HomeMy WebLinkAbout20031029Comments.pdfSCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0320
IDAHO BAR NO. 1895
RECEIVED
FiLED
2003 OCT 29 PM 4: 33
iil C; PUBLIC
UTiliTIES COMMISSION
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 THE APPLICATION OF
FALLS WATER COMPANY, INC. FOR
AUTHORITY TO INCREASE ITS RATES AND CHARGES. CASE NO. FLS-O3-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff ofthe Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Public Workshop and Hearing, Notice of Modified Procedure and Notice of Comment Deadline
issued on September 22 2003 , submits the following comments.
On July 25 2003, Falls Water Company (Falls Water; Company), an Idaho not-for-
profit corporation and holder of Certificate of Public Convenience and Necessity No. 236, filed
an Application with the Idaho Public Utilities Commission (Commission) requesting authority to
increase its revenue requirement by $129 564 (38%). As set forth in its Application, the
proposed increase reflects the increased costs of maintenance and replacement of aging
infrastructure and improving its customer service response.
STAFF COMMENTS OCTOBER 29 2003
COMPANY'S APPLICATION
Falls Water s service territory is located east ofldaho Falls in a rapidly growing area.
The Company currently has approximately 2 100 residential and commercial customers and is
anticipating continued growth. I The Company states that its system is becoming antiquated and
needs significant upgrades and repairs in the coming years. In its Application, Falls Water
proposes to use 2002 as the test year to project future revenues and expenses. The Company
proposes changes to the 2002 actual expenses to support the need for a significant increase in
revenues. Staff has reviewed the Company s Application and found that the Company is
requesting more than it originally stated. The Company is actually requesting $132 745 or 39%
instead of the $129 564 stated. Staffhas reviewed and summarized each adjustment to the 2002
actual expenses listed below. The Company s adjustments are found on Staff Attachment A and
numbered 1-
Staff has performed an audit ofthe Company s financial books and records. Staff
recommends changes to both the rate base amounts and the revenues and expenses proposed by
Falls Water. Those adjustments are also listed below and are found on Staff Attachment B.
Staff's recommended changes to the Company s proposed expenses are identified as A-
Staff's recommended changes to the Company s rate base are found on Attachment C and are
identified as R1-R3.
Company Adjustment (1) Field Labor
During the year 2002, Falls Water had a manager, a full-time technician and a few part-
time helpers to service all 2 000 customers. To determine the proper level of service employees
the Company had a local engineering firm perform a survey of similar sized water companies and
their service technicians. The survey showed the Company needed to hire an additional 1.1 to
1 service employees to serve the customers at the same level as the surrounding systems.
During 2003 , Falls Water hired one full-time service technician and is requesting the authority to
hire another full-time employee. The salaries and taxes of two additional full-time employees
amount to $58 777 per year.
1 Between 2002 and 2003, the Company s customers increased from 1 960 to 2 122, an 8% increase.
STAFF COMMENTS OCTOBER 29, 2003
Staff Expense Adjustment (A) Field Labor
At this time, Staff recommends that the Company consider more part-time help instead of
another full-time service technician. The Company s engineering study recommends that the
Company hire another 0.1 to 1.1 employees above the one recently hired to be consistent with
companies in the same area that are about the same size. Currently Falls Water has only been
operating at its current staffing level of2 full-time technicians for a few months. Staff
recommends that the Company wait and try to get by without hiring another full-time person. By
utilizing part-time help, the Company can save by hiring less expensive help to assist its trained
full-time staff. Staff recommends allowing the Company to recover its expenses for the newly
hired full-time employee and the equivalent of one-half of an additional employee for the
requested field labor increase. That would reduce the Company s request by $14 022 while still
allowing an increase in field labor help.
Company Adjustment (2) Reorganization of Affiliated Companies
Falls Water is an affiliate of Howell & Howell, a holding company. Howell & Howell
provides services to Falls Water including management services, office space, receptionist
services, payroll services and other items. Through 2002, Howell & Howell charged Falls Water
000 a month for these services. While Staffhad deemed that to be a reasonable amount, the
Company decided to separate itself more from its parent company. To accomplish this, Falls
Water broke up the management fee it was paying into specific components to allow its
payments to more accurately reflect the services it received. Falls Water has reduced the overall
expenses by paying actual amounts instead of the $3 000 a month. The Company has projected a
savings of over $7 000 a year for customers.
Staff Expense Adjustment (B) Salaries of Officers and Directors
During its audit, Staff discovered that the management fee paid to Howell & Howell was
reduced by 50% from $1 000 a month to $500 a month. This provides a savings of $6 000 a year
that should be passed on to customers.
