20190319final_order_no_34278.pdf

Office of the Secretary
Service Date
March 19,2019
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )CASE NO.TTS-W-18-01
OF TETON WATER &SEWER COMPANY )
FOR AUTHORITY TO ACCESS THE )
COMPANY'S EMERGENCY RESERVE )ORDER NO.34278
ACCOUNT )
On December 7,2018,Teton Water &Sewer Company applied to the Commission for
an order authorizing the Company to use its Emergency Reserve Account to pay for $18,761 in
unplanned valve repairs that the Company completed in 2018.The Company requested that the
matter be processed by Modified Procedure.
On December 18,2018,the Commission issued a Notice of Applicationand Notice of
Modified Procedure that set deadlines for interested persons to file comments and for the Company
to file a reply.See Order No.34218.Commission Staff filed the only comments.No reply was
filed.
Having reviewed the record,the Commission enters this Order approving the Company
using its Emergency Reserve Account to pay for:(1)the $18,761 in unplannedvalve repairs from
2018 that were the subject of the Application;and (2)another $13,984 in unplanned leak repairs
from 2014.However,the Commission also notes the Company improperly used the Emergency
Reserve Account to pay $3,430 to buy a backflow device in 2015 to comply with longstanding
state regulations.The Commission's decision is further explained below.
BACKGROUND
In January 2009,the Commission found that the Company was under-capitalized.This
occurred because the Company developedits water system using lot sales to recover infrastructure
costs.Because the system was funded with contributed capital,the Company had no plant-in-
service that qualified for rate base treatment,and thus no earnings should it experience a financial
emergency.Order No.30718.Accordingly,the Commission established an Emergency Reserve
Account,and parameters for access to it,should such an emergency arise.Id.The Commission
stated,"[t]he reserve fund is to be used only for emergencies and major unplanned capital
expenditures (plant repair,maintenance and replacement).It is not intended to...fund capital
expenditures that should have been planned."Id.at 12.
ORDER NO.34278 1
THE APPLICATION
With its current Application,the Company sought permission to use its Emergency
Reserve Account to pay for two emergency valve repairs that the Company completed in July and
October 2018.These included $13,206 in repairs at the Targhee Trail Corp Stop,and $5,555 in
repairs at the 50 Moulton Lane Curb Stop.The Company included detailed invoices and
photographs with its Application.
STAFF COMMENTS
Staff reviewed the Application and audited all transactions in the Emergency Reserve
Account since the current owner acquired the Company in 2012.Staff analyzed all invoices
provided with this Application and prior applications,and verified all transactions recorded in the
bank statements and the QuickBooks ledger submitted by the Company.Based on its review,Staff
believes both repairs qualified as "emergencies and major unplannedcapital expenditures."Staff
recommended that the Commission allow the Company to use the Emergency Reserve Account to
pay for the $18,761 unplanned-repair costs incurred in 2018.
During the audit,Staff discovered the Company had used the Emergency Reserve
Account to pay for $17,414 in expenses in 2014 and 2015 without obtaining Commission approval.
These expenses included $13,984 incurred in 2014 for leak repairs,and $3,430 incurred in 2015
to buy a backflow device.Staff recommended the Commission ratify the $13,984 expenditure for
the unplannedleak repair in 2014.But Staff recommended the Commission disapprove the $3,430
expenditure for the backflow device purchased in 2015,and order the Company to return that
amount to the Emergency Reserve Account.Staff noted the Commission has explained the
Emergency Reserve Account is not to be used to fund capital expendituresthat should have been
planned.Order No.30718.Staff noted the Company should have planned to install the backflow
device before 2015 because Idaho Department of Environmental Quality (IDEQ)rules required
backflow devices for several years before the Company installed the backflow device in 2015 after
IDEQ found the Company had violated the rules by not installing one.Staff thus recommended
the Commission direct the Company to credit the $3,430 back into the Emergency Reserve
Account,with the cost of the backflow device to be capitalized and recovered through depreciation
expense in the Company's next general rate case.
