20101102final_order_no_32105.pdf

Office of the Secretary
Service Date
November 2 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF MURRAY WATER WORKS SYSTEMS
FOR AUTHORITY TO INCREASE ITS
RATES AND CHARGES FOR WATER
SERVICE
ORDER NO. 32105
CASE NO. MUR-I0-
On January 13 2010, Murray Water Works Systems ("Murray" or "Company ) filed
an Application requesting authority from the Commission to substantially increase its rates and
charges for water service.Murray serves about 36 customers in Murray, Idaho.In its
Application, Murray did not seek a specific effective date for the proposed increase in rates and
charges.
On February 25 2010, the Commission issued a Notice of Application and Notice of
Modified Procedure establishing a 60-day comment period. On April 13 , 2010, Staff conducted
a public workshop in Murray regarding the Company s filing. Subsequently, the Commission
extended the comment period until June 15 , 2010. See Order No. 31065.
On June 15 2010, Staff submitted written comments regarding Murray s Application.
The Commission also received six separate comments from Murray s residential and business
customers. On August 12, 2010, the Commission held a telephonic hearing at the Commission
office in Boise, during which the Commission heard the testimony of one Murray customer.
The Commission has reviewed and considered all of the filings submitted in the
instant case, including the comments and recommendations submitted by Murray, Commission
Staff and Murray s customers. Additionally, we have carefully reviewed prior Orders issued by
the Commission pertaining to the Company s operations. Accordingly, we authorize an increase
in rates as set out in greater detail below to become effective within 14 days of the service date
of this Order.
THE APPLICATION
Murray Water s last rate case was in 1994. Order No. 25771. The Company now
claims that a general increase in rates and charges is needed in order to invest in machinery and
maintain its system. Murray s Application states that certain capital improvements (e., new
water meters) are needed in order to isolate water leakage and control summer water usage.
ORDER NO. 32105
Murray estimated that it has invested approximately $15 000 and 360 hours of labor installing a
new water main through the town of Murray.
Murray currently serves 31 full-time and part-time residential customers and 5 full-
time and part-time commercial customers. The proposed rates represent an increase of 54% for
residential customers and an increase of 131 % for commercial customers with a I-inch service
line and 188% for commercial customers with a 2-inch service line. Murray s Application
included, as attachments, a copy of the Company s 2008 Annual Report information and copies
of water bills from other water companies operating in the nearby area, including the East
Shoshone Water District. Murray s current hookup fee was adjusted in June 2003. See Order
No. 29294.
The Application did not include an effective date for the proposed increase in rates
and charges. The Company proposed the following requests regarding rate design and structure:
1. Schedule 1 and Schedule 3 - Rates for residential water use to be
increased from $26 per month to $40 per month. Rates for commercial
customers to be increased from $26 per month for all commercial
customers to $60 per month for a I-inch service line and to $75 per month
for a 2-inch service line. The Company is also asking for an increase in
hookup fees from $800 to $2 000 plus parts and labor; and a new monthly
charge of $5.00 for inactive customers.
2. Schedule 2 - An increase in the turn on/turn off fee for March 1 to
October 1 from $25 to $50, and an increase in the turn on/turn off fee for
October 1 to March 1 from $50 to $75.
With this background, we turn to the issues in this case.
REVENUE REQUIREMENT
A. Test Year
Murray requested a rate increase in its Application, but failed to provide any
schedules showing the revenue increase necessary to support the requested rates. Thus, Staff
reviewed and parsed the Company s financial information through an onsite audit. As part of its
analysis, Staff utilized the 2009 calendar year as the relevant "test year.Staff noted that a
review of the Company s 2009 bank statements revealed that the Company received revenues
totaling $10 252 for the year.
Commission Findings:
We find it is reasonable to use a calendar test year ending December 31 , 2009.
ORDER NO. 32105
Staff asserted that an annual increase in revenue is warranted. Staff calculated that
the Company should receive an annual increase of $9 515. Thus, when combined with the
Company s current revenues of $10 252, the total annual revenue requirement recommended by
Staff was $19 767. The revenue increase is attributable to additional plant in service added to the
Company s rate base since 2002 , as well as an increase in operating expenses needed to operate
Murray s water system in an efficient manner.
B. Rate Base
Murray s rate base was last fixed by the Commission in 2002 (Case No. MUR-02-
01) as part of the ownership transfer to the Company s current owner, Arlen Lish. See Order No.
29119. As part of that transfer, the Commission adopted Staffs recommendation that rate base
be set in the amount of $10,000 and that the annual depreciation on this rate base amount accrue
at the annual rate of $400. See Order No. 29119; Staff Atch. 1.
Staffs current investigation of Murray s financial records revealed that, since 2002
Murray has made three significant capital investments to the water systems plant: (1)
improvements to its well and pump in 2005; (2) capitalized expenses for locating and repairing
leaks in the water system in 2009; and (3) the addition of approximately 1 400 feet of water main
in 2002. The cost for these additions totaled $36 236. See Staff Comments, Atch. 1.
1. Well, Pump and Leak Improvements The Company financial records
demonstrate that expenditures for well and pump improvements in 2005 totaled $3 670. The
Company s financial records show that the expenditures for the leak detection and repair in 2009
were $6 380. Staff agrees with these amounts.
In its tax filings, the Company used a useful life of 10 years for depreciation
purposes. Staff agreed that 10 years is a reasonable estimation of the capital improvements
useful life for depreciation purposes, and used 10 years as the useful life of these additions for
determining an annual depreciation expense. Therefore, Staff supported an annual depreciation
expense of $367 for the well and pump improvements, and $638 for the leak detection and
repaIrs.
