20060206final_order_no_29969.pdf

Office of the Secretary
Service Date
February 6, 2006
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE EAGLE WATER
COMPANY'S REQUEST FOR A
TEMPORARY SURCHARGE
ORDER NO. 29969
CASE NO. EAG-O5-
On October 27 2005 , the Commission issued Order No. 29903 authorizing Eagle Water
Company to implement a temporary rate surcharge. The Commission allowed Eagle Water to
recover $85 395 in engineering, accounting and legal expenses but reserved judgment on the
Company s request to recover an additional $40 027 expended to replace an 8-inch water main.
The Commission ordered Eagle Water to submit additional information to substantiate recovery of
this latter amount. Order No. 29903 at 7-
The Company submitted its supplemental information on November 25, 2005. Based
upon our review of the information submitted by the Company, the Commission authorizes the
Company to recover $2 511 of the $40 027. The Commission determines that Eagle Water did not
adequately demonstrate that the balance of its replacement costs were reasonable.
BACKGROUND
A. Low Water Pressure
Eagle Water serves more than 2 500 customers in and around the City of Eagle. Low
water pressure has been a recurring problem for Eagle Water and particularly its customers located
in the Eagle Springs Estates subdivision. The Eagle Springs subdivision is generally located on the
east side of Horseshoe Bend Road (Old Highway 55) and north of Hill Road. During the last six
years, there have been several causes of low water pressure in the system. In July 2000, a well
pump failed resulting in low water pressure, especially for customers in the Eagle Springs
subdivision. The Company repaired the well pump and installed a separate "booster" pump to
primarily serve Eagle Springs. Order No. 29903 at 1 , 28513 at 1-2. The 12-inch mainline that
supplied the booster pump is in a "temporary easement" located in a gravel pit to the west of the
booster.
In 2004 the 12-inch mainline serving the booster pump was "undermined" when the
gravel pit operator "exposed the line while digging into the north bank of (the) gravel pit." Order
No. 29903 at 1. To prevent a catastrophic loss of service, Eagle Water shut off the 12-inch mainline
ORDER NO. 29969
servmg the booster pump. Because gravel operations were continuing, Eagle Water then
constructed a new 8-inch line to supply the booster pump. Eagle Water Exh. 1. The new 8-inch
mainline did not traverse the gravel pit. Order No. 29903 at 2.
In the summer 2005, customers in the Eagle Springs subdivision again experienced
poor water pressure. The Commission and the Idaho Department of Environmental Quality (DEQ)
received numerous complaints regarding the lack of pressure from customers at the highest
elevations of Eagle Springs and the Staff of the nearby Veterans Cemetery.Eagle Springs
customers complained that they were unable to flush toilets, take showers, wash their hands, operate
their dishwashers or irrigate their yards. Order No. 29840 at 1. Based upon the customer
complaints, Commission Staff requested that Eagle Water monitor and report water pressure in its
system serving the highest elevation of Eagle Springs.
B. Procedural History
On August 3 , 2005 , the Commission issued an emergency Order directing Eagle Water
to "use all deliberate speed" to increase the deficient water pressure in the Eagle Springs
subdivision. Order No. 29840 observed that the Company s monitoring reports showed that water
pressure at times was below DEQ standards. This Order also directed Eagle Water to file a
surcharge application to recover the costs of: (1) the immediate system improvements to correct the
low-pressure condition; (2) preparing a comprehensive engineering report analyzing the Company
existing system and future demand; and (3) the legal, accounting and engineering expenses incurred
in the preparation of the surcharge application. Order No. 29840 at 3.
On August 24, 2005 , Eagle Water filed its Surcharge Application. In its Application
the Company maintained that it had alleviated the low-pressure problems by replacing the 8-inch
line serving the booster with a 12-inch mainline across the gravel pit. The Company sought to
recover $125 422 broken down into the following areas.
