27690.docx

(text box: 1)BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF UNITED WATER IDAHO INC. FOR AUTHORITY TO REVISE AND INCREASE RATES CHARGED FOR WATER SERVICE.
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CASE NO. UWI-W-97-6
ORDER NO. 27690
On July 6, 1998, the Idaho Public Utilities Commission (Commission) issued final Order No. 27617 in United Water Idaho Inc. (United Water; Company) Case No. UWI-W-97-6 authorizing a 7.15% increase in rates and charges on a calculated revenue deficiency of $1,581,989.  By Order No. 27630 issued July 14, 1998, the Commission correcting a computational error in response to a July 8, 1998, United Water Petition for Reconsideration increased the calculated revenue deficiency by $333,964 (from $1,581,989 to $1,915,953) and related change in rates and charges from 7.15% to 8.66%.  The Company reserved the right to file a further Petition for Reconsideration within the allowed statutory time frame.  The Commission adopted the Company proposal that it be permitted to file tariffs to collect the corrected revenue requirement, subject to refund and pending the Commission’s final Order on Reconsideration in this case.
On July 27, 1998, the Company filed a further Petition in Case No. UWI-W-97-6 requesting additional reconsideration of the Commission’s Order No. 27617.  Specifically, the Company requests reconsideration of the following two issues:
1.  Northwest Pipeline, Floating Feather Well (Order No. 27617, pp. 10-12; 13-14).
2.  Amortization of Boise River intake (Order No. 27617, pp. 18-20).
The Commission has reviewed and considered the Petitions for Reconsideration filed by United Water Idaho Inc. in Case No. UWI-W-97-6.  The Commission has also reviewed and considered its prior Order Nos. 27617 and 27630 and the underlying record and transcript of proceedings.
Re: UWI July 8, 1998, Petition for Reconsideration
We continue to find the revenue adjustment made in Order No. 27630 in response to a July 8, 1998, Company Petition for Reconsideration seeking correction of a computational error to be appropriate.  We thank the Company for bringing the matter to our attention and we find it reasonable to affirm our decision in this our final Order on reconsideration.
Re: UWI July 27, 1998, Petition for Reconsideration
The Company has requested reconsideration of our decision in Order No. 27617 regarding two additional matters: (1) Northwest Pipeline, Floating Feather Well and (2) amortization of Boise River intake.  We discuss them separately.
1.  Northwest Pipeline, Floating Feather Well
As represented by the Company, in Order No. 27617 the Commission denied United Water’s request to earn a return on the Company’s investment of $940,000 in transmission main facilities known as the “Northwest Pipeline” and the Company’s net investment of $357,670 in an associated source of supply known as the “Floating Feather Well.”  
The Commission made the following specific findings regarding the Northwest Pipeline:
The Company has failed to persuasively demonstrate that its decision to construct a pipeline was for its customers a prudent decision, that it was the best economic and planning alternative available to it or that it was even needed at this time.  It is undisputed that by completing the pipeline the Company is able to transport surplus water from the Eagle area to Hidden Hollow Reservoir; that its ability to do so provides it with an additional resource to reduce or mitigate capacity deficiencies in the main service level; that it provides a benefit to customers outside the Eagle area; and that it is otherwise “used and useful.”  It is also undisputed that the Floating Feather well waters will provide the Company with a supply of high quality water for its main service level, water without elevated levels of iron and/or manganese.
Despite the foregoing findings, our decision in this matter is directed by the Company’s failure to avail itself of what we find to be other, more economic alternatives.  We refer of course to the Company’s decision to forego contractual rights in its Garden City supply contract; to  forego the use during critical periods of peak demand of its Swift No. 1 well; to ignore the additional main service level well capacity brought on line since 1997, capacity additions which most certainly had to have been planned; to forego the full utilization of water transport capability between service levels; to fully recognize that the main service level supply deficiency would be mitigated to a large degree by the planned 1999 Marden expansion; to forego the planned use of demand conservation measures (e.g., alternate day sprinkling) to bridge what can be reasonably perceived to be a short-term supply deficiency.
Although the Commission will not allow the investment to be rate based at this time, we will allow the Company to recover amortization of its investment in recognition that it is used.  Embedded in the Company’s case is $18,800 of depreciation expense that we will allow to remain for this purpose.
Order No. 27617, pp. 10-12.
United Water requests that this issue be reconsidered by evidentiary hearing and proposes to present “additional evidence” of post-hearing facts, events and operational decisions which the Company contends will demonstrate the need for the disallowed investments.
United Water represents that this summer it has experienced a sustained peak in demand, not merely a single day peak.  The use of alternate day sprinkling, although encouraged by the Commission as an example of a demand conservation measure to bridge what the Commission noted in Order No. 27617 could reasonbly be perceived to be a short-term supply deficiency, the Company contends, would have been inadequate to meet the demands of this sustained peak, and in the absence of adequate supply (e.g., Northwest Pipeline and Floating Feather Well), United Water states that it would have been forced to call for curtailment by customers.
