20081010Reply Comments.pdf

McDevitt & Miller LLP
Lawyers RECEIVED
[phone]
[phone] (Fax)
420 W. Bannock Street 2008 OCT l 0 PH l: 31
P.O. Box 2564-83701
Boise, Idaho 83702
Chas. F. McDevitt
UTlllq~80tdJ(41~SiONDean 1. (Joe) Miler
October 10, 2008
Via Hand Delivery
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington St.
Boise, Idaho 83720
trs-w -0 g-o\
Re: Teton Springs Water and Sewer LLC
Dear Ms. Jewell:
Jean Jewell
Enclosed for filing in the above matter please find (1) Reply Comments of Teton Springs Water and
Sewer Company, LLC, (2) Affdavit of Jon Pinardi, (3) Affdavit of Larry Crowley. Also enclosed are
workpapers supporting Exhibit No. 10, which is attached to the Reply Comments.
Kindly return a fie stamped copy to me.
Very Truly Yours,
~ùi:
Dèan J. Miler
DJM/hh
Enclosures
C: Teton Water and Sewer LLC
-' .
Dean J. Miler (ISB No. 1968)
McDevitt & Miler LLP
420 West Bannock Street
P.O. Box 2564-83701
Boise, Idaho 83702
208-343-7500 (T)
208-336-6912 (F)
joe (g mcdevitt-miler .com
Attorneys for Teton Springs Water & Sewer Company
ORIGINAL
RECEIVED
20f8OCT l 0 PH I: 31
IDAHO PUBUr;
UTILITIES COMMiŠ810N
BEFORE THE IDAlO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
TETON SPRINGS WATER AND SEWER
COMPANY LLC, INC, FOR THE ISSUANCE
OF A CERTIFICATE OF PUBLIC
CONVENIENCE AND NECESSITY, FOR
APPROVAL OF RATES AND CHARGES FOR
WATER SERVICE, FOR APPROVAL OF
RULES AND REGULATIONS GOVERNING
THE RENDERING OF WATER SERVICE.
) Case No. TTS-W-08-01
)
) REPLY COMMENTS OF TETON
) SPRINGS WATER & SEWER LLC
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COMES NOW Teton Springs Water and Sewer LLC ("Teton Springs") and, in response
to the Comments of Commission Staff fied in Case No. TTS-W-08-1 and dated September 5,
2008, ("Staff Comments") submits the following Reply Comments, to wit:
Introduction
In its Application, Teton Springs proposed an annual revenue requirement of $298,082 to
be recovered, in par, by an "Availabilty Charge." The Staff Comments recommend an annual
revenue requirement of $127,527 to be recovered by a series of charges based on service
requirements and meter size. Staff further recommends that the Company be ordered to install
meters on previously connected services without providing adequate rate levels for collecting the
revenues necessary to recover the costs associated with this requirement.
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC-i
The Staff Comments conclude with a series of fourteen (14) Recommendations listed on
pages 22 and 23 of Staff Comments.
Teton Springs agrees with the following numbered Staff Recommendations:
2. Authorized to ear a 12% rate of return on rate base;
8. Regularly record all well flow production information ....;
11. Update biling documentation to include the date of billng and all contact
information;
12. Update termnation notices to include Comrssion-approved reconnection
charges;
13. Devise rules summary and send to all customers annually.
The remaining numbered Staff recommendations address the calculation of the
Company's annual revenue requirement that should be approved by the Commission; how that
revenue requirement should be recovered through rates; and other system or operating issues
including the obligatory installation of water meters.
In addition to the above-listed Staff recommendations, the Company also accepts some of
the accounting adjustments outlned by the Staff on Attachments A through F of Staff Comments
including the following;
1) The Company accepts Staff adjustments 1,2,3,6 and 8 shown on Attachment A of
Staff Comments.
2) The Company accepts the schedule of rate base adjustments and depreciation
schedule shown on Attachment B of Staff Comments.
3) The Company accepts, in concept, the calculations shown on Attachment C of Staff
Comments.
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC-2
4) The Company accepts the "Typical Customer Meter-and-Service Equivalent Ratios"
shown on Attachment E and the application methodology of those ratios as shown on
Attachment F of Staff Comments.
As wil be discussed in more detail in these Reply Comments, if accepted by the
Commission, the Staff's other recommendations would place Teton Springs in the situation of
being financially unviable and would place severe operating and financial burdens on Teton
Springs which would likely result in the failure of Teton Springs within a short period of time.
The major issues regarding the determination of the Company's annual revenue
requirement and recovery thereof are as follows:
1. Whether Teton Springs should be allowed an annual expense for the amortization
of contributed capital.
2. Whether Teton Springs should be allowed to recover a portion of the annual
revenue requirement through an "availability charge".
3. Whether Teton Springs should be required to install meters without rates in place
that provide for the recovery of the costs associated with the installation of the meters (as well as
the costs of reading the meters).
4. Whether Staff's proposed complete disallowance of rate case expense is
reasonable.
These issues are discussed below.
In addition, Staff proposes a number of accounting adjustments to the Company's rate
base and expense accounts. As previously discussed, Teton Springs agrees with some of the
Staff's accounting adjustments and disagrees with other Staff adjustments. These are also
discussed below.
