20050920final order on reconsideration order no 29871.pdf

Office of the Secretary
Service Date
September 20, 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF UNITED WATER IDAHO INC. FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR WATER SERVICE IN
THE STATE OF IDAHO
FINAL ORDER ON
RECONSIDERATION
CASE NO. UWI-O4-
ORDER NO. 29871
United Water Idaho Inc. initiated this case by Application filed November 30, 2004
requesting new rates for water service it provides to approximately 75,400 customers in Boise
Idaho and adjacent areas. The Commission convened a technical hearing on May 24-, 2005
and the parties filed post-hearing briefs on June 9 , 2005. The Commission issued its final Order
No. 29838 on August 3 , 2005 establishing a new revenue requirement for United Water
resulting in a rate increase of approximately 7.68%.
On August 17, 2005, Idaho Rivers United (IRU), an intervening party in the case
filed a Petition for Amendment or Reconsideration of Order No. 29838. IRU's Petition
requested Commission review of a single issue: whether United Water should be directed to
prepare a new or revised conservation plan. United Water filed an Answer to IRU's Petition on
August 24, 2005. United Water also filed a timely Petition for Reconsideration on August 23
2005, requesting reconsideration of nine issues: (1) use of the thirteen-month average
methodology to determine rate base amount; (2) revenue from lease of the Initial Butte water
rights; (3) allowance for funds used during construction (AFUDC) relating to the Initial Butte
water rights; (4) pension expense calculation; (5) early retirement and enhanced severance costs;
(6) deferred power costs; (7) a water quality testing expense; (8) rate case expense; and (9)
business insurance expense. On August 30, 2005, the Staff filed an answer to United Water
Petition, addressing only the rate base methodology issue. United Water filed a Reply to the
Staffs Answer, although the Company recognized "Replies to Answers to Petitions for
Reconsideration are not specifically contemplated by the Commission s procedure rules.
The Commission by this Order denies reconsideration of Order No. 29838, except to
(1) adjust the revenue amount from lease of the Initial Butte water rights and (2) correct
calculation of the Company s revenue requirement to include the % carrying charge on deferred
ORDER NO. 29871
power costs we approved in Order No. 29838. The Commission also grants IRU's Motion for
Amendment of the Order to direct United Water to prepare a conservation plan. We also clarify
some of the Commission s decisions in Order No. 29838 in response to the issues or questions
raised by the Company in its Petition.
AVERAGE RATE BASE METHODOLOGY
United Water first asks the Commission to reconsider its decision to use a thirteen-
month average methodology to establish the Company s test year rate base, rather than a year-
end or period end methodology The Company argues the average rate base methodology
should not be used for three reasons: (1) the Company maintains the average rate base
methodology will
, "
as a matter of mathematical certainty," be insufficient to allow the Company
an opportunity to earn its allowed return; (2) United Water argues the rate base methodology
violates the Company s entitlement to have included in rate base investments that are known and
measurable; (3) United Water contends the capital intensive characteristics of the Company
justify use of a year-end test year.
In support of its first argument United Water states: "the Commission s rate base
calculation treats all post-test year additions in service as of December 31 , 2004 as though they
were placed in service in July, the end of the historical year.United Water Petition, p. 3.
United Water then argues that "by allowing only a fraction of the total costs of construction
projects actually in service at the end of the historical year, and by excluding post-test year
investment, the revenue produced by allowed rates will produce a return of at least 80 basis
points below the allowed return.United Water Petition, p. 4. In support of its second
argument, the Company contends the average rate base methodology unlawfully prevents it from
including in rate base investments that are known and measurable. The Company states "the
Idaho Supreme Court has made clear that the utility is entitled to a return on post-test year
investments that are known and measurable.The third argument United Water makes to
support use of its rate base methodology is the capital cost characteristics of the Company. The
Petition for Reconsideration asserts that "United Water is highly capital intensive and its growth
in rate base per customer is at a rate much greater than customer and usage growth.United
1 The year-end methodology accepts the rate base investment as of the last month of the test year, in this case, July
2004. Because United Water proposed to add to the test year rate base all investment it made through the time of
hearing in May 2005, its rate base methodology is not, strictly speaking, a year-end methodology. For convenience
we use the term "year-end" to distinguish the Company s rate base methodology from the thirteen-month average
methodology.
ORDER NO. 29871
Water Petition, p. 4. Compared to electric utilities, the Company contends it "must make higher
than average cost additions to rate base to meet its growing load.Id.
For these reasons, United Water alleges the Commission s Order is erroneous and
by failing to consider and discuss these objections to the thirteen month average rate base
method, the Order, contrary to established law, fails to adequately explain the reasons for
departing from the year-end method.Id. The arguments presented by United Water in its
Petition for Reconsideration are not new. They were raised in its rebuttal case and in its post-
