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HomeMy WebLinkAbout20060720Audit report, letter.pdfIDAHO PUBLIC UTiliTIES com mission James E. Risch, Governor O. Box 83720, Boise, Idaho 83720-0074 Paul Kjellander, President Marsha H. Smith, Commissioner Dennis S. Hansen, Commissioner July 20, 2006 Robert DeShazo PO Box 455 Eagle, ill 83616-0455 Dear Mr. DeShazo: Attached is the audit report associated with the surcharge audit review conducted by Kathy Stockton, May 2006 in compliance with Order No. 29903, Case No. EAG-05- Please note the conclusion where a subsequent surcharge audit review will be conducted in September 2006. To assist Staff in tracking the surcharge revenues to meet the provisions established by the Commission, please notify me when surcharge collections reach $75 000. If you have any questions, please feel free to contact Kathy Stockton at 334-0360 or myself at 334-0356. If you would like to file a reply to the audit report, you may do so by written letter. Sincerely, 0umc GvJock Terri Carlock Audit Section Supervisor tc/eag_2 audit 72006 Located at 472 West Washington Street, Boise , Idaho 83702 Telephone: (208) 334-0300 Facsimile: (208) 334-3762 Case No. EAG-O5- In the Matter of Eagle Water Company Request for a Temporary Surcharge Idaho Public Utilities Commission Staff Audit Report Eagle Water Company Prepared by Kathy Stockton Senior Auditor July 12 , 2006 Introduction An audit of the surcharge collections was conducted at the offices of Eagle Water Company in Eagle, Idaho on May 31 , 2006. The purpose of the audit was to comply with Commission Order 29903, which states To avoid the mixing of surcharge revenue with other Company revenue Eagle Water shall book the surcharge revenues in a separate account. Withdrawals from the separate account shall be restricted to payments for the engineering study, and for legal and accounting expenses incurred in preparation of the Surcharge application and actions authorized in this Order. Staff shall audit this account for compliance. Scope The scope of the audit was to examine the surcharge collections authorized in Case No. EAG-05-02 for the months of December 2005 through May 2006. Staff examined the books and records documenting the surcharge, including the accounting records of the company, the monthly savings account statements, and the monthly loan statements. Staff verified that the surcharge was correctly calculated, that the surcharge funds were separated from the general funds ofthe Company, and that the surcharge funds were used for the authorized purposes. Background Eagle Water Company, with offices at 172 W. State Street in Eagle, Idaho, is a water company serving 3 197 customers (as of December 31, 2005) in the city of Eagle and the surrounding area in Ada County, Idaho. There are 2 842 residential customers and 355 commercial customers. With the exception of one commercial customer, all the customers are metered. Low water pressure has been a recurring problem for Eagle Water and its customers. During the last five years, there have been several causes of low water pressure in the system. In July 2000 a well pump failed resulting in low pressure, especially in the Eagle Springs subdivision. The Company installed a new variable speed pump at the well and installed a new booster pump to primarily serve Eagle Springs (Order No. 28513). In 2004 the bedding material holding the 12-inch mainline serving the booster pump was undermined. To prevent damage to the system, Eagle Water shut off the line. Eagle Water rerouted the line and replaced it with a temporary 8-inch line. In the summer of2005, customers in the Eagle Springs subdivision again experienced poor water pressure. The Company attributed the problem to uncontrolled irrigation usage. The customer complaints led the Commission to issue emergency Order No. 29840 directing Eagle Water to immediately correct the deficient water pressure in its service area. The Order directed Eagle Water to "use all deliberate speed" to increase low water pressure in the Eagle Springs subdivision (Order No. 29840, Case No. EAG-05-1). Eagle Water replaced the temporary 8- inch mainline serving the booster pump with a 12-inch line in August 2005. Order No. 29840 also directed the Company to prepare an engineering report for its entire system and to file a subsequent application for a surcharge. The Commission directed that the surcharge should recover the costs: (I) ofthe immediate system improvements to correct the low-pressure condition; (2) of preparing the system engineering report; and (3) to be incurred in preparing the surcharge application. On August 24 2005, Eagle Water filed its Surcharge Application. In addition to the three items mentioned above, the Company also proposed three additional infrastructure measures that it could implement to address the low-pressure concerns. The Company supplemented its Application on September 9, 2005. On October 27 2005, the Commission issued Order No. 29903 authorizing Eagle Water Company to implement a temporary rate surcharge. The Commission allowed Eagle Water to recover $85 395 in engineering, accounting and legal expenses but reserved judgment on the Company s request to recover an additional $40 027 expended to replace an 8-inch water main. The Commission ordered Eagle Water to submit additional information to substantiate recovery of this latter amount. The Company submitted its supplemental information on November 25 2005. The Commission authorized the Company to recover $2 511 of the $40 027. The Commission determined that Eagle Water did not adequately demonstrate that the remaining balance of its replacement costs was reasonable. The surcharge is designed to recover the following expenses: Description Install 12-inch line to replace 8-inch line Prepare engineering report Legal, accounting, and engineering expenses Income Tax Total Amount $ 2 511 $ 79 895 $ 5 500 $ 24 $112 414 Current Status Through the month of May 2006, Eagle Water Company had collected $15 743.19 of the authorized surcharge, leaving $96 670.81 yet to be collected. The surcharge is based on usage approximately 19 cents per hundred gallons over the first 600 gallons used ($0.451/ 100 gallons X 42.5% surcharge). Staff expects the months of June through September to produce the bulk of the remaining uncollected amount, as these months generally are the months with the highest usage, due to lawn watering or other summer uses. Staff intends to revisit the Company in September to follow-up on the collection of the surcharge. At that time, a determination can be made as to whether the surcharge can be ended early or needs to be extended. Staff does not expect the surcharge will need to be extended at this time. Surcharge Collections 2005 Jan - May 2006 Total Collected Remainder to be Collected Expenses &729.$13 983.46 $15 743.$96 670. Taxes Conclusion The surcharge is working as anticipated, and the Company is properly accounting for the surcharge revenue. Staff intends to perform another audit in September to determine the ongoing need for the surcharge.