20051004final order no 29883.pdf

Office of the Secretary
Service Date
October 4, 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF CAPITOL WATER CORP. FOR
AUTHORITY TO USE MONIES IN
EXISTING SURCHARGE ACCOUNT ORDER NO. 29883
CASE NO. CAP-O5-
On August 26, 2005, Capitol Water Corp. (Capitol Water Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting authorization
to use monies in its existing surcharge account to pay for labor and chemical costs incurred for
water quality and water supply (volume) improvements. With this Order the Commission
approves the Company s Application as more fully set forth below.
BACKGROUND
On July 1 , 1997, the Commission authorized Capitol Water to incur debt to fund
certain water quality improvements for its system. Case No. CAP- W -96-2; 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. Order Nos. 27022 and 28801. The surcharge allowed 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-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 23.60/0 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 December 19, 2003 , the Commission authorized the Company to retire Loan
early with surplus funds, and eliminate Surcharge 1 contemporaneously with the retirement
Loan 1. The Commission further authorized the Company to increase Surcharge 2, the
remaining surcharge, by $0.45 per month for flat-rate customers and 3.5 percentage points for
ORDER NO. 29883
metered customers to assure that sufficient funds remained available to cover anticipated costs.
Surcharge 2 (the Surcharge) increased to $3.55 for flat rate customers, and 27.1 % for metered
customers. The remaining Surcharge was intended to cover loan amortization costs of Loan 2
incremental income taxes, annual Idaho Power PCA rate charges and the annual purchase cost of
phosphates for water treatment. The Commission also ordered Capitol Water to adjust the
expense it charges against the surcharge account balance each May when Idaho Power
Company s PCA rate adjustment becomes effective and to calculate the annual effect of the
Company s surcharges on its income tax liability and charge the incremental income tax expense
to the surcharge account in a timely manner. Case No. CAP-03-1; Order No. 29401.
THE APPLICATION
The Company states that it experienced significant water supply problems during the
summer of 2005. Production at its well No.3 had declined from approximately 700 gallons per
minute (gpm) to 150 gpm. It was determined that this was largely the result of mineral deposits
that clogged the well screen, pipe perforations and filter material. The Company s engineer
recommended an acid treatment to remove the deposits. Following the treatment, pumping
capacity was restored to more than 600 gpm. The Company and its engineer believe that a
similar condition exists at its well No., where pumping capacity has decreased from 1 250 gpm
to 500 gpm. The costs requested for recovery by Capitol Water include chemicals and labor to
treat well No., chemicals that have already been purchased for the treatment of well No., and
an estimated $400 for the removal of the acidic water following the treatment. The total amount
requested is $24 386.26.
The Company states that the surcharge account has sufficient funds to pay the
requested amount, and use of the funds will not have a negative effect on the Company s ability
to repay its bank loans for which part of the surcharge was initially created. The Company also
states that the current improvements are similar in nature to other projects for which the
Commission previously approved the use of surcharge funds.
ST AFF REVIEW AND RECOMMENDATION
Staff recommended that the Company be authorized to use excess surcharge funds to
pay the requested cost of $24 386.26 associated with the Company s water quality and supply
improvements. The treatment of well No.3 resulted in a significant improvement of supply,
from 150 gpm to approximately 650 gpm. The Company is awaiting the end of the lawn-
ORDER NO. 29883
watering season when it can get by without the capacity of well No., to conduct a similar
treatment on that well.
Expenses of a like nature have been approved as being appropriate for surcharge
recovery in the past. Water quality and quantity improvement projects were approved in Order
No. 29306, and financed by Surcharge 2, including a back up generator at well No., and an
aquifer recharge project. These current expenses continue to be the same type of expenses as
those previously approved for recovery through the Surcharge.
In the course of the review, Staff audited the surcharge accounts and verified that
there are surplus funds in the surcharge account. Staff, during the course of the audit, verified
that past Commission directives in regards to Idaho Power s PCA changes and income tax
effects have been followed. The Company continues to provide Staff with quarterly reports
verifying the status of the Surcharge account and demonstrating improved service through
reduced customer complaints. In addition, Staff reviewed technical reports regarding system
improvements and verified that the improvements and expenditures made were warranted.
The surplus balance in the surcharge account was $107 116 as of June 30, 2005 and
is comprised of loan proceeds and customer surcharge payments. The Company has unused loan
proceeds of approximately $34 000. This amount represents loan proceeds that have been
borrowed by the Company but not yet used for water quality and quantity improvements. The
balance of the surplus account, approximately $73 000, is excess surcharge payments that have
been collected from the customers, but have not yet been needed for ongoing Commission
approved expenses.
DISCUSSION AND FINDINGS
The Idaho Public Utilities Commission has jurisdiction over Capitol Water Corp., its
Application, and the issues involved in this case by virtue of Title 61 , Idaho Code, specifically
Idaho Code ~~ 61-124, 61-125, 61-129, 61-301 , 61-303 , 61-501 , 61-502 , 61-901 , and the
Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
The Commission finds it to be reasonable, prudent, and in the public interest to
authorize the Company to use funds from its surcharge account to pay for the water quality and
supply improvements conducted by the Company in the amount of $24 386.26. We find the
chemical treatment conducted on well No.3 was necessary for the maintenance of adequate
water supply, and the resulting costs to be an appropriate use of the surcharge funds. We have
ORDER NO. 29883
authorized projects of a similar nature to be paid from the surcharge funds in the past, and the
current expenses were incurred for system improvements that are similar in nature to the
improvements that were anticipated when the loan was obtained and the surcharge established.
The current surcharge appears to be providing sufficient cash flow to cover the
currently authorized charges including the annual phosphates needed for water treatment, Idaho
Power s annual PCA rate charges, and the monthly loan payments. The surplus balance in the
surcharge account was $107 116 as of June 30, 2005. This amount is comprised of unused loan
proceeds of approximately $34 000 and excess surcharge payments collected from customers of
approximately $73 000. The length of the loan extends beyond the surcharge recovery period.
Staff estimates there will be sufficient surplus funds at the end of the surcharge period to pay the
loan in full. It would be prudent for the Company to retire the loan early, if possible, at the point
when the surplus balance and the loan balance are essentially equal.
The Company is directed to charge the authorized expenditure of $24 386.26 to the
remaining loan proceeds in the surcharge account. This should leave approximately $10 000 of
unused loan proceeds and approximately $73 000 of excess surcharge payments in the surcharge
account. Beyond the authorized expenditure in this case, the Company is directed to obtain
Commission authorization prior to the expenditure of additional funds from the surcharge
account for any additional costs that have not previously been approved by the Commission.
The Company is also directed to continue to file timely quarterly reports with the Commission
regarding the status of the surcharge account.
ORDER
IT IS HEREBY ORDERED that Capitol Water Corp.s Application is approved.
The Company is authorized to pay the incurred water quality and supply improvement costs of
$24 386.26 from the funds in its surcharge account. The Company shall charge the authorized
expenditure of $24 386.26 to the remaining loan proceeds in the surcharge account.
. .
IT IS FURTHER ORDERED that Capitol Water Corp. shall obtain Commission
authorization for any additional expenditure of funds from the surcharge account that has not
previously been approved by the Commission.
IT IS FURTHER ORDERED that Capitol Water Corp. shall continue to file timely
quarterly reports with the Commission regarding the status of the surcharge account.
ORDER NO. 29883
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order with regard to any
matter decided in 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 4 tit
day of October 2005.
Ji~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~LU.Je D. Jewell
Co mission Secretary
O:CAP-05-01 dw
ORDER NO. 29883