20090224Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 6618
RECEl\/E
iOlJg FEB 2 4 f~M 8: 08
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
CAPITOL WATER CORPORATION FOR )
AUTHORITY TO INCREASE ITS RATES AND )CHARGES. )
)
)
CASE NO. CAP-W-08-2
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Kristine A. Sasser, Deputy Attorney General, and in response to the Notice of
Modified Procedure issued in Order No. 30713 on January 6, 2009, in Case No. CAP-W-08-2,
submits the following comments.
BACKGROUND
On November 17,2008, Capitol Water Corporation filed an Application for authority to
increase its rates for water service by 7.8%. The Application states that the Company provides
water services to approximately 2,560 residential and 150 commercial customers in the City of
Boise's west bench area bordered approximately by Curtis Road to the east, Maple Grove Road to
the west, Ustick Road to the north and Northview Street to the south.
Capitol Water's current rates and charges were authorized by Order No. 30198 issued on
December 13,2006. Since that time, the Company states the Ustick Road widening project
STAFF COMMENTS 1 FEBRUARY 24, 2009
caused it to incur $102,006 in costs beyond its control. As part of this Ada County Highway
District (ACHD) project, the Company was required to relocate distribution piping, fire hydrants
and customer service connections located in the public right-of-way. In addition, in October
2008, the pump at Well NO.6 failed. The cost to repair the pump and put the well back in service
was $11,234.
Since 2006, the Company maintains that it has also experienced a significant increase in
its electric power rates. The Company asserts that its cost for electric power is the single most
expensive cost over which the Company has no control. The Company seeks to put a mechanism
in place that would allow rates to be adjusted coincident with changes in its electric rates. The
Company requests that the Commission immediately approve its proposed rate increase, "but hold
the Case open pending a ruling by the Commission regarding Idaho Power Company's curent
rate case" (Case No. IPC-E-08-10). Application at 4. Upon completion of that case, Capitol
Water proposes that "the Commission revisit this case and authorize recovery of any additional
electric expense (it) wil realize" as the result of a potential rate increase by Idaho Power. ¡d.
The Company characterizes its Application as a "make whole" request limited to the three issues
stated above.
On December 9, 2008, the Commission issued Order No. 30700 relating to the Notice of
Application and Notice of Intervention. No party petitioned to intervene.
On Februar 3, 2009, the Company fied an amendment to its Application to reflect the
effect of Commission Order No. 30722 issued on Januar 30, 2009, in Idaho Power's general rate
case (Case No. IPC-E-08-10). The Company changed its rate increase request from 7.80%, as
originally proposed, to 8.257%.
STAFF ANALYSIS
As a preliminary matter, based on the relative stabilty in customer totals and the lack of
significant revenue requirement changes in other areas since the Company's last general rate case,
Staff believes it is reasonable to limit its review to the Ustick Road project, Well NO.6 failure,
and electric power expenses as requested by the Company in its Application.
STAFF COMMENTS 2 FEBRUARY 24,2009
REVENUE DEFICIENCIES AND ADJUSTED REVENUE REQUIREMENTS
Ustick Road Rebuild Project and Well No.6 Rebuild Cost
The Company is proposing to add to rate base the costs of the Ustick Road Rebuild
Project and the Well NO.6 Rebuild for recovery in rates. Staff has audited these costs and finds
them accurately recorded and reasonably incurred.
As par of its evaluation of the Ustick Road Rebuild Project, Staff reviewed Ada County
Highway District (ACHD) Resolution No. 330, which obligates Capitol Water Corporation to pay
for the relocation ofthe Company's water distribution facilities. The Resolution states in
pertinent part that, "( s )hould the District require that any facility of a utility or sewer company be
relocated from its existing location to a new location within the public right-of-way, all relocation
costs shall be the responsibilty of the utilty or sewer."
Based on Resolution No. 330 and the description of the relocation project, Staff believes it
was appropriate for the Company to pay the costs of relocating its main and distribution lines and
related appurtenances. Staff also believes that the cost of relocating these facilties was
reasonable~ Instead of hiring a general contractor to perform all the tasks needed to complete the
project, the Company undertook the project management, coordination of work with the ACHD,
procurement of materials, laying and connecting pipes and appurtenances, and related tasks using
existing personneL. The Company hired some contractors to perform specialized tasks such as
trenching and paving. Staff believes that the Company spent considerably fewer dollars than it
would have spent if it had hired a contractor to complete the project. Similarly, the price paid by
the Company to rehabiltate Well NO.6 was reasonable when compared to other projects of
similar size and scope. Staff believes the Company acted quickly to rebuild the facilties in a cost
effective maner.
Staff has reviewed the calculations and supports the Company's proposal to put these
items in rate base and to modify current rates to include these capital items. Staff has verified an
annual revenue deficiency associated with these capital improvements of $21 ,832. This
represents a 3.495% increase over current rates. See Attachment 1 with Staffs recommendation.
Adjusted Electric Power Expenses
As par of its Application, Capitol Water has proposed a mechanism to adjust (either up or
down) the Company's Commission-approved rates coincident with changes to Idaho Power
Company's electric rates. The Company states that electric power cost is its single largest
STAFF COMMENTS 3 FEBRUARY 24, 2009
operating expense and largely beyond its control. The Company further states that Idaho Power
rates biled to Capitol Water have significantly increased since Commission Order No. 30198 was
issued on December 13,2006, establishing the level of power costs recoverable through Capitol
Water's rates. The Company requests that the Commission approve the adjusted power cost as
outlined in its filing but hold the case open pending a ruling by the Commission regarding Idaho
Power's rate case currently before the Commission. Upon completion of that case, the Company
proposes the Commission revisit this case and authorize recovery of any additional electric
expense the Company wil realize.
Staff does not necessarily object to tracking power costs paid by small water utilties if
rising costs cause financial hardship. The Company has indicated that its power costs are its
single largest operating expense. Staff reviewed the power costs the Company has incurred from
2005 to the present and found that the percentage of anual power costs to the total annual
operating costs ranges from 16% to as high as 22.8%. The percentage of annual power costs to
the revenue requirement was 13.3% in 2005 and 10.2% in 2008. The annual power costs are also
presented in the graph in Attachment 2. However, the power costs incurred by the Company have
not dramatically increased as the Company has claimed. In fact, power costs dropped from 2005
to 2007, then slightly increased in 2008 but stil remain below the power cost level incurred in
2005.
Capitol Water is proposing an adjustment to its electric power expenses based on an
estimate of the incremental cost of power in 2008 over 2005 (Test Year for the most recent
Company rate case, Case No. CAP. W -06-1). The Company created a spreadsheet model using
the 2005 energy usage for all metered points and applying the applicable 2005 Idaho Power rate
schedules (Schedules 7, 9, 54, 55, 95 and 91) to estimate the total payments for that year. The
total amount estimated by the model for 2005 ($82,874) was about the same as the actual total
electric bils paid by the Company in that year. Using the same cost model, the Company
estimated the total 2008 power cost using 2005 test year energy usage and 2008 Idaho Power
rates. The estimated amount was $96,734 or an increase of 16.7 % in total power cost from 2005
to 2008 using this approach. However, the actual electric power cost paid by the Company in
2008 was only $65,724. This reflects a decrease of $17,150 or 20.7% less than the power costs
actually incured in 2005. The 2008 power costs already include all current Idaho Power base
energy rates, PCA rates and other applicable schedules.
STAFF COMMENTS 4 FEBRUARY 24, 2009
For comparison purposes, Staff also estimated 2008 power costs by increasing 2005
actual power costs by the weighted average electric power increase from 2005 to 2008. The
weighted average was calculated taking into account the change in base and PCA rates from 2005
to 2008 for the applicable rate schedules (Schedule Nos. 7 and 9). The calculated weighted
average power rate increase was 12.68% as shown in Attachment 3. Applying the 12.68%
increase to the $82,874 actual power cost in 2005 resulted in estimated 2008 power costs of
$93,382 using this method.
Neither of these methods accurately estimates the actual cost of power paid by the
Company in 2008. To determine why power cost has actually declined, Staff audited the energy
usage data from 2005 to 2008. Staff found that energy consumption declined over the period by
29.6% from 1,940,776 kWh in 2005 to 1,367,198 kWh in 2008. Actual power costs paid by the
Company in 2008 were lower than the amount paid in 2005, in spite of the 12.68% increase in
Idaho Power's rates because annual energy consumption declined by 29.6% over the same period.
To verify that 2008 energy consumption and power costs were representative of what
might be expected in a normal year, Staff normalized energy usage by calculating the average
energy used from 2005 to 2008. Staff found that 2005 energy consumption was (1,940,776 kWh)
higher than normal (1,575,995 kWh) and 2008 consumption was lower than normal (1,367,198
kWh). Using normalized energy usage and 2005 power cost and consumption data, Staff
calculated normalized power costs of $67,297 in 2005. Staff then escalated those costs to 2008
using Idaho Power's rate increases of 12.68% actually experienced over the period. Normalized
2008 power costs were calculated to be $75,830 ($67,297 + $67,297 x 12.68%). These
normalized 2008 power costs are stil lower than the 2005 power costs of $82,874 presently
included in base rates.
Based on the analyses described above, Capitol Water is not facing a financial hardship
due to increasing power costs. While it is true that Idaho Power's rates have increased since the
Commission last established Capitol Water's anual revenue requirement, the Company's anual
power costs have actually declined. Even with the Idaho Power rate increase recently granted by
the Commission, the Company's actual power costs should be less than the amount currently
included in rates. Consequently, Staff concludes there is no reason to increase Capitol Water's
rates to recover a higher level of power costs and there is clearly no financial need for a power
cost adjustment mechanism at this time.
STAFF COMMENTS 5 FEBRUARY 24, 2009
In summary, Staff believes that the power costs included in the 2005 test year for the
Company's last general rate case (Case No. CAP-W-06-1) are sufficient to sustain the Company's
current operation. Therefore, due to lack of demonstrated need and to maintain rate stabilty,
Staff recommends that the power cost adjustment proposed by the Company be denied.
RATE ISSUES
System Condition
As par of the evaluation process, Staff conducted a field tour of the water system on
Januar 9, 2009, accompanied by Robert Price, Company President, and Jim Carson, certified
water system operator. The tour focused mainly on Well No.6, which was recently renovated,
and the relocated distribution system and other appurtenances due to the Ada County Highway
District (ACHD) Road Expansion Project on Ustick Road between Maple Grove and Curtis roads.
Several pumping sites were also visited briefly including Well Nos. 3,4, 5, and 7. Well Nos. 3, 5
and 7 were operating during the tour, while Well Nos. 4 and 6 were not operating since the water
system did not need additional water from these well pumps, which are automatically controlled
by pressure switches.
The vertical turbine pump in Well NO.6 unexpectedly failed to operate in October 2008
due to damaged pump bearings, column, shaft and impellers, which necessitated the Company to
restore the pump to operating condition. Staff believes that this is an allowable and reasonable
expense since it is expected that some components of the water pumping system wil fail within
its operating life due to various factors. The Company maintains a shop close to Well NO.6
where it stocks spare parts and repairs/modifies various parts for the components of the water
system. Based on Staff s facilty visit, Staff observed that the pumping plants appear to be in
good condition and well maintained.
Staff was not able to inspect the relocated distribution lines since they were all
underground with the exception of the relocated above ground appurtenances such as fire
hydrants. Staff asked the Company if it is required by the Idaho Deparment of Environmental
Quality (IDEQ) to submit design plans for the relocated distribution system. Staff was apprised
by the Company that it was not necessary to submit such plans.
