20040524Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:JOHN HAMMOND
DATE:MAY 21, 2004
SUBJECT:IN THE MATTER OF SPIRIT LAKE EAST WATER COMPANY'
REQUEST TO INCREASE ITS HOOK UP FEES FOR WATER
SERVICE. CASE NO. SPL-04-
On January 14, 2004, the Spirit Lake East Water Company filed an Application
requesting that the Commission authorize it to increase its hook up fee for 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 services approximately 240 customers in two larger lot subdivisions located near the
community of Spirit Lake, Kootenai County, Idaho. Certificate No. 293 was issued to the
Company by Order No. 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 this Application and in response to subsequent production requests direct contract costs
of up to $2 500 that incurred for 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 are 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
DECISION MEMORANDUM
10 acres with building sites undefined. Service lines were either not installed with the
development or are inadequately located for the needs of to day s builders, some 20 years later.
CO MMENTS
1. Commission Staff.In 2002, Staff completed an audit of the Company for 2001.
During that time the average contract cost for hook ups was just over $1 000. This average cost
was significantly lower than that proposed by the Company in its Application. In addition
Staff s review of the Company s recent annual reports reveals that its costs are lower than
estimated by the Company in its Application. Given Staff s review it appears 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
$135.07 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
908 , $7 260, $5 200, $6 760 divided by 29 hook-ups) labor and $414 contingency costs per
hook-up included in the Company s Application.
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 1 thereto).
STAFF RECOMMENDATION
Staff recommends that the Commission set the hook up fee based on a weighted
average hook up fee based on a new fixed price contract and a fixed contribution to the Company
supply labor of $135. With this Staff anticipates that the hook up fee should not exceed $1 200
DECISION MEMORANDUM
including contract costs and Company labor costs for the 79 new servIce and 11 meter
installati ons.
SPIRIT LAKE EAST REPLY COMMENTS
In its reply comments, the Company indicated that it agrees with Staff
recommendation that the hook up fee should not exceed $1 200. As a result it would accept a
new hook up rate of $1 200 per lot if granted by the Commission. The basis for this position
that the Company has obtained a quote from a contractor on the Idaho Public Works contractor
list that working with Staff Engineer Michael Fuss. This contractor quoted a maximum rate of
200 per lot per hook up that applies to most of the remaining lots. The Company states that it
would recoup its administrative fees associated with the hook up with each lot but is confident
and we are subject to rate increases by the contractor. However, the Company is confident in the
contractor s ability to serve its customers in a timely manner and it wishes to reach finality on
this issue. Accordingly, it therefore accepts Staffs position on the recommended hook up rate.
As a result of its Application, certain issues have arisen that the Company seeks
Commission direction on. After the Company s Application was filed it received several
payments for hook ups from customers but with indefinite dates to perform those hook ups. The
Company has sent letters to those affected customers advising them that a lot hook up request
received with the fee paid in full will be installed in the calendar year it was received in, subject
only to inclement weather. The Company states that if the customer elects not to install or to
hook up in the calendar year of the request and payment was received, Spirit Lake East Water
Company will give full credit in the next year towards the hook up but the customer must pay the
difference between the old rate and the new rate before we have to perform the installation. The
Company requests that the Commission confirm this policy with customers.
COMMISSION DECISION
Does the Commission wish to authorize Spirit Lake East Water Company to raise the
fee it charges for hook ups to its water system from $650 to $1 200?
Does the Commission wish to confirm the Company s policy regarding hook up
requests that were filed after the Company s Application filed in this case?
John Hammond
bls/M: SPRL WO40 1 jh4
DECISION MEMORANDUM