20080626Reply Comments.pdf

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John R. Hammond, Jr., ISB No. 5470
Fisher Pusch & Alderman LLP
U.S. Bank Plaza, 5th Floor
101 S. Capitol Boulevard, Suite 500
Post Office Box 1308
Boise, ID 83701
Telephone: [phone]
Facsimile: [phone]
Attorneys for Applicant
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICA nON OF MAYFIELD
SPRINGS WATER COMPANY, INC.,
FOR A CERTIFICATE OF PUBLIC
CONVENIENCE AND NECESSITY
CASE NO. MSW-W-08-01
MAYFIELD SPRINGS WATER
COMPANY, INC.'S REPLY
COMMENTS
COMES NOW Mayfield Springs Water Company, Inc., an Idaho corporation (the
"Company" or "Mayfield"), by and through its counsel, Fisher Pusch & Alderman LLP, and files
its Reply Comments in response to the comments of the Idaho Public Utilities Commission Staff
("Staff') and Intervenor Gerald J. Corvino. The Company, with the consent of the parties to the
case, has filed its comments two days after the date prescribed for filing rebuttal comments.
BACKGROUND
Mayfeld is an Idaho corporation engaged in conducting a general water business in the
Arrowrock Ranch Subdivision near Kuna, Ada County, Idaho. This is the Company's and its
shareholders first private water system. The Company has 54 residential customers or
connections and 8 commercial customers or connections. The Company is approved to provide
water service to the public by the Idaho Department of Environmental Quality ("DEQ"). See
Exhibit 27. The Company began providing water service to the public in June of 2006 when the
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first home in the subdivision was occupied. However, the Company did not bil for water service
until January of 2007. In January of 2007, the Company sent its first monthly bils to its
customers in the amount of$lOO.OO for one month of water service provided. In March of2007,
the Company sent correspondence to its customers stating that it had met with Staff and
anticipated filing an application with the Commission within 120 days. See Exhibit 205,
Intervenor Testimony (Gerald J. Corvino). As a result of its meetings with Staff, the Company
believed in good faith that it was appropriate to continue to charge for water service and that
when its application for a certificate of public convenience and necessity ("CPCN") and to set
rates was fied, reviewed and approved by the Commission, its rates would be adjusted as
necessary. The Company also was delayed in filing its CPCN in part because it had to devote its
limited resources to defending itself due to the allegations raised against it in a complaint filed in
District Court by 14 of its customers.
In May of 2007 the Company notified its customers that it was reducing the rate for water
service to $50.00 per month retroactive to January of 2007 and was waiving all fees imposed for
late or non-payment of water service bills. See Exhibit 207 at p. 2, Intervenor Testimony
(Gerald J. Corvino).
Application and Amended Application
On January 25, 2008, counsel for the Company in these proceedings, who was not
representing Mayfield at the time, was contacted by Deputy Attorney General Scott Woodbury
who requested that the Company file an application for a CPCN. After being hired by the
Company, counsel assisted Mayfield in filing its application for a CPCN on February 5, 2008.1
i Previously, Mayfield was known as Idaho Springs Water Company, Inc., an Idaho corporation. The Company
changed its name to Mayfield in early May of 2008 because the name "Idaho Springs Water Company" conflicted
with the federally registered trademark "Idaho Springs" that is owned by Idaho Springs, LLC, a completely separate
entity with no connection to Mayfield. Notice of this name change was mailed to each customer.
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In its Application, Mayfield also requested that the Commission- authorize the Company to
charge the following interim rates for water service pending final Commission order concerning
rates: 1) $50.00 per month for each residential customer; 2) $25.00 per month for connections to
the water system for lots on which construction of a residential dwellings was occurring (service
biled only between the months of April 1 through October 1); and, 3) $800.00 a month to water
common areas in the Arrowrock Ranch Subdivision between the months of April 1 and
September 31.2 On March 3, 2008, the Commission authorized the Company to continue to
charge its customers these interim rates for water service. See Order No. 30512 at p. 3.
On April 25, 2008, the Company filed an Amended Application proposing a monthly
base rate of $81.60 for the first 10,000 gallons of customer usage, and $0.000651 for each gallon
used by a customer in excess of 10,000 gallons.3 Based on past water consumption data for the
system, Mayfield estimated the average residential customer would pay $101.45 per month for
water service. The consumption data used to determine this amount was submitted to the
Commission Staff as Exhibit 20 in response to Staffs Production Request No. 24 and is attached
hereto. The Company also proposed eliminating the interim $25.00 rate class described above
and to require these customers to pay the same rates and charges for water service Mayfield
proposed its residential customers should pay. The Company also proposed charging the
customers watering the common areas and taking water for sewage treatment (The Arrowrock
Ranch Subdivision Homeowner's Association) the same rates and charges for water service as
proposed for residential customers. The Company also requested authorization to charge a one
2 Notice of the Company's Application was sent to each customer in the form of Exhibit H attached to the
Application.
3 The Company provided notice of its Amended Application by news media releases and by mailing a notice in the
form of Exhibit 9 attached to the Amended Application to each customer as a bil stuffer in their bils sent to them
on April 30-31,2008.
