20030725Final Order No 29306.pdf

Office of the Secretary
Service Date
July 25, 2003
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF CAPITOL WATER
CORPORATION'S APPLICATION FOR A
TEMPORARY SURCHARGE, A
DECLARATION OF PRUDENCY, AND
AUTHORITY TO INCUR DEBT TO FUND
SYSTEM IMPROVEMENTS.
ORDER NO. 29306
CASE NO. CAP-02-
On May 27, 2003, Capitol Water Corporation ("Capitol Water" or "Company ) requested
the Commission authorize expenditure of approximately $100 000 remaining of the $507 000 loan
and surcharge previously approved in Order No. 29035. This request was accompanied by the
Company s Water Distribution Analysis Report ("Report") with improvement recommendations and
an accounting of the corrected entries for the prior surcharge authorized in Case No. CAP-96-
BACKGROUND
On May 22 2002, the Commission issued Order No. 29035 authorizing the Company to
incur indebtedness in the amount of $507 000 and implement a $3.10 residential flat rate surcharge
and a metered commercial surcharge of23.60% to recover these costs from customers. Order No.
29035 at 11.
In addition to authorizing this indebtedness for the reconstruction of Well No.5 and
related improvements, the Commission ordered the Company to submit written quarterly status
reports to apprise the Commission of the monies expended, construction progress and any testing
results. fd. The first quarterly report was also to include a separate schedule detailing the final legal
and accounting expenses associated with the filing. fd. The Company was further directed to
include a schedule depicting the status ofthe loan balancing account in its Annual Report. fd. All
financial activity associated with the surcharge was to be tracked through a balancing account. The
Company was directed to complete an analysis of its plant accounts and file corrected entries that
remove the investments recorded in error from the prior surcharge authorized in Case No. CAP-
96-1. fd. at 12.
The Commission s Order also included a requirement for the Company to file a network
analysis and further improvement recommendations prior to proceeding beyond the improvements
directly associated with the new Well No.5 installation. fd. On May 27, 2003 , Capitol Water
ORDER NO. 29306
Corporation filed the present report to satisfy this requirement, outline the current system status, and
recommend a 10-year capital improvement program.
RECOMMENDED SYSTEM IMPROVEMENTS
The Company s Report was prepared by Montgomery Watson Harza (MWH) and further
analyzed by Scanlan Engineering. It includes a study of the system demand and analyzes the
distribution system, storage capacity, and pumping requirements. It includes three capital
improvement recommendations, a I-year plan, a 5-year plan and a 1 O-year plan as a foundation for
Company decision-making.
Scanlan Engineering refined MHW's recommendations based on safety considerations
and Capitol Water s financial capabilities. Scanlan Engineering pointed out that little benefit occurs
unless nearly all of the 4-inch mains that are currently equipped with hydrants are replaced at an
estimated cost of $30 1 155. Scanlan Engineering further notes that the system lacks standby power
to its wells and states:
Since the water system has no storage tanks, the entire system will depressurize
in the event of a sustained power outage, which could allow contaminants to
enter the water system. Depressurization is a particular concern for non-
chlorinated water systems such as CWC (Capitol Water CorporationJ.
Based upon Scanlan Engineering s recommendations, Capitol Water now requests
authorization to make three water system improvements. First, the Company seeks authority to
install back-up power at Well No.4 in 2003 at an estimated cost of$75 000. This well can produce
approximately 2 000 gpm under normal system pressures. As such, the well is capable of meeting
the entire average winter demand plus a 1 500 gpm fire flow.
Second, Capitol Water wishes to initiate aquifer recharge activities in the fall of2003 at
Well No.6 in an effort to improve water quality for use during summertime demand peaks. High
quality water from Wells 3 , 5 or 7 could be injected into Well No.6 during fall, winter, and spring
months, and then recovered during peak demand periods in the summer months. The estimated cost
for the recharge project (including piping, water quality analysis, permitting, etc.) is $20 000.
Finally, the Company seeks authority to modify the Capital Improvement Plan from the
Report so that remaining improvements can be implemented over a 10-yearperiod. Specifically, the
Capital Improvement Plan would provide a long-term plan for upgrade of 4-inch water mains and
1 Scanlan Engineering letter dated May 19, 2003.
ORDER NO. 29306
other distribution system improvements. The plan should identify the total footage of water mains to
be upgraded, the location ofthe mains, estimated costs, and the schedule for implementation. The
plan should also include back -up power for at least one additional well and replacement of Well No.
