20051227Objection, requests exhibit A.pdf

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VI:" Ylce uate
AUG4-1993
BEFORE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA'ITER OF THE APPUCATION
OF BOISE WATER CORPORATION TO
REVISE AND lliCREASE RATES
CHARGED FOR WATER SERVICE.
CASE NO. BOI-93-
ORDER NO. 25062
SYNOPSIS
This is a final Order determining the revenue requirement and setting
new rates for Boise Water Corporation (Boise Water; Company). By this Order
we authorize Boise Water to" increase its revenues by $1 573 366
approximately 11.18%.
SUMMARY"
On January 6 , 1993 , Boise Water filed an Application for authority to
increase its rates and charges for water service by $3 663 599 or approximately
27.36%. The Company proposed to recover this additional revenue by an equal
percentage increase to the commodity charge.
On January 26 , 1993 , the Commission issued Order No. 24678
suspending Boise Water s proposed rates for a period of thirty (30) days plus five
(5) months from the proposed effective date of February 6, 1993. On June 2-
1993 the Commission conducted an evidentiary hearing in this case.
Appearances were made by the following pai-ties:
BOISE WATER CORPORATION:Bruce H. Bm"cat, Esq.
Walton F. Hill, Esq.
General Water Works and
Management Service Company
2004 Renaissance Blvd.
King of Prussia, PA 19406
Kenneth G. Bergquist, Esq.
Box 1775
Boise , ID 83701
COMMISSION STAFF:Lori Mann
Deputy Attorney General
Idaho Public Utilities Commission
Sta tehouse
Boise , ID 83720-6000
ORDER NO. 25062 - 1 -EXHIBIT A
COALITION OF BOISE
WATER CUSTOMERS:
(CBWC)
Peter J. Richardson, Esq.
John J. McFadden, Esq.
Davis Wright Tremaine
702 W. Idaho Street, Suite 700
Boise , ID 83702
IDAHO CITIZENS COALITION:
(ICC)
Alfred A. Fothergill
Box 1591
Boise, ID 83701
SHARONM. ULLMAN:Appearing pro se
9687 W Desert Ave.
Boise, ID
Boise Water proposes a rate base of $49 197 286. By this Order, we
make three adjustments to that proposed rate base: (1) the elimination of all
construction work in progress; (2) the revision of the Company s calculation of
working capital, and; (3) the elimination of the Company s investment in the
Pierce Park Lane line extension. We approve a total rate base for Boise Water of
$45 692 874.
Adjustments to the Company s proposed, allowable operating results
include the elimination of lost revenues due to conservation, the elimination of
Marden Street plant depreciation expense , a reduction to payroll expense , an
adjustment to electricity expense and elimination of an inflation adjustment.
We adopt a return on equity for Boise Water of 11.25% and an overall
rate of return of 10.28% with a revenue deficiency of $1 573 366 , which
allocate, by equal percent increase, to the Company s commodity charges for all
customers.
The current minimum customer bill for the first 1 000 cubic feet of
water will remain unchanged. YVe adopt a seasonal rate structure that sets the
summer commodity price 25% above the non-summer price. We revise the
Company residential escrow program changing the method used by the
Company to calculate developer contributions. We decline to adopt Staffs
suggestion that the Company s hook-up fees be increased by the rate of inflation.
We approve numerous changes to the Company s connection and reconnection
charges. We direct the Company to commence the planning stages of a dual
ORDER NO. 25062 - 2 -
water system. Finally, we award intervenor funding to ICC in the amount of
$11 639.25 and to CBWC in the amount of $13 360.75.
FINDINGS
I. TEST YEAR
Boise Water proposes, and the parties accept, a test year ending
September 30 , 1992 with operating results adjusted, pro forma , through
March 31 , 1993.
We Find
The use of a test year ending September 30 , 1992 , adjusted for changes
through March 31, 1993 is reasonable for the purposes of this rate case.
IT. RATE BASE
Calculation
Boise Water calculates its rate base as of September 30 , 1992.
Although in the last two general rate cases (see Case Nos. U-I025-51 and
BOI-90-1), the Company s rate base was calculated using a 13 month average
no party opposes the Company s use of a year end calculation in this case.
We Find:
Because we were not presented with the information necessary to
determine whether an average rate base calculation is appropriate in this case
we are compelled to adopt a year end calculation. Considering that we selected a
13 month average in Boise Water s last two general rate cases, we believe that
methodology should have, at the least, been presented to us as an option in this
proceeding. In any event, we note that Boise Water indicates that it intends to
file another general rate case in approximately one year. In the interim
therefore, we find that a year end calculation of rate base is reasonable. The
Company is instructed to present , as an option, a 13 month average calculation of
rate base in its next general rate case.
Amount
Boise Water originally proposed a rate base of $49 197 286. The
Company, in rebuttal , agrees to a reduction in its proposed rate base of $214 398
ORDER NO. 25062 - 3 -
relating to future water rights for the Marden Street treatment plant, as
discussed below.
The other parties to the case make the following rate base recommenda-
tions: Commission Staff-$45 692 374; CBWC-$47 300 781; ICC-$49 197 287 , and;
Sharon Ullman-$30 662 125. Sharon M. Ullman s recommendation is based on
what she believes Boise Water s parent corporation, General Waterworks , has
invested in Boise Water. Tr. pp. 810 819.
Staff and CBWC propose several adjustments to rate base relating to
the Company s Marden Street plant~ Staff also proposes a reduction related to
Boise Water s Pierce Park Lane line extension and the working capital compo-
nent of rate base.
Marden Street Plant
The Marden Street plant is being constructed east of downtown Boise.
The plant will not be completed until sometime in 1994. Staff and CBWC oppose
the inclusion in rate base of any investment in Marden on the basis that the
plant constitutes construction work in progress and is not yet used and useful.
Staff recommends reducing Boise Water s proposed rate base by $2 072 578
which, it contends , is all related to the Company s investment in Marden or
other construction work in progress. CBWC recommends a reduction of
896 505.
In rebuttal testimony, Company witness Falasco agreed that Boise
Water would not contest Staffs proposed elimination from rate base of future
water rights related to Marden. Tr. p. 292. This item amounts to $214 398.
CBWC does not have a recommendation with respect to this specific rate base
item which explains the bulk of the difference between its overall rate base rec-
ommendation, and Staffs.
We Find
The issue of whether rate base should include utility plant still under
construction is not new. The long standing principle is that a regulated utility
should not be allowed a return on plant that is not yet serving the utility
ratepayers. The risks associated with constructing new plant clearly should be
assumed by the utility s shareholders. They are compensated for those risks with
rates that allow the utility to earn a reasonable return on investment. To allow
ORDER NO. 25062 - 4"
utility to include in rates its investment in plant not yet in service would place
ratepayers in the position of a financial lender and risk taker; a role for which
they would not be compensated.
Idaho Code 9 61-502A prohibits the inclusion of construction work in
progress from revenue requirement as follows:
Except upon its finding of extreme emergency, the Commis-
sion is hereby prohibited ... from setting rates for anyutility that grants a return on construction work in progress
(except short-term construction work in progress) or propertyheld for future use and which is not currently used anduseful in providing utility service. As used in this section
short-term construction work in progress means construction
work that has begun and will be completed in not more than12 months. . . .
The evidence presented during the hearing indicates that the Marden
plant will not be completed. within 12 months from the date construction
commenced. Furthermore, Boise Water has never suggested in this case that the
plant is operational. The Company argues , however, that as individual phases of
the project are completed, they should be included in rate base to avoid the rate
shock that will ultimately occur if the entire plant is included in rate base all at
once. Tr. pp. 292-293.
We appreciate Boise W ater efforts to minimize the impact that
Marden will have on rates if ultimately approved by this Commission for rate
base inclusion. Our desire to avoid rate shock, however , is outweighed by the
basis underlying the used and useful doctrine which is to avoid transferring the
risk of investment from shareholders, who are compensated for taking that risk
to ratepayers , who are not.