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time $2,500."00 fee to new customers who were connecting to the system to cover the costs of
making the physical connection and expenses incurred related to certain water capacity charges
assessed by the city of Meridian.4
In its Application and Amended Application, the Company also requested that the
Commission authorize it to provide service within the service terrtory identified in Exhibit B
attached to the Application. Finally, the Company agreed in its pleadings to be bound by the
Commission's rules and applicable authorities and proposed to adopt the most recent version of
the Commission's "General Rules and Regulations for Small Water Companies".
COMMENTS
Staff Comments: In its comments at pages 3-6, Staff made several recommendations
which the Company finds reasonable and appropriate regarding certain expenses that should be
included in Mayfield's revenue requirement. Specifically, these recommendations are for the
recovery of expenses for: 1) power costs; 2) using a certified operator; 3) labor performed by the
certified operator; 4) meter reading; 5) accounting and biling; 6) water testing; 7) professional
fees; 8) well inspection fees; 9) maintenance and repairs; 10) office supplies; and 11)
depreciation expense. As the Company believes these recommendations are reasonable they wil
not be discussed further.
Although the Company believes the above recommendations are reasonable, it asserts
that the following adjustments should be made to certain of Staffs other recommendations
concerning Mayfeld's expenses and revenue requirement.
4 The other proposed charges for services, such as for disconnections and reconnections, are contained within
Exhibit 8, attached to the Company's Amended Application.
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Reply Comments on Expenses Adjusted by Staff:
1. Telephone Expenses. The Company appreciates Staffs willingness to allow the
Company to include the costs for a telephone line for customer service calls in its revenue
requirement in the amount of $300.00. To verify that this amount is sufficient, the Company
reviewed its most recent phone bils. Currently customers can contact the Company by calling
888-9946 ext. 104. The Company shares this phone line with its affiiate and the monthly bills
for this line exceed $500.00 monthly. For obvious reasons, this amount of cost should not be
passed on to rate payers. The Company then compared Staffs recommendation against the cost
which Intermountain Sewer who provides service to the Arrowrock Ranch Subdivision pays for
its customer service line and found that it pays fore for this single business line per year than
$300.00. The Company asserts the bils of the sewer company provide an accurate measurement
of the cost which Mayfield will incur for a customer service line. See phone bils attached hereto
as Exhibit 28. Therefore, the Company respectfully requests that $236.00 be added to Staffs
recommendation of $300.00 for this annual expense to be included in Mayfield's revenue
requirement.
2. Licenses and Permits. Mayfield also appreciates Staffs willingness to provide
funds through rates to cover the cost of obtaining necessary licenses and permits. Staff has
recommended that $300.00 be included in the Company's revenue requirement. In reviewing the
costs for necessary licenses and permits, the Company asserts that it wil actually pay $400.00 a
year for necessary DEQ and Commission licenses and permits. The Company estimates that its
regulatory fee owed to the Commission wil be approximately $125.00 and it will owe $275.00
per year to DEQ for regulatory fees. See Idaho Code § 61-1004; see also Correspondence of
Courtney E. Beebe, Natural Resources Division, Environmental Quality Division, 'attached
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hereto as Exhibit 29. Based on the foregoing the Company respectfully requests that $100.00 be
added to the amount of$300.00 proposed by Staff for this annual expense.
3. Attorney's Fees. Staff has recommended that the Company be allowed to include
$750.00 in legal fees annually in its revenue requirement. Staff Comments at p. 5. The
Company's understanding from informal discussions with Staff is that this amount is for legal
fees that wil be annually incurred by the Company in order to comply with all corporate
requirements in the State of Idaho. Mayfield asserts that this is a reasonable recommendation for
these matters.
Mayfield respectfully asserts that it will incur additional legal fees annually for legal
service that it will receive to assist it with navigating the regulatory requirements of the
Commission, including but not limited to the drafting of termination notices, bil contents, and
all other notices to customers required by Commission or DEQ rules. The Company also
believes it will incur annual legal fees for legal services provided to evaluate whether new
proceedings should be initiated to update its rates. It is extremely important for small water
companies with limited resources to keep rates current to ensure good financial health.
Consistent with this, Staff recognized the probable need for further rate review, including review
of the rate design approved by the Commission in the next year. Staff Comments at p. 12. Based
on the foregoing, the Company respectfully requests that an additional $600.00 to $750.00 in
annual legal fees be added to overall legal fee expenses. This amount is calculated by
multiplying four to five hours of annual time for these legal services at a rate of $150.00 an hour.
In addition, the Company respectfully requests that it be allowed to recover certain legal
expenses it incurred for legal services provided to it in 2007 by Spink Butler, LLP, a Boise law
firm. During 2007 the Company and other individuals and entities were billed for more than
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$30,000.00 in legal services by this firm. The Company proposed recovering $10,000.00 worth
of these expenses per year. Staff disagreed with the Company's proposal alleging that most of
these fees were not reoccurrng and related to the defense of the Company and other entities and
individuals from varous legal actions, including litigation brought by 14 homeowners living in
the Arowrock Ranch Subdivision in Case No. CV OC 0708918, Borgeau et al., v. Johnson et ai,
District Court, Fourth Judicial District, State ofIdaho, County of Ada.s The Company strongly
believes that at least some of these costs should be allowed to be recovered annually in rates
because they were incurred in defending the Company in regard to matters concerning
Commission authorities. Further, the time entries as recorded by Spink Butler, LLP demonstrate
that at least 7.9 hours of legal service was provided to the Company in regard to matters
concerning the water company and Commission matters, including CPCN issues at a total cost of
$1,597.50. Spink Butler's invoices have been submitted by the Company under separate cover
as they contain information protected by attorney/client privilege. See Confidential Exhibit 30.
