20110630Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 6618
R. t:rt:f\(d+\~V:-lti
ion 30 PM 4: 24
Street Address for Express mail
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF BRIAN WATER CORPORATION FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES.
)
) CASE NO. BRN-W-ll-Ol
)
) COMMENTS OF THE
) COMMISSION STAFF
)
The Staff of the Idaho Public Utilties Commission, by and through its attorney of record,
Kristine A. Sasser, Deputy Attorney General, in response to the Notice of Modified Procedure,
Notice of Workshop and Notice of Comment Deadline (Order No. 32249) submits the following
comments.
BACKGROUND
On February 25,2011, Brian Water Corporation fied an Application for authority to
increase its base rate 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 its
increase become effective as soon as possible.
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. 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
STAFF COMMENTS 1 JUNE 30, 2011
the levels below the MCL." Application at 1. As a result, the Company is considering a new,
deeper well.
The Application maintains that an increase in base rates would provide the curent
revenues needed since actual revenues have been less than what was granted during the last rate
case in 2007.
On April 6, 2011, the Company revised its Application for a rate increase explaining that
the primar reason for the request was to increase revenues and build reserve for maintenance
issues as they arise 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 driling a new deeper well to resolve the nitrate problem is stil under
consideration. However, the final cost of that project wil not be known for some time and,
therefore, is not included in this rate request.
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 public workshop.
STAFF ANALYSIS
System Condition
As par of the evaluation process, Staff conducted a field tour of the water system on
May 2,2011, accompanied by Tony Bowar, owner of Brian Water Corporation. The tour
involved inspecting the various components of the water supply and distribution system focusing
on project components that were recently completed including the replacement of distribution
lines, check valve, service lines and customer meters. The Brian Water system was built in the
early 1960s and curently has two production wells as sources of water supply. Well NO.1 is
used as the primar well and Well N¿. 2 is used as a back-up well. Neither well has flow
measuring devices 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.
STAFF COMMENTS 2 JUE 30, 2011
Annual Revenue
Brian Water Corporation reported anual revenues of$12,942, as shown on line 1 of
Attachment A. Mr. Bowar reads customer meters six times per year.
Operating Expenses
Brian Water Corporation reported total anual expenses of$14,981 for 2010, as shown
on line 20 of Attachment A. In the previous rate case, BRN-W-07-01, Staff found insufficient
documentation of expenses for a 2007 test year and recommended a 2006 test year. During the
current audit, documentation was improved, including that for 2007. Staff recommends a 2010
test year in this case.
1. Depreciation Expense was reported as $1,688, as shown on line 3 of Attachment A.
In previous comments Staff has commented on Mr. Bowar's difficulties accounting for
depreciation expenses. The use of Contribution in Aid of Construction (CIA C), in regulatory
accounting, adds to Mr. Bowar's diffculties. Staffs adjustment reduced depreciation expense by
$386, as shown on line 3, of Attachment A. The calculations are shown on Attchment B. The
amortization of CIAC is the primar reason for the reduction.
2. Interest on Long Term Debt: This is primarily interest on Mr. Bowar's line of credit
account. As in previous audits, Staff found this account used for both personal and business
puroses. Staff removed the interest from this case because it is for a combination of personal
and business use, and lacks the documentation necessary for separation. The adjustment is
shown on line 8 of Attachment A.
3. Labor: Mr. Bowar's management fee for 2010, totaled $6,160. This total was split
almost equally between, Account 601.1, Labor-Operations and Maintenance; and Account 601.8,
Labor-Administrative and General. The respective amounts were reported as $3,160 and $3,
000, as shown on lines 9 and 10 on Attachment A.
Historically, Mr. Bowar has apparently operated as an independent contractor. In Order
No. 22880, dated December 12, 1989, Mr. Bowar's management fee is discussed. The fee
includes all self employment taes, including Social Security, vehicle expenses, and identifies
specific duties. In the current audit, no payroll taxes were reported as part of expenses. If Mr.
Bowar was an employee, payroll taxes would be par of reported expenses. In their absence, we
conclude that Mr. Bowar continues to operate as an independent contractor. We note that there
is no written contract regarding Mr. Bowar's independent contractor status. Mr. Bowar is also
STAFF COMMENTS 3 JUE 30, 2011
the owner of Brian Water Corporation. Therefore, the amount of Mr. Bowar's compensation
does not appear to be determined by an arms-length transaction. Consequently, Staff conducted
three tests on Mr. Bowar's reported compensation.
In the first test, curent compensation was compared to historical compensation and
increases. In BRN-W-89-01, the total amount was $4,800. In BRN-W-98-01, the total
compensation was $6,000, resulting in a 25.0% increase over ten years. According to Staffs
report, the $6,000 was not considered uneasonable and was accepted by the Commission. In the
curent audit, BRN-W-1O-01, the total reported compensation equals $6,160. This is a 2.7%
increase, totaling $160, over twelve years. Staff believes this $160 increase is reasonable.
In the second test, Staff evaluated the $3,160, reported for Operations and Management.
Staff compared the reported compensation to the Idaho Deparment of Labor, Occupational
Employment and Wage Surey for the Boise City and Nampa Metropolitan Statistical Area,
covering the year 2010. In that survey, SOC code 51-8031, Water and Liquid Waste Treatment
Plant and System Operators, on page 16, is the best fit to Mr. Bowar's operational duties. The
wage scale for this SOC code is $13.00 per hour for entry level wages. The highest wage is
$23.72 per hour for licensed, experienced operators, with supervisory responsibilties, in large
systems. Knowing that Mr. Bowar has no supervisory responsibilties, Staff considered Mr.
