20081105reconsideration_order_no_30667.pdf

Office of the Secretary
Service Date
November 5, 2008
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF EAGLE WATER
COMPANY'S ENGINEERING REPORT AND
APPLICATION TO CONTINUE THE
EXISTING SURCHARGE ORDER NO. 30667
CASE NO. EAG-07-
On October 7, 2008 , the Commission issued final Order No. 30654 partially granting
Eagle Water Company s request to recover professional fees (engineering, legal and accounting)
for the preparation of its final Engineering Report and supporting Application. In its final Order
the Commission authorized the Company to recover an additional $146 635 in professional fees
from the surcharge account. Order No. 30654 at 13. After allowing the Company to recover its
professional fees, the Order also directed Eagle Water to discontinue its monthly surcharge. Id.
On October 16, 2008, Eagle Water filed a timely Petition for Reconsideration. In its
Petition, Eagle Water requested the Commission reconsider three issues: (1) allow the Company
to take out a new bank loan for well #8 and utilize the existing balance in the surcharge account
as collateral for the loan; (2) continue the surcharge so the Company will have a dedicated source
of revenue to pay the costs of new capital improvements; and (3) allow the Company to bill and
collect the monthly surcharge for usage during the month of October.
After reviewing the Company s Petition and the record in this proceeding, the
Commission denies reconsideration as set forth in greater detail below.
BACKGROUND
The history of this case is contained in Order Nos. 30266 and 30654. Briefly, in
August 2005 the Commission ordered Eagle Water to immediately correct low-pressure issues
and prepare an Engineering Report to address present and future water needs in its system. To
recover the costs of correcting the low-pressure problems and of preparing the engineering study,
the Commission authorized the Company to implement "a temporary rate surcharge" in October
2005. Order No. 29903. Among other things, the temporary surcharge was to recover the legal
accounting and engineering expenses incurred in the preparation of the Engineering Report and
the accompanying surcharge application. "The surcharge funds shall be booked in a separate
account and Eagle Water s use of the surcharge funds is restricted to (recovering the) costs of
ORDER NO. 30667
system improvements for water pressure, 1 the engmeenng report " and preparation of the
supporting Applications. Order No. 29840 at 3 (Aug. 3, 2005) (footnote added).
While Eagle Water was preparing the Engineering Report, the Company entered into
an "Asset Purchase Agreement" with the City of Eagle on July 10, 2007.The Purchase
Agreement would allow the City to purchase the utility. Under the Agreement
, "
any system
improvements accomplished by Eagle Water will be recouped by Eagle Water as part of the
Purchase Price." Application at ~ 22. Although the parties anticipated that the transaction would
close by the end of 2007 , the parties were unable to complete the transaction and the Agreement
expired on March 31 , 2008.
On August 6, 2007, the Company filed its final Engineering Report and an
Application to recover the professional fees (engineering, legal and accounting) for preparation
of the Report and the Application. The Company attributed the two-year delay in preparing the
Report primarily to the lengthy Department of Environmental Quality (DEQ) review process and
the Company s need to engage another engineering firm in the preparation of the Report. Order
No. 30654 at 3. Although the Company initially estimated that the Engineering Report would
cost approximately $80 000, Eagle Water ultimately requested authority to recover more than
$200 000 in professional fees. Order No. 30654 at 2-
FINAL ORDER NO. 30654
In Order No. 30654, the Commission observed that its task was to determine whether
the professional fees for the Engineering Report and supporting Application were reasonable and
prudent. Order No. 30654 at 8. Based upon the comments of the parties, the Commission
allowed Eagle Water to recover $27 440 in legal and accounting fees from the surcharge account.
Id. at 9. The Commission also authorized the Company to recover $87 226 in engineering fees.
Taken together and grossed-up for taxes, the Commission allowed Eagle Water to recover an
additional $146 635 from the surcharge account? Id. at 12. After Eagle Water recovered its
professional fees and expenses, the Commission noted that the surcharge account had a balance
of approximately $120 000. Id. at 13.
1 The emergency system improvements to increase water pressure consisted primarily of replacing an 8-inch water
line with a 12-inch water line. Order No. 29969 at 2.
2 In Order Nos. 29903 and 29969, the Commission initially authorized Eagle Water to recover $112,414 from the
surcharge account to pay for the system improvements and preparation of the Engineering Report.
ORDER NO. 30667
Having finished its review of the engineering issues, the Commission found that
there was no further need for the surcharge at this time.Id. The Commission observed that
(a)s evident in our prior Orders, the Commission intended that the surcharge remain in place
only long enough to collect the revenue necessary to defray the Company s reasonable expenses
in correcting the low-pressure problems and in preparing the Engineering Report.Id. at 12-13.
The Commission did not order the surcharge balance be returned to customers because "Eagle
Water has indicated that it intends to file a new application seeking recovery of capital expenses
for system improvements identified in the Engineering Report. The balance in the surcharge
account will be available to defray Commission-approved costs in the Company s next case.Id.
at 3. Consequently, the Company was directed to discontinue collecting its monthly surcharge.
