20070413Reply comments.pdf

McDevitt & Miller LLP
Lawyers
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, 2: 2,o. Box 2564-83\7011 i,
Boise, Idaho 83702
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Chas. F. McDevitt
Dean J. (Joe) Miller
April 13, 2007
Via Hand Delivery
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington St.
Boise, Idaho 83720
Re:Case No. UWI-07-
Dear Ms. Jewell:
Enclosed for filing in the above matter, please find the original and seven (7) copies of United
Water s Reply Comments.
An additional copy of the document and this letter is included for return to me with your file stamp
thereon.
Thank you for you assistance.
Very Truly Yours
McDevitt & Miller LLP
~WL
Dean J. Miller
DJM/hh
Enclosures
Dean J. Miller (ISB No. 1968)
McDEVITT & MILLER LLP
420 West Bannock Street
O. Box 2564-83701
Boise, Idaho 83702
Tel: [phone]
Fax: [phone]
joe (QJ mcdevitt-miller .com
ORIGINAL
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Attorneys for United Water Idaho Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
UNITED WATER IDAHO INc., FOR
AUTHORITY TO AMEND AND REVISE
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY NO. 143 AND FOR
APPROVAL OF A SPECIAL FACILITIES
AGREEMENT WITH A VIMOR LLc.
CASE NO. UWI-O7-
REPLY COMMENTS
COMES NOW United Water Idaho Inc.
, ("
United Water " the "Company ) and submits
the following Reply Comments in response to the Staff Comments dated March 16, 2007 ("Staff
Comments
INTRODUCTION AND SUMMARY OF ARGUMENT
In this Application, United Water seeks authority to expand its Certificate of Public
Convenience and Necessity ("Certificate ) to include a planned residential community known as
A vimor. The location of the A vimor development and the area of proposed Certificate
expansion is depicted on Exhibit A, attached hereto. In its initial phase the A vimor development
will consist of approximately 700 residential and commercial lots located on approximately 860
acres of land. It is anticipated that over time the development will expand to occupy additional
REPLY COMMENTS-
area. As shown on Exhibit A, United Water has requested that its certificate be expanded to
include the anticipated additional expansion area.
In conjunction with the development United Water and Avimor negotiated and executed
a Special Facilities Agreement ("SFA") consistent with Rules 74-77 of the Company s Rules and
Regulations as approved by the Commission. Pursuant to the SF A , A vimor will advance the
entire cost of system extensions necessary to serve the development, estimated to be $6 308 805.
Of this total cost, approximately $1 749 962 will be considered as non-refundable Contributions
in Aid of Construction and approximately $4 558,843 will be considered as refundable Advances
in Aid of Construction. Under the refund mechanism contained in the SFA, and approved by the
Commission in the Company s Rules, A vimor does not become eligible for refunds until
customers are connected to the system and producing revenue, thus insulating the Company
general body of ratepayers from speculative risk. In addition, A vimor will contribute without the
possibility of refund, the entire cost of constructing the distribution system within the
development, pursuant to United Water s standard policies.
As explained in the Direct Testimony of Gregory P. Wyatt, filed with the Application
negotiations leading to execution of the SFA in January of 2007 stretched over several years
commencing in 2004. (Wyatt, Direct, Pgs. 2-3). In all respects the negotiations were at arms-
length.
The Staff Comments do not object to several features of the SFA, and, accordingly, these
Reply Comments will not discuss areas in which the Company and Staff are in agreement. The
Staff Comments, however, contain two recommendations with which the Company does not
agree and which are the subject of these Reply Comments. Those recommendations are:
REPLY COMMENTS- 2
Deny expansion of the Certificate beyond Phase 1 of the development and open a new
docket to examine water supply cost recovery;
Require United Water and Avimor to re-negotiate the SFA such that all transmission
investment would be contributed by A vimor without the possibility of refund.
ARGUMENT
The Commission Should Approve the Certificate Expansion as Requested
The Staff Comments assert that the cost of source of supply to serve areas beyond Phase
1 of the development are uncertain and may be a burden to the Company s general body of
ratepayers and that the public interest requires consideration of potential impacts on existing
customers. (Staff Comments , Pgs. 2-3). The Comments further suggest that the Commission
may impose conditions upon a Certificate expansion regarding source of supply costs. (Staff
Comments, Pgs. 3-6) It is recommended that a new docket be opened to consider possible
conditions. (Staff Comments Pg. 6). For the following reasons, these recommendations should
not be accepted.
Staff's Public Interest Analysis is Narrow and Takes Into Account Only One Public Interest
Consideration
While the phrase "public interest" is not susceptible of precise definition, the Idaho
Supreme Court has made clear that a rigorous public interest analysis should take into account all
relevant circumstances: "... where the Commission is required to consider the "public interest
it must look to the interest of the public, their needs and necessities and location and in fact, all
the surrounding facts and circumstances " (Emphasis supplied). Browning Freight lines v.
Wood 99 Idaho 174 579 P.2d 120 (1978). The Commission has followed the "all relevant
circumstances" approach in recent cases. See, In the Matter of the Joint Application of
PacifiCorp and Scottish Power Case No. PAC-99-, Order No. 28213 , pg. 33 (1999): "In this
REPLY COMMENTS- 3
case there was a wide range of issues raised and concerns expressed that pertain to the public
interest standard. We considered them all in reaching our decision.
Despite the requirement for examination of all relevant circumstances, Staff Comments
focus on a single consideration-holding down rates for existing customers. "The Public Interest
of particular concern to Staff is the potential impact of the proposed expansion on the general
body of United Water ratepayers." (Staff Comments pg. 2). Depending on how one views the
proper role of Staff, it is perhaps arguable that Staff is not obligated to engage in an "all relevant
circumstances" public interest analysis and Staff instead may be an advocate for only one
affected interest-in this case existing ratepayers. When, however, Staff takes on the role of
advocate for only one affected interest, the Commission, while giving appropriate weight to the
Staff advocacy, should apply its own "all relevant circumstances" public interest analysis.
