20020826_247.pdf

TO:
FROM:
DATE:
RE:
DECISION MEMORANDUM
CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
TONY A CLARK
DON HOWELL
DAVE SCHUNKE
MIKE FUSS
RANDY LOBB
BOB SMITH
LYNN ANDERSON
GENE FADNESS
WORKING FILE
SCOTT WOODBURY
AUGUST 22, 2002
CASE NO. GNR-02-2 (Aspen Creek Water)
APPLICATION FOR CERTIFICATION OF PUBLIC CONVENIENCE AND
NECESSITY
On March 27 2002, Aspen Creek Water Co., Inc. (Aspen Creek; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting a Certificate of
Public Convenience and Necessity to serve a small water system located in the Fish Haven
Idaho area in Bear Lake County. Reference Idaho Code ~ 61-526; IDAPA 31.01.01.111. The
Company presently has 29 part-time customers (summer homes) in a subdivision that has 65 lots.
Additional development, the Company states, could grow the water system to more than 200
customers.
Aspen Creek's present water rates are $25 per month for the first 15 000 gallons and
$1 per 1 000 gallons after that. No one, the Company states, presently uses more than the
monthly minimum. The Company reports that there is only one customer that waters any grass
at all. All customers are required to have water meters.
DECISION MEMORANDUM
Included with the Company s Application is a balance sheet and income statement.
Also included is a detailed legal description of the area along with a subdivision plat map, and a
piping map. The piping map is "as built" except for a booster station that is not needed at this
time and a well house that is not entirely complete yet.
On June 4, 2002, the Commission issued a Notice of Application and Modified
Procedure in Case No. GNR-02-02. A copy of the Commission s Notice was mailed to each
customer currently taking service. The deadline for filing written comments was August 1
2002.Commission Staff was the only party to file comments.Staff has reviewed the
Company s filing, visited the Company s offices, reviewed its financial position and toured the
service area. Staff's comments can be summarized as follows:
Service Area:
Regarding the proposed service area, Staff found the legal description contained in
the Company s filing to be inadequate and requested more precise information. Aspen Creek
complied with Staffs request. The legal description for the service area should read as follows:
The service area of the Aspen Creek Water Company is located in
Township 16 South, Range 43 East, Boise-Meridian, Bear Lake County,
Idaho. More specifically as follows, portions of the Southwest One-
Quarter and West One-Half of Section 15, also including portions of the
North One-Half of the Northwest One-Quarter and the West One-Half of
the Northeast One-Quarter of Section 22.
A full legal description of each parcel within the service area is on file with the Commission.
Financial Position:
Attached to Staffs comments is a pro forma income statement and a pro forma
balance sheet for Aspen Creek. Staff believes that it is reasonable to recognize certain operating
costs that the Company reasonably can anticipate that were not incurred during the first partial
year of operation. Among these costs are: Idaho Department of Environmental Quality Annual
Assessment Costs; Idaho Public Utilities Commission Annual Regulatory Fees; required annual
water testing expenses; and reasonable travel expenses.Staff also adjusted the reporting
revenues to eliminate homeowner association charges not related to the water service operation
and annualized the revenues that would have been collected for the year at the $25 per month
rate requested by the Company. Staff has also adjusted the reported revenue to treat customer
hook-up charges ($1 000 per hook-up) as contributions in aid of construction rather than
DECISION MEMORANDUM
revenue. Coincident with the adjustment for hook-up charges, Staff has eliminated the actual
cost of making the hook-ups from the Company s expenses and has capitalized these costs to the
plant and service accounts. This approach, Staff contends, is a more appropriate method of
accounting for such costs and charges.
The pro forma income statement developed by Staff produces a net pro forma loss for
the partial year 2001 of $1 986.96. To overcome this loss, the rates for this Company would
have to be increased to an average of $36.83 per month for each of the 14 customers connected
to the system during the 2001 partial year. Staff notes that this Company is a young company
just beginning to develop its customer base. The water company is owned and operated by the
developers of the subdivision. The water company has no investment in the initial backbone
system. Reference Commission Rule 103 for Small Water Companies. The existing subdivision
is platted for a total of 65 building lots. Staff believes it is reasonable for the owners/developers
of this subdivision and water system to expect the development company to bear some of the
water system operating costs until such time as a reasonable customer base is established.
Staff notes that the Idaho Department of Environmental Quality requested that the
owners of this water system establish a reserve account to ensure that there are funds available to
pay for future repair and replacement costs. The Company complied and set up an escrow
account at their bank for this purpose. At December 31 , 2001 , this account had a balance of
598, that includes interest earned on the original amount of $4 559. Staff supports and
encourages the use of such a reserve account for small under-capitalized water companies. To be
most effective, Staff recommends that the account should only be used for major repairs and
replacement costs rather than day-to-day operation and maintenance costs.
Revenue Requirement and Rate Design:
Based upon the limited financial data available at this time, Staff recommends that
the rates proposed by the Company be approved. Even though the rates today result in a loss
Staff contends that to increase the rates at this time would likely result in over-collection. All
the development lots are ready for hook-ups and many connections are planned in the future.
