gnrw01.1mfuss Direct.doc

Q. Please state your name and business address for the record.
A. My name is Michael Fuss. My business address is 472 West Washington Street, Boise, Idaho.
Q. By whom are you employed and in what capacity?
A. I am employed by the Idaho Public Utilities Commission as a Staff engineer.
Q. What is your educational and professional background?
A. I have a Bachelor of Science Degree in Civil Engineering from Washington State University and a Master of Business Administration Degree from Boise State University. I am a licensed Civil Engineer in the States of Idaho, Oregon, and Washington. I am a past president of the Southern Idaho Section of the American Society of Civil Engineers and have been a member of various professional affiliations and service organizations.
I have over 13 years of Civil Engineering Experience in the areas of Municipal, Utility, and Development Civil Engineering and consulting.
While at the Idaho Public Utilities Commission I have attended the National Association of Regulatory Utility Commissioners (NARUC) Basic Training Program at New Mexico State University and the Northwest Public Power Association’s course on Unbundled Cost of Service and Rate Design.
Q. What is the purpose of your testimony in this proceeding?
A. I will provide testimony on the customer base, the system limitations, rate design and related topics.
Q. Please summarize your testimony.
A. The Ponderosa Terrace Estates Water System is a small water system located near Sagle, Idaho. The system has two supply wells, storage, and a looped unmetered distribution system. The current system supply can adequately serve 37 customers. However, there are currently 81 customers on the system. There are two main types of service arrangements, those with direct access through standpipes and those with only underground services. The service arrangements provide the basis for customer class determination. The customer classes and number of customers on the system include, Full-Time (18), Part-Time (11), Active Service (33), and Inactive Service (19) Customers. There are also six (6) Former Customers of the system. Based on the system limitations and the customer usage, I am recommending rates for Full-Time and Part-Time customers of $61.50/month and $9.00/month for Active Service and Inactive Service Customers. In coming to this conclusion, I developed four (4) other rate design alternative, and considered the two (2) rate designs provided by customers as well as the rates proposed by the Company.
I am advocating that the Company allow customers the opportunity to either join the system and begin paying monthly rates or leave the system to avoid paying monthly rates. In order to provide equity, I recommend establishment of a $2,500 hook-up fee for any new connections or the reconnection of Former Customers. I also recommend a reconnection fee of $25.00 for the routine turn-on of customers’ services.
I also encourage the Company to investigate additional on-call service opportunities and discuss the consumer rules associated with a regulated water company. A summary of these rules is: The Utility Customer Relation Rules (IDAPA 31.21.02); Customer Information Rules (IDAPA 31.21.02); Policies for Small Water Companies (IDAPA 31.36.01); and Rules of Procedure (IDAPA 31.01.01).
I look forward to the resolution of the contested issues and assisting customers and the Company with the transition to regulation.
Q. Have you had an opportunity to meet with the customers and tour the system?
A. Yes, I met with a group of customers on May 16, 2002. I also toured the system and performed a physical inventory of the customer base on May 17, 2002 with the owner, Robaer Cobott.
Q. Could you please describe the physical water system and service arrangements?
A. Certainly. The Ponderosa Terrace Estates Water System is a small water system located near Sagle, Idaho. It consists of two wells with a combined capacity of 25 gallons per minute, 10,000 gallons of storage, a chlorination system and fire hydrants. It has a looped distribution system composed of two (2), three (3), four (4), and six (6) inch diameter mains.
The unmetered system has several different service arrangements to provide service to customers under several different conditions. The typical service is a service line extended to the property with a curb stop valve adjacent to the roadway in a PVC valve box. Beyond the curb stop, the service is extended to either the customers dwelling or to the surface with galvanized pipe or a frost-free hydrant. If the service extended to a dwelling, then the service is either Full-Time or Part-Time. If the service is above ground and there are no dwellings, the arrangement is designated Active Service. However, many of the services are not extended to the surface beyond the curb stop. This type of arrangement is designated Inactive Service. Full-Time and Part-Time customers have either directly connected the service to their dwelling or use the above ground connection (pipe or hydrant) and a hose. Six Former Customers have no service to the property at all.
Q. Have you classified customers on the basis of service arrangement?
A. Yes, Customers with active service arrangements were considered Active Service Customers and customers with no service extension beyond the curb stop were considered Inactive Service Customers. However, regardless of the service arrangement, if a customer had a dwelling on the lot it was classified either as a Full-Time or Part-Time customer depending on whether the dwelling was the customers permanent residence or not. Customers with no service arrangements were considered Former Customers.
