20110301Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
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Street Address for Express Mail:
472 WWASHINGTON
BOISE ID 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
UNITED WATER IDAHO INC. AND THE CITY )
OF EAGLE FOR APPROVAL OF AN )
INTERCONNECTION AGREEMENT )
)
)
CASE NO. UWI-W-ll-Ol
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through
its Attorney of record, Weldon B. Stutzman, Deputy Attorney General, and in response to
the Notice of Application and Notice of Modified Procedure issued in Order No. 32175 on February
8, 2011, submits the following comments.
BACKGROUND
On January 28, 2011, United Water Idaho Inc. and the City of Eagle, Idaho, filed an
Application requesting Commission approval of an agreement between the paries to control
interconnection of facilities and the potential exchange of water under emergency conditions. The
two water systems currently are connected to each other by a pressure regulating valve and vault
owned by the City that is configured to allow water to flow from United Water to the City. The
existing interconnection is governed by an agreement between the parties executed in 1997. The
new agreement provides for facilities modifications to enable water to flow both ways between the
two systems. The agreement provides that each pary wil own the facilities on its side of the
STAFF COMMENTS 1 MARCH 1,2011
interconnection. The paries estimate that United Water's share of the cost to upgrade the system
wil be $14,496 and that the City of Eagle's share wil be $5,499.
The agreement provides that the pary receiving water wil notify the supplying party within
four hours as to the nature and expected duration of the emergency, and the anticipated volumes of
water required. When United Water sells supply to the City under the agreement, United Water wil
receive payment at the full tariff volumetric rate and not at a discount. Likewise, when the City
sells supply to United Water, it wil receive payment at Eagle's then existing published volumetric
rate.
Interconnection Facilty
The existing interconnection facilty being considered in this case, which is owned by the
City of Eagle, is located along the Floating Feather Road about 200 yards west of Highway 55. The
interconnection facilty is called the Trail Creek PRV, also referred to as the Lexington Hils PRV.
The facilty has an 8-inch pressure regulating valve (Cal-Val 90-01) which is connected to an 8-inch
diameter water supply line owned by United Water, and to an 8-inch diameter water line on the
receiving end owned by the City. The City of Eagle has two physically independent water systems;
the Eastern Zone and the Western Zone. The interconnection project was installed by the City in
1997 between United Water and the City's Eastern Zone water system. It was originally planed
that a 6-inch master meter would be installed at the point of interconnection and to be paid for by
United Water. The installation of the meter would permit United Water to bil the City based on
recorded usage. Order No. 27921, page 2. However, Staffhas leared that the plan to install a
water meter was never completed and the interconnection system operated without taking actual
measurements of water delivered to the City. As noted earlier, the proposed Interconnection
Agreement calls for the installation of an 8-inch electromagnetic flow meter. The interconnection
of facilties is controlled by the pressure regulating valve, thus a pressure drop wil initiate the flow
of water from one system to the other.
United Water also apprised Staff that there is an additional interconnection farther west
along Floating Feather Road that was also installed in 2005 at the City of Eagle's request for the
Eagle's Brookwood Subdivision. This additional interconnection was considered by both paries to
fall within the original agreement. Furthermore, the Company explained that if the proposed
Interconnection Agreement is approved by the Commission, the Brookwood Interconnection wil be
discontinued and valved off.
STAFF COMMENTS 2 MARCH 1,2011
STAFF ANALYSIS
Staff believes that several issues should be addressed by the Commission in deciding
whether to approve the proposed Agreement: (a) assurance that the customers of United Water wil
not be harmed with fluctuations of flow and pressure in the water system; (b ) the abilty of United
Water to provide adequate flows for fire protection to its existing customers should not be
jeopardized or diminished as result of its agreement to provide emergency flows to the City; (c)
existing customers of United Water wil not subsidize the customers of the City under the
Agreement; (d) appropriateness of using Schedule I rates for charging the City; (e) necessity of
United Water having the abilty to purchase water from the City; and (f) quality of water purchased
from the City should not degrade the quality of water currently being used by United Water
customers in the general area of interconnection.
