20070830final_order_no_30420.pdf

Office of the Secretary
Service Date
August 30, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF MORNING VIEW WATER COMPANY
INc. FOR AUTHORITY TO INCREASE ITS
RATES AND CHARGES FOR WATER
SERVICE IN THE STATE OF IDAHO
CASE NO. MNV-06-
ORDER NO. 30420
On December 8 , 2006, Nolan Gneiting, president of Morning View Water Company,
Inc. (Morning View; Company) filed a letter with the Commission requesting a 40% increase in
rates. The Company stated an increase was necessary to pay for back payroll taxes, property
taxes, increased costs of operation and back wages. The Company issued a notice to its
customers with its March 2007 bills notifying them that it was seeking a 35% increase to meet its
continued operation needs (i., increased cost of power, taxes, salaries, repairs, maintenance
general operation costs, and to recover the depleted contingency fund). Current authorized tariff
rates for Morning View utilize a flat rate design based on lot size, i., one quarter acre $22.
per month; one half acre $28.85 per month; one acre $35.75 per month. Customers also pay a
$5.00 per month surcharge to fund a separate contingency reserve account (Order No. 29104
capped at $10 000). Base rates have not been changed since September 1 2002.
In this Order the Commission approves an annual revenue requirement for Morning
View of$41 436 (a 24.59% increase) and a uniform percentage increase in commodity rates, i.
one quarter acre $27.41 per month; one half acre $35.94 per month; one acre $44.48 per month.
We authorize continuance of the contingency reserve account surcharge. The Commission also
takes notice of the Company s problems with water pressure (Idaho Department of
Environmental Quality) and water rights (Idaho Department of Water Resources) and establishes
a moratorium on new connections pending the metering of the Company s customers and
acquisition of sufficient water rights to serve existing customers and additional growth.
On March 15, 2007, the Commission suspended implementation of the Company
proposed rate increase (Order No. 30276), issued a notice of the Company s Application, and
established a Modified Procedure comment deadline of June 13 , 2007. On April 12, 2007
Commission Staff held a public workshop for Morning View customers providing an overview
of the Company s rate case Application, dispensing information and answering questions.
ORDER NO. 30420
Comments and recommendations were filed by Commission Staff and approximately
two-thirds of the Company s customer base. On June 20, 2007, the Company filed a reply to
Staff comments. On July 30, 2007, the Company filed a supplemental reply.
The Commission has reviewed and considered the filings of record in Case No.
MNV-06-01 including the Company initial filing, Staffs investigative report and
recommendations, the Company s related reply and supplemental reply and customer comments.
Based on additional information provided by the Company in its supplemental reply the
Commission is informed that the areas of disagreement between Staff and Company have been
significantly reduced. We resolve those differences in this Order. Based on the Commission
review of the record, we continue to find it reasonable to process the Company s rate filing
pursuant to Modified Procedure, i.e., by written submission rather than by hearing. Reference
. Commission Rules of Procedure, IDAP A 31.01.01.201-204.
The comments and recommendations of Commission Staff and customers and the
Company s initial and supplemental replies can be summarized as follows together with
Commission discussion and findings:
The comments and recommendations of Commission Staff are based on a field audit
conducted in April 2007 at the Company offices in Rigby, Idaho. Staff found the Company
financial records for the years 2002, 2003 and 2004 to be incomplete. Staff used the Company
financial records for 2005 and 2006 and its review of 2002 rate case data as the basis for
determining the Company s history of revenues, expenses and rate base. In its comments Staff
includes an analysis of the Company s results of operations, rate base, capital structure
depreciation, revenue requirement, rates and system design. Staff proposes use of 2006 as the
test year and provides a schedule of pro forma adjustments.
As modified following the Company s supplemental reply and additional information
provided therein, Staff recommends an annual revenue requirement increase of $7 929 (or
23.84%).
Two Staff adjustments to Company annual expense remain in contention.
As reflected in the ~ompany s supplemental reply, Staff eliminated a $500
payment for vehicle insurance paid by the water company for a vehicle
owned by an affiliated company. The Company addresses this contention as
follows:
ORDER NO. 30420
This is the only vehicle expense incurred by the water company.
