20090121final_order_no_30718.pdf

Office of the Secretary
Service Date
January 21, 2009
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF TETON SPRINGS WATER AND SEWER
COMPANY, LLC FOR THE ISSUANCE OF
CERTIFICATE OF CONVENIENCE AND
NECESSITY, FOR APPROVAL OF RATES
AND CHARGES FOR WATER SERVICE,
AND FOR APPROVAL OF RULES AND
REGULATIONS GOVERNING THE
RENDERING OF WATER SERVICE
CASE NO. TTS-08-
ORDER NO. 30718
On May 20, 2008, Teton Springs Water and Sewer Company, LLC (Teton Springs;
Company) filed an Application with the Idaho Public Utilities Commission (Commission)
requesting a Certificate of Convenience and Necessity (Certificate) to provide domestic, culinary
water service in Teton County, Idaho to customers within the Teton Springs Golf and Casting
Club planned unit development - Idaho Code ~ 61-526; IDAPA 31.01.11. The Company also
requested that the Commission approve a change in existing rates and charges for water service
approve an annual revenue requirement of $298 082 and approve the Company s proposed Rules
and Regulations Governing the Rendering of Water Service. The Company serves
approximately 278 customers.
On June 12, 2008, the Commission in interlocutory Order No. 30571 issued
Certificate of Convenience and Necessity No. 475 to Teton Springs, authorized continued water
service under the existing flat rates, and suspended the remainder of the Company s Application.
The Commission Staff was the only other party of record in this case. After
performing its audit, Staff filed its comments on September 5, 2008. Staff recommended an
annual revenue requirement for Teton Springs of $127 505. The Company filed reply comments
on October 10, 2008 agreeing with some Staff adjustments and disputing others. On rebuttal the
Company requested oral argument and proposed an amended revenue requirement of $259 256.
After reviewing the filings of record, comments of the parties, the testimony at oral
argument and the comments of customers, the Commission reaffirms its Order granting a
Certificate to Teton Springs, directs the Company to submit a plan to meter all customers
approves a number of non-recurring charges and fees (including a reconnect fee for seasonal
ORDER NO. 30718
disconnects), authorizes an emergency reserve fund, establishes an annual revenue requirement
for Teton Springs of $146 309, an overall decrease of 33.3% in revenue generated by current
rates, and approves a change in quarterly rates for service rendered on or after February 1 2009.
BACKGROUND
In its Application, Teton Springs in addition to requesting a Certificate and other
relief common to a start-up utility, made two requests of a unique nature, i.e., (1) recovery of
depreciation/amortization on contributed capital ($89 140/year) and (2) an "availability charge
applicable to unimproved residential and commercial lots and seasonal disconnects. Neither
request was approved. The Commission s subsequent interlocutory Order issuing a Certificate
and approving interim rates included a Notice of Application that established a June 27, 2008
intervention deadline. No petitions for intervention were filed. On July 18 , 2008 , the
Commission issued a Notice of Public Workshop scheduling an August 12 workshop at Teton
Springs Lodge in Victor, Idaho. As stated in the Notice, the purpose of the workshop was for
Commission Staff to dispense information to customers concerning the Company s Application
and to obtain input from the public prior to filing Staff comments or testimony. No customers
attended the workshop.
On August 6, 2008, the Commission issued a Notice of Modified Procedure and
Scheduling in Case No. TTS-08-01. The established deadline for filing comments was
September 5 , 2008. The Commission received comments from Staff and five of the Company
customers. Pursuant to Amended Notice of Scheduling and subsequent informal agreement, the
reply comment deadline for Teton Springs was extended from September 19, 2008 to October
, 2008. In its reply comments, Teton Springs requested the opportunity for oral argument.
Oral argument was held in Boise on November 7 2008.
The Company s Application was supported by filings in testimony form from Jon
Pinardi, the Director and Manager of Teton Springs, and from Larry A. Crowley, Director and
President of Energy Strategies Institute, and Exhibits 1-9. The Company s reply comments
(filed on October 10, 2008) were accompanied by the affidavits of Jon Pinardi and Larry
Crowley, and Exhibits 10 and II.
At oral argument, the Company submitted the supplemental affidavit of Jon Pinardi.
The transcript of proceedings at oral argument was filed with the Commission on November 13
ORDER NO. 30718
2008. Following oral argument, the Company on November 21 2008, filed direct supplemental
testimonies of Jon Pinardi (with Exhibits 12-15) and Larry A. Crowley.
Certificate of Convenience and Necessity
As reflected in the Company s Application, Teton Springs requested a Certificate of
Convenience and Necessity to provide domestic, culinary water service in Teton County, Idaho
to customers within the Teton Springs Golf and Casting Club planned unit development (Teton
Springs Resort Community). Idaho Code ~~ 61-125 (Water Corporation); 61-129 (Public
Utility) and 61-526 (Certificate of Convenience and Necessity) and Rule 111 of the
Commission s Rules of Procedure, IDAP A 31.01.01.111. The Teton Springs development
consists of 581 single-family building lots, 14 commercial lots, and 2 multi-family dwellings
which will contain 143 residential units at full build-out. The development is an all-season resort
community. Teton Springs currently serves 194 residential customers, 5 commercial customers
and 73 multi-family unit customers. The Teton Springs water system consists of two wells, a
water storage reservoir, water mains, hydrants, and service lines. The legal description and map
of the proposed service area are set out in Application Exhibits Band C (and are attached to the
Company s Certificate No. 475).
In interlocutory Order No. 30571 we found that Teton Springs Water and Sewer
Company, LLC was being operated in such a manner as to bring it within the jurisdiction of the
Commission under Title 61 , Idaho Code; Idaho Code ~~ 61-124 , 61-125 , 61-129. We further
found that the present and/or future public convenience and necessity required issuance of
Certificate of Convenience and Necessity No. 475 to Teton Springs Water and Sewer Company,
LLC. Reference Idaho Code ~~ 61-526, 61-528; IDAPA 31.01.01.111. Continued water service
was authorized under the existing flat rate and proposed changes in rates and charges were
suspended until such time as the Commission issued an Order accepting, rej ecting, or modifying
the Application in this case.