Systems Adequacy and Protection of Existing Customer
In Case No. UWI-W-97-04 when United Water filed application for Commission approval
of the existing Agreement, Staff addressed similar issues noted in Items (a) and (b) above. Staff
reviewed these same issues in the curent Application since the UWI water system configurations
and capabilties may have changed since 1997 when the existing Agreement was approved by the
Commission.
The new Agreement calls for the modification of the interconnection facilities so as to
provide a source of water supply to each party during periods of pressure loss. Application at 2.
The sale and purchase of water supplies will only occur as the result of a scheduled or unexpected
event, temporary in nature and not to be used on a regular basis. Section 2.2, Exhibit A of
Application. United Water furher explained to Staff that the conditions that would constitute
emergency include fire suppressions, significant pipe breaks, unexpected pump shutdowns and
scheduled maintenance of large facilties (i.e. pumping plants, reservoirs).
Section 2.6.b. of the proposed agreement establishes that during such a situation, the
maximum instantaneous supply to be provided by United Water to the City is 1,500 gpm and a
maximum supply of 1.44 milion gallons per day (MOD). Similarly, the City is to provide United
Water a maximum instantaneous flow of 825 gpm and a maximum daily supply of 1.1 MGD. Staff
raised concerns about United Water's current pumping facilities' ability to adequately handle the
requested water supply by the City during an emergency situation without jeopardizing the needs of
STAFF COMMENTS 3 MARCH 1,2011
United Water's customers (i.e. flow and pressure). United Water has assured Staff that its water
supply system would be able to handle the target limits of flow and volume as noted above under
normal operating conditions. United Water confirmed that it conducted hydraulic studies to identify
the limits on how much instantaneous flow and daily volume it can provide to the City as cited in
Section 2.6.b of the proposed agreement. Staff believes that United Water customers wil not be
hared under these conditions, and furthermore, United Water is not obligated to provide water to
the City if the system canot handle the requested water supply (i.e. when United Water is also
requiring heavy water demand or dealing with its own emergency at that time). Staff also believes
that the probabilty of demand or need at the same time for both water systems is very unlikely.
Needfor Receiving Emergency Water Supply
United Water claims that each party wil have access to supplies of water in the event of
emergency or other problems occuring on either party's water system, thereby ensuring continuous
and reliable service for their customers. In addition, the Agreement provides a least cost
redundancy solution for both parties, when compared to the cost each party would incur to construct
its own facilties. Application at 3. Staff raised the issue of whether United Water is capable of
providing the extra flow of 825 gpm and the volume of 1.1 MGD) from its existing system for its
own customers. United Water assured Staff that these flow rates and volumes can be provided
during normal operating conditions. However, during an emergency situation where huge
unexpected amount of flow and volumes are needed due to pump shutdown or pipe breakage, water
from other sources such as the City would provide continued service to United Water customers.
Staff concurs that modifying the interconnection system to allow United Water to obtain water from
the City during emergencies would be beneficial to its customers because of additional redundancy
to water supply. Staff also believes that this is a cheaper alternative of providing that extra
protection for continuous and reliable water service to United Water customers. Driling a new well
and installng a deep well pump to provide an equivalent capacity of 825 gpm to be used during an
emergency would be a very capital extensive proposition.
1 Maximum amount oftlow rate and volume to be delivered by the City as cited in Article 2.6.b of the proposed
Agreement.
STAFF COMMENTS 4 MARCH 1,2011
Total Cost of Intertie and Allocation of Cost
The Company provides a preliminary estimate of$19,995 for the total cost of modifying the
intertie project. Out of this total project cost, $14,496 (72.5%) is allocated to United Water and
$5,499 (27.5%) of the cost is allocated to the City. Essentially the constrction costs of project
elements where they involve accommodating flow from the City to the United Water system (i.e.
piping modification, PRV/Rate Flow Combo) are allocated 100% to United Water. Those project
elements that serve the party equally (i.e. 8-inch electro-magnetic flow meter, data logger,
transducer, etc.) are split equally between the Company and the City. Staff reviewed the costs
allocation of the intertie and considers it reasonable and appropriate.