Bowar's experience and the size of the Brian Water system. Staff chose the lowest end of mid-
range, as the test wage, which is $16.13 per hour. This wage equals $33,550, anually, or $2,795
monthly, for a full time employee. This does not include the employer's portion of payroll taes
and benefits, nor vehicle expenses. Mr. Bowar acknowledges that he works less than full time,
with emergency calls being the largest varable. Mr. Bowar recently moved to Boise and is
available by telephone twenty four hours per day to handle emergencies and uses his own
vehicle. Using the 2010 wage surey, Mr. Bowar's reported compensation of$3,160 equals
9.4% of the anual test wage. Staff believes this $3,160 is reasonable annual compensation for
Mr. Bowar's operational duties. No adjustment is recommended.
In the third test, Staff compared the reported anual compensation of $3,000, for 'Labor-
Administrative and General, to the SOC code 43-3021, in the wage surey cited above. SOC
code 43-3021 is for Biling and Posting Clerks, and is listed on page 11. This SOC code was
chosen because account billng and posting is one of Mr. Bowar's consistent, recuring duties in
the administrative category. The entry level wage for this SOC code is $10.78 per hour. The
middle range is $11.98 to $15.84 per hour. Given the small size and simplicity of the customer
STAFF COMMENTS 4 JUNE 30, 2011
accounts system for Brian Water, Staff chose $11.98 as the hourly test wage. This is equivalent
to $24,918, anually, or $2,076 monthly, before payroll taxes. In this evaluation, Staff
considered three criteria:
Biling: Mr. Bowar estimated meter reading requires about 45 minutes. Biling and
related activities requires about two hours monthly. Mr. Bowar did not include travel time and
account posting in his estimates. Staff allowed four hours monthly for meter reading, biling,
posting accounts, mailing customer bils and associated activities. Four hours per month at the
hourly test wage of$I1.98/hour equals $575 anually. The $3,000 claimed as Labor-
Administrative and General, less $575 for wages leaves $2,425 for travel expenses and other
duties.
Travel Expenses: Previously, bi-monthly meter readings required six trips, anually,
from Mr. Bowar's Idaho City residence to Brian Water in Boise. Monthly readings wil require
Mr. Bowar to make a total of twelve trips from his Boise residence. Staff believes that travel
expenses are roughly equal, given the shorter distance from Mr. Bowar's current residence in
Boise.
Other Duties: $2,425 for travel expense and other duties equals $202 per month. The
duties include paying bils, travel and callng for quotes. Paying bils is a regular activity, while
others duties are situationaL. On balance, Staff believes that $2,425 annually is reasonable. No
adjustment is recommended.
4. Materials and Supplies-Administrative and General: Total expenses in this category
were reported as $914 for 2010. We tested this amount by computing a four year average. Since
Mr. Bowar wil be biling monthly, the additional bilings wil require more supplies. Also,
complying with the Uniform Customer Relations Rules requires Mr. Bowar to produce anual
account summaries, etc. Staff calculated a four year average and added the cost of additional
paper, envelopes and first class postage. Attachment C shows the details and $244 is added to
operating expenses, as shown on line 13 of Attachment A.
5. Contracted Services-Testing: These water testing expenses were reported as $481, as
shown on line 15 of Attachment A. The required testing protocol has unequal timing and
varying charges. Consequently, anualization is required to calculate the correct average, anual
expense. The anualized expense is $138 larger than the reported expense and the increase is
shown on line 15, Attachment A. Calculation details are on Attchment D.
STAFF COMMENTS 5 JUNE 30, 2011
6. Contracted Services-Other: The reported amount of$2,021 included $1,726 for items
which are not operating expenses but are capital additions which should be included in rate base.
Attachment E shows the individual items equaling $1,726. The improved quality of
documentation for costs associated with meter installation is evident for meter additions during
2007 and in the 2010 invoices. The adjustment shown on line 16 of Attachment A reduces
reported operating expenses by $1,726. The 2010 expense reductions are capitalized with $1,726
added to rate base. The adjustment to depreciation expense shown on line 3, Attachment A,
includes depreciation for meters replaced during 2007 and 2010.
7. Rentals-Property and Equipment: Reported expenses were $413 for 2010. Invoices
showed these expenses to be for repairs and property maintenance. Because this type of expense
varies from year to year, we calculated an average of these expenses for 2007 through 2010, as
shown on Attachment F. i The four year average of these expenses amounts to $637 - an
increase of $225 per year as calculated on Attachment F and shown on line 17, of Attachment A.
8. Miscellaneous Expenses: Due to the variable nature of miscellaneous expenses, Staff
compared the reported expense of $205 to a four year average for the years 2007 through 2010.
The average is $241 as shown on Attachment G. The membership fee for the Idaho Rural Water
Association (IRWA) was added to allow Brian Water to receive leak detection and other on-site
technical assistance. The $255 fee, when added to the four year average miscellaneous expenses,
totals $496. This total is $291 larger than the reported Miscellaneous expenses, as shown on line
19 of Attchment A.
Rate Base
The rate base for Brian Water Corporation for the year-end 2010 is $29,545. For Brian
Water, rate base is limited to plant in service, CIAC and working capital, as shown on
Attchment i.
Revenue Requirement
Staff recommends a 12.0% retur on rate base, as was used in BRN-W-07-01. The return
on rate base of $3,545 is shown on line 1 of Attachment i. When the retun is added to
reasonable operating expenses the total annual revenue requirement is $17,532, as shown on line
i In Attchment F, the $ I, I 54 removed from reported expenses for 2007 are the 2007 meter replacements referred to
above. This adjustment was necessary to calculate the correct four year average for expenses.
