20090827Comments.pdf

DONALD L. HOWELL, II
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3366
RECE D
Z009 AUG 21 PM 4= 2 i
Ii
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF EAGLE WATER )
COMPANY'S APPLICATION FOR )
AUTHORITY TO IMPLEMENT A CUSTOMER )SURCHARGE. )
)
)
CASE NO. EAG-W-09-1
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Donald L. Howell, II, Deputy Attorney General, and submits the following
comments in response to Order No. 30878 issued on August 12,2009.
BACKGROUND
On Januar 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 fuds 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 about $1.5
millon. 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 (emphasis added). Eagle Water requests that its Application be
processed via Modified Procedure.
STAFF COMMENTS 1 AUGUST 27, 2009
On Februar 23, 2009, the Commission issued Order No. 30734 granting the Company's
request for surcharge, subject to refud. The Commission also set a deadline for interested persons
to intervene in this case. No Petitions to Intervene were filed. Consequently, the Company and the
Staff recommended that the case be processed under Modified Procedure. The Commission agreed,
and ordered that the case proceed under Modified Procedure. Order No. 30878. In these
comments, Staff is recommending that the Company recover $953,435: $351,297 being added to
rate base and $602,138 from the surcharge.
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 requested
recovery of its $10,000 per month "tie-in" expense with the City of Eagle
i, $600 in accounting fees,
and approximately $37,500 in legal fees. The costs of the capital improvements and other expenses
are outlined below.
Capital Improvements Completed
Well NO.7
Floating Feather Pressure Reducing Valve
Tie- In to City of Eagle
Rebuild Well NO.4
Sub Total
Capital Improvements in Progress
Main Booster Station (Motor & Generator)
Well NO.8
Sub Total
Expenses
Legal & Accounting Fees
Prior Surcharge Application Legal Fees
Engineering Report Legal Fees
Surcharge Extension Applic. Legal Fees
Surcharge Extension Accounting Fees
Legal & Accounting Fees Sub Tota
Eagle City Tie-In Expense ($10,000/month)
Sub Total
Cost
$605,988
$ 43,630
$ 22,347
$ 59,755
$731,720
Cost
$175,100
$636,520
$811,620
Cost
$ 6,048
$16,554
$14,906
$ 600
$38,108
$60,000
$98,108
1 In Case No. EAG-W-08-01, the Company agreed to pay the City of Eagle $10,000 per month so that the utilty could
serve the Floating Feather Mobile Home Park.
STAPF COMMENTS 2 AUGUST 27, 2009
The combined total for the capital improvement projects is $1,543,340 ($731,700 +
$811,620) and the total for expenses is $98,108. See Order No. 30878 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 ban loan, Eagle Water wil
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 curent
balance in the surcharge account is approximately $218,000. Application at n. 3. The Company
proposed to use these surcharge account fuds 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 terminate its tie-in
agreement with the City of Eagle, thereby saving $10,000 per month.
Even with the surcharge, Eagle Water asserted that its overall rates "would remain well
below those of the City of Eagle and United Water ofIdaho." Application, Exh. H. Eagle Water
maintained that an immediate surcharge (subject to refud) 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 sanitar restrictions moratorium." Application
at 7. The curent constriction of the Company's cash flow severely limits Eagle Water's "abilty to
meet curent demands for payment of other capital improvements that are underway." Id The
Company requested that the surcharge take immediate effect. Id
THE COMMISSION'S PRIOR ORDER
In Order No. 30734 issued Februar 23, 2009, the Commission allowed Eagle Water to
implement its surcharge subject to refud. The Commission observed that because the surcharge is
subject to refud, "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 noted that the impact of implementing
the surcharge now would be mitigated because the irrigation season has not stared. Id
The Commission also found it was reasonable to allow the Company to execute the ban
loan and access the remaining balance in the previous surcharge account. The Commission
STAFF COMMENTS 3 AUGUST 27,2009
observed that completing Well NO.8 would allow Eagle Water to terminate its tie-in agreement
with the City of Eagle, thereby terminating a $10,000 per month expense. Id
STAFF COMMENTS AND ANALYSIS
A. Brief System Description and Operational Issues
According to Eagle Water's 2008 Anual Report, the Company currently serves 2,955
residential and 445 commercial accounts for a total of 3,400 customers. Its water supply is
currently provided from six wells (Well Nos. 1,2,3,4,6 and 7). A seventh well (Well No.8) has
been recently drilled but is not yet completed or operationaL. In the past, there have been
operational issues in the water distribution system, such as low operating pressures in some areas
(i.e., Eagle Springs subdivision) and the system's non-compliance with existing Idaho Rules for
Public Drinking Water Systems (IRPDWS) promulgated by the Idaho Deparment of Environmental
Quality (DEQ) (i.e., mechanical redundancy requirements, maintaining minimum water pressure at
peak hour flow, etc.). Consequently, DEQ placed a development moratorium on the Company's
certificated service area until remedial actions were taen to bring the system into compliance with
the rules.
