Milwaukee Water Works (MWW) provides water service to a population of approximately 860,000 in metropolitan Milwaukee, including nine wholesale customers. Municipal utilities in the State of Wisconsin are subject to economic regulation by the Public Service Commission of Wisconsin (PSCW). Therefore, MWW must obtain PSCW authorization to increase its water rates.
In 2009, MWW filed an application with the PSCW to increase its water rates. MWW chose to make this application without the assistance of an expert rate consulting firm and the outcome was not favorable to MWW’s inside-city retail customers from a revenue increase or cost-of-service perspective. To avoid a similar outcome in its 2014 rate increase application, MWW retained the services of Raftelis to assist in preparing its submission with the PSCW.
In its role as a strategic and technical advisor to MWW, Raftelis prepared the revenue requirement, cost-of-service, and rate design portions of MWW’s rate increase application and represented MWW in a litigated rate case before the PSCW (Docket No. 3720-WR-108). As expected, MWW’s request for a rate increase encountered opposition from MWW’s wholesale customers who account for approximately 20% of total treated water sales. Key contested issues addressed by Raftelis as part of this litigation included: 1) the rate of return differential between inside-city retail customers and outside-city wholesale customers; 2) the level of financial leverage in MWW’s capital structure; 3) MWW’s reinvestment in existing water main infrastructure; 4) the allocation of water main costs between the retail and wholesale service functions; and, 5) the provision of public fire protection services to wholesale customers. Using the model we developed, Raftelis was able to analyze the impact of different decisions by PSCW to help MWW understand its risk. Raftelis also provided testimony to the PSC throughout the rate case. Ultimately, the rate case was settled by the PSCW and MWW was able to implement new rates to recover revenues necessary for the ongoing operations and capital improvements.
