20170118reconsideration_order_no_33698.pdf

Office of the Secretary
Service Date
January 18, 2017
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF MORNING VIEW WATER COMPANY
FOR AN ORDER AUTHORIZING
INCREASES IN THE COMPANY'S RATES
AND CHARGES FOR WATER SERVICE -------------------
)
) CASE NO. MNV-W-16-01
)
)
) ORDER NO. 33698
On December 1, 2016, the Commission issued Order No. 33658 ("Order"). In that
Order, the Commission: (1) approved as just and reasonable a total revenue requirement of
$93,727, including detailed changes in revenue requirement, capital structure, return on rate
base, and rate design; (2) ordered Morning View Water Company ("Morning View" or the
"Company") to submit tariffs in compliance with the rates and charges identified in the Order;
(3) ordered Morning View to establish a 1 % past due charge and $20 returned check charge; and
( 4) ordered Morning View to develop and implement Company policies as detailed in the Order.
On December 19, 2016, Morning View filed a Petition for Reconsideration
("Petition") of Order No. 33658 related to: (1) allowed labor expenses for the Company's
bookkeeper, David Reading; (2) the addition of expenses incurred due to "the pipe breakage"
that occurred on October 6, 2016; (3) the adjustment of fuel expenses, including adjustments due
to the Company's need to strategically use its pumps to avoid incurring unnecessarily high
electric usage charges; and ( 4) the volumetric rate component ordered by the Commission.
We have reviewed the Petition and the record. Based on our review, we deny the
Company's Petition but clarify our Order related to Item Nos. 1-3, above. However, as
discussed in detail below, we grant the Company's Petition as to Item No. 4. Based on our
reconsideration of that issue, we modify the Company's volumetric rate design.
STANDARDS FOR RECONSIDERATION
After the Commission issues an order, a person has 21 days to file a Petition for
Reconsideration that brings to the Commission's attention a question previously determined and
affords the Commission an opportunity to rectify any mistake or omission. See Idaho Code §
61-326; IDAPA 31.01.01.325; Washington Water Power Co. v. Kootenai Environmental
Alliance, 99 Idaho 875. 879, 591 P.2d 122, 126 (1979). The Company fulfilled this requirement.
Within 28 days after filing, we must issue an order stating whether we will
reconsider the matter and, if so, how the matter will be reconsidered and whether any cross-
ORDER NO. 33698
petitions will be granted. Idaho Code § 61-626(2). No cross-petitions or answers were filed in
response to the Company's Petition.
Petitions for Reconsideration must comply with Rule 331 of the Commission Rules
of Procedure. See ID APA 31.01.01.331. The petition must specify: (1) why "the order or any
issue decided in the order is unreasonable, unlawful, erroneous or not in conformity with the
law"; (2) "the nature and quantity of evidence or argument the petitioner will offer if
reconsideration is granted"; and (3) "whether the petitioner ... requests reconsideration by
evidentiary hearing, written briefs, comments, or interrogatories." Id.
The decision to grant or deny a Petition for Reconsideration is committed to the
Commission's sound discretion. See 56 Am. Jur. 2d Motions, Rules, and Orders. If the
Commission believes its final Order "should be changed, the Commission may ... change the
same." Idaho Code § 61-626(3). An Order on reconsideration that changes the original final
Order, shall have the same force and effect as the original Order. Id.; see also Idaho Code § 61-
624.
DISCUSSION AND FINDINGS
The Commission has reviewed the record in this matter and finds it unnecessary to
order or accept further evidence or argument. In summary, the Company's Petition is denied as
to Item Nos. 1-3, and granted as to Item No. 4. Upon reconsidering Item No. 4, we find it fair,
just, and reasonable to modify the volumetric rate design we set out in Order No. 33658.
While we decline to reconsider Item Nos. 1-3, in the sections below we further clarify
our decisions on those issues. We also explain our rationale for reconsidering and modifying our
prior decision as to Item No. 4.
I. Labor Expenses Related to David Reading
In its original Application, the Company requested $16,800 in administrative labor
expenses related to 1,040 hours claimed by David Reading. Based on our review of the record,
however, we ultimately adjusted the Company's proposed labor expenses for Mr. Reading's
bookkeeping to $7,635. We made this adjustment because Mr. Reading is a related party. The
Company thus had to produce evidence to establish that it had actually and reasonably incurred
these bookkeeping expenses. The Company failed to carry its burden of proof. We could,
therefore, have disallowed the entire amount. But, since Commission Staff introduced evidence
establishing that, under normal operating conditions in the Company's geographical area, 500
ORDER NO. 33698 2
hours at $15.27 would be a reasonably prudent amount for a small water company to incur for
accounting and bookkeeping services, we found it fair, just, and reasonable to allow the
Company to claim $7,635 (500 hours x $15.27/hour) in annual labor expense for Mr. Reading's
services.
