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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0320
BARNO. 1895
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
TROY HOFFMAN WATER CORPORATION )
FOR AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR WATER SERVICE IN )THE STATE OF IDAHO )
)
)
)
CASE NO. TRH-W-IO-Ol
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Public Workshop, Notice of Modified Procedure, Notice of Scheduling and Notice of Telephonic
Customer Hearing issued on October 21, 2010, submits the following comments.
BACKGROUND
On June 7, 2010, Troy Hoffman Water Corporation (Troy Hoffman; Company) fied an
Application with the Idaho Public Utilties Commlssion (Commission) requesting authority to
increase its rates and charges for water service. Troy Hoffman provides water service to 146
residential customers and 1 commercial customer in the City of Coeur d' Alene, Kootenai
County, Idaho.
Troy Hoffman proposes a revenue increase of $34,262 (142%) for residential and
commercial water customers. The Company has not had a rate increase for 14 years. Reference
STAFF COMMENTS 1 NOVEMBER 23, 2010
Case No. TRH- W -95-01, Order Nos. 26545 and 28264. The Company states it is necessar to
raise the rates due to increased operating expenses along with costs incured from needed repairs
and replacement of the main pump in 2009.
Troy Hoffman proposes the following increase in rates and charges:
Current Rates Proposed Rates
Residential $5.50 per month plus $.60 per $13.31 per month plus $1.45 per
1,000 gallons for all 1,000 gallons for all
consumption in excess of 3,000 consumption in excess of 3,000
gallons per month gallons per month
Commercial $7.50 per month plus $.60 per $18.15 per month plus $1.45 per
1,000 gallons for all 1,000 gallons for all
consumption in excess of 3,000 consumption in excess of 3,000
gallons per month gallons per month
Customers are biled for water service on a bi-monthly basis. Customer meters are read
bimonthly durng sumer and are read in April for winter water usage (October to March).
Additional charges (and changes) proposed by the Company include: (1) changing the
current $10 fee for Turn On Terminated Servicetoa Reconnection Charge of$20 during office
hours (7-4 Monday thr Friday) and $40 after office hours; (2) imposing a Late Payment Fee of
$10 for bils that are past due after 20 days of biling date; and (3) charging a Retued Check
Fee of $20. The Company also proposes a change in the Deparment of Environmental Quality
(DEQ) Public Drinking Water Fee from a one-time $5.00 customer charge to a $.42 per month
assessment fee per customer.
On June 23, 2010, the Commission issued a Notice of Application in Case No.
TRH-W-I0-0l and suspended the Company's proposed July 1,2010, effective date. On
November 9,2010, following its investigation of the Company's Application, Staff conducted a
public workshop in Coeur d Alene to discuss the Company's request for increased rates and
charges.
STAFF ANALYSIS
Revenue Requirement
The Company requested an annual revenue increase of$34,261, or a 142% increase over
the 2009 annual revenues of $24,152. As par of its Application, the Company provided
financial information for a 2009 test year. Staff reviewed the Company's financial information
STAFF COMMENTS 2 NOVEMBER 23,2010
and the supporting financial records and documentation during an onsite audit at the Company's
offices. Based on its investigation and audit, Sta accepts the 2009 test year and is recommend-
ing an annual increase in revenue of$16,239 or 67.24%.
The revenue increase is the result of additional rate base added to the Company's plant in
service in 2009, and the increase in operating expenses needed to operate the Company and
provide water service to customers. The difference between the Company's request and Staffs
recommendation is largely attrbuted to Staffs recommendation for lower depreciation expense
and a lower level of Contract Services.
Rate Base
The last rate increase approved by the Commission for Troy Hoffman was by Order No.
26545 issued August 1, 1996 in Case No. TRH- W -95-01. The Company had not capitalized any
repairs to the plant in service since the last rate case until it had major repairs to the well pump
and motor, electrical service, and the well house. Those repairs were made in May, June and
July of2009. The total cost of the repairs was $40,795, with $32,915 allocated to the pump and
motor and $7,880 allocated to the improvement to the well house. The detail on all the
Company's plant in service is shown in StaffC9mments Attachment 1.
Staff reviewed all the invoices representing all the materials and labor for the pump and
motor repair. The total cost for this expenditure was $32,915. Independent contractors provided
work and materials for the pump and motor in the amount of $24,450. The services and
materials provided by these contractors were found by Staff to be reasonably priced and should
be accepted into rate base.
The balance of the total expenditure in the amount of $8,465 was provided by All Service
Electric, a company owned by RonStadley. Mr.Stadley is one of the two curent owners of the
Company and its President. Staff reviewed the invoice and underlying documentation from All
Service Electric to insure that the affiliated services were reasonably priced. The service
provided by All Service Electric included fuishing and installng new 200 amp 3-phase service
meter upgrades, NEC required disconnects, soft star controls, electronic overloads,
compressor/control wiring, and permits. Basedin its review, Staff determined that the cost
charged to the Company was fair and reasonable. Therefore, Staff included the total cost
charged by All Service Electric of $8,465 as an increase in rate base.
STAFF COMMENTS 3 NOVEMBER 23,2010
The improvements to the well house were performed by Northsta Builders, a
construction company owned and operated by Ken Muren, a parner with Ron Stadley in the
ownership of the Company. The total cost of the charges for the materials and work provided by
Northstar Builders was $7,880. Because these services were also provided by an affliated
company, Staff reviewed all supporting cost documentation to insure the services were
competitively priced. After reviewing the documentation, and visually inspecting the
improvements to the well house, Staff concluded that the charges were fair and reasonable, and
included the total cost charged by Northstar Builders of $7,880 as an increase in rate base.
