20040405Comments.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT
APPLICATION OF UNITED WATER IDAHO
INc. AND BARBARA V. CHILD DBA TERRA
GRANDE FOR AN ORDER APPROVING
THE PURCHASE BY UNITED WATER
IDAHO INC. OF WATER SERVICE
PROPERTIES OWNED BY BARBARBA V.
CHILD; FOR AUTHORITY TO EXPAND
UNITED WATER IDAHO INC.
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY NO. 143 AND FOR
APPROVAL OF RATES AND CHARGES.
CASE NO. UWI-O4-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notices of
Application, Public Workshop, Modified Procedure and Comment/Protest Deadline issued on
March 9 2004, submits the following comments.
BACKGROUND
On February 19, 2004, United Water Idaho Inc. (United Water; Company) and Barbara
V. Child dba Terra Grande filed a Joint Application with the Idaho Public Utilities Commission
(Commission) for an Order approving the purchase by United Water of water service properties
owned by Barbara V. Child. (Application Exhibit 2 - Agreement for Purchase and Sale.
STAFF COMMENTS APRIL 2, 2004
United Water requests authority to expand its Certificate of Public Convenience and Necessity
No. 143 to include the Terra Grande water system and requests that Terra Grande customers be
switched to United Water s rates and charges immediately upon Commission approval ofthe
sales transaction. Reference Idaho Code 9 61-526; IDAPA 31.01.01.112.
The Terra Grande water system has been operating for over 50 years and provides water
service under a flat rate to approximately 117 residential customers in the Terra Grande
Subdivision in Ada County, Idaho. Terra Grande customers are presently served under a two-
season flat rate. The summer rate for four months is $26 and the non-summer rate for eight
months is $14, producing total annual per customer revenue of$216.
The total purchase price set forth in the Agreement for Purchase and Sale is $47 000.
Agreement ~ 2. United Water estimates it will incur approximately $5 000 oflegal and closing
costs to complete the acquisition. As reflected in the Application, the Company proposes to
invest up to an additional $122 000 in capital improvements to install two interconnections
between United Water s system and Terra Grande s distribution system, install customer meters
abandon the four existing Terra Grande wells, install two fire hydrants, replace an existing blow-
offvalve, relocate eight customer service lines to the front of properties abandoning the existing
2" mains located at the back of those properties. The parties to the Agreement propose that the
purchase price will not be adjusted for customer deposits, accounts receivable or accounts
payable. United Water requests an Order authorizing the Company to include the full cost of the
purchase and improvements (approximately $174 000) in rate base in a future rate proceeding.
United Water proposes to begin billing customers under its flat rate Schedule IE tariff
immediately upon completion of the acquisition and to move customers to its metered rate as
meters are installed. United Water estimates that revenue from Terra Grande customers will be
equal to or greater than the revenue requirement associated with the costs of the acquisition and
the incremental costs associated with service to the Terra Grande customers. The revenue
requirement calculation is set forth in Application Exhibit 5. The Company projects that Terra
Grande customers will generate average residential revenue for United Water of approximately
$ 327/year.
As reflected in the Application, Barbara V. Child desires to convey the Terra Grande
domestic water system to United Water because she wishes to retire from the water business and
is unwilling to undertake the risks of continued operation arising from increasingly stringent
water quality regulations, and increasingly complex operation and technical requirements.
STAFF COMMENTS APRIL 2, 2004
Because of its small size Ms. Child states that Terra Grande has experienced, and in the absence
ofthe sale would continue to experience, difficulties in maintaining its system and obtaining
adequate financing for operations, maintenance, and expansion.
United Water contends that it possesses the technical, managerial and financial abilities
to provide reliable and adequate service and represents that the proposed transfer is in the public
interest.
STAFF ANALYSIS
Investigation of the Terra Grande System. Staff contacted the Idaho Department of
Environmental Quality (DEQ) to ascertain the status of the existing wells and water quality on
the Terra Grande system. DEQ reports that Terra Grande has not been monitoring and testing
the water according to the DEQ required schedules. There is no water treatment program on the
existing Terra Grande system. One of the four wells included in the Terra Grande water system
has not been used in a number of years due to the poor quality of its water. A second well
currently exceeds the maximum radiological contaminate levels. A number of other
contaminates are presently borderline acceptable and may require treatment in the near future.
DEQ has required a number of repairs to the Terra Grande system which have not been made
including: 1) Well #3 - seal the well head and holes in the casing; 2) Wells # 2 & 3 - extend
well casing vents 18" above floor and re-screen; 3) Well # 3 - install a flow meter; 4) Well #1 -
add a sight glass on the pneumatic tank. The estimated cost ofthese improvements is $10 000.