Proposed Rates and Charges
As reflected in the Company s Application, Teton Springs charges active residential
and commercial customers an unmetered flat rate of $240 per quarter. Active residents of multi-
family units are presently assessed a flat rate of $80 per quarter. Teton Springs Exh. 9. These
are the rates the Commission authorized in its Order granting certification. Teton Springs
proposes to change rates for existing customers and to assess a new "Availability Charge" for
ORDER NO. 30718
inactive residential and commercial customers whose property fronts an existing main, but who
have not connected to the system, as reflected below.
Number of Company
Active Current ProposedDescriptionCustomersRates/Quarter Quarterly Rates
Unmetered Residential:
Total No. of Single-Flat rate service:
family lots: 581 194 $240.$150.Total No. ofInactive Availability charge:
Lots: 387 $75.
Unmetered Commercial:
Total No. of Flat rate service:
Commercial Lots: 19 $240.$450.Total No. ofInactive Availability charge:
Lots: 14 $225.Unmetered Multi-Family:
Total No. of Multi- Flat rate service:
Family Units: 143 $80.$150.
Availability charge:
Stating that it does not presently have sufficient water consumption data, the Company proposes
to charge customers initially under a flat rate rather than a metered rate.
Pending further investigation, in Order No. 30571 Teton Springs was directed to
continue providing culinary water service at the Company s present flat rates and to file
conforming tariffs. The Company was apprised that as a regulated utility all rates and charges of
the utility must be approved by the Commission and set forth in tariff schedules on file with the
Commission. Idaho Code ~ 61-313. No other charges are permitted.
Additional Fees and Charges
As reflected in the Company s Application, the following additional charges and fees
were proposed:
Schedule No. lA: DEQ Fee (recovered in tariff water rates)
Schedule No.2: Miscellaneous Fees and Charges
1) Returned check charge: $20.00 each occurrence
2) Reconnection charge for non-payment terminations:
During normal business hours $ 50.
Other than normal business hours $100.
ORDER NO. 30718
3) Field collection trip charge - applicable to customers who pay
outstanding bills for service at the time Company personnel arrive at
customer s premises to terminate service: $50.
Schedule No.3: Bulk water sold to contractors.
1) Backflow Prevention Device Rental Charge - $25.00 per day
2) Bulk Water Charge - $25.00 per day.
Schedule No.
1) Base Hookup Fee: $1 500
2) Uncollected Availability Charge
In the event any customer fails to pay the Availability Charge asrequired by Schedule No. I . . .
Proposed Rules and Regulations Governing the Rendering of Service
Included with the Company s Application are proposed Rules and Regulations
governing the rendering of service. The following subject areas are addressed in the Rules and
Regulations: Application for Service; Service Connection; Meters; Bills; Discontinuance of
Service; Customer Deposits; Service for Construction Purposes; Application and Rules Are
Contract; Fire Protection; and Miscellaneous.
In Order No. 30571 , Teton Springs was directed to adopt and implement the
Commission s Customer Relations Rules (IDAPA 31.21.01.000 et seq.
),
Utility Customer
Information Rules (IDAP A 31.21.02.000 et seq.
),
and an accounting system consistent with the
information required by the Commission s annual report for small water companies (Idaho Code
~ 61-405).
REVENUE REQUIREMENT
Teton Springs in its Application proposed an annual revenue requirement of
$298 082. App. Exh. 5 , p. 2. Staff calculated a total revenue requirement of $127 505. Staff
Comments, Atch. C.The Company in reply comments proposed an amended revenue
requirement of $259 256. Reply Exh. 10 , p. 2. As detailed below, we find it reasonable
approve an annual revenue requirement for Teton Springs of$146 309.
Test Year
For rate case test year Teton Springs proposes the 12 months ending December 31
2007, adjusted for known and measurable changes. App., Crowley, p. 3. Staff accepts a 2007
ORDER NO. 30718
test year. Staff Comments, p. 2. We find the proposed use of a 2007 test year adjusted for
known and measurable changes to be reasonable for the purposes of this case.
Rate Base
Commission Staff proposes a rate base of $59 194 for Teton Springs. Staff
Comments, pp. 2-5; Atch. B. The Company in reply/rebuttal proposes a rate base of $75 350.
Rebuttal Exh. 10, p. 2. As detailed below, the comparable rate base we find reasonable to
approve (total rate base less accumulated depreciation) is $57 763.
The $16 157 difference between Company and Staff proposed rate base (total rate
base minus accumulated depreciation) is the difference in the "working capital allowance." Both
parties agree that an acceptable formula for calculating a working capital allowance is "118 of
total operating expenses (O&M)." The difference in Staffs operating expense ($118 461 - Staff
Comments, Atch. A) and the Company s operating expense ($247 714 - Teton Springs Rebuttal
Exh. 10, p. I) proposals are $129 254. One-eighth of that difference is $16 157.
Commission Findings:
The Commission finds it reasonable to include a working capital allowance as an
addition to rate base and to use one-eighth of the Company s annual operating and maintenance
expenses as the working capital amount. Except for the working capital allowance portion of
rate base, which is the arithmetic calculation based on one-eighth of the total Commission-
approved operating expense, there is no dispute in rate base proposed by Staff and the Company.
As detailed below, the total operating expense we find reasonable to approve for the Company is
$107 027. The calculated working capital allowance for rate base is $13 378. The total rate base
adjusted for depreciation we approve is $57 763. Order No. 30718, Appendix, pp. 1-
Return on Rate Base/ Gross-Up Multiplier (I'ax)
Teton Springs and Staff both recommend a 12% return on rate base. Teton Springs
Reply p. 2; Staff Comments p. 5.
Commission Findings:
The Commission has allowed other small water utilities a 12% rate of return and finds
a 12% return on rate base to be fair and reasonable for Teton Springs. Staff contends, and we
agree, that the calculated return on rate base must be grossed-up for tax purposes in the
calculation of the revenue requirement. Staff Comments p. 5; Atch. C. The Company accepts
Staffs Attachment C gross-up multiplier. Reply p. 2. We utilize the same gross-up multiplier
ORDER NO. 30718
(Order No. 30718 , Appendix, pp. 1-4) and calculate a revenue requirement for return on rate
base of $6 932. (Order No. 30718 , Appendix, pp. 1-
Expenses
In its Application, the Company proposed total annual expenses of $285 166. App.
