Water & Wastewater

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Douglas Stevenson
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1 Water & Wastewater

2 Indiana Water Utility Regulation Water/Wastewater Division established in 2006 Six Employees Number of Utilities Regulated: - 70 water utilities - 27 wastewater utilities - 12 water/wastewater utilities Citizens Water - 313,000 customers CWA Authority - 236,000 customers Indiana-American - 299,000 customers 2

3 Types of Utilities Regulated Investor-Owned Water and Wastewater Not-for-Profit Water and Wastewater Municipal Water Conservancy Water Districts To some extent, all have the ability to withdraw from IURC authority IOU s must have 300 customers or less Conservancy Districts fewer than 2,000 customers No customer limits for municipal or NFPs 3

4 Recent Legislation 2012 o SB 132 Water Resources o HB 1126 Extraterritorial Water and Sewer Rates 2013 o SB 385 Wholesale Sewage Treatment Contracts o SB 560 Future Test Year Ratemaking; 300 Day Timeline o HB 1137 Extraterritorial Water and Sewer Rates (modifies HB 1126 passed in 2012) o HB 1307 Extraterritorial Water and Sewer Rates (see 1137)

5 Recent Legislation (Continued) 2014 o SB 274 Urge Study on Topics Related to Water Resources o HB 1132 Expands DSIC to Wastewater Utilities o HB 1187 Territory Disputes between Municipal Utilities 2015 o SB 177 Increased Allowed DSIC Revenues to 10% from 5% o SB 474 IFA Prepares Water Resources Report, not IURC o SB 516 Amends DSIC Statute to Make Clear the Law Applies to Municipal and NFP Utilities o HB 1319 Utility Acquiring a distressed utility may Petition the Commission to Include cost differential in RB

6 2016 Legislation SB 257 Distressed Water/Wastewater Utilities Modifies HB 1319 passed in 2015 Modifies fair value statute to permit an exception to the prohibition against providing compensation for CIAC Eliminates the 3,000 customer limit for acquisitions of IOU and NFP utilities A municipal utility is distressed if it serves fewer than 5,000 customers and follows IC

7 2016 Legislation (Continued) SB 257 Distressed Water/Wastewater Utilities (Cont d) IOU or NFP utility is distressed if IURC finds one of following: o Violates 1 or more state/federal statutory/regulatory reqmt o Inadequate financial, managerial or technical ability o Fails to provide water in sufficient amounts or pressure o Any other facts the IURC determines demonstrate inability to furnish adequate, efficient, safe, or reasonable service IURC must issue order in 210 days after Petitioner s case-inchief filed

8 2016 Legislation (Continued) SB 347 Water Utility Resource Data Repeals IURC s Annual Water Utility Resources Report (SB 132, passed in 2012) SB 383 System Integrity Adjustments Provides IOU, municipal and NFP water and wastewater utilities with the ability to implement a charge to recover additional revenues if earned revenues are not equal to authorized revenues in most recent rate order Adjustment Amount means the difference between the actual revenues and authorized revenue for a 12 month period

9 2016 Legislation (Continued) SB 383 System Integrity Adjustments (Cont d) System Integrity Collar means the authorized revenue times 2%; collar is satisfied when cumulative excess/deficit equals or exceeds system integrity collar Utility may only recover 94% of the adjustment amount OUCC files a Report 30 days after Petition Filed IURC required to hold a Hearing and issue an Order within 90 days

10 2016 Legislation (Continued) HB 1075 Sewage Fees If a wastewater utility charges different rates for different classes of property based at least partially on consumption, the utility must charge a rental unit community a rate based at least partially on consumption Rental unit community (IC ) means property which contain rental units with at least five rental units and units are not occupied solely by owner The rate for a rental unit community, required by this statute, takes effect the first date that a change in the utility s rate structure becomes effective

11 Future Test Year Cases IC , Provides for a Forward Looking Test Year General Administrative Order Establishes standard 300-day procedural schedule Identifies Recommended Best Practices Statute provides interim rate relief if IURC does not issue order 300 days after case-in-chief is filed Indiana-American was the first utility to file a rate case with a forward looking test year (Cause No ) 11

12 Future Test Year Cases (Cont d) In Cause No , IURC determined that utility plant must be used and useful in FTY case However, we cannot ignore the requirement of Section 6 that utility property included in rate base must be actually used and useful. Petitioner s proposed 13-month average rate base would allow Petitioner to begin recovering a return on investment for utility plant that is not yet in service, i.e., not actually used and useful. Therefore,, we do not approve Petitioner s proposed 13-month average rate base. p. 3, Prehearing Conference Order 12

13 Future Test Year Cases (Cont d) American Suburban Utilities filed the second FTY case, Cause No (Pending) Utility requested a hybrid test period Implemented interim rates 13

