20090206Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSIONER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF

FROM: DON HOWELL
DEPUTY ATTORNEY GENERAL

DATE: FEBRUARY 5, 2009

SUBJECT: EAGLE WATER COMPANY’S APPLICATION FOR A SURCHARGE,
CASE NO. EAG-W-09-01

On January 22, 2009, Eagle Water Company filed an Application to implement an
immediate surcharge on customers’ water usage in excess of 600 cubic feet per month. The
Company also requests permission to access existing funds in its surcharge account. The new
surcharge and the existing balance in the surcharge account would be used by Eagle Water to
defray the costs of several large capital improvement projects and to pay for outstanding legal
and accounting fees. Application at 3-5. The Company states in its Application that the
surcharge will be subject to refund if the requested expenses are “not ultimately approved by the
Commission for Surcharge recovery.” Id. at 7. Eagle Water requests that its Application be
processed via Modified Procedure.
BACKGROUND
In the Company’s last case, the Commission allowed the Company to recover
$146,635 from the existing surcharge account to defray the costs of preparing its Engineering
Report. Order No. 30654 at 12. After allowing Eagle Water to recover its prudent professional
fees and expenses, the Commission ordered the Company’s rate surcharge to be terminated.
Order No. 30667 at 5-6. The Commission calculated that after subtracting the allowed
engineering costs, the surcharge account would have a balance (as of October 30, 2008) of
approximately $120,000. Id. at 6. On reconsideration, Eagle Water requested that the surcharge
be continued so it could recover the costs of new capital improvements and its monthly
interconnection fee with the City of Eagle to serve the Floating Feather Mobile Home Park (Case
No. EAG-W-08-01).
DECISION MEMORANDUM 2
In denying the Company’s Petition for Reconsideration, the Commission found that
the Company’s request to recover the costs of its capital projects was “a new matter and outside
the scope of reconsideration in [the Engineering fees] case.” Order No. 30667 at 5. The
Commission stated that the appropriate course of action was for Eagle Water “to file an
application seeking recovery of its capital projects.” Id. at 7. The Company’s present
Application is its request to recover the costs of its capital projects and other expenses.
THE APPLICATION
In its Application, Eagle Water seeks to recover the costs of constructing several
capital projects that are either completed or in the process of construction. In addition, the
Company also seeks to recover its $10,000 per month “tie-in” expense with the City of Eagle,
$600 in accounting fees and approximately $37,500 in legal fees. The capital improvements and
other expenses are outlined below.
Capital Improvements Completed Cost

Capital Improvements in Progress Cost

Expenses Cost

The combined total for the capital improvement projects is $1,533,923 and the total for expenses
is $98,108. Application at 2-5.
DECISION MEMORANDUM 3
To recover the costs set out above, the Company proposes to borrow $995,500 from
the Idaho Banking Company. According to the proposed terms of the bank loan, Eagle Water
will borrow $995,500 at 6.75% over a term of seven years. Application, Exh. E. To repay the
loan, the Company proposes to implement an immediate surcharge of 48.075% for usage above
600 cubic feet per month. In addition to the surcharge, the Company also seeks permission to
access the remaining balance in the surcharge account. The Company reports the current balance
in the surcharge account is approximately $218,000. Application at n.3. The Company proposes
to use these surcharge funds to complete work on the main booster pump and Well No. 8. Id. at
6. Completion of Well No. 8 would allow the Company to discontinue its tie-in agreement with
the City of Eagle, thereby saving $10,000 per month.
Even if the surcharge is approved, Eagle Water states that its overall rates “would
remain well below those of the City of Eagle and United Water of Idaho.” Application, Exh. H.
Eagle Water maintains that an immediate surcharge (subject to refund) is necessary to ease its
cash flow restrictions “brought about by the need to complete Well No. 7 and the City of Eagle
tie-in in order to satisfy DEQ regulatory requirements and lift the sanitary restrictions
moratorium.” Application at 7. The current constriction of the Company’s cash flow severely
limits Eagle Water’s “ability to meet current demands for payment of other capital improvements
that are underway.” Id. The Company requests that the surcharge take immediate effect. Id.
STAFF RECOMMENDATION
After reviewing the Company’s Application, the completed capital projects and the
capital projects currently underway, the Staff does not oppose the Company’s request to
implement the requested surcharge (subject to refund) effective February 23, 2009. Although the
Staff has not completed a detailed audit of the Company’s capital projects, Eagle Water has
provided sufficient evidence that it has completed several costly capital projects. Staff believes
that ratepayers are sufficiently protected by making the surcharge subject to refund. As indicated
in the Company’s Application, “Eagle Water recognizes that it will be required to repay any . . .
surcharge [collected] if the expense[s are] not ultimately approved by the Commission for
surcharge recovery.” Application at 7. Staff further asserts that the impact of the surcharge
should be mitigated because the irrigation season has not started.
Based upon Staff’s initial review, it appears that the Company is completing its
capital improvements in compliance with its Engineering Report approved by DEQ. Staff also
DECISION MEMORANDUM 4
agrees with the Company’s plans to use the available funds in the existing surcharge account to
complete work on the main booster pump and Well No. 8. Completing Well No. 8 would allow
the Company to terminate its tie-in agreement with the City of Eagle for a savings of $10,000 per
month.
Staff also recommends Eagle Water be required to provide the final draft loan
documents with the bank for Staff’s review. Copies of all executed agreements for the loan
should be filed with the Commission.
The Staff believes that this case is appropriate for processing under the Commission’s
rules of Modified Procedure. Staff recommends that the Commission issue a Notice of
Application and set a deadline for intervention. The parties could then meet informally to
establish a schedule to process this case via Modified Procedure.
COMMISSION DECISION
1. Does the Commission find that there is sufficient cause to allow Eagle Water to
implement its proposed 48.075% surcharge (subject to refund) for customers who consume more
than 600 cubic feet of water per month? If not, then does the Commission wish to suspend the
proposed surcharge?
2. If the Company’s surcharge request is approved, does the Commission approve the
loan request for $995,000 and allow Eagle Water to use the surcharge revenue (and its revenue
stream) as collateral for the loan?
3. Does the Commission wish to expressly reserve its right to review the capital
expenditures and other expenses for reasonableness and prudency? Should Eagle Water be
required to reconcile the surcharge and authorized improvements/expenses, and if necessary,
repay any costs disallowed by the Commission?
4. Does the Commission adopt Staff’s recommendation regarding the review and
reporting requirements for the loan?

bls/M:EAG-W-09-01_dh