20081216final_order_no_30703.pdf

Office of the Secretary
Service Date
December 16 2008
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF ROCKY MOUNTAIN UTILITY
COMPANY, INc. FOR A CERTIFICATE
OF PUBLIC CONVENIENCE AND
NECESSITY.ORDER NO. 30703
CASE NO. ROC-08-
On May 13, 2008, Rocky Mountain Utility Companyl filed an Application for a
Certificate of Public Convenience and Necessity (CPCN) seeking authority to provide water
service as a public utility near Rigby, Idaho. The Application stated that the Company was
currently providing water service to 38 residential customers at no charge. The Company
requested authorization to charge an interim monthly flat rate of $28.50 pending a final order of
the Commission. In this final Order we grant the CPCN and set permanent rates.
BACKGROUND
A. Procedural History
On June 20, 2008, the Commission issued a Notice of Application, set a deadline for
intervention, and approved an interim montWy flat rate of $28.50 pending a final Order. Order
No. 30576. No persons petitioned to intervene. The case proceeded under Modified Procedure
pursuant to Order No. 30601. Staff conducted a workshop on August 13, 2008, and submitted its
comments on September 12 2008.
During the Commission s public hearing held on September 23 , 2008 in Rigby,
several questions were raised concerning the Company s Application. To clarify these issues
Staff sent a Second Production Request to the Company on September 25 2008. The Company
responded to Staffs request on October 8. Additional clarifications to the Company s responses
were obtained by Staff through phone discussions with Company personnel. As a result of the
new information provided by the Company, Staff submitted supplemental comments on
November 13 , 2008. The Company filed responsive comments on November 24 2008.
1 Rocky Mountain Utility Company provides water service to residents in/near the City of Rigby, Idaho, and is in no
way associated with Rocky Mountain Power.
ORDER NO. 30703
B. The Application
The Application stated that the Company owns a water system that currently
provides water to Pepperwood Crossing Subdivision located four miles south of Rigby and
serves 38 residential customers. The Company asserted that the water system has the capacity to
serve 255 users. Based on the system s capacity, the Company requested authorization/
certification to provide water not only to Pepperwood Crossing, but also to three other
subdivisions not yet developed. Rocky Mountain requested authorization to charge
unmetered, flat rate of $42 per customer per month. This proposed rate made no distinction
between customer type/class.
ISSUES
A. Revenue Requirement and Rate Base
The water company is owned and operated by Rocky Mountain Utility Company,
Inc. This Company also owns and operates a sewer company that serves the same service area as
the water company. Two other affiliated companies, Landmark Development and Silver Creek
Construction Co., also share expenses with the water company.
Company records show annual operating and maintenance expenses of $32 995.
After a thorough audit, Staff made numerous minor adjustments in a variety of categories. Staff
Comments, Attachment A. After incorporating the adjustments, Staff recommended annual
operating and maintenance expenses of $26 679. Id. at 4. The Company did not dispute Staffs
expense recommendations.
The Company also recorded plant in servIce in the amount of $436 285. Staff
deemed the $436 285 to be contributed capital by the developer. Id. at 2. Although the
Company did not dispute the issue of contributed capital, nor did it ask for any rate of return on
the developer s investment, the Company did request that it receive depreciation/refurbish costs
in the amount of $9,437 annually. Staff opposed the Company s attempt to recover depreciation
for any initial investment costs of the water system. Id. at 3.
Commission Findings: The Commission has consistently held that a developer
capital investment in a small , domestic public water system is to be considered contributed
capital and, therefore, not included in rate base. IDAPA 31.36.01.103. We find that to be the
case here. To allow the Company to capture the cost of the initial investment through the
depreciation expense would violate the long-standing policy regarding contributed capital.
ORDER NO. 30703
Furthermore, the Company has not stated any specific water system need that would necessitate
the collection of this additional $9,437 in customer rates. Therefore, we conclude, based on our
finding of contributed capital, that the Company does not have any rate base. Consequently,
annual operating expenses are what the Company should recover in rates. Based on the results
of a thorough audit, and absent any objection from the Company, the Commission finds that the
Company s total annual revenue requirement is equal to its annual expenses.Because the
Company s annual expenses are, in part, dependent on the number of customers, the amount of
the Company s approved annual revenue requirement is set out in greater detail below.
RATE DESIGN
A. Monthly Flat Rates
The Company proposed a monthly flat rate for all customers of $42 without regard to
the number of customers or their classification.
