20101229final_order_no_32152.pdf

Office of the Secretary
Service Date
December 29 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATIONOF TROY HOFFMAN WATER
CORPORATION FOR AUTHORITY TO
INCREASE ITS RATES AND CHARGES FOR
WATER SERVICE IN THE STATE OF IDAHO
CASE NO. TRH-10-
ORDER NO. 32152
On June 7, 2010, Troy Hoffman Water Corporation, Inc. (Troy Hoffman; Company)
filed an Application with the Idaho Public Utilities Commission (Commission) requesting
authority to increase its rates and charges for water service. The Company s existing rates were
established in August 1996.Troy Hoffman, pursuant to Commission-issued Certificate of
Convenience and Necessity No. 280, provides water service to 146 residential customers and
commercial customer in the vicinity of the City ofCoeur d'Alene, Kootenai County, Idaho.
In its Application, Troy Hoffman proposed an increase of $34 262 over revenues
generated by existing rates in 2009. The Company states that it is necessary to raise rates due to
increased operating expenses along with capital costs incurred from performing needed repairs
and replacement of the main pump in 2009. The Company also proposed changes to its
reconnection tariff, changes to its method for collecting the state-assessed public drinking water
fee, and proposed new charges for late payment and returned checks.
After reviewing and considering the Application of Troy Hoffman, the comments
and recommendations of Commission Staff, the Company reply and the written comments and
public testimony of customers, we approve an annual revenue requirement for Troy Hoffman of
$41 834, an increase of $17 682. We approve changes to and implementation of non-recurring
fees and charges (reconnection, late payment and returned check charges). We authorize the new
rates to become effective January 1 2011.
BACKGROUND
A. Procedural History
On June 23 2010, the Commission issued a Notice of Application in Case No. TRH-
I0-0l and suspended the Company s proposed July 1 2010, effective date. Order No. 32130.
On October 21 , 2010, the Commission issued a Notice of Public Workshop,
Modified Procedure and Scheduling.
ORDER NO. 32152
Commission Staff held a public workshop for customers on November 9, 2010, in
Coeur d' Alene. At the workshop, Staff provided customers with an overview of the Company
Application, dispensed information on how customers could participate and answered questions.
The Commission established a scheduling deadline for Staff comments and analysis
(November 23), Company reply (December 3) and customer comments (December 9).
The Commission held a telephonic hearing on December 9, 2010, for receipt of
public testimony.
B. The Application
In its Application, Troy Hoffman represented an annual revenue increase of $34 262
(142%). Application, Exh. 4-B. The Company proposed to increase the fixed base rate for
residential customers from $5.50 to $13.21 per month and for commercial customers from $7.
to $18.15 per month. The Company also proposed to increase the volumetric or commodity rate
from $.60 to $1.45 per 1 000 gallons for all consumption in excess of 3 000 gallons per month
for both residential and commercial customers. Customers are billed for water service on a bi-
monthly basis. Customer meters are read bi-monthly during summer and are read in April for
winter water usage (October to March).
Additional charges (and changes) proposed by the Company are (1) changing the
current $10 fee for Turn On Terminated Service to a Reconnection Charge of $20 during office
hours (7-4 Monday through Friday) and $40 after office hours; (2) imposing a Late Payment Fee
of $10; and (3) a Returned Check Fee of $20. Also proposed is a change in the Department of
Environmental Quality (DEQ) Public Drinking Water Fee from a one-time $5.00 customer
charge to a $.42 per month assessment fee.
C. Staff Comments and Recommendations
On November 23, 2010, Commission Staff filed its investigative report, comments
and recommendations in Case No. TRH-I0-01. Based on its investigation and onsite audit
Staff recommends for Troy Hoffman an annual increase in revenue of $16 239 or 67.24% over
the Company s 2009 test year annual revenues of$24 152.