On August 1,2005, DEQ issued a "Notice of Violation" (NOV) to Eagle Water citing the
Company's failure to maintain minimum water pressure in portions of the Company's water
distribution system. On August 3, 2005, the Commission issued an emergency Order directing
Eagle Water to immediately address the deficient water pressure in the affected areas. Order No.
29840, Case No. EAG-W-05-01. The Order also directed the Company to prepare an engineering
report for its entire system to address near- and long-term pressure problems. On Febru 17,
2006, DEQ entered a Consent Order with Eagle Water to perform several actions related the NOV.
B. Engineering Report
As contained in Order No. 29840, page 3, the Commission directed Eagle Water to assemble
an engineering report that:
. . . shall include a comprehensive analysis of the existing system
including projected water needs out to 2010. The analysis will
consider all possible options including additional water supply,
storage, booster pumps and additional mainlines necessar to meet
the existing and projected water requirements. The report shall
include the recommended system improvements, constrction
STAFF COMMENTS 4 AUGUST 27, 2009
schedule and estimated costs of each individual project. Eagle
Water and its engineer shall work closely with the Commission
Staff in preparation of this report.
The engineering study evaluated and modeled different options for improving system
operations, and developed a list of recommendations. The recommendations were divided into
various categories such as "Completed Actions", "Mandatory Actions", "Futue Actions" and
"Suggested Actions". Completed Actions are recent improvements that have enhanced current
water system operations. Mandatory Actions are those immediately required to bring the system
into compliance with DEQ regulations. Future Actions are recommendations required to support
future development. Suggested Actions are items that would optimize the water system but were
not required.
C. Completed Actions
Eagle Water indicated in its Application that several of the system improvements as
recommended by the June 2007 Final Engineering Report have been completed and some are in the
process of being completed. These projects have a total cost of about $1.54 milion. The completed
projects include construction and interconnection of Well NO.7 and repair of Well NO.4. Eagle
Water states that because these capital expenditures are in the public interest, the Company is
requesting an Order from the Commission finding that the investments are prudent and recoverable
from customers through a surcharge.
1. Well NO.7
Eagle Water completed the development of Well NO.7 as an additional water supply to meet
growing summer demand and provide a backup water source in compliance with DEQ Rules for
Public Drinking Water Systems, APA 58.01.08. Transmission piping was also installed to connect
Well NO.7 to the existing Eagle Water distribution system. Because Well NO.7 is a new water
source, the IRPDWS requires that it be provided with a stadby power supply. Therefore, the Well
is equipped with a dedicated, standby 365-kw diesel-powered generation unit to comply with
curent DEQ regulations. Well NO.7 is equipped with a 200-hp vertical tubine pump and a
variable frequency drive (VFD) which can operate from zero flow to a maximum of 1,900 gpm.
STAFF COMMENTS 5 AUGUST 27,2009
The well was completed on March 5, 2006 and DEQ conditionally approved Well NO.7 to serve
Eagle Water customers on August 8, 2006.
Staff inspected this project durng the Eagle Water system inspection on May 22, 2009 and
found it pumping approximately 700 gpm at a discharge pressure of 105 psi. Staff believes it was
appropriate for the Company to undertake the construction of Well NO.7 with the stadby power
unit to provide additional summer peaking capacity and comply with drinking water regulations.
This specific project is considered by Staff to be "used and usefuL."
The Company initially requested in its Application to recover a total cost of $605,988 for the
construction of Well NO.7. In response to Staff Production Request No.1, the Company provided
Staff with the costs broken down into variQus categories. After Staffs review of invoices and
discussions with the Company concerning the costs presented, the Company again revised its
estimates with the following cost breakdown:
Land purchase
Well driling/development
Pump and motor
Electrical controls
Varable frequency drive
Appurenances
Pump facilty building
Back-up generator
Mainline tie-in
Engineering cost
TOTAL
$ 48,782.50
$115,624.00
$ 34,659.00
$ 27,958.96
$ 13,230.00
$ 25,030.00
$ 89,894.24
$ 89,914.60
$114,023.97
$ 17.535.54
$576,952.81
Staff reviewed the cost of various work elements required to construct Well No.7, to
determine if they were reasonable. In Production Requests No.6, 10, 14, 19,28 and 34, Staff asked
the Company to explain cost control efforts applied by the Company in contracting and/or paying
for project work elements. Eagle Water indicated that its 35 years of experience made the Company
more capable of managing and completing constrction of necessar water system infrastructure
more reliably and cost effectively than third-par contractors. The Company explained that instead
of hiring a general contractor to perform the tasks needed to complete all of the projects, including
Well No.7, the Company managed and coordinated the work and used Eagle Water Construction
Company to provide the equipment and labor. Robert DeShazo, President of Eagle Water, is also
the owner of the construction company. The total cost paid by Eagle Water to the Constrction
STAFF COMMENTS 6 AUGUST 27,2009
Company includes the labor, use of the Construction Company's equipment, cost of materials, and
profit and overhead of 15% of the total cost oflabor, equipment and materials. It is not unusual for
owners of small public water systems to use affiliated construction companies to provide labor and
other services to the water companies that they own. Staff believes this is appropriate as long as the
cost is competitive to unaffiiated alternatives. The Commission has allowed this practice in
previous cases.
