20040528Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
ECEIVED illFiLED
znn~ MA~ 28 "" 1\: 28
1;1 UBL1C
UT\LYl'tES COI"lrliSSION
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
PICABO LIVESTOCK COMPANY, INC. FOR
AUTHORITY TO INCREASE RATES AND
CHARGES FOR THE PICABO WATER SYSTEM. CASE NO. PIC-O4-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice of Comment/Protest Deadline issued on
April 9, 2004, submits the following comments.
BACKGROUND
On March 25 2004, Picabo Livestock Company, Inc. filed an Application for a rate increase
for the Picabo Water System (Picabo; Company). Nick Purdy, Manager of the Picabo Water
System, reports that expenses for power, maintenance, materials and water testing have increased
dramatically in the ten years since the Company s last rate increase. (Case No. PIC-94-, Order
No. 25447) The Application requests an increase of$8.00 in each of the Company s four tariff
rates.
ST AFF COMMENTS MAY 28 , 2004
The Picabo Water System is a very small part of the Picabo Livestock Company s overall
business. It is an unmetered system composed of a new well and control system, an elevated
reservoir, and conventional distribution system. The reservoir and initial water system was
constructed in the early 1900s. A number of upgrades and reconstruction projects have kept the
system current with changing regulatory requirements. The entire distribution system was replaced
in 1992. The most recent system improvements include repainting and repair of the reservoir and
the addition of a new primary well and modern variable frequency control system. The old well is
located on property not owned or controlled by the Company and is subject to increasing
maintenance problems. The new well is located adj acent to the Company reservoir and provides
increased reliability and water flow for fire protection. The Company has retained an agreement
with the original well property owner to keep the well in service to provide the required back-up
supply to the system.
The water system operator is well qualified and has considerable knowledge of water
systems. Because of the operator s knowledge and experience the Company is able to perform
much of its own maintenance and improvement activities using Company-supplied labor.
STAFF ANALYSIS
Financial Review
Staff reviewed the financial records of the Company to determine the reasonableness of the
requested increase in revenues. Staff learned that the Picabo Livestock Company does not bill six
(6) residential properties that are owned by the livestock company and connected to the water
system. Nor does the Company pay for water service to two (2) feed lots that are utilized for six
months of the year. Staff has imputed revenues attributable to these water service connections as
though they were billed for the service as independent customers of the Company.
The Application did not state the magnitude of the increased revenues that would be
collected by the increase in rates. Staff has determined that, including the imputed Company owned
service connections, there are thirty-one (31) residential service connections on the system and five
(5) commercial service connections. The requested $8.00 increase in all tariff rates would generate
an increase in revenues of $4 848 as shown on Attachment "A" to these comments, page 2, lines 7
12. The increased revenues would represent an increase of 56% in gross revenue for the Company.
Accounting for the water system operation is rolled into the financial records of the Picabo
Livestock Company. Only two accounts are utilized to track the performance of the water system.
STAFF COMMENTS MAY 28, 2004
One account tracks actual revenues billed. The other account is used to capture all direct expenses
paid by the land and livestock company for operation and maintenance of the water system. The
Company does not record any labor expense associated with operation and maintenance of the
water system. All labor expenses are absorbed by the livestock operation. Depreciation expense
associated with the water system assets are embedded in the depreciation expense of the livestock
operation. The assets are however separately identified on the depreciation schedule maintained by
the Company s outside accountant for tax purposes.
Staff has analyzed all the direct expenses recorded by the Company and has separated the
expenses into appropriate categories as shown on page 1 of Attachment A, lines 2 through 13. This
schedule is an income statement that includes an analysis of cash flow. The actual operating results
for the water system are shown in Column (A) and reflect a net loss and negative cash flow for the
year 2002. The livestock operation has absorbed this loss and negative cash flow. Columns (B) and
(C) are adjustments to revenue to recognize the unbilled company owned services discussed earlier
and to annu~lize the revenue that would be collected if the year-end customers were connected and
billed for the entire year. This is a conservative approach to analyzing the reasonableness of the
requested increase in rates. Due to vacancies and seasonal disconnects the Company probably
would not collect the annualized revenue shown here. Even with this conservative approach, the
Company with its current rates would still operate at a loss and realize negative cash flow as
depicted in Column (D). After adjusting the income statement to recognize the effect of the
proposed increase, the Company would realize net operating income of $2 976.45 but after paying
its debt service costs would only realize total net income of$785.45. Cash flow to the Company
would become positive at $2 318.07.