D. Company Reply
The Company by way of reply filed on December 6 , 2010, requests additional annual
revenue for the following expense items:
ORDER NO. 32152
Additional Expense Itemization/Request Amounts000 Licensed Backup Operator (required
Environmental Quality)
Bookkeeping
Space Rental fee
Landscaping
Transportation
Total
by Idaho Department of
200
400
$ 400
$ 500
500
By Supplemental Reply filed on December 9 2010 , the Company states that with the exception
of the foregoing, it otherwise accepts Staffs proposed adjustments and recommendations.
DISCUSSION
The Commission has reviewed and considered the complete record in Case No. TRH-
W -10-, including Staff comments and recommendations, the Company s reply comments and
the written comments and testimony of customers.
A total of 25 written and 4 telephonic comments were received from Troy Hoffman
customers. All customers submitting comments oppose the size of the rate increase (142%)
requested by the Company in its Application. Customers cite poor economic conditions and
fixed incomes as a reason for the Commission to scrutinize the Company s request.The
Commission appreciates the time and effort taken by Troy Hoffman customers to comment on
the Company s Application. We recognize that for some customers any increase may result in
economic hardship. We approach the Company s Application conscious of the consequences of
our decision. While we have an obligation to customers to establish rates that are fair and
reasonable, this Commission at the same time has a statutory obligation to Troy Hoffman to set
rates at a level sufficient to allow the Company to recover its reasonable expenses of operation
and to receive a reasonable return on prudent capital investments in utility plant and facilities.
Carrying out this duty is necessary for the Company to be financially sound and capable of
providing its customers with safe and reliable water service.
The Commission finds that the established record provides a sufficient basis for
decision in this case without further procedure or hearing. Staffs investigative report in this case
informs the content and structure of our discussion below.
System Description
As reflected in Staff comments, the Troy Hoffman water system is supplied by a
single well drilled in the early 1960s to a depth of approximately 250 feet. The well was cased
ORDER NO. 32152
with 30-inch steel up to 203 feet and an additional 45 feet of 32-inch perforated steel at the
bottom. No pump test data is available. There are two pumps installed in the well. Pump No.
was originally a 30-hp vertical turbine pump with a rated pumping capacity of 300 gallons per
minute (gpm). When this vertical turbine pump burned out in the summer 2009, the Company
replaced it with a submersible pump with similar performance characteristics and the same
horsepower motor rating. Pump No.2 is a 20-hp submersible pump with a rated pumping
capacity of 190 gpm. Pump No.1 serves as the primary pump. The total capacity of the
pumping system is 490 gpm. A totalizing and instantaneous flow meter was also installed at the
common discharge line of the two pumps in the well in 2009 when the Company replaced Pump
No.1. The operating pressure at the discharge line before the flow meter at the time of Staffs
site visit was between 52 to 75 psi. There are no variable speed drives installed in the system to
control lower flow demands. However, the Company installed a soft starter for the newly
replaced Pump No.1 in 2009 to reduce pressure surges or "water hammer effect" on the system.
The water facility is also equipped with two hydro-pneumatic tanks, with 4 000- and 3 000-
gallon capacity, to supply water during low demand and reduce frequent pump cycling.
The distribution system is supplied from the well facility through an eight-inch
transmission main. The transmission main then loops and branches into six-inch or four-inch
pipes. Most of the transmission and distribution lines are asbestos cement pipes. All residential
customers are served with %-inch meters with the exception of three customers served with 1-
inch meters. The lone commercial customer has a I-inch service meter. The capacity of the
water system appears adequate to serve the existing customers of Troy Hoffman.Staff
Comments pp. 9-10. The service area is mostly developed and there is no potential for any
significant growth.
Test Year and Revenue Requirement
Staff recommends that the 2009 test year recommended by Troy Hoffman be
approved. Staff made no adjustment to test year revenue ($24 152).
