20031201Comments.pdf

JOHN R. HAMMOND
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5470
HECEIVED FILED
2003 DEC -I PM~: 40
UTILITIES COMMISSION
Street Address for Express Mail:
472 WWASHINGTON
BOISE ID 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
CAPITOL WATER CORP. TO USE MONEY IN A
SURCHARGE ACCOUNT TO RETIRE A LOAN EARLY. CASE NO. CAP-O3-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, John R. Hammond, Deputy Attorney General, in response to Order No. 29376
the Notice of Application and Notice of Modified Procedure in Case No. CAP-03-1 issued on
November 10 2003 , submits the following comments.
BACKGROUND
On July 1 , 1997, the Commission authorized Capitol Water Company to incur debt to fund
certain water quality improvements for its system. Case No. CAP- W -96-, Order No. 27022. The
principal loan amount was $402 624., (Loan 1). Order No. 27022. The Commission authorized
the Company to collect a surcharge (Surcharge 1) of$3.27 a month from its unmetered residential
customers and a 25.2% increase for metered commercial customers to recover loan amortization
costs, annual Idaho Power Company Power Cost Adjustment (PCA) charges, the annual purchase
cost of phosphates for water treatment and incremental income taxes associated with the surcharge.
ST AFF COMMENTS DECEMBER 1 2003
Order Nos. 27022 and 28801. The surcharge would allow the Company to amortize the loan over a
seven-year period, ending August 1 2004. Id.
On May 22 2002, the Commission authorized the Company to incur an additional $507 000
in debt (Loan 2) to finance improvements to its water system. Case No. CAP- W -02-, Order No.
29035. The Commission authorized the Company to institute a second surcharge (Surcharge 2) of
$3.10 a month for residential flat-rate customers and 23.6% for metered customers that would
recover only loan amortization costs and incremental income taxes associated with the surcharge
over a seven-year period. Id.
On September 30 2003 , Capitol Water Corp. filed an Application requesting Commission
authorization to use $100 000 in the surcharge account to retire a loan early, thereby immediately
eliminating Surcharge 1. The Company says the money is available because the amount borrowed
for Loan 2 was less than anticipated and the interest rate was reduced from 7% to 5.65%. Capitol
Water proposes to use the money in the surcharge account to retire Loan 1 earlier than the original
retirement date of August 1 2004. The amount to pay this loan off is about $63 000. The Company
claims that this would leave a balance of more than $40 000 to help satisfy continuing Loan 2
amortization costs, phosphate purchases, and power expense. The Company contends that by
retiring Surcharge 1 early money can be saved on the interest charges and will reduce consumers
bills. The Company requests the Commission approve its Application quickly because it contends it
is in the best interest of ratepayers.
STAFF REVIEW AND RECOMMENDATIONS
Staff has reviewed the Company s Application, audited the surcharge accounts, and worked
closely with Capitol Water over the years to insure that both the borrowed funds and the amounts
collected through the surcharges have been properly applied and accounted for. The Company
stated it has accumulated a surplus of $100 000 in its surcharge accounts because the entire amount
of debt authorized by Order No. 29035 has not been borrowed and the interest rate on this loan has
decreased. Although these factors have allowed a surplus to accrue, Staff believes the Company has
undercharged its surcharge accounts and thus the balance is actually smaller than it claims. After
reviewing Capitol Water s materials list and expense records, Staff believes two adjustments should
be made to the Company s surcharge accounts. First, Capitol Water has undercharged its surcharge
accounts by failing to include amounts paid to Idaho Power at PCA rates in place over the past
several years. Idaho Power s PCA charges were approved as an increment of Capitol Water s first
STAFF COMMENTS DECEMBER 1, 2003
authorized surcharge at the rate of$ 0.013415 per kWh. See Order No. 28801. Since that
authorization, Idaho Power s PCA rate has changed several times and these changes are not
reflected in the Company s surcharge account balances. Calculating the affect of these changes
Staff believes the Company s surcharge account balance should be adjusted downward by $4 126.