United Water respectfully suggests that the following are additional relevant
considerations that should be taken into account:
First, it should be recognized that the utility customer does not have a right to service at
rates in effect when the customer is connected to the system. It has never been the law, and could
not be the law that a utility customer on the day he or she connects to the utility system obtains a
right to perpetual service at the rate in effect on that date. Put differently, the utility customer
does not acquire an ownership interest in the utility s facilities entitling the customer to rates
based on the utility cost existing on that date. And, it is a fact of life that utility costs rise over
time due to inflation, changes in regulatory requirements, additions to and replacements of
existing infrastructure and the impact of growing demand. As discussed below
, "
old customers
contribute just as much to rising demand as do "new customers" and there is no legitimate reason
to insulate existing customers from these effects.
REPLY COMMENTS- 4
Second
, "
new" customers are entitled to fair treatment. The narrowness of Staff's
analysis is disclosed in the final section of Staff's Comments where it is stated that the cost
burden should not be placed on United Water s ratepayers but
, "
The cost burden is more
appropriately placed on the developers that profit when water is provided to these lands." (Staff
Comments, Pg. 10). It is, of course, not the developer that will ultimately bear the burden of
added source of supply costs , but rather it is new United Water customers who purchase lots
within the development.
A third public interest concern is discouraging the proliferation of small independent
water companies. A predictable consequence of shifting costs of source of supply onto
developments intending to connect to the United Water system is that developers of those
systems will consider creation of independent water utilities to serve the development. As
illustrated by this case, A vimor at one time appeared to have the intent and ability to form its
own water company, and United Water sought to negotiate a SFA that would prevent that result
while remaining consistent with Commission rules. (Wyatt, Direct, Pgs 2-3).
As the Commission is aware from experience, small independent water utilities, lacking
economies of scale, often present significant regulatory challenges when the Commission seeks
to insure reliable service at reasonable prices. See, In the Matter of the Investigation of Terra
Grande, Case No. TWG-04-, Order No. 29974; In the Matter of the Application of Spirit Lake
East Water Company, Case No. SPL-06-, Order No. 30279.
Small independent water utilities may also present health and safety concerns. For this
reason, the Idaho Department of Environmental Quality requires owners of a new system to
investigate the feasibility of connecting to an established system, and if the owner chooses not to
REPLY COMMENTS- 5
connect to an established system, the owner must justify its decision in terms of environmental
protection, affordability and protection of public health. IDAP A 58.01.08.500.6 (Rules for
Public Drinking Water System) provides:
Consolidation. In demonstrating new system capacity, the owner of the proposed new
system must investigate the feasibility of obtaining water service from an established
public water system. If such service is available, but the owner elects to proceed with an
independent system, the owner must explain why this choice is in the public interest in
terms of environmental protection, affordability to water user, and protection of public
health.
While it may be impossible to identify the precise economic tipping point at which
creation of an independent company becomes an attractive alternative to service by United
Water, the proposal to shift United Water s source of supply costs to new development goes in
the wrong direction from the public interest standpoint of discouraging creation of small water
companies.
United Water s Application is Fully Consistent with Existing Rules
At its core, United Water s current system of allocating costs of system expansions is
relatively simple-developers contribute the cost of line extensions and terminal facilities while
source of supply and related facilities are funded through rate base investment and included in
rates paid by all customers.
This system of allocation was adopted by the Commission in Case No. UWI-96-
which followed the Supreme Court s decision declaring the previous allocation system to be
discriminatory in Building Contractors of Southern Idaho v. Idaho Public Utilities Commission
128 Idaho 534, 916 P.2d 1259 (1996), which is discussed in more detail below.
The system adopted by the Commission in Case No. UWI-96-4 accepted Staff's
recommendation as set out in Staff testimony. The Staff witness testified:
REPLY COMMENTS- 6
My proposal is to use new customer revenue to support current per customer operation
and maintenance (O&M) expense, backbone plant and other miscellaneous investment
and to require a capital contribution from each new customer for actual line extension and
terminal facility costs incurred. I specifically recommend that line extension escrows,
refunds and supply based hook-up fees for backbone plant be eliminated in favor of a
non-refundable one time contribution equal to the actual cost of distribution, service and
meter facilities required to serve a new customer." (Testimony of Randy Lobb dated
January 6, 1997, Pgs. 2-3).
Staff explained the rationale for its proposal as follows:
My recommendation is supported by analysis showing that average new customer
revenue is needed to support O&M expenses and a reasonable range of non-line
extension investment. Implementation of my proposal will greatly simplify line extension
and customer contribution rules and will result in a more consistent application from
customer to customer. Finally, while the recommended changes on average will result in
larger capital contributions from new customers, fees will be based on actual cost of
service with potential cost reduction provided through labor in lieu of cash provisions in
the Company s line extension rules. Labor in lieu of a cash contribution could provide the
potential for reduced construction costs through competition.(Id. Pg. 7).
Staff also explained that its proposal was aimed at controlling growth related investment
made by the Company:
Q. Will the solution you propose sufficiently control Company investment and eliminate
the need for growth related rate increases?
A. Yes, I believe that it will. My analysis shows that current water rates are designed to
support four categories of costs as shown in Staff Exhibit No. 102. The first category is
the amount of revenue required to cover system operation and maintenance (O&M)
expenses. The other three categories are depreciation expense, return on investment and
taxes which are all a function of net investment (rate base). The revenue requirement
shown in each of these three categories can be directly calculated from the rate base
currently in each plant account. If rate base increases, then revenue requirement
increases. If the revenue requirement per customer is determined, then the amount of
allowable investment per customer can also be determined.(Id. Pg. 9).
