20090529Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:GERRY GALINATO
TERRI CARLOCK
DATE:MAY 27, 2009
RE:APPLICATION OF BAR CIRCLE "S" WATER CORP. FOR
AUTHORIZATION TO BORROW FUNDS TO MAKE WATER
SYSTEM IMPROVEMENTS; CASE NO. BCS-09-
On May 4 2009, Bar Circle "S" Water Company (Bar Circle "; Company) requested
authority to borrow $55 000 to pay for certain water system improvements which include:
a) installing a 6-inch flow meter; b) abandonment of a well that is no longer in service, and c)
conversion from manual meter reading to automated electronic reading system.
The Idaho Department of Environmental Quality (IDEQ) has instructed the Applicant to
install a 6-inch recording flow meter on the discharge side of the Company s booster pumps by
July 1 2009. Exhibit 1 of Application. The total cost for the purchase and installation ofthe
flow meter is estimated to be $9 935. Exhibit 2 of Application. The Applicant has been
informed that there is at least a four-week lead time for receipt of the meter from the date ofthe
order. Bar Circle "S" has placed the order for the flow meter with United Pump and Drilling to
insure installation prior to the July 1 2009 date required by IDEQ.
Bar Circle "S" owns a 6-inch well that is no longer in service and must be abandoned in
compliance with IDEQ and Idaho Department of Water Resources (IDWR) rules and
regulations. IDAPA 37.03.09.12 and IDAPA 58.01.08.09. The estimated total cost to complete
the abandonment of the well by United Pump and Drilling and Avondale Construction is $4 500.
Exhibits 3 and 4 of Application.
Finally, the Applicant intends to convert its current manual meter reading system to an
automated electronic reading system. The Company claims that growth on the Bar Circle "
DECISION MEMORANDUM - 1 -MA Y 27 2009
system has exceeded the capacity of current manual reading methods. Conversion to the
automated system will avoid the necessity to hire additional part-time employees and will make
it possible to read customer meters in the winter months when snow accumulation makes the
manual reading impossible. The Company also indicates that its experience jn the past has
shown that the use of temporary or part-time employees generally produces numerous errors in
meter reading and requires supervisory review. The quote received by the Company from
General Pacific Inc. for all the equipment necessary to complete the conversion and training in
its use is $39 585.33. Exhibit 5 of Application. All individual customer meters will require a
retrofit ofthe existing mechanical equipment with the electronic equipment. The estimated cost
by Avondale Construction to complete the retrofit of customer meters is $5 400. Exhibit 6 of
Application. The total cost of converting to an automated meter reading system is $44 985.
The estimated total costs of all system improvements are summarized as follows:
a) Installation of flow meter $ 9,935.
b) Abandonment of unused 6-inch well $ 4 500.
c) Conversion to electronic meter reading system $44,985.
Total Cost of Improvements $59,420.
The Applicant has acquired a commitment for financing the improvements from
Community Bank in Post Falls, Idaho in the amount of $55 000. Exhibit 7 of Application.
Interest on the loan will be a floating rate at one percentage point over the prime rate published
in the Wall Street Journal and the term ofthe loan is for five years. The current interest rate
would be 4.25%.
ST AFF REVIEW
At present, the two production wells owned and operated by the Company are equipped
with flow measuring devices. Both of the production wells discharge to an 180 000 gallons
storage reservoir. Water is drawn from the tank to supply the system by four booster pumps and
one fire pump in parallel. The IDEQ letter to Bar Circle "S" on April 20 , 2009 reiterates IDEQ'
requirements of installing a recording flow meter on the discharge line of the four booster pumps
and that this meter needs to be installed prior to July 1 , 2009 in order to capture peak demand
this summer.
Since the old well owned by the Company is no longer in service, the Company plans to
DECISION MEMORANDUM - 2 -MAY 27, 2009
abandon the well in compliance with the current rules and regulations by the IDEQ and IDWR.
The IDEQ rules pertaining to abandonment of wells are cited in IDAPA 58.01.08.510.09 - Well
Abandonment. The Application erroneously cited IDAPA 58.01.08.09. The IDWR rules
pertaining to abandonment of well are cited in IDAPA 37.03.09.025.16 - Decommissioning
(Abandoning) of Wells. The Application erroneously cited IDAPA 37.03.09.12. The Idaho
Department of Water Resources apprised Staff that the new rules for decommissioning wells
were recently approved by the legislature and are effective May 8, 2009.
The Company plans to convert its manual meter reading system to an automated
electronic reading system. The Company cited in its Application and from additional
information provided to Staff several benefits ofthis conversion including: a) avoiding the
necessity of hiring additional part-time employees to obtain monthly meter readings; b) avoid re-
reading meters due to previous reading errors, potential leaks or customer complaints due to
unusually high bills; c) avoid additional vehicle expenses due to travel from the office to meter
sites to re-read meters and conduct investigations; d) avoid extra time and expense in correcting
meter data computer input, recalculating water usage, preparation and sending revised bills to
customers; e) be able to identify leaks at Company s service connection and/or broken meters in
a timely fashion thus eliminating potential revenue lost and additional operating expense to the
Company; f) be able to identify leaks on customer s services in a timely fashion; g) be able to
absorb new customer growth with minimal future labor costs; h) ability to read the meters in
winter season when snow accumulation makes manual reading impossible, and i) improves the
Company s cash flow by being able to bill customers in an a monthly basis.
