20020808_229.pdf

TO:
FROM:
DATE:
RE:
DECISION MEMORANDUM
COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
TO NY A CLARK
DON HOWELL
DAVE SCHUNKE
MICHAEL FUSS
RANDY LOBB
BOB SMITH
MARGE MAXWELL
LYNN ANDERSON
GENE FADNESS
WORKING FILE.-. ---- --.___.n-
SCOTT WOODBURY
AUGUST 5, 2002
CASE NO. MNV-O2-01 (Morning View Water)
APPLICATION FOR RATE INCREASE
On April 26, 2002, Nolan Gneiting, President -of Morning View Water Co, Inc.
(Morning View; Company) filed an Application with the Idaho Public Utilities Commission
(Commission) requesting authority to increase rates for water service by $30 a month, an
increase of 136%. Current authorized tariff rates for Morning View are a $22 per month flat-fee
plus a public drinking water fee of $6.67 per year. Base rates have not been changed since
June 21 , 1990; The Company alleges that its fees and expenses have increased and includes
three years of accounting data with its Application. Morning View provides water service to 56
customers. The Company proposed effective date of June 1 , 2002 was suspended by
Commission Order No. 29027.
DECISION MEMORANDUM
On May 15, 2002, the Commission issued Notices of Application and Modified
Procedure in Case No. MNV-02-1. The deadline for filing written comments was June 5
2002.
On May 31 , 2002, the Company by way of Amended Application filed a letter
requesting that its Certificate of Public Convenience and Necessity No. 314 be amended to
include all areas presently served. Reference IDAP A 31.01.01.112.
Comments on the Company s proposal to revise and increase - rates and amend its
Certificate were filed by Commission Staff and a number of the Company s customers.
The comments can be summarized as follows:
Commission Staff
Based on its investigation Staff recommends that an annual revenue requirement of
$22 028 be approved for Morning View Water. This equates to an increase in pro forma gross
revenues of 49% or $7 244. In developing its recommendation Staff annualized and normalized
certain items such as revenue, water testing expense, etc. and provided for expenses not actually
Incun-ea but reasonable such as a management ailowance of $4, 160 and a maintenance allowance
of $2 496. Based on its analysis of seasonal water usage Staff recommends that the monthly
rates for Morning View Water be established by lot size as follows:
Lot Size No. of Customers Monthly Rate
0 Acre - 0.4 Acre $22.0.4 Acre - 0.8 Acre $29.8 Acre and Larger $37.
Staff notes that Morning View Water has not filed an annual report with the
Commission since 1991. Mr. Gneiting owns three separate business entities. (1) Morning View
Water Co. (utility), (2) Morning View Homes (Real Estate Company), and (3) LandCo Building
and Development Co. (land development and home construction). Staff states that Mr. Gneiting
does not adequately segregate his various business activities and accounts. In the course of its
investigation, Staff discovered that the Certificate issued Morning View has a typographical
error identifying the service territory to be within Section 30 Township 4 North, Range 38 East.
The Range is incorrect and should be 39 East. Staff also learned that the water system has
expanded beyond the service area approved by the Commission.On May 31 , 2002, the
DECISION MEMORANDUM
Company filed a letter requesting a revision to its Certificate to include the expansion area.
Reference IDAP A 31.01.01.112.
In its comments Staff includes an analysis of the Company s results of operations
rate base, depreciation, revenue requirement, rates and system design. Staff adjustments include
items that should be capitalized as investment rather than expenses, personal expenses of the
owner, expenses that should be shared with other business entities, and property taxes. The rate
base recommended by Staff is $6 373.66. The depreciation expense on these assets is $596.
annually. A 12% return on the rate base produces a return requirement of $764.84. The tax
gross-up on the return results in a pre-tax requirement of$978.99. The pro forma 2001 operating
expenses of $20 452.24 and the depreciation expense of $596.79 are added to the return to
produce a total revenue requirement of$22 028.02.