Rate Base/Rate of Return
As reported by Staff, Troy Hoffman has not capitalized any repairs to plant in service
since the Company s last rate case in 1996. Major repairs to the well pump and motor, electrical
service and the well house were made in May, June and July 2009. The total cost of the repair
ORDER NO. 32152
was $40 795, with $32 915 allocated to the pump and motor and $7 880 allocated to the
improvement to the well house. Staff Comments, Atch. 1.
Independent contractors provided work and materials for the pump and motor in the
amount of $24 450. The balance of the expenditure ($8 465) was provided by All Service
Electric, a company owned by Ron Stadley. Staff determined the total cost to be reasonably
priced and fair and reasonable and recommends that the full $32 915 be added to rate base.
The improvement to the well house was performed by Northstar Builders, a
construction company owned and operated by Ken Murren, a partner with Ron Stadley in Troy
Hoffman. The total cost was $7 880. Staff reviewed all supporting documentation to ensure the
services were competitively priced and concluded that the charges were fair and reasonable.
Staff recommends that the full $7 880 be added to rate base.
Staff and the Company agree that the original cost of all plant in service is $60 927.
Staff revised the Company s depreciation calculations to reflect the straight-line depreciation
method approved by the Commission for determining accumulated and annual depreciation
expense. Staff Comments, Attachment 1 , reflects the accumulated depreciation of $9 841 and
depreciation expense of $2 068 to determine rates. The Company s rate base is determined by
adding net plant in service of $51 086 ($60 927 - $9 841) to the Company s working capital
requirement of $3 986 (118 of the Company s annual operating expenses ($31 861)). This is a
standard working capital ratio. The resultant rate base that Staff recommends be approved is
$55 072. Staff Comments, Atch. 2. The Company agrees with Staffs calculations.
Staff recommends that a 12% return on equity and an overall rate of return on rate
base of 8.8% (the weighted cost of total common equity (3.4%) and the Company s long-term
debt (5.4%)) be approved. Staff Comments, Atch. 5. The Company agrees with Staffs
calculations and recommendations.
Operating Expenses
Staff determined the working capital requirement for the Company to be 1/8 of the
annual operating expenses. The annual operating expenses calculated by Staff are $31 891.
Staff Comments, Atch. 3 and as discussed later in these findings. This is $8 433 less than the
total operating expenses requested by the Company. One-eighth of $31 891 is $3 986. Staff
Comments, Atch. 3.
ORDER NO. 32152
Staff recommends that an annual revenue requirement of $40 391 be approved. This
equates to a $16 239 (or 67.24%) annual increase in revenue. Staff Comments, Atch. 6. The
difference between the Company s request and Staffs recommendation is largely attributed to
Staffs recommendation for lower depreciation expenses and a lower level of contract services.
The audited revenues and expenses incurred by the Company during 2009 were used
as the test year basis by Staff for determining the operating net income needed by Troy Hoffman
for continued provision of water service to customers. The Company stated its annual revenue
for the 2009 test year to be $24 152. Staff reviewed the Company s financial information and
supporting record and documentation. Staff made no adjustments to the test year revenues. The
Company accepted Staffs operating expense adjustments with the following proposed additional
expense items:
1. $1 000 - Licensed Backup Operator (required by DEQ)
The Commission finds that a licensed backup operator is a requirement of the Idaho
Department of Environmental Quality. Ken Murren is the Company s licensed backup operator.
We find the $1 000 in additional annual expense requested by the Company to provide this
required service to be fair and reasonable. We find it reasonable to approve this expense.
2. $1 200 - Bookkeeping
In its comments Staff recommended an allowance of $3 600 for bookkeeping and
states that $300 is the monthly amount paid to All Service Electric, Mr. Stadley s Company, for
office, bookkeeper, billing and recordkeeping services. Staff believes this amount is consistent
with what an independent service provider would have charged and was in fact the amount paid
by the Company to an independent service provider in 2004 and 2005 for bookkeeping services.
Troy Hoffman requests an additional $1 200 per year, contending that the cost of bookkeeping
has increased since 2004.