The system of system expansion cost allocation which Staff now suggests be examined
for possible change is precisely the system Staff previously recommended.
REPLY COMMENTS- 7
Staff's Legal Analysis is Questionable
Staff Comments argue, relying on Idaho Code 61-526, that as a condition of granting an
amendment to United Water s certificate the Commission could, in some manner that is not
defined, require that the developer make a non-refundable contribution to future source of supply
costs. As discussed below, there are several legal and practical problems with this
recommendation.
As legal authority for its recommendation, Staff Comments rely on Idaho Code 61-526.
That section, re-formatted for ease of reading, provides:
No street railroad corporation, gas corporation, electrical corporation, telephone
corporation or water corporation, shall henceforth begin the construction of a street
railroad, or of a line, plant, or system or of any extension of such street railroad, or line
plant, or system, without having first obtained from the commission a certificate that
the present or future public convenience and necessity require or will require such
construction:
provided, that this section shall not be construed to require such corporation to secure
such certificate for an extension within any city or county, within which it shall have
theretofore lawfully commenced operation, or for an extension into territory whether
within or without a city or county, contiguous to its street railroad, or line, plant or
system, and not theretofore served by a public utility of like character, or for an
extension within or to territory already served by it necessary in the ordinary course of
its business:
and provided further, that if any public utility in constructing or extending its lines
plant or system, shall interfere or be about to interfere with the operation of the line
plant or system of any other public utility already constructed, or if public convenience
and necessity does not require or will require such construction or extension, the
commission on complaint of the public utility claiming to be injuriously affected, or on
the commission s own motion, may, after hearing, make such order and prescribe such
terms and conditions for the locating or type of the line, plant or system affected as to it
may seem just and reasonable:
and provided, that power companies may, without such certificate, increase the
capacity of their existing generating plants." (Emphasis and formatting supplied)
REPLY COMMENTS- 8
As can be seen, the code section begins with a general requirement for utility
companies to obtain a certificate before commencing construction of facilities. This general
requirement is then followed by three qualifications, the first relating to contiguous expansions
the second relating to conflicts with existing utilities and the third relating to increased
generating capacity for electric companies.
It is further apparent that the only statutory language providing authority to impose
conditions is in the second exception, relating to circumstances when new construction may
interfere with the operation of the system of another utility already constructed. In such a
circumstance, the Commission may impose terms and conditions for locating the line or plant so
as to prevent interference with the existing utility.
In the present case, there is no issue of United Water s proposed facilities interfering
with those of another utility. Rather, United Water seeks to extend its facilities to an area un-
served by any existing utility. On its face, the third exception allowing conditions to prevent
interference contained in Idaho Code 61-526 is inapplicable to the facts of this case and does not
provide authority to place conditions on the proposed expansion. It is well settled that:
The Idaho Public Utilities Commission has no authority other than that given to it by the
legislature. It exercises a limited jurisdiction and nothing is presumed in favor of its
jurisdiction. United States v. Utah Power Light Co.98 Idaho 665, 570 P.2d 1353
(1977); Lemhi Tel. Co. v. Mountain States Tel. Tel. Co.98 Idaho 692 571 P.2d 753
(1977); Arrow Transp. Co. v. Idaho Pub. Utils. Comm 85 Idaho 307, 379 P.2d 422
(1963). As a general rule, administrative authorities are tribunals of limited jurisdiction
and their jurisdiction is dependent entirely upon the statutes reposing power in them and
they cannot confer it upon themselves, although they may determine whether they have
it. If the provisions of the statutes are not met and compliance is not had with the statutes
no jurisdiction exists.Washington Water Power v. Kootenai, 99 Idaho 875,591 P.
(1979); See also, Alpert v. Boise Water Corp, 118 Idaho 136, (1990);
Staff Comments also discuss, and attempt to distinguish, two Idaho Supreme Court cases
Idaho State Homebuilders v. Washington Water Power 107 Idaho 413 690 P.2d 350 (1984) and
REPLY COMMENTS- 9
Building Contractors of Southern Idaho v. Idaho Public Utilities Commission 128 Idaho 534
916 P.2d 1259 (1996). In Homebuilders, the Court invalidated as impermissible discrimination
against new customers the Commission s attempt to impose a non-recurring charge in
installation of electric space heating after a certain date. In Building Contractors the Court
invalidated, on similar grounds, a hook-up fee to be imposed on new customers aimed at
collecting increasing costs of source of supply. Staff suggests these cases, involving fees
imposed on new customers within an already certified area, are inapplicable where the utility
seeks an extension to its certified area. (Staff Comments, Pg. 5).
Whether or not the Supreme Court would extend the HomebuilderslBuilding Contractors
rule to the facts of this case is a question that cannot be answered with certainty as it involves a
predictive judgment about future determinations by the Court. As will be discussed in more
detail below, what can be said with certainty, however, is that the ability of the Commission to
treat "new" customers differently from "old" customers is subject to substantial legal doubt.
United Water respectfully suggests that when a proposed rule or course of action is subject to
substantial legal doubt, the Commission should exercise extra caution in evaluating the proposal.