hearing memorandum. The Commission considered the Company s arguments and evidence
when determining that a thirteen-month rate base methodology is appropriate in this case. The
Commission accordingly denies reconsideration on this issue but will provide additional
clarification.
First we note again as we did in Order No. 29838 that the Commission "has
historically approved use of an average rate base rather than a year-end rate base on which a
utility can earn its authorized investment return." Order No. 29838, p. 5. Some of that history
is noted in the Commission s Order. Recognizing that United Water was allowed use of the
year-end methodology in cases since 1993 , we noted there was "Commission disapproval that
the Company had not included an average rate base methodology, at least as an option for the
Commission to consider." Order No. 29838, pp. 5-6. In each case where the Company s year-
end rate base was used
, "
the year-end methodology was approved only because no party objected
or proposed a different methodology.Id. The Commission s rate base methodology in this
case thus is not "departing from the year-end method" so much as it is returning United Water
rate cases to what had been established Commission practice.
The primary purpose for using an average rate base methodology is to minimize a
mismatch between costs and revenues that occurs when plant investment is included in the test
year, even though it is completed late in the year or after end of the test year. United Water
succinctly summarized the mismatch dilemma in its testimony regarding a new treatment facility
called Columbia Water Treatment Plant (CWTP). On the expense side of the ledger
, "
the
amount of investment associated with a facility such as the CWTP is known and measurable
and it may even be possible to estimate operations and maintenance expenses "with a high
degree of accuracy." Tr. p. 18. On the other side of the ledger, however
, "
the revenue producing
or expense mitigating effects of the CWTP are much more difficult to identify because they are
ORDER NO. 29871
not yet known and measurable.Id. The revenue producing and expense reducing effects
simply may not be measurable until after a period of operation of the new plant. It is unfair to
ratepayers to include the full costs of new plant without also including some adjustments to
revenue or expenses, recognizing the plant will provide a benefit to customers along with its
costs.
United Water recognized the mismatch concern of the Commission, and specifically
reviewed the Commission s final Orders in the two most recent electric utility rate cases to
ascertain ways to address it. The Company understood from its review of the Orders that "the
Commission is concerned that when significant plant improvements are completed during the
test period proper, or post-test period, there should be an effort made by the Company to identify
expense reductions and/or revenue additions associated with the plant improvements." Tr. p. 17.
The Company s general manager explained that the Company proposed to include in rate base
the CWTP, although it would not begin providing service until March 2005 , some eight months
after end of the test year. Accordingly, to address the known mismatch concern, United Water
used its best efforts in proposing adjustments that both increase revenues and decrease expenses
as a result of the addition of the CWTP.Id. The Commission allowed the CWTP in the test
year rate base at its full costs, as if it had been in place during the entire year, and also accepted
as appropriate the associated adjustments to revenue and expenses made by the Company. Order
No. 29838, p. 6. Because the CWTP was included in rate base as if completed at the start of the
test year, the average rate base methodology does not reduce the CWTP test year costs.
United Water, however, did not limit inclusion of post-test year investments to the
CWTP, although that plant accounted for a large part of the increase in the Company s rate base.
Order No. 29838, p. 3. United Water in its Petition for Reconsideration characterizes its CWTP
related revenue and expense adjustments as being made "in conjunction with its proposal to use a
year end test year " as if it had intended the adjustments to account for all of the late added plant.
United Water Petition, p. 5. The record is clear, however, that the Company s revenue and
expense adjustments only relate to the CWTP. For example, acknowledging the Commission
concern about a mismatch between plant investment and revenue and expenses when post-test
year plant is included in the test year
, "
the Company proposed an adjustment to revenue and
expenses associated with including the CWTP.Order No. 29838 , p. 4. The Commission
Order quotes several relevant portions of Company testimony, including that it "used its best
ORDER NO. 29871
efforts in proposing adjustments that both increase revenues and decrease expenses as a result of
the addition of the CWTP.Order No. 29838, p. 4. The specific revenue adjustment
attributable to the CWTP made by United Water was to increase test year revenue 'by $462 480
to account for additional customers, annualized at existing rates, from July 31 , 2004, the end of
the test year, through May 31 , 2005.'" Order No. 29838, p. 4 quoting from Tr. p. 18. The
Company also adjusted expenses by reducing power and chemical expenses "to reflect changes
in system operation caused by use of the CWTP.Id. The Commission noted that Staff
, "
(t)o
address the mismatch created by including the CWTP in the test year rate base, . . . proposed to
accept the CWTP related expense and revenue adjustments made by United Water." Order No.
29838, pp. 4-5. On this record, we found it "reasonable and appropriate to include the CWTP
