Docket UW01302-1
Order UW92-14IN THE MATTER of a review under Section 12 of the Island Regulatory and Appeals Commission Act of Commission Order W92-4.
BEFORE THE COMMISSION
on Friday, the 18th day of December, 1992.
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Michael Ryan, Commissioner
Order
Contents
Appearances & Witnesses
Reasons for Order
1 Introduction
2 Revenue Requirement
3 Charges for Fire Protection
4 Disposition
Order
Appearances & Witnesses
1. For the Charlottetown Water Commission
Counsel:
David H. JenkinsWitnesses:
R.T. Clark, General Manager
Allan MacKenzie, Acting Secretary-Treasurer2. For the Island Regulatory and Appeals Commission
Counsel:
Thomas A. MathesonStaff:
Donald G. Sutherland, Director, Utilities Division
Gloria Dalziel, Recording Secretary
Reasons for Order
1 Introduction
On April 29, 1992, the Commission issued Order W92-4 in response to an application by the Commissioners of Sewer and Water Supply (hereinafter referred to as the "Charlottetown Water Commission", "CWC" or "Applicant") for amendments to the CWC's General Tariff. On May 14, 1992, the Commission, by Order W92-6, approved a revised General Tariff for the CWC and declared the Tariff effective for bills of the CWC issued on and after April 15, 1992.
On May 1, 1992, Counsel for the CWC, David Jenkins, wrote to the Commission seeking clarification or, in the alternative, Commission review of Order W92-4
in order to recoup over the remainder of the 1992-93 period lost revenue resulting from the timing of the decision.1
On May 12, 1992, the Commission notified Counsel that it was prepared to conduct a review under Section 12 of the Island Regulatory and Appeals Commission Act by way of a hearing. Section 12 of the Act reads as follows:
The Commission may, in its absolute discretion, review, rescind or vary any decision or order made by it, or rehear any application before deciding it.
The matter proceeded to hearing on June 17, 1992.
The CWC's June 17, 1992 submissions seeks relief or direction on two issues:
1. Revenue Requirement—the CWC seeks additional rate relief of 8.8% effective January 1, 1993 as a result of a delay in the implementation of Order W92-4; and
2. Charges for Fire Protection—the CWC seeks clarification-direction on paragraph 21 of Order W92-4 that dismisses CWC's original application to directly charge customers with unmetered fire lines.
2 Revenue Requirement
On the first issue—Revenue Requirement—the CWC makes the following submissions:
The CWC revenue requirement lost as a result of instituting new rates on April 15, 1992 instead of January 01, 1992, as anticipated in the rate application is now calculated to be $181,812...This is the difference between the allowed revenue (excluding fire protection) based on Commission Order W92-4 and the CWC revenue billed to customers during January to April, 1992. CWC requests Commission approval to pick up or recoup this revenue requirement of $181,812 over the 1993 year.2
...
Commission approval of CWC's request would result in 1993 rates (excluding fire) at 108.8% of the 1992 approved rates...CWC respectfully requests that approval be granted to recoup this revenue requirement over the 1993 calendar year. This particular timing is appropriate because (i) it would represent a phasing in of increases somewhat related to estimated expenses; (ii) it would allow for better customer understanding and expectation that rate increases are addressed by year rather than by sporadic months; (iii) it would promote continuity of regulation and allowing [sic] year to year comparisons; and (iv) it would allow time for orderly Commission disposition and CWC implementation.3
During the hearing, some discussion centered on the method used by the CWC to calculate the revenue loss of $181,812. The method applied by the CWC assumes equal monthly revenues over a twelve month period whereas an alternative method—one that recognizes monthly variations in sales—suggests that the loss would be marginally less.
Table 1 shows the method used by the CWC.
Table 1
CWC Calculation of Revenue Loss
Allowed Revenue from Rates $2,057,437
Billed to April 1992 504,000
To be billed ($2,057,437/12 = 171,453 x 8) 1,371,625
Total Revenue 1,875,625
Revenue Shortfall 181,812
For Recovery in 1993 Add Shortfall to 1992 Allowed Revenues (2,057,437+181,812) 2,239,249
Required Adjustment in Revenues (2,239,249/2,057,437) +8.8%
The alternative method—that of calculating the lost revenue through recognition of sales variations—indicates that the method proposed by the CWC would produce a shortfall of approximately $165,000. Based on this review of the evidence presented at the hearing,
1. the Commission finds and determines that a non-recurring revenue shortfall of $165,000 exists in the Tariff approved under Commission Order W92-4.