Staff and the Company agree that the original cost of all plant in service is $60,927. It
appears the Company used the tax useful lives and anual depreciation expense from the taxes to
determine the amount of accumulated depreciation and anual depreciation expense for this rate
case. Staff revised the depreciation to reflect the straight line method of depreciation rather than
tax depreciation to determine the accumulated depreciation and annual depreciation expense.
Straight line depreciation is the method approved by the Commission for determining these
amounts. Staff Comments Attachment 1 reflects the appropriate amount of accumulated
depreciation of$9,841 and depreciation expense of $2,068 used to determine rates.
Staff Comments Attachment 2 shows how the net plant in service of $51 ,086 is
calculated using the accumulated depreciation amount of$9,841 ($60,927 - $9,841). The
Company's working capital is added to the net plant in service to determine the rate base. Staff
determined the working capital requirement for the Company to be 1/8 of the anual operating
expenses. This is a standard working capital ratio. For purposes of determining working capital
in rate base, Staff used an anual operating expenses of $31 ,891. One-eighth (1/8) of $31 ,891 is
$3,986. This amount is added to the net plant in service to calculate the Company's rate base of
$55,072. Staffwill discuss its calculation of the anual operating expenses below.
Annual Revenue
The Company stated its anual revenue in the amount of $24, 152 for the 2009 test year.
Staff reviewed the Company's biling system and ban deposits to determine if all the earned
revenue is included in this amount. The Company's biling system appears to account for all the
revenues generated by the delivery of water to the customers. An audit of the Company's bank
statements showed that all of the revenue received by the Company from its customers was
deposited into the Company's ban account. The total deposits for the test year equaled
STAFF COMMENTS 4 NOVEMBER 23,2010
$24,152; therefore Staff did not make any adjustments to the test year revenues. The Company
has very little delinquent payments, and no bad debt.
Annual Operating Expenses
The Company claimed annual operating expenses in the amount of $40,324 (Company
Exhibit 2, Schedule B). Staff audited the Company's financial records for the 2009 test year to
determine if this is a reasonable level of anual operating expense. The Company changed
ownership from Bentwood Park LLC to Dalton Square LLC on April 1, 2009. This transfer
of ownership was approved by the Commissiòn on Januar 29, 2010 by Order No. 30992 in
Case No. TRH-W-09-0L. Since the test year included expenses incurred by the Company
under previous ownership and also under the current owner, Staffs audit identified those
expenses that may differ under the new ownership and then established expected annual
expenses for the test year.
Based upon the Company's financial records and its operation, Staff determined that
the annual operating expense should be $31,891. See Staff Comments Attachment 3. Staff
is recommending adjustments to the Company's reported operating expenses. Staffs
explanation of each of the operating expenses adjustments is discussed individually below.
Labor - Operations & Maintenance: The Company has retained Ron Stadley (All
Service Electric) as the water master and system operator since 1995. Mr. Stadley has been
paid the sum of $825 per month for his service for the past three years. Because this amount
was previously paid by the Company under third par ownership, Staff recommends that
this amount continue to be paid to Mr. Stadley even though he is the current owner. He wil
continue to provide the same service in the capacity of water master and system operator.
Staff has checked with other third par water operators in the Coeur d Alene, Idaho area,
and this amount does not exceed what an independent water operator would charge for a
water system of this size. Therefore, Staff recommends that this amount continue at the rate
of $825 per month, or $9,900 annually.
Salaries - Officers & Directors: The Company requested the anual amount of
$8,000 to manage the Company. Staff reviewed the amounts paid to the owner for
management services in previous years and found they had received $6,000 in 2009. Staff
STAFF COMMENTS 5 NOVEMBER 23,2010
recommends that this amount remain the same. This allocates the sum of $500 per month,
which Staff believes is a reasonable amount of compensation for this function.
Purchased Power: The Company purchases its power from A vista Utilties. This
expense is variable and dependent upon the amount of water customers' demand from the
system. The 2009 test year did not appear to be an unusual year for water demand. While
the Company requested the amount of $6,400, the total expended in 2009 for power was
$6,155, and the rates have increased since 2009. Staff evaluated power cost increases that
have been approved since the test year and determined that the amount requested by the
Company represents a reasonable estimation of current power costs. Therefore, Staff has
included the amount of $6,400 as the power expense in determining annual operating
expenses.
Materials & Supplies - Operations: The Company requested $3,600 for annual
materials and supplies. However, Staff was only able to find expenditures in the amount of
$600 in this category of expense that would be ongoing and anually reoccurring. There was
a purchase from Consolidated Supply in the amount of $522 and a purchase from TAK
Technology, Inc. for $79. Both of these expenses were for materials used in the repair of the
water system. Staff could not find any other expenditures for materials or supplies that
should have been in this account. Therefore, Staff reduced the request amount by $3,000.
Materials & Supplies - General and Administrative: These expenses include the cost
to operate the Company's office and send out the bils. The Company requested $689 for
these annual expenses. This amount agrees with the amount the Company expended in the
test year, and Staff agrees that this amount should be included in the revenue requirement.
Contract Services - Office & Accounting: The employees of All Service Electric,
Mr. Stadley's company, provides all the office, bookkeeping services, biling, and record
keeping for the Company. Since the change of ownership, the Company has been paying the
monthly sum of $300 for these services. Staff believes this amount is consistent with what
would have been charged to the Company by an independent service provider. Staff
reviewed the Company's history of payment for these services and found that it had paid
$300 per month to an independent service provider in 2004 and 2005. The Company did not
STAFF COMMENTS 6 NOVEMBER 23,2010
include any amount for this expense; however, the Company has been making this payment
since July 2009. Therefore, Staff increased anual operating expenses by $3,600.
The Company additionally has meter reading expense that also was not included.
Staff has included $400 for the anual cost for meter reading expense. Because the
Company only reads meters four times a year, this represents a cost of $1 00 per meter
reading.
