20070619final_order_no_30342.pdf

Office of the Secretary
Service Date
June 19 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF STONE RIDGE WATER COMPANY FOR
AN INCREASE IN RATES AND CHARGES
AND TO MODIFY RULES AND
REGULATIONS ORDER NO. 30342
CASE NO. SWS-06-
On November 20, 2006, Stoneridge Water Company filed an Application for an
increase in rates and charges and changes to its rules and regulations. On December 18 , 2006
the Commission issued a Notice of Application and Notice of Modified Procedure. Order No.
30204. On February 16, 2007, the Commission established a comment deadline of April 27
2007. Order No. 30250.
On April 27, 2007, the Commission Staff, as well as Stoneridge Recreational Club
Condominium Owners Association, Inc. (Stoneridge Resort), the only intervenor in this case
filed comments. On May 14, 2007, both the Company and the intervenor filed replies to the
comments of Staff. On June 1 , 2007, Staff also filed reply comments correcting several items
from its original comments. With this Order the Commission approves an increase in rates and
charges, establishes the surcharge amount for the interconnection of the system, and approves
changes to the Company s rules and regulations as more fully set forth below.
BACKGROUND
On November 20, 2006, Stoneridge Water Company filed an Application with the
Commission seeking "to allow for the closing out of Phase I and Phase II loans for the Happy
Valley Ranchos annexation and surcharge associated thereto, for an increase in the monthly user
fees, an increase in the hookup fees, an increase in the disconnection/reconnection fees and for
clarifications and changes to the Rules and Regulations." The indebtedness for Phase I and
Phase II loan amounts was previously approved by the Commission in Order Nos. 29320 29507
and 29719.
A. Phase I and Phase II Loan Amounts State Drinking Water Revolving Fund Loan
In Order No. 29320, Case No. SWS-03-, issued on August 26, 2003, the
Commission authorized Stoneridge Utilities to take out a loan in the principal amount of
$213 500 from the State Drinking Water Revolving Fund. The debt was approved to allow a
service area expansion and interconnection of an adjacent homeowners' water system serving the
ORDER NO. 30342
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 was finalized and construction costs 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, Case No. SWS-03-, issued on May 28, 2004, the
Commission increased the authorized indebtedness for Stoneridge to $323 990 from the State
Drinking Water Revolving Fund loan. The increased loan amount was due to increased
contracting costs from $213 500 to $235 990 for the improvements authorized in Order No.
29320 in August 2003. The additional increase in the total loan amount also included $88 000
for additional system-wide improvements required by the DEQ to meet the "Ten State
Standards." The additional improvements included upgrading reservoir and pumping controls
and replacement of the Company s backup well pump. The original interconnection project with
HVR was identified as "Phase I" and the controls and backup well improvements were identified
as "Phase II.
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 project 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 ofthe system (Phase II) improvements.
In Order No. 29719, Case No. SWS-04-, the Commission authorized an
increase in the principal amount of the State Drinking Water Revolving Fund to $438 500. The
increased loan amount was the result, in part, of increased costs from $235 990 to $275 000 for
the interconnection project (Phase I). This increase was due to higher engineering and easement
costs, as well as minor contract quantity increases. The increase was also a result of an increase
from $88 000 to $163 500 for the controls and backup well costs (Phase II). Again, the
Commission reserved judgment, as it had in both Order No. 29320 and Order No. 29507, as to
ORDER NO. 30342
the appropriate amount of the surcharge previously approved for interconnection (Phase I), as
well as how to collect the cost of the backbone system improvements (Phase II).
B. The Current Application
The Company filed a fairly comprehensive Application following the pattern
available on the Commission s web page for small water company Certificates of Public
Convenience and Necessity. In fact the Company titled its Application as that for the issuance of
a Certificate. However, the Company currently possesses a Certificate see Order No. 28994
and it is clear from a review of the Application that the filing is a general rate case. The
Company did not request a specific effective date for the proposed new rates. On March 13
2007, the Company also made a supplemental filing providing additional information in support
of its Application.
As stated above, the Company had previously taken out a series of loans from the
State Drinking Water Revolving Fund totaling approximately $438 500. See Case No. SWS-
04-, Order No. 29719 (authorizing the loan amounts and describing the background
surrounding the loans, system expansion, and system improvements). The Commission, in its
previous Orders authorizing the Company to incur the indebtedness, specifically reserved
judgment on the appropriate amount of the surcharge for Phase I interconnection. Order No.
29719 at 5. The Commission also specifically reserved judgment on how the Company may
collect the cost of the backbone system improvements for Phase II. Id.
According to the Customer Notice prepared by the Company in this case, its request
to the Commission consists of six parts:
(1) A monthly fee to service the Happy Valley Ranchos loan will be imposed
on all those current and future customers that were added as a result of the
Happy Valley Ranchos annexation. (2) A monthly service fee to service the
well repair loan will be imposed on all current and future customers within
the Stoneridge Utility service territory. (3) A monthly user fee increase will
be imposed on all current and future customers within the Stoneridge Utility
service territory. (4) A disconnect/reconnect fee increase will be imposed on
all customers having their water shut off and turned on at a later date. (5)
hookup fee increase will be imposed on all customers requesting a new
service connection. (6) And clarifications and changes to some of the
General Rules and Regulations.