While the specific facts of this case differ from those of Homebuilders and Building
Contractors the thrust of the language in each case seems quite clear-imposing the cost of
growth solely on new customers is prohibited discrimination. In Homebuilders the Court
quoting from an expert witness , said:
(T)rying to track 'casual' responsibility for costs can quickly degenerate into a
metaphysical debate similar in character to the famous medieval debate over how many
angels can fit in the head of a pin. From the economist's perspective , a new customer is
no more responsible for the level of demand than an old customer. The need for
additional capacity can be avoided either by the old customer reducing demand or by the
new customer abandoning plans to purchase electricity. An old electric heat customer in
an uninsulated house or an existing industrial customer with an old, energy inefficient
production process or an industrial customer who could produce thermal electric energy
REPLY COMMENTS-
more cheaply then Washington Water Power, et cetera, are all as responsible for the
rising demand for electric energy and power as the new home heating customer is
In Building Contractors the Court said:
While it is true that the cost of service has increased, the cost has increased
proportionately for each Boise Water customer. There is no difference in the cost of
service between customers who connected to Boise Water s system before July 25 , 1994
and those who have connected or will connect to the system from that date forward.
Each new customer that has come into the system at any time has contributed to the need
for new facilities. No particular group of customers should bear the burden of additional
expense occasioned by changes in federal law that impose new water quality standards
Thus , on two recent occasions the Supreme Court has strongly stated a rule of public
utility law in Idaho --old customers are just as responsible for the cost of rising demand as new
customers and attempts to assign those costs to new customers are unlawful discrimination. In
light of this , Staff's attempt to create a distinction based on the fact that in this case the new
customers will reside in a previously un-served area appears questionable, at best. Whether the
new" customers are in a previously un-served area appears irrelevant to the Court's central
point that "old" customers are equally responsible for costs of rising demand.
The problem with Staff's attempted distinction can be illustrated with a specific example.
In the year 2006, United Water added approximately 2 900 "new" customers to its system. None
of these customers were required to contribute toward source of supply costs, yet they have
contributed to the rise in demand of source of supply, and they have contributed to a proportional
rise in revenues which helps to offset increased costs for "legacy" customers. It would appear
discriminatory on its face to shift the rise in cost caused, at least in part, by the last group of new
customers to the next group of new customers-those residing in the A vimor area.
I With the exception of a concurring opinion by Justice Bistline in Homebuilders both opinions were by unanimous
courts.
REPLY COMMENTS-
A New Docket is Not Likely to Be Productive
Staff Comments, in addition to limiting the certificate expansion to Phase I of the
A vimor development recommends opening a new docket so that interested parties can discuss
water supply concerns, to include a discussion of "developer contributions, hook-up fees as a
condition of certificate, source of supply investment cap, contributed water rights, a water right
differential , etc.(Staff Comments Pg. 6, 11).
For the reasons discussed below , United Water believes this suggestion is unwise and the
Commission should not adopt it.
First, as previously discussed, United Water s Application and proposed division of cost
responsibility is fully consistent with its existing Rules and Regulations. United Water
Application should be evaluated under its approved Rules and Regulations at the time its
Application was filed, not under a new, but undefined set of rules. See, South Fork Coalition v.
Board of Commissioners 112 Idaho 89, 730 P.2d 1009 (1986).
Second, while "opening a new docket" is sometimes a tempting solution to a regulatory
problem, careful thought should be given to whether any potential outcome of the new docket is
likely to result in improvement to the current system. As discussed above, in the absence of a
change in law, any new method of shifting growth related costs to new customers and/or
developers will be subject to substantial legal doubt. In this regard, Staff's recommendation does
not offer any specific new proposal, only a list of general possibilities, all of which, on their face
appear suspect under the Homebuilders/Building Contractors cases. United Water respectfully
urges the Commission to think carefully about the wisdom of opening a new docket when there
is not even a preliminary showing that some new, but undefined, system would be practically
and legally superior to the current system.
REPLY COMMENTS-
Third, it is extremely difficult to conceive of a rule that would fairly differentiate between
developments in new areas that had ample groundwater or surface water supplies and areas with
limited supplies with regard to how much contribution or water rights the developer should
provide. Aside from the obvious discriminatory nature of such a proposal, the concept of
developers contributing water rights, as Staff suggests, is fraught with numerous administrative
difficulties and questions. For example, are groundwater and surface water rights to be
considered equal? Does the water right have to be tied to the land being developed? Are shares
in mutual ditch companies considered water rights? Who is responsible to transfer the water
right if it is not tied to the land? Will rented water qualify as water rights? Can groundwater
recharge qualify? There are many others.
Fourth, United Water is aware of other developers who are in various stages of progress
toward applying to United Water for service. Because United Water s existing Rules and
Regulations have been in existence for a long period of time and are well understood by the
development community, these developers have been analyzing and preparing their proposals
under the current Rules and Regulations. Declaring a sudden de facto moratorium on the current
system and opening a docket to examine un-specified ideas for change would create great
confusion and uncertainty in the development community.
A final reason for caution, which is related to the fourth, is that the Commission would
face difficult questions as to which developments are sufficiently mature so as to be entitled to
service under existing rules and which would be required to take service under whatever new
rules might emerge from a new docket. Questions about "grandfathering" are particularly
troublesome and difficult to resolve. (See, Petition of Idaho Power to Suspend PURPA
REPLY COMMENTS-
Obligations, Case No. IPC-05-22; Cassia Wind Petition to Determine Exemption Status Case
No. IPC-05-35; Magic Wind Petition to Determine Exemption Status Case No. IPC-05-34).
United Water, of course, is willing to informally discuss with Staff and interested parties
possible improvements to its current rules. United Water suggests any formal docket
preceded by informal discussions to determine if consensus-based changes are possible. These
discussions, however, should not act as a moratorium with respect to United Water s existing
Rules and Regulations.
The SFA's Treatment of Transmission Line Investment is Reasonable
As depicted on Exhibit A, transmission facilities to serve the development are divided
into two segments. Approximately 18 000 feet is characterized as "on-site" with an estimated
cost of $2 519 944 and approximately 12 500 feet is characterized as "off-site" with an estimated
cost of $1 749,962. Pursuant to the SFA the cost of the "off-site" segment will be contributed by
Avimor without refund by the Company (although available for "late-comers" reimbursements),
while the cost of the "on-site" segment would be advanced subject to later refund. Staff
Comments , apparently fearing that as refund payments are included in rate base there will be an
upward pressure on rates, recommends that non-refundable contributions be required for the "on-
site" segment in addition to the "off-site" portion. (Staff Comments Pg. 7).
