20050816Final Order No 29844.pdf

Office of the Secretary
Service Date
August t 6 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE lVIA TTER OF THE APPLICATION
OF BAR CIRCLE "S" WATER COMPANY
FOR AUTHORITY TO ESTABLISH
COMMERCIAL FIRE PROTECTION
TARIFF RATES.
CASE NO. BCS-O5-
ORDER NO. 29844
On April 22, 2005, Robert Turnipseed, president of Bar Circle "8" Water Co. (Bar
Circle; Company) filed an Application with the Idaho Public Utilities Commission
(Commission) requesting approval of proposed commercial fire protection tariff rates. Bar
Circle is located in Hayden, Idaho and provides water service to approximately 141 customers.
The Commission in this Order approves rates different from those proposed by the Company.
Application
Bar Circle does not currently have an approved commercial fire protection tariff. As
reflected in its Application, at the request of Waterford Park LLC, a boat and R V condominium
storage facility, the Company entered into an agreement with Waterford to provide fire
protection service required for the facility. Attached to the Application is a copy of the
Waterford agreement and a copy of the engineer s master plan for the storage facility that shows
the location of the water lines, fire hydrants and sprinkler service lines that are being installed to
meet the fire protection requirements. Waterford is paying the cost to move existing lines and
install new lines and hydrants.
Bar Circle states that it must dedicate a large portion of its existing storage reservoir
to the fire suppression needs of the Waterford facility. The Company reports that nearly a third
of Bar Circle s existing reservoir capacity will be dedicated to meeting the 53 400-gallons of
storage required by Waterford.
Bar Circle anticipates that additional growth will occur in the area in the near future
and that the Company will expand to serve new customers. Because of the large portion of the
existing reservoir capacity that will be dedicated to fire protection for the Waterford facility, the
Company states that it will need to construct additional storage to meet its growth requirement
sooner than anticipated. Attached to the Company s Application is an engineering estimate for
ORDER NO. 29844
the construction of a new 20 000-gallon reservoir. The total estimated cost of a new reservoir is
expected to be $90 000.
Bar Circle requests approval of commercial fire protection rates as follows:
Monthly rate for commercial private hydrants $146.
Monthly rate for commercial sprinklers per connection $ 97.
The rates were developed by the Company using the cost of a new reservoir as a surrogate for the
cost of dedicating a portion of the Company s existing facilities to the new fire protection
service. Because the new reservoir is much smaller than the dedicated portion of the Company
existing reservoir, the Company believes its calculations are conservative. The fire protection
rates proposed by the Company will, when applied to the entire Waterford facility, generate
monthly revenue of $1 121.68 ($13 460.16 annually).
As reflected in attachments to the Company s Application, the dedicated portion of
the existing reservoir capacity is the equivalent of 23 residential customers' average daily
requirements during the peak season of the year. The fire flow requirement for the Waterford
facility, the Company contends, is nearly twice the average demand of the existing residential
customers connected to the system.
On May 11 , 2005 , the Commission issued Notices of Application and Modified
Procedure in Case No. BCS-05-1. The deadline for filing written comments was extended
pursuant to Commission Notice and for an additional period pursuant to agreement of the parties.
Commission Staff was the only party to file comments. Staff filed comments on July 8, 2005.
Reply Comments were filed by Bar Circle S on July 18, 2005.
Staff Comments
Staff investigated data available regarding the size and capability of the Bar Circle
system to determine whether that system is capable of providing the recommended service. The
current water system is adequate to provide the design flow of 640 gallons per minute (gpm) of
water at 60 psig for the Waterford fire protection system, a flow that has been tested and
approved by the local fire marshal. The existing fire protection requirement is that 1 000 gpm of
flow be available for residential fire protection. The two fire protection requirements combined
(existing residential and new commercial) are 1 640 gpm, leaving 442 gpm of the 2 082-gpm
total theoretically available for drinking water supply.
ORDER NO. 29844
After review of documents and discussions with the fire marshal of the Northern
Lakes Fire District, the DEQ in Coeur d' Alene and the owner of Bar Circle, it was determined by
Staff that the water system is well maintained and has the ability to provide the requested type of
servIce. The Company has obtained necessary approvals and has complied with the
requirements of the Northern Lakes Fire Protection District and the Idaho Department of
Environmental Quality.
The Company in its Application proposes monthly rates of $146.05 per fire hydrant
and $97.65 per connection for a commercial sprinkler service. The Company developed these
rates using an engineer s estimate for adding a new 20 500-gallon reservoir to the current system.
Staff contends that the methodology used by the Company to compute the rate is inappropriate.
The Company has stated that it is not going to construct a new storage facility; instead, the
Company is going to use its existing storage capacity to provide the capacity required for service.
