20040503Comments.pdf

JOHN R. HAMMOND
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5470
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Street Address for Express Mail:
472 WWASHINGTON
BOISE ID 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
SPIRITLAKEEASTWATERCOMPANY )
REQUESTING AUTHORITY TO INCREASE ITS)
HOOK-UP FEES FOR WATER SERVICE
CASE NO. SPL-O4-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, John R. Hammond, Deputy Attorney General, in response to Order No. 29451
the Notice of Application and Notice of Modified Procedure in Case No. SPL-04-1 issued on
March 22, 2004, submits the following comments.
BACKGROUND
On January 14, 2004, Spirit Lake East Water Company (Company) filed an Application
requesting that the Commission authorize an increase in the hook-up fee charged new customers
connecting to its water system from $650 to $2 500. The Company s current hook-up fee of$650
has not changed since initially approved in November 1983 by Order No. 18466. The Company
serves approximately 240 customers in two large lot subdivisions located near the community of
Spirit Lake, Kootenai County, Idaho. Certificate No. 293 was issued to the Company by Order No.
STAFF COMMENTS APRIL 30, 2004
17892 in February 1983. There are no registered complaints against the Company in the last three
years.
THE APPLICATION
The Company states that the requested hook-up fee increase from $650 to $2 500 is to cover
increased contract costs that have occurred in the last couple of years. The Company provided in its
Application and in response to subsequent production requests, direct contract costs of up to $2 500
that it incurred for the installation of new water services. In addition to direct contract costs, the
Company also identified labor and travel expenses incurred for the installation of new services and
meters. The reasons given for the high contracting and labor expense were the limited number of
contractors available in the area and the highly qualified contractor hired to do the work.
Hook-up costs are also high because new services often require installing a complete service
from the main to the property line. The developments served have lots that often exceed 10 acres
with building sites undefined. Service lines were either not installed with the development or are
inadequately located for the needs oftoday s builder, some 20 years later.
ST AFF REVIEW
While the letter contained in the Company s Application requested increasing hook-up fees
to $2 500, Exhibit A of its Application actually calculates an increase of $2 500 above the current
$650 hook-up fee. On that basis, the new hook-up fee would total $3 150 ($2 500 plus $650). The
Exhibit lists 2002 and 2003 contractor costs for new hook-ups and then reduces the total cost by
subtracting hook-up fees paid by new customers in those years. To identify the total actual cost of
new hook-ups, the current hook-up fees paid should not have been subtracted. As a result, costs
provided by the Company and reviewed by Staff actually averaged $3 150 per hook-up. In addition
to the average contractor costs of$1 854 ($53 760 divided by 29 hook-ups), hook-up charges shown
in Company Exhibit A also included allocated labor/vehicle, administrative, and a 20% contingency
to reflect expected increases in future costs per hook-up.
In 2002, Staff completed an audit of the Company for 2001. The average contract costs for
hook-ups in 2001 was just over $1 000 (see Attachment A). This average cost is significantly lower
than the over $1 800 average hook-up cost identified on Company Exhibit A. In addition
STAFF COMMENTS APRIL 30, 2004
accounting/administrative costs allocated from Hanson Industries, Inc.! to the Company in 2001
were $3 600 and labor costs allocated to the Company in 2001 were approximately $6 000. These
costs represented labor and accounting/administrative costs for all Company operations including
Company hook-ups. According to Staffs review ofthe Company s 2002 and 2003 annual reports
the operation and maintenance labor and accounting/administrative costs allocated to the
Company s operations as a whole are approximately the same as those costs in 2001. The
Company, in Exhibit A, allocated an average of approximately $6 000 ($5 200 plus $6 760, divided
by 2) to administrative hook-up costs and over $6 500 ($5 908 plus $7 260, divided by 2) to
labor/vehicle hook-ups costs. These amounts are actually greater than the operation and
maintenance labor and accounting/administrative costs recorded each year by the Company for all
utility operations in 2001 2002 and 2003.
Given the audit and annual report information, it appeared that the increase requested by the
Company in its Application was not justified. The water hook-up fee requested was also among the
highest on record with the Commission (See Attachment B). Staff prepared two production
requests and evaluated the Company s responses which provided most invoices for the installation
of new service lines from an independent contractor. However, the Company did not provide time
cards to verify the level of Company supplied labor used in developing the proposed hook -up fee.
Through telephone conversations, Staff and the Company were able to agree on an appropriate level
of Company provided labor necessary to complete each hook-up. In response to Production
Request No. 26, the Company provided a revised estimate of Company provided labor at $135.
per hook-up and dropped its request for vehicle reimbursement and a 20% contingency (See
Attachment C). Staff believes this estimate is more reasonable than the $866 (the sum of $5 908
260, $5 200, $6 760 divided by 29 hook-ups) labor and $414 contingency costs per hook-up
included in the Company s Application.
In addition to the employee labor and 20% contingency, Staff questioned costs incurred for
the installation contract. Because the Company indicated that there were few available contractors
Staff reviewed the listed Public Works Contractors licensed in water works or utility installations.