For the following reasons, United Water continues to believe the treatment proposed in
the SF A is reasonable in this case and the Commission should accept it.
First, pursuant to the SFA and Rule 75 of the Company s Rules and Regulations, as
approved by the Commission, refunds are payable only when customers are connected to the
system and providing revenue to the system. The refund formula is constructed such that revenue
generated from new customers off-sets the revenue requirement needed to serve those customers,
REPLY COMMENTS-
including embedded source, treatment, storage and pumping investments, thus insulated existing
ratepayers from speculative risk and upward rate pressure. The revenue requirement generated
from the new customers in excess of these amounts is then available for refund to the developer
on the advanced plant. Because this is so, the refund formula has a built-in protection and only
enables the developer to receive refunds on advanced plant to the extent that it is supported by
new customer revenue.
Second, on the particular facts of this case, there is sound logic for treating the "on-site
segment as available for refund. As Mr. Wyatt explains in his Direct Testimony:
Q. Please discuss the rational for including the on-site transmission mainline in
advanced plant available for refunds on the Company s books.
A. The A vimor on-site mainline is included in advanced plant available for refunds
because the line is first and foremost a transmission mainline. The line will operate as a
high pressure transmission main with maximum operating pressures in excess of 200 psi
(pounds per square inch). This high pressure is not typical in distribution mains, and this
particular mainline will serve primarily as a source of supply line to A vimor. The
transmission main is not designed for distribution purposes, but as part of an integrated
facility plan to deliver water to and from the Project." (Wyatt, Direct, Pg. 6).
Third, treating supply lines connected to storage reservoirs as advanced plant eligible for
refund is consistent with prior decisions and practice. As Staff Comments concede, the
Commission approved such treatment in cases involving the Hidden Springs and Harris Ranch
developments. See Case No. UWI-97-, Order No. 27762 and Case No. UWI-00-
Order No. 28588. The SF A for the Claremont development project contained similar treatment
of a supply line and reservoir. In this regard, United Water is perplexed by the Staff Comments
assertion that the agreements for Claremont Development and Jayo Construction were never
filed with the Commission and Staff did not have an opportunity to review them. (Staff
Comments, Pg 8). As illustrated by Exhibits Band C, attached hereto, United Water s records
REPLY COMMENTS-
indicate those agreements were in fact submitted and, presumably, reviewed by Staff following
submission. United Water does not have any record indicating objection by Staff.
Finally, of the $4 558 843 advanced plant in the SFA, $2 519,944 is attributed to the on-
site transmission main and $2 038,899 is attributed to the storage and booster. At the estimated
$600 refund per new customer, the A vimor development will need to connect 3 398 new
customers before the advance on the storage and booster would be exhausted, and before any
advance attributable to the transmission main would be available for refund. Given that
Avimor s initial construction phase calls for approximately 700 units, it appears the potential for
refund of any advance related to the main is extremely remote before the expiration of the SF
in 15 years.
CONCLUSION
Based on the reasons and authorities cited herein , United Water respectfully requests:
1. That the Commission approve the expansion of United Water s service area as herein
requested;
2. That the Commission authorize the preparation and filing of an Amended Certificate
No. 143 to include the areas described herein;
3. That the Commission approve the SFA and determine that the Company s investments
made pursuant to the Agreement are prudently incurred and recoverable in a future rate
proceeding; and
4. That the Commission grant such other and further relief as the Commission may
determine proper herein.
2 Because United Water has filed the SPA's for review, Staff's recommendation that United Water be ordered to file
all future agreements is unnecessary.
REPLY COMMENTS-
DATED this ~day of April, 2007.
REPLY COMMENTS-
UNITED WATER ID AH 0 IN C.
Dean J. MIller
McDevitt & Miller LLP
420 West Bannock
Boise, Idaho 83702
P: 208.343.7500
F: 208.336.6912
Attorney for United Water
CERTIFICATE OF SERVICE
I hereby certify that on the Nctay of April , 2007 , I caused to be served, via the
methodes) indicated below , true and correct copies of the foregoing document, upon:
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
O. Box 83720
Boise, ID 83720-0074
ijewell (QJpuc.state.id.
Weldon Stutzman
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702
Bruce Smith
MOORE, SMITH, BUXTON & TURCKE
950 W. Bannock, Suite 520
Boise, ID 83702-5716
John R. Hammond Jr.
BAIT & FISHER
O. Box 1308
Boise, ID 83701
REPLY COMMENTS- 18
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BY:
McDEVITT & MILLER LLP
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United Water Idaho
8248 West Victory Road
O. Box 190420
Boise. Idaho 83719-0420
telephone [phone]
facsimile 208-362-7069
UnitedWater
September 21 , 2005
Mr. Randy Lobb ,
Utilities Division Administrator
Idaho Public Utilities Commission
472 West Washington
Boise, ID 83702
Dear Randy:
According to United Water Idaho s Rules relating to Special Facilities Agreements (SFA),
which contemplate informal review by Commission Staff, I am transmitting herewith an
Agreement with Claremont Realty Company concerning special facilities for the Arrowhead
Canyon and Arrowhead Ridge subdivisions. The following information is offered to assist in
your reView:
Scope of the Arrowhead Project
The Arrowhead Project consists of water facilities to serve residential subdivisions consisting
of approximately 240 lots in the foothills north of Boise. The Project is located northeast of
the Quail Hollow Golf Course and southwest of Cartwright Road. The Special Facilities
Agreement provides for the construction of a 440 000-gallon water storage reservoir (the
Arrowhead Reservoir ), pump stations (identified as "Pump Station 1" and "Pump Station
), the necessary supply line, overflow and drain line, controls and telemetry equipment, and
roadway.
