20211129Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: JOHN R. HAMMOND JR.
DEPUTY ATTORNEY GENERAL

DATE: NOVEMBER 29, 2021

SUBJECT: 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-21-01.

On October 29, 2021, the Commission issued final Order No. 35213 in this case.
Although the rates approved by the Commission in Order No. 35213 are correct, a preliminary
draft order, as opposed to the final work product, was issued by the Commission in error. Pursuant
to Idaho Code § 61-624 and Commission Rule of Procedure 326.02, IDAPA 31.01.01.326.02, the
Commission rescinds Order No. 35213 and replaces it with the attached Order No. 35240.
Consistent with statute, the Company has been provided notice of this action. The November 1,
2021, effective date for the Company’s rates approved in Order No. 35213 remains unchanged.
Persons who wish to seek reconsideration of Order No. 35240 shall have 21-days from the date of
its issuance to file a request for reconsideration with the Commission.

__________________________
John R. Hammond Jr.
Deputy Attorney General

I:\Legal\WATER\PIC-W-21-01\Memos\PICW2101_dec_recission_jh.docx
ORDER NO. 35240 1
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
) ) ) )
ORDER NO. 35240
On March 8, 2021, Picabo Water System dba Picabo Livestock Co. (“Company”)
applied to increase its rates and charges for water service by about 50%. The Company is in Blaine
County in the town of Picabo, Idaho and services 35 residential and 4 commercial customers.
Application at 1. The Company requested a May 1, 2021, effective date.
On March 29, 2021, the Commission issued a Notice of Application and suspended the
Company’s proposed effective date for 30 days and five months. Order No. 34979; see Idaho Code
§ 61-622. On June 22, 2021, the Commission issued a Notice of Modified Procedure, Notice of
Customer Hearing, and Notice of Public Workshop. See Order No. 35082.
Commission Staff (“Staff”) held a public workshop on August 11, 2021. The
Commission held a customer hearing on August 17, 2021. No customers attended the public
workshop or the hearing and no one testified. Staff filed comments to which the Company did not
reply. No public comments were received by the Commission.
Having reviewed the record, the Commission issues this final Order approving the
Company’s Application as provided herein.
THE APPLICATION
The Company’s water system (“System”) was installed by ancestors of the current
owners of the Company. The System was installed around the time Picabo was platted in 1917. At
that time the Company installed a 50,000-gallon water tank that is still in use today, had wooden
water lines and used water from a desert spring. It is now comprised of wells, transmission mains,
and distribution lines. The Company reported expenses for power, maintenance, materials, and
water testing increased significantly since the Company’s last rate case. See Case No. PIC-W-04-
01, Order No. 29538.
The Company requested a test year ending December 31, 2020. The Company also
included proforma adjustments for: 1) the inclusion of a new secondary well for redundancy and
ORDER NO. 35240 2
to meet Idaho Department of Environmental Quality (“IDEQ”) requirements; and 2) coating the
interior surface of the storage tank which the Company indicates will be completed by the time
new rates go into effect.
The Company’s proposed rate increases for water service are:
• Increase flat winter residential rate from $22 per month to $33 per month.
• Increase flat commercial rate from $37 per month to $55 per month.
• Increase summer flat rates from $41 per month to $62 per month.
Application at 1. The Company argued that the requested rate increases are due to the
Company experiencing losses for many years, the need to install a new alternate well, “install a ¼
mile of power”, and paint the inside of a 50,000-gallon storage tank. Id. at 2. To finance these
projects, the Company represented it is seeking a loan from the Idaho Department of Water
Resources. The Company asserted that the increased rates it proposes are comparable to
surrounding towns’ rates. Id.
The Company asserted that it notified its customers of the Application by inserting a
notice in each customer’s bill mailed on March 1, 2021. Id.; see also Exhibit 10.
STAFF COMMENTS
Staff reviewed the Company’s Application, Annual Reports, QuickBooks Accounting
records, and responses to discovery. Staff noted that accounting for the Company is not separated
from its’ parent company. Staff recommended adjustments and updates to the Company’s
operations. Staff also recommended the Idaho Water Resources Board (“IWRB”) loan be
authorized and included for ratemaking purposes. Additionally, Staff recommended that the
Company work with Staff to create and file conforming tariffs based on the Commission’s order.
A. Description of the System
Staff reported that the Company has 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.
Repainting the exterior surface of the storage tank and construction of a new secondary
well have been recent improvements. The new secondary well is located adjacent to the
Company’s storage tank. It provides increased flow for fire protection and improves System
reliability. The Company applied for and received a loan through the IWRB to fund the new well,
ORDER NO. 35240 3
electric service, and piping to connect the well to the System. The Company indicates the new well
will be used and useful for service by the time rates go into effect.
B. Revenue Requirement, Rate Base and Expenses
The Company’s Application requests a 50% increase in rates, stating it will generate
revenue of $36,000. Staff stated that the Company’s proposed monthly flat rates will generate
$23,520 rather than the $36,000 claimed. Based on the expenses in the Company’s Application,
the revenue requirement would amount to $30,108. Staff recommended a revenue requirement of
$24,980.
The Company’s Application stated that its total Plant-in-Service balance on December
31, 2020, was $67,607. 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, based on total Plant-in-
Service of $212,908 and total accumulated depreciation of $80,713, discussed in more detail
below.
Staff identified an additional $50,300 of capital investments in hydrants, a flow meter,
and new distribution pipes that it recommended be included in Plant-in-Service. These assets are
currently in use. Staff also supported the Company’s decision to paint and coat the elevated storage
tank. Staff asserted that the exterior paint will extend the life of the asset and the interior coating
will improve water quality. Staff believed the Company used reasonable efforts to acquire multiple
bids to establish competitive pricing.
In the Company’s last IDEQ report, IDEQ recommended to begin immediately
installing a new secondary well for redundancy and additional water flow for the System and for
fire protection. The Company has obtained a loan through the IWRB to fund a new secondary well
and requests to include $95,000 as a proforma adjustment to Plant-in-Service for the costs of the
new well. Staff believes the secondary well will improve System reliability and increase water
flow for fire protection. Staff also expected that the well will be used and useful and in operation
by the time rates are effective.
Staff identified that the Company’s Annual Report does not reflect any accumulated
depreciation. Using the annual depreciation expense from the Company’s accounting records and
considering accumulated depreciation of capital additions, Staff calculated the Company’s total
accumulated depreciation on December 31, 2020, as $80,713.

