ORDER NO. 97-333

ENTERED AUG 27, 1997

This is an electronic copy

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UW 53

DISPOSITION: STIPULATION ADOPTED; RATES ALLOWED TO GO INTO EFFECT; PROVISIONS MADE FOR RATE ADJUSTMENTS WHEN ADDITIONAL FACILITIES ARE IN PLACE

INTRODUCTION

Watermasters, Inc., dba Marina Water Company (Marina or company) is a small investor-owned water utility located in Veneta, Oregon. The company serves approximately 47 customers. Watermasters, Inc. purchased the system in February 1995.

On April 30, 1996, Marina notified its customers that it intended to increase its average monthly residential rate from $18 to $42 per month, to be effective July 1, 1996. On June 14, 1996, the Commission Staff (Staff) notified Marina that the Commission had received petitions from 20 percent or more of Marina customers asking the Commission to investigate the proposed rates. On July 10, 1996, Marina filed a general rate filing with the Commission requesting additional annual revenues of $14,814 or a 145 percent increase. The company proposed to increase the average monthly residential rate from $18 to $46.50. The rate schedules were to be effective August 9, 1996.

At its July 30, 1996, public meeting, the Commission suspended the rate schedules for six months. Order No. 96-209 (August 5, 1996).

On September 11, 1996, an Administrative Law Judge for the Commission held a prehearing conference in this matter in Eugene, Oregon. At the conference, a schedule was established for the proceeding. The Administrative Law Judge granted the petition to intervene filed by Priscilla Gillespie, Veneta, Oregon.

On October 31, 1996, the company submitted an amended filing to Staff. On November 8, 1996, at Staff's request, the Administrative Law Judge indefinitely suspended the procedural schedule because the company failed to submit the financial information to support its filing.

At its November 26, 1996, public meeting, the Commission adopted the Staff recommendation to dismiss the July 10, 1996, rate filing and accept for filing the

October 31, 1996, application. The Commission suspended the new application for a period not to exceed six months from October 31, 1996. Order No. 96-307 (November 29, 1996). On April 23, 1997, the Commission issued Order No. 97-151, suspending the filing for an additional three months.

On June 26, 1997, Staff, the company, and the intervenor held a settlement conference to attempt the resolve the issues in the proceeding. On July 11, 1997, the Commission issued Order No. 97-265, suspending the filing for an additional month. The purpose of this suspension was to allow Marina time to comply with Staff’s data requests and to allow the parties an opportunity to discuss options for settlement. Marina filed a letter authorizing the Commission to extend the suspension schedule until August 31, 1997.

On July 17, 1997, the Commission Staff filed testimony, exhibits supporting the Staff testimony, and a proposed stipulation to the parties. On July 31, 1997, Thomas G. Barkin, an Administrative Law Judge for the Commission, conducted a public comment hearing in Veneta, Oregon. On August 1, 1997, the Administrative Law Judge presided at an evidentiary hearing to receive a stipulation between all parties to the proceeding. Appearances were entered by Walter Glausi, Attorney at Law, Eugene, Oregon, representing Marina Water Company; Priscilla Gillespie, representing herself; and Kimberly Cobrain, Assistant Attorney General, representing the Commission Staff.

Based on the preponderance of evidence in the record, we make the following:

FINDINGS OF FACT

The evidentiary record of this proceeding consists of the stipulation between the parties, attached as Appendix A, the Staff testimony and exhibits, as modified at the hearing, attached as Appendix B, and the proposed rate design is attached as Appendix C. The stipulation adopts appendices B and C. In addition, as agreed upon at the hearing, Staff filed additional testimony and a replacement to an exhibit in Appendix B. The late filed exhibit and additional testimony is attached as Appendix D. On August 12 and 21, 1997, Staff filed additional exhibits attached as Appendix E.

The stipulation provides for an annual increase in rates of $8,278 or 83.31 percent, resulting in total annual revenues of $18,214. The base rate will be $19.80 per month including 2,000 gallons of water. Usage beyond 2,000 gallons per month will be charged at $0.23 per 100 gallons. For a customer using 7,000 gallons, the proposed average monthly residential rate will increase from $18 to $31.30.

The parties also submitted a plan for upgrading the system plant. The company will make a good faith effort to obtain financing for $44,547 of plant improvements to the system. The parties agreed that as the improvements are completed, the company’s rates should be adjusted to reflect the additional cost to operate the system. The cost of the improvements, and the additional rate increment for each plant addition, is listed in Appendix D. After all of the improvements are completed, the company’s revenue requirement will be $24,139. The base rate will be $26.24 per month, including 2,000 gallons. Usage beyond 2,000 gallons per month will be charged at a rate of $0.30 per

100 gallons. For a customer using 7,000 gallons, the average monthly residential rate will rise to $41.24.

The stipulation provides that the calculated average monthly rate should be based on not less than 45 customers. The parties propose that, if the customer count falls below 45 customers, the company may propose to increase rates. The parties agreed that, once Staff verifies the customer count and the calculation of the filed rate, the rates should be allowed to go into effect without suspension. The intervenor and the company agreed to cooperate to encourage customers to stay on the system.

