20250731Final_Order_No_36703.pdf

Office of the Secretary
Service Date
July 31,2025
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF GEM STATE WATER ) CASE NO. GSW-W-24-01
COMPANY,LLC'S APPLICATION FOR )
AUTHORITY TO INCREASE ITS RATES ) ORDER NO. 36703
AND CHARGES FOR WATER SERVICE )
On December 27, 2024, Gem State Water Company, LLC ("the Company") applied to
raise its rates and charges for water service in Idaho. The Company requested that the new rates
take effect on February 1, 2025, and requested that the application be processed by Modified
Procedure.
On January 21, 2025, the Commission issued a Notice of Application and Notice of
Intervention Deadline. Order No. 36445. Additionally,the Commission suspended the Company's
proposed effective date for five months and thirty days under Idaho Code § 61-622.
On February 28, 2025, the Company submitted an amended application ("Amended
Application") to incorporate depreciation costs related to certain post-test-year plant assets that
were omitted from the original filing. The revised proposal would result in a 78.8%increase in the
Company's revenues. The Company requested an April 1, 2025, effective date and asked that the
Amended Application be reviewed via Modified Procedure.
On March 20, 2025, the Commission issued an Amended Notice of Application and
suspended the Company's proposed April 1, 2025, effective date to August 1, 2025. Order No.
36516.
On April 17, 2025, the Commission issued a Notice of Modified Procedure, establishing
dates for public comments and the Company's reply deadline in addition to setting dates for a
virtual public workshop and in-person customer hearing. Order No. 36550. Two hundred and
forty-eight of the Company's customers filed opposing the proposed rate increase for various
reasons. Staff also filed comments to which the Company replied.
On June 18, 2025,the Commission held an in-person customer hearing. Several customers
testified all opposing the proposed rate increase.
Having reviewed the record in this case,we issue this Final Order authorizing the Company
to raise its rates as described below. Additionally, we direct the Company to take the steps
ORDER NO. 36703 1

described below to rectify the unexplained water losses and water pressure issues discovered
during this general rate case.
BACKGROUND
The Company is a Commission-regulated water corporation serving approximately 1,040
connections as of June 2024 across seven water systems in Kootenai County,Idaho. The Company
provides service under Certificate of Public Convenience Nos. 280, 293, 296, 319, 390, and 413.
The Company's current rates were set in 2023 in Order Nos. 35692 and 35728.
THE APPLICATION
The Company seeks to increase its annual revenue requirement by $602,050 with a rate
base of $3,799,220, and a 10.2% Return on Equity ("ROE"). Depending on which of the
Company's systems serves a customer, monthly bills would rise between 53% and 79%. The
Company represents that, if its request is approved in full, monthly bills for the average customer
with a 1-inch meter would increase between$21.65 and$27.65. Although the Company currently
has no customers with meters larger than 2 inches, it proposes including rates for 3-inch, 4-inch,
and 6-inch meters in its tariff.
STAFF COMMENTS
After reviewing the Company's Application, Amended Application, supporting exhibits,
workpapers,responses to production requests, financial records,procedures, and internal controls,
Staff recommended a $1,125,909 total revenue requirement for the Company. This amount
represents a $362,299—or 47.4%—increase in the Company's annual revenues, as detailed in
Attachment A to Staff's comments. This recommendation reflects a 9.8%ROE and a hypothetical
capital structure of 45% debt and 55% equity, resulting in a 7.51% Weighted Average Cost of
Capital applied to a net rate base of$3,774,729.
I. System Descriptions and Reliability
The Company operates the following seven water systems in Kootenai County, Idaho,
between the city of Athol and Coeur d'Alene.
1. The Bar Circle S ("BC") system, located about 5 miles northwest of Rathdrum near West
Garwood Rd., serves around 250 metered customers in several subdivisions and a local
elementary school. It includes three wells drawing from the Rathdrum Prairie Aquifer, a
185,000-gallon storage tank, a backup generator, and PVC pipes ranging from 6 to 10
inches in diameter.
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2. The Spirit Lake East ("SLE") system, located off Highway 54 in Spirit Lake, includes a
well, a 200,000-gallon storage tank, and serves around 350 customers through 6-inch PVC
pipes. It is the only system that treats groundwater using a chlorine solution.
3. The Bitterroot (`BR") system, about 3 miles southwest of Athol, has 3 wells, a 100,000-
gallon tank, a backup generator, and serves approximately 170 customers with 6-inch PVC
pipes.
4. The Diamond Bar Estates ("DB") system, 3 miles south of Bar Circle S and 4 miles east
of Rathdrum, uses 2 wells and a 55,000-gallon concrete tank to serve about 75 customers
through 6- and 8-inch PVC pipes.
5. The Happy Valley ("HV") system, located near Coeur d'Alene, has a well and serves
roughly 25 customers using 2- and 4-inch PVC pipes.
6. The Troy Hoffman("TH") system, located within Coeur d'Alene, consists of one well, 4-
and 6-inch PVC pipes, two fire hydrants, and provides service to about 150 customers.
7. The Lynwood Estates("LW")system,just north of Athol and east of Highway 95, includes
a single well and serves 25 connections. The Bar Circle S system, described previously,
serves approximately 250 customers with three wells and has a 185,000-gallon tank.
Based upon the most recent Idaho Department of Environmental Quality("IDEQ")sanitary survey
for each system and the Company's responses to production requests, Staff believed that all seven
water systems have no outstanding sanitary issues and can provide safe and reliable water to
customers.
The Company currently has a facility plan only for the BR system. Staff believed that the
BR system has enough capacity to meet current and future average and maximum daily demands.
Despite believing that the Company's six other systems can currently meet daily demands, Staff
noted the importance of facility plans when evaluating the respective systems' abilities to meet
future peak demands. The Company is creating facility plans for its other six systems as none were
available when the Company purchased those systems. Accordingly, Staff recommended that the
Commission require the Company to submit facility plans for each system upon availability.
II. Low Pressure and Unexplained Water Loss
Between 2022 and 2024, Staff received about ten customer complaints about low water
pressure from the BC, SLE, BR, and LW systems. Staff reviewed the Company's water pressure
data from January 2020 to December 2024 and average monthly pressure in all seven systems.
ORDER NO. 36703 3