STAFF COMMENTS OCTOBER 29, 2003
Company Adjustment (3) Employee Benefits
During 2002, Falls Water paid no health or retirement benefits for its two full-time
employees. At the beginning of2003 , the Company began to pay $225 a month towards a health
insurance policy for each of its full-time employees. The $10 800 requested by the Company
would pay $225 a month for each of the three current employees and one additional employee
requested by the Company.
Staff Expense Adjustment (C) Employee Benefits
Staff believes it is important to retain good employees and to make sure they are paid in
accordance with prevailing wages and benefits. Staff recommends that the Commission allow
Falls Water to continue to provide a partial payment for health insurance for employees.
However, by only having three full-time employees, Falls Water does not need to provide the full
health benefit to four employees. Staff reduces the amount requested by the Company for
benefits to reflect three full-time employees instead of four. That results in a reduction of $2 700
per year.
Company Adjustment (4) Averaging of Expenses
The Company has taken the three-year average of several expense accounts and increased
the accounts that were lower than the average up to the average amount. The averaged accounts
are materials and supplies, attorney expense, testing expense, contract repairs, training and dues
and publications. This results in a request of $14 351.
Staff Expense Adjustment (D) Averaging of Expenses
Staff typically does not support the selective increase in expenses resulting from the
averaging of expenses because it is effectively allowing the Company to capture prior expenses
and may not provide an accurate guide to future expenses. Therefore, Staff does not recommend
approval of most of these expense increases requested by Falls Water. There is no evidence that
the higher average number is more representative of expenses than the test year actuals. The one
exception Staff recommends approval of is for water testing.' Testing expenses do fluctuate year
to year and the average of prior testing expenses can be a good way to approximate future
average expenses. The Company s proposed average water testing expense is within the range
STAFF COMMENTS OCTOBER 29,2-QQ~-
Staff expects it to be. Staff recommends the removal of all adjustments associated with
averaging except testing expense. That results in a reduction of expenses in the amount of
$13 824.
Company Adjustment (5) Reduced Expenses
In two accounts (620.82 and 636.7), the Company has reduced the amounts because it
knows these expenses will be reduced in the future. The first expense reduction is due to a new
bank account that does not charge fees, and the second is due to a new arrangement with the
Company s billing software. Staff supports these efforts to reduce expenses to customers.
Company Adjustment (6) Engineering Expenses
During the year 2002, Falls Water hired an engineer to perform a significant study
regarding its impact area and future upgrade needs. The Company has been able to secure a DEQ
grant to help expand the study to the other water systems in the area. This will allow Falls Water
to plan effectively for the next 20 years. Since the Company has paid most of its share of the
study, engineering expense is forecasted to be reduced significantly in the next few years and
Falls Water is proposing to pass those savings on to customers.
Staff Expense Adjustment (E) Engineering Expense
As noted above, the Company has begun a major project to help map out its needs and
service boundaries for the next twenty years. Staff believes this is a worthwhile project that will
benefit customers for many years. As a result, Staff recommends that the Company capitalize its
engineering costs associated with the long-term study and other plant-related project.
capitalizing the amounts instead of expensing them, both the Company and the customers will
benefit. The Company will be able to capture the benefits of the projects over the lives through a
return on its investments in the projects and increased depreciation expense, and customers will
not have to pay for it all at once. By capitalizing its projected engineering projects, the
Company s revenue requirements are reduced. Staff calculated the difference between
capitalizing projects and expensing a portion for depreciation and giving the Company a 12%
return on the project as opposed to simply expensing the costs. The difference between
capitalizing the $15 210 the Company proposes to spend on engineering costs and simply
STAFF COMMENTS OCTOBER 29 , 2003
expensing it is $12 716.2 Staff recommends the Company begin immediately to capitalize these
items for its own benefit and the customers' benefit.
Company Adjustment (7) Actual Increases
The Company has identified four items that have already increased after 2002. These
items include a new postage system, trash removal costs, the purchase of a new van and an
increase in general liability insurance premiums. Staff has reviewed these items and found that
these items have increased as stated by the Company. Staff recommends approval of these items.
Company Adjustment (8) Non-Utility Income and Expenses
In its last rate case, the revenues and expenses of another water system Falls Water
managed under contract were removed from the Company s revenues and expenses. Falls Water
is currently managing two systems - Black Hawke Estates and Andco. These systems are outside
ofthe Company s certificated area and Falls Water does not plan to continue to manage these
systems. Falls Water has removed these revenues and expenses from its request.
