20000105_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
RON LAW
TONYA CLARK
DON HOWELL
STEPHANIE MILLER
BOB SMITH
MARGE MAXWELL
RICK STERLING
WORKING FILE

FROM: SCOTT WOODBURY

DATE: JANUARY 5, 2000

RE: CASE NO. TRH-W-95-1 (TROY WATER)
INTERIM RATE ORDER

On August 31, 1995, Troy Hoffman Water Corporation, Inc. (Troy Hoffman; Company) filed an Application with the Idaho Public Utilities Commission (Commission) requesting authority to increase its rates. The Company serves approximately 144 customers, all residential. Approving a 1994 rate base with pro forma adjustments for the addition of flow meters and working capital, the Commission by Interim Order No. 26545 and “subject to refund” authorized a Staff calculated rate base evaluation of $17,240 and revenue deficiency of $4,050. This translated to an average increase in rates of 23%, or approximately $2.34/month. Calculation of the revenue requirement incorporated a return on the Company’s rate base of 12%.
As a matter of administrative housekeeping, the Commission is apprised that the rate Order No. 26545 in Case No. TRH-W-95-1 issued on August 1, 1996 remains an interim order that Staff recommends be made final without adjustment.
The reason for the interim nature of the rates was the Company’s proposal in reply comments under Modified Procedure to establish a reserve for unforeseeable expenses. Rather than the 23% increase recommended by Staff, the Company requested a 30% increase to fund a reserve. The Commission in its Order stated:
The reasonableness or appropriateness of such an account was not addressed by Staff and we find that there is not yet a sufficient record on this issue. We find, however, that it is perhaps an opportune time to initiate a formal generic case where alternatives to traditional ratemaking (including reserve accounts) for small water companies are explored. The challenges which Troy Hoffman faces are not unique but are seemingly common to many small water companies. In some instances the financial viability and ability to provide customers with reliable and adequate water service can be threatened. The time is right to review our manner and method of economic regulation of small water companies and to determine what changes and statute or rules (if any) are required to regulate such entities more effectively. The Commission will therefore initiate a generic case in a separate docket and finds it reasonable to stay further proceedings in this case pending further notice and order or motion.

Although it was the Commission’s stated intention to initiate a generic docket, such a docket was not initiated. Informal inquiry by Staff revealed that most small companies contacted, including Troy Hoffman, had little interest in participating in such a proceeding.
The Commission is apprised that Staff participates in other forums that benefit small water companies. At the NARUC level the Commission Staff continues its active participation in Subcommittees on Water and Consumer Affairs, committees that have developed a Regulatory Technique Sourcebook for Water Utilities, and assisted in the crafting and development of the federal Safe Drinking Water Act amendments of 1996 (SDWA). Commission Staff has also participated in the regulatory implementation of the SDWA amendments on the state level, including the development of guidelines for Consumer Confidence Reports (which requires water companies to disclose what chemicals and bacteria are in drinking water), and participation in the state’s Capacity Development Advisory Committee. The state Committee identified criteria to be used in assessing a utility’s managerial, technical and financial viability in determining eligibility for state revolving loan funds available for improving deteriorating water systems and upgrading water treatment systems. The state Committee worked closely with the U.S. EPA Environmental Finance Center (EFC) for Region 10 (Boise State University) in addressing “how to pay” issues of financing environmental regulatory compliance.
Regarding reserve accounts, the Commission is reminded that it has approved reserve accounts for several “non-profit” water companies in an amount equal to the return that the company would otherwise earn on rate base if it were a “for profit” company. It has not approved such accounts for “for profit” companies such as Troy Hoffman. The Commission has also approved single item rate cases wherein a surcharge has been authorized to provide a dedicated revenue stream for repayment of loans for capital expenditures.
Troy Hoffman has been apprised that the Commission has also demonstrated the willingness in appropriate cases to handle rate cases for small water companies in an expedited fashion pursuant to modified procedure based on Company filing, Staff investigative report and written comments or a hybrid procedure consisting of written comments and an evening hearing for the public comment of customers.

Commission Decision
Does the Commission find it reasonable to issue a final Order in Case No. TRH-W-95-1, approving the rate increase granted in 1996 without adjustment or change? Does the Commission have any other thoughts in this matter or direction for Commission Staff?

Scott Woodbury
blsl/M:trhw951_sw

DECISION MEMORANDUM 3