2. Main Line Additions . The Company recorded the amount of $58 589 as the cost
of the main line addition in its tax (IRS) schedules. Nonetheless, Staff was unable to confirm
that amount as the actual cost of the improvements because the Company was unable to provide
actual invoices supporting this amount. However, the Company did eventually provide a
ORDER NO. 32105
document representing a list of materials it used for completion of the project. Mr. Lish used
contemporary prices from Consolidated Supply Co. ("CDA") to determine that the 2010 cost of
the materials was approximately $18 564. Mr. Lish also provided a schedule detailing his
estimate of the labor and equipment costs, $32 141 , required to complete the project. Thus, the
total cost associated with the main line addition and submitted by Murray for recovery through
rates is $50 705.
Staffs investigation revealed that the labor and equipment for the installation of the
maIn line addition was performed by an excavation company owned by Mr. Lish. His
excavation company did not bill Murray for its work on the project. No other relevant
documentation was provided to support the Company s cost of constructing the main line
addition.
In attempting to verify the Company cost estimate for the water system
improvement, Staff accessed the excavation company s invoices from Familian Northwestern of
Coeur d' Alene (FNW), a pumping and pipe-supply company that was the main supplier of
material to the project. Staff reviewed all of the invoices provided and found invoices showing
that materials likely used to construct the main line addition were delivered to Murray in the fall
of 2002. Mr. Lish indicated that his only excavation job in Murray during that time period was
the main line addition. Thus, Staff concluded that the FNW invoices, dated during the time of
the main line construction and showing delivery to Murray, accurately reflect some if not all of
the cost of material used on the main line job and should therefore be included in the cost of the
addition. The aggregate total for these invoices is $5 372.
Additionally, Staff reviewed Murray s schedule detailing the labor and equipment
used to construct the main line project. Staff contacted an independent excavation contractor to
compare the time and rate used by the Company. Staff determined that, based upon the project
and the information in the Company s schedule of labor and equipment, a reasonable and
prudent amount for labor and equipment services is $20 814.
Accordingly, Staff reasoned that a recovery in the amount of $26 186 ($5 372 +
814) for construction of the main line addition would be reasonable and prudent and
recommended that this amount be included in rate base. Staff calculated a useful life of 40 years
as a reasonable life for the main line addition. Therefore, the annual depreciation expense for the
main line addition equals $655.
ORDER NO. 32105
Taking the three items together (main line, well/pump, and leaks), Staffs
recommendations result in a total plant in service amount of $46 236 and an annual depreciation
expense of $2 060. The accumulated depreciation on plant in service has reached $10 256 for a
rate base total of $35 980. All of these calculations are set forth in Attachment 1 of Staffs
Comments.
Commission Findings:
Based upon our reVIew of the record and Staff s comments, we find that the
Company s current plant in service totals $46 236. Subtracting the accumulated depreciation
($10 256) from this amount results in a total rate base of $35 980. We find that Staffs
calculations are reasonable and supported by the evidence. We further note that the Company
did not challenge these calculations.
C. Return on Rate Base
Staff recommended that Murray receive a 12% return on its rate base. A 12% return
on $35 980 of rate base results in annual revenue increase of $4 318. Because this amount is
subject to taxes on both a federal and state level, it must be increased by a gross-multiplier, in
this case 128.09%, in order to ensure that the Company actually attains $4 318 in additional
revenue. See Staff Atch. 4. After the gross-up factor is applied, the amount of additional
revenue for return on equity that must be collected in new rates is $5 530. Id.
Commission Findings:
The Commission has allowed a 12% rate of return on equity in several contemporary
cases pertaining to requests for rate increases from small water companies. See Order Nos.
30970, 30342, 30198, and 30279. Based upon the record in this case, the Commission finds that
it is just and reasonable to approve the customary 12% rate of return for Murray.
OPERATING REVENUES AND EXPENSES
In its Application, Murray included a document entitled "Water Distribution Industry
Operator Statement" ("Statement"). The document presumably contains financial information
relating to the Company s 2009 operating expenses. Staff attempted to reconcile the numbers
provided in the Statement to the financial information received from the Company during its
onsite audit, but Staff was unable to reconcile the Statement numbers with the Company s 2009
bank statements, checks, deposits, and tax return.Therefore, in order to more accurately
ORDER NO. 32105
estimate the Company s annual operating costs, Staff utilized the financial information derived
from Murray s tax filings.
A. Revenues
Based upon Murray s financial records, Staff calculated that Murray s revenues
during the 2009 test year were $10 252. Staff Atch. 4, line 15.
B. Expenses
Staff identified actual operating expenses of $7 260 in 2009. Staff Comments, Atch.
, line 2. Staff added additional expenses that it believes are necessary for the stable and
adequate operation of the water system. ld. at Col. B. Staffs recommendation for each category
of operating expense was shown in Attachment 2 to its comments and is more fully described
below:
1. Labor - Operation & Maintenance . In 2009, Murray paid $4 800 ($400 per
month) to Mr. Lish for his time and efforts spent in operating and managing the Company. Staff
concurred with the Company s request and agreed that the proposed level of compensation is
reasonable for a water company with a similar number of customers.
2. Labor - Administrative & General.Murray did not record or request recovery for
expenses associated with the costs of bookkeeping, customer bill preparation and collections.
