems that allow the utility to conduct maintenance without having to completely shut down the plant.

The Division staff made an independent analysis of I-5SC's operations and issued its report in August, 2003. Appendix A shows I-5SC's and Division's estimated summary of earnings at present, requested, and adopted rates for the test year. Appendix A also shows differences in operating revenues, operating expenses, and rate base. I-5SC was informed of Division's differing views of revenues and expenses and agreed with the Division's estimates.

I-5SC's draft advice letter requested rates that would produce a return on rate base of 15.4%. The summary of earnings in Appendix A shows a rate of return of 12.5% at Division's recommended rates. The rate of return is the bottom of the range of 12.50%

to 13.50% recommended by the Audits and Compliance Branch of the Water Division for sewer utilities due to lower operational risk involving commercial customers.

I-5SC's filed tariff currently contains one rate schedule No. 2, Flat Rate Sewer Service. The rates proposed by Division in Appendix B recover 100% of I-5SC's revenue requirements through service charges based on water meter size. Division's proposed rates for the various corresponding water meter sizes are consistent with current rate design policy.

At Division's recommended monthly rates on the basis of water meter size shown in Appendix B, the monthly bill for 1-inch service will increase from $113.71 to $152.99 or 34.5%. The monthly bill for 2-inch service will increase from $361.82 to $486.81 or 34.5%. The monthly bill for 3-inch service will increase from $678.15 to $912.41 or 34.5%. A comparison of customer bills at present and recommended rates is shown in Appendix C. The adopted quantities and tax calculations are shown in Appendix D.

AUDIT OF ACCOUNTING RECORDS

The Division staff audited I-5SC's operating expenses, including salaries and contracting fees, purchased power, insurance expenses, income, and other taxes. Staff verified the operating expenses by reviewing support documents for substantiation and accuracy, and concluded that the operating expenses were reasonable and prudent.

NOTICE AND PROTESTS

A public meeting to discuss both water and sewer operations was scheduled for Thursday, October 17, 2002, at 6:00 p.m. at the Kern County Public Library, Beale Branch, 701 Truxton Avenue. No members of the public or customers attended the meeting. A notice of the proposed rate increase for water was mailed to each customer on September 18, 2002. No notice of the proposed rate increase for sewer service was sent to customers prior to the public meeting. Since it's required that the sewer customers be notified separately, a notice of the proposed rate increase was mailed to each customer on July 25, 2003.

COMPLIANCE

There are no outstanding Commission orders requiring system improvements.

I-5SC needs to update its Schedule LC, Late Payment Charge, Preliminary Statement, Rule 1, Definitions; Rule 2, Description of Service; Rule 3, Application for Service; Rule 4, Contracts; Rule 5, Special Information Required on Forums; Rule 6, Establishment and Reestablishment of Credit; Rule 7, Deposits; Rule 8, Notices; Rule 9, Rendering and Payment of Bills; Rule 10, Disputed Bills; Rule 11, Discontinuance and Restoration of Service; Rule 12, Information Available to Public; Rule 13, Temporary Service; Rule 14, Continuity of Service; Rule 15, Main Extensions; Rule 16, Service Connections, Meters, and Customer's Facilities; Rule 17, Measurement of Service; Rule 18, Meter Tests and Adjustment of Bills for Meter Error; Rule 19, Service to Separate Premises and Multiple Units, and Resale of Sewer Service; Rule 20, Limitation on Wastes Discharged into the Utility's Sewer System; Rule 21, Commercial, Institutional and Industrial Wastes; update Form 1, Application for Sewer Service; Form 2, Customer's Deposit Receipt; and Form 3, Bill for Service.

I-5SC should maintain a binder of its current tariff sheets in its corporate office and make it available to the general public for review during normal business hours. Currently I-5SC does not have a complete set of tariffs. Staff will work with the utility to provide I-5SC with a complete set of the current tariffs, but moving forward, I-5SC is required to maintain an organized tariff binder in its office.

I-5SC has been filing annual reports as required. Schedule A of the Annual Report shows water and sewer assets combined. Since the water and sewer utilities are two separate entities with two separate certificates for public convenience and necessity, the assets of each utility (water and sewer) should be shown separately in separate annual reports even if allocation needs to be made for shared assets. I-5SC should be required to cease consolidating water and sewer assets in Schedule A of its annual report filings and show separately its water and sewer assets for the respective water and sewer operations in separate reports.

