What's News in Pleasant Prairie, Wisconsin
Water Rate Update
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During 2012, the Kenosha Water Utility requested approval from the Wisconsin Public Service Commission (PSC) to raise water rates. The PSC is a regulatory agency that oversees/regulates public utilities throughout the state. Kenosha’s request made it possible for the Village water utility to request an intervention on behalf of its rate payers. The Village had to wait for the rate increase request before it was allowed to request to intervene.
ABBREVIATED WATER HISTORY
Pleasant Prairie became a customer of Kenosha’s water utility after finding that large municipal wells in Pleasant Prairie were contaminated with a naturally occurring, cancer-causing element, Radium. Pleasant Prairie’s water utility has a contract with Kenosha’s water utility to purchase water. The Village agreed to be a lifetime customer of Kenosha’s utility and Kenosha’s utility agreed to provide Pleasant Prairie with an unlimited supply of safe drinking water drawn from Lake Michigan.
INTERVENTION IN RATE REQUEST
While direct retail customers of the Kenosha Water Utility have enjoyed one of the lowest water rates in the state, Pleasant Prairie Water Utility customers pay one of the highest. This is mainly, though not entirely, due to the high cost for water purchased from the Kenosha utility. Purchased water is the utility’s largest expense, however, Pleasant Prairie utility customers (through their water rates) also help pay for the costs related to the infrastructure installed throughout Pleasant Prairie’s water system.
Pleasant Prairie sought to intervene in the Kenosha utility’s request for a rate increase, because Village officials and staff believe that rates charged to Pleasant Prairie’s utility should be directly related to the costs involved in serving Pleasant Prairie as a wholesale customer.
WATER RATE INCREASE REQUESTS
The Kenosha utility’s initial request to increase rates would have resulted in a 16% increase in water rates for the Pleasant Prairie Water Utility. Following Pleasant Prairie’s request to intervene, Kenosha’s utility revised its original request. Kenosha Water Utility’s revised request asked for a higher rate of return for wholesale customers (5.50% for Pleasant Prairie, Bristol and Somers) and a lower 4.00% rate of return for retail customers. This differential rate of return would have resulted in a 34% increase in water rates for Pleasant Prairie’s water utility, despite the fact that it costs less to serve Pleasant Prairie as a wholesale customer than it does to serve a retail Kenosha Water Utility customer.
PUBLIC HEARING WAS HELD
The Public Service Commission (PSC) held a hearing related to the matter on April 22. Prior to and during the hearing, representatives for Pleasant Prairie’s utility presented testimony and evidence related to how the Pleasant Prairie utility receives water from the Kenosha utility. A cost of service study, completed on behalf of Pleasant Prairie’s utility rate payers by the firm Baker Tilly, indicated that the Pleasant Prairie utility’s rate should not increase by 34%, but that it should increase by 2% or (on the conservative side) should decrease. The Kenosha utility also presented their cost of service study and the reasoning behind their request for a 34% increase for Pleasant Prairie.
The commission discussed this matter and made determinations, including the following (the number of commissioner votes received are shown in parentheses following each determination):
1. The application filed on behalf of the Kenosha Water Utility (Kenosha) to increase water rates is approved, subject to conditions (3 votes).
...The Village utility held a neutral position on whether Kenosha increased rates to meet their expenses, provided they were allocated properly based on actual costs of service.
2. Kenosha should not be allowed to earn a differential rate of return for retail customers (2:1).
...The cost of service study completed on behalf of Pleasant Prairie’s utility did not support a differential rate of return. Pleasant Prairie viewed the differential rate of return as a subsidy paid by Pleasant Prairie’s customers to Kenosha’s retail customers. The Village utility agrees with this decision.
3. Maximum hour storage costs should not be allocated to Pleasant Prairie (3).
...The Commission noted that the Village utility had sufficient storage to meet its own maximum hour demands without relying on the Kenosha utility’s storage capacity. The Village utility agrees with this decision.
4. It is reasonable to allocate public fire protection costs to Pleasant Prairie (2:1).
...The Commission noted that though the Village utility may have sufficient storage to meet its public fire protection needs most of the time, it questioned whether it had sufficient storage to meet fire demand for a large fire that would occur during the maximum day demand just before 8:00 p.m. when Pleasant Prairie refills its depleted storage tanks. The Village utility does not agree with this decision and believes there is enough data to demonstrate this.
5. It is reasonable to use 1.75 for the retail maximum day and maximum hour customer demand ratio for Kenosha’s residential customer class (3).
...The Commission noted that the Kenosha utility did not provide sufficient data demonstrating the need to reduce the retail residential maximum day demand ratio. Reducing this ratio would have shifted more cost to wholesale customers. The Village utility agrees with this decision.
6. It is reasonable to use the maximum day and maximum hour customer demand ratios from the 2004 rate case for Pleasant Prairie (2:1).
...The Commission noted that it was unreasonable to change Pleasant Prairie’s wholesale maximum day and maximum hour customer demand ratios based on the information provided by the Kenosha utility. Doing so would have shifted more cost to wholesale customers. The Village utility agrees with this decision.
7. It is reasonable to allocate the transmission main costs using a “two-part allocation” base system and a maximum day system cost function (2:1).
...The Commission noted that it did not find Pleasant Prairie’s position sufficiently persuasive to depart from a two-part allocation method in this instance. They noted that the cost of the modeling effort needed to refine the allocation of transmission costs outweighs the benefits of doing so. The Village utility does not agree with this decision.
The Commission directed the Division of Water, Compliance and Consumer Affairs to draft an order consistent with its discussion.
OUTCOME OF THE DECISION
Based on the Commission’s direction, PSC staff drafted a rate design that complies with the decision. The rate design calls for an overall 4.25% rate of return allocated across all customer classes equally. This rate of return will lead to a 10% increase in the wholesale rate charged to Pleasant Prairie’s utility. Kenosha’s utility has implemented the new rates and made them effective as of August 1 of this year.
The water rate increase for individual Pleasant Prairie utility customers is expected to be approximately 3%. Because water is only one of multiple services included on a monthly utility bill in Pleasant Prairie, the overall increase on a monthly utility bill will be less than 3%. To learn more about the impact to Pleasant Prairie utility bills, please click here.
To read the documents related to the water rate case first hand, please click here and select the "Documents" tab.