STAFF COMMENTS 6 FEBRUARY 24, 2009
Rate Design
Based on the tariffs submitted as par of its initial Application, the Company proposes to
collect the 7.8% revenue deficiency by a uniform increase in all rate components. Staff supports
the Company's proposal for a uniform rate increase. The total number of customers served has
not changed significantly since 2006 when the Company fied its last general rate case and none
of the residential customers are metered. Staff sees no reason to change the rate structure or
spread the increase on anything other than a uniform basis.
Based on Staffs recommended revenue requirement increase of$21,832 and a curent
total revenue requirement of$624,713 authorized by the Commission in the Company's latest rate
case in 2006 (CAP. W -06-1), a rate increase of 3.495% is required. The monthly flat rate for
residential customers with % inch service size in summer (May 1 to September 30) would
increase from $27.50 to $28.46. Staffs proposed rates are shown in Attachment 4.
Rate Schedules
The Company has submitted a copy of its proposed Rate Schedules as Exhibit 3 of the
Application. When approved, these rate schedules wil become par of the Company's tariff.
The current rate Schedule Nos. 1,2 and 4 include the Boise City franchise fee of3% and the
IDEQ Public Drinking Water Fee of$ 0.34 per month within these schedules. These fees are
established by Boise City and IDEQ. Staff believes the fees should be placed on a separate
schedule of recurring charges to clarify that the Commission allows the Company to recover these
fees from customers. This tariff change wil also make it administratively easier to revise the
tariff if the fees are changed in the future. In the present format, if either Boise City or IDEQ
revised their fees, the Company would be required to submit a tariff advice for three schedules
instead of just one.
Company Tariff Issues
As par of its review of the Company's filing, Staff has assessed the status of the
Company's current tariffs and believes that they should be further updated in conjunction with
this case. The current Company tariff consists of its rate schedules, along with a version of the
General Rules and Regulations for Small Water Utilities dated 1987 and a copy of the Uniform
Main Extension Rule for Water Utilities dated 1986. The General Rules and Regulations for
Small Water Utilties includes obsolete references to rules found in the Commission's Utilty
STAFF COMMENTS 7 FEBRUARY 24,2009
Customer Relations Rules (UCRR) and Utility Customer Information Rules (UCIR) that have
since been revised or removed.
Staff has developed a model tariff that incorporates the latest changes in the Commission's
Rules and Regulations and recommends that the Company adopt the model tariff. The model
tariff is available in electronic format, which wil allow the Company to easily incorporate new
rates and other future revisions. Staff also recommends moving recuring and non-recuring
charges from the Rules and Regulations section of the tariff to separate pages itemizing these
changes to increase customer awareness. The consolidation of the charges wil also make future
changes easier to incorporate into the tariff. Staff is willng to assist the Company in revising its
tariff to ensure that it is in compliance with the Commission's Rules and Regulations.
CUSTOMER RELATIONS
The Company provided customers notice of the proposed rate increase in its December
2008 billng. The notice meets the requirements of the Utility Customer Information Rules
(UCIR), IDAPA 31.21.02.000 et seq. A press release was not fied with the original Application
as required by the UCIR, but the Company subsequently submitted a copy of its press release on
December 19,2008.
Three comments have been received to date with two of the three in favor of the rate
Increase.
On Februar 3, 2009, the Company submitted an amended Application to increase the
proposed rates as a result of the recent Idaho Power rate increase. The Company has not notified
its customers of the fuher increase in rates proposed in the amended Application.
ST AFF RECOMMENDATIONS
Staff recommends:
1. The Commission approve a revenue requirement increase of$21,832 or 3.495% over
the total revenue requirement of $624,713 authorized by the Commission in Order No.
30198.
2. The Commission approve the new rates proposed by Staff in which the 3.495%
increase in revenue requirement is applied uniformly across all applicable schedules.
