20090209min.doc

IDAHO PUBLIC UTILITIES COMMISSION

MINUTES OF DECISION MEETING

February 9, 2009 – 1:30 P.M.

In attendance were Commissioners Mack Redford, Marsha Smith and Jim Kempton.

The first order of business was approval of MINUTES FROM PREVIOUS MEETING on January 20, 2009. The minutes were approved by vote.

The next order of business was the CONSENT AGENDA. Commissioner Smith made a motion to approve the interconnection agreement in item 2, approve the broadband tax credit in item 3, approve Verizon’s application to amend an interconnection agreement in item 4, and set a time and place for oral argument in Idaho Power Case No. IPC-E-08-20, item 5. A vote was taken on the motions and it carried unanimously.

Regarding item 6, Commissioner Smith made a motion to issue a Notice of Application, establish an intervention deadline, and suspend the rates. A vote was taken on the motion and it carried unanimously.

Regarding item 7, Commissioner Kempton made a motion to move it to MATTERS IN PROGRESS. A vote was taken on the motion and it carried unanimously.

MATTERS IN PROGRESS:

7. Scott Woodbury’s February 6, 2009 Decision Memorandum re: Settlement Stipulation, Case No. PAC-E-08-07.

Mr. Woodbury reviewed his Decision Memo. Commissioner Kempton stated that because the case was settled by stipulation, it is almost obligatory that the Commission have at least one hearing in Rocky Mountain Power’s region. Commissioner Redford agreed but noted it might be difficult to explain “the black box” concept to customers when there is no back up documentation as to costs. Mr. Woodbury stated there is a date in the proposed procedure for the parties to submit supporting testimony to the Commission, and any public hearings in Eastern Idaho will follow that filing.

Commissioner Smith made a motion to approve the deadlines outlined in the memo and schedule time to conduct one or two public hearings in the company’s service area, with the details to be worked out when they have their calendars with them. A vote was taken on the motion and it carried unanimously.

8. Don Howell’s February 5, 2009 Decision Memorandum re: Eagle Water Company’s Application for a Surcharge, Case No. EAG-W-09-01.

Mr. Howell reviewed his Decision Memo. Commissioner Redford asked if the costs outlined in the memo will be expensed or rate-based. Mr. Howell replied that the company has a negative rate base and typically has completed its capital improvement projects in the past through bank loans and a surcharge so the lender can see a specific revenue stream. Commissioner Redford stated that it didn’t appear that Eagle Water will ever have a rate base if that’s the way the accounting is done. Mr. Howell said that when all is said and done, it might have a rate base of approximately $300,000. Commissioner Redford asked how the company can get a rate base if it is expensing the entire amount.

Kathy Stockton, PUC accountant, confirmed that about $400,000 is going toward rate base. Commissioner Redford asked if the company gets a loan from a bank for $900,000 plus, and the majority of the loan is to be expensed, then how can the bank get a security interest. Ms. Stockton replied that the bank will use the stream of revenues from the surcharge, and it wouldn’t necessarily be expensed, but would be capitalized and offset by the contributions. She said it would be like they expensed it but it wouldn’t build any rate base.

Commissioner Redford asked how meaningful rates can be set if there is such a low rate base. Molly O’Leary, attorney for Eagle Water, replied that this is an issue Eagle Water continues to struggle with. She said the approach the company has adopted, based on some conversations with Staff, is to take the amount already invested in Well No. 7, which is around $400,000, and put that into rate base. She said the Company cannot afford these improvements without this type of financing option, but going forward the company will continue to put improvements into the rate base to the best of its ability. She said this project is huge, however, due to the DEQ consent order regarding the redundant fire flow issue, and the company cannot afford to take it on themselves.

Commissioner Redford said he has no quarrel with the loan, but it seems the Commission is regulating Eagle Water by surcharge as opposed to rate base, rate of return, or return on equity. He said it makes it difficult to get a handle on it and at some point in time, there needs to be a significant rate base so that the Commission can regulate Eagle Water in the traditional method of establishing rates. He asked Ms. O’Leary if she had any idea when that might be. Ms. O’Leary replied that it is the intent of Eagle Water to eventually dig itself out of the rate base hole, but unfortunately, the last two times the company has established a surcharge have been brought about by the immediate need for additions to the infrastructure. She noted the process has been used by other small water companies and also noted that the company undergoes the same level of scrutiny as to whether or not these are necessary expenses. She added that Eagle Water’s rates, even with the surcharge, will remain approximately half of United Water’s rates and half of the City of Eagle’s rates, even with the surcharge. She said the company knows it has a rate base problem as reflected in those rates.

Commissioner Smith commented that if you are a customer of Eagle Water, you don’t think of it as a rate base problem but you think of it as a bargain, and you are requiring the customers to pay for the investments at the time they are being made, which means that the people who need them are paying for them, so it’s not all bad.

Commissioner Kempton asked how the company will accumulate revenue in order to fund capital in the future. Ms. O’Leary said it is her understanding that Eagle Water intends to come back under a different procedure to ask that some of its basic rates be increased because it is currently undercharging for a lot of its services, such as fees to disconnect service and reconnect, which are below costs. She said once the company gets the surcharge established, the intent is to look at the entire picture for Eagle Water and try to improve the rates wherever it can.

The Commission then voted unanimously to: (1) Allow Eagle Water to implement its proposed 48.075% surcharge; (2) Approve the loan request for $995,000; (3) Reserve its right to review the capital expenditures and other expenses for reasonableness and prudency and require Eagle Water to reconcile the surcharge and authorized improvements/expenses and if necessary, repay any costs disallowed by the Commission; and (4) Adopt Staff’s recommendation regarding the review and reporting requirements for the loan.

9. Don Howell’s February 4, 2009 Decision Memorandum re: Northern Lights Request for a Certificate Authorizing the Electric Co-op to Forward Its Unclaimed Deposits to the Community Action Partnership (CAP), Case No. C10-E-09-01.

The Commission voted unanimously to certify Northern Lights to participate in a financial assistance program with CAP for the purpose of assisting its low-income and disadvantaged customers with their utility bills and to send a copy of the certificate to the State Tax Commission (the administrator of the Unclaimed Property Fund). Commissioner Kempton stated he really liked the proposal and there ought to be a separate letter sent to the other co-ops in the state advising them of the action so that if they have similar unclaimed funds they could apply them to the same purpose. Commissioner Smith asked if Staff could also find out if the investor-owned utilities are already doing this and if not, the Commission could suggest it to them.

Commissioner Redford then adjourned the meeting.

Items 10 - 12 under the category of FULLY SUBMITTED MATTERS were deliberated privately.

DATED this ______ day of February, 2009.

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COMMISSION SECRETARY

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