Q. Did you perform a customer inventory based on the described customer classes?
A. Yes. The following is a summary of my findings.
Customer Class Number of Customers
Full Time Customers 18
Part Time Customers 11
Inactive Service Customers 19
Active Service Customers 33
Former Customers 6
Total Number of Customers 87

I have also attached the results of my inventory and a list of relevant definitions as Exhibit No. 107 to my testimony.
Q. Is the water system capable of serving all of the potential customers identified in your inventory?
A. No. The water supply for the system is currently limited by the two existing wells. The older well (constructed in 1972) provides twenty (20) gallons per minute (gpm) and the newer well (constructed in 2000) provides five (5) gpm (Exhibit No. 108). The combined supply of 25-gpm can adequately serve only 37 customers.
Q. How did you come to that conclusion?
A. I performed a study based on the capacity of the existing wells from the well logs and the anticipated customer usage from the Company’s Chlorination System design report provided by Tucker Engineering dated 6/25/1999. I further confirmed the results by comparing the calculations to the historical usage of the system. I attached my study as Exhibit No. 109.
Q. What is your recommendation regarding new customer hook-ups?
A. I believe that the Commission imposed restrictions on any new hook-ups (Order No. 28845) should be modified to allow up to a maximum of 37 Full-Time or Part-Time connections. I also believe that this number could be increased if additional supply is developed or the Company provides an engineering study that proves the system can serve more customers.
Q. What rate design do you recommended?
A. Based on my customer class definitions and the current customer base inventory, I propose adoption of the following rates: $61.50 per month for Full-Time and Part-Time customers and $9.00 per month for Active and Inactive customers. The proposed rate design is justified because it is based on the customers’ use of the system, it reliably collects the revenue requirement, it is fairly easy to bill, and it somewhat resembles the Company’s original rate design. A summary of the rate design calculation designated as Option #3 is included as Exhibit No. 110.
Q. Did you consider any other options?
A. Yes. I considered a total of seven other options, four others submitted by Staff, two submitted by customers and one submitted by the Company. The resulting rates from these 8 options are attached as Exhibit No. 111.
Staff Option #1 allocates the revenue requirement only to the 18 Full-Time Customers at a rate of $125/month. I rejected this option because it was too burdensome on the Full-Time Customers.
Staff Option #2 allocates rates based on fixed/variable cost allocation and establishes Full-Time and Part-Time customer rates at $32.00/month and Active Service and Inactive Service Customer rates at $25.50/month. However, I rejected this alternative because it did not provide a proper price signal to all actual users of the system.
Staff Option #4 takes customer usage into consideration and provides different rates for all customer classes in the following manner: $64/month – Full-Time; $33/month – Part-Time; $17/month Active Service; and $9.00/month for Inactive Service customers. Although I believe this option captured the distinction between Full-Time and Part-Time customers, I was concerned that it might be too complicated for the Company to implement.
Staff Option #5 is a compromise between Option #4 and the Customers’ Option #6. I believe Option #5 is viable because it collects the revenue requirement and is based generally on recommended Option #3. However, it also takes into consideration the customers desired rate design. The rates resulting from this option are: $52/month – Full-Time; $33/month – Part-Time; $22/month Active Service; and $12.00/month for Inactive Service customers. However, I believe this rate design may also be too cumbersome to implement. (A more detailed explanation of Options 1-5 is included as Exhibit No. 112.)
Customers recommended Option #6, which sets rates at $40.00 for Full-Time and Part-Time Customers, $20/mo. for Active Service and $10/mo. for Inactive Service Customers. Even though these rates reflect the approximate rates the customers wish to pay, I believe the rates are arbitrary and may be indefensible if questioned. Therefore, I cannot recommend this rate design option.
I cannot recommend Customer Option #7 because the rates do not collect the Staff’s recommended revenue requirement. (A more detailed explanation of Options #6 & 7 is included as Exhibit No. 113.)
The Company’s Option #8 proposes a $60/month base charge for Resident Owners (Full-Time Customers) and $30/month base charge for Non-Resident Owners (All other Classes). The Company also proposes a usage charge of $.01/gallon.
I do not recommend this option because the collections would exceed the Staff’s recommended revenue requirement and the Company has not provided any proposal for the installation of meters. (Exhibit No. 114 is the Company’s letter dated May 30, 2001 describing the proposed rates.)
Q. Are there any other rate issues that have arisen but are not addressed by your options?
A. Yes, both the customers and the Company have mentioned the possibility of installing meters. While I agree that metered rates would likely be the most equitable for all Full-Time, Part-Time and Active Service customers, the installation cost of $300 - $800 per service could place an excessive burden on the Company and its customers.
Q. How do the rates proposed by Staff compare to other water systems throughout the state?
A. The rates proposed would be the highest of any non-metered system in the state by nearly double. See Exhibit No. 115for a list of the rates from all regulated water companies in the state.
