20100416Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
LEG AL
WORKING FILE
FROM:TERRI CARLOCK
DATE:APRIL 15,2010
RE:APPLICA TION OF MORNING VIEW WATER COMPANY FOR
AUTHORITY TO BORROW FUNDS; CASE NO. MNV-I0-
Morning View Water Company (Morning View) requests authority to borrow $275 000
under the Idaho Department of Environmental Quality s (IDEQ) Drinking Water Revolving Loan
Program to correct the problems identified in the 2009 facility plan and engineering report. On
January 13, 2010, the Company submitted to IDEQ a Letter ofInterest in obtaining a Drinking
Water Planning Grant or a Drinking Water Loan. The loan proceeds will be used to fund various
projects as follows:
Installation of variable speed drive -
Installation of 25 meters on I-acre lots
Pump testing of two pumps
Installation of backup generator
Drilling of new well
Grant match
Grand Total
$10 000
000
000
000
150 000
15,000
275 000
IDEQ has accepted letters of interest in its drinking water and wastewater planning grants
and State Revolving Fund loans. Each letter was rated using several criteria and a draft Intended
Use Plan (IUP) for State fiscal year 2011 has been published, with projects listed in order of
ranking. This IUP list of fundable loan projects shows that Morning View Water System is
currently ranked second on the draft project priority list. The IUP report was issued for public
review and comment and will be presented by IDEQ Staff to the Board of Environmental Quality
for final approval during its regular meeting on April 22, 2010.
DECISION MEMORANDUM APRIL 15 2010
Staff contacted the IDEQ Staff on April 7, 2010, and IDEQ indicated that Morning View
Drinking Water Loan would also be eligible as a disadvantaged loan under its Drinking Water State
Revolving Fund (DWSRF) program. Preliminary analysis conducted by IDEQ indicates that
Morning View would qualify for a zero interest rate loan, a loan repayment term of 30 years and a
loan principal forgiveness of approximately $60 000 making a net principal loan amount of
$215 000.
Morning View also expressed a letter of interest for a $15 000 planning grant. The grant
requires a 50% match from the Company. If the Company is also offered a drinking water loan, the
$15 000 match is a loan eligible expense. The planning grant can be used to complete the facility
planning study including completion of an Environmental Information Document, which is required
before a loan can be offered.
STAFF ANALYSIS
Staff believes that the installation of variable speed drive, installation of customer meters
pump testing of the two pumps, installation of back-up generator, and drilling of new well if
necessary depending upon the result of pump testing the two wells are all necessary to bring the
Morning View Water systems to compliance with IDEQ rules as recommended by the 2009 facility
plan and engineering study. The estimated costs of these projects appear reasonable, with the
exception of the installation of 25 meters. Staff questions the Company s rationale in proposing to
install only 25 customer meters on one-acre lots and the cost of installing the customer meters.
Metering Requirement Issues Outline:
1. In Commission Order No. 29104 (Case No. MNV - W -02-01), the Company was directed by
the Commission to "prepare and plan for transitioning to metering (including time and
estimated costs) and present it to the Commission for approval." The Company never
submitted such a plan.
2. In Case No. MNV-06-, Staff reported to the Commission that the Company did not
prepare a plan and the system is still unmetered. In Commission Order No. 30420 of this
case , it directed the Company as follows "The Commission requires the Company to submit
an implementation plan for meter installation (including time and estimated costs) within 30
days. In this Order, the Commission also established a moratorium on new connections
pending the Company s metering of customers and acquisition of adequate water rights for
its water system.
3. On December 31 , 2007, Morning View submitted to the Commission a copy of bids as
follows: a) acquisition of 105 service meters (5/8 x % -inch and I-inch meters) and gaskets
DECISION MEMORANDUM APRIL 15 2010
of$9 957.90 and b) labor for installing meters of$5 500. The grand total of the bids for
materials and installation is approximately $15,458. However, the Company never
completed the installation of the meters.
