20060131final_order_no_29966.pdf

Office of the Secretary
Service Date
January 31 2006
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF BITTERROOT WATER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
ORDER NO. 29966
CASE NO. BIT-O5-
On June 15, 2005 , Bitterroot Water Company, Inc. (Bitterroot; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting a change in its
tariff rates. Bitterroot is a regulated water utility providing water service under Certificate of
Public Convenience and Necessity No. 319 to approximately 117 customers in Kootenai County,
Idaho. The Company s water rates were last adjusted in 1999. Reference Order No. 28121. In
its Application, Bitterroot requested that its base rate for metered customers be increased from
$20 per month to $45 per month. No change was proposed by the Company in the $.
commodity charge per 1 000 gallons of water consumed in excess of 15 000 gallons per month.
According to Bitterroot's Application, the proposed increase in rates is to help offset. the
increasing costs associated with the operation, maintenance and capital improvements to the
water system. Bitterroot contends that the Company s water system has been systematically
reviewed and upgraded to maintain compliance with increasingly tougher government standards
for water quality. Rising power and labor costs play the biggest role in recent operating expense
Increases. Bitterroot's Application is accompanied by financial schedules and engineering
information.
Bitterroot's Annual Report filed with the Commission for the year ending December
, 2004 reflects annual revenue of $35 619 and annual operating and regulatory expenses of
$39 233 , a net loss of $3 614. The Company in its Application proposes a 2004 test year with
known and measurable adjustments of $35 593 occurring in 2005 to determine its proposed
revenue requirement of $71 212. The requested change in rates would represent an increase in
total water revenues of approximately 99%. For reasons detailed below, this Order authorizes
Bitterroot to increase its rates and charges for water service by $18 089 annually, or 50.78% over
current revenues, to a total revenue requirement of $53 708. The tariff rate design we approve
increases the fixed monthly charge from $20 to $21 , increases the commodity charge for
monthly consumption exceeding 15 000 gallons from $.75 to $1.73 and authorizes two
ORDER NO. 29966
temporary surcharges, $1.24 per month for back flow prevention (four years) and $2.67 per
month for replacement of defective isolation valves (eight years).
On June 30, 2005, the Commission issued a Notice of Application in Case No. BIT-
05-, deferring further scheduling until Staff completed its investigation and audit.
October 20, 2005, the Commission issued a Notice of Modified Procedure in Case No. BIT - W-
05-1 making a preliminary finding that the public interest in the Company s Application might
not require a technical hearing to consider the issues presented.
On November 2, 2005 Commission Staff held a public workshop for Bitterroot
customers at the Athol Community Center in Athol, Idaho, a meeting attended by approximately
50 customers. At the meeting customers were provided the opportunity to ask questions of Staff
and representatives of the Company. Following the workshop customers were provided an
opportunity to file written comments. The deadline for filing written comments was November
, 2005. Comments and recommendations were filed by Commission Staff and 30 of the
Company s customers. Reply comments were filed by Bitterroot on December 1 , 2005.
Comments, Recommendations and Commission Findings
As reflected in its comments, Commission Staff performed a detailed audit of the
Company s Application and financial records, interviews with Company personnel and a
physical inspection of the Company s plant and distribution system. Staff verified the
accounting figures reported by the Company s books and records and reviewed the Company
internal controls and billing procedures. The reservoir and pumping facilities were inspected by
Staff and the Company s maintenance practices and improvements were reviewed and discussed.
A. The Bitterroot Water System
Staff reports the Company water system to be in acceptable condition with the
exception of peak season heavy demand on the well and booster pumps and some underground
valves that were installed incorrectly and are subject to corrosion and leakage. The concrete
100 000 gallon reservoir was clean and the pump and equipment house built on top of the
reservoir was clean and in good condition. The single 120 gpm well pump is reportedly
sufficient to meet the needs of the company in all but the highest use months. Interconnection
with the neighboring Rickel Water system provides an alternative source of supply in the event
of capacity shortfall or pump failure (125 gpm well pump). There are two booster pumps, one
rated 30 hp and the second at 15 hp. Plans are underway to add a third booster pump (also
ORDER NO. 29966
hp). In normal instances only one booster pump is required to meet system demand; however
during peak hours the 30 hp booster pump cycles on and off. The chlorination system was
functioning and the owner reports that it is maintained monthly and checked frequently.
