PUBLIC SERVICE COMMISSION OF WISCONSIN service commission of wisconsin . investigation into the...

download PUBLIC SERVICE COMMISSION OF WISCONSIN service commission of wisconsin . investigation into the methods used by wisconsin’s water utilities in allocating public fire protection

of 95

  • date post

    30-Mar-2018
  • Category

    Documents

  • view

    215
  • download

    1

Embed Size (px)

Transcript of PUBLIC SERVICE COMMISSION OF WISCONSIN service commission of wisconsin . investigation into the...

  • PUBLIC SERVICE COMMISSION OF WISCONSIN

    INVESTIGATION INTO THE METHODS USED BY WISCONSINS WATER UTILITIES IN

    ALLOCATING PUBLIC FIRE PROTECTION (PFP) COSTS

    Final Staff Report

    Docket 5-WI-104

    December 15, 2016

    Division of Water, Telecommunications, and Consumer Affairs

    PSC REF#:296859Public Service Commission of Wisconsin

    RECEIVED: 01/16/17, 3:45:14 PM

  • i

    Table of Contents

    1. Purpose of Investigation..1

    2. Overview of the Public Fire Protection Charge. .1

    2.1 Definition of the PFP Charge...2

    2.2 Discussion of the PFP and General Service Customer Classes.......4

    2.3 Identifying the Demand that Controls the Water System Design........................4

    2.4 Types of PFP Charges10

    2.5 Statutes, Administrative Code, and Policies for the PFP Charge..13

    3. Public Fire Protection Cost Sensitivity Using the PSC Model..15

    3.1 Relationship of Utility Size to the PFP Cost-of-Service15

    3.2 Relationship of Water Sales to the PFP Cost-of-Service...16

    3.3 Relationship of New Plant Additions to PFP Cost-of-Service..18

    4. PSC Cost-of-Service and Rate Design Model...................................................................19

    4.1 Overview of the PSC Model..19

    4.2 Comparison of the PSC Model with the AWWA M1 Manual Model...21

    4.3 PSC Computation of Fire Demand23

    4.4 Impact of Fire Demand on the PFP Cost-of-Service.26

    4.5 Impact of System Demand Ratios on the PFP Cost-of-Service.28

    4.6 Impact of Transmission and Distribution Mains on the PFP Cost-of-Service...32

    4.7 Impact of Customer Demand Ratios on the PFP Cost-of-Service.34

    4.8 Allocating Costs to the PFP Cost Function...37

    4.9 Allocating Costs to the PFP Customer Class.42

    4.10 Rate Design48

    4.11 Allocating PFP Costs to Wholesale Customers.54

  • ii

    5. Methods Used by States to Compute and Recover the Public Fire Protection Cost..58

    6. Discussion of Options for Computing and Allocating Public Fire Protection Charge..60

    6.1 Computation of Fire Demand60

    6.2 Allocation of Costs to the PFP Cost Function and PFP Customer Class..66

    6.3 Limit Maximum PFP Cost-of-Service...76

    6.4 Class Absorption Method .77

    6.5 Impact of Options on the PFP Cost-of-Service to Wholesale Customers.82

    6.6 Rate Design Options..85

    7. Private Fire Protection...86

    8. Recommendations..89

  • iii

    Appendices

    Appendix A Sample Water System Capacity Analysis

    Appendix B Comparison of Max Day Plus PSC Fire Demand and Max Hour Demand

    Appendix C PFP Charge Used by Wisconsin Water Utilities

    Appendix D Percent of Revenue Requirement Versus Number of Customers

    Appendix E Percent Increase in PFP Cost-of-Service Versus Percent Decrease in Water Sales

    Appendix F PSC Fire Demand Versus Population for Wisconsin Water Utilities

    Appendix G System Demand Ratios Versus Population for Wisconsin Water Utilities

    Appendix H List of Wholesale Providers and the Communities They Serve

    Appendix I Results of Survey to 50 Public Utility Commissions

    Appendix J ISO NFF Data for Wisconsin Water Utilities

    Appendix K Option #1 Model Explanation and Results

    Appendix L Option #2 Model Explanation and Results

    Appendix M Option #3 Model Explanation and Results

    Appendix N Class Absorption Method Explanation and Results

    Appendix O Comparison of Max Day Plus ISO Fire Demand and Max Hour Demand

    Appendix P Computing the Private Fire Protection Charge

    Appendix Q Private Fire Protection Revenues for Wisconsin Water Utilities

  • 1

    1. Purpose of Investigation

    On October 30, 2014, the Public Service Commission of Wisconsin (Commission or

    PSC) issued its Final Decision in Docket 3720-WR-108, the MWW, Milwaukee County,

    Wisconsin, for Authority to Increase Water Rates. (PSC REF#: 223601.) Order Point No. 14

    of that decision included two parts. Part A stated that the Commission shall open a generic

    investigation to study the methods of all water utilities in allocating public fire protection costs.