STAFF COMMENTS 6 JUE 30, 2011
5 of Attachment J. This is an increase of 35.3%, as shown on line 8 of Attachment J, over the
curent revenue of$12,942.
Other Items
1. Cash Flow: Mr. Bowar listed cash flow problems as a reason for requesting a rate
increase. Staff has performed an analysis of cash flow for the years 2006 through 2010. In
addition, Staff performed an analysis of Accounts Receivable for the years 2004 through 2010
(Attachment H). Staff also constructed a pro-forma monthly cash budget for 2011 expenses
comparing the budget to cash collections and biling patterns. Several points emerged.
First, historically, Brian Water Corporation has been thinly capitalized. Second, in
evaluating accounts receivable, both amount and timing are important. Attachment H is a
standard accounting analysis of accounts receivable. Line 7 shows that the average number of
days to collect has varied from a high of 67 in 2004 to a low of 23 in 2008. The average
collection period for 2010 was 39 days. Rule 202 of the UCCR provides for a minimum of 15
days after biling before accounts can be considered past due. The rule should give Mr. Bowar
enough latitude to establish a reasonable collection policy.
A second method of evaluating accounts receivable is an aging report. An aging report is
useful in identifying the largest and oldest delinquent accounts. These accounts are more likely
to become collection problems in the near future. Managing collections will improve cash flow.
Staff believes the aging report developed by Mr. Bowar's software is rudimentar at best.
Consequently, Mr. Bowar is handicapped in managing his most delinquent accounts. Staffis
wiling to assist Mr. Bowar in developing an improved aging report to help him manage accounts
receivable and cash flow. Staff believes this is most easily accomplished during the transition to
monthly billng.
2. Emergency Reserve Fund: In his application, Mr. Bowar requested a reserve fund, but
has subsequently removed this request. Specifically mentioned were replacing old meters,
replacing old service lines, main line repairs and pump repairs. It appears Mr. Bowar's request
for a reserve fud is based on a misunderstanding of its purose. Repairs are par of normal
operating expenses and Staff has considered the adequacy of funds for repairs in its
recommended rate adjustments, discussed earlier. Expenditures to extend the useful life of the
system or replace portions of the system essential to the operation and delivery of safe, potable
water are not repairs. Funds for these puroses normally come from reinvested earings, or
invested capital. In addition to maintenance costs included in the revenue requirement, Brian
STAFF COMMENTS 7 JUE 30, 2011
Water has cash from the anual depreciation allowance of$I,302 and return of$3,545. These
cash flows are available for use and reinvestment as the Company needs.
More importantly, the water quality at the Brian Water well does not comply with Idaho
Deparment of Environmental Quality (IDEQ) requirements. Staff believes that any application
for financing well repairs should include the cost of flow meters and other items of infrastructure
normally associated with the well. As yet, there are no cost estimates or engineering information
available. Consequently, Staff has no reasonable basis for establishing a reserve fud at this
time. The most appropriate option can be pursued when costs and circumstances become known.
3. Consent Agreement: The IDEQ consent agreement poses the most significant
financial problem faced by Brian Water Corporation. Curently, water from the main well is not
in compliance with IDEQ requirements. IDEQ has specified the options available to Brian
Water Corporation to correct the problem. Mr. Bowar has not yet made a selection among the
options. As a result, these future costs are unkown. No provision is included in the
recommended rates for those unkown, future costs. See the additional discussion under Other
Water System Operational Issues below.
RATE DESIGN
The Company curently 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. Brian Water proposes to raise the base rate from $12.50 per
month to $18.00 per month for the first 4,000 gallons, an increase of 44.0%. The Company is
not proposing to increase the commodity charge of$L.35 per 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.
In response to Staff Production Request No. 12, Brian Water concedes that it had no
rationale for using a 4,000 gallons volume allowance for the minimum customer charge.
Although the Company has utilzed the 4,000 gallons of volume allowance for 40 years, it is
STAFF COMMENTS 8 JUNE 30, 2011
amenable to an adjustment of the curent allowance. Staff conducted an analysis to determine
whether the curent level of volume allowance for Brian Water customers is appropriate. The
Company provided Staff with four years of water use data from calendar year 2007 to 2010.
Monthly readings were not available, but the meter readings every two months were recorded
throughout the year. See Attachment K. Using the total amount of water sold during the winter
months of the calendar year (i.e., water sales from January to April, and from November to
December of the same year), the average winter usage was calculated by dividing the total
volume of water sold by the number of months considered during the winter season and the
number of customers. The average winter usage for four years per residential customer was
6,521 gallons per month (46 customers). See Attachment L for detailed calculations.2
The above methodology for estimating reasonable minimum customer charge volume
allowance is consistent with the method used by Staff and approved by the Commission in recent
general rate cases for small water utilities. TRH- W -10-01, Order No. 32151; BCS- W -09-02,
Order No. 31002; and FLS-W-09-01, Order No. 31022.
Staff recognizes that the curent 4,000 gallons per month volume allowance is already
below the threshold of 6,500 gallons average winter water usage calculated by Staff. However,
Staff believes that the current volume allowance would have a better conservation element in the
overall rate design. Staff, therefore, does not oppose maintaining the minimum volume
allowance of 4,000 gallons per month for all customers of Brian Water Company.
Staff does not support the Company proposal regarding no adjustment of the commodity
charge because it is inconsistent with the Commission's historical approach to designing rates for
small water utilties. First, it sends no conservation signal to customers. Second, it does not
allow customers who consistently practice conservation the opportunity to impact their monthly
bil.