ORDER NO. 35240 4
C. Expenses
Staff reviewed all direct expenses recorded by the Company. The actual operating
results for the System reflect a net loss for the year 2020.
The parent company absorbs all the labor expense for the Company. Because the
Company cannot separately track and identify its actual labor expenses associated with operations
and maintenance of the System, Staff recommended excluding labor expense from its calculation
of the revenue requirement. No adjustment is required because the Company did not seek recovery
of labor expenses.
Staff asserted that the Company incorrectly booked a portion of the expenses for the
exterior tank painting. The Company 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 recommended an adjustment to remove all tank painting expenses
from the Company’s test year. Staff further recommended that both the exterior tank painting and
interior tank coating be capitalized and amortized over 20 years. These adjustments result in an
increase to amortization expense of $4,170. This will allow the Company to recoup the costs over
time while keeping customer rates at a reasonable level.
Staff recommended an adjustment of $4,437 to increase Depreciation Expense. The
Company did not include any depreciation expense in its Application, but Staff identified an
expense of $152 embedded in the parent company’s financials. Staff also identified $3,092 in taxes
and fees.
D. Rate of Return
The Company reported negative retained earnings. Retained earnings are embedded in
the financials of the parent company, indicating that there is no ownership equity in the System.
Staff used a capital structure of 100% debt and zero equity for calculation of the return on the
Company’s rate base. Staff recommended removing the Company’s accounting function out of the
parent company’s financial system and that the Company be treated as a stand-alone entity.
The Company entered into a loan agreement with the IWRB for a revolving
development account loan contract. The Company needs the financial resources to pay for its new
secondary well. The Company has not officially requested debt authorization, but supplied a copy
of the loan documents from the IWRB. The agreement is for a 20-year loan for $95,000, at a 3.5%
annual interest rate. Payments are to be made annually and the first payment is due one year from
ORDER NO. 35240 5
final disbursement of the loan. The annual loan payment is estimated to be $6,684.30. Staff has
reviewed the loan documents and recommended approval of the debt with the IWRB.
With the approval of the loan, the Company will become completely debt financed.
With a cost of debt set at 3.50% and no equity, weighted average cost of capital (“WACC”)
becomes 3.50%.
E. Rate Design
Staff proposed an increase to rates that will generate revenues of $24,987 for the
Company.
Staff recommended a near uniform increase to all customer rate components – 60%
increase to the residential winter seasonal rate, a 61% increase to the residential summer seasonal
rate, a 59% increase to the commercial rate, and a 61% increase to the Company’s Outlet rate that
spans five months of the year. Seasonal rates for winter start October 1, and end March 31, and
summer rates start April 1, and end September 30.
The Company’s current tariff, including its Rate Schedules and the General Rules and
Regulations for Small Water Utilities, was last updated in 2004 at the conclusion of Case No. PIC-
W-04-01. Staff recommended that the Company work with Staff to update its tariff to comply with
the Commission’s rules and regulations.
COMMISSION FINDINGS AND DECISION
The Company is a water corporation and a public utility, as defined under Title 61 of
the Idaho Code, and provides water service to the public in Idaho. Idaho Code §§ 61-125, and -
129. The Commission has jurisdiction over the Company and this matter under Idaho Code §§ 61-
501, - 502, -503, -507, -520, -523, and -622.
The Commission has reviewed the record in this case including the Company’s
Application and Staff’s comments. The Commission finds that based on the Company’s
Application and Staff’s recommendation that use of a test year ending December 31, 2020, is fair,
just, and reasonable. The Commission also finds that an annual revenue requirement of $24,980
for the Company is fair, just, and reasonable. To generate this revenue requirement, the flat
monthly rates will need to exceed those proposed by the Company. Staff’s recommended revenue
requirement is an increase of 85% over the previously approved revenue requirement and
approximately 52% over the 2020 revenues.
ORDER NO. 35240 6
We find that this revenue requirement increase is necessary due to the Company
experiencing losses for many years and expenses incurred to maintain the System. Adjusting the
revenue requirement will allow the Company to continue offering safe and reliable water service
to its customers.
We find the Staff rate base adjustments are reasonable. They reflect actual investments
serving customers and improvements to extend the plant life. The proforma adjustment for the
secondary well is reasonable. It will be in service and therefore appropriately included in rates.
We find that total annual operating expenses of $20,353 are reasonable. This amount
includes annual depreciation expense of $4,437 and $4,170 in amortization expense for the exterior
and interior tank painting. The Company did not request, therefore we do not approve, labor
expenses to be included in the revenue requirement.
Because the equity of the Picabo Water System was not separated from the parent
company, we find that Staff’s proposed capital structure of 100% debt to 0% equity is reasonable.
When Picabo Water System separates its accounting functions from the parent company so that
owner’s equity and retained earnings can be properly identified, we will consider including equity
in the capital structure. A return of 3.5% will allow the Company to recover the interest payments
on its debt.
We find that the rates and rate design proposed by Staff will provide the Company a
reasonable opportunity to recover its revenue requirement. Rates shall be established in accordance
with Table No. 1 below. Winter rates for residential customers will be effective October 1 through
March 31, and summer rates will be in effect April 1 through September 30.

