20100210reconsideration_order_no_31002.pdf

Office of the Secretary
Service Date
February 10 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF BAR CIRCLE "S" RANCH WATER
COMPANY, INC. FOR AN ORDER
AUTHORIZING AN INCREASE IN THE
COMP ANY'S RATES AND CHARGES FOR
WATER SERVICE IN THE ST ATE OF
IDAHO
ORDER NO. 31002
CASE NO. BCS-09-
On June 19 2009, Bar Circle "8" Ranch Water Company, Inc. (Bar Circle "; BC8;
Company) filed an Application with the Idaho Public Utilities Commission (Commission) for
authority to increase the water rates it charges its customers by approximately 119% ($80 335).
The Company also requested changes in certain non-recurring charges.
On November 5 , 2009, the Company in reply comments reduced its rate increase
request to $70,175 (104.34%). The Commission on December 30, 2009, in final Order No.
30970 authorized a $55 734 revenue increase (or 82.87%) to be collected through a uniform
increase in rates. The Commission also approved changes to some of the Company s non-
recurring charges.
PETITION FOR RECONSIDERATION
On January 14, 2010, Bar Circle "8" filed a Petition for Reconsideration of certain
parts of the Commission s Order No. 30970, i., the Commission s determination that (a) the
Company s estimated Automated Meter Reading (AMR) investment was "uncertain and
speculative" and not entitled to rate base treatment and (b) that the Company s proposed $2 500
connection charge for new service requests when there is no main line service tap, service line or
meter box was not needed. Idaho Code 9 61-626. The Commission in this Order denies
reconsideration on the AMR issue and grants reconsideration and authorizes the requested
connection charge.
(a) Automated Meter Reading (AMR)
The Commission s final Order No. 30970 contained the following language regarding
AMR:
ORDER NO. 31002
Staff Rate Base Adjustments
The following (rate base J adjustment of Staff remains contested:
($44 985) Automated Meter Reading (AMR).
Staff represented in its report that the Company had withdrawn its request to
install the automatic meter reading system at this time (Staff Production
Request No. 11 , Part D) and removed all of the Company s pro forma
adjustments for the AMR system. Staff Report, Atch. 4.
The Company in its filed reply states that it did not "withdraw its request" but
rather pointed out a problem that was delaying the project. The Company
states "the problem has been resolved and applicant is moving forward with
the project. The meters are being ordered the week of November 1 , 2009.
Installation will commence as soon as the meters arrive. Applicant believes it
will be able to complete the project before winter weather interferes.
Status Report: On December 11 , 2009, Staff inquired and was informed that
the AMR equipment has not been ordered.
Commission Findings
Bar Circle "S" is entitled to rates that will cover its operating costs and
provide an opportunity to earn a reasonable rate of return on its investment
devoted to utility business. Only "used and useful" property is permitted in
rate base. The Commission finds that the Company to date has neither
installed nor purchased automated meter reading equipment. While planned
as a system improvement by the Company, we find that the proposed
investment is still uncertain and speculative. We find no basis, therefore, for
including the estimated AMR investment ($44 985) in rate base and
accordingly find it reasonable to exclude same.
Order No. 30970, p. 5.
Petition for Reconsideration
As reflected in its Petition for Reconsideration, on May 4, 2009 , Bar Circle "
Water Company filed an Application for authority to incur debt. . . (Case No. BCS-09-0l)
(for purposes among other things J to convert from manual meter reading to an automated
electronic meter reading (AMR) system ($44 985). The Commission issued Order No. 30832
on June 3 , 2009, authorizing the Company to borrow $55 000 for the system improvements from
Community Bank in Post Falls , Idaho. In authorizing the Company to incur debt, the
Commission found the proposed conversion to AMR to be of general benefit to the customers of
ORDER NO. 31002
Bar Circle ". The Commission went on to state "we expect the Company to present a cost-
benefit analysis of its capital expenditures in the next rate case." Bar Circle "S" states that it
complied with the Commission s directive and in this rate case (BCS-09-02) submitted
Exhibit No., a cost-benefit analysis.