Based on the foregoing, the Company requests that it recover an additional $1,250.00 annually to
recoup these legal fees. The Company's request represents a significant reduction in the amount
of legal fees which Mayfield wishes to recover for these services.
In conclusion, Mayfield requests authorization to add an additional $2,000.00 in legal
expenses to its revenue requirement raising the overall total for this expense category to
$2,750.00.
4. Engineering Fees. During the test year, the Company spent $3,480.00 in
professional engineering fees to maintain the health and integrty of the water system. As Staff
stated, some of these fees were related to the initial installation of the system. However, during
2007, the system had been installed and operating for at least six months and the costs of the
5 At this time the water company was being operated under the name Arbor Ridge, LLC.
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engineering firm were related to the ongoing aay-to-day issues of system management and not
the initial installation of the system as shown by invoices for these services. In addition, SPF
Engineering, the firm employed by the Company roughly estimates that annual engineering fees
related to maintaining the system wil average $2,500.00 rather than the $250.00 as Staff
recommends. See Exhibit 31. Based on the foregoing, the Company respectfully requests that
$2,250.00 be added to Staffs recommendation for the Company's revenue requirement for
additional, annual engineering expenses.
5. Sinking Fund. Staff has recommended that the Commission deny the Company's
request for the establishment of a sinking fund to be used for future water system needs. The
Company understands that the Commission has not approved such a request in the past unless it
is tied to a specific, identifiable need. However, small water companies, even new ones, often
have insufficient funds to respond to emergencies, to replace or upgrade any failing
infrastructure to insure the safe operation of the system, to add plant to accommodate growth or
for compliance with federal and state drinking water regulations. The Company has proposed
that it be allowed to include $13,080.00 annually in its revenue requirement for this sinking fund.
The Company calculated this amount based on the cost expected to be incurred for replacing the
two pumps in the system in ten years, costs which are reasonably ascertainable. See Response to
Staff Request for Production 10 incorporated herein by reference.
If the Commission approves this request the Company proposes that any expenditure
from such funds (including interest earned thereon) would be subject to prior approval by the
Commission and would be treated for rate-making purposes as contributed capitaL. Further, the
Company also proposes that all funds collected for a sinking fund and interest earned must be
held in a separate account by the Company specifically for the benefit of its customers. Such
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funds would not become the property of the Company or its owners and may not be disbursed,
alienated, attached, or otherwise encumbered by the Company or its owners. In the event of a
sale or transfer of the Company, the trust obligations established by these requirements regarding
any unspent sinking funds would be transferred to the new owner of the Company solely for the
benefit of the customers. Finally, the Company proposes to report the following information to
the Commission on a quarterly or semianually basis: 1) the beginning balance of the account; 2)
amounts received, detailed by source; 3) amounts spent, detailed by project or expense; 4) ending
balance; and 5) reconciliation of bank balance to general ledger.
Based on the foregoing, the Company respectfully requests that the Commission approve
the inclusion of a sinking fund in the Company's revenue requirement as requested.
6. Rate Case Costs. The Company has incurred substantial costs in preparing its
Application and Amended Application and providing information to the Commission and others
relating to this proceeding. In the past, the Commission has allowed for the recovery of
amortized rate case costs. In this case the Company has incurred significant costs in order to
provide the information the Commission and others needed to process this case in a timely and
appropriate matter. The Company respectfully requests recovery of $7,500.00 of these costs, an
amount far less than the actual amounts incurred, over five years to parially reimburse Mayfield
for rate case costs which would add $1,500.00 annually to its revenue requirement. The invoices
to substantiate legal rate case costs incurred by the Company are being submitted under separate
cover as Confidential Exhibit 32. The invoices for accounting fees incurred for rate case costs
are available for review to show their appropriateness.
Staff Comments on Rate Base and Revenue Requirement: Staff also found that the
Company had a net rate base of $13,477.00 and that a 12% rate of return was recommended.
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Staff Comments at p. 6. Staff also stated that this return must be grossed-up to aecount for
federal and state taxes that would need to be paid on this revenue at a net to gross multiplier of
127.3%. Id. at p. 6-7. Adding these amounts to its position on the Company's anual expenses
produced an annual revenue requirement of$39,435.00. ¡d. at p. 7.
Reply Comments: The Company believes the Staffs recommendations concerning its
rate base and the level of the rate of return thereon are reasonable and appropriate. However,
due to the Company's requested adjustments to Staffs position on Company expenses above,
Mayfeld respectfully requests that its annual revenue requirement be raised to $58,601.00
($2,059 rate of return + $58,545.00 in annual expenses which includes 13k for a sinking fund).
Staff Comments on Proposed Service Territory: Staff also recommended that the
Company only be granted a CPCN for the existing improved residential areas included in
Arrowrock Subdivisions No. 1 and NO.2.
Reply Comments: Mayfield finds this recommendation reasonable.
Staff Comments on Rate Design: Staff also proposed a rate design in its comments
consisting of a base rate and variable rate.
