20170629Comments.pdf

SEAN COSTELLO
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 8743
.)
1 ltl 2: l0
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
MORNING VIEW WATER COMPANY FOR A
DEFERRED ACCOUNTING ORDER.
CASE NO. MNV-W-16-02
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Moming
View Water Company's Application.
BACKGROUND
On October 13,2016, Moming View Water Company ("Morning View" or "Company")
provided a letter to the Commission requesting approval to defer and recoup costs related to a
well system failure and flood. The Company requested an Accounting Order allowing it to defer
and record the costs with an opportunity to recover those costs as soon as possible.
Morning View had a well system failure and flood on October 6,2016. The Company
states it believes the system failure and flood were due to the malfunction of a newly installed
well system. The Company states that a security feature failed to alert the Company's owners of
the well system's attempt to operate at low pressure, As a result, the well continued to pump at
high pressure, causing a service pipe to blow out and damaging the well system, pump house, and
other equipment. Application at 1.
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STAFF COMMENTS JLrNE 29,2017
The Company incurred certain costs because of the well system failure and resulting
flood. Based on a letter the Company provided the Commission on December 6,2016,the
Company indicated it was pursuing wa:ranties and guarantees from the designers and installers of
the well system, to offset potentially recoverable costs. However, no further information was
provided.
On April 13,2017, Commission Staff filed discovery, requesting potential deferred
expenditures, future expenses, employee costs related to the failure, updated warranty and legal
action information, engineering schematics and data, and a variety of other information for Staff
to better understand the Company's pending request. The Company responded to Staff s
discovery request on May 8,2017.
STAFF REVIEW
System Description and Overview
Morning View provides water service to 107 residential customers in Jefferson County,
Idaho. Prior to 2015, the system consisted of a single pump house ("Old Pump House"), a
primary well ("Old Well") with a 20 HP pump, and a secondary well with a 6 HP pump ("Old
Pump"). In 2015, the Company completed a new pump house (New Pump House) and a new
well ("New Well") with a 60 HP pump ("New Pump"). The wells from both pump houses are
interconnected, so operation of any well pump will pressurize the entire system.
Staff determined that the plumbing and equipment in the Old Pump House was designed
to accommodate the pressure produced by a20 HP pump, which is unlikely to exceed 60 pounds
per square inch (psi). Staff determined that the New Pump can induce pressures exceeding 172
psi throughout the system without pressure limiting equipment. Although Staff does not believe
that the Company could have reasonably anticipated the root cause of the October 6,2016 failure,
Staff believes this failure signals a fundamental incompatibility of the New Pump with the
equipment and plumbing in the Old Pump House.
Staff maintains that the Old Pump House can be isolated from the rest of the system by
using existing valves. Staff recommends that the Old Pump House and its associated wells be
removed temporarily from service and isolated from the rest of the system while plumbing in the
Old Pump House is inspected and renovated to accommodate the pressures that can be generated
by the New Pump.
2STAFF COMMENTS JUNE 29,2017
Staff also determined that the security system used to detect and notify Company
personnel of equipment failure was programmed incorrectly, and that it did not notiff Company
personnel that a line had burst; however, Staff was unable to ascertain the degree to which failure
of the security system contributed to the extent of the damage caused by the leak. Staff believes
that the security system should be checked, reprogrammed, and tested to ensure that it will
function properly if another system failure occurs.
Staff Engineering Analysis
On October 6,2016, customers of Morning View notified the Company that system
pressure was low. Company personnel then investigated and discovered a large plumbing leak in
the Old Pump House. The Company shut-down the water system and determined that the leak
was due to a failed compression flange fitting. The compression flange is used to connect two
pipe segments. According to the Company, the failed compression flange fitting was rated for a
pressure of 100 psi. While pressure limit switching and a variable speed pump drive have been
installed to limit system pressure to 85 psi, Staff determined that the New Pump is capable of
producing pressures exceeding 172 psi in the Old Pump House if pressure limiting equipment
fails to operate properly..