We find , therefore, that all investment in Marden, as well as all
construction work in progress included in the Company s proposed rate base , will
not be included in revenue requirement until Boise Water has proven to this
Commission that the plant is used and useful and the investment was prudently
incurred.
Pierce Park Lane Line Extension
Staff proposes reducing rate base by $279 943 to eliminate the
inclusion of the Company s investment in a water main running from Pierce Park
Lane to Gary Lane. Staff argues that Boise Water is under a prior Order
ORDER NO. 25062 - 5 -
submit a special facilities contract to the Commission relating to the project.
Staff contends that because of the probability that Boise Water would be
competing with the Garden City municipal water system for service of this area
coupled with the high cost of the extension, there was a risk that existing Boise
Water ratepayers would be required to provide a portion of the revenue
requirement associated with the line extension. Tr. pp. 940-941, 1044-1045.
Staff does not argue that the Pierce Park line extension is not used
and useful. The issue is whether Boise Water has taken adequate measures to
protect its general body of ratepayers from costs incurred in head-to-head
competition with Garden City. Staff argues that until the Company submits and
receives approval" by the Commission of such a contract, the Company
investment in the project should be eliminated from rates." Staff witness Smith
testified that the line extension was installed for the benefit of future customers
...
and should be classified as plant held for future use. Tr. p. 941.
Boise Water responds that the line extension was used and useful
immediately upon installation. Furthermore, Company witness Hepler contends
that, to" date , fees generated by connection to the line extension have been
sufficient to provide the Company with its authorized rate of return. Hepler
estimates that revenues from future connection fees will provide sufficient
capital to fully reimburse the Company for the cost of the project in
approximately six years. Hepler cohcedes that the Company has not submitted a
special facilities contract to the Commission relating to the line extension. Tr.
pp.
324-235.
We Find:
In Order No. 24109 , Case No. BOI-91-, we ruled on Boise Water
Application to expand its service territory to include, among other things , an area
bordered by Pierce Park Lane. In our final Order issued in that case, we made
several findings of fact including:
21. The probability of competition between Boise WaterCorporation and Garden City, coupled with the high cost ofthismain line extension, increases the risk that existingBoise Water ratepayers may be required to provide a portion
of the revenue requirement associated with this extension.
22. Boise Water indicated , through the testimony of BenHepler, that the cost recovery for this project would bedifferent than the Company s tariff line extension rules.
ORDER NO. 25062 - 6 -
proposed that costs of this project be recovered through aspecial facilities contract. Boise Water should submit , assoon as feasible , its proposed special facilities contract for
this area for Commission review.
Order No. 24109 at p
Furthermore, in Case No. BOI-91-Company witness Hepler
testified:
. . .
(T)he Company proposes to submit to this Commission
for approval a special facilities contract under whichcustomers connecting to this water main including
developments , would reimburse the Company the cost of the
facility.
In spite of our explicit mandate , issued January 24, 1992 , Boise Water
has failed , without explanation, to submit a special facilities contract relating to
the Pierce Park line extension project. We reject Staffs contention tp.at this
project should be classified as plant held for future use or is in any manner not
used and useful. Moreover, the fact that future customers may be served by the
plant is not justification for keeping it out of rate base. This is always the case
when new plant is placed into service. The fact is simply that, as we stated in
BOI-W -91-, we have a valid concern whether the Company s ratepayers have
been adequately protected from costs Boise Water has incurred in competing
with Garden City. We find, therefore , that the Company s investment in the
Gary Lane project should not be included in rate base until the special facilities
contract previously required for the project has been submitted. Supporting
documentation for the contract should include a demonstration that all costs of
serving new customers , including the costs of new resources , will be recovered.
Working Capital
Boise Water proposes an allowance for working capital in its rate base
in the amount of $1 402 285. Staff contends that the Company s calculation of
working capital does not follow the "balance sheet" method normally used by the
Commission. Tr. pp. 941-942. Staff alleges that the Company was selective in
its choice of accounts used and has commingled account balances at
September 30 , 1992 with estimated balances at March 31 , 1993 , which, Staff
asserts , violates accounting principles of debits equalling credits and destroys the
integrity of the balance sheet.
ORDER NO. 25062 - 7 -
Staff calculates a working capital allowance for Boise Water of
$387 023. In making its calculations, Staff uses the entire balance sheet as of
Deceml?er 31 , 1992. Staff chooses this date because it is the date at which the
Company made a diligent effort to ensure that all accounts in the balance sheet
were trued up, corrected for errors and closed out. Staff has a higher degree of
confidence in the Company s balance sheet at year end as opposed to a future
date, which necessarily relies upon estimates. Tr. pp. 944-945. Staff notes that
it did not oppose the Company s method of calculating working capital in the last
general rate case because of a lack of time and the fact that there were more
pressing issues in that case. Tr. p. 943.
In rebuttal, Boise Water disputes Staffs characterization that the
Company s proposed method of calculating working capital is out of the norm.
Company witness Falasco argues that the method proposed by Boise Water has
been consistently used by the Company and Staff and approved by the
Commission for Boise Water in a prior case. Tr. p. 293.
In addition, Falasco argues that Staffs method of calculating working
capital is defective because it assigns various deferred credit accounts to Other
Capital Sources as opposed to long-term investments as a contra account. These
accounts, Falasco contends, are alllong.,term in nature. Tr. p. 294.
We Find:
Both Staff and Boise Water use a balance sheet method of calculating
working capital. Boise Water is correct that this general method has received
prior Commission approval. The debate is over how exactly the calculation
should be made.
Staffs approach of calculating balance sheet accounts as
December 31 , 1992 is appealing for two reasons. First, it uses data that is
known and measurable as opposed to Boise Water s pro forma approach. Second
it constitutes somewhat of a compromise because it relies on data taken at
roughly the mid-point between the test year ending date of September 30, 1992
and Boise Water s selected pro forma date of March 31 , 19~3.
We find, therefore , that Staffs calculation of working capital is
appropriate for this case.
ORDER NO. 25062 - 8 -
ID. OPERATING RESULTS
Staff and the Intervenors propose numerous changes to Boise Water
operating results , only one of which (relating to payroll expense) is agreed to by Boise Water.
Conservation Adjustment
Boise Water claims lost revenues in the amount of $683 543 related to
its conservation program. The Company s method for calculating lost revenues
uses a linear regression analysis that compares water use to precipitation for
estimating the amount of water that Boise Water believes would have been used
by its customers in 1992 if there had been no conservation program in place. The
Company then subtracts actual 1992 consumption from its estimate to determine
lost sales" for 1992. These lost sales are multiplied by the 1992 commodity rate
to determine "lost revenues.
Staff recommends eliminating Boise Water s claim for lost revenues on
the basis that the Company has failed to present verifiable evidence that its
conservation efforts have resulted in lost revenues and/or to what extent.
Staff argues that the linear regression methodology used by the
Company to predict water usage inaccurately calculates the reduction in annual
water usage per customer for three reasons:
It is inappropriate to rely exclusively on rainfall
predict annual water usage per customer;
It is inappropriate to assume that all predicted reductionin water usage is the result of Boise Water
conservation plan , and;
Boise Water s calculations fail to account for the loss of
Micron as a customer. The Company s reliance on its
engineering/market assessment analysis is also flawed.
Tr. pp. 1046-1057.
We Find:
We reject Boise Water s claim for lost revenues due to conservation at
this time for several reasons. First , we are hesitant to allow the Company credit
for lost revenues when it has yet to submit its conservation plan. In Order
No. 24732 issued on March 8 , 1993 in Case No. BOI-90-, we granted Boise
Water s request for an extension of time in which to file its conservation plan.