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC-3
Attached to these Reply Comments, for ease of reference, is an Exhibit identified as
Exhibit No. 10 consisting of two pages and entitled "Summary of Adjustments & Revenue
Requirement on Rebuttal". Column 1 of this Table shows the Company's original proposed
values for each component of rate base, revenues and expenses presented in accordance with the
Uniform System of Accounts ("USOA"); column 2 shows Staff's adjustments to each line item
or account; Column 3 shows Staff's adjusted results of operation and annual revenue
requirement (page 2, line 45); Column 4 shows the Company's rebuttal adjustments; and Column
No 5 shows the Company's adjusted results and revenue requirement on rebuttaL. As can be seen
in Column No 5, page 2, line 45 Teton Springs is proposing, in rebuttal, an annual revenue
requirement of 259,256.
Argument
1. The Company should be allowed an annual expense for the amortization of
contributed capital.
In its Application, Teton Springs proposed that it be allowed an annual amortization
expense calculated by the application of industry-standard depreciation rates applied to
contributed property that makes up almost the entirety of the Company's plant in service. The
Staff Comments point out, and Teton Springs concedes, this proposal differs from prior
Commission precedent.
Yet, unlike courts, which must follow prior precedent under the doctrine of stare decisis,
the Commission is not so strictly constrained to rigidly follow prior precedent:
"Because regulatory bodies perform legislative as well as judicial functions in
their proceedings, they are not so rigorously bound by the doctrine of stare decisis
that they must decide all future cases in the same way as they have decided
similar cases in the past". McNeal v. Idaho Public Utilties Commission, 142
Idaho 685, 132 P.3d 442 (2006).
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC -4
What is required is, when deparing from prior precedent, is that the Comrssion must
provide a reasoned explanation for the deparure:
"If however, the IPUC decides a case in a manner contrary to prior IPUC rulings,
the Court wil consider whether the IPUC has adequately explained the departure
from prior rulings so that a reviewing court can determne that the decisions are
not arbitrary and capricious". Roesebud Enterprises v. Idaho Public Utilties
Commission, 128 Idaho 609, 917 P.2d 766 (1996).
Based on the following analysis, Teton Springs respectfully requests that the Commission
consider the merits of the Company's proposal and adopt it, notwithstanding prior precedent.
The first step of the analysis begins with the observation that the fundamental premise of
public utilties regulation is the assumption that regulated companies wil finance themselves
with investor supplied capitaL. In Idaho this can be seen in the list of entities the Commission
does not regulate because the entities are financed by something other than investor supplied
capital-municipal corporations, mutual nonprofit cooperatives and not-for profit companies.
See Idaho Code 61-104.
Rate of Return Regulation ("RORR") is founded on the fundamental premise that the
utility wil finance itself with investor supplied capital. In its most basic form, RORR quantifies
the amount of investor supplied capital (the rate base) and then provides for a return on the
investor supplied capital through an allowed rate of return and for a return of the investor net
supplied capital after depreciation. In this way, RORR aims to create a utilty that is financially
viable and able to attract capital while guarding against customer abuse by preventing excessive
returns. In return, the utilty undertakes to serve in the public interest.
There is, however, a type of utility that does not fit with the fundamental assumption of
investor supplied capital--ompanies that finance themselves not with investor supplied capital
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC-5
but with capital provided by customers or developers, referred to herein as "contributed capital
utilities."
The basic question Teton Springs is proposing to the Commission is whether it is sensible
and desirable to rigidly apply RORR to contributed capital utilties when the fundamental
assumption of RORR (investor supplied capital) is inapplicable to contributed capital utilities.
Teton Springs suggests rigid application of RORR to contributed capital utilities is like
refereeing a soccer game using the rules for a football game.
Rigid application of RORR to contributed capital utilties has undesirable results.
Because, under strict application of RORR, contributed capital utilties have little or no rate base,
they have little or no return and little or no annual depreciation expense. In effect, contributed
capital utilities are allowed to recover their annual operating expense, as estimated at a point in
time in a rate case, and not much more. In this case, for example, under Staff's rigid application
of RORR, Teton Springs is allowed a net of only $7,00 on a revenue requirement of
approximately $127,527.
This, in turn, leads to the creation of companies that are continually under-capitalized and
perpetually teetering on the brink of non-viabilty. An example with which the Comrssion is
recently familar is Eagle Water Company. Because Eagle Water Company is primarily a
contributed capital utilty, when faced with the need to make system improvements, it lacked the
cash flow or borrowing ability to make them, leading to service moratoriums and DEQ
interventions for public safety reasons.
What Teton Springs has proposed is a minor modification to strict RORR that would
allow an annual amortization expense of contributed capital. Much like depreciation expense of
investor supplied capital, it would provide a source of funds aimed at both providing a degree of
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC-6
.
financial stabilty and providing abilty to respond to contingencies such as unexpected necessary
repairs or improvements.
To guard against misuse, Teton Springs proposes to treat revenues generated by the
amortization expense much like a depreciation reserve account pursuant to Idaho Code 51-525,
which provides in par:
DEPRECIATION ACCOUNT. The Commission shall have power, after hearng, to
require any or all public utilities.... to cary a proper and adequate depreciation account
in accordance with such rules, regulations and forms of accounts as the Commission may
prescribe. The Commission may from time to time ascertain and determne and by order
fix the proper and adequate rate of depreciation of the several classes of property of each
public utilty. Each public utility shall conform its depreciation accounts to the rates so
ascertained, determined and fixed, and shall set aside the moneys so provided for out of
the earings and cary the same in a depreciation fund and expend such fund only for
such purposes and under such rules and regulations, both as to original expenditure and
subsequent replacement as the Comrssion may prescribe. The income from investments
of moneys in such public fund shall likewise be cared in such fund.
In this way, revenues and expenses associated with the amortization would be subject
to Commission oversight and audit by Comrssion Staff. And, at some point in the future, if in
the judgment of the Commission the reserve has reached an adequate level, rates can be adjusted
to reduce the annual amortization expense.
