20200203Final_Order_No_34542.pdf

Office of the Secretary
Service Date
February 3,2020
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF MORNING VIEW )CASE NO.MNV-W-19-01
WATER COMPANY'S APPLICATION FOR )AUTHORITY TO INCREASE ITS RATES )AND CHARGES FOR WATER SERVICE IN )ORDER NO.34542
IDAHO )
On June 5,2019,Morning View Water Company ("Morning View"or "Company")
applied to the Commission for authorityto increase its rates and charges.Morning View provides
water service to 116 residential customers in and around Rigby,Idaho in Jefferson County.The
Company last increased its basic rates and charges in January 2017.See Order Nos.33658 and
33698.
We have thoroughlyreviewed the record,including written comments and analysis
from the Company,Commission Staff,and the Company's customers,and testimony from
customers given at a January 8,2020 public hearing.Based on that review,we find it fair,just,
and reasonable to approve a new,total revenue requirement for the Company of $96,472.The
Company's new rates and charges will take effect on the date the Commission approves the
Company's filed tariffs.
PROCEDURAL BACKGROUND
On June 5,2019,Morning View applied to increase its rates and charges for water
service.The Company proposed a June 30,2019 effective date.
On June 27,2019,the Commission issued a Notice of Application and set an
intervention deadline.The Commission directed Staff to audit the Company and access all
documents needed to determine the Company's revenue requirement.The Commission also
directed Staff to help the Company prepare a customer notice that complied with the Commission's
rules.Last,the Commission suspended the Company's proposed effective date for the new rates
for five months and 30 days,under Idaho Code §61-622(4).Order No.34361.
At a November 12,2019 Commission Decision Meeting,Staff informed the
Commission that Staff had obtained enough information to recommend a revenue requirement for
Morning View.
On November 19,2019,the Commission issued a Notice of Modified Procedure,
setting a December 18,2019 comment deadline and a January 3,2020 reply comment deadline.
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The Commission suspended the Company's proposed effective date for new rates for an additional
60 days,under Idaho Code §61-622(4).The Commission also issued notice that Staff would hold
a public informational customer workshop on January 8,2020 at 5:30 PM in Rigby,Idaho,and
that the Commission would hold a public customer hearing on the same day at 7:00 PM in the
same location as the workshop.The Commission noted that it would accept customer comments
through January 8,2020.Order No.34491.
Staff filed comments,proposing a revenue requirement and rate structure for Morning
View that would increase customer rates by approximately 10%.The Company filed reply
comments.Multiplecustomer comments were received between December 27,2019 and January
8,2020.Three customers testified at the January 8,2020 customer hearing.
THE APPLICATION
Morning View's one-page Application stated the Company needs a rate increase for
three reasons.First,the Company noted water usage is down because many users are choosing not
to water their lawns during the summer.Second,the Company claimed its previous rate case failed
to provide the Company with an adequate rate of return.See Case No.MNV-W-16-01.The
Company stated it has "been operating at a negative every year since"the rate case,and the
Company's owners have had to "subsidize the entire water system with personal retirement funds
due to the failure of the previous rate case."Application at 1.Third,the Company stated it is facing
unanticipated expenses,including water testing,a pipeline repair,and other "expenses not
considered in the previous rate case."Id.
STAFF COMMENTS
As directed by the Commission,Staff worked with Morning View to determine the
Company's revenue requirement.Staff Comments contain the only detailed analysis of the
Company's revenue requirement.
Staff stated it used information from Morning View's 2018 annual report to create a
historical test year ending December 31,2018.Staff then adjusted the test year after updating
revenues and costs.Staff recommended a total revenue requirement of $96,472:a 10.25%increase
from the revenue collected in the test year.
Staff noted that the Company has failed to collect its Commission-approved revenue
requirement every year since its last rate case.In that case,Case No.MNV-W-16-01,the
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Commission approved a revenue requirement of $93,727.Morning View reported revenues of
$85,972 in 2017 and $86,040 in 2018.See Order No.33658.
