20190131Comments.pdf

KARL KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BARNO.5156
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BBFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
TETON WATER & SEWER COMPANY F'OR
AUTHORITY TO ACCESS THE COMPANY'S
EMERGENCY RESERVE ACCOUNT
CASE NO. TTS-W-18-01
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Teton Water
& Sewer Company's Application.
BACKGROUND
On December 7,2018, Teton Water & Sewer Company ("Company") applied for
permission to use the Emergency Reserve Account to pay for $ I 8,761 in unplanned repair costs
incurred in 2018. The costs consist of $5,555 in repairs completed at the 50 Moulton Lane "curb
stop" valve, and $13,206 in repairs completed at the Targhee Trail "corp stop" valve.l
By way of background, in January 2009, the Commission found that the Company was
under-capitalized. This occurred because the Company developed its water system using lot
I A "curb stop" is a valve on a customer's property, or in the sidewalk next to it, where the utility's maintenance
responsibility ends and the customer's maintenance responsibility begins. The "corp stop" is a valve on a main line
that connects the main water line to the service line. The corp stop usually is in the street in front of a residence or
business. A service line, typically a I or 2 inch line made of polyethylene, starts at the corp stop and ends at the curb
stop.
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STAFF COMMENTS JANUARY 3I,2OI9
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 eamings
should it experience a financial emergency. Order No. 30718. The Commission thus established
an Emergency Reserve Account to be funded by a $6,972 increase to the Company's annual
revenue requirement. The Commission stated, "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... fund capital expenditures that should have been planned."
Id. at 12.
With this Application, the Company seeks to use its Emergency Reserve Account to pay
for the $ I 8,761 in emergency repairs described above. The Company supported its claims with
invoices and pictures.
STAFF REVIEW
Staff reviewed the Application and audited all transactions in the Emergency Reserve
Account since the current owner acquired the Company in2012. 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 recommends 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 in20l4 and20l5 without obtaining the Commission
approval. These expenses included $13,984 incurred in2014 for leak repairs, and $3,430
incurred in 2015 to buy a backflow device. As discussed below, Staff recommends the
Commission ratify the $13,984 expenditure for the unplanned leak repair in2014. But Staff
recommends the Commission disapprove the $3,430 expenditure for the backflow device
purchased in20l5, and order the Company to return that amount to the Emergency Reserve
Account. Staff s analysis and recommendations are further detailed below. Staff s
recommended balance of the Emergency Reserve Account is calculated in Table 1.
2STAFF COMMENTS JANUARY 3I,2OI9
Table 1: Emergency Reserve Account Balance
Year Beginning
Balance Contributions Approved
Expenses
Ending
Balance
20t2 0 6,972 0 6,972
6,972 6,972 0 13,944
2014 13,944 6,972 13,984 6,932
2015 6,932 6,972 0 73,904
20t6 13,904 6,972 0 20,876
20t7 20,876 6,972 8,679 19,169
2018 19,169 7,440 18,761 7,848
After accounting for Staff s proposed adjustment to the 2015 expenses and the increased annual
contribution beginning in 2018,2 the ending balance of the Emergency Reserve Account on
December 3I,2018 should be $7,848.
2018 Expenses
The Company incurred two repair expenses in 2018 that it asks to pay for from the
Emergency Reserve Account. In Staff s opinion both repairs qualified as o'emergencies and
major unplanned capital expenditures," and the requested payment should be allowed. In
summary:
. The Targhee Trail repair cost the Company $13,206. It required excavation,
plumbing repairs, and road repairs because the Company had to dig up an asphalt
road to access and fix a leak where the service line and main line connected at the
corp stop. The Company ultimately replaced the entire service line between the
corp stop and curb stop.
. The Moulton Lane repair cost $5,555. The Company had to access a service line
under the customer's stamped-concrete driveway to fix a leak at the curb stop.
After reviewing the Company's invoices, bank statements, QuickBooks ledger, and
photographs of the leaks and repairs, Staff believes Targhee Trail and Moulton Lane involved
2 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 of20l7 .
JSTAFF COMMENTS JANUARY 3I,2OI9
20r3
unplanned, necessary, and prudent repairs. Staff thus recommends the Commission authorize the
Company to pay for those repairs from the Emergency Reserve Account.
Prior Years Expenses
During the audit, Staff discovered the Company paid two unauthorized expenses from the
Emergency Reserve Account. First, in 2015 the Company paid $3,430 to buy and install a
backflow prevention device after the Idaho Department of Environmental Quality (IDEQ)
discovered the Company lacked the device in violation of IDAPA 58.01.08.511.04 (requiring
that an accessible check valve be installed on a discharge line between a pump and well shut-off
valve). While Staff commends the Company for promptly installing the device after the IDEQ
noted the deficiency, Staff believes it was improper for the Company to pay for the device
through the Emergency Reserve Account because the backflow-device requirement was not new
and existed for several years before the deficiency was discovered. It is the utility operators'
responsibility to know and comply with this requirement. In Order No. 30718, the Commission
clarified the Emergency Reserve Account is not intended to fund capital expenditures that should
have been planned. Id. at 12. Since the Company should have known about the backflow-device
requirement and planned for the project, the expense to install it after the deficiency was
discovered is outside the parameters for using the Emergency Reserve Account. Staff thus
recommends 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.
