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HomeMy WebLinkAbout20031201_702.pdfDECISION MEMORANDUM TO:COMMISSIONER KJELLANDER COMMISSIONER SMITH COMMISSIONER HANSEN COMMISSION SECRETARY COMMISSION STAFF LEGAL FROM:SCOTT WOODBURY DATE:NOVEMBER 21, 2003 RE:CASE NO. FLS-03-1 (Falls Water) GENERAL RATE CASE On July 25, 2003, Palls Water Company (Palls Water; Company), an Idaho not- for-profit corporation and holder of Certificate of Public Convenience and Necessity No. 236 filed an Application with the Idaho Public Utilities Commission (Commission) requesting authority to increase its revenue requirement by $129 564.25 (38%). Palls Water provides water service in the Idaho Palls area to approximately 1 507 metered residential customers, 11 multi- family residential customers, 30 metered commercial customers, and 574 flat rate residential customers. APPLICATION As set forth in its Application, the proposed 38% increase in water rates reflects the increased costs of maintenance and replacement of aging infrastructure and improving its customer service response. If the proposed increase is approved, metered residential customers of Palls Water would experience an average monthly increase of $6.39 (46%). Metered commercial customers would experience an average monthly increase of $15.96 (79%).Unmetered residential customers would experience a monthly increase of $4.27 (31 %). Multi- family residential customers would experience an average monthly decrease of $9.99 (-73 %) per unit. Palls Water requests the following change in water rates and charges: Schedule No. R-l-residential metered service Metered rates to increase from $10.00 for the first 20 000 gallons and $0.32984 per thousand gallons in excess of 20 000 gallons to $14.50 for the first 17 000 gallons and $0.40 per thousand gallons in excess of 17 000. DECISION MEMORANDUM Schedule No. R-residential flat rate service Monthly charges to increase from $13.73 to $18.00. Schedule No. R-3-residential multi-family Existing flat rate of $13.73 per vacant or occupied unit will be changed to a metered rate of $14.50 for the first 17 000 gallons and $0.40 per thousand gallons in excess of 17 000. The rate would apply to all duplexes, four- plexes, and apartment buildings where individual units in a building are not metered separately and/or living units cannot be sold separately. Schedule No. C-2-metered commercial service Existing rate of $10 for the first 20 000 gallons and $0.32984 per thousand gallons in excess of 20 000 gallons will be changed to $14.50 for the first 000 gallons and $0.40 per thousand gallons in excess of 17 000. Palls Water in its Application states as follows: That the need for filing its Application has come about due to the fact that the Company is currently operating at a loss. The requested increase in charges, it states, will result in revenues sufficient to pay for the current operating expenses and provide a small return, which will be held by the corporation for system improvements and replacement. The aging of many of the infrastructure assets of the Company is requiring more repair and replacement. Currently, about 900 of the 1500 meters in the system are in need of replacement over the next ten years. The annual replacement cost for 93 W' meters is $13 050. Routine maintenance, the Company states, is not being done with the frequency that it should be done. Maintenance on fire hydrants is not being completed as promptly as needed due to lack of funds and manpower. Por the same reason, Palls Water states that approximately 50 street valves are in disrepair and an additional 25 new valves have yet to be installed to correct deficiencies of needed street valves in older portions of the water system. The Company states that a new field employee was hired in 2003 and that another employee is needed. A study by its engineer compared the Palls Water Company employee total to the number of employees in other comparably sized water systems and found that Palls Water was 1.5 employees short of the average number of employees at the other water systems. Included with the Company s Application are the following attachments, schedules and proposed tariffs: 1. Copy of customer notification of this filing. 