The Company did hire contractors to perform specialized tasks such as driling and
developing the well, installng the VFD, pump and motor, and other electrical controls. Drillng and
development of Well NO.7 was put out for bids, however only one bid was received due to high
demand for well drllers during the construction boom. Eagle Water Company continued to rely on
vendor(s) that had provided the same products and services to the Company in the past to supply
engineering, pumps, motors, VFD and electrical controls.
Staff believes that the costs incured by the Company to complete most of the project
elements for Well NO.7 were reasonable compared to other jobs of similar size and scope. Staff
also believes that the Company spent considerably less money than it would have spent if it had
hired third-party contractors to complete project construction.
However, Staff believes the 365-kW standby power generation unit is overdesigned to
operate the 200-hp pumping unit for Well No.7. Staff researched industry practices concerning
sizing of a standby power generation unit and obtained recommendations for a 200-hp water
pumping unit equipped with varable speed drive for a public water system. Staff was informed by
industry representatives that several factors are involved in sizing the unit but as a general rule, the
recommended size for backup power supply for this application would range from 180-kW to
230-kW. Using the upper range of the recommended size (230-kW), Staff believes the Company
oversized stad-by power generation (365-kW) by 135-kWs. The Company failed to provide
justification for over-sizing the unit, although Staff was informed that when the Company was
looking for a back-up generator, it coincided with the Huricane Katrina disaster and it was very
diffcult to get generators available in the market. The Company decided to purchase a used
generator. Staff does not disagree with the Company's decision to purchase a used generator but
disagrees with the size of the generator it purchased. Staff does not believe that the Company's
customers should have to pay the extra cost of an oversized generation set. Therefore, Staff
proposes an adjustment of$1O,356 ($28,000/365 kW x 135 kW) to the total cost of Well NO.7.
STAFF COMMENTS 7 AUGUST 27, 2009
Staff proposes an adjusted total cost of $566,297 for this project. The Company's original
cost request as indicated in the Application, the Company's revised project cost, Staffs
recommended cost adjustment and Staffs recommended cost recovery for Well NO.7 is
summarized in Attachment 1. Briefly, Staff recommends that $351,300 be added to rate base and
$2 i 5,000 be recovered by the surcharge. The Attachment also includes proposed cost recovery for
the other projects discussed later in these comments.
2. Rebuilding Well No.4
It is Staffs understanding that during the development of the Final Engineering Report,
Well NO.4 was already being rebuilt. Well NO.4 is curently the largest well in the system with a
designed flow of 3,046 gpm. The Well NO.4 rebuild was completed in the sumer of2008. At the
time Staff inspected Well NO.4 on May 22, 2009, it was operating at a flow rate of approximately
1,500 gpm with a discharge pressure of 120 psi.
The original purose of rebuilding Well No.4 was to improve the capacity of the system
(Final Engineering Report, p.14). DEQ staff concured that increasing the capacity of Well
NO.4 would help solve the summer capacity problems but would not necessarly provide the
backup water supply required for the system. According to DEQ, the Company was initially
advised to dril another well (Well No.8) that would resolve both the capacity problem and the
requirement for backup water supply.
In response to Staff Production Request No. 17, Eagle Water explained that the original
pump capacity of Well NO.4 was 2,800 to 3,000 gpm in 1993. In 2006, the pump capacity dropped
to 1,700 gpm. The well pump and motor were removed and inspected in 2008. It was determined
by the Company's engineer at that time that additional pumping equipment needed to be installed
with a larger 300-hp motor. The Company claims that the rated capacity is now back to 3,000 gpm.
Based on information provided by the Company, pumping unit in Well NO.4 required
rehabiltation because it was operating inefficiently. Staff requested a copy of the engineering
evaluation performed by the consulting engineer hired by the Company but no written evaluation
was available. There was no report indicating that the original pump or motor was operating
improperly. There are several factors that can affect pump performance; one of the most common is
worn impellers. The preferred solution would have been to retain the existing motor and replace the
inefficient pump with a new pump operating at the original pumping characteristics. A simple
STAFF COMMENTS 8 AUGUST 27,2009
pump effciency test would have provided valuable information to confirm the inefficient
performance of the pumping unit. The Company, instead, opted to add an additional bowl and then
replaced the original motor (250 hp) with a motor of higher horsepower (300 hp). Staff believes
that this action made by the Company resulted in a less effcient pumping system with higher
operational costs in the future. It also incured higher incremental capital cost for the oversized
electrc motor. Staff believes that Eagle Water customers should not be required to bear the extra
cost for this action and recommends reducing the cost of motor by $4,078 ($24,470/300 hp x 50
hp).
