The Hawaii Public Utilities Commission has proposed scaling back sewer rate increases sought by Hawaii Water Service Co. for nearly a thousand customers that include Pukalani residents, businesses, community facilities and schools.

The company, which manages the Upcountry wastewater system, had sought rates that would provide an additional $1,275,598 over five years for its operations. The PUC, instead, proposed increased revenues of $770,687 over a four-year period.

The company currently has annual revenues of $1,123,833, according to the docket.

The PUC said that revenues, expenses and depreciation schedules released last month in its proposal were “reasonable” and that a 7.75 percent annual rate of return was “fair.”

The primary reason for the PUC’s smaller increases stem from cutting $494,000 in costs proposed by the company relating to plant improvements, according to the PUC docket.

The company has been managing the Pukalani system since 2008, when it installed a $9.6 million wastewater treatment plant. Owners of the previous system contributed $2.8 million to the new plant, so Hawaii Water Service sought the remaining $6.8 million during its rate case in 2011. The PUC approved half the money, and the company is now seeking the balance.

The water company argued that current rates “do not now and will not in the foreseeable future produce sufficient revenues to allow it to earn a fair rate of return on its prudently incurred investment,” according to the docket.

The consumer advocate raised questions and concerns over whether there was a need for some of the improvements, cost overruns associated with construction and excess capacity, according to the PUC docket. The state agency later argued that the company has not provided “sufficient justification for recovery” of the additional costs, citing the company’s “history of large cost overruns.”

“Absent of compelling evidence that demonstrates reasonable exercise of management oversight and accounting controls to keep project costs at reasonable levels, the commission should not allow the additional costs to be recovered from customers,” the consumer advocate told the PUC.

The PUC discovered that invoices for construction work produced by the company were incorrectly coded and recorded. The commission also was unclear as to whether the additional costs already were included in the previous rate case, the docket showed.

The consumer advocate and water company had reached an agreement in July on all issues except the $494,000 in added expenses. The commission’s proposal would resolve the issue and essentially approve the agreement, according to the PUC docket.

A final decision on the rates will be made after the water company and consumer advocate submit their statements on the proposal, a PUC official said Thursday. Officials could not give a deadline for the decision, noting that the timing depends on the review process and agreement by the parties.

Attempts to reach officials with Hawaii Water Service were unsuccessful Thursday.

The company services 938 residential, commercial, government and school customers on the lower slopes of Haleakala. The residential base includes 775 single-family and 146 multifamily customers.

The company’s wastewater service area includes the new Kauhale Lani residential subdivision, which will eventually have 170 residential lots. A number of homes already have been built and added to the sewer system, according to the PUC docket.

Residential customers would pay $52.52 per month in the first year with increases in subsequent years — $61.35 (2018), $70.21 (2019) and $79.08 (2020).

The current rate is $62.17 per month.

The water company also has 13 commercial customers that include two shopping centers, as well as Pukalani Elementary School and Hannibal Tavares Community Center.

Commercial customers would pay a range of fixed monthly fees, depending on meter sizes, ranging from $16.12 for 5/8ths- and 3/4ths-meters to $274.05 for the largest meters from 3 to 6 inches.

Commercial customers currently are not charged monthly fees for meter sizes and only pay quantity rates of $8.58 per 1,000 gallons of water. That figure would climb starting this year to $10.05 per 1,000 gallons, followed by $11.78 in 2018, $13.52 in 2019 and $15.26 in 2020.

Pukalani Elementary School would be included in the commercial rate structure after paying a fixed rate of $758.16 per month. The community center would remain under fixed government and recreation rates that would increase from the current rate of $172.31 to $201.33 this year, $230.34 in 2018, $259.36 in 2019 and $288.38 in 2020.

Pukalani Country Club golf course, which uses effluent from the company for irrigation, would continue to pay the same rate — 55 cents per 1,000 gallons.

* Chris Sugidono can be reached at csugidono@mauinews.com.