Additionally, recent IDEQ sanitary surveys did not indicate low water pressure was an issue.
However, the Company is responsible for maintaining adequate pressure up to customer meters
and must address any internal issues causing low pressure. Staff indicated that it will report
pressure complaints to IDEQ for possible follow-up in future sanitary surveys.
III. Revenue Requirement
Staff recommended a total revenue requirement of$1,125,909increasing billed revenue
by 47.4%. Staff proposed no changes to the Company's test year metered residential revenue of
$763,610. According to Staff, a primary driver behind the filing of this case is that the Company
has never fully collected the $834,870 revenue requirement authorized by Order No. 35728 in its
last general rate case.
a. Net-to-Gross Multiplier
The Company proposed a net-to-gross multiplier of 134.57%, based on an older
Commission assessment rate of 0.2529%. After updating the assessment rate to the current
0.2223% and adjusting the 2025 State Income Tax rate to 5.3%, Staff calculated a revised
multiplier of 133.96%.
b. Rate Base
The Company proposed a rate base of$3,813,776,arising from significant new investments
made since its last rate case. Staff recommended an adjusted rate base of$3,774,729. This includes
net plant in service ("PIS") of$3,675,458, net Contributions in Aid of Construction of$34,133,
working capital of$67,107, and deferred taxes of$66,298. Staff s adjustments are detailed and
explained further below.
1. Plant in Service
As stated,the Company has made significant investments in system upgrades since its last
rate case, including generators, trucks, meters, and pipes. Staff recommended several adjustments
to the Company's PIS. For example, Staff recommended reducing the cost of the BR system
upgrade, removing facility plan costs and other Company assets, and updating estimated costs to
actuals. These changes result in a total PIS reduction of$22,028,bringing the adjusted PIS balance
to $5,623,884.
The Company also requested $2,154,108 in additional proforma capital for PIS, including
vehicles,trailers,radio-read equipment,meters for several systems,and a rebuild of the BR system.
ORDER NO. 36703 4

Although this capital was not used and useful during the test year, it is expected to be operational
when new rates take effect. These upgrades are key drivers of the current rate case.
2. Proforma Depreciation Expense
The Company reported $301,731 in depreciation expense, including depreciation on
proforma capital. Staff found inconsistent useful lives assigned to similar assets across different
PIS accounts, making depreciation calculations difficult. Staff recommended setting the
Company's depreciation rates according to the guidelines in the National Association of
Regulatory Commissioners ("NARUC") manual for small water utilities under Idaho Code § 61-
525. Additionally, Staff removed three proforma capital projects—the BC Facilities Plan, the DB
Facilities Plan,and the BR Pitless Adaptor—because the Company did not provide in-service dates
for them. This reduced proforma depreciation expense by $31,179.
3. Proforma PIS to Actual Costs
Staff updated the estimated proforma capital amounts to reflect actual costs provided by
the Company in its responses to production requests. This adjustment reduced proforma PIS by
$124,937. All remaining proforma projects are considered used, useful, and in service, except for
the three previously mentioned projects that lacked in-service dates.
4. Deferred Taxes
The Company reported a $72,965 deferred tax asset, meaning tax depreciation was lower
than regulatory depreciation. Staff s calculations using the Company's financial information
verified the existence of a deferred tax asset. However, if the Commission adopts the depreciation
rates Staff proposed above and requires the Company to follow NARUC guidelines, the deferred
tax asset is expected to decline over time. Staffs adjustments to deferred taxes are detailed below.
The Company calculated Net Book Value using both base year and proforma asset totals
and applied a half-year convention to estimate depreciation on proforma assets,which Staff agrees
is appropriate. However, Staff adjusted the Company's Net Book Value by updating the original
cost and accumulated depreciation figures with actual data provided in the Company's responses
to Production Requests. This resulted in a total Net Book Value adjustment of$201,769.
Staff also adjusted the Company's Net Tax Value by updating original cost and
accumulated depreciation to actuals. The Company used both base year and proforma asset totals
to calculate accumulated depreciation. Although the Company used the half-year convention for
proforma depreciation, it further reduced the result by half—effectively applying a quarter-year
ORDER NO. 36703 5