Staffs adjustment assumes that the water company has neither need
for a vehicle nor any vehicle expenses. Staff is correct that the water
company does not own any vehicles. However, it is inappropriate to
assume there is no need. Numerous trips to deliver water samples to
laboratories in Idaho Falls, pick up materials and supplies, make bank
deposits, inspect the service area water lines, check wells and deliver
notices to customers are required. The Company s insurance
payment for an affiliate company s vehicle of only $500 is a small
price to pay. At the federal mileage allowance of $.47/mile this
translates to 1 064 miles per year. The Commission should reject this
Staff adjustment and acknowledge that the Company cannot possibly
function without incurring some transportation expenses.
We find it reasonable to authorize $250 in annual vehicle expense. In so doing, we
note the absence of documentation to support the expense item. Payment of insurance is not the
appropriate mechanism to reflect vehicle costs. The Commission in future rate cases expects the
Company to maintain a mileage log and records if it expects to receive an acknowledgement of
transportation expense.
The Company also contests the amount allowed by Staff for office space rent.
As set forth in the Company s supplemental reply.
The Staff addressed the Company s office space rent expense and
recognized that the Company did not actually pay any rent during the
2006 test year. The Company affiliate company has been
subsidizing the water company in this regarding. To the Staffs credit
it did proform a rent allowance back into its recommendations for the
total revenue requirement. Staff allowed the rent expense included in
the Company s 2002 rate case of $950 and stated "the rent
circumstances and expenses of $950 included in the 2002 rate case
has not changed. . ." circumstances certainly have changed. Real
estate values and therefore rental values have escalated over a period
of five years. Escalating the 2002 value of $950 for a period of 5
years at a very conservation compound rate of 3% per year would
produce a rental value of $1 123. Escalating for an additional year
(when new rates will be in effect) would produce a rental value of
156.
The Commission finds Staffs proposed rent allowance to be reasonable, in the
absence of any actual expense incurred by the Company. A different rental amount cannot be
reasonably established absent knowledge of the rental or ownership situation.
ORDER NO. 30420
Morning View in its supplemental reply informs the Commission that the pump for
the Company s backup well was installed and declared functional and in service as the
Company s backup source of supply on July 20, 2007. The pump was installed pursuant to an
Idaho Department of Environmental Quality (DEQ) letter dated July 6, 2007, giving ten days
notice to comply with Idaho rules for public drinking water systems. On Monday, July 23 2007
an e-mail was sent to the DEQ informing them of the completion of the required improvements.
Copies of the DEQ letter and Company e-mail are attached to the Company s reply.
The Company notes that it has incurred additional costs of $5 014 to comply with the
DEQ requirements. An itemized schedule of costs incurred was provided. As represented by the
Company, these expenditures were required for DEQ compliance, do not produce any additional
revenues for the Company, have been completed within eight months of the end of the test year
in this case and were not a known event at the time the Company s Application was filed. The
Company requests given the emergency nature of these unanticipated costs that the Commission
consider the effect on the Company in its deliberations in this case. Staff concurs with the
Company s recommendation. The Commission agrees that this is a valid adjustment in this rate
case.
In its supplemental reply Morning View also notes that the Company determined that
it needed the assistance of an outside consultant to properly respond to Staff s comments. The
Company did not seek outside assistance initially in this case due to cash flow constraints but
now believes it needs such assistance. The Company requests that the Commission recognize
the value of this assistance and allow the Company to amortize its costs for this case over a two-
year period. Total costs are expected to be $1 000 and when amortized over two years would
increase the Company s revenue requirement by $500. Staff recommends that the cost be
amortized over five years. The Commission is informed that the Company agrees with this
proposed amortization period. The Commission authorizes the expense and Staff proposed
amortization.
The resultant rate base approved by the Commission in this case is $8 994. The
depreciation expense on these assets is $869 annually. Using a 12% return on the rate base
which we continue to find reasonable for a small water company and a tax gross-up of 1.27, the
total revenue requirement increase is $8 179. The annual revenue requirement we approve is
$41 436 (a 24.59% increase). The revenue requirement figure includes a rate basing of the
ORDER NO. 30420
Company s recent investment in its backup well (connecting the pump, etc.) and an amortized
allowance for rate case expense.