PETITION FOR RECONSIDERATION
In its Petition, Eagle Water generally requests the Commission reconsider three
points. First, the Company requests that the. Commission approve a new bank loan from the
Idaho Banking Company. Id. at 4-5. The Company reports that it has had preliminary
discussions with the bank to borrow $500 000 which is to be secured by surcharge account
funds
, "
assuming the continued collection of the current surcharge fee at historic levels.Id.
4; Petition Exh. No.2. The Company would use the loan to defray the costs of developing well
#8.Id. at 4. Although Eagle Water concedes that the Commission has not previously reviewed
the merits and reasonableness of well #8, the Company proposes that any funds withdrawn from
the surcharge account would be subject to refund in the event that the Commission subsequently
denies recovery of expenditures from the surcharge account. Id. at 4-
The Company maintains that the current economic state of affairs regarding the
national credit markets "makes it impossible for the Company to secure additional financing to
pay for well #8 improvements as they become due.Id. at 3. As soon as well #8 is connected to
the system, then the Company can discontinue its intertie arrangement with the City of Eagle.
Id.
3 The Company notes that well #8 has been approved by DEQ as well as the Idaho Department of Water Resources
and "has been drilled. It is expected that the well and related infrastructure will be completed by mid-November
2008." Petition at 4, n.
4 The Company asserts that it is contractually bound to pay the City of Eagle $10 000 per month for the intertie
between "Eagle Water s system and the City's new reservoir to provide an interim solution to any system pressure
deficiency in the event ofthe failure of one of the Company s wells." Petition at 3.
ORDER NO. 30667
Second, the Company requests that the monthly surcharge be continued. Continuing
the surcharge will provide an eventual source of funds from which the Company can recover the
costs of its recent capital improvements including: Constructing well #7 ($600 000); rebuilding
well #4 ($33 500); installing a pressure relief valve ($42 000); purchasing a backup generator
($93 500); constructing well #8 ($720 000); and the intertie with the City ($15 235). The
Company states that several of these capital improvements were required by DEQ as "action
items" in its July 6, 2007 letter, which approved the final Engineering Report. Eagle Water
Reconsideration Exh. No.1. The Company also asserts that continuing the surcharge is "critical
to securing the proposed (bank) financing." The Company insists that a new application seeking
authority to recover the costs of the listed capital expenditures (as well as legal, engineering and
accounting fees) "will be submitted to the Commission upon the conclusion of the current case.
Id. at 4.
Third, the Company requests permission to collect its surcharge from customers for
usage which has occurred during the month of October. The Company customarily bills its
customers between the end of the month and the 15th of the following month. Given the press of
time, the Company requests that the Commission issue an interim Order authorizing it to collect
the October surcharge, subject to refund.
DISCUSSION AND FINDINGS
Reconsideration provides an opportunity for a party to bring to the Commission
attention any issue previously determined and provides the Commission with an opportunity to
rectify any mistake or omission. Washington Water Power Co. v. Kootenai Environmental
Alliance 99 Idaho 875 , 591 P.2d 122 (1979); see also Eagle Water Co. v. Idaho PUC 130 Idaho
314 490 P.2d 1133 (1997). Eagle Water s Petition did not seek reconsideration by evidentiary
hearing but it contained one new exhibit: The October 16, 2008 letter from the Idaho Banking
Company. Thus, our review shall be based upon the existing record and prior Orders in this
matter. IDAP A 31.01.01.331.03. The Commission first addresses the bank loan for well #8.
1. Bank Loan. Eagle Water first requests authorization from the Commission to
borrow funds for well #8 and the loan to be "secured by the surcharge account, subject to
refund.Petition at 4-5. After reviewing the Petition and the record in this case, we find the
Company s request for a bank loan is first raised on reconsideration and is beyond the scope of
this case. Idaho Code ~ 61-626 provides that parties may seek reconsideration "in respect to any
ORDER NO. 30667
matter determined" in the Commission s final Order. A review of our final Order demonstrates
that the Commission did not make any determination regarding the merits of a loan for well #8.
We further find the Company s August 2007 Application does not mention a bank loan for well
#8. Simply put, the bank loan is a new issue and was not part of this proceeding. In fact, the
letter from the Idaho Banking Company identified as Exhibit No.2 is dated October 16 2008 -
the same date as the Petition for Reconsideration.
Although Eagle Water listed its "necessary" capital improvements (including well
#8) in its Application, it did not seek to recover these costs in this case. The Company stated that
it would recover these costs from the City of Eagle as part of the Asset Purchase Agreement. See
Application ~ 22. We fmd the primary focus of the Company s Application and of our prior
Order No. 30654 was an examination of the Company s professional fees for the Engineering
Report, not recovery of its capital improvements. Indeed, the Company s Application notes that
Eagle Water "is reserving its rights to request recovery of (capital) improvements pending the
outcome of its transaction with the City of Eagle.Id. at ~ 22. After the Purchase Agreement
with the City expired, Eagle Water neither filed an amended application seeking recovery of well
#8 costs nor mentioned this issue in its reply comments. We further observe that the Company
itself is "cognizant of the fact that the Commission is not prepared at this time to render a
decision regarding the propriety of the afore-mentioned expenditures. . .." Petition at 4. Based
upon the foregoing, we conclude that the Company s request to borrow funds for well #8 is a
new matter and outside the scope of reconsideration in this case.
2. Continuing the Surcharge. The Company next asks us to reconsider our decision
to terminate the monthly surcharge. The Company "requests that the surcharge be continued
pending further application from the Company for recovery" of its capital improvements.
Petition at 4 (emphasis added). We find discontinuance of the surcharge is a proper issue for
reconsideration. However, based upon our review, there are several reasons why we deny the
Company s Petition to continue the surcharge.
First, the surcharge was intended to be a temporary and short-term measure. Once
the Commission completed its examination of the Company s request for professional fees, there
was no need to continue the surcharge. The Commission s final Order states:
as evident in our prior Orders, the Commission intended that the surcharge
remain in place only long enough to collect the revenue necessary to defray
the Company s reasonable expenses in correcting the low-pressure problems
ORDER NO. 30667
and in preparing the Engineering Report Having finally decided the
engineering issues above, there is no further need for the surcharge at this
time.
Order No. 30654 at 12-13 (emphasis added); see also Order Nos. 29903 ("we authorize a one-
year surcharge ); 29969 ("implement a temporary rate surcharge ). In addition, the surcharge
was intended to recover only the costs of three items: (1) the immediate improvements; (2) the
Engineering Report; and (3) the professional fees. Order No. 30160 at 3; Order No. 30266 at 1
3; 30331 at 1.
Second, the Company s request to recover the costs of its capital projects from the
surcharge account (subject to refund) was not decided in Order No. 30654. This final Order
focused upon the prudency and reasonableness of the Company s claimed engineering fees.
Moreover, Eagle Water s Petition states that there will be a "further application" to recover the
capital improvements. Thus, the Company recognizes that the Commission has not made any
determination regarding the merits of the capital improvement projects.Petition at 4.
essence, Eagle Water wants the Commission to allow the Company to recover its project costs
before the Company files an application and before the Commission reviews the costs.
We find that the Company s request to recover these costs in its Petition for
Reconsideration is not well-founded. Idaho Code ~ 61-626 provides that parties may seek
reconsideration "in respect to any matter determined" in the Commission s final Order. The
Commission has yet to review the merits of the capital improvements because Eagle Water has
not filed its "further application.
Although the surcharge was ordered discontinued, the Commission noted the
surcharge account had a balance of approximately $120 000. We did not direct the surcharge
balance be refunded to customers. We stated the surcharge balance will be available to defray
Commission-approved costs in the Company s next case.Order No. 30654 at 13.The
Commission ordered that the remaining "balance in the surcharge account will remain
sequestered until the Commission expressly authorizes the Company to withdraw funds from this
account." Id. We look forward to the Company s application to recover its costs of the capital
improvements.
3. The October Surcharge. We next address Eagle Water s request to collect
surcharge revenue for usage during the month of October 2008. Based on the reasons set forth
ORDER NO. 30667
above, the Commission declines to grant reconsideration on this issue. Even if the surcharge
were continued, it applies only to water usage in excess of 600 cubic feet. Order No. 29969 at 5.
With the end of the 2008 irrigation season, the actual revenues from the surcharge will decline
significantly. Consequently, the balance of the surcharge account will not significantly increase
during the winter months. Taken together, we are not persuaded that it is reasonable for the
surcharge to continue, or that the Company should collect the surcharge for the month of
October.
While we are sympathetic to the Company s needs for capital and its difficulty in
obtaining capital in this market, the appropriate course of action is for the Company to file an
application seeking recovery of its capital projects. The Company lost valuable time waiting for
the outcome of the Purchase Agreement. Without addressing the merits of the next application
the Commission will expeditiously process the case.
ORDER
IT IS THEREFORE ORDERED that Eagle Water Company Petition for
Reconsideration is denied.
THIS IS A FINAL ORDER DENYING RECONSIDERATION.Any party
aggrieved by this Order or other final or interlocutory Orders previously issued in this Case No.
EAG-07-01 may appeal to the Supreme Court of Idaho pursuant to the Public Utilities Law
and the Idaho Appellate Rules. See Idaho Code ~ 61-627.
ORDER NO. 30667
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of November 2008.
~~~L ~
' ." '---
MACK A. REDFORD
, /
RESIDENT
~- lJ~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
te:0\ D. Jewell
ission Secretary
bls/O:EAG-07-01 dh5
ORDER NO. 30667