20120118Comments.pdf

NEIL PRICE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 6864
20 ¡ J I 8 Piî 2: l.9
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
TETON SPRINGS WATER AND SEWER )
COMPANY LLC REQUESTING COMMISSION )
AUTHORITY FOR THE ISSUANCE OF AN )
ASSESSMENT FOR CAPITAL REPAIRS )
)
)
)
CASE NO. TTS-W-ll-Ol
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
attorney of record, Neil Price, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 32423 on December 28,2011,
in Case No. TTS- W -11-01, submits the following comments.
BACKGROUND
Teton Springs Water and Sewer Company LLC ("Teton Springs" or "Company") provides
domestic water service in Teton County, Idaho to 212 customers located within the Teton Springs
Golf and Casting Club Planed Unit Development. On September 27,2011, Teton Springs fied
an Application requesting authority to assess its customers to reimburse the Company for certain
capital repairs made to the domestic wells which provide water to its customers. The Company
asserts that the repairs were necessitated by well failures which occured in July and August 201 i.
STAFF COMMENTS 1 JANUARY 18,2012
The Company's Application included a curent copy of the Company's approved rate tariffs, a
copy of Teton Springs' annual revenue requirement per Commission Order No. 30718, as well as
invoices documenting the repair work undertaken by Teton Springs.
Pursuant to Commission Order No. 30718, Teton Springs established an Emergency
Reserve Fund for large scale capital repair and replacement projects or for other major unplanned
expenditures outside the scope of regular operations and maintenance. The Commission Staff has
audited and investigated the Company's Application, work papers and all documents and fies
relevant to this matter.
STAFF ANALYSIS
Emergency Capital Expenditures
The Company fied an Application requesting the Commission approve the requested
assessment for reimbursement of emergency capital repairs related to Teton Springs's Well No.1
and Well No.2. Teton Springs submitted invoices supporting expenditures for repairing the two
wells. The total expenditures of $26,479.98 are shown on Attachment A.
Well NO.1
Well NO.1 is the Company's primary well and is capable of producing flows in excess of
500 gpm. The well is considered a low-temperature geothermal well because the water produced
from the aquifer has a temperature of about 97° Fahenheit. The Company reports that when the
pumping unit is operating at a flow rate higher than 250 gpm, it discharges fine sediments. The
pumping plant is not equipped with a sand fitering system.
Based on the Company's observations, the pumping rate of Well NO.1 has been
decreasing from 325-gpm in 2007 to 180 gpm in late 2010. The steadily declining flow rates of
Well No. lover time and a dramatic reduction in late 2010 posed a major concern to the
Company. Consequently, maintenance work was initially scheduled for the spring of2011 before
heavy summer water demand occurs. However, due to vendor availabilty, the Company claims
that it could not schedule the work until late June to July 20 i 1. The pump/motor assembly was
eventually pulled from the well, inspected, evaluated and replaced on July 8, 2011. The Company
installed a new pumping unit with specifications similar to the unit removed.
STAFF COMMENTS 2 JANUARY 18,2012
After installation of the new pump/motor unit, water delivery was about 500 gpm on start-
up and maintained approximately 350 gpm on continued operation. The Company believed at
that time that the well was repaired and could resume normal operation so the well contractor left
the site. However, within 24 hours production diminished quickly upon pump cycling and
operation. It would star at 350 gpm and then dropped to approximately130 gpm after 40 minutes
of operation. The well contractor was again called on August 1, 2011 to pull out the pump and
determine the problem. The problem was identified as foreign materials blocking the pump
intake and corrected. The pump has operated satisfactorily since the repair.
Staff believes that it was necessary to restore the system pumping capacity by installng a
new pumping unit in Well NO.1. While the pump/motor unit did not totally shut down, its
capacity to provide the necessary flow rate as designed (300-350 gpm of design capacity)
declined to an unacceptable level (130 gpm), especially for meeting summer peak demand. The
Company maintains and Staff concurs that the capacity reduction was due to pumping sand over
time and foreign materials blocking the pump intake. Staff also believes that the Company's
decision to replace the pumping unit with the same design specification as the previous unit was
prudent. Based on normal operating conditions, pumping units are expected to operate about 15
to 20 years. The pump that was replaced was initially installed in late 2004 and operated for
about seven years. However, due to unusual operating conditions that include a history of sand in
the well and foreign materials gradually plugging the pump intake, the pumping unit in Well No.
1 prematurely failed. Staff believes the Company met the emergency capital expenditure
requirement in order to use the Emergency Reserve Fund established by the Company per
Commission Order No. 30718.