As reflected in Staff comments, as of December 31 , 2004, Bitterroot had 117
customers connected to the system with a maximum monthly consumption of 5 979 502 gallons
(July) and an annual consumption of 23 228 000 for the year 2004. The Annual Report filed by
Bitterroot states that 19 550 709 gallons were pumped from the Company well, 4 239 770
gallons were purchased from Rickel Water and 2 219 000 gallons were sold to Rickel water in
2004, for a net purchase of 2 020 770. Rickel Water Company is a public utility (Certificate No.
324) operated under common ownership with Bitterroot and there is a charge of $3.00 per every
000 gallons sold between the two companies. During 2004, a net of approximately $600
worth of water was exchanged between the two companies. Staff recognizes the need to sell
water back and forth between the two companies to alleviate constraints on the system during
peak summer months; however, neither company has a tariff on file with the Commission
regarding such sales. Staff recommends the Commission direct Bitterroot to file an appropriate
tariff for the commercial sale and purchase for resale of water with justification for the rate. The
Company in reply comments agrees to file tariffs for the commercial sale of water to Rickel
Water and commits to record water purchase/sale transactions on a more frequent basis. The
Commission acknowledges Staffs and the Company s comments regarding water purchased
from and sold to Rickel Water and agrees that Bitterroot should request a tariff for authorization
of such transactions and maintain detailed transaction reports if it expects to justify and recover
related expenses.
B. Revenue Requirement and Operating Expenses
Bitterroot in its Application requests an annual revenue requirement of $71 ,212. The
Company seeks recovery of $39 233 of test year 2004 operating and regulatory expenses plus
$31 979 of pro forma expenses (Adjustments A-P). Staff reviewed the 2004 expenses for
prudency and the pro forma expenses for necessity and proposed additional adjustments to test
year expenses (Adjustments Q-S). See Attachment A to this Order.
Staff, in its filed comments, proposed total adjustments of ($20 996) and a revenue
requirement of $50 968 , an increase 43.09% over current revenues. The Company by way of
reply and rebuttal proposes a revenue requirement of $53 708 (as adjusted). Included in the
ORDER NO. 29966
Company s rebuttal adjustments is an increase of $1 176 in operation labor (Adjustment G) to
account for daily chlorine testing and additional labor needed to institute the back flow
prevention valve (Adjustment K) and the isolation valve (Adjustment S) implementation. Also
included by the Company is a $1 620 increase in accounting services labor (Adjustment M). The
Commission is informed that Staff acquiesces to the Company s rebuttal adjustments and
supports a revenue requirement of $53 708, an increase of 50.78% over current revenues. See
Attachment A.
The Commission has reviewed the final proposed expense adjustments and finds
them to be uncontested by Company and Staff. We find the adjustments to be reasonable and
find that the post-test year adjustments satisfy the Commission s known and measurable
standard. We approve an annual revenue requirement for Bitterroot of$53 708.
The Commission finds that the Company has also been correctly apprised by Staff in
the instance of Adjustments F and H as to the appropriate recordkeeping procedures for capital
investment and regulatory requirements and options for related capital expense recovery.
(Reference Adjustment F-Well Pump Replacement; Adjustment H-Booster Pump Replacement
and Maintenance.
As noted in Staff comments, because Bitterroot has previously expensed all capital
investments, the Company did not propose a rate base in this proceeding. Based on Staff
comments, we find that the record provides a basis for identifying a rate base and authorizing a
return on equity. The Company in its Application requests $2 971 amortized over four years for
a new 15 horsepower booster pump. Staff in Adjustment H contends that the pump is a capital
investment that should be booked to plant-in-service and depreciated over its useful life (seven
years). The corresponding depreciation expense when using a seven-year estimated useful life
as computed by Staff, is $425. Staff removes the $2 622 adjustment proposed by the Company
for booster pump replacement and maintenance and creates a depreciation expense of $425 for
recovery. Staff recommends an 11% return on equity in this proceeding applied to plant-in-
service (rate base) of $2 971 (booster pump), less zero (~ 0
:::.)
accumulated depreciation results
in a return on capital and increases the Company revenue requirement by $327. The
Commission finds the Staff proposed $2 971 rate base for Bitterroot and the related accounting
entries to be reasonable and the recommended 11 % return on equity for Bitterroot to be fair, just
and reasonable.
ORDER NO. 29966
C. Tariff Structure and Rates
The existing rate tariff structure for Bitterroot consists of a $20.00 per month
minimum charge and a commodity rate of $0.75 per thousand gallons for usage over 15 000
gallons in a month. With this structure Staff calculates that approximately 80 percent of 2004
revenue was derived from the minimum monthly charge and 20 percent from sale of commodity
(approximately $28 300 and $7 300, respectively). The Company in its Application requested an
increase in the minimum monthly charge to $45.00 with no change to either the amount of water
included in the minimum or in the commodity rate.