The amount of the requested amortization is also reasonable. The proposed annual
expense in not simply an estimated number, but is tied to standard depreciation lives of the
various categories of plant in service. (See, Direct Testimony of Lary Crowley and Exhibit No.
7, page 10).
Teton Springs' proposal is an alternative to the practice of granting emergency
surcharges when unexpected needs arse. Again, the Comrssion's recent experience with Eagle
Water Company is instructive. There, when system improvements were required, the Company.
and the Comrssion were forced through a cumbersome, time consuming and expensive process
of analyzing the need for a surcharge, quantifying its amount and monitoring its collection.
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC -7
.
Quality of service to customers suffered in the meantime. (See, In the Matter of Eagle Water
Company, Case No.EAG-W-07-01; In The Matter of Eagle Water Company, Case No. EAG-W-
05-05; In the Matter of Eagle Water Company, Case No. EAG-W-08-01).
Emergency surcharges are a poor way of dealing with the problems of undercapitalized
contributed property utilties. Teton Springs' proposal offers a more expedient approach that
entails less regulatory intervention while preserving accountabilty, assuring maintenance of
adequate service to customers and maintaining a reliable and constant revenue stream that would
allow the Company to remain a financially viable service provider. In addition, emergency
surcharges do not provide adequate revenues to cover emergency requirements for a Company
like Teton Springs that bils its customers on a quarerly basis; In other words, Teton Spring has
an uneven revenue stream that impairs its ability to meet its financial needs in a timely fashion.
Staff Comments suggest that Comrssion Rule 103, relating to presumptions for small
water companies requires a different result. Staff Comments, however, neglect to observe that
the phrase "small water Company" is a defined term within the Comrssion rules. Rule 101
defines small water companies as those with annual revenues of less that $50,000 and providing
service to less than 300 customers. Teton Springs is not a small water Company within the
meaning of Rule 1031.
The Staff Comments further oppose the Company's proposal stating, "Staff's
recommended revenue requirement should provide the Company with adequate funding to
satisfy the Company's need for cash flow and financial stabilty." (Staff Comments Pg. 4). This
cannot possibly be true. Among other things, the Staff recommendations allow for a net return
on investment of only $7,100 while at the same time requiring the Company to incur
i Whether Teton Springs is or is not a "small water Company" may be academic as the Company has conceded that
most of its plant is service is contrbuted. In either event, Rule 103 is irrelevant as to whether the Company's
amortization proposal has merit.
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC-8
approximately $45,000 in expenses to install meters without providing the revenue requirements
and rate levels required to fund this metering obligation. The Staff recommendation further
disallows the Company's prudently incurred expense of preparing and presenting this rate case.
This results in confiscation and would therefore place the Company at great financial risk. If
these recommendations (and others) are accepted, Teton Springs wil be non-viable the moment
the Commission issues its final order.
Teton Spring's proposal, in concept, is not dissimilar to a sinking fund--an amount of
money or fund, set aside and dedicated solely for system repairs, improvements and
contingencies. The Commission has recently indicated it is not generally opposed to the concept
of sinking fund. (See, In the Matter of the Application of Mayfield Springs Water Company,
Case No. MSW-W-08-01, Order No. 30628). Teton Spring's proposal is unique in the way it
proposes to collect monies for the fund. The proposed annual expense is derived from standard
depreciation schedules for water utilties rather than some arbitrary method. These schedules, in
turn, reflect the expected useful life of various plant categories. In this way the amount collected
is synchronized with accepted projections of when funds wil be necessary for replacement or
repair.
Finally, it should be noted that the Teton Springs is not requesting a return on non-
investor supplied capital. Rather the Company is proposing a funding mechanism aimed at
producing an adequate revenue requirement that wil enable it to remain a viable going concern
and to provide the level of service that is expected and that it desires to provide.
2. Without an "Availabilty Charge" unfair rate disparities wil result.
In its Application, the Company proposed an availabilty charge of $75.00 per quarer
for residential lots and $225.00 per quarer for commercial lots. Staff Comments oppose the
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC-9
charge, not because Staff disputes the wisdom of the charge, but because of prior Comrssion
decisions where arguably similar charges have been rejected.
As noted, above, however, the Comrssion, unlike courts, is not rigidly bound to prior
precedent and may depart from it when there is an ariculated reason for doing so. In the unique
circumstances of this case there is good reason to depar, even assuming the prior decisions are
not distinguishable, as Teton Springs believes they are and which is discussed below.
The uniqueness of the Teton Springs Resort development and the rationale for an
availability charge are explained in the Direct Testimony of Jon Pinardi, the Company's
Manager:
Q. In the Company's proposed Rate Schedule No.1, Flat Rate Service, there
is reference to an "Availabilty Charge". Please explain this charge.
A. The Availabilty Charge is a rate charged to each customer's premises
located within the Teton Springs Community that can be connected to the
Company's water system but which has not yet connected to the system.
Q. Does an availabilty charge recognize the fact that it was necessary to
install the entire water system and the front-end of development, rather than build
it out over time?
A. Yes. As a large scale mixed-use seasonal resort community in a rural
setting, to properly develop the land at a level that could be adequately marketed
with the full breadth of residential types, and recreational amenities in place, it
was necessary to install the entirety of the utilty infrastructure generally at one
time. In a typical residential development, the utilties are added in phases as
property is sold and homes are constructed. In the case of typical developments,
there is proportionality between the size and operational scope of the system and
the number of users paying for the service. In our situation, we must operate and
maintain the full scale of the utility, but with only a fraction of the potential users
providing revenue into the system. There is no direct proportionality between the
size and operating cost of our system and the number of "active" users. In our
case only 35% of the users have built homes and, if those 35% were required to
bear the full burden of the system, they would be required to pay an amount that
would not be fair for them. In equality, therefore, we propose that an
"availability" fee be paid by those property owners that have not yet built homes,
so the full burden doesn't fall on those that have.