ORDER NO. 25062 - 9 -
We stated:
We are , however, disappointed. that the Company put itself
in a position to request this delay given the fact that it has
been on notice since June 1991 to file its conservation planby April 1993. We are also disappointed that the Commis-sion Staff and others will not be able to review this plan in
the Company s current rate case filing.
Order No. 24732 at p. 2.
It is incongruous that Boise Water contends that it has spent more
. than $60 000 on conservation and is entitled to almost $700 000 in lost revenues
before it has ~ven submitted a comprehensive plan identifying the Company
conservation goals and means of accomplishing those goals.
Second , we did not find the statistical theory presented by witness
Jacobson convincing. Her assumption that all variation in water usage not
related to rainfall was due to conservation, challenges logic. Clearly, factors such
as temperature affect water usage significantly. Those of us who have lived in'
southern Idaho for any length of time know full well that summer weather
patterns can vary dramatically from year-to-year in terms of temperature as well
as rainfall. Furthermore , the Company overlooks the fact that the vast majority
of its customers have been painfully aware of the drought experienced over the
last several years. The voluntary efforts of members of this community to
conserve water in light of that drought are not taken into account by the
Company.
Finally, Ms. Jacobson s use of an unidentified source at Idaho Power
for her household population estimates , as opposed to data that could have been
obtained from the U.S. Census Bureau , also diminishes the reliability of her
calculations.
In short, Boise Water analysis left far too many questions
unanswered and failed to present quantifiable , verifiable evidence to convince us
that the Company s conservation efforts are responsible for lost revenues of the
magnitude claimed by Boise Water or, for that matter, any lost revenues at all.
In addition, we ~do not believe that a retrospective approach to
calculating lost revenues is appropriate. We do agree, philosophically, that to the
extent Boise Water can sufficiently prove that its conservation efforts cause it to
be financially worse off than investment in new supply side resources , then the
Company should be compensated in some manner. To do so , however, we believe
ORDER NO. 25062 - 10 -
that it is necessary to establish an explicit , fonyard looking methodology as
opposed to . an after the fact, ad hoc decision.
The Energy Policy Act of 1992 requires this Commission to review the
adequacy of its policies relative to demand side management programs (DSM
conservation) for electric and gas utilities. As a result, we are well aware of the
issues relating to incentives and lost revenues for DSM programs. We already
permit electric utilities to capitalize and defer reasonable DSM investments.
have also advised our electric utilities that their implementation of aggressive
cost effective DSM programs will be reflected in a higher return on equity
general rate cases. The water industry can expect the same consideration.
However, to receive such treatment , programs must be identified and
approved in advance of implementation. They must also be capable of yielding
reasonably measurable results. We do not believe that linear regression methods
such as those presented in this case provide the measurement needed.
We also recognize that the treatment currently being afforded the
electric industry may not provide adequate parity between demand and supply
side resources. Therefore, we are interested in seeing the issue of incentives
explored further.
ICC , through its witness Thomas Power, was the only party other
than Boise Water to propose methods for calculating lost revenues due to.
conservation. We do not believe that the record is sufficient in this case to allow
s to establish a definitive method for calculating lost revenues. The parties are
directed to fully analyze and present this issue to 'us in Boise Water s next
general rate case. The parties are further instructed that we do not, at this time
find the concept of "decoupling" appealing. We are interested in seeing more
discussion of the LRAM approach addressed ' by ICC witness Powers in his
testimony. We are also interested in reviewing the possible appropriateness of
providing additional incentives such as recovery of lost margins (the difference
between the revenue that would have been received from a conserved unit and
the costs avoided by conserving that unit) that result from DSM programs
between rate cases. Staff and the Company are therefore directed . to explore
these and other potential incentive mechanisms that might reasonably be applied
to Boise Water Company s conservation programs. We emphasize that such
mechanisms should apply only on a prospective basis and only to programs that
have measurable costs and benefits.
ORDER NO. 25062 - 11 -
While we are inclined not to grant Boise Water the type of rate relief
requested for its conservation efforts until it has submitted its conservation plan
we note that included in test year expenses is the $60 137 it spent on the
program.
Elimination of Marden Street Plant Depreciatio~nse
Staff recommends that if the Marden Plant is disallowed from rate
base , then a corresponding amount of depreciation expense claimed by the
Company should also be disallowed. Staff calculates its adjustment
multiplying the $1 905 825' in Marden plant investment by the 5% depreciation
rate used by the Company for an adjustment of $95 291. Tr. p. 953.
We Find:
Because we excluded the entirety of the Marden Street plant from rate
base , it is necessary to reduce depreciation expense by $95 291.
Reduction of Payroll Expense
Boise Water annualizes its payroll expense based on salaries effective
January 1 , 1993 for non-union employees and April 1 , 1993 for union personnel.
The Company s calculations also include four new positions to be filled in the
near future. The Company includes separate adjustments to health care and
payroll taxes for an increase in payroll positions. The Company s adjustment
totals $339 359.
Staff recommends decreasing the Company s adjustment by $129 855
on the basis that actual salary increases for non-union employees and the
number of employees for 1993 are now known. In fact , the four new positions
were not filled. Based. on actual numbers, a decrease in the Company s estimate
was made. Staffs adjustment includes health care costs and payroll taxes rather
than breaking these out as separate line items. Tr. p. 948.
CBWC also recommends decreasing the Company s adjustment. It
notes that the four positions referenced as vacant on the Company s revised
workpapers indicate zero wages because these positions will not be filled. Tr. p.
768.
In rebuttal, Boise Water conceded that Staffs proposal is in fact based
upon updated information and is appropriate. Tr. p. 573.
ORDER NO. 25062 - 12 -
We Find
We find, based upon a review of the record and the consensus of the
parties , that Boise Water s p(3.yroll expense adjustment should be reduced by the
amount of $129 855.
Adjustment to Electricity Expense
Staff recommends reducing Boise Water estimated electricity
expense by an additional $31 850 on the basis that the Company used the wrong
Idaho Power tariff sheets in estimating power costs. Staff suggests that Boise
. Water used the tariff that included the drought surcharge and has since expired.
The Company also fails to factor in the new rates under Idaho Power s recently
approved PCA; Staff contends. Staffs proposed adjustments take both of these
changes into account. Tr. pp. 948-949.
In rebuttal, Boise Water agreed with Staffs proposed adjustment due
to changes in the tariff rates. The Company recommends , however , that the
Commission permit it to retroactively recover the drought adjustment surcharge
as an amortizable expense because the Company did in fact incur this expense
but has no mechanism to recover it except through the rate process. Boise Water
argues that because it incurred the cost of the surcharge , which is billed by
another regulated utility, the Company should be allowed to recover this cost
over one year. Tr. p. 574.
We Find:
We agree that Boise Water s electricity expense should be reduced by
an additional $31 850 due to changes in Idaho Power s rates. We reject, however
Boise Water s contention that it be allowed to recover the drought adjustment
surcharge as an amortizable expense. Such a recovery would constitute
retroactive ratemaking. Idaho Power s surcharge was set as a result of the
normal regulatory process. Boise Water chose not to participate in that process.
Nor did it request implementing a surcharge of its own at the time its rates were
raised. To ask future ratepayers to pay for prior expenses is contrary to good
public policy. There is no adequate justification to separately treat this one item
of expense differently from all others that may have increased between rate cases.
ORDER NO. 25062 - 13 -
Rate Case Expense
Boise Water claims that it incurred $206 750 in rate case expenses for
this proceeding.
Staff contends that Boise Water s alleged expenses are excessive and
should be analyzed under the same standards as requests for intervenor
funding. Tr. p. 951. Staff notes that the costs for the 1993 rate case were twice
as much as the 1990 rate case. Staff asserts that it is unjustified that the
Company spent twice as much in 1993 as it did in 1990 to put on what, in
essence, was the same case.