investment in rate base, and to accept the associated revenue and expense adjustments proposed
by United Water." Order No. 29838 , p. 6.
The Company simply did not propose any adjustments to test year expenses or
revenues to minimize the mismatch resulting from including the non-CWTP plant costs in the
test year at full value. Including the additional out-of-year plant now at full costs would create a
mismatch between those costs and the Company s revenue and expenses that will change as the
result of the added plant. The average rate base methodology reduces the test year impact of the
non-CWTP plant, and that is appropriate where the plant costs are included without any revenue
or expense adjustments. The Commission has long addressed this mismatch in part by using an
average rate base methodology. See, e.
g.,
Utah Power Light Company v. IPUC, 105 Idaho
822 825 673 P.2d 422 (1983) (affirming the Commission s use of an average test year because
it "better matched the company s revenues to expenses, since the commission determined that
Utah Power s data submitted on the basis of a year end rate base contained certain mismatches
between costs and revenues.
);
Citizens Util. Co. v. Idaho Public Utilities Commission, 99 Idaho
164 579 P.2d 110 (1978) (approving Commission s use of average year rate base formula).
United Water also contends the Commission incorrectly concluded in Order No.
29838 that the evidence on its adjustments to address the cost/revenue mismatch is
uncontroverted. The Company makes this argument, however, only by characterizing its CWTP
related adjustments as being offered to offset all of its out-of-test year plant to be included in a
year-end rate base calculation. Thus, the Company asserts in its Petition that it "argued strongly
in rebuttal testimony that "while using projected revenue was appropriate for the year end
ORDER NO. 29871
methodology, it was inappropriate when using the 13-month method." United Water Petition
, p.
Although the Company in its rebuttal testimony may have characterized its test year
revenue adjustment as offered to correct a mismatch that only occurs by using a year-end rate
base methodology, there can be no doubt United Water initially characterized the adjustments to
test year revenue and expenses as related to including all CWTP costs in rate base. We noted in
the Order that "(b )oth Staff and the Company included the CWTP in the test year as if it were
completed for the entire year.Order No. 29838, p. 6. Staff and the Company agreed on the
revenue and expense adjustments that were made because the CWTP was included in rate base
and no other party objected to these test year adjustments. The Commission thus concluded
because "Staff testified in support of the corresponding revenue and expense adjustments, . . . the
evidence on the adjustments as a means to correct the mismatch. . . is uncontroverted.Id.
this record, the Commission correctly stated that the evidence on the revenue adjustment as a
means to correct the mismatch created by including the CWTP in rate base was uncontroverted.
The revenue and expense adjustments were offered, and were accepted by the Commission, to
help balance revenues with the costs of the CWTP that were included in rate base the same as
they would be in a year-end calculation.
With that clarification, we turn to the specific arguments made by United Water in its
Petition for Reconsideration for use of a year-end rate base methodology. The Company s first
argument is that the average rate base methodology will not allow the Company an opportunity
to earn its authorized return. United Water argues that "by allowing only a fraction of the total
costs of construction projects actually in service at the end of the historical year, and
excluding post-test year investment, the revenue produced by allowed rates will produce a return
of at least 80 basis points below the allowed return." The Company cites the testimony of a
rebuttal witness and his Exhibit 17. The witness testified that the rate base calculated by Staff,
using a thirteen-month average rate base, would cause United Water to "suffer rate of return
attrition.Tr. p. 1038. The Company s testimony in the record does not support its argument
that the Commission rate base calculation will
, "
as a matter of mathematical certainty, be
insufficient to allow the Company an opportunity to earn its allowed return.United Water
Petition, p. 3. More importantly, the assumptions and resulting calculations made by the
Company s witness to support his testimony about a rate of return shortfall are incomplete. In
ORDER NO. 29871
his calculation, the witness compared adjusted test year revenue to the total rate base investments
expected to be made by the Company. The total rate base figure includes significant plant costs
added well after the test year, but the witness did not make any revenue or expense adjustments
for the late added plant. It is unreasonable to assume new plant will not have an impact on
Company revenues or expenses. The effects of the new plant will not be known until it has
operated for a period of time. Without additional adjustments to revenue and expenses, it is not
possible to make an accurate estimate of the Company s future rate of return.
As to its second argument regarding the thirteen-month average rate base
methodology, the Company contends it is unlawfully prevented from including in rate base
investments that are known and measurable. The Company states "the Idaho Supreme Court has
made clear that the utility is entitled to a return on post-test year investments that are known and
measurable." In support of its statement, the Company references and quotes from Utah Power
and Light v. Idaho Public Utilities Commission 102 Idaho 282, 629 P .2d 678 (1981), where the
Court said "the commission should include in the rate base all items which are proven with
