ipce01.29swrps.doc

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE COMPLAINT OF STUART GREENE, DBA SHADOW MOUNTAIN ESTATES LLC, AGAINST IDAHO POWER COMPANY REGARDING ELIGIBILITY FOR LINE EXTENSION REFUNDS. )
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CASE NO. IPC-E-01-29

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the formal complaint of Stuart Greene filed on July 30, 2001 and the answer of Idaho Power Company filed on September 14, 2001, submits the following comments.

BACKGROUND
The Commission Staff was first contacted by Stuart Greene, agent for Shadow Mountain Estates, LLC (Greene; Shadow Mountain), on May 7, 2001. At that time, Greene complained that Idaho Power Company (Idaho Power; Company) was refusing to consider his residential development in Mountain Home, Shadow Mountain Estates, to be eligible for individual lot refunds under Rule H, Idaho Power’s line extension rules. Staff discussed the complaint at length with both Greene and Idaho Power and determined that while Greene’s complaint may have merit, it was moot until a subdivision plat was actually approved for the property in question. Greene assured Staff at that time that approval of a subdivision plat by the city of Mountain Home was imminent. Approval of the plat was later obtained on June 11, 2001.
At the time of Staff’s initial investigation, Staff believed that both Greene and Idaho Power had reasonable positions. Staff attempted to resolve the complaint informally; however, both parties strongly disagreed about how the complaint should be resolved and neither was willing to compromise. Negotiations between the parties reached an impasse.
On July 30, 2001, the Commission received a letter from Mr. Greene requesting that a formal complaint be initiated against Idaho Power regarding eligibility for line extension refunds. Both parties desired for the Commission to decide how to resolve the complaint through a formal complaint proceeding. A summons was issued to Idaho Power on August 28, 2001. Idaho Power responded to the summons on September 14, 2001.

DESCRIPTION OF THE COMPLAINT
Shadow Mountain Estates LLC owns property located at 2295 American Legion Blvd. in Mountain Home. The property was originally approved by the city of Mountain Home as a manufactured home leasehold community. Initially, 71 lots were developed. Because the lots were intended to be leased rather than sold, the property was platted as one lot with 71 individual meters. Idaho Power billed Shadow Mountain a total of $97,905. Shadow Mountain paid the full amount and the line extension needed to serve each of the lots was installed.
In accordance with its Rule H, Idaho Power classified the project as a “multiple occupancy” project instead of a “subdivision” because as platted, the project met the Rule H definition of “multi occupancy” but not “subdivision.” The ramifications of the multiple occupancy classification were a lower allowance and the inability to qualify for $800 per lot refunds as each lot became permanently occupied. Shadow Mountain argued that the line extension facilities to be installed would be identical regardless of whether the property was platted as one lot or as 71 lots. Despite its objection, Shadow Mountain accepted that the development did not meet the definition of subdivision contained in Rule H and therefore was not entitled to an $800 refund for each lot that became permanently occupied.
Shadow Mountain understood that the project, as platted, was being treated as a multiple occupancy project and admits that platting was discussed with Idaho Power’s representative. Shadow Mountain contends however, that there were never any discussions with Idaho Power that if the property was changed to a platted subdivision, that it had to be done in a specified time frame to be eligible for the $800 per lot refunds. Shadow Mountain apparently believed that if the status of the property was changed in the future to meet Idaho Power’s definition of a subdivision, that it would then become eligible for refunds as a subdivision.
Shadow Mountain has now platted the original 71 lots, along with an additional 56 lots, as a subdivision in which all lots will be sold. Although a line extension request has not yet been made for the new phase of 56 lots, Idaho Power agrees that the new lots will be eligible for refunds since a subdivision plat has been recorded. Both Idaho Power and Shadow Mountain also agree that there is no difference between either the electrical facilities to be installed or in the nature or expected energy usage of the customers in the initial phase and in the new phase.

Idaho Power’s Position
Idaho Power contends that it correctly followed its Rule H tariff. The development did not meet the definition of a subdivision at the time application for a line extension was made, and therefore, the Company contends, Shadow Mountain should not be entitled to refunds now, even though the property is now platted as a subdivision and lots in the old phase are identical in terms of needed facilities and expected revenue. Idaho Power also cites the following from Rule H in defense of its position:

Existing Agreements

This rule shall not cancel existing agreements, including refund provisions, between the Company and previous Applicants, or Additional Applicants. All Applications will be governed and administered under the rule or schedule in effect at the time the Application was received and dated by the Company. [emphasis added]

Idaho Power interpretation of this rule is that it should apply the line extension rules based on the status of the Applicant at the time the application for a line extension is made, and that any subsequent change in the applicants status, such as becoming a platted subdivision, is immaterial.