Staff and several Murray customers have confirmed that the Company does not currently send
out monthly customer billings. The Commission is aware of several complaints regarding this
practice.
Staff recommended that the Company send out a monthly billing. Consequently,
Staff included the annual amount of $3 000 or $250 per month for the cost of bookkeeping,
preparing monthly customer billings and accounting for receipts. If the Commission adopts rates
that are other than monthly rates, then this amount would need to be adjusted to reflect the
number of times billings would be sent to the customers.
3. Purchased Power.This account represents the annual cost of power to operate the
pump and system. In 2009, Murray spent $1 180 to purchase power.
4. Materials & Supplies - Operation & Maintenance. In this account, Murray listed
$358 representing Company expenditures incurred in 2009 for the purchase of materials and
supplies to maintain the water system. Staff made a $142 pro forma increase in order to reflect
additional minor repairs that Staff believed should be made to the system. Staff based its
ORDER NO. 32105
suggested increase on the current condition of the system. According to Staff, the water system
is currently in need of minor repairs for system leaks, valve replacements and pump
maintenance.
Material & Supplies - Administration General.In 2009, Murray spent
approximately $154 for office expenses, copies, mailings, phone and the other incidental
expenses associated with the operation of a business office. Again, Staff suggested a pro forma
increase of $96 to bring the total amount to $250 annually, approximately $20 per month. Staff
believes that the increase is reasonable and necessary in order to subsidize the costs related to the
implementation of a monthly billing system.
6. Contract Services - Professional.In 2009, Murray recorded $240 for accounting
services in the preparation of the Company s tax filings. Staff increased this amount by $60 to
$300 for the future cost of the tax preparation services. Staffs recommendation is based upon
conversations with the Company s accountant regarding the estimated future cost of these
accounting services.
7. Contract Services - Water Testing. Pursuant to IDEQ requirements , Murray is
mandated to test the purity of the water in accordance with a nine-year testing cycle. Staff noted
that because some tests are not required every year, but are required in the nine-year cycle, the
cost for testing must be normalized in order to reflect the annual cost of compliance with the
nine-year testing requirement. Staff calculated an annual cost of water testing of $650.
8. Rentals - Property & Equipment.In 2009, Murray did not record any actual costs
associated with the rental of property or equipment. However, Staff does not believe that it is in
the best interest of the customers to neglect normal and reasonable repairs of the water system.
Therefore, Staff included $500 for the rental of equipment (backhoes, trucks, compressors, and
generators) necessary to maintain and repair the water system.
9. Transportation Expense . In 2009, Murray recorded $302 for the cost of gasoline
to commute to and from Mr. Lish's residence to the water system. Mr. Lish lives approximately
40 miles from the water system. Staff increased this amount to $400 annually. Staff justified
this increase upon Mr. Lish' s assurance that he would make more trips to the water system
during the coming year.
ORDER NO. 32105
10. Insurance. The estimated annual premium for liability insurance on the well lot
property is $150. Staff believes liability insurance should be obtained by the Company and has
included the premium expense in its calculation of expenses.
The following table summarizes the Staffs positions.
Operating Expenses $11 850Depreciation Expenses 2 060Regulatory Fee Property Taxes
DEQ Fees 175Total Expenses 14 230
Total Revenue 10,252Operating Loss (3 978)
Commission Findings:
It is a fundamental axiom of utility law that Murray is "entitled to rates that will cover
its operating costs and provide an opportunity to earn a reasonable rate of return on its
investment. . . .See Order No. 30970. The Commission finds that the expenses put forth by the
Company, as well as the uncontested adjustments made by Staff, are reasonable and necessary in
order to support the adequate operation and maintenance of Murray s water system.
Specifically, the Commission finds that it is reasonable and necessary to include the
cost to retain a certified system operator to oversee Murray s water system. As Staff mentioned
the Idaho Department of Environmental Quality ("IDEQ") requires each water system to employ
a certified system operator to maintain the water system. The amount suggested by Staff, $4 800
per year or $400 per month, is a reasonable amount for compensation for such services. If Mr.
Lish is unwilling or otherwise unable to become a certified system operator then the Commission
orders the Company to seek out and employ another individual to comply with IDEQ'
certification requirement and fulfill the duties and responsibilities of a certified system operator.
The Commission further finds it is reasonable to require Murray to develop and
implement a monthly billing system. The costs associated with this normal business practice
should be incorporated into rates. The Commission finds that $3 000 per year is a sufficient
amount and shall be included as an expense for the development and maintenance of a monthly
customer billing system. The Commission also finds that $1 180 for the purchase of electrical
power to operate the water system is a reasonable amount.
ORDER NO. 32105
Finally, the Commission finds that the remaining expenses and pro forma increases
proposed by Staff are prudent and shall be included for recovery through the Company s rates.
The aforementioned costs for materials, supplies, contract services, transportation, and insurance
represent completely foreseeable expenses or events occurring as part of the normal operation of
any water system. The increases above what the Company actually experienced in 2009 are
minimal and reflect typical increases necessary to perpetuate the continued viability of Murray
water system.
