Rates – Water Rates
In this decision, the AUC considered the complaint by the Cambridge Park Phase 1 and 2 Home Owners Association (“HOA”) against AMAR Developments Ltd. (“AMAR”) and the related application by AMAR for approval of the proposed rates for 2020, 2021 and 2022. The AUC approved, on a final basis, rates that were in effect from May 1, 2020, interim rates approved in Decision 25519-D01-2020,1 and AMAR’s forecast rates for January and February 2021.
Introduction
This was AMAR’s first time applying to the AUC for approval of its water rates. AMAR operates “a system, works, plant, equipment or service” for the delivery or furnishing of water to customers. The AUC therefore determined that AMAR meets the definition of a public utility provided in the Public Utilities Act (“PUA”). The AUC noted that its authority to address the customer complaint and set AMAR’s rates began at the time of the HOA complaint. Given that the evidence provided by the parties was based on monthly intervals and because May was the first complete month for which evidence was provided, the AUC considered rates from May 1, 2020 onwards.
Revenue Requirement
Cambridge Park is a residential subdivision in Rocky View County, located east of the City of Calgary. The developer, AMAR, had completed the first three development phases, consisting of 181 homes. At the time of this application the water supply for Cambridge Park was provided by two water wells, each with permanent diversion licences. Each well had an annual diversion limit of 48,000 m3.
On July 14, 2020, AMAR received approval for the Phase 4 development. This approval was conditioned on phases 1 to 4 of Cambridge Park being connected to the Rocky View County regional water system. Once the pipeline connecting Cambridge Park to the regional water system is complete, the water wells at Cambridge Park would be abandoned, and Rocky View County would take over operations and the provision of potable water to Cambridge Park residents. At that time, new water rates would be implemented pursuant to Rocky View County’s bylaws. AMAR stated that the pipeline is to be in place by the end of 2021 and noted the completion data for final designs and tender documentation was set for June 2021.
AMAR forecasted operational costs for 2020, 2021 and 2022 as $373,205, $409,600 and $414,519, respectively. AMAR submitted a forecast of customers and average monthly customer usage. For 2020 it had forecast 186 customers and a usage of 29.8 m3, for 2021 it forecast 201 customers and a usage of 30.4 m3 and for 2022 the forecast showed 208 customers and an average use of 27.2 m3.
The AUC reviewed AMAR’s calculations associated with hauled water volumes and costs. It further considered issues raised by participants regarding the amounts used and the methods of calculation. The AUC determined that AMAR’s calculations were reasonable and that AMAR had acted in the best interest of its customers. The AUC accepted AMAR’s forecast water hauling costs in 2020 and 2021, of $137,139 and $189,000, respectively.
With regard to general and administrative expenses, the AUC approved the insurance amounts, professional fees, and office management and administrative expenses for 2020 and 2021. With regard to an administrator position, the AUC was not persuaded by the evidence submitted by AMAR, that the $2,000 per month expense is warranted for the administrator position, and reduced the forecast amount associated with this position by 50 per cent and approved administrator expenses of $6,000 and $12,000 for 2020 and 2021, respectively.
Approved Revenue Requirement
The AUC determined the amounts proposed by AMAR were reasonable and approved the amounts of $367,205 and $397,600 to be included in the 2020 and 2021 revenue requirement, respectively, for the water treatment system. The AUC indicated it would pro-rate expenses associated with water testing, maintenance and repairs, water hauling, chemicals, water well and professional fees for 2020 equally over the year, as opposed to only from May to December 2020 as indicated by AMAR, to maintain fairness to both customers and the utility.
The AUC would consider the monthly revenue requirement amount of $30,600 in determining rates.
Rates
AMAR proposed the following rates:
Billing Determinants
The AUC approved the billing determinants proposed by AMAR.
Approved Rates
The AUC approved the fixed charge of $ 20.00. Regarding the majority of AMAR’s revenue requirement being recovered through the variable charge of its proposed rates, the AUC noted that this rate structure could create long term concerns. However, because the proposed pipeline and water system would likely be turned over to Rocky View County in late 2021, the AUC found that this structure would not result in long term concerns.
Regarding AMAR’s variable charge of 14.50 $/m3 s, the AUC noted this amount had been approved as part of AMAR’s interim rates in July 2020. It noted that there was no direct relationship between revenue from the supplemental variable charge and hauled water expenses and, further, agreed with AMAR that this charge served to encourage water conservation throughout the year. The AUC was satisfied with AMAR’s proposed rate design.
The AUC noted that the forecast revenue is greater than the proposed revenue requirement, and AMAR referred to the difference as net revenue. According to section 90(3) of the Public Utilities Act, an owner of a public utility may earn a fair return on the rate base. However, AMAR did not identify this as a revenue requirement item subject to testing, and potential approval by the AUC. As previously noted, the AUC has accepted AMAR’s position that the proposed rates are only recovering operating costs.
The AUC addressed this issue through the management fee. The management fee, based on information provided by AMAR, would have been 6.4 per cent and 5.4 per cent of the proposed 2020 and 2021 revenue requirement, respectively. No information was provided to support these amounts. The AUC found that the potential of missing revenue, and the needs of the utility should be balanced out with the customers’ desire to minimize fees. Therefore, the AUC, in exercising its discretion and judgement, approved a management fee of 5.0 per cent.
To reduce regulatory lag and burden, the AUC approved all rates and volumes charged by AMAR commencing May 1, 2020, on a final basis. The AUC also approved AMAR’s fixed rate and supplemental rate for 2021 and will adjust AMAR’s 2021 variable charges on a go-forward basis.
The AUC found that, based on rates charged in 2020, AMAR had over-collected rates in the amount of $57,542. The AUC provided details of the reconciliation in Appendix 2 and approved water rates consisting of a fixed rate of $ 20.00/month, a variable charge of $3.495/m3 and a supplemental variable charge of $14.50/m3, for greater than 1.1 m3/day average usage over the month, as of March 1, 2021. $45,302 was to be refunded to customers.
2022 Rates
The AUC noted that AMAR’s rates for 2022 mirrored the proposed rates for 2021. Based on the information provided by AMAR, the AUC anticipated that the pipeline connecting the Rocky View County regional water system with Cambridge Park would be completed prior to the end of 2021, at which time Rocky View County would take over the responsibility to provide water and the billing for water services.
However, to provide for the event that Rocky View County does not assume operations prior to 2022, the AUC approved rates for AMAR commencing January 1, 2022, consisting of a fixed charge of $20.00/month, a variable charge of $4.234/m3 and a supplemental variable charge of $14.50/m3, for greater than 1.1 m3/day average usage over the month.
