20180823Comments.pdf

BRANDON KARPEN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITTES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720:0074
(208) 334-03s7
IDAHO BAR NO. 7956
IN THE MATTER OF THE JOINT
APPLICATION OF UNITED WATER IDAHO
INC., AND BRIAN SUBDIVISION WATER
USERS ASSOCIATION FOR APPROVAL OF
AN AMENDMENT TO CERTIFICATE OF
PUBLIC CONVENIENCE AND NECESSITY
NO. 143; APPROVAL OF AN AGREEMENT
FOR CONNECTION AND TRANSFER OF
WATER SYSTEMS; APPROVAL OF RATES
AND CHARGES
CASE NO. SUZ.W.18.O1
COMMENTS OF THE
COMMISSION STAFF
REC TIVED
i*ii riUG 23 pt{ 2: 05
ON
f-
q-- 'J
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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The Staff of the Idaho Public Utilities Commission, submits the following comments
regarding the above referenced case.
BACKGROUND
The Brian Subdivision ("Subdivision") consists of 48 residences in South East Boise,
Idaho. Prior to December 17,2014, water for 46 of the subdivision's 48 residences was supplied
from a shallow well operated by the Brian Subdivision Water Users'Association ("Brian Water").
The Brian Water system had a history of nitrate contamination levels exceeding water quality
compliance limits, and had been operating under a Department of Environmental Quality
("DEQ") consent order since April 28, 2011. The DEQ consent order required Brian Water to
eliminate nitrate from its drinking water system. An independent engineering analysis determined
1STAFF COMMENTS AUGUST 23,2018
that an interconnection with United Water of Idaho ("Company") would be the most cost effective
means for providing safe drinking water to the Subdivision.
On September 29,2014, the Company and Brian Water applied to the Commission
requesting an order authorizing the Company interconnect with Brian Water and assume
operation of Brian Water's domestic water system. Case No. UWI-W-14-01. On December 17,
2014, the Commission issued Order No 33195 amending United Water Company's CPCN to
include the Subdivision within the Company's Service Territory. The Commission also ordered
the Company update the Subdivision's system to Company Standards, and authorized
construction of a Highway 21 River Crossing main line extension.
The Commission's order required the Subdivision customers to pay 10% of the cost of the
Highway 2l River Crossing main line extension, 10% of the costs of upgrading mains within the
subdivision, and l00Yo of the costs of meters and new and upgraded services. The remaining
costs would be spread among all customers. Subdivision customers would be given the option of
paying their share of these costs up front, or via a 10-year surcharge. The Company estimated the
cost of meters and new/upgraded services to be 5125,026. The Company also estimated that costs
subject to 90Yoll0o/o sharing (Highway 21 Crossing, and upgraded subdivision mains) to be
$1,215,184. Costs not collected from Brian Water customers would be subjected to an Allowance
for Funds Used During Construction ("AFUDC") included in the next general rate case.
On May 1,2018, in compliance with Order No. 33195, the Company requested the
Commission approve a trued-up rate and conforming tariffs for the costs associated with
connecting to, and taking over operation of, Brian Water.
STAFF REVIEW
Staff reviewed the Company's Application, exhibits, and additional information received
through production requests. Staffconducted an audit ofthe actual project costs and verified that
the total cost of 51,692,177 is accurate and properly recorded on the Company's books. The costs
allocated to the former Brian Water customers and subject to the surcharge is $304,824. Based on
this amount, the proposed surcharge one time lump sum payment would be $6,350.99 per
customer, or the proposed bi-monthly surcharge would be $154.55 over 10 years. Staff supports
the Company's trued-up proposal of costs because the costs appear prudently incurred, and in
compliance with Commission Order No. 33195. However, after reviewing the record, Staff found
2STAFF COMMENTS AUGUST 23,2018
that the project incurred significant delays and cost overruns. Accordingly, Staff proposes an
alternative cost allocation for the Commission's consideration.
As discussed in detail in Greg Wyatt's testimony, delays in the Highway 21 River
Crossing necessitated the pipeline work to be re-bid. The new bid was approximately $183,000
higher than the bid considered by the Commission two years earlier. Additionally, abore casing
had to be installed on the south side of the New York Canal to enable the boring, at an additional
cost of $77,500. Staff believes the Commission should consider that current and future customers
beyond the Subdivision, including Barber Valley, are beneficiaries of the Highway 2l River
Crossing. Wyatt Direct at 5. Likewise, Staff believes the additional costs should be included in
rate base and borne by all customers. Allocating the $260,500 overage to all customers will
decrease the amount allocated to Brian Subdivision customers by $26,050'overall. The resulting
bi-monthly surcharge would be $141.35 or a one time lump sum payment of $5,808.22. See Staff
Attachment A.