COMMISSION REVENUE REQUIREMENT
Combining the rate base findings with the operating revenues and expenses findings
results in the following revenue requirement:
Rate Base
Rate of Return
Operating Income
Rate Base Deficiency
Operating Loss (plus fee)
Tax Gross-Up ($4 318 at 128.09%)
$35,980
12%
$ 4 318
$ 3,978
($ 340)
($3 985)
$ 5,530
Revenue Increase
Test Year Revenue
ANNU AL REVENUE REQUIREMENT
$ 9 515
$10,252
$19 767
The Commission finds that an annual revenue requirement of $19,767 is reasonable
and prudent. See Exh. 1. The increase in Murray s annual revenue requirement represents an
amount sufficient to allow the Company to recover the significant capital investments it has
made since its last rate case. The Commission finds further that, since 2002, a large portion of
the costs borne by the Company are related to capital improvements made to Murray s water
system and have contributed to the necessary operation of the water system. For example
projects such as the completion of the main line extension project and basic leakage repairs
constitute vital and necessary costs associated with the operation of any water system. These
improvements provide a significant benefit to Murray s customers and shall be recovered
through rates.
RATE DESIGN
According to the Company, Murray has a total of 39 customers (34 residential and 5
commercial customers). See Murray s Response to Staff Production Request No.1. Of
ORDER NO. 32105
Murray s 34 residential customers, 24 are full-time and 7 are part-time. The remaining three
customers are currently disconnected from the water system. Thus, only 31 are active residential
customers. Of the five commercial customers, three are full-time and two are part-time.
A. Monthly Water Rates
As stated above, Murray currently charges a flat rate of $26 per month to all its
residential and commercial customers. In its Revised Application, Murray proposed a different
rate for residential customers with a I-inch service line. Murray Schedule No.1 - Flat Rate.
Murray has proposed the following changes to its rate design:
Schedule No.1 - Rates for residential water use to be increased from $26 per
month to $40 per month.
Schedule No.2 - Rates for commercial customers to be increased from $26
per month to:
(a) $60 per month for a I-inch service line, and
(b) $75 per month for a 2-inch service line.
Schedule No.3 - Fee for one household if a trailer or cabin on same hookup
to be increased from $26 per month to $40 per month.
The Company also proposes to charge customers who are not using water $5.00 per
month to help maintain the system.
Murray justified its proposed increase by citing rates charged by other water utilities
East Shoshone Water District and Central Shoshone Water District, operating within close
proximity of Murray s service area. The Company claims that these water districts charge $45
for a 3/4-inch service line. Staff remarked in its comments that Mr. Lish has two rental homes in
the neighboring areas served by the aforementioned water utilities. Mr. Lish cited his personal
bill of $42.50 for November 2009 water usage to East Shoshone Water District (Wallace) and
$45.68 for December 2009 water usage to Central Shoshone County Water District (Kellogg).
Mr. Lish submitted copies of invoices to support his claims.
The total number of Murray customers used by Staff in calculating expected revenues
was 34 (31 residential , 3 commercial). See Staff Comments, Atch. 6. Although Staff supported
I In Murray s initial Application, the Company proposed a flat rate design for residential customers (i., no
differentiation of service line sizes) and a service line size-based rate design for commercial customers.
ORDER NO. 32105
many of Murray s rate design proposals, it also made several recommendations which differed
from the design included in the Company s Application, including:
1. Design a rate structure based upon service line sizes;
2. Do not separately bill the owners of the community park;
3. Do not bill the private owners of the County Courthouse building until
they request water service at that location;
4. Define a "Full-Time Customer" as any water system user receiving
continuous water service by Murray Water Works for more than eight (8)
months during the year;
5. Define a "Part-Time Customer" as any water system user receiving water
service by Murray Water Works for eight (8) months or less during the
year;
6. Spread the $19,767 recommended annual revenue requirement to all water
users based on the class of customers and the size of service line;
7. In order to simplify the tariff design, minimize confusion, provide ease of
implementation, and for the reasons mentioned above, all seasonal or part-
time users with the same size of service lines will be charged for 2/3 the
rate of full-time users;
8. Group customers with 3/4 and I-inch service lines into the same
class/category and that the equivalent meter size/pipe size ratios published
by the American Water Works Association s Manual of Water Supply
Practice as presented in Attachment 5 be used to establish rates for
customers with larger services. The 2-inch service size results in a ratio
that is approximately two times the ratio for I-inch service;
9. Maintain Schedule 3 requirement of an additional fee for a household with
a trailer or cabin connected to the same hookup; Staff does not oppose
maintaining the Company s Schedule 3 because there may be a separate
household with a trailer or cabin taking water from another customer
service line. It would not be fair to the other customers of Murray if such
households take water free of charge.
Commission Findings:
Having determined the Company s revenue requirement, the Commission s task
is to ensure an equitable recovery of the utility s fixed costs among its various customer classes.
ORDER NO. 32105
Generally speaking, providing service to customers with larger service lines is more costly.
this case, nearly all of Murray s customers receive water service through a 3/4-inch service line.
The current monthly rate of $26 per customer was established by the Commission 16
years ago. See Commission Order No. 25771. Designing a reasonable rate structure for Murray
is complicated by the presence of seasonal users on the Murray water system. Nevertheless, the
Commission has analyzed and resolved this issue in other cases. In Case No. GNR-Ol-, the
Commission stated
(T)he vast majority of Ponderosa s expenses are fixed; these costs are incurred
regardless of how many customers actually take water from the system at any
given time. To ensure that a working system is available when part-time and
active service customers visit their lots, the Commission thus finds it
reasonable to require seasonal customers to financially maintain the system
for a significant portion of the year.
Order No. 29172 at 2.
