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HomeMy WebLinkAbout20250304Decision Memo.pdf DECISION MEMORANDUM TO: COMMISSIONER LODGE COMMISSIONER HAMMOND COMMISSIONER HARDIE COMMISSION SECRETARY COMMISSION STAFF LEGAL FROM: JOSEPH TERRY, COMMISSION STAFF MEMBER CHRIS BURDIN,DEPUTY ATTORNEY GENERAL DATE: MARCH 4, 2025 RE: IN THE MATTER OF STONERIDGE WATER COMPANY'S APPLICATION TO INCREASE RATES AND MODIFY RULES AND REGULATIONS; CASE NO. SWS-W-06-01. In Order No. 30342 the Commission authorized CDS StoneRidge Utilities, LLC ("Company") to collect a surcharge as part of a Department of Environmental Quality Phase I Loan ("loan") used to connect the Happy Valley Ranchos customers to the Company's original water system. This surcharge was initially ordered to be paid by the Happy Valley Ranchos customers at $16.83 per month per customer for five years and then reduced to $14.03 per month per customer for the next 15 years. Order No. 30342. However, due to an oversight on the Company's part, the surcharge was not reduced as originally ordered. On March 13, 2015, the Commission issued Order No. 33249 ordering the Company to reduce the Surcharge to $14.03. The Commission authorized the Company to collect the remainder amount of $183,329.88 from the Happy Valley Ranchos Customers, and the Commission estimated that this would be completed in September of 2025. Order No. 33249. STAFF REVIEW Staff has completed a review of the surcharge and discovered that the amount ordered to be collected would be completely collected earlier than expected. Instead of being completely collected in September of 2025, it will be fully collected after the April 2025 billing. This is due to customer growth in the Happy Valley Ranchos. In its orders, the Commission assumed there would be 101 customers for the entire duration of the collection of the surcharge time; however, DECISION MEMORANDUM - 1 - MARCH 4, 2025 over the years the number of customers has grown to 115. Staff notified the Company of this review and conclusion on January 21, 2025. There were some limits to the Staff review. The Company did not have any customer billing data from 2015 to 2018. Staff used the Commission estimated customer numbers for those years. In response to Staffs audit request in this matter, the Company stated that it did not have billing data before 2022. Staff used production request responses from Case No. SWS-W-24-01 for the billing data from 2019 to 2021. Finally, for collections in 2025, Staff assumed the same collection as December of 2024. COMPANY RESPONSE The Company responded to Staffs review with a letter to the Commission Secretary on January 27, 2025. (Attachment A). The Company raised some concerns that it wished to be addressed. The Company calculated that the monthly payment for the loan should have been $16,876.27 on an annual basis,as opposed to the Commission stated payment of$17,002 annually. Additionally,the Company stated that when the surcharge is completed,there will still be a balance on the loan. The Company was unsure why the surcharge was not set up for the full length of the loan and does not know where the money is to come from to pay the loan. STAFF REPLY With respect to the Company's calculation of a different monthly payment, Staff reviewed the calculation through the PMT function in Excel as well as a Goal Seek method to establish the amount that would amortize the loan at the stated 2% interest rate to zero in 20 years. Both methods calculated a payment of$17,001.57, an amount within a rounding error from the payment the Commission used for this loan. Staff was not able to verify how the Company calculated the payment amount indicated in its letter. With respect to the Company's claim that there will be a remaining balance on the loan, Staff created a schedule(Attachment B)that shows the collection from the surcharge on an annual basis as well as the payments required for the loan. The surcharge started 18 months before the first payment was due on the loan. This created an excess balance of collected surcharge funds of over $30k before the first payment of$17,002 was due. Following the schedule, in every year except for 2019 and 2020 the surcharge funds collected have exceeded the payment owed on the loan, and if those funds had been