20060315Corrected comments.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
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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-O5-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the 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 December 28 2005 , submits the following comments.
BACKGROUND
On November 4, 2005 , Falls Water Company, Inc. (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 $258 363 (48.2%). The Company also submitted proposed
changes in base rates and commodity charges for water service. As set forth in its Application, the
proposed increase reflects the increased costs of operations and maintenance and replacement of
aging infrastructure. The last general rate increase for Falls Water was authorized by Commission
Order No. 29397 in Case No. FLS- W -03-
If the proposed changes in rates are approved, the average annual rates for metered
residential customers will increase from $179.49 to $295., an increase of $116.06 or 64.7%. The
average annual rates for metered commercial customers would increase from $323.46 to $569.
an increase of $246.29 or 76.1%.Annual rates for non-metered residential customers would
increase from $210 to $231 , an increase of $21.00 or 10%. Annual rates for multi- family residential
customers would increase from $181.64 to $344., an increase of$163.18 or 89.8%.
On November 28, 2005, the Commission issued Notices of Application and Intervention
Deadline in Case No. FLS- W -05-1. The deadline for filing interventions was Friday, December 23
2005. No party requested intervention. The Company requests an effective date for its revenue
increase of April 15, 2006.
STAFF COMMENTS
ACCOUNTING ISSUES
OPERATING REVENUES
The operating revenues for Falls Water are being properly billed under the existing tariffs on
file with the Commission. The accounting for operating revenues is consistent with the
requirements of the Uniform System of Accounts, as adopted by this Commission.
The major source of revenue for Falls Water is the sale of water to residential, commercial
and industrial customers. There is also revenue from hook-up fees. In 2005 , actual operating
revenues totaled $535 964.
Staff proposes adjustments to the Company requested test year revenues, expenses, rate
base, capital structure and overall rate of return. Staffs adjustments and recommendations are
summarized on Staff Attachment A.
Staff Adjustment A - Revenues
The 2005 test year was cooler and wetter than the previous five years used by the Company
to calculate electric power use. As a result, the average power cost per customer in 2005 was lower
than any of the previous 5 years. Staff has reviewed the Company s analysis of power costs and
water consumption for those 5 years and agrees with the Company s use of the 5-year averages to
estimate normalized test year power costs. The adjustment to power expenses will be discussed
later in the Operating Expense section of the comments.
STAFF COMMENTS MARCH 3, 2006
By normalizing pumping power expenses on a per customer basis using the previous five-
year average, the Company recognized that pumping costs in the test year were below normal. Staff
agrees. However, if pumping power costs were below normal, total water pumped and per
customer consumption was also below normal. Therefore, Staff has adjusted test year consumption
using the same five-year average methodology used by the Company to adjust pumping power
expenses.
The analysis shows that consumption in the test year on a per customer basis was
approximately 15.5% lower than the previous five-year average. Applying the increase to the
various customer classes results in a 75.8 million gallon increase in test year metered consumption.
This additional commodity generates an additional $31 063 in test year revenue at current
commodity rates. The following table shows the derivation of the test year revenue adjustment.
TEST YEAR ADJUSTED INCREMENTAL AD DITI 0 N AL
CUSTOMER CONSUMPTION CONSUMPTION CONSUMPTION COMMODITY
CLASS GALLONS GALLONS GALLONS BASED REVENUE
1 Metered 452 633 000 522 791 000 158 000 $28 764.
Residential
3 Metered Multi-151 000 034 000 883 000 772.
Family
2 Commercial 017 000 739 600 722 600 $ 1 526.27
Total $31 063.
OPERATING EXPENSES
Operating expenses have continued to climb with revenues and the cost of additional
services. In 2005, reported expenses were $473 776. In the Application, the Company has made
adjustments to expenses totaling $185 239. The Company makes adjustments for operational and
maintenance expenses, proposes a new amortization expense to recover past expenses, and makes
adjustments to interest expense, and income tax expense.
Staff proposes adjustments to the Company s proposed expenses. Staff has adjustments to
employee labor and benefits, electrical power, telephone expense, transportation expense
regulatory and bad debt expense, training expense, interest expense, and state and federal income
tax expense as well as the complete removal of the amortization expense proposed by the Company.
STAFF COMMENTS MARCH 3 , 2006
Accepted Company Adjustments
The Company proposes adjustments to chemicals expense, postage expense, general office
expense, bank service charges, office utilities expense, data processing expense, rental of property
expense, rental of equipment expense, and Idaho Department of Health & Welfare Fee expense
(DEQ expenses). These adjustments total $3 804.90. Staff has examined these expenses and finds
the Company s adjustments to be reasonable. Staff accepts these Company adjustments as
proposed.