The Company states it currently has 374 customers, and will ultimately have
approximately 1 207 customers with the planned developments within its service territory. The
ORDER NO. 30342
Company is requesting to increase the customer charge to $38 for all equivalent units
(customers), and the commodity charge to $0.67 for all water used. The Company is also
proposing to increase its hookup fee for new service from $925 to $1 200. The Company also
proposes increasing its reconnection charge to $278 during office hours, and $328 after office
hours. This amount equates to six months' base charge plus $50 and $100 , respectively.
C. System Description
Among small water companies, the Stoneridge Water System is unique in the wide
variety of customers it serves. The customers are divided between two main geographic groups:
the Happy Valley Ranchos subdivision (HVR), and the Stoneridge development (SR). These
two groups are separated in location by about one-half mile. As a group, the HVR customers are
solely residential, consisting of 101 single-family residential customers. The SR customers
consist of approximately 100 single-family residential customers, 12 condominium units, 150
timeshare units, 3 recreation centers, 1 golf course irrigation customer, about 37 currently
developed motor coach units, and commercial customers including a sales office, event and
maintenance center.
The water system consists of: Approximately 66 300 feet of 2-inch to 12-inch mains
and branches; two operating wells (1,000 gpm and 600 gpm); one above-ground concrete storage
tank, 325 000 gallons; two buried steel storage tanks, 10 000 gallons each; four buried concrete
storage tanks, 3 000 gallons each; a booster pump station and chlorination systems as well as
various valves and controls. Upon Staffs inspection, the system appeared to be of sound design
good condition, and well maintained.
CUSTOMER COMMENTS
On February 21 , 2007, a public workshop was held in the Stoneridge Events Center.
Approximately 63 customers signed the workshop sign-in sheet. Customers in attendance
represented Happy Valley Ranchos Subdivision, Stoneridge Resort, and individual Stoneridge
homeowners. Four representatives of the Company were at the workshop. During the often-
lively discussion, it was discovered that the Happy Valley Ranchos customers were not being
charged the monthly surcharge that was approved by the Commission after the merger of Happy
Valley Ranchos, Inc. with Stoneridge Water in 2004. Customers from HVR were concerned that
their rates could increase dramatically because of this rate case plus the addition of the surcharge.
The majority of statements made indicated that the water service provided by Stoneridge and
ORDER NO. 30342
customer relations were satisfactory. Customers were concerned that the proposed rate design
was not fair given the variation in usage by customers. Customers did not agree on who the
highest users were. Some customers felt that Stoneridge did not fairly represent itself during
negotiations with HVR during the 2003-2004 merger discussion. The main issue in contention
was the Company s statement that the second well was in good condition at the time of the
merger, but now the Company has repair costs included in the test year for this case.
The Commission has received approximately 15 written comments and one petition
with 35 signatures regarding this rate case. One comment was from a timeshare owner who
stated that in the proposed tariff, each of the 143 timeshare members would be charged the base
unit charge. He points out that the timeshare units consist of four buildings with one meter each.
The annual consumption of the timeshare members represents 6% of the total water usage.
would like to see rates applied in proportion to the usage rather than all potential users paying a
flat monthly charge in addition to the commodity charge. Three comments argued against the
proposal to charge the Stoneridge Resort Golf Course the same rates as proposed for residential
and commercial customers. The Company is proposing to eliminate its tiered rate structure and
replace it with a flat monthly customer charge and a commodity charge that would be applied to
all users. This would result in increased monthly charges for condominium units; each would be
treated as individual customers rather than master metered users. The Company s proposed
change would dramatically reduce the amount paid by the golf course.
The customer petition asks that the Commission consider three specific issues. The
first is that the Company s proposed tariff would remove any distinction between customer
classes with all customers paying the same rate. The petitioners request that each class remain
separated. Staff has recommended keeping the customer classes separate due to the distinct
differences of those classes of water service. The second issue on the petition is listed as
Residential 'Lifeline' Service." Because of the large number of residential customers who are
on fixed incomes in the service area, the petition suggests that the customer charge include a
commodity of 6 000 to 12 000 gallons. The petition maintains that this would bring the rate
structure more in line with the surrounding water districts. Staff comments under the topic of
Commodity Charge" address the reasons that Staff agrees with the Company s proposal to not
include any commodity with the customer charge. The final item in the petition addresses
Residential Service Charges. The petitioners state that the proposed rate increase is listed as
ORDER NO. 30342
92% increase. However, their calculations figure it to be at least 123%. The petition requests
that any rate increase approved over 20% be structured in such a way as to be phased in over a
period of years to "save the utility the additional expense of filing each year and the Commission
the added work load each year until the rates are brought into line." The Petition also included a
2006 Rate Study of communities in the area.
Several comments acknowledged the need to start charging HVR customers the
surcharge as previously ordered by the Commission but felt that a large rate increase in addition
to the surcharge would be burdensome. Three customers disputed the responsibility of HVR
homeowners to pay for the costs associated with the drilling and improvements made for a
second well. They maintain the Company declared in the merger discussion that the well was in
working order. One customer requested a hearing after Staff completed its investigation so
accurate audit and rate proposal information would be provided to the customers, who would
then be allowed to present their views to the Commissioners.