kept in a separate account,that account would have a balance of approximately $62k in at this point. That means that at this point the Happy Valley Ranchos DECISION MEMORANDUM - 2 - MARCH 4, 2025 customers have paid more than the payments due to the loan. Those excess collections are then to be used to cover the payments until the loan is fully paid off in 2028. There are four reasons that the surcharge did not perfectly coincide with the loan term. First, the initial payments were higher for the first five years in order to assist the Company to abide with the loan provision that requires the borrower to have a reserve fund consisting of one year's payments. That in and of itself would cause a one-year mismatch between loan payments and surcharge collection. Second, the Company did not change the surcharge from $16.83 to $14.03 at the appropriate time and collected excess funds from the customers. This increased that mismatch by several months. Third, the surcharge began in June of 2007, but payments on the loan did not begin until 2009. This increased the mismatch by 18 months. Finally, because the recovery assumed a constant customer number, customer growth increased the recovery and increased the mismatch between the loan and the surcharge. STAFF RECOMMENDATION Staff recommends the Commission order the Company to cease collections of the surcharge to the Happy Valley Ranchos customers after the April 2025 billing cycle. COMMISSION DECISION Does the Commission wish order the Company to cease collections of the surcharge to the Happy Valley Ranchos customers after the April 2025 billing cycle? OMW4 (2 seph Terry ommission Staff I:\Uti1ity\UDMEM0S\SWS-W-06-01 Decision Memo.docx DECISION MEMORANDUM - 3 - MARCH 4, 2025 i STONER[DGE CDs StoneRidge Utilities,LLC P.O.Box 298 Blanchard,ID 83804 Ph(208)437-3148 Extn.4 SENT By:Email January 27,2025 Monica Barrios-Sanchez Commission Secretary Idaho Public Utilities Commission 11331 W.Chinden Blva Bldg,8, Ste. 201-A Boise, ID 83714 RE:Audit Request NO. 1 Happy Valley Rancho Loan Surcharge Review We have reviewed your work on the Surcharge for Happy Valley Rancho customers and have a couple of questions we would appreciate your feedback on. 1. The two loans—Phase 1 HVR Surcharge Loan of$278,000 and Phase 2 All Customers Loan $1150,457. Both loans were 20-year terms and 2%annual interest. In 2018 DEQ combined the remaining balances of these two loans into one loan.Today the outstanding balance on the loan as of 1/1/2025 was$104,005.43 before the accrued interest was added for 2024. 2, In ORDER NO. 30342 on page 14 there is a table showing the schedule for the loan surcharge calculation as well as the calculation for the Monthly Reserve Payment Calculation. In the Phase 1 Loan-Principal Loan table,the calculated annual payment on the S278,000 loan amount over 20 years a 2%is shown as$17,002.00/annually or$1,416/Monthly and$14.03/Customer (assume 101 customers). This payment amount according to our calculations should be $1,406.36/month and SI6,876.27 annually. Can someone at IPUC confirm this difference? This Loan was amortized over 20 years,but with the reserve funds collected in advance for the last year payment,it would have been paid off in 19 years or in June of 2026. Now it is scheduled to pay off at the end of March 2025 But we will owe DEQ over S52,000 in principal after the last payment on the Surcharge Phase 1 loan. That remaining balance will now have to be paid by all the customers for about 2 years longer. We are wondering where those funds are going to come from and why was the Surcharge loan not set up to pay its share of the DEQ Loan until both Phases were paid in full. 3. In reviewing the ORDERS on this case, we came across a statement that contradicts a Statement made on our current rate case we would like to have this discrepancy explained by IPUC Staff. Attachment A Case No. SWS-W-06-01 Decision Memorandum DECISION MEMORANDUM - 4 - MARCH 4, 2025 Attached as Exhibit A is from SWS-06-01 ORDER NO. 30342 Page 7. "Repairs to a water system are costs that should be included in annual operations and maintenance expenses and are not to be considered a capital improvement.Only capital improvements are included in the rate base. Therefore, Staff removed this amount from the Company's