convention. Staff disagreed with this second reduction and recommended using only the half-year
convention for consistency with the Net Book Value approach. This change leads to a $227,916
adjustment to Net Tax Value. By subtracting the total Net Book Value from the total Net Tax
Value and applying the measurement rate, deferred taxes decreased from $72,965 to $66,298, a
reduction of$6,667. Despite the decrease, deferred tax remains and increases rate base.
5. Prudence Review of Capital Projects
Staff found that the Company's approach to planning and carrying out capital projects
generally led to reasonable and prudent costs. This planning process involves the Company
identifying capital needs through maintenance activities,IDEQ sanitary surveys,and facility plans,
then evaluating multiple solutions and choosing the most cost-effective option considering risk.
The Company then develops project plans focused on cost efficiency, researches affordable
materials and vendors, solicits competitive bids, and manages contracts to ensure performance
meets expectations. Staff confirmed this process was followed for the projects it reviewed and
found the resulting costs to be appropriate.
6. Desk Purchase Adjustment
Staff reviewed an invoice totaling $1,198 for a desk purchase that the Company provided
in response to production requests and found that it included some unrelated items. Staff
recommended reallocating $716 to Office Furniture and Equipment for the desks and chair, $260
to Other Plant & Miscellaneous Equipment for a monitor and keyboard, and removing $223 for
cleaning products and office supplies, as they are not capital items. These adjustments resulted in
a$260 increase to Other Plant &Misc. Equipment, a decrease to Office Furniture and Equipment
of$483, a$2.00 increase to depreciation, and a$3.00 increase to accumulated depreciation.
7. Arc Flash Study
The Company conducted an Arc Flash study in 2023 to assess electrical safety risks as
required by federal law,which requires evaluations every five years or after major system changes.
Although the study was found to be prudent, some costs were tied to non-regulated locations. The
Company excluded some, but not all, of these costs in its Amended Application. The Company
provided the correct cost allocation in response to production requests. The total cost was $30,919
for 13 locations, or$2,378 per location. Four of these were for non-regulated sites totaling$9,514.
The Company already removed$5,380 of these costs in its Amended Application, leaving $4,134
of non-regulated costs to be adjusted. Accordingly, Staff recommended reducing the Arc Flash
ORDER NO. 36703 6

Study costs by $4,134 to fully exclude non-regulated expenses, which results in a $207 decrease
in depreciation expense and a $207 increase in accumulated depreciation.
8. Trailer Adjustment
Staff recommended removing a trailer the Company purchased in July 2023 to transport its
lawn mower.However,the trailer and mower were stolen in late summer 2024 and never recovered
or reported to insurance. The Company has since decided to outsource grounds maintenance and
does not intend to replace the trailer. Removing the trailer from rate base results in a $2,466
adjustment, decreasing depreciation by $164 and increasing accumulated depreciation by $247.
9. Bitterroot Project Adjustment
After IDEQ identified several system deficiencies, the Company began to invest in BR to
address them. The Company added storage, a new water source, increased pumping capacity,
backup power, and other improvements that were placed in service on January 30, 2025. Staff
found the actual cost of $1,315,070 through March 2025 for these upgrades to be prudent and
appropriate for recovery. Although the Company requested$1,330,155 based on its latest budget,
Staff recommended reducing that amount by $15,085 to reflect actual costs. Additionally, Staff
found a $120 overpayment to an engineering firm, bringing the total recommended adjustment to
$15,205.
Although the Company followed its project management process and sought competitive
bids,only one contractor submitted a proposal. Staff encouraged the Company to improve outreach
to ensure more competitive bidding for future large projects.
10. Working Capital
Staff revised the Company's working capital allowance based on its adjustments to
operating expenses and recommended a total of $66,586, which is $9,276 less than what the
Company originally proposed.
c. Capital Structure
The Company proposed a hypothetical capital structure of 45%debt and 55%equity,which
is more debt-weighted than its actual capital structure but aligns better with its parent company's
capital structure. This benefits customers because equity is usually more expensive than debt, so
using more debt in the calculation lowers the overall return and, in turn, customer costs.
ORDER NO. 36703 7