Staff notes that recovery of the $22 028 recommended annual revenue requirement
from all 56 customers using a uniform flat rate would require an increase from the current rate of
$22 per month to $32.78 per month. This is an increase of $10.78 per month or 49%. The rate
de-sign proposed by Staff based on lot slzeresuHs m zero mcrease Tor the 2 customers on quarter
acre lots, a 35% increase for the 30 customers on Y2 acre lots and a 70% increase for the 24
customers on one acre lots. Staff notes that complete equity in water bills is only achieved when
every customer is metered and every customer pays only for the water used. The estimated cost
for meter installation is approximately $300 per service location. Staff notes that metering is
indicated in those instances where additional water supply is needed or when water pressure falls
to unacceptable levels. Although not yet there, Staff recommends that Morning View consider
planning to transition to meters in the next two or three years.
Staff in its comments makes the following additional recommendations:
1. Cancellation of the "Schedule I-public drinking water fee" tariff. The
DEQ fee has been incorporated in the over-all revenue requirement
recommended by Staff so a separate fee is not necessary.
2. Approval of a $25 reconnection charge (Schedule 2-Miscellaneous
Charges).
3. That the Company s 150 gpm well be connected to the system and be
operational within 30 days to avoid prolonged outages when the large
well (400 gpm) equipment is in need of repair.
DECISION MEMORANDUM
4. That Morning View be required to bring its bills and disconnect notices
into compliance with the Commission s Customer Relations Rules and
Customer Information Rules.
5. That the Company cease its practice of assessing a "finance charge" or
late payment fee on past-due bills. No such fee has been approved by theCommission.
6. That the Company discontinue use of its presently drafted "Utility
Agreement." The Agreement goes beyond the scope of an application for
service and contains inaccurate information.
7. That the Commission correct the Company s existing Certificate No. 314
to properly identify - the Company s original service area to be within
Section 30, Township 4 North, Range 39 East.
8. That the Commission notice the Company intent to amend its
Certificate No. 314 to include the North Y2 of the Northwest Quarter of
Section 30, Township 4 North, Range 39 East (the expansion area).
Customer Comments
- - - ------ ------- -- -----
Three petitions from customers of Morning View Water have been received. One
petition was signed by 39 households; each of the other two petitions were signed by 19
individuals. The total number of signatures on the three petitions is 77. A more recent customer
list shows that the Company has 56 customers. Some customers readily acknowledged signing
multiple petitions. In addition, 11 written comments were filed.
Many customers requested that - the Commission hold a hearing in this case.
Customers expressed concern with the magnitude of the requested increase. They are also
concerned about a lack of water pressure, the number of times water is totally off, the slowness
of repair when there is a problem, the safety of the water supply, and the validity of the system
costs as reported by the Company.
On June 20, 2002, the Commission issued an Amended Notic~ of Application
established a deadline for Morning View Water to file Reply Comments, and scheduled a
July 15, 2002 public workshop and hearing in Rigby, Idaho.
Company Reply
On ~llly 2 2002, Morning View Water filed a reply in response to Staff's recommen-
dations. In its Reply the Company alleges that the Commission has not provided proper funding
for the operation of the Company. Specifically the Company contends:
DECISION MEMORANDUM
There have been no funds for doing the testing as required by the
Department of Environmental Quality (DEQ). The Company hasborrowed heavily to perform these tests. There have been no funds for
maintaining the system. There is now due and payable a bill in the
amount of Four-Thousand Two-Hundred Thirteen Dollars ($4 213.00)
from Teton Water Works, LLC, Shelley, Idaho. There is no money to pay
this. In the event anything goes wrong with the system, there are no funds
for repairs. Please heed this warning for the good of the customers of
Morning View Water Co. To build sufficient reserves, each customer
should pay at least $5 per month. If not, and the system goes down, it will
set until it has been properly funded. All credit has been revoked because
of Morning View Water Company s prior experiences with vendors. Five
Dollars ($5.00) per month is not going to break anyone and is going to
make repairs possible.. .