In its Petition for Reconsideration, the Company argues that its failure to meet its
burden of proof is a mere "technicality," and that it "ha[ s] no sense of what documentation [the
Commission] require[s] beyond what we have provided." Petition at 1. As explained in our
previous Order, when the Company claims expenses related to a related-party affiliate
transaction, such as those made to Mr. Reading for his bookkeeping services, it must prove that it
actually incurred those expenses and that it was reasonable for them to be passed on to
customers. See Order 33658 at 5-6.
While the Company proposed to recover an estimated 1,040 hours of bookkeeping
expense through rates, the Company did not properly itemize Mr. Reading's activities. The
Company detailed nothing beyond several broad categories of Mr. Reading's work. Affiliated
transactions are subject to a higher level of scrutiny. Fortunately, the Company's new billing
and accounting software could reduce costs and is a positive step in moving toward a proper
showing of costs actually incurred.
Additionally, the Company failed to show that the claimed bookkeeping expenses are
reasonable. In its Petition, the Company notes it has now contacted a bookkeeping firm "that
provides outsourcing of accounting and billing services to other water systems" to "provide more
documentation to prove [that Mr. Reading]'s work is well worth our original [request]." Petition
at 1. Based on the record before us, the Company still has not produced comparative evidence
justifying the number of hours or the reasonableness of amounts claimed for an affiliated party's
bookkeeping services. We thus deny reconsideration of the Company's request to include all of
Mr. Reading's claimed work in rates.
As we outlined in Order No. 33658, while we are disallowing a portion of claimed
affiliated bookkeeping expenses in this case, if the Company wishes to recover new bookkeeping
expenses from an affiliated party transaction in the future, it should be prepared to support its
claims of reasonableness with evidence of the amount of time and fees an unrelated bookkeeper
or accountant would have charged a similarly situated small water company for such services.
ORDER NO. 33698 3
Finally, as a point of clarification, we note that during the test year Mr. Reading was
providing his services in a period during which the Company was updating and improving its
water system, accounting systems and procedures, and customer services and billing systems as
well as filing past due annual reports and conducting a general rate case. While it is not fully
known how much work Mr. Reading may need to perform to maintain the Company's newly
established status quo, if, in the future, the Company files a general rate case and makes an
appropriate evidentiary showing that Mr. Reading's day-to-day labor expenses were actually and
reasonably incurred, those prudently incurred expenses may be recoverable through rates.
To show the reasonableness of Mr. Reading's labor expenses, the Company may, for
example, include monthly time card records reflecting actual hours worked in each category.
Once the new meter reading process and billing systems are fully operational and rate case costs
are separated, the Company may also obtain quotes from outside entities. Evidence such as this
could then be used to meet the burden of reasonableness for an affiliated party transaction in the
Company's next rate case.
As a corollary matter, we also ordered the recovery of $5,000 in rate case expenses
over three years so that the Company could recover labor expenses directly related to this case.
A large portion of rate case expenses can be directly attributed to Mr. Reading's extraordinary
efforts during the pendency of this case. The $1,667 amortization amount included in the annual
revenue requirement may now be used at the Company's discretion, including covering more of
the wages paid to Mr. Reading. The Commission determines the level of wages to be recovered
in rates paid by customers, it does not set the actual wages paid by the Company.
Commission Findings: As the Petition relates to the recovery of additional labor
expenses for David Reading, it is denied.
2. Expenses Related to the October 6, 2016 Pipe Breakage
The Company's Petition asks that we allow the Company to recover expenses
associated with the pipe breakage, flood and destruction of portions of the Company's pump
house and water system equipment that occurred on October 6, 2016. The Company also
attempts to incorporate unknown expenses related to obtaining insurance on its three wells.
However, the events of October 6, 2016, and insurance expenses related to the
Company's wells, were not considered in Case No. MNV-W-16-01, nor in Order No. 33568.
Further, to do so would have delayed the effective date of the new rates while the Company
ORDER NO. 33698 4
determined what actual repair costs would be required. Rather, the Company has filed an
additional case in order to request a deferred accounting of expenses related to the events of
October 6, 2016. See Case No. MNV-W-16-02.
Therefore, the Company should complete its analysis of costs to finish the repairs.
Warranty coverage should continue to be pursued and not reflected in the total costs to be
deferred. Once the receipts are filed with the Commission in Case No. MNV-W-16-02, the
Company and Staff can evaluate the deferred repair and/or insurance costs related to the well(s)
and present its recommendations to the Commission for recovery.
Commission Findings: As the Petition relates to expenses resulting from the pipe
breakage events of October 6, 2016, and pursuit of insurance coverage related to the Company's
three wells, it is denied.
