HomeMy WebLinkAbout20210819Comments.pdfERICK SHANER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0318
IDAHO BAR NO. 5214
rlii i . n..
i:, t li t'r.r-e
Street Address for Express Mail:
1 I33I W CHINDEN BVLD, BLDG 8, SUITE 2OI-A
BOISE, ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF PICABO WATER
SYSTEM'S APPLICATION FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR WATER SERVICE IN
THE STATE OF IDAHO
CASE NO. PIC.W-2l-OI
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission ("Staff') comments as follows to the
Picabo Water System's Application.
BACKGROUND
On March 8,2021, Picabo Livestock Company, Inc. filed an application with the
Commission to increase rates for the Picabo Water System ("Picabo" or "Company"). The
Company reported expenses for power, maintenance, materials, and water testing have increased
significantly since the Company's last rate casel. The Company's Application is requesting a 50
percent increase to each of the Company's tariff rates. Currently, the Company's Application
reflects a net loss of $12,131, with arate base of $66,607.
I Case No. PIC-W-04-01, Order No. 29538
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ISTAFF COMMENTS AUGUST I9,2O2I
STAFF ANALYSIS
System Description
The Picabo Water System is an un-metered water system currently composed of a single
well, control system, elevated storage tank, and distribution piping. The elevated storage tank and
water supply were constructed in the early 1900s. Past upgrades and reconstruction projects have
kept the system current.
Recent system improvements include repainting the exterior surface of the storage tank
and construction of a secondary well. The previous secondary well was located on property not
owned or controlled by the Company and is no longer available to Picabo for system use. The
new secondary well would be located adjacent to the Company's storage tank. It would provide
increased flow for fire protection and improve system reliability.
The Company has obtained a loan agreement with the Idaho Water Resources Board for
funding of the new well, electric service, and piping to connect the well to the system. To date,
the secondary well has been drilled and tested but is not mechanically complete. The Company
indicates the new well will be used and useful for service by the time rates go into effect.
The Company also notes it has considerable knowledge of water systems, and as such, it
operates and performs much of the maintenance and improvement activities itself, using the
Parent Company-supplied labor.
Staff Audit
Accounting for the water system operations is rolled up into the financial records of the
Parent Company. Only two accounts are utilized to track the performance of the water system.
One account tracks actual revenue billed, and one account is used to capture all direct expenses,
which are paid by the Parent Company. The Company does not record any labor expense
associated with operation and maintenance of the water system. All labor expense is absorbed by
the Parent Company's operation. Depreciation expense associated with the water system assets
are embedded in the depreciation expense of the Parent Company's operation. The water system
assets are separately identified on a depreciation schedule maintained by the Company's outside
accountant.
The Company requested a test year ending December 31,2020, with two proforma
adjustments. The first adjustment is for the inclusion of a secondary well for redundancy and to
2STAFF COMMENTS AUGUST 19,2021
meet Idaho Department of Environmental Quality ("IDEQ") requirements. The second
adjustment is for coating the interior surface of the storage tank which the Company indicates will
be completed by the time rates go into effect. Staff is including four attachments that adjust and
update the results of Picabo operations. Attachment A presents Staff s adjustment to Plant-in-
Service. Attachment B presents Staff s adjustment to Depreciation and Accumulated
Depreciation. Attachment C presents Staff s adjustment to revenues and expenses. Attachment D
presents Staff s recommended Rate Design.
Revenue Requirement
The Company charges a flat monthly rate for water service, with separate rates for winter
and summer months for residential customers. The Company's Application requests a 50o/o
increase in rates, which it states will generate a revenue of $36,000. Based on the expenses listed
in the Company's Application, the revenue requirement would be $30,108. See Table No. l.
Staff calculated the revenue generated based on the flat monthly rates proposed by the Company
to be $23,520, as shown on Attachment D.
Staff recommends a revenue requirement of $24,980. To generate Staffs recommended
revenue requirement, the flat monthly rates will need to be greater than the rates proposed by the
Company. Staff s recommended revenue requirement is an increase of 85Yo over the previously
approved revenue requirement in Order No. 29538, Case No. PIC-W-01-01, and approximately
52oh over the 2020 revenues.