Contract Services - Professional: The Company requested $7,650 as the anual
amount for Professional Services. This would include legal, accounting, engineering, or
business planing services. Although the Company had expenses that total $7,650 in the test
year, the Company reported that the $6,250 was for services that related to the purchase of
the Company and the filing for the change of ownership with the IPUC. Those expenses are
not of a reoccurring nature and Staff has therefore removed $6,250. Staff did accept $1,400
as a reoccurring cost for accounting services to prepare the Company's taxes and the IPUC
Annual Report.
Contract Services - Water Testing: The Company is required to test the purity of the
water according to a 9-year testing cycle required by DEQ. Because some tests are not
required every year, but are required in the 9-year cycle, the cost for testing must be
normalized to reflect on an anual basis what the total cost of the testing would be over 9
years. The anual water testing cost is calculated to be $475.
Rentals - Propert & Equipment: The Company requested $2,400 for rental
expenses for equipment. Staff reviewed the specific expenditures during the test year and it
appears that this is a reasonable reoccurring expenditure and no Staff adjustment is proposed.
Transportation Expense: The Company requested $500 for transportation expense.
Staff was unable to find any ongoing reoccurring expense that would justify this amount
being included in rates and therefore excluded the entire amount.
Insurance: The Company claimed insurance expense of$35. Staff reviewed the
premium page of the insurance policy and could only find insurance premiums for the
Company in the amount of$27. Therefore, Staff removed $8 from the Company's request.
STAFF COMMENTS 7 NOVEMBER 23,2010
Miscellaneous Expenses: The Company requested $400 to pay for miscellaneous
expenses. Staff could not find any expenditures by the Company that would justify this
request. Therefore Staff removed $400 from the Company's request.
Staffs recommended annual operating expenses is $31,891. This is $8,433 less than
the total requested by the Company.
Income Statement
Staff has prepared Staff Comments Attachment 4 as the anual income statement for
the Company that includes the Company's request and Staffs recommended adjustments.
This statement includes additional Company expenses that are not included in the operating
expenses totn7aL. These additional expenses are depreciation expense, Idaho Public Utilties
fee, propert taxes, DEQ fee, and state and federal income taxes. Staff found no reason to
adjust any of the expenses reported by the Company except for depreciation expense. Staff
discussed this difference in the Rate Base section of these comments. Based upon the
financial information discussed above, Staff determined that the Company has an anual net
loss of$10,792.
Rate of Return on Rate Base
The Company is entitled to ear a reasonable return on its rate base. If a utilty has no
debt, then the rate of return is determined on the basis that all the utilty's capital is
attributable to its equity. The Commission in several recent small water cases has allowed a
12% rate of return on the utilty's equity. Bar Circle S Water Company in Case No.
BCS-W-09-02, Order No. 30970; Stoneridge Water Company in Case No. SWS-W-06-01,
Order No. 30342; Falls Water Company in Case No. FLS-W-05-01, Order No. 30027; Capitol
Water Company in Case No. CAP-W-06-01, Order No. 30198; Spirit Lake East in Case No.
SPL-W-06-01, Order No. 30279.
However, if the utilty has debt, then the interest rate on the debt factors into the overall
allowed rate of return. The Company had to borrow money to complete the necessar
improvements to the pump, motor and well house. It incurred a loan from Ken Muren and
the loan has a curent balance of $37,345. This loan accrues interest at the rate of7.50% and
results in the anual interest expense of $2,800.
STAFF COMMENTS 8 NOVEMBER 23,2010
Because the Company has debt, the overall allowed rate of return on the rate base
must be weighted to reflect the authorized return on equity and the interest rate paid on debt.
Staff Comments Attachment 5 shows the recommended overall rate of retu of 8.8%. This
recommended retur is the sum of the equity retur (3.4%) and the Company's debt (5.4%).
Staff calculated the revenues associated with the retur on its rate base in the amount of
$4,846 ($55,072 x 8.8%). Of this revenue, $2,800 reflects interest on the debt that is a deduction
for ta purposes. The remaining $2,046 is subject to taxes on both a federal and state leveL. The
process of increasing the revenue requirement for tax effects is called "grossing-up." Staffhas
prepared the tax grossing-up factor on page 2 of Staff Comments Attachment 6. The net to gross
multiplier calculation of28.09% is the percentage that must be applied to the $2,046 to
determine taxes of $575 that must be collected in rates to allow the Company an opportunity to
ear the overall 8.8% rate of retur.
Calculation of Revenue Requirement
Staffhas calculated the additional revenue the Company should be entitled to collect in
rates in Staf Comments Attachment 6. The total revenue requirement is the combination of the
net loss of$10,792, the return on rate base of$4,956, the additional fee owed to the IPUC for the
additional revenue collected in the amount of $26, and the tax gross up amount of $575 for a
totalof$16,239. When this amount is added to'the curent revenues of$24,152 the total revenue
requirement that should be collected in customer rates is $40,391. This represents a 67.24%
increase to the curent rates.
ENGINEERING AND RATE DESIGN
System Condition
As par of the evaluation process, Staff conducted a field tour of the water system on
September 1,2010, accompanied by Ron Stadley, owner of Troy Hoffman Water Corporation.
The tour involved inspecting the varous components of the water supply and distribution system
focusing on project components that were recently completed including the newly refubished
main pump and the production flow meter at the well.
The Troy Hoffman Water system is currently supplied by a single well driled in the early
1960's to a depth of approximately 250 feet. The. well was cased with 30-inch steel up to 203
STAFF COMMENTS 9 NOVEMBER 23,2010
feet and additional 45 feet of 32-inch perforated steed at the bottom. No pump test data is
available. There are two pumps installed in the well. Pump NO.1 was originally a 30-hp vertical
turbine pump with a rated pumping capacity of 300 gpm. However, when this vertical turbine
pump bured out in the summer of 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
primar 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 in 2009. During the visit, the
operating pressure at the discharge line before the flow meter 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 starer for the newly replaced Pump No. 1 in 2009 to reduce pressure
surges or "water hammer effect" on the system. The water facilty is also equipped with two
hydro-pneumatic tans, with 4,000 and 3,000-gallon capacity, to supply water during low
demand and reduce frequent pump cycling.