Reply Comments: The Company is generally in agreement with the proposed rate
design except for one concern. The base rate is significantly below the amount requested in the
Company's Application and Amended Application. The Company respectfully requests that if
the Commission determines that a higher revenue requirement is needed than Staff has proposed,
that the additional amounts be added to the base rates and the variable charge be left where
proposed by Staff at $.29 per 1,000 over 10,000 gallons consumed. This wil allow the Company
to collect sufficient revenue to cover its expense obligations during the fall, winter and spring
months where usage is typically or could be below 10,000 gallons per month.
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Staff Comments on Hook-up Fees: The Company does ñot disagree with Staffs
finding that it costs $725.00 to connect a new customer to the water system based on its analysis.
However, Staffs calculations do not take into account fees that are incurred by the Company
resulting from water capacity charges assessed by the City of Meridian. See Exhibit 33.
Comments of Gerald J. Corvino
Corvino Comments on Customers: Mr. Corvino first proposed that there should be two
rate classes for customers of the Company, active and inactive. Mr. Corvino defined "inactive
customers" as owners of lots within the subdivision not currently connected to the water system
and not currently receiving water from the Company. Mr. Corvino defined "active customers" as
those lots connected to the system with water available regardless of the status of home
construction on the lot. Mr. Corvino also argues that the Arrowrock Ranch Subdivision
Homeowners Association and Intermountain Sewer be excluded from having to pay charges for
water service despite receiving service.
Reply Comments: The Company respectfully disagrees with these recommendations.
First, only customers connected to the system should be charged for water service. Second, the
Company does not agree that the Arrowrock Ranch Homeowner's Association which counts as 8
commercial customers (7 meters to water common areas and 1 meter for the sewage treatment
facility) should not be charged for service. These customers are connected to and actively use
the Company's resources causing resulting costs which must be recovered.
Corvino's Comments Regarding Operation of the System: Mr. Corvino also asserts
that the Company was operating ilegally as a for profit water company without Commission
authorization from September 29, 2005 through February 3, 2008 and misrepresented to its
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customers when it would file for a CPCN.6 Mr. Corvino acknowledges that the first resident of
Arrowrock Ranch Subdivision moved into their home on June of 2006 and that residents were
not billed for water service until January 30,2007. See Corvino Comments at p. 5. Mr. Corvino
points to a Court ruling in Borgeau et al. v. Johnson, et al., finding that "from the statute and
regulations, a certificate of necessity and convenience was required before the construction of the
water system at all." Despite this finding, though the Court found "that little to no briefing or
oral argument addressed the subject of an appropriate remedy, whether that relief is an
injunction, damages, or some other some other remedy" and that "( aJ further hearing, upon the
request of either party, will be necessary before any such relief wil be granted by the Court."
Based on the foregoing, Mr. Corvino requests that the Commission order the Company to
repay all parties served any and all monies collected by it including connection and service fees,
late charges and any other charges collected prior to February 5, 2008 as relief. In addition, Mr.
Corvino requests that the Commission impose a penalty of$1,716,000.00 on the Company.
Reply Comments: The Company respectfully asserts that based on the record in this
matter, refunds to customers are not warranted as the rates resulting from Staffs and Company's
recommendations if adopted by the Commission would generate average customer rates higher
than the amount Mayfield's customers have been requested to pay for water service. Further,
6 Mr. Corvino states that a condition of approval of the Arowrock Ranch Subdivision final plat around September
of 2005 was that it must receive written approval from the Commission regarding the establishment of non-
contiguous service area. See Exhibit 202 at p. 2, Intervenor Testimony. As stated on page 3 of Exhibit 202 it was
found that "the applicant has demonstrated compliance with the above referenced conditions." The Company
asserts its understanding of this requirement, which appears to be contained as a condition in most approvals of final
plats, is that if the Company was going to operate as a public utility it needed approval from the Commission. At
this time and continuing for sometime forward, Mayfield was exploring whether to sell the water system to United
Water Idaho, to vest it in the homeowner's association or some other non-regulated entity, or to operate the system
as a public utility. See Exhibit 209 Affdavit of Timothy L. Farrell attached to Intervenor Testimony (Gerald J.
Corvino). Thus, it was uncertain whether the operation of the water system would ultimately fall under the
jurisdiction of the Commission. This was communicated to Ada County through information contained on the plats
and operations manuals lodged with it by the Company and its engineer, SPF Engineering. Based on this
information, the Company asserts that the Ada County accepted this as compliance with this condition.
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even if refunds were allowable, many customers have accumufated significant balances for
failing to pay for water service which has put serious financial strain on the resources of the
Company. The Company also asserts that refunding past charges for service is also not
allowable due to restrictions prohibiting retroactive ratemaking and the prohibition on the
Commission awarding damages. Finally, the Company respectfully requests that the
Commission deny Mr. Corvino's recommendation that it seek to impose a large penalty on
Mayfield because the Company has been providing quality service to its customers, customers
have suffered little or no harm, the Company has not benefited economically from its actions
surrounding this matter, it is actively attempting to come into compliance with any and all
regulatory authorities, past Commission precedents do not justify possible recommendation of a
penalty and the totality of the circumstances do not require that a penalty be sought.
1. Refunds. In its Order No. 30512, the Commission authorized the Company to
continue to charge its current and interim rates subject to refund until such time as final rates and
charges are approved by the Commission. Prior to February 5,2008, the Company was charging
its residential customers the same amount as the interim residential rate approved by the
Commission. Comparing this rate with the average customer rate resulting from Staffs
proposed revenue requirement in this case of nearly $55.00 reveals the Company has likely been
collecting insufficient revenues to cover its costs for a significant time period. Accordingly, the
Company asserts that the evidence in this case demonstrates that customers would not be entitled
to any refunds on monthly charges for water service. If either Staffs or the Company's
proposed rates are adopted despite undercollecting on charges for service, Mayfield does not
intend to seek additional funds from its customers to make up for this deficiency.