Table No. 1 - Revenue Requirement
Application
Staff
Adiusted
Expenses $27,404 $8,654
Taxes and Fees $2.704 $3.092
Depreciation/Amortization $0 $8,607
Return $0 $4,627
Total $30,108 $24,980
-)STAFF COMMENTS AUGUST I9,2O2I
Rate Base
The Company's Application states that its total plant-in-service balance on
December 31,2020,was $67,6072. Application at 3. The Company reported no accumulated
depreciation, which results in a net rate base of $67 ,607. Staff recommends a net rate base of
$132,195 as calculated in Table No. 2 below. Staff s proposed adjustments to the Company's rate
base will be discussed in greater detail below.
Table No.2 - Rate Base
QuickBooks
2007
Additions 2nd well Total
Plant-in-Service $67,607 $50,300 $95,000 $212,908
Accumulated Depreciation $66,237 $14,476 $0 $80,713
Total $ 1,370 $35,825 $95,000 $132,195
2007 Plant Additions
Staff reviewed the Company Annual Reports and the Company's QuickBooks files and
identified an additional $50,300 of capital investments in 2007. These investments consisted of
hydrants, a flow meter, and new distribution pipes. The Company did not properly record these
investments in QuickBooks. Staff recommends including the $50,300 of capital investments
made in 2007 in Plant-in-Service, as these assets are currently in use today. See Attachment A
Column B.
Proforma Secondary Well
In its Application, the Company requested to include $95,000 for a secondary well.
Through discovery, Staff learned that the Company no longer has access to the off site secondary
well. The Company has gone through the Idaho Water Resources Board to get approval to install
a new well. In the Company's last IDEQ report, it was recommended to begin immediately
installing a secondary well for redundancy and additional water flow for the system and for fire
2 The Company's2020 Annual Report, pg. 5, presented with the Application as Exhibit No. I lists total Plan-in-
Service as $66,607, which has differences in three accounts netting to a $l difference than shown in the Company's
QuickBooks files.
4STAFF COMMENTS AUGUST I9,2O2I
protection. Staff reviewed the Company's production request responses, the provided IDEQ
reports, and supports the Company's request to include the $95,000 as a proforma adjustment to
Plant-in-Service. The secondary well will be used and useful and in operation by the time rates
are in effect. See Attachment A, Column C.
Ac cumulate d Depr e c iat ion
The Company's Annual Report does not reflect any accumulated depreciation. Using the
annual depreciation expense from the Company's accounting records, Staff calculated an
accumulated depreciation balance of $66,237. Most of the Company's capital assets installed
prior to 2007 have been fully depreciated. The capital additions added in2007 had not been
depreciated and Staff used the depreciation lives provided in the National Association of
Regulatory Commissioners ("NARUC") Depreciation Manual for Small Water Utilities to
calculate depreciation expense and associated accumulated depreciation on the 2007 capital
additions. As of December 31,2020, the accumulated depreciation on the 2007 capital additions
should be$14,476 as shown in Attachment B, Column D. Total accumulated depreciation on
December 31,2020, should be $80,713. See Attachment B, Column E, Line 17.
Prudency of the Investments
Staff reviewed both the current and future plant investments identified in the Application.
Staff believes the investment for the second well will improve system reliability and increases
flow for fire protection. The exterior painting and interior coating of the elevated storage tank
will also provide benefit to customers by extending the life of the asset, the interior coating of the
tank will also improve water quality. Staff believes the Company used reasonable efforts to
acquire multiple bids to establish competitive pricing.
With the inclusion of the well, Staff recommends a new Plant-in-Service of $212,908. See
Attachment A, Column D, Line 11.
Expenses
Staff reviewed all direct expenses recorded by the Company. The actual operating results
for the water system are shown in Attachment C, Column A and reflect a net loss for the year
2020. The Parent Company operation has absorbed this loss as well as the previous year's losses.
5STAFF COMMENTS AUGUST 19,2021
Attachment C presents Staff s adjustments in Column B through Column F. Staffis
recommending removal of $18,750 from operating expenses and capitalizing the full tank
painting expenditure of $37,500, as discussed below. Staff is also recommending including
annual depreciation expense of $4,437, amortization expense of $4,170,and taxes and fees of
$3,092. These adjustments are discussed in detail below.