Although there have been little to no complaints during the past 5 years, the utility should maintain a file to record customer complaints and the actions taken to resolve the complaints. Such records should be maintained in a binder in the utility's

offices for a minimum of 5 years, or until the next General Rate Case, and be available for inspection by Commission staff at anytime.

FINDINGS AND CONCLUSIONS

1. The Division's recommended summary of earnings (Appendix A) is reasonable and should be adopted.

2. The rates recommended by the Division (Appendix B) are reasonable and should be adopted.

3. The quantities (Appendix D) used to develop Division's recommendations are reasonable and should be adopted.

4. I-5SC should be ordered to update its schedule LC, Late Payment Charge, Preliminary Statement, Rule 1, Definitions; Rule 2, Description of Service; Rule 3, Application for Service; Rule 4, Contracts; Rule 5, Special Information Required on Forums;. Rule 6 Establishment and Reestablishment of Credit; Rule 7, Deposits; Rule 8, Notices; Rule 9, Rendering and Payment of Bills; Rule 10, Disputed Bills; Rule 11, Discontinuance and Restoration of Service; Rule 12, Information Available to Public; Rule 13, Temporary Service; Rule 14, Continuity of Service; Rule 15, Main Extensions; Rule 16, Service Connections, Meters, and Customer's Facilities; Rule 17, Measurement of Service; Rule 18, Meter Tests and Adjustment of Bills for Meter Error; Rule 19, Service to Separate Premises and Multiple Units, and Resale of Sewer Service; Rule 20, Limitation on Wastes Discharged into the Utility's Sewer System; Rule 21, Commercial, Institutional and Industrial Wastes; update Form 1, Application for Sewer Service; Form 2, Customer's Deposit Receipt; Form 3, Bill for Service.

5. I-5SC should maintain a binder of its current tariff sheets in its corporate office and shall make it available to the general public for review during normal business hours.

6. I-5SC's should cease consolidating both water and sewer assets in its annual report filings and file individual annual reports that show separately its water and sewer activities for the respective water and sewer operations.

7. I-5SC should maintain a binder for complaint logging. Such records should be maintained in the utility's office for a minimum of 5 years, or until the next General Rate Case, and available for inspection by Commission staff at anytime.

8. The rate increase authorized herein is justified and the resulting rates are just and reasonable.

THEREFORE IT IS ORDERED THAT:

1. Authority is granted under Public Utilities Code Section 454 for Interstate-5

2. I-5SC shall update its schedule LC, Late Payment Charge, Preliminary Statement,

3. I-5SC shall maintain a binder of its current tariff sheets in its corporate office and

4. I-5SC shall cease consolidating both water and sewer assets of its annual report

5. I-5SC shall maintain a binder for complaint logging. Such records should be

6. This resolution is effective today.

I hereby 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 October 30, 2003; the following Commissioners approved it:

APPLICABILITY

TERRITORY

RATES

Monthly charge on the basis

of water meter size

SPECIAL CONDITIONS

1. All bills are subject to the reimbursement fee set forth in Schedule No. UF

(END OF APPENDIX B)

APPENDIX C

RECOMMENDED QUANTITIES - TEST YEAR 2002

EXPENSES

1. Federal Tax Rate: 15% for 1st $50,000 of taxable income

2. State Tax Rate: 8.84% or $800 Minimum

3. Purchased Power: 153,281 kWh

4. Service Connections

5. Property Taxes: $1,970

6. Payroll Taxes: $0

7. Contract Work: $19,748

9. Adopted Tax Calculations

2. Expenses $77,415 $77,415

TOTAL INCOME TAX $6,131

(END OF APPENDIX C)

   

APPENDIX D

    
         
   

BILL COMPARISON

    
         

A comparison of monthly customers bills at present and Water Division's recommended rates

for test year 2002 are shown below:

      
         

Monthly charge

Rates

Rates

    

on the basis of

Present

Recommended

Dollar

Percent

water meter size

Rates

Rates

Increase

Increase

         

1"

$113.71

$152.99

$39.28

34.5%

2"

$361.82

$486.81

$124.99

34.5%

3"

$678.15

$912.41

$234.26

34.5%

         
         
         
   

(END OF APPENDIX D)

 

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