There are some fire hydrants installed in the system but they are no longer used by the
Fire District. The Company is using them for flushing the lines. There are also flush hydrants
installed at the end of the distribution lines to flush the lines.
The distribution system is supplied from the well facilty through an 8-inch transmission
main. It then loops and branches into a 6-inch or 4-inch pipes. Most of the transmission and
distribution lines are asbestos cement pipes. There are a total of147 customers served by the
water system; 146 residential and one commercial. Almost all residential customers are served
with %-inch meters with the exception of three customers served with I-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.
Durng the public workshop conducted by Staff, no comments were received from Troy
Hoffman customers concerning issues of adequacy and reliabilty of water service. Nor were
such issues identified by customers who provided written comments.
STAFF COMMENTS 10 NOVEMBER 23,2010
Rate Design
The Company is proposing to increase its water rates as follows:
· Residential Customers - increase residential rates from $5.50 per month plus
$0.60 per 1,000 gallons for all consumption in excess of 3,000 gallons per month
to $ 13.31 per month plus $1.45 per 1,000 gallons for all consumption in excess of
3,000 gallons per month.
. Commercial Customers - increase commercial rates from $7.50 per month plus
$0.60 per 1,000 gallons for all consumption in excess of 3,000 gallons per month
to $ 18.15 per month plus $1.45 per 1,000 gallons for all consumption in excess of
3,000 gallons per month.
As noted above, the Company proposes to maintain the same rate structure by imposing a
minimum customer charge with a volume allowance of3,OOO gallons and a commodity charge
for both the residential and commercial customers.
Staff does not oppose the Company proposal to maintain a rate structure consisting of a
minimum customer charge with volume allowance, and a commodity charge. Staff believes that
this rate design is stil appropriate for the Company for the following reasons. First, the total
number and type of customers have not changed significantly since the rate was set by the
Commission in 1996 (144 customers in 1996and 147 in 2009). Second, there is not much
variabilty of the sizes of service meters for various customers. The Company indicated that out
of 146 residential customers, 143 have 3/4-inch service meters (98%) and 3 customers have
I-inch meter. Staff Production Request NO.2. Third, this rate design is simple, easy to
implement and understad. Finally, the current rate structue is a common rate design for small
metered water utilties regulated by the Commission.
In response to Staff Production Request No.9, the Company indicated that its rationale in
maintaining the 3,000-gallon minimum charge volume allowance was that this figure was used in
the past and that the Company simply has not thought to do it differently. However, the
Company concedes it is open to suggestions. Response to Request NO.9. The Company fuer
states "We are using the same rate structue for this application but would like input from the
IPUC on modifying the rate strcture if there is one that would be a better fit for our water
system. Company Work Papers, page 2. Staff believes that the minimum charge volume
allowance of 3,000 gallons is low compared to other small water systems regulated by the
Commission.
STAFF COMMENTS 11 NOVEMBER 23,2010
Staff conducted an analysis to determine the appropriate level of volume allowance for
the various types of customers. The Company provided Staff with four years of water use data
from 2007 to 2010 (parial data). Monthly readings, however, were not available although the
total volume of water sold was recorded every 6 months durng the winter season and every two
months durng other times of the year. Using the total amount of water sold during the winter
period (6 months usage from November to April) in 2006-07,2007-08,2008-09 and 2009-10,
the average monthly winter usage was calculated by dividing the total volume of water sold by
the number of months between the readings and the number of customers. The average winter
usage for four years per residential customer was 5,455 gallons per month (146 residential
customers). See Staff Comments Attachment 7 for detailed calculations. This methodology for
establishing the appropriate minimum customer charge volume allowance is consistent with the
method used by Staff in recent general rate cases for small water utilties such as Case No.
BCS-W-09-02 and Case No. FLS-W-09-0L. Also, in Commission Order 30455 (Case No.
DIA-W-07-01) the Commission addressed the monthly volume allowance issue and states:
. . . Some customers recommended increasing the monthly allowance of water to as much
as 10,000 gallons per month, others recommended reducing it to as little as O. Staff
reasoning in lowering the base monthly amount of water allowance is appealing;
however, we believe the reduction from 7,500 to 4,000 per month goes too far. Instead,
we find that the monthly allowance should be 5,500 gallons which coincides with the
average winter usage which can be considered "minimum." (Emphasis added.)
The average winter usage for one commercial customer for the same period is 5,292
gallons per month. Staff believes that the average winter usage for residential and commercial
customers is not significant enough to warant different volume allowance for each customer
class. Therefore, Staff recommends a minimum customer charge volume allowance of 5,000
gallons per month for all types of customers. Meters are not read for 6 months durng the winter
season when they are not accessible but the Company bils the customers with the minimum
customer charge during the regular biling period. When meters are read in April, any gallon
overage is computed and assessed at that time.
During the field investigation conducted by Staff on September 1, 2010, it was found that
there are 12 duplex residential units served by the Company. These duplexes are considered by
the Company to be single family residential customers. Staff agrees that these duplex customers
should be biled as individual residential customers because they are also served by %-inch
service lines and meters. In addition, the anual average monthly usage of the duplex customers
STAFF COMMENTS 12 NOVEMBER 23,2010
(17,775 gallons) is comparable to the anual average monthly usage during the year of the single
family residential customers (15,015 gallons). Staff Comments Attchment 8 presents the 3-year
monthly average volume of water sold and the monthly anual average for residential customers.