As indicated previously, Staffs adjusted test year anual revenue requirement for the
Company is $17,532. Using this adjusted revenue requirement and the recommended rate design
as discussed above, Staff recommends 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.
2 This approach is suggested by the American Water Works Association (A WW A) which states that one criterion
that might be considered is to base the water allowance included in the minimum charge on the winter time (non-
irrigation) use of very small household. American Water Works Association, Manual of Water Supply Practices,
Water Rates, AWWA MI, Fourth Edition, 1991, p.34.
STAFF COMMENTS 9 JUE 30, 2011
There are no set policies in establishing the base charge or minimum customer charge in
designing rates for small water utilities regulated by the Commission. The primary objective is
to design rates and charges that generate the recommended revenue requirement. A rate design
with high fixed charge may provide more stable revenues for a small water utilty company.
However, it would also offset the conservation incentives offered by the volume or commodity
charges. Therefore, Staff strives to balance the conservation incentive of a commodity charge
with a customer charge that reasonably meets monthly cash flow requirements of the Company.
The existing, Company proposed and Staff proposed rates and rate design are shown
in the summar table below.
RESIDENTIAL EXISTING COMPANY STAFF
CUSTOMERS RATES PROPOSAL PROPOSAL
Min. Customer Charge $12.5 $18.00
Volume Allowance 4,000 gallons 4,000 gallons
Commodity Charge $ 1 .35 per 1,000 gals $1.5 per 1,000 gals
To assure that the Staffs rate design meets the recommended revenue requirement, Staff
developed a rate proof sheet as presented in Attachment M. The total revenue for the commodity
charge was calculated using a normalized 4-year average (2007, 2008, 2009 and 2010) annual
excess volume usage of 5,230,690 gallons for all customers. Staff believes that the average for
the last four years, as opposed to a longer term average, would be a fair representation of the
actual excess usage by Brian Water customers based on the general trend of decreasing anual
water usage by the Company's customers. The normalized excess volume was calculated by
analyzing individual water usage for each customer per biling period using a 4,000 gallons
allowance per month or 8,000 gallons per 2-month biling period. 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 the Staffs design rate
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 the Staffs proposed rate structure, a customer with an anual average monthly water usage of
STAFF COMMENTS 10 JUNE 30, 2011
13,125 gallons would see an increase of $6.46 per month or 26.0% above curent rates. The rate
impacts for residential customers with different monthly water usage are presented in
Attchment O.
Other Water System Operational Issues
Water Quality Violations and Consent Order
The Company initially fied a rate case Application on Februar 25,2011 indicating that
one of the reasons for filing the increase was that the nitrate levels in the water supply has
exceeded EPA's maximum contaminant level (MCL) of 10 mg/L. Consequently,IDEQ
disapproved the water system and issued a consent order relating to nitrate mitigation. It is
Staffs understanding that Brian Water is anticipating three major potential expenditures to
address the Consent Order: 1) the cost for preparing a Technical Memorandum summarizing the
alternatives analyzed and available funding sources to be prepared by the consulting engineer; 2)
the cost for preparing the Preliminary Engineering Report and Design once the preferred
alternative has been selected by Brian Water and approved by IDEQ; and 3) the construction cost
for the selected alternative including engineering and construction oversight.
To date, the various costs noted above are not available. As noted in the Company's
revised Application, Brian Water expects to submit another rate increase request in about 10
months to cover these costs. Staff recommends that the Company provide timely updates to the
Commission concerning the progress of the nitrate mitigation project noted in the Consent Order.
Water Production Meter and Unaccounted-For Water (Losses)
During the Company's last rate case (BRN-W-07-01), Staff noted that water loss in the
system is high. The Commission noted in its Order No. 30516 that water is a resource that must
be conserved and not wasted, and the Commission encouraged the Company to take steps to
better manage its resource. In this case, Staff concedes that before water loss can be reasonably
estimated, accurate metering of water sold to customers and water pumped must be
accomplished. The Company is curently replacing faulty customer meters as necessar. In
response to Staff Production Request No.3, the Company indicated 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. The Company indicated that it does not have the
funds available to install the meters. Staff notes that installation of production meters would be
STAFF COMMENTS 11 JUE 30, 2011
an added costs of operating the system at this time. The cost of a flow meter could be included
as par of the cost associated with well construction when the Company applies for financing a
well replacement assuming that this is the selected option in addressing the Consent Order. Staff
also recommends that the Company conduct a leak assessment in its distribution system and fix
leaks as they occur.
As mentioned previously, Staff is recommending 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 assistace, including leak detection assessment and
other onsite technical assistance, offered by IR W A without charge. Staff included an adjustment
in the yearly operation expense of $255 for membership ofIRWA (anual membership fee for
water utilties with 30-100 connections).
Meter Replacement Program
Staff notes that the Brian Water system was built in 1962. The Company acknowledges
that because of lack of capital it has not been able to replace or rehabiltate water system
infrastructure. The Company generally replaces or installs new pars of the system during
emergency situations when specific components break down such as pipe breaks in the
transmission, distribution or service lines, malfunctioning customer meters, or motor failure of
the submersible pumping units.
The Commission encouraged the Company to test and replace defective customer meters
to better manage water resources. BRN-W-07-01, Order No. 30516. In response to Staff
Production Request No.5, the Company indicated that it has not found anyone to test its old
meters. The Company appears to be replacing customer meters only during an emergency
situation such as when the meters are leaking or are found to be defective. For example in 2007,
the Company replaced two customer meters at a total cost of$I,154. During the 2010 test
period, it replaced two customer meters with a total cost of $1 ,726. Both charges were high
because of unusual circumstances encountered during the replacements of these meters. Staff
also understads that a couple of customer meters were replaced in 2006.
