Decision 04-08-051 August 19, 2004

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

In the matter of the Application of the Midway Heights County Water District for a Rehearing of Commission Resolution W-4473 that granted the Weimar Water Company a general rate increase of 63% in 2004.	Application 04-06-007

ORDER MODIFYING AND DENYING

REHEARING OF RESOLUTION W-4473

I. INTRODUCTION

Resolution No. W-4473 was adopted by the Commission on May 6, 2004, in response to a request by Weimer Water Company (WWC) for an increase in water service rates. WWC serves 400 metered-rate customers in the town of Weimar and its vicinity in Placer County. WWC requested permission 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% in 2004. The purpose of the rate increase was to allow WWC to recover its increased operating expenses and earn an adequate rate of return.

On December 17, 2003, WWC filed a general rate increase (GRC) request, which was prepared with the assistance of Water Division's (WD) outreach program. WD performed a comprehensive investigation of WWC's books and formulated a summary of earnings for Test Year 2004. WWC had two rate schedules: Schedule 1-A, for its residential customers and Schedule TR-1, for three resale customers. The resale rates were lower than residential rates. Based on its findings, 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 customers. WWC concurred.

WD designed rates to cover the fixed costs utilizing current staff policy rate design, consistent with staff's memorandum dated January 18, 1991. Another staff policy is to limit increases for a class of customers to twice the system average increase. Utilizing these policies, WD provided for recovery of approximately 37% of fixed costs in the service charge, with the balance of fixed costs recovered through the quantity charge. Although this is less than the 100% fixed cost recovery via the service charge allowed by Decision No. 92-03-093, it was necessary to protect zero usage customers from seeing an increase that was more than twice the system average. WD notified customers of the proposed new rates on December 26, 2003.

An informal public meeting was held on January 20, 2004 in which a Commission representative explained the CPUC rate-setting procedures. Rehearing applicant, Midway Heights County Water District (MHCWD), is a resale customer that buys water from WWC and sells to users within its own designated service territory. At the meeting, MHCWD strongly opposed the staff's rate design policy and requested WD to reevaluate the rate design so as to render a lower quantity rate and a higher service charge. The Commission representative requested MHCWD to submit a proposal for the rate design by January 27, 2004, but MHCWD did not submit a proposal.

The crux of MHCWD's complaint was that under the new rate design, too many of the fixed costs were recovered via the quantity charge. In MHCWD's view, it would be paying more than its fair share of fixed costs because it purchased a large amount of water. MHCWD was the only customer to make a specific request for a higher service charge.

In response to MHCWD's request, Staff prepared a modified rate design that recovered approximately 44% of fixed costs in the monthly service charge, even though this modification deviated from the ratios suggested in the staff's current rate design policy. While proposing this modification, WD pointed out that if all fixed costs were allocated to the service charge, small usage customers would be affected by a higher percentage increase in their bills than average use customers. Therefore, to prevent this, some fixed costs had to be collected by the quantity charge. WD also pointed out that, because MHCWD's meter size was unusually small, the district was actually paying less than its proportionate share of fixed costs incurred by WWC. MHCWD purchases potable water from WWC and stores it in its own storage tank. This allows MHCWD to purchase water utilizing a much smaller meter than would normally be required for its demand.

MHCWD agreed to withdraw its protest if WWC were allowed to file annually to add more of its fixed costs to the service charge. WD agreed and this provision was added to the resolution. MHCWD withdrew its protest.

On May 6, 2004, the Commission adopted Resolution No. W-4473, authorizing a general rate increase pursuant to the modified new rate design that recovers 44% of fixed costs in the service charge. MHCWD filed a timely application for rehearing of Resolution W-4473.