Staff Adjustment A - Expenses
The Company has proposed to increase test year pumping power expenses by $21 135 based
upon the average pumping power costs over the previous five-year period to reflect the fact that
2005 was cooler and wetter than normal. The proposed adjustment is based on a per customer
annual expense of $34.80 per customer, adjusted for a known and measurable increase in the power
rate, applied to a customer base of 2 820 customers.Staff does not oppose this adjustment.
However, Staff has used a more current customer total of 2 908 to make its associated test year
consumption and revenue adjustment. Therefore, Staff recommends that test year pumping power
expenses be increased by an additional $3 110 to reflect the higher customer totals. The following
table shows the derivation of the five-year power cost per customer.
ANNUAL
ANNUAL WATER
NO.WATER CONSUMPTION
CUSTOMERS ANNUAL POWER COST CONSUMPTION PER
AT YEARS POWER PER GALLONS X CUSTOMER
YEAR END COSTS CUSTOMER 000 GALLONS
2000 942 $59 062 $30.41 656 477 338 042
2001 967 $71 954 $36.775 263 394 135
2002 006 $68 472 $34.740 884 369 334
2003 196 $90 637 $41.928 791 422 947
2004 464 $77 882 $31.61 789 561 320 439
5- Year Average $34.N/A 368 979
Employee Labor And Benefits - Staff Adjustment B
The largest adjustment in O&M expenses reflects an increase in employee payroll and
benefits costs. The Company proposes to include known and measurable increases to employee
payroll and benefits. In 2006, the Company granted employees increases in pay, began offering a
STAFF COMMENTS MARCH 3 , 2006
retirement plan, and experienced an increase in health benefits. The Company proposes increases to
labor and benefits from the test year levels totaling $68 065. These expenses represent increases to
the following accounts:
Field labor increase of $40 640 to reflect the addition of the employee hired in 2005
as well as pay increases for three employees
Meter Reading Labor increase of $532 to reflect the 2006 wage level for one
employee
Office Labor increase of $4 326 to reflect the 2006 wage level for 1.5 employees
Administrative Labor increase of $4 080 to reflect the 2006 wage level for one
employee, and
Employee Benefits increase of $18 506 to reflect the 2006 expense level for all
employees.
Staff proposes adjustments to Field Labor, Meter Reading Labor, Officers and Directors
Salary, and Employee Benefits.
Staff s adjustment to Field Labor incorporates the actual pay rate for one field employee.
The Staff adjustment incorporates the current rate of pay for this employee. Staffs audit revealed
that the actual rate of pay for this employee differed from the projected rate of pay used in the
Company s Application. This adjustment reduces expenses by $7 654.
Staff proposes to reduce labor meter reading expenses. Currently the meter reader is paid a
monthly salary. The salary is spread out over 12 months and is calculated on a monthly salary for 9
months. The meter reader has been employed by Falls Water Company for 5 years. In discussion
with Company management, Staff understands that the current monthly meter reading takes an
average of 2 to 2.5 days a month. Meters are read by the meter reader monthly beginning on or
about April 15th, with the final read for the season taking place on or about October 15th. Therefore
the meter reader reads the residential meters a total of 7 times a year. Residential meters are not
read during the winter months. The commercial meters are read either by the manager (summer
months) or one of the field labor personnel (winter months).
Staff asserts that the proposed yearly salary is more than generous for the time worked.
Staff proposes to adjust the labor meter reader expense to reflect the current market rate for meter
readers with 5 years of experience. Staff has used, as a basis for an hourly wage, the wage paid to
meter readers with similar experience at United Water Idaho. The residential meters are read a total
of 7 times a year. Staff proposes an adjustment based on 20 hours monthly (2.5 days at the standard
STAFF COMMENTS MARCH 3 , 2006
8 hours per day) at a rate of $18.79 per hour. This monthly amount, calculated based upon the 7
times a year that meters are read by the meter reader, equates to $3 110.42 yearly.
Staffs adjustment reduces O&M expenses by $4 871. This adjustment incorporates the
actual time spent by the meter reader at a competitive rate of pay.
Staff proposes to reduce the salary expense for the Officers and Directors. This adjustment
would put the Officers and Directors Salary at the same level as in the last rate case. In discussions
with the Company, Staff understands that the directors have spent less and less time directly and
indirectly on Falls Water Company matters. In Case No. FLS-95-, in response to Staff
Production Requests, the Company stated that they did not "propose any change from the
compensation plan that has been in effect for many years at Falls Water. ... This plan effectively
does not compensate any officers or directors for their role as an officer or director, but only for the
time they spend on the day-to-day management ofthe Company." (Response to Second Production
Request, received April 17, 1995.) The manager position was created and staffed in May of 1999.