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC -10
Q. Does an availabilty charge recognize the fixed nature of water utility
system costs ? Yes. The operating and maintenance costs associated with a water
system are largely fixed. Typically, the only major variable expenses relate to the
energy required to produce the water from the wells and the cost of disinfection
which is tied to the number of gallons produced. This creates the situation where
the costs of operation are largely set, regardless of the number of customers.
Again, if a small number of customers were required to bear the full burden,
without assistance from all of the potential users of the system, the cost would be
grossly unfair to this smaller group.
Q. Would an availability charge help preserve the financial integrity of the
utilty?
A. Yes. An availability fee would preserve the fiscal integrity of the system,
thereby ensuring that high quality water services, meeting all current and future
regulatory and safety requirements, are readily available when the lot owners are
ready to build on their lot and connect to the system. Having readily available
water service is a benefit to all lot owners, irrespective of whether or not they are
receiving water service currently. Additionally, because the water has been
installed to every property to provide easy and immediate access to those owners
when they desire it, having those owners not share in the burden of the utilty may
unjustly enrich them. If the financial viabilty of the system is jeopardized, and
the availability of water service and its quality is compromised, this has a
corresponding negative impact on all property owners, regardless of whether they
are currently connected to the system. Once full or substantially full occupancy
of the PUD has been achieved, it is anticipated that the availability fee can be
substantially reduced or eliminated in its entirety.
Q. Would an availabilty fee recognize the seasonal nature of occupancy by
some homeowners?
A. Yes. Because of the seasonal nature of our owners occupancy, many of
them choose to turn their water service on and off throughout the season when the
home is not occupied. Without an availability fee, the system revenue stream
would be adversely impacted and confidence in adequate revenues to maintain the
fiscal integrity of the system would be compromised. In a typical residential
subdivision setting, large numbers of users do not regularly discontinue water
service and cease payment. In our case, this does occur.
Q. Does an availability fee recognize that some properties might not be
improved until several years in the future?
A. Yes. Many owners of the land have purchased for the purpose of long-
term investment and speculation. Some have purchased with the intent of NOT
developing the land, and keeping it in open space. Both of these situations add to
the issue of considerable land not having homes constructed for years, if not
decades to come. Without these properties being developed and becoming active
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC-11
~
water users, again, in the absence of an availability fee as a means to share the
operating burden, those who have chosen to develop would be treated unfairly by
having an arbitrarily high cost for water service and the fiscal integrity of the
system would be jeopardized.
In similar circumstances other regulatory Comrssions have approved availabilty
charges for stand-alone utilties that serve only a single resort development. Attached hereto as
Exhibit 11 is an Order of The Wyoming Public Service Commission approving an availabilty
charge. In that case the utility, Gros Ventre Utility, provided service to resort subdivisions
similar to the Teton Springs development.
The Staff Comments also point to the recent case of Mayfeld Springs Water to support is
opposition to the availabilty charge. There, however, an inactive customer charge was proposed
by an intervenor who designed the charge based on factors not subject to Comrssion
jurisdiction. The Commission rejected the charge not based on a conceptual objection to such
charges, but because it was designed takng into account inappropriate considerations. "While
Mr. Covino' suggestion is innovative, it takes into account consideration outside the
Commission's jurisdiction." In The Matter ofthe Application of Mayfield Springs Water
Company, Case No. MSW-W-08-01, Order No. 30628, Pg 13.
Staff Comments also rely on an older Comrssion Order, Order No. 17536.2 Teton
Springs believes the Hayden Pines case is distinguishable for at least three reasons. First it did
not involved a utility serving a resort community which must construct its entire water system as
one project, not in phases. Second, it did not involve a utilty that bils on a quarerly basis and
does not have monthly cash flow to sustain its operations. Third it did not involve a utility that
may be facing stagnant or declining customer growth. (See Affdavit of Jon Pinardi).
2 The case citation for this Order in Staff Comments is incorrect. Staff Comments connect the Order to a case
relating to Mountain View Terrace Water system (1994). In fact, Order No. 17536 was issued in 1982 in a case
involving Hayden Pines Water Company, In the Matter of the Application of Hayden Pines Water Company, Case
No. U-1121-20.
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC -12
"
3. The Staff recommendation for installation of meters is confscatory.
As noted in Staff Comments the first approximately 50 homes the Company connected to
its system and all commercial customers do not have meters. Staff Comments then recommend,
"Staff recommends that the Company install meters in all customer service lines previously
connected for better system management and future rates design." Staff Comments, Pg.12. Staff
Comments, however, do not make any provision for the recovery of the cost of installing these
meters. Teton Springs estimates the cost of such project would be $37,000. (See Affidavit of
Jon Pinardi).
It is a fundamental principle of public utilty law that a private Company cannot be
compelled to devote property to public service to or incur expense without adequate
compensation and attempts to compel investments or expenses without compensation constitute
an impermssible taking. (See Hayden Pines Water Company v. Idaho Public Utilities
Commission 122 Idaho 356,834 P. 2d 873 (1992)). There, the Comrssion required the
Company to employ an accountant without providing a funding source therefore and the Court
held this constituted a "taking".
Accordingly, the Commission should reject this recommendation
4. Staffs recommended disallowance of rate case expense is unreasonable and
unprecedented.