Shadow Mountain’s Position
Shadow Mountain believes that its development is now platted as a subdivision by Elmore County and that it meets Idaho Power’s definition as a subdivision. Consequently, it believes that it should be entitled to refunds as a subdivision. Shadow Mountain agrees that it did not meet Idaho Power’s requirement as a subdivision at the time it requested line extension facilities to be installed, but believed it would be treated as a subdivision if it met the definition in the future. Shadow Mountain points out that the installed facilities were no different than if the development had been platted as a subdivision from the start, and that electrically-heated, owner-occupied homes are intended to be built on all lots in the subdivision.

Staff’s Position
Staff believes that both positions have merit. Idaho Power appears to be relying strictly on its tariff and attempting to apply the tariff in a non-discriminatory way. However, Staff believes that Idaho Power’s is reading too much into the tariff language. Staff does not fully agree with the Company’s interpretation. Staff thinks that the issue in this complaint is not clearly addressed in the tariff. In Staff’s opinion, a change in the status of a development after a line extension has been installed was never contemplated when Rule H was drafted.
In Staff’s opinion, the portion of Rule H cited above by Idaho Power in its defense is being misinterpreted. It recognizes that changes will be made in the tariff from time to time, and that the version of the tariff in effect at the time the line extension is made should apply. Its purpose is simply to preclude rules from being applied retroactively. Staff does not believe the passage cited by Idaho Power refers to the status of the customer at the time the application is made, or for that matter, that it even contemplates some future change in a customer’s status.
Trying to apply the tariff language to the current situation is a poor fit at best. Consequently, Staff is inclined to rely on the underlying principles upon which the line extension rules are based. Staff believes this leads to an equitable resolution for both parties. Staff’s reasoning follows.
Briefly, when line extensions are made, utilities pay a portion of the line extension costs through the allowance provided to customers, and the customer pays the remainder through up-front line extension charges. The utility’s share of the investment, or allowance, is recovered over time by the utility through revenue collected from the sale of energy. One underlying principle of line extension tariffs is that the utility be allowed to recover its investment and earn its authorized rate of return through the combination of line extension charges and through the expectation of energy sales revenue over time.
A distinction between subdivisions and multiple occupancy projects has been made in the past for two reasons. First, in a subdivision, there is no assurance until a lot is sold and a permanent dwelling constructed that energy sales revenue will be generated. Hence, a portion of the line extension cost paid by the developer is retained by the utility and later refunded when there is assurance that revenue will begin to be received from a permanent customer. Second, Staff believes there has always been a perception that the amount of revenue to be expected from a multiple occupancy project is less than for a subdivision because of the vacancy rate and the lower energy usage rate usually associated with multiple occupancy projects. Because of this, allowances for multiple occupancy projects are less than for subdivisions. In addition, multiple occupancy projects are usually apartments or condominiums where all of the units are constructed in the beginning, and the question of whether there will be customers to generate revenue is one of occupancy rates, not of whether the units will be built or not.
In the case of Shadow Mountain, the facilities installed were the same whether it was classified as a subdivision or as multiple occupancy. Only two lots in the development were ever occupied, and then only for a short time. Now, all of the lots are intended to be sold. All lots, if sold, will be occupied by permanent owner-occupied dwellings. Staff also understands that all homes will be electrically heated. From the standpoint of recovery of the utility’s investment and assurance of a future revenue stream, the development is no different than a subdivision. If Idaho Power does not provide refunds as lots become occupied, then Staff believes that the Company will over-recover its investment in facilities and become unjustly enriched. If Idaho Power does provide refunds, it will still recover its investment through the revenue received from new customers over time.
Staff acknowledges that Idaho Power’s accounting procedure is different for a subdivision than for a multiple occupancy project, and that to change the classification of the development now would create some accounting difficulties for Idaho Power. However, Staff does not believe these difficulties are unmanageable.

STAFF RECOMMENDATION
Staff’s believes a fair resolution of the complaint is to treat any lot sold and permanently occupied after the date of subdivision approval (June 11, 2001) as a subdivision lot eligible for an $800 per lot refund. Any lots previously leased and occupied by a permanent dwelling would not be eligible for a refund. Staff also proposes that the five-year time period for eligibility for refunds start as of the date when the line extension was originally completed (December 8, 1999).

Dated at Boise, Idaho, this day of September 2001.

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Scott Woodbury
Deputy Attorney General

Technical Staff: Rick Sterling

SW:RS:umisc/comments/ipce01.29swrps

STAFF COMMENTS 3 SEPTEMBER 27, 2001