Second, in2014 the Company paid $13,984 to repair three leaks. Staff examined the
projects and determined they were conducted prudently and qualify as emergencies and
unplanned capital expenditures.
However, although the Commission allowed the Company immediately access the
Emergency Reserve Account, the Commission was to determine whether specific withdrawals
would be allowed, after the fact, in later applications. The Company explained the current
owner, Mr. Jon Pinardi, acquired the Company in20l2 and did not yet have a good grasp of
regulatory requirements. Since then, Mr. Pinardi has had considerable contact with Staff and the
Company has been in compliance since this issue was brought to Mr. Pinardi's attention.
4STAFF COMMENTS JANUARY 3I,2OI9
Leak Causes and Analysis
Staff reviewed the prudency of leak repairs occurring in 2018 and in previous years.
Staff is concerned about the number, and root cause, of recurring leaks in customers' service
lines. Through conversations with the owner, Staff believes that the recurring leaks will continue
and that, if they do, the Company will quickly exhaust the Emergency Reserve Account.
The Company has repaired seven leaks in the last five years. Six of them exhibited
failure characteristics that indicate they share a similar cause. Specifically, all six leaks occurred
in a polyethylene service line within one to two inches of the corp stop or curb stop valve.
Although the owner acquired the Company in2012, he has been affiliated with the Company
since 2006, and has seen several leaks before 2012 that have exhibited the same characteristics.
The water system was built around 2003. It is abnormal for a water system under 20
years old to develop this number and frequency of leaks. Staff s conversations with the owner
indicate the root cause of the leaks probably arose during construction of the system. First, the
leaks occur throughout the system, which rules out location-specific causes and implies improper
construction methods or defective materials. Second, as noted above, the leaks occur in
polyethylene service lines within I to 2 inches of a corp or curb stop valve and on top of the line.
This could indicate that builders used improper methods to attach service lines to valves,
defective or out-of-specification service line materials, or improper trenching and backfilling
techniques, or a combination of these and other factors.
Staff believes it would be cost prohibitive to try to prevent future leaks in existing
construction. The Company could prevent reoccurrence of repaired leaks and minimizethe
repair costs by identifying the cause of future leaks and modifying its construction and repair
practices. Further, the Company recognizes the need to continue gathering evidence that could
help identify root cause during future repairs. Staff suggests: (l) taking more detailed pictures of
the repair project before, after, and during the repair work; (2) documenting the size, location,
and nature of the defects; (3) identifying the supplier, part numbers, and serial numbers/date
codes of materials related to the defect; (4) documenting the type of embedment and backfill
material and any evidence of compaction done during construction; and (5) keeping and studying
defective material and components removed during repair. Staff encourages the Company to
consult a water-systems engineer with expertise in failure and root cause analysis. Staff also has
offered to consult with the Company when future leaks occur.
5STAFF COMMENTS JANUARY 3I,2OI9
To reduce the cost of future repairs, Staff suggested acoustic leak detection technology
and services that the Company could use to isolate the location of leaks. For example, the
Targhee Trail repair required extensive excavation and restoration because the leak "day lighted"
a considerable distance from the actual underground leak. The Company could avoid significant
costs if it could precisely locate the leak before excavating. The Company showed a keen
interest in potentially using leak detection methods to minimize costs.
STAFF RECOMMENDATIONS
Staff recommends that the Commission authorize the Company to use the Emergency
Reserve Account to pay for: (1) $18,761 in2018 repairs; and (2) $13,984 in2014 repairs. Staff
funher recommends that the Commission not approve the Company's request to use the
Emergency Reserve Account to pay for the $3,430 in expenses it incurred in2015 to buy a
backflow device, and order the Company to credit that amount back to the Emergency Reserve
Account
Lastly, because the expense of repairing recurring service line leaks has been the major
drain on the Emergency Reserve Account, Staff is concerned that trend could deplete the
Emergency Reserve Account of sufficient funds to cover future emergency repair expenses.
Staff recommends the Company consult with Staff about alternative ways to fund future repairs.
Respectfully submitted this ', I "\ day of Janu ary 2019.
Ll1)<
Karl Klein
Deputy Attorney General
Technical Staff: Johan Kalala-Kasanda
Michael Eldred
Chris Hecht
Kevin Keyt
i:umisc/comments/ttswl 8. lbkkkmejkcwhksk comments
6STAFF COMMENTS JANUARY 3I,2OI9
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 31ST DAY OFJANUARY2OI9,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. TTS-W.l8-OI, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWNG:
JON PINARDI
TETON WATER & SEWER CO
PO BOX 786
DRIGGS ID 83422
CERTIFICATE OF SERVICE