2. Three-year balance sheet 3. Three-year income statement DECISION MEMORANDUM 4. Calculation of rate base 5. Comparison of income at present rates and income at proposed rates 6. Explanation of rate calculations 7. Proposed tariff schedules in legislative format On August 21 , 2003 , the Commission issued a Notice of Application in Case No. PLS-03-01 and in Order No. 29317 suspended the Company s proposed October 15 2003, effective date. On September 22, 2003, the Commission issued a Notice of Modified Procedure in Case No. PLS-03-1. Reference IDAPA 31.01.01.201-204. A public workshop and opportunity for customers to present oral testimony was held in Idaho Palls on October 8 2003. No customers attended the workshop. No oral testimony was presented. The deadline for filing written comments was November 14, 2003. The Commission Staff was the only party to file comments. Reply Comments In Reply Comments filed by Palls Water on November 20 2003, the Company states that it has reviewed Staff s Comments, finds Staff s recommendations acceptable and urges the Commission to accept Staffs recommendations. The Company requests a December 15 , 2003 effective date. Staff Comments/Recommendations Staff comments and recommendations can be summarized as follows: Test Year, Rate Base, Return on Equity and Revenue Requirement Staff reviewed Palls Water Application and performed an audit of the Company financial books and records. Staff recommends changes to both the base rate amounts and the revenues and expenses proposed by Palls Water. Staff proposes a total rate base for Palls Water of $232 116. (Compare $341 553 in Company Application; Staff Comments Attachment C). Staff recommended return on equity of 12% equates to annual return on rate base of $13 132. Staff reminds the Commission that in the Company s last rate case, Palls Water was allowed to calculate rates with an authorized return on investment even though it is incorporated as a non- profit company.Retained earnings for Palls Water are to be used for expansion and improvements. Reference Order No. 28907, Case No. PLS-Ol- DECISION MEMORANDUM Based on Staff analysis and use of a Company proposed 2002 test year for expenses with adjustments for known and measurable changes, Staff recommends that the annual revenue requirement for Palls Water be set at $422 698. This translates to an overall revenue increase of $82 241 or 24% and compares to the Company s requested increase of $132 745 or 39%. (Company Application $129 564.25 (38%) amount is understated). Since the Company has a non-profit status, there is no need to gross up the revenue for income taxes. Staff Comments Attachments A and B enumerate Palls Water and Staff proposed adjustments. Rate Design In developing a rate design proposal for Palls Water, Staff makes adjustments for known and measurable changes in customers and customer usage. Staff believes that it is appropriate to have similar charges for similar usage and has developed a rate design based on both metered residential and flat rate residential consumption averaging 34,460 gallons per month. This amount is equivalent to the actual 2002 average flat rate customers' usage. Por ease of billing, Staffs metered rate design is the same for metered residential, multi-family residential and commercial metered service. Staffs preferred rate design option makes adjustments to both the base charge and the commodity charge. The first rate adjustment is a 15% increase in base charges or $1.50 for a base charge of $11.50. The second adjustment is an increase in the commodity charge to collect the balance of the Staff recommended revenue requirement. Plat rate charges are based on the adjusted commodity rate for their average 34,460 gallons of consumption. The resulting rate design is the following: Staff Rate Design Option 2 . Base & Commodity (H2O) Adjustment Vol.Annual Percent Flat or Included Rate per Usage In Change Ave Base in Base 1000 gal Excess of Total From Annual Customer Class No. Cust.Rate Rate Over Base Base Vol.Revenue Existinq Bill Flat Rate Residential 574 17.unlimited $ 120 540 27%$ 210. Multi-Family Residential 11.000 0.41 359 075 78%$ 188. Metered Commercial 11.000 0.41 938 135 21%$ 437. Metered Residential 1507 11.000 0.41 191 529 $ 286,493 17%$190. Totals 2122 214 826 $ 422 243 18% DECISION MEMORANDUM This rate design minimizes the summer peak bill impact and only slightly increases the average bills. It also provides the Company with 15% additional winter revenue. Multi-Family Residential Rates In the past, the owners of multi-family apartment complexes were charged the same as individual flat rate customers and all apartments were charged the flat rate whether they were occupied or not. The Company indicates that all apartment buildings are now metered. Staff