The Commission finds that contract service amounts paid to an affiliated company are
subject to a higher degree of scrutiny. We cannot discount Staffs representation that $300 per
month is a fair market price. Nonetheless, we accept the Company s representation that some
increase is warranted. We find it reasonable to authorize an additional $420 per year for
bookkeeping. We expect the Company to pay this amount and to reflect the payments in its
books as an auditable expense.
ORDER NO. 32152
3. $2 400 - Space Rental
All of Troy Hoffman s company operations, it states, are now run out of the All
Service Electric offices. The Company requests that $200 per month be added for office space
rental. This is a new expense for use of their offices in addition to their providing ongoing
bookkeeping services.
4. $400 - Landscaping
Troy Hoffman requests an annual amount of $400 be included for lawn maintenance
for the pump house - $20 per week for 20 weeks (five months May through September).
5. $500 - Transportation
The Company contends that until this rate case application, it was unaware that it
could be reimbursed for mileage for using personal vehicles for company business, e.g. driving
within the system/customer locations, water testing, banking and mailing. The Company does
not own any vehicles. The proposed allowance, the Company states, equates to approximately
83 miles per month at $0.50 per mile which is the 2010 Internal Revenue Service (IRS) standard
rate.
Staff comments reflect, and the Commission finds, that the above expense items 3,4,
and 5 requested by the Company were previously provided as part of monthly service and
operator fees the Company paid.
The Company in reply seeks to break these three services out as separate items. We
find that the Company needs to develop auditable accounting records going forward
demonstrating that the amounts are separate expenses and actually paid. The monthly service
and operator fee should be evaluated at the same time. Those expenses, should the Company
seek to recover them in a future rate case, will then be subject to an assessment of reasonableness
and prudence for inclusion in the Company s authorized revenue requirement.
The Company in this case claimed annual operating expenses in the amount of
$40 234 (Company Exhibit 2, Schedule B). Based upon the Company s financial records and its
operations, Staff determined that the annual operating expense should be $31 891. Staff
Comments, Atch. 3. The Company in reply accepts Staffs adjustments, and recommends
inclusion of additional amounts considered above.
We have reviewed the Company and Staff operating expense schedules and related
filings and explanations and find it reasonable to accept the Staff adjusted amount of $31 891 as
ORDER NO. 32152
a fair calculation of the Company s base annual operating expenses, to which amount we add
420 for a total annual operating expense amount of $33 311.
Additional expenses are added to the adjusted total annual operating expenses amount
of $33 311.Those expenses are as follows:
Depreciation Expense 068
Regulatory Fees (PUC)
Property Taxes 180
Other Taxes (DEQ fees)735
State Income Taxes
Total annual expenses for the Company are $36 364.
The Company s annual net loss of ($12 212) is determined by subtracting its total
annual expenses of $36 364 from its total annual revenue of $24 152. The Company s total
annual revenue requirement of $41 834 is calculated in Attachment A to this Order. This annual
revenue requirement allows the Company to recover its annual revenues of $24 152, its annual
net loss of $12 212, its interest obligation of $2 800, its grossed up allowed return on its rate base
of$2 641 ($2 062 + $579), and its incremental PUC fees of$28 .
The Commission therefore finds that the Company should be allowed to collect
annual revenues in the amount of $41 ,834 from its customers.
Rate Design
In its Application, Troy Hoffman proposed to increase the fixed base rate for
residential customers from $5.50 to $13.21 per month and for commercial customers from $7.
to $18.15 per month. The Company also proposed to increase the volumetric or commodity rate
from $.60 to $1.45 per 1 000 gallons for all consumption in excess of 3 000 gallons per month
for both residential and commercial customers. Customers are billed for water service on a bi-
monthly basis.
In this case, Staff recommends that the volume allowance for minimum customer
charge be increased from 3 000 gallons to 5 000 gallons for both the residential and commercial
customers. Staff Comments, Atch. 7.
