20061027Reply comments.pdf

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Capitol lOnG OCT 26 Pl1 4: 45
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2626 Eldorado Boise, Idaho 83704
Telephone [phone]
October 26, 2006
Idaho Public Utilities Commission
O. Box 87720
Boise, Idaho 83720-0074
Attn: Commission Secretary CAP- W-06-
Dear Commission Secretary:
Enclosed with this cover letter is an original and seven (7) copies of the Applicants reply
comments to the Commission Staff s comments in this case.
Bonnie R. Price, Secretary-Treasurer
Capitol Water Corporation
RECEIVED
2006 OCT 26 PM 4: 45
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
CAPITOL WATER CORPORATION FOR
AUTHORITY TO INCREASE ITS RATES AND
CHARGES FOR WATER SERVICE IN THE STATE OF IDAHO
CASE NO. CAP-O6-
REPLY COMMENTS OF
CAPITOL WATER
CORPORATION TO
COMMISSION STAFF
COMMENTS
Comes now Capitol Water Corporation (Applicant or Company) and submits these
comments in reply to the comments of the Idaho Public Utilities Commission Staff (Staff) filed
on October 12, 2006 in this case.
Staff Adjustment "A" and "B" ReclassifY Accounting Services.Company concurs.
Staff Adjustment "C" and "D" ReclassifY Bank Service Charges Company concurs.
Staff Adjustm,ent "E~' Post Closing Adjustment on Company s books in 2006 and "
Add Phosphate expenses to chemical account
Staff Adjustment "Staff is correct that this adjustment made outside the test year restates the
test year results so all similar transactions are treated the same by moving this transaction out
operating expenses and applying it the surcharge account. However, in its comments Staff
proposes to eliminate ITom the Company s surcharge accounts expenses related to Idaho Power
Company s PCA surcharges (Staff Comments Pg. 6) and the costs of purchasing phosphates for
chemical treatment of the Company s wells (Staff Adjustment '~). The Company agrees with
Staff that that these expenses are continuing costs the Company will realize beyond the
expiration ofthe Company s current surcharge program. It is appropriate to recognize these
expenses as normal continuing costs and include them in the Company s normal operating
expenses. However, following this same reasoning, and to be consistent, the Company believes
the ongoing costs it has and will continue to experience to inspect, service and maintain its
standby generator should also be removed ITom the Company s surcharge account and be
APPLICANT REPL Y COMMENTS OCTOBER 26, 2006
recognized as normal operating expenses. The Company contracts with Northwest Power
Systems Inc. to perform semiannual service on the generator. During the test year the Company
incurred expenses of$1 321.00 for this routine maintenance service. Removal of all of these
items ITom the Company s surcharge account and recognizing them as normal operating costs
provides for recovery of the costs from the Company s water rate schedules rather than ITom
surcharge funds and will allow the surcharge to expire at an earlier date.
Staff Adjustment "F" American Water Works Association dues Company concurs.
Staff Adiustment "
, "
H" and "I" Regarding Vehicle Expense. The Company accepts
the adjustment proposed by Staff. However, in its written comments on pages 4 and 5, Staff
recommends that the Company maintain accurate log books on vehicle use for business and
personal use. Staff recommends that the owners of the Company pay all operation and
maintenance expense personally and reimburse themselves at the rate approved by the Internal
Revenue Service for tax purposes. The Company attempted to comply with previous
Commission instruction to accurately account for the expenses of each vehicle by getting
separate credit cards for each vehicle ITom a major oil company. As the prices of fuel escalated
the Company switched ITom the major oil company to a discount fuel source to save costs. The
discounted fuel source does not lend itself to separate accounts for each vehicle. The Company
believes the requirement to "maintain accurate log books" is administratively burdensome and
unworkable. A single trip of very few or many miles may include a business related trip to the
post office, bank and hardware store as well as a personal stop at a grocery store or restaurant.
The Company is willing to accept the 50%/50% split of business and personal use but does
object to the requirement to somehow accurately track the actual use of each vehicle.
Staff Adjustment r' Holiday Event for Employees. Company concurs.
Staff Adjustments "K" and "L" Water Testing Expense Company concurs.
Staff Adiustment "M" Add Phosph;1te Expense to Chemicals Company concurs. See
response above for Adjustments "E" and 'G
Staff Adjustment "N" Customer Revenue Adjustment. The Company s review of this
adjustment indicated a problem in the calculation that could not be identified. The Company has
met with and discussed the problem with Staff. Staffhas been very cooperative and the problemwas identified. Staff agreed to correct the problem and provide a corrected calculation. During
the course of reviewing and correcting the calculation, Staff may have identified an error in the
Company s billing program. Staff brought this possible programming error to the attention
the Company. The Staff is continuing its work on the calculations but all problems and
corrections have not been completed in time for the Company to respond in these reply
comments. The Company understands that the Staff will file additional comments regarding this
Staff adjustment. The Company will continue to work with the Staff to resolve this issue but
reserves the right to file an additional reply in the unlikely event that the Staff and the Company
do not agree on an equitable resolution.
At the time this application was filed, the Company did not know if the Commission
would accept the Company s request to proceed with this case under modified procedure. Nordid the Company know if it would be necessary to retain the services of an attorney to represent
APPLICANT REPL Y COMMENTS OCTOBER 26, 2006
the Company at hearing. Therefore, the Company did not know how to estimate its costs of
presenting and defending this application. The services of an attorney were not required. The
Company has incurred costs of$2,287.50 through October 12, 2006 for the services ofits
consultant and expects to incur an additional $1 300.00 by the time Tariffs are filed and the case
is closed. Therefore the Company requests that the Commission authorize the Company to
recover its rate case expenses in the amount of$3,588.00 through a three year amortization of
$1,195.00 per year.