Staff believes that Brian Water should institute a customer meter replacement program
because its meters have been operating for almost 49 years, and leaking and defective meters are
already showing up as experienced in 2006, 2007 and 2010. The Company also apprised Staff
that there are four meters that appear to be in bad shape and need to be replaced soon. Staff
STAFF COMMENTS 12 JUNE 30, 2011
believes the recommended increase in revenues will allow Brian Water suffcient earings to
replace an average of five customer meters per year. With this customer meter replacement
schedule, it wil take about eight years to replace the remaining 40 customer meters. See
previous discussion under Operating Expenses.
CUSTOMER NOTICES AND PRESS RELEASES
The Company's Application included a copy of a letter dated Februar 22, 2011, that was
sent to customers. The letter does not meet the requirements of the Commission's Rules of
Procedure, Rule 125. The letter stated that the Company was going to apply for a rate increase
and included the amount requested, but it did not include the percentage of increase requested,
nor did it include information regarding where the customer could review the application or how
to contact the Commission. The Company did not issue a press release as required.
On May 27,2011, the Commission issued Order 32249, which included a Notice of
Modified Procedure, Notice of Workshop and Notice of Comment Deadline. A copy of this
Order was sent to all customers of the Company. Considering the small number of customers
served by Brian Water, the apparent lack of awareness of the Commission's requirements on the
par of the Company's owner, and the fact that the Commission has since published its own press
release, sent customers notice of the scheduled workshop, and wil hold a public hearing for
customers and the public to offer comments, Staff does not feel that this lack of proper
notification merits sanctions in this case.
The workshop was held on June 23, 2011, in the Commission's Hearing Room at 472 W.
Washington in Boise, Idaho. There were no attendees.
BILLING
The billng statements provided by the Company indicate that it bils customers in
Februar, April, June, August, October and December. The Company stated that the customers'
meters are read at the beginning of the month prior to the biling statement. The Commission's
requirements for biling documentation are contained in Rule 201 of the Utilties Customer
Relations Rules (UCRR), which states that bils shall be issued on a regular basis and describes
the content requirements for the bils. During the Company's last rate case (BRN-W-07-01), the
Commission directed the Company to read meters and bil customers on a monthly schedule.
Order No. 30516, at 5.
STAFF COMMENTS 13 JUE 30, 2011
To date, the Company stil reads meters and bils customers bi-monthly. In response to
Staff Request No. 14, the Company indicated that it had switched to bi-monthly biling years
ago. The Company referred to United Water's bi-monthly meter reading schedule and questions
the advantage of monthly biling. The Company claims that it saves a little money and all the
customers support it. The Company's refusal to bil monthly as required by Commission Order
No. 30516 clearly places the Company in non-compliance. The Company's actions seem
counterproductive considering that in both the 2007 rate case and the Company's curent case, it
has pointed out to Staff that monthly cash flow is a problem. It is reasonable to expect that there
would be some added cost to the Company in transitioning from bi-monthly to monthly meter
reading and biling but monthly cash flow problems could be lessened. The Company has
reported that the time necessar to read meters and bil customers is approximately three hours.
Staff recognizes the extra cost for monthly meter reading and biling and recommends an
adjustment in the Company's anual operating expenses to address these costs. Staff continues
to support monthly meter reading and biling and recommends that the Commission reaffirm its
previous Order.
DOCUMENTATION
Rules 201 and 305 of the Commission's UCRR list the information required on bils and
past due notices mailed to customers. The Company's bils and notices do not meet the
requirements of those rules. Examples of missing information include the itemization of charges
on bils and the due date of the bil. Staff recommends the Company update all documentation to
comply with Commission requirements and is wiling to offer its assistance to the Company.
The Company did not submit any documentation in response to Staff Request No. 25 for
copies of the Company's Initial Notice to Terminate, Final Notice of Intent to Terminate Service,
and wrtten information provided to customers following termination of service, (described in
Rules 304, 305, 310, and 311 of the UCRR). Instead, the Company stated that it has never
terminated service to anyone, indicating that if someone gets too far behind, the Company sends
a letter and the customer either calls or pays. Staffs review of the Company's Accounts
Receivable indicates that the untimely collection of bils has had a negative effect on cash flow.
Staffs review of documents on file at the Commission submitted in the course of previous cases
and as a part of the document review process conducted by Consumer Assistance Staff indicates
that the Company's documents do not meet the Commission's requirements. Staff is wiling to
STAFF COMMENTS 14 JUNE 30, 2011
fuish sample copies of biling and notices and is wiling to assist the Company in developing
the required documents. Staff recommends that the Company revise its biling statements to
include itemization of all charges including past due amounts and the bil due date. Staff also
recommends that the Company's notices be updated to comply with UCRR requirements. Staff
recommends that the Company implement a system of notification and collection of past due
bils consistent with Commission requirements.
LATE PAYMENT CHARGE
The Staff audit of the Company's financial records indicates that late payments are a
problem affecting the Company's cash flow. Staff recognizes that a late payment charge is
appropriate to reduce the costs incurred in the collection of past due bils and encourages prompt
payment. The Commission has previously approved such a charge for other small water utilities
and Staff recommends a one percent (l %) per month late payment charge to be applied to the
unpaid balance at the time of the next monthly biling statement.