If recovered over a one-year period, an upward adjustment in rates of 8.02% would be required. Since the shortfall is a non-recurring expense item, a corresponding downward rate adjustment of approximately 8% would be required at year end.
An alternative and, in our view, more reasonable approach to the shortfall recovery could be achieved through a 4% rate adjustment that is sustained for a minimum two-year period. This would essentially achieve the desired result and would mitigate the impact to the consumer. In these circumstances, the rates will remain in effect until further order of the Commission.
2. the Commission finds and determines that the revenue shortfall shall be recovered through a 4% upward rate adjustment that shall remain in effect for a minimum two-year period.
3. the existing Tariff of the Charlottetown Water Commission will be revoked and the Tariff appended to, and forming part of, this Order, will be approved and declared effective for bills of the Charlottetown Water Commission issued on and after January 15, 1993.
3 Charges for Fire Protection
On the second issue—Charges for Fire Protection—the CWC seeks clarification-direction on paragraph 21 of Order W92-4, which reads as follows:
21. the application to directly charge customers with unmetered fire lines is dismissed.
The issue centers on the ability of the CWC to recover costs associated with bills issued to the City of Charlottetown for services to unmetered fire lines. According to the CWC:
The Commission rendered its decision to CWC on April 30, 1992. CWC immediately advised the City of Charlottetown of this decision and on May 4, 1992 requested payment from the City of Charlottetown of the sprinkler charges for the years 1991 and 1992...The City of Charlottetown advised CWC on May 21, 1992 that the fire protection charges in issue are not the responsibility of the City of Charlottetown and that the City would no longer be making payments to these charges other than for City owned buildings...
As a result, CWC is unable to obtain payment of a portion of its revenue requirement on an annual basis, i.e. the amount of $49,000 per year for the years 1991 onward. It appears to CWC to be untenable to comply with the Commission General Rules & Regulations 5.4 and suspend service to all privately-owned commercial buildings in the City of Charlottetown for non-payment of bills by the City of Charlottetown. As a responsible utility, CWC has an obligation to make every effort to obtain its approved revenue requirement. Commission Order #22 does not include the substitute for the revenue requirement lost by following Commission Order No. 21, and leaves the CWC with insufficient revenue. CWC considers this situation to be contrary to the interests of both CWC and its customers.
CWC requests the Commission to provide appropriate relief from this situation and hereby seeks the direction of the Commission.4
The Commission understands that, following the hearing, the City of Charlottetown paid the outstanding balance of the fire protection charge. However, we also understand that, notwithstanding the payment, the CWC continues to seek direction on this issue.
The Commission agrees with the CWC's position that it is untenable to disconnect customers with unmetered fire lines through a failure of the City of Charlottetown to pay the full costs of fire protection services provided by the CWC. The only reasonable alternative, therefore, is the pursuit of payment through the civil courts.
The Commission hopes that such action is unnecessary.
4 Disposition
An order authorizing the Tariff amendments approved herein will therefore issue.
Order
UPON the review pursuant to Section 12 of the Island Regulatory and Appeals Commission Act of Commission Order W92-4 herein dated April 29, 1992;
AND UPON hearing and considering submissions made in this matter by the Charlottetown Water Commission;
NOW THEREFORE, for the reasons given in the annexed Reasons for Order;
IT IS ORDERED THAT
1. the Commission finds and determines that a non-recurring revenue shortfall of $165,000 exists in the Tariff approved under Commission Order W92-4;
2. the Commission finds and determines that the revenue shortfall shall be recovered through a 4% upward rate adjustment that shall remain in effect for a minimum two-year period; and
3. the existing Tariff of the Charlottetown Water Commission is revoked and the Tariff appended to, and forming part of, this Order, is approved and declared effective for bills of the Charlottetown Water Commission issued on and after January 15, 1993.
DATED at Charlottetown, Prince Edward Island, this 18th day of December, 1992.
BY THE COMMISSION:
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Michael Ryan, Commissioner
1 Excerpt from Jenkins' letter of May 1, 1992.
2 Exhibit 1, p. 1.
3 Exhibit 1, p. 4.
4 Exhibit 1, Part 2, pp. 1-2.