3. Fuel Expenses Related to the Strategic Use of Pumps
The Commission ordered the Company to "avoid unnecessary minimum and late
charges incurred on electric bills by strategically using its pumps." See Order No. 33658. The
Company owns three pumps and receives three different electric bills. The newest pump is
serviced under a billing plan that requires the Company to pay a minimum charge if the total
electric bill falls under a certain amount.
The Company's Petition states that "[i]n conference with our engineer, Ryan Loftus,
he assesses [sic] that it is not feasible to tum the new well on and off after the required electrical
usage fee each month. We cannot ascertain when we reach that point in time and we have little
control over the usage." Petition at 2.
Based on Staff's analysis, the new pump installed as part of a major overhaul to the
water system as a whole, should be capable of being used first and primarily. The Company did
not provide any additional evidence on reconsideration that the new pump cannot be used as a
primary pump. If this is done, the minimum use electric charge may be satisfied. Since these
additional charges could have been avoided, we decline to include them in customer rates.
During the test year, the Company actually incurred purchased power and fuel
expense of $15,582. Order No. 33658 authorized $14,279 to be included in customer rates
leaving a $1,303 difference that is not recovered. It is this amount that the Company could have
saved in reduced electricity usage by utilizing the new well first in order to meet the minimum
usage charge.
ORDER NO. 33698 5
The Company requested an additional $6,000 increase in power costs but did not
adequately support a need for the higher expense. The record does not support this $6,000
mcrease.
Commission Findings: As the Petition relates to recovery of unreasonable and/or
unjustified fuel expenses, it is denied.
4. Volumetric Rate Design
We approved a volumetric rate structure crafted by Commission Staff because the
Company had installed meters and requested the Commission's aid in implementing a volumetric
rate design. See Order No. 33658 at 18.
In its Petition, the Company asks the Commission to reconsider the tiered levels of
the volumetric component. Petition at 2. The Company expresses concern that "[g]iven the high
number of gallons billed at only $0.15 per 1000 gallons, the customers are not encouraged to
conserve water." Id. The Company notes that a one-acre water user could pay the minimum
charge and tier one amount, and then use 100,000 gallons of additional water for only $50.00.
Id.
The Company also argues that "[t]he electric bills are about three times higher in
summer and the rate you have mandated does not allow us to recoup these costs." However,
arguments and evidence related to the cost of electricity and pumping, as they relate to
consumption costs, were not previously introduced by the Company in this case, nor has the
Company argued for or presented a case for a seasonal rate structure.
Instead, the Company proposes a different volumetric rate component, namely:
• V4 acre rates "stay the same";
• Yz acre lots in the first tier be reduced to 30,000 gallons and then move to
second tier charge of $0.49 per 1,000 gallons; and
• 1 acre lots in the first tier be reduced to 35,000 gallons and then move to
second tier charge of $0.49 per 1,000 gallons.
Commission Findings: As the Petition for Reconsideration relates to the volumetric
rate design issue, it is granted. As a result of the Petition, Staff re-analyzed its proposed
volumetric rate component. Initially, Staff comments recommended a first tier usage volume of
40,000 gallons for Yz acre lots. However, the calculations made by Staff were actually based on
25,000 gallons in the first tier and were mislabeled in comments.
ORDER NO. 33698 6
After considering the correctly labeled tier amount proposed by Staff and after further
consideration of seasonal variation and the Company's representations related to conservation
and users per class, the Company's request to reduce the first tier usage volume for the 1 acre
lots to 35,000 gallons is reasonable. With the first tier usage volume being reduced, the second
tier rate needs to be reduced slightly to $0.48 per 1,000 gallons to properly collect the
Commission-authorized revenue requirement.
We maintain that Staffs proposed inclining block volumetric rate component 1s
persuasive and we now order that the volumetric component and rates be amended as follows:
Proposed 1st Tier charge
Minimum Size of 1st Tier ($/1,000 2nd Tier charge
Lot Size Charge (in 1,000 gallons) gallons) ($/1,000 gallons)
!. Acre $50.00 10 $0.15 $0.48
Yz Acre $59.00 25 $0.15 $0.48
1 Acre $64.00 35 $0.15 $0.48
ORDER
IT IS HEREBY ORDERED that Morning View's Petition for Reconsideration is
denied as to Item Nos. 1-3, and granted as to Item No. 4, as set out above.
IT IS HEREBY ORDERED that Morning View implement the adjusted volumetric
usage and rate components, as defined in this Order.
THIS IS A FINAL ORDER ON RECONSIDERATION. Any party aggrieved by this
Order or other final or interlocutory Orders previously issued in this case may appeal to the
Supreme Court of Idaho pursuant to the Public Utilities Law and the Idaho Appellate Rules. See
Idaho Code§ 61-627.
ORDER NO. 33698 7
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of January 2017.
ATTEST:
Diane M. Hanian
Commission Secretary
O:MNV-W-16-01 sc Reconsideration
ORDER NO. 33698
COMMISSIONER
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