20090807Decision 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: AUGUST 1, 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 a
48.075% surcharge on customers that use more than 600 cubic feet of water per month. The
Company also requested permission to access existing funds in its surcharge account. The new
surcharge and the balance remaining in the previous surcharge account would be used by Eagle
Water to defray the costs of several capital improvement projects and expenses totaling more
than $1.6 million. Application at 3-5. The Company stated 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 (emphasis added). Eagle Water requested that its
Application be processed via Modified Procedure.
On February 23, 2009, the Commission issued Order No. 30734 granting the
Company’s request for surcharge, subject to refund. The Commission also set a deadline for
interested persons to intervene in this case. No Petitions to Intervene were filed. Staff has
completed its review of the Company’s Application and has discussed with the Company how
this case should be processed. The Company and the Staff recommend that the case be
processed under Modified Procedure.
BACKGROUND
A. The Application
In its Application, Eagle Water sought to recover the costs of constructing several
capital projects that are either complete or under construction. In addition, the Company
DECISION MEMORANDUM 2
requested recovery of its $10,000 per month “tie-in” expense with the City of Eagle1, $600 in
accounting fees, and approximately $37,500 in legal fees. As set out in the Application, the
projected costs of 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; Order No. 30734 at 2.
To defray the costs set out above, the Company proposed 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 proposed to implement an immediate surcharge of 48.075% for usage above
600 cubic feet per month. In addition to the surcharge, the Company also requested permission
to access the remaining balance in the surcharge account. At the time of the Application, the
Company reported the current balance in the surcharge account was approximately $218,000.
Application at n.3. The Company proposed to use these surcharge account funds to complete
1 In Case No. EAG-W-08-01, the Company agreed to interconnect its system with the City of Eagle’s water system
so that the utility could serve the Floating Feather Mobile Home Park.
DECISION MEMORANDUM 3
work on the main booster pump and Well No. 8. Id. at 6. Completion of Well No. 8 would
allow the Company to terminate its tie-in agreement with the City of Eagle, thereby saving
$10,000 per month. Order No. 30734 at 3.
Even with the surcharge, Eagle Water asserted that its overall rates “would remain
well below those of the City of Eagle and United Water of Idaho.” Application, Exh. H. Eagle
Water maintained 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 requested that the surcharge take immediate effect. Id.
B. The Commission’s Prior Order
In Order No. 30734 issued February 23, 2009, the Commission allowed Eagle Water
to implement its surcharge subject to refund. The Commission observed that because the
surcharge is subject to refund, “ratepayers are protected until the Commission has completed its
review of the reasonableness and prudency of the Company’s capital costs and expenses set out
in its Application.” Order No. 30734 at 4.
The Commission also found it was reasonable to allow the Company to execute the
bank loan and access the remaining balance in the surcharge account to pay for the capital costs
and expenses set out in the Application. The Commission observed that completing Well No. 8
would allow Eagle Water to save $10,000 per month by eliminating the monthly tie-in expense.
The surcharge would provide the revenue to pay back the loan. Id. The Commission expressly
reserved the right to subsequently determine the reasonableness and prudency of the capital costs
and expenses. Id. at 6.
THE PROPOSED SCHEDULE
The Staff and Company have devised a recommended schedule to process this case.
The parties recommend that this case be processed under Modified Procedure with initial
comments due August 27, 2009. The parties also agree that Eagle Water be allowed to file reply
comments no later than September 18, 2009. The parties also recommend that the Commission
direct Staff to hold a public workshop to provide information and answer any customer questions
regarding the Company’s Application.
DECISION MEMORANDUM 4
COMMISSION DECISION
1. Given the agreement of the parties, does the Commission wish to process this
Application via Modified Procedure with the schedule proposed by the parties?
2. Does the Commission want the Commission Staff to hold a public workshop
regarding the Company’s Application?

bls/M:EAG-W-09-01_dh3