Given the significant peak demand placed on the system s well and booster pump
capacity in 2004 and a perceived need for further conservation, Staff believes it is reasonable to
recommend a tariff that recovers a larger percentage of the Company s revenue requirement
from the commodity rate. Staff in its comments proposed to increase the percent of revenue
collected through the commodity charge from 20 percent to 35 percent. To recover its
recommended revenue requirement of $50 641 , Staff proposed a tariff structure of $24.00 per
month plus $1.65 for each 1 000 gallons of usage over 15 000 gallons.
Bitterroot Water in reply comments proposed reducing Staffs recommended fixed
monthly charge of $24 to $21 and proposes recovery of estimated costs for back flow prevention
and replacement of defective isolation valves through two separate surcharges, a four year $1.
per month surcharge for back flow prevention (Staff Adjustment K) and an eight year $2.67 per
month surcharge for replacement of defective isolation valves (Staff Adjustment S). The
surcharges would be placed in dedicated reserve accounts for tracking purposes. The Company
also proposed increasing the commodity tariff from Staff proposed $1.65 to a later adjusted
$1.73 per 1 000 gallons for monthly usage over 15 000 gallons. The Commission is informed
that Staff concurs in the Company s proposed rate design.
As reflected in the preceding section to this Order, the Commission approves a
revenue requirement for Bitterroot Water of$53 708. The Commission finds the consensus tariff
structure agreed to by Company and Staff to be reasonable. The rate design we approve
increases the fixed monthly charge from $20 to $21 , increases the commodity charge for
monthly consumption exceeding 15 000 gallons from $.75 to $1.73 and authorizes two
temporary surcharges, $1.24 per month for back flow prevention (four years) and $2.67 per
month for replacement of defective isolation valves (eight years). See Attachment B. Under the
ORDER NO. 29966
tariff structure an estimated 65% of revenue will be recovered from fixed charges and 35% from
commodity charges.
The Company proposes a four-year plan to install one-inch angle check valves for
back flow prevention for its water customers. While Idaho Drinking Water Standards do not
require back flow prevention at the residential connection, we recognize, as Staff notes, that the
practice is required in other northwestern states. We find the Company s proposal to install back
flow prevention devices to be a practice adopted by other Idaho water companies and a prudent
practice for health reasons. Eighty-seven back flow prevention devices are required at a
Company estimated individual unit (installed and tested) cost of approximately $80. Bitterroot
recommends recovery by way of a monthly surcharge to assure guaranteed cost recovery. We
find the estimated cost and implementation plan to be reasonable and authorize recovery of same
through a four-year customer surcharge of $1.24 per month.
The second surcharge that we authorize is for isolation valves. As reflected in Staffs
comments, when the mains were originally installed on the Bitterroot system, the service stubs
were installed for each lot with an isolation valve buried at the termination point. These original
individual residential isolation valves were bronze gate valves, which are not designed for direct
burial. The valves were installed prior to the Rickel's acquisition of the Bitterroot system. In the
past two years it is reported that these valves have begun to fail, resulting in leaks and loss of
pressure. The failures are only discovered when the leaks are a sufficient size to either be heard
or to create a surface water problem. The Company believes that 60 of these valves remain in
service and proposes a proactive maintenance program aimed at replacing at least eight valves
per year for the next several years (more than eight if there are additional failures). The
replacement valves will be of a fully encapsulated body and stem design intended for direct
burial. The estimated cost for replacement including backhoe time, labor and materials is $500
per valve. Staff believes the proactive maintenance program to be prudent and recovery to be
appropriate. Bitterroot recommends recovery by way of a monthly surcharge to assure
guaranteed cost recovery. The Commission agrees, finds the proposed replacement plan to be
reasonable and authorizes an eight-year customer surcharge of $2.67 per month.
Customer Comments
Bitterroot customers filing comments express varied degrees of concern and
opposition regarding the size of the rate increase requested in the Application. Issues of
ORDER NO. 29966
affordability are raised by many on low or fixed incomes. Service issues noted are occasional
drops in water pressure, the sometimes noticeable smell and taste of chlorine, and the Company
failure to notify customers when it was working on the system. One customer identifies a need
for backup generation for pumping during times of power outages; another a desire for lower
rates for irrigation water; and another questions the Company s stated need to purchase
backhoe. A number of customers request a more equitable distribution of water costs assessing
greater cost responsibility to those who use more than the average water user, such as one
customer in July 2004 who reportedly used 213 500 gallons. The average customer water usage
for that month was 53,400 gallons. Customers also resent having to pay for past neglect and for
the replacement of meters that they believe should have a longer service life.