Contingency Reserve Account
Staff in its comments provides specific detail regarding the Company s contingency
reserve account. As noted by Staff
The Company was authorized by the Commission in the 2002 Rate Case to
charge each customer a surcharge of $5.00 per month to fund a contingency
reserve account. In Order No. 29104, the Commission stated the following
finding concerning this contingency reserve account:
The reserve account will assure the Company s ability to provide
more reliable service by providing a fund for extraordinary and
unforeseen major repairs and replacements. It may also be used for
payment of the Company s outstanding bill of $4 213 for pump
replacement. The surcharge is to be separately identified on billing
statements. The surcharge revenue is to be deposited into a separate
account. A surcharge report is to be filed with the Company s annual
report providing detail of all surcharge funds collected and disbursed.
The detail provided should also include a description and justification
for all monies disbursed. The surcharge is subject to annual
adjustment and reauthorization. The surcharge is to cease when the
reserve account balance reaches $10 000 and may be reactivated with
the Commission s approval when the account falls below $5,000.
The Company has been collecting the surcharge since January 2003. The
Company does separately identify the surcharge on the billing statement.
has not filed any report or accounting on the funds collected or disbursed
except as requested as part of this audit. Staff found that the Company did
maintain good records of the contingency fund account, and was able to audit
the funds collected and disbursed. Since January 2003 , the Company has
collected and deposited $15 735 and the account has earned $10.02 in interest
through May 31 , 2007. The Company has spent $14 646., leaving a
balance of $1 098.52 in the account as of May 31 , 2007. The proceeds from
the account were disbursed for the following purposes:
Capital Expenditures
5/20/2003 Pump purchase
9/2/2003 Pulling pump from casing
1/19/2005 Soft start of pumps
7/12/2005 30 hp pump motor
6/13/2006 Pump end for 30 hp pump
$ 1 357.
$ 520.
$ 2 000.
$ 3 200.
$ 1 905.
$ 8 982.$ 8 982.
Loan Payments (See note below)
31 payments of $145.
1 payment of$157.
1 payment of$971.12
$ 4 495.
$ 157.
971.12
ORDER NO. 30420
$ 5 623.$ 5 623.
Service Charges
8 service charges c?y $5.00 ea.40.40.
Total $14 646.
The Commission in the 2002 Rate Case approved the Company s payment of an
outstanding obligation in the amount of $4 213 for pump replacement. The Company
borrowed the money from Wells Fargo Bank and paid the obligation in full. The
Company then used the Contingency Account as the source of funds to repay the loan.
It appears from the Company s records and bank statements that the
surcharge collected was regularly deposited in the Company s bank account
and then once a month a check from the Company account was deposited in
the contingency fund's separate account. This occurred through May 2006.
Since May 2006, the Company has not deposited any of the surcharges
collected even though it continued to collect the $5.00 per month per
customer through this same period.
Staff noted that when the Company was depositing the surcharge in the
contingency fund account that the amount deposited monthly by the
Company represents the surcharge collected from 83 to 91 customers. The
Company now reports that it has 97 to 100 customers.
The Company has not deposited the surcharge amounts collected from June
2006 through May 2007. If the Company had an average of 97 customers
that amount is $5 335 (97 customers x $5 x 11 months).
As reflected above, the Commission in Order No. 29104 approved a $5.00 per month
customer surcharge to fund a contingency reserve account. Use of the fund was restricted to
unusual , extraordinary, unforeseen major repairs and replacements. The Company was also
authorized to use the fund to retire its outstanding bill of $4 213 for pump replacement. The
Company was required to file a report annually with the Commission providing detail of all
funds collected and details of each specific major repair paid for with surcharge funds. Reports
were not filed. Beginning in 2006, contingency fund monies appear to have been used for
unauthorized expenses. Staff s audit reveals that the Company has been under-earning. The
monies diverted from the contingency fund appear to have been used for other Company
operating expenses. Despite the Company failure to file reports and maintain proper
documentation for the contingency reserve fund, we find the Company has not intentionally
misappropriated or misused the reserve funds. We also find that the purpose of the reserve fund
is of continued benefit to the Company and its customers. We expect the Company to replace
ORDER NO. 30420
monies not spent on authorized expenditures. We expect future adherence to the recordkeeping
and reporting requirements and direct Commission Staff to more closely monitor same.