Staff Expense Adjustment (F) Office Expense
In addition to the items noted above, Staff found two more expense items that need to be
adjusted. During 2003, Falls Water paid off the copier it purchased several years ago. Because
the Company is no longer required to make monthly payments of$239., Staff removes $2 879
from the annual projected expenses.
Staff Expense Adjustment (G) Bad Debt Expense
During the year 2002, bad debt expense went up dramatically from prior years. This
increase appears to be caused by a variety of factors including a change in billing methods for
some fixed meter customers, general economic troubles, collection strategies and a price increase
two years ago. During 2002, Falls Water changed the way it billed its non-metered customers.
All the non-metered customers are located in two large mobile home parks. The majority of the
lots in the two parks are owned by another affiliate of Falls Water. Until 2002, the owner of the
By capitalizing the $15 210, the Company will incur depreciation expense of$761 based on a twenty-year life and
receive a return of$1 734. That results in an overall reduction in revenue requirement of$12 716.
STAFF COMMENTS OCTOBER 29, 2003
lots, not the individual who lived there, paid these accounts. During 2002, the Company began
billing individual renters instead of the owner of the lot. Apparently, the individual renters are
less likely to pay the water bill than the owners of the lots. The Company believes this is part of
the reason bad debt has increased. In addition, the Company does not actively pursue customers
with outstanding balances once they move. Staff believes the Company should implement more
aggressive collection practices for these customers. Finally, Staff discovered a large write off
that occurred early in 2002. Typically write offs are performed at the end of the year they relate
, not the beginning of the next year. Staff has performed an analysis of bad debt expenses
during the first eight months of 2003 and projects bad debt expense to be about $3 964 for 2003
instead of the $4 619 requested by the Company. Staff believes this amount is a better
representation of ongoing bad debt expense instead of the amount the Company originally
proposed. During the audit, the Company reviewed Staff's analysis and agreed that it would
probably be more accurate than using the prior year s amount. Staff removes $656 from pro
forma expenses.
Staff Expense Adjustment (H) Electricity Normalization
Due to the actual increase in customer growth since the year 2002, Staff has used 2003
customer data to spread the revenue requirement amounts instead of the 2002 customer data the
Company used. Staffhas also normalized the consumption data to reflect the usage of the
additional customers. While this generally reduces rates by spreading fixed costs to more
customers, it is reasonable to allow the Company to collect additional variable expenses
associated with more usage as well. Staff has projected the Company s major variable expense
electricity, to levels consistent with the usage of the higher customer numbers. The additional
expense that should be added to the Company s revenue requirement is $15 424.
COMPANY AND STAFF RATE BASE ADJUSTMENTS
Staff has also audited the Company s rate base calculations and return on rate base
proposals. The Company s proposal and Staff's recommendations are listed below.
STAFF COMMENTS OCTOBER 29, 2003
Company Adjustment (9) Return on Rate Base
In the last rate case, Falls Water was allowed to set rates based on a return on its rate base
even though it is a non-profit company and cannot remove any profits. The return on rate base
was to be used for system upgrades that benefit customers, not owners. Unfortunately, the
Company has not earned any return for the last three years due to a variety of reasons. Staff
continues to recommend that the Company be allowed to set rates based on a return of 12% on its
rate base to allow for system upgrades and major maintenance items. Falls Water proposes to
collect that return on rate base and use the money for system upgrades such as meter
replacements. Falls Water requested $38 311 in its Attachment #5 , which contains the rate
requested for customers, but calculated the return to be $40 986 in its Attachment #4. Staff used
the amount found in Falls Water s Attachment #4 of $40 986 as a starting point for its
calculations.
Staff Rate Base Adjustments
Staff proposes three adjustments to the rate base on which the Company requests a return
on. Staff uses the amount found in Attachment #4 of $40 986 as a starting point. Staff's
calculations are found on Staff Attachment C. The adjustments are listed below.
Staff Rate Base Adjustment (Rl) Accumulated Depreciation Adjustment
When preparing its analysis, the Company inadvertently used its 2001 accumulated
depreciation balance of$293 712 instead of its higher 2002 amount. Staff used the correct
amount of $316 826 to reduce rate base by another $23 114.
Staff Rate Base Adjustment (R2) Removal of Working Capital
In addition to Utility Plant in Service, Falls Water has requested to earn a return on
working capital equal to 1/8 of Operating Expenses. Staff has performed a cash working capital
analysis using the balance sheet method to determine who provided the working capital the
Company uses. Based on that analysis, Staffhas determined that the customers have supplied the
working capital Falls Water uses, not the Company. Based on that analysis, Staff recommends
no return on working capital.