Staff found several contractors listed in the area licensed to perform similar work. Staff requested
informal quotes from a number of licensed contractors for the installation of a water service
1 Hanson Industries, Inc. is majority (75%) owner of the water company. Hanson Industries, Inc. personnel perform the
operation, maintenance, administrative, and accounting duties for the water company. Each year costs for these
functions are transferred from Hanson Industries, Inc. to the water company.
STAFF COMMENTS APRIL 30, 2004
including 50-feet of 1" service line, hot tap a 6" mainline, install meter tub, setter and meter and
gravel road repair. The quotes received ranged from $600 - $1 000. Staff contacted Mr. Boyle
Vice President of Hanson Industries, Inc., and notified him ofthe information. Mr. Boyle contacted
Foster s Excavation (Foster s) of Hayden, Idaho, one of the contractors previously contacted by
Staff and contracted with Foster s to perform a hook-up that was pending. Spirit Lake East Water
Company indicated that if Foster s Excavation works out, the Company would contract with them
for the remaining hook-ups. Staff had hoped that a fixed priced contract would be in place at the
time of comment filing. Unfortunately, the Company and Foster s are still negotiating. Staff is
continuing to monitor the situation.
Staff further questioned whether the Company s own labor force could perform a simple
meter installation. The Company indicated that for liability reasons a contract installation was
preferred. The new meter installation includes the installation and testing of the new meter and
existing service line. Should a leak or other problem occur, the contractor is on-site and readily
available to make any needed repairs. The Company employee would not have sufficient
equipment on hand to make the multitude of possible repairs that could be required when installing
a new meter on a service that has sat idle for over 20 years.
Staff also inquired through production request the exact number of hook-ups that remain on
the system. On March 31 , 2004, the Company inventoried the remaining unmetered/unserved
properties on the system and found that there are 90 additional hook-ups possible. Eleven of the
remaining hook-ups are anticipated to be new meter installations and the remaining 79 are expected
to be new service connections (See Response to Production Request No. 19 and Company Exhibit
thereto).
OPTIONS
The Spirit Lake East Water System has two possible hook-up types, the simple installation
of a meter on an existing service line and the installation of a new service connection from the main.
The cost to perform the two different types of hook-ups varies from a meter installation estimated at
$300 to a full service installation at approximately $1200. Staff believes there is merit for two
separate hook-up fees depending on the type of hook-up required. The Company has inventoried its
system and can determine the type of service required to each lot. However, for ease of billing and
stabilization of rates Staff believes an average hook-up fee for all types of service installations is
most appropriate. Even though this alternative will penalize some customers to subsidize others
STAFF COMMENTS APRIL 30, 2004
Staff recommends a hook-up fee based on the weighted average cost of installation including $135
for Company supplied labor and the contract costs for the 79 new service and 11 meter installations.
Based on previous discussions with the contractor, Staff estimates that the average cost would not
exceed $1 200.
STAFF RECOMMENDATION
Staff recommends that the Commission hold its decision until the Company can complete
negotiations with the new contractor and a firm fixed contract price for the installation of water
services is established. Staff further recommends that a weighted average hook-up fee be calculated
based on a new fixed priced contract and a fixed contribution to Company supplied labor of$135.
Staff anticipates that the hook-up fee should not exceed $1 200 including contract costs and
Company labor costs.
Respectfully submitted this r!"day of April 2004.
John R. Hammondt!" Deputy Attorney General
Technical Staff: Patricia Harms
Michael Fuss
JH:i:umisc/comments/splwO4.ljhphmfuss
STAFF COMMENTS APRIL 30, 2004
Case No. SPL-04-
2001 Water Hook Ups
Average Cost per Installation
Installations:
Invoice #Date Lot #
440 6/6/2001 SLE 275
423 1/29/2001 SLE 285
412 12/11/2000 TP 1-
105 9/4/2001 TP 3-
108 9/4/2001 SLE 134
107 9/4/2001 SLE 223
8/17/2001 SLE 221
Total Installation Costs for 2001 per Invoices
Total Number of Installs per Invoices=;:.
Amount
578
280
190 invoice dated 2000 although paid in 2001
320
685
685
320
058
IAverage Cost per Installation in 2001 ($7 058 divided by 7) or
Plus Non-Installation Costs:
Cost of Locates:
Invoice #Date Amount
125 10/2/2001
124 10/2/2001
102 9/4/2001
103 9/4/2001
104 9/4/2001 275
Cost of Main Valve Replacement (Invoice #109 Dated 9/4/2001)624
Cost to Repair Damage to Meter (Invoice #110 Dated 9/4/2001)
Customer Payment to Repair Damage to Meter
500
500
Cost to Repair Roadway - Amount was Deducted from Prior Contractor
(Invoice #93 dated 8/17/2001)