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Mr. .Corvino also asserts that the Company should be required to refund all connection
fees. Rather, according to the Company's biling records, very few of the Company's customers
paid this fee to the Company. Rather, in most cases, builders of the houses in the Arrowrock
Ranch Subdivision paid this connection fee to the Company and not the ultimate purchasers or
residents of completed homes. See Exhibit 34. Further, even where a customer actually paid
this fee, it was justified based on the cost incurred through assessments for water capacity
charges by the city of Meridian, labor to complete the connection and costs for any necessary
equipment.
In the alternative, the Company also asserts that principles of retroactive ratemaking and
the Commission's lack of jurisdiction to award damages (which refunds would essentially equate
to particularly in light of the same request for relief having been made by the Plaintiffs in the
complaint filed against the Company) would prohibit the Commission finding that refunds are
warranted. See Utah Power & Light Co. v. Idaho Public Utilties Commission, 107 Idaho 47, 49,
685 P.2d 276 (1984).
Although the Company is not requesting recovery of any under collected fees resulting
from any difference between interim rates and those ultimately set by Commission order, it stil
must recover all past due charges for water service biled at the authorized interim rates. There is
no dispute that the Company has continuously provided water service to its customers and that it
began biling for service in January of 2007. Since this time, many of the Company's customers
have substantially or completely failed to pay for water services provided. As admitted by Mr.
Corvino in his Intervenor Testimony, at least two customers have only paid for one month of
service and four have never paid for water service. In addition, the Company's biling records
indicate that the majority of the 14 homeowner's suing the Company has never paid for any
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- water service despite in many cases being provided with service for more than two years.7 See
Exhibit 35. These past due accounts dramatically impact the Company's financial health and its
ability to continue to provide safe and adequate service. Despite these customers failing to pay
for service, the Company has never shut off any of its customer's water service. It is time for
these customers to bring their accounts current. Accordingly, Mayfield respectfully requests that
all customers with past due accounts be required to bring their accounts current on or before 90
days from the date of a Commission order establishing rates and charges for water service. After
this time period, the Company requests that it be allowed to take action to collect these past due
amounts in compliance with all applicable Commission statutes and rules.
2. Penalties. Mayfield respectfully asserts that despite some delays in filing its
Application since its first contact with Staff in March of 2007, the Company has always intended
on fully complying with Commission authorities. Accordingly, the Company asserts that
penalties are not warranted in this case. In the event the Commission considers this issue further,
the Company respectfully suggests that it consider some or all of the following factors in its
analysis: 1) the severity of the economic or physical harm and any economic benefit gained by
the violator caused by a violation; 2) the utility's conduct to rectify the violation; 3) past
Commission precedents; 4) the utility's financial resources; 5) any willfulness of intent to
commit the violations; and, 6) the totality of the circumstances
a. Harm, Benefit and Financial Resources.
Despite the Court's finding that Commission's authorities had been violated, the harm
caused by this violation has been minimal and the Company certainly has gained no economic
benefit. As discussed above, the Company provided water service to its customers for free
7 Based on the Company's biling records, Plaintiffs Abercrombies, Grables, Koyles and Johnson have made
payments for water service.
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between June of2006 until January of2007. AfterÌt began biling, many customers failed tò pay
for their water service greatly impacting the financial ability of the Company to cover its
operating expenses. See Exhibit 34. Despite this, the Company has never terminated any
customer's water service for failure to payor for any other reason. Other factors demonstrating
that no gain was received by the Company and little or no harm caused to its customers are that:
1) the Company waived all late fees incurred by customers for failure to pay between January
2007 and May 2007; and, 2) the revenue requirement recommended by Staff if approved by the
Commission generates an estimated average rate of over $50.00 per customer, highër than the
authorized interim rate and the rate charged by the Company between January of 2007 until
February 3, 2008. In addition, small water companies often have limited resources like the
Company. Whereas here, where the Company has at first subsidized and then under charged for
its service which may customer have never paid for, the imposition of a financial penalty would
further harm Mayfield's already precarious financial state.
b. Company's Actions to Comply and Past Precedent.
As the Commission may be generally aware, in the absence of self-reporting by a water
company, there is no mechanism by which it becomes aware of the existence of a small water
company. Often the Commission becomes aware of small water systems upon receipt of a
complaint from rate-payers and consumers of such system. A review of past Commission
precedent reveals there are few, if any, cases in which the Commission sought the imposition for
a water utility providing service prior to obtaining a CPCN. See Strand v. Idaho Public Utilities
Commission, III Idaho 342, 723 P.2d 885 (1986), Order No. 29016, Case No. GNR-W-OI-Ol;
see also Order No. 28110, GNR-W-97-1. In these cases the Commission Staff and the
Commission have worked with the utility to bring it into compliance with the Commission's
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Customer Relations Rules and tò establish rates in accordance with standard rate making
principles. While not diminishing the importance and necessity of voluntarily and timely
complying with all applicable regulations, the Company asserts that it a reasonable regulatory
choice for the Commission to focus on insuring prospective compliance rather than on punishing
prior behavior of a utility particularly where such utility is in good faith pursuing certification
from the Commission.
c. Intent.