Staff also reviewed the cost of various work elements for reasonableness. Staff believes
that most of the cost elements incurred in replacing the pumping unit in Well NO.1 were
reasonable compared to other jobs of similar size and scope and by comparing the costs obtained
independently by Staff from other vendors in the area. However, Staff is concerned about the
total labor cost incured in pullng the pump/motor unit, inspecting, and installing the new
replacement pumping unit. Based on a copy of the quote provided by the Company to Staff, the
well/pump contractor (Andrew Well Driling Services) submitted a bid to provide a 2-man crew
for 8 hours at $105 per hour (labor component of the bid), or a total cost of $840 to "pull and
inspect pump and motor replace if needed." However, the contractor submitted an invoice
STAFF COMMENTS 3 JANUARY 18,2012
(Invoice No. QII-0605 dated August 11,2011) with a total of34.75 hours. At the contractor's
rate of$105 per hour, the total amount oflabor biled to the Company was $3,648.75 which is
more than four times the original bid. It was not clear from the contractor invoice how many
hours were charged during the first and second trips by the contractor. Only a lump sum of34.75
hours was disclosed. It appears that the contractor also charged the Company for its second trip
to pull the newly installed pump and conduct additional investigation and evaluation of problems.
Staff believes that the Company should not be biled for all of the hours on the second trip for
reanalyzing a problem that should have been identified and corrected on the first visit. Staff
believes that there should be some reasonable type of warranty for the contractor's work shortly
after the job has been completed. In addition, the well driler/pump installer is expected to be an
expert in this field and should not charge the Company for additional time spent reanalyzing the
same problem.
Staff believes that it would be appropriate and reasonable for the contractor to charge the
Company for some of the hours spent during the second visit. The contractor spent additional
time blowing out materials left in the welL. Although the task should have been done during the
first visit, it was necessar for proper pump operation. Allowing an additional 8 hours during the
second visit plus the total hours quoted by the contractor in the original bid (8 hours) results in 16
hours oflabor for a total cost of $1 ,680 (16 hours x $105 per hour). Staff recommends that
$1,969 ($3,648.75 labor cost - $1,680) emergency repair cost for Well NO.1 be excluded from
cost recovery. Well NO.1 has been back online operating normally since August 2,2011 and
meets the "used and useful" criteria for recovering the remaining costs through rates.
Well NO.2
Well NO.2 provides additional capacity and serves as a backup water supply for the
development. In 2004, the Company initially installed a 150-gpm pump to provide maximum
capacity over a short duration. However, after gaining some experience and obtaining data
relative to the performance of the well and the aquifer, the Company decided to throttle its
operation, thereby reducing the pump rate to about 75 to 85 gpm which is the approximate
capacity of the aquifer. Although water production is limited by the conditions within the aquifer,
it produces good quality cold water and is helpful in blending with the warm water obtained from
Well NO.1.
STAFF COMMENTS 4 JANUARY 18,2012
Well No.2 was operating at throttled mode until the summer of201 1. As described
earlier, Well NO.1 underwent inspection and repair on July 8, 2011, but failed to operate at
normal capacity shortly after it was repaired. While Well NO.1 was operating at reduced
capacity, the Company was operating the water system at very high demand in order to satisfy
heavy summer water requirements in the subdivision. Well NO.2 was the only source of water
supply so the Company operated it continuously for several days. Due to continuous operation of
Well No.2, the aquifer was drawn down to an unsustainable condition. The repeated drawdown
and shut off of the pump and motor drastically increased the wear and tear of the pumping unit
and it eventually failed on July 21, 2011.
While Well NO.1 was operating at reduced capacity, the Company scheduled the
servicing of Well NO.2. On July 28,2011, the same contractor (Andrew Well Driling Services)
was brought in to pull, evaluate and replace the pump/motor unit of Well NO.2. The Company
determined that it would be more appropriate to install a 75-gpm pump with a 7.5-hp unit as a
replacement for the original 150-gpm 20-hp pumping unit. A smaller pump would better fit the
long term production capacity of the aquifer without causing drawdown concerns. Previous
operational data gathered by the Company indicate that maintaining a 150-gpm pumping unit
could not be supported by the aquifer. After Well NO.2 was restored to normal operating
condition on July 28,2011, the Company worked on Well NO.1 re-pullng, re-evaluating and
replacing the pump/motor unit using the same contractor on August 1, 2011.
Staff believes that it was necessary to make an emergency repair of the failed pumping
unit (pump, motor and related accessories) in Well NO.2. As mentioned earlier in the Staff
comments, pumping plants are expected to operate about 15 to 20 years in normal conditions.