The Commission finds the Company s practice of treating water with chlorine to
comport with DEQ requirements and to be prudent. We encourage the Company to notify
affected customers when performing system maintenance and modifications. We also find that
the tariff minimum and commodity charge structure approved is designed to promote greater
conservation and equitable distribution of costs.
Regarding meter replacement, the Commission notes that one of the expense
adjustments proposed by Staff (Adjustment I) and agreed to by the Company is elimination of a
Company proposed increase of $3 050 for meter maintenance. Staff questioned the Company
meter replacement proposal believing the installed meters to have a longer life than the one
million gallon total flow range represented to the Company by a meter vendor. Staff
recommended that the Company as part of its routine maintenance replace some of the older
measuring chamber cartridges and test the accuracy of the removed cartridges. Staff believes the
test year figure of $1 537 for meter maintenance allows the Company sufficient revenue for
meter maintenance. If meters need to be replaced, Staff contends, the Company should
capitalize the cost of the meters and seek recovery in a later case.
Regarding the Company s proposal to purchase a backhoe ($40 000 amortized over
20 years), the Commission notes that Staff (Adjustment L) rejected the Company s proposal for
three reasons: (1) the cost of the backhoe should be allocated among Rickel Water Company,
Bitterroot Water Company and personal use; (2) a substantive cost benefit analysis comparing
rental and purchase options was not performed and submitted by the Company; and (3) because
ORDER NO. 29966
the Company has not purchased the backhoe, the cost is not a known and measurable post-test
year expenditure. The Company accepted Staff s proposed adjustment.
Commission Findings
The Commission has reviewed and considered the filings of record in Case No. BIT-
05-1 including Staffs filed comments and recommendations, the Company s related reply
and the filed comments of customers. The Commission continues to find that the issues
presented in this case are suitable for processing under Modified Procedure, i., by written
submission rather than by hearing.
31.01.01.201-204.
Reference Commission Rules of Procedure IDAP A
Idaho Code 99 61-301 and 61-307 require that the Commission establish just and
reasonable rates for each utility. The Commission finds it fair, just and reasonable based on Staff
accounting, engineering and related financial data to approve an annual revenue requirement for
Bitterroot Water of $53 708 (an increase of $18 089 or 50.78%), an amount that includes total
annual surcharge revenue of $5,489.64 comprised of a four-year $1.24 per month surcharge for
backflow prevention ($1 740.96) and an eight-year $2.67 per month surcharge for replacement of
defective isolation valves ($3 748.68). The fixed monthly minimum charge that we approve is
an increase from $20 to $21. We also approve an increase in the commodity tariffrate per 1 000
gallons for usage over 15 000 gallons per month from $.75 to $1.73. We find that the rates and
charges designed to recover the revenue requirement established are fair, just and reasonable and
nondiscriminatory. The Company is directed to file tariff sheets reflecting our authorized rates
and charges.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction and authority over Bitterroot
Water Company, Inc., a water utility, and the issues raised in this case, pursuant to Title 61 of the
Idaho Code and the Commission s Rules ofProcedure 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 in Case No. BIT-05-1 approves an $18 089 or
50.78% increase in authorized annual revenues for Bitterroot Water Company, Inc., for a total
authorized annual revenue requirement of $53 708. Our revenue requirement calculation
includes a rate base of$2 971 and an authorized 11 % return on equity.
ORDER NO. 29966
IT IS FURTHER ORDERED and the Commission does hereby establish rates and
charges for metered water service as set out above. The Company is required to file tariff sheets
consistent with this Order. The rates and charges we approve will be effective February 1 2006.
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.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this .3 J 51"
day of January 2006.