    Part B stated that MWW and the Wholesale Customers shall work with Commission staff to

    further evaluate alternative methods for allocating fire protection costs for use in MWWs next

    rate case.

    The following report addresses Part A by describing how the Commission currently

    computes the PFP charge, comparing that method with best practices used by other states,

    identifying the assumptions that underlie the Commissions cost-of-service model (PSC model),

    and determining if those assumptions are reasonable or not. The goal of this study is to provide

    information to the Commission on changes that could be made to the PSC model to ensure that

    the Commissions methods reflect reasonable assumptions and produce accurate PFP cost

    allocations. Also, it is hoped that this study will reduce the number of contested issues

    encountered in water rate cases. Part B will be addressed in a subsequent study.

    2. Overview of the Public Fire Protection Charge

    The Commission regulates 582 water utilities in Wisconsin. All but five of them are

    municipally owned. These 582 water utilities earned a total of $665 million in revenues in 2013,

    as shown in Figure 1. Approximately $140 million (21 percent) of those revenues were earned

    from fire protection charges. Since the PFP charge provides such a significant share of water

    http://psc.wi.gov/apps35/ERF_view/viewdoc.aspx?docid=%20223601http://psc.wi.gov/apps35/ERF_view/viewdoc.aspx?docid=%20223601

  • 2

    utility revenues, it is important to make sure these charges are computed using the best methods

    available.

    2.1 Definition of the PFP Charge

    The PFP charge is a charge that covers the costs to augment the utilitys water system in

    order to provide the high flows and pressures needed to fight fires.1 These costs include a

    portion of the operation and maintenance expenses, depreciation expenses, taxes, and return on

    net investment rate base attributable to the relevant water plant. The augmented water plant

    1 See comments by Municipal Environmental Group in PSC REF#: 286177

    http://psc.wi.gov/apps35/ERF_view/viewdoc.aspx?docid=%20286177

  • 3

    attributable to fire protection includes: wells, water treatment equipment, pumps, storage

    facilities, water mains, and hydrants. The cost of the water used to fight fires is not included as it

    is relatively insignificant compared to the cost of the related plant.

    In many cases, if a water system did not have to provide the higher flows and required

    minimum system pressure needed to fight fires, its supply, storage and distribution infrastructure

    would be smaller and less costly to build, operate and maintain. Such a water system might need

    less supply capacity, less pumping capacity, smaller storage facilities, smaller diameter water

    mains, and few hydrants (flushing hydrants only). For many water systems, the addition of fire

    flow capacity results in additional costs to build and operate the water systems. For example,

    Wisconsin Admin Code NR 811.70(5) requires that utilities install minimum 6-inch diameter

    water mains for fire protection purposes. Many small communities could operate with 4-inch

    diameter mains or smaller if they did not need to provide the higher flows required to fight fires.

    The Commission has traditionally designed water rates to assign the cost to the

    cost-causer. Therefore, it has been the Commissions standard of practice to identify the PFP

    cost-of-service, and compute corresponding PFP rates, that assign costs to the appropriate users.

    The PFP charge is not simply a hydrant rental fee. The cost of the fire hydrants is only a small

    portion of the total cost of providing PFP service. It is also important to note that the PFP charge

    has no relationship with funding the fire department.

    Costs associated with the augmented plant used to provide the high pressures and flows

    discharged at public hydrants are paid through Schedule F-1, Public Fire Protection Service.

    Costs associated with augmented plant to provide the high pressures and flows discharged

  • 4

    through an unmetered private fire protection service (sprinkler system) are paid through

    Schedule Upf-1, Private Fire Protection Service Unmetered (see Section 7).

    2.2 Discussion of the PFP and General Service Customer Classes

    A perfect cost-of-service model would allocate appropriate costs to each individual

    customer based on their unique demand patterns and use of the water system. Unfortunately, it is

    cost prohibitive to develop such a model for each water customer. Therefore, customers are

    aggregated into groups with similar demand patterns. These groups, called customer classes,

    are specifically authorized by Wis. Stat. 196.02(2).

    The PSC model identifies the following customer classes: residential, multi-family,

    commercial, industrial, public authority, and the PFP customer class. The first five customer

    classes use water almost daily in identifiable demand patterns. Each one represents a group of

    specific water customer accounts. For that reason, these five customer classes are referred to as

    general service customer classes. In contrast, the PFP customer class is very different from t