REVENUE REQUIREMENT
The Company proposed a rate base in the amount of approximately $436 000, a rate
of return of 11 , annual expenses of $125 000, and a revenue requirement of $208 000. Staff
initially recommended that the Company s rate base should be $51 254, with a 12% rate of
return, annual expenses of $116 073, and ultimately a revenue requirement of $132 349.
However, in its reply comments, Staff acknowledged an additional $52 373 of rate base
increasing the Company s rate base to $103 627, and increasing the revenue requirement to
$140 352.
The intervenor, Stoneridge Recreational Club Condominium Owners Association
Inc. (Resort), did not conduct its own separate audit with regard to the Company s revenue
requirement. It stated generally that it believed the Company s system is overbuilt and that any
excess capacity should not be included in rate base. The Resort stated that, since it has not
conducted an extensive audit, it generally concurred with Staffs analysis and recommendation
regarding the revenue requirement. However, Stoneridge Resort also stated that consideration
should be given to the fact that the system has excess capacity available to service new
developments, and that this should be considered property held for future use on which the
Company is prohibited from earning a return. Citing Idaho Code ~ 61-502A. The Resort stated
generally that costs proposed to be included in rate base for charges to existing customers were
ORDER NO. 30342
also incurred for the benefit of the excess capacity held by the Company for the benefit of new
development and should, to some extent, be absorbed by the developer.
A. Rate Base
During its audit of the Company s proposed rate base, Staff excluded approximately
$337 000 from rate base. Staff recommends a rate base of $103 627. Specific costs were not
included for one of the four following reasons: First, there were several invoiced charges that
were clearly for work for other entities and not associated with the water company, and other
costs included in the Company s rate base calculation that are not specifically documented as
benefiting the water company. The result of Staff adjustments in this first category decreases the
Company s requested rate base by $332 543.99. Second, Staff removed an additional $3 012.
that was identified with the Phase I, interconnection, loan amount. As that loan amount is
subject to recovery by a surcharge to the residents of Happy Valley Ranchos, it should not be
reflected in rate base. Third, any costs that were paid for with proceeds from the Phase II loan
are included in rate base as a total "Phase II" group and not included separately in the rate base
amount. The Company indicated in its Application that the total cost for the Phase II project is
$160 457; and after audit Staff agrees with this amount. Therefore, this amount is included in
Staff s final total of rate base. Fourth, one invoice documented a repair to the system instead of a
capital improvement. Repairs to a water system are costs that should be included in annual
operation and maintenance expenses and are not to be considered a capital improvement. Only
capital improvements are included in rate base. Therefore, Staff removed this amount from the
Company s rate base.
Commission Findines : A basic principle utilized by this Commission in setting the
rates of a public utility is that, generally speaking, a Company may earn a return on capital
improvements that are currently used and useful in providing utility service to its customers.
Here, the Company has proposed numerous items for the inclusion into rate base that are/were
not capital investment in the water company, but in other entities such as the golf course. As
such they are not appropriate for recovery from the ratepayers of the water utility. We find
Stoneridge Water s net rate base to be $103 627.
ORDER NO. 30342
B. Test Year and Annual Expenses
The Company used a forecasted test year of 2007 to determine annual expenses of
$125 000. The Commission has consistently determined that the annual revenue requirement
and rates should be set on the basis of an historical test year. Therefore, Staff utilized a 2006 test
year based upon an audit of actual expenses with adjustments for known and measurable
changes. Staff audited the annual expenses of the Company and relied upon the actual results as
reported for 2006. On the basis of the actual operating and maintenance expenses experienced
by the Company in 2006, Staff then looked to see if any of the expenses should be adjusted for
any known and measurable factors.
The actual expenses for 2005 and 2006 are presented in Staff Exhibit No.1 04 with
the Company s 2007 forecasted test year. Staff Exhibit No. 104 shows the calculated annual
expenses of $116 073 that Staff recommended be used to determine the annual revenue
requirement.
Commission Findines: As this Commission has previously expressed, our policy
when setting utility rates is to utilize an historic test year that can be verified by audit of actual
numbers prior to placing new rates into effect. Consequently, in this case, we find that an
historic test year, utilizing actual numbers from 2005 and 2006, with some known and
measurable adjustments, to be proper. We find the Company s annual expenses to be $116 073.