Staff supports the Company's proposal to have a rate design with a different minimum
customer charge for commercial and residential customers for the following reasons: a) the
commercial customer has a larger service line and meter (1-inch) compared to the residential
customers (3/4-inch); b) the Company maintains a 500 foot 4-inch distribution line solely serving
the commercial customer which would generally require more anual operating and maintenance
costs; and c) the average anual monthly usage of the commercial customer is 45,509 gallons per
month or about three times the average anual monthly usage of the residential customer (15,015
gallons per month).
As indicated previously, Staffs adjusted test year anual revenue requirement for the
Company is $40,391. Using this adjusted revenue requirement and the recommended rate design
discussed above, Staff recommends a minimum customer charge of $11.52 with a volume
allowance of 5,000 gallons and a commodity charge of $1.05 per 1,000 gallons for water usage
above 5,000 gallons for residential customers. Likewise, Staff recommends a minimum
customer charge of$15.50 with a volume allowance of 5,000 gallons and a commodity charge of
$1.05 per 1,000 gallons for water usage above 5,000 for commercial customers. A comparison
of rates, rate design and rate spread for existing Company and Staff s proposals are shown in the
summar table below.
TYPE OF EXISTING COMPANY STAFF
CUSTOMERS RATES PROPOSAL PROPOSAL
Residential
Min. Customer Charge $5.50 $13.31 $11.52
Volume Allowance 3,000 gallons 3,000 gallons 5,000 gallons
Commodity Charge $0.60 per 1,000 gals $1.45 per 1,000 gals $1.05 per 1,000 gals
Commercial
Min. Customer Charge $7.50 ¡ $18.15 .$15.50
Volume Allowance 3,000 gallons 3,000 gallons 5,000 gallons
Commodity Charge $0.60 per 1,000 gals $1.45 per 1,000 gals $1.05 per 1,000 gals
To assure that the Staffs rate design meets the recommended revenue requirement, Staff
developed a rate proof sheet as presented in Staff Comments Attachment 9. The total revenue
for the commodity charge was calculated using a normalized 3-year average (2007, 2008 and
2009) anual excess volume usage of 19,080,000 gallons (18,596,000 gallons for residential +
STAFF COMMENTS 13 NOVEMBER 23, 2010
484,000 gallons for commercial). The normalized excess volume was calculated by analyzing
individual water usage for each customer per billng period. The total calculated revenue is
$40,403, or about $12 over Staffs recommended revenue requirement. Staff believes that this
rate design is reasonable and appropriate for Troy Hoffman. The total revenue contributed by
minimum customer charge is 50% and the revenue còntributed by the commodity charge is 50%.
With the curent rates, approximately 46% is contributed by the minimum customer charge and
54% by the commodity charge. Staff believes that the change in percent contribution of the
minimum customer charge from 46% to 50% is waranted to bring more balanced revenue
collections throughout the biling period. In addition, Staff generally establishes revenue derived
from the base rate and commodity rate based on the percentage of fixed and variable expenses
targeting a 50/50 split. In the case of Troy Hoffman, the amount of current operation expenses
are approximately 65.7% fixed and 34.3% variable costs. The Commission has allowed a small
water utilty to recover as high as 72% of its revenue from the minimum customer charge. Order
No. 30027, Case No. FLS-W-05-01.
Based on Staffs proposed rate structue, the average monthly bil for a residential
customer with an anual average monthly water usage of 15,015 gallons is $22.04, an increase of
$9.33 or 73% from curent rates. The last rate case for Troy Hoffman Water setting the monthly
rate of$5.50 per month plus $0.60 per 1,000 gallons for residential customer consumption was
approved by the Commission in 1996 (Commission Order No. 26545). The total increase of
73% in this case is equivalent to an anual increase of 5.28% since the last increase. The rate
impacts for residential customers with different monthly water usage are presented in Staff
Comments Attachment 10.
For comparison, Staff reviewed and calculated the residential monthly biling costs using
the curent tariffs for regulated small water companies operating in northern Idaho. Using an
average consumption of 15,015 gallons, Staff found that the $22.04 average monthly bil for
residential customers of Troy Hoffman under the Staffs proposed rate design compares
favorably with monthly average bilings of various other small water companies, ranging from
$17.63 to $54.05 per month. See Staff Comments Attachment 11.
STAFF COMMENTS 14 NOVEMBER 23,2010
Other Water System Operational Issues
Water Production, Consumption and Losses
The Company indicated that a production flow meter capable of reading volumetric and
instataeous flows was installed in the summer of 2009. Staff requested that the Company
provide records of monthly water production data from the time the flow meter was installed to
June 30, 2010. In response to Staff Production Request No.6, the Company provided the water
production data and volume of water sold to all customers. Using this limited water production
data, Staff attempted to calculate the unaccounted water. However, the analysis showed that the
total volume of water pumped was less than the total volume of water sold. See Staff Comments
Attachment 10. The reasons for this inaccuracy could be a faulty production flow meter, faulty
customer service meters, different dates of reading the production meter and the service meters,
or error in meter readings. Staff recommends that the Company identify and correct the
problems in order to make an accurate assessment of water pumped and water sold.
Water Quality
As par of its review of the water system, Staff also looked at the water quality issues to
assure that the Company can adequately and reliably provide safe drinking water to customers.
A Sanitar Surey was conducted by IDEQon December 10,2004 on the Company's water
system. A Sanitary Surey is an.onsite review of the water source, facilties, equipment,
operation and maintenance to assure a public water system provides an adequate source of water
supply, and is distributing safe drinking water. Based on the results of the IDEQ's 2004 Sanitary
Survey the Troy Hoffman Water system was generally in compliance with the Idaho Rules for
Public Drinking Water Systems (IRPDWS). One deficiency that needed to be corrected was the
installation of a water production flow meter at the welL. While a flow meter was installed in
June 2009, the accuracy of this meter is in question.