Therefore, Staff contends that the appropriate tariff should consider only the Company s existing
system for servicing the water requirement. In this case the service being provided by Bar Circle
to Waterford does not involve any incremental capital costs and very little additional operating
costs. On an annual basis the Waterford fire protection system will use very little water. Staff
believes that an alternative method based upon the storage demand the fire protection service
places upon the existing system stated in terms of equivalency to the demand for the same
service placed on the system by the current customers is a more appropriate method to calculate
the rate. A fixed monthly rate for the fire protection was calculated by Staff based on the fixed
monthly cost to meet average demand of an equivalent number of water service customers.
The two key requirements for the fire protection system, Staff contends, are pumping
capacity and water storage. The approved Waterford fire protection system requires that 54 300
gallons of storage be available and that 640 gallons per minute of pumping capacity be available.
To allocate costs based on storage, the new fire protection storage demand was established by
Staff based on the average storage for an equivalent number of residential water customers.
There are 141 Bar Circle customers at present and there are a total of 165 000 gallons of
available storage in two different reservoirs. This results in an average storage of 1 170 gallons
per customer. The 54 300 gallons of storage to be dedicated to the Waterford fire protection
system is equivalent to the average amount of storage for 46.40 customers. The remaining
ORDER NO. 29844
storage of 110 700 gallons provides 785 gallons of storage per customer above the new fire
protection storage requirements.
While fixed costs of storage are not necessarily recovered in the customer charge
Staff used the current minimum customer charge adjusted for the monthly volume allowance as a
proxy for the fixed costs associated with water storage.
The Bar Circle minimum tariff charge of $15.00 per month includes 7 500 gallons of
water usage. Subtracting the cost of this commodity from the minimum charge at the published
tariff of $0.95 per 1 000 gallons, Staff calculates, results in a remaining fixed charge of $7.88 per
customer per month. The resulting "fixed" storage costs allocated to fire protection is then
calculated by multiplying the fixed cost per customer of $7.88 by 46.40 equivalent customers.
The resulting tariff for Waterford is $365.63 per month or $4 384.97 per year.
As a check for reasonableness, Staff compared rates for similar services offered by
the United Water and Eagle Water Companies to those derived in this case using the fixed cost
methodology. United Water has a tariff for fire hydrants and a separate tariff for sprinkler
systems (September 2000). Eagle Water Company has a single tariff sheet for both sprinkler
systems and hose connections (July 1982). There are ten service points in the Waterford fire
protection system. They consist of three fire hydrants and seven sprinkler systems, one each in
seven different buildings. Applying the Waterford service points to the United Water tariffs
results in a monthly tariff of $333.19 and applying the Eagle Water tariff to the Waterford
service results in a tariff of $257.40 per month, rates within the same range as those derived by
Staff in this case.
. .
Based on its analysis Staff recommends that the Commission approve an interim
tariff of $365.41 per month for commercial fire protection service. To provide consistency
between the Bar Circle fire protection tariff and similar existing tariffs, Staff recommends that
the tariff be structured to assess separate fees for hydrants and for sprinkler systems. The rates
recommended by Staff are:
F or each fire hydrant
F or each building sprinkler system
$9.50 per month
$48.13 per month
Bar Circle "S" Reply
On July 18 , 2005 , Bar Circle filed a reply to Staff comments. The Company disputes
Staffs contention that the Company is not going to construct a new storage facility. The
ORDER NO. 29844
Company states that it will at some point in the not too distant future construct a new storage
facility. Indeed, the Company states it has already performed preliminary excavation work to
level and compact a pad for the construction of a new reservoir. The Company has not yet
determined the size of the new reservoir but it has used the engineer s estimate as a surrogate for
the cost of a new reservoir that has not yet been engineered and designed. Within the next year
the Company will file an application for a line extension tariff to accommodate growing demand
adjacent to the Company s existing service territory.
Noting that Staff in its analysis reviewed fire protection tariffs of United Water and
Eagle Water, the Company states that it does not believe that Bar Circle can be compared
equitably with those two much larger water systems that enjoy a greater diversity of customer
mix. Staff acknowledges, the Company states, that the Company s fire protection reserve
dedicated and cannot be used to meet other water demand needs. The larger companies with
greater customer diversity, the Company contends need not construct and set aside storage
capacity equal to the sum total of all customer fire suppression requirements. The odds of all the
Company s customers demanding fire protection simultaneously, Bar Circle contends, are
astronomical.
