WATER/ABJ/DON/KKE:Jlj

Resolution W-4245January 18, 2001

KVWC/AL 45/ABJ/DON/KKE:jlj

WATER/ABJ/DON/KKE:jlj

PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

WATER DIVISIONRESOLUTION W-4245

Water Advisory BranchJanuary 18, 2001

RESOLUTION

(RES. W—4245), KENWOOD VILLAGE WATER COMPANY (KVWC). ORDER AUTHORIZING A RATE BASE OFFSET REVENUE INCREASE OF $24,408 OR 18.46% ADDITIONAL ANNUAL REVENUE FOR 2001.

Summary

By Advice Letter No. 45, filed August 3, 2000, KVWC seeks revision of tariff Schedule No. 1, General Metered Service, to provide an increase in rates to reflect an increase in rate base. This resolution authorizes KVWC to increase rates by $24,408 or 18.46% to recover costs in capital investment for replaced and new water utility plant. The increase will not result in a rate of return greater than last authorized for KVWC.

Background

KVWC requests authority under Section VI of General Order 96-A and Section 454 of the Public Utilities Code to increase rates in order to offset its proposed $105,891.69 for the capital improvements known as the Treehaven Project. KVWC was authorized under Res. W-4166, dated September 2, 1999, to file for recovery of these capital improvements when the Treehaven Project became used and useful. KVWC presently serves approximately 296 metered rate customers in the unincorporated area known as Kenwood Village, immediately north of Kenwood, Sonoma County.

The present rates became effective September 2, 1999, pursuant to Res. W-4166, which authorized a $34,235 or 34.92% increase for test year 1999 and a 13.50% rate of return on rate base. KVWC is a Class C utility, however due to the increased risk absorbed by the utility for construction of this project, the company was given a temporary additional fifty basis points to its return rate until this project was completed.

Notice

Notice of the proposed increase was mailed to each customer on August 1, 2000, in the company’s monthly billing.

Protests

Advice Letter (AL 45) was protested. The Water Advisory Branch (Branch) received a total of 17 letters. Members of the community held a meeting to discuss KVWC’s proposed rate increase in the service area on August 17, 2000. Both utility and Branch representatives attended this meeting. The major complaints centered on two issues: (1) the amount of the increase, and (2) its proximity to the last general rate increase of only one year earlier.

Discussion

In July 1997, KVWC met with Water Division representatives to discuss the Treehaven Project. The major goals of this project were:

(1)Replace aging and/or extend existing pipelines to provide for a high

capacity, low-pressure loss distribution system between the primary

Kenwood well and pump (known as K-1), the elevated 200,000-gallon

storage tank, and the southern portion of the existing distribution system;

(2)Enable the water stored in this tank to be effectively utilized during peak

demand periods when total system demand exceeds the instantaneous

pumping capacity of K-1; and

(3)Replace aging 4-inch and 6-inch steel mains on Mission Drive and Green

Street eliminating sections with recurring leaks and eliminate the existing

dead-end main on Treehaven Lane.

These goals were met with the installation of approximately 1,400 feet of eight-inch C900 water main, both eight and six-inch gate valves, two hydrants, nine single water services, one dual water service and all associated tie-ins. The Branch has inspected and verified the installation of the facilities associated with AL 45.

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Resolution W-4245January 18, 2001

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Explanation of the total amount of the offset can most easily be clarified by quoting directly from Res. W-4166:

“The summary of earnings … shows a rate of return of 13.50% at the Branch’s recommended rates. This is higher than the rate of return first proposed by staff (13%), but is justified on the basis of financial risk. Kenwood is undertaking a substantial infrastructure replacement project. Estimated costs are $50,000 or 25% of rate base. The higher return is justified until the project is complete.“

Now that the Treehaven Project is complete, any subsequent rate adjustment filing with the Commission should be based on a rate of return equal to the latest upper limit of the rate of return range for Class C water utilities recommended by the Water Division's Audit and Enforcement Branch.

To pay for the Treehaven Project, KVWC has requested a capitalization of $105,891.69 added to rate base at a return rate of 13.5% calculated as an offset increase of $24,408 or 18.46%. Branch has reviewed KVWC’s records and finds the cost of $100,686.69 associated with the facilities to be reasonable. Branch disallowed the KVWC’s request of $5,205 in company labor to be capitalized as part of this project. Those labor expenses are already in rates pursuant to Res. W-4166. Res. W-4166 does not impute this company labor expense as part of the Treehaven Project, i.e., labor above and beyond the normal working hours of the company’s labor force. Although the Branch disallowed the capitalization of company labor, as discussed above, it still recommends the utility be authorized the entire amount of increase requested in the rate increase filing. This is made possible by the fact that the utility significantly understated income taxes in its rate increase request. The rate increase will not result in a rate of return greater than last authorized for KVWC.

The proposed rate design submitted by the company recommends the entire increase be added to the cost of service component instead of being spread between both the cost of service and commodity charges. Branch and company agreed to redesign the new rate structure applying two-thirds of the increase to the cost of service component and the remaining one-third to the commodity charge.

At the Branch’s recommended rates, the monthly bill for a 5/8 x ¾-inch metered residential customer using the system average of 19.20 cu. ft. would increase from $35.73 to $42.69 per month, a $6.96 or 19.49% increase.

Findings AND CONCLUSIONS

The Branch’s recommended rate increase is just and reasonable to recover the costs

associated with plant improvements.

Any subsequent rate adjustment filing with the Commission by KVWC should be

based on the latest upper limit of the rate of return range for Class C water utilities

recommended by the Water Division’s Audit and Enforcement Branch.

therefore IT IS ORDERED that:

Authority is granted under Public Utilities Code Section 454 for Kenwood Village Water Company to file a supplemental advice letter incorporating the revised rate schedule attached to this resolution as Appendix A, and concurrently to cancel its presently effective rate schedule, No. 1, Metered Service. Its filing shall comply with General Order 96-A. The effective date of this new schedule shall be 5 days after the date of filing.