STAFF COMMENTS OCTOBER 29 2003
Staff Rate Base Adjustment (R3) Contributions in Aid of Construction
In the last rate case, the Commission ordered the Company to begin booking hookup fees
as Contributions in Aid of Construction (CIAC) instead of revenues. The Company began
booking those fees correctly in 2002, and Staff recommends that they be used to reduce the rate
base as with other regulated companies.
Staff Expense Adjustment (I) Return on Rate Base
Because Staff has calculated the rate base to be lower than the Company, Staff
recommends a lower amount be recovered from customers. Staffreduces the requested $40 653
by $13 132 for a total of$27 854.
The total revenue Staff proposes to be recovered from customers is $422 698 , a 24%
increase in total revenue. Since the Company has a non-profit status, there is no need to gross up
the revenue for income taxes.
COMPANY PROPOSED RATE DESIGN
The Company proposed the following rate design to collect the requested annual revenue
requirement of$473 202:
Falls Water Rate Design as Filed
Vol.Annual Percent
Included Rate per Usage In Change Ave
Flat or in Base 1000 gal Excess of Total From Annual
Customer Class No. Cust.Base Rate Rate Over Base Base Vol.Revenue ExistinQ Bill
Flat Rate Residential 574 18.unlimited $ 123 984 31%$ 216.
Multi-Family Residential 4 $14.000 0.40 591 532 73%$ 633.
Metered Commercial 14.000 0.40 517 027 20%$ 434.
Metered Residential 1352 14.000 0.40 234,426 $ 329 018 35%$ 243.
Totals 1960 258 534 $ 468 562 31%
Staff has reviewed the Company s rate design procedures and believes several
adjustments are necessary to more accurately reflect actual customer usages and impacts on the
system. The following are Staff's recommended adjustments to the data used in the Company
rate design calculations.
STAFF COMMENTS OCTOBER 29, 2003
Multi-Family Residential Rates
The Company proposes a significant change in the way multi-family facilities are
charged. In the past, the owners of multi-family apartment complexes were charged the same as
individual Flat Rate customers and all apartments were charged the flat rate whether they were
occupied or not. The Company indicates that all apartment buildings are now metered.
Therefore, the Company proposes that the owners of apartment buildings be charged a metered
rate. Staff agrees with the proposal in concept but also believes the Company s application of
this change is unfair. The Company indicates that there are only four (4) apartment buildings but
in reality there are eleven (11) different apartment buildings (Company Response 2a). The
difference between these two numbers is due to the Company proposing to bill an apartment
complex composed of 8 buildings as one customer. Staff believes it is more appropriate to bill
each apartment building as a separate customer because each separate building in the complex
has a meter and should be charged the monthly customer charge. This adjustment treats all
apartment building owners equally, whether the apartments are built as stand alone or in a
complex. It also provides additional winter revenue to the Company because of additional base
charges. The Company can also aggregate the bills for the complex owners to minimize mailings
if that is a concern. Staffhas discussed this adjustment with the Company and received no
objections.
Known and Measurable Customer Changes
The Company s Application indicates there are 1 352 residential metered customers. As
of September 2003, the Company reported to Staff that the actual number of metered residential
customers on the system is 1 507. Staff believes it is more appropriate to use the known and
measurable number of metered residential customers on the system for rate design purposes
507 metered residential customers.
Volume Included in Base Rate
The Company has requested that the volume included in base rates be reduced from
000 gallons to 17 000 gallons. Staff has performed a bill frequency analysis and finds no
noticeable changes in customer usage at 17 000 gallons that would justify this reduction.
Furthermore, a reduction in base commodity appears to further penalize metered customers over
STAFF COMMENTS OCTOBER 29, 2003
Flat Rate customers. Based on the Flat Rate customer usage considered in the 2001 rate case and
on the actual 2002 usage data provided in this case, the average Flat Rate customer uses 34,460
gallons per month. This compares to the average metered residential customer usage of25 010
gallons per month. Therefore, Staff recommends that the volume included in base rates remain
unchanged at 20 000 gallons.
Actual Water Usage
The Company uses 2002 water consumption data for its rate design calculations. Staff
has reviewed the water consumption for both 2002 and 2001 and found that significantly more
water was used in 2001 than in 2002. Staffhas not ascertained the reason for this significant
change. It could be due to drought in 2001 , change in customer usage due to rates, or a wet
spring in 2002. Whatever the reason, Staff believes it is more appropriate to use both 2001 &
2002 usage in rate design calculations. Therefore, Staff proposes to average customer usage over
the years of2001 & 2002. Staff has also normalized the electricity expense to reflect the
additional water consumption used in the rate design calculations. The electric expense
adjustment is shown above as Staff Adjustment H - Electricity Normalization.