COMPANY TARIFF
The three sections of a Small Water Utilty Tariff - the Commission approved rate
schedules, the General Rules and Regulations for Small Water Utilties and the Uniform Main
Extension Rules - describe the relationship between the customers and the Company and
establish the basic rules for providing service. The Company's tariff predates the Commission's
Model Tariff for Small Water Utilties implemented in 2008 and the Company's current Tariff is
not in compliance with the Commission's curent Rules and Regulations. The Company's Tariff
also lacks a copy of the Uniform Main Extension Rules. Staff is wiling to provide a copy of the
Uniform Main Extension Rules in electronic format to the Company. Staff offers its assistance
,
to the Company and recommends that it revise its Tariff to include its Rate Schedules, the
General Rules and Regulations for Small Water Utilties, and the Uniform Main Extension Rule
in a format consistent with the Model Tarff.
ANNUAL RULES SUMMARY & EXPLANATION OF RATES SCHEDULE
Rule 701 of the Commission's UCRR 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 anual basis. Curently, the Company does not provide Summary of Rules to any
STAFF COMMENTS 15 JUE 30, 2011
of its customers, although the Commission's records indicate that the Company did so at one
time. Staff recommends that the Company create and distribute a Summar of Rules as required
by Rule 701. Sample summaries are available and Staff is willng to work with the Company to
create a summary of rules.
Rule 702 of the Commission's UCRR requires that the Company provide a clear and
concise explanation of the applicable existing rate schedule for each customer anually, and give
it to each new customer at the time of initiation of service. The Company has indicated that it
does not do so. Staff recommends that the Company combine its rate schedule with the
summary of rules and provide a copy to customers as required under Rules 701 and 702.
RECOMMENDATIONS
Staff recommends that:
1. The use of a 2010 test year be approved.
2. A 12.0 % return on equity be approved.
3. The rate base of $29,545 be approved.
4. The Company's anual revenue requirement of $17,532, an increase of $4,590 over
2010, be approved.
5. The Company implement monthly meter reading and biling consistent with the
presently approved Company tariff.
6. The volume allowance for minimum customer charge be maintained at 4,000 gallons
per month for each customer.
7. The rate design proposed by the Staff with minimum customer charge of $17.50 for
the first 4,000 gallons per month and single rate commodity charge of$L.51 per 1,000
gallons thereafter per month for residential and commercial customers be approved.
8. The Company should pursue a customer meter replacement program at the rate of
five customer meters per year.
9. The Company apply for membership to the Idaho Rural Water Association.
10. The Company file quarerly updates with the Commission concerning the status of the
Consent Order signed by the Brian Water Corporation and the Idaho Deparment of
Environmental Quality on April 27, 2011.
11. The Company implement a late payment charge equal to 1 % of the unpaid balance at
the time of the next months biling.
STAFF COMMENTS 16 JUE 30, 2011
12. The Company update its Tariff to meet the Commission's rules.
13. The Company revise its bils and notices to comply with the Commission's rules.
14. The Company distribute its Explanation of Rates and Summar of Rules to new
customers at the time of sign-up and to existing customers on an anual basis as
required by Commission rules.
Respectfully submitted this 5()TH day of June 2011.
~,d.~Kr tine A. Sasser
Deputy Attorney General
Technical Staff: John Nobbs
Gerr Galinato
Chris Hecht
i:umisc:commentsimwl 1. lksjngdgcwh comments
STAFF COMMENTS 17 JUE 30, 2011
!
Brian Water Corp.
Analysis of Profit and Loss Statement
CYE 2010
Audit Adjusted
Line #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 Attachment B
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 Attachment C
14 Contract Svs-Prof 631.10 0.00 0.00
15 Contract Svs- Testing 635.00 481.00 137.82 618.82 Attachment D
16 Contract Svs-Other 636.00 2,020.58 (1,726.32)294.26 Attachment E
17 Rentals 641.00 412.73 224.66 637.39 Attachment F
18 Bad debts 670.00 0.00 0.00
19 Miscellaneous 675.00 205.00 291.47 496.47 Attachment G
20 Total Expenses $14,981.35 ($1,962.03)$13,019.32
21 Net Income (Loss)($2,039.77)$1,962.03 ($77.74)
Attachment A
Case No. BRN-W-1 1-01
Staff Comments
06/30/1 1
Brian Water Company
Schedule of Depreciation Expense
CYE 2010
Reported Depreciation Expense
2010 Depreciation
2010 CIAC Amortization
Net Depr Expense
Adjustment increase (decrease)
1,536.34
(234.41)
$1,687.91
1,301.93
($385.98)
Attachment B
Case No. BRN-W-I 1-01
Staff Comments
06/30/1 1
Brian Water Corporation
Analysis of Materials and Supplies-Adminstrative and General
Account # 620.7
CYE 2007 thru 2010
Year
2007
2008