In the above Order, the Commission defined "Resident" customers as full-time water
system users who live year-round on the property serviced by the water utility, and "Non-
Resident" customers as all other property owners who do not live year-round on the property
serviced by the utility. The Non-Resident customer class includes customers who could be
served by the system, even if they are not physically connected to the water system. In an Order
following up on the water utility s failure to comply with some of the instructions included in the
above Order, the Commission stated:
(A)ll property owners benefit from the water system, whether or not they are
connected and taking service for the entire year. The water infrastructure is in
place for the benefit of all properties and adds to the current and resale value
of the properties. . . .
The Commission further finds this rate structure to be appropriate for the.
. .
system because it acknowledges that all customers benefit from the system
existence, even if absent customers do not take advantage of this service.
Full-time customers will continue to pay the larger fee that reflects the
variable expenses that they contribute to. Given that the usage. . . is similar
to the speculative and seasonal usage associated with "resort systems " we
believe that year-round payment is the only way to provide the Company with
steady cash flow it needs to keep the system operating smoothly under the
present circumstances.
2 The Company documented only one residential customer with a I-inch line.
ORDER NO. 32105
Order No. 29276 at 7.
The Commission finds that the rate design issues in this case concerning full-time and
part-time or seasonal users of water are analogous to the issues presented in GNR-01-01. The
Commission finds that a similar approach is reasonable in this case and shall be applied in
addressing full-time and part-time water users on the Murray water system.
After reviewing Murray s proposal and Staffs recommended rate design, the
Commission finds that Murray s customer base shall be apportioned into two customer classes:
Full-Time Customer - Water system users with continuous water service by
Murray Water Works for more than eight (8) months during the year.
Monthly Rate: $51.
Part-Time Customer - Water system users with water service by Murray
Water Works for eight (8) months or less during the year.
Monthly Rate: $34.25
The Commission selects eight months as the cut-off because it is the longest period of
time that current part-time customers maintain continuous water service. The inescapable reality
is that a large percentage of the overall cost of maintaining any water system is comprised of
non-usage related expenditures, i., fixed costs. These fixed costs persist regardless of whether
a specific customer is currently connected to the system. Thus, part-time users must share in the
cost of running the system lest full-time customers be required to unfairly subsidize their
continued presence on the water system. Because the system is unmetered, the $19 767 annual
revenue requirement must be spread to all water users based on the class of customers and the
size of service line.
Currently, Murray s part-time customers disconnect and reconnect their water service
without paying any seasonal disconnect or reconnection charges. The Company does not charge
turn on/turn off fees when the customers disconnect themselves, although the current Company
tariff allows the Company to do so. See Murray Water Works System Tariff, Schedule No.2.
The net result is that part-time customers on the Murray water system pay only for the number of
months they are actively diverting water from the system.
In order to more fully capture the costs associated with part-time usage of the water
system, simplify the tariff design, minimize confusion and provide ease of implementation, the
Commission finds that part-time customers on the Murray water system shall pay an annual
charge equal to eight months of usage. These seasonal or part-time users will be charged for
ORDER NO. 32105
eight months of service or the equivalent two-thirds the rate of full-time customers. See Exh. 1.
In order to simplify the tariff design even further, customers with 3/4 and I-inch service lines
shall be grouped into the same class or category and the equivalent meter size/pipe size ratios
published by the American Water Works Association s Manual of Water Supply Practice as
presented in Exhibit 2 will be used to establish rates for customers with larger services. The 2-
inch service size results in a ratio that is slightly more than two times the ratio for I-inch service.
Utilizing the aforementioned rate design proposal, the various expected revenues are calculated
for the various customer classes and presented in Exhibit 1. The rate shall be $34.25 per month
for part-time customers; $51.50 per month for full-time customers; and $70.00 per month for
commercial customers.
The aforementioned findings render Murray s proposal of charging a minimum of
$5.00 per month minimum fee inapplicable. Service disconnection for non-payment or for other
reasons will continue to be governed by the Company s Rules and Regulations approved by the
Commission.
B. The Park Billing
In its Application, Murray requested that the community park ("Park") be billed as
another commercial customer.
Commission Findings:
The Commission finds that water service provided to the small community park
during the summer months should not be billed separately. Historically, the Park's owner of
record has not been billed separately. Several of Murray s customers expressed their opinion at
the public workshop conducted on April 13 , 2010 , that it was not appropriate to bill the Park as a
customer. They supported spreading the cost of supplying water to the Park across the
Company s entire customer base. The property where the Park is located is believed to be
owned by the previous water system owner who lives outside the area. As a practical matter, the
Company has not been able to identify the owner of the Park and would therefore have no
physical address to send the bill for the use of water in the Park. It is equally unclear whether
the Park owner would continue water service if billed.
C. Hookup Fee
Murray proposes to increase the hookup fee or connection fee for new service from
$800 to $2 000 plus parts and labor to install. As support for its proposed increase, the Company
ORDER NO. 32105
cited the hookup fee of Central Shoshone Water District, a water district operating in a
neighboring area, which charges $6 700 for a new 5/8-inch or 314-inch connection.
Staff does not oppose increasing the hookup fee to recover the actual cost of parts and
installation. Staff believes the cost of labor proposed by the Company of $720 is reasonable
based on similar rates charged by contractors in the area. For the materials component, Staff
used the unit cost of materials provided by a vendor in nearby Dalton Gardens, Idaho. The total
cost for the materials was approximately $415. Allowing a minor amount for unforeseen
variables or contingencies, Staff recommended a total amount of $1 200 for the cost of a new
hookup.