C. Rate of Return
The Company requested a rate of return of 11 %. However, Staff recommended a rate
of return be set at 12% for this Company. Staff stated that the Company needs to realize a 12%
return so it will have sufficient revenue to make the interest and principal payments on the Phase
II loan. Additionally, Staff noted that the Commission has recently granted a 12% rate of return
to Falls Water Company in Case No. FLS-05-, Order No. 30027, and to Capitol Water
Company in Case No. CAP-06-, Order No. 30198.
Commission Findines:On this record, the Company appears to have a very well
built and maintained water system that provides a quality product to its customers. A 12% rate
of return is consistent with returns granted recently to other small water companies providing
adequate service to customers. See Order No. 30027 and Order No. 30198. We find that a 12%
rate of return is appropriate for this Company.
ORDER NO. 30342
D. Revenue Requirement Calculation
Staff recommended that, using the rate base, rate of return, and expenses from above
the Company s revenue requirement be calculated as follows:
Return on Rate Base $14 903
Annual Expenses $116 073
Depreciation 181
Grossed-up Taxes 195
Revenue Requirement $140 352
Attachment A, Staff Reply Comments.
Commission Findines We find that the Company s annual revenue requirement is
$140 352.
RATE DESIGN
The Company, the Staff, and the Resort each initially proposed different rate designs
based upon different rate base and revenue requirements. However, after the parties all
submitted reply comments, the Company acknowledged that Staffs proposed rate design from
Staffs reply comments is acceptable. The Resort generally agrees with the rate design; however
its proposed numbers were based on a different revenue requirement. Additionally, while the
Resort supports the general methodology used for the rate design, i., a varying customer charge
based on meter size, it has proposed a slightly different proportional allocation and commodity
charge.
A. Customer and Commodity Charge
1. The Company - The Company proposed a customer charge of $38 and a
commodity charge of $0.67 per 1 000 gallons. The Company s Application proposed to recover
its revenue requirement with a rate design that imposes a flat rate customer charge of $38 across
all classes to all customers on a per unit basis. A unit would be defined as any single isolated
point of use, not necessarily a metered point of use. For example, the condominium and
timeshare owners do not have separate meters but would each be billed $38 per month under this
proposal. The Company also proposed increasing the commodity charge from $0.30 per 1 000
gallons to $0.67 per 1 000 gallons. This is applied to all customer classes and all water supplied
to customers. The Company s originally proposed rate increase is as follows:
ORDER NO. 30342
The Company s Proposed Rates
Customer Charge Commodity Charge
Residential from $14/mo. to $38/mo.from $.30/1 000g to $.67/l ,000g
Commercial from $20/mo. to $38/mo.from $.30/l 000g to $.67/l 000g
Time Share $40/meter/mo. to
Complex $38/Timeshare Unit/mo.30/1 ,000g to $.67/l ,000 gal.
Golf Course
Irrigation 200/mo. to $38/mo $.30/1 000g to $.67/1 000 gal.
2. The Staff - Staff proposed a customer charge that varies proportionately with the
size of the meter, using $24 as the base monthly charge for a 3/4-inch meter and a commodity
charge of $0.79 per 1 000 gallons for all customer use. Staff proposed customer charges based
on the capacity to deliver to each customer, or meter size. Given that: (1) the current structure
does not include any commodity volume with the customer charge and neither the Company nor
Staff proposes a commodity volume with the customer charge and; (2) equivalency units are
notoriously inaccurate for an individual customer, Staff recommended that the physical capacity
to deliver water be used as the measure to set varying customer charges. The minimum meter
size in the system is 3/4-inch; it is also the most common size and is used for most single-family
residential units. Meters larger than 3/4-inch in diameter have an increased flow capacity
direct proportion to the square of their opening. Staff originally proposed a customer charge for
3/4-inch meter service of$18.10 per month. This was changed to $24 in Staff reply comments.
Further, Staff proposed that, using the standard residential 3/4-inch meter customer charge as a
base, all other customers ' customer charges be set as a multiple of the base using the flow area
ratio as the multiplier. Attachment B to Staffs reply comments provides the flow ratio of
opening sizes and resulting customer charges for the various meter sizes.
ORDER NO. 30342
Staffs Proposed Customer Charge
Meter Meter Flow Ratio to Flow Resulting
Diameter Area, sq Area of 3/4 in Minimum Monthly
inches inches Meter Charge
0.44 $24.
$42.
$96.
$170.
11.$266.
16.$384.
12.28.44 $682.
28.64.536.
Attachment B , Staff Reply Comments.
Staff proposed a commodity charge of $0.79 per 1 000 gallons for all customers
except the golf course. The golf course water supply is interruptible and the golf course has the
ability to shift its demand on the system to off-peak hours. This provides value to the Company
because it assists the Company in meeting the higher priority residential demands in the event
the main well is down or there is some other contingency. Because of this, Staff recommended a
10% discount to the commodity rate for the golf course to recognize these benefits to the system.