The cost to rehabiltate the pumping unit at Well NO.4 was $60,738 including engineering
cost. This was the amount originally claimed by the Company in its Application. Subtracting
$4,078 for adjustment as noted above, Staff recommends that the Company be allowed to recover
$56,660 for the rehabiltation of Well NO.4.
D. Mandatory Actions
1. Tie-in to Eagle City Water System
Interconnection with either United Water or the City of Eagle water system were two of the
options recommended by the Final Engineering Report to satisfy the mandatory pressure and
emergency flow redundancy requirements for the Eagle Water system. The tie-in option was
approved by DEQ in its July 6,2007 approval of the Final Engineering Report (FER).
Interconnection would ensure a suffcient supply of supplemental water that would satisfy system
pressure and flow requirements with the largest (most critical) Eagle Water supply source out of
service. Eagle Water decided to interconnect with the City of Eagle Water system. Eagle Water
signed a water system Intertie Agreement with the City of Eagle on July 12,2008. As par of
Intertie Agreement, Eagle Water is obligated to pay $10,000 per month commencing on the date the
interconnection is completed and approved by DEQ. This intertie project was completed in the
summer of2008 and was approved by DEQ on July 25, 2008. By the time the Company fied its
present application on January 22, 2009, it had already incured a total of $60,000 in monthly
payments to the City of Eagle. Application at 3.
As a result of completing this intertie with the City of Eagle water system, the ~pecific
mandatory requirement, as noted in Action Item A.3 of the DEQ July 6,2007 FER approval letter,
addressing the DEQ pressure and flow requirements, has been satisfied. In addition, the completion
STAFF COMMENTS 9 AUGUST 27, 2009
of the intertie project also relieves service connection restrictions imposed by DEQ on the Eagle
Water system. After the Intertie Project was activated and the moratorium on new connections to
Eagle Water's system was lifted, the Company connected the Floating Feather Mobile Home Park
as a new customer. The manually operated butterfly valve will be opened only to provide fire flows
within the area served by the Company.
Staff notes that this is only a short-term solution to the problem. The long-term solution is
to develop another alternative source or sources or water supply that could both satisfy system
pressure and flow requirements. DEQ asserted in its July 6, 2007 FER approval letter that the
interconnection must be operated and maintained until such time as an alternative water source or
sources of water are provided. As discussed later, the construction and development of Well NO.8
would also solve the pressure problem and emergency flow requirements for the Eagle Water
system. When Well NO.8 is eventually connected to the Eagle Water's mainline and fully
operational, the Company plans to terminate the Intertie Agreement with the City of Eagle and
deactivate the Intertie between the two water systems.
The Company is asking to recover a total capital cost of $22,805 ($22,347 was originally
submitted in the Application) for this project. The total cost includes $13,369 for labor and
materials, $290 for engineering cost (to MTC, Inc.) and $9,147 as payment to the City of Eagle.
The payment to the City of Eagle was for separate engineering services provided by Holiday
Engineering such as hydraulic modeling for the interconnection project. Based on its review of the
installation costs, Staff believes that the amounts incured are reasonable. Staff agrees with the
Company that the Intertie Project was a mandatory action that needed to be completed to comply
with IRPDWS rules. Staff believes this project is considered "used and usefuL."
At the time the Company fied its Application, it had already incurred a total monthly charge
for this intertie in the amount of $60,000 ($10,000 x 6 months). Staff believes this is an appropriate
and necessary expenditure as contained in the agreement between Eagle Water and the City of
Eagle and should be reimbursed through the surcharge.
2. Installation of Pressure Regulator/Sustaining Valve (PRSV)
The Final Engineering Report identifies the installation of an automatic pressure
reducing/sustaining valve as a mandatory action (FER, p.7) required by the DEQ in its July 6, 2007
FER approval letter (Item A.3.b.). The FER specifies that if the option selected by Eagle Water is
STAFF COMMENTS 10 AUGUST 27,2009
to interconnect with the City of Eagle water system, the Intertie Project as described above must be
located upstream of the PRSV. The automatic PRSV would provide a more consistent hydraulic
grade line in the upper pressure zone of the water system. The preliminar engineering report and
specific plans to install the PRSV were approved by DEQ on August 14,2007 and construction was
completed in the summer of2008.
The Company is seeking to recover a total cost of $43,765 ($43,630 was originally
submitted in the Application) to complete the project. The total cost includes $42,646 for labor,
equipment and materials, and $1,118 for engineering. The initial estimate to complete this project
as presented in the 2007 Engineering Report was $43,120. Staff inspected the completed project on
May 22,2009. Pressure reading at the upstream and downstream side of the PRSV during the
project inspection was 75 psi and 65 psi, respectively. It appears the PRSV project is operating as
planed. Staff concurs with the Company that completion of this PRSV project is needed and
necessary. Staff believes that the cost incured in completing this project ($43,765) is reasonable
and subject to recovery through surcharge.