Staff believes there is now a trend nationwide for owners of public drinking water
systems to convert from manual to some form of automated meter reading system because of the
various benefits offered. In northern Idaho , the Water Department of the City ofCoeur d'Alene
Central Shoshone Water in Kellogg and North Kootenai Water District have converted to
automated meter reading systems. There are different levels of automated meter reading (AMR)
technologies now available in the market from a simple hand-held (touch-read) system to
advanced AMRIAMI system. Bar Circle "S" has selected to use a mid-level technology, the
Mobile or Drive-by meter reading system. This technology requires installation of a radio
frequency transmitter for each customer meter and the meter flow data is automatically read by a
mobile reading device that includes navigational and mapping features.
DECISION MEMORANDUM - 3 -MA Y 27, 2009
As mentioned above, there are quantitative benefits and many qualitative benefits from
AMR installation. To evaluate the cost-effectiveness of installing AMR in the Company s water
system, Staff attempted to estimate the number of years of payback. This cost-effectiveness test
is simply the amount of capital invested divided by the approximate amount of annual cost
savings. Based on the information and data provided by the Company, the following potential
annual cost savings were estimated:
Re-reading meters due to inaccuracy
Vehicle expenses in re-reading meters
Hiring extra help in reading meters
Additional staff time in revising bills
Lost revenue due to leaks
Potential Annual Savings ($/yr)
$ 2 250
273
420
270
625
$ 3 838
See Attachment 1 for more detailed calculations of the above savings. Using the
estimated AMR capital cost of $45 000 and potential annual savings of $3 838, the estimated
simple payback is 11.7 years ($45 000/$3 838). As noted above, there are also other benefits that
are qualitative is hard to quantify. Staff believes that the estimated years of payback is reasonable
and the Company s planned capital investment in installing AMR system would be prudent and
beneficial to the Company and its customers.
Bar Circle "S" requests authority to borrow $55 000. The commitment letter from
Community Bank provides the necessary financing terms to approve the loan request. Upon
completion of the loan, Staff recommends Bar Circle "S" be required to file all final executed
loan-related documents with the Commission.
Staff also evaluated the potential ratemaking treatment for the AMR system. Contact
with Company Consultant, Robert Smith, has been utilized to make the evaluation. Mr. Smith
indicated a rate case was being prepared for Bar Circle ". As part of that case, rate base
treatment will be requested for the AMR. The loan costs will be included as the only debt
component in the overall rate of return.
At this time, Staff believes the Company can justify the AMR installation provided rate
base return over the life of the meters is used as the ratemaking treatment. This ratemaking
treatment will allow for the final AMR cost quantification and evaluation in the rate case. Staff
encourages the Company to continue exploring the availability of American Recovery and
Reinvestment Act of 2009, ARRA or stimulus, funds that may be available to water systems.
DECISION MEMORANDUM - 4 -MA Y 27, 2009
Bar Circle "S" has met the Commission s requirements for public notice (Exhibit 9 of
Application). The proper filing fee of$55.00 has been paid as provided by Idaho Code ~ 91-
905.
STAFF RECOMMENDATIONS
Staff recommends the Commission approve the request to borrow $55 000 from
Community Bank in Post Falls, Idaho. The proceeds will be used to finance several
improvements of the Company s water system including: a) installation of recording flow meter
as required by IDEQ; b) proper abandonment and sealing of a 6-inch well that is no longer
serviceable, and c) the installation of electronic meter reading equipment to improve efficiency
and accuracy of meter reading. These improvements will put the Company s water system to
compliance and would generally benefit the customers of Bar Circle ". Staff also recommends
Bar Circle "S" be required to file all final executed loan-related documents with the
Commission.
COMMISSION DECISION
Does the Commission wish to approve the Company s request to borrow $55,000 from
the Community Bank? Will the Commission require the final loan documents to be filed with
the Commission?
~ck
Terri Carlock
udmemos/gglbcswO9.! dec memo
DECISION MEMORANDUM - 5 -MAY 27 2009
Bar Circle "S" Water Corporation
Case No. BCS-09-
ESTIMATED COST SAVINGS DUE TO AMR CONVERSION
1. Re-reading meters due to suspected inaccuracies (i.e. unusually high water usage)
or customer complaints: about 6 occurrences/cases per month; 6 months of meter
reading per year; 5 hours to re-read meters, examine possible leaks or other
problems, explain findings to customers, etc.; cost oflabor is $25/hour.
Cost Savings: 5 hr/c x 3 c/mo x 6 mo/yr x $25/hr = $ 2 250/yr
2. Reimbursement of travel expenses for Item 1 above: 30 miles round trip per case;
50.5 cents per mile (based on 2008 IRS Guidelines for cost of standard business
mileage).
Cost Savings: 30 mi/c x 3 c/mo x 6 mo/yr x $0.505/mi = $ 273/yr
3. Hiring extra casual labor to help read meters manually: extra 5 hours of meter
reading per month; hire part-time help 6 months a year; cost oflabor is $14/yr.
Cost Savings: 5 hr/mo x 6 mo/yr x $ 14/hr = $ 420/yr
4. Extra time and cost for Billing Department staff to correct computer input data
recalculating changes, revising and sending out revised bills to customers: 1 hour
per customer; 3 cases per month; 6 months a year; $ 15/hour.
Cost Savings: 1 hr/c x 3 c/mo x 6 mo/yr x $15/hr = $ 270/yr
5. Lost of revenue due to potentialleaks (broken pipes/meters not discovered early
especially during the winter season). Company experienced a $625 revenue 10st
during the 2008-2009 winter season due to a broken meter. There were other leaks
discovered during the 2009 spring reading but they occurred in the customers
service lines.
Total Cost Savings: $2 250 + $273 + $420 + $270 + $625 = $3.838/vr
ATTACHMENT