Staff did not support a rate design that included a set quantity of water with the
customer charge. There is presently no quantity of water provided with the customer charge.
The Company did not propose to change the tariff to include any amount of water with the
customer charge. Staff agreed with this decision for reasons of conservation and consistency.
First, the aquifer tapped by Stoneridge Water wells is a recharge feeder to the Rathdrum Prairie
aquifer. There is significant concern for both water quality and conservation of the Rathdrum
Prairie aquifer due to growth and increasing use of the aquifer. Recent Staff recommendations
and Commission decisions have addressed these concerns by focusing on meeting a larger
portion of revenue requirement increases from the commodity rather than the minimum/customer
charge (Bitterroot Water, Case No. BIT-05-, Order No. 29966).Second, the current
revenue stream is heavily weighted to the customer charge and the commodity rate is very low
compared to those of other nearby water companies. A shift to inclusion of an amount of water
with the customer charge will exacerbate the situation.
ORDER NO. 30342
3. The Resort - Stoneridge Resort (Resort), while generally supporting Staffs
proposal to have a varying customer charge based upon meter size, proposed a slightly different
rate design, or increase from the base charge that used the same proportional increase for meter
size as that used for United Water. The Resort opposed the Company s use of equivalent units.
Additionally, the Resort referenced the rate schedules for United Water Idaho, Capital Water Co.
and the City of Coeur d' Alene in support of a varying customer charge based on meter size.
Exhibit 202. The Resort proposed establishing a rate design based upon actual physical meter
connection sizes and water consumption. While agreeing with Staffs recommendation that the
physical capacity of the system to deliver water, as measured by the different meter sizes for
different customers, should be considered when setting the customer charge, the Resort stated
that not all customers will be utilizing the full capacity available to them, nor is it likely that a
customer would require its full available capacity except under extraordinary circumstances.
Therefore, it proposed
, "
taking into consideration other factors. . . including the quantity of
water used, the time of use, the pattern of use, the differences in the conditions of service, the
costs of service, and the actual difference in the situation of the consumers for the furnishing of
service." Reply at 2 (citing Grindstone Butte Mutual Canal Company v. Idaho Public Utilities
Commission 102 Idaho 175, 179 627 P.2d 804, 808 (1981)).
The bottom line is that the Resort proposed a rate design that mirrors that utilized by
United Water. The proportional allocation amongst the varying meter sizes as implemented and
approved for United Water would be applied to rates in this case. Stoneridge Resort proposed a
rate design as follows:
Stoneridge Resort's Proposed Rates
%" Meter $28.
1 " Meter $37.34
1 Yz" Meter $60.
2" Meter $87.
4" Meter $256.22
6" Meter $493.
All Commodity $0.75/1 000 gallons
This rate design was apparently based upon the revenue requirement of $132 349 , proposed by
Staff s original comments. These proposed numbers would have to be increased proportionately
to meet the revised revenue requirement of $140 352.
ORDER NO. 30342
Commission Findines We find that a varymg customer charge based on the
proportional size of the meter is a just and reasonable methodology for establishing the monthly
customer charge. Although there is some appeal to the rate design offered by the Company, and
to a larger extent that offered by the intervenor, Stoneridge Resort, we find that both of those
proposals weight the rate design too heavily upon the residential customer class by shifting too
much into the base monthly charge for a 3/4-inch meter, and not escalating the charge enough for
larger meters/service. The varying customer charge based upon meter size is a reasonable
approximation in this case for the fixed costs associated with serving that customer, which we
find to be reasonable in setting the customer charge. We further find, based upon the record in
this case, that a base customer charge for a 3/4-inch meter of $24, with a commodity charge of
$0.79 per 1 000 gallons of use is a just, reasonable, and fair rate design to collect the Company
authorized revenue requirement. The proportional increase in customer charge based upon meter
size as shown in Attachment A to this Order is hereby approved and adopted.
B. State Drinking Water Revolving Loan Recovery/Repayment (Phase I and Phase II)
1. Phase - The Company has two outstanding loans with DEQ for improvements
to its water system (as previously described in the Background section and referenced in the Rate
Base section). One loan, referred to as the Phase I loan, financed the cost of the interconnection
between the Company s water system and the HVR water system. The Company received
approval for this loan in Case No. SWS- W -03-, Order No. 29320. The Company completed the
interconnection between the two systems and HVR is now receiving its water supply from the
Company. The Phase I loan improvements were completed for a cost of $278 000 and the Phase
I loan was closed in the amount of $278 000 with a 20-year term for amortization. The
Commission determined in Order No. 29320 that the customers of HVR would pay the cost of
the Phase I loan, up to $275 000 as a surcharge applied to only HVR customers. Staff has
audited the Company s cost to complete the interconnection and has determined that $278 000 is
an appropriate cost for the interconnection improvements and that this amount should be the total
of the surcharges to the HVR customers. Therefore, Staff recommended that the Commission
grant the Company final approval to collect $278 000, an increase of $3 000 more than
previously approved, as a surcharge from the HVR customers.