Application of AFUDC
AFUDC is a cor.nponent of construction costs representing the net cost of borrowed funds
and a reasonable rate on other funds used during construction. Under generally accepted
accounting principles, AFUDC is added to the construction costs and capitalized into rate base
when the project is placed into service. However, the Commission stated "[a]ll capitalized project
construction expenditures not supported through revenue collected from the surcharge will
continue to be subject to AFUDC until included in rates. This portion of the expenditures refers
to the 90Yo of the true-up costs of the main line installation to connect to the system." Order
No. 33195.
The Company noted that it'oinadvertently stopped AFUDC as of November 2017 when
the project was placed in service." Response to Production Request No. l. The Company implies
that AFUDC should continue on the surcharge portion until such time as the surcharge is
approved and implemented. Id. The Company "proposes not to adjust the surcharge to account
for this, but rather to include this amount in a future rate filing." Id. Staff agrees. Pursuant to
Order No. 33195, the Company should continue to accrue AFUDC on the 90% of project costs
not subject to a surcharge to the former Brian Water customers until those costs are included in
the Company's rates. The Commission did not specify the AFUDC treatment for the portion
JSTAFF COMMENTS AUGUST 23,2078
covered by the surcharge. Because nothing is specifically stated, Staff believes that traditional
ratemaking is appropriate, and that AFUDC should cease once the project is completed and
placed in service regardless of when the project is included in rates. Staff thus recommends that
AFUDC cease on the surcharge portion of the project when it was placed in service.
The Highway 2l River Crossing
The Highway 21 River Crossing is a 4,000 foot long, 12 inch main connecting the Brian
Subdivision to the Company's existing mains in Surprise Valley. The route required horizontal
boring under the New York Canal, Boise River, and Penitentiary Canal. According to the
Company, canal authorities would only permit boring operations during months in which the
Canal is not in operation, so that construction could only occur between mid-October and mid-
March of each year.
Completion of the Highway 21 River Crossing was delayed two years, and cost
approximately $260,500 more than the Company presented in its 2014 estimate.r Although Staff
believes the actual costs incurred by the Company for this portion of the project were prudently
incurred, Staff also believes that the 2014 estimate understated the costs and risks that should
reasonably have been anticipated for this project.
Boring was originally supposed to have been completed duringthe2014-2015 drilling
season; however, the boring company (Earth Energy) experienced frequent caving, and at least
one large boulder that delayed completion of the borehole until May 2017. Construction of the
final successful borehole required the boring Company to hammer approximately 160 feet of 30
inch diameter steel casing through loose rocks and dirt under the canal. The Company explained
that it only paid Earth Energy for the final successful attempt to bore under the New York Canal,
and that it did not pay for any unsuccessful attempts.
Staff notes that the geology in this area is complicated, and that the Highway 2l River
Crossing traverses at least three different geological units. The lithology at the site where the
bore hole crosses beneath the New York Canal is described as unconsolidated sand, gravel, and
I The incremental cost associated with the successful borehole attempt was $77,500. The two year delay required
pipeline work to be rebid at a cost of approximately $183,000 higher than the original estimate. Wyatt di, p. 5.
4STAFF COMMENTS AUGUST 23,2018
cobbles interspersed with basalt.2 Basaltic outcrops are visible immediately above and below the
New York Canal.
Staff believes that the problems with caving and boulders should have been anticipated by
the Company and its boring contractor, and that the elevated costs of boring under these
conditions should have been included in the cost estimate presented to the Commissionin2014.
A more realistic assessment of costs and risks might have resulted in selection of a less risky,
lower cost alternative to serve the Subdivision, such as the Warm Spring Option. Staff also
believes that the two year delay caused by unsuccessful attempts to bore under the New York
canal could have been avoided if the Company and its boring contractor had made their initial
boring attempts using methods and materials suitable for the known lithological conditions.
Notwithstanding Staffs concerns about the 2014 cost estimate, Staff believes that actual
costs of the Highway 21 River Crossing were prudently incurred, and provide an immediate
benefit to the Company's customers in the Subdivision and surrounding area. Once looped with
the Warm Springs line, the Highway 21 River Crossing will have sufficient capacity to be
beneficial to all current and future customers on this segment of Warm Springs Avenue.