Flat Rate Customers in Metered Service Territory
In discussions with the Company, Staff discovered that there are approximately 50
customers in the metered service territory that do not have meters. Staff further discovered that
these customers had meters prior to the 2001 rate case but the meters were removed in
anticipation of Commission approval of a Flat Rate Tariff change. In Order No. 28907 at 6 the
Commission required the retention of the Tariff Schedule R-2 (Flat Rate) eligibility requirement.
This decision effectively eliminated any additional Flat Rate customers outside of the original
Flat Rate customer area. It also prohibited Flat Rate service for the approximately 50 customers
in the area where the Company had removed the meters.
The Company s Application accurately includes these customers in the metered customer
count but it does not include any usage. Staff believes it is appropriate to impute usage at the
average customer volume for these customers to more accurately reflect revenue generation
potential. Staff has made this adjustment in all subsequent rate design calculations. Staff further
recommends that the meters that were removed be replaced in compliance with Commission
STAFF COMMENTS OCTOBER 29, 2003
Orders and to provide the appropriate price signal and equity among all users.
Company Proposed Rate Design With Staff Adjustments
Staff believes the aforementioned adjustments in customers and customer usage are
appropriate, known and measurable for proper rate design. The following is the Company s rate
design with Staff's recommended adjustments:
Falls Water Rate Desi~ n With Staff Recommended Adjustments
Vol.Annual Percent
Included Rate per Usage In Change Ave
Flat or in Base 1000 gal Excess of Total From Annual
Customer Class No. Cust.Base Rate Rate Over Base Base Vol.Revenue ExistinQ Bill
Flat Rate Residential 574 18.unlimited $ 123 984 31%$ 216.
Multi-Family Residential 14.000 0.40 359 2,458 74%$ 223.43
Metered Commercial 14.000 0.40 938 995 29%$ 466.
Metered Residential 1507 14.000 0.40 191 529 $ 338 830 39%$ 224.
Totals 2122 214 826 $ 479 266 34%
With Staff's recommended adjustments the Company s proposed base rate and
commodity charge over-collects the Staff recommended revenue requirement by over $50 000.
Therefore, Staff has developed the following two rate design alternatives.
STAFF PROPOSED RATE DESIGN
Staff's rate design philosophy differs slightly from the Company s. In analyzing the rate
design alternatives it is apparent that the Company s rate design is based on setting the average
Metered Residential and Flat Rate bills equal to each other. This is apparent on Attachment E
showing a chart of the average bills. The Company s proposed rate design results in an average
bill for both Flat Rate customers and Metered Residential customers of approximately $18.00 per
month.
Staff believes that it is more appropriate to have similar charges for similar usage and has
developed two rate designs based on both Metered Residential and Flat Rate Residential
consumption averaging 34,460 gallons per month. This amount is equivalent to the actual 2002
average Flat Rate customer s usage (See Attachment G).
For ease of billing, Staff's metered rate design is the same for Metered Residential , Multi-
Family Residential, and Commercial Metered service. Attachment E & F shows how the
STAFF COMMENTS OCTOBER 29, 2003
difference in average usage among these customer classes is reflected in the average and summer
bills.
Staff Rate Design Option 1 - Commodity Adjustment
Staff's first rate design option is an adjustment in commodity rate only. Staff's
methodology starts with all customers charged a base rate of$10.00 for the first 20 000 gallons
and then adjusts the commodity charge on excess water consumption to collect the Staff
recommended revenue requirement. Flat Rate customers are charged an amount equivalent to the
metered commodity rate times an average excess usage of 14 460 gallons based on the 2002
average flat rate customer consumption of 34,460 gallons (See Attachment G). The following is
the resulting rate design:
Staff Rate Design Option 1 - Commodity (H2O) Only Adjustment
Vol.Annual Percent
Included Rate per Usage In Change Ave
Flat or in Base 1000 gal Excess of Total From Annual
Customer Class No. Cust.Base Rate Rate Over Base Base Vol.Revenue Existing Bill
Flat Rate Residential 574 17.unlimited $ 122 262 29%$ 213.
Multi-Familv Residential 10.000 359 040 79%$ 185.49
Metered Commercial 10.000 938 227 41%$ 507.