United Water is investing approximately $14,496 for the modification of the interconnection
facilty. Since all the components of the proposed intertie modification are necessar to permit
delivery of emergency water supply from the City of Eagle to the United Water system, Staff
believes that this cost can be fully and appropriately allocated to the need of purchasing emergency
water from the City. This capital investment would be comparable to an alternative of building
another facilty to provide emergency water for United Water such as driling a well or increasing
the size of an existing storage facilty. Staff believes this cost should be treated as a charge to
normal plant account for Transmission, Distribution Mains and Accessories to be included in the
Company's rate base. Because most United Water customers within the United Water's pressure
zone where the interconnection is located will benefit from the interconnection facility to provide
access to extra water when the Company's system experiences emergency situations, Staff believes
it is appropriate for all United Water's customers to pay for the modification of the interconnection
facility when the costs are put in rate base.
Charges for Water Sold
The Company proposes that when it provides water supplies to the City, United Water wil
receive payment at full tariff volumetric rate, not a discount. Application at 3. For biling purposes,
the interconnection meter will be read by the supplying pary in accordance with its regular meter
reading schedule. Each pary wil bil the other in arrears for volumes delivered to the other through
the Interconnection period. Section 2.5 of the proposed Agreement. The rate for service supplied
under this Agreement by United Water wil be the Volume Charge set forth in United Water's
Schedule 1, General Metered Service, as the same now exists or may hereafter amended. No
STAFF COMMENTS 5 MARCH 1,2011
"customer", "service", "fixed", franchise" or "IDEQ" fees or charges of any type wil be applicable
for biling puroses by either party. ¡d.
In Commission Order No. 27121, the Commission approved the 1997 Agreement to use
United Water's Schedule 1 rates based on recorded usage as recommended by Staff. Staffhas
learned, however, that Schedule 1 was never used in charging the City for the usage of water. Staff
was informed that instead of using the Schedule 1 rate, United Water used Schedule No.3, Private
Fire Sprinkler and Service using the rate for an 8-inch service line. The Company further informed
Staff that this biling rate was used through an informal agreement with the City without formally
modifying their Agreement.
Curently, United Water does not have any rate schedule for wholesale rates of water and
proposes to use the current Schedule 1 rate. A copy of Schedule 1 tariff currently in effect is
attached as Attachment A. Schedule 1 is a tariff that applies to nearly all customers of United
Water, both residential and commercial, for general metered service. Schedule 1 includes a
customer charge component based on meter size and a volumetric charge for actual customer usage
with winter rates and summer rates. The Schedule 1 rates now in effect were established in United
Water's last rate case which concluded in 2010.
As proposed, the City wil be considered as a single customer with an 8-inch meter. For a
regular United Water residential or commercial customer falling under Schedule 1, such customer is
normally biled with a customer charge. However, in the proposed Agreement, there wil be no
customer charge applied to the City. Only a volumetric charge wil be applied to the actual volume
of emergency water delivered to the City without discount.
Staff does not oppose United Water's proposal to use the Schedule 1, volumetric charge
only, because as noted above, no additional capital cost is invested by United Water to supply
emergency water to the City. Second, the City is not a regular customer requiring regular delivery
of water and as such it may not be appropriate to apply the customer charges under the Schedule 1
rate. Based on the historical delivery of emergency water to the City, as shown in the table later in
the Staff Comments, there are some years when the City did not have an emergency situation
requiring United Water to deliver water to the City. For example, from 2005 to 2010, actual
deliveries only took place in 2006 and 2007. Third, the actual cost of providing water to the city is
unown at this time. The cost of water that would be provided to the city includes varable costs
and fixed costs. The variable costs generally include electric cost due to pumping, water treatment
and other non-fixed costs. In 2008, the variable cost of United Water is about 14% and the fixed
STAFF COMMENTS 6 MARCH 1,2011
cost is about 86%.i However, its total revenue is about 74% of the variable or volumetric charges,
which includes both variable cost and some fixed cost. By applying the volumetric charge to the
City, it appears that some of the fixed costs are already embedded in the variable or commodity
charges. Fourh, the City of Eagle wil not be charging the United Water customer charge when
water is sold to the Company. Staff believes that it is a reasonable compromise not to apply the
"customer", "service", "fixed", "franchise" or "DEQ" fees for biling either pary during the
exchanges of water (buying and sellng) between United Water and the City. Most of these
components would cancel out such as the DEQ fees and other "fixed costs". For example, United
Water charges its customers DEQ fees and similarly, under the City's current tariff, it also charges
its customers DEQ fees. Finally, it wil be a simpler biling process to administer if fixed charges
are not included in the selling and buying of water.