believes that each metered building in an apartment complex should be billed as a separate customer and that each should be charged the monthly customer charge. This adjustment treats all apartment building owners equally, whether the apartments are built as stand alone or in a complex. It also provides additional winter revenue to the Company because of additional base charges. Known and Measurable Customer Changes The Company s Application indicates that there are 1 352 residential metered customers. As of September 2003 , the Company reported to Staff that the actual number of metered residential customers on the system was 1 507. Staff uses the known and measurable number of metered residential customers on the system for rate design purposes. Volume Included in Base Rate Palls Water has requested that the volume included in base rates be reduced from 000 gallons to 17 000 gallons.Staff performed a bill frequency analysis and found no noticeable changes in customer usage at 17 000 gallons that would justify a reduction. Purthermore, Staff believes a reduction in base commodity appears to penalize metered customers over flat rate customers. Based on flat rate customer usage considered in 2001 rate case and on the actual 2002 usage data provided in this case, the average flat rate customer uses 34,460 gallons per month. This compares to the average metered residential customer usage of 010 gallons per month. Therefore, Staff recommends that the volume included in base rates remain unchanged at 20 000 gallons. Actual Water Usage Palls Water uses 2002 water consumption data for its rate design calculations. Staff has reviewed the water consumption for both 2002 and 2001 and found that significantly more water was used in 2001 than in 2002. Staff has not ascertained the reason for this significant change. Whatever the reason, Staff believes that it is more appropriate to use both 2001 and DECISION MEMORANDUM 2002 usage in rate design calculations. Therefore, Staff in its rate design averages customer usage over the years of 2001 and 2002. Staff also normalized the electricity expense to reflect the additional water consumption used in the rate design calculations. Flat Rate Customers in Metered Service Territory In discussions with the Company, Staff discovered that there are approximately 50 customers in the metered service territory that do not have meters. Staff further discovered that these customers had meters prior to the 2001 rate case but the meters were removed in anticipation of Commission approval of a flat rate tariff change. In Order No. 28907 the Commission required the retention of the Tariff Schedule R-2 (Plat Rate) eligibility requirement. This decision effectively eliminated any additional flat rate customers outside of the original flat rate customer area. It also prohibited flat rate service for the approximately 50 customers in the area where the Company had removed the meters (Henderson Trailer Park). The Company s Application accurately includes these customers in the metered customer count but does not include any usage. Staff imputes usage as the average customer volume for these customers to more accurately reflect revenue generation potential.Staff recommends that the meters that were removed be replaced in compliance with Commission Orders and so as to provide an appropriate price signal and equity among all users. Water Conservation Flat Rate Customers Staff notes that the Company has no active conservation program and that its 574 flat rate customers have little incentive to conserve water. Staff recommends that the Company use a bill message or some other method of its choosing to give customers suggestions on water conservation and the wise use of water. Water conservation by customers would minimize upward pressure on rates by reducing pumping costs. Contributions in Aid of Construction By prior Commission Order, the Company was directed to start booking hookup fees to the Contributions in Aid of Construction (CIAC) account instead of to the revenue accounts. These hookup fees were to be used only for the addition of capacity or the expansion of major transmission lines. In 2002, the Company began booking these fees separately. However, Staff believes that the contributions should be further separated from revenues and tracked to assure the Commission and Staff that they are used for the intended purposes. Staff recommends that the funds be placed into a separate bank account and used only for documented upgrades for DECISION