20080725Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSIONER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
FROM:DON HOWELL
DATE:JULY 24, 2008
SUBJECT:APPLICATION OF EAGLE WATER TO RECOVER ITS COSTS IN
PREPARING THE COMMISSION ORDERED ENGINEERING REPORT
CASE NO. EAG-07-
In August 2005, the Commission directed Eagle Water Company to prepare a
system-wide Engineering Report for the purpose of identifying infrastructure improvements
necessary to serve Eagle Water and its customers now and in the future. On August 6, 2007
Eagle Water filed its Engineering Report and an Application to recover the professional fees
(engineering, legal, accounting) for preparation of the Report and the Application. In its
Application, the Company requests authority to recover $201,434 in professional fees.
On September 18, 2007, the Commission issued a Notice of Application and set a
deadline for intervention. The Commission s Notice also observed that the Eagle City Council
had approved an "Asset Purchase Agreement" that would allow the City to purchase the utility.
Order No. 30430 at 1. The transaction was initially suppose to close in November 2007. The
parties were not able to complete the Asset Purchase Agreement and the Agreement expired on
March 31 2008. Given this turn of events, the Commission Staffhas completed its review ofthe
reasonableness and prudency of the requested engineering, legal and accounting fees. The Staff
and Eagle Water recommend that this case be processed under Modified Procedure.
BACKGROUND
A. The Commission s Initial Order
The history behind this case is contained in Order No. 30266 but the pertinent events
are briefly outlined here. In August 2005 , the Commission issued an emergency Order directing
Eagle Water to "use all deliberate speed" to increase water pressure in a portion of its service
DECISION MEMORANDUM
territory. In addition to taking immediate actions, the Company was directed to prepare an
engineering report to address the chronic low-pressure problems in its system and to project its
water supply needs for the future. The engineering report was to "serve as a 'road map' for
determining exactly what infrastructure improvements are necessary to serve present and future
needs of Eagle Water and its customers." Order No. 29903 at
To recover the costs of preparing the engineering study, the Commission authorized
Eagle Water to implement a rate surcharge. Order No. 29969. The surcharge was based upon
the legal and engineering fees necessary to prepare the engineering report and to file the
accompanying application. The authorized surcharge was designed to recover $112 414.
After the Commission issued its surcharge Order, Eagle Water and the Department of
Environmental Quality (DEQ) signed a "Consent Order " which among other issues, required
Eagle Water to submit the engineering report to DEQ for approval. DEQ directed that Eagle
Water submit a preliminary engineering report for review and comment, followed by the
preparation of the final report.
Although the Commission directed that the engineering report should be completed
as soon as possible, its submission to the Commission was significantly delayed. Eagle Water
attributed the delay to various issues including: The health of its primary engineer; the need to
engage another engineering firm; changing DEQ system requirements; and the lengthy DEQ
review process. Order Nos. 30213 , 30266, 30331. The Company also reported that the cost of
preparing the engineering report greatly exceeded the amount authorized by the Commission.
Order Nos. 30266 at 2 , 30331 at 2.
B. The Cash Flow Order
As part of its August 2007 Application, Eagle Water requested authority to borrow
$110 000 for cash flow purposes. In Order No. 30440 issued September 21 , 2007, the
Commission granted Eagle Water authority to borrow up to $110 000. The Company was also
granted authority to access the existing surcharge account conditioned upon the Commission
subsequent review to determine the reasonableness and prudency of the professional fees for
preparation of the Engineering Report and the accompanying Application. The Commission
found that "Eagle Water may be required to reimburse the surcharge account for any disallowed
amounts paid from that account. If the outstanding loan covers disallowed costs, Eagle Water
will be required to pay these amounts directly to the bank." Order No. 30440 at
DECISION MEMORANDUM
THE CURRENT STATUS
In Order No. 30430, the Commission set a deadline for intervention. No person
petitioned for intervention. The Order also directed that once the deadline for intervention
passed, the parties should informally convene to devise a recommended schedule to process the
remaining phase of this case. The Staff and the Company met on July 24, 2008. The parties
recommend that the remaining phase of this case be processed under Modified Procedure.
Shortly after the Commission issues its Notice of Modified Procedure , the Staff is prepared to
file its comments. Consequently, the Company would have approximately three weeks to file its
comments in support of its Application and in response to the Staff s comments.
Through June 30 , 2008, the surcharge has collected approximately $304 000. The
Company was authorized to recover $112 414 and has an outstanding request for $201 434.
After completion of this proceeding, the parties anticipate that Eagle Water will file a new
application seeking to recover new expenses for the cost of two new wells, a new booster pump,
and the costs of interconnecting with the City of Eagle.
COMMISSION DECISION
1. Given the lack of any intervenors and the parties' agreement, does the
Commission wish to process the Company s request for additional professional fees via
Modified Procedure?
2. Does the Commission adopt the parties' proposal that the Commission Staff file
its comments shortly after the issuance of the Commission s Notice?
3. Anything else?
1) ffn/
Don Howell
Deputy Attorney General
blsfM:EAG-O7-01 dh2
DECISION MEMORANDUM