Staff noted that there are two potential scenarios for hooking up a new customer: (1)
customers located on the same side of the road as the buried main line; and (2) customers located
on the opposite side of the road of the main line. Staff remarked that providing a service
connection by tapping the main line and extending the service line up to a new customer
property line on the' same side of the road of the main line would be a relatively straightforward
task. However, if the customer s lot is located on the other side of the road, installing the service
line would involve significant additional cost (e., the cost of boring a hole underneath the
road). In order to recover this additional cost, Staff recommended the inclusion of the following
language in the Company s hookup fee tariff for new connections:
When the installation of a new service line requires the Company to bore a
line under a road, all additional costs will be charged to the customer on a
time and material basis. The new customer may, at their option, hire Murray
Water Works ' approved independent contractor to perform the road bore and
connection. The Company will require such contractor to show proof of
bonding, licensing and insurance and have at least five (5) years of experience
pertaining to the "hot-tapping" of water lines. Murray Water Works will
inspect and approve all the work being performed to insure compliance with
the Company s installation requirements.
Commission Findings:
A connection fee for small water utilities is generally defined as a non-recurrIng
charge and is paid by a customer requesting service in order to provide partial or full recovery of
the Company s capital cost of providing a new service connection. It usually includes the cost of
both the materials and the labor required to install the materials. Sometimes it includes the cost
ORDER NO. 32105
of unusual circumstances such as including, but not limited to, the circumstance where the
extension of the service line is placed under an existing roadway.
Without question, new customers on the water system should be required to
contribute an amount commensurate with the actual cost of bringing those customers into the
water system. The Commission finds that Staff s suggested language is acceptable and should
be incorporated into Murray s new tariff filing. Similar tariff language has been approved by the
Commission in previous small water utility cases addressing the same issue. See Order Nos.
30455 (Case No. DIA-07-0l) and 31002 (Case No. BCS-09-02).
D. Turn On/Turn Off Fee
Schedule 2 of Murray s existing tariff addresses the fee charged for disconnection or
reconnection of service, the so-called "Turn On/Turn Off Fee." The fee is applicable when a
customer requests new service or a customer leaves without requesting a disconnection of
service. In its Application, Murray has put forth conflicting or overlapping time periods, March
1 to October 1 and October 1 to March 1 , during which the fee would apply. Murray specified
that a higher charge would apply during the winter months of October through March. Murray
requests an increase in the fee for the summer period (March 1 through October 1) from $25 to
$50, and an increase in the fee for the winter period (October 1 to March 1) from $50 to $75.
Staff countered Murray s proposal with a more simplified approach. Staff suggested
that Schedule 2 should be revised in order to form a Non-Recurring Charges Schedule. Staff
would eliminate the distinction between the summer period and the winter period. Instead, Staff
recommended a Service Establishment Charge of $20 and a Reconnection Charge of $35. The
Service Establishment Charge would be applicable to new customers at a service address where
service connections already exist. This charge would replace the turn on fee previously
approved by the Commission and allow the Company to recover a portion of the costs incurred
in establishing a new account. The Reconnection Charge would apply to customers who request
reconnection following a disconnection for non-payment or a voluntary disconnection.
Staff does not support a higher after-hours charge or a higher seasonal charge. Staff
recommended that the Reconnection Charge be permitted only when the Company has made the
physical disconnection or reconnection.
ORDER NO. 32105
Commission Findings:
The Commission finds that a significant increase of the fee, as put forth by the
Company, for connecting or reconnecting water service is not warranted. The Company has not
presented an argument or justification to support such an increase. While the Commission has
in the past, allowed a higher fee for work requested or performed after normal business hours, it
has not recently allowed a differential based on the time of year. Further, the Commission finds
that allowing Murray to recover an increased fee for "after-hours" connection or reconnection in
this instance is not appropriate because the Company does not have a physical office space open
to the public and therefore does not maintain normal business hours.
Murray s current Schedule 2 holds the property owner accountable for a turn off fee if
the customer leaves and does not request a turn off. Rule 206 of the Utilities Customer Relations
Rules ("UCRR") reads in relevant part: "customer shall not be held responsible for the
payment of an amount owed by any person who resides at the customer s premises or is a
member of the customer s household" unless the customer "expressly accepts responsibility for
payment" or has a "legal obligation to pay the other person s bill." The Company indicated that
it will continue its current practice of not applying the fee to the seven part-time customers who
turn their water on and off themselves as they come and go.
The Commission shares the Company s concern that customers who are allowed to
connect and disconnect their service without notice or penalty pose a substantial risk to the
system if problems on the customer s side of the connection go undetected. However, Murray
practice of transferring the duty to pay service charges from a previous customer to the current
property owner is simply not permissible under the Commission s Rules.
OTHER ISSUES
1. Water Production Data. As part of its investigation, Staff requested monthly water
production and consumption data for calendar years 2006, 2007 and 2008. In response to Staff
Production Request No., the Company indicated that no water production records are available.
Staff believes the Company should be required to record production data to monitor overall
system consumption.
Commission Findings:
The Commission orders Murray to develop and maintain a process to record water
usage data on the Company s water system. Murray shall submit an annual report summarizing
ORDER NO. 32105
the water usage data. This information is critical as it will assist the Commission in evaluating
whether future capacity expansion or the installation of customer meters is necessary.