1. Cost of Debt
The Company proposed a 5.22% cost of debt, which includes its line of credit. However, a
line of credit is typically used for short-term cash needs or to temporarily fund construction
projects before securing long-term financing. Costs from short-term cash needs are already
recovered through working capital in rate base, and construction financing costs are recovered
through an allowance for funds used during construction. Including the line of credit in the debt
cost could result in double recovery. To avoid this, Staff recommended excluding the line of credit,
reducing the cost of debt to 4.70%.
2. Return on Equity
The Company proposed a 10.2% ROE. In the Company's last rate case, the Commission
previously approved a 9.5% ROE. See Order No. 35692. Staff used a Discounted Cash Flow
analysis on a group of similar water companies to recommend a ROE for the Company,calculating
ROE based on current dividends, stock prices as of May 28, 2025, and various dividend growth
rates from Value Line. To reduce outlier impact, Staff used averages and medians, resulting in an
ROE range of 9.18%to 10.81%. Staff recommended a 9.8%ROE for the Company,which falls in
the middle of this range and reflects long-term growth trends. Staff believed that this rate provides
the Company a fair return while offering customers the benefits from being part of a larger parent
company.
d. Operating Expenses
The Company reported $908,629 in total operating expenses. After auditing these costs,
Staff recommended approving $747,909 for recovery, reducing the total by $160,720. Staff's
adjustments to the Company's operating expenses are explained below.
1. Salary—Raises
The Company proposed a 10% across-the-board salary increase, which, including payroll
taxes, added$32,904 to expenses after allocating between regulated and non-regulated operations.
Staff reviewed wage growth data from the Bureau of Labor Statistics and found that similar jobs
had an average growth of 5.59% from 2021 to 2023. Accordingly, Staff recommended a 5%
increase instead. This adjustment would reduce salary expenses by $15,362 and payroll taxes by
$1,779, for a total reduction of$17,141 in the Company's proposed expenses.
ORDER NO. 36703 8

2. Salary— Unfilled Positions
The Company included two unfilled positionsa second Water District Operator 1 and a
part-time Customer Support Associate—in its proposed expenses. As these roles have remained
vacant, Staff did not support including them in rates without more certainty the positions would
be filled and provide clear benefits to customers. Accordingly, Staff recommended removing the
salary and payroll tax costs related to these positions, which reduced the Company's proposed
expenses by$35,683 after accounting for non-regulated activities the positions would also support.
3. Utility Terrain Vehicle Rent Adjustment
The Company included a$2,623 expense for renting a Utility Terrain Vehicle("UTV") for
monthly manual meter readings. Because the installation of radio-read meters is nearly complete,
the UTV will no longer be necessary. Staff recommended removing this expense, resulting in a
$2,623 reduction in rent expenses.
4. Mileage Adjustment
The Company included $2,917 for mileage reimbursement in its proposed revenue
requirement to reimburse employees who used personal vehicles for Company purposes. This was
necessary as the Company lacked enough vehicles for field employees. However, because each
field employee now has a company vehicle, Staff recommended removing the mileage
reimbursement from the revenue requirement, reducing expenses by $2,623.
5. Meals Adjustment
The Company included $659 in meal reimbursements, which are outside of the standard
employee travel meal reimbursement policy. When Staff requested the policy for meal
reimbursement, the Company stated it did not have one. After further inquiry, the Company
explained the expense was for a visit from a headquarters employee. Staff considered this
excessive and recommended removing the $659 from the expenses.
6. Annual Electricity Expenses Adjustment
Staff calculated the annualized electricity expense for the Company of $130,397. Staff
calculated this amount by analyzing the dollar per gallon electricity costs and applying them to the
Company's normalized water production from 2020 to 2024.
7. Annual Chemical Expense Adjustment
Staff determined that $3,540 should be included in the revenue requirement for annual
chemical expenses. Only the SLE system uses chemicals, specifically chlorine. Staff reviewed
ORDER NO. 36703 9