fj~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~LDJe D. Jewell
Commission Secretary
bls/O:BIT-O5-01 sw
ORDER NO. 29966
BITTERROOT WATER COMPANY
BIT-OS-
Company Company Company Staff
Reported Pro Forma Request Staff Revenue Company
2004 ustments Per A lication ustments uirement Rebuttal
REVENUES
Metered Sales 619 593 212 50.968 53.959
EXPENSES
Operation Expenses
Operation Labor 325 176 501 501 677
Purchased Water 200 200 (200)
Purchased Power 323 098 8,421 (141)280 280
Supplies & Expenses 240 240 510 750 750
Chemicals 554 620 620 620
Other 320 320 320 320
Total Operation Expense 034 268 302 18,471 647
Maintenance Expenses
Maintenance of Pumping Plant 231 231 (2,231)
Maintenance of Water Treatment Plant 700 700 200)500 500
Maintenance of Distribution Reservoirs & Standpip 622 622 622)
Maintenance of Meters 537 050 587 050)537 537
Maintenance of Other Plant 346 381 (292)
Repairs of Water Plant 916 000 916 916 916
Other 181 000 181 000)181 181
Total Maintenance Expense 669 949 618 223 223
Customer Accounts Expense
Meter Reading Labor 800 800 800 800
Accounting and Collecting Labor 628 372 000 (2,450)550 170
Uncollectible Accounts 123 123 123 123
Other 150 150 150 150
Total Customer Accounts Expense 701 372 073 623 243
Administrative & General Expenses
Administrative & General Salaries 325 176 501 176)325 325
Office Supplies & Other Expenses 994 994 994 994
Outside Services Employed 500 500 (500)
Property Insurance 803 877 (2,438)4,439 634
Regulatory Commission Expenses 598 598 598 598
Miscellaneous Generai Expenses 316 640.956 (640)316 316
Transportation Expenses 911 911 911 911
Other (35)
Total Administrative & General Expenses 16,947 390 337 548 743
Property Taxes 227 227 227 227
Income Taxes 655 655 (531)124 124
Add Maintenance Reserve 000 000 749
Add Depreciation Expense 425 425 425
Total Operating Expenses 233 979 212 (20 996)641 381
Add Retum on Capital 327 327
Total Revenue Requirement 50,968 53,708
Tho Comp,",, "buttal "",," 0 """'0 ""i"m,"1 01 '53.959 " i",,"'od on P090 8 of thoi, "'pon~ 10 SIaWo ,ommon"
whioh i. '25110" thon "n."'d on thi, 'p"od,h.., Tho '251 diff"on" i. "',i"d horn tho Compon,. "opo..1 of. ,""0,,,..
fOf 'Ad)"'lmoon! S'. Slaff"opo~do $4.000 onn",1 moinlonon" ""NO. ond th. Compon, """'" 0 '"""',go of $2.87 p" moonth
Of $3,7491'2.67,117 ,"10m"" 12 month.)
ATTACHMENT A
ORDER NO. 29966
CASE NO. BIT-O5-
BitterRoot Tariff Reconciliation
REVENUE REQUIREMENTS,
DETERMINATION OF TARIFF TARIFF STRUCTURE PROPOSED PROPOSED BY COMPANY
STRUCTURE TEST YEAR DATA BY COMMISSION STAFF (REBUTTAL)Authorized
TARIFF &
REVENUE TARIFF &TARIFF & REVENUE TARIFF & REVENUE
USAGE DATA DATA USAGE DATA REVENUE DATA USAGE DATA DATA USAGE DATA DATA
Total Revenue $35 619 $51 647.$53 939.$53,795.
Revenue Requirement Determined
by Staff $50,958.$53 708.
Total Surcharge Revenue 489.
Total Revenue Requirement less
Surcharge $48 218.
Revenue from Minimum Monthly
Charge $27 154 $33 696.$29 484.$29 484.
Amount include in Minimum
Charge, gallons 000 000 000 000
Revenue from usage over 15,000
gal/custlmo $8,465 $17,951.$18,713.$18,822.
Percent Non-Surcharge Revenue
from Minimum Monthly Charges 76.23%55.24%54.66%61.15%
Percent Non Surcharge Revenue
from Variable Rate 23,77%34.76%45.34%38.85%
Total Gallons Billed over
15,OOOgallmo/cust in 2004 10,879,88B 879 888 879 888 10,879 888
Fixed Minimum Monthly Charge $20.$24.$21.$21.
No of Customers 117 117 117 117
Commodity Tariff $/1,000
gallons, for amount over 15,000 $0.$1.$1.$1.
Surcharge #1 - Four Years for See Footnote 1
Backflow Prevention, $/month
===,.
$1.$1.
Surcharge #1 Revenue $1,993.$1,740.
Surcharge #2 - Eight Years for
Replacement of defective Isolation
Valves, $/month $2.$2.
Surcharge #2 Revenue $3,748.748.
1 - The recovery of $6,963.84 included in the originally proposed tariff is correct. In a telephone conversation, The company indicated that 87 backflow prevention
devices are required. This results in a lower revenue requirement which $1.24 per month for 4 years will recover.
2004 Gallons Used by CustomerA122005
ATTACHMENT B
ORDER NO. 29966
CASE NO. BIT-O5-