Rate adjustment filings with the Commission by Kenwood Village Water Company shall be based on the latest upper limit of the rate of return range for Class C water utilities recommended by the Water Division’s Audit and Enforcement Branch.

This Resolution is effective today.

I certify that the foregoing resolution was duly introduced, passed and adopted at a conference of the Public Utilities Commission of the State of California held on

January 18, 2001; the following Commissioners voting favorably thereon:

______

WESLEY M. FRANKLIN

Executive Director

LORETTA M. LYNCH

President

HENRY M. DUQUE

CARL W. WOOD

Commissioners

Commissioner Richard A. Bilas, being

necessarily absent, did not participate.

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Resolution W-4245January 18, 2001

KVWC/AL 45/ABJ/DON/KKE:jlj

Appendix A Rates

Kenwood Village Water Company

Advice Letter 45 Ratebase Offset

Schedule No. 1

METERED SERVICE

APPLICABILITY

Applicable to all metered water service.

TERRITORY

In the unincorporated area known as Kenwood Village, immediately north of Kenwood, Sonoma County.

RATES

Quantity Rates:

All Water, per 100 cu. ft...... $1.011(I)

Service Charges:

Per Meter Per Meter Per Month

Per MonthSDWBA Surcharge

For 5/8 x ¾-inch meter...... $23.28(I)10.22

For ¾-inch meter.....27.44 | 15.33

For 1-inch meter.....39.34 |25.55

For 1/1-2-inch meter...... 52.97 |51.09

For 2-inch meter.....71.42 |81.75

For 3-inch meter.....348.99 |153.28

For 4-inch meter.....581.64 (I)255.46

The Service Charge is a readiness-to-serve charge, which is applicable to all metered service, and to which is added the charge for water used computed at the Quantity Rate.

SPECIAL CONDITIONS

The Safe Drinking Water Bond Act (SDWBA) surcharge is in addition to the water bill. This surcharge must be identified on each bill. The surcharge is specifically for the repayment of the California SDWBA loan authorized by Resolution F-636.

All bills are subject to the reimbursement fee as set forth in Schedule No. UF.

Appendix BComparison of Rates

Kenwood Village Water Company

Advice Letter 45 Ratebase Offset

Per Service Connection Per Year
Present Rates
$ / Recommended Rates
$ / Percent Change
%
METERED
Service Charge:
5/8 x ¾-inch meter / 226.20 / 279.36 / 23.50
¾ - inch / 249.60 / 329.28 / 31.92
1-inch meter / 339.24 / 472.08 / 39.16
1 ½ - inch / 454.20 / 635.64 / 39.95
2-inch meter / 612.36 / 857.04 / 39.95
3-inch meter / 3390.60 / 4,187.88 / 23.51
4-inch meter / 5650.80 / 6979.68 / 23.52
QUANTITY
All water, per 100 cu.ft. / 0.879 / 1.011 / 15.02
A monthly comparison bill does not include the SDWBA surcharge for a customer with a 5/8 x ¾ -inch meter is shown below:
Usage in CCF (100 Cu. Ft.) / Present Bill
$ / Recommended Bill
$ / Amount Increase $ / Increase
%
0 / 18.85 / 23.28 / 4.43 / 23.50
5 / 23.25 / 28.34 / 5.09 / 21.90
10 / 27.64 / 33.39 / 5.75 / 20.80
15 / 32.04 / 38.45 / 6.41 / 20.01
19.2 average / 35.73 / 42.69 / 6.96 / 19.49
25 / 40.83 / 48.56 / 7.73 / 18.93
30 / 45.22 / 53.61 / 8.39 / 18.55

Appendix CAdopted Quantities

Kenwood Village Water Company

Advice Letter 45 Ratebase Offset

Taxes

Federal Tax Rate...... 39%

State Tax Rate...... 8.84%

Ad Valorem Taxes...... $2,059

Tax Rate...... 1.000%

Assessed Value...... $290,460

Expenses

Purchased power...... $10,600

Pacific Gas & Electric

Rate Schedule...... A - 10

Effective Date of Schedule...... 01/01/99

kWh** Used Total...... 52,500

**Rates for per kWh usage varies and is based on the weighted average costs for purchase through the Power Exchange. This service is subject to competition.

Customer Charge...... 482

Payroll

Management Salary...... $22,509

Field labors...... $11,207

Office Salary...... $4,800

Total Payroll...... $38,516

Payroll taxes...... $2,476

Water Testing...... $2,300

APPENDIX CADOPTED QUANTITIES (continued))

Kenwood Village Water Company

Advice Letter 45 Ratebase Offset

Service Connections

Metered Rate:

5/8 x ¾-inch...... 286

1-inch...... 6

2-inch...... 4

Total Connections...... 296

Metered water sales used to design metered rates...... 56,895 Ccf

Adopted Tax Calculations

Kenwood Village Water Company

A.L #45 ratebase offset increase

Line / Item / State Tax / Federal Tax
$$ / $$
1. / Operating Revenues / 26,419 / 26,419
2. / Expenses
3. / Taxes other than Income / 1,007 / 1,007
4. / Depreciation Expense / 2,326 / 2,326
5. / Interest / none / none
6. / Taxable Income for State Tax / 23,086
7. / State Tax (at 8.84%) / 2,041
8. / Taxable Income for FIT / 21,045
9. / Federal Income Tax (at 39%) / 8,207
10. / Total Income Taxes / 10,248