Staff's comments at page 11 oppose the Company s proposal to include the month of April in the
Company s SUIDItler rate period. The Company does not object to the Staff's proposal to reject
this request.
Staff's comments at page 12 propose the elimination of Schedule No.3 Public Fire
Hydrants and shift the revenue requirement associated with this schedule to the other tariff
schedules. The Company agrees that this proposal is appropriate. United Water Idaho does not
charge the City of Boise for this service. Bi1ling the city for this service by the Company
effectively produces a subsidy to Capitol Water Co. customers by all citizens of the City of
Boise. The elimination of the revenue ftom the test year reduces the Company s test year
revenue by $4,788.00 that should be recognized in the calculation ofthe Company s revenue
requirement.
Attached to these comments are Company rebuttal exlnbits identified as Exhtbit Nos. 12
13 and 14. Exlnbit No. 12 adjusts the Staffs proposed Income Statement for the items discussed
above. Column (C) is Staff's proposal. Column (D) adjusts Staff's proposal to eliminate Staff's
customer revenue Adjustment (N) pending resolution of the problems discussed above regarding
the Staff calculation and the potential problem identified in the Company s billing program.
This adjustment is subject to change and modification when resolved between the Company and
Staff.
Column (E) ofExln"bit No. 12 adds to operating expenc;es one third (l/3rd) ofthe
Company s anticipated rate case expenses to amortize these expenses over a three year period.
Column (F) of this exhibit recognizes the Company s standby generator inspection, service and
maintenance expense as normal operating expenses rather than special expenses funded through
the surcharge that will ultimately expire. Column (F) is Staff's proposal adjusted by the above
items. Column (G) eliminates the revenue received ITom Schedule 3, Public Fire Hydrants.
Column (H) reflects the Income Statement ofthe Company after the removal of the fire hydrant
revenue.
Exlnbit No. 13 adjusts the Staff's Rate Base calculation to recognize the changes the
Company proposes to the Staff's Income Statement recommendation. The only change to the
Staff recommendation is an increase to the working capital rate base amount shown on line 5.
Exlnbit No. 14 presents a comparison of the revenue requirement and increase required as
originally filed by the Company (Column A) with the Staff proposal (Column B) and the
Company s reply calculations in Columns "C" and "Column "C" presents the calculation
with the fire hydrant service in place. Column "D" shows the calculation with the fire hydrant
revenues removed ITom the calculation. The revenue increase required with the fire hydrant
revenues removed produces a required increase to the remaining service schedules of 32.92%.
APPLICANT REPLY COMMENTS OCTOBER 26, 2006
The Company will continue to cooperate with Staff to resolve the remaining questions
regarding the correctness of the adjustment to annualize customer revenues and the Company
customer billing computer program. The Company sincerely hopes the Staff and the Company
can present the Commission with a stipulated resolution acceptable to both parties and the
Commission.
The Company wishes to thank the Staff for its professional and cooperative approach
during its investigation of this application.
Respectfully S~bmitted
, J.
Bonnie R. Price, Secretary-Treasurer
Capitol Water Corporation
APPLICANT REPLY COMMENTS OCTOBER 26, 2006
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Capitol Water Co.
Case No. CAP-O6-
Rate Base
2005 Test Year
Commission Staff Proposal
Adjusted by Company Reply Comments
1 Plant in Service
2 L9$s Accum Depr
3 L9$s Contributions in Aid
4 Add Accum Amort of CIAC
5 Add Working Capital
Company Staff Staff Companyoposal Adjustment Proposal Reply Proposal
598,939 2,598 939 2 598 939
642,271) (1 642 271) (1 642,271)
(150 065) (150 065) (150,065)
89,734 89 734 89,734
. 43 830, 1 844 45,674 45 989
6 Company Requ9$ted Rate Base 940,167
7 Staff Proposed Rate Base 942 011 $942 326
Exhibit No. 13
Capitol Water Co.
Case No. CAP-W-Q6-1
Revenue Requirement
For the Test Year 2005
Commission Staff Proposal
1 Rate Base
2 Required RetUrn an Rate Base
3 Required Net OperatIng Income
4 Net Operating Income Rearaed
5 Net ~ng Income Deficiency
6 Net to Gross MultIplier
7 Gross Re.tenU8 DeIicIencY
8 Revenue Billed
9 Revenue Increase percentage Required
10 Revenue RequIrement
Gross-UP Factor caculation - Company11 Net DeficiencY12 PUC Fees13 Bad Debts
100.0000",,"
2486%
5000%
99.251
9401%
91.3113%
13.6967%
77.6146%
128.8417%
Stafe Tax (it 8%
Federal Taxable
Federal Tax ~ 15%
Net After Tax
Net to Gross Multiplier
Gros&-Up Factor CaIcuIaIian - Staff20 Net DeficienCY21 PUC Fees22 Bad Debts
24-
'Zl
100.0000%
2486%
0090%
99.7424%
9794%
91.7630%
13.7644%
77.9985%
128.2075%
State Tax ~ 8%
Federal Taxable
Federal Tax ~ 15%
Net Aftg; Tax
Net to Gross Multiplier
(A)(8)
Company Staff
PI oposaI Proposal
940,161 942,011
11.48%11.48%
107.905 108,116
105 015
102.800 107,101
128..84%128.21%
132,449 137,312
475,805 482.298
'Zl.84%28.47%
608,254 619,610
Company Reply to Staff
(C)(D)
Adjusted Adjusted
326
W/O HydrMts
942.326
11.48%11.48%
108,152 108.152
(7.994)(12.782)
116,146 120,934
128.21%128.21%
148,908 155,047
475.805 471.017
31.30%32.92%
624.713 626,064
Bchibit No.