Exh. 5 , p. 2. Staff recommends total annual expenses of $118 461. Staff Comments p. 5 , Atch.
A. The Company in reply accepts a number of Staffs adjustments, opposes all others, (including
Staff adjustments for non-recurring legal and engineering fees and for rate case expense) and
recommends an amended annual expense amount of $247, 714. Exh. 10 , p. 1. The difference in
Staff and Company recommended expense amounts is $129 254. (Exh. 10, p. 1.) Included in the
difference is Staffs rejection of the Company s proposal to recover $89 140 per year for
amortization of contributed capital.
Commission Findings:
As detailed below, we find it reasonable to approve for Teton Springs total annual
expenses in the amount of$137 483. (Order No. 30718, Appendix, pp. 1-
Disputed Adjustments:
Legal Fees (Contract Services - Professional)
Staff
Staff removed $24 640 in professional legal services performed in the 2007 test year.
Staff reviewed all the legal invoices for these services and concluded that most of the legal fees
included by the Company were incurred for matters that were either not related to the ongoing
operation of the water company or were of a non-recurring nature, e., fees related to the
creation of a water district that was ultimately abandoned; and fees related to an action against
the City of Driggs. Staff Comments p. 6. Staffs adjusted amount for annual legal expense is
332.
Teton Springs
In reply/rebuttal, the Company proposes annual legal expenses of $14 442. Exh. 10
p. I; Rebuttal Workpapers; Reply p. 16. The Company contends the $24 640 in legal fees
removed by Staff, it states, were incurred by the Company in response to its normal business
requirements, including preparation of its Application for a Commission Certificate. In Pinardi'
Affidavit, the Company comments on the current economic times and anticipates limited
customer growth, or possibly a decline in the number of active customers, in the immediate
ORDER NO. 30718
future. Given these circumstances, Pinardi contends it is likely that the Company will be
required to incur legal expenses to collect delinquent customer accounts and possibly represent
its interests in foreclosure or bankruptcy proceedings. Staff s recommended allowance for
ongoing legal expenses of $1 332, Mr. Pinardi states, would provide for less than seven hours of
legal services. Pinardi Affidavit p. 3. In a supplemental affidavit, Mr. Pinardi states he has been
advised of 47 lots located within Teton Springs Resort scheduled for foreclosure in the months of
January and February 2009.
In rebuttal, the Company proposes to restore water utility-related legal fees that it
expects to incur as annual expense on a regular basis. The Company proposes restoring $13 090
in legal fees for a total annual legal expense of $14 442 ($13 090 + $1 332). Reply p. 16;
Rebuttal Workpapers ($7 052 directly allocated to water; $6 038 unallocated/allocated to water).
Commission Findings:
The Company makes a persuasive argument that annual legal services will exceed the
332 proposed by Staff. However, we find the Company s argument is based mostly on
speculation. We expect the Company to be judicious in its use of contract professional services.
While it is important for the Company to protect its interests in foreclosure, bankruptcy and
collection matters, those types of services are rather routine and formulaic and should not require
time amounting to $14 442. We find it reasonable to approve $3 000 for annual legal expense.
Engineering Fees (Contract Services - Professional)
Teton Springs
Total engineering expenses included by the Company in its Application were $8 672.
These fees (of the engineering firm CH2M Hill), the Company contends, covered the work
required to classify the water and sewer assets of the Company.
Staff
Staff contends that the engineering activities described in an engineering statement
provided to Staff ". . . represents work completed over the last year; include updates to the rate
model to accommodate the 'availability fee ; define billing units by customer class; and project
revised operating requirements of the system" that do not appear to be of a recurring nature, but
are instead rate case expenses. Staff Comments p. 6. Staff excludes all $8 672 from the annual
expenses. Staff Comments, Atch. A.
ORDER NO. 30718
On rebuttal , the Company states that it inadvertently allocated all the engineering fees
to the water utility rather than splitting the fees between the water and sewer operations. The
Company proposes that one-half of these expenses be allocated to Teton Springs ($4 336) and
that these fees be included as part of the Company s rate case application expense. Crowley
Affidavit, p. 2.
Commission Findings:
The Commission finds the $4 336 in engineering expense requested by the Company
is not an annual expense but, on the facts of this case, is a reasonable rate case expense. As
detailed and discussed below, we add the engineering expense amount to rate case expense and
amortize it over five years.
Rate Case Expense
Teton Springs in its Application identified $35 000 in rate case expense, an amount
the Company increased to $45 461 in reply comments. Staff in its comments and oral argument
expressed its opposition to the Company s "amortization of contributed capital" proposal, stated
its opposition to recovery of costs for developing and advancing such a proposal, expressed its
belief that the amount requested was excessive for a company of this size and proposed the
complete disallowance of rate case related expenses. Staff Comments pp. 6-7; Atch. A; Tr. pp.
28-29. The Commission for reasons discussed below disagrees with Staff and finds it reasonable
to approve total rate case expense of $49 797 amortized over five years. Order No. 30718
Appendix, pp. 1-
Teton Springs
Teton Springs in its Application stated it had incurred a total of $35 000 in rate case
expense and proposed amortizing the sum over a three-year period ($11 667 per year). Exh. 6
, p.
8; Exh. 7, pp. 1 , 8 (Adj. 7). The Company in reply/rebuttal claims total rate case expense of
$45 461 , with a three-year amortization of $15 154 per year. TTS Rebuttal Workpapers. The
Company contends that Staff s disallowance of rate case expense is unreasonable and
unprecedented. Reply p. 13. The Commission, the Company contends, has never conditioned
recovery on whether positions taken by the utility were meritorious. Reply p. 14. Further, the
Company s advocacy on the amortization of contributed capital issue, it contends, was only a
small part of the effort required to assemble and present its rate case. Reply p. 14.