Because of construction delays, no benefits of the Highway 2l River Crossing accrued to
Subdivision customers for more than two years after the original planned completion date. Staff
believes the Commission should conclude that the $260,500 cost overrun should be collected
through base rates, and excluded from the 90%ll0% formula used to allocate other costs of the
river crossing.
Work Within the Subdivision
The Company reported that the costs of renovating mains and services within the
Subdivision were approximately $43,000 more than was presented in its2014 estimate. Staff
concurs that these expenses were necessary to update the Subdivision's system to conform to
Company standards. Given the 50+ year age of the mains and services within the Subdivision,
Staff does not believe that the Company could reasonably have inferred the condition of each pipe
prior to excavation.
2 Othberg and Burnham, Idaho Geological Survey Technical Report 90-4, Geologic Map of the Lucky Peak
Quadrangle, Ada County, Idaho. 1990.
5STAFF COMMENTS AUGUST 23,2018
Tariff Schedule lC Brian Subdivision Surcharge
Staff recommends several revisions to the Company's proposed Schedule lC as described
in more detail below.
Budget Billing
The Commission provided Subdivision customers the opportunity to enroll in the Budget
Billing program offered by the Company. Order No. 33195 at 9. Staff recommends that the
Company allow Brian Subdivision customers to sign up for Budget Billing at this time.
The Company started connecting Subdivision customers to Suez' system in September
2017. In its November 2017 Quarterly report, the Company announced that all former Brian
Water customers had been connected. Since then, the Company has accumulated at least nine
months of billing data. Staff believes that there is sufficient data available to allow Suez to
estimate usage for the additional months necessary to provide a full 12 months' worth of data.
This will enable the Company to calculate a monthly Budget Billing amount for customers who
wish to enroll in Budget Billing.
For those customers who choose to enroll, the amount of the monthly surcharge will be
$77.28-one-half of the surcharge amount. Staff recommends that the Surcharge Amount
paragraph in Schedule No. 1C be revised as follows:
A bi-monthly surcharge in the amount of $141.35 will be billed every other month
unless the customer is enrolled in Budeet Billine. Budget Billine customers will
be billed $70.67 monthly. The surcharge is in addition to charges for water
service as specified in Schedule No. 1, General Metered Service and other
applicable charges.3
Conditions of Contract
As proposed, Schedule 1C lists four provisions under the title "Conditions of Contract."
One condition states: "The surcharge shall not be subject to change in subsequent general rate
proceedings absent a showing of adversity to the public interest." Application Exhibit No. 8.
3 These numbers represent billing amounts recommended by Staff that exclude the $260,500 cost overruns from
Brian Water Customers. Should the Commission choose to treat the entire trued-up amount in the same manner as it
did in Order No. 33195, with Brian Subdivision customers being allocated for llYo of costs and90Yo being spread
among ratepayers, an additional 5304,824 should be included in the surcharge to Subdivision customers, resulting in
a bimonthly surcharge of $ 154.55, or $77.28 monthly for customers enrolled in budget pay.
6STAFF COMMENTS AUGUST 23,2018
This provision could be interpreted to limit the Commission's or Commission Staff s
discretion in future proceedings. Likewise, Staff opposes its inclusion as proposed by the
Company. Staff proposes the following revision to clarify the Company's intent: "The Company
shall not propose to change the surcharge amount, terms or conditions in subsequent general rate
proceedings."
Semi-Annual Reports
The Commission previously ordered the Company to submit semi-annual reports
discussing the status of arrearages and payments plans for Brian customers. Order No. 33195 at
I I . Staff recommends the Company begin those reports six months after the issuance of the final
order in this case.
CUSTOMER NOTIFICATION
The Company mailed a direct notice via letter to residents of Brian Subdivision on
May 7,2018, and also provided a copy to the Commission Staff. Staff reviewed the document
and determined that it does not meet the requirements for a customer notice pursuant to Rule 125
of the Commission's Rules of Procedure (IDAPA 31.01.01) because it does not inform customers
of the opportunity to file comments or follow the case through the Commission's RSS feed, and
did not identify the percentage increase of the proposed surcharge over the original estimate.
However, because the Company is requesting approval to implement a surcharge in compliance
with Order No. 33195, instead of proposing a change to existing rates, Rule 125 does not apply.
Although Staff appreciates the Company's effort to inform effected customers of the proposed
surcharge, Staff is concerned that customers were not informed of the opportunity to file written
comments with the Commission in this case. As of August 16,2018, no customers have filed
written comments.