In response, Boise Water contends that there are many differences
between this proceeding and the last general rate case that contribute to the
Company s increased expense. The Company notes that in the last case rate base
was averaged and there was no controversy relating to plant projections past the
test year or to long-term construction projects such as the Marden Street plant.
Also, in the last case , revenue was based on book revenue and there was no need
for a customer billing analysis and no adjustment for customer growth was
made. Also , there was no need to perform extensive analysis to develop revenue
from guaranteed revenue contracts. The present proceeding, the Company notes
involved the active participation of three intervenors. In the last case, only one
intervenor participated. In addition , the Company had to respond to 122
interrogatories , nearly five times the number in the last case; Finally, this case
involved more issues of greater complexity than the last case including the
Marden Street plant engineering costs , dual irrigation systems, the Pierce Park
line extension and the conservation impact adjustment.
We Find:
We reject Staffs recommendation to apply the intervenor funding
standards set forth in Idaho Code ~ 61-617A and Rule. 16 of the Commission
Rules of Practice and Procedure to rate case expenses incurred by a utility. The
scope and magnitude of preparation required of a utility in a general rate case is
to say the least, not the same as that of an intervenor. Intervenors, by necessity,
represent finite customer groups and their approach to a general rate case
typically more narrowly focused. The utility, on the other hand , must address
every issue in detail and , therefore , incurs significantly greater expense than
intervenors.
ORDER NO. 25062 - 14 -
We agree with Staff that a utility should not be given carte blanche
authority to commit unlimited resources to a rate case. As with any other
expense or investment that we analyze in the course of a general rate proceeding,
we will continue to review utility rate case expenses on the basis of whether they
were prudently incurred. In the present proceeding, there is nothing in the
record to prove that any of Boise Water s rate case expenses were imprudently
incurred. This case was significantly more complicated and involved more issues
than the last general rate case. We find, therefore, that Boise Water s requested
rate case expense of $206 750 should be allowed. We believe that, under the
circumstances, it is appropriate to amortize this expense over two years. This
our best estimate of how long the rates resulting from this Order will be in effect
before the rates from Boise Water s next general rate case become effective.
Boise Water s ratepayers will also realize less of an impact on their rates by
amortizing this expense over two years. The Company is instructed that if rates
resulting from the next general rate proceeding become effective before the
expiration of the two-year anwrtization period, then the remainder of the
unamortized expense will be included in the Company s rates in that proceeding.
Inflation Adjustment
The Company includes an adjustment to operation and maintenance
costs for inflation in the amount of $57 496. It argues that because its test year
ends September 30 , 1992 , by the time the Commission issues its rate order , at
least seven months will have passed from the date of filing and, during that
period, the Company will have absorbed from earnings the impact of inflation.
Tr. pp. 566-567.
Staff proposes eliminating the entire inflation adjustment proposed by
the Company on the basis that the issue of such an adjustment was resolved in
the Company s last rate case and was rejected by the Commission. Staff believes
that the issue has not changed and the Commission s reasoning in the last case
as pe~suasive today as it was then. Tr. pp. 952-953.
CBWC also recommends eliminating the inflation adjustment on the
same basis as relied upon by Staff. Tr. pp. 766-767.
ORDER NO. 25062 - 15 -
We Find
In Order No. 23420 , Case No. BOI-90-, we ruled:
We find: The Company s inflation adjustment should bedisallowed. Not only is the adjustment not known and not
measurable, there is no way to determine with any degree ofcertainty what increased costs are due solely to inflation.Both Company and Staff witnesses testified that growth in
customer base has caused increases in some costs. Such
increases then are not due to inflation. Because of thisuncertainty, we find that an inflation adjustment is notreasonable in this proceeding.
Order No. 23420 at p. 13.
We agree with Staff that the issue of an inflation adjustment has not
changed and our reasoning for previously rejecting such an adjustment is valid
today. In addition , we note that the Company plans within a year to file another
rate case. Its exposure to inflation for the interim, therefore, is limited.
IV. RATE OF RETURN
Cauital Structure
The Company uses the capital structure of its parent, General
Waterworks Corporation (GWC). GWC's capital structure consists of 50.25%
long-term debt
, .
29% minority interest and 49.46% common equity, including
GWC's subsidiaries.
Staff concurs with Boise Water s proposal to utilize the capital
structure of GWC. Staff notes that the common equity portion of this structure is
significantly higher than the average common equity ratio for the water utility
group which is 45% for the year ending December 31 1992. Because Boise Water
is currently investing capital to comply with the Safe Drinking Water Act
(SDWA), Staff believes that it is reasonable to allow a higher equity ratio to
compensate for the increased capital requirements. By utilizing the actual
capital structure , the benefits of the higher equity ratio offset any additional risk
associated with the revenue investments. Staff believes that it is reasonable to
expect the common equity ratio for GWC to be closer to the average common
equity ratio for the water utility group when permanent financing is completed
for the SDW A required investments. Tr. pp. 996-998.
ORDER NO. 25062 - 16 -
CBWC recommends using a capital structure based upon an analysis
of eleven other water companies as opposed to imputing the structure of GWC.
CBWC's proposed capital structure is 52.07% debt, 2.9% minority interest and
47.64% return on equity. Increasing the equity ratio , CBWC notes, raises the
Company s overall revenue requirement. Tr. pp. 726-731.
We Find:
It has been the customary practice of this Commission to adopt the
capital structure of the parent corporation for a utility that is a wholly-owned
subsidiary. For example , this Commission has imputed the capital structure of
Continental Telephone s parent corporation , CONTEL and imputed the capital
structure of GTE for its subsidiary, GTE Northwest , Inc.
Furthermore , we have previously imputed the capital structure of
GWC for Boise Water. In Order No. 24320 , issued in Boise Water s last general
rate case , we found "that Staffs use of GWC Corporation as a surrogate for
Company market data is reasonable and can be used again in future rate cases.
Order No. 24320 at p. 24. There vy-as no compelling argument presented in this
case for departing from GWC's imputed capital structure. We find, therefore
that it is appropriate to continue to use the capital structure of GWC for Boise
Water.
Cost of Capital
Boise Water proposes the following cost of capital and rate of return:
Capital WeightedStructureCost Rate Cost Rate
Long-term debt 50.25%36%71%Minority interest 29%00%01%CoIDlllon equity 49.46%12.75%31%Overall Rate of Return 100.00%11.03%
In calculating its proposed return on common equity Boise Water uses a
discounted cash flow approach: an analysis using premium estimates of utility
stocks relative to bonds, a comparison of actually earned returns of industrial
firms and a comparable earnings analysis based on Value Line similar risk
companies. Boise Water contends that the uncertainty of capital and risk
associated with the SDW A have had and will continue to have an impact on
ORDER NO. 25062 - 17 -
shareholders' earnings. The Company proposes compounding the average annual
dividend yield for the water company group. The total dividend yield is
compounded. The Company proposes an issuance cost rate of 8% applied to the
water group growth adjusted dividend yield. Boise Water proposes a 3% price
pressure applied to water group growth adjusted dividend yield. See, generally,
Testimony of David Brooks.
Staff recommends the following cost of capital and rate of return:
Capital WeightedStructureCost Rate Cost Rate
Long-term debt 50.25%36%71%Minority interest 29%00%01%Common equity 49.46%10 - 11.0%95 - 5.44%Overall Rate of Return 100.00%67 - 10.16%
Staff n~tes that three standards have evolved for determining a fair
and reasonable rate of return for a regulated utility: (1) the financial integrity or
credit maintenance standards; (2) the capital attraction standard , and; (3) the
comparable earning standard. If the comparable earning standard is met , the
financial integrity and capital attraction standards will also be met as they are
an integral part of the comparable earnings standard. Tr. 976-977. Staff also
recognizes that the ' rate of return should be sufficient to allow the utility to
maintain its financial integrity and to attract capital assuming efficient
economical management. Tr.
p.