Staff further recommends a minimum customer charge of $11.52 for residential and
$15.50 for commercial and a single rate commodity charge for residential and commercial
ORDER NO. 32152
customers of $1.05 per 1 000 gallons for all consumption in excess of 5 000 gallons per month.
Staff Comments, Atch. 9.
The Commission finds that the Company accepts Staffs rate design
recommendations. We find the proposed rate design to be fair and reasonable. We adjust the
rates to recover the Commission-approved revenue requirement of $41 834. See Order
Attachment B. Under the rates we approve, the monthly minimum customer charge for
residential customers is $11.80 and for commercial customers is $15.50. The volume allowance
remains at 5 000 gallons. The commodity charge for all customers ($/1 000 gallons) is $1.10 per
000 gallons for all consumption in excess of 5 000 gallons per month.
Other Operational and Maintenance Issues
Staff recommends that the Company make an accurate assessment of water
pumped and water sold. To accomplish this task, Staff recommends that the Company be
directed to: a) investigate the placement and test accuracy of the newly installed production flow
meter, and b) randomly test the accuracy of at least 10% of the customer service meters. Staff
further recommends that the Company be directed to complete these tasks within one year of the
final order in this case.
Staff recommends that the Company review and update all notices, bills and other
documents to be consistent with Commission s Rules and Regulations, including the Company
Tariff with all Schedules, General Rules and Regulations and Main Line Extension Rules
monthly billing statements, initial notice of termination, final notice of termination, and annual
rules summary.
Staff recommends that the Company be directed to send out an annual rules
summary (UCRR Rule 701).
Staff recommends that the Company change its normal business hours (currently
7:00 a.m. to 4:00 p.) to between 8:00 a.m. to 5:00 p., Monday through Friday, excluding
legal holidays.
We find that the Company accepts Staffs recommendations. We find the
recommendations reasonable and direct the Company to comply.
Non-Recurring Charges
Staff and the Company jointly recommend that the Company be authorized to
establish the following non-recurring charges to allow it to recover costs:
ORDER NO. 32152
. Reconnection Charge
The Commission finds that it is fair and reasonable for the Company to charge a
reconnection charge of $20.00 for a reconnection requested during normal business hours and a
reconnection charge of $40.00 for a reconnection requested at any other time.
. Late Payment Charge
The Commission finds that it is fair and reasonable to allow the Company to assess a
late payment charge of one percent (1 %) per month of the unpaid balance at the time of the
billing statement. It is our understanding that the Company reads meters only four (4) times a
year and sends billing statements on a bi-monthly basis. We further find it reasonable to require
the Company to send out reminder notices on past due balances between billing cycles and that it
warn customers of the possibility of disconnection due to non-payment.
. Returned Check Charge
The Commission finds it fair and reasonable to authorize Troy Hoffman to assess a
$20 returned check charge.
. DEQ Public Drinking Water Fee
Troy Hoffman proposed a change in the Department of Environmental Quality (DEQ)
Public Drinking Water fee from a one-time $5.00 per customer charge to a $.42 per month
assessment fee. Staff recommends and we find it reasonable that the DEQ fee be recovered in
base rates and not as a separate line item charge.
We find regarding the above detailed non-recurring charges and practices that the
Company and Staff are in agreement. We find the proposed charges and practices to be
reasonable and find it reasonable to approve and require same.
ULTIMATE FINDINGS OF FACT
AND CONCLUSIONS OF LAW
Troy Hoffman Water Corporation, Inc. is a water utility subject to Commission
jurisdiction pursuant to Idaho Code 99 61-125 and 61-129. Troy Hoffman is an Idaho
corporation and the holder of Certificate of Public Convenience and Necessity No. 280. The
Commission has jurisdiction over the issues raised in this case pursuant to Idaho Code 99 61-502
and 61-622 and the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
Having fully reviewed and considered the record in this proceeding, we find that Troy
Hoffman s existing rates do not afford sufficient revenue to the Company and are no longer
ORDER NO. 32152
reasonable. We authorize an annual total revenue requirement for Troy Hoffman of$41 834, an
increase of $17 682. We conclude that the rates and charges authorized in this Order are fair
just and reasonable.
