Rates – Interim Water Rates
The AUC initiated this proceeding on May 13, 2020, based on an initial complaint from the Cambridge Park Home Owner’s Association (“HOA”), regarding a water rate increase that was put into place by AMAR Developments Ltd. (“AMAR”) on March 1, 2020. In this decision, the AUC considered the interim rates sought by AMAR. The AUC noted that a future decision would set final rates and make findings pertaining to the March increase.
Background
The AUC received an email on July 14, 2020, from the HOA, advising the AUC that AMAR provided notice to residents of the Cambridge Park in phases 1, 2, and 3 of a water rate adjustment. The notice indicated the following:
The AUC received a letter from AMAR on July 16, 2020, requesting approval of the interim rates outlined above.
Applicable Legislation
Pursuant to section 89(a) of the Public Utilities Act, the AUC may:
… fix just and reasonable individual rates, joint rates, tolls or charges, or schedules of them, as well as commutation, mileage or kilometre rate and other special rates, which shall be imposed, observed and followed subsequently by the owner of the public utility;
Details Supporting Interim Rates
Water Usage and Supply
The AUC noted that the monthly water use per home in Cambridge Park spikes to over 30 m3 per month during the summer. Further on a four-year basis, the annual usage is 34.2 m3 per month with summer usage of 40.8 m3 per month. The AUC noted that typical annual water usage in Alberta is approximately 20 m3 per month. Given the significant volumes of water being consumed in Cambridge Park, the AUC considered this level of water usage may place a strain on the ability of AMAR to supply water at current rates.
AMAR indicated that the authorized maximum daily water diversions it may draw from well #1 and well #2 is 230 m3/day. Given the demand placed on the water system, and the physical limitation of the wells, the water supply from the wells has been inadequate to supply the needs of the Cambridge Park development. These shortfalls have necessitated periodic hauling of water from offsite to ensure an uninterrupted supply of water to Cambridge Park. The AUC noted AMAR reported water hauling costs of $12,599 in 2018, $70,649 in 2019, and has forecast water hauling costs of $163,200 in 2020. Using historic costs, AMAR calculated the cost of hauled water at $20.40/m3. Based on its forecast water hauling costs in 2020, the AUC was of the view this may place an undue strain on AMAR, thereby justifying increased rates to allow AMAR to continue to provide a safe and reliable supply of water to its residents.
Revenue Requirement
Based on the revenue requirement amounts proposed by AMAR, and based on the revenues it collected in 2018 and 2019, the AUC noted that AMAR stated that it experienced respective revenue shortfalls of $67,923 and $36,949.7 The AUC considered that these amounts, on their face, were material and justified the need for increased rates.
2020 Rates and Revenue Requirement
Based on an observed increased water usage of eight percent from January to April 2020, and 12 percent for May 2020, AMAR proposed a demand rate of $5.00/m3 and as an additional incentive, a stepped rate of $14.50/m3 for water usage in excess of 1.1 m3/day on average. These rates were selected in an attempt to remain revenue-neutral and encourage conservation.
The AUC noted that based on AMAR’s proposed 2020 revenue requirement of $426,738, the proposed rates in 2020 would result in revenues of $425,832.8 The AUC found that the proposed rates would result in AMAR essentially breaking even in 2020 on a forecast basis. Based on this information, the AUC considered the proposed rates to be reasonable on an interim basis.
Approval of Interim Rates
The AUC noted that it may approve rates on an interim basis prior to making a final decision on rates. If the rate that is finally approved is different from the interim rate, an adjustment is made to recover or refund the difference from customers between the amounts paid on the interim rate and the amounts that would have been paid during that time if final rates had been in place.
In Decision 2005-099, the AUC set out some general principles in considering interim rate increases. The AUC explained that these principles can be grouped into two categories:
1) those that relate to the quantum of and need for the rate increase; and
2) those that relate to more general public interest considerations.
Regarding principles related to the quantum and need for the rate increase, the AUC found that there was an immediate need for a rate increase. In particular, the AUC noted that the water usage and supply issues, and revenue requirement issues suggest that without approval to charge increased rates, the financial integrity of AMAR may not be preserved. The AUC stated that, if AMAR lacks financial stability, the AUC questions whether AMAR will be able to continue safe utility operations without an interim rate adjustment. Further, based on the information provided by AMAR, the AUC found that the identified revenue deficiency would be probable and material. On this basis, the AUC considered that it should approve an interim rate increase for AMAR, for customers to continue to receive safe and reliable service.
Regarding public interest considerations, the AUC noted that the tiered rate proposed by AMAR was designed to send a price signal to those households that use over 1.1 m3/day on average of the significant increase in costs placed on the system to provide significant volumes of water. Given the evidence provided by AMAR, the AUC found the tiered rate to be reasonable. Further, the AUC considered that it was imperative on a public interest consideration to provide water rates that allow the utility to continue to provide service. In the absence of sufficient rates to cover the costs of providing safe and reliable service, homeowners would be left to securing their own supply of water. In such circumstances, one option would be for homeowners to place individual water tanks and necessary plumbing on their property and have water delivered at their own expense. In the AUC’s experience, such a situation does not serve the public interest. It is more cost-effective, safe and reliable to approve an increase in rates than to have service discontinued. On this basis, the AUC found that the proposed interim water rate increase was reasonable.
Order
The AUC order that AMAR Developments Ltd. water rates effective July 17, 2020, on an interim refundable basis shall be:
