20070823Reply comments.pdf

Diamond Bar Estates Water Co
Po Box 1870
Hayden ID 83835
208 665 9200
208 665 9300 fax
August 20 2007
Commission Secretary
Idaho Public Utilities Commission
PO Box 83720
Boise ID 83720-0074
RE: Case No. DIA-07-1
RECE\VED
IDul WG 23 I 8: \ 0
T ,~;P(l~;\t:~ \ ~ S iONII..."
'-'-' -'-' ,. .
Enclosed is the Applicant's Reply to Staff Comments for the Commission.
Respectfully Submitted this 20th day of August 2007
-h II
j.,
obert N T
President/Manager
Diamond Bar Estates Water Co
ROBERT N. TURNIPSEED
PRESIDENT !MANAGER
DIAMOND BAR ESTATES WATER CO.
O. BOX 1870
HAYDEN, IDAHO 83835
[phone]
RECEIVED
Will WG 23 I 8: I W
UTiL rE.s d~j;~!rf:i \~S!O N
Street Address for Express Mail:
2953 N. Government Way
Coeur d' Alene, Idaho 83814
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TIER OF THE APPLICATION OF
DIAMOND BAR ESTATES WATER COMPANY
FOR AN INCREASE IN RATES AND CHARGES)
FOR WATER SERVICE IN THE STATE OF IDAHO CASE DIA-O7-
APPLICANT REPLY
TO COMMENTS OF
COMMISSION STAFF
Comes Now Diamond Bar Estates Water Company (Applicant) and respectfully
submits the following reply to the comments filed by the Staff of the Idaho Public
Utilities Commission (Staff) in this case.
Staff Expense Adjustment No.1 (page 4 of Staff Comments). Staff states "The
fee amount paid by the Company for water master services has increased every year since
2003." Staff Attachment "B" purports to show the increases in "Water Master Fees" for
each year since 2003 and indicates an increase of 279% over that period of time.
Applicant takes exception to the way the adjustment by staff is characterized. The
expenses included in the "Labor Operation and Maintenance" account adjusted by Staff
include costs incurred for labor other than the water master fees paid to the affiliated
Avondale Construction Company. Costs include contract labor ITom unaffiliated service
companies for repair and maintenance ofwells~ pumps, reservoirs and water lines.
The history of affiliated company charges for "water master" service is as
follows: 2003 $200.00 per Month plus $2.00 per meter reading; 2004 -2005 $250.00 per
month plus $2.00 per meter reading. Since 2003, the individual performing the water
master duties has earned a certification as a certified operator and has assumed additional
responsibilities. In 2006, the charge for the water master service was raised to $750.
per month plus $2.00 per meter reading. Note that Diamond Bar Water Company does
not have any direct employees. The water master fees are paid to the affiliated Avondale
Construction Company who employs the worker and pays all employee related expenses
including taxes, insurance and other benefits. Assuming benefits are a conservative
administrative cost of25% the effective wage and salary cost without benefits is $600.
per month. Applicant also wants to bring to the Commissions attention that no other
general management fees are charged to the water company for officers or directors fees.
It is our opinion that the $750.00 per month for overall operation, maintenance, repair
and management ofthe water system is reasonable.
Staff Expense Adjustment No.2 (page 4 of Staff Comments). Staff Assumes in
its proposed adjustment that the individual who performs the "bookkeeping" services for
the Company has no duties other than the routine customer billing, bookkeeping, bill
paying and banking responsibilities that a local bookkeeping service company would
provide. This is erroneous. In addition to these services, this individual takes phone
inquiries from customers regarding rates and service problems, dispatches service
personal to respond to problem reports, prepares correspondence with numerous outside
business contacts and generally performs all the duties normally associated with those of
an office manager for a small business. A $400 per month fee is quite reasonable for the
multitude of services performed.
Staff Expense Adjustment No.3 (page 5 of Staff Comments). Staff in this
adjustment proposes to disallow costs associated with the Company s lost and
unaccounted for water. Staff states that the 19% loss realized is excessive and proposes
to only allow costs equal to lost and unaccounted for water equal to 4%. Staff, however
erred in its calculations. Staff simply reduced the Company s costs by 15% of the total
recorded. In effect, Staffs adjustment reduces the cost of lost and accounted for water to
a level of 1.15% rather than the level of 4% they propose.
Company Reply Exhibit No.1 0 presents calculations demonstrating the effect of
various levels oflost and unaccounted for water. Line 1 is the total $7 065.00 cost of
purchased power and fuel for power as submitted in the Company s application. Line 2
is the loss percentage calculated by the Staff. To determine the base costs with no water
losses, line 1 must be divided by 1.19%. The result is the base cost of $5 936.97 shown
on line 3. The effect of Staff's proposed adjustment is shown on line 6 and demonstrates
that Staff's calculation provides an allowance of only 1.15% for losses.
In the recent Spirit Lake East case (Case SPL-06-1) Commission Order No.
30279 at page 3 said "Staff calculated that leakage in the Spirit Lake system is more than
one gallon, and could be as much as one-and-a-half gallons, for every gallon used by
customers. Staff described the leakage problem as severe, well beyond the 10% to 15%
that is considered acceptable for small water systems." In this case Staff has adjusted
Diamond Bar Water Company s expenses to a level well below the 10% to 15% they
considered acceptable in the Spirit Lake East case. The Company opposes this
adjustment and proposes the Commission adopt the mid point between the 10% to 15%
acceptable level or losses of 12.5%. This water system ages every year and despite
management's efforts to provide exceptional repair and maintenance on the system , it is
only natural to expect losses on the system to increase from the very low levels
experienced in the early years of the system. As shown on line 9 of Company Reply
Exhibit No.1 0, this level of loss would reduce the Company s proposed revenue increase
of$16,751 by $386 rather than the $1 060.00 proposed by the Commission Staff.
Staff Expense Adjustment No.4 (page 6 of Staff Comments). The Company
will accept Staff's adjustment to exclude rate case amortization of$557 ftom the
Company s prior rate case ITom operating expenses. However, Applicant does object to
the five (5) year amortization of its current rate case expenses. As provided to Staffin
work papers and as shown on Company Exhibit No., the Company has not realized a
profit in any of the years since and including 2003. The company has experienced an
operating loss in each of these years and will not continue to absorb losses in the future.
The Company fully intends to make application to the Commission to adjust rates in a
timely manner, annually if necessary, to insure that the Company does not experience any
future losses. The Company has continued to incur rate case costs since its application
was filed including reviewing and responding to the Staff comments in this case and
anticipates additional costs for preparation and representation at the public hearing the
Commission has ordered. To date the Company has actually incurred costs of $5 583.
and proposes an amortization period of no more than three years. The original
application estimated these cost to be $5 000 with a three year amortization period.
Amortization costs in this case should be at least $1 861.00 rather than the $1 000.
proposed by Staff. The Company will provide the actual costs incurred upon completion
of this case. Cost incurred through August 19 2007 are shown on Company Reply
Exhibit No. 11.
Staff Rate Base Adjustment - water rights adjudication costs (page 6 of Staff
Comments). The Company proposed to capitalize its costs to protect and assure its water
rights during the current adjudication process for the Rathdrum Prairie aquifer. Staff has
proposed these costs be capitalized and amortized over a 5 year period without being
included in rate base. The Company treated these cost in a manner consistent with the
method used by United Water Idaho and accepted by the Commission. United Water
Idaho treats such costs as intangible assets in rate base not subject to depreciation or
amortization. The Company believes its original proposal is the correct and most
equitable treatment of these costs and in these reply comments, restates the staff proposal
to revert to the Company s original position. The Company is willing to amortize these
costs as proposed by the Staff but believes these costs for a small water company are
unusual, burdensome, have an adverse effect on a small company s cash flow
requirements and should earn a return on the unamortized balances.
Staff Rate Base Adjustment - unamortized rate case expenses (page 7 of Staff
Comments). Staff proposes to eliminate ITom rate base the unamortized rate case
expenses ITom both the previous rate case and the current rate case. The Company is
willing to accept the elimination ofthese costs ITom the previous case but does take
exception to the elimination of the current costs. Rate case expenses are a significant
drain on the capital of a small company. The Staff supports its position merely by stating
that "Treating this expense as a capital item in rate base was addressed in the 2002 case
and the Commission specifically denied the Company s request for rate base treatment to
earn a return. Case No. GNR-02-, Order No. 29247." Order No. 29247 at page 10
contains the discussion of this issue. The Commission s findings on this page regarding
rate case expenses state in their entirety as follows:
We find it reasonable to allow recovery of actual billed costs for
accounting and legal services in the amount of $1 085. We also find it
reasonable to allow recovery of the estimated additional costs for
accounting and legal services required to perfect the Company s Reply
Comments in the amount of$I 700. We approve total rate case expense of
$2,785. We approve recovery of this amount amortized over five years.
The projected cost of appeal we find is speculative, not known and
measurable and cannot be recovered.
The Commission did not "specifically" address this issue in its findings. The
Commission did not include the costs in rate base, but was silent regarding the policy or
reasoning behind the exclusion.
Rate case cost for this company represent 30% of the Company s gross annual
revenues. This is not an insignificant amount and should be recognized by the
Commission as a real cash investment in the health of the Company in order to keep it
viable and provide quality service to customers. The costs of preparing and defending a
rate case before the Commission for large multi-million (billion) dollar company are an
insignificant percentage ofthose companies revenues. Small Companies like Diamond
Bar Estates do not have the expertise in-house to present an application to the
Commission for an increase in rates. Monies expended for these outside services could
be used to upgrade and improve the water system (rate base additions) but rather are
diverted to prepare and defend requests to the Public Utilities Commission for rate
adjustments. The alternative would be to increase intemallabor cost to hire additional
employees at a much greater annual cost to the Company- The Commission must
recognize the real cost to the company in tenns of the time value of money. Otherwise
the Company owners are encouraged to make investments elsewhere at the cost of quality
of service to water customers.
Company Reply Exhibit Nos. 12 and 13 present the detail of the adjustments
Applicant proposes to the Staff recommendations for rate base (Ex 12) and operating
results (Ex13).
Revenue Requirement:
Company Reply Exhibit No. 14 Shows a comparative calculation of the revenue
requirement that is produced by the Staff s recommendations and that produced with this
reply. Staffproposed an increase in revenues of $9 883.00 or 54.321 %. The Applicant
proposes in this reply an increase in revenues of$16 269 or 90.929%.
Rate Design
Staff in its comments proposes a rate design of a base charge of $29.00 per month
(including the first 4 000 gallons of consumption) plus a commodity charge of $0.73 per
thousand gallons for all consumption over 4 000 gallons per month. The Company finds
this rate design unacceptable. The base charge of $29.00 per month would only provide
revenues in the winter months of $1 247 per month. This revenue level will not provide
enough revenue to cash flow the Company s fixed monthly costs to say nothing of the
variable costs including pumping power costs.
The Company originally proposed a $50.00 per month base rate including the first
500 gallons of consumption per month plus a commodity rate of $0.52 per thousand
gallons for all consumption in excess of7 500 gallons per month. This rate design would
provide monthly revenues ftom base rates of $2, 150~ enough to pay the Company s fixed
costs in winter months.
The Applicant is not in this reply putting forth yet another rate design proposal for
the Commission to consider. Rather, the Company is proposing that the Commission
decide upon a revenue requirement based upon the evidence presented. Further, the
Company proposes that the Commission consider the cash flow requirements of the
Company and provide direction to the Company and PUC Staff regarding the relationship
between base rates and commodity rates it deems appropriate. The Company and the
Staff then could work together to develop a rate design for the Commission s approval.
Respectfully Submitted this !)...o day of August, 2007.
!l1PresidentIManager
Diamond Bar Estates Water Co.
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Diamond Bar Estates Water Co.
Rate Case Expense
(A)(8)
Pmnt Amount Accumulated
Jul-187.187.
Sep-768.956.
Oct -06 168.125.
Apr-O7 1 200.325.
Jun-07 2 238.563.
6 Accrued to 8/19/07 020.583.
7 3 Year Amortization Expense 861.
Company Reply
Exhibit No. 11
Diamond Bar Estates Water Company
Calculation of Rate Base
1 Plant in Service
2 Accumulated Depreciation
3 Net Plant In Service
(C) (D) (E)
Company Company Company
Correct Reply Reply Reply
Per Staff Staff Restore Restore Recalc.
Comments Working Rate Case Water Working
Capital Expense Rights Capital
$ 5 000
(A)(B)
15,449
834
$ 13 615 $ -$ 5 000 $
4 Rate Case Exp. (Case GNR-02-3) $
5 Current Rate Case Expense
6 Accumulated Amortization7 Unamortized Balance
583
(F)
Company
Reply
Adjusted
20,449
834
615
583
$ -
$ 5 583 $583
8 Working Capital (1/8th of O&M Exp)186 (433)
9 Total Rate Base $ 16 801 $ (433) $ 5 583 $ 5 000 $
572 325
572 $523
Company Reply
Exhibit No. 12
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Diamond Bar Estates Water Co.
Comparison of Revenue Requirement
Staff Comments to Company Reply
1 Rate Base
2 Return on Rate Base
3 Return Required
Per
Per Company
Staff Reply
801 523
12%12%
016 303
281959 281959
585 234
024 599
169 169
000 861
000
255 255
076 161
193 892 *
883 269
54.321%90.929%
4 Gross-up for taxes
5 Revenue Required for Return
6 Add Expenses:
7 Operating Expenses
8 Depreciation Expense
9 Rate Case Amortization
10 Water Right Amortization
11 Regulatory Fees
12 Property Taxes
13 Total Revenue Requirement
14 2006 Actual Revenue
15 Revenue Deficit
16 Percent Increase Required
* Difference in revenue is one time charges not
associated with normal water service of $301
Company Reply
Exhibit No 14