ORDER NO. 30718
Commission Findings:
The Commission finds the Company s argument persuaSIve and Staffs total
disallowance unreasonable. While the rate case expense claimed by Teton Springs is large for a
company of its size, we find that the magnitude of expenses incurred was related to the
accounting, engineering and legal services required to organize and establish appropriate
accounting protocols and to separate its regulated water from its unregulated sewer operations.
Much of this expense we find to be a singular occurrence. The effort put into this case by the
Company we find benefitted the Commission in its analysis, Staff in its audit, and as a result the
Company and its customers. Adding engineering expense from above to the $45 461 in rate case
expense requested by the Company on rebuttal, we find it reasonable to allow the Company to
recover total rate case expense of $49 797 amortized over a five-year period, i., $9 959 per
year. Order No. 30718 , Appendix, pp. 1-4. Our expectation is that future rate case expense will
be much less because of the foundation established in this case.
Amortization of Contributed Capital
Teton Springs proposes an annual expense for amortization of contributed capital
($89 140) to provide financial stability and to establish a fund that would enable the Company to
quickly make emergency system repairs. Staff opposes the Company s request contending that
the Company is asking customers to pay a second time for plant-in-service that was contributed
by customers and recovered by the developer in the sale of resort lots. For reasons detailed
below, we decline to accept the Company s proposal and methodology but find it reasonable to
approve the establishment of an emergency reserve fund.
Teton Springs
The Company calculates and recommends recovery of an annual amortization of
contributed capital amount of $89 140 per year for its total installed water system. This amount
represents the annual depreciation of water system investment that would accrue if the
investment ($3.1 million in water infrastructure) were included in rate base. App. Crowley, p. 8;
see Rebuttal Workpapers. The Company does not contest that almost the entirety of its plant-in-
service is contributed.The Company also concedes that its proposal differs from prior
Commission precedent. Reply p. 4. The Company contends that a different form of rate of
return regulation should apply in instances of utilities that finance themselves not with investor-
supplied capital but with capital provided by customers or developers, i., contributed capital
ORDER NO. 30718
utilities. Reply pp. 5-6. Because contributed capital utilities have little or no annual depreciation
expense, they are in effect allowed only to recover their annual operating expense and not much
more. Teton Springs contends that this result leads to the creation of utilities that are continually
under-capitalized and perpetually teetering on the brink of non-viability. Teton Springs Reply p.
What Teton Springs proposes, it states, is a modification to strict rate of return
regulation that would allow an annual amortization expense of contributed capital. Much like
depreciation expense of investor-supplied capital, this revenue would provide a source of funds
aimed at both providing financial stability and providing an ability to respond to contingencies
such as unexpected and necessary repairs or improvements. Reply pp. 6-7. Although its water
system is only five years old, the Company argues that need for repairs still arises. In a four-
month period from December 2006 through March 2007 the Company incurred $24 944 in repair
expense. Pinardi Supplemental p. 9. To guard against misuse, Teton Springs proposes to treat
revenues generated by the amortization expense much like a depreciation reserve account. Idaho
Code ~ 61-525 (Depreciation Account). Reply p. 7. Revenues and expenses associated with
such an account would be subject to Commission oversight, Staff audit, and Commission
adjustment. Reply p. 7. The proposed annual expense amount, the Company states, is not
arbitrary but is tied to the standard depreciation lives of the various categories of plant-in-
servIce. Reply p. 7.
Teton Springs contends its proposal is an alternative to the practice of granting
emergency surcharges when unexpected needs arise. Reply p. 7. The proposal is not dissimilar
to a "sinking fund " - an amount of money or fund, set aside and dedicated solely for system
repairs, improvements and contingencies. Reply p. 9. The Company argues that its proposal
entails less regulatory intervention while preserving accountability, assuring maintenance of
adequate service to customers and maintaining a reliable and consistent revenue stream that
should allow the Company to remain a financially viable service provider. Reply p. 8.
Staff
Staff opposed the Company being allowed recover any
depreciation/amortization on the initial investment costs of the water system. Staff Comments p.
3. The Commission has consistently held that a developer s capital investments in a water
system are considered contributed capital and are not to be included in rate base. IDAP A
ORDER NO. 30718
31.36.01.103 (Presumption of Contributed Capital). Staff Comments p. 4. If the initial capital
investment is considered contributed capital , and is not included in rate base, Staff contends the
cost should not be recaptured by the collection of a depreciation/amortization expense included
in rates. Staff Comments p. 4.
The Company, Staff notes, has not identified any specific water system need that
would necessitate the collection of this additional $89 140 in customer rates. If there is a need in
the future that would require additional funding, Staff contends that the Company at that time
should petition the Commission with a specific request associated with those expenditures. Staff
Comments p. 4. The Company by way of rebuttal states that a public drinking water system is
obligated to provide continuous service and does not have the luxury of waiting to make system
repairs while an emergency surcharge application is processed. Pinardi Supplemental p. 10.
Commission Findings:
While the Company has not persuaded us that it should be permitted to depart from
precedent and recover depreciation/amortization on contributed capital, the Company raises an
under-capitalization issue that is common to many small water companies. This issue arises
when small water systems are developed using lot sales to recover water system infrastructure
costs. Recovering the costs of water system infrastructure from the sale of lots (contributed
capital), the utility has no plant-in-service investment that qualifies for rate base treatment. With
no allowed return, a small water utility has no earnings to tap for emergencies. In times of
emergency, it is relegated to accessing the financial market at perhaps inopportune times and
then is required to make application to the Commission to secure approval for a surcharge and a
dedicated revenue stream for lender security. We find this situation presents challenges to a
small water utility s economic viability and often compromises its capability to satisfy its
statutory duty to maintain adequate service. Idaho Code ~ 61-302.