After accounting for Staff's proposed adjustment to the Emergency Reserve Account
for the 2015 expenses and the increased annual contribution to the Account the Commission
ORDER NO.34278 2
required the Company to pay beginning in 2018,1 Staff determined the ending balance of the
Emergency Reserve Account on December 31,2018 should be $7,848.Staff noted the expense of
repairingrecurring service line leaks has been the major drain on the Emergency Reserve Account.
Staff expressed concern that the trend in recurring line leaks could deplete the Emergency Reserve
Account of sufficient funds to cover future emergency repair expenses.Staff thus recommended
the Company consult with Staff about alternative ways to fund future repairs.
DISCUSSION AND FINDINGS
The Company is a water corporation under Idaho Code §61-125.The Commission has
jurisdiction over it and the issues in this case under Title 61 of the Idaho Code,including Idaho
Code §§61-129,-502,-503,and -524.Having reviewed the record,includingthe Application and
Staff's comments,the Commission finds the Company reasonably used the Emergency Reserve
Account to pay for the $18,761 in unplanned-repairexpenses the Company incurred in 2018.
We further find it reasonable to utilize Emergency Reserve Account funds for $13,984
in unplanned-repair expenses the Company incurred in 2014.However,the Commission only
learned the Company spent $13,984 in 2014 for repair expenses because Staff discovered and
commented on those expenses in this case.While we will allow the use of Emergency Reserve
Account funds to pay for those unplanned repairs,the Commission reminds the Company that
those withdrawals are subject to later Commission approval.After the Company withdraws funds
from the Emergency Reserve Account,the Company must promptly apply to the Commission for
an order confirmingthat the withdrawals were appropriate under the circumstances.
The Company did not reasonably use the Emergency Reserve Account to buy the
backflow device in 2015 that the Company had to install under IDEQ regulations.We reiterate
that,as we stated in 2009,"[t]he reserve fund is to be used only for emergencies and major
unplanned capital expenditures (plant repair,maintenance and replacement).It is not intendedto...
fund capital expendituresthat should have been planned."Order No.30718 at 12.We thus find it
reasonable to direct the Company to reimburse the Emergency Reserve Account for the $3,430 the
Company withdrew from it to buy the backflow device.The Company shall capitalize the device
and have an opportunityto recover its cost through depreciation expense in the Company's next
general rate case.
'In Order No.34174,the Commission ordered Teton Water &Sewer Company to increase its annual contribution to
the Emergency Reserve Account by $468 to account for tax benefits from the Tax Cuts and Jobs Act of 2017.
ORDER NO.34278 3
Last,the Commission is concerned about the recurring leaks on the Company's system.
As shown in this case,repairing those leaks can be expensive.With a December 2018 ending
balance of only $7,848,the Emergency Reserve Account could easily be depleted if the system
continues to leak.We thus find it reasonable for the Company to consult with Staff about possible
alternative ways to fund future emergency repairs.
ORDER
IT IS HEREBY ORDERED that the Company's use of the Emergency Reserve
Account to pay $18,761 in unplanned-repair expenses from 2018 and $13,984 in unplanned-repair
expenses from 2014 is approved.
IT IS FURTHER ORDERED that the Company's use of the Emergency Reserve
Account to pay for the $3,430 backflow device is disapproved.The Company shall promptly
reimburse the Emergency Reserve Account in that amount.
IT IS FURTHER ORDERED that the Company shall consult with Commission Staff
about possible alternative ways to pay for future emergency repairs on the Company's system.
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.34278 4
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of March 2019.
PAUL KJ A ,PRESIDENT
KRISTINE RAPER,OMMISSIONER
ERIC ANDERSON,COMMISSIONER
ATT
Diane M.Hanian
Commission Secretary
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ORDER NO.34278 5