MEMORANDUM wells and major transmission lines. This will allow the Company to have some funds available when it is time for new wells or major lines to serve new customers. Collection Practices Based on discussions with the Company, it appears that the Company does not actively pursue customer collections after a customer has moved. Staff recommends that the Company turn over uncollected amounts to a collection agency. This would require little effort on the part of the Company and may result in additional revenue. Use of the Commission Rules regarding water shut offs would also allow the Company to pro actively reduce bad debt expense. Engineering Expense During the year 2002, Palls Water hired an engineer to perform a significant study regarding its impact area and future upgrade needs. The Company has been able to secure a DEQ grant to help expand the study to other water systems in the area. This project will help the Company map out its needs and service boundaries for the next 20 years. Staff recommends that the Company capitalize its engineering costs associated with the long-term study and other plant- related projects. By capitalizing the amounts instead of expensing them, both the Company and its customers will benefit. The Company will be able to capture the benefits of the projects over the life through a return on its investments in the projects and increase depreciation expense, and customers will not have to pay for it all at once. By capitalizing its projected engineering projects, the Company s revenue requirements are reduced.Staff calculated the difference between capitalizing projects and expensing a portion for depreciation and giving the Company a 12% return on the project as opposed to simply expensing the costs. The difference between capitalizing the $15 210 the Company proposes to spend on engineering costs and simply expensing it is $12 716. Staff recommends that the Company begin immediately to capitalize these items for its own benefit and for the benefit of its customers. Staff Recommendations Based on its analysis as more particularly described above, Staff makes the following recommendations: 1. That the revenue requirement for Palls Water be set at $422 698, a 24% increase in total revenue. DECISION MEMORANDUM 2. That Staffs proposed rate design option 2 - Base and Commodity (H2 Adjustment be adopted. Staff s recommended rate design results in an average 18% increase over existing rates. 3. That the Company book Contributions in Aid of Construction into a separate account and use the funds only for new sources of supply or major pipeline expansion. 4. That the Company capitalize its long-term engineering study costs and other plant-related projects. 5. That the Company begin replacing the 50 meters in the Henderson Trailer Park that were removed prior to the 2001 rate application. 6. That the Company implement additional collection practices to reduce bad debt expense. 7. That the Company provide water conservation/wise use of water information to customers. 8. That the Company request amendments to its Certificate of Public Convenience and Necessity prior to providing water service to customers outside of its certificated area. COMMISSION DECISION Palls Water in its Reply Comments recommends that Staff recommendations be adopted and that the rate change be effective December 15 , 2003. Does the Commission find it reasonable to adopt Staff s recommendations? Scott Woodbury bls/M:FLSWO301 sw3 DECISION MEMORANDUM Ordinary Income/Expense Income 400, Operating Revenue 460 ' Unmetered Revenue 461.1 . Metered Residential 461.2' Commercial Revenue 474, Other Utility Revenue Total 400 . Operating Revenue Total Income ; !::xpense i 1601.5' Labor Field .. 601.7' Labor Meter Reading 601.8' Labor Office 601.9' Admin.. Labor 603 .. Salarv Officers & Directors 604.. Emolovee Benefits 610' Purchased Water 615' Electrical Power 620.2 . Source M&S 620,6 . Distribution M&S 620.7 . Postage 620.8 . Office 620.81 . Telephone Exoense 620.82 . Bank Service Charges 631.1 ' Enoineerino 631.2' Accounting 631.3 . Attorney 635 . Testino 636.2 . Source Contract Reoairs 636.3 . Trash 636.6 . Contract Repairs I- 636.7' Data Processing . Rental of Property . Rental of Eauipmentb-' 650' Transportation Expense 656 . Insurance Expense 660 . Advertisina ExpenseJ '670, Bad Debt Expense 675.1 . Training Expenses 675.2 . Dues & Publications 675.4 . IDHW Fee Expense Total Expense Net Ordinary Income Other Income/Expense Other Income 1421 . Non-Utility Income