The table below summarizes the Company's revenue requirement as calculated with
the 2018 test year derived from MorningView's 2018 annual report,and MorningView's revenue
requirement as calculated by Staff:
Annual Report Staff Recommendation
OperatingExpenses $68,292 $58,349
Amortization and Other $718 $3,537
Expenses
Taxes $7,746 $8,073
Depreciation $22,473 $20,992
Return on Rate Base $2,500 $5,521
Revenue Requirement $101,729 $96,472
Revenue Requirement
1.Expenses
Staff recommended adjusting the labor expenses established in the Company's
previous rate case,Case No.MNV-W-16-01,to match those reported in the Standard Occupational
Classification codes from the U.S.Bureau of Labor Statistics,which would lead to a total salary
expense of $22,600.This is a $5,240 decrease in salaries from the amount reported for
compensation in the Company's annual report,but still is a wage increase from the 2016 case.
Staff noted the Company's annual report omitted transportation expenses.Staff pointed
out that the Company "regularlydrives the length of the system to conduct meter reads and check
for any leaks or other issues."Staff Comments at 5.Staff recommended a transportation expense
of $897.
The Company reported a $900 office rental expense,as authorizedby Order No.33698.
The Company operates out of an office building it rents from Landco Building Co.("Landco"),
which is owned by the same person who owns Morning View.Staff recommended a $50 increase
in office rental expense because of the building's assessed value.Staff noted that,while $950 is
less than market rates for a comparable small office space,the Company's expenses for electricity,
natural gas,water,garbage removal,and lawn maintenance are calculated as separate expenses as
ORDER NO.34542 3
part of the Company's revenue requirement.Staff explained that these miscellaneous expenses
would ordinarily be included in market rates to rent a commercial space.
The Company reported $720 in water-testing expenses.Staff recommended moving
$25 of this expense to rate base because it was for repairs that should have been capitalized.Staff
uses a nine-year average of required water-testing costs to assure all required costs are covered
and included in rates over this cycle period.This resulted in water-testing expenses for the
Company totaling $1,840,so Staff recommended a $1,145 increase to the Company's water-testing
expense.
Regarding deferred expenses,the Commission authorized the Company in Case No.
MNV-W-16-02,Order No.33826 to defer $4,987 in expenses related to a well failure in 2016.
Staff recommended the Company be allowed to recover $1,663 annuallyfor three years as an
amortization expense.Additionally,Staff estimated the Company incurred $4,000 in expenses to
file this rate case.Staff recommended the Company be allowed to recover the rate case expense
with an annual amortization of $1,334 for three years.
Staff recommended a handful of miscellaneous expense adjustments.These included:
(1)removing $350 in professional contract services and payroll tax expenses because these
expenses related to Morning View's tax payments owed for previous years;(2)removing a $179
"South Rigby Irrigation"expense because this expense actually was incurred by Landco;(3)
decreasing the Company's annual property tax expense from $3,348 to $3,277;and (4)adding
$332 in legal expenses related to a water rights mitigation issue that was not included in the
Company's annual report.
2.Rate Base
The Company reported Plant in Service of $630,322 and $119,750 of accumulated
depreciation in its annual report.However,Staff noted these numbers have not been updated to
reflect adjustments made in the Company's last rate case,MNV-W-16-01.Staff recommended
adjusting the Plant in Service to amounts approved in Order No.33658,and adding accumulated
depreciation for 2017 through 2018.Staff also recommended including $8,571 in expenses
incurred by the Company in 2018 to repair its system.Staff argued these repair expenses should
be included in Plant in Service because the repairs improved the Company's system.
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Staff recommended using the 1/8th rule for determining working capital,as is
commonlydone with small water utilities.Staff noted this would result in a working capital of
$7,293.
Staff recommended a total rate base of $433,639.
3.Rate ofReturn
Staff noted the Company's "only long-term debt is an Idaho Drinking Water Revolving
Loan,offered by the Idaho Department of Environmental Quality[("DEQ")],that has a $510,614
balance with a 1.25%interest rate."Staff Comments at 8.Additionally,there is $1,222 in owner's
equity,resulting in a capital structure of 99.76%debt and 0.24%common equity.
Staff recommended an 11%Return on Equity,which is identical to the Return on
Equity approvedin the last case.The resulting Overall Rate of Return would be 1.27%.