rate Base." Also attached as Exhibit B is from Case SWS-W-24-01 ORDER NO. 36407 Page 9 -Capo lvAring Repairs and ROWA& Staff Comments Staff recommended that three expenses incurred in 2023 be removed as expenses and instead be placed into plant in service. Two of the expenses were for water main repairs and the third was for pump repairs. This would lower the maintenance expense by S17,451 and increase plant in service by the same amount_ The result of this reclassification would increase the depreciation expense by S534 in the test year. CompanyR oiv The Company argued against capitalizing repairs in an aging system-comparing it to "putting makeup on a dying pig." Reply Comments at 22. The Company contended these minor fixes (less than 1.5% of total plant value for 2023) would be discarded during eventual system replacement. The Company preferred treating repairs as operating expenses to track system health and guide planning. The Company thus requested that$17,451 continue to be classified as repair and rebuild expenses. Commission Decision The Commission finds that costs for repairs and maintenance that extend the life of a system are appropriately capitalized and eligible to earn a return as part of the Company's rate base. The Company's argument that the entire system will have to be replaced at the same time is at this time uncertain based on the record_ Water systems routinely replace leaking pipes, which �n turn extends the life of the system as a whole. Staff's recommendation was well-reasoned in this case and followed established accounting principles. After the system, or sections of the system, islare replaced,the Commission will review the associated expenses for prudency, but such actions are not before the Commission at this time. As rt stands, booking the expenses to plant in service is reasonable and consistent with our past decisions, WRONG! See cfv6eti- Q`%4 C.", We firip these two IPUC,,statements to be 100% in opposition to each other from both Staff and the Comfnissioners in 20QI vs 2024! We would like IPUC to explain what has changed between 2007 and 2021 in regard to es `;`,dished accounting principles and whatever else IPUC believes justifies the 180 degr �vot on this i ue! Flea e'I us know It; ou have any other questions. i Sinc I I .Chan upiah, anaging Member CDS StoneRidge Utilities, LLC Attachment A Case No. SWS-W-06-01 Decision Memorandum DECISION MEMORANDUM - 5 - MARCH 4, 2025 HVRLoan Loan Amount $ 278,000.00 Interest rate 2% Payment Amount $17,001.57 Difference Between Beginning Ending Payment Funning Loan Loan and Total of Year Balance Interest PMT Balance Collection Surcharge Difference 2007 - - - - 10,098.00 (10,098.00) 10,098.00 2008 - - - - 20,599.92 (20,599.92) 30,697.92 2009 278,000.00 5,560.00 17,001.57 266,558.43 20,397.96 (3,396.39) 34,094.31 2010 266,558.43 5,331.17 17,001.57 254,888.03 20,801.88 (3,800.31) 37,894.62 2011 254,888.03 5,097.76 17,001.57 242,984.23 21,609.72 (4,608.15) 42,502.78 2012 242,984.23 4,859.68 17,001.57 230,842.34 21,407.76 (4,406.19) 46,908.97 2013 230,842.34 4,616.85 17,001.57 218,457.62 21,609.72 (4,608.15) 51,517.12 2014 218,457.62 4,369.15 17,001.57 205,825.21 20,801.88 (3,800.31) 55,317.43 2015 205,825.21 4,116.50 17,001.57 192,940.14 17,004.36 (2.79) 55,320.23 2016 192,940.14 3,858.80 17,001.57 179,797.38 17,004.36 (2.79) 55,323.02 2017 179,797.38 3,595.95 17,001.57 166,391.76 17,004.36 (2.79) 55,325.81 2018 166,391.76 3,327.84 17,001.57 152,718.03 17,004.36 (2.79) 55,328.60 2019 152,718.03 3,054.36 17,001.57 138,770.82 16,498.78 502.79 54,825.82 2020 138,770.82 2,775.42 17,001.57 124,544.67 15,853.89 1,147.68 53,678.14 2021 124,544.67 2,490.89 17,001.57 110,033.99 18,323.18 (1,321.61) 54,999.75 2022 110,033.99 2,200.68 17,001.57 95,233.11 19,333.34 (2,331.77) 57,331.52 2023 95,233.11 1,904.66 17,001.57 80,136.20 19,389.46 (2,387.89) 59,719.42 2024 80,136.20 1,602.72 17,001.57 64,737.36 19,543.79 (2,542.22) 62,261.64 2025 64,737.36 1,294.75 17,001.57 49,030.54 6,453.80 10,547.77 51,713.87 2026 49,030.54 980.61 17,001.57 33,009.58 - 17,001.57 34,712.30 2027 33,009.58 660.19 17,001.57 16,668.20 - 17,001.57 17,710.73 2028 16,668.20 333.36 17,001.57 0.00 - 17,001.57 709.17 Attachment B Case No. SWS-W-06-01 Decision Memorandum DECISION MEMORANDUM - 6 - MARCH 4, 2025