Staff also investigated other options including the use of Schedule 3, Private Fire Sprinker
and Service, which is now currently being used in the existing Agreement, and developing a new
Rate Schedule for wholesale rates. Staff believes it is not appropriate to use Schedule 3 under the
proposed agreement because sale of water to the City of Eagle will not be limited to fire
suppressions but will also apply to other emergency purposes such significant pipe breaks,
unexpected pump shutdowns, and scheduled maintenance of large facilties (i.e. pumping plants,
reservoirs).
United Water provided Staff the estimated volume and actual revenue collected from 2005
to 2010 as presented in the following tabulation:
Year Volume Sold Revenues'
2005 o gallons $2,869
2006 1,474,000 gals.$3,291
2007 5,750,000 gals.$3,530
2008 o gallons $3,530
2009 o gallons $3,530
2010 o gallons $3,782
Total $20,532
22008 Actual Cost, United Water Presentation to ¡PUC Staff, January 20, 2011.
3 Actual revenues using Schedule 3, Private Fire Sprinkler and Service applicable during the time of service.
STAFF COMMENTS 7 MARCH 1,2011
The actual revenues shown in the above table were generated in biling the City using
Schedule 3 rates applicable during the actual time of sale for the 12-inch meter and 8-inch meter at
Trail Creek PRV and Brookwood interconnections, respectively. The total bil also included the
DEQ fees and applicable municipal franchise fees. Schedule 3 rates are flat fees per month for
specific meter size and does not include volumetric charge.
With the above historical data and for comparative puroses, applying a volumetric rate4
using the total volume of water sold in each year using Schedule 1 rates applicable durng the time
of sale, the estimated revenue is shown in the following tabulation:
Year Volume Sold Revenues
2005 o gallons 0
2006 1,474,000 gals.$2,684
2007 5,750,000 gals.$10,474
2008 o gallons 0
2009 o gallons 0
2010 o gallons 0
Total $13,158
As shown in the above tables, if an actual sale of water to the City occurs and the volume
delivered is quite significant, it is more preferred and advantageous to charge using volumetric rates
under Schedule 1 rather than using the Schedule 3 rates. The total revenue for the last six years is
more, however, if the Schedule 3 were used. Because the delivery of water supply under the new
Agreement is not just for fire protection, it is reasonable to assume that water delivery would be
more frequent and at higher volume.
Charges for Water Received
As discussed previously, the proposed agreement provides that the City of Eagle shall use
the Consumption Rate set forth in City of Eagle Resolution 08-33 as it exists now or may be
amended later. This Consumption Rate is applicable to all active water customers of the City which
consists of base rate, the water safety fee, the system enhancement fee and the volume charge. As
indicated in the proposed Agreement, no "customer", "service", "fixed", "franchise" or "DEQ" fees
4 Schedule i for United Water currently in effect.
5 Assumes Y2 of total volume is delivered during summer and Y2 is delivered in winter season.
STAFF COMMENTS 8 MARCH 1,2011
or charges of any type shall be applicable for billng puroses by either part. For biling puroses,
only volume charge wil be applied to the actual volume of water sold to United Water. A copy of
City of Eagle Resolution 08-33 curently in effect is attched as Attachment B. Staff reviewed the
City's tariff under Resolution 08-33, and believes that the volumetric rate to be applied for all
emergency water purchases by United Water under the agreement is fair and reasonable.
