20110810final_order_no_32324.pdf

Office of the Secretary
Service Date
August 10,2011
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF BRIAN WATER CORPORATION FOR )CASE NO.BRN-W.-1l-O1
AUTHORITY TO INCREASE ITS RATES )AND CHARGES.)ORDER NO.32324
_____________________________________________________________________________________
)
On February 25,2011,Brian Water Corporation filed an Application for authority to
increase its base rates from $12.50 to $18.00 for the first 4,000 gallons per month.Brian Water
is located in Ada County and serves 46 residential customers.The Company requests that the
increase become effective as soon as possible.
On March 24,2011,the Commission issued a Notice of Application and Notice of
Modified Procedure setting a June 30,2011,comment deadline,and July 8,2011,deadline for
reply comments.Order No.32211.On June 23,2011,following its investigation of the
Company’s Application,Staff conducted a public workshop in Boise for the purpose of
providing Brian Water customers an overview of the Company’s Application and to dispense
information.No Brian Water customers attended the workshop.Commission Staff filed
comments on June 30,2011.A public hearing was held on August 3,2011.Two customers
testified at the hearing.
After reviewing the record,including the analysis,comments and recommendations
of Staff,we approve an increase of $4,590,for a total annual revenue requirement of $17,532.
We authorize the new rates to become effective August 12,2011.
THE APPLICATION
Brian Water asserts that its last request for a rate increase was in 2007.Its actual
revenues since the Commission’s approval of its 2007 increase have been lower than expected
due to cool,wet weather over the past few years.The Application maintains that an increase in
base rates from $12.50 to $18.00 for the first 4,000 gallons per month would provide the
revenues needed.The Company is not proposing to increase the commodity charge of $1.35 per
1,000 gallons.Brian Water also states that its water supply nitrate levels exceed the EPA’s
maximum contaminant level (MCL)of 10 mg/L.The Application states that DEQ is directing
the Company “to enact a longer range solution to keep the levels below the MCL.”Application
at 1.As a result,the Company is considering a new,deeper well.
ORDER NO.32324 1
On April 6,2011,the Company revised its Application for a rate increase explaining
that the primary reason for the request was to increase revenues and build a reserve for
maintenance as the need arises for the aging water system.These costs include replacing old
meters,replacing old galvanized service lines,mainline repairs,pump repairs,etc.The
Company also points out that drilling a new,deeper well to resolve the nitrate problem is still
under consideration.However,the final cost of that project will not be known for some time
and,therefore,is not included in this rate request.
STAFF COMMENTS
Brian Water Corporation reported annual revenues of $12,942.1 Staff recommended
utilizing a 2010 test year in this case.The rate base for Brian Water for year-end 2010 is
$29,545.For Brian Water,rate base is limited to plant in service,CIAC and working capital.
Staff recommended a 12.0%return on rate base,as was used in BRN-W-07-01.
When the return is added to reasonable operating expenses the total annual revenue requirement
is $17,532.This is an increase of 35.3%,over the current revenue of $12,942.In order to
improve cash flow problems,Staff recommended that Brian Water utilize monthly,rather than
bi-monthly billing.
Staff noted that the Company currently uses a single block rate design with minimum
customer charge volume allowance.This rate structure consists of a base rate or minimum
customer charge of $12.50 per month with volume allowance of 4,000 gallons and a commodity
charge of $1.35 for each additional 1,000 gallons.Staff believes that it is appropriate to maintain
a single block design with minimum charge volume allowance.Most of the small water utilities
regulated by the Commission have been operating for decades with this rate structure because it
is simple,easy to implement and easy to understand.This type of rate design has some element
of conservation because if the customer uses more water,he has to pay more —compared to flat
rate design for unmetered systems.
Staff supports maintaining the minimum volume allowance of 4,000 gallons per
month for all customers of Brian Water.However,Staff does not support the Company proposal
regarding no adjustment of the commodity charge.As indicated previously,Staff’s adjusted test
year annual revenue requirement for the Company is $17,532.Using this adjusted revenue
Mr.Bowar,the owner of Brian Water Corporation,reads customer meters six times per year.