We address this identified and acknowledged under-capitalization dilemma for Teton
Springs by authorizing in this case the establishment of an emergency reserve fund. We also
establish what we find to be necessary emergency reserve fund parameters. The reserve fund is
to be used only for emergencies and major unplanned capital expenditures (plant repair
maintenance and replacement). It is not intended to be a mechanism to fund capital expenditures
that should have been planned. It can be used only for capital expenditures greater than 10% of
the Company s annual revenue requirement. While the Company in emergencies may have
ORDER NO. 30718
immediate access to the fund, it will be required to establish an auditable paper trail and provide
the Commission with contemporaneous written notice of the Company s use of the fund for an
allegedly permitted purpose with emergency details and related invoices. The eligibility
determination of specific withdrawals will be determined by the Commission in after-the-fact
applications by the Company for Commission approval. The reserve fund corpus will be funded
as part of the Company s annual non-O&M expense revenue requirement in the amount
equivalent to 5% of the Company s otherwise determined total revenue requirement. In this
case, we calculate and authorize the Company to accrue annual emergency reserve funding in the
amount of $6 967. The fund is to be separately accounted for in accordance with Commission-
approved accounting principles and may accumulate over years to an amount approximating, but
not exceeding without express Commission approval, the Company s active authorized annual
revenue requirement.
Annual Regulatory Expenses
Teton Springs
The Company in reply/rebuttal recommends recovery of an additional annual
allowance for ongoing regulatory expenses - estimated to be approximately $2 500 per year.
Crowley Affidavit p. 3. These costs, it states, will include the Company s auditor expenses for
preparation of the annual report, other expenses associated with customer issues, additional legal
fees and time required to respond to Commission reporting requirements. Reply p. 16.
Staff
The Company s request was not part of its original Application and as a result was
not addressed by Staff in its comments.
Commission Findings:
In this case, the Commission finds that the Company requested and was authorized an
annual expense amount of $31 000 for "other contract services." Order No. 30718 , Appendix
pp. 1-4. There was no accounting breakdown of the services included. The services the
Company requests on rebuttal for additional recompense are of a general regulatory nature that
are part and parcel of operating as a regulated water company. We do not dispute that the
identified services must be performed and that there are related costs. We are simply not
persuaded that the related expense recovery has not already been provided to the Company in
other expense categories. We find it reasonable to deny the Company s request.
ORDER NO. 30718
Metering Expense
Staff
The first 50 residential homes connected to the TTS water system and all commercial
customers are unmetered. For better system management and future rate design, Staff
recommends that the Company install customer meters for all new connections and also install
meters in previously connected service lines without meters. Staff Comments p. 12. No expense
adjustment for meter installation was identified by Staff or included in its recommendation.
Teton Springs
Teton Springs estimates the cost of installing meters for all service lines previously
connected to be $37 000. Jon Pinardi Affidavit p. 2; Reply p. 13. It is a fundamental principle of
public utility law, the Company states, that a private company cannot be compelled to devote
property to public service or incur expense without adequate compensation. Any attempt to
compel investments or expenses without compensation constitutes an impermissible taking.
(Citing Hayden Pines 122 Idaho 356, 834 P.2d 873 (1992) - Court held that requiring a
company to employ an accountant without providing a funding source constituted a "taking.
Teton Springs recommends that the Commission reject Staffs recommendation.
The Company contends that if Staff recommendations in this case are accepted, it will
not have adequate cash flow to fund such a metering project and may be unable to obtain funds
from a commercial lender. Pinardi Affidavit p. 2.
Commission Findings:
Apart from cost recovery concerns , the Company rebuttal presents no reason to not
complete the metering of its customer base. The Company did not ask that it be permitted to
recover its estimated costs, it only requested to be excused from completing the metering. On
the facts of this case, the Commission finds it reasonable that the Company be required to meter
all previously connected service lines without meters. The Company estimates the cost to meter
to be $37 000. We find that metering should occur and direct the Company to submit an
implementation plan and financing proposal.
Meter Reading Expense
Staff
Teton Springs does not have consumption data from metered customers that would
permit calculation of a metered rate. Staff Comments p. 11. The Company indicated to Staff
ORDER NO. 30718
that after it has monitored consumption for a period of time, it intends to apply to the
Commission for authority to convert rates from flat to metered. Staff Comments pp. 11-12.
Staff recommends that the Company regularly read and record the flow from production of all
wells and customer meters. Staff Comments pp. 10, 15, 22. No expense adjustment for meter
reading was identified by Staff or included in its recommendation.
In addition, Staff notes that there is also one special three-inch service line with a
two-inch meter serving the Quickwater Ranch property which is not part of the resort. The
Company has an agreement with Quickwater Ranch to receive free water in exchange for use of
its property for the installation of the storage reservoir and for the mainline from the reservoir to
the Company s main and distribution system. Staff believes the allowance for water provided to
Quickwater Ranch is generally equivalent to a lease payment. Staff recommends that the
Company record on its books all metered water provided to Quickwater Ranch.
Teton Springs
Teton Springs calculates the annual cost of reading meters four times per year using
its current operating contractor to be $9 333. (200 homes (qJ 10 minutes/home x 4 readings/year
= 8 000 minutes = 133 hours (qJ $70/hour = $9 310.) Rebuttal Workpapers; Pinardi Affidavit p.
Commission Findings:
Staff recommends that the Company read and record all well production flow and
customer meters. The Company in reply/rebuttal includes $9 333 for the annual cost of meter
reading. We find that the number of meters that need to be read to facilitate "Monitored
Consumption" consists of only 10 meters, i., Quickwater Ranch, the two production wells, the
two multi-family units and the five commercial customers with 2-inch, 3-inch, 4-inch and 6-inch
services. We find it reasonable to reduce the Company s expense proposal by the proportionate
reduction in required metered readings, and authorize an annual meter reading expense in the
amount of $466 ($9 333/20). We also accept as reasonable Staffs recommendation to treat
water provided to the Quickwater Ranch as a lease payment for the use of Ranch property for
reservoir and mainline easements. The Company is directed to record on its books as a separate
accounting entry all metered water provided to Quickwater Ranch.
Based upon the record developed in this case, the Commission finds the undisputed
expense adjustments to the test year to be reasonable and resolves the disputed adjustments as set
ORDER NO. 30718
forth above. As reflected and set out in the Appendix to this Order, the total operating expense
used for calculating the working capital allowance included in rate base is $107 027. The total
annual expense we approve is $137 483. The total annual revenue requirement we approve as
just and reasonable is shown in the Appendix to this Order and is $146 309.