Jason Green, Circuit Rider for the Oregon Association of Water Utilities, conducted an independent evaluation of the water system. Based on Mr. Green’s study, Staff recommended that the company, within 30 days of a Commission order, be required to thoroughly flush the system and perform other maintenance tasks, such as repairing standpipes and blow offs. In addition, Staff adopted Mr. Green’s recommendation that the company:

Super chlorinate the source with appropriate amounts of solution and time, flush to waste. Clean each tank and flush (one at a time while keeping the system on-line). Beginning at the tanks, flushing the distribution mains systematically from the nearest point to the furthest point. Ensure that clean quality water is flowing before moving on.SS

OPINION

Commission Jurisdiction

The Public Utility Commission has jurisdiction over the rates of public utilities. ORS 757.005(1) defines "public utility" in part as any "corporation . . . that owns, operates, manages or controls all or a part of any plant . . . in this state for the production, transmission, delivery or furnishing of . . . water . . . directly or indirectly to or for the public . . . ." Under ORS 757.005(1)(b)(E), water companies serving fewer than 300 customers at an average annual residential rate of $18 per month or less, which provide adequate and nondiscriminatory service, are not included in the definition of public utility.

However, even water companies that meet the definition of "public utility" are not necessarily subject to full regulation. ORS 757.061 provides:

(1) ORS 757.105 to 757.110, 757.135, 757.140, 757.205 to 757.220 [requiring rate schedule filing and approval], 757.400 to 757.450 and 757.480 to 757.495 do not apply to a water utility serving fewer than 500 customers unless:

(a) Twenty percent of more of the customers of the water utility file a petition with the commission requesting that the water utility not be exempt from regulation under the statutes set forth in this subsection; and

(b) a rate charged by the water utility for water service exceeds maximum rates established by the commission under subsection (2) of this section.

Marina is a public utility subject to the Commission’s rate jurisdiction.

Stipulation

The Commission has considered the stipulation proposed by the parties and finds the proposed rates reasonable. We are satisfied that the rates reflect the cost of providing service to the customers.

The more significant issue in this case, however, is the manner in which the parties have proposed to address the serious deficiencies in the water system. We are aware that this company is under new ownership and the water system is in disrepair due to long-term neglect. To address the problem, the parties have fashioned a creative approach to upgrading the company’s physical plant. If the plan works as the parties anticipate, the quality and reliability of the water should improve. We appreciate the efforts of the company and the customers to work with our Staff to fashion the plan described in the stipulation.

There are two provisions of the stipulation that require further comment. The stipulation contemplates accelerated rate procedures, as the company makes the agreed upon additions to the system plant. This provision is intended to enable the company to recover its capital without undue regulatory lag. The provision may also assist the company as it seeks to secure financing from financial institutions to upgrade the system. Establishing a schedule for rate increases will provide certainty regarding the effect on rates of agreed upon plant additions.

The schedule, however, does not obviate the need for the company to follow the statutory procedures for requesting rate increases when it seeks to modify its rates to reflect these new plant additions. As Staff recommends, we will act as expeditiously as possible on company requests. However, before acting, we will need to be satisfied that the company has complied with the terms of the stipulation. The company can facilitate our review by providing the necessary information with the request for the rate adjustment. To expedite the process, the company should ask Staff, before the filing, what information should be included in its rate increase request.

The second provision requiring comment is the agreement among the parties that, if the customer count drops below 45 customers, the company’s rates will be adjusted upward, without suspension, to insure the company can earn its required rate of return. This provision is unusual in that it insulates the company from the risk that its revenues may fall below the revenue requirement approved in this order due to customer migration from the system. The stipulation does not provide that the customers will receive complimentary assurances if the customer count rises above 45 customers.

As mentioned above, we cannot relinquish our responsibility to review each rate proposal before allowing a new rate schedule to go into effect. In this case, we may be willing to afford expedited treatment to a rate request upon a finding that the company’s service quality is reasonable and the customers are reasonably satisfied that the company is making its best efforts to provide adequate service. We are not inclined to indemnify the company from the loss of customers who flee the system because the company has been remiss in operating and maintaining its system.

As a result, we will expect an additional showing if the company requests special rate treatment because the customer count has fallen below 45. If the company submits such a request, we will require that our Staff seek the opinions of customers on the company’s efforts to maintain the system and the quality of the water. If the company is operating in a reasonable and prudent manner, we will be more accommodating of the need for expedited rate treatment.

Finally, we adopt Staff's proposal regarding system flushing and maintenance. These tasks should be completed within 30 days of the effective date of this order.

CONCLUSION

We have reviewed the stipulation and Staff’s supporting exhibits, as modified at the hearing. We have also reviewed the recommendations requiring system flushing and maintenance. We find them reasonable and conclude they should be adopted.

ORDER

IT IS ORDERED that:

The Stipulation and appendices between Watermasters, Inc., dba Marina Water Company, Intervenor Priscilla Gillespie, and Staff, identified as Appendices A, B, and C to this order are adopted.

The rates set forth in the Stipulation shall go into effect as of the date of this order.

Within 30 days of the effective date of this order, Watermasters, Inc., dba Marina Water Company shall complete the flushing and maintenance tasks described above.

Upon a proper showing and pursuant to the stipulation, Watermasters, Inc., dba Marina Water Company, may request expedited rate treatment after plant has been added to improve the system and if the customer count falls below 45.

Made, entered, and effective ________________________. 

A party may request rehearing or reconsideration of this order pursuant to ORS 756.561. A request for rehearing or reconsideration must be filed with the Commission within 60 days of the date of service of this order. The request must comply with the requirements in OAR 860-014-0095. A copy of any such request must also be served on each party to the proceeding as provided by OAR 860-013-0070(2). A party may appeal this order to a court pursuant to ORS 756.580.