chlorine purchase costs from 2022 to 2024, adjusting for barrel return credits found in the general
ledger. The adjusted total purchase costs were divided by the gallons purchased over the three
years to calculate an average cost of$5.33 per gallon. Multiplying this rate by the 2024 usage of
about 664 gallons, Staff estimated the annual chlorine expense as $3,540.
8. Water Testing
Water testing requirements vary, with some tests occurring as infrequently as every nine
years. To account for this, Staff used a nine-year average to calculate annual water testing
expenses. The Company reported $4,139 in water testing costs during the test year. Based on the
nine-year averaging method, Staff calculated an annualized cost of $5,488 and recommended
increasing the water testing expense by $1,349.
9. Depreciation Expense
The Company applied the same depreciation rates to both existing and proforma capital.
To ensure consistency and simplify future reporting, Staff updated the depreciation rates for
existing assets to match the NARUC-recommended rates. This lowered the Company's proposed
depreciation expense by $54,240, resulting in a total recommended expense of$213,906. Staff
also recommended creating a sub-account under account 340 for electronic office equipment,
setting a ten-year depreciation life for items like hardware and software.
10.Assets Retired in 2025
Staff discovered that the Company was still depreciating seven assets scheduled for
retirement in 2025. Since these assets will no longer be in use, Staff removed their depreciation,
reducing expenses by $1,276.
IV.Rate Design
Gem State Water currently has seven different rate schedules with varying water
allowances and commodity rates. The Company proposes consolidating all customers under one
unified rate schedule. While Staff supports rate consolidation in principle, doing so now would
cause steep bill increases—possibly over 100%—for customers who take service from systems
like LW and HV. The Company also proposed reducing the monthly included allowance for f-
inch meters (which make up 97% of customers) from current levels to 5,000 gallons. Many
customers opposed this reduction in comments and at the May 1, 2025 public workshop. To ease
the impact of the overall rate increase, Staff instead recommended maintaining a 7,500-gallon
ORDER NO. 36703 10

allowance for 1-inch customers, which matches the allowance most currently receive and helps
reduce bill shocks from the proposed rate increase.
Instead of the Company's proposal to move all customers to a single rate schedule, Staff
recommended creating two rate schedules as a step toward full consolidation. Both schedules
would have the same minimum charge and commodity rate, but LW and HV customers would
keep a larger 15,000-gallon monthly allowance due to their current usage patterns. Staff also
recommended a lower minimum monthly charge of$46.00 for 1-inch meters—up from $35.00,
but less than the Company's proposed $53.50. To balance the lower minimum charge, Staff
proposed a higher commodity rate of$4.17 per 1,000 gallons, which shifts more of the bill based
on usage and allows the customers greater control over their bills.
a. Non-Recurring Charges
Currently,the Company charges for certain one-time services, including hookup fees,new
customer connections, late payments, reconnections (based on how long the account has been
closed), and returned checks. In its Application, the Company has asked to add three new non-
recurring charges to this list.
1. Refundable meter device key deposit- $2,500
Customers can request a meter assembly to connect to a hydrant for construction water.
The assembly includes a meter, double check valve, cables, and special keys for securing it to the
hydrant. A deposit is required to ensure the return of the assembly in good condition and is
refunded when the assembly is returned. Customers will also pay a monthly fee and charges for
usage exceeding the included allowance. Staff believed the charge is fair, considering the meter's
cost and installation expenses, and recommended approval.
2. Account change%losing fee- $20
This fee covers the cost of taking a final reading and providing a final bill to a title company
when a property is sold. It typically takes two employee hours, with the reading done two days
before closing. The fee is paid during the closing. The cost varies based on employee hours,travel
time, and hourly wages. Staff found the charge reasonable and recommended approval.
3. Annual fee for removal, storage, and reinstallation of irrigation meters - $30-$50
The Company removes and stores irrigation meters annually to prevent freezing,
reinstalling them in the spring. Before reinstallation, customers must provide a backflow device.
If the customer doesn't have it, a second trip is needed. Due to the labor involved, Staff
ORDER NO. 36703 11

recommends a $30 annual charge for a single visit and a $50 charge if a return trip is required.
Additionally, Staff suggested the Company notify customers at least a week in advance via letter,
email, or text to ensure the backflow device is ready.
V. Customer Notice & Press Release
The Company included a Customer Notice and Press Release in its original Application
dated December 27, 2024. The notice was initially scheduled to be included in customer billing
statements starting December 27, 2024. However, due to an Amended Application filed on
February 28, 2025, there was a delay, and customers did not receive the notice until March 2025.
The Company sent a Press Release to the Coeur d'Alene Press, which was published on March
12, 2025, and also posted it on the Company website. These notices met the requirements of the
Commission's Rules of Procedure, IDAPA 31.01.01, Rule 125.
VI.Customer Workshop
The Commission issued a public notice for a Customer Workshop via a news release on
April 30, 2025. Order No. 36550. The workshop took place on May 1, 2025, at the Athol
Community Center, with around 130 attendees, including Company representatives. The
customers present represented various subsystems and shared concerns like those raised in the
customer comments submitted to the case record.
COMPANY REPLY COMMENTS
The Company accepted Staff s adjustments to the net-to-gross multiplier and rate design.
The Company also largely accepted Staff s rate base adjustments. However, the Company
disagreed with some of Staffs proposed adjustments to salary expenses and portions of the
proposed adjustments to depreciation expenses. The Company's objections to Staffs proposed
expense adjustments are described separately below.
1. Salaries
As previously stated, the Company originally proposed a 10% salary increase for
employees. However, Staff recommended a 5% increase, reducing salary expenses by $17,141.
The Company disagreed with Staffs recommended 5% salary increase for several reasons. First,
according to the Company, working for it is more demanding than other water utilities because of
the rural location of its systems, long travel times, and lack of centralized planning. Field
employees often face significant logistical challenges, and office staff handles a large volume of
ORDER NO. 36703 12