Based on initial information provided by the Company, Staff calculated a flat
monthly rate of $48.50 based upon the revenue requirement of $26 679 and 46 total customers
(44 residential and 2 commercial customers). Id. at 10. New data and information provided by
the Company in response to Staff s Second Production Request caused Staff to adjust its total
customer count to 67 (64 residential and 3 commercial). Supplemental Comments at 3. Without
adjusting the revenue requirement for an increase in pumping/power costs based on an increase
in customers, Staff recalculated the flat monthly rate in its supplemental comments to be $33.25.
In response to Staff s supplemental comments, Rocky Mountain filed reply
comments stating that it believed Staff incorrectly included nine, uncompleted govemment-
sponsored (Eastern Idaho Community Action Partnership) homes in the customer count. The
Company asserted that including the nine homes would be too speculative because the homes
would not be occupied for at least one year. The Company, therefore, suggested a monthly flat
rate of $35.00 for water service.
Commission Findings: After reviewing the calculations and justifications of both
Staff and the Company, the Commission finds that the Company s rate design should be based
on 58 total customers (67 minus 9 EICAP homes). The current economy does not warrant or
2 Staff recommended a revenue requirement of $26 679 based on the Company s report of 46 customers. However
the revenue requirement is subject to adjustment for an increase in pumping/power costs based on an increase in
customers.
ORDER NO. 30703
support the inclusion of homes that are not expected to be completed and/or occupied for more
than a year. Consequently, we find that it is just and reasonable for the Company to collect
annual revenues of $27 294 based on 58 total customers, for a flat monthly billing rate of$39.50.
It is also important that we address the lack of individual meters. It has been the
Commission s experience that water companies that fail to install individual meters encounter
more difficulty managing both the water system and revenue recovery. Moreover, customers
should be billed based on water consumption. Installing individual meters as part of all future
construction will allow the Company to match the variable cost of delivering water with revenue
generated by that usage, thereby improving cash flow. The Company is directed to file a report
with the Commission within 12 months from the date of this Order confirming that it is installing
meters as a part of all new construction and detailing its plan to retrofit existing customers with
individual meters.
B. Non-Recurring Charges
The Company did not request in its Application that any non-recurring charges be
approved by the Commission. Non-recurring charges are designed to give appropriate price
signals to customers and allow the Company to recover a reasonable portion of its costs to
provide certain services or pursue collection of bills.
Commission Findings: Based upon Staff s recommendation, the lack of any
objection and the use of similar rates for other small water companies, the Commission finds it
reasonable for the Company to incorporate the following charges as part of its tariff:
Returned Check Charge
Reconnection Charge
$20
After-hours Reconnection Charge
Field Collection Trip Charge
Shut-off at Customer s Request
$20 during normal business hours
$40
$20 (i. paying to avoid imminent disconnection)
$20 during normal business hours
$40 after normal business hours
Late Payment Charge 1 % monthly on unpaid balance owing
C. Hookup Fee
A hookup fee is generally included as part of a small water company s non-recurring
tariff charges. As the result of an inquiry by Staff, the Company requested a $250 hookup fee.
ORDER NO. 30703
Staff recommended a hookup fee of $150 based on the time, labor and equipment necessary to
locate and turn on the shut-off valve. Because the water system does not currently use individual
meters, Staffs recommendation for a hookup fee does not consider a distribution line extension
meter box, setter, or meter.
During the Commission s public hearing on September 23 , 2008, several Rocky
Mountain customers testified that the builders and/or homeowners were charged $1 500 for a
hookup/connection fee. According to the Company, the total hookup fee collected per customer
was for the combined sewer and water charges. The Company did not further explain the
allocation between the sewer and water charges, nor did the Company elaborate as to the specific
purpose of the hookup fee.
Based on the theory of contributed capital, Staff asserted in this case that the cost of
the water system was recovered through the sale of lots. Supplemental Comments at 4. Indeed
the "hookup" fee was paid by homeowners either as part of the cost of the lot (for those who paid
the fees as part of lot sale closing), or as part of the cost of building a residential home (for those
who paid separately). Although termed a "hookup" fee by the developer, Staff maintained the
charge was merely a way to recover some of the capital expenditures of the water and sewer
systems ' construction through the sale of lots/purchase of homes. Unfortunately, the developer
used a regulatory term-of-art which subjected the fee to scrutiny. These are not the type of
charges usually classified as hookup fees.