Staff does not believe the gross revenue increase the Company has requested is
unreasonable. As stated earlier, there are no labor expenses reflected in the income statement on
either an actual or a pro forma basis. Consequently, Staff supports the Company s requested annual
revenue requirement of $13,494.
Rate Design
The Company-proposed rate design spreads the increase evenly at an $8.00 increase for all
customer classes and seasonal uses. While the proposed rate design does collect the requested
increase, the rate design causes residential customers to receive a greater percentage increase than
commercial customers. Staff analysis (Attachment B) indicates that increasing all customers the
STAFF COMMENTS MAY 28 , 2004
same dollar amount increases residential base rates by 57% while commercial customers rates
increase by only 33%. Staff believes that a rate design based on a more uniform percentage
increase to all customer classes is more appropriate. Staff recognizes the Company s desire to keep
rates simple and proposes even dollar amount increases to the Company s flat rates based on the
overall requested increase of 56%. Staff proposes the following rate design:
Existinq Rates Staff Proposal
Total Staff
Months Current Current Staff Prop.Prop.Staff Prop.
Number Rates Rate Spread of Rates Rate Percent
Customer Class of Cust.Service $/Mo Revenue Increase $/Mo.Revenue Increase
Residential Domestic $14.208.$ 22.$ 8 184.57%
Residential Irrigation $12.232.19.$ 3 534.58%
Commercial Domestic $24.864.13.37.$ 1 332.54%
Commercial Irrigation $21.12.33.57%
Commercial/Feed Lot $24.288.13.37.444.54%
Total 592.$13,494.57%
CONSUMER ISSUES
The Company willingly worked with Staff to bring customer information into compliance
with Idaho Public Utilities Commission s Utility Customer Relations Rules (IDAPA 31.21.01) and
Utility Customer Information Rules (IDAP A 31.21.02). Mr. Purdy understands Small Water
Company Policies (IDAP A 31.36.01) apply to his system.
No customers attended the public workshop held in Picabo the evening of May 20 2004.
The Company provided to the Commission the one written comment it had received. The comment
humorous in nature, said water should be free. As of May 24, 2004, no other written comments
have been received. It appears there is not a strong objection to the requested increase in rates.
The Company has an existing approved Special Provision $15 charge for service made at the
request of customers during times other than regular business hours. The Company would like to
apply this $15 charge whenever a customer requests that water be shut off or turned on so the
customer can complete personal plumbing work. According to the Company, this situation has not
yet occurred, but it suggests a change in the tariff to read: "A service charge of$15.00 will apply
for any service call made by the company at the request of customers." Staff supports this change
however believes the tariff should read "A service charge of$15.00 will apply for any shut-off
STAFF COMMENTS MAY 28, 2004
and/or turn-on made by the company at the request of customers for purposes other than involuntary
disconnection. "
In the past, the Company has not disconnected service. The Company has no approved
reconnection fee at this time and did not request one in its Application. However, the Company
Rules Summary mentions the assessment of a fee. Staff recommends approval of a $25
reconnection charge to help offset costs. A $25 fee is reasonable and comparable with other
reconnection charges the Commission has approved in the past. The Company indicates this
amount is acceptable in the event the Company finds it necessary to use disconnection as a
collection tool in the future. Staff recommends that the Company add a $25 reconnection charge to
its tariffs when new rates are filed.
STAFF RECOMMENDATION
1. Staff recommends the Commission establish an annual revenue requirement for Picabo of
$13,494 representing an increase of approximately 56% in the Company s total revenues.
2. Staff recommends the Commission establish a more uniform percentage increase in tariff
rates than proposed in the Application. Staff s recommended rates are shown in the table on page 4
of these comments.
3. Staff recommends approval of a $25 reconnection charge.
4. Staff recommends approval of a $15 Special Provision Charge to be assessed for any
shut-off and/or turn-on by the Company at the request of customers for purposes other than
involuntary disconnection.
Respectfully submitted this eX day of May 2004.
Sco t Woodbury
Deputy Attorney General
Technical Staff: Bob Smith
Michael Fuss
Marge Maxwell
i:umisc:comments/picwO4. 1 swresmfmm
STAFF COMMENTS MAY 28, 2004
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