20050304Comments.pdf

DONOV AN E. WALKER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5921
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, ID 83702-5983
Attorney for the Commission Staff
HECEIVED
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF TERRA GRANDE WATER FOR
INTERIM RATE RELIEF AND FURTHER
PROCEEDINGS TO ESTABLISH JUST AND
REASONABLE RATES.
CASE NO. TGW-O5-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Donovan E. Walker, Deputy Attorney General, in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 29716 on February 24, 2005
and submits the following comments.
BACKGROUND
On February 9 , 2005 , Terra Grande Water (Company) filed an Application with the
Commission requesting immediate interim rate relief, further proceedings to establish just and
reasonable rates, and deferred accounting treatment for excess water supply costs above interim
rates if appropriate. This Application is based upon the emergency interconnection of Terra Grande
Water with United Water Idaho Inc.
In January 2005 , routine monitoring at the Terra Grande Water System showed that all three
Company production wells exceeded the Maximum Contaminate Level (MCL) for
Trichloroethylene (TCE).Additional samples taken on January 20, 2005 confirmed the
STAFF COMMENTS MARCH 4, 2005
contamination. TCE is not a naturally occurring substance. It is colorless liquid that is used mainly
as a solvent to remove grease from fabricated parts and some textiles.
These confirmation tests exceeding the MCL required the Division of Environmental
Quality (DEQ) to take immediate action and begin working with the water company to get public
notices distributed. On January 21 , 2005, the Company and DEQ provided individual public
notices to all customers as well as press releases to the media. DEQ and Terra Grande also
contacted United Water Idaho (UWI) to explore interconnection. The Company formally requested
an interconnection with UWI and the process for interconnection was completed by January 28
2005. The Terra Grande wells were brought offline, the system was flushed and UWI became the
sole source of water for the Terra Grande System.
STAFF ANALYSIS
Interim Rates
Upon interconnection and installation of a meter at the interconnection site, UWI began
recording consumption of the Terra Grande water system for future billing as if it were a single
customer with a three-inch metered service. Terra Grande will be billed bi-monthly at UWI's
tariffed commodity rate and customer charge for a three-inch meter.
Staff agrees with Terra Grande Water Company that the emergency situation (contamination
of the existing Terra Grande water supply) that resulted in interconnection with UWI will cause
Company costs to exceed those incurred prior to interconnection. Staff also recognizes that while
the source of contamination has not been determined, the Company did not cause the contamination
and Terra Grande acted quickly to remedy the situation.
Clearly the charges assessed Terra Grande for metered service under UWI's Schedule 1
were not anticipated by any party when the Commission approved the Company s existing flat rate
charges. It is equally true that other costs previously incurred by the Company, such as pumping
power costs, will not be incurred during the period of interconnection with UWI. Consequently,
Staff believes that some combination of the existing flat rate charge and the new UWI metered
charges should be collected from Terra Grande customers.
The metered charges assessed by UWI will depend upon the total combined consumption of
all Terra Grande customers and the existing UWI rates for 3-inch metered service. Therefore, Terra
Grande will be billed a customer charge of $82.42 bi-monthly and a commodity rate of $0.9825 per
100 cubic feet (ccf) in winter and a commodity rate of $1.2281 per ccf in summer. Preliminary
ST AFF COMMENTS MARCH 4, 2005
information based upon a Terra Grande meter reading on February 16 2005 showed a 17-day
consumption of 691 ccf. This equates to a consumption level of about 2439 ccf for a 60 day bi-
monthly billing period. When the UWI winter rate is applied to this level of consumption, the
customer charge is added to billed consumption and the total is divided by the total number of Terra
Grande customers, each customer would be responsible for about $22 bi-monthly for the metered
service under the Company s proposal. Charges would obviously be greater in summer due to the
higher commodity rate and the higher expected consumption levels.
Although this is technically a resale arrangement between UWI and Terra Grande, Staff
agrees that under the circumstances the service arrangement at existing retail rates is appropriate in
this case on an interim basis. Given the lack of individual meters in the Terra Grande system, Staff
also agrees with the Company s proposal to divide the UWI bi-monthly charges by the total number
of Terra Grande customers and collect the amount over the following two months.
However, Staff does not fully agree with the Company s proposal regarding assessment of
existing flat rate charges in addition to the UWI metered charges. Staffs objection is primarily with
respect to the continuation of the higher flat rate charge during summer months. The flat rate
differential between summer and winter assumes that the Company will incur additional costs in
summer due to increased water consumption. Absent a metered rate, a higher summer rate was
needed to recover those costs. That is not the case after interconnection with UWI. Terra Grande
costs recovered through the flat rate will not increase in summer (UWI meter charges will) and
customers will pay higher charges in summer based on UWI metered rates.