Q. In your recommended rate design, you include customers that have inactive services. What incentive do these customers have to make the payments?
A. I agree an incentive is needed to encourage these customers to make the payments. I propose that a hook-up fee of $2,500 be established for the Company to provide both incentive and equity. The $2,500 hook-up fee is based on an analysis of the cost for a new source and the approximate number of customers that could be served by the new source (Exhibit No. 116). The hook-up fee will provide incentive because any customer that pays the monthly rate would avoid the hook-up fee should they ever wish to take water service in the future. It also provides equity by assessing customers who do not currently take service their share of the cost of a new source when or if they choose to begin taking water service.
Q. Do you propose that all customers pay a $2,500 hook-up fee when they connect to the system?
A. No, only new customers or members of the Former Customer class should pay the $2,500 fee. Customers that have continued to pay the monthly bills would be exempt from hook-up fees if they choose to build on the lot or otherwise increase their usage and access to water.
Q. How does a customer become a member of the Former Customer class?
A. Currently there are six (6) customers in this class. Some of these customers have wells and have chosen not to be a part of the system. Others have had their services removed because of non-payment or otherwise have not chosen to begin service.
I propose that Former Customers be given an opportunity to become a member of some other class and begin making monthly payments. I propose that a 60-day grace period be established to allow Former Customers the opportunity to move to some other class without paying the hook-up fee. After the grace period has expired, all new connections or new service to members of the Former Customer class will require payment of the $2,500 hook-up fee.
I also believe customers should be given the option to move to the Former Customer class at any time. However, all customers in the Former Customer class should be subject to a $2,500 hook-up fee when or if they choose to take service again from the water system.
Q. Should the Company be able to move a customer to the Former Customer Class?
A. Yes, the Company should be able to move a customer to the Former Customer class without the customer’s consent if a significant amount of time has passed without payment. I believe the Company should be allowed to move a customer to the Former Customer class only after 6-months of non-payment. Thirty (30) days prior to moving a customer to the Former Customer class, the Company should notify the affected customer of its intent to reclassify the customer and give them the opportunity to become current.
Q. Do you propose the same length of time (6 months) before the Company can disconnect a customer for non-payment?
A. No, the Company would follow the normal shut-off procedures outlined in the Utility Customer Relation Rules. The shut-off procedures usually result in customer’s service being disconnected after the bills for approximately two months of service becomes past due.
I believe moving a customer to the Former Customer class is a more serious action. It results in a customer losing access to water and becoming subject to paying the $2,500 hook-up fee and back bills owed before reestablishing service.
Q. Do you propose a reconnection fee for customers that have had their service turned-off?
A. Yes, a “reconnection” occurs when the customer asks the Company to turn on their service valve. This usually takes place after the customer has had their service turned-off for the season, for customer maintenance, or possibly after a disconnection for non-payment.
I recommend the establishment of a nominal $25.00 reconnection fee. I base this amount on the typical reconnection fee range of $25-$35.00 for other water systems throughout the state.
Q. Has the Commission approved any other fees or charges for the Ponderosa Terrace Estates?
A. No. In this case, Staff proposes only monthly water rates, hook-up fees and reconnection fees. The Commission has authorized no other fees for Ponderosa. Fees such as late fees, billing service charges, or interest charges are not allowed at this time.
Q. Do you propose the Commission impose any additional restrictions upon the Company?
A. No, however, regulated small water companies are required to file a number of rules. A list of some of the standard rules include, but are not limited to: The Utility Customer Relation Rules (IDAPA 31.21.02); Customer Information Rules (IDAPA 31.21.02); Policies for Small Water Companies (IDAPA 31.36.01); and Rules of Procedure (IDAPA 31.01.01). Copies of these rules were provided to the Company via letter on May 30, 2002.
Staff is willing to assist the Company in filing the appropriate tariffs upon completion of this case. I look forward to the resolution of the contested issues and assisting customers and the Company with the transition to regulation.
Q. Are there any other points you would like to add?
A. Yes, it has come to my attention that the Company no longer employs the previous on-site maintenance person, Mr. Larry Fairfax. Mr. Fairfax has provided a valuable service to the owner and the customers of the system over the years. He lives onsite and has been able to timely address the customers’ needs. If the owner and Mr. Fairfax are unable to come to a new understanding, I recommend that Mr. Cobott contact a local service company to provide on-call services if he is out-of-town or otherwise unable to provide these duties.
Q. Does this conclude your direct testimony in this proceeding?
A. Yes, it does.

GNR-W-01-1 FUSS, M (Di) 15
06/07/02 STAFF

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