There is no provision for mileage. There are many trips to Idaho Falls
required throughout the year. Sometimes as many as four or five monthly
trips are required to pick up pipe, valves, or other items for the operation
of this system. The mileage rate allowed by the IRS is $0.34 per mile.
Commission Staff Supplemental Comments
-- - - ------- -- -----
In Supplemental Comments filed with the Commission on July 15, 2002, the
Commission Staff addresses the concerns raised by Mr. Gneiting in his Reply. Regarding the
proposed surcharge, Staff states its belief that it is appropriate for small water systems to
establish a contingency reserve for future unanticipated major repairs. Staff neither supports nor
opposes the surcharge approach nor does it express an opinion on the magnitude of such a
surcharge. Staff notes that a $5.00 per month surcharge would produce annual revenue of$3 360
with the existing 56 customers on the system.
However, because Staff treated the replacement pump as a capitalized item (rate
based), should the Commission decide Mr. Gneiting s proposal is appropriate and should the
surcharge be authorized for payment ofthe $4 213 bill for well repair, Staff recommends that the
pump cost be removed from the calculation of revenue requirement. The removal of the pump
from rate base produces an adjusted revenue requirement of $21 212.39 to which any approved
surcharge would produce additional revenue.
Staff continues to support rates by lot size. The reduced revenue requirement could
be recovered with a quarter-acre lot rate of $22.00 per month, a half-acre lot of $28.85 per month
and a one-acre lot rate of $35.70 per month. Any surcharge approved by the Commission would
be in addition to these rates.
DECISION MEMORANDUM
Should a reserve surcharge be approved, Staff recommends that certain restrictions be
imposed. The funds collected from the surcharge, Staff contends, should be deposited monthly
to a separate interest bearing bank account. Use of the funds should be restricted to unusual
extraordinary unforeseen major repairs and replacements. Staff would support the use of these
funds to install meters on the system as proposed in Staff's earlier comments. Staff recommends
that the Company be required to file a report annually with the Commission providing detail of
all funds collected and details of each specific major repair paid for with surcharge funds. Given
the reporting history of the Company (no annual report since 1991), Staff recommends that any
approved surcharge be subject to annual adjustment and reauthorization by the Commission.
Failure to provide the required report would result in the elimination of the surcharge. If the
Commission authorizes the surcharge, Staff recommends that the Company be directed to
identify the surcharge as a separate item on its customers' bills. Staff recommends that the
balance of the reserve account be capped at $10 000. When that reserve amount is reached, the
surcharge should be eliminated subject to reactivation, with Commission approval, when the
balance of the account falls below 000.
Regarding Mr. Gneiting s contention that there is no provision for mileage in Staff's
recommendations, Staff notes that its calculated revenue requirement includes $99.00 of auto
expense based upon actual costs recorded during the test year 2001. Assuming an average of
two round trips (22 miles) per month between Rigby and Idaho Falls at $0.34 per mile produces
an annual allowance of $179.52. This is $80.52 more than the auto expense included in Staff's
calculated revenue requirement. Staff notes that Mr. Gneiting does not quantify how many trips
are required each year. He indicates only that some months (not all) four or five trips - are
required.
Regarding the alleged unresponsIveness of the Commission to the Company
requests for additional revenue, Staff details its communications with Mr. Gneiting and notes the
Company s repeated failure to supply the necessary records and supporting financial data for its
rate increase requests. Staff contends that it has been more than cooperative with Mr. Gneiting
and has tried to provide counsel, advice and assistance. Staff, however, states that it cannot
operate in a vacuum void of data.
DECISION MEMORANDUM
Hearing-Public Testimony
On July 15th the Commission traveled to eastern Idaho and received testimony from
the customers of Morning View Water in Rigby, Idaho. The following represents a
representative sampling of the comments received:
D We re offering for free to help (Mr. GneitingJ run (Morning Side WaterJ
better. Tr. p. 9.
D We can t afford an increase in rates. Tr. pp. 40 42.