The Company represents that it has been unable to produce and purchase in excess of 82 million gallons per day (MGD).  On July 22, 1998, the Company represents that it experienced a record system-wide consumption of 82.2 million gallons.  Despite the Commission’s criticism in Order No. 27617 of United Water’s decision “to forego the use during critical periods of peak demand of its Swift No. 1 well”, on July 22nd the Company elected to forego the production capabilities of all of its Swift Wells (4.0 MGD).  To meet demand requirements, as part of its production, contract and reservoir supply resources, the Company obtained 1.69 million gallons from the Northwest Pipeline and Floating Feather Well.
United Water represents that it will be able to demonstrate at hearing that the other “more economic alternatives” and supply options identified by the Commission, either individually or taken as a whole, would not be sufficient to meet United Water’s system demand and do not constitute a viable alternative to the Well and Pipeline; and that a finding of same is contrary to the evidence and unsupported by the record.
United Water contends also that the Commission employed an incorrect legal standard in evaluating the evidence relating to these investments.  Despite a finding of “used and usefulness” the Commission, the Company states, disallowed a rate basing of the investment finding
“The Company has failed to persuasively demonstrate that its decision to construct a pipeline was for its customers a prudent decision, that it was the best economic and planning alternative available or that it was even needed at this time . . . our decision in this matter is directed by the Company’s failure to avail itself of what we find to be other, more economic alternatives.” . . .
Order No. 27617 p. 12.
The well established rule, the Company contends, is that when the utility demonstrates “that property is used and useful in service to the public, reasonable in cost, and based on sound and prudent system planning, the burden shifts to other parties to demonstrate that the project should not receive rate recognition.”  (Citing Boise Water v. IPUC, 97 Idaho 832 (1976).  The cited authority discusses the burden of proof regarding reasonableness of operating expenses.)  This rule, the Company states, recognizes the policy that Public Utility Commissions will not engage in micro managing the utility or in second guessing of management decisions.  The utility, the Company contends, is not required to prove a decision was, in retrospect, the best possible decision.
The Commission, the Company contends, recognized and correctly applied this rule in connection with vehicle leasing when it rejected a Commission Staff assertion that other, less costly options were available:
We are satisfied that the attendant costs and benefits were considered and weighed by the Company.  Owning and leasing are both reasonable and viable alternatives.  Although the related expenses may vary, we find that the Company is not legally constrained to choose the least cost alternative.  
Order No. 27617 at p. 22.
Noting that the reasons cited for disallowance seem to be ones that might appear with equal force in a subsequent general rate case in which United Water might seek inclusion of the investment, United Water states that it perceives itself to be at risk that a subsequent request might be considered as an improper collateral attack on Order No. 27617.
We find:  In Order No. 27617 the Commission found that “the Company failed to persuasively demonstrate that its decision to construct the pipeline was for its customers a prudent decision, that it was the best economic and planning alternative available to it or that it was even needed at this time.”  Public hearing in this case was held on April 22-24, 1998.  The Company now requests the opportunity to reopen the record not to present evidence which it failed for whatever reason to present at hearing, but to present new evidence of post-hearing facts, events and operational decisions, evidence which it contends will persuade us that our prior decision was wrong.
Although United Water contends that our decision was contrary to the evidence and unsupported by the record, it provides no specificity and fails to comment on the recitation of facts set out in the Commission’s Order.  It is fair and reasonable to bring closure to this matter.  The Company itself during the course of proceedings requested that we adhere to statutory time lines.  Our decision was based on and is supported by the record.  We find no reason to grant reconsideration in this matter.
The Company contends that the Commission departed from what it contends is the well established rule that when the utility demonstrates “that property is used and useful in service to the public, reasonable in cost, and based on sound and prudent system planning, the burden shifts to other parties to demonstrate that the project should not receive rate recognition.”  If in fact that is the standard that should be applied, then we must note that the Company failed to satisfy it.  We denied inclusion in rate base for reasons expressed in our Order, including our finding that the Company had failed to demonstrate that its decision to construct the pipeline was a prudent decision, that the decision was in the best interest of its customers, that it was the best economic and planning alternative available or that when considered by the Commission it was even needed.  The Company argues that we should not be engaged in micro-managing or second guessing it.  We agree and we consistently avoid such actions.  We do not, however, ignore our responsibility to determine the prudence of Company decisions.  As long as the Company remains regulated, we will continue to perform our regulatory function.  To that end, we will commit to assess the prudence and reasonableness of its planning decisions as such decisions affect its customers.  In this instance, we found that although the pipeline has a function in the Company’s system, in light of the circumstances which then existed, it was at that time neither a prudent nor economic investment for its customers.
The Company also raises a concern that the doctrine of “collateral attack” is a potential bar to future Company requests for rate basing its investment in the Northwest Pipeline and Floating Feather Well.  Reference Idaho Code 61-625.  No reasonable reading of the statute would prohibit or preclude future applications.  For assurance, we need to look no further than this case, where the Company for the third time requested rate basing of its Pierce Park main investment.  It goes without saying, however, that any application for relief must be supported by an evidentiary demonstration of prudence and reasonableness.