4. In accordance with the Consent Order from the Idaho Department of Environmental Quality,
the Company hired Aspen Engineering to complete a facility plan. The Final Facility Report
was completed by Aspen Engineering in April 2009. One of the recommendations for
capital improvements noted in the engineering report is the purchase and installation of
meters for each residence. Based on installing 314-inch meters, meter base and meter box
for 100 customers, the estimated total costs is $200 000 (100 customers x $2 000 per
installed meter).
5. In this Application, the Company requested authorization from the Commission to borrow
approximately $275 000 to correct the problems identified in the facility plan and
engineering report. Out of this total amount to be borrowed, approximately $50 000 would
be allocated for the acquisition and installation of meters for 25 homes in subdivisions that
are one acre in size. The Company used the unit price in installing meters from the 2009
engineering report. The Company asserts that based on its observations over the years , there
has been significant usage on these lots for irrigation purposes and that the Company
believes that metering such uses would encourage these homeowners to implement greater
water conservation measures which will lessen demand on the system and improve pressure
and service to other members of the subdivision. Company letter to IDEQ, January 13
2010, p. 4.
6. There is a big difference in the costs of installing meters between the bid obtained by the
Company in December 2007 ($15,458 or $147.22 per meter) for 105 meters and the cost
estimate made by Aspen Engineering in April 2009 ($200 000 for 100 meters based on
000 per meter). After further investigation by Commission Staff and discussions with the
Company, it was determined that out of the 105 current customers , 95 already have existing
meter bases and boxes and 10 customer connections do not have meter boxes. These
connections are all serving the Yz acre lots. According to the Company, the cost to put in the
meter base and box is approximately $500 or a total of $5,000 for the 10 connections.
7. Staff discussed the initial cost estimate of meter installation as presented in the 2009
engineering report with Ryan Loftus of Aspen Engineering and he indicated that the cost per
meter installation should have been $200 per meter instead of $2 000 per meter. Therefore
the total cost for 100 meters would have been $20 000 instead of $200 000 as initially
reported. Adding the amount of $5 000 for the meter base of 10 connections results in an
updated cost to install meters for all customers of approximately $25 000.
8. As shown above, the amount of IDEQ loan funds allocated for metering is $50 000. Staff
believes that this amount will be sufficient to cover the cost of installing meters for all
customers instead of installing 25 meters as initially proposed. When all customers are
metered, Staff believes that a more equitable rate design can be developed for all classes of
customers of Morning View Water in future rate cases.
DECISION MEMORANDUM APRIL 15 2010
ST AFF RECOMMENDATIONS
Loan approval will provide Morning View Water with the capital necessary to make the
improvements required by IDEQ and as outlined in the 2009 engineering report. The specific
recovery level in customer rates for the underlying costs will be evaluated in a rate filing(s) when
Morning View has completed the projects and makes an Application requesting customer rates be
changed to reflect the investments. If the $275 000 loan is repaid in equal monthly payments and
included in rates, the increase to each customer would be approximately $7.20 per month. If a grant
reduces the loan by $60 000, the cost per customer would be approximately $5.60 per month. The
final investment cost records will be reviewed by Staff during audit with the rate impact to be
established in the next rate case(s).
Staff recommends the Commission approve the loan request up to $275 000.
Staff recommends the Company install meters for all customers not just for the 25 customers
with one-acre lots. Cost evaluations indicate all of the meters could be installed within the $50 000
amount requested in the loan application.
Staff also recommends Morning View Water be required to provide copies of the following:
Final loan documents with IDEQ;
All compliance reports and calculations that may be required;
All approval letters;
All executed agreements for the loan;
Any amendments to the loan application, and
The actual final costs in summary format similar to the engineering estimate.
COMMISSION DECISION
Does the Commission approve the requested loan authority of $275 000?
Does the Commission accept the Staff recommendation to install meters for all customers or
just the 25 customers identified with one-acre lots?
Does the Commission accept Staffs recommended review and reporting requirements?
:J~. WOcE
Terri Carlock
udmemosIMNV-IO-1 dm borrow 275k 4 2010
DECISION MEMORANDUM APRIL 15 2010