Metering
The Commission in Order No. 29104 (Case No. MNV-02-01) required the
Company to submit an implementation plan for meter installation. Staff notes that the Company
did not prepare a plan. The system is still unmetered. The Company s customers are
experiencing low water pressure. Idaho DEQ on August 16, 2007, notified Morning View that it
was not in compliance with minimum pressure requirements (40 psi). The Company s water
system tests at 22 to 32 psi. The State s enforcement action will consist of a Notice of Violation
(NOV) followed by a Consent Order between Morning View and IDEQ. The Consent Order will
include a time schedule and plan to bring the water system back into compliance.
The Commission requires the Company to submit an implementation plan for meter
installation (including time and estimated costs) within 30 days.
Water Rights
The Commission is also apprised that Morning View is serving more customers (97)
than it has water rights to serve (54). The Company reports that it is working with the Idaho
Department of Water Resources to acquire additional water. The Company indicates that it has a
well (12-inch casing) sufficient to serve existing customers and provide for growth. The well is
not connected and has no pump, equipment or housing. This is not part of the rate case and no
cost estimates are available.
In light of the Company s water pressure (Idaho Department of Environmental
Quality) and water rights challenges (Idaho Department of Water Resources) detailed above, the
Commission finds it reasonable to establish a moratorium on new connections pending the
metering of the Company s customers and acquisition of sufficient water rights to serve existing
customers and additional growth.
Customer Comments
The Commission received a combination of letters, joint letters and petitions from
approximately two-thirds of the Company s customer base. Customers expressed concern
regarding inadequate water pressure, the repair and condition of the pumps and equipment, the
slowness of repairs when there is a problem, the lack of notice when water is turned off during
repairs, the presence of sand, mud and rust in the water - the resultant wear and damage to ice
ORDER NO. 30420
and water dispensers, water heaters and toilets, and the safety of the water supply - mice in the
well. Customers also expressed concern regarding the Company attitude towards its
customers. Customers request a detailed accounting regarding the depleted contingency fund
and believe that the Company should be held accountable.
Some of the concerns identified by customers are addressed above in this Order.
Others will be remedied by metering. We encourage the Company to be more attentive to
customer concerns. The Company is directed to provide advance notice of planned outages and
to implement a system for advising customers about the status of repairs following unplanned
outages.
A review of filed comments and information reveals that Morning View is out of
compliance with prior Commission Orders reporting requirements and other state regulatory
requirements. As we indicated in 2002 , failure to file required reports is unacceptable and will
no longer be overlooked. The reports provide the state agencies with a snapshot of utility
operations, business health, and water quality. They also assist us in identifying potential
problems before they become critical. We cannot properly perform our statutory duty and
provide regulatory oversight without information from the Company. It is the Company
obligation to comply with Commission rules and regulations. Idaho Code ~ 61-406.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has authority and jurisdiction over the
Morning View Water Company, Inc., a water utility, and the issues raised in Case No. MNV-
06-01 pursuant to the Title 61 of the Idaho Code and the Commission s Rules of Procedure
IDAPA 31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby approve an annual revenue requirement
for Morning View Water Company, Inc. of $41 436 and a flat rate design based on lot size (one
quarter acre $27.41 per month; one half acre $35.94 per month; one acre $44.48 per month). The
Commission also approves continuation of a $5.00 per month customer surcharge to continue
funding of a contingency reserve account. The Company is directed to file tariff sheets
consistent with this Order for an effective date of September 1 , 2007.
ORDER NO. 30420
IT IS FURTHER ORDERED and the Commission hereby establishes a moratorium
on new connections pending the Company s metering of customers and acquisition of adequate
water rights for its water system.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this "3 0 -Hv
day of August 2007.
j,I
~ ~~
~SSIONER
ATTEST:
~vh (r:u\./ ~~-vJ.t
Barbara Barrows
Assistant Commission Secretary
bls/O:MNV-06-01 sw
ORDER NO. 30420