Water Quality Issues
Section 2.6 (a) of the proposed agreement states "Each party shall use its best efforts to
ensure that the Supplies furnished hereunder shall be potable and in compliance with all applicable
federal and State of Idaho laws and regulations in effect at the time the Supplies are delivered to the
other pary (collectively, the "Water Quality Laws"). Neither pary shall be responsible for the
quality of water beyond the point of delivery to the other part's systems." The City of Eagle and
United Water's systems are public drinking water systems regulated by the EPA and the Idaho
Department of Environmental Quality for compliance with specific water quality standards. Staff
believes that Section 2.6 (a) of the proposed agreement provides protection for the customers of
United Water and the City, as long as both parties comply with the water quality standards. Staff
reviewed United Water's 2010 Anual Water Quality Report and the City of Eagle's 2009
Consumer Confidence Report, and each report indicates that no water quality violations have
occurred in their systems durng the reporting period.
Staff asked United Water if there is a plan to monitor water quality during delivery of water
to the Company's water system and leared that no monitoring plan is contemplated, although it
could be done, if necessary. Request for emergency water supply and activation of the
interconnection system could happen at any time. Staff recommends that the Company regularly
observe or review available water quality reports produced by the City of Eagle and be aware when
problems arise concerning water quality (e.g. not meeting a standard for specific contaminant
regulated by IDEQ or presence of microbial contaminants). When water is delivered to the
Company's distribution system at the interconnection point and water quality appears to be an issue,
United Water should implement appropriate actions to ensure protection for the Company's
customers.
Some inorganic secondary water contaminants such as iron and manganese are not
considered health hazards and are not regulated by EPA and IDEQ. However these contaminants
can cause offensive tastes, appearance and staining resulting in complaints from customers. Staff is
STAFF COMMENTS 9 MARCH 1,2011
concerned about this issue and asked the Company how it would ensure that water purchased from
the City of Eagle would be of comparable quality with United Water's water supply in the general
area regarding these secondar contaminants. United Water regularly monitors and tests its water
for manganese, iron and other secondar drinking water contaminants that would affect the
aesthetic quality of water. The Company publishes the results of water quality tests in its Anual
Water Quality Report. Test results reported in the 2010 Water Quality Report indicate that, on a
system average, the secondary contaminants tested which included manganese and iron meet the
guidelines set by the EPA and IDEQ. Staff notes that the Secondary drinking water standards
promulgated by EPA and IDEQ are recommendations only, not mandates.
The City of Eagle, however, does not regularly monitor these secondary contaminants and
test results of these contaminants were not published in its 2009 Water Quality Report. Staff
checked with the Idaho Deparment of Environmental Quality for some available data and found
that test reports fied at IDEQ in 2004 and 2007 which included testing some secondary
contaminants, show from non-detectable level to 0.3 mg/L for iron and non-detectable level for
manganese. These test results are below the guidelines set by the EPA and IDEQ.
Staff believes that in general, the quality of water from the City of Eagle is of comparable
quality with United Water and that customers of the Company wil not be hared in terms of
reduced water quality with this agreement.
STAFF RECOMMENDATIONS
Staff recommends that the proposed Agreement between United Water and the City of Eagle
be approved by the Commission. However, while Staff recommends that United Water apply the
volumetric charge under Schedule 1 rate without charging fixed cost under the proposed
Agreement, this should not be used as precedent in the future for similar cases.
Respectfully submitted this i~day of March 2011.
Q~Weldon . Stutzman
Deputy Attorney General
umisc:commentsluwiwl I.wsgdg comments
STAFF COMMENTS 10 MARCH 1,2011
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 1ST DAY OF MARCH 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. UWI-W-II-0L, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
DEAN J MILLER
CHAS F McDEVITT
McDEVITT & MILLER LLP
PO BOX 2564
BOISE ID 83701
E-MAIL: joecmmcdevitt-miler.com
SUSAN E BUXTON
MOORE SMITH BUXTON ET AL
950 W BANNOCK STE 520
BOISE ID 83702
E-MAIL: sebcmmsbtlaw.com
,bF
SECRETAR
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