14 Affordability Water/Wastewater Electricity Natural Gas CPI Source: BLS Water and Wastewater Rates 5.69%; CPI 1.94% 14

15 Affordability (Continued) Source: AUS Utility Report

16 Affordability (Continued) CWA Authority Consent Decree Approximately $2 Billion DigIndy Tunnel System 27 miles long, constructed in 6 segments 18 feet diameter 250 feet deep Complete by 2025 Upgrade Belmont AWT Plant to 300 MGD Upgrade Southport AWT Plant to 250 MGD Project Will Prevent 99% of Potential Overflows 16

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18 Affordability (Continued) Citizens Water Settlement Agreement, Cause No (April 20, 2016) Parties agreed to establish a special fund to assist eligible low-income customers ($100,000 annually) Originally, Citizens Water proposed a special rate for low-income customers. This would result in a discriminatory rate in violation of Ind. Code (b) and would require increases to the rates of other customer classes to meet Citizens Water s authorized revenue requirement. 18

19 Affordability (Continued) In the Settlement Agreement, Citizens Water agreed to instead create a low-income assistance fund using revenues from the Cell Tower an Other Leases category. Those Cell Tower and Other Leases revenues were originally included as an offset to Citizens Water s revenue requirement calculation in light of the Settlement Agreement. While we acknowledge that low-income customers are increasingly in need of assistance to pay their utility bills, we do not believe that it is reasonable to charge captive customers for such assistance. 19

20 Affordability (Continued) CWA Authority Settlement Agreement, Cause No (July 18, 2016) Same original request, settlement agreement and Commission determination 20

21 Executive Compensation In Cause No , Citizens Water (April 20, 2016) the Commission stated the following: The Commission has repeatedly questioned the level of executive compensation Specifically the use of a compensation study that includes both municipal and investor-owned, for-profit utilities. In Cause No , Commission raised serious concerns about use of a compensation study that included only forprofit utilities finding that Citizens Water s status as a notfor-profit public charitable trust is inconsistent with forprofit compensation model 21

22 Executive Compensation (Cont d) Therefore, as authorized by Ind. Code , we order Citizens Water to submit a compensation study of executive salaries that includes only municipal utilities. Citizens may utilize the existing Towers Watson study but remove the 15 investor-owned utilities, or it may create a new study. Citizens Water shall comply with this directive within 60 days from the effective date of this order. In addition, in its next rate case Citizens Water shall include with its case-in-chief an updated compensation study of executive salaries that includes only municipal utilities. 22

23 Affiliate Transactions NARUC Guidelines for Cost Allocations and Affiliate Transactions the price for services, products, and the use of assets provided by a non-regulated entity should be at cost or prevailing market prices, whichever is lower Difficult to obtain cost information from affiliate Market difficult to establish, what price does affiliate charge other customers?, comparability of data submitted questionable, cost plus x% Types of transactions: construction of utility projects, engineering services, facilities (office, equipment storage), utility operating services, laboratory services 23

24 Declining Consumption Adjustments/Mechanisms Proposed by Water Utilities to Address Declining Consumption Decline in Usage Attributed to Several Factors: Increasing prevalence of low flow (water efficient) plumbing fixtures within residential households Conservation ethic of customers Conservation programs implemented by the utility or other entity Price elasticity 24

25 Lead Service Lines Indiana Department of Environmental Management Meeting with Indiana-American September 23rd to discuss Lead Service Lines City of East Chicago rate case, Cause No (pending) 25

26 Small Utility Tools/Assistance Small, Troubled Utilities Ongoing Issue Arizona Corporation Commission Investigation Into Potential Improvements To Its Water Policies; Docket No. W-00000C , Decision No (July 25, 2016) Report of the Study Committee on Investor-Owned Water and Wastewater Utility System, Florida Public Service Commission (February 15, 2013) 26

27 Small Utility Tools/Assistance (Cont d) Receivership (Ind. Code ) Small Utility Rate Application (Ind. Code ) 30-Day Filing Process (170 Ind. Admin. Code 1-6) Annual Workshop ARP for Small Water and Wastewater Utilities (IC and Cause No on March 14, 2013) Small Utility Toolkit Resources on Agency Website 27

28 Website Resources 28

29 Website Resources (Cont d) 29

30 Contact Information IURC Website Curt Gassert, Director (317) Questions? 30

Role of the Regulator in Controlling Investments A Case Study of Experiences in Indiana

Role of the Regulator in Controlling Investments A Case Study of Experiences in Indiana Scott R. Storms Chief Administrative Law Judge Indiana Utility Regulatory Commission October 18, 2005 Tirana, Albania