The cost of installing an ion exchange unit on Well #2 to remove the radiological contaminates is
estimated to be about $100 000. This assumes there is adequate land available for installing the
ion unit and that cannot be assured at this time. Well # 2 sits on a parcel of ground that is only
twelve feet by twelve feet (12' x 12'). The installation of disinfection equipment on all three
wells is estimated to cost about $7 500. Well #4 must be properly sealed and abandoned to
Idaho Department of Water Resources' standards at an estimated cost of $2 000. The pneumatic
tanks on the other three wells are aged and in need of replacement. When replaced, the DEQ
will require that the tanks be relocated above ground rather than in existing below ground vaults.
This will require the reconstruction of the well houses to accommodate the tanks. The cost of
tank replacement and reconstruction of the well houses is estimated to be $105 000. The Terra
Grande system has no reservoir and has no ground available for construction of a reservoir. A
stand-by generator for the largest of the three wells, though not required, would cost
approximately $25 000 and would assure minimum domestic service during a period of extended
STAFF COMMENTS APRIL 2, 2004
power interruption. In addition to the system improvements, the DEQ will require accelerated
water quality testing due to the failure of Terra Grande to perform the tests at the required
intervals and because contaminate levels identified are marginal. The first year s accelerated
testing expense is expected to be about $8 000. Those test results will determine the next year
testing requirements/costs. DEQ has delayed enforcement action toward Terra Grande awaiting
the outcome of this proposed sale.
The expenses and improvements necessary to bring the existing Terra Grande system into
DEQ compliance total approximately $250 000. The owner of Terra Grande, Barbara Child, is a
sole proprietor. If she were to keep the system, a significant increase in water rates would be
needed to cover the proj ected system improvement costs. Staff estimates that these
improvements and expenses would require an additional revenue requirement of $42 200 just to
recover depreciation expense, a 10% return on the $250 000 investment and incremental testing
expenses. This translates to an annual cost of $577.00 for each of the 117 customers, an increase
of$361 or 167% over their current rate of$216 per year. Should the sale not go forward, it
would be Staff s recommendation that the Commission assert its regulatory authority under Title
Idaho Code and establish rates, rules and regulations for Terra Grande.
The Application. Staff has reviewed the Company s Application, attached exhibits, and
cost and revenue projections. Staff for reasons discussed below (see section on Subsequent
Developments) believes the cost projections may be significantly understated. Were the cost and
revenue projections as set forth in the Application proven correct, the revenue from Terra Grande
customers would be sufficient to cover the Company s cost of service and investment without
subsidy from other customers. If the cost is significantly greater, as Staff believes and the
Company requests recovery, the revenue will be insufficient and a subsidy from other United
Water customers will be required.
United Water plans to switch Terra Grande customers over to the Company s water
system quickly. The Company estimates however that it could take up to 90 days to complete
the installation of all meters. Under the Company s proposal, customers metered early on will
pay the high summer metered rate for the entire irrigation season; customers connected to meters
toward the end of90 days will pay a lower flat rate all summer. Because meter installations will
take place during the summer irrigation season Staff is concerned that a piecemeal move of
customers to metered rates creates inequities among neighbors. Staff believes a more equitable
solution for customers, without harm to the Company, is for the Company to bill United Water
STAFF COMMENTS APRIL 2, 2004
existing bi -monthly flat rate of $54.29 throughout the winter until each customer s first meter
reading on or after March 2005 when all customers would begin paying United Water
metered rate.
Terra Grande customers will experience an estimated 50% increase in their annual water
rates when switched to metered United Water tariffs (from $216/yr to an estimated $326/yr).
While this is a large increase, it must be considered in the context of the poor condition of the
existing system and the costs of bringing the system into DEQ compliance. Also relevant is the
fact that Terra Grande customers upon interconnection to United Water supply will receive
immediate benefit by having a water supply that meets DEQ's standards along with a utility that
possesses demonstrated abilities to provide safe water and reliable service.
Public Workshop. Staff participated, together with United Water and Terra Grande, in a
customer workshop the evening of Thursday, March 18, 2004. Twenty-seven residents of the
neighborhood representing twenty-two households (19%) attended the workshop. United Water
Terra Grande and the Commission Staff responded to questions about the Application. Concerns
expressed by customers in attendance fell primarily into the following categories: 1) water
quality and safety of the existing water supply; 2) whether an increase in water pressure would
cause more leaks due to age ofthe system; 3) what costs would individual consumers pay for
initial connection; and, 4) whether United Water could help customers get irrigation water.
Customers who attended the meeting did not express alarm at the projected 50% increase
in rates they would experience if the acquisition were approved. Customers seemed to
understand they are going to pay more for water in the future regardless of this sale. In fact
those in attendance who expressed an opinion favored the acquisition by United Water to
alleviate their concern about the safety of the existing water supply. United Water advised
customers that the Company has information and suggestions regarding water conservation
offers water conservation classes from time to time, and will set up a liaison team with Terra
Grande customers to help insure that customer needs and concerns are understood and addressed.
The Company indicated that it cannot help the customers obtain separate irrigation water because
irrigation water provided from a source other than United Water s potable water system is not a
part of United Water s business.
