20041220_1039.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:MICHAEL FUSS
JOE LECKIE
DATE:DECEMBER 17, 2004
RE:IN THE MATTER OF THE APPLICATION OF STONERIDGE
UTILITIES FOR AUTHORIZATION FOR A DEQ LOAN;
CASE NO. SWS-04-
BACKGROUND
Previous Commission Action
In Order No. 29320 issued on August 26 2003 , the Commission authorized CDS
Stoneridge Utilities (Stoneridge, Company) to incur indebtedness in the principal amount of
$213 500. The debt was approved to allow a service area expansion and interconnection of an
adjacent homeowners water system serving the Happy Valley Ranchos Subdivision (HVR). The
Commission further authorized Stoneridge to use a surcharge to recover the debt and financing
incurred to complete the project. The Commission ordered the monthly surcharge to apply only
to the HVR customers once the interconnection project is completed and water service provided.
However, the Commission reserved judgment on the appropriate amount of the surcharge until
the State Drinking Water Revolving Fund loan is finalized and construction costs are more
certain. Stoneridge Utilities was also directed to apply its currently approved rates to the HVR
customers once water service was provided by the utility.
In Order No. 29507 issued on May 28 2004, the Commission increased the authorized
indebtedness for Stoneridge to $323 990 from the State Drinking Water Revolving Fund. The
increased loan amount was due to increased contracting costs from $213 500 to $235 990 for
improvements authorized in August 2003. The increased loan amount also includes $88 000 for
additional system wide improvements required by the Department of Environmental Quality to
DECISION MEMORANDUM - 1 -DECEMBER 17 2004
meet the "Ten State Standards." The additional improvements include upgrading reservoir and
pumping controls and replacement of the Company s backup well pump. Project personnel
dubbed the original interconnection project as Phase I and the controls and backup well
improvements as Phase II.
In Order No. 29507 the Commission reaffirmed its authorization to use the surcharge
mechanism approved in Order No. 29320 to recover the debt and financing costs incurred to
complete the interconnection project (Phase I). Stoneridge was also directed to file the final
interconnection proj ect costs upon completion for the Commission to determine the final
reasonable surcharge level.
In its order, the Commission reserved judgment on how to collect the cost of the
backbone improvement project (Phase II). The Company was directed to file final construction
engineering, and financing costs for a proper recovery determination upon completion of the
system (Phase II) improvements.
Project Activity
Phase I
Construction began in July 2004 and the interconnection of the pipeline was completed in
August 2004. The booster pump station was completed in September 2004 and water began
flowing from Stoneridge to Happy Valley Ranchos.
The Company began charging Happy Valley Ranchos the current tariff rates for metered
consumption beginning in September 2004; however, those rates do not yet include any
surcharge. The Company reports that the Happy Valley Ranchos customers are extremely
satisfied with the improved water quality. At the time of the Company s Application, a few
items remained to be completed prior to close out of Phase I such as land reservoir painting,
installation of a flush valve, overall system flushing, land project documentation and final site
cleanup.
Phase II
When the contractor proceeded to perform the backup well replacement, significant
problems were found. After great effort the existing backup pump was removed from the well
casing. Further investigation determined that at some time in the past the well screen was moved
DECISION MEMORANDUM - 2-DECEMBER 17 , 2004
vertically and subsequently become lodged within the well casing. Project personnel then
determined that the well has collapsed at some depth.
The project engineer has explored a number of alternatives to rehabilitate the existing
well. The best possible result is a well with insufficient capacity to meet the Company s backup
needs. The project engineer has analyzed a number of alternatives to meet the backup well
requirements mandated by the Department of Environmental Quality The solution
recommended by the Company s engineer and supported by DEQ is to construct a new well and
pump at the backup well minimum required capacity of 600 gpm. The Company will maintain
the existing backup well casing for future possible incremental capacity expansion. The
estimated maximum capacity of the existing failed backup well is approximately 400 gpm.
APPLICATION
The Company is requesting authorization to incur indebtedness for a total loan amount of
$438 500 from the State Drinking Water Revolving Fund. The DEQ loan will be a 20 year loan
at an anticipated 2% rate. The increased loan amount is the result of increased costs from
$235 990 to $275 000 for the interconnection project (Phase I). The proposed final construction
costs for Phase I totaled $275 000 as set forth in Attachment A. This is an increase of$39 010
over the amount approved by the Commission in Order No. 29507, dated May 28 2004. The
increased costs are associated with higher engineering and easement costs as well as minor
contract quantity increases~
The request also includes increased cost from $88 000 to $163 500 for the controls and
backup well costs (Phase II). The increased Phase II costs are associated with increased
engineering costs and the unforeseen construction of a new well to replace the existing failed
backup well. The Company is now asking the Commission for authority to proceed with the
processing of the Application with the most current loan figures.
1 "Idaho Rules for Public Drinking Water Systems" (IDAPA 58.01.08.550.02.
p) - "
New community water systems
served by ground water and constructed after July 1 , 1985, or existing community water systems served by ground
water that are substantially modified after July 2002, shall have a minimum of two (2) sources if they are intended to
serve more than twenty-five (25) homes or equivalent."
DECISION MEMORANDUM - 3 -DECEMBER 17 2004
STAFF RECOMMENDATION
Staff has reviewed the contract documents and performed an on-site review. Staffhas
additionally reviewed the Company s additional loan requests and reviewed these requests with
the engineer for the Company and the DEQ officials. Based upon the above review, Staff found
that the increased costs are necessary to complete the projects as originally proposed and that the
increases are the result of either unforeseen circumstances or increased project requirements.
The Department of Environmental Quality has approved the increased loan request from the
State Drinking Water Revolving Fund subject to the Commission approval.
Staff recommends that the Commission approve the Company s Application with the
following recommendations:
That the Commission approves the amended request to increase the approval in
the loan amount for Phase I up to $275 0002. That the Commission approve the loan amount of$163 500 for Phase II but
continue to reserve any judgment on the complete and final amount of loan approval for Phase II.3. That the approval of this amendment be conditioned upon all remaining terms and
conditions of Order No. 29320 and Order No. 29507.
COMMISSION DECISION
Does the Commission to increase the authorized loan amount to $438 500?
Does the Commission accept Staffs recommendation?
i:udmemos/swswO4.dec memo
DECISION MEMORANDUM - 4-DECEMBER 17 2004
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