reasonable certainty to be justifiably used by the utility in providing services to its customers.
United Water Petition, p. 4.
The Commission did not exclude reasonably known and measurable investments
from the test year rate base. In fact, we included investments made by the Company through
eight months after the end of the test year. The Commission stated that
, "
rather than limit post-
test year additions to those capital expenditures incurred by December 31 , 2004 as proposed by
Staff we find it reasonable in this case to allow into rate base the post-test year capital
expenditures incurred by March 31 , 2005 , as described in Company witness Rhead's Revised
Rebuttal Exhibit No. 16, Schedule 8.Order No. 29838, p. The average rate base
methodology reduces the test year impact of late plant additions, but more importantly is a
reasonable means to reduce the mismatch that would occur if the full costs were added without
adjusting for future changes to revenues and expenses as a result of the added plant.
The third argument United Water makes to justify use of a year-end test year is that
United Water is "highly capital intensive" and compared to electric utilities, it "must make
higher than average cost additions to rate base to meet its growing load." United Water Petition
p. 4. The Company s evidence on this point is refuted in the record and was rejected by the
Commission in its final Order. For example, a Staff witness testified that "the rate base increase
ORDER NO. 29871
per customer for United Water (is) significantly less than the rate base increase (per customer)
for Idaho Power.Tr. p. 827. Staff calculated the increase in rate base for United Water to be
$41 per customer during its test year, and Idaho Power Company s rate base increase as $300 per
customer during its test year. Tr. p. 832.
The arguments presented by United Water in its Petition for Reconsideration were
considered by the Commission when determining that a thirteen-month rate base methodology is
appropriate in this case. The Commission accordingly denies reconsideration on this issue.
SPECIFIC EXPENSE AND REVENUE ISSUES IDENTIFIED
BY UNITED WATER ON RECONSIDERATION
The remaining issues addressed by United Water in its Petition for Reconsideration
are individual items. One issue regarding an allowance for funds used during construction
(AFUDC) impacts rate base and the remaining items affect revenues and expenses.The
Commission grants reconsideration on two issues to correct identified expenses or revenue, not
requiring additional evidence, and denies reconsideration on the remaining issues raised by
United Water.
A. Revenue from Lease of Initial Butte Water Rights and Associated Adjustment to
Purchased Water Expenses
The Commission in Order No. 29838 approved United Water s costs incurred in
strengthening existing and acquiring new water rights, which costs are added to its rate base.
Noting the Company s steady growth in customers, we found the costs reasonable, recognizing
that "the only method available to the Company to increase its supply of water is to obtain
strengthen and consolidate water rights in both surface water and groundwater.Order No.
29838
, p.
11. In its Petition for Reconsideration, the Company raised two issues related to its
Initial Butte water rights that allow it to divert water from the Snake River. The first is revenue
imputed by the Commission for the Company s lease of its Initial Butte water rights.
The Commission learned at the hearing that United Water had leased or was about to
lease its diversion rights under the Initial Butte water rights. Based on the testimony of
Company witness Rhead, the Commission calculated revenue from the Company s 2005 lease of
its Initial Butte water rights to be $152 584, and imputed that amount to the Company s annual
income. Order No. 29838, p. 10. The Order further states: "When lease revenues are not
received and the Snake River rights are exchanged for Boise River rights, purchased water
ORDER NO. 29871
transactions should be reduced. This is therefore a reasonable imputation that increases net
income, whether from lease revenues or from reduced purchased water expenses.Order No.
29838 , pp. 10-11.
United Water attached to its Petition for Reconsideration an Affidavit of Scott Rhead
stating that the Initial Butte lease negotiations concluded after the hearing and the actual amount
of lease revenue will be $48 114, not the $152 584 amount established at the hearing. United
Water requests use of the updated amount and also argues that a "more appropriate accounting
treatment would be to book the lease revenue as a deferred credit and amortize the credit over a
reasonable period of time of three to five years." United Water Petition, p. 8.
The Commission grants reconsideration on this issue to change the amount of Initial
Butte lease revenue to $48 114 as established in the Affidavit of Scott Rhead. The information
regarding lease of the Initial Butte water rights was not presented prior to the time of hearing.
the time of hearing the Company had placed the entire amount of water available under its Initial
Butte rights into the Water Bank Rental Pool, and the Commission determined the anticipated
lease revenue by a simple mathematical calculation. Tr. p. 212. The Company s affidavit
provides accurate information that was not available at the time of hearing. It establishes that the
Company was able to lease only a portion of its Initial Butte rights, resulting in income of
$48 114. Affidavit of Scott Rhead, p. 2. It is appropriate to use the updated figure and impute
that amount, rather than $152 584, to the Company s income.
The second issue is associated with the appropriate accounting treatment for lease
revenues. The Commission denies reconsideration on the accounting treatment for the Initial