However, because the main pumping unit (Well No.1) failed to operate at its design capacity
shortly after it was repaired, Well NO.2 was subjected to extreme operating conditions which
caused the pumping unit in Well NO.2 to faiL. Staff concurs with the Company's decision to
downsize the pumping capacity of Well NO.2. Staff believes the Company exercised good
judgment in installng a pumping unit in Well NO.2 matching the capacity of the aquifer to avoid
subjecting the pumping unit to unusual operating conditions in the future. Staff also believes that
the Company met thè emergency capital expenditure test to use the Emergency Reserve Fund as
established.
STAFF COMMENTS 5 JANUARY 18,2012
Staff reviewed the various cost elements related to the repair of the pumping unit in Well
NO.2 to evaluate the prudency and reasonableness of the total cost incurred. Because pullng the
pump and motor and inspecting and replacing it with a smaller unit was relatively routine, Staff
independently obtained quotes from other vendors in the area for the purpose of determining
reasonable costs. For the purpose of securing bids, the pump and motor design specifications and
depth of pump setting given to the ven~Staff are of the same specifications compared to the
newly installed pumping unit in Well No.2. The following is a cost comparison obtained from
other vendors and actual cost incurred by the Company.
Well No.2
Cost Items Actual Vendor 1 Vendor 2
Cost'
Pump 75-gpm(a approx. 275'TDH $3,166.75 $ 1,186.00 $ 1,243.88
Motor 7.5-hp 460-volt 3-phase 1,869.50 1,817.00 1,330.76
Check valve 310.52 105.00 192.00
Power cable 715.65 734.00 352.32
Miscellaneous 36.60 10.00 256.05
Labor 2,520.00 1,923.90 2,577.30
TOTAL $ 8,619.02 $ 5,775.90 $ 5,952.31
% Cost diff. over other vendors 33%31%IActual cost billed by the Company's contractor (Andrew Well Drilhng Services).
The average bid of the two vendors to perform the same job was $5,864. Recognizing
some differences in the timing of obtaining quotes from other potential contractors (i.e. lean time
for contractors now compared to summer) and providing reasonable allowance for other
contingencies, Staff adds another 20% over the average bid to arrive at a total cost of$7,037. In
the absence of actual quotes from the contractor and others vendors that should have been
solicited by the Company, Staff believes the amount of$7,037 is a reasonable amount to be
recovered and reimbursed for the repair of Well NO.2.
Staff believes that Teton Springs customers should not pay the additional costs for the
repair work. Because the Company did not ask vendors, including the contractor employed by the
Company, to submit a bid or work proposal prior to performing the work, Staff's only option to
properly evaluate the reasonableness of the cost for the work performed on Well No.2 was the
cost adjustment proposed above. Staff recommends $1,582 ($8,619 - $7,037) of the total cost
incurred in the repair of Well NO.2 not be recovered from customers or reimbursed. Well NO.2
STAFF COMMENTS 6 JANUARY 18,2012
was placed back in service on July 28, 2011 and meets the "used and useful" criteria for
recovering the remaining costs through rates.
Administration and Monitoring Fees
The Company currently retains Teton Water, Inc. (TWI) as its contract operator to provide
basic services that include daily operation of the system, water turn-off and turn-on service, water
quality sampling and administrative duties. Additional services beyond the basic services
provided would be biled as extra services to the Company.
During the emergency situation of evaluating the causes of pumping failures and replacing
the pumping units in Well No.1 and Well No.2, the Company sought additional services from
TWI. For Well No.1, TWI's additional services included faciltating the completion of repairs,
monitoring pump performance and water drawdown, and round-the-clock monitoring of the
SCADA system. A total of $630 was biled to the Company (9 hours !§ $70 per hour). TWI also
provided similar services related to the evaluation of problems and repair of the pumping unit in
Well No.2. A total of$770 was biled to the Company (11 hours !§ $70 per hour) related to the
services provided for Well NO.2. According to the Company, throughout the entire process of
evaluation and emergency repairs of Well NO.1 and Well No.2, TWI was regularly on site and in
communication with Company representative Jon Pinardi and other vendors, including
Rendezvous Engineering, Andrew Well Driling Services, and Pump Tech.
Staff believes that the services provided by TWI were necessary and appropriate. They
contributed to the timely completion of the emergency repairs of the facilties. Staff considers the
costs reasonable and prudent and should be included for recovery as part of the emergency capital
expenditure.
Engineering Consulting Fee
The Company also hired Robert Ablondi, P.E. of Rendezvous Engineering to review
various pump and equipment options, and to provide technical help in determining the cause and
factors affecting the failure of the pumping unit in Well NO.1. Mr. Ablondi was also involved in
discussing various well pump options and recommendations with Andrew Well Driling Services,
TWI and Teton Springs Water. The Company was charged a total of$687.50 (5.5 hours!§
$125/hour) from Rendezvous Engineering for services related to problem evaluation and repair of
STAFF COMMENTS 7 JANUARY 18,2012
Well No.1. Staff believes that the services provided by Rendezvous Engineering were necessar
and contributed to the timely completion of the repair of Well NO.1. Staff considers the
engineering consulting fee reasonable and prudent and should be included as par of the
emergency capital expenditure.