customer inquiries and regulatory tasks. Additionally, employees frequently cover for one another
due to the small staff size.
Second,northern Idaho has seen significant population growth, driving up the cost of living
and making it harder to attract and retain quality employees.
Third, competing public sector employers offer better wages and benefits, making it
difficult for the Company to stay competitive. According to the Company, even after a 10%
increase, the Company's salaries still fall behind the some public sector wages for similar
positions.
Finally, the Company believed Staff's methodology is flawed, as it only averages
nationwide salary data without considering local factors such as cost of living and job
responsibilities. The Company argued that a 10% increase is justified to stay competitive, while a
5% increase would make it harder to attract and retain skilled employees. Accordingly, the
Company requested that the Commission approve the full 10% increase.
2. Depreciation Rates
The Company also opposed part of Staff s recommendation to standardize its depreciation
rates according to NARUC guidelines, revising the rates for many assets. The Company agrees
with most of the adjustments,but disagrees with two. First, in relation to Staff's proposed 25-year
life for"Pumping Equipment"(account 311),the Company believed pumps typically last about 20
years. Because pumps are the primary component in this account, the Company recommended
using a 20-year life instead.
Second, for "Office Furniture and Equipment" (account 340), Staff recommended 10- or
20-year lives for items,which primarily consist of computer hardware and software. The Company
noted that, under Generally Accepted Accounting Principles, software generally has a 3-year life
and hardware a depreciable life of 5 to 7 years. Accordingly, the Company argued it is unrealistic
to expect items like laptops to last 10 years and suggests a 5-year life for this account.
PUBLIC COMMENTS/TESTIMONY
Staff reviewed the written customer comments received by the Commission. As of May
19, 2025, the Commission has received 208 comments from residential customers across most of
the Company's service areas. The main concerns raised were the amount of the proposed increase
(165 comments), the increase in the monthly charge and the reduction in the included usage
allowance(135 comments),the reduction in allowed usage and higher charges for additional usage
ORDER NO. 36703 13

(107 comments), the timing of the proposed increase following a recent one (65 comments), the
impact of the increase on customers with fixed or limited incomes (49 comments), lack of
justification for the increase (35 comments), and concerns about water for fire prevention (31
comments). Several customers also cited living on a fixed income and described the impact that
the Company's proposed increase would have on their personal finances when compounded with
rising costs for other goods and services. Customer testimony provided during the in-person
customer hearing largely asserted the same opposition and complaints.
COMMISSION JURISDICTION
The Commission is "vested with power and jurisdiction to supervise and regulate every
public utility in the state and to do all things necessary to carry out the spirit and intent of[The
Public Utilities Law]."Idaho Code § 61-501. A "water corporation" as defined in Idaho Code §
61-125 is a"public utility" as defined by Idaho Code § 61-129. Accordingly, the Commission has
jurisdiction over "every corporation or person, their lessees, trustees, receivers or trustees,
appointed by any court whatsoever, owning, controlling, operating or managing any water system
for compensation within this state"Idaho Code § 61-125.
The Commission's regulatory authority extends to the service rates charged by public
utilities. Specifically, upon finding that the rates charged by a public utility are "unjust,
unreasonable, discriminatory, or in any wise in violation of any provision of law, or that such rates
. . . are insufficient"the Commission must"determine the just,reasonable or sufficient rates . . . to
be thereafter observed and in force and shall fix the same by order. . . ."Idaho Code § 61-502;see
also Idaho Code § 61-503.
However, this authority over rates is not unlimited. Public utilities are entitled to a
reasonable rate of return on prudent investments. "[A] public utility is entitled to such rates as will
permit it to earn a return on the value of the property which it employs for the convenience of the
public, equal to the return generally being made at the same time and in the same general part of
the country on investments and other business undertakings which are attended by corresponding
risks and uncertainties." Utah Power & Light Co. v. Idaho Public Utilities Comm'n, 105 Idaho
822, 827 (1983). The Commission has the power and the duty to set rates of return within a"broad
zone of reasonableness."Intermountain Gas Co. v. Idaho Public Utilities Comm'n, 97 Idaho 113,
128 (1975). "The main elements in fixing reasonable rates for service rendered by [a]public utility
are the cost of rendering service on an economical and efficient basis, fair return to the utility on
ORDER NO. 36703 14