Butte lease revenue, as we continue to find it reasonable and appropriate to include the lease
revenue in the Company s annual income. As stated in Order No. 29838, it is expected that in
years when the Snake River rights are exchanged for Boise River rights, as was intended with
United Water s purchase of the Initial Butte water right, other purchased water transactions
should be less. We find that booking the lease revenue to income is appropriate rather than
amortizing the 2005 lease amount as a credit. These revenues and expenses will be evaluated for
accuracy in future rate cases.
B. AFUDC on Initial Butte Water Rights
ORDER NO. 29871
United Water had included in rate base $390 017 as an allowance for funds used
during construction (AFUDC) related to the purchase of the Initial Butte water rights, claiming
that purchasing water rights is similar to acquiring land. AFUDC normally accrues for
construction work in progress. The Commission determined that "purchases of water rights
should not accrue AFUDC" and excluded $393 348 from rate base. Order No. 29838, p. 12.
The Company argues in its Petition that water rights are similar to interests in real property, and
like other costs associated with the acquisition of a tangible asset, such as land, should be subject
to AFUDC accrual.
We find that the appropriate accounting treatment for acquisition costs of water
rights is as stated in Order No. 29838, and therefore deny reconsideration on this issue.
Although water rights are property interests and real property for plant-in-service determination
they are not construction projects and should not accrue AFUDC. For regulatory accounting
purposes, water rights should be booked to Preliminary Survey and Investigation Charges
Account 183, while they are being pursued and then booked to a sub-account in Land and Land
Rights, Account 303 , in the Plant in Service records once the rights have been secured. This
allows the Company to recover all of its water rights acquisition costs.
C. Pension Expense
United Water requests reconsideration of the Commission s calculation for its annual
pension expense, asserting that its proposed accounting for pension expense is preferable to the
method adopted by the Commission. One accounting option is derived from the Employee
Retirement Income Security Act (ERISA), which establishes a minimum contribution level of
funding for a company s pension fund. The other accounting method is to use an expense
calculation set forth by an industry accounting standard, Statement of Financial Account
Standards No. 87 (F AS 87). The Commission found, for the purpose of regulatory reporting and
rate recovery, that the ERISA minimum contribution level of funding was more appropriate than
the pension expense calculation under FAS 87. Order No. 29838, p. 18.
The Company argues in its Petition for Reconsideration that the Commission s use of
the ERISA minimum contribution level of funding "is inconsistent with this Commission s prior
decisions on this issue in all of the Company s rate cases since 1993." United Water Petition
, p.
11. The Company also states that the Commission s treatment of the pension expense
inconsistent with the methodology used to calculate the Company s other post employment
ORDER NO. 29871
benefits under FAS Statement No. 106. Id. The Company argues: "Staffs ERISA method only
calculates the required cash needed now, without recognition of the liability that must be funded
at some future point. The F AS 87 amount, which must be recorded on the Company s books
correctly reflects both the cash required and the future liability." United Water Petition, p. 13.
The Commission explained why the F AS 87 calculation of pension expense is not
appropriate for regulatory rate recovery, and that it was not developed for that purpose. F AS 87
was developed for the purpose of having a standardized number for reporting pension liability
on a company s financial statements " and does not "represent the actual contributions that a
company makes to the plans ' fund." Order No. 29838 , p. 18. The Commission concluded: "the
goals of regulatory ratemaking and recovery are best met, under the facts of this particular case
by allowing recovery of the actual amounts of cash contributions that United Water would have
been required to contribute to the plan for the test year. In this instance the amount can best be
represented by the ERISA minimum contribution level of funding.Order No. 29838, p. 18.
We continue to find the ERISA contribution amount to more accurately reflect the actual
recovery required in rates for pension expense for the Company, and therefore deny
reconsideration on this issue.
D. Early Retirement Plan (ERP) and Enhanced Severance Package (ESP) Costs
United Water had included in its test year expenses an amount to recover past costs
of its Early Retirement Plan and Enhanced Severance Package (ESP). The Company proposed
to amortize these costs over 60 months, adding more than $300 000 to its annual revenue
requirement. The Commission removed the amortized expense for the deferred ERP and ESP
costs from the Company s expenses. The Commission removed the ERP and ESP expenses
determining that the costs were significant expenses requiring Commission authorization to
defer, which the Company failed to obtain. Order No. 29838, p. 19. In its Petition, the Company
argues that the Commission accepted the deferral of these costs in its last rate case, UWI - W -00-
, even though the Company had not applied for an accounting order authorizing the deferral.
United Water Petition, p. 13.
It is well settled that approval for deferral of significant expenses must be obtained
from the Commission before those expenses can be recovered in rates. The Company s written
policies recognize this, stating that
