ORDER NO. 96-030

ENTERED FEB 6 1996

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UW 50

DISPOSITION: STIPULATION ADOPTED/RATE INCREASE AUTHORIZED

On September 18, 1995, Avion Water Company filed rate schedules to be effective October 18, 1995. The proposal requested a general rate increase which would result in additional revenues of $188,000, a 9.1 percent increase. The increase would affect metered and fire service rates but would not affect irrigation rates. The rate increase is based primarily on Avion's request to include the cost of capital improvements in rate base. It also involves an increase in revenue of $52,000 from a bulk water sales contract with a golf course developer.

On October 17, 1995, the Commission issued Order No. 95-1121 suspending the proposed rate increase pending an investigation.

On November 15, 1995, a public comment session and prehearing conference was held in Bend, Oregon. Comments were taken from four customers of Avion. The schedule for the remainder of the proceeding was established. The comments are discussed below.

On January 17, 1996, Allen Scott, an Administrative Law Judge for the Commission, held a hearing in the matter in Bend. Staff and Avion offered a stipulation resolving all issues in the case. Four customers attended and provided comments. No customer or other person requested party status in this case.

The record remained open following the hearing for written public comment. The record was closed on January 29, 1996.

DISCUSSION

The stipulation and attached Staff testimony and exhibits are summarized below.

Results of Operations

Staff's review of Avion's results of operation indicates that a revenue increase of $123,631, or 5.88 percent, for domestic rates is warranted. That increase produces an overall rate of return of 8.79 percent on a rate base of $5,844,813. This increase provides a net operating income of $513,646 based upon a total annual revenue of $2,226,688. Actual revenue produced from the bulk sales contract is projected to be $37,434.

Rate Design

Staff and Avion agreed upon a 45/55 split between variable and fixed (base) rates. This split is based upon the company's historical allocation of about a 45/55 split. This compares with a general Commission target of a 40/60 split between variable and fixed rates.

Rate Spread

Under the stipulation, the commodity rate will be raised from $.75 per 100 cubic feet to $.80 per 100 cubic feet of water use.

The base rate component for a 5/8-inch line will increase $0.48 per month from $15.97 to $16.45. The average monthly billing for a 5/8 inch line would increase from approximately $29.45 to $30.40.

Investigation Regarding Inclusion of a Base Consumption Component

Avion's base rate includes no water. In Avion's most recent rate case prior to this case (UW 47), the Commission directed staff to fully investigate Avion's rate design to determine whether including a given quantity of water in the base rate would be reasonable (Order No. 95-527).

Staff concluded that a base consumption component should not be adopted in this case. Including a consumption component in base rate would necessitate an increase in the commodity rate to meet the revenue requirement. If the increases in commodity rate were sharp enough, actual consumption might decline, with a resulting decrease in revenue to the company. According to staff's investigation, the average person consumes approximately 400 cubic feet of water per month. Including 400 cubic feet of water in the base rate at Avion's 45/55 variable/base split would increase the variable rate to $1.04. If a 40/60 variable/base split were used, including 400 cubic feet would result in a $0.92 variable rate for 100 cubic feet. Staff concluded that these increases in the commodity rate were large enough to expose Avion to the risk of being unable to attain the estimated needed revenue. Staff therefore recommended that a commodity component not be adopted at this time.

Customer Relations Training

In Order Nos. 95-527 and 95-797 ( UW 47), the Commission directed that Avion file with the Commission a detailed report describing training or instruction that Avion employees have received regarding customer relations and the nature and extent of other efforts Avion has made to improve customer relations.

Avion filed the required report with staff. It established that an employee of Avion received training as a facilitator for Avion's new customer relations program. The training was a nine-week course emphasizing behavior change processes dealing with the attitudes, motivations, and values of individuals. Following the training, the employee trained 15 field personnel of Avion. Moreover, three Avion managers also completed the coaching and counseling portion of the training.

Staff noted that the PUC's Consumer Services Division has received no complaints regarding Avion's customer relations since completion of the last rate case, UW 47.

Staff concludes that Avion has met the requirement set out in Order No. 95-797.

PUBLIC COMMENT

A total of eight customers of Avion attended the public comment meeting and evidentiary hearing. Several expressed concern about the frequency and size of rate increases.

DISPOSITION

The Commission has examined the stipulation and attachment and the entire record in this case. The Commission concludes that the stipulation is an appropriate resolution of all issues and that the rates established therein are just and reasonable. The Commission concludes that Avion has met the requirements relating to customer relations set out in Order No. 95-797. The Commission adopts the stipulation and all attachments.

CONCLUSIONS

1. The adjustments stipulated to by staff and the company as shown in the attached stipulation are reasonable and should be adopted. Avion should be allowed to file revised rate schedules consistent with those adjustments.

2. The rates set out in the stipulation are reasonable and proper.

3. Avion has met the requirements relating to improved customer relations set out in Order No. 95-797.

ORDER

IT IS ORDERED that:

1. The rate schedules proposed by Avion Water Company, Inc., are permanently suspended.

2. The stipulation, Appendix A to this order, is adopted.

3. The rates embodied in the stipulation are effective upon issuance of this order.

Made, entered, and effective______________________________.

A party may request rehearing or reconsideration of this order within 60 days from the date of service pursuant to ORS 756.561. A party may appeal this order pursuant to ORS 756.580.

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