One of DEQ's loan requirements is that the debtor must collect 20% of an annual
payment for the first five years of the loan. This premium is held in a reserve account and at the
ORDER NO. 30342
end of the loan amortization, will be used to make the last annual payment on the loan. The
annual interest and principal payment on the Phase I loan is $17 002 and the premium payment
for reserve for the first five years is $3,400. Staff recommended that the HVR customers pay a
surcharge on the Phase I loan for the first five years in the amount of $16.83 per month, and then
pay a surcharge for years 6 through 19 in the amount of $14.03. If this surcharge is collected in
this manner, the Company will be able to cash flow the loan payments to DEQ from the revenues
collected from the customers.
Schedule of Surcharee Amount for HVR Customers for Phase I Loan
Principal Loan
Loan Amount $278 000
Interest Rate
Loan Term 20 years
Number of Customers 101
Annual Amortization Payment $17 002
Annual Payment per Customer $168.
Monthly Payment per Customer $14.
Reserve Premium
Total Reserve Requirement $17 002
Term for Collection 5 years
Annual Reserve Amount $3,400
Annual Reserve Payment Per Cust.$33.
Monthly Reserve Payment per Cust.$2.
Total Monthly Surcharge per Customer $16.
2. Phase II - The second loan financed improvements to the Company s wells and
water production system. This loan is referred to as the Phase II loan and is in the amount of
$160 457. Staff audited the Company s costs that were financed with this loan and is satisfied
that this is the correct amount for those costs. The improvements from the proceeds of this loan
ORDER NO. 30342
are source of supply, backbone system improvements that will benefit everyone on the system
and therefore the cost of this loan should be spread over all the customers of the system pursuant
to the Commission s prior Orders on this matter.
Commission Findines We authorize collection ofthe Phase I loan amount, used for
interconnection, from the Happy Valley Ranchos customers in the amount of $278 000. This
amount exceeds the previously approved loan amount by $3 000, which additional amount we
find to be just, reasonable, and necessary. We find that the HVR customers should pay a
surcharge on the Phase I loan for the first five years in the amount of $16.83 per month, and then
pay a surcharge for years 6 through 19 in the amount of $14.03. This is consistent with the
Commission s prior Orders that authorized the loans and the expenditures necessary for the
interconnection ofthe system. See Order No. 29320, Order No. 29507, and Order No. 29719.
Additionally, we find that the Phase II loan be included in rate base and collected
from all customers. To spread the cost of the loan to all customers, the improvements financed
by this loan are included in rate base, and the loan is included in the weighted cost of capital. As
the Company collects its revenue requirement through rates, the cost will be collected from each
customer. This treatment is consistent with the Commission s previous Orders regarding Phase I
and Phase II recovery. See Order No. 29507 and Order No. 29719.
We recognize that imposition of the Phase I surcharge, along with the increase in
rates resulting from this rate case, results in a substantial increase to the residents of Happy
Valley Ranchos. In reviewing the comments of many of the HVR customers, it appears that
most are very satisfied with the improved quality of their water and service, and that a surcharge
for the costs of interconnection, close to the amount ordered by this Order, was expected. What
appears to have not been expected was the accompanying increase in rates resulting from this
rate case. Many have voiced concern about the cost of the new backup well , and whether the
Company disclosed this or not at the time of the merger. This matter was dealt with in a
previous Order where the Commission authorized the increased costs as necessary to complete
the projects as originally proposed and stating that the increases were the result of either
unforeseen circumstances or increased project requirements. Order No. 29719.
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
ORDER NO. 30342
became lodged within the well casing. Project personnel then determined
that the well has collapsed at some depth.
The project engineer has explored a number of alternatives to rehabilitate
the existing 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
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.
In approving the increased loan amounts we found
, "
that the proposed transaction is consistent
with the public interest and Stoneridge Utilities' proper performance of its duties as a public
utility." Order No. 29719 at 4.
C. Other Proposed Tariff Changes
1. Seasonal DisconnectionlReconnection Fee - The Company requested a
significant change in the reconnection charge for shutoffs. The current charge when service has
been disconnected for 30 days or less is $14 for reconnection during office hours and $28 after
5:00 p.m. The charge for reconnection of service disconnected for more than 30 days is $50
during office hours and $64 after office hours. The Company s proposed reconnect fee is $278
regardless of length of time disconnected, which is approximately equal to six months ' base
residential charge plus $50 for connection during office hours with a minimum 24-hour advance
request for service. The after office hours rate would be $328, which is equal to six months
base rate plus $100 with a minimum of 48-hour notice.
The Company provided the number of seasonal shutoffs by calendar year as follows:
12 in 2003, 12 in 2004, 10 in 2005 and 8 in 2006. See Staff Exhibit No. 113. The Company did
not state the duration of time for each shutoff. In 2006, the Company disconnected four
customers for non-payment. Two of those customers were reconnected within the same year.