2009
2010
Total
4 year Average
Add: 1 ream paper
Add 300 envelopes
add: 276 1st class stamps
subtotal
less: reported amount
Adjustment Incr(decr)
$
1049.88
999.80
1059.75
913.81
4023.24
$1,005.81
4.99
25.47
121.44
$1,157.71
913.81
$243.90
Attachment C
Case No. BRN-W-I 1-01
Staff Comments
06/30/1 1
Brian Water Corporation
Contracted Services-Testing
Account # 635.0
CYE 2010
line # Test Type Well Frequency Tests/Yr Cost/Test Annual Cost
1 Nitrate Primary Quarterly 4.00 $18.00 $72.00
2 Arsenic & Sodium Primary every 3 Yrs 0.33 $34.00 $11.22
3 Cynaide Primary every 3 Yrs 0.33 $33.00 $10.89
4 Flouride Primary every 3 Yrs 0.33 $16.00 $5.28
5 10Cs Primary every 3 Yrs 0.33 $104.00 $34.32
6 Radium 226 & 228 Primary every 3 Yrs 0.33 $220.00 $72.60
7 SOCs group Primary Waived 0 $0.00 $0.00
8 Diphthalate Primary every 3 Yrs 0.33 $150.00 $49.50
9 VOCs Primary every 6 Yrs 0.17 $190.00 $32.30
10 Gross Alpha Primary every 6 yrs 0.17 $70.00 $11.90
11 Uranium Primary every 6 yrs 0.17 $35.00 $5.95
12 Nitrite Primary every 9 Yrs 0.12 $17.00 $2.04
13 subtotal $308.00
14 Nitrate Backup Quarterly 4.0 $18.00 $72.00
15 Nitrite Backup every 9 yrs 0.12 $17.00 $2.04
16 VOCS Group Backup Not required 0 $0.00 $0.00
17 subtotal $74.04
18 Coliform Bacteria Distrib. Sys Monthly 12.0 $15.00 $180.00
19 Lead & Copper Distrib. Sys 5 every 3 yrs 1.67 $34.00 $56.78
20 subtotal $236.78
21 Gr. Totals Average annual cost $618.82
22 Reported 481.00
23 Adjustment Incr (decr)$137.82
AttachmentD
Case No. BRN-W-1 1-01
Staff Comments
06/30/1 1
Brian Water Corporation
Analysis of Contract Services - Other
Account #636.0
CYE 2010
ReportedLess Date i nv#
Consolidated 22-Apr-1O Can't read meters
Peninsula 31-Aug-10 9132 Saw Asphalt
Home Depot 31-Aug-1O 55072 Misc Parts
Consolidated 2-Sep-10 5420179 Meters
Tates 2-Sep-10 311075 backhoe rental
Tates 2-Sep-1O 311747 compactor
Home Depot 3-Sep-10 1539 Misc Parts
Storm Water 8-Sep-10 BW902310 labor & Parts
PC Mtce 8-Sep-10 2421 Asphalt repair
Adjustment incr(decr)
Balance
PiS
127.36
200.00
39.80
131.09
276.25
60.33
39.02
577.47
275.00
$2,020.58
($1,726.32)
$294.26
Attachment E
Case No. BRN-W-1 1-01
Staff Comments
06/30/1 1
Brian Water Corporation
Analysis of Rentals and Repair Expenses
Account # 641.0
CYE 2007 thru 2010
CYE
2007
2008
2009
2010
Total
4 year Average
Reported
Adjustment Incr(decr)
Reported
$3,028.83
$262.00
$0.00
$412.73
Adjustmt
(1154.00)
0.00
0.00
0.00
Net
1874.83
262.00
0.00
412.73
$2,549.56
637.39
412.73
$224.66
Attchment F
Case No. BRN-W-II-01
Staff Comments
06/30/11
Brian Water Corporation
Analysis of Miscellaneous Expenses
Account # 675.0
CYE 2007 thru 2010
Miscellaneous Expenses
CYE
2007
2008
2009
2010
Total
4 year Average
IRWA
subtotal
Reported
Adjustment Incr(decr)
$
356.95
147.27
256.67
205.00
965.89
$241.47
$255.00
$496.47
205.00
$291.47
Aitacllent G
Case No. BRN-W-I 1-01
Staff Comments
06/30/1 1
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1. I'Attachment H
Case No. BRN-W-1 1-01
Staff Comments
06/30/1 1
Brian Water Corporation
Rate Base & Rate of Return
CYE 2010
BRN-W-07-1 Changes BRN-W-l0-1
Plant In Service $59,358 8,949 $68,307
Accum Depr ($24,288)(5,578)($29,866)
Net Plant in Service $38,441
CIAC ($15,226)55 ($15,171)
Accumulated Amtz $4,155 655 $4,810
Net Unamortized CIAC ($10,361)
Net Plant $28,080
Working Capital $1,471 (6)$1,465
Rate Base $25,470 $29,545
Rate of Return 12.00%
Total Return $3,545.40
Attachßent ì
Case No. BRN-W-1 1-01
Staff Comments
06/30/1 I
. . ' ..
Brian Water Corporation
Revenue Requirement
CYE 2010
Line#
1
2
3
4
5
6
7
8
Return on Rate Base
Tax Gross Up Multiplier
Subtotal
Annual Operating Expenses Inclu depr
Total Revenue Required
Less: Current Revenue
Increase Needed
Percent Increase
Tax Calculation
Beginning
State Taxes at 7.6%
Federal Taxable
Federal Taxes at 15.0%
Total
Multiplier; Net to Gross
$
$29,545
%
12.0%
Amt
$3,545
1.273
4,513
13,019
$17,532
(12,942)
$4,590
35.3%
100.00%
-7.60%
92.40%
-13.86%
78.54%
127.32%
Attachfeiit j
Case No. BRN-W-1 1-01
Staff Comments
06/30/1 1
Brian Water Company
Case No. BRN-W-ll-01
Number of Residential Customers:2007 =
2008 =
2009 =
2010=
46
46
46
46
Monthly Water Usage Per Residential Customer (Gallons)
Month 2007 2008 2009 2010 Average
January 7,839 5,417 6,131 4,648 6,462
February 7,839 5,417 6,131 4,648 6,462
March 7,267 4,376 5,228 4,124 5,623
April 7,267 4,376 5,228 4,124 5,623
May 18,650 13,457 13,195 7,356 15,101
June 18,650 13,457 13,195 7,356 15,101
July 28,116 21,603 24,075 19,660 24,598
August 28,116 21,603 24,075 19,660 24,598
September 22,416 22,962 20,702 24,573 22,027
October 22,416 22,962 20,702 24,573 22,027
November 5,005 12,684 6,240 9,288 7,976
December 5,005 12,684 6,240 9,288 7,976
Total 178,585 160,998 151,142 139,298 157,506
Average 14,882 13,416 12,595 11,608 13,125
Note: Bimonthly reading is prorated monthly for 2 months. Meter reading made on a specific
month is reflected as a monthly reading for that month and preceeding month.