Staff, in its report in this rate case, the Company contends, incorrectly concluded that
Bar Circle "S" had withdrawn its request to install the AMR project. Bar Circle "S" in its reply
to the Staff report explained that an internal ownership problem had delayed the project but the
problem had been resolved and the project was back on track. Bar Circle "S" states it intended
to order the new meters the week of November 1 , 2009, and that it did in fact meet with the
equipment suppliers and was provided an updated cost quote. The Company notes
parenthetically that due to delays, the escalation in equipment costs have increased the total
project cost from $44 985 to $51 274. However, Bar Circle "S" states that it grew nervous about
placing the order and committing the Company to a large loan requiring monthly debt service
costs without assurance that the new rates the Commission would authorize at the end of this
case would provide the necessary cash flow. Bar Circle "S" reports that it has not taken out the
loan and has diverted owner capital for other projects. Bar Circle "S" states that the Company
elected to not place the order until the Commission issued its Order. Bar Circle "S" states its
intention to move forward with the project and place the order for installation as soon as spring
weather allows, assuming that the Commission provides rates adequate to provide the necessary
cash flow.
Bar Circle "S" contends it finds itself in a Catch 22 situation. It cannot commit to a
loan it cannot repay. The Commission characterized the project as "
. .
. uncertain and
speculative. . ." (Order, page 5) and denied the project for inclusion in the calculation of revenue
requirement to set rates.
Bar Circle "S" specifically requests that the Commission reconsider its decision on
this issue, find that the project is beneficial and authorize the Company to move forward with the
project. Bar Circle "S" proposes that the Commission consider the rates currently authorized by
Order No. 30970 to be interim rates, subject to change upon completion of the AMR project.
Exhibit No. 11 attached to the Company s Petition for Reconsideration shows the effect of this
proposal on the rates already approved by the Commission s Order. Bar Circle "S" pledges to
ORDER NO. 31002
provide the Commission with copies of purchase orders, InVOICeS and status reports as the
Commission deems necessary.
Commission Findings
Bar Circle "S" requests that the Commission reconsider its findings regarding the
Company s proposed AMR project. In our final Order No. 30970, we found no basis to include
the estimated AMR investment ($44 985) in rate base. We found the proposed AMR investment
to be uncertain and speculative.
In our June 3 , 2009, Order No. 30832 authorizing the Company to incur indebtedness
for its proposed AMR project, we recounted Staffs citing ofthe following potential (quantitative
and qualitative) benefits of converting the Company s manual meter reading system to an
automated electronic reading system:
The Company cited in its Application, and in additional information provided
to Staff, several benefits of this conversion including: (a) avoiding the
necessity of hiring additional part-time employees to obtain monthly meter
readings; (b) avoiding re-reading meters due to previous reading errors
potential leaks or customer complaints due to unusually high bills; (c)
avoiding additional vehicle expenses due to travel from the office to meter
sites to re-read meters and conduct investigations; (d) avoiding extra time and
expense in correcting meter data computer input, recalculating water usage
preparation of and sending revised bills to customers; (e) being able to
identify leaks at the 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) being able to identify leaks on customers
services in a timely fashion; (g) being able to absorb new customer growth
with minimal future labor costs; (h) being able to read the meters in the winter
season when snow accumulation makes manual reading impossible; and (i)
improving the Company s cash flow by being able to bill customers on a
monthly basis.
Order No. 30832, p. 3.
We noted Staffs contention that Bar Circle "S" had elected to use a mid-level AMR
technology, the mobile or drive-by meter reading system. Such a 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.
Id.
In our Order No. 30832 authorizing the Company to borrow money for its AMR
program, we found the AMR program to be of general benefit to customers. We directed the
ORDER NO. 31002
Company to file all final loan-related documents with the Commission upon execution. We
stated "we expect the Company to present a cost-benefit analysis of its capital expenditures in its
next rate case." Order No. 30832, p. 4.
Bar Circle "S" has not installed AMR equipment.It has not made any AMR
investment. It has not incurred the authorized indebtedness or secured a loan for AMR. The
Company s Exhibit 5 cost-benefit analysis (filed June 2009) is a simple schedule based on 3%
customer growth and 3% inflation. The Company s Application states that the exhibit
demonstrates that customers will initially realize a reduction in rates albeit
rather small. The customer benefits will continue for a period of five years.
Assuming customer rates are adjusted annually, in years 6-11 customers will
see an increase in rates. In the 12-20 years, customers would return to a
position of benefit. Over the lifetime of the equipment, customers would
realize a net accumulated benefit in year 20. This cost-benefit utilizes the
estimated savings of $3 838, Staff developed in discussion with the Company
in Case No. BCS-09-01.
The Commission s decision against inclusion of the Company-proposed AMR investment in rate
base in this case was based on the still speculative nature of the Company s AMR program and
did not address the reasonableness of the Company s Exhibit 5 assumptions. The Company
provides no evidence in this case, we find, regarding the actualization of the quantitative and
qualitative benefits of AMR cited in Order No. 30832.