Water Rights
Staff previously reviewed the Company's water rights in 2009 when Troy Hoffman
Water was sold by Benton Park, LLC to Dalton Square, LLC, the curent Company owner (Case
No. TRH-W-09-01). According to the Idaho Deparment of Water Resources (IDWR), Northern
Region, Troy Hoffman has two valid water rights licenses. The Company did not change its
name durng the sale but Staff recommended that the Company notify IDWR about the change of
STAFF COMMENTS 15 NOVEMBER 23,2010
business address. Staff also recommended that the Company fie the notice of water rights
claims as par of the adjudication process stars to assure protection of the Company's water
rights. Staff notes that adjudication claims for the Company's water rights have been
appropriately fied.
CUSTOMER NOTICES AND PRESS RELEASES
The Company's Application included a copy of the customer notice and the press release
as required under Rule 125 of the Utility Customer Relations Rules (UCRR). The Company
mailed its customers a copy of the customer notice on June 30, 2010. The press release was
published in the Coeur d'Alene Press on June 11,2010.
The Commission sent a Notice of Public Workshop on Thursday October 21,2010, to all
the paries of record and interested paries in the case. The Commission issued a Press Release
regarding the public workshop on Thursday, October 28,2010. The workshop was held in Coeur
d Alene on Tuesday, November 9, 2010. There were six (6) attendees.
CUSTOMER RELATIONS
As of November 9,2010, the Commission has received thirteen (13) written comments
from customers regarding this case as of November 22,2010. Since June 1,2007, the
Commission has received two (2) informal complaints/inquiries. An inquiry was received
regarding the Commission's regulatory authority.. An informal complaint was received in
regards to system pressure at a customer's address, which the. Company immediately checked
and found to be within DEQ limits
NON-RECURRNG CHARGES
The Company is asking for an increase in the reconnection charge from $10.00 to $20.00,
and three new charges: (1) a $40.00 after-hours reconnection charge, (2) a $10.00 late payment
charge and (3) a $20.00 retured check charge, as more paricularly described below.
Reconnection Charges
The Company proposes to increase its charge for reconnections from $10.00 to $20.00.
The Company is asking that the charge be applied to reconnections performed following an
involuntar disconnection of service for non-payment when requested during normal business
STAFF COMMENTS 16 NOVEMBER 23,2010
hours. The Company's request is reasonable and consistent with charges authorized by the
Commission for other regulated utilties. Although the Company's normal business hours are
7:00 am to 4:00 pm, it has agreed that customers requesting reconnection between 8:00 am and
5:00 pm, Monday through Friday, except legal holidays as defined by the State ofIdaho, will be
charged $20. Staff recommends approval of this charge.
The Company also proposes a new $40.00 reconnection charge for reconnections
following an involuntar disconnection of service for non-payment to be applied when the
reconnection is requested outside of normal business hours. The $40.00 charge is within the
range of charges previously approved by the Commission for other regulated utilties under
similar circumstances, when the Company must dispatch personnel outside of business hours.
Staff recommends approval of a $40.00 charge for reconnection due to involuntar disconnection
for nonpayment when requested at times other than those hours discussed above.
Late Payment Charge
The Company has requested a late payment charge of$10.00 applicable to the balance
remaining after the due date, which the Company curently sets at twenty days after the billng
date. The Company has provided no justifitation for the amount of the charge. The Staf audit
of the Company's financial records indicates that late payments are not a significant problem,
and the Company makes no allowance for Bad Debt Expense in its application. While Staff
recognizes that a late payment charge is appropriate to reduce the costs incurred in the collection
of past due debt and improves cash flow, Staff objects to a flat charge of $1 0.00 for late
payments, when it is applied regardless of the past due amount or how long the payment has
been past due.
The Company reads meters only four (4) times a year and sends biling statements on a
bimonthly basis. During the biling periods when meters have not been read the customer is
biled the minimum monthly biling charge. Because the Company does not send monthly
biling statements, consideration must be given to the timing of the application of a late payment
charge. Applying a late charge of one percent (1 %) per month, as allowed in other cases,
calculated and biled at the time the next bimonthly.biling statement is created, would show a
two percent (2%) late payment charge. In order to avoid the accumulation of late payment
charges over the two month period between billng statements, the Company could send a
reminder notice to past due accounts between billng statements, which would increase the cost
STAFF COMMENTS 17 NOVEMBER 23, 2010
of collections. Staff instead recommends a one percent (1 %) late payment charge to be applied
to the unpaid balance at the time of the bimonthly biling statement.
Returned Check Charges
In its Application, the Company proposes to implement a charge of $20.00 that applies
when a customer's check or ban draft is retured by the ban for an appropriate reason,
including non-sufficient funds. Staff recognizes that a retured check charge is appropriate to
discourage customers from paying with bad.checks and allows parial recovery of the costs
incurred in the collections process. The proposed $20.00 charge is consistent with what other
companies charge and meets statutory requirements. Staff recommends approval of the $20.00
returned check charge.
COMPANY DOCUMENTATION
Company Tariff
The three sections of a small water utilty Tariff - the Commission approved rate
schedules, the General Rules and Regulations for Small Water Utilties and the Uniform Main
Extension Rules - describe the relationship between the customers and the Company and
establish the basic rules for providing service.
The Company's application included a proposed Tarffbased on the Model Tariff for
small water utilties implemented by the Commission in 2008. The Company Tariff included a
copy of Uniform Main Extension Rules based on Commission Order 7830 (Case No. U-1500-22)
as an appendix to the Tariff. As par of the General.Rules and Regulations section of the Tariff,
under Section 14 - Special Provisions and Amendments, the Company included its Cross
Connection Control - Backflow Prevention Control Program. This program is a requirement of
the Idaho Deparment of Environmental Quality and is included as a supplement to the General
Rules and Regulations. Although this program is mandated by another state agency and
addresses issues outside of the Commission's jurisdiction, Staff believes that the inclusion of the
program detals is appropriate to create a comprehensive document for the Company. Staff
recommends inclusion of the Cross Connection Control program in the Company's Tariff.