Metered Residential 1507 10.000 191 529 $ 282 350 16%$ 187.
Totals 2122 214 826 $ 421 880 18%
Staff Rate Design Option 2 - Base and Commodity (H2O) Adjustment
The second rate design option considered by Staff makes adjustments to both the base
charge and the commodity charge. The first rate adjustment is a 15% increase in base charges or
$1.50 for a base charge of$11.50. The second adjustment is an increase in the commodity
charge to collect the balance of the Staff recommended revenue requirement. Flat Rate charges
are again based on the adjusted commodity rate for their average 34,460 gallons of consumption.
The resulting rate design is the following:
STAFF COMMENTS OCTOBER 29, 2003
Staff Rate Design Option 2 - Base & Commodity (H2O) Adjustment
Vol.Annual Percent
Included Rate per Usage In Change Ave
Flat or in Base 1000 gal Excess of Total From Annual
Customer Class No. Cust.Base Rate Rate Over Base Base Vol.Revenue Existing Bill
Flat Rate Residential 574 17.unlimited $ 120 540 27%$210.
Multi-Family Residential 11.000 0.41 359 075 78%$ 188.
Metered Commercial 11.000 0.41 938 135 21%$ 437.
Metered Residential 1507 11.000 0.41 191 529 $ 286,493 17%$ 190.
Totals 2122 214 826 $ 422 243 18%
Staff Recommended Rate Design
Staffhas reviewed the impacts of the various rate design options as shown on Attachment
I. It is clear that the existing rates will not collect sufficient revenue for the Company. The
Company s Rate design with Staff adjustments in consumption data collects revenue in excess of
Staff's recommended revenue requirement. Therefore , only the two rate designs considered by
Staff collect the appropriate amount of revenue.
Using the two rate design options, Staff further evaluated the impact on customers.
Attachment E & F, compares customer s average bill and peak summer bills under the various
rate design alternatives. From this review Staff Alternative 2 - Base and Commodity (H2
Adjustment appears to impact customers the least. This alternative minimizes the summer peak
bill impact and only slightly increases the average bills. It also provides the Company with 15%
additional winter revenue due to the base rate increase. The 15% winter increase is also
approximately equal to the overall recommended change in rates. Therefore, Staff recommends
approval of Staff Option 2 - Base and Commodity (H2O) Adjustment.
CONSUMER ISSUES
Since January 1 , 2000, only two customers contacted the Commission. One customer
objected to the 2001 rate increase request. The other customer filed an objection to the 2003 rate
increase request, saying that during an economic downturn is not the time to increase rates. Staff
is not aware of any customer relation issues other than rates.
STAFF COMMENTS OCTOBER 29, 2003
The workshop and hearing held October 8 , 2003 in Idaho Falls was well publicized, but
no customers attended either event and no further comments have been filed with the
Commission.
The Commission, during Falls Water s last rate case, encouraged the Company to review
IPUC notice requirements and fully comply with Rule 102 of the Utility Customer Information
Rules (IDAP A 31.21.02000) when it filed its next application. The proposed rate increase notice
sent to customers with July statements fully complies with Rule 102.
A review of Falls Water Company s other forms and notices including its billing
statement, 7 -day and 24-hour disconnect notices show the company goes beyond the
requirements found in the Commission s Utility Customer Relations Rules (IDAPA
31.2l.0 1 000). The Company s "Spout" Information Pipeline pamphlet gives customers good
information on several subjects; it includes water rates and a summary ofUCRR rules as required
byUCRR, Rule 701.
The Company has no active conservation program and its 574 flat rate customers have
little incentive to conserve water. Staff recommends that the Company use the "Spout " a bill
message, or some other method of its choosing, to give customers suggestions on water
conservation and the wise use of water. Water conservation would minimize upward pressure on
rates by reducing pumping costs.
As growth occurs and the Company continues to serve new subdivisions, it is reminded to
file necessary amendments to its Certificate of Public Convenience and Necessity prior to serving
a new addition if the area is outside of its existing certificated area.
OTHER RECOMMENDATIONS
As a result of its analysis, Staff makes the following recommendations in the areas of
Contributions in Aid of Construction (CIAC) and collection practices.
Contributions in Aid of Construction
As noted earlier, the Company was ordered to start booking hookup fees to the
Contributions in Aid of Construction (CIAC) account instead of to the revenue accounts. These
hookup fees were to be used only for the addition of capacity or the expansion of major
transmission lines. In 2002, the Company began booking these fees separately. However, Staff
STAFF COMMENTS OCTOBER 29 , 2003
believes that the contributions should be further separated from revenues and tracked to assure
the Commission and Staff that they are used for the purposes intended. Staff recommends that
these funds be placed into a separate bank account and used only for documented upgrades for
wells and major transmission lines. This will allow the Company to have some funds available
when it is time for new wells or major lines to serve new customers.