The Staff proposes the complete disallowance of rate case-related expenses incurred by
the Company to make its obligatory filngs before the Comrssion. (See, Staff Comments, Pg.
6-7, Staff Adjustment No 7, Attachment A to Staff Comments). Staff's apparent rationale is
that because Teton Springs proposed an amortization expense with which Staff disagrees, the
Company should be penalized by denying it the abilty to recover rate case expenses. "Staff is
opposed to any recovery for those costs (amortization) and believes it inappropriate to allow
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC-13
recovery of rate case costs incurred to address this issue." (See Staff Comments, Pg. 7). There
are several problems with the Staff logic.
First, the Commission has always recognized that rate case expense is a legitimate cost of
doing business as a regulated utility and, to our knowledge, has never conditioned recovery on
whether positions taken by the utilty were meritorious. (See e.g., In the Matter of the
Application of United Water Idaho Inc., Case No. UWI-W-04-04), Order No. 29838, where the
Comrssion allowed documented rate case expense even though many of United Water's
positions in that case were rejected). From Teton Springs' point of view, the Staff seems content
to rely on prior Comrssion precedent when it suits their purpose (see discussion of Availabilty
Charge infra.) but to ignore prior practice when it does not serve their purpose, which appears, to
Teton Springs, to be to drive the allowed annual revenue requirement to the lowest possible
point, just short of confiscation.
Second, Teton Springs' advocacy on the amortization issue was only a small par ofthe
effort required to assemble and present this rate case. For example, because this is the
Company's first rate case, it was necessary for the Company's consultant, Mr. Lary Crowley, to
completely re-cast the Company's books to conform to the Uniform System Accounts and to
create a separation model that allocated costs between the water and sewer divisions. This
allowed the Company to present a set of financial exhibits that are equal in quality to those
presented by much larger companies regulated by the Comrssion. (See, Exhibits 5 through 9
accompanying Direct Testimony of Lary Crowley). In consequence, Staff did not have to re-
construct the Company's financial records, as is often required for many, less sophisticated,
water utility companies.
Third, the Staff recommendation is inconsistent with other recent positions taken by
Staff. Two weeks after fiing Comments in this case, Staff fied Comments in the Atlanta Power
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC -14
Company rate case, in which it did not object to the recovery of rate case expenses, even though
it disagreed with positions advance by Atlanta Power. (See, In the Matter of the Application of
Atlanta Power Company, Case No. ATL-E-08-02, Staff Report and Recommendation,
September 18,2008).
Fourth, the Staff proposal is bad for regulation. If companies that desired to present
proposals they believed would improve the regulatory process knew they risked rate case
expense disallowance, they would be less likely to make such proposals. Punishing companies
for makng proposals, even if the proposal turns out to be unacceptable, is a policy the
Comrssion should avoid.
Finally, the Company has proposed to amortize its rate case expenses over a three-year
period rather than just one year. This practice has been approved by the Commission in many
other cases where similar requests have been made.
In short, the Staff recommendation on this issue is punitive, opportunistic and
inconsistent with prior Commission practice.
5. Stas proposed disallowance of engineering fees should not be accepted.
As set forth in the Affidavit of Larry A. Crowley, engineering services incurred by the
Company contributed to the preparation of Mr. Crowley's rate case exhibits. The report
provided by CH2MHILL included an inventory of all assets and plant in service and accurate
system may. Without the information provided by CH2MHILL, Mr. Crowley would have been
required to re-construct that information.
6. A proper allowance for meter reading expense should be approved.
Staff is recommending that the Company read all water meters located at the customers'
premises but did not offer any corresponding adjustment to recover the expenses associated with
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC -15
this requirement. In response, Teton Springs has calculated the costs of reading meters four (4)
times per year using its current operating contractor and the hourly rates charged by that
contractor. (See Affdavit of Jon Pinardi). That costs is $9,333. On rebuttal, the Company has
included this cost in O&M expense account number 601 which is shown on Page 1, Line 8 of the
attached Exhibit No. 10. Also attached is the work paper that sets forth the assumptions and
calculations of this expense.
7. A reasonable allowance for recurring annuallegal expenses should be approved.
As shown on Attachment A of Staff Comments, Adjustment 4, Staff removed legal fees
in the amount of $24,640 and characterized these expenses as being non-recurring. These legal
fees were incurred by the Company to in response to its normal business requirements including
preparation of its Application for a Certificate of Convenience and Necessity to the Commission.
The Staff has eliminated all water-related legal fees and allowed the Company to recover only
$1,332 of its total legal expenses. On rebuttal, the Company is proposing to restore just the
water Company-related legal fees that represent the expected ongoing annual expense the
Company wil continue to incur on a regular basis. The amount of the adjustment is $13,090
which is shown on Exhibit No. 10, page 1, Line 20.
8. A reasonable allowance for ongoing annual regulatory expenses should be
approved.
The Company estimates that its annual costs of preparing the Comrssion required
annual report and other Commission-related expenses wil be approximately $2,500 per year.
These costs wil include the Company's auditor expenses and the preparation of the annual
report, other expenses associated with customer issues, additional legal fees and staff time
required to respond to Commission reporting requirements.
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC -16
9. Customer Comments.
Staff Comments note that more than adequate notice of this general rate case was
provided and that no one attended the public workshop, and as of the date of Staff Comments
(September 18) no written comments were received. Staff speculates this "may be due to the
fact that Teton Springs is a resort where residences are not occupied year around". (Staff
Comments Pg. 20).
As established by the Affidavit of Jon Pinardi, the residents and homeowners in the Teton
Springs development are generally attentive to matters affecting the development and are vocal
in expressing disagreement. A more plausible explanation for the lack of comment is the lack of
objection to the proposed rates.