RATE DESIGN
The interim rates approved by the Commission in Order No. 30571 are $240 per
quarter for residential single-family, $80 per quarter for multi-family unit customers and $240
per quarter for commercial customers. The present Teton Springs customer base is only
approximately one-third of expected total customer build-out. The Company proposes to recover
the revenue requirement in this case by spreading costs over active customers with developed
lots and by assessing an "availability charge" against owners of undeveloped lots otherwise
eligible for service. Also subject to the availability charge under the Company s proposal would
be all seasonal disconnects. Staff objects to the Company s proposed availability charge for
undeveloped lots and calculates a tariff flat rate based on size of service lines. For reasons
detailed below, we find it reasonable to reject the Company availability charge proposal and
approve flat rates based on size of service. In addressing the revenue consequences of seasonal
disconnects approved elsewhere in this Order, we approve a reconnect charge for seasonal
customers.
Teton Springs
Both the Company and Staffs recommended rate designs for recurring quarterly rates
are based upon their respective annual revenue requirements. The Company proposes to recover
its revenue requirement by spreading the costs across both active customers and owners with
undeveloped lots. The tariffs proposed by the Company for active customers are as follows:
Active Customers - flat rate service:
Residential $150 per quarter
Commercial $450 per quarter
Multi-family $150 per quarter
The Company defines active customers as those who have built permanent structures on their
lots, who are physically connected to the system and who are actively taking water service from
the Company.
ORDER NO. 30718
The Company is also proposing another class of customers for rate design who would
be subject to an "availability charge." The charge would be applicable to unimproved residential
and commercial lots within the Teton Springs Resort community that can be connected to the
Company s water system but which have not yet been connected to the system. The availability
charge would not be applicable to multi-family unit buildings.
Availability Charge:
Residential Lots $75 per quarter
Commercial Lots $225 per quarter
In proposing an availability charge, the Company notes that the Teton Springs Resort
development is only at 35% build-out. The entire main and distribution water system
infrastructure for the resort has been constructed. The O&M costs associated with a water
system, the Company states, are largely fixed. The Company contends that there is no direct
proportionality between the size and operating cost of its system and the number of "active
users. The Company proposes an "availability fee" to be paid by property owners who have not
yet built homes so that the full operating cost burden does not fall only on active customers. The
Company s proposal , it states, is one of fairness and equality. Having readily available water
service, the Company contends, is a benefit to all lot owners, irrespective of whether or not they
are currently receiving water service. Once full or substantially full occupancy of the Teton
Springs Resort PUD has been achieved, the Company anticipates that the availability charge can
be substantially reduced or eliminated.
Staff
Staff agrees with the reasonableness of the Company s proposal to use a uniform flat
charge for both single-family residential customers and multi-family unit customers. None ofthe
single and multi-family units use water from the Company s domestic water system for lawn
irrigation. Outdoor water is provided by a separate pressurized irrigation system. Staff therefore
believes that the water usage in single-family homes and multi-family units is similar. Staff
Comments p. 12.
The Company also proposes to apply uniform flat rates for all types of commercial
customers regardless of the size of customer supply lines. Staff disagrees with this proposal.
Commercial customers are not currently metered and the size of their service lines range from 1-
inch to 6 inches. Staff believes that the various sizes of supply lines correspond to different
ORDER NO. 30718
system requirements. Staff reviewed two previous cases (RES-04-01 and MSW-08-01)
where the issue of equity for customers with different sized service lines was addressed. In the
Resort Water Company case (Order No. 29732), the Commission approved a tariff based on
equivalent residential units (ERUs). The use of ERU is a way to express water use by non-
residential water customers as an equivalent number of residential customers. A commercial
customer with a large service would have a greater ERU and thus would be charged more. In a
more recent Mayfield Springs Water case (Order No. 30628), the Commission addressed the
variation of commercial (non-residential) users with a commercial tariff based on meter size.
Staff Comments pp. 12-13.
Staff believes that rates based on meter size or customer supply line size is an
appropriate method to use for Teton Springs. Staff used the meter size/pipe size ratios published
by the American Water Works Association s (A WW A) Manual of Water Supply Practices in
developing its rate proposal for customers. Staff Comments p. 13; Atch. E. The Company
accepts the "Typical Customer Meter-and-Service Equivalent Ratios" shown in Attachment E
and the application methodology of those ratios as shown on Attachment F of Staff Comments.
Staff disagrees with the Company s water availability charge proposal. Staff notes
that the concept of a "water availability charge" was addressed by the Commission in 1982 in
Hayden Pines Case No. U-1121-20 (Order No. 17536). In that case, Hayden Pines proposes to
assess an availability charge on all billable lots with water available to them. The Commission
rejected Hayden Pines' proposal stating:
. . . where hookup fees are cost based, no additional charge is warranted
for water availability. A public utility is not an entity given the constitutional
right to levy a tax. Therefore, any charge assessed must relate to a service or
product rendered. The mere existence of a water main running along a vacant
lot is not a service from which a public utility can base a fee. Although
recognize the worthy goal of (Hayden Pines) and the Staff to hold down the
rates of the existing ratepayers, we reject their requested availability charge.
Order No. 17536 pp. 8-9. Based on the Commission s clear language regarding availability
charges, Staff considers use of an availability charge inappropriate for Teton Springs. Staff
Comments p. 14.
In designing rates for Teton Springs, Staff calculated the rates for various sizes of
customer supply lines using the A WW A meter ratios and the projected revenue for each line size
ORDER NO. 30718
or customer class. Based on a Staff-adjusted revenue requirement of $127 505 for the test year
2007, the calculated flat rate for I-inch customers is $103 per quarter. The I-inch customer class
currently includes 196 single-family residential connections, 74 multi-family residential
customers and 3 commercial customers. The flat rate per quarter for the remaining five
commercial establishments ranges from $213 for 2-inch service, $809 for 3-inch service, $1 030
for 4-inch service and $1 545 for 6-inch service. Staff Comments, Atch. F.
