20061013Decision memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:CECELIA A. GASSNER
DATE:OCTOBER 12, 2006
SUBJECT:APPLICATION TO SELL THE ALGOMA WATER SYSTEM
CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY NO. 396,
CASE NO. AWS-06-
On May 18, 2006, Algoma Water System ("Algoma" or "Company ) filed an
Application with the Commission seeking approval of amendment of its Certificate of Public
Convenience and Necessity (CPCN) to reflect a change in ownership. Pursuant to Idaho Code
61-526, the Commission has the authority to approve such amendment. On June 16, 2006, the
Commission issued a Notice of Application and Modified Procedure. Order No. 30075. In such
Order, the Commission set a comment deadline of August IS , 2006. By Minute Order on
August 3, 2006, the comment deadline was extended to September IS, 2006. The only
comments received were submitted by Staff, and the Company did not submit any reply
comments.
THE APPLICATION
In the Application, Algoma states that the ownership of the business has transferred
from Larry and Christopher Neu to Paul Greenwood, and it seeks approval of amendment of
Public Convenience and Necessity No. 396 to reflect this. The Application contains certain
information related to the sale and the fiscal status and business plans of the new owner.
addition, the Application states that the new owner does not intend to ask for a change in rates
and charges for services at this time. The Application contains a request that it be processed by
Modified Procedure.
DECISION MEMORANDUM
STAFF COMMENTS
Finance
Mr. Greenwood has a business background in real estate development and business
management. He presented to the Commission a personal financial statement indicating a net
worth that represents sufficient financial strength to support the ownership of the water system.
He owns a landscaping business in California and three sewer systems in Bonner County, Idaho.
Although these sewer companies are not regulated by the Commission, these systems are similar
in enough respects to indicate that he has experience in operating a utility.
The water system (physical plant) under the ownership of Larry Neu, the previous
owner, had no rate base recorded on the annual reports and therefore none of the rates reflect a
return on any capital investment. Additionally, Mr. Neu acknowledged that all improvements to
the water system that were made during the period of time he owned the system were accounted
for as repairs (expenses) and not as capital improvements. The new owner has acknowledged
that he will not claim any of the purchase price as rate base at this time or in any future rate case.
Therefore, the purchase price of the assets purchased by Mr. Greenwood as recorded on the
Company s books will not be included in rate base or earn a return, and as such will not be
recoverable from customers in rates.
Mr. Greenwood agreed that the operation of the water company will not include any
sharing of expenses or overhead costs with any of his other business operations. He also agreed
that the accounting for the water system would be separated from the accounting for any other
business so that the expenses of operating the water system would be easily identifiable.
The 2005 Annual Report for Algoma reported a long-term debt to Panhandle State
Bank in the amount of $32 305.90. According to Company s responses to Staffs production
requests, this long-term debt will be paid in full from the purchase proceeds and Mr. Greenwood
does not intend to incur any other debt that would be secured by the assets of the water system as
he begins the operation of the utility.
Engineering
Staff contacted the Idaho Department of Environmental Quality (DEQ) to ensure that
Algoma is in compliance with DEQ regulations. DEQ informed Staff that the system is
substantially in compliance, except that the system had no certified operator, as required by
DEQ, at the time of discussions between Staff and DEQ. Algoma has since demonstrated to
DECISION MEMORANDUM
Staff that a state-certified operator with Water Systems Management, Inc. has been hired to
manage the system. Therefore, with a certified operator, Algoma will be able to satisfy that
requirement of the state. This operator s company also provides 24-hour emergency response for
maintenance needs. Staff is convinced that overall service of the Company is likely to improve
due to the contract with Water Systems Management, Inc.
Algoma s system is currently non-metered. The previous owners of the Company
had indicated interest in metering in the past, however, no meters have been installed. Staff
addressed metering with the Company and learned that there are no future plans for meter
installation.
Consumer Relations
A notice to Algoma s customers was filed with its Application. The notice was
mailed to customers as required by the Utility Customer Relations Rules (IDAP A 31.21.02.102).
The original notice mailed to customers with their April billing notice reflected an incorrect
Commission mailing address. Staff brought this to the attention of the Company. A corrected
notice was to be sent out but the Company has not provided Staff with a mailing date.
The Commission has received one inquiry and one complaint from January 2003
until September II , 2006. The inquiry was asking for the name and address of then-new owner
Chris Neu. The Commission has received no complaints regarding customer service or billing
practices during the time Mr. Neu owned the Company. In September 2006, a complaint was
filed regarding the difficulty in contacting the billing agent for Algoma. The only phone number
listed on consumer bills and notices is for Deal Pump & Electric. It should be made clear on all
customer notices and billing statements that customers should contact Deal Pump & Electric for
emergency repairs and to call the Company s bookkeeper for billing questions and to make
payment arrangements. Further, as neither phone number will answer as "Algoma Water
customers need to be made aware of whom they are calling.
A review of Algoma s recently revised forms, notices and billing statement show the
Company has taken the necessary steps to change their forms and come into compliance with
almost all the Utility Customer Relations Rules (IDAP A 31.21.01.000 et seq.and Utility
Customer Information Rules (IDAPA 31.21.02.000 et seq.
).
Some changes, however, still need
to be made to the customer notices and billing statement.
DECISION MEMORANDUM
The Billing Statement does not clearly reflect a payment due date. The due date
should be at least 15 days after the billing date. An Invoice Statement mailed with the Billing
Statement includes a business term for payment due of "Net 15." Customers may not understand
that terminology. Therefore, Staff recommends that the statement be revised to clearly reflect
due dates.
The "Initial Notice" which provides customers with seven days to contact the
Company to avoid disconnection, cannot include payment demand of past due sewer charges to
avoid disconnection of water service. The listing of the phone number for an emergency contact
set forth on the notice should inform customers they are calling Deal Pump & Electric, and not
Algoma. Customers should be provided with the phone number for Algoma s bookkeeper, who
also handles any billing issues.
The "Final Notice" has the phone number for an emergency repair contact rather than
for the bookkeeper, who is the only person authorized to make payment arrangements and
discuss billing questions. Her contact information should be clearly stated on the notice. Also
the amount stated for payment to avoid disconnection should not include any past due amount
for sewer. The current example of a billing statement that was provided to Staff does not make it
clear to customers that Algoma is not threatening disconnection of water for sewer charges that
are past due to Northern Utilities Sewer (a separate business of the owner that serves the same
customer base). The notice to customers of the possibility of disconnection because of overdue
water charges should not contain any reference to sewer charges that may also be due and owing
by the customer.
Lastly, the "Summary of Rules for Customers of Small Water Companies" document
should reflect the phone numbers for Company contacts identical to those used in other customer
notices. This document is the annual notice provided to customers of the tariff in place and rules
of which customers should be aware, and is a key information piece to let customers know how
to contact the Company in the event of issues or concerns. The contact information for billing
issues and repair needs is imperative and should be clearly stated on this document.
The Staff recommends that the Commission approve the transfer of the Certificate of
Public Convenience and Necessity for Algoma to Paul Greenwood. Staff further recommends
that Algoma be directed to revise its billing statements to address the concerns set forth in Staff s
comments.
DECISION MEMORANDUM
COMMISSION DECISION
Does the Commission desire to approve the transfer of Certificate of Public
Convenience and Necessity No. 396 for Algoma Water Systems to Paul Greenwood? Does the
Commission desire to direct the Company to revise its billing statements to address the concerns
set forth in Staff s comments?
tLJ/
Cecelia A. rntssner
M:A WS-O6-cg3
DECISION MEMORANDUM