In addition to the water facilities covered in the Special Facilities Agreement, Claremont and
UWID executed standard Residential, Multiple Family Housing, Commercial, Industrial, or
Municipal Development Water Main Extension Agreements for the construction of the water
distribution facilities (mains, valves, services, and fire hydrants) to serve the subdivisions.
ServiceConfieuration
The project presented a number of engineering challenges because the development traversed
three pressure zones within the system. Several approaches were discussed with Claremont
for tlle pumping and storage facility needs of the Project, all of which included extension of
the existing 12-inch main at Medicine Creek and water supplied from the 36th Street booster.
UWID engineering staff ultimately determined that the best approach was to construct a larger
reservoir on the north side of Cartwright Road at the top of the hill at an elevation sufficient to
supply gravity pressure to the uppermost service zone of the Project. This configuration
Mr. Randy Lobb
September 21 2005 UWI-O7-
Exhibit B
Page 1 of 8
www,unitedwater.com
...s
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Page 2
would be most advantageous to existing portions of the UWID system as well as to the
Arrowhead Project. In addition, two pump stations would be needed to lift water to the
reservoir. These pump stations were designed to regulate service pressure to the lots within
their respective pressure zones. The key element ofthis design is that one large re~ervoir
located at the highest point can supply both peak demand and fire protection to the entire
Project and existing UWID customers by gravity.
Cost and Cost Sharinl!
The total cost ofthe water facilities included in the Special Facilities Agreement was
$1,427 023. There is a portion of the cost ofthe Project that UWID funded, which amount is
$390 584.
The rational for cost sharing is based on the fact that the Arrowhead Project facilities provide
improved service, fire protection, and reliability to the previously existing 164 UWID
customers. The calculation ofUWID cost sharing was based upon identification of the
benefits these customers would receive as a result of the new Arrowhead facilities. The most
significant benefit is ITom the water storage reservoir and pump stations. In all cases, foothill
systems that utilize gravity storage are preferred over those served solely ITom booster pumps.
The key advantages are more unifonn pressure, smaller and less complicated pump stations
than a system with no storage, protection ITom temporary interruptions in electrical power, and
the provision of adequate fire protection reserves.
UWID's cost sharing can be summarized as follows:
UWID share of peak demand storage
UWID share of fire protection storage
UWID share in land cost
Oversizing cost of Pump Station #1
Oversizing cost of Pump Station #2
Avoided cost of auxiliary power
Negotiated settlement amount
Total UWID cost sharing amount
$171 820
$103 131
$ 7 600
$ 11 687
$ 15 068
$ 52 000
$ 29.278
$390.584
The cost sharing rational for each component is discussed below.
Storaee Capacity
Storage capacity is determined ITom two factors, peak hour supply and flIe protection reserve.
Peak hour supply or peaking volume is determined by calculating the volume, ohvater that
exceeds the average demand on maximum day. With this in mind, during maximum demand
the pumps that supply the system operate at the normal rate while the peak demands are fed
ITom storage. During lower demand periods, when the normal pumping rate exceeds the
Mr. Randy Lobb
September 21 , 2005 UWI-W-Q7-
Exhibit B
Page 2 of 8
Page 3
customer demands, the volume used for peaking is replenished in storage. Historically the
volume for peaking is approximately 20% of the maximum day demand.
Peakin2 CaDacitv Calculation
Customers to be st;;rved:
UWID existing customers
Proposed Arrowhead customers
Total customers
164
240
404
Average maximum day demand is approximately 3 200 gallons per customer. Therefore, the
total water usage on maximum day is projected at 404 x 3 200 = 1 292 800 or about 1 300 000
gallons. Peaking storage is then estimated at 20% of maximum day demand resulting in a
peaking storage total of 1 300 000 x 20% = 260 000 gallons.
Fire protection reserve is detennined by multiplying the fire flow rate of 1 500 gpm by the
required duration of two hours, resulting in 180 000 gallons of fire protection volume
required. Thus the total reservoir volume becomes 260 000 + 180 000 = 440 000 gallons
which is the size of the Arrowhead reservoir.
The total cost of the Arrowhead reservoir is $720 433, thus the unit cost per gallon becomes
$720,433/440 000 = $1.637 per gallon.
The UWID portion of the peaking volume is 164 customers x 3,200 gallons x 20% = 104 960
gallons.
At $1.637 per gallon, the UWID cost portion is 104 960 x $1.637 = $171 820.
The existing Quail/Medicine Creek customers previously had no storage facilities and
depended exclusively on the 36th Street booster for all water service needs. The CartwrightlEl
Pelar customers had storage water available, but the existing Cartwright water tank (capacity
of 150 000 gal.) was too small to provide both peak hour demands and the fire protection
reserve. The Arrowhead reservoir provides both peaking and the reserve for fire protection
and allows the retirement of the undersized Cartwright tank. Inclusion of the EI Pelar system
also benefits both El Pelar and Arrowhead as it strengthens both with independent alternative
sources of supply, the Cartwright booster and the 36th Street booster.
Fire Protection CaDacitv Calculation
As previously mentioned, there were two groups comprising 164 existing UWID customers:
the 141 CartwrightJEI Pelar customers served by the Cartwright reservoir and booster and the
23 Quail HollowlMedicine Creek customers served by the 36th Street booster. The 36th Street
booster had the capacity to provide fire protection, but the Cartwright system did not.