Table No. 1: Approved Rates
Customer Class – Flat Rates # of of Monthly Revenue %
We find it appropriate for the Company to borrow up to and including $95,000 through
the IWRB loan to fund the System’s new secondary well and associated plant. The new secondary
ORDER NO. 35240 7
well will provide increased flow for fire protection and improve system reliability. The purpose of
the debt incurred is appropriate and is approved for ratemaking purposes.
The Company’s customer notice did not meet Commission requirements and its tariff
has not been updated in some time. Consequently, we direct the Company to work with Staff in
the creation of future notices to its customers and in updating and filing conforming tariffs that
comply with Commission rules and this order.
O R D E R
IT IS HEREBY ORDERED that the Company is authorized to have an annual revenue
requirement of $24,980 to be recovered as more fully described herein. The rates shall be effective
on November 1, 2021. The Company shall work with Staff to promptly create and file conforming
tariffs that comply with the Commission’s rules.
IT IS FURTHER ORDERED that the Company is authorized to incur debt up to and
including $95,000 through the IWRB Loan. The purpose of the debt incurred is appropriate and is
approved for ratemaking purposes.
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. 35240 8
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this day
of November 2021.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER
ATTEST:
Jan Noriyuki
Commission Secretary

I:\Legal\WATER\PIC-W-21-01\Orders\PICW2101_final_jh.docx