20050228Order No 29719.pdf

Office of the Secretary
Service Date
February 28, 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF CDS STONERIDGE UTILITIES, LLC
FO R A UTHO RIZA TI ON FOR A
SECURITIES ISSU AN CE ORDER NO. 29719
CASE NO. SWS- W -04-
On October 29, 2004, Stoneridge Utilities filed an Application with the Commission
seeking approval to increase the amount of a previously approved loan from the Department of
Environmental Quality (DEQ). After reviewing the Application and Staffs recommendation
the Commission in this Order grants the request for additional borrowing authority as more fully
discussed below.
BACKGROUND
In Order No. 29320 issued on August 26, 2003 , the Commission authorized
Stoneridge Utilities to incur indebtedness in the principal amount of $213 500. The debt was
approved to allow a service area expansion and interconnection of an adjacent homeowners
water system serving the Happy Valley Ranchos Subdivision (HVR). The Commission further
authorized Stoneridge to use a surcharge to recover the debt and financing incurred to complete
the project. However, the Commission reserved judgment on the appropriate amount of the
surcharge until the State Drinking Water Revolving Fund loan is finalized and construction costs
are more certain. Stoneridge Utilities was also directed to apply its currently approved rates to
the HVR customers once water service was provided by the utility.
In Order No. 29507 issued on May 28, 2004, the Commission increased the
authorized indebtedness for Stoneridge to $323 990 from the State Drinking Water Revolving
Fund. The increased loan amount was due to contracting costs increasing from $213 500 to
$235 990 for the improvements authorized in Order No. 29320 in August 2003. The increase in
the total loan amount also includes $88 000 for additional system-wide improvements required
by the DEQ to meet the "Ten State Standards." The additional improvements include upgrading
reservoir and pumping controls and replacement of the Company s backup well pump. Project
personnel dubbed the original interconnection project as Phase I and the controls and backup
well improvements as Phase II.
ORDER NO. 29719
In Order No. 29507 the Commission reaffirmed its authorization to use the surcharge
mechanism approved in Order No. 29320 to recover the debt and financing costs incurred to
complete the interconnection project (Phase I). Stoneridge was also directed to file the final
interconnection proj ect costs upon completion for the Commission to determine the final
reasonable surcharge level.
In its Order, the Commission reserved judgment on how to collect the cost of the
backbone improvement project (Phase II). The Company was directed to file final construction
engineering, and financing costs for a proper recovery determination upon completion of the
system (Phase II) improvement.
ST AFF REVIEW
Phase I
Construction began in July 2004 and the interconnection of the pipeline was
completed in August 2004. The booster pump station was completed in September 2004 and
water began flowing from Stoneridge to Happy Valley Ranchos. The Company began charging
HVR the current tariff rates for metered consumption beginning in September 2004, however
those rates do not yet include any surcharge. The Company reports that the HVR customers are
extremely satisfied with the improved water quality. At the time of the Company s Application
a few items remained to be completed prior to close out of Phase I such as: land reservoir
painting; installation of a flush valve; overall system flushing; land proj ect documentation; and
final site cleanup.
Phase
When the contractor proceeded to perform the backup well replacement, significant
problems were found. After great effort the existing backup pump was removed from the well
casing. Further investigation determined that at some time in the past the well screen was moved
vertically and subsequently became lodged within the well casIng.
determined that the well has collapsed at some depth.
The project engineer has explored a number of alternatives to rehabilitate the existing
Proj ect personnel then
well. The best possible result is a well with insufficient capacity to meet the Company s backup
needs. The. project engineer has analyzed a number of alternatives to meet the backup well
requirements mandated by the DEQ. The solution recommended by the Company s engineer
and supported by DEQ is to construct a new well and pump at the backup well minimum
ORDER NO. 29719
required capacity of 600 gallons per minute (gpm). The Company will maintain the existing
backup well casing for future possible incremental capacity expansion. The estimated maximum
capacity of the existing failed backup well is approximately 400 gpm.
THE CURRENT APPLI CA TI 0 N
The Company is requesting authorization to incur indebtedness for a total loan
amount of $438 500 from the State Drinking Water Revolving Fund. The DEQ loan will be a
20-year loan at an anticipated interest rate of 2%. The increased loan amount is the result of
increased costs from $235 990 to $275 00 for the interconnection project (Phase I). This is an
increase of $39 010 over the amount approved by the Commission in Order No. 29507, dated
May 28, 2004. The increased costs are associated with higher engineering and easement costs as
well as minor contract quantity increases.