We find that the Company has presented in its Petition no reason to grant
reconsideration of our AMR rate base decision. The Company to date has not followed through
with its AMR commitment. That being said, however, we continue to support AMR to the
extent that the Company is able to demonstrate its continued cost-effectiveness and satisfy the
used and useful" standard.
We encourage the Company to file an application to support its case for additional
adjustments to rate base and recovery in rates of actual AMR investment. We will expect such
an offer of proof to include a detailed schedule showing updated equipment cost estimate
documentation, updated year one initial savings and an updated cost-benefit analysis with
updated labor cost estimates, updated growth and inflation estimates and adjusted revenue
projections.
ORDER NO. 31002
(b) Connection Charges
The Commission s final Order No. 30970 contained the following language regarding
the denied connection charge:
The Company is also proposing to charge new customers a $2 500 connection
fee when there is no service tap to the Company s water main or no meter box
is in place on the property. Staff does not disagree with the Company on the
amount of the $2 500 connection fee, but questions the merit of putting this
into the Company s tariffs when the Company is not expecting a new
connection with this condition. Staff recommends that this proposed
connection fee be denied at this time.
Commission Findings
The Company proposes a $2 500 charge for new customers if there is no
service tap or meter box in place. Staff contends that such service conditions
do not exist on the Company s existing system and recommends at this time
that the proposed charge be denied. We find no need to include this charge in
the Company s tariff. The Company can request this charge later should its
service territory be expanded and service conditions change.
Petition for Reconsideration
The Commission in Order No. 30970 accepted Staffs recommendation and denied
this request. The Commission, the Company states, relied on Staff s assessment that there are no
lots within the Company s service area that do not have meter boxes installed on the property.
Bar Circle "S" states it failed to address the Staffs recommendation in its reply to Staff report.
Bar Circle "S" requests that the Commission reconsider its denial of this requested
connection charge and approve the tariff submitted with the original Application.The
Commission, the Company notes, has already approved an expansion of the service area to
provide service to the Double T Estates subdivision. Order No. 30731 , Case No. BCS- W -08-01.
As the Double T Estates subdivision is developed, the Company states that no main line service
taps or meter boxes have or will be installed until a property is purchased and water service
requested. Due to the size of the building lots (five acres and larger) the Company contends that
the location of the main line service tap and service line are unknown until the location of
structures on the property are known.
Denial of the requested connection charge at this time, the Company contends, will
cause the Company to incur additional costs to file another application at a later time, increase
the Commission s future caseload and could unreasonably inconvenience and delay a property
ORDER NO. 31002
owner s construction of a new home. Contractors need access to a water source as well as
electricity during the course of construction. With a tariff in place, the Company states, it can
respond quickly to a request for new service. Should there be no request for new service for
several years, the Company contends the problem is moot and no charges will be assessed.
Commission Findings
Bar Circle "S" requests that the Commission grant reconsideration and approve the
proposed $2 500 connection charge.The Company, we note, failed to address Staffs
representations and recommendations in its reply. The Company contends in its Petition for
Reconsideration that service conditions in Double T Estates (no service tap or meter box in
place) merit approval ofthe proposed $2 500 connection charge. We find that facts presented by
the Company on reconsideration support its request. We thus find it reasonable to grant
reconsideration and to approve a $2 500 connection charge for new service requests in the
Double T Estates subdivision when there is no existing main line service tap, service line or
meter box in place on the property.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Bar Circle "S" Ranch
Water Company, a water utility, and the issues presented in Case No. BCS-09-02 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 and qualified
above, IT IS HEREBY ORDERED that Bar Circle "S" Ranch Water Company, Inc.s Petition
for Reconsideration request regarding the Commission s exclusion of proposed AMR investment
from rate base is denied.
IT IS FURTHER ORDERED that the Company s Petition for Reconsideration
request regarding the Commission s denial of a $2 500 connection charge for new service
requests (in Double T Estates) when there is no main line service tap or meter box in place is
granted and the requested connection charge is hereby authorized. The Company is directed to
file an amended "new customer connection charges" tariff sheet.
ORDER NO. 31002
THIS IS A FINAL ORDER DENYING AND GRANTING RECONSIDERATION.
Any party aggrieved by this Order or other final or interlocutory Orders previously issued in this
Case No. BCS- W -09-02 may appeal to the Supreme Court of Idaho pursuant to the Public
Utilities Law and the Idaho Appellate Rules. See Idaho Code 9 61-627.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
f1'
day of February 2010.
d ~t
JIM . E PTO , P IDENT
MARSHA H. SMITH, COMMISSIONER
~~,
\D0
MACK A. REDFORD, COMMISSIONER
ATTEST:
bls/O:BCS-09-02 sw5
ORDER NO. 31002