Commission Findings: Based upon our review of the evidence and the comments of
the parties, the Commission finds $150 to be a reasonable hookup fee based on the cost
Company time, labor and equipment involved in locating and turning on a shut-off valve.
Although called a "hookup fee" in the escrow closing documents, the $1 500 "fee" was
established to partially recover the cost of the water system through the sale of lots and purchase
of homes. Monies paid by builders and homeowners to the developer at closing are not the
hookup fees" regulated by this Commission for service initiation.
CERTIFICATED AREA
Rocky Mountain currently serves only the Pepperwood Crossing Subdivision.
According to the Company s Application, in the event that Division I and Division II of the
Pepperwood Subdivision are fully built-out, there will be an estimated 247 residential customers
ORDER NO. 30703
and 8 commercial customers.The Company is requesting a CPCN for the entirety of
Pepperwood Crossing and three additional, undeveloped, subdivisions - Autumn Heights, Mill
Creek Estates, and Monarch Springs.
Staff recommended that the Commission issue a CPCN for only the existing
improved residential and commercial areas included in the Pepperwood Crossing Subdivision.
This is the only area that has an existing water supply system. When additional areas are
developed in the future, Staff recommended that the Company apply for modification of the
Certificate with a corresponding Staff review of the adequacy of the water supply system serving
the new areas at that time.
Commission Findings: The Commission finds that the present and future public
convenience and necessity require water service to the Pepperwood Crossing Subdivision. Idaho
Code ~ 61-526. However, the Commission finds it reasonable to limit the Company s CPCN to
the existing improved residential and commercial areas in Division I Pepperwood Crossing
Subdivision. The Company may request modifications of its certificate as the other areas are
developed.
MISCELLANEOUS ISSUES
1. Tariff.The Company did not submit a proposed tariff with its Application.
Therefore, we direct the Company to prepare its tariff based upon the approved monthly water
rates , non-recurring charges, and general rules and regulations using the model tariff provided by
Staff. The tariff shall be submitted no later than 14 days from the service date ofthis Order.
2. Customer Relations and Billing. Staff noted that Rocky Mountain s customer
relations material and billing documentation do not currently comply with the Utility Customer
Relations Rules (UCRR), IDAPA 31.21.01.000 et seq. Comments at 14. Consequently, we
further direct the Company to work with Staff to correct its billing documentation.It is
necessary that the Company update its monthly customer bills to include the specific due date as
required under the Utility Customer Relations Rules. Notices sent to customers prior to
termination must list the reconnection charges as approved by the Commission. The Company is
further directed to revise the payment arrangement section of its bills and notices to meet the
3 Division I is the only part of the subdivision that presently has any built infrastructure including roads, electric
utility distribution, and sewer and public water supply systems.
ORDER NO. 30703
Commission s rule requirements. Finally, all customer billing and collection documents must
include current information on how to contact the Company.
ULTIMATE FINDINGS OF FACT AND CONCLUSIONS OF LAW
We find that Rocky Mountain Utility Company is a public utility pursuant to Idaho
Code ~~ 61-124, 61-125, 61-129.Rocky Mountain is granted a Certificate of Public
Convenience and Necessity pursuant to Idaho Code ~ 61-526. Having fully reviewed the record
in this proceeding, we find that it is just and reasonable for the Company to collect annual
revenues of $27 294 based on a flat monthly billing rate of$39.50.
We conclude that the rates and charges set in this Order are fair, just and reasonable.
ORDER
IT IS HEREBY ORDERED that Rocky Mountain Utility s request for a Certificate
of Public Convenience and Necessity is granted and modified above. Certificate No. 481 shall
be issued as a separate document.
IT IS FURTHER ORDERED that the Company implement the rates and charges as
set out in this Order.
IT IS FURTHER ORDERED that the Company shall submit tariffs in compliance
with the rates and charges identified in this Order no later than (14) days from the service date of
this Order. The rates and charges authorized by this Order shall become effective for service
rendered on and after January 1 2009.
IT IS FURTHER ORDERED that Rocky Mountain Utility file a report with the
Commission within twelve (12) months of the date of this Order detailing its plan to retrofit the
existing customers with individual meters.
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. 30703
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this /& M
day of December 2008.
~~i
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~fj
. D. JewellCo ISSlOn Secretary
O:ROC-O8-01 ks3
ORDER NO.30703