its property used and useful in such service and fairness to consumers."Application of Pacific Tel.
& Tel. Co., 71 Idaho 476, 480-81 (1951).
COMMISSION DISCUSSION AND FINDINGS
Under our statutory authority, we have reviewed the record in this case, including the
Company's Application, Amended Application, public comments, customer testimony, Staff
comments, and the Company's reply comments. Based on that review, we approve a revenue
requirement for the Company of$1,137,498. The Company shall satisfy this revenue requirement
with the two rate schedules described in this Order. Our decisions regarding the new rates and
charges are set forth in detail below. The Company's new rates shall go into effect August 1,2025.
1. Revenue Requirement
Our policy is to set a public utility's annual revenue requirement and rates using a historical
test year in which the utility's actual,booked costs and revenues are verified through auditing. See
e.g., Order No. 30342 at 8 (Case No. SWS-W-06-01). Based on our review of the record we find
there is no dispute on the use of October 2023 to September 2024 as the historical test year, and
that a historical test is reasonable and appropriate for this case. After establishing the test year,pro
forma adjustments are made to the actual test year data for all known and measurable changes to
the operating results of the test year. Id.
Using the above-described method, Staff recommended an overall revenue requirement of
$1,125,909. The Company did not object to Staff s recommended adjustments to the Company's
proposed Net-to-Gross Multiplier and generally agreed with the various expense adjustments Staff
recommended in its revenue requirement calculation,objecting to only two.Based upon our review
of the record, we find the undisputed adjustments Staff recommended, described above, as fair,
just, and reasonable and adjust the Company's proposed revenue requirement accordingly. Our
decision on each of the adjustments the Company disputed is set forth below.
a. Salaries
Retention of well trained and experienced employees benefits both the Company and its
customers. To do this effectively,the Company must offer competitive wages. We do not disagree
with Staffs use of the wage growth data from the Bureau of Labor Statistics, that national level
data does not adequately account for regional factors affecting the Company's efforts to attract
and retain employees. Specifically, working for the Company is more demanding than working at
other water utilities because of its multiple dispersed,rural systems that necessitate extended travel
ORDER NO. 36703 15

times, and limit centralized planning. Additionally, field workers face logistical hurdles, and small
office staff cover multiple roles—managing high volumes of customer service and regulatory
tasks. Rising living costs in Northern Idaho further hinder the Company's recruitment and
retention efforts. These factors all militate in favor of a higher salary increase than the 5% Staff
proposed. Accordingly, we find it reasonably to approve a 7.5% across-the-board salary increase
for the Company. This results in an$11,589 increase to Staff s proposed revenue requirement.
b. Depreciation Expense
The consistent application of proper depreciation rates is crucial to the calculation correct
depreciation expenses. Generally, we have directed regulated companies to use the depreciation
rates according to the guidelines set in the NARUC manual for small water utilities. After finding
useful lives assigned to similar assets across different PIS accounts, Staff recommended we set the
Company's depreciation rates in the same manner. The Company largely agreed with this,
objecting to only Staffs proposed deprecation rates for pumping equipment and office furniture
and equipment. However, it is incumbent upon the Company to present evidence to support its
proposed rate increase. We find the evidence in the record insufficient to justify deviating from
our established practice of using the guidelines in the NARUC manual for small water utilities.
Consequently, we find it reasonable to direct the Company to set its depreciation rates according
to the guidelines in the NARUC manual for small water utilities.
2. Rate Base
Staff recommended a net rate base of$3,774,729. The Company largely agreed with this
recommendation, proposing only a slight readjustment arising from its objections to Staffs
proposed depreciable lives.Based upon our review of the record and prior determination regarding
deprecation rates, we find Staff s recommended rate base reasonable.
3. Return on Equity
We find it just and reasonable to authorize the Company the opportunity to earn a 9.8%
ROE. This is consistent with the results of Staff s discounted cash flow analysis and reflects the
access to capital, risk mitigation, and other benefits the Company enjoys by having a large parent
company.
4. Rate Design
Based on our review of the record, we find it fair,just, and reasonable to approve Staffs
two proposed rate schedules contained in Exhibit O to Staff s comments with one caveat.
ORDER NO. 36703 16