2. Water Quality. As part of its review of the water system, Staff also looked at the
water quality and related issues in order to verify that the Company will be able to adequately
and reliably provide safe drinking water to its customers. On June 18, 2008, the IDEQ
conducted a Sanitary Survey of Murray s water system.3 Based on the results of the Sanitary
Survey, the Murray system was deemed to be mostly in compliance with the Idaho Rules for
Public Drinking Water Systems (IRPDWS). IDEQ did identify one deficiency - Murray
failure to provide minimum separation, 100 feet, between a contaminated water source and the
system water supply well. Additionally, the well lot does not provide a 50-foot separation
between the well and the nearest property line. As of the date of this Order, the contaminated
water source has not introduced contaminants into Murray s water system but does pose the
potential to affect the quality of the Company s groundwater.
IDEQ has served notice upon Murray, requiring the Company to submit a plan of
correction for these deficiencies. See IDEQ letter to Arlen Lish, July 9 , 2008. According to
IDEQ, Murray has yet to submit a plan of correction to IDEQ.
Commission Findings:
The Commission orders Murray to comply with all IDEQ requirements. Specifically,
Murray is ordered to develop and submit a plan of correction to IDEQ and remedy any system
deficiencies identified by IDEQ. Murray shall submit to the Commission a copy of the
corrective plan required by IDEQ, as well as an invoice detailing the costs of implementing the
IDEQ-mandated measures within 90 days of the service date of this Order.
3. Water Rights. During Staffs review of Murray s water rights, it was found that
while Murray filed a permit to drill the well which was completed on July 28, 1993, it has not
filed an application for permit to appropriate groundwater.
Commission Findings:
The Commission orders Murray to submit, within 180 days of the service date of this
Order, an application for a water right to protect the Company s water source and establish a
priority date. A copy of the Company s filing shall also be filed with Commission.
3 A Sanitary Survey is an onsite review of the water source
, facilities, equipment, operation and maintenance to
assure a public water system provides an adequate source of water supply, and is distributing safe drinking water.
ORDER NO. 32105
4. Service Meters. In Murray s Revised Application, filed with the Commission on
June 9, 2010, the Company proposed to install meters throughout its water system. According to
Murray, metering the entire system is necessary because its customers often fail to notify the
Company of water leaks that create pressure problems for other customers on the system.
Staff does not support installing meters throughout Murray s system because it would
be another major capital investment. The Company did not submit an estimate of the cost for
metering the Murray water system, and Staffs investigation revealed that it may cost the
Company approximately $49 500 ($1 500 per service meter installation x 33 customers). Staff
noted that one commercial customer is already metered.
Commission Findings:
The Commission finds that the installation of meters throughout the Murray water
system is not practicable or cost-effective at this time. The Commission finds that adding the
capital investment cost to the Company s current rate base would put additional financial strain
on customers. Leak detection is obviously a necessary activity on any water system. However
the Commission cannot justify the incorporation of metering technology into the Company s rate
base given the relatively small scale of Murray s operation and the fact that the Company has
other means to identify potential leaks occurring on its water system.
5. Backup Power.Customers at the public workshop and in written comments
submitted to the Commission asserted there is serious concern regarding the availability of
backup power. Customers are justifiably concerned that if there are power outages in the area
they will be left without a water supply. Specifically, a customer has indicated that, in the past
local power outages have sometimes left customers without water for one to six days. Staff
contacted IDEQ concerning requirements for backup power. IDEQ indicated that there is no
requirement for Murray to install backup power for its system. Further, IDEQ stated that it has
not received any report from the Company or complaints from the customers regarding the lack
of water service for an extended period of time.
Murray provided Staff with a copy of a bid to install an auxiliary power system with a
total cost of $22,449. Another estimate, with a different building option, suggests a cost of
approximately $9 362. Thus, Staff does not recommend the installation of a backup power
system due to the cost and its effect on the Company s rate base. Instead, Staff recommended
ORDER NO. 32105
that Murray be strongly urged to work with the electric utility to restore power as quickly as
possible.
Commission Findings:
The Commission finds that the installation of a backup power system is not warranted
at this time.If power outages do occur, the Commission orders Murray to work in a
collaborative manner with Avista, the electric utility serving Murray s service area, to restore
water service as soon as it is practicable. Further, the Commission will dutifully investigate and
resolve, according to its published rules and procedures, any complaint submitted by a customer
regarding the interruption of water service.
6. Fire Hydrants. Customers also expressed concerns that the Murray water system
does not have fire hydrants. Murray s service area is serviced by the Prichard/Murray Volunteer
Fire Department. According to Steve Coyle, Fire Chief of the Prichard/Murray Fire Department
the Department currently has a 1 000-gallon capacity fire truck parked in Murray, and another
fire tender with a 2 600-gallon capacity based in Prichard. There is a refilling station at Prichard
Creek about two miles south of Murray, but the Department has plans to build another refilling
station in Prichard Creek.
According to Chief Coyle, there is no requirement that fire hydrants be installed on
Murray s water system. IDEQ also indicated that Murray is not required under the Idaho Rules
for Public Drinking Water System (IRPDWS) to provide fire hydrants on its water system.
Commission Findings:
The Commission appreciates customer comments on this issue and is generally
supportive of their genuine concern regarding fire suppression. However, there is no statutory
requirement mandating the installation of fire hydrants on the water system, and we decline to
order the Company to install them. The expense of installing hydrants would be significant and
would require another rate increase. The Commission finds that the significant capital cost of
installing fire hydrants on Murray s water system renders their installation impractical and cost-
prohibitive at this time.
7. Company Tariff.Murray existing tariff was submitted prior to the
Commission s adoption of the Model Tariff for Small Water Utilities - implemented in 2008.