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and Troy Hoffman Water Corporation, Inc. is hereby authorized to charge
customers the rates and charges set forth above and in Attachment B. The Company is directed
to file conforming tariff schedules setting forth the Commission-approved rates and charges.
IT IS FURTHER ORDERED and the Commission approves as more particularly
described above the following non-recurring fees and charges:
1. Reconnection Charge:
a. A $20 reconnection fee for reconnections requested during normal
business hours (between 8:00 a.m. to 5:00 p., Monday through
Friday, excluding holidays).
b. A $40 reconnection fee for reconnections requested at any other time.
2. Overdue Accounts:
A late payment charge of one percent (1 %) per month of the unpaid
balance at the time of the billing statement.
3. Returned Checks:
A $20 returned check charge.
The Company is directed to file tariffs setting forth the Commission-approved fees and charges.
IT IS FURTHER ORDERED and the Company is directed to take steps that will
enable it to make an accurate assessment of water pumped and water sold and is to complete this
task by year-end 2011.
IT IS FURTHER ORDERED and the Company is directed to change its normal
business hours to 8:00 a.m. to 5:00 p.m. (Pacific), Monday through Friday, excluding legal
holidays.
IT IS FURTHER ORDERED and the Company is directed to work with Staff to
update its tariffs and rules and to bring itself into compliance with the Commission Rules and
Regulations for Small Water Utilities and Utility Customer Relations Rules, IDAP
31.21.01.000 et seq.
ORDER NO. 32152
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. 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.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
;(
q r'
day of December 2010.
,t/.
MARSHA H. SMITH, COMMISSIONER
~~L
ATTEST:
~6J
J n D. Jewe
Commission Secretary
bls/O:TRH-IO-Ol sw4
ORDER NO. 32152
Troy Hoffman Water Corporation
TRH-IO-
Calculation of Revenue Requirement
Commission Findings
, , , ', ,
1 Rate Base
Rate of Return
Revenue Requirement from Rate Base
Portion of Return for Debt
Portion of Return for Equity (Balance)
55,250
80%
862
800
062
4 Net Operating Income Realized
Revenue Requirement Increase to
Addition Gross Revenues
Incremental PUC Fees
Gross Revenue Requirement to Overcome Loss
Subject to Income Tax (Equity Return Only)
10 Tax Gross-up Factor
Required Revenue Tax Increase
12 Revenue Increase Required
13 Amortize Rate Case Expenses
14 Total Revenue Increase Required
15 Total Revenue Collected in Test Year
16 Total Annual Revenue Requirement
(12 212)
074
102
062
28.09%
579
682
682
152
834
17 Revenue Increase %73.21 %
Attachment A
Order No. 32152
Case No. TRH-I0-
Troy Hoffman Water Case No. TRH-1O-
Rate Proof of Commission-Approved Rate Design
Commission-Approved Revenue Requirement
Total Number of Customers: Residential
Commercial
$41,834
146
MINIMUM CUSTOMER CHARGES
Type Number Volume Minimum Total Annual
Allowance Customer Rev. from Min.
Customers Customers (Gallons)Charge Charge
Residential 146 000 11.674
Commercial 000 15.186
Total 147 20,860
COMMODITY CHARGES (Residential and Commercial Customers)
Commodity charges for all customers ($/1 000 gallons)1.10
Net Volume of Excess Usage (gallons)19,080 000
Total Commodity Revenue 988
Total Revenue (minimum customer and commodity charges)848
Revenue over (under) Revenue Requirement $14
Various Charges as a % of Gross Revenue
Minimum Customer Charge
Commodity Charge
50%
50%
Attachment B
Order No. 32152
Case No. TRH-I0-