D I shouldn't be paying anything over $20.00 a month when the City of Idaho
Falls is paying $11.50. Tr. p. 6.
Nolan owns a water company.. .he should be an expert...if he wasn , he
should have hired somebody that was an expert. Tr. p. 11.
Testimony re: poor quality of water --dirt settles in glass. Tr. p. 16.
The Company s customer service issues have improved... .however they are
better only because of customer pressure-Nolan doesn t do it willingly. Tr.
pp. 20-, 25.
There was a water outage last winter that lasted 30 hours.That was a
hardship.. .. I would like to see that the system is brought up to standards-a
second pump put in place; maybe an emergency generator. We need better
water pressure; we need more reliability. Tr. pp. 28 , 29.
Regarding metering to allocate costs based on water usage-some customers
think metering is an excellent solution.Tr. pp. 36, 40.One customer
however, expressed that she does not want a meter. Tr. p. 44.
Regarding water pressure, the customers note that there are no restrictions on
watering. Some flood-irrigate; some leave water running for days. Tr. p. 33.
One customer with water pressure problems lives at end of a distribution line.
Tr. p. 46.
Scary to come home from work and have a message on the answenng
machine that says we chlorinated the well today-you may not want to do
----- --- -- -... --- --- -- - _
laundry for awhile. Well, I just had a great big drink of that chlorinated
water.... Tr. p. 46.
DECISION MEMORANDUM
The system isn t being managed properly. Water service hasn t been that
consistant at my property. Tr. p. 47. Tr. p. 47.
Pursuant to a scheduling deadline set at hearing, the Commission also received
additional written comments from customers.In those comments the Commission was
encouraged to check the cost and bookkeeping figures of the Company.
Company Comments
In responding to some of the customer s concerns at hearing, Mr. Gneiting stated
re making every effort we can to get the second well on. It's just a matter of a couple pieces
of pipe. Tr. p. 30.... regarding dirt in the water, I have installed a sand trap-anything collected
is now flushed out. Tr. p. 31.... People don t understand the cost-price relationship. Water
just doesn t come out of a faucet anymore. It's tested.... I haven t been paid one cent in 16
years, not a cent, out of that water company, in fact, I subsidized it. Tr. p. 30....
Ms. Diane Perry, a professional bookkeeper hired by the Water Company
states that
she s changed a lot of the procedures within the office, the way they re recorded-we
separafiilgall the accounts, the disbursement accounts, so that there is no cross-funding.... Yr. p.
53.
There is not enough money to operate the business, Ms. Perry states. Nolan is very
frugal with how he spends his money-he does not go with the first person he contacts. If he
does pay more, she states it's because he doesn t have the credit. Tr. p. 54.
Nolan needs an increase, Ms. Perry states, to have the funds to have someone who
knows what they are doing to do the water reports, PUC reports, reports for the state, the water
testing, the financial reports for taxes, etc. Tr. p. 56.
Commission Decision
The Commission Staff in comments filed with the Commission on June 5th reports its
findings and recommendations regarding Morning View s operations, rate base, depreciation and
revenue requirement, rates and rate design. Those recommendations are set forth above. Also
set forth above is Staff's recommended adjustments should the Commission choose to approve
the Company requested surcharge for payment of an outstanding bill for pump replacement
($4 213) and to build a future reserve for unanticipated major repairs. Also addressed above, is
Staff's response to the Company s request for additional money for mileage. Does the
Commission find Staff's initial- recommendations to be reasonable including a rate design that
----------------~-- -- -------~
DECISION MEMORANDUM
assesses a flat monthly rate based on lot size? Should Staff's original recommendations be
adjusted to include the requested surcharge? What amount of surcharge does the Commission
find appropriate? If the surcharge is authorized, does the Commission find it reasonable to
establish the accounting and reporting conditions proposed by Staff? How does the Commission
wish to treat the Company s request for additional mileage allowance? Should the Company be
required to install meters in the next 2 - 3 years?
Scott Woodbury
Vld/M:MNVWO20 1- sw3
DECISION MEMORANDUM