Monthly Usage per Residential Customer - Brian Water
30,000
25,000
..CI
E 20,0000
1;ju..15,000CIa.
CIi:.9 10,000ii~
5,000
-+2007
__2008
~2009
~201O
~Average
~ ~ ~ ~ ~~ ~ § ~ ~ ~ ~~~7i ~~7i ~-§ ~ç ~ \.. \.. ~it ~ ,.¿p ~ ~
\7i ~~ "? ~t¿ OV :-t¿ (,t¿e.t¿ç ~o Ç)t¿
r
AttacIiel1t K
Case No. BRN-W-1 1-01
Staff Comments
06/30/11
Brian Water Company
Case No. BRN-W-ll-01
Monthly Winter Water Usage for Residential Customers
Average Monthly Winter Usage per Residential Customer*
Winter Total Water Total Total No. of Ave. Usage
Period Sold in Winter Number of Months of per Customer
(gallons)Customers Winter Rdg.(gallons/mo.)
2007 1,850,212 46 6 6,704
2008 2,067,884 46 6 7,492
2009 1,619,108 46 6 5,866
2010 1,661,520 46 6 6,020
Average 6,521
* winter months include January to April and November to December during
the calendar year.
Attachment L
Case No. BRN-W-1 1-01
Staff Comments
06/30/11
Brian Water Case No. BRN-W-ll-0l
Rate Proof of Staff Proposed Rate Design
Staff-Proposed Revenue Requirement:
Total Number of Customers: Residential
$17,532
46
MINIMUM CUSTOMER CHARGE
Type Number Volume Minimum Total Annual
of of Allowance Customer Rev. from Min.
Customers Customers (Gallons)Charge Charge
Residential 46 4,000 $17.50 $9,660
COMMODITY CHARGE
Commodity charges for all customers ($/1,000 gallons)$1.51
Net Volume of Excess Usage (gallons) 1:/5,230/690
Total Commodity Revenue $7,898
Total Revenue (minimum customer and commodity charges):$17,558
Revenue over (under) Revenue Requirement:$26
Various Charges as a % of Gross Revenue:
Minimum Customer Charge
Commodity Charge
55%
45%
1./ Based on 4,000 - gal volume allowance per month.
- --
Attachment M
Case No. BRN-W-ll-01
Staff Comments
06/30/1 1
Brian Water Corporation
Case No. BRN-W-ll-01
Average Annual Volume of Water Sold
Total Annual
Year Gallons Sold
2001 9,484,000
2002 9,508,000
2003 8,632,000
2004 7,967,000
2005 7,510,880
2006 7,496,270
2007 8,214,920
2008 7,405,890
2009 6,952,530
2010 6,407,703
Average 7,957,919
Total Decline Since 2001 =
Average Decline per year =
~
No. of
Cust.
47
47
47
46
46
46
46
46
46
46
Ave. Annual
Vol. per Cust.
201,787
202,298
183,660
173,196
163,280
162,962
178,585
160,998
151,142
139,298
171,721
Ave. Annual
Vol. per Cust.
(x 1,000 gal)
202
202
184
173
163
163
179
161
151
139
172
31%
3.1%
Average Annual Consumption per Customer - Brian Water Corp.
202 202
200
IIC..
iu 150~
"CCiuII 100:i0.sl-
SO
173
2001
o __,_m_",..,_,_~,____.,~~,__
2004 200520022003
163 161
163
151
31% Decline Since 2001
2009 20102006 2007 2008
AriacfieiiiN'" ,
Case No. BRN-W-1 1-01
Staff Comments
06/30/1 1
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.
5
%
30
,
0
0
0
$
12
.
5
0
4,
0
0
0
$
1.
3
5
$
17
.
5
0
4,
0
0
0
$
1.
5
1
$
9.
1
6
19
.
2
%
35
,
0
0
0
$
12
.
5
0
4,
0
0
0
$
1.
3
5
$
17
.
5
0
4,
0
0
0
$
1.
5
1
$
9.
9
6
18
.
3
%
40
,
0
0
0
$
12
.
5
0
4,
0
0
0
$
1.
3
5
$
17
.
5
0
4,
0
0
0
$
1.
5
1
$
10
.
7
6
17
.
6
%
45
,
0
0
0
$
12
.
5
0
4,
0
0
0
$
1.
3
5
$
17
.
5
0
4/
0
0
0
$
1.
5
1
$
11
.
5
6
17
.
0
%
50
,
0
0
0
$
12
.
5
0
4,
0
0
0
$
1.
3
5
$
17
.
5
0
4,
0
0
0
$
1.
5
1
$
12
.
3
6
16
.
6
%
of

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.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 30TH DAY OF JUNE 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. BRN-W-II-01, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
TONY BOWAR
BRIAN WATER CORP
STE C #228
5120 OVERLAND RD
BOISE ID 83705
,b~
SECRETAR
CERTIFICATE OF SERVICE