Rate Design
Staff recommended the followingrate design for MorningView:
Lot Size Proposed Size of 1st Tier lst Tier Charge 2nd Tier Charge
Minimum Charge (in 1,000 gallons)($/1,000 gallons)($/1,000 gallons)
1/4 Acre $55.00 10 $0.17 $0.53
1/2 Acre $65.00 40 $0.17 $0.53
1 Acre $70.50 45 $0.17 $0.53
Staff noted this proposed rate design maintains the two-part pricing structure approved
in the previous rate case,but "each price component is increased from its current level by
approximately 10.2%to allow the Company an opportunity to recover Staff's proposed revenue
requirement target of $96,472."Staff Comments at 10.The effect of this increase is summarized
below:
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Lot Gallons Staff
Size per Current Proposed Increase IncreaseMonthPercentileNotesBillBillin$in %1/4 Acre 5,000 48th $50.75 $55.85 $5.10 10.0%1/4 Acre 8,490 70th Average $51.27 $56.44 $5.17 10.1%1/4 Acre 50,000 98th $71.10 $77.90 $6.80 9.6%
1/2 Acre 5,000 45th $59.75 $65.85 $6.10 10.2%1/2 Acre 18,800 72nd Average $61.82 $68.20 $6.38 10.3%1/2 Acre 50,000 87th $69.90 $77.10 $7.20 10.3%
1 Acre 5,000 26th $64.75 $71.35 $6.60 10.2%
1 Acre 33,410 70th Average $69.01 $76.18 $7.17 10.4%
1 Acre 50,000 76th $73.20 $80.80 $7.60 10.4%
Staff recommended the Commission approve Staff's recommended revenue
requirement and rate design for Morning View.Staff also recommended the Commission order
the Company to submit a signed copy of its updated tariff within 15 days of the effective date of
the Commission's final order.
THE COMPANY'S REPLY COMMENTS
In its reply comments,Morning View disagreed with Staff's method for determining
the annual rent for the Company's office.The Company stated that "[S]taff is recommending
compensating Landco for half of the building depreciation in lieu of rent.That is not how renting
office space works."Company Reply Comments at 1.The Company noted that,because of the
increasing value of the property on which the Company's office is located,the property might
eventuallybe sold.The Company pointed out that if this happens,the Company "would not be
able to obtain office rental space at market for $950 annually."Id.at 2.
Additionally,the Company reported that it has had two additional expenses since it last
communicated with Staff.The first were electrical repairs "in order to properly heat the old well
house,"totaling $192.Id.at 1.The second expense has not yet been incurred by the Company.
The Company stated the old well again failed,and repairs are expected to cost "around $10,000."
Id.The Company requested these expenses be included in the rate case.
PUBLIC COMMENTS AND TESTIMONY
Customers universallyopposed increasing Morning View's rates.Customers outlined
the negative impacts of the rate increase,expressed dissatisfaction with the Company's decisions
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and management,and provided a handful of recommendations to address the Company's revenue
shortfall.
Customers noted that water usage has dramatically declined since Morning View's
2016 rate case.Customers stated water usage decreased because the 2016 rate case increased rates.
See Order No.33658.Customers noted if rates increase again,customers will likely use even less
water.Customers identified several negative results from further conservation of water.First,
customers-who have already reduced lawn watering--willbe forced to water even less,causing
reduced property values and increased fire risk.Second,decreased water usage will mean Morning
View will again be unable to meet its revenue requirement,requiring it to return to the Commission
for yet another rate increase.Besides the negative impacts of decreased water usage,customers
noted that increased rates disproportionately impact people on fixed incomes,such as retired
people.Customers stated the rate increase would also penalize customers for conserving water.
Customers expressed dissatisfaction with Morning View's management.Customers
claimed they pay significantly higher rates than customers of municipal water systems and
Commission-regulated water systems in the area.One customer disagreed with the Company's
assertion that water-testing expenses are a contributing cause of this rate case,claiming DEQ has
a clear schedule for water testing that water systems are supposed to follow and can easily budget
for.Customers also claimed the Company has consistently violated DEQ reporting requirements.
Finally,customers asserted the Company has never met its revenue requirement,and never will
meet it because the Company is poorly managed.
Customers made several recommendations.One suggestion was that the Commission
decrease rates,which customers asserted would spur water consumption and increase the
Company's revenue.Customers also suggested the Commission could decrease any regulatory
charges it may impose on Morning View.Finally,customers suggested that the Company should
carry insurance for water system failures so the cost of repairing system failures would be borne
by the insurer and not customers.
COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction and authority over Morning View and the issues
raised in this case,pursuant to Title 61 of the Idaho Code and the Commission's Rules of
Procedure,IDAPA 31.01.01.000,et seq.Based on our review of the record,we find the Company's
current rates are insufficient to enable it to satisfy its annual revenue requirement,and that it is
ORDER NO.34542 7
fair,just,and reasonable for the Company to change its rates and charges in accordance with the
recommendations in Staff's written comments.
We acknowledgethe concerns of customers expressed in written comments and public
testimony.Morning View customers'rates significantly increased after the Company's 2016
general rate case.To now experience a 10%rate increase only three years later is understandably
frustrating.Unfortunately,the Commission has limited options when setting rates for a small water
company.By statute,the Commission must establish rates that are fair,just,and reasonable--both
for the utility and for its customers.The Commission must ensure customers are receiving safe
and reliable service at rates that allow the utility to remain viable.At present,the Company receives
insufficient revenue to cover its reasonably incurred (audited)expenses.
The Commission acknowledges customer recommendations that the Company carry
insurance to help cover the cost of system repairs.We have previouslyencouraged MorningView
"to discuss insurance options with a licensed insurance agent and with other like-sized small water
utilities in Idaho who may have similar business needs."See Order No.33826.However,it is up
to the Company's management and business advisors to determine whether and how the Company
should procure insurance.If the Company determines it is prudent to carry insurance for system
repairs and acquires insurance,the cost of insurance would be included in rates and any savings
resulting from an insurance payout would be passed onto customers in rates.
Several customers suggested the Commission reduce any regulatory fees it might assess
on Morning View to reduce the Company's expenses.The Commission assesses an annual
regulatory fee on each public utility as required by Idaho Code §61-1001,et seq.The annual
regulatory fee is three-tenths of 1%of the gross operating revenues derived from the intrastate
utility business of the public utility.Idaho Code §61-1004(2).In 2018,Morning View's annual
regulatory fee was $186.67.This is the only fee Morning View pays to the Commission,and the
Commission is required by Idaho statute to collect it.
We approve Staff's calculation of the Company's annual rent expense.While an annual
rent expense of $950 might seem low at first glance,the company that owns the office is owned
by the same person who owns Morning View.As such,it is an affiliated-partytransaction where
the amount to be included in rates is the lower of cost or market.Additionally,the Company's
revenue requirement includes expenses such as electricity,natural gas,water,garbage removal,
and lawn service--expensesthat would likelybe included in renting office space in an arms-length
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transaction.When these expenses are added in,the Company receives a rent expense of $2,221
annually.Staff calculated the average market rent in the Rigby/Idaho Falls area to be $5,304.See
Staff Comments,Attachment E.While $2,221 is less than the amount for which the owner of
Morning View and Landco might be able to rent the space to a third party,it is the lower of cost
or market.Also,significant logistical and financial advantages can come from renting from
oneself.Therefore,we find Staff's calculation of Morning View's rent expense to be reasonable.
In its reply comments,the Company informed the Commission it has incurred
unanticipated expenses since the beginning of this case.Morning View stated it has incurred $192
in electrical repairs for its old pump house,and will incur approximately $10,000 to fix the old
well.Both expenditures should be capitalized when paid.They arose after this rate case began,
and Morning View states it has not yet incurred the well repair expense.Therefore,consistent with
past practice,these expenditures should be included in rate base and in the Company's next rate
case with the Commission.
ORDER
IT IS HEREBY ORDERED that the Commission in Case No.MNV-W-19-01 does
hereby approve as justand reasonable a total revenue requirement of $96,472,the detailed changes
in revenue requirement,rate base,and rate design,as described in this Order.
IT IS FURTHER ORDERED that the Company submit tariffs in compliance with the
rates and charges authorizedin this Order no later than 14 days from the service date of this Order.
The rates and charges authorizedby this Order shall be effective for services rendered on and after
the Commission's approval of the Company's filed tariffs.
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 with regard to any
matter decided in 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.
ORDER NO.34542 9
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of February 2020.
PAUL KJELLANDE RESIDENT
KRISNE RAPEfCOM1 IŠSIONER
ERIC ANDERSON,COMMISSIONER
ATTEST·
Diane M.Hanian '
Commission Secretary
I:\Legal\WATER\MNV-W-19-01\orders\MNVW1901_final_mh.docx
ORDER NO.34542 10