State Regulatory Relations

NARUC Holds Successful Winter Committee Meetings

The National Association of Regulatory Utility Commissions (NARUC) Water Committee and Staff Subcommittee on Water held meetings during NARUC’s successful Winter Meetings, February 17 through February 20.

Many NAWC members participated during the meetings of the committee on Water. On Monday, Floyd Wicks, American States Water, presented information on the California Water Quality Litigation Decision. Jeffrey Hines represented York Water as the featured individual jurisdictional water company and Peter Cook provided an update on NAWC activities.

On Tuesday, there was a panel discussion on pricing considerations related to reclaimed water. Mark LeChevailler, American Water; Lisa Crossett, Utilities Inc; and Chris Franklin, Aqua America participated. There was also a panel on the impact of Sarbanes Oxley. Ellen Wolf, American Water was the keynote speaker for this panel. Dian Taylor, Artesian Water Company; Nicholas DeBenedictis, Aqua America; Walton Hill, United Water; and Floyd Wicks, American States Water also participated.

The Water Committee also passed two resolutions. The first resolution is entitled, “Resolution Regarding the Creation of State Legislative ‘Safe Harbors’ from Lawsuits Alleging Injuries Received from Drinking Water that is in Compliance with State and Federal Standards.” The other resolution is entitled “Resolution Designating Dr. Martin Luther King, Jr. Day as a Day of Utility Service.”

The Resolution Regarding the Creation of State Legislative 'Safe Harbors’ states that companies complying with federal and state safe drinking water standards should not be subject to lawsuits claiming injuries from drinking water. It encourages states to consider enacting legislation or adopting regulations, which provide a "safe harbor" from liability for any water purveyor operating in the state that provides water in compliance with federal and state standards.

The “Resolution Designating Dr. Martin Luther King, Day as a Day of Utility Service” designates Dr. Martin Luther King Day as a Day of Utility Service and encourages all Americans to engage in a utility act of service on Dr. King's holiday, e.g., turn down the thermostat, weatherize their homes, change their incandescent light bulbs to energy efficient bulbs and/or install water saving devices. The Committees on Gas and Consumer Affairs passed this resolution as well.

Both resolutions can be found at: http://www.naruc.org/resolutions.cfm?action=doit&AdoptedDate=

Additionally, the Staff Subcommittee on Critical Infrastructure and the Committee on Critical Infrastructure met Sunday, February 17. Cade Clark presented an overview of the Water Sector Coordinating Council’s work on security metrics and Paul Foran, American Water, presented on the panel, “Water/Energy Interdependency Issues: Drought in the Southeast.”

Presentations by all speakers will be available soon at: http://www.narucmeetings.org/presentations.cfm?p=3

New Commissioner Appointed at Minnesota PUC

Governor Tim Pawlenty announced the appointment of J. Dennis O’Brien to the Public Utilities Commission (PUC). Commissioner O’Brien is appointed to a six-year term that expires on Jan. 6, 2014, and replaces Marshall Johnson.

“Dennis brings a great deal of knowledge, intellect and balanced judgeship with him to the position,” Governor Pawlenty said. “He has the passion for public service and will study the issues before the PUC to help lead Minnesota’s future energy policy.”

Commissioner O’Brien, is the state’s director of strategic planning, a position he has held since 2007. He was an attorney and partner with Littler Mendelson in Minneapolis, from 2005 to 2007, where he practiced a broad range of employment law matters. Previously, he was an attorney and partner with Rider Bennett from 1989 to 2005 and LeFevere Lefler from 1969 to 1989, where he brought an extensive knowledge, experience and expertise in many aspects of education law.

NY PSC Water Rates

The New York Public Service Commission (PSC) established a rate plan to produce three annual revenue increases of 5.7 percent for metered services of Long Island Water Corporation effective April 1 in 2008, 2009 and 2010. Long Island Water serves approximately 74,000 customers in the Town of Hempstead, Nassau County.

The increases reflect the use of $4.3 million in revenue and property tax credits to mitigate rates. The company had requested a one-year $9.6 million (22.7 percent) increase in revenues due to capital costs and depreciation related to plant investment, increased costs of service provided to Long Island Water by its parent American Water Service Company, lower sales revenue, and increases in payroll and related expenses.

According to the PSC, the newly approved base rates reflect an allowed equity return of 9.5 percent, as compared with the 11 percent sought in the company's initial filing. Over the three years of the rate plan considered in the aggregate, all earnings attributable to an earned return on equity at or below 10.5 percent would be retained by shareholders. Earnings in the range exceeding 10.5 percent but not exceeding 11 percent would be shared equally between customers and shareholders, while earnings exceeding 11 percent would be shared 75 percent by customers and 25 percent by shareholders. (Cases 07-W-0508, 05-W-0339)

Rhode Island PUC Questions Defined Plan

Expressing concern over the necessity and cost of a new defined benefit pension program for nonunion workers at Narragansett Bay Commission (NBC), a large sewer and wastewater treatment utility, the Rhode Island Public Utilities Commission (PUC) has directed the utility to submit information on program operations and costs. The single approved resolution requires NBC to file information with the commission on a routine and timely basis regarding its nonunion pension plan. In a dissenting opinion, however, PUC Commissioner Robert B. Holbrook complained that the commission should have taken further action to protect ratepayers.

According to the PUC, the sewer utility had claimed that it changed its nonunion pension plan to provide some degree of parity with the pension plan for its union staff. The commission found, however, that the union staff of NBC was required by state law to be in the state pension system. It also noted that for fiscal years 2002 through 2004, NBC's defined contribution of 10 percent of salary for its nonunion employees was higher than the contribution to the pension of its union employees. Further, the new nonunion plan provides a defined benefit at retirement if an employee works at least seven years. As a result, past service accrued before adoption of the plan would count toward vesting as long as an employee worked for at least one day during the time period that the new plan was effective, the PUC said. The new plan includes the following benefits:

1. Provision of up to 30 percent of pay at age 65, with the benefit accruing at 1 percent per year up to a maximum of 30 years; 2. Early retirement at age 62 with 20 years of service, with benefits reduced 5 percent per year for each year prior to normal retirement age; 3. Vesting after seven years; 4. Inability of employees to receive pension benefits before their fifth anniversary of joining the plan — therefore, no benefits will be paid to any participant until February 2010 at the earliest; 5. Employee participation in the plan for only one day in order to receive an accrued retirement benefit; and 6. No cost-of-living adjustments on retirement benefits.

As NBC's defined benefit plan requires employees to contribute 5 percent of pay, and as the total anticipated funding requirements may exceed 10 percent of covered payroll, NBC is responsible for the difference between the actual costs of the plan less any amounts contributed by employees. The adoption of the plan has shifted the risk of funding the nonunion plan to NBC as the employer. The PUC pointed to several areas of concern as a result of the shifting of risk to the utility: (1) The plan provides the 100 nonunion employees who joined the plan with credit for past service, which feature creates an immediate unfunded liability of approximately $3.2 million; and (2) in spite of NBC using a long 30-year amortization period for the funding of past service costs, it appears that the goal of keeping the cost of the nonunion retirement plans at 10 percent of actual wages has already failed. Consequently, the PUC directed NBC to file information related to its nonunion employee pension plans and the cost of administration. According to the PUC, the reports will warn of any material changes in the financial condition of the plan, the ratepayers' cost to fund and administer the plan, and changes in plan benefits that ultimately may increase costs to ratepayers.
Re Narragansett Bay Commission, Docket No. 3651, Jan. 17, 2008(R.I.P.U.C.).