Since the filng of Staff Comments, the Comrssion has received two letters from
customers. Three observations may be made regarding these letter comments.
First, both commenters are plaintiffs in pending litigation and it is reasonable to assume
the commenters perceive some litigation benefit from submitting comments.
Second, neither of the commenters opposes the rates proposed by the Company.
Third, the comments do hint at one thing that is true. Teton Springs is being particularly
hard hit by the deteriorating national real estate market and it is possible customer growth wil be
stagnant or declining in the foreseeable future. (See Affidavit of Jon Pinardi).
Request for Oral Argument
Teton Springs requests the opportunity to present Oral Argument with respect to the Staff
Comments and these Reply Comments.
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC -17
Conclusion
Based on the reasons and authorities cited herein, Teton Springs respectfully requests that
the Comrssion approve the revenue requirement calculated in Exhibit No. 10, and authorize the
Company to file rate schedules designed to recover the revenue requirement, including an
availabilty charge.
Dated this~day of October, 2008
Respectfull y submitted,
~~¥irLLP
McDevitt & Miler LLP
Counsel for Greene Tree, Inc.
REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC -18
..
.
CERTIFICATE OF SERVICE
I hereby certify that on the ey of October, 2008, I caused to be served, via the
methodes) indicated below, true and correct copies ofthe foregoing document, upon:
Jean Jewell, Secretary
Idaho Public Utilities Comrssion
472 West Washington Street
P.O. Box 83720
Boise, ID 83720-0074
jjewell (gpuc.state.id.us
Hand Delivered
U.S. Mail
Fax
Fed. Express
Email
Scott Woodbury
Idaho Public Utilties Comrssion
472 West Washington Street
P.O. Box 83720
Boise, ID 83720-0074
jjewell (gpuc.state.id.us
Hand Delivered
U.S. Mail
Fax
Fed. Express
Email
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REPLY COMMENTS OF TETON SPRINGS WATER & SEWER LLC -19
~
Teton Springs Water &; ser
Bere The Idaho Public utlites COmmision
case No TT-W-08-1
Exhibit No 10
.,Summa of Adjusme &; Reenue Reuireme on Rebul
r11 r21 r31 r41 r51
TSW&S TSW&
Une Acnt TSW&S St AsAdlus Rebul Rebutti~Depton/Acnt No -l Pro Adusnts By Stff Adusnts AsAd
Water Revenue - 460/474Unmere Watr Revenue
1 Sale lD Residental Custrs 46.1 186,240 1105,48)80,752
2 Sale lD Corcal Custmers 46.2 4.s 11,680 16.480
3 sale lD Indusal Custme 46.34sale lD Public Authorities 46.4
5 Sale lD Multiple Famlv Dwllnis 460.5 7.787 22,701 30,48
6 Oter Sale or Adluslts 460.6
7 Total Unmetere Wate Reenue 198.827 (71.107)127.720 131.729 259,44
OPtlnQ Exiins . Water:
8 Labo . Opration a Maintenc 601.1-6 35.982 (3,543)32,439 9,333 41,772
9 Labo . Cust Acounts 601.7
10 Labo - Admlnlsttlve II Genral 601.8
11 Salari - Oficers a Dire 603
12 Emvee Pes II Bets 60
13 Purcha-i Water 610
14 Purcha-i Por 615 8,872 8,872 8,872
15 Fuel fo Power Proucon 616
16 Chemlls 618 6.159 6,159 6,159
17 Metels a Supplie. Opetin a Maintenanc 620.1-6 27,848 (6.319)21,529 21,529
18 Mate a Suppiies - Administtive a General 620.7-11 1.98 1.98 1.6
19 Contct servic - Bilini 630
20 Contrct servic - Proesiol 631 43.024 (41.92)1,332 13.l0 14.422
21 Cotract seic - TestlnQ 635 2.330 2,330 2,330
22 Co servic - ot 636 31.000 31.0 31.0
23 Rents 64
24 TrasPrtti Expe 650
25 Insurance Expe 655
26 Ra case Expese. Amrtti 665 11.67 111.667)(0)15,154 15,153
27 Reøulato Cosson Exp - (Oter Except Taxes)667 2.500 2,500
28 I3d Debt Exiinse 670
29 Misclaneous Exnse - Co of Me 675 23&31 (23.311 (0)(0)
30 Totl Oiiratlni Expese. Wate 192.210 (86,852)105.358 40.077 145,435
31 Deimilon Ex - Wate 403 3.l1 9,286 12,377 12.377
32 Amtin Exiinklni Fund 406/7 89,140 (89,140)(0)89.140 89.140
Taxe Oter Thn Inc Tax - Acnt 40
33 Reulll Fe - PUC 40.1 617 617 37 654
34 Prope Taxes 40.2 109 109 109
35 Total OøtlnQ Expe 285,166 (166.706)118,460 129,254 247.714
ittoSl~I!No'O lof2 .-
£0..18P..lof2
Teton Spring Water &. Sewer
Bere 11e Idaho Public utilitIes COmmissIon
Case No TI-W-08-1
exhIbit No 10
..summary of Adjustment &. Revenue Reuirement on Reutl
f11 f21 f31 f41 f51
TSW&s TSW&s
Une Acnt TSW&s Steff AsAdus Rebtil Retil--DeDt/Açunt No ~Pr Adusts By St Adusnts As Ad
Water Plant In seice:
IntenalbJ Plant - 301/33
1 OrnlZltin 301
2 Fninchis & Consnts 302
3 Llnd & land Rliihts 303