Labor - Operation and Maintenance
The Parent Company absorbs all the labor expense for Picabo Water, and the Company
did not ask for labor expenses to be included in their Application. In its Response to Production
Request No. 32, the Company estimated that25%o of the Parent Company's total labor is for the
operations and maintenance of the water company. Until the Company can separately track and
identify its actual labor expenses associated with operations and maintenance of the water
company, Staff will exclude labor expense from its calculation of the revenue requirement.
Operating & Maintenance - Tank Painting
The Company incorrectly booked the expenses for the exterior tank painting, totaling
$18,750, as Materials & Supplies - Operations & Maintenance in2020. The exterior tank painting
cost $37,500 and the Company made two payments of $18,750. The first payment was made in
2019 and the second payment was made in2020. Both payments were expensed. The Company
has included half of the costs of the exterior tank painting in its 2020 test year. Tank painting is not
done every year and recovery of the expense should be capitalized and amortized. Staff
recommends an adjustment to reduce the Company's Materials & Supplies expense by $18,750 to
remove all tank painting expenses from the Company's test year. Consequently, Staff recommends
an adjustment to increase the Company's amortization expense by $1,875 to allow for recovery of
the full tank painting cost of $37,500 over a 2}-year amortization period.
In its Application, the Company also states the storage tank needs an interior coating. The
Company provided copies of proposed bids. Staff believes the Company is using a least cost
approach to have the work completed. The Company has assured the interior coating is scheduled
for completion by the time rates go into effect. Staff recommends the interior tank coating at a
cost of $45,900 be capitalized and amortized over 2O-years, for an annual amortization expense of
6STAFF COMMENTS AUGUST I9,2O2I
$2,295. This will allow the Company to recoup the costs over time while keeping customer rates
at a reasonable level.
In a prior order, Order No. 29838, the Commission allowed tank painting/coating costs to
be amortized over a specified period. The Picabo water tank has been in use since the early
1900s. By coating the interior and painting exterior surfaces of the storage tank, it will extend the
life of the asset. Thus, Staffrecommends that the exterior and proforma interior tank coating
expenses be amortized over 20-years. This adjustment is an increase to amortization expense of
$4,170. See Attachment C, Column E.
Depreciation Expense
Staff recommends an adjustment of $4,437 to increase Depreciation Expense. Attachment
C, Column D. The Company did not include any depreciation expense in its Application, but
through discovery, Staff identified an expense of $152 embedded in the Parent Company's
financials. Staff re-calculated the Company's depreciation expense based on the new Plant-in-
Service identified using the NARUC guidelines. See Attachment B, Column B.
Rate of Return
Equity
The Company reports negative retained earnings. Retained earnings are embedded in the
financials of the Parent Company, indicating that there is no ownership equity in the water
company. Staff uses a capital structure of 100% debt and zero equity for calculation of the return
on the Company's rate base. In future rate cases, Staff recommends the Company perform proper
accounting of Picabo Water System, especially to retained earnings and owners' equity. By
removing the accounting function out of the Parent Company's financial system and accounting
for the water company as a stand-alone entity, the Picabo Water Company's financial records and
Annual Reports will be more accurate.
Debt
The Company entered into a loan agreement with Idaho Water Resources Board for a
revolving development account loan contract. The Company needs a secondary well and needs
financial resources to pay for it. The Company has not officially requested debt authorization as
7STAFF COMMENTS AUGUST I9,2O2I
required under ldoho Code $$ 6l-901 et seq. However, the Company supplied a copy of the loan
documents from Idaho Water Resources Board.
The loan document provides financing to the Company to construct a water project that
must be used for the drilling of a new back up well and the installation of new pumps and
necessary electrical equipment to accompany the new well. The Company has entered into a 20-
year loan for $95,000, at3.5 percent annual interest rate. Payments are to be made annually and
first payment is due one year from final disbursement of the loan. The annual loan payment is
estimated to be $6,684.30. Staff has reviewed the loan documents and recommends approval of
the debt with Idaho Water Resources Board.