Mr. Randy Lobb
September 21 , 2005 UWI-O7-
Exhibit B
Page3of8
Page 4
The Cartwright storage tank did not meet CUITent requirements for fire protection plus
maximum day demand conditions. Based on the maximum day demand estimates for the 141
customers, peaking storage requirements are approximately 141 x 3 200 x 20% = 90 200
gallons. The full capacity of the Cartwright tank is 150,000 gallons. Therefore, th~ peaking
capacity demands reduce the available fire protection reserve to 59 800 gallons of the 180 000
. gallons required. The expansion of the Cartwright storage capacity by 120 000 gallons would
cost approximately $196 000 at Arrowhead reservoir unit costs.
The 141 customers on the Cartwright side of the system constitute 35% of the tota1404
customers to be served by the Arrowhead facilities. At a unit cost of$1.637 x 180 000 gallons
required for fire protection = $294 660 for the cost of the fire protection component. Applying
the 35% factor against this amount results in UWID's proportionate share for the fire
protection reserve of $1 03 131. This lower cost was the basis of UWID' s decision to retire the
Cartwright tank and to participate in the costs of oversizing the Arrowhead reservoir as its
replacement.
Thus, the total UWID participation for the storage tank becomes:Peaking storage $171 820
Fire protection - Cartwright side $103.131
Total $274.951
Land Cost Determination
The total estimated land value of$19 000 for the reservoir and associated pipeline easements
was a negotiated value discussed between the parties. The developer was unable to provide an
historical basis for the land since it was owned for a long time. The 404 total customers are
made up of Arrowhead at 240 and UWID's existing 164. This results in a 60/40 split
respectively. This value was carried forward in the calculations with UWID being attributed
40% of this amount or $7,600.
Oversizin!! Cost of the Two Pumn Stations
The pump stations include two 450-gpm pumps, together with one 900-gpm pump, at each
station. If the Arrowhead system were constructed without UWID's customer involvement
these pumps would have been sized smaller with two 270-gpm pumps and one 540-gpm pump
at each station. In addition, the clear well capacities would have been reduced proportionately
ITom the current 20' wide x 20' long x 10' high to 12' wide x 20' long x 10' high. The table
below summarizes the cost differences between these capacities.
Total System Arrowhead Only Difference
Pump Station 1:
Pump 1 & Motor
Pump 2 & Motor
$8,266
053
016
946
$1,250
107
Mr. Randy Lobb
September 21 , 2005 UWI-W-O7-
Exhibit B
Page4of8
Page 5
Pump 3 & Motor 053 946 107
$22 372 $18 908 464
Pump 1 VFD $3,422 512 $ 910
Pump 2 VFD 248 833 415
Pump 3 VFD 833 415
918 $6,178 740
The reduction in size for the clear well, as discussed above, is eight feet in width. At $350 per
cubic yard for one-foot thick reinforced concrete, the resultant cost reduction becomes:
Clear well cost difference:
(8xl0xl + 8xlOxi + 8x20xl+8x20xl)/27 x $350
(80+80+160+160)/27 x $350
17.78 x $350 = $6 223
Pump Station 1 Cost Difference: ($3 464 + $1 740) x 1.05 sales tax + 6 223 = $11 687
Total System Arrowhead Only Difference
Pump Station 2:
Pump 1 & Motor $ 9 929 $ 7 806 123
Pump 2 & Motor 319 201 118
Pump 3 & Motor 319 1.1 18
$26 567 $22,208 359
Pump 1 VFD $ 6 061 $3,422 639
Pump 2 VFD 961 248 713
Pump 3 VFD 961 248 713
$11 983 918 065
Clear well cost difference: Same as for Clear well 1 above at $6 223
Pump Station 2 Cost Difference:
($4 359 + $4 065) x 1.05 sales tax + $6 223 = $15 068
Total UWID Oversizing Pump Station 1 and Pump Station 2 is:
$11 687 + $15 068 = $26 755
A voided Cost of Auxiliary Power
Current UWID design standards require that new foothill systems provide gravity storage to
ensure continuous water service in the event of an interruption in the electrical power supply.
Mr. Randy Lobb
September 21 , 2005
UWI-O7-
Exhibit B
Page5of8
. -
Page 6
If gravity storage cannot be provided, then an auxiliary power supply is required. The water
system supplied by the 36th Street booster, serving Medicine Creek and Quail Hollow Golf
Clubhouse facilities and several individual homes, was constructed prior to this design
standard' and without gravity storage or auxiliary power. Hence, UWID faced the ultimate
responsibility and cost to upgrade this section of the system with auxiliary power. However
inter-tying the 36th Street system with Arrowhead provides the gravity storage capacity and
eliminates the need to install an auxiliary power supply.
The avoided cost of the auxiliary power supply is estimated to be $52 000 as follows:
Auxiliary generator
Sales tax r&
Installation
Const. om r&
Total
$43,600
180
000
220
$52.000
Neeotiated Settlement Amount
The Special Facilities Agreement for the Project was entered into after all physical
construction of the Proj ect was completed and all costs were known. After construction
UWID and Claremont representatives met in an attempt to finalize the Agreement. The
parties had significantly different opinions on the issue of cost sharing and in fact were quite
far apart in the amount of money each believed that UWID should contribute to the Project.
quickly became apparent that the only solution short oflitigation was going to be a negotiated
settlement. Ultimately, an anTIs-length settlement was reached by which UWID would
contribute the $390,584 amount to the Project according to the justifications provided
previously. The $29 278 amount is the excess contribution over what can be directly
calculated from the new facilities providing service to UWID's existing 164 customers. It is
'(TWID's opinion that this negotiated settlement amount is quHe small compared to the
significant improvements in service to customers the Project affords, and is also small in
comparison to the costs that might have been incurred by UWID if no agreement was reached
and litigation had ensued.