4 Totel Interuible Plnt
Supply & Tretmt - 304/320
5 Strre & Improvements 304 3,455 (3,455)6 Colena & IlTundlnli Resrvoirs 3057Llke, River & Otr Inteke 3068Wells307 236.936 (236,936)
9 Infltntlon Galleries & Tunnes 308
10 SUDP Melns 309 1.519,722 U.519.722)
11 Powe Getion EQuipmet 310
12 Po Pumpinii EQuil)t 311 13,960 (13.960)13 Purificati Svs 320
14 Totl SUpply & Tretmt Plnt 1,774.074 U.774.074)
Tninsllrttion & Dibutio Plant. 330/339
15 Dibu Reoirs & StandDipe 330 364,256 (364.256)
16 Tnins & Dist Meins & Acri 331 579.930 (579,930)
17 seic 333
18 Metrs & Met Inslletins 334 23,631 23,631 23,631
19 Hydnints 335 179,956 U79.956)20 Bekfw Preventn Deice 336
21 Otr Plant & Mlsclene EQuil)t 339
22 Totl Tninsn & DIstbutin Plnt 1.124.141 U,100.510)23,631 23,631
Genenil Plant - 340/348
23 Ofce Furniture & EQuil)t 34 218,194 (218,194)24 TninsPrttin EQuil)t 341
25 Store EQuipmnt 342
26 Tools, ShOl & Gal1e EQuipmet 34327Llbotorv EQuipment 344
28 Poer Openite EQuipment 345
29 Communicatins EQull)t 346
30 Mlsllanes EQipmet 347
31 Otr Interulble EQlDment - Soare 34 20.16 20.769 20,76
32 Totl Gennil PJnt 278,194 (257.425)20.769 20,16
33 Totel Wetr Utilit Plent In Service 3.176,40 (3.132,009)44,400 44,400
34 Adjustnt to Water Asts:12.363 12.363 12.363Teleme, tnnSlder. float switces, 35 lIllon
tenk iiy. chlonation.
35 Totl Wetr Plant In seic 3,188,772 (3.132,()56.763 56,763
Add:
36 Worknii caDitel A1lowance-1/8 of O& Expe 35.646 (20,838)14.8 16.57 30,94
37 Subtl 71.571 16,157 87,727
38 Le: Acumulate Prision for Depriation C1.377 U2.37)
39 Totl Rete Base 59.194 16.157 75,350
40 Rete of Reurn Alloed - Perct 12.00%12.00%12.00%
41 Revenue Reuirent from Rete Ba 7,103 1.939 9.042
42 Net to Gro Multiplier 1.2764 1.2764 1.276
43 Retum Gro UP Fo Taxes 9,G7 2,475 11,542
44 Totel Openitlnii Expense. Une No 38 118.40 129.254 247.714
45 Annual Revanue Reuirement $127,527 $131,729 $2$9,256
,,1o_~EiNo'O 2of2 .-
EXR..I'Pai.u
BEFORE THE PUBLIC SERVICE COMMISSION OF WYOMING
IN THE MATTER OF THE AMENDED )
APPLICATION OF GROS VENTRE UTILITY
COMPANY FOR AUTHORITY TO )
INCREASE ITS RATES FOR DOMESTIC
WATER SERVICE IN THE YEAR 2001, IN ) DOCKET NO. 80013-WR-00-3
THE YEAR 2002, AND IN THE YEAR 2003
) (RECORD NO. 5627)
)
)
ORDER
(Issued January 2, 2001)
This matter is before the Commission upon the amended application of Gros Ventre
Utilty Company (Gros Ventre or Company) for authority to increase its domestic water
utilty service rates, as more fully described below.
The Commission, having reviewed Gros Ventre's application, as amended, the other
documentation submitted in support of the application, the representations and
recommendations of the Commission's staff regarding their review of the amended
application, its files regarding Gros Ventre, applicable Wyoming utilty law, and
otherise being fully advised in the premises, FINDS and CONCLUDES:
1. Gros Ventre is a public utilty as defined in W. S. § 37-1-101 (a) (vi), engaged in the
provision of utilty domestic water servce in the Jackson Hole & Tens Estates, the
Fairway Estates at Jackson Hole, and the Jackson Hole Golf and Tens Club, all of
which are located in Teton County, Wyoming. Gros Ventre's request to increase its utility
water rates is subject to the jursdiction and approval of the Wyoming Public Serce
Commission (PSC) pursuat to the provisions contained in W. S. § 37.2-112.
2. Gros Ventre filed its initial application on March 3, 2000, and subsequently amended
its application, seeking authority to increase it domestic water utilty rates to its
EXHlariiPalof5
customers. Gros Ventre proposes to increase its water rates on a phased-in three year
basis. The proposed increases for each year are set fort as follows:
The 2001 rates which are proposed to go into effect on January 1, 2001 are:
Residential Serce $25.00 per month
Undeveloped Lot $27.50 per quarer
Jackson Hole Golf and Tens Club, Inc.
May-October $150.00 per month
November-April $25.00 per month
The 2002 rates which are proposed to go into effect on January 1, 2002 are:
Residential Service $30.00 per month
Undeveloped Lot $27.50 per quaer
Jackson Hole Golf and Tens Club, Inc.
May-October $175.00 per month
November-April $30.00 per month
The 2003 rates which are proposed to go into effect on January 1, 2003 are:
Residential Serce $35.00 per month
Undeveloped Lot $27.50 per quarer
Jackson Hole Golf and Tens Club, Inc.