STAFF COMMENTS 8 FEBRUARY 24, 2009
3. The Commission deny the Company's request to increase power costs recovered in
rates.
4. The Commission reject the Company's proposal to put in place a mechanism for rate
adjustment due to changes in power costs.
5. The Company revise its Rate Schedules and General Rules and Regulations for Small
Water Utilities using the model tariff and create a separate tariff schedule for the IDEQ
Public Drinking Water Fee and Boise City Franchise Fee.
Respectfully submitted this ¡ yTH day of February 2009.
di~til a. âi4AØ li ,Kri tine A. Sasser
Deputy Attorney General
Technical Staff: Kathy Stockton
Gerr D. Galinato
Chris Hecht
i: umisc:commentsicapw08.2ksgdgklsch
STAFF COMMENTS 9 FEBRUARY 24, 2009
Staff Attachement 1
IPUC Staff Recommendation
Capitol Water Company
Make Whole Revenue Requirement
1 Rate Base Approved by Order No. 30198 (Case CAP-W-06-1)
2 Add Ustick Road Rebuild Project
3 Add Well NO.6 Rebuild Cost
4 Adjusted Rate Base
5 Rate of Return Authorized by Order no. 30198
6 Income Requirement with Improvements
7 Income Requirement Determined in Order No. 30198
8 Incremental Income Requirement
9 Gross-up Factor From Order No. 30198
10 Incremental Revenue Requirement
11 Add Depreciation Expense - 2008 Ustick Project
12 Add Depreciation Expense - 2008 Pump Repair
13 Incremental Depreciation Expense
14 Total Incremental Revenue Requirement-Plant in Service
15 Add Amortization of Rate Case Expense ($l,800/3yrs)
16 Total Incremental Make Whole Revenue Requirement
17 Revenue Requirement Approved by Order No. 30198
18 Increase Required
$942,326
102,006
11,234
$1,055,566
11.48%
$121,179
108,152
$13,027
128.21%
$16,702
4,080
449
4,530
$21,232
600
$21,832
$624,713
3.495%
Attachment NO.1
Case No. CAP- W -08-2
K. Stockton, Staff
2/24/08
Capitol Water Corporation
Annual Power Cost, Percent of 0 & M Costs, and Percent of Revenue Requirement
Year Power O&M %ofO&M Rev. Reqt.%ofRR
Yr-2005 $ 82,874 $363,005 22.8%$ 624,713 13.3%
Yr-2006 $ 60,998 $347,235 17.6%
Yr-2007 $ 56,494 $352,195 16.0%
Yr-2008 $ 65,724 N/A N/A $ 646,545 10.2%
$400,000
$350,000
$300,000
..$250,000iaCL;)$200,000..
CLCL
11 $150,000
$100,000
$50,000
$-
II Power
000& M
Yr-2005 Yr-2007 Yr-2008Yr-2006
$90,000
$80,000
$70,000
.. $60,000ia
:, $50,000..
~ $40,000
11 $30,000
$20,000
$10,000
$-
Annual Power Cost
..~~~
..
,-~,,--,,-~,,-
-_..---
Yr-2005 Yr-2007 Yr-2008Yr-2006
Attachment NO.2
Case No. CAP-W-08-2
G. D. Galinato, Staff
2/24/08
PERCENT INCREASE OF IDAHO POWER RATES
(Includes Base and PCA Rates)
YEAR 2005 TO 2008
%Sch.7&Weighted
Ave. Power Ave. Power Increase Sch. 9 Cost Ave. Rate
Cost-c/kwh Cost-c/kwh %To Total Increase
Schedule No.2005 2008
Schedule 7 (Base Rate)7.166 7.918
PCA Rate 0.6039 0.7864
Total Rate-5ch. 7 7.7699 8.7044 12.03%1.57%
Schedule 9 Base Rate)3.977 . 4.376
PCA Rate 0.6039 0.7864
Total Rate-5ch. 9 4.5809 5.1624 12.69%98.43%
Total 100.0%
Weighted Ave. Increase 12.68%
YEAR 2005 TO 2009
%Sch. 7 &Weighted
Ave. Power Ave. Power Increase Sch. 9 Cost Ave. Rate
Cost-c/kwh Cost-c/kwh %to Total Cost Increase
Schedule No.2005 2009
Schedule 7 (Base Rate)7.166 7.988
PCA Rate 0.6039 0.7864
Total Rate-5ch. 7 7.7699 8.7744 12.93%1.57%
Schedule 9 Base Rate)3.977 4.596
PCA Rate 0.6039 0.7864
Total Rate-5ch. 9 4.5809 5.3824 17.50%98.43%
Total 100.0%
Weighted Ave. Increase 17.42%
Attachment NO.3
Case No. CAP- W-08-2
G. D. Galinato, Staff
2/24/08
Capitol Water Corporation
CAP-W-08-01
Tariff Design
Revenue Requirement Approved in Order No. 30198 $624,713
Staff Proposed Revenue Deficiency:$21,832
Staff Proposed Increase:3.495%
RESIDENTIAL SCHEDULE 1, MONTHLY FLAT RATES
Company Proposed Staff Proposed
Service size Current Tariff Tariff Tariff
3/4"$12.10 $13.07 $12.52
1"$14.50 $15.69 $15.01
11/4"$16.20 $17.53 $16.77
Sprinkling Charge: From May 1 through September 30, the following rates wil be added
to the base monthly rates
Current Tariff Company Proposed Staff Proposed
Sprinkling Rate Spinkling Rate Sprinkling Rate
$15.40 $17.97 $15.94
COMMERCIAL SCHEDULE 2, METERED RATES
Minimum Monthly Charge: Customers using less than the following minimum charge
allowance wil be billed the minimum charge.
Min. Charge Current Tariff Company Proposed Staff Proposed
Com. Allowance Minimum Charge Tariff-Min. Charge Tariff-Min. Charge
Service size cu. ft.$/mo.$/mo.$/mo.
3/4" & smaller 653 $7.70 $8.34 $7.97
1"915 $10.80 $11.69 $11.18
11/2"1,597 $15.80 $17.10 $16.35
2"3,760 $27.30 $29.55 $28.25
3"8,080 $48.90 $52.94 $50.61
Commodity Rate Charge:
Company Proposed Staff Proposed
Quantity Over Current Tariff Tariff Tariff
Minimum $/100 cu. ft. $/100 cu.ft.$/100 cu.ft.
1st 1,000 cu. ft.$1.18 $1.28 $1.22
2nd 2,000 cu. ft.$0.67 $0.73 $0.69
Balance $0.50 $0.54 $0.52
-------
Attachment No.4
Case No. CAP. W -08-2
G. D. Galinato, Staff
2/24/08 Page 1 of 2
SCHEDULE 4
FIRE PROTECTION (SPRINKLER SYSTEMS) - FLAT MONTHLY RATES
Current Company Proposed Staff Proposed
Service Size Tariff Tariff Tariff
3"$8.50 $9.20 $8.80
4"$11.80 $12.77 $12.21
6"$27.00 $29.23 $27.94
8"$43.80 $47.42 $45.33
10"$67.30 $72.86 $69.65
Attachment NO.4
Case No. CAP- W -08.2
G. D. Galinato, Staff
2/24/08 Page 2 of 2
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 24TH DAY OF FEBRUARY 2009,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. CAP-W-08-02, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
ROBERT PRICE
CAPITOL WATER CORP.
2626 ELDORADO
BOISE ID 83704
E-MAIL: capitolwatercorp(iworldnet.att.net
ROBERT E SMITH
2209 N BRYSON RD
BOISE ID 83713
E-MAIL: utilitygroup(iyahoo.com
CERTIFICATE OF SERVICE