The Company provided photographs of the failed flange, but it did not provide sufficient
information to determine whether the flange was appropriate for the type of pipe on which it was
installed. Nevertheless, Staff believes this particular flange was installed incorrectly. Here, a
compression flange was secured to the pipe with a soft metal gasket that is compressed around the
pipe when the flange is tightened. Contact between the metal gasket and the pipe creates a
witness mark that records how the pipe and flange were connected when the flange was installed.
Staff observed witness marks created by a set of flange alignment bolts that help secure the flange
to the pipe. Staff observed that witness marks from the flange gasket and flange alignment bolts
are superficial, indicating that the gasket was not aligned properly, or was not tightened
completely. The Company stated this flange was installed by their plumbing contractor.
This flange is near a 90 degree pipe bend, making it prone to the effects of surge, or
"water hammer." Surge occurs when the mass of water in a system's pipes abruptly changes
speed or direction. The resulting force can induce a large pressure spike throughout the system,
but can be particularly acute near 90 degree bends or near the ends of pipe. The Company
JSTAFF COMMENTS JI.INE 29,2017
explained that it relies on electrical pump limit switches and on a variable frequency drive to
assure that system pressure does not exceed 85 psi. No information was provided showing that
the pressure limiting equipment operated improperly. Nevertheless, electrical limit switches, by
themselves, are incapable of mitigating the effects of surge due to customer consumption patterns
that are largely beyond the Company's control. Engineering practice requires the use of
mechanical or hydraulic safety devices, such as properly sized surge tanks and relief valves, to
protect against surge and other transient pressure spikes. The Company provided no evidence that
any such devices were in use in the Old Purnp House at the time of the incident.
The Company has also identified a new leak in a shutoff valve in the Old Pump House.
Using photographs provided by the Company, Staff determined that most of the compression
flange and ring lock fittings used inside the Old Pump House are rated for pressures of, at most,
150 psi, so it is possible for the New Pump to induce pressures exceeding the rated pressure of
fittings in the Old Pump House. Although the October 6,2016 failure occurred at an incorrectly
installed flange, Staff believes that the higher operating and surge pressures made possible by the
New Pump pose a substantial ongoing risk to plumbing and equipment in the Old Pump House.
The Company stated that it used an Omni security system to notifu Company personnel,
via smart phone and internet, when an abnormal flow condition occurs. However, the Company
could not explain why this system did not notiff Company personnel of high flow rates and low
pressures that would have indicated a rupture. Based on statements made by the Company, Staff
surmises that the security system's alarm limits were improperly configured at the time of the
incident. Had the system worked properly, it is possible that some of the damage caused by the
leak could have been prevented; however, given the high flow rate from the New Pump, it is also
possible that the flooding described by the Company could have occurred in less than one hour.
Deferral Treatment
Under normal accounting treatment, noncapital repair costs would be expensed. Normally
any damaged plant would be removed from the books, along with any associated accumulated
depreciation. Absent an order from the Commission authorizing a deferral, the Company could
not recover these expense amounts in rates.
With Commission approval, the Company could defer incremental expenses associated
with the equipment failure and flood damage until the next rate case by posting these expenses in
4STAFF COMMENTS JUNE 29,2017
Account 186 - Other Deferred Charges. The amortization period and expense will be determined
then. Staff intends to recommend an amortization period that is shorter than the life of the plant.
The Company's revenue requirement would then increase by the amortization expense, allowing
the Company to recover the costs associated with the event. The Commission can decide whether
the Company may earn a return on the deferred asset. Idaho Power v. Idaho State Tm
Commission, l4T Idaho 316,323 (2005). Staff believes that allowing the Company to defer
expenses for future recovery when they would otherwise be unrecoverable is sufficient relief for
the Company. Therefore, Staff recommends that Company not be allowed to eam a return on the
deferral amounts. See Order 30638 at 4 (Case No. AVU-E-08-03); Order No. 30235 at 3 (Case
No. IPC-E-06-06); and Order No. 33304 at l5 (Case No. PAC-E-I4-10).