Staff notes that the rates proposed by the Company are a $25 per month minimum
charge that includes the first 15 000 gallons of water consumed per month plus $1 per 1 000
gallons in excess of 15 000 gallons consumed per month. Staff has been informed that, because
of the part-time use of the vacation homes connected to the system, no customer has ever
DECISION MEMORANDUM
exceeded the 15 000 gallons per month included in the minimum charge. The rates of the
Company, Staff contends, are more like a flat rate (unmetered) system but with the conservation
incentive of meters to discourage unnecessary waste of water.
Reconnection Charges:
In its Application, Staff notes that the Company was silent regarding charges to be
imposed when and if a customer is disconnected from the system. It is normal practice, Staff
contends, for a utility to impose a reconnection charge to help defray the cost of actually
performing the disconnection and reconnection. The imposition of these charges is intended to
avoid passing these costs onto other customers through basic water rates.
On July 29, 2002, Staff notes that it filed comments on this issue in Case
No. SWS-02-01 for the Stoneridge Water System in Blanchard, Idaho. Stoneridge, like
Aspen Creek, Staff contends, is primarily a vacation or second home type community. Such
water systems can and should expect to receive requests from customers for seasonal water
disconnections. When this occurs, the Company will realize a reduction in its revenues during
the period of disconnection. This revenue reduction will lead to upward pressure on the basic
water rates of the Company. In recognition of this problem, Staff in the Stoneridge case
recommended two separate and distinct reconnection charges. The first would be assessed for
customers who for any reason were temporarily disconnected for a period of less than thirty (30)
days. The second reconnection charge (seasonal disconnection) would be imposed on customers
who at their own request were disconnected for a period of more than 30 days. Staff believes
this approach is appropriate for Aspen Creek as well, and proposes a normal reconnection charge
(30-days or less) of $15 during normal business hours and $25 for after hours or weekend
reconnections. Reconnection charges for seasonal disconnections (more than 30-days), Staff
contends, should be set at three (3 x) times the monthly minimum charges, in this case that
would be $75 during normal business hours with an additional $10 charge for after hours or
weekend reconnections. Staff believes this approach is fair and equitable to all ofthe customers
in the Aspen Creek system as well as the Company. With such a policy, Staff contends, the
Company s rates are stabilized, full-time customers who did not disconnect from the system are
not required to pay the short-fall in revenues created by the seasonal customers, the seasonal
customers make their decision to disconnect based upon factors other than avoiding water bills
DECISION MEMORANDUM
and seasonal customers pay a more proportional share of the fixed costs required to operate and
maintain them for their benefit.
Consumer Relations:
The Consumer Staff is working with Aspen Creek Water Company, Inc. to ensure
that billing information and customer notices provided to customers in the future will comply
with the requirements set forth in the Commission s Utility Customer Relations Rule (UCRR),
and Utility Customer Information Rules (UCIR).
Staff notes that the Company has been provided a set of tariffs outlining general rules
and regulations for small water companies that Aspen Creek Water Company has reviewed and
has agreed to adopt. It will sign those tariff pages and return them to the Commission for its
approval.
Staff notes also that the Company submitted a copy of its bill statement, a seven-day
disconnect notice, a 24-hour disconnect notice and a summary of rules. The Company, Staff
states, has willingly agreed to make minor changes to bring its forms into compliance with the
Commission requirements. Of particular note, the out-of-state telephone number provided on
bill statements is a local number for Fish Haven residents.
Management and Operations:
Staff contends that the Company s management and operations appear to meet or
exceed the Commission s minimum requirements. The management of the Company, Staff
states, has experience managing similar activities. The system-certified operator has an in depth
knowledge of the system and previous experience operating similar systems in and around the
Bear Lake area.
Staff Recommendations:
Staff recommends that the Company be granted a Certificate of Convenience and
Necessity for the geographic area identified in Staffs comments. Staff recommends that the
Company s rates be approved as requested in the Application with periodic Staff audits to assure
that rates remain at an appropriate level. Staff also recommends that the Company establish a
reconnection charge of $15 for customers disconnected from the system for thirty-days or less
and a reconnection charge of $75 for customers disconnected from the system for a period of
more than thirty days, with an additional $10 charge for after hours or weekend reconnections.
DECISION MEMORANDUM
Commission Decision
Aspen Creek Water Company has applied for a Certificate of Public Convenience
and Necessity to serve a small water system located in the Fish Haven Idaho area in Bear Lake
County.Staff recommends that a Certificate be granted and that the Company s rates be
approved as requested. Staff also recommends that a reconnection charge be approved.
Does the Commission find it reasonable to grant a Certificate and approve the
requested and recommended rates and charges?
Does the Commission find it reasonable to require the Company to adopt and
implement the Commission s Customer Relations Rules (IDAPA 31.21.01),
Customer Information Rules (IDAPA 31.21.02), and Small Water Policies
(IDAPA 31.36.01), including an accounting system consistent with the
information required by the Commission s annual report for small water
companies?
Does the Commission find it reasonable to require Aspen Creek to notify its
customers, including property owners listed, but not yet taking service, of the
Commission approved rates and policies?
Does the Commission find it reasonable to require Aspen Creek to make
written Petition or Application to the Commission prior to any proposed
change in ownership of the Aspen Creek Water Company?
Scott Woodbury
VldIM:GNRWO202 sw2
DECISION MEMORANDUM