Staff initially recommended there is not a significant enough number of seasonal shutoffs to
justify a differential between seasonal and non-seasonal reconnection charges, and if six months
revenue was lost for each, the lost revenue would be an average of only $890 per year. Staff
stated it did not believe that this loss would justify the proposed change in reconnect cost.
ORDER NO. 30342
Given that the existing reconnect fee includes an element intended to discourage
seasonal disconnect and that costs have increased since those fees were set, Staff proposed a
modest increase proportionately consistent with the increase of the base customer charge, which
would be $18.50 for those reconnecting within 30 days ($37 after hours).
Staff, in its original comments, proposed a reconnection fee of $65 for customers
who are disconnected for periods greater than 30 days ($83.50 after hours). Staff believes that
this fee is necessary to discourage seasonal disconnections, which undermine the Company
revenue and therefore its ability to maintain facilities capable of delivering the peak water
demand. Because commercial customers had not historically disconnected, Staff was focused on
the residential customers but is now aware that larger customers, specifically referring to the golf
course, might disconnect for the winter season as stated in the Company s reply. For the same
reasons that Staff proposed a varying customer charge based on meter size, Staff believes that the
reconnection charge should also be proportional to the flow area of the meter, or proportional to
the customer charge. The after-hours differential should be $25 higher than the charge for
normal working hours. This would result in the following reconnection charge for customers
reconnecting after 30 days: 3/4-inch meter - $65; 2-inch meter - $462; 6-inch meter - $4 160.
These rates are summarized in Attachment B to Staffs reply comments.
Commission Findines We find that a reconnection fee should be established with
the following charges: For those reconnecting within 30 days (including day 30) of
disconnection - $18.50; for those reconnecting 31 days and over the charge will correspond to
that customer s varying customer charge based on meter size. For example: over 30 days - 3/4-
inch meter - $65; 2-inch meter - $462; 6-inch meter - $4 160. We approve and adopt the
reconnection charges for those disconnected over 30 days as shown in Attachment A to this
Order. Additionally, we find that an additional $25 may be charged for after-hours connection.
The "within 30 days" charge is intended for those who may be periodically
disconnected for various reasons such as non-payment, and then subsequently reconnected. The
over 30 days" charge is intended for seasonal disconnections. The reconnection charge for
seasonal disconnections is intended to properly compensate the Company for the fixed costs of
the system, which exist regardless of the amount of water used. This logically follows the
customer charge, as that was intended to approximate the customers ' fixed costs. Customers
ORDER NO. 30342
with larger meters who seasonally disconnect must pay the corresponding charge, and will not be
allowed to disconnect and reconnect every month in order to pay the lower fee.
2. Modifications to General Rules and Reeulations - The Company s proposed
changes to the General Rules and Regulations along with Staffs modifications of those changes
were presented in Staff Exhibit No. 112. The underlying factors Staff relied on in modifying the
Company s proposed changes are discussed below, organized by the paragraph numbers in the
proposed rules. Company changes to the rules not addressed below were found to be acceptable
by Staff.
2.4.
2.17(B)
The changes reflect the fact that the Company does not need the
ability to do any more than isolate the meter set from the customer
side plumbing and that the customer under some circumstances
may need to isolate the customer side using the valve(s) in the
meter set.
Where multiple residences are served off of one meter, the
minimum charge cannot exceed the charge that will result from
dividing the capacity of the actual meter by the capacity of the
standard residential meter (3/4 inch) and multiplying the result by
the minimum charge associated with the standard residential meter
where the capacity of a meter is determined by the square of the
meter orifice radius times pi.
17 (D) Given the creation of an irrigation class, all firm service irrigation
services must be treated equally.
7 (F) Rewritten to clarify that residential service takes priority over all
other services.
6.4
7.4
9.3
ORDER NO. 30342
Added the requirement that the standard application form used be
reviewed by the PUC.
Revised to reflect pro-rata billing of the mInImum charge for
periods of less than one month.
Revised to reflect a requirement for the Company to test meters for
accuracy at the Customer s request for no charge, once per year.
Revised to agree with 2.4.1 above.
Revised to reflect that the Company may choose to provide
payment arrangements to a Customer for payment of a hookup fee.
11.4 The change of ownership part was eliminated since the application
was either unclear or does not apply.
Commission Findines We find the General Rules and Regulations tariff changes as
proposed by the Company and modified by Staff to be reasonable. We approve the changes as
presented in Staff Exhibit No. 112.
3. Hookup Charee - The Company has proposed a hookup fee increase from $925
to $1 200 based upon the actual amount needed to perform the hookup. This is consistent with
the hookup fees and costs to complete the hookup that Staff has seen at other utilities in the state
and in the Panhandle Region. Staff agreed with the proposed hookup fee and recommended the
same.
Commission Findines We find the increased hookup fee from $925 to $1 200 to be
based on actual costs, to be relatively consistent with other utilities in that region, and to be
reasonable.