977. Staff notes that Boise Water is
wholly-owned by General Waterworks which , in turn , is owned by GWC. GWC is
owned 82% by Lyonnaise and 18% by investors purchasing the stock on the
market. There is no direct market data available for Boise Water. The only
market information available is the cost of equity capital for GWC. Tr. pp.
977-978.
Staff presented two methods for determining the cost of equity for Boise
Water: the discounted cash flow method and the comparable earnings method for
industrials and utilities.
The comparable earnings method determines the cost of equity based
upon the premise that a given investment should earn its opportunity costs. For
a utility to be competitive in the market, it must be allowed to earn a return on
equity equal to the average return earned by other firms of similar risk. Taking
into account the risk differentials between industrials and utilities , and those
ORDER NO. 25062 - 18 -
differentials as they specifically relate to Boise Water, Staff estimates a return
on equity range of 10.0%-11.0% for Boise Water utilizing the comparable
earnings approach. Based upon a review of the actual earned returns on equity
for industrials , the decline and start of improvement in the economy and
changing inflation and stock market conditions, Staff estimates the near future
equity capital returns for industrials in the range of 11%-12%. The average
return on common equity for water utilities for the period ending December 31
1992 is 10.1%. Staff notes that regulated utilities encounter much less risk than
industrials. Furthermore , competitive risks are limited for Boise Water
compared to small companies that have certificated areas near areas served by
Boise Water.
Staff estimates that the current cost of equity capital for Boise Water
under the discounted cash flow method over the most recent six-month period is
in the range of9.1%-10.1%. This assumes a growth rate of 2%-3%.
Staff recommends a cost of equity range of 10.0%-11.0% with a point
estimate of 10.5% based on: (1) a review of the market data and comparable
companies and (2) GWC Corporation s stock price and risk characteristics. Tr. p.
996.
CBWC recommends the following cost of capital and rate of return for
Boise Water:
Capital WeightedStructureCost Rate Cost Rate
Debt 52.07%36%87%Minority interest 29%00%01%Common equity 47.64 %10.40%95%Overall Rate of Return 100.00%83%
CBWC contends that Boise Water s requested cost of capital is too high
under today s market conditions. Tr. pp. 730-731. Its recommended 10.4%
return on equity is derived from comparable earnings and market approaches.
CBWC relies on Standard and Poor s index of 400 industrials, the Federal Trade
Commission s "all manufacturers" group and the industries monitored by
Business Week. The Coalition contends that the risk factor is ' low for water
utilities. Tr. pp. 731-755.
Intervenor Sharon M. Ullman recommended an overall rate of return of
11.03%.
ORDER NO. 25062 - 19 -
We Find:
A fair and reasonable return on equity for Boise Water is 11.25%. This
return is roughly the midpoint between the lower end of Staffs recommended
range and the recommendation of Boise Water; what we consider to be the two
extremes.
Boise Water is currently experiencing rapid growth which, we believe
reduces its business risk. Because we expect to reexamine the Company s rates
within the next 12 months , this further diminishes its risk. Finally, we are not
convinced that the capital investment required under the SDW A poses as great a
. risk as Boise Water suggests. Factored into the rate of return is the 7.
issuance expense factor used by Staff to calculate the dividend yield in its DCS
calculation. As we stated in Boise Water s last general rate case , we do not
recognize market pressure costs in our calculation of return on equity. See Order
No. 23620 at p. 24.
We find Staffs analysis , methodology and computations to be
persuasive. Under this circumstance, we would not normally be inclined to adopt
a return on equity exceeding the upper end of Staffs recommended range. Our
decision to do so in this case is premised upon the general business risk and
potential increase of revenue instability associated with our implementation of
seasonal rates as discussed later in this Order.
In summary, we find that there is no significant financial risk for Boise
Water on the short-term horizon justifying the return on equity recommended by
the Company. Boise Water regulatory environment is relatively stable.
Moreover , the Company does not face the threat of significant competition from
other water utilities. We find that a return of 11.25% fairly compensates
shareholders for the risks they assume by investing in a company that
operating in a stable environment.
V. REVENUE REQUIREMENT
To summarize , the Company s approved
rate of return are represented in the table below:
Actual Capital
Structure
ca pital structure and overall
Cost Rate
Weighted
Cost Rate
Debt
Minority Interest
Equity
Overall Rate of Return
50.25%
29%
49.46%
36%
00%
11.25%
70%
01%
57%
10.28%
ORDER NO. 25062 - 20 -
The Company additional revenue requirement is $1 573 366 as
calculated below: .ff
Rate Base
Rate of Return
Required Return on Rate Base
Less: Operating Income
Additional Income Needed
Gross-up Factor -
$45 692 874
1028
. 4 698 210
747 628*
950 582
1.65516
573 366Revenue Increase Required
*The tax consequences of every adjustment made tooperating results , as well as the Company requested
synchronization of interest, have been factored in.
VI. MISCELLANEOUS ISSUES
Rate Design
Boise Water proposes spreading its rate increase "across the board"
(i., an equal percent increase to customer and commodity charges).
Staff agrees that any additional revenue requirement should be
recovered by an equal percentage increase. Staff does not recommend
implementing any rate design changes 'Until the Company has filed its cost of
service study as promised later this year. Tr. pp. 1029-1030.
We Find:
An across the board rate increase is appropriate until we have had the
benefit of reviewing the Company s cost of service study that the Company will
prepare and submit with its next general rate case. Except for our decision to
adopt seasonal rates, as discussed below , we will consider changes in Boise
Water s rate structure at that time.
Elimination of "Free" Water Provided Under CoIDp-any'sMinimum Bill
Included in Boise Water s current minimum customer bill is
allowance for the use of 1 000 cubic feet of water. In other words, customers are
charged for this usage , at a minimum, regardless of whether they use any water
or not. Staff notes that many of Boise Water s customers have questioned the
fairness of this and the fact that it does not promote water conservation. Staff
states that the general consensus of customers who have commented on this
ORDER NO. 25062 - 21 -
issue is that the monthly minimum usage amount should be lowered and the
rates for commodity usage above that minimum should be increased. Tr. pp.
1006-1007.
ICC also objects to the 1 000 cubic foot minimum because it effectively
assigns a zero price to the consumption of a significant number of customers and
therefore , encourages the inefficient use of water. ICC contends that 17% of
residential bills and 23% of commercial bills are bills for consumption less than
the amount of water provided free within the minimum bill. ICC recommends
that Boise Water s minimum bill be restructured so that customers are charged
. for all water used regardless of the amount. Tr. pp. 869~873.
We Find
ICC has raised a legitimate issue regarding the price signal sent to
ratepayers by the minimum bill. As noted above, we have decided to retain the
minimum bill at this time. We will reassess its appropriate level when we
review rate design in Boise Water s next general rate case.
Seasonal Rates
ICC recommends that a seasonal rate structure be adopted that sets
the summer commodity price 50% above the non-summer price. Tr. p. 869. ICC
believes that 50% of Boise Water s revenue requirement is peak related in the
sense of fIXed investments designed to meet peak load that occurs during the
summer. ICC contends it is counter-intuitive for Boise Water to have a flat rate
throughout the year when the cost of providing water service is clearly not
correspondingly flat. Tr. pp. 865-866.
In rebuttal, Boise Water states that it is not necessarily opposed to the
concept of seasonal rates but believes that it would be premature to implement
them in this case without further study. The Company further contends that
there is no evidence that increasing the summer commodity rate will decrease
usage. Tr. pp. 586-588.
We Find
The continuing rapid growth of Boise Water s customer base and
serVIce territory make it increasingly important to implement a rate structure
that reflects the relative seasonal cost of providing water service. Moreover , we
ORDER NO. 25062 - 22 -
believe that immediate implementation of a correct price signal is necessary.
