Current Issues in the Water Industry: Challenges and Opportunities. Sheryl L. Hubbard September 2016

Transcription

1 Current Issues in the Water Industry: Challenges and Opportunities Sheryl L. Hubbard September 2016

2 EPCOR Water USA Provides water and wastewater service to approximately 350,000 customers 14 water, five wastewater districts 22 communities Seven counties

3 Rate Setting EPCOR regulated by Arizona Corporation Commission Uniform system of accounts used Rates approved through formal rate application - All expenses reviewed and approved by ACC - Investment evaluated for prudency and used/usefulness - Customers noticed - Procedural schedule set by Administrative Law Judge Process takes months to complete

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5 Challenges & Opportunities Regulatory Treatment of Consolidation of Existing Systems System Improvement Recovery Mechanisms Acquisitions of Water / Wastewater System Small Water / Wastewater Systems Non-viable, non-compliant systems Reporting Requirements Rate Case Filing Requirements

6 The ACC and Consolidation Policy adopted June 24 favors consolidation Considered for any utility Decisions in context of a rate case

7 System Improvement Recovery Mechanisms

8 Infrastructure ASCE 2013 Report Card gave water infrastructure D grade Up to 6 billion gallons of water wasted every day Ongoing need to replace aging infrastructure Investment needs total more than $1.7 trillion 1 Recovery of costs critical 1 Buried No Longer: Confronting American s Water Infrastructure Challenge. AWWA

9 Infrastructure By % poor 23% very poor 9% life elapsed

10 10-Year Capital Plan Wastewater $163 million in the next 10 years is needed to keep your wastewater system running properly.

11 Wastewater Investment Capital investment of $163M over next 10 years - Target aging infrastructure miles of pipe installed almost 50 years ago - Investment will create over 700 jobs WW Districts Capital Investment Capital Investment Capital Investment Sun City Wastewater $31,876,996 $25,367,456 $57,244,452 Sun City West Wastewater $23,375,238 $26,304,006 $49,679,244 Agua Fria Wastewater $10,056,000 $11,677,866 $21,733,866 Anthem Wastewater $14,195,175 $16,985,987 $31,181,162 Mohave Wastewater $1,618,240 $1,820,993 $3,439,233 WW Consolidated $81,121,649 $82,156,308 $163,277,957

12 System Improvement Benefit (SIB) Mechanisms Authorized by the ACC in 2014 but appealed SIB Mechanism found unconstitutional by Court of Appeals in August 2015 ACC immediately stayed all existing mechanisms ACC appeals to State Supreme Court Supreme Court overturns Court of Appeals in July Resurrection of SIBs in process

13 Acquisition of Water / Wastewater Systems

14 Acquisition Adjustments Regulatory Tool to Incent Acquisitions of small, non-viable, non-compliant water / wastewater systems Cycle of Underinvestment can be broken Regulators can monitor the benefits to customers after an acquisition

15 Cycle of Underinvestment Small company facing revenue shortfall (Repairs, compliance, infrastructure) Discouraged by lengthy, resource intensive rate application process Underinvestment in system (Underserved customers) Unsustainable revenues (Inadequate rates, access to capital)

16 Effective Regulatory Practices Include - Acquisition adjustments - Independent valuation or appraisal processes - Premiums on Return on equity - Rate consolidation Leaders across US include Pennsylvania, Missouri, and Illinois

17 Best Practices Pennsylvania law, Section Small Nonviable Water and Wastewater Systems Statement of Policy - Acquiring utility meets viability criteria - Acquired system > 3,300 connections - Purchase price fair and reasonable

18 Best Practices Single tariff pricing applied to acquired system Includes incentives - ROR premium - Acquisition adjustment - Deferral of acquisition improvement costs - Plant improvement surcharge

19 Best Practices Factors relevant to reasonableness of the purchase price include - Promotion of long-term viability - Promotion of regionalization - Age of the infrastructure - Return on equity - Existing rates

20 Proposed Acquisition Adjustment in Arizona Recovery of purchase price premium Based on known/measurable improvements - Water loss, water quality, service level, infrastructure, etc. Reviewed/approved in rate case

21 Proposed Acquisition Adjustment in Arizona Investment made to address operational issues (water loss, water quality, violations, etc.) Includes premium on revenue requirement - Percentage of premium can be capped - Sunsets in 15-years or when premium is recovered - No recovery allowed if targeted improvement not met Healthy systems could also be included

22 Thank You Sheryl L. Hubbard Director, Regulatory & Rates Office: