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HomeMy WebLinkAbout20260615NOTE SHEET 2.pdf NOTE SHEET 2 RECEIVED JUNE 15, 2026 IDAHO PUBLIC UTILITIES COMMISSION Item 1— Labor: Operations & Maintenance Pro Forma Increase Requested: $3,000 During the 2025 test year, Southshore 2 Water Company, LLC did not incur structured, recurring system security inspection labor. That absence of expense was not because oversight was unnecessary, but because the system had not yet experienced confirmed physical tampering. Since the close of the test year, the Company has experienced documented incidents of: • Wellhead tampering • Cut locks • Damage to the pump house These are not cosmetic issues. They involve critical drinking water infrastructure. Any unauthorized access to a wellhead or pump facility creates a direct risk to source water integrity and the health and safety of customers. Under IDAPA 31.01.01, a regulated utility must furnish safe, adequate, and reliable service and exercise prudent operational oversight. Failure to implement enhanced monitoring after known tampering would not meet that standard. Additionally, DEQ has recommended increased physical security and oversight due to heightened risk exposure. As the operator of record, the Company has a duty to respond to that recommendation. Operational Change Implemented The Company has implemented randomized weekly physical and or electronic inspections of: • Wellhead facilities • Pump house and electrical systems • Locks and access controls • Randomized meter locations for evidence of diversion or tampering Each inspection requires approximately: • 1.5 hours total per visit (travel +on-site inspection) • 52 inspections annually • Total Annual Hours: 78 hours The Managing Member performs this work at a reasonable and below-market rate of$45 per hour. Annual Cost Calculation: 78 hours x $45/hour = $3,510 For ratemaking purposes, the Company is requesting a conservative adjustment of$3,000, which is less than the fully calculated annualized cost. Why This Is a Known and Measurable Change This adjustment meets the standard described in the Small Water Company General Rate Case Application and Exhibit Guide • It did not exist in the 2025 test year. • It is ongoing and recurring. • It is fully quantified. • It is directly tied to safe system operation. • It is measurable using a clear hourly rate and documented inspection schedule. Why This Expense Is Necessary This is not discretionary labor. It is protective labor. If the Company fails to implement enhanced security oversight after confirmed tampering: • The integrity of the potable water supply is at risk. • The Company risks regulatory non-compliance. • The Company exposes customers to potential contamination events. • The Company exposes itself to enforcement action. In short, once tampering occurred, enhanced oversight became necessary from a prudent-operator standpoint. The requested $3,000 adjustment represents the minimum reasonable level of recurring inspection necessary to ensure: • Protection of source water • Protection of customer health • Protection of utility assets • Compliance with regulatory expectations The Company cannot responsibly operate the system under current risk conditions without this expense. Item 2— Labor: Customer Accounts Test Year& Pro Forma: $4,000 Customer Accounts labor reflects the time required to administer billing, collections, payment processing, and customer communications consistent with Commission oversight and the Utility Customer Relations Rules. The Company allocates: 3.5 hours per week Hourly rate: $22.00 Annual hours: 182 Annual cost: $4,004 (rounded to $4,000) Duties Included • Monthly billing preparation and reconciliation • Payment posting and credit card reconciliation • Delinquency monitoring • Preparation of Initial and Final Notices consistent with UCRR • Customer calls and written correspondence • Account setup and closures • Complaint documentation • Record retention An average of 3.5 hours per week represents minimal administrative time for a regulated utility performing recurring billing cycles and compliance-driven notice requirements. The Company performs these duties internally rather than employing third-party billing services or hiring a dedicated employee, resulting in materially lower expense than industry staffing norms. No pro forma adjustment is requested for Item 2. Item 3—Labor: Administrative & General Test Year: $2,000 Pro Forma: $3,200 Increase Requested: $1,200 Administrative & General labor reflects executive-level oversight, compliance coordination, financial reporting, and regulatory administration required of a Commission-regulated utility. The pro forma allocation reflects: 2.5 hours per week Hourly rate: $25.00 Annual hours: 130 Annual cost: $3,250 (reflected conservatively as $3,200) Duties Included • CPA correspondence and financial reporting coordination • Annual Report preparation and filing • Regulatory correspondence with Commission Staff • Tariff review and maintenance • Rate case preparation and workpaper development • Response to Production Requests under IDAPA 31.01.01.221-.240 • Participation in Modified Procedure schedules under IDAPA 31.01.01.201-.204 • Contract review • Maintenance coordination • Insurance coordination • Federal and State tax return coordination and filing specific to utility operations • Regulatory record retention Basis for$1,200 Increase The requested $1,200 increase reflects incremental labor directly attributable to formal regulatory oversight by the Idaho Public Utilities Commission. Once under Commission jurisdiction, the Company became subject to structured reporting and procedural requirements under IDAPA 31.01.01. These obligations materially increase administrative workload beyond historical operations prior to active Commission monitoring. The $1,200 increase represents approximately: 48 incremental hours annually Less than one additional hour per week Directly tied to regulatory compliance functions This adjustment is conservative and measurable. It reflects required compliance activity, not discretionary owner compensation. Historical Workload Basis (Since 2012 Operations) Southshore 2 Water Company, LLC has operated the water system continuously since 2012. Over more than a decade of operations, the Company has observed and or tracked and monitored actual weekly administrative and customer service workloads. The current weekly averages of: 3.5 hours per week for Customer Accounts, and 2.5 hours per week for Administrative & General functions are based on documented, recurring operational experience and observed time commitments over multiple years of service. These figures are derived from actual workload patterns associated with: • Monthly billing cycles • Seasonal customer inquiries • Vendor coordination • Financial reconciliation • Compliance tracking • Ongoing system management These are not speculative estimates or constructed figures for purposes of this filing. They reflect normalized workload averages observed over the course of operating the utility since 2012. The incremental compliance increase is similarly based on actual time commitments required to prepare Annual Reports, coordinate with CPA & Legal Services, manage tariff documentation, respond to regulatory correspondence, and prepare rate case materials. Combined Labor Summary Category Weekly Hours Hourly Rate Annual Cost Customer Accounts 3.5 $22.00 $4,000 Administrative & General 2.5 $25.00 $3,200 Total 6.0 hrs/week — $7,200 annually Total administrative and customer account labor equals approximately 6 hours per week, which is modest for a regulated water utility responsible for billing, compliance reporting, accounting coordination, tax filing support, and Commission procedural obligations. The requested increase of$1,200 is reasonable, historically grounded, narrowly tailored, and directly attributable to regulatory compliance requirements under IDAPA 31.01.01. Item 4—Salaries: Officers & Directors Pro Forma Amount Requested: $3,000 Annually Southshore 2 Water Company, LLC requests $3,000 annually for Salaries—Officers & Directors. Quantified Time Allocation Executive-level oversight performed by the Managing Member requires approximately: • 10 hours per quarter • 40 hours annually Using a conservative executive management rate of: • $75 per hour Annual calculated value: 40 hours x $75/hour= $3,000 The requested amount directly reflects this quantified time allocation and is not arbitrary. Frugal Compensation Structure The Company is operating conservatively and frugally. The requested $3,000: • Does not include employee benefits • Does not include health insurance • Does not include retirement contributions • Does not include workers' compensation premiums • Does not include employer-paid payroll taxes • Does not include employer FICA contributions • Does not include unemployment insurance If this were structured as a traditional payroll position, the Company would incur additional employer burdens typically ranging from 10%to 25% above base wages. Instead, those costs are absorbed within the hourly rate assumption, making the effective compensation materially lower than a traditional employee arrangement. The Company is not requesting any fringe benefits, tax gross-ups, or employer overhead adders. Nature of Officer-Level Duties Officer responsibilities are distinct from routine Customer Accounts and Administrative labor and include: • Strategic operational oversight • Regulatory supervision and compliance direction • Capital planning and infrastructure preservation • Budget approval and financial control • Risk management and liability oversight • Executive review of rate case materials • Emergency decision-making authority • Long-term system planning These are executive-level duties required to responsibly operate a regulated public drinking water utility. Reasonableness of$75 Hourly Rate A$75 per hour rate for executive oversight of a regulated utility is modest. Many third-party operators or utility consultants charge materially more for comparable executive-level responsibility. The total requested compensation equals: • $250 per month • $57.69 per week • Less than one hour per week on average This is minimal compensation for officer-level accountability over public health infrastructure. Separation from Return on Equity Officer salary compensates labor performed. Return on equity compensates invested capital at risk. The requested $3,000 represents compensation for actual executive work and does not duplicate or replace authorized return on rate base. Item 11—Contract Services— Professional Test Year: $730 Pro Forma: $1,480 Increase: $750 Contract Services— Professional reflects outside CPA and legal services necessary to maintain proper accounting, tax compliance, and regulatory compliance as a regulated public utility. Nature of Professional Services Professional services include: • CPA Services • Year-end financial statement preparation • Federal and State tax return preparation • Regulatory accounting coordination • Annual Report support and financial schedule reconciliation • Compliance review of accounting treatment • Assistance with rate case financial workpapers • Legal Services • Regulatory compliance review • Tariff review and revisions • Consultation regarding IDAPA compliance • Assistance with formal filings • Review of customer notices and termination compliance documents • Procedural guidance related to Commission requirements • Operational Approach— Frugal but Prudent The Company continues to perform as much administrative, bookkeeping, and compliance preparation work internally as reasonably