Letter to Customers
The Company also submitted a proposed letter to be sent to customers following the
issuance of the final order in this case. Exhibit No. l0 to Greg Wyatt's testimony. Staff
recommends that the Company address Budget Billing in its letter. Staff also recommends that
the letter address what happens if a customer does not notify the Company within 30 days of
7STAFF COMMENTS AUGUST 23,2018
which payment option they choose (billed bi-monthly, Budget Billing, or lump sum payment).
Staff s assumption is that bi-monthly billing would be the Company's default billing method.
STAFF RECOMMENDATIONS
Staff recommends the following:
1. Approvaloftheactualprojectcostsof $1,692,177,withthe $278,773 tobebornebythe
Brian Subdivision Water Users Association customers;
2. Approval of Schedule No. lC Brian Subdivision Surcharge in the amount of $141.35 bi-
monthly payment for l0 years, or a one-time lump sum payment of $5,808.22;
3. Order the Company to mail each of its Brian Subdivision customers a letter defining the
surcharge amount, payment terms and available payment options including Budget
Billing;
4. Order the Company to allow Brian Subdivision customers to enroll in Budget Billing at
this time based on available account data;
5. Order the Company to place Brian Subdivision customers on a bi-monthly billing if they
do not notifr the Company of a preferred billing option within 30 days;
6. Revise Schedule.lC as suggested; and
7. Order the Company to file its semi-annual reports to the Commission with the initial
report due six months after the final Commission order in this case.
Respecttully submitted this ?-3d4 day of August 2018
Deputy Attorney General
Technical Staff: Kathy Stockton
Bentley Erdwurm
Chris Hecht
Mike Morrison
i :umisc:comments/suzw I 8. I bkklscwhbemm comments
8STAFF COMMENTS AUGUST 23,2018
ORIGINAt
ESTIMATE Total Cost
Allocation
Percentage to
BSWUA BSWUA
Allocation
Percentage
to SUEZ
Customers SUEZCustomers
Lump Sum
Surcharge
Monthly/Bi-
Monthly
Surcharge
Payment
Pipeline Cost s r,275,784S rzs,ozo
70% 5
700% s
72r,578 eo% s
o%5
1,093,666
rvice & Meter Costs,At S 1,340,210 5 246,54 $ 1,093,666 g 4,941.49 $62.43
124.86
ldaho Public Utilities Commission
Staff Aftachment A
suz-w-18-01
Attachment A
Case No. SUZ-W-18-01
Staff Comments
08/23n8
COMPANY
PROPOSAL Total Cost
Allocation
Percentage to
BSWUA BSWUA
Allocation
Percentage
to suEz
Customers SUEZCustomers
Lump Sum
Surcharge
Monthly/Bi-
Monthly
Surcharge
Payment
Pipeline Cost
Service & Meter Costs
TOTAT
s
s
1,547,504
150,673
70% s
TOOY, S
154,150
150,673
eo% 5
o%s
L,387,3s3
$ 1,692,L77 s 304,824 S 1,387,353 s 6,350.99 $
bi-monthly > S
77.28
154.55
coMMlsstoN
STAFF PROPOSAT Total Cost
Allocation
Percentage to
BSWUA BSWUA
Allocation
Percentage
to SUEZ
Customers SUEZCustomers
Lump Sum
Surcharge
Monthly/Bi-
Monthly
Surcharge
Payment
Pipeline Cost
Pipeline Cost/Delay
Service & Meter Costs
TOTAL
s
s
s
t,281,004
260,500
750,673
to% s
o%5
too% s
128,100
150,673
90% s
100% s
s
l,L52,gO4
260,500
S 1,592,t77 s 278,773 $S 1,413,404 S 5,808.22 S
bi-monthly > $
70.67
141.35
CERTIFICATE OF SBRVICB
T HEREBY CERTIFY THAT I HAVE THIS 23RD DAY oF AUGUST 2018,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. SUZ-W-I8-OI, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWNG:
MICHAEL C CREAMER
GIVENS PURSLEY LLP
PO BOX2720
BOISE ID 83701-2120
E-MAIL: mccGDgi vensrrursley.corx
RICHARD JUENGLING
PRESIDENT
BRIAN SUB WATER USERS
5885 EASTWOOD PLACE
BOISE ID 83716
E-MAIL : j uen gl i n grichard(t)grnail.com
CERTIFICATE OF SERVICE