Specifically, the Company should use a commodity rate of $4.07 per 1,000—not the $4.17
contained in Staffs proposed rates.1 This rate design provides for a more gradual change toward
the Company's goal of a single rate schedule for all its water systems and gives customers
additional control of their monthly bills depending on their usage.Accordingly,based on our above
findings and pursuant to our authority granted under Idaho Code § 61-622, we find that the
Company's existing rate schedules are no longer reasonable.
Similarly, we find Staffs proposal of a 7,500-gallon water allowance for all 1-inch
metered customers except those served by the LW and HV systems to be reasonable. This
allowance will mitigate the rate increase experienced by a majority of the Company's 1-inch
customers. Regarding LW and HV customers served by a 1-inch or 1.5-inch meter, we find a
15,000-gallon allowance to be reasonable. This allowance will mitigate some of the rate shock
these customers may otherwise experience by immediately halving their water allowance.
Finally,we find Staff s recommended$46.00 monthly minimum charge to be a reasonable
way for the Company to recover its fixed costs and reduce the risk of the Company under
recovering. However, going forward, we direct the Company to shift revenue recovery from the
minimum charge to the commodity charge as it gives customers more control over their total bill
amount and the ability to benefit from consuming less water.
In sum,we find that the Company's existing rates, charges, and practices are unreasonable
to the extent described above, and that those rates do not afford sufficient revenue to the Company.
See Idaho Code §§ 61-501 and-502. We also find it fair,just, and reasonable for the Company to
change its rates, charges, and practices as described in this Order.
5. Non-Recurring Charges
We also find the Company's proposal to add three new non-recurring charges to be
reasonable. The proposed $2,500 deposit for a meter assembly to connect to a hydrant and
purchase water during construction is a reasonable way for the Company to encourage customers
to return it in good condition. Similarly, it is reasonable to establish a$20 charge for a final meter
reading on an account and to provide a final bill to a title company when a property is sold.
Finally, we find the $30 annual charge for irrigation meters to be reasonable when installation
' While recalculating Staff s proposed rates to match the Company's approved revenue requirement, an error was
found that would have caused the Company to over recover if the recommended commodity rate was used.Correcting
for this error results in the$4.07 commodity rates approved above.
ORDER NO. 36703 17

and subsequent removal each take a single visit. If repeat visits are necessary, we find the $50
charge to be reasonable. However,we direct the Company to provide customers at least one week's
notice of the date installation will occur by letter, email, or text to ensure the backflow device is
ready for installation.
6. Unaccounted for Water Loss
In addition to the rate issues discussed above, we must address one more issue that arose
during this case. Over the last few years, Staff has received about ten customer complaints about
low water pressure. These complaints were echoed by customers in their comments and testimony
before the Commission. The lack of facility plans for many of the Company's water systems
undermined Staff's ability to determine whether they can meet peak demand.Accordingly,we find
it reasonable to direct the Company to submit facility plans to Staff for each system within 60 days
of each plan becoming available.
Additionally, Staff s analysis of the Company's water production and consumption
revealed that the Company has experienced approximately a 30% water loss during the test year.
The combination of low water pressure and significant water loss is particularly concerning.
Accordingly, we find it reasonable to direct the Company to perform the required root
cause analyses to identify specific causes of water loss and then develop a plan of actions that can
be taken to mitigate them by May 31, 2026. The Company must also follow-up with customers
and take reasonable steps to address the water pressure issues they are experiencing. The Company
shall demonstrate during its next general rate case the water loss reduction and water pressure
increase its efforts achieved.
ORDER
IT IS HEREBY ORDERED that the Company is permitted to increase its rates and charges
as described above.
IT IS FURTHER ORDERED that the Company must submit tariffs in compliance with the
rates and charges identified herein no later than 30 days from the service date of this Order.
IT IS FURTHER ORDERED that the Company shall make efforts to shift revenue
recovery from the minimum charge to the commodity charge in future rate change requests.
IT IS FURTHER ORDERED that,when reinstallation of irrigation meters is necessary,the
Company must provide at least a week's prior notification by either letter, electronic
communication, or text to ensure that a backflow device is ready and available for installation.
ORDER NO. 36703 18

IT IS FURTHER ORDERED that the Company shall submit to Commission Staff facility
plans for any of its water systems that do not currently have such a plan within 60 days of the plan
first becoming available.
IT IS FURTHER ORDERED that the Company shall conduct the necessary root cause
analyses to identify the specific causes of water loss its systems are experience and develop a plan
of action to mitigate these loses by May 31, 2026.
IT IS FURTHER ORDERED that the Company must also follow-up on and take
reasonable steps to address the water pressure issues its customers are experiencing. The Company
shall demonstrate during its next general rate case the water loss reduction and water pressure
increase its efforts achieved.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order about any matter
decided in this Order. Within seven (7) days after any person has petitioned for reconsideration,
any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 3 1" day of
July 2025.
G
EDWARD LODGE,/Pd., ENT
gn" �4
R. HAMMOND JR., COMMISSIONER
Recused
DAYN HARDIE, COMMISSIONER
ATTEST:
I jj��Q'
M nica Ba s- chez
Commission Secretary
I:\Legal\WATER\GS W-W-24-01_GRC\orders\GS W W2401_final_at.docx
ORDER NO. 36703 19