possible in order to control costs. Management prepares workpapers, organizes documentation, and limits professional involvement to areas where specialized expertise is required. However, certain matters are not prudent to perform without licensed professionals, including: • Certified tax return preparation • Formal accounting review for regulated reporting • Legal review of regulatory filings and tariff language • Compliance consultation regarding Commission procedures Operating as a regulated public utility carries formal compliance obligations requiring periodic professional review. Engaging qualified CPA and legal professionals where appropriate is a prudent and responsible business practice. Basis for Increase During the test year, the Company operated without active Commission monitoring and incurred limited outside professional expense. As the Company transitions to fully regulated status, professional service requirements increase due to: • Preparation and filing of Annual Reports • Structured regulatory accounting expectations • Compliance reporting requirements • Rate case preparation and associated financial documentation • Potential discovery responses under IDAPA 31.01.01.221-.240 • Participation in Modified Procedure schedules under IDAPA 31.01.01.201-.204 Additionally, the Company anticipates increased CPA expense as bookkeeping and financial reporting are structured in a manner consistent with regulated utility standards. Tax return preparation costs are also expected to increase as financial reporting becomes more formalized and compliance-oriented. Reasonableness of Increase The requested increase of$750 annually is modest considering the transition from non-monitored operations to regulated utility status. The pro forma total of$1,480 remains conservative relative to: • The complexity of regulated reporting • The cost of professional CPA and legal services • The compliance exposure inherent in public utility regulation This adjustment reflects routine compliance and advisory support. It does not assume ongoing litigation or extraordinary legal matters. Conclusion The increase in Contract Services— Professional: • Is directly attributable to operating under Commission jurisdiction • Reflects anticipated increases in CPA and tax preparation costs • Accounts for regulatory compliance support • Demonstrates prudent reliance on licensed professionals where appropriate • Remains modest and conservative in scale The requested adjustment is reasonable and necessary to ensure accurate reporting, regulatory compliance, and responsible operation of a regulated public water utility. Item 14 — Mileage Expense (Transportation Expense) Increase Justification The Company is requesting a $500 annual increase in Mileage Expense to support the necessary travel between the Eagle office and Southshore 2 Water Company facilities in order to perform essential operational and regulatory duties. Basis for the Increase The IRS standard mileage reimbursement rate for business use of a personal vehicle for 2026 is $0.725 per mile (72.5 cents), reflecting updated cost data for operating a vehicle, including fuel, maintenance, insurance, and depreciation. Travel Pattern and Calculation The Company's primary office is located in Eagle, Idaho, and the operational facilities for Southshore 2 Water Company are located in the SSW service area, a 29-mile one-way distance. A one-way trip from Eagle to SSW and back is: 29 miles x 2 = 58 miles per round trip Using the IRS standard mileage rate: 58 miles x $0.725/mile = $42.05 per trip To support operations, compliance, and regulatory reporting activities under Commission jurisdiction, management estimates approximately 12 round trips per year between the Eagle office and the Southshore system. This is consistent with the need to conduct: Monthly operational inspections System checks required by DEQ and Commission oversight Site visits associated with accounting and regulatory reporting Coordination with contractors and professional advisors Annual projected cost using IRS rate: 12 trips x $42.05 per trip = $504.60 For budgeting and presentation purposes, this amount is rounded to $500 annually. Why the Expense Is Reasonable and Necessary The travel is tied to legitimate business and regulatory activities rather than personal use. The IRS mileage rate provides a recognized, defensible standard for vehicle operating cost calculation. The mileage reimbursement amount is a reasonable proxy for vehicle operating costs without tracking every individual expense element. This mileage expense reflects the minimum travel necessary to meet operational, compliance, and regulatory oversight obligations. Conclusion The requested $500 mileage expense: • Is based on the current IRS standard business mileage rate of$0.725 per mile; • Is grounded in documented, regular travel between the Eagle office and operational facilities; • Is derived using a transparent cost calculation and documentation approach; and • Is a necessary and prudent expense for operating and regulating the utility under Commission oversight. This increase is therefore reasonable and appropriately reflects the costs associated with necessary business travel required to serve customers and comply with regulatory requirements. Item 15 -Insurance Expense Pro Forma: $1,785 Increase: $1,785 Basis for Adjustment The Company maintains a dedicated insurance policy covering utility operations, facilities, and liability exposures associated with providing regulated water service. The annual premium for this policy is $1,785. This expense was not reflected in the Company's historic test year financial statements and therefore requires a pro forma adjustment to accurately reflect the ongoing cost of utility operations during the period rates will be in effect. Nature of Expense The policy provides coverage associated with: • Utility infrastructure assets • System facilities • General liability • Operational activities related to providing water service The expense is directly attributable to utility operations and represents an ongoing and recurring operating expense. Reasonableness of Expense Insurance is a prudent operating expense for a public water utility and helps protect utility assets and operations. The annual premium amount is known, measurable, and supported by current policy documentation. Because this expense was not included in the historic test year, failure to recognize the adjustment would understate the Company's actual ongoing cost of providing regulated water service. Conclusion The requested adjustment of$1,785 reflects the actual annual cost of maintaining insurance coverage for utility operations. The expense is known, measurable, recurring, and reasonably necessary for the continued operation of the utility and should be recognized for ratemaking purposes. Item 19 - Bad Debt Expense Pro Forma Amount: $340 Approximately 2% of Total Operating Revenue Southshore 2 Water Company, LLC is requesting a Bad Debt Expense allowance of$340 annually, which represents approximately 2% of total operating revenue. Historical Experience Historically, the Company has experienced minimal uncollectible accounts. Collection rates have been strong, and the Company has worked directly with customers to resolve delinquencies through payment arrangements and communication before service termination. The requested amount does not reflect a deterioration in payment behavior. Rather, it reflects a prudent and conservative accounting allowance. Basis for Allowance Bad debt expense is a standard operating cost for regulated utilities. Even in systems with strong collection history, a reasonable allowance is typically included to account for: • Customer turnover • Vacant properties • Bankruptcy or insolvency • Small balances written off due to cost of collection exceeding recovery • Timing differences associated with final billing An allowance of approximately 2% of revenue is modest and consistent with conservative utility accounting practices. The requested $340 is not based on anticipated widespread delinquency. It is a minimal reserve recognizing that complete zero write-offs cannot be assumed over time. Regulatory Considerations Under regulated utility accounting, it is appropriate to include a reasonable bad debt allowance rather than assume perfect collection. Failing to include a modest reserve would: • Understate realistic operating costs • Create volatility in future test years if a write-off occurs • Distort revenue requirement calculations The allowance ensures rate stability and more accurate cost representation. Reasonableness of 2% The requested 2%: • Is conservative • Is below many industry averages • Reflects the Company's strong historical collection performance • Provides stability without overstating expense Given the small size of the system, even one or two uncollectible accounts in a year could approach this level. Conclusion The $340 Bad Debt Expense: • Is modest and conservative • Reflects prudent accounting practice • Is not driven by anticipated deterioration in collections • Provides stability in regulated cost recovery • Is reasonable and appropriate for inclusion in operating expenses Item 20— Miscellaneous Expense Pro Forma Amount: $329 100% Credit Card & Electronic Payment Processing Fees The Miscellaneous Expense account reflects credit card and electronic payment processing fees only. It is not a general or discretionary expense category. 100% of the $329 annual amount represents transaction fees paid to third-party payment processors to allow customers to make electronic payments via: • Credit card • Debit card • Bank draft/ACH Nature of the Expense When customers pay their water bills electronically, the payment processor deducts a percentage-based transaction fee and/or per-transaction charge before remitting funds to the Company. These fees are: • Directly tied to revenue collection • Variable based on payment volume • Outside the Company's control • Necessary to provide electronic payment options The Company does not mark up or profit from these fees. Customer Utilization Most customers utilize electronic payment methods due to the convenience of: • Online payments • Automatic bank draft • Debit/credit card processing • Reduced need for in-person or mailed payments Electronic payments improve: • Timeliness of collections • Administrative efficiency • Reduction in paper billing and mail handling • Reduced risk of late or lost payments This service is widely expected by customers and consistent with modern utility billing practices. Why It Is Appropriate in Operating Expense These fees are a direct cost of collecting revenue. • If electronic payments were not offered: • Customers would face inconvenience • Delinquencies could increase • Administrative labor costs could increase • Mail handling and check processing would rise The modest $329 annual amount reflects the cost of maintaining payment flexibility and convenience for customers. Clarification Regarding "Miscellaneous" Label Although recorded under Miscellaneous Expense for accounting format consistency, this account is not a general expense pool. It represents a single, clearly identifiable cost category: Electronic payment processing fees. There are no discretionary or undefined charges included in this account. Conclusion The $329 Miscellaneous Expense: • Represents 100% electronic payment processing fees • Is directly tied to customer billing • Supports modern payment convenience • Improves collection efficiency • Is modest and reasonable This expense is necessary to provide customers with widely utilized and expected electronic payment options.