, "
in instances involving large dollar amounts or out of the
ordinary circumstances, Regulatory Business will seek an accounting order from the
ORDER NO. 29871
Commission to ensure acknowledgement and thereby reduce the risk of not recovering the
expense.Order No. 29838, p. 19 citing Tr. p. 464. It is undisputed that the ERP and ESP
expenses were significant and that United Water did not seek an accounting order authorizing
their deferral. In addition, these types of programs typically are self-funding and their costs thus
are not separately recoverable in rates. Tr. p. 465. It is true similar expenses were allowed in the
Company last rate case, but the circumstances of that case, including the timing
implementation of the programs and the filing of the rate case, were different than the facts of
this case. There is no evidence in this case to indicate the ERP and ESP programs, which were
implemented several years ago, are not self-funding. We therefore deny reconsideration on
recovery of the amortized ERP and ESP expenses.
E. Deferred Power Costs
Pursuant to a Commission Order issued in 2001 , United Water was authorized to
establish a deferral account for incremental costs resulting from increases in Idaho Power
Company electric power rates beginning May 1 , 2001.See Order No. 28800.The
Commission anticipated that the deferred amount would eventually be recovered in customer
rates, but the Commission in the 2001 Order reserved judgment on United Water s request for a
carrying charge. In this case the Commission allowed amortization and recovery of the deferred
amount, and also allowed a % carrying charge to be included in the recovery. Order No. 29838
p. 21. The Company argues on reconsideration that the Order "states that a 1 % carrying charge
is appropriate without including it in the revenue requirement " and that the deferral "should be
afforded traditional rate base treatment and not be subject to any carrying charge." United Water
Petition, p. 15.
We continue to find that allowance of a % carrying charge is consistent with the
power cost adjustment, the source of this deferral. Amortization of the actual expenditures plus
the % carrying charge during deferral is the appropriate method for recovery, rather than to
allow the deferred costs into rate base. It does appear, however, that an error occurred in the
Commission s calculation of the Company s revenue requirement so that the % carrying charge
was not included in the final calculations. The Commission allowed recovery of the deferred
amount carried on the Company s books from May 1 , 2001 through June 30, 2005 , and
authorized a carrying charge of
%.
Order No. 29838, p. 22. We therefore grant reconsideration
on this issue to correct the calculation of the revenue requirement to include $31 565 for the 1 %
ORDER NO. 29871
carrying charge on the deferred power costs. This Order increases the deferral amount to actuals
and adds the carrying charge for a total of$I 501 933, with the annual amortization of $500 644
included by adjusting the Company s revenue requirement in Revised Attachments 1 and 2. We
deny reconsideration on the Company s request to allow rate base treatment of the deferred
power costs.
F. Water Quality Testing
The Commission in Order No. 29838 authorized amortization and recovery of a
$12 000 expense for the Long Term 2 Enhanced Surface Water Treatment Rule (L T2ESWTR)
test that the Company will conduct during 2005. Order No. 29838, p. 22. The record established
that this is a two-year test requirement that will also occur in 2006. Because the expense is
$12 000 for each year, the Company argues that the proper amount to be amortized is $24 000
rather than $12 000.
It is not appropriate to include the 2006 test expense in this case for the same reasons
it is not appropriate to attempt to add other future costs into a historic test year that ended July
, 2004. Even though we can be reasonably certain the Company will incur this particular
expense in 2006, it is unfair to ratepayers to include future expense items in a revenue
requirement when unknown future revenues and cost savings cannot be included. The Company
will be able to recover a similar amortization of its 2006 expenses in a future rate case utilizing a
2005 or 2006 test year.
G. Rate Case Expense
The Commission approved for recovery United Water s rate case expenses as
initially estimated by the Company, which were $245 000, minus a reduction agreed to by the
Company for costs of a public information campaign. Order No. 29838, p. 24. We also
approved a four-year amortization period to recover the rate case expenses. The Company filed
the Affidavit of Jeremiah Healy with its Petition for Reconsideration, stating the July 2005
Balance Sheet deferred rate case expense is $358 392.07. The Company also states in its Petition
that it has since processed three additional rate case invoices, including the Commission s award
of intervenor funding, bringing the total costs to $392 834.16. United Water Petition, p. 17.
The Commission normally does not recognize updates to rate case expenses provided
through Petitions for Reconsideration. Instead, rate case expenses that exceed the amount
initially allowed for recovery are tracked in a deferral account and then may be recovered in a
ORDER NO. 29871
future proceeding. The rate case expense amount included for recovery in Order No. 29838 was
the best available number at the time.
The Commission included the intervenor funding awards in the annual revenue
requirement, rather than amortizing them with other rate case expenses, with the knowledge that
the expense amount included in the revenue requirement would not cover all the rate case costs.
Because intervenor costs are Commission ordered costs, we elected to directly include them in