Upon receiving complaints from customers regarding biling for water service in early
2007, Mayfield met with the Commission Staff to seek guidance on whether it needed to file an
application for a CPCN. Based on its meeting with Staff in March of 2007, the Company
believed in good faith that it was necessary to continue operating the system and appropriate and
reasonable to bil for its services pending the filing of an application for a CPCN. Mayfield
believed, based on these contacts with Staff, that prior to filing for a CPCN it was appropriate
and necessary to establish some operating history in order to more accurately determine the
revenue necessary to operate the Company in a manner that insured its financial health. At this
time the Company represented to its customers that it anticipated filing its application for
certification with the Commission within 120 days. Admittedly, the Company filed its
Application after this timeframe but there was no intention to mislead its customers. Rather,
during this time Mayfield was working actively with its accountant and engineers to determine
the Company's costs, revenue requirement and rate design for its future filing and defending
litigation in Borgeau, et al. v. Johnson, et al. In late January of 2008, counsel for the Company
who had not been hired to represent it at that time, was contacted by the Commission Staff who
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requested that the Company fie an application for a CPCN. On February 5, 2008, the Company
filed its Application and later its Amended Application.
d. Totality of the Circumstances
As stated previously, the Company has been providing service to its customers II
compliance with all DEQ requirements to ensure that safe and reliable service is being provided
to its customers. See Exhibit 27. The water system providing service to the Arrowrock Ranch
Subdivision was designed and constructed through the services of two well-regarded, local
engineering firms, SPF Water Engineering and Treasure Valley Engineers. After reviewing as-
built drawings of the water system and physically inspecting it, Staff approved of the Company's
water system stating:
(t Jhe overall water system appears to be well designed and constructed and is
expected to be more than adequate for the number of customers to be served. The
installation of a 30 kW generator is a good insurance for electrical interrptions in
the area. The variable speed drive increases the efficiency of electrical usage,
avoids frequent repeated cycling of pumping units, reduces wear and extends life
of the equipment.
Staff Comments at p. 9. Since the first delivery of water service to a customer, the Company has
employed the services of Tom MehielNalley Hydo, Inc. to operate and maintain the system in
compliance with all applicable health and safety standards with the assistance ofthe Company's
engineers. Mr. Mehiel has a Distribution Operator Class III License in the State of Idaho. The
quality of the system and the expertise of its hired, certified operator demonstrate the Company's
commitment to its customers to furnish, provide and maintain such service and facilities that
provide for their safety, health, comfort and convenience. Combine these facts with the other
factors discussed in Sections a-c above, and the Company respectfully asserts that no penalty is
warranted. However, due to the Commission's existing regulatory authorities and the disputes
which arose between the Company and its customers, it understands that is vitally important to
MAYFIELD SPRINGS WATER COMPANY INC.'S REPLY COMMENTS -18
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comply with each and every applicable governing authority and agrees to abide by any terms and
conditions which the Commission may prescribe in this matter to ensure such compliance.
CONCLUSION AND COMPANY RECOMMENDATIONS
Based on the foregoing the Company respectfully requests that the Commission find that:
1. The public interest requires that a CPCN be issued to Mayfeld;
2. The Company's proposed revenue requirement is $58,601.00 annually based on
annual expenses of $58,545.00 (including the sinking fund amount) + a rate of return of
approximately $2,059.00 per year;
3. Any additional revenue requirements proposed by the Company over the Staff s
recommendations that are adopted by the Commission be added to base charges and not change
the variable charge proposed by Staff;
4. Approve all Staff recommendations concerning expenses, service terrtory, late
charges, connection fees and any other matters which the Company does not object to as stated
above;
5. No refunds of customer charges is warranted if either Staffs or the Company's
revenue requirement, recommendation and the rates rebutting therefrom are approved by the
Commission.
6. No refunds shall be ordered in regard to connection charges because the actual
costs to connect customers includes City of Meridian assessments and further, because most
homeowners did not pay the Company to connect to the water system.
7. In the alternative, no refunds are allowable due to principles of retroactive
ratemaking and the Commission's lack of authority to award damages;
MAYFIELD SPRINGS WATER COMPANY INC.'S REPLY COMMENTS -19
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8. Customers with past due accounts bring their balances current within ninety (90)
days of a Commission order establishing rates and charges for water service; and,
9. No penalties should be sought to be imposed.
DATED THIS dt day of June, 2008.
MAYFIELD SPRINGS WATER COMPANY, INC.
MAYFIELD SPRINGS WATER COMPANY INC.'S REPLY COMMENTS - 20
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this óJlD day of June, 2008, a true and correct copy of
the foregoing document was served on the following individuals by the method indicated below:
Jean Jewell
IDAHO PUBLIC UTILITIES COMMISSION
472 W. Washington St.
PO Box 83720
Boise ID 83720-5983
J U.S. Mail
( J Facsimile [phone]
( J Overnight Delivery
D( Messenger Delivery
( J Email
Don Howell
Krstine A. Sasser
Deputy Attorney General
IDAHO PUBLIC UTILITIES COMMISSION
PO Box 83720
Boise ID 83720-0074
J U.S. Mail
J Facsimile [phone]
( J Overnight Delivery
()( Messenger Delivery
( J Email
Gerald J. Corvino
11865 W. Tustin Lake
Kuna ID 83634-5032
~ U.S. Mail
( J Facsimile
( J Overnight Delivery
( J Messenger Delivery
( J Email
MAYFIELD SPRINGS WATER COMPANY INC.'S REPLY COMMENTS - 21
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STATE OF IDAHO
OFFICE OF THE ATTORNEY GENERAL
LAWRENCE G. WASDEN
April 25,2008
Mr. John R. Hammond, Jr.