Collection Practices
As noted above, the Company does not actively pursue customer collections after a
customer has moved. While the outstanding amounts tend to be small, Staff recommends that
the Company turn over uncollected accounts to a collection agency. This would require little
effort on the part of the Company, and an agency may be able to recover at least some of the
money. The Company should continue to use the Commission s rules regarding water shut offs
to allow it to pro actively reduce bad debt expense.
RECOMMENDATIONS
Based on the comments above, Staff submits the following recommendations:
1. The revenue requirement be set at $422 698, a 24% increase in total revenue.
2. The Commission adopt Staff Rate Design Option #2 which results in an average rate
increase of 18%.
3. The Company book Contributions in Aid of Construction into a separate account and
use the funds only for new sources of supply or major pipeline expansion.
4. The Company capitalize its engineering studies when appropriate.
5. The Company begin replacing the approximately 50 meters in the Henderson Trailer
Park that were removed prior to the 2001 rate application.
6. The Company implement additional collection practices to reduce bad debt expense.
7. The Company provide water conservation/wise use of water information to customers.
8. The Company request amendments to its Certificate of Public Convenience and
Necessity as necessary prior when providing water service to customers outside of its
certificated area.
STAFF COMMENTS OCTOBER 29, 2003
Respectfully submitted this
Technical Staff:Alden Holm
Michael Fuss
Marge Maxwell
'1A
c:lJ
day of October 2003.
Scott Woodbury
Deputy Attorney General
s W :AH:RES :MJM:MFUSSmisc\comments\flswO3.1 swahmfussmjm
STAFF COMMENTS OCTOBER 29, 2003
Falls Water Adjustments
Field Organization Employee Averaging Reduced EngIneering Actual Non Return
2002 Actual labor Changes Benefits Expenses Expenses Expenses Increases Utility Reserve Falls Water
Results Proposed
Ordinary Income/Expense
Income
400' Operating Revenue
460 . Unmetered Revenue 104 171 104 171
461.1' Metered Residential 227,542 227 542
461.2' Commercial Revenue 284 284
474, Other Utility Revenue 1,460 1,460
Total 400 . Operating Revenue 340,457 340,457
Total Income 340,457 340,457
; Expense
601.5' labor Field 784 777 108 561
601.7 . labor Meter Readino 280 348 628
601.8 . labor Office 000 (26,700)300
601.9' Admin - labor 000 168 54.168
603 - Salary Officers & Directors 704 704
604 - Employee Benefits 800 800
610. Purchased Water 112 112
615 . Electrical Power 858 858
620.2 . Source M&S 924 145 069
620.6 . Distribution M&S 216 682 898
620.7 . Postage 372 628 000
620.8 . Office 539 646 185
620.81 . Telephone Expense 380 380
620.82 . Bank Service Charoes 743 1743
631.1 . EnQineering 210 (21 000)210
631.2' AccountinQ 000 000
631.3 . Attornev 367 276 643
635 . Testing 808 527 335
636.2 . Source Contract Repairs 311 811 122
636.3 . Trash 169 190
636.6 . Contract Repairs 299 769 068
636.7 . Data ProcessinQ 800 80m 000
641 . Rental of Propertv 300 050 350
642 . Rental of Equipment 112 112
650 . Transportation Expense 029 980 029
656 . Insurance Expense 918 493 898
, 660' Advertisino Expense 081 081
670' Bad Debt Expense 619 619
675.1' TraininQ Expenses 290 100 390
675.2 . Dues & Publications 860 900
675.4 . IDHW Fee Expense 860 180
Total Expense 342 242 125 132)800 351 543)(21 000)121 398 790
Net Ordinary Income (1,785)(58 333
Other Income/Expense
Other Income
421 . Non-Utility Income 125 (17,174)951
Total Other Income 125 951
Other Expense
403' Depreciation Expense 031 22.031
408 . Taxes
1408.11' Propertv Taxes 647 972 619
1409.11 . State Income Tax
Total 408 . Taxes 677 649
408.10' Regulatorv Fee 848 848
426. Misc. Nonutility Expenses 513 (13,180)334
427,3' Interest Expense 023 515