Staff distributed comment forms to all attendees and encouraged them to submit written
comments to the Commission by the April 2, 2004 comment deadline. As of April 1 , 2004 five
individuals had filed written comments. Four favor approval of the sale. One of the four
STAFF COMMENTS APRIL 2, 2004
expressed hope for a level pay program to assist those living on limited disability income to meet
higher costs. One other individual asked questions regarding ownership of the Terra Grande
system but did not express favor or opposition to the sale.
Subsequent Developments. Staffleamed from United Water s attorney on March 25
2004, that the quality and soundness of the existing Terra Grande distribution system within the
subdivision is not as represented by Terra Grande. The City of Boise is installing a new sewer
line within the subdivision. The contractor on the project has, due to poor location information
from Terra Grande, cut several service lines and uncovered leaks on the water system. The
contractors are not being reimbursed for their repair costs by Terra Grande. The contractor is
unwilling to absorb these costs and the City is considering halting the sewer project until suitable
arrangements can be made for reimbursement of costs incurred and better location information is
made available. Terra Grande has proposed the sewer project be halted until after United Water
takes over the system and has metered services installed that will make location easier. As
result of the sewer excavation, United Water has had the opportunity to observe directly a water
main in Penninger Street that was characterized by Terra Grande as a four inch (4") AC (asbestos
concrete) line. The line is actually two inch (2") galvanized iron pipe that is in very poor, fragile
condition. This 700- foot line may have to be replaced before United Water can complete the
interconnection to its own distribution mains. This information brings into question the accuracy
of the information provided on the remainder of the existing Terra Grande distribution system.
this line is indicative of the general condition of the remainder of the existing Terra Grande
distribution system, a total of more than 5 600 feet of distribution line may require replacement.
The cost of replacing existing Terra Grande distribution lines with four to six inch mains would
be an additional cost to United Water not included in the original Application. No accurate
information is available at this time regarding estimates of either the magnitude or cost of any
required distribution line replacements that may be required.
STAFF RECOMMENDATIONS
Given the poor water quality, the poor reliability and the high cost of restoring the
existing Terra Grande system to an adequate level of service, Staff believes the only practical
solution in this case is interconnection with and service from United Water Idaho. In making
this recommendation Staff acknowledges that the estimated revenue the Company expects to
receive from Terra Grande customers at current United Water rates will not be sufficient to
acquire the system and perform the facility upgrades necessary to provide adequate service.
STAFF COMMENTS APRIL 2, 2004
Staff consequently recognizes that it is more than likely that existing United Water customers
will be required to subsidize the acquisition.
Based upon current estimates, the cost for Terra Grande and its customers to restore the
system on a stand-alone basis far exceeds the cost required for interconnection with United
Water. In Staff s opinion, it is unreasonable for United Water to pay for a water system in such a
state of disrepair. Even acquisition at no cost will likely result in a revenue deficiency that will
require subsidy if included in Company rates. Staff cannot support any payment to Barbara
Child for the Terra Grande water system or recovery by United Water of any such payment from
existing customers. Staff believes with the elimination of the $47 000 purchase price, acquisition
by United Water is in the public interest and should be approved. Additional cost information
should be submitted by the Company to determine the potential for recovery through rates and
the size of subsidy that may be required in the future.
Staff recommends that former Terra Grande customers pay United Water s Schedule I-
flat rates through February of2005 and be switched to United's metered rate effective with the
first meter reading on or after March 1 , 2005. Staff does not propose at this time, a surcharge on
Terra Grande customers due to the uncertainty of future costs that United Water may actually
incur to provide adequate service.
Finally, should the owner of Terra Grande refuse transfer of the water system, Staff
recommends that a Certificate of Public Convenience and Necessity be immediately issued and
that Terra Grande be brought under the regulatory jurisdiction of the Commission. Terra Grande
should then be directed to make whatever system improvements are necessary to provide
adequate service and to bring the system into compliance with DEQ standards. Terra Grande
should immediately be made subject to all of the Commission s existing rules and regulations.
Terra Grande should be informed that no change in rates may be made without prior approval of
this Commission.
STAFF COMMENTS APRIL 2, 2004
Respectively submitted this
Technical Staff: Bob Smith
Marge Maxwell
s W :/umisc/comments/uwi wO4 .2swresmjm
STAFF COMMENTS
ex
day of April 2004.
APRIL 2, 2004
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 2ND DAY OF APRIL 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. UWI-04-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
GREGORYP WYATT
UNITED WATER IDAHO INC
PO BOX 190420
BOISE, ID 83719-0420
FAXED TO 362-7069
DEAN J MILLER
McDEVITT & MILLER LLP
PO BOX 2564
BOISE ID 83701
FAXED TO 336-6912
TERRA GRANDE WATER
BARBARA V CHILD
10012 ESHELMAN
BOISE ID 83704
SECRETARY
CERTIFICATE OF SERVICE