With the approval of the loan, the Company will become completely debt financed. With
a cost of debt set at 3.50 percent and no equity, weighted average cost of capital ("WACC")
becomes 3.50 percent. See Table No. 3.
Table No.3 - Rate of Return
Balance Rate Weighting WACC
Equity $0.00 0.00%0.00%0.00%
Debt - IDEQ Water Loan $95,000 3.s0%100.00%3.50%
Total $95,000 3.50%
RATE DESIGN
The Company proposed rates equate to an approximate 50 percent increase across all
customer classes and seasonal uses. As shown in Attachment D, the Company's proposed rates
will not generate the requested revenue of $36,000. The proposed rates will only generate
$23,520. Staff is proposing an increase to rates that will generate revenues of $24,987 for the
Company.
Without meters installed, it is impossible to set rates that are based on consumption. Thus,
Staff is recommending a near uniform increase to all customer rate components -- 60 percent
increase to the residential winter seasonal rate, a 61 percent increase to the residential summer
seasonal rate, a 59 percent increase to the commercial rate, and a 6l percent increase to the
Company's Outlet rate that spans five months of the year. Seasonal rates for winter start October I
and end March 31 and summer rates start April 1 and end September 30.
8STAFF COMMENTS AUGUST 19,2021
The Company's current tariff, including its Rate Schedules and the General Rules and
Regulations for Small Water Utilities, was last updated in2004 at the conclusion of Case
No. PIC-W-04-01. In 2008, Commission Staff developed a Model Tariff, which includes revised
General Rules and Regulations and incorporates the Uniform Main Extension Rule for Water
Utilities based on Order No. 7830 (Case No. U-1500-22). Staff recommends that the Company
work with Staff to update its tariff to comply with the Commission's rules and regulations.
CONSUMER INPUT
Customer Notice and Press Release
The Company Application included a copy of the Legal Notice dated March 3,2021,
published in the ldaho Mountain Express. The Company also provided a copy of the notice it
sent to customers. The customer notice and the legal notice included the proposed rates, but do
not meet the requirements of the Commission's Rules of Procedure, (IDAPA 31.01.01), Rule 125.
The rule states that the notice shall give the proposed overall percentage change from current rates
and the proposed percentage increase in revenue for each major customer class. The notices did
direct questions and comments to the Company, but didn't provide the Commission contact
information or the case number. The Company indicates that there had been no response to the
notice.
Public Workshop and Customer Hearing
Commission Order No. 35082, established a public workshop to be held Wednesday,
August 9,2021, at 7:00 pm, and a customer hearing on Tuesday, August 17,2021, at 7:00 pm.
Both workshop and hearing could be attended electronically and/or telephonically. No customers
attended the public workshop or the hearing.
Customer Comments
As of August 18,2021, no comments have been submitted
Customer Complaints and Inquiries
There were no customer complaints in 201 8,2019,2020 and202l to date. There was one
inquiry in 2018 from the Idaho Tax Commission.
9STAFF COMMENTS AUGUST I9,2O2I
STAFF RECOMMENDATIONS
Based on its review of the Company's Application, Annual Reports, QuickBooks Accounting
records, and responses to discovery, Staffrecommends that the Commission authorize an annual
revenue requirement of $24,980 to be collected through the rates calculated in Attachment D.
Staffalso recommends the Idaho Water Resources Board Loan be authorized. Additionally, Staff
recommends that the Company work with Staff to create and file conforming tarifls with the
Commission's order.
/a4
Respectfully submitted this / / day of August 2021.
-
4
Erick Shaner
Deputy Attorney General
Technical Staff: Travis Culbertson
Chris Hecht
Rick Keller
i:umisc/comments/picw2 l. I mhtncrkcwh comments
STAFF COMMENTS l0 AUGUST I9,2O2I
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 19th DAY OF AUGUST 2021,
SERVED THE FOREGOING COMMENTS OT' TIIE COMIVIISSION STAFF, IN
CASE NO. PIC-W.zI.AI, BY E.MAILING A COPY TTIEREOF TO THE
FOLLOWING:
NICK PURDY
PRESIDENT
PICABO WATER SYSTEM
BOX 688
PICABO ID 83348
E-MAIL : nick@purdyent.com
CERTIFICATE OF SERVICE