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NARUC Staff Committee on Accounting and Finance October 10, 2007. Commodity Cost Adjustment Clauses Steve L. Klick Manager-Rates and Regulation Pennsylvania American Water. Facts at a Glance. Wholly-owned subsidiary of American Water Works Company, Inc.

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Commodity Cost Adjustment Clauses Steve L. Klick Manager-Rates and Regulation Pennsylvania American Water

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Commodity cost adjustment clauses steve l klick manager rates and regulation pennsylvania american water

NARUC Staff Committee on Accounting and FinanceOctober 10, 2007

Commodity Cost Adjustment Clauses

Steve L. KlickManager-Rates and RegulationPennsylvania American Water


Facts at a glance

Facts at a Glance

  • Wholly-owned subsidiary of American Water Works Company, Inc.

  • Largest regulated water and wastewater service provider in Pennsylvania

  • Communities Served: 378 in 35 counties

  • Customers Served

    • 628,000 water

      • 92% residential

      • 7% commercial

      • 1% institutional/other

    • 14,500 wastewater

  • Population Served: 2.1 million


Facts at a glance1

Facts at a Glance

  • Treatment Facilities

    • 36 surface water

      • 28 facilities received 5-Year Directors Award from Partnership for Safe Water

    • 63 groundwater treatment plants

    • 4 wastewater plants

  • Avg. daily delivery: 215 MGD

  • Source of supply: 92% surface, 6% wells and 2% purchase

  • Distribution system: over 9,200 miles

  • Customer Assistance: H2O - Help to Other program


What are commodity cost adjustment clauses

What Are Commodity Cost Adjustment Clauses?

Rate mechanisms to pass-through periodically increases or decreases in the per unit cost of producing water


What commodities may be included

What Commodities May Be Included?

Power

Water

Chemicals

Residuals Handling


Commodity cost adjustment clauses are not

Commodity Cost Adjustment Clauses Are Not…

Not a pass through of the cost of increased units of the commodity. For example, increases in greater sales of water requiring greater power, chemicals or sludge hauling.

Not a pass through of increases in commodity costs because of growth.

Not a pass through of commodity costs if the water company is earning in excess of its last allowed rate of return.

Not a pass through of Administrative and General Costs (A&G) or affiliate charges


2005 nawc o m expense

2005 NAWC O&M Expense

Source: 2005 NAWC F&O Statistics


Who cares about commodity cost adjustment clauses

Who Cares About Commodity Cost Adjustment Clauses?

Rating Agencies (S&P, Moody's, Fitch)

Investors

Commissions


Commissions which permit commodity cost adjustment clauses

Commissions Which Permit Commodity Cost Adjustment Clauses

Connecticut

Delaware

Florida

Illinois

Indiana

Missouri

  • Ohio

  • Pennsylvania

  • New Jersey (PWAC and PSTAC)

  • New York

  • Texas


What is the incentive to keep these costs as low as possible

What is the Incentive to Keep These Costs As Low As Possible?

Purchased Water and Power Rates are typically set by the same utility commission that regulates the water company

Chemicals, Sludge Hauling and Property Taxes

Pass through only a portion (85%/15%) to provide incentive to challenge costs. (NY PSC and property taxes)


Thank you

Thank you

Steve L. Klick, Manager-Rates and RegulationPhone: (717) 531-3253E-mail: [email protected]


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