Fisher, Pusch & Alderman, LLP
PO Box 1308
Boise, ID 83701
[phone].
Re: Arrowrock Subdivision Drinking Water System PWS #4010247
Dear Mr. Hammond,
I am writing to respond to your letter of April 22, 2008, regarding the Arrowrock
Subdivision Drinking Water System ("System"). In your letter, you inquire about
the content and effect of the July 19, 2007, letter from Peter S. Bair, Technical II
Engineer at the DEQ Boise Regional Office to Greg Johnson of the Westpark
Company. I can confirm that this letter approves of the "Demonstration of
Financial, Technical and Managerial Capacity, Operations Manual and as-built
drawings" submitted for the System, because these submittals meet the state of
Idaho standards as set forth in IDAPA 58.01.08 and I.C. § 39-100 et seq.
I can also confirm that DEQ additionally approved the System to provide water
services after an inspection, as per letter dated December 27, 2007, from DEQ
Drinking Water Analyst Brandon Lowder to Sean Gustavel, of the Jdaho
Independent Bank. In short, DEQ approved the system on July 19, 2007, and
began to treat it as an active drinking water system.
It is true that the Arrowrock Subdivision Drinking Water System provided water
prior to receiving final DEQ approvaL. However, DEQ did not penalize the
system, disapprove the system, or otherwise sanction the system for this action
because the system was otherwise approvable under the state of Idaho
standards when it began to provide water services.
Finally, the System meets the definition of a "Public Drinking Water System"
under IDAPA 58.01.08.003.87, and a "Community Water System" under IDAPA
58.01.08.003.15. The owner of the System must "place the direct supervision of
Natural Resources Division, Environmental Quality Section,
1410 N. Hilton, 2nd Floor, Boise, Idaho 83706-1255
Telephone: [phone], FAX: [phone]
EXHIBIT
l æZ
-.
.-Ltr to Hammond
April 25, 2008
Page 2
their drinking water system, including each treatment facility and/or distribution
system, under the responsible charge of a properly licensed operator." (IDAPA
58.01.08.554.01.a). The System has contracted with a licensed water operator,
Tom MehielNalley Hydro, Inc., as per IDAPA 58.01.08.554.05 and 560. The
requirements for a water operator license are maintained by the Idaho Board of
Licensure.
Please let me know if you need further information from DEQ. It is my
understanding that a public records request you made previously has been
fulfiled. Any documentation subsequently received by DEQ will require an
additional public records request.
Cc: Monty Marchus, DEQ Boise Regional Office
Tiffany Floyd, DEQ Boise Regional Office
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STATE OF IDAHO
DEPARTMENT OF
ENVIRONMENTAL QUALITY
1445 North Orchard' Boise. Idaho 83706' (20)373-0550 C.L. "Butch" Otler, Governo
Toni Hardesty, Director
Deceber 21, 2001
Sea Gustavel
Idaho Independent Bank
8351 W. Overland Rd.
Boise, 1083709
FAX: [phone]
RE: Arrwrk Ranch - PWS #4010247
Dear Ms. Gustave!:
The Arrwrck Ranch water system was last inspected by our offce on Januay 24, 2007. The
system was found to be in substantial compliance with the Idaho Regulations for Public Drinking
Water Systems and is currtly approved. the next inspection ,of the sysem is due by Januar of
2012. Monitoring of the system for Orgaic Compounds, Inorgaic Contaminants, Radiological
Contaminants, and Bacteriological Contamin:årts is up to date, and 110 Maximum Contamint
Levels have been ex.ceeded. .
If you have any questions, please feel free to contact me at [phone] or via e-mail at
brandon.lowder(ßdeq.idao.gov.
Sincerely,~~
Brandon Lowder
Drinking Water Analyst
cc: File 1 DWCorr., Reaing File
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STATE OF IDAHO
DEPARTMENT OF
ENVIRONMENTAL QUALITY
1445 North Orchard · Boise, Idaho 83706. [phone]
C.l "Butch" Oller, Governor
Toni Hardesty. Director
August 21, 2007
Tom Mehiel
Arowrock Ranch
1904 E. Beech St.
Caldwell, ID 83605
PWS: 4010247
Re: Reduction in Monitoring for Volatile and Synthetic Organic Contaminants
Dear Mr. Mehiel:
Recently Well #2 (Inside/South), which seres your system, began serng the public. Because
of this initial quarerly monitoring for Volatile Organic Contaminants (VOC) and Synthetic
Organic Contaminants (SOC) were required.
Our office has recently received two quarers of sampling for SOC's and VOC's. The first
samples for SOC's and VOC's, submitted on March 26,2007 and March 20,2007, respectively,
showed non-detectable results. The second samples, submitted on June 27, 2007 also showed
non-detectable results. Because two consecutive quarers were non-detect you may discontinue
quarerly monitoring. Sampling for SOC's and VOC's wil now be required anually. The next
SOC and VOC samples from Well #2 (Inside/South) are due between Januar 1 and December
31,2008.