2.  Amortization of Boise River Intake
In its Order No. 27617 the Commission made the following findings:
The Company in this case presents us with no physical evidence or documentation of a “mandate from government” of such a nature that we could find the “extreme emergency” exception to Idaho Code § 61-502(a) exists.  Its professed belief that it was subject to such a mandate and that it would have been precluded in the future from ever installing facilities at the Highway 21 cut is not supported by persuasive evidence.  Based on Company demand forecasts there will be no need for the facilities until the year 2005.  This is a pipe that goes nowhere and is not hooked up to anything.  The Company’s investment is not presently “used and useful.”  Rate basing is therefore prohibited under Idaho Code § 61-502(A).
We find, however, that the Company’s decision to install facilities now may be of future benefit to its customers.  We do not wish to discourage the Company from making decisions that make good business sense.  Certainly, in this instance, the opportunity to share construction costs and utilize an existing diversion with others was an incentive to action.  We, therefore, find it reasonable to allow amortization of the Company’s present investment in the Boise River intake project so that this investment will be recovered.  We note that the Company’s calculation of depreciation expense in this case includes an allowance for this project, of $37,651.  That expense allowance is approved in this Order to provide for the recovery of this investment.
United requests that the Commission reconsider the accounting treatment of permitting amortization of the investment.  Such treatment, the Company argues, does not achieve the Commission’s stated goal of rewarding, or at least not discouraging, decisions that make good business sense.  Requiring amortization, the Company contends, has the effect of reducing the rate base value of the investment, and will have no positive impact on the Company’s earnings since the allowed expense will simply offset that which must be recorded on the Company’s books.  Thus, at such time in the future when the investment is permitted in rate base, the Company contends, United Water will have foregone the opportunity to earn a return on the difference on the amount of the original investment and the depreciated value of the investment.  The Company’s current shareholders under the Commission’s decision, the Company contends, are thus being compelled to absorb this lost opportunity to earn.  
A more equitable treatment, better aimed at achieving the Commission’s stated goal, the Company suggests, would be to permit continued accrual of AFUDC.  This, the Company states, would have the effect of not increasing rates now, but of shifting responsibility for the investment to future customers, who the Commission has found to be beneficiaries of this investment.  At the same time, the Company would be kept whole and would have the opportunity to earn on the full value of its investment.  The Company contends that both Staff and the Idaho Citizens Coalition supported or recognized the fairness of such treatment.
We find:  The Commission has considered the Company’s request and reviewed its Order.  The relief we granted was in recognition of the significant number of years before the investment might ever be needed or used and useful.  We did not accept the Company’s argument that it acted on a “mandate from government.”  The allowance of amortization provides for full recovery of the investment; it does not provide a return on investment.  It is the Company’s shareholders that must bear the consequence of the investment decision and timing, not the Company’s customers.  We reaffirm our prior Order on this issue and find it reasonable to deny reconsideration.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over United Water Idaho Inc., a water utility, and its Application in Case No.  UWI-W-97-6 pursuant to the authority and power granted under Title 61 of the Idaho Code and the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.  
O R D E R
In consideration of the foregoing and as more particularly described above, IT IS HEREBY ORDERED and the Commission hereby grants reconsideration in the manner reflected in Order No. 27630 issued July 14, 1998, wherein the Commission corrected a computational error in response to a July 8, 1998, United Water Petition for Reconsideration increasing the calculated revenue deficiency by $333,964 (from $1,581,989 to $1,915,953) and related change in rates and charges from 7.15% to 8.66%.  
IT IS FURTHER ORDERED and the Commission hereby denies reconsideration of those issues raised in the Company’s July 27, 1998, Petition for Reconsideration, i.e., (1) Northwest Pipeline, Floating Feather Well, (2) amortization of Boise River intake.
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.  may appeal to the Supreme Court of Idaho pursuant to the Public Utilities Law and the Idaho Appellate Rules.  See Idaho Code § 61-627.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this                  day of August 1998.
                                                                                                                                      DENNIS S. HANSEN, PRESIDENT
                                                                                           RALPH NELSON, COMMISSIONER

MARSHA H. SMITH, COMMISSIONER
ATTEST:

Myrna J. Walters
Commission Secretary
vld/O:UWI-W-97-6.sw0
DISSENT OF
COMMISSIONER RALPH NELSON
IN
CASE NO.  UWI-W-97-6
While I agree with my colleagues not to grant reconsideration of our decision on how to handle the Boise River Intake project, I would grant reconsideration of our decision concerning the Northwest Pipeline and Floating Feather Well.  In my mind, there is enough question about our original decision that I would consider additional evidence.

Ralph Nelson
COMMENTS AND ANNOTATIONS
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Service Date
August 24, 1998