Since that time, the day-to-day management of the Company fell increasingly to this manager. It is
Staffs understanding that the directors and officers spend very little time on the day-to-day
management of the Company. In the course of the audit, Staff reviewed the minutes of the Board of
Director s meetings for Falls Water Company. There was one meeting per year during the last three
calendar years. The Board of Director minutes bear out the fact that the current directors and
officers spend very little time on the business of Falls Water Company. Therefore, the increase in
salary chargeable to water customers is not warranted. Staff s adjustment reduces O&M expenses
by $6 120.
Staff also proposes an adjustment to Employee Benefits. In the Company s filing, the
Company has included an adjustment for an increase in health insurance premiums. At the time of
the audit, the increase in premiums had not taken place, nor was the Company able to provide
evidence that the proposed increase would be implemented. Staff removes this increase to
employee benefits as not being known and measurable. In addition to not being known and
measurable, Staff believes that sharing of the premium increase between the employees and the
Company would be appropriate, were the increase in premiums to take place. The Company
proposes to absorb the entire increase in premiums rather than pass on any of those costs to the
employees. Staff reduces health benefits by $8 400. The Company has begun a 401(k) retirement
program. The Company contributes a percentage based on the employee salary. Because Staff has
reduced employee labor, there is a corresponding reduction to benefits. Staff reduces benefits for
STAFF COMMENTS MARCH 3, 2006
the 401(k) retirement plan by $259. Staffs total employee benefits adjustment reduces O&M
expenses by $8 659.
Telephone Expense - Staff Adjustment C
Staff proposes to remove $1 200 from telephone expense. The Company provides its
employees with cellular telephones. The Company currently provides cellular telephones to the
three field labor employees, the meter reader, the full-time office staff person, and the Company
manager. Staff asserts that providing a cellular telephone to full-time field employees is reasonable.
It is also reasonable that the manager have a Company provided cellular telephone. While one
could argue that there may be less expensive ways for the Company to keep in touch with its
employees, Staff recognizes that the cellular telephone has become the generally accepted means of
communication for field employees in the business world today. However, Staff does not believe it
is reasonable to provide the full-time office staff with a cellular telephone. It would be a rather
unusual occasion that would necessitate contacting office support after business hours by cellular
telephone. It is also unreasonable that the meter reader, working only 2.5 days a month, 7 months
out of the year, would require a cellular telephone at customer expense for the entire year. Perhaps
a cellular telephone could be shared as needed by clerical staff and the meter reader. Staff
adjustment removes $100 per month from telephone expense for two cellular telephones. This cost
may continue to be incurred by the Company but Staff recommends it not be funded by customers.
Transportation Expense - Staff Adjustment D
Staff has adjusted the Company s transportation expense to include the current cost of fuel
in the transportation calculation. The Company used $2.869 per gallon of fuel. This was the
current cost of fuel at the time the Company was compiling its rate case. Staff has used the more
current cost of $2.269 per gallon of fuel. Staffs adjustment also removes costs that represent one-
time costs. Staffs adjustment removes half the cost of tires. In 2005, new tires were purchased for
two of the three utility vehicles. Staff s adjustment includes the cost for one set of tires each year to
levelize this cost. Staffs adjustment also removes expenses for one-time travel expenses. Finally,
Staff increases transportation expenses to reclassify the interest expense for the vehicle loan that is
reflected in the Company s Application under Interest Expense. The vehicle loan interest is more
appropriately reflected in transportation expense, not in interest expense.This increases
STAFF COMMENTS MARCH 3, 2006
transportation expense by $412.00. Staffs transportation expense adjustment removes $4 479 from
expenses.
Regulatory & Bad Debt Expense - Staff Adjustment E
Regulatory and Bad Debt are both expenses that vary with the fluctuation in revenues. The
Company makes adjustments to both regulatory expense and bad debt expense. Staff also has
adjustments to regulatory and bad debt expense. Staff s adjustment reflects the adjustment in
revenues. Staffs adjustment to Regulatory Fees reduces expenses by $503. Staff calculates that in
2005 1.045% of revenues are uncollectible. Staffs adjustment of $2 035 incorporates that level of
bad debt expense.
In the last case, the Commission directed the Company to implement a more aggressive
collection practice to reduce its bad debt expense. Since the last case, the Company has
implemented procedures to reduce its bad debt. One thing that contributes to the Company s bad
debt expense is the turnover in mobile home rentals. There are instances when unpaid water bills
are left behind when a rental has been vacated, and collection of the past due amount is unlikely.
The Company now turns over unpaid accounts to a collection agency and this has helped