990325vsw.docx

DECISION MEMORANDUM
TO:COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
TONYA CLARK
DON HOWELL
STEPHANIE MILLER
GEORGE FINK
JEAN JEWELL
MARGE MAXWELL
KATHY STOCKTON
DAVID SCOTT
WORKING FILE
FROM:SCOTT WOODBURY
DATE:MARCH 25, 1999
RE:CASE NO. BRN-W-98-1 (BRIAN WATER)
RATE CASE
On August 3, 1998, Brian Water Corporation (Brian Water; Company) filed an Application with the Idaho Public Utilities Commission (Commission) requesting a 10% increase in tariffed rates to build up depleted cash reserves to take care of “future emergency repairs such as water line breaks and replacement of the backup pump and regular maintenance.”
Brian Water is a regulated water utility providing water service under Certificate of Public Convenience and Necessity No. 260 to 47 residential customers in Brian Park Subdivision, a development located in Ada County, Idaho, a few miles east of Boise along old State Highway 21.  The Company is registered with the Idaho Secretary of State as a not-for-profit corporation.  Addressing the Company’s corporate status the Commission in Case No. BRN-W-89-1 stated:
If Brian Water was a mutual non-profit water company, then under Idaho Code § 61-104, we would have no jurisdiction over the Company. . . The Secretary of State’s “ministerial” classification of Brian as non-profit is not determinative of its status under Public Utilities Law.  The record shows that Brian Water is not operated as a mutual non-profit corporation for the benefit of the customers of the system, but instead has a corporate structure distinct from the customers.  Given this, we find that Brian Water is not a “mutual non-profit. . .water corporation and hence is subject to our jurisdiction.
Order No. 22880
The Company’s water rates were last adjusted by the Commission in Order No. 22880 issued December 12, 1989.  The Company’s proposed rate increase, if authorized, would increase the Company’s base rate for the first 4,000 gallons per month from $7.91 to $8.70 and increase the excess commodity charges (over 4,000 gallons per month) from $0.83 to $0.91 per 1,000 gallons.  As reflected in the Company’s filed 1997 annual report, Brian Water received annual revenue in 1997 of $9,831.07 from annual metered sales of 8,529,000 gallons. The proposed increase would generate approximately a $980 increase in annual revenue.  
Included with the Company’s Application are comparative balance sheets for the latest three years ending December 31, 1997, a schedule of operation and maintenance expenses, a summary of earnings and rate base, a statement of income at present and proposed rates, a description of pro forma adjustments and an engineering report for test year ending December 31, 1997.
An initial Notice of Application in Case No. BRN-W-98-1 was issued by the Commission on August 26, 1998.  
On January 22, 1999, following completion of its investigation into the Company’s filing, Commission Staff filed a Report with the Commission Secretary containing its analysis and recom­men­da­tion in Case No. BRN-W-98-1.  Staff’s investiga­tion included a review of the Company’s past case files, annual reports filed with the Commission, prior audit reports, complaint records, and on-site visits to review the Company’s financial records and physical plant in service.
Staff Recommendation  
Although the Company has requested only a 10% increase in rates, Staff has determined that to provide for the Company’s present and future viability, a $3,105 or 31% increase in annual revenues is required.  
Staff further recommends that the calculated revenue requirement be collected by increasing the Company’s base rate for the first 4,000 gallons per month from $7.91 to $10.50 and increasing the excess commodity charges (over 4,000 gallons per month) from $0.83 to $1.08 per 1,000 gallons.  Staff calculates that this rate change, on average, will result in an increase in the base rate of approximately $31 per year per customer and an increase in the commodity charge of approximately $34 per year per customer, a total increase to customers of approximately $65 per year.
Staff Analysis
Brian Water has two wells, a large well producing approximately 160 gallons per minute and a small well producing approximately 110 gallons per minute.  The large well pump was replaced in 1997, at a cost of approximately $6,900.  There is no master meter, however, each customer is metered.  Two customers located on the far east end of the service line are served using booster pumps and tanks.  No major repairs or modifications to this system are planned at this time.