Ratepayers need to be aware that the cost of providing water service is higher in
summer months. Once they understand the higher cost of summer water service
they may reduce their water usage, if they desire , through such measures as
xeriscape landscaping or reduction of lawn size.
We reject Boise Water s argument that the record is insufficient to
implement a seasonal rate structure at this time. Even without the benefit of a
cost of service study, the testimony of ICC witness Power convinces us that the
cost of providing water service during summer months is higher than
non-summer months. At the same time , the Commission is aware that many
customers using Boise Water s service for summer irrigation do not have access
to alternative irrigation water sources. Thus , a gradual transition is needed so
that customers who wish to take steps to reduce their summer water usage may
do so. We retain the 1 000 cubic foot minimum block for the time being and find
that, initially, a seasonal differential of 25% is conservative and reasonable. This
will send a definite signal to ratepayers that the cost of providing water is
greater during summer months but will not unreasonably penalize those who
have not had an opportunity to institute changes to reduce their summer water
usage.
We are aware that implementing seasonal rates creates new
challenges. For example, we note that the Company s policy of reading meters
bi-m~nthly for half its customers provides laudable savings 'to ratepayers, but
makes it impossible to designate a single "season" that will not require the
Company to implement an extra reading twice a year for half its customers. We
note, however, from the usage data of the test year that consumption in June
appears to be remarkably similar to that in October. We find , therefore, that no
customer will be unduly disadvantaged if, until the issue is reviewed in more
detail , the Company implements two "summer seasons." For those customers
whose meters are read on or around the beginning of June, the summer billing
season shall be June through September. For those customers whose meters are
read on or around the beginning of July, the summer billing season shall be July
through October. We expect the Company to address this issue in detail in its
upcoming cost of service study. We are especially interested in the long term
usage patterns of June relative to October , and in other potential solutions to
this situation.
ORDER NO. 25062 - 23 -
Another problem presented by seasonal rates is maintaining equity in
the minimum billing between customers with different size meters. Mr. Powers
solved this problem by eliminating the minimum allowances. We reject that
solution. Usage allowances permitted under minimum billings shall remain
unchanged for all sizes of meters. The amount of the minimum bill for customers
with meters larger than 3/4 inch, however , shall be determined by adding to the
3/4 inch minimum bill amount (which shall remain unchanged) an amount equal
to the minimum allowance less 1000 cubic feet times a non-seasonalized rate.
Therefore, the Company is directed to determine commodity rates as
follows. First, all anticipated non-commodity revenues (including the 1000 cubic
foot minimum charge) are to be subtracted from the approved revenue
requirement. The Company shall then compute the commodity rate that would
be required to recover the balance of the revenue requirement if no seasonal rates
were to be implemented. These rates are to be used to determine minimum bills
for meters larger than 3/4 inch. Then, all anticipated non-commodity revenues
(including all minimum bill revenues) are to be subtracted from the approved
revenue requirement. The remainder is the revenue to be recovered from
seasonal rates. Seasonal rates are to be designed so that the remainder is
recovered with summer commodity rates 25% higher than winter commodity
rates. The Company is directed to submit workpapers and monthly billing
analyses to substantiate its rates when it submits its new tariffs.
The billing data provided in the Company s case is inadequate to
precisely calculate seasonal rates. Nonetheless , preliminary estimates are
accurate enough to . convince us that the seasonal rate differential we are
adopting will not impose significant financial burden on anyone. Those
customers whose usage is relatively flat or who have a relatively modest summer
usage should benefit.
The customers who will see the largest increase under this rate
structure will be those who have extremely high summer usage. It is these
customers who contribute most to Boise Water s peak load and , therefore , should
contribute correspondingly to the cost recovery of that peak.
We will reassess our seasonal rate structure in Boise Water s next
general rate case. We expect to see considerable discussion of the issue in
conjunction with the anticipated cost of service study.
ORDER NO. 25062 - 24-
It is possible that we will increase the summer commodity charge
relative to the non-summer charge , even further in the future. We believe that
our decision is fair not only to ratepayers but to the Company as well and is
important step in recognizing seasonal variations in costs.
Escrow Program
Staff contends that Boise Water s existing customers are subsidizing
the costs of growth on the Company s system. Boise Water currently has in place
an escrow program under which the Company provides the up-front line
, extension investment necessary to serve new developments. A revenue
requirement is then calculated for that particular development. Because
individual customers will not hook up all at once to the line extension , there is a
lag period during which Boise Water does not recover all of its revenue
requirement for the development. Under the escrow program, this deficiency is
calculated and the developer pays that amount into escrow during the first year
the development comes on line. Staff notes that, in recent years, the Company
has been under-recovering its revenue requirement under this escrow program.
Tr. pp. 1030-1038.
To remedy this problem , Staff recommends that , before Boise Water
establishes a residential escrow , it calculate the Company s return on investment
at buildout (in the sixth year) based upon the same criteria it uses to establish
escrow contributions. If insufficient revenue is generated from customers from
within the subdivision to allow the Company to earn its authorized return
on-site investment at buildout , then a portion of the on-site cost must
contributed up front by the subdivision developer. This will effectively "cap" the
Company s on-site investment per customer. Tr. p. 1038.
In addition, Staff recommends that the backbone plant investment
portion of the escrow calculation be increased by the consumer price index to
reflect the increased cost of constructing backbone facilities such as main lines
services, meters, etc. Tr. p. 1039.
On a technically unrelated issue, Staff recommends that hook-up fees
be increased by the rate of inflation to cover inflation related increases in supply
costs.
ORDER NO. 25062 - 25 -
Staff argues that its recommendations will reduce the cost of serving new
customers which , to a large extent, is driven by inflation. Tr. p. 1039.
In rebuttal testimony, Boise Water witness Hepler argues that the
residential escrow program is, on the average, providing a rate of return close to
the Company s authorized rate of return. Hepler argues that the escrow program
should not be revised as proposed by Staff until the Company has had the
opportunity to study the matter further. He indicates that the Company intends
to file a case in the near future for the purpose of addressing this issue. Tr. pp.
315-320.
Hepler also argues that hook-up fees should be increased to include
the Company s cost of backbone plant, including storage, reservoirs, associated
booster pumping facilities and source of supply. This would increase hook-up
fees to $465 per customer , as opposed to the current fee of $190 (for a 3/4"
meter). Tr. pp. 320-323.
We Find:
One could conclude , by looking at Mr. Hepler s Exhibit No. 13 , tllat the
Company s residential escrows , taken as a composite average, are earning the
Company close to its authorized rate of return. Exhibit No. 14, however, shows
that in year six when the developer no longer contributes to the escrow, the
return earned by the Company tends to drop off, in some cases significantly.
This is evidence that the Company is not earning its authorized return under its
residential escrow program.
The only solutions to this problem are to either increase Boise Water
overall rates so that all customers pay for the costs of growth or to iimit the per
customer investment that Boise ,Water will make under the escrow program.
believe that the latter is the preferable alternative. The Company is instructed
to adopt Staffs recommendation that the Company s return on investment at
buildout (in the sixth year) be calculated based upon the same criteria Boise
Water uses to establish escrow contributions. If insufficient revenue will be
generated from the development to' allow the Company to earn its authorized
return on on-site investment at buildout , then the developer must contribute
portion of the cost up front.
We reject Boise 'Vater s proposal to increase hook-up fees to include
the cost of constructing backbone facilities at this time. If Boise Water was
serious about this proposal , it should have made it in its direct case, as opposed
ORDER NO. 25062 - 26 -
to rebuttal testimony, so that all parties would have had a reasonable
opportunity to respond. By our ruling, we are not indicating whether the
Company s proposal has merit. We simply believe that an issue of such
importance should have been raised earlier. The Company is free to raise this
issue in its next general rate case or in a ,separate proceeding.