Commission Findings:
In addressing the rate design proposals in this case, we find it reasonable to first
address the Company s "availability charge" proposal for undeveloped lots.are not
persuaded by the Company s argument and find the Commission s reasoning in the Hayden
Pines case detailed above to still be well-founded, fair and equitable.The economic
consequences of developing a water service infrastructure for a resort community initially must
remain with the developer. Any provider of services must accept the risk of assuming the
developer s service, infrastructure and the cost of that infrastructure. This risk cannot be passed
on to the universe of potential future customers or owners of undeveloped lots. We accordingly
reject the Company s proposed availability charge.
As reflected in our prior discussion of metering, not all of the Company s 278
customers are metered. The Company states that it does not have sufficient consumption data
make a metered rate proposal. That being the case, the Commission finds for now that it is just
and reasonable for the Company to charge a quarterly flat rate for water service. The Company
provides potable well water for domestic culinary use, not outdoor irrigation. Based on nature of
use, we find it reasonable that residential single-family and multi-family unit customers be
provided service at the same flat rate. We also find it reasonable to calculate customer tariff
rates based on service sizes (1-inch to 6-inch) under the methodology proposed by Staff. The
resultant rates that we approve as fair, just and reasonable for a revenue requirement of $146 309
are set forth in the Appendix to this Order.
NON-RECURRING CHARGES
The following non-recurring charges were recommended by Teton Springs and Staff:
Hookup Fee
Company: $1 500Staff: $600 for I-inch service
ORDER NO. 30718
Larger service sizes would pay $600 plus the incremental cost for the
larger service. (The actual installation under Staff s proposal is to be
performed by the customer s contractor. The cost of installation
supply pipe from the Company s curb-stop to the customer and
miscellaneous fittings are to be paid by the customer.)
Bulk Water Service (for contractors)
Company: $25/day - rental fee for Backflow Prevention Device
$25/day - bulk water charge
$40 set up fee (includes Backflow Prevention Device)
$1.50 per 1000 gallons of water sold
Staff:
Shut-Off Charge for Maintenance at the Customer s Request
Company: $50 per visit during normal business hours
$100 after hours
$20 per visit during normal business hours
$40 after hours
Staff:
After Hours Service Connection Charge
Company: $60Staff: $40
Returned Check Charge
Company: $20 per occurrenceStaff: $20 per occurrence
Field Collection Charge
Company: $50Staff: $20
Reconnection Charge Following Disconnection for Non-Payment
Company: $50 for normal business hours
$100 after hours
$20 for normal business hours
$40 after hours
Staff:
Staff states that the charges and fees it recommends are consistent with charges
approved for other utilities. Staff recommends that the charges be consolidated in tariff Schedule
No.2 - Miscellaneous Fees and Charges.
Commission Findings:
We find the proposed non-recurring charges and fees recommended by Staff to be
consistent with charges we have approved for other utilities. No cost justification was provided
by the Company for different charges. We find the charges proposed by Staff to be fair, just and
ORDER NO. 30718
reasonable and find it reasonable to authorize and approve same and direct that they be
consolidated in the Company s tariff Schedule No.2 - Miscellaneous Fees and Charges.
align the "Reconnection Charge Following Disconnection for Non-Payment with the
Reconnection After Seasonal Disconnect Charge" we establish below, customers disconnected
for non-payment for disconnect periods exceeding 30 days will be treated as seasonal disconnect
customers.
The Teton Springs Resort community reportedly has second and third homes. As a
result, many homes are occupied only on a seasonal basis. A significant number of customers
the Company contends, request seasonal disconnects for a portion of the year. The Company
proposed to assess an availability charge for temporary disconnects. (Company Proposed
Schedule No.4 and Rule 29). Staff in its comments recommended denial of the Company
proposal. Unaddressed by Staff are the revenue consequences of seasonal disconnects. Should
we fail to address seasonal disconnects in this Order, we find that the Company may suffer a
revenue shortfall. The record in this case provides the information to determine the percentage
of customers seasonally disconnecting and number of months of disconnect. To address this
revenue issue the Commission finds it reasonable to authorize a Reconnection After Seasonal
Disconnect charge for seasonal disconnect customers equal to two billing quarters of their tariff
rates. We define a "seasonal disconnect" as a Requested Disconnect for Non-Maintenance
Reasons exceeding 30 days in duration.
MISCELLANEO US
Teton Springs in its reply/rebuttal comments agrees to comply with the following
Staff recommendations:
The Company update all billing documentation to comply with Utility
Customer Relations rules (UCRR) to include the date of the billing and all
contact information;
The Company update its termination notices to include the Commission
approved reconnection charge;
The Company devise a rules summary based on the model to be provided by
Staff and send a copy with approved rates and charges to all customers now
and annually as required by the Utility Customer Relations Rules.
Staff Comments pp. 22-23.
ORDER NO. 30718
Commission Findings:
The Commission finds it reasonable to require Company compliance with Staff s
recommendations and to work with Staff to bring its tariffs, rules, bills and other documents into
compliance with the Commission s Model General Rules and Regulations for Small Water
Utilities, IDAPA 31.21.01.000 et seq. (Utility Customer Relations Rules) and IDAPA
31.21.02.000 et seq. (Utility Customer Information Rules) and to adopt an accounting system
consistent with the information required by the Commission s Annual Report for Small Water
Companies (Idaho Code ~ 61-405).
ULTIMATE FINDINGS OF FACT AND CONCLUSIONS OF LAW
Teton Springs Water and Sewer LLC is a water corporation subject to our jurisdiction
pursuant to Idaho Code ~~ 61-125 and 61-129. Teton Springs is an Idaho corporation and the
holder of Certificate of Public Convenience and Necessity No. 475. The Commission has
jurisdiction over the issues raised in this case pursuant to Idaho Code ~~ 61-502 and 61-622 and
the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
Having fully reviewed the record in this proceeding, we find that the interim rates we
authorized in interlocutory Order No. 30571 must be adjusted to comport with the revenue
requirement we calculate and authorize in this Order.