ORDER NO.32324
requirement,Staff recommended a minimum customer charge of $17.50 with volume allowance
of 4,000 gallons and a commodity charge of $1.51 per 1 000 gallons for water usage above 4,000
gallons for each customer.
The existing,Company proposed and Staff proposed rates and rate design are shown
in the summary table below.
RESIDENTIAL COMPANY STAFF
CUSTOMERS EXISTING RATES PROPOSAL PROPOSALMin.CustomerCharge $12.50 $18.00 $17.50
Volume Allowance 4,000 gallons 4.000 gallons 4,000 gallons
CommodityCharge $1.35per l,000gallons $1.35 per 1,000gallons $1.51 per 1,000gallons
The total calculated revenue using Staffs proposed rate design is $17,558 or about $26 over
Staffs recommended revenue requirement.Staff believes that its rate design proposal is
reasonable and appropriate for Brian Water.
Staff analyzed the potential monthly revenue collections under Staffs rate design
proposal and found that collections would reasonably cover the expected known monthly
operating expenditures in the pro forma cash budget even during the low revenue months.Based
on Staffs proposed rate structure,a customer with an annual average monthly water usage of
13,125 gallons would see an increase of $6.46 per month,or 26.0%above current rates.
During the Company’s last rate case (BRN-W-07-01),Staff noted that water loss in
the system is high.The Brian Water system was built in 1962.The Company acknowledged
that because of lack of capital it has not been able to replace or rehabilitate water system
infrastructure.The Company generally replaces or installs new parts of the system during
emergency situations when specific components break down,such as pipe breaks in the
transmission,distribution or service lines,malfunctioning customer meters,or motor failure of
the submersible pumping units.The Company indicated to Staff that it did not install a flow
meter on the system production well.The estimated cost to install these meters is approximately
$1,500 per meter or $3,000 for two wells.
Staff recommended that Brian Water institute a customer meter replacement program
because its meters have been operating for almost 49 years,and leaking and defective meters
have been an issue for the Company since at least 2006.Staff believes the recommended
increase in revenues will allow Brian Water sufficient earnings to replace an average of five
ORDERNO.32324 3
customer meters per year.With this customer meter replacement schedule,it will take about 8
years to replace the remaining 40 old customer meters.Staff also recommended that the
Company conduct a leak assessment in its distribution system and fix leaks as they occur.
Staff also recommended that the Company apply for membership in the Idaho Rural
Water Association (IRWA).As a member of IRWA,the Company would be eligible to seek
some assistance,including leak detection assessment and other onsite technical assistance,
offered by IRWA without charge.Staff included an adjustment in the yearly operation expense
of $255 for membership of IRWA.
Rules 201 and 305 of the Commission’s Utility Customer Relations Rules (UCRR)
list the information required on bills and past due notices mailed to customers.The Company’s
bills and notices do not meet the requirements of those rules.Staff also noted that the
Company’s policy regarding termination of service is inconsistent with Commission rules.See
UCRR 304,305,310,and 311.The Company stated that it has never terminated service to
anyone.Staff’s review of the Company’s accounts receivable indicated that the untimely
collection of bills has had a negative effect on cash flow.Staff recommended that the Company
revise its billing statements to include itemization of all charges including past due amounts and
the bill due date.Staff also recommended that the Company’s notices be updated to comply with
UCRR requirements.Staff recommended that the Company implement a system of notification
and collection of past due bills consistent with Commission requirements.In addition,Staff
recommended that a one percent (1%)per month late payment charge be applied to any unpaid
balance at the time of the next monthly billing statement.
The three sections of a small water utility tariff —the Commission approved rate
schedules,the General Rules and Regulations for Small Water Utilities and the Uniform Main
Extension Rules —describe the relationship between the customers and the Company and
establish the basic rules for providing service.Staff recommended that Brian Water revise its
tariff to include its rate schedules,the General Rules and Regulations for Small Water Utilities,
and the Uniform Main Extension Rule.
UCRR 701 requires the Company to provide a summary of the Commission’s Rules
and Regulations when it signs up new customers and provide all customers a copy on an annual
basis.Currently,the Company does not provide Summary of Rules to any of its customers.