3 or Well No.2. Funding for the work will need to be determined based on the proposed plan.
STAFF REVIEW
Commission Staff recently reviewed the Company s request, Report and accounting and
submitted its recommendations in a Decision Memorandum dated June 27 2003. While Staff agreed
with the evaluation provided by the Company s consultants and the recommended system
improvements, it believes the Company s accounting and reporting of surcharge revenues and
expenditures remain inadequate.Although Staff has worked with the Company to correct
deficiencies in the Company s accounting records for the surcharges, it noted that the Company has
had difficulty implementing an accounting procedure in conformance with the Commission
directives in prior Orders. Recently, the Company enlisted the assistance of its external accounting
firm to help it bring the Company s accounting records and reporting requirements into compliance
with those Orders. Staff s audit of the Company s earlier records and the worksheets of the external
accountant did not match up. Staff stated that it is currently working with the external accounting
firm to reconcile the differences.
Although Staff did not believe the Company has expended any surcharge funds in an
unauthorized manner, Staff did not recommend further expenditures of the Company s borrowed
funding until its accounting for the surcharges is improved and all expenditures to date are properly
accounted for.
Thus, Staff recommended the Commission direct Capitol Water Company to file a
separate report accounting for all surcharge revenues and expense incurred to date. Staff also
advised the Commission to instruct Capitol Water to expend no more surcharge funds on projects not
already approved in prior Orders until it has filed the accounting report. Finally, Staffrecommended
that the Commission authorize the expenditure of surcharge funds on the proj ects recommended by
Scanlan Engineering only after the recommended accounting report is filed and has received
favorable audit report by Staff. Staff also noted that it had discussed these recommendations with
the Company and the Company agreed with them.
2 Scanlan Engineering letter dated May 19 2003.
ORDER NO. 29306
COMMISSION FINDINGS
The Commission has jurisdiction over Capitol Water Corporation, a water utility,
pursuant to the provisions ofIdaho Code Title 61 and the Commission s Rules of Procedure, IDAP A
31.01.01.000 et seq.
Based on the recommendations of the Company, its consultants and Staff, the
Commission finds the proposed back-up power installation at Well No., the aquifer recharge
activities at Well No., and modification of the Capital Improvement Plan for long-term
improvements to be reasonable and in the public interest. However, we believe it is prudent to
reconcile past accounting entries before creating new ones. Consequently, the Commission directs
Capitol Water to expend no more surcharge funds on projects not already approved in-prior Orders
until the Company files a report that sets out and resolves the accounting of all surcharge revenues
and expenses incurred to date. It is the Commission s expectation that Staff, the Company and its
external accounting firm will work together to get these bookkeeping issues resolved quickly so that
the proposed system improvements will not be unduly delayed. We also note that according to
Staff s representations, Capitol Water has agreed that this course of procedure is acceptable.
If the accounting report meets Staff s approval and is consistent with prior Commission
Orders, Staff shall so advise both the Company and the Commission by letter. Once receiving the
letter, the Company may then spend the remaining surcharge funds on the proj ects recommended by
Scanlan Engineering as set forth above without seeking further Commission approvaL If a resolution
of these accounting issues cannot be reached, the parties shall timely notify the Commission that
further proceedings are necessary.
ORDER
IT IS HEREBY ORDERED that Capitol Water Company file a separate report
accounting for all surcharge revenues and expense incurred to date.
IT IS FUTHER ORDERED that Capitol Water expend the remaining surcharge funds on
the proj ects recommended by Scanlan Engineering only after the accounting report is filed and has
received a favorable audit report by Staff. If the accounting report meets Staff s approval and is
consistent with prior Commission Orders, Staff shall indicate this in writing to both the Company
and the Commission. Once receiving the letter, the Company may then spend the remaining
surcharge funds as set forth above without seeking further Commission approvaL
ORDER NO. 29306
IT IS FURTHER ORDERED that the parties shall timely notify the Commission that
further proceedings are necessary if a resolution of these accounting issues cannot be reached.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days ofthe 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 ~ 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho, this ,;J..:;-f'#'
day of July 2003.
, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
ENNIS S. HANSE , COMMISSIONER
ATTEST:
~!El
Commission Secretary
O:CAPW0201 In
ORDER NO. 29306