Emergency Reserve Funds
The Emergency Reserve Fund was established in 2009 with the following terms:
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 fud is to be used only for emergencies
and major unplaned capital expenditures (plant repair, maintenance and
replacement). It is not intended to be a mechanism to fund capital expenditues
that should have been planned. It can be used only for capital expenditures
greater than 10% of the Company's anual revenue requirement. While the
Company in emergencies may have immediate access to the fund, it wil 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
eligibilty determination of specific withdrawals wil be determined by the
Commission in after-the-fact applications by the Company for Commission
approvaL. The reserve fund corpus wil be funded as part of the Company's
anual 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 anual emergency
reserve funding in the amount of $6,967. Order No. 30718, p. 12-13.
The well repairs required pump and motor replacements that meet the guidelines for use of
emergency funds. The 10% major expenditure threshold for using emergency reserve funds
equates to $14,631 and has been exceeded by these well repairs. As discussed above, Staff
recommends $22,929 as the allowed reimbursement from the Emergency Reserve Fund.
The Emergency Reserve Fund was established at 5% of the revenue requirement or $6,967
anually. Teton makes quarterly transfers to a money market account where Teton holds the
emergency reserve fuds. The Emergency Reserve Fund would have accrued $20,901 through
2011. Therefore, the total $22,929 recommended reimbursement wil be covered in 2012. Staff
believes it is reasonable to recover these pump repair costs by using Emergency Reserve Funds
accrued to date and those expected to accrue in 2012.
STAFF COMMENTS 8 JANUARY 18,2012
Staff believes that the amount accrued through 2012 in the Emergency Reserve Fund is
suffcient to cover the emergency repair of system pumps as intended without an additional
increase in customer rates. No additional contribution by customers is needed for the reserve
fund to gradually rebuild with deposited funds of $6,967 annually as established in Order No.
30718. Staff believes reestablishing the Emergency Reserve Fund gradually in this maner is
adequate and wil not overly burden customers. With the replacement of pumps and motors for
two wells completed, the likelihood of costly emergency repairs is currently less than when the
reserve was established. Therefore, Staff believes the gradual funding of the Emergency Reserve
Fund by continuing the funding per Order No. 30718 is reasonable.
ST AFF RECOMMENDATIONS
1. Staff recommends that the Commission deny recovery from customers of$3,551 in
well repair costs. This total represents $1,969 of Well NO.1 repairs and $1,582 of
Well NO.2 repairs.
2. Staff recommends that a total of$22,928.98 ($26,479.98 - $3,551) be allowed cost
recovery for the repair of Well NO.1 and Well NO.2 and that same amount is eligible
for reimbursement from the Company's Emergency Reserve Fund.
3. Staff recommends the Emergency Reserve Fund be replenished by continuing the
same level of funding allowed by the Commission pursuant to Order No. 30718.
4. Staff recommends the Commission reject a one-time assessment to replenish the
Emergency Reserve Fund.
Respectfuly submitted this \~day of Janua 2012.
~
Deputy Attorney General
Technical Staff: Gerry Galinato
Terri Carlock
i:umisc:commentsttswll.lnpgdgtc comments
STAFF COMMENTS 9 JANUARY 18,2012
EMERGENCY CAPITAL EXPENDITURES
Well No.1
Pump
Motor
Electric cable
Check valve
Miscellaneous parts
Labor
Sub-total
$4,638.50
4,770.50
2,062.16
393.75
259.80
3,648.75
$15,773.46
Well No.2
Pump
Motor
Electric cable
Check valve
Miscellaneous parts
Labor
Sub-total
$3,166.75
1,869.50
715.65
310.52
36.60
2,520.00
$8,619.02
AdministrationlMonitoring FeesWell NO.1 $687.50Well No 2 770.00
Sub-total $1,400.00
Engineering Fee
Well NO.1 $630.00
Grand Total $26,479.98
Attachment A
Case No. TTS.W-II-0l
Staff Comments
Januar 18,2012
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 18TH DAY OF JANUARY 2012,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. TTS-W-I1-01, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
JON PINARDI GENERAL MANAGER
TETON SPRINGS WATER &
SEWER COMPANY LLC
3940 GRAND STREET
DRIGGS ID 83422
E-MAIL: jpinardirmsilverstar.com
SECJ?A~
CERTIFICATE OF SERVICE