STAFF COMMENTS 18 NOVEMBER 23,2010
Rate Schedules
Under Rate Schedule 2 - Other Recurring and Non-Recuring Charges, the Company
lists a single recuring charge, the Department OfEnvironmental Quality Fee, and several non-
recurng charges. The Company requested a DEQ fee of $.042 per month per customer to be
collected to cover the annual assessment. The DEQ fee is an annual fee subject to change by
DEQ, and not subject to IPUC approvaL. For this reason Staffhas included an allowance for the
total assessment in the revenue requirements for the Company. Staff recommends that the
Company remove the DEQ fee from the list of recuring charges, and rename Rate Schedule 2 as
Non-Recurring Charges.
Rate Schedule 2 also includes a charge labeled as a Tur On of existing service - New
Owner. This charge is variously identified by other utilties as an Account Initiation charge or a
Service Establishment Charge. The charge allows the Company to recover a portion of the costs
incurred in establishing an account, including generating new account biling records, and
turing the service on if it is curently shut off. The charge is applicable to new customers at a
service address.where service connections already exist. The Company has stated in response to
Production Requests that it does not typically tur water service off at an address when a
customer closes their account so the cost is minimaL. However, Staff recognizes that there are
costs associated with setting up a new account and recommends that the Company re-label this
charge to more appropriately reflect the actions involved.
Staff is willng to assist the Company in completing these and other formatting changes
to ensure that the Company Tarff meets the requirements of the Commission.
Biling
The Commission's requirements for biling documentation are contained in Rule 201 of
the Utilties Customer Relations Rules (UCRR), which states that bils shall be issued on a
regular basis, and describes the content requirements for the bils. The Company's Rate
Schedules are set at a monthly rate and the Company sends bi-monthly biling statements.
Biling statements provided by the Company indicate that it bils customers the end of
February, April, June, August, October and December. The Company has stated in response to
Production Requests that the customer's meters are read at the end of the month just prior to the
biling statement. Production and usage records provided by the Company indicate the Company
does not read the meters in December or Februar. This practice of not reading meters is
STAFF COMMENTS 19 NOVEMBER 23,2010
because of the limited accessibilty to meters due to accumulated snow. On statements for
biling periods when there are no readings the Company bils the customer the minimum charge
for the biling period. After the April readings, the Company aggregates the 3,000 gallon
monthly allowance for the six (6) months, (3,000 gallons x 6 = 18,000 gallons), and the customer
is biled for usage exceeding 18,000 gallons. Average customer usage is lowest in the winter
months because it is typically for culinar purposes only, the~efore the effects of aggregated
biling on the customer's bil are minimaL. Staff is aware of and agreeable to the practice.
Company biling statements do not identify the due date for the bil, but instead states that
the bil is due in 20 days. The lack of a due date does not comply with the contents requirements
as described in Rules 201, UCRR, and Staff recommends that the statements be revised to
specify the due date as required under Rule 201 of the UCRR.
Termination Notifcation
The Company submitted copies of its Initial Notice of Intent to Terminate Service and its
Final Water Shut-Off Notices. While the termination notices meet the requirements of Rule 305
of the UCRR, Staff recommends that the Company also include the Company office hours on the
notices to assist customers in contacting the Company in the event of a disconnection for non-
payment.
Annual Rules Summary
The Company states that it has not previously sent out an annual rules summary as
required under Rule 701 of the UCRR. However in.its response to Production Requests, the
Company has indicated that it will send out sumaries this year. The copy of the sumar
submitted along with its responses is based on the Commission sample. Staff recommends that
the Company generate an annual rules summary and mail it on an anual basis.
Complaint Records
The Company has forwarded copies of three incident reports dating back to May 2009.
The incident reports clearly identify customers account and describe both problem and resolution
of problem. Included in the incident reports is a report that was completed as a Company record
of an informal complaint. Commission records indicate that two customers have contacted the
Commission over the past three years. Staf commends the Company for its complaint record
STAFF COMMENTS 20 NOVEMBER 23,2010
system. The system as evidenced by the incidence reports meets the requirements of Rule 401 of
theUCRR.
RECOMMENDATIONS
1. Staff recommends that the use of a 2009 test year be approved.
2. Staff recommends that a 12% retur on equity and an overall rate of return on rate base of
8.8% be approved.
3. Staff recommends that a rate base of$55,072 be approved.
4. Staff recommends that an anual revenue requirement of$40,391 or an increase of 67.24%
be approved.
5. Staff recommends that the volume allowance for minimum customer charge be changed
from 3,000 gallons to 5,000 gallons for both the resídential and commercial customers.
6. Staff recommends that the rate design proposed by the Staff with minimum customer
charge with specific volume allowance åsdiscussed in Recommendation NO.5 and single
rate commodity charge for residential and commercial customers be approved.
7. 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
fuher recommends that the Company complete these tasks within one year of the final
order Ìn this case.
8. Staff recommends that the Company review and update all notices, bils 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 biling statements, initial notice of termination, final notice of
termination, and annual rules summary.
9. Staff recommends that the Company send out an annual rules sumary.
10. Staff recommends that the Company revise its normal business hours.
11. Staff recommends a Reconnection Charge of $20.00 to be applied for reconnection
requested from 8:00 am and 5:00 pm, Monday through Friday, excluding legal holidays.
12. Staff recommends a Reconnection Charge of $40.00 to be applied for reconnection
requested at any other time.
STAFF COMMENTS 21 NOVEMBER 23,2010
13. Staff recommends a late payment charge of one percent (1 %) per month of the unpaid
balance at the time of the biling statement.
