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1994--The Year in Review

Fortnightly Magazine - January 1 1995

NW Nat. Gas Co., 153 PUR4th 174 (Wash.U.T.C.1994).

Water Utilities (em

Paying for Federal Mandates

They say new regulations are like hidden taxes; politicians get away with something for nothing. The cost is not felt until the affected industry invests the capital necessary to make the mandated improvements and then recoups from ratepayers. In a rate-regulated industry like water, where competition cannot force shareholders to absorb costs, regulators seek to avoid the sometimes exorbitant rate increases needed to fund water-system improvements mandated by the Safe Drinking Water Act (SDWA). Such increases had regulators looking at new rate designs such as systemwide rate averaging, long-range planning, and rate base valuation rules.

s Averaged Rates. The Florida PSC has allowed Southern States Utilities Inc. to charge statewide uniform rates for water services, finding the averaged rate structure superior to stand-alone charges for individual service districts. The PSC also rejected alternative rate structures, including: 1) uniform rates with subsidy cap; 2) stand-alone rates adjusted by a uniform companywide amount; 3) uniform rate, excluding return on investment;

4) stand-alone rate with residential rate cap; 5) countywide rates. The PSC found that while the uniform rates involved the greatest level of subsidies between service districts, they produced charges that even the utility's poverty-level ratepayers could afford. It added that spreading costs among all ratepayers was important because of the industry's need to replace aging infrastructure while also upgrading treatment facilities to meet increasingly stringent environmental standards. Furthermore, the PSC said that statistical analyses showed no correlation between significant cost factors and revenues that might support individual system rate adjustments. Re So. States Utils., Inc., 155 PUR4th 454 (Fla.P.S.C.1994).

s Strategic Planning. The New York PSC has directed all large water utilities (annual revenues in excess of $1 million) to file long-range strategic plans on a yearly basis. It found formal planning requirements necessary to ensure that utilities and ratepayers are adequately prepared to finance construction to meet SDWA and surface water treatment rules as well as other corrective actions to maintain high-quality service. Re Policy to Require Large Water Utils. to Initiate Long-Term Strat. Plan. Process, 155 PUR4th 361 (N.Y.P.S.C.1994).

s Rate Base Issues. Citing a need for new water treatment facilities required under the SDWA, the Maine PUC has approved a rate increase of 24.5 percent for Consumers Maine Water Co., a new water utility formed by the recent merger of three smaller companies. The PUC also set new policy for the treatment of post-test-period additions to rate base for water companies. It rejected a proposal to require utilities to show that: 1) the plant is required by government mandate; 2) the addition is known and measurable and the "matching principle" is not violated; and 3) the financial health of the utility is threatened if the investment is not included. Re Camden & Rockland Water Co., et al., 154 PUR4th 89 (Me.P.U.C.1994). t

Phillip S. Cross is an associate legal editor of PUBLIC UTILITIES FORTNIGHTLY

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