We also decline to accept, for now , Staffs suggestion that the backbone
plant investment portion of the escrow calculation be increased by the consumer
price index along with a similar suggestion that hook-up .fees be adjusted for
inflation. Also , we are not pursuaded that the consumer price index is the best
index for reflecting changes in construction costs. However, we ask Staff to
further explore this issue in the next general rate proceeding.
Customer Billing Charges
Non-Sufficient Fund Fee
Boise Water requests that it be allowed to charge $10 for each
customer check that has been returned due to non-sufficient funds (NSF). Staff
recommends that the Commission accept , as - a tariff rate, the $10 fee for NSF
checks. The $10 fee is comparable to similar charges of other utilities. Staff
recommends that it be included in Boise Water s tariff books to assist Staff in its
efforts to verify charges assessed by the Company. Staff recommends that the
billing statement separately itemize the NSF fee and that if the fee is the only
charge owed by the customer , the customer cannot be disconnected for failure to
pay the charge. Tr. pp. 1009-1011.
We Find:
We hereby approve Boise Water s request to implement a $10 NSF
fee. We note that Idaho Code ~ 2$-510A provides for collection costs for checks
dishonored by non-acceptance or non-payment. Statutorily, the fee may not
exceed $15. It appears that Boise Water s requested $10 fee is reasonable in
relation to the statute and to similar charges of other utilities. The Company is
instructed to separately itemize the fee for NSF checks on billing statements.
Pursuant to IDAPA 3.10d, the utility may not disconnect customers for failure to
pay the charge.
ORDER NO. 25062 - 27 -
Reconnection Charges During Working Hours
Boise Water proposes to increase its reconnection charges from $10 to
$20 during working hours. Staff objects to the proposed increase noting that , for
other water utilities , the reconnection fees range from $10 to $15. Staff believes
therefore, that a $15 reconnection fee is more consistent with other utilities. Tr.
p. 1011.
We Find:
We hereby approve an increase in Boise Water s reconnection charges
. during working hours from $10 to $15 on the basis that, as indicated by Staff
this amount is more consistent with other water utilities.
Reconnection Charges After Hours
Boise Water seeks approval to Increase its fees for after hours
reconnections from $15 to $25.
Staff recommends approval of this Increase based upon a review
similar charges by other utilities and upon a review of the costs incurred by Boise
Water in reconnecting customers. Tr. p. 1011-1013.
We Find:
We hereby grant Boise Water s request to Increase reconnection
charges for after hours reconnection from $15 to $25.
Connection Fees for After Hours
Boise Water requests approval to increase its fees for after hours
connections from $15 to $25. The Company currently does not charge customers
to connect during normal business hours. It does charge customers $15 if they
request connection of service on a weekend , holiday or evening. Boise Water
requests an increase in this fee from $15 to $25.
Staff recommends approval of Boise Water s requested increase. Tr. p.
1014.
We Find:
Boise Water s request to increase its fees for after hours connections
from $15 to $25 is hereby approved.
ORDER NO. 25062 - 28 -
Fees for Requested Temporary Termination
Boise Water requests authority to increase its fees for customers who
request a temporary termination of their service from $10 to $20 during work
hours and $15 to $25 after hom'
Consistent with its earlier recommendations, Staff recommends that
the temporary termination fee during hours be set at $15 and after hours at $25.
Tr. p. 1014.
We Find:
We hereby approve an increase in Boise Water s fee for requested
temporary termination during hours from $10 to $15 and after hours from $15 to$25.
Dual Water System
Currently, all the water provided by Boise Water is potable, whether
used for culinary or irrigation purposes. CBWC charges that it is unnecessary
for the Company to provide drinkable water to new developments for irrigation.
It recommends that the Company undertake efforts to begin installing dual
water systems in all new developments. CBWC recommends that before any of
Boise Water s investment in the Marden plant is included in rates , an
investigatioI;l be initiated to determine if the failure to use dual water systems
was the "least cost path" and is the cause of the need for the Marden plant.
CBWC recommends that Boise Water not be allowed to include in rate base any
portion of its investment in new plant sized to provide irrigation water to new
subdivisions where dual systems are available and feasible. CBWC further
recommends that Boise Water not be permitted expand its service territory into
areas in which dual systems are available and feasible unless such dual systems
are installed.
Finally, CBWC recommends that Boise Water s hook-up fees for new
customers who do not take advantage of dual irrigation systems where available
and feasible be designed to reflect the cost of depleting the aquifer. By the same
token, those new customers who take advantage of available dual systems should
pay a hook-up fee that does not include the marginal cost of depleting the aquifer.
CBWC argues that Boise Water has, for many years , supported the
concept of a dual water system but has failed to actively pursue it. CBWC argues
ORDER NO. 25062 - 29 -
that the life of the Boise Valley aquifer is limited and that once it is depleted, the
Company will rely increasingly upon surface water with a need for additional
treatment facilities. CBWC contends that Boise Water has neglected its legal
duty to protect the interests of its ratepayers and the public at large by not
pursuing a dual water systems.
Boise Water states that it supports the concept of dual water systems
but argues that ' befor e such systems are required, a comprehensive plan
addressing their feasibility should be undertaken. The Company asserts that the
authority to require developers or property owners to install these systems rests
. with the city and county governments which enact ordinances and not with Boise
. Water or the Commission. Boise Water argues that the Commission does not
have the jurisdiction to force the Company'to implement dual systems.
We Find:
CBWc. raises a legitimate concern about the future of Boise s aquifer.
Rapid growth is placing increasing pressure on the aquifer, and its ability to
adequately serve that growth indefinitely is far from certain. For the same
reasons that we pursue conservation, therefore , we are compelled to investigate
the advisability of using untreated surface water for non-culinary purposes such
as irrigation in new development. Irrigation during the hot , arid summer
months of southern Idaho constitutes a significant usage of water. The economic
rational for pursuing dual water systems is that the need for expensive
treatment facilities, such as the Marden Street plant, may be deferred.
We reject Boise Water s contention that we are without jurisdiction
and authority to require the Company to take the necessary steps to see that
dual water systems become a reality. Overseeing the terms and conditions of
service are a statutory obligation of this Commission.
We also reject, however , CBWC's claim that Boise Water has neglected
civic duties to protect the interests of its customers and the members of this
community. To the contrary, Boise Water has been an active participant in
addressing the problems the community of Boise City faces in securing an
adequate and safe supply of water.
It is our decision , therefore , to instruct the Company to begin to work
in earnest, with relevant state and local entities , including CBWC, who are by
ORDER NO. 25062 - 30 -
necessity involved in planning requirements for new development within Boise
Water s service tenitory. The Commission will also designate a member of Staff
to actively represent the Commission in that process. We expect the Company to
make significant progress toward making the installation of dual water systems
in new developments practicable by the next general rate case.
As noted above , we believe the Commission has the legal authority to
enter coercive ord~rs mandating dual water systems in the manner suggested by
CBWC. Before exercising that authority we think all interested parties should
have an opportunity to explore implementation of dual water systems in a
collaborative way.
Boise Water's Bidding Practices
Sharon Ullman notes that Boise Water has only recently been bidding
out its contracts for materials and labor. Furthermore , she contends, the
Company only retains the current and previous year s bid results in contrast to
what she perceives to be normal practices within the industry. Tr. pp. 821-822.
Ms. Ullman contends that Boise Water is overly selective in its use of
contractors. Tr. p. 822. She recommends that Boise Water be required to retain
bids for at least five years. Tr. p. 823. She also recommends that Boise Water be
required to bid all contracts in excess of a predetermined amount and that the
Company be required to revise its competitive bid practices to insure that a
larger number of contractors qualified to submit bids. ID.