In addition, Staff recommends that Capitol Water adjust its charges to the surcharge account each
May when Idaho Power Company s PCA rate adjustment becomes effective. Second, Staff believes
the Company has undercharged its surcharge account balance by $11 597 for income taxes paid for
the years 2001 and 2002. Staff recommends that every year Capitol Water calculate the effect of
the surcharges on its income tax liability and charge the incremental income tax expense to the
surcharge account in a timely manner. Based on these adjustments Staff believes the Company
surcharge account balance should actually be $91 140 as of September 30 2003.
Staff supports Capitol Water s request to payoff the balance of Loan 1 and commends the
Company for bringing this Application to the Commission. Accordingly, Staffrecommends that the
Commission authorize the Company to use the surplus funds in its surcharge account to retire Loan
1 early. However, Staff also recommends that the Commission authorize the Company to eliminate
Surcharge 1 that is associated with Loan 1.
Despite its support of the Company s request to retire Loan 1 early, Staff has concerns that
the remaining surcharge will not provide the cash flow requirements for the Company to service
Loan 2 and pay for the phosphates and Idaho Power s annual PCA rate changes previously
authorized by the Commission. See Order Nos. 29035. Such a result would put pressure on the
Company to file a general rate case to recover these costs in its base rates. As an alternative to a
general rate case, Staff recommends that the Commission authorize the Company to adjust the
remaining surcharge upward by $0.45 per month for flat rate customers and by 3.5 percentage
points for metered customers. Staff believes this will provide sufficient revenue to cover the
ongoing PCA and phosphate costs. The purpose of including the Idaho PCA charges and phosphate
costs in the calculation is to make Capitol Water whole, neither benefiting nor penalizing the
Company. Surcharge 2 will expire coincident with the retirement of the Company s Loan 2 in
2009. At that time, pressure will again be placed upon the Company to consider an increase in its
base rates to pay for its phosphate expenses and Idaho Power Company PCA rate charges. In the
meantime, Staff does not anticipate an increase in profits to the Company as a result of the
incremental increase and any excess funds collected should be used to retire Loan 2 early.
STAFF COMMENTS DECEMBER 1 , 2003
The elimination of Loan 1 and Surcharge 1 early in combination with the small upward
adjustment to Surcharge 2 will allow the Company s flat rate customers to realize a reduction in
surcharges from $6.37 per month to $3.55 per month or a surcharge reduction of 44.27%. The
surcharges that metered customers pay will change from 48.8% per month to 27.1 % or a 44.47%
reduction. The elimination of Loan 1 at an interest rate of 9% will benefit the Company
customers who are paying its carrying costs through Surcharge 1. Based on the recommended
modifications to Capitol Water s Application, Staff believes Commission approval will benefit the
Company s customers in the long fUll.
Finally, Staff has also reviewed the Company s improvement projects currently approved in
Order No. 29306. The Company plans to install a back up generator at Well No.4 at an estimated
cost of$75 000 and begin an aquifer recharge project to provide water quality improvements at an
estimated cost of $20 000. The Company has sufficient borrowing capacity in the 2002 loan
complete these activities. The interest rate of this loan is between 5.5 and 6% as represented by the
Company. Therefore customers will be see a reduction in overall bills and the Company will be
able to complete its project needs previously approved by the Commission.
STAFF RECOMMENDATION
Staff recommends approving the Company s request to use the existing funds to pay-off
Loan 1 and retire Surcharge 1. Staff further recommends that Surcharge 2 be increased by $.45 per
month to $3.55 for flat rate customers and 3.5 percentage points to 27.1 % per month for metered
customers to recover ongoing PCA and phosphate costs.
Respectfully submitted this day of December 2003.
. Hammond
ep y Attorney General
Technical Staff: Bob Smith
Michael Fuss
JH:i:umisc/comments/capwO3.1jhresmfuss
STAFF COMMENTS DECEMBER 1 , 2003
CERTIFICATE OF SERVICE
- .
HEREBY CERTIFY THAT I HAVE THIS 1 st DAY OF DECEMBER 2003
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. CAP-03-, BY MAILING A COpy THEREOF, POSTAGE PREPAID
TO THE FOLLOWING:
ROBERT PRICE
CAPITOL WATER CORP
2626 N ELDORADO ST
BOISE ID 83704
SECRE ARY
CERTIFICATE OF SERVICE