Benefits to Existin5! Customers
As previously stated, the most significant benefit is from the water storage reservoir. In all
cases, foothill systems that include gravity storage are preferred over those served solely from
booster pumps. The key advantages are more uniform pressure, smaller and less complicated
pump stations than a system with no storage, protection from temporary interruptions in
electrical power, and the provision of adequate fire protection reserves.
The existing UWID customers also now enjoy a significant improvement in the level of
reliability which was previously unavailable to them. In particular, the El Pelar/Cartwright
customers now have adequate fire protection.
Mr. Randy Lobb
September 21 , 2005 UWI-W-o7-
Exhibit B
Page6of8
. -
Page 7
In addition, all the existing customers now enjoy the benefit of an alternate source of supply
that previously did not exist, that being the Arrowhead reservoir and the potential of water
supply from "either end" since the Arrowhead system tied together the QuaillMedicine Creek
system and the El Pelar/Cartwright system. The investments in the two pump stations now
enable supply to be provided to both systems.
Arrowhead SFA Contrasted with Quail Rid2e SFA
UWID's most recent other SF A is with Capital Development with respect to the Quail Ridge
Subdivision project. The Arrowhead SF A is different nom the Quail Ridge Agreement in four
significant areas as follows:
1. The Arrowhead Agreement is written from the perspective of the construction having
already taken place and in fact was created and has been executed after physical
construction ofthe facilities was completed.
2. The amount ofUWID participation in the project, which has been discussed previously.
3. The specifics of the refund calculation as shown on Exhibit C to the SF A. Items worth
noting are: All OpEx data has been updated to reflect 2004 actual. Revenue estimates are
based on rates in effect as of the date of the agreement. Cost of capital figures are based
on the numbers stipulated to with Staff in UWID's current case since they were known at
the time of the agreement. The calculation of backbone plant which revenue must support
is updated to consider depreciation. Exhibit C results in a higher refund in each usage
column than previous SF As largely due to these updates.
4. There is a change to the amount of refund that UWID initially proposes to pay the
developer as new customers are connected. The Quail Ridge Agreement calls for UWID
to pay 90% ofthe anticipated total refund amount to the developer as each new customer
connection occurs. In the Claremont Agreement, this initial refund amount has been
reduced to 80% ofthe anticipated total refund at the time of connection to the system
because experience with the final adjustments to refunds on the Quail Ridge Agreement
has shown that the 90% amount was slightly higher than the total ultimate refund required
based on actual revenues received nom customers, The initial portion ofthe refund is
lowered to 80% in the Claremont Agreement in order to reduce UWID's risk of refunding
more than is required. This more conservative initial refund also reduces the risk that
UWID will have to request any previously refunded amounts be paid back by the
developer.
Circumstances Re2ardin2 Delay in the SFA
The circumstances leading to the Claremont SF A being executed after physical construction
was completed are as follows; Representatives from Claremont initially contacted UWID
regarding their proposed 240-lot project in the spring of 2000. As previously mentioned
Mr. Randy Lobb
September 21 , 2005
UWI-O7-
Exhibit B
Page 7 of 8
Page 8
various approaches for providing service to the Project were discussed. By mid-2001 the
project construction had begun and the facilities were completed and in service on or about
July 31, 2002. All the while during design discussions and construction, UWID' engineering
was in discussions with Claremont about the particulars of the SF A. Both parties nave worked
together on various projects in the past and had developed a level of comfort and
understanding based on a sound working relationship from previous projects. The parties thus
established a verbal agreement to proceed with the Project under an atmosphere of "trust" with
regard to the eventual execution of the SFA. Both Claremont and UWID had interest in the
project moving forward so as to provide service to Claremont's future subdivisions and to
improve service to UWID's existing customers. In the fall of2002, the principal for
Claremont was involved in a serious snowmobiling accident that kept him unavailable for
meetings for almost six months. In January 2003 , UWID's lead engineer on the Project was
diagnosed with cancer and was virtually unavailable for the entire year as he underwent
treatments and recovery.
The parties did conduct some negotiation meetings toward establishing the SF A during 2003,
but progress was slowed by the aforementioned difficulties. Negotiations were able to resume
in earnest in January 2004; and by May, the parties reached agreement on cost sharing as well
as on many language issues in the SF A itself. It was not until July 2005 that the Claremont
Board gave final approval on the Agreement.
After you review this infonnation, please let me know if you have further questions or require
any additional information.
Respectful~t~~
, ~
~~an
cc:J. Miller, Attorney
D. Brown
M. Gennari
Arrowhead File
Attachment: Claremont Special Facilities Agreement
UWI-O7-
Exhibit B
Page 8 of 8
Co!
/.,J(A
McDevitt & Miller LLP
Lawyers
[phone]
[phone] (Fax)
420 W. Bannock Street
O. Box 2564-83701
Boise, Idaho 83702 Chas. F. McDevitt
Dean 1. (Joe) Miller
March 24, 2006
Via Hand Delivery
Ms. Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington Street
O. Box 83720
Boise, Idaho 83702
..,_..
ro,o.
-- ,;-'" ,..,
Re: Case No. UWI,W,OS,O5 Jayo Construction v. United Water
..--'-',--'
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Dear Ms. Jewell:
In the above matter the parties reached a negotiated settlement agreement which led to
the filing of a Withdrawal of Complaint onJapuary 26 2006. Pursuant to the settlement
agreement the parties agreed to negotiate and submit for review by Staff a Special Facilities
Agreement.
Enclosed herewith for Staff review is the executed Special Facilities Agreement.
I would appreciate being advised when Staff has completed its review.
Very Truly Yours
~\\W::~iller
DJMllcC: Greg Wyatt, United Water Idaho
Molly O'Leary, Esquire
EXHIBIT C