Total of Contractor Invoices
Supplies: Pump
Wrench
Company Annual Report Amount for
Materials & Supplies - Operation and Maintenance
370
327
370
730
Attachment A
Case No. SPL-04-
Staff Comments
04/30/04
Idaho Public Utility Commission
Summary of Water Utilitiy Rates
April 12, 2004
Mo. Residential Rates1
unless otherwise noted
Gal's In Block 2 Block 2 Ave Cost
No. of Hook-up Monthly Base Rate 0 Rate Per Gallons Last Rev.for 30 000
NO.Name of Utilitv Customers Fee Base Rate 1000 gal Oate Gal
1 Algoma Water Co. 17.Unmetered 5/6/2002 17.
Aspen Creek Water
2 Co.000 25.000 000 9/25/2002 $ 40.
BarCircle S" Water
3 Inc.145 $250.15.500 500 2/111990 $ 36.
4 Bitterroot Water Co.101 750.20.000 000 8/1211999 $ 31.
5 Brian Water Co.10.000 000 5/1/1999 $ 38.
6 Capitol Water Corp.776 21.7,480 7,480 111/2004 $ 32.48
(3-",ock, '"cluded)
7 Country Club 125 $300.14.000 000 2/23/1990 14.
8 Diamond Bar Estates 21.500 0.45 500 6/1/2003 $ 31.
9 Ea91e Water 600 $845.4,488 0.45 486 3/25/1987 19.
10 Evergreen Water Co.34 $600.15.500 500 11/10/1987 $ 22.
11 Falls Water 2001 172 Varies 11.000 $0.41000 000 12/15/2003 15.
Grouse Point Water
12 Co.22.000 000 1/1/2004 $ 33.
Happy Valley Water
13 System 26 $500.27.000 000 8/3/2001 $ 34.
14 Humpy's Water Co. 16 $60.000 000 5/1/1963
Island Park Water
15 Co.259 10.42 Unmetered 7/111992 10.
Moming View Water
16 Co., Inc. 22.Unmetered 9/1/2002 $ 22.
(1/4 ."'elol)
17 Murray Water Works 33 $800.26.Unmetered 7/15/2003 $ 26.
Packsaddle Estates
18 Water Co.35 $430.34.Unmetered 6/3/1996 $ 34.
19 Plcabo Livestock Co.29 $500.26.Unmetered 4/27/1994 $ 26.
14.
Ponderosa Terrace
20 Estates Water Co.500 48.Unmetered 8/1/2002 $ 48.
(F," TIme C,,'ome,,)
21 Rickel Water Co.20 $ 6 000.30.000 000 4/25/1997 $ 46.
Spirit Lake East
22 Water Co. 240 $650.12.000 000 12/1/1983 $ 33.
23 Stoneridge Water Co 34 $925.14.4/5/2002 $ 23.
24 Sunbeam Water Co.12.000 000 5/31/1983 $ 33.
25 Troy Hoffman 144 $458.000 000 8/111996 $ 21.
26 United Water Idaho 562 $500.14.9/5/2000 $ 63.
Totai/Average Idaho 273 $637.17.787 0.48 $ 27.
1 - The rates listed are strictly representative of residential customers and may not reflect actual rates paid
by a speclflc customer.
These rates also do not include DEQ fees which range from $0.25 to $0.50/month per customer.
State Average
Flat Rate Utilities $ 26.32 Per Month unlimited usage
Flat Rate & Minimum Charge $ 17.95 Per Month
Average Hook-Up Fee 976.
Attachment B
Case No. SPL-04-
Staff Comments
04/30/04
Request No. 25
Response: the reason for a higher allocation was more difficult coordination
of the work responsibilities in Response 23 above. Mr. Kruger is dependent
on the efficiency of the contractor and property owners/home builders with
his site visits.
Respondents: RJB , RM, JK
Request No. 26
Response: we have attached Exhibit "3" which details the hourly rate for
our administrative and technical employees. The hourly rate is detemrined
by each employee s salary with a 30% fringe benefit surcharge (at cost). We
are proposing an administrative fee of$135.07 per hook up in addition to the
actual cost as billed by the contractor. This "Cost Plus" proposal negates the
need to supply past costs for maintenance, supervisor and accounting
services and makes a more linear connection between the actual costs to
install and the indirect administrative costs of each hook up. Due to the
burdensome nature of the request, we are dropping our request for vehicle
compensation.
Respondents: RJB , RM
Request No. 27
Response: please see Response 26 above.
Respondents: RJB, RM
Request No. 28
Response: please see Exhibit 3
Respondents: RJB , RM
Attachment C
Case No. SPL-04-
Staff Comments
04/30/04 Page 1 of 2
...
f~Al1Slr 3'1
SPIRIT LAKE EAST WATER COMPANY
15807 E. Indiana Ave.
Spokane, WA 99216
PWS # 1280176
I Per Hour Cost I Estimated Time I Total Cost
Maintenance Personnel
Direct Labor Cost
Fringe ~30%
12,
Total 16.56.
Administrative Personnel
Direct Labor Cost
Fringe ~30%
24.
Total 31.78.
Total per Hook Up 135.
Attachment C
Case No, SPL-04-
Staff Comments
04/30/04 Page 2 of 2
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 30TH DAY OF APRIL 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. SPL-04-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
ROBERT J. BOYLE
SPIRIT LAKE EAST WATER CO.
15807 E INDIANA AVE
SPOKANE VALLEY W A 99216
SECRE1kf
CERTIFICATE OF SERVICE