If you have any questions regarding this monitoring requirement please contact me at 373-0568
or via e-mail at brandon.lowderØldeq.idaho.gov.
Sincerely,
Brandon Lowder
Drinking Water Analyst
cc: File i OW Corr., Reading File
~-i
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STATE OF IDAHO
DEPARTMENT OF
ENVIRONMENTAL QUALITY
~g45'(j7
1410 North Hilton · Bose, Idaho 83706. (208) 373-502 C.L. "Butch" Oter, Governor
Toni Hardesty, Director
TSP&S-163/2007
July 19, 2007
Greg Johnson
Westpark Company, Inc.
P. O. Box 344
Merdian, Idaho 83642
RE: Arowrock Rach Subdivision Drng Wate System (PWS # 4010247, Ada County)
Aproved Manuals and As-Built Drwigs
Dear Mr. Johnon:
The attched Demonstrtion of Financial, Technical and Manageral Capacity, Options Manual and as-built
drwings (inside Options Manual) for the above-referenced project appear to meet state of Idao stadads for
such documents, and are hereby approved.
Please contat me with any questions at 373-0514, or via e-mail atpeter.bair(gdeq.ida.gov.
Sincerely,
lh 11 ~ /bLI~ele/(Bair, P.E. t
Technical n Engineer
PSB:sjt
Attchments:Appoved copy of Demonstrtion of Financial, Technical and Manageral Capacity, OptionsManual and as-built drwings inside Options Manual
C: Todd Crutcher, E.LT., Boise Regional Offce
SPF Wate Engineerng, LLC, 60 East River Park Lane, Suite LOS, Boise, Idaho 83706 (approved copy of
Demonstration of Financial, Technical and Managerial Capacity, Operations Manual and as-built
drawings inside Operations Manual)
BRa Source File, Arwrock Rach Drnkg Water Syste (approved copy of Demonstration of
Financial, Technical and Managerial Capacity, Operations Manual and as-built drawings inside
Operations Manual)
TSP&S Reading File
.."
EXHIBIT 29
06/23/2008 10: 01 2083730481 A TTV GENERAL DEQ PAGE 01
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STATE OF IDAHO
OFFICE OF THE ATIANEY GENERAL
I.WRENCE G. WASDEN
June 23, 2008
VIA FACSIMILE
John Hammond
Fischer Pusch and Aldennan, llP
[phone]
Re: I\rrowrook Ranoh Subdivision, PWS 40102-17
Dear John.
I am writing regarding the Arrowrock Ranch Subdiviion annual fee paid to the
Department of Environmental Quality. According to our records, the fee has
been $100 annually for 10 connections.
However, as the number of connections has increased to 55, the annual fee wil
now be assessed at $275.
Should you need more information regarding this amount, please contact the
Boise Regional Ofce [phone] or the DEQ fiscal divsion [phone].
Sincerely. ~/~#~F~--fi( Courtney E. Beebe
Deputy Attorney General
Cc: Brandon Lowder, BRO
RECEIVED
JUN 23200
FISHER PUSCH & ALDERMAN LLP
Na~ural Aesurçes Divsion, ~rometal Qulil SeIon,
141U N. Hilt. ~nd FlOr. 801Sê. IdahO tl/0t12OTelephone; (208) 373-. FAX: (~) 37481
¡ -
EXHIBIT
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EXHIBIT 31
Page 1 of I
"John R. Hammond
From: Terry Scanlan (TScanlan(fspfwater.coml
Sent: Thursday, June 19, 2008 9:49 AM
To: John R. Hammond
Cc: Tim Farrell
Subject: Annual Engineering Costs for Small Water Systems
John -
You asked today about estimated annual engineering costs for small water systems such as Arrowrock Ranch.
As you can imagine, costs wil vary substantially from system to system, and wil depend on water system
management, water system age, and water source.
· With respect to water system management, some systems utilize operators and administrative staff almost
exclusively for water quality monitoring, DEQ reporting, PUC reporting, system maintenance evaluations,
operation review, and other normal activities. Conversely, other small water systems rely on consulting or
contract engineers for some of these duties, with annual engineering costs of several thousand dollars per
year for normal water system management.
· With regard to water system age, older systems require more repair and upgrades, and hence can have
higher engineering costs. New water systems may have significant engineering costs during the initial year or
two of operation, but then have lower costs after the "bugs" get worked out of the system and water demands
are closer to design demands.
· Regarding water source, higher costs wil be incurred from challenging water sources such as surface water,
aquifers with declining water levels, very deep aquifers, or groundwater of poor quality that requires treatment
or conditioning. Arrowrock Ranch does not fall into this category at the present time.
For budgetary purposes, engineering costs of $2500 per year (20 hours per year at $125 per hour) after the initial
two years of operation seem reasonable for on-call services and perhaps annual review of water quality and
operations reports. Additional engineering costs would be incurred in the event of well or pump failure, water
quality problems, or system upgrade. The additional engineering costs can probably be covered within the
reserve account for repair and replacement.
i hope this helps. Tim can probably provide more specifics for Arrowrock Ranch.
Terr M. Scanlan, P.E., P.G.
SPF Water Engineering, LLC
600 East River Park Lane, Suite 105
Boise, ID 83706
208-383-4140 offce
208-383-4156 fax
EXHIBIT
6/26/2008 j J/