4. Compliance with Utility Customer Relations Rules - A review of Stoneridge
Water Company s forms, notices and billing statement show the Company complies with all the
Utility Customer Relations Rules (IDAPA 31.21.01000 et seq.and Utility Customer
Information Rules (IDAPA 31.21.02.000 et seq.
),
with the exception of the Customer Summary
of Rules Notice. The Customer Summary of Rules Notice is to be mailed annually to all
customers of the water system, informing them of the Company s policies for disconnection
payment arrangement options and instructions on filing complaints. Staff recommended that the
Company make the changes to the Summary of Rules Notice when it updates the tariff as part of
this rate case. The document should be updated to reflect the cost of connection charges
reconnect fees, and removal of the statement requesting the "nature of the illness" as part of the
Medical Certificate.
Commission Findines:We find that the changes proposed are needed to comply
with our rules, and the Company should make the changes to its Customer Summary of Rules
Notice following this rate case and mail the summary annually to all customers.
ORDER NO. 30342
ULTIMATE FINDINGS OF FACT AND CONCLUSIONS OF LAW
Stoneridge Water Company is a water corporation providing water service to the
public within the State of Idaho Idaho Code ~~ 61-124 , 61-125, and is operating as a public
utility. Idaho Code ~ 61-129.
The Commission has jurisdiction over this matter as authorized by Title 61 of the
Idaho Code, and more particularly Idaho Code ~~ 61-501 61-502 61-503 61-520 61-523.
As set out in the body of this Order, the Commission finds that the existing rates are
unreasonable. The approved rates set forth in this Order are just and reasonable. Idaho Code
61-622.
ORDER
IT IS HEREBY ORDERED that the Company s rate base be established at $103 627
with a 12% rate of return, annual expenses of$116 073, and a revenue requirement of$140 352
as stated above.
IT IS FURTHER ORDERED that new rates are approved establishing a monthly
customer charge based upon meter size, as well as a monthly commodity usage charge. The base
customer charge for a 314-inch meter is $24 per month, with a commodity charge of $0.79 per
000 gallons of use for all customers. The golf course s commodity charge is $0.71 per 1 000
gallons, reflecting a 10% discount because of its interruptible, off-peak usage capabilities. The
proportional increase in customer charge based upon meter size as shown in Attachment A to
this Order is hereby approved and adopted.
IT IS FURTHER ORDERED that collection of the Phase I loan amount from the
Happy Valley Ranchos customers in the amount of $278 000 is hereby approved. The HVR
customers shall pay a surcharge on the Phase I loan for the first five years in the amount of
$16.83 per month, and then pay a surcharge for years 6 through 19 in the amount of$14.03.
IT IS FURTHER ORDERED that the Phase II loan amount be included in rate base
and the weighted cost of capital and thereby collected from all customers. The Company was
previously directed to file the final loan documents with the Commission under Case No. SWS-
04-01. Order No. 29719.
IT IS FURTHER ORDERED that a reconnection fee for those reconnecting within
30 days (including day 30) of disconnection be $18., and for those reconnecting 31 days and
over the charge will correspond to that customer s varying customer charge based on meter size.
ORDER NO. 30342
We approve and adopt the reconnection charges for those disconnected over 30 days as stated in
Attachment A to this Order. An additional $25 may be charged for after-hours reconnection.
IT IS FURTHER ORDERED that the General Rules and Regulations tariff changes
proposed by the Company and modified by Staff, as shown in Staff Exhibit No. 112, are
approved. The increased hookup fee for new service, from $925 to $1 200, is approved. The
Company shall also make the changes to its Customer Summary of Rules Notice as
recommended above.
IT IS FURTHER ORDERED that the new rates, rules, and regulations are effective
for service rendered on and after July 2, 2007. The Company shall submit tariffs conforming to
the new rates and changes set out above 'no later than July 2 2007.
THIS IS A FINAL ORDER. Any person interested in this Order 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. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code ~ 61-
626.
ORDER NO. 30342
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this /9 fA
day of June 2007.
p A i~!
:;;-
ENT
6)~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
, ~rMISSIONER
;: j
fik::ll
Commission Secretary
O:SWS-06-01 dw3 final
ORDER NO. 30342
Minimum Reconnection
Meter Size Monthly Commodity Charge for
(inches)Customer Charge disconnection
Charge over 30 days
$24.$0.79/1 000 g.$65.
1.00 $42.$0.79/1 000 g.$116.
1.50 $96.$0.79/1 000 g.$260.
$170.$0.79/1 000 g.$462.
$266.$0.79/1 ,000 g.$722.
$384.$0.79/1 000 g.040.
$682.$0.79/1 000 g.849.
536.$0.79/1 000 g.160.
* The Golf Course s commodity charge is $0.71/1 000 gallons, reflecting a 10% discount
because of its interruptible, off-peak usage capabilities.
ATTACHMENT A
CASE NO. SWS-06-
ORDER NO. 30342