With respect to the level of year round monthly charges that are appropriate, Staff is still in
the process of evaluating reasonable revenue requirement for Terra Grande. In Order No. 29512
the Commission directed Terra Grande to continue providing water service at the Company
present flat rates. The Commission also opened an investigation to determine whether the existing
rates for water service were just and reasonable. Staff was in the process of gathering system cost
information when water contamination required interconnection with UWI.
Under the present service arrangement, it is difficult to determine Terra Grande revenue
requirement based on system cost information available prior to interconnection.Staffs
preliminary estimate of post-interconnection revenue requirement (excluding UWI charges)
produces a flat rate of approximately $11 per month. This amount assumes a rate base of
approximately $52 000, a return on equity of 8% and annual expenses of $7 300. No expenses are
included for pumping or management. However, rather than trying to establish an interim flat rate
STAFF COMMENTS MARCH 4, 2005
based upon limited information, Staff recommends that the Commission accept the $16 monthly
charge on a year round basis.
Approval of the $16 monthly charge continues an existing rate and provides the Company
with reasonable recovery of anticipated costs. It also allows the Company to pursue permenant
service arrangement alternatives and defers consideration of specific rate base treatment of plant
and associated expenses until more information is known. Finally, it recognizes that Terra Grande
will be required to collect UWI metered charges from its customers up to two months in arrears.
The resulting $32 bimonthly flat rate charge is about twice as high as the $14.57 bi-monthly charges
that residential customers would pay if served directly by UWI.
Further Proceedings
The Company has also requested further proceedings to establish just and reasonable rates
and deferred accounting treatment for excess water supply costs above interim rates if appropriate.
The Commission has already opened an investigation to determine whether existing rates are just
and reasonable. Staff was in the process of investigation when the water quality problems
developed. Staff believes that until the Company completes its evaluation of service arrangement
options and affects a permenant solution, it is premature to establish permanent rates. Staff also
believes that the Commission should only allow deferral of additional service costs after a specific
source of supply remedial plan or permenant service arrangement is submitted and approved by the
Commission. This is consistent with Commission Order No. 29512, which states:
The Commission further finds it reasonable to require Terra Grande
Water to file a written plan for any additional capital investment in
the water system, with estimated costs and proposed timing. No
further capital investment is to be made in the water system without
Commission approval.
Staff believes that this requirement is all the more critical given the severe water quality
problems encountered by the Company.
Customer Notice
Based on information provided to customers by the Company and the media coverage of
Terra Grande s water quality problem, Staff believes customers are well aware of the current
STAFF COMMENTS MARCH 4, 2005
situation. However, the interim interconnection with UWI and the resulting proposed rates will
subject customers to consumption charges that they are not accustomed to. Moreover, because none
of the customers are individually metered, system consumption will be divided equally.
Consequently, Staff believes it is important for the Company to routinely notify its customers of the
need to control water consumption, particularly in summer months to assure that water service
remains affordable.
STAFF RECOMMENDATIONS
Staffmakes the following recommendations:
1) That UWI bill Terra Grande bi-monthly under its existing tariffs as if it were a single
customer with 3-inch metered service.
2) That Terra Grande divide the UWI bi-monthly bill equally among its customers and
collect the amount over the following two-month period commencing with UWI's first billing
period which started on January 28 2005.
3) That Terra Grande collect a $16 monthly flat rate customer charge year round in addition
to charges collected for metered service.
4) That Terra Grande develop a permanent service arrangement plan and submit it to the
Commission for approval prior to the establishment of permenant rates of deferral of any additional
costs.
5) That the Company send periodic notices to its customers during summer months as a
reminder that the costs of system consumption will be shared by all customers and of the need to
control water consumption.
Respectfully submitted this ~+L-- day of March 2005.
novan E. Wa
Deputy Attorney General
Technical Staff: Randy Lobb
Donn English
Carol Cooper
i :umisc:comments/tgwwO5.dwrldecc
STAFF COMMENTS MARCH 4, 2005
CERTIFICA TE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 4TH DAY OF MARCH 2005
SERVED THE FOREGOING COMMENTS OF THE COMMISSION ST AFF, IN
CASE NO. TGW-05-, BY MAILING A COpy THEREOF POSTAGE PREPAID
TO THE FOLLOWING:
JOHN R HAMMOND
BATT & FISHER LLP
SUITE 500
101 S CAPITOL BLVD
BOISE ID 83702
BARBARA V CHILD
TERRA GRANDE WATER
10012 ESHELMAN
BOISE ID 83704
SECRET AR
CERTIFICATE OF SERVICE