3. Main Booster Pump Modification
The Application states that modifying Well NO.2 Booster Station is one of the system
improvements recommended by the 2007 FER and that the status of this project is currently in
progress. Application at 2. In addition, the notice sent to Eagle Water customers indicated that
modification to the Well NO.2 booster pump station is one of the mandatory system improvements
required by DEQ. Exhibit H of Application. However, the mandated constrction project in
progress is an upgrade to the Main Booster Station as listed on page 4 of the Application, not the
Well NO.2 Booster Station. In response to Staffs Production Request, the Company clarified that
the 2007 Final Engineering Report contained an incorrect pumping capacity for the Well NO.2
booster pump. Once the Well NO.2 booster pump capacity error was discovered, it was determined
that no rehabiltation was needed for that pump. The Company also confirmed that the
"mandatory" reference to the Well NO.2 Booster Station in the Customer Notice was in error. The
booster pump that is actually being rehabiltated is the Main Booster Station close to the Farers
Union Canal between Horseshoe Bend Road and Highway 55. Therefore, the cost presented in the
Application refers to the Main Booster Pump Rehabilitation Project. Application at 4.
STAFF COMMENTS 11 AUGUST 27, 2009
To improve the operation of the system, the 2007 FER recommended the installation of
another pump at the Main Booster Station to provide pumping redundancy. (FER, p.12). The
Company installed a 100-Hp pump in parallel with the existing 60-Hp pump. This paricular
component of the project was already operating when the Staff inspected the project on May 22,
2009. Incoming pressure at the booster station was 70 psi and the discharge side of the booster
pumps was set at 95 psi. Staff believes that this installation improves operational efficiency of the
system and is considered "used and usefuL." The total cost of the additional main booster pump is
$99,400.
Two additional components of the project are stil pending completion: a) flow recorder;
and b) standby power generation. The Company's initial cost request of$175,100 included $70,000
for a back-up power generation unit but excluded the cost of the flow monitor. In response to Staff
Production Request No. 21, the Company explained that no backup power generator is actually
required for the Main Booster Power Station. The Company also provided a revised actul cost of
$93,809 for the pumping facilties. The Company explained that a stadby power unit is not
required by DEQ until demand for supply expands in the area by 25%. Therefore, the Company has
agreed not to include the $70,000 for the backup generator until it is actually required by DEQ.
However, the installation of the recording flow monitor at the Main Booster Station is one of the
recommendations contained in the Final Engineering Report (p.l2) and mandated by DEQ.
In response to Staff Production Request No. 22, the estimated cost for the inline recorder is
$8,000 to $10,000. Responding to Staffs follow-up request, the Company provided a more detailed
and firm cost estimate of $8,000 to purchase and install the flow recorder. Consequently, the total
project cost requested for recovery, including pump installation, flow meter installation and
engineering, is $107,400. Staff believes that this cost is reasonable when compared to other
projects of similar size and scope and should be recovered through the surcharge. Staff also agrees
that the cost of installng a back-up generator be excluded from cost recovery until it is needed or
required by the DEQ.
E. System Improvements in Progress
1. Development of Well NO.8
The 2007 Final Engineering Report identified and recommended the development of a new
well equipped with emergency power (FER, p.8) as a water supply alternative to interconnection
STAFF COMMENTS 12 AUGUST 27, 2009
with another public water system. This alternative was also noted by DEQ in its July 6, 2007 FER
approval letter (Items A3.a. and A4.a). Staff understands that development of Well No.8, with
standby power backup wil address several system deficiencies and comply with the IRPDWS rules.
The new well will eliminate the need for the Company's curent distribution intertie with the City of
Eagle's water system. It wil also provide enhanced water system pressure in the lower pressure
zone of the Company's service area. Finally, it wil satisfy the system demand forecast for future
growth through 2010. Because Well NO.8 is a new water source, the IRPDWS rules require that
the well be equipped with a back-up power supply.
According to the well logs, installation of Well NO.8 was completed on November 5, 2008.
During Staff inspection conducted on May 22, 2009, Staff found that Well NO.8 had been installed
and tested. However, the well is temporarily capped and a stop work order was issued to the
Company by the City of Eagle. In response to Staffs Production Request Nos. 36 and 37, the
Company explained that the time line for full completion of Well NO.8 is unown at this time as
the Company is awaiting the City of Eagle's approval of the Company's well house design plans to
continue constrction. Completion of Well NO.8 has been delayed since Februar 2009 due to the
City of Eagle's rejection of the original proposed Well House design, which was identical to the
Well House for Well NO.7.
The Company has parially completed the project and is seeking recovery of the projected
cost of$637,535 ($636,520 was originally submitted in the Application) with the following cost
breakdown:
Land purchase
Well driling/development
Pump and motor
Variable frequency drve
Electrical controls
Appurtenances
Site improvements/building
Back-up generator
Mainline tie-in
Engineering cost
TOTAL
$ 63,150
$148,350
$ 63,100
$ 56,000
$ 48,800
$ 27,000
$ 68,300
$ 85,000
$ 47,000
$ 30,835
$637,535
Because the project is only parially completed and the remaining cost for completing the
project is not known with certainty, Staff recommends that Well NO.8 cost recovery through the
surcharge be denied at this time. While Staff agrees that development of Well NO.8 will likely be a
STAFF COMMENTS 13 AUGUST 27,2009
cost effective alternative to system interconnection with the Eagle City's water system and could
meet future growth related water demands, the project currently does not meet the "used and useful"
criteria for recovering costs. Staff recommends the Company renew its request for cost recovery
through the surcharge when the project is fully completed, operational and cost and benefits are
fully known. In the mean time, Staff believes that the costs for the land ($63,150) and the well
driling ($148,350) can be classified as plant held for future use.
F. Legal, Accounting, and Tie-In Expenses
In the Application, the Company has requested to recover certain legal fees, accounting fees,
and the monthly expenses associated with the tie-in to the City of Eagle's water system. Staffwil
address each expense category separately.
1. Legal Fees
The Company has requested to recover the following legal fees:
a. Case No. EAG-W-05-02 $ 6,048
b. Case No. EAG-W-07-01 $16,572 (revised from $16,554)
c. Case No. EAG-W-07-01 $14,905
d. Case No. EAG-W-09':01 $15,000 (estimated).
a. On page 5 of the Company's Application, it requested additional legal fees of $6,047 for
legal services performed in case EAG- W -05-02. As the Company explains in a footnote, the
Company conceded it did not seek this amount of legal fees in the prior case because it "made a
clerical error in calculating the amount of fees biled as of August 6, 2007 for EAG- W -05-02."
Given this oversight, the Company now seeks recovery of this amount. Staff recommends that the
Company's request to recover these legal fees from a prior case should be disallowed because the
time for requesting these legal fees was in October 2008 via a Petition for Reconsideration. The
sequence of events is set out below.
In August 2007, the Company filed an Application seeking to recover legal fees for the
original surcharge application (Case No. EAG-W-05-02) in the amount of$10,945; and legal fees
for the preparation of the Company's engineering report in the amount of$16,232. See Application
at irir 12, 15. Adding these two sets oflegal fees together, the Company sought $27,177. Staff
concurred and recommended that the Company be allowed to recover $27,177 in legal fees. See
STAFF COMMENTS 14 AUGUST 27,2009
Order No. 30654 at 4. Based upon its review "of the Application and comments of the paries, (the
Commission) found these (legal) fees to be reasonable" and allowed the Company to recover these
fees from the surcharge account. Id at 9.
On October 16,2008, Eagle Water fied a timely Petition for Reconsideration.
Conspicuously absent from that Petition for Reconsideration was any request for the $6,048 in legal
fees. Consequently, the Company did not seek this additional amount in legal fees on
Reconsideration but has now included these fees in its request in the present case.
In support of its request to recover the $6,048 in legal fees, the Company submitted an
exhibit purorting to show the correct balance of legal fees. The Company correctly notes that it
submitted this "Exhibit A" in its Application of August 2007 (denoted in the earlier case as Exhibit
2). In its present application, the Company insists that this exhibit shows "the correct amount biled
for legal services associated with the 2005 surcharge case is $16,933." Application at 5, note 2.
However, even a cursory review of this biling statement dated July 15,2007, does not reveal the
figure "$16,933.16" appearing anywhere on either page of the two page statement. In addition, the
two page biling shows that the Company incurred finance charges from November 2005 through
July 2007. Staff asserts that finance charges and late payment fees should not be recovered from
customers.
As the Commission has stated many times, reconsideration provides an opportity for a
pary to bring to the Commission's attention any issue previously determined and provides the
Commission with an opportunity to rectify any mistae or omission. See, e.g., Order No. 30667 at
4. To allow the Company to recover its past legal fees now would constitute retroactive
ratemaking. Consequently, Staff recommends that the Commission disallow recovery of $6,047 for
customers.
b. and c. Staff recommends that the actual legal fees for the engineering report and the
surcharge extension application fees be approved for recovery from the surcharge. Staff
recommends that the legal fees be recovered but not the late-fee finance charges appearing on the
legal bils.
It has been a long-standing policy of the Commission that expenses such as late payment
fees and penalty fees not be recovered from the customers. See, e.g., Order No. 30667 at 3. Staffis
aware of the Company's assertion that the legal fees are past due as a result of cash flow
constrictions brought on by the need to expend all available resources on critical capital
STAFF COMMENTS 15 AUGUST 27, 2009
improvements. However, the Company has control of when and how these improvements are
made, and Staff believes that much of the cash flow constrictions have been brought on by the
Company's own actions. Moreover, it appears that there were suffcient authorized fuds in the
surcharge account to meet these charges.
d. The Company has requested an estimated $15,000 in legal fees to process the curent
case. In response to Production Request No. 45, the Company has received invoices totaling $5,606
for legal services provided through March 2009. As of August 25, 2009, additional invoices in the
amount of $6,455 have been biled for a total of $12,062 in legal fees for this case. It appears that
legal expenses associated with Company filings have been largely unconstrained and continue to
trickle in long afer a case is closed. Staff believes this practice should stop. Staff, therefore,
recommends that the estimated amount of legal fees for this case be the maximum approved and
that any further costs incurred by the Company, beyond the $15,000 limit not be recovered from the
surcharge.
2. Accounting Fees
The Company has requested the following accounting fees:
Case No. EAG-W-07-01 $600
Case No. EAG-W-09-01 $600
Staff finds that the accounting fees to be reasonable, and recommends that these expenses be
included for recovery from the surcharge fuds.
3. Monthly Tie-in Expenses
Staff has reviewed the monthly invoices from the City of Eagle for the tie-in. The
Company, in its Application, requested $60,000, which was the amount that the City of Eagle had
biled the company as of the date of the Application. Staff notes that the Company has paid for 9
months through the month of April 2009. The Company has also been biled for the months of May
and June 2009 but has not paid for these months. Staff recommends that the Company recover
$110,000 from the surcharge fuds to defray the eleven (11) months of tie-in bilings.
STAFF COMMENTS 16 AUGUST 27,2009
4. Total Expenses
Staff recommends the expenses discussed above totaling $156,505 be recovered from the
surcharge revenues. A breakdown of the total is shown on Attachment 2.
G. The Surcharge Account
Over the course of this case and the two prior cases, Staff has monitored and audited the
surcharge account. Commission Order No. 29903 states:
To avoid the mixing of surcharge revenue with other Company revenue,
Eagle Water shall book the surcharge revenues in a separate account.
Withdrawals from the separate account shall be restricted to payments for the
engineering study, and for legal and accounting expenses incurred in
preparation of the Surcharge application and actions authorized in this Order.
Staff shall audit this account for compliance.
The scope of each audit was to examine the surcharge collections authorized in Case No.
EAG-W-05-02 and Case No. EAG-W-07-01 and the curent case. Staff examined the books and
records documenting the surcharge, including the accounting records of the Company and the
monthly savings account statements. Staff verified that the surcharge bilings were correctly
calculated, that the surcharge fuds were separated from the general fuds of the Company, and that
the withdrawn surcharge fuds were used for authorized puroses.
1. Curent Status
The sumar of surcharge collections is shown on Attchment 3. Through the month of
December 2008, Eagle Water collected $396,088 in surcharge revenue. The prior authorized
surcharge was originally designed to recover $112,414. In Case No. EAG-07-01, the Commission
authorized an additional $146,635 be recovered by the surcharge. In Order No. 30654, the
Commission ended the old 42.5% surcharge and ordered the Company to continue to maintain the
surcharge account and prohibited the Company from converting the surcharge fuds to its own use
without the Commission's approval. The surcharge collected $137,039 more than was authorized
for use by the Company.
In Commission Order 30734, the Commission approved the Company's request to
implement the new 48.075% surcharge, subject to refud. The Commission also granted authority
to the Company to access the existing and future surcharge account fuds subject to subsequent
review and final reconcilation. As of August 24,2009, the newly implemented surcharge has
STAFF COMMENTS 17 AUGUST 27,2009
collected $69,125. The current balance prior to any Company withdrawals that are subject to
refud, and including the surcharge fuds from the previous surcharge is $206,164.
2. Surcharge Calculation
In Order No. 30734, the Commission found it reasonable to allow Eagle Water Company
to implement its proposed 48.075% surcharge, subject to refund. The surcharge percentage is
based upon the anual cash required to service a loan of $995,500 at 6.75% over 7 years as shown
on Company Exhibit E of the Application. Staff notes that the Company was granted the authority
to secure the loan in Order No. 30734. Although the Company anticipated taking out a ban loan,
the Company has not yet taken out a loan.
Staff is not recommending recovery of the entire amount requested by the Company in its
Application through the surcharge at this time. However, Staff stil recommends that the surcharge
percentage remain at 48.075%. Staff anticipates that the Company will complete Well NO.8 in the
near future. At that time, the Company may request that the capita costs for Well NO.8 be
included in rates. Staff estimates that if the Commission were to implement all Staffs
recommendations, the surcharge would ru for approximately four years. If the Commission
curently or ultimately allowed capital expenses for Well NO.8 to be included in the surcharge, the
surcharge length would be extended beyond the 4 years calculated by Staff.
3. Rate Schedule and Adjustments
As par of its Application, the Company requests that the Commission issue an order
approving the scheduled surcharge as fair, just and reasonable for recovery of its costs associated
with the capital investments as previously discussed. Revised taiffs were submitted reflecting the
proposed charges. Exhibit F of Application. On Februy 23, 2009, the Commission issued Order
No. 30734 approving the Company's request to implement a 48.075% surcharge (subject to refud)
for consumption above 600 cubic feet of water per month and directed the Company to file
conforming rate schedules to reflect the new surcharge. The Company fied a revised (Rate
Schedule NO.1 for Small Volume Unmetered Water Service and the revised Rate Schedule NO.2
for Metered Service) with the Commission on Februar 24,2009. The new taiff has an effective
date of February 23, 2009 and comports with the Commission Order No. 30734. While Staff
recommends that some adjustments be made on various capital costs, legal and accounting charges
STAFF COMMENTS 18 AUGUST 27,2009
as previously discussed, Staff does not recommend any changes in the level of the curent surcharge
that would potentially affect the present rate schedules.
SUMMARY OF STAFF RECOMMENDATIONS
As set out in greater detail above, the Staff has determined that $796,928 of curent project
capital costs have been prudently incurred. See Attachment 1, page 2. These costs would normally
be capitalized but in this case are proposed to be recovered through surcharge. The Company
proposes that of the total project costs for Well No.7, $215,000 be recovered from surcharge fuds,
and the balance be attributed to the Company's rate base. Staff concurs with the Company in
regards to utilzing $215,000 of surcharge fuds for Well NO.7. Therefore, Staf recommends that
the total project cost to be authorized for recovery from surcharge fuds is $455,632. Staff fuher
recommends that $156,506 be included for recovery from the new surcharge for the legal,
accounting, and tie-in expenses. The total amount that Staff recommends for recovery from the
surcharge is $602,137. The surcharge revenue requirement is shown on Attchment 4.
After subtracting the residual balance from the previous 42.5% surcharge funds of$137,039,
$465,098 remains to be recovered from the new surcharge. After the ta gross up on the additional
surcharge fuds, the amount Staff recommends for recovery from the new surcharge is $594,768.
Staff estimates that this amount will be recovered in approximately four years.
Staff recommends that the curent surcharge percentage remain in place, and that the
surcharge continue to ru until the authorized amount has been recovered. Staff recommends that
ongoing review and audit of the surcharge account continue to take place.
'7-Z
Respectfully submitted this d'7 day of August 2009.
Donald L. Howe , II
Deputy Attorney General
Technical Staff: Kathy Stockton
Gerr D. Galinato
i:umisc/commentseagw09, 1 dhklsgg comments
STAFF COMMENTS 19 AUGUST 27,2009
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io'0i-
EAGLE WATER COMPANY
CASE NO. EAG-W-09-01
SURCHARGE COLLECTIONS
Surcharge Collections through December 31, 2008
Authorized Surcharge Funds
Remaining Surcharge funds
$396,088
$259,049
$137.039
New Surcharge
Deposits - January through June 2009
Deposits - July through August 24, 2009
$28,459,79
$40,666,11
$69,125,90
$206.164.90Surcharge Collections as of August 24, 2009
Attachment 3
Case No, EAG-W-09-1
Staff Comments
08/27/09
EAGLE WATER COMPANY
CASE NO. EAG-W-09-01
SURCHARGE REVENUE REQUIREMENT CALCULATION
Capital Items
Well NO.7
Well No, 7 Costs Transfered to Rate Base
Well No, 7 Costs Recovered from Surcharge
Rebuilding Well No, 4
Tie-in to Eagle City Water System
Pressure Regulating/Sustaining Valve (PRSV)
Main Booster Pump Modification
Well NO.8
Total-Capital Project Costs
$566,296,81
$351,296.81
Expense Items
Legal Fees
Accounting Fees
Tie-in to Eagle City Water System
Total-Expenses
Staff recommendation
Less Previous Surcharge Balance
Staff Surcharge Recommendation
Gross-up Factor
New Surcharge (48.075%)
Estimated yearly recovery*
Approximate number of Years
* Estimated yearly recovery calculation
Surcharge Revenues 2006 $130,805,50
Surcharge Revenues 2007 $138,758.01
Surcharge average for 2 full years at 42.5% $134,781.76
Estimate for yearly surcharge at 48.075% $152,461.95
(2 year average divided by 42,5%, then multiplied by 48,075%)
Surcharge
Recovery
Amount
$215,000,00
$56,660.41
$22,805,73
$43,765.31
$107,400,50
$0,00
$445,631.95
Amount
$45,305.83
$1,200.00
$110,000,00
$156,505.83
$602,137.78
$137,039
$465,098.78
127,88%
$594,768
$150,000
4
Attchment 4
Case No, EAG-W-09-1
Staff Comments
08/27/09
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 27TH DAY OF AUGUST 2009,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. EAG-W-09-1, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
ROBERT DESHAZO
PRESIDENT
EAGLE WATER COMPANY INC
172 W, STATE STREET
EAGLE ID 83616
MOLLY O'LEARY
RICHARDSON & O'LEARY
515 N. 27TH STREET
BOISE ID 83707
E-MAIL: mollyØ)richardsonandolear.com
\b~SECRETÃRY~~
CERTIFICATE OF SERVICE