UCRR 702 requires that the Company provide a clear and concise explanation of the applicable
ORDER NO.32324 4
existing rate schedule for each customer annually,and give it to each new customer at the time of
initiation of service.Staff recommended that the Company combine its rate schedules with the
Summary of Rules and provide a copy to customers as required under Rules 701 and 702.
FINDINGS AND CONCLUSIONS
The Commission has jurisdiction and authority over Brian Water Corporation,a
water utility,and the issues raised in Case No.BRN-W-1 1-0 1,pursuant to Title 61 of the Idaho
Code and the Commission’s Rules of Procedure,IDAPA 3 1.01.01.000,etseq.
The Brian Water system was built in the early 1 960s and currently has two
production wells as sources of water supply.Well No.1 is used as the primary well and Well
No.2 is used as a backup well.Neither well has a flow measuring device and both are
discharging directly to the mainline and distribution system.There are 46 residential customers
currently served by the Company.The capacity of the water system appears to be adequate to
serve the existing customers of Brian Water.
After reviewing the record,including the analysis,comments and recommendations
of Staff and customer comments,we find it fair,just and reasonable to approve annual expenses
in the amount of $13,019 and a total annual revenue requirement of $17,532.The Commission
finds it reasonable,and consistent with the public interest to approve a minimum customer
charge of $17.50 with volume allowance of 4,000 gallons and a commodity charge of $1.51 per
1,000 gallons for water usage above 4,000 gallons for each customer.The Commission’s
objective in approving such rates and charges is to balance the conservation incentive of a
commodity charge with a customer charge that reasonably meets monthly cash flow
requirements of the Company.We authorize the new rates to become effective August 12,2011.
The Company cited cash flow problems as one if its reasons for requesting a rate
increase.The Commission finds that the Company’s untimely collection of bills has had a
negative impact on cash flow.Managing collections by utilizing the tools provided through the
Commission’s rules will improve cash flow.See UCRR 201,304,305,310,and 311.We also
find it reasonable and direct the Company to implement a one percent (1%)per month late
payment charge to be applied to any unpaid balance at the time of the next monthly billing
statement.
At the conclusion of the Company’s last rate case (BRN-W-07-01),the Commission
directed the Company to read meters and bill customers on a monthly schedule.Order No.
ORDER NO.32324 5
30516 at 5.To date,the Company still reads meters and bills customers bi-monthly.The
Company’s actions are counterproductive and in direct violation of a Commission Order.In
failing to institute monthly billing,Brian Water not only exacerbates its cash flow problems but
also subjects the Company to potential penalties.Idaho Code §S 61-706,61-707.Furthermore,
the added cost to the Company in transitioning from bi-monthly to monthly meter reading and
billing has been included in the Company’s Commission-approved annual operating expenses.
The Commission directs Brian Water Corporation to institute monthly billing immediately or
face civil penalties.We recognize that Brian Water is a very small company.However,the
requirements of the Commission’s rules have been tailored taking that into account and are not
onerous to a utility of this size.
Water is a resource that must be conserved and not wasted,and the Commission
continues to encourage the Company to take steps to better manage its resource.During the
Company’s last rate case,it was noted that water loss on Brian Water’s system is high.Before
water loss can be reasonably estimated,accurate metering of water pumped and water sold to
customers must be calculated.The Company does not utilize a flow meter on the system
production well.The estimated cost to install these meters is approximately $1,500 per meter (or
$3,000 for two wells).The Company indicated that it does not have the funds available to install
the meters.However,if the Company chooses to construct a new well to address IDEQs
Consent Order,the cost of a flow meter could be included as part of the cost associated with well
construction when the Company applies for financing.Therefore,should the Company choose
to build a new well,we direct Brian Water to include a flow meter in its costs of construction.
Any undertaking to build a new well should include a flow meter in order to allow Brian Water
to better manage its precious resource.
At the conclusion of its prior rate case,this Commission encouraged Brian Water to
test and replace defective customer meters to assist in better managing its water resources.Order
No.30516.The Company appears to be replacing customer meters only during emergency
situations such as when the meters are leaking or are found to be defective.Brian Water’s
original meters have been operating for almost 49 years.We find that the increase in revenues
approved by this Order should allow the Company sufficient earnings to institute a customer
meter replacement program.We direct the Company to replace an average of five customer
ORDER NO.32324 6
meters per year until the remaining original meters are replaced.This process will further allow
the Company to better manage its resource.