615.1 . Electrical Power - BHE 927 (5,927)
615.2' Andco - Electricitv 657 1657
620.21 . Source M&S - BHE 495 (495)
620.61 . Black Hawk Distr M&S 844 1844
620.62 . Andco Distr M&S
620.811' Telephone - BHE 320 1320
635.2 . Testing - Andco (15)
Total Other Expense 350 (21,438)377
Net Other Income (36 225)(33,426)
Net Income 138.010 Adjusted loss (91 759
Return on Assets 986 986
Total Increase Reouested 132 745
Total Revenue Requested 473 202
Percentage 39%
Attachment A Attachment APaoe One of One
Case No. FLS-03-
Staff Comments
10/29/03
Staff Adjustments
Field Management Emplovee Averaaina Enaineerina Office Bad Electricitv Return Total
Falls Water labor Fee Benefits Expenses Expenses Expenses Debt Npnnalization Reserve Staff
Proposed Proposed
Ordinarv Income/Expense
Income
400 . Operating Revenue
460 . Unmetered Revenue 104 171 104 171
461.1' Metered Residential 227 542 227 542
461.2' Commercial Revenue 284 284
474, Other Utility Revenue 1,460 1,460
Total 400 . Operating Revenue 340,457 340 457
Total Income 340,457 340 457
Expense
601,5' labor Field 108 561 (14 022 539
601.7' labor Meter Reading 628 628
601.8' labor Office 300 300
601.9' Admin - labor 168 168
603 - Salarv Officers & Directors 704 000)704
604 - Emplovee Benefits 800 (2,700 100
610. Purchased Water 112 112
615. Electrical Power 858 15,424 282
620.2 . Source M&S 069 145 924
620.6 . Distribution M&S 898 682 216
620.7' Postage 000 000
620.8 . Office 185 879 306
620.81 . Telephone Expense 380 380
620.82 . Bank Service Charges
631.1' Enaineerina 210 716 494
631.2. Accountina 000 000
631.3' Attorney 643 (276 367
635 . Testing 335 335
636.2 . Source Contract Repairs 122 811 311
636.3 . Trash 190 190
636.6 . Contract Repairs 068 769 299
636.7' Data Processing 000 000
641 . Rental of Property 350 350
642 . Rental of Eauipment 112 112
650 . Transportation Expense 029 029
656 . Insurance Expense 898 898
660 . Advertising Expense 081 081
670. Bad Debt Expense 619 656)964
675.1 . Trainina Expenses 390 (100 290
675.2' Dues & Publications 900 40)860
675.4 . IDHW Fee Expense 180 180
Total Expense 398,790 (14 022)000)(2,700)(13 824)(12 716)879)(656)424 361 418
Net Ordinary Income (58 333)(20 961
Other Income/Expense
Other Income
1421 . Non-Utility Income 951 951
Total Other Income 951 951
Other Expense
403 . Depreciation Expense 031 031
408 . Taxes
1408.11 . ProperlY Taxes 619 619
1409.11' State Income Tax
Total 408 . Taxes 649 649
408.10' Regulatory Fee 848 848
426 . Misc. Nonutility Expenses 334 334
427.3' Interest Expense 515 515
615.1 . Electrical Power - BHE
615.2' Andco - Electricitv
620.21 . Source M&S - BHE
620.61 . Black Hawk Distr M&S
620.62 . Andco Distr M&S
620.811' Telephone - BHE
635.2' Testing. Andco
Total Other Expense 377 377
Net Other Income (33,426)426)
Net Income 91,759 154,387
Return on Assets Reauested 986 (13 132)854
Total Increase Recommended 241
Total Revenue Recommended 422 698
Percentaae Increase Recommended 24%
Attachment B
Pane One of One
Attachment B
Case No. FLS-03-
Staff Comments
10/29/03
Falls Water Company
Rate Base Analysis
Company Proposed
Utility Plant in Service 592,484
(Accumulated Depreciation)(293 712)
Working Capital 780
Total Rate Base 341 553
Return at 12%986
Staff Proposed
Utility Plant in Service 592,484
Accumulated Depreciation (316 826)
CIAC (43 542)
Total Rate Base 232 116
Return at 12%854
Difference 132
Staff Attachment C
Paqe One of One
Attachment C
Case No. FLS-03-
Staff Comments
10/29/03
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CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 29TH DAY OF OCTOBER 2003
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. FLS-03-, BY MAILING A COpy THEREOF, POSTAGE PREPAID
TO THE FOLLOWING:
K. SCOTT BRUCE
MANAGER
FALLS WATER COMPANY INC
2025 E FIRST STREET
IDAHO FALLS ID 83401-4411
CERTIFICATE OF SERVICE