Total Other Income Other Expense 403 . Depreciation Expense, 408. Taxes 408.11' Property Taxes 1409 11' State Income Tax Total 408 . Taxes 408.10' Regulatory Fee 426 . Misc. Nonutility ExpenseS 427.3' Interest Expense 615.1 . Electrical Power.. BHE 615.2' Andco . Electricity 620.21 . Source M&S - BHE 620.61 . Black Hawk Distr M&S ~ 620.62 . Andco Distr M&S f 620.811' Telephone. BHE 635.2 . Testing .. Andco Total Other Expense Net Other Income NetJncome , ' 2002 Actual Results 104 171 227 542 284 1,460 340,457 340,457 49,784 280 000 000 112 858 924 216 372 539 380 743 210 000 367 808 311 169 299 11,800 300 112 029 918 081 619 290 860 860 342 242 (1,785) 125 125 22.031 647 677 848 513 023 927 657 495 844 320 61,350 (36,225) (38010 Falls Water Adjustments Field Labor 777 348 125 Organization Changes (26 700) 168 704 050 132) Employee Benefits 646 800 Averaging Expenses 800 145 ,82 276 527 811 769 351 Attachment A Pace One of One Reduced Expenses 100 " ' Engineering ActualExpenses Increases 628 (743) (21 000) 800) 543)(21 000)121 Adjusted Loss Return on Assets Total Increase Requested Total Revenue ReQuested Percentage Non Utility 980 493 (17,174) 972 (13,180) (5,927) (657) (495) (844) (320 (15) (21 438) Return Reserve 986 .. . Falls Water Proposed 104 171 227 542 284 1,460 340,457 340,457 108 561 628 300 168 704 800 112 858 069 898 000 185 380 210 000 643 335 122 190 068 000 350 112 029 898 081 619 390 900 180 398 790 (58 333) , ' 951 951 22,031 619 649 848 334 515 41,377 (33 426) (91,759 986 132,745 473 202 39% Attachment A Case No. FLS-O3- Staff Comments 1A/,,)O/A'l Staff Adjustments I- Field Management Emolovee Averaging Enaineerinn Office Bad Electricity Return Total I Falls Water Labor Fee Benefits Expenses Expenses Exoenses Debt Normalization Reserve Staff Proposed Proposed Ordinary Income/Expense Income 400 . Operating Revenue 460 . Unmetered Revenue 104 171 104 171 461.1' Metered Residential 227 542 227 542 461.2' Commercial Revenue 284 284 474, Other Utility Revenue 1,460 460 Total 400 . Operating Revenue 340 457 340 457 Total Income 340,457 340,457 Expense 601,5. Labar Field 108 561 (14,022 539 601.7 . 'Labor Meter Reading 628 628 601.8' Labor Office 300 300 601.9' Admin - Labor 168 168 603 - Salarv Officers & Directors 704 000)704 604 .. Emolovee Benefits 800 2,700 100 610. Purchased Water 112 112 615, Electrical Power ) 70 858 424 282 620.2' Source M&S 069 145\924 620.6 ' Distribution M&S 898 682 216 620.7' Postaae 000 000 620.8 . Office 185 879 306 620.81 . Telephone Expense 380 380 620.82 . Bank Service Charaes 631.1' Engineering 210 112,716 2,494 631.2' Accounting 000 000 631.3' Attomev 643 (276 36, 635. Testino 335 335 636.2 . Source Contract Reoairs ' 6 122 811)311 636.3 . Trash 190 190 636.6 . Contract Repairs 068 769 299 636.7' Data Processina 000 000 641 . Rental of Propertv 350 350 642 . Rental of Eouipment 112 112 650 . Transoortation Expense 029 029 ;6 ' Insurance Expense 898 898 jO . Advertising Expense 081 081 1670' Bad Debt Exoense 619 656)964 1675.1' TraininaExoenses 390 (100 290 1675.2' Dues & Publications 900 40)860 1675.4' IDHW Fee Expense 180 180 Total Expense 398 790 (14 022)000)(2,700)(13 824)(12,716)(2,879)(656)424 361 418 Net Ordinary Income . '58 333)(20 961 Other Income/Expense Other Income 1421 . Non-Utility Income 951 951 Total Other Income 951 951 Other Expense 403 . Depreciation Expense 031 031 408, Taxes 1408,11 .. Property Taxes 619 619 409.11' State Income Tax Total 408 . Taxes 649 649 408.10' Reaulatory Fee 848 848 426 . Misc. Nonutilitv Expenses 334 334 427.3' Interest Expense 515 515 615.1 . Electrical Power - BHE 615:2 . Andco - Electricity 620.21 . Source M&S . BHE 620.61 . Black Hawk Distr M&S 620.62 . Andco Distr M&S 620.811 . Teleohone - BHE 635.2' Testing. Andco ' Total Other Expense 377 377 Net Other Income (33,426)(33 426) Net Income 91,759 (54 387 Return on Assets Reauested 986 (13 132)854 Total Increase Recommended 241 Total Revenue Recommended 422,698 Percentaae Increase Recommended 24% Attachment B Pane One of One Attachment B Case No. FLS-03- Staff Comments 10/29/03 IFalis Water Company Rate Base Analysis Company Proposed Utility Plant in Service 592,484 (Accumulated Depreciation)(293 712) Working Capital 780 Total Rate Base 341 553 Return at 12%986 Staff Proposed Utility Plant in Service 592,484 Accumulated Depreciation (316 826) CIAC (43 542) Total Rate Base 232 116 Return at 12%854 Difference 132 Staff Attachment C Paqe One of One Attachment C Case No. FLS-O3- Staff Comments 1 ('\/"'('\/(\').