The water quality at the Brian Water well does not comply with Idaho Department of
Environmental Quality (IDEQ)requirements.IDEQ has specified the options available to Brian
Water Corporation to correct the problem,but Mr.Bowar has not yet made a selection among the
options.As a result,these future costs are unknown.Therefore,no provision is included in the
rates and charges approved herein for those unknown,future costs.
ORDER
IT IS HEREBY ORDERED and the Commission does hereby approve as just and
reasonable an annual revenue requirement of $17,532,an increase of $4,590.We also approve
as just and reasonable the detailed changes in revenue requirement,capital structure,return on
rate base,and rate design.
IT IS FURTHER ORDERED that the Company submit tariffs in compliance with the
rates and charges identified in this Order no later August 12,2011.The rates and charges
authorized by this Order shall become effective for service rendered on and after August 12,
2011.
IT IS FURTHER ORDERED that the Company immediately implement monthly
billing and that it revise and file with the Commission its notices,bills,and other documents as
more fully described herein to conform to the requirements of the Utility Customer Relations
Rules no later than ninety (90)days from the service date of this Order.
THIS IS A F1ThfAL 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 §6 1-626.
ORDER NO.32324 7
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this /Q
day of August 2011.
ATTEST:
MACK A.R’bFORD,O ISSIONER
i
MARSHA H.SMITH,COMMISSIONER
D.JewelY
commission Secretary
O:BRN-W1 1-Oks4
ORDER NO.32324 8
Brian Water Corporation
BRN-W4 1-1
Audit Adjusted
Line U Revenues ACCT#Reported Adjustments Totals
1 Metered Sales 461.1 12,941.58 0.00 12,941.58
2 Total Revenues $12,941.58 $0.00 $12,941.58
Operating Expenses
3 Depreciation 403.00 1,687.91 (385.98)1,301.93
4 PUC Regulatory Fees 408.10 50.00 50,00
5 Property Taxes 408.11 254.69 254.69
6 DEQ Fees 408.13 230.00 230.00
7 State Income Taxes 409.11 30.00 30.00
8 Interest on LT Debt 427.30 747.58 (747.58)0.00
9 Labor-O&M 601.10 3,160.00 3,160.00
10 Labor-A&G 601.80 3,000.00 3,000.00
11 Purchased Power 615.00 1,620.89 1,620.89
12 Mat&Suppl-O&M 620.10 167.16 167.16
13 Mat&suppl-A&G 620.70 913.81 243.90 1,157.71
14 Contract Svs-Prof 631.10 0.00 0.00
15 Contract SvsTesting 635.00 481.00 137.82 618.82
16 Contract Svs-Other 636.00 2,020.58 (1,726.32)294.26
17 Rentals 641.00 412.73 224.66 637.39
18 Bad debts 670.00 0.00 0.00
19 Miscellaneous 675.00 205.00 291.47 496.47
20 Total Expenses $14.981.35 ($1,962.03)S13.019.32
22 Plant In Service $68,307
23 Accum Depr ($29,866)
24 Net Plant in Service $38,441
25 CIAC ($15,171)
26 Accumulated Amtz $4,810
27 Net Unamortized CIAC ($10,361)
28 Net Plant $28,080
29 Working Capital $1,465
30 Rate Base $29,545
31 Rate of Return 12.00%
32 Total Return $3,545
Case No,BRN-W-1 1-01
Order No.32324
Brian Water Corporation
BRN-W-11-O1
$%Amount
Return on Rate Base $29,545 12.0%$3,545
Tax Gross Up Multiplier 1.273
Subtotal 4,513
Annual Operating Expenses lnclu depr 13,019
Total Revenue Required $17,532
Less:Current Revenue (12,942)
Increase Needed $4,590
Percent Increase 35.3%
Tax Calculation
Beginning 100.00%
State Taxes at 7.6%-7.60%
Federal Taxable 92.40%
Federal Taxes at 15,0%-13.86%
Total 78.54%
Multiplier;Net to Gross 127.32%
Case No.BRN-W-1 1-01
Order No.32324