As I was reading through a Public Service Commissioner filing by Daniel P. Duthie, Esq. on behalf of the Municipal Consortium July 22, 2014 related to the proposed rate hikes from United Water of Westchester and United Water of New Rochelle. I came across a reference to this report.
According to this report, United Water was caught playing fast and loose with the money they claimed was necessary for them to make a profit.
United Water’s Management & Services Company (“M&SCo”) is a wholly owned subsidiary that provides various services such as administrative, finance and legal to all United Water North American affiliates – both regulated utilities and non-regulated businesses.
The M&S fees that UWNY pays to M&SCo “represent 14% of total historic test year O&M expenses.” Tr. 1085. Staff found that the $4.272 million adjustment to rate year expense proposed by UWNY to be excessive citing four main reasons:
(1) the Company cannot explain or support the substantial increases in M&S fees in recent years; (2) Staff has found a number of charges that were incorrectly included in the historic test year; (3) the allocation of general and administrative costs from the M&S Company unfairly allocates costs to the regulated affiliates;; and (4) the Company’s use of wage increases to forecast M&S fees is inappropriate.
M&S fees charged to UWNY increased 13% from 2011-2012 and 15% from 2012-2013, while inflation during these years was 2.1% and 1.7% respectively. Additionally, in the joint proposal from the Company’s last rate case, Case 09-W-0731, the Company was allowed $2.919 million for the rate year ending August 31, 2013, which is $1.0 million, or 35% less than what was charged in the historic test year.
Q. Was the Company able to explain these increases?
A. No, despite numerous Staff IRs, the Company has been unable to provide an explanation.
Furthermore, when Staff delved into individual charges, the following were found:
1. double charge for National Association of Water Company dues.
2. Costs incurred prior to the historic test year but not normalized out of the cost of service.
3. Costs incurred for individual affiliates that were charged to all affiliates, e.g., hotel charges in Idaho and Massachusetts and a “breakfast with New Jersey
4. Cost for a “wives breakfast”.
5. Cost for a restaurant of $2,340 that included $996 in alcohol.
As Staff testified, “Ratepayers should not have to bear the cost of alcoholic drinks.”
All of the foregoing charges that were incurred for specific affiliates should not be charged to all of the affiliates. Staff noted that the M&S Services Agreement
requires that charges “shall be based on actual time spent”.
Staff further went on to note:
Nowhere in the M&S agreement, or in the Company’s accounting policies, does it state that senior level employees should just charge their time and expenses
across all entities...the Company has failed to satisfy its burden of proof.
Read the rest here.