Cost Item
Install 12-inch line to replace 8-inch line
Prepare engineering report
Legal , accounting and engineering expenses
TOT AL
Amount
02i
$ 79 895
5.500
$125,422
Order No. 29903 at 2.
I The $40 027 includes: $4 334 for labor; $7 324 in equipment; $18 388 for materials; $2 511 in legal expenses; and
470 for engineering. Exh.
ORDER NO. 29969
Although the Commission allowed Eagle Water to recover the costs for the engineering
report, legal and accounting expenses, the Commission was not persuaded that recovery of the
$40 027 for replacing the 8-inch mainline was reasonable. Order No. 29903 at 7. The Order
questioned the placement of utility infrastructure in temporary easements "and whether other
entities might be liable for undermining the 12-inch line" that serves the booster pump. Id. The
Order stated that
Eagle Water shall file a report addressing at a minimum: (1) the reasonableness
of using a temporary easement for a 12-inch mainline; (2) whether the easement
agreement provided for adequate notification regarding gravel operations which
might affect the mainline; (3) what is the basis for the $2 511 in legal costs; and
(4) whether (Eagle Water) has adequately explored seeking recovery of damages
to the mainline from other parties.
Id. (emphasis added).
EAGLE WATER'S RESPONSE
AND COMMISSION FINDINGS
On November 28, 2005 , Eagle Water filed its report responding to the Commission
Order. Attached to the two-page response was a copy of the temporary easement executed in
February 2000 when the initial 12-inch line was installed in the gravel pit. The report also
contained an invoice supporting the legal fees and a diagram showing the location of the booster
pump.
1. The Reasonableness of Using a Temporary Easement.Eagle Water asserted that it
was reasonable to use a temporary easement because it was "the most cost-effective route. . .
construct the east-west mainline. . .." Eagle Water Response at 1. The Company acknowledged
that the 2000 easement was only temporary "until the gravel in that portion of (the) gravel pit could
be mined, at which time a permanent easement was to be executed.Id. Because the easement
contained a 60-day notice provision, Eagle Water claimed that this would be plenty of time "
relocate its 12-inch mainline in the event the gravel in that portion of the gravel pit needed to be
mined.Id.
Commission Findings: Based upon our review of the Company s response, we are not
persuaded that placing a major water line in a temporary easement2 is reasonable in this instance for
2 An "easement" is the right to use land of another for a specific purpose and passes with the title to the property. A
license" is a permissive use of land by the owner that is revocable or expires upon the death of either party. Rowan
Riley, 139 Idaho 49, 72 P.3d 889 (2003).
ORDER NO. 29969
three reasons. First, the Company claims that the temporary easement was "the most cost-effective
route" but did not provide any supporting detail why this was the most cost-effective route. The
response offers no explanation beyond the conclusory statement. The Company s response does not
indicate what other routes were explored and why this particular route was chosen. Moreover, the
Company did not disclose and the easement document does not reveal the "consideration" that
Eagle Water gave to obtain the easement. Consequently, there is no analysis of the costs of
obtaining a permanent easement versus the use of this temporary easement.
Second, Eagle Water s response fails to address the underlying issue: i., is it
reasonable and prudent to put a major water line in a temporary easement? Eagle Water apparently
relies upon the 60-day notice provision that would "allow Eagle Water plenty of time to relocate its
12-inch mainline in the event that the gravel in that portion of the gravel pit needed to be mined.
Apparently, Eagle Water anticipated that the line in the gravel pit might have to be relocated. As
demonstrated by the facts in this case, it is unreasonable to use a temporary easement where there is
a real possibility that the mainline would have to be moved.
Finally, there is the potential cost to ratepayers. As indicated here, relocating a major
water line is an expensive undertaking. There is the initial cost of installing the 12-inch line in the
gravel pit in 2000, then the cost of installing a new 8-inch line in an entirely different location, and
finally the replacement cost of installing a 12-inch line back in the gravel pit in 2005. We find it is
unreasonable for ratepayers to potentially be responsible for three installations. We remain
unconvinced by Eagle Water s response that using a temporary easement in this case was
reasonable.
2. Adequate Notification. Eagle Water states that the 60-day notice provision provides
plenty of time to relocate" the line if gravel operations adversely affected the mainline.
Commission Findings: The 60-day notice provision is contained in Section 5 of the
easement document. This section entitled "Termination" provides that the temporary easement
may be terminated by (the gravel pit) upon sixty (60) days written notice to (Eagle Water). In such
an event, (Eagle Water) shall within a reasonable time after such termination, remove all water line
and installed artifacts from the easement area and shall restore the easement area to its original
condition.Exh. A, Page 2 , ~ 5 (emphasis added). The 60-day notice allows the gravel pit to
terminate the temporary easement and then Eagle Water must remove its water line. Receiving 60
days notice might have avoided the 2005 low-pressure problems. Instead, Eagle Water received
ORDER NO. 29969
four days notice (Response at ~ 2). A 60-day notice does not support the use of the temporary
easement.
3. Legal Costs. To support recovery of the $2 511 in legal fees, Eagle Water submitted
the billing statements from its attorney. The Company explained that these costs addressed the
2005 low-pressure problems.
Commission Findings: These billing statements and the Company s response
adequately demonstrate that these fees were incurred in the present and preceding cases (EAG-
05-1 and 05-2). Consequently, we find it is reasonable to allow the Company to recover these costs.
4. Recovery of Relocation Costs from Other Parties. The Commission also required
Eagle Water to indicate whether any of the $40 027 in replacement costs might be offset by
recovering damages from other persons. In its response, Eagle Water noted that it was in the
process of completing negotiations for a permanent easement from the gravel pit operator.
Consequently, Eagle Water stated that it is not prudent to consider legal action against (the
operator) for not providing the 60-day notice or undermining the mainline until such negotiations
are completed. Eagle Water Response at 2.
Commission Findings:The Commission appreciates Eagle Water s dilemma
especially when it is trying to negotiate for a permanent easement with the very party that
undermined the mainline. This is the same party that Eagle Water relied upon to provide adequate
notice. The result is that the Company has little hope for recovering the replacement costs from
others.
In summary, we find that Eagle Water s response fails to adequately support the
reasonableness of using the temporary easement. We further find that ratepayers should not be
exposed to paying the cost of installing mainlines more than once without an adequate and
reasonable cause. Accordingly, we find that the surcharge should recover $87 906 ($85 395 +
511). Using the gross-up factor for taxes of 1.2788, we find that the Company s surcharge
should recover $112 414.
In Order No. 29903, we approved a surcharge of approximately 43% for water usage
over 600 cubic feet. This surcharge was designed to recover $160 389 over a 12-month period.
Rather than reducing the surcharge percentage, we find it reasonable to leave the surcharge at its
present level but shorten the surcharge period. Consequently, once the Company has recovered
$112 414 in surcharge revenue, then it will cease to collect the surcharge. We again direct the Staff
ORDER NO. 29969
to audit the surcharge account to ensure that the Company does not misuse or over-collect the
authorized surcharge amount.
ORDER
IT IS HEREBY ORDERED that Eagle Water Company s request to recover $40 027 is
denied in part and approved in part.
IT IS FURTHER ORDERED that Eagle Water is authorized to recover:' an additional
511 in expenses. With this addition, Eagle Water is authorized to recover a total gross-up
amount of $112,414. Once this amount is recovered, the Company shall cease collecting the
surcharge.
THIS IS A FINAL ORDER FOR THE RESERVED ISSUE. Any person interested in
this Order (or the reserved issue) may petition for reconsideration within twenty-one (21) days of
the service date of this Order with regard to any final 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 (p+A.
day of February 2006.
PAUL KJELLAN R, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
ENNIS S. HANSEN, 0 MISSIONER
ATTEST:
~xilJe D. Jewell
Commission Secretary
bls/O:EAG-05-dh3
ORDER NO. 29969