the revenue requirement for this case. The rate case deferral account will reflect actual rate case
expenses, where any costs legitimately incurred by the Company over what was included for
recovery in Order No. 29838 may be recovered in an appropriate future proceeding.
Accordingly, we deny reconsideration of this issue.
H. Business Insurance Expense
The Commission approved an annual business insurance expense of $899 036 in the
Company s revenue requirement. This is less than the amount of $1 083 000 requested by the
Company. We accepted an adjustment recommended by Staff because "the record demonstrates
amounts paid by the parent company, United Water Resources, Inc., but does not clearly indicate
those values on a United Water Idaho level." Order No. 29838 , p. 25. The Petition for
Reconsideration states simply that United Water "presented evidence in its rebuttal
demonstrating that the Company supplied both the United Water Resources level insurance and
the United Water Idaho level actually billed to the Company.United Water Petition, p. 18.
The Company referenced Exhibit 15, Schedule 12.
Exhibit 15, Schedule 15, rather than Schedule 12, is the business insurance expense
exhibit. We cannot determine from that exhibit, however, the proper allocation of business
insurance expense between the parent company and United Water. Exhibit 15 , Schedule 15
appears to contain corporate-wide numbers and no specific amount billed to United Water Idaho.
Consequently we deny reconsideration on the business expense issue identified by the Company.
ADJUSTED REVENUE REQUIREMENT
The two revenue and expense adjustments approved on reconsideration by the
Commission change United Water s revenue requirement from our final Order. As the result of
the reduced revenue from lease of the Initial Butte water rights, the Company s adjusted annual
operating revenue is reduced by $104 470. Correcting the calculation of the 1 % carrying charge
on the deferred power costs adds $10 880 to the amortization included in the Company
ORDER NO. 29871
operating expenses. Together, these adjustments increase United Water s revenue requirement
by $116 090 over that approved by the Commission in Order No. 29838. This results in a final
overall rate increase of approximately 8.080/0.
IDAHO RIVERS UNITED PETITION
Idaho Rivers United (IRU) filed a Petition for Amendment or Alternatively for
Reconsideration on the sole issue of whether United Water should be directed to prepare a new
or revised conservation plan. IRU Petition, p. 1. IRU states that although this issue was largely
undisputed among IRU, United Water, and Commission Staff, Order No. 29838 simply does not
address the issue. Id.
On August 24, 2005, United Water filed an Answer to IRU's Petition. United Water
acknowledged that it "agrees that the preparation of a new conservation plan is appropriate " and
at hearing the Company "committed to undertake steps toward the creation of a new
conservation plan.United Water Answer
, p.
1. The Company disagreed with IRU'
recommendation that a plan be completed and submitted to the Commission by December 15
2005, and suggested a nine-month deadline. United Water recommended that the plan evaluate
viability and cost-effectiveness of various measures, and that implementation should not be
required until after evaluation of the plan.
Order No. 29838 is indeed silent regarding a conservation plan. It is not necessary to
grant reconsideration on this issue; instead, the Commission amends its Order to address it.
Based upon the agreement of the parties, United Water is directed to prepare a conservation plan
and submit it to the Commission for review no later than April 1 , 2006. Given the increasing
demand for water and growth in number of United Water customers, it is prudent for United
Water to update its water conservation plan. Implementation issues, including viability and cost-
effectiveness of various conservation measures, will be determined after the plan is submitted to
the Commission for review.
ORDER
IT IS HEREBY ORDERED that the Petition for Reconsideration filed by United
Water is denied, except to adjust the amount of Initial Butte lease revenue to $48 114 as
established in the Affidavit of Scott Rhead, and to correct calculation of the revenue requirement
to include the % carrying charge on the deferred power costs, as set forth in this Order. As a
result of these adjustments, the Company is authorized to file new tariffs to reflect an increase in
ORDER NO. 29871
its authorized revenue requirement in the amount of $116 090, to be effective three days after
filing with the Commission.
IT IS FURTHER ORDERED that the Petition for Amendment or Alternatively for
Reconsideration filed by Idaho Rivers United is granted to amend Order No. 28938 to direct
United Water to prepare and file a conservation plan as set forth in this Order.
THIS IS A FINAL ORDER ON RECONSIDERATION. Any party aggrieved by
this Order or other final or interlocutory Orders previously issued in this Case No. UWI-04-
may appeal to the Supreme Court of Idaho pursuant to the Public Utilities Law and the Idaho
Appellate Rules. See Idaho Code 9 61-627.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this d-.O-H-..
day of September 2005.
PAUL KJELLANDER, PRESIDENT
OMMISSIONER
ATTEST:
D. Jewell
Commission Secretary
O:UWI-04-04 reconsideration ws dw
ORDER NO. 29871
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0
13
0
13
0
Un
c
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l
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e
c
t
i
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l
e
s
16
2
,
70
6
(3
1
66
1
)
13
1
,
04
5
12
5
51
6
13
1
,
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5
52
9
)
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5
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C