The request also includes increased cost from $88 000 to $163 500 for the controls
and backup well costs (Phase II). The increased Phase II costs are associated with increased
engineering costs and the unforeseen construction of a new well to replace the existing failed
backup well. The Company is now asking the Commission for borrowing authority with the
most current loan figures.
STAFF RECOMMENDATION
The Commission Staff has reviewed the contract documents and performed an on-
site review. Staff has reviewed the Company s additional loan requests and reviewed these
requests with the engineer for the Company and the DEQ officials. Based upon the above
review, Staff found that the increased costs are necessary to complete the projects as originally
proposed and that the increases are the result of either unforeseen circumstances or increased
project requirements. The DEQ has approved the increased loan request from the State Drinking
Water Revolving Fund subject to the Commission s approval.
Staff recommends that the Commission approve the Company s Application with the
following recommendations: (1) that the Commission approve the amended request to increase
the approval in the loan amount for Phase I up to $275 000; (2) that the Commission approve the
loan amount of $163 500 for Phase II but continue to reserve any judgment on the complete and
final amount of the loan approval, including how that amount may be recovered, for Phase II;
and (3) that the approval of this amendment be conditioned upon all remaining terms and
conditions of Order No. 29320 and Order No. 29507.
ORDER NO. 29719
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Stoneridge Utilities is a water corporation within the definition of Idaho Code ~ 61-
125 and is a public utility within the definition of Idaho Code ~ 61-129. The Idaho Public
Utilities Commission has jurisdiction over this matter pursuant to the provision of Idaho Code
~ ~
61-901 et seq.which requires utilities like Stoneridge to obtain the Commission s approval
before they issue or assume any securities or debt.
After examining the Application and Staff s comments, the Commission finds that an
evidentiary hearing in this matter is not required.The Commission further finds that the
proposed transaction is consistent with the public interest and Stoneridge Utilities' proper
performance of its duties as a public utility.
The Commission also finds that the general purposes for which the loan funds will be
utilized are lawful purposes under the public utilities law and are compatible with the public
interest. However, this approval of the general purposes for which the funds will be put to use is
neither a finding of fact nor a conclusion of law that any particular project, program, or future
cost recovery is authorized. Approval in this Order shall not be construed to approve any
particular use of the funds that Stoneridge Utilities may benefit by the approval in this Order.
The Commission further finds that the issuance of an Order authorizing the
borrowing of funds from the State Drinking Water Revolving Fund in the amount of $438 500
does not constitute determination/approval of the related costs for ratemaking purposes. The
Commission expressly reserves the ratemaking treatment of these loans until an appropriate
future proceeding.
The Commission s approval of this Application is conditioned upon Stoneridge
Utilities satisfying the reporting requirements recommended by the Staff. Stoneridge is
reminded that compliance with reporting requirements does not guarantee that the cost of the
loans or the use of such funds will be automatically recovered in the next rate case. To the extent
these loan funds are used for non-regulated services, any adjustments associated with the non-
regulated costs will occur in a future rate case.
Stoneridge Utilities has paid the fee required by Idaho Code ~ 61-905 , and complied
with the Commission s Procedural Rule 141 regarding the issuance of securities.
31.01.01.141.
IDAP A
ORDER NO. 29719
ORDER
IT IS HEREBY ORDERED that CDS Stoneridge Utilities, LLC is authorized to
incur indebtedness in the principal amount of$438 500 from the State Drinking Water Revolving
Fund for the purposes described above and in previous Commission Order Nos. 29320 and
29507. More specifically, $275 000 of the total loan amount is approved for Phase I
interconnection. The remaining $163 500 of the total loan amount is approved for Phase II
backbone system improvements. The Company is directed to file the final loan documents with
the Commission under this case number.
IT IS FURTHER ORDERED that the Commission continues to reserve judgment on
the appropriate amount of the surcharge, previously approved for interconnection (Phase I), until
the State Drinking Water Revolving Fund loan is finalized and disbursed and construction costs
are final and certain. Stoneridge is directed to file all relevant information regarding the costs of
this interconnection project (Phase I) so that when it is completed the Commission, upon the
Company s request, can adequately review and determine the just and reasonable level at which
to set the surcharge.
IT IS FURTHER ORDERED that the Commission reserves judgment on how
collect the cost of the backbone system improvements (Phase II).
IT IS FURTHER ORDERED that approval of this amendment is conditioned upon
all remaining terms and conditions of Order No. 29320 and Order No. 29507.
ORDER NO. 29719
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of February 2005.
ATTEST:
~ill.
D. Jewell .
mission Secretary
O:SWSW0401 dw
ORDER NO. 29719
MARSHA H. SMITH, COMMISSIONER
SEN, COMMISSIONER