The Staff-adjusted Company revenues for a 1997 test year are $10,814.  After Staff adjustments to the Company’s accounts, the test year total operating expenses were determined to be $10,850.  Company and Staff adjustments to the test year are proposed to account for increased laboratory analytical costs of an average of $579 per year.
The rate base for Brian Water is composed of major improvements and repairs made to the system.  The original cost of the developer installed system including the wells, pressure vessel, electric controls, well house and distribution system are considered contributed property under Commission Rule 103.  Reference IDAPA 31.36.01.103.  The rate base was increased to account for the installation of a new primary well pump in 1997, at a cost of $6,900.  The total adjusted rate base of $13,855 includes adjustments for the new pump, meters and instrumentation.
Staff has utilized a rate of return on rate base of 12%, assuming the equity return authorized by the Commission for several years on small water systems.  Staff believes that a 12% equity return continues to be reasonable.  The capital structure of Brian Water is entirely owner-equity; the Company has no debt.  This equity return when applied to the rate base produces a net income of $1,663.  Expenses of operating the system ($10,850), when added to the pre-tax income  requirement ($2,086), produce a total revenue requirement of $12,936.
The Company’s actual 1997 test year revenues were $9,831.  The revenue requirement calculated by Staff, $12,936, is $3,105 greater than the actual revenues collected during the test period and indicates that the gross revenue must be increased.  The Staff’s recommended increase of $3,105 is primarily attributable to the increases in rate base, the return on that rate base, and reasonable expenses.  It is in the customer’s best interest, Staff contends, to establish a revenue requirement that will allow the Company to meet the maintenance and operation obligations as they come due, as well as make the necessary repairs and replacements to the system in a timely and efficient manner.
The rate design analysis of Staff was based on a revenue requirement for the Company of $12,936; 47 hook-ups in the water system; a 4,000 gallon per month consumption allowance; and retention of the current metered customer rate structure (base rate and excess commodity charges).  The test year consumption of 6,469,590 gallons per year was used in the rate design.  It was noted that this approximates the three year (1995-1997) average consumption of 6,275,700 gallons per year.  The rate design recommended by Staff is a base service charge at $10.50 per month and the commodity charge set at $1.08 per 1,000 (above 4,000 gallons).
On February 5, 1999, the Commission issued a second Notice of Application in Case No. BRN-W-98-1, Notice of Staff Report, Analysis and Recommendation (and the Commission’s proposed adoption of same) and a Notice of Modified Procedure.  The deadline for filing written comments was March 5, 1999. Commission Staff filed comments adopting its previously filed Report and Recommenda­tion (attached).  Also filed were the written comments of Leonard G. Baxter, a customer of Brian Water (attached).  A copy of Mr. Baxter’s earlier comments supporting the Company requested 10% increase (September 28, 1998) are also attached.
Mr. Baxter in his March 5, 1999 comments opposes the use of Modified Procedure and requests a hearing.  Mr. Baxter questions why the Commission and Staff (government employees) would consider giving Brian Water (a not-for-profit utility) a 31% increase when the Company in its Application requested only 10%.  Will the Commission or Staff pay the extra 21% increase, he queries?  Should the Commission not be neutral, he queries?  Mr. Baxter also raises questions regarding service, equipment and water quality.  The Company’s response regarding equipment failure dated March 29, 1999 is attached.
Commission Decision
●Based on its consideration of the record and the comments filed by Mr. Baxter in Case No. BRN-W-98-1, does the Commission in this case continue to find that Modified Procedure is appropriate?  
●Should a technical hearing (w/prefiled testimony) be held?
●Should a public hearing be held to solicit further customer comments?  If not, how does the Commission wish to address the comments of Mr. Baxter and his request for a hearing?
●Regarding the Company’s non-profit status it is noted that the revenue associated with the calculated return on investment is not distributed to shareholders but is held in a reserve account and is available to meet emergency and unplanned expense.  Does the Commission desire to follow through with its proposal to adopt Staff’s recommendations in this matter as previously indicated in its Notice dated February 5?  If not, what is the Commission’s preference?  What further information, if any, does the Commission need to assist it in its deliberation?

Scott Woodbury
vld/M:BRN-W-98-1.sw3