14. Staff recommends that the Company send out reminder notices on past due balances
between biling cycles.
Respectfully submitted this v&
&3 day of
November 2010.
Technical Staff: Joe Leckie
Gerr Galinato
Chris Hecht
i:umisc:commentstrhw 1 0.1 swjlgdgcwh comments
STAFF COMMENTS 22 NOVEMBER 23,2010
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Case No. TR-W-10-01
Staff Comrnents
11/23/10 Page 1 of2
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Troy Hoffman Water Corporation
Case No. TRH-W-10-01
Monthly Winter Water Usage for Residential and Commercial Customers
Average Monthly Winter Usage per Residential Customer
Winter Total Water Total Total No. of Ave. Usage
Period Sold in Winter Number of Months of per Customer
(gallons)Customers Winter Rdg.(gallons/mo.)
2006-07 4,640,000 145 6 5,333
2007-08 5,076,000 146 6 5,795
2008-09 4,698,000 146 6 5,363
2009-10 4,669,000 146 6 5,330
Average 5,455
Average Residential Monthly Winter Usage per Commercial Customer
Winter Total Water Total Total No. of Ave. Usage
Period Sold in Winter Number of Months of per Customer
(gallons)Customers Winter Rdg.(gallons/mo.)
2006-07 7,000 1 6 1,167
2007-08 38,000 1 6 6,333
2008-09 49,000 1 6 8,167
2009-10 33,000 1 6 5,500
Average 5,292
Staff recommends a minimum charge volume allowance of 5,000 gallons
per month for all customer classes
Attachment 7
Case No. TRH-W-I0-0l
Staff Comments
11/23/10
Troy Hoffman Water Corporation
Case No. TRH-W-I0-0l
Number of Residential Customers:2007 =
2008 =
2009 =
145
146
146
Monthly Water Usage (Gallons) - Residential Customers
Month 2007 2008 2009 Average
January 5,333 5,795 5,363 5,497
February 5,333 5,795 5,363 5,497
March 5,333 5,795 5,363 5,497
April 5,333 5,795 5,363 5,497
May 20,221 13,140 17,336 16,899
June 20,221 13,140 17,336 16,899
July 49,641 41,651 38,962 43,418
August 49,641 41,651 38,962 43,418
September 10,959 14,277 14,610 13,282
October 10,959 14,271 14,610 13,282
November 5,795 5,363 5,330 5,496
December 5,795 5,363 5,330 5,496
Total 194,564 172,041 173,927 180,177
Average 16,214 14,337 14,494 15,015
Note: a) Reading in April is prorated monthly for 6 months.
b) Bimonthly reading is prorated monthly for 2 months.
Monthly Usage per Residential Customer - Troy Hoffman
60,000
50,000
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.2 20,000 ~200911~~Average
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Àtùichnerit 8
Case No. TR-W-IO-Ol
Staff Comments
11/23/10
Troy Hoffman Water Case No. TRH-W-l0-0l
Rate Proof of Staff Proposed Rate Design
Staff Recommended Revenue Requirement
Total Number of Customers: Residential
Commercial
$40,391
14ô
1
MINIMUM CUSTOMER CHARGES
Type Number Volume Minimum Total Annual
of of Allowance Customer Rev. from Min.
Customers Customers (Gallons)Charge Charge
Residential 146 5,000 $11.52 $20,183
Commercial 1 5,000 $15.50 $186
Total 147 $20,369
COMMODITY CHARGES (Residential and Commercial Customers)
Commodity charges for all customers ($/1,000 gallons)$1.05
Net Volume of Excess Usage (gallons)19,080,000
Total Commodity Revenue $20,034
Total Revenue (minimum customer and commodity charges)$40,403
Revenue over (under) Revenue Requirement $12
Various Charges as a % of Gross Revenue
Minimum Customer Charge
Commodity Charge
50%
50%
Attachment 9
Case No. TRH-W-IO-Ol
Staff Comments
11/23/10
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Attachment 10
Case No. TR-W-I0~OI
Staff Comments
11/23/10
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Attchment 11
Case No. TRH-W-IO-Ol
Staff Comments
11/23/10
Troy Hoffman Water Corporation
Case No. TRH-W-I0-0l
VOLUME OF WATER PRODUCED, SOLD AND UNACCOUNTED
2006
Volume Vol. Pumped Vol. Sold Total Percent
Pumped by Billng by Biling Volume Lost Volume
Month Gallons Period-gals Period-gals Gallons Lost
Jan
Feb
Mar
Apr
May
Jun 1/3,738,400 3,738,400 5,164,000
JuJ 6,237,200
Aug 1,417,900 7,655,100 11,609,000 (3,953,900)-52%
Sep 629,700
Oct 931,300 1,561,000 4,351,000 (2,790,000)-179%
Nov .. 575,000
Dec 780,400
2010
Jan 537,900
Feb 773,100
Mar 137,600
Apr 2/1,555,400 4,359,400 4,702,000 (342,600)-8%
May 1,653,700
Jun 1,285,000 2,938,700 4,174,000 (1,235,300)-42%
Jul
Aug
Sep
Oct
Nov
Dec
ii Flow meter was installed in early June 2009. Total volume of water pumped during
the billing period is incomplete.
21 Total volume of water pumped during the billng period includes the November 2009
to April 2010 readings.
Attachment 12
Case No. TRH-W-IO-01
Staff Comments
11/23/10
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 23RD DAY OF NOVEMBER 2010,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. TRH-W-I0-0l, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
RONSTADLEY
TROY HOFFMAN WATER CORP
710 W DALTON AVE STE J
COEUR D' ALENE ID 83815
E-MAIL: roncmallservron.com
~~
SECRETARY
CERTIFICATE OF SERVICE