We Find:
While Ms. Ullman raIses what are ostensibly legitimate ' concerns
regarding Boise Water s bidding practices , we do not believe that sufficient
evidence was presented in this hearing regarding the appropriate industry
standards by which to compare Boise Water s methods. We agree , for the time
being, that it is reasonable to require Boise Water to retain all bids for a
minimum of five years. We further direct Staff to review Boise Water
procurement practices and to determine industry standards and present its
recommendations to us in the Company s next general rate case.
Intervenor Funding
Applications for intervenor funding were timely filed by ICC and
CBWC.
ORDER NO. 25062 - 31 -
ICC 'alleges the following expenses:
Consulting fees, Power:
Research , Fothergill:
Subtotal
133 hrs ((Y $ 75lhr =
22 hrs (Q) 40lhr =
Expenses, Power:Federal Express
Telephone
Meals
Taxi
Subtotal
Other Expenses:RT Air Travel
MissoulaIBoise
Hotel - one night
Copying
Postage
Telephone
Subtotal
TOTAL
CBWC alleges the following expenses:
Legal Fees and Expenses:
Peter Richardson - 133.5 hours (Q) $1151hour
Scott Campbell - 8.2 hours (Q) $125/hour
Total Legal Expenses:
Total Legal Fees and Expenses:
Expert Witness Fees and Expenses:
Economist Johnson - 7.6 hours (Q) $135/hour
Economist Reading - 148.4 hours
(g)
$135/hour
Research Consultant - 35.3 hours
(g)
$105/hour
Senior Research Associate - 36.2 hours (Q) $95/hour
Research Associate - 20.2 hours (Q) $80/hour
Senior Research Assistant - 18.2 hours (Q) $35/hour
Research Assistant Anderson - 4.5 hours
(g)
$25/hour
Research Assistant Kuhlman - 35.4 hours (Q) $25lhour
Senior Technical Assistant - 22.2 hours
(g)
$20/hour
Commissioner Swisher - 6.0 hours ~ $40lhour
Commissioner Swisher - Out-of-Pocket Expenses
Total Expert Fees and Expenses
Total All Fees and Expenses:
ORDER NO. 25062 - 32 -
975.
880.
$10 855.
$46.
23.
40.
20.
30.
$509.
56.
52.
21. 75
15.
54.
$11 639.
$15 352.
025.
$3890.
$20 268.
$ 1 026.
$20 034.
$ 3 706.
$ 3 439.
$ 1 616.
$ 637.
$ 112.
$ 885.
$ 444.
$ 240.
$ 10.
$32 150.
$52 418.
Boise Water filed motions in objection to the applications of both ICC
and CBWC for intervenor funding. The Company objects to ICC's application for
suggesting that the Commission exceed the statutory maximum allowable
funding award of $20 000. Furthermore, Boise Water contends , there was a
great deal of overlap between the testimony of ICC witness Power and that of the
Commission Staff witnesses. Boise Water also objects to that portion of costs
relating to ICC witness Power s testimony dealing with seasonal rates on the
. basis that that issue was litigated in the Company s previous rate case. Finally,
Boise Water opposes any funding relating to the charges for Mr. Fothergill's time
. because of the "voluntary nature of his participation in this proceeding" and
because he has not provided the basis for his $40 an hour charge.
Boise Water objects to the application of CBWC for the following three
reasons:
1. The majority of CBWC's case related to the issue of dual water
systems which , Boise Water argues, should have been addressed in another
forum in which the Commission has no jurisdiction to act.
2. Significant portions of CBWC's case addressed the conservation and
rate of return issues thereby duplicating the efforts of Staff and ICC.
3. CBWC's total alleged expenses exceed the statutory maximum
funding available of $20 000.
We Find:
Initially, we note that Boise Water is apparently unaware that recent
l~gislation increased the statutory maximum award of intervenor funding in any
one proceeding from $20 000 to $25 000.
Second , Boise Water is also apparently unfamiliar with the manner in
which this Commission processes applications for intervenor funding.
Intervenors are expected to list all of their reasonable fees and costs incurred in
participating in a proceeding before this Commission regardless of whether those
costs , by themselves or in combination with other intervenors , exceed the
sta tu tory maximum.
Finally, we are not convinced by Boise Water s arguments that the
presentation of evidence by either ICC or CBWC was overly duplicative. To the
contrary, both intervenors presented unique and helpful perspectives of the many
complex issues involved in this case. Obviously, we were persuaded by ICC'
ORDER NO. 25062 - 33 -
arguments on the issue of season,:,-l rates and by CBWC with respect to the issue
of dual water systems. Neither of these issues were discussed in any detail by
the Commission Staff. The Company s suggestion that the intervenor s advocacy
of these positions was unwarranted , lacks credibility. In short, both ICC and
CBWC contributed materially to the decision reached by the Commission in this
case. We further find that both Applications for intervenor funding apply with
all of the other technical and substantive requirements of Idaho Code 61-617A
and Rule 16 of the Commission s Rules of Practice and Procedure.
In dividing the available funding between the two intervenors , we find;
initially, that it is reasonable to pay each intervenor its out-of-pocket costs with
the exception of'CBWC's hearing transcript expense which we do not believe is a
reasonable and necessary expense for the purposes of intervenor funding.
therefore award CBWC costs in the amount of $2 132.80 and ICC costs in the
amount of $784.25.
Regarding the remaining funding available, we believe it is reasonable
to fully fund ICC's requested fees in the amount of $10 855.00. We believe that
ICC was able to cover a wide range of issues with only one witness and at very
reasonable rates. Mr. Powers' testimony on the issues of seasonal rates and
removing economic disincentives to conservation were helpful and will continue
to'assist us in our future deliberations of these issues. Mr. Fothergill's modest
hourly rate is very reasonable given the value of his contribution to this
proceeding.
CBWC also provided valuable testimony on issues of rate of return and
dual water systems. In addition , we note that CBWC's application for intervenor
funding provided a desirable level of detail in its alleged fees and costs.
award CBWC the remaining available funding of $11 227.95.
Boise Water is instructed to pay these amounts within 28 days from the
date of this Order. The Company is further directed that these costs , like the
rate case expense , should be amortized over two years.
We would like to note that , although she chose not to request
intervenor funding, Ms. Ullman s participation in this case was insightful, well
prepared and helpful to this Commission. Her effectiveness and knowledge of an
arcane subject were impressive. We appreciate her involvement.
ORDER NO. 25062 - 34 -
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Boise
Water Corporation and its Application pursuant to the authority and power
granted it under Title 61 of the Idaho Code and the Commission s Rules of
Practice and Procedure, IDAPA 31.01.01000 et seq.
ORDER
IT IS HEREBY ORDERED that Boise Water Corporation be and hereby
is authorized to file tariffs of rates and charges in compliance with the terms of
this Order, to be effective for bills rendered on and after three working days after
receipt by the Commission.IT IS FURTHER ORDERED that the Company shall make
substantial progress On making practicable the implementation of dual water
systems prior to the filing of its next general rate case.
IT IS FURTHER ORDERED that the Company shall complete and
submit its cost of service study on or before the filing of its next general rate case.
THIS IS A FINAL ORDER. Any person interested in this Order (or
in issues finally decided by this Order) or in interlocutory Orders previously
issued in Case No. BOI-93-1 may petition for reconsideration within
twenty-one (21) days of the service date of this Order with regard to any matter
decided in this Order or in interlocutory Orders previously issued in Case
No. BOI-93-1. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See
Idaho Code 9 61-626.
ORDER NO. 25062 - 35 -
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1//1./
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DONE by Orde~ ~ho Public Utilities Commissio~ at Boise
Idaho, this ~LL day 0~993.
il&u:A MARSHA H. SMITH , PRESIDENT
lliL
EAN J. MILLER, COMMISSIONER
h2~
~-,,-=
RALPH LSON, COMMISSIONER
MYRNA J. W TERS
COMMISSION SECRETARY
BPNLD:O-2174
ORDER NO. 25062 - 36 -