A
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A
s
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s
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m
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72
,
34
7
3,4
7
6
82
3
34
7
80
7
46
0
)
82
8
Ra
t
e

C
a
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e

E
x
p
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e

A
m
o
r
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n
66
7
66
7
50
0
82
2
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2
32
2
)
11
7
Re
l
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c
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E
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e

A
m
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n
68
8
47
7
16
5
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0
(1
6
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0
)
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0
Bu
s
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s

I
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s
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r
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e
78
9
76
5
29
3
53
5
08
3
30
0
89
9
,
03
6
08
3
30
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8
4
,
26
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89
9
03
6
Ad
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D
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L
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&

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h
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G
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v
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14
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00
5
(1
4
00
5
)
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7
,
43
3
)
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7
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4
3
3
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7
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In
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o
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m
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T
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10
5
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6
14
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1
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09
4
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t

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M
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02
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2
54
2
64
5
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9
10
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2
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R
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N
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79
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0
,
68
0
)
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64
1
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96
1
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1
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s

L
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l
82
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85
1
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8
85
1
)
54
,
00
0
25
5
54
,
00
0
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7
,
74
5
)
25
5
Am
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of
De
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E
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p
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s
56
9
56
9
77
5
77
5
77
5
Re
m
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v
a
l

of

Ca
r
r
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e

H
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g

E
x
p
e
n
s
e
(9
8
6
)
(9
8
6
)
63
1
)
63
1
)
(1
,
63
1
)
To
t
a
l

A
d
j
u
s
t
e
d

O
&
M
25
9
10
4
93
3
,
19
3
10
,
19
2
29
7
47
1
,
11
0
17
3
,
44
0
70
2
,
33
0
16
2
,
28
0