Murray s tariff does not include the Uniform Main Extension Rules.
ORDER NO. 32105
Commission Findings:
The Company is ordered to update its tariff and bring it into conformance with the
current Model Tariff and include the Uniform Main Extension Rules. Murray shall revise its
tariff to include the Commission-approved Rate Schedules, the General Rules and Regulations
for Small Water Utilities, and the Uniform Main Extension Rule in a format consistent with the
Model Tariff. Staff shall assist Murray in complying with the Commission s Order by providing
an electronic copy ofthe Uniform Main Extension Rules to the Company.
8. Billing Practices. Currently, Murray does not issue monthly billing statements. A
review of the Company s records revealed that it does not send any type of notice to customers
until the account is more than 60 days past due.
Commission Findings:
The Commission orders Murray to modify its current business practices and begin
issuing billing statements that comply with the requirements of the UCRR. Specifically, UCRR
201 states that bills shall be issued on a regular basis and describes the substantive content which
must be included in a customer s bill invoice.
The Commission finds that the most practical method to bill customers who are not
full-time residents is to bill these part-time customers on an annual basis equal to eight months of
water service. This annual prorated charge shall be applicable to all current customers who do
not live year-round at the service address. Full-time customers shall be billed on a monthly
basis.
9. Termination Notification/Annual Rules and Rates Summary Murray has
submitted copies of its Initial Notice of Intent to Terminate Service and its Final Water Shut-Off
Notices. Staff notes that these termination notices meet the requirements of UCRR 305. The
standard notice includes the phone number of Murray s owner so that a customer may contact
him and make appropriate arrangements regarding their bill. Because the Company does not
have a business office, the notice lists the post office box where payments can be sent. Staff
stated that the Company s termination procedure, as described in response to production
requests, appears to fulfill the requirements of UCRR 311.
Murray does not send out an annual rules summary and an explanation of rate
schedules to its customers. Staff stated that it is willing to assist the Company with the creation
of a summary of rules and explanation of rate schedules for transmission to Murray s customers.
ORDER NO. 32105
Commission Findings:
Pursuant to the requirements found in UCRRs 701 and 702, the Commission orders
the Company to notify all customers of the current rules regarding termination through the
creation and mailing of an annual rules summary and explanation of rate schedules to its current
customers.
10. Complaint Records.The Company has stated that it has received no complaints
from customers. Recent customer comments and complaints to the Commission suggest that
customers have contacted the Company regarding outages and billing. Staff recommended that
the Company create and maintain a system to record and assess customer complaints and
requests for a conference as required by UCRR 401.
The Commission has received several written comments from Murray customers
about this case.The majority of these comments reflect customer concerns regarding the
proposed increase for Murray s customers. Other issues raised included the lack of water due to
power outages and the lack of fire hydrants for the purpose of fire protection.
Commission Findings:
Pursuant to the UCRR, the Commission orders Murray to develop and maintain a
system for the recording of customer complaints. Specific complaints regarding the quality of
Murray s water service are addressed elsewhere in this opinion.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Murray Water Works
Systems, a water utility, and the issues presented in this case pursuant to Idaho Code, Title 61
and the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
Having fully reviewed the record in this proceeding, we find that Murray s existing
rates and charges are unreasonable and do not provide sufficient revenue to the Company. Idaho
Code ~ 61-622. Recognizing that Murray is a small water corporation, we find that it is just and
reasonable for Murray to receive an equivalent 12% return on rate base. The Commission
authorizes an annual total revenue requirement for Murray of$19 767 and a rate base of$35 980.
We approve new monthly rates increasing full-time customers from $26 to $51.50; part-time
customers from $26 to $34.25; and commercial customers from $26 to $70. We conclude that
the rates and charges authorized in this Order are fair, just and rea~onable.
ORDER NO. 32105
ORDER
IT IS HEREBY ORDERED that Murray Water Works Systems' Application for an
increase in its rates and charges for water service is approved as set out in the body of this Order.
The Company is authorized to collect a total revenue requirement of $19,767 per year, for an
overall percentage increase of 98%. See Exh. 1.
IT IS FURTHER ORDERED that the Commission approves, as more particularly
described and qualified above, changes to Murray s non-recurring fees/charges for new customer
connections and reconnections.
IT IS FURTHER ORDERED that the rates, tariffs and charges authorized in this
Order shall become effective for service within 14 days ofthe service date of this Order. Murray
is directed to submit revised tariffs that mirror the rates and charges set out in this Order within
14 days of the service date.
IT IS FURTHER ORDERED that Murray shall update its utility tariffs
documentation and practices to bring it into compliance with current Commission Rules and
Regulations for Small Water Utilities.
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. 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. 32105
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of November 2010.
II 12: KEMPTO , P SIDENT
------------
MARSHA H. SMITH, COMMISSIONER
~~~~~
MACK A. REDFORD, COMMISSIONER
ATTEST:
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ORDER NO. 32105
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~

&2
~
MURRAY WATER WORKS
MUR-10-Ol Rate Case
Operating Results
Test Year 2009
(A)(8)(C)
Test Year Staffs Total
Actual Changes Amount
Revenue 252 252
Operating Expenses 260 590 850
Depreciation Expense 711 651) $060
Regulatory Fees (PUC)
Property Taxes
6 DEQ Fees 100 175
Total Expenses 13,191 039 230
Net Income/(Loss)939) $039) $978)
EXHIBIT 5
ORDER NO. 32105
CASE NO, MUR-lO-