Regarding Staffs rate calculation methodology, the Company notes that no cost
service study has ever been performed for Bar Circle to allocate fixed and variable costs. Rather
a simple bill frequency analysis has been used to establish a rate design that is fair and equitable
among a homogenous group of residential customers. Staff calculates $7.88 as a proxy fixed
charge for determining a fire protection tariff rate. The Company contends that Staffs proxy
simply has no basis. Both the minimum charge and the commodity in excess of the minimum
consumption include fixed and variable costs that have not been segregated in any manner. Staff
recommends that the calculated $365.63 monthly fire suppression rate be collected through rates
for fire hydrants at $9.50 per month and building sprinkler systems at $48.13 per month. The
Company contends that Staff provides no rationale for the allocation of its proposed total
monthly revenue requirement between the two services.
In summation, Bar Circle believes that the Company s proposal as included in its
Application is conservative, based on sound regulatory methodology, timely and responsive to
the needs of both the Company and its customers.
ORDER NO. 29844
Commission Findings
The Commission has reviewed the filings of record in Case No. BCS- W -05-
including the comments and recommendations of Commission Staff and the reply comments of
Bar Circle.
On April 22, 2005, Bar Circle filed an Application requesting authority to establish a
commercial fire protection tariff - an Application, we find, that was prompted by a service
request from Waterford, a boat and RV storage facility.
Bar Circle developed rates using the estimated cost of a new reservoir as a surrogate
for the cost of dedicating a portion of the Company s existing facilities to the proposed fire
protection service. The Company proposes monthly commercial rates of $146.05 per fire
hydrant and $97.65 per sprinkler service connection. Under these rates Waterford would pay
121 per month. Staff calculated a rate based on the Company s existing system and storage
capacity. Staffs proposed rate is based on the fixed monthly cost to meet average demand
(pumping capacity and water storage) for an equivalent number of water service customers.
Staff used the Company s current minimum customer charge adjusted for the monthly volume
allowance as a proxy for the fixed costs associated with water storage. Based on Staff
calculations, the resultant monthly rates are $9.50 per hydrant and $48.13 per month per
sprinkler service connection. Based on Staffs proposal, the monthly charge to Waterford would
be $28.50 for three hydrants plus $336.91 for seven sprinkler systems for a total of $365.41 per
month. As a check for reasonableness, Staff compared its rates with those of United Water and
Eagle Water.
Bar Circle in a filed reply disputes Staff s contention that the Company is not going
to construct a new storage facility. The Company states that it will add a new reservoir "at some
time in the not too distant future." The Company admits that it has not yet determined the actual
size of the new reservoir, nor has the new reservoir to date been engineered or designed. Despite
the Company s present intention to construct a new reservoir, we find that planned facilities are
not actual facilities, are not in-service, and have not received regulatory approval. We find that
the estimated cost of same is not a reasonable basis for developing current fire protection rates.
The Company notes also in its reply that no cost of service study has ever been
performed by Bar Circle to allocate fixed and variable costs. In determining a proxy fixed
charge of $7.88 per customer per month for fire protection, the Company contends that Staff is
ORDER NO. 29844
proposing a number that has not been previously determined. Bar Circle also challenges the use
of United Water Company and Eagle Water Company by Staff as comparables. Although the
proxy number calculated by Staff has not been previously determined for Bar Circle, we find that
Staff should not be precluded from developing such a calculation. We find the methodology
utilized by Staff to be sound and based on existing system capability and state and local fire
protection requirements. We find the comparables used by Staff were for a check for
reasonableness only and were not used to develop the methodology or the resultant rates. Bar
Circle offers no alternative comparables. We are not convinced that the disparity in size of the
utilities used for comparative rates is reason to discount the comparison.
Before the Commission are two rate proposals for a commercial fire protection tariff.
Staffs proposal is based on the Company existing system and storage capacity. The
Company s proposal bases a rate on the estimated cost of a new reservoir that has not yet been
engineered. We find Staffs proxy calculation to be reasonable and preferable to the calculation
of the Company. We further find it reasonable to authorize a tariff conforming with our Order
for an effective date of September 1 , 2005.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Bar Circle "S" Water
Company, a water utility, and the issues presented in Case No. BCS-05-1 pursuant to Idaho
Code, Title 61 , and the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby authorize the following commercial fire
protection rates for Bar Circle "S" Water Company:
Monthly rate for each commercial fire hydrant
Monthly rate for each commercial sprinkler service connection
$ 9.
$48.
IT IS FURTHER ORDERED and Bar Circle is directed to file a conforming tariff for
an effective date of September 1 , 2005.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code 9 61-626.
ORDER NO. 29844
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this tP
-;-/I
day of August 2005.
fcfvt~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
irJD. JewellC. mission sec~etary
bls/O:BCS-O5-01 sw
ORDER NO. 29844