Through discovery, Staff requested documentation of all costs incurred related to the
system failure and flood. The Company provided documentation showing that the expenses for
the repair of the flange were covered by the warranty and therefore are not included in the
expenses for the defenal. All additional expenses were for repairs caused by damage from the
flood, and other expenses in dealing with this event. The Company provided a schedule showing
$2,960.23 of expenses as of May 4,2017. As a whole Staff believes the documentation was
adequate. However, there were no invoices for expenses totaling 529.36 to Speedy Print CPS,
even though two check stubs were provided for the amount. The Company stated both expenses
were related to payments made for printing of reports and water shutoff notices. Staff accepts this
amount for deferral. See Attachment A, line 3.
In addition, Staff requested information on incremental time the owners, Nolan Gneiting,
Dawn Gneiting, and David Reading (a related party, see Order No. 33658), spent dealing with the
incident. Staff reviewed the labor hours and explanations supplied by the Company and agree
these costs are also reasonable to include in the deferral. Staff used the hourly rates for Nolan
Gneiting and David Reading set in Morning View's recent general rate case (Case No. MNV-W-
l6-01) and then used the median rate for office help for the hours spent by Dawn Gneiting and
her Granddaughter to determine the amount to include in the deferral. Staff then added an
estimated payroll tax addition to this amount for a total incremental employee cost of $2,027 as of
May 5, 2017. See Attachment A, line 8.
The Company provided an estimate of additional expenses yet to be incurred totaling
$2,060. See Attachment A, line 9. While Staff is not opposed to additional expenses, related to
STAFF COMMENTS JUNE 29,20175
this incident, being included in the deferral amount, these expenses are not actuals and Staff
recommends the Company provide adequate documentation for these costs in the next rate case
prior to their inclusion in rates. Staff recommends that the Company continue to document
incremental hours spent related to this incident by all Company employees.
STAFF RECOMMENDATIONS
1. The Commission order the Company to check and test its Omni security system and
reprogram it as necessary to ensure that it will function properly if another failure;
2. The Commission order that the Company isolate the Old Pump House until it is
inspected and renovated to accommodate the pressures that can be generated by the
New Pump;
3. The Commission issue an accounting order granting the deferral of these costs;
4. The Company book $2,960.23 of expenses incurred to date and additional$2,027 in
incremental employee expenses in the deferral, Account 186-Other Deferred Charges;
5. The Commission not approve any retum on the deferred asset; and
6. The Commission order the Company to provide suffrcient documentation and other
support in the next rate case for additional costs and incremental hours requested to be
included in the deferral.
Respecttully submitted this 21L day of June 2017
I"*
Attorney General
Technical Staff: Joe Terry
Mike Morrison
i :umisc:comments/mnvwl 6.2scjtmm comments
6STAFF COMMENTS JUNE 29,2017
Morning View Water
Calculation of Deferral
lnvoices to date
1 Repairs
2 Additional Protections
3 TOTAL EXPENSES
s 1,852.69
s 1,107.54
5 2,950.23
4 Dawn
5 Grandaughter
6 Nolan
7 David
8 Total
Hours
s2.2s s
1s
47.s s8s
Hourly
Wage
13.77
13,77
18.16
15.27
Wage
Expense
S zrg
s14S sog
5 tzz
PayrollTax
(Est 18%)
$ rzg
SgS rss$zz
Total
Employee
ExpenseS saa
577s 1,018
5 L44
108 75 s 1,718 s gOg 5 2,027
Estimated Additional Expenses
9 Repairs S 2,060.00
10 Total Expenses (line 3 + 9)
11 Employee Costs
12 Total Estimated Deferrral
S 5,020.23
s 2,027.0O
s 7,O47.23
Attachment A
Case No. MNV-W-16-02
Staff Comments
06t29/17
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 29th DAY OF JUNE 2017,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. MNV.W-16-02, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
NOLAN GNEITING PRESIDENT
MORNING VIEW WATER CO
PO BOX 598
RIGBY ID 83442
E-MAIL: mornin [e-mail]
YS
CERTIFICATE OF SERVICE