May-October $200.00 per month
November-April $35.00 per month
EXHlBllPaaiofS
3. Gros Ventre states in its application that although it has increased its sewage rates on a
yearly basis (sewage rates are not subject to the PSC's jursdiction), the curent flat
residential water rate of$5.00 per month has been in effect since 1966, without change.
Due to significant increases in the cost of its operations due to increased maintenance and
repair costs associated with its aging water deliver system, Gros Ventre has realized net
operating losses associated with its operation over the last three year and projects
additional net operating losses on an ongoing basis. Gros Ventre states that the proposed
phased-in increases in rate levels over the next three years will generate additional
revenues which wil sere the dual purose of reducing the Company's net operating
losses and wil generate a portion of the fuding necessar to repai and moderze the
water utilty system on an ongoing basis.
4. A Notice of Application was issued by the Commission on October 19, 2000,
which advised the retail customers of Gros Ventre of the proposed increase in the rates of
the varous customer classes that were proposed to be implemented and phased-in over
the thee year perod. The Notice of Application provided a deadline of November 22,
2000, in which affected persons could file a protest, interention, or request for hearng
with the Commission. Personal notice of the fiing was provided to all customers though
the mailng of the Notice of Application by Gros Ventre. Gros Ventre advised the
Commission by facsimile letter that it had served the Notice of Application on all
customers via a mailing that occured on October 26,2000. No protests, comments,
interentions or requests for public hearng were filed with the Commission.
5. The Commission's staff submitted its memorandum to the Commission on November
28, 2000, which set forth a sumar of the staff review of the Company's amended
application and its recommendation that the proposed increases in rates over a thee year
period were reasonable and should be approved. Staff asserted that the utility water
system which was originally constrcted in 1966 and expanded in 1979 and 1983 to
accommodate system growt demands is in need of maintenance and repair in order to
meet the instantaeous demand by customers for water, inasmuch as the system does not
have any storage capabilty. Necessar repairs include replacement of system valves,
valve boxes, pressure tans, pumps, fire hydrants and distrbution sections. Because of
the vared ages of sections of the system, increases in leaks and line breaks can be
reasonably expected as the system continues to age and degrade. The need for system
repairs is supported by an engineerng analysis and report prepared by an independent
engineering firm. Further, the constrction of an additional water well, the installation of
a disinfecting system and major repairs to the distrbution system are contemplated in the
near term, along with installation of meters on the wells. The Commission staff review of
the financial history of the Company also discloses that the Company has been operating
at a loss for several years, and that even with the proposed rate increases over the next
three years the Company wil be earng a small profit at most. When combined with
anticipated increases in repairs to the system in the next several year, additional rate
increases in the futue may be likely. It was Commission staffs conclusion that the
EXHØlll
Pqe 3 ofS
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-(
Company has justified the proposed increases in rates over the next thee years and that
even greater increases could have been justified.
6. The Commission finds and concludes, based upon its review of the uncontroverted
information provided by the Company and the Commission staff, that Gros Ventre has
fully supported its proposed increase in rate levels which it proposes to implement over
the next thee year. The Commission concurs with the Commission stafts review that
Gros Ventre's utility water operations have been operating at a deficit for a number of
years. The Company's calculation of its operating expenses for the test year are
conservative in natue and many of the water utilty operating expenses have been
supported either though the Company's wastewater or other nonutility operations. Based
upon the Company and Commission stafts representations that signficant investment in
upgrades and repairs to the system are also needed to ensure safe, reliable and adequate
utility servce, the Commission finds that the proposed revenue request is conserative in
natue and should be approved. The Company's proposal to implement the proposed rate
increases over a three year perod is reasonable as it wil lessen any potential rate shock
that might otherise be of concern.
7. Individual notice of the proposed increase in rates over the three year perod was
provided to all Gros Ventre customers. As stated above, no comments, protests or
requests for hearng concerng this matter were filed with the Commission. Although the
Commission is approving the proposed increase in rate levels for the varous customer
classes for each of the three years, the Commission directs Gros Ventre to provide notice
to its customers at least one month in advance prior to the implementation of the
proposed increase in the year 2002 and again prior to the proposed increase in the year
2003. Gros Ventre shall also fie its revised tarff sheets with the Commission prior to the
implementation of the year 2002 and 2003 rate changes. Based upon the representations
that signficant system improvements, including the possible installation of customer
meter, wil be made in the future, the Commission encourages Gros Ventre to keep the
Commission and its staff advised, on an informal basis, of its progress in this regard and
the impact these capital expenditues may have on the Company's ongoing financial
condition.
IT is THEREFORE ORDERED THAT:
1. Pursuat to open meeting action taken on November 30, 2000, the amended
application of Gros Ventre Utilty Company for authority to increase its domestic water
utilty rates on Januar 1, 2001, Januar 1, 2002, and Januar 1, 2003, as descrbed herein
be, and the same is hereby, approved.
EXHIBlllPa4 of!
..
.4
2. Gros Ventre Utilty Company is directed to provide notice to its customers, at least one
month in advance, prior to the implementation of the proposed increase in the year 2002
and again prior to the proposed increase in the year 2003. Gros Ventre shall also file its
revised tarff sheets reflecting the approved rate levels with the Commission prior to the
implementation of the year 2001, 2002 and 2003 rate increases.
3. This Order is effective immediately.
MADE and ENTERED at Cheyenne, Wyoming, this 2nd day of Januar, 2001.
PUBLIC SERVICE COMMISSION OF WYOMING
STEVE ELLENBECKER, Chairman
STEVE FURTNEY, Deputy Chairman
KRISTIN H. LEE, Commissioner
(SEAL)
ATTEST:
DAVID J. LUCERO, Assistant Secreta
EXHarllP..SefS