On a calculated rate base of $57 763 we authorize a 12% return. With the expenses
we approve herein we authorize an annual revenue requirement of $146 309. We conclude that
the rates and charges authorized in this Order are fair, just and reasonable.
ORDER
In consideration of the foregoing and as more particularly described and qualified
above, IT IS HEREBY ORDERED and the Commission hereby reaffirms its granting of
Certificate of Convenience and Necessity No. 475 to Teton Springs Water and Sewer Company
LLC for the water system operated by the Company and serving the Teton Springs Resort
community in Teton County, Idaho. Reference prior interlocutory Order No. 30571.
IT IS FURTHER ORDERED and the Commission hereby approves as more
particularly described above, the unmetered quarterly rates (based on supply line size) identified
in Appendix, p. 4 of 4, of this Order. The Company is directed to file a conforming tariff
schedule setting forth the Commission-approved rates. The recurring and non-recurring rates
ORDER NO. 30718
and charges authorized by this Order are effective for service rendered on or after February 1
2009 and customer accounts and quarterly billings for the first quarter of 2009 are to be prorated.
IT IS FURTHER ORDERED and the Commission approves as more particularly
described above, the following non-recurring charges:
Hookup Fee - $600 for customers with I-inch service line. The actualinstallation is to be performed by the customer s contractor. The cost of
installation, supply pipe from the Company s curb stop to the customer andmiscellaneous fittings are to be paid by the customer. Larger services are to
pay the $600 plus the incremental cost for the larger service.
Bulk Water Service - $1.50 per 1 000 gallons of water sold plus a $40 setup
fee.
Reconnection Charge after Seasonal Disconnect - Two times the customer
quarterly flat rate charge
Shut-off Charge for Maintenance at Customer s Request - $20 per visit during
normal business hours; $40 after hours
After- Hours Service Connection Charge - $40
Returned Check Charge - $20 per occurrence
Field Collection Charge - $20
Reconnection Charge Following Disconnection for Non-Payment - $20 fornormal business hours and $40 for other than normal business hours
The Company is directed to file conforming tariffs setting forth the Commission-approved non-
recurring charges and fees and consolidating them in tariff Schedule No.2 - Miscellaneous Fees
and Charges.
IT IS FURTHER ORDERED and the Company is apprised that as a regulated utility
all rates and charges of the utility must be approved by the Commission and set forth in tariff
schedules on file with the Commission. Idaho Code ~ 61-313. No other charges are permitted.
Two Company-proposed requests of note and specifically disapproved by the Commission in this
case were its proposals for (1) recovery of depreciation/amortization on contributed capital and
(2) an "availability charge" applicable to unimproved residential and commercial lots and
seasonal disconnects.
ORDER NO. 30718
IT IS FURTHER ORDERED and the Company is directed to submit
implementation plan and financing proposal for completing the metering of all wells and
customers, including as a priority subset to the extent not already metered, the Quickwater
Ranch, the two production wells, the two multi-family units and its five commercial customers
with 2-inch, 3-inch, 4-inch and 6-inch services.
IT IS FURTHER ORDERED and the Company is directed to record on its books as a
separate accounting entry all metered water provided to Quickwater Ranch.
IT IS FURTHER ORDERED and as more particularly described and qualified above
the Commission authorizes the establishment of an "Emergency Reserve Fund" and directs the
Company to set up an appropriate auditable account and to restrict access and withdrawal of
funds to the limited purposes described and pursuant to defined protocols.
IT IS FURTHER ORDERED and the Company is directed to work with Staff to bring
its tariffs, rules, bills and other documents into compliance with the Commission s Model
General Rules and Regulations for Small Water Utilities, IDAP A 31.21.01.000 et seq. (Utility
Customer Relations Rules) and IDAP A 31.21.02.000 et seq. (Utility Customer Information
Rules) and to adopt an accounting system consistent with the information required by the
Commission s Annual Report for Small Water Companies (Idaho Code ~ 61-405). Reference
prior direction in interlocutory Order No. 30571.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
ORDER NO. 30718
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;J../
day of January 2009.
MACK A. RE FORD, PRESIDENT
~. ~j~
MARSHA H. SMITH, COMMISSIONER
JIM
ATTEST:
Je D. Jewell
Co mission Secretary
bls/O:TTS-08-01 sw2
ORDER NO. 30718
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Appendix
Order No. 30718
Case No. TTS-08-
Page 1 of 4
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Order No. 30718
Case No. TTS-08-
Page 2 of 4
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IlJ
ate Analysis
Teton Springs Water
~~~~~n~~e ~ re t~-
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i--i~6
_.... . .
=t-
=~-==
i.---J= ! I i I-___,,_um"r--
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n -
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~ur ~:~iff~i customers
);
(~I qtrL -..J"lt---
--- ---~-+_
_____n- --- r ---
;~~f::t--:;1 - i ~~:L
:::~j---- ,-------
~t---Total 278 i $ 219,520
- n
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1 - --
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.I=-._
==~=-~==___...=_
-L=-=.=.=-~T
. - - --
-i----
Commission ~ved Rate Based Line Size LI!.~..!1~~~J_
----
r: ~
~;;;SF 1M F ' 27
f ;m:ro
; 12
~::~~ ! -~-- :~~:
2" Com. 2 $ 244.43 $ 1 955 $2443" Com. 1 $ 927.14 $ 3 709 $927
--
E---
Com. 1 $ 1 180.00 $ 4 720 $1,180
6"C,,",,-720~$ 7 080 $i:J70t=
--l
!()!~~__
~-- - - - 'm ?..~f------tJ-
146,320
+-_-"-
3'Y~__n __n L_-_
+---
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---
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------------
~T~i~f~i~-= - i-" --~ :~~ i
(-------------+--------
1 ,-____
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f=- = =-- ==r
=.==-=~..~. =- -= -
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j I ----1
~--
i r------------------l-~
~-___--
I ,
,--,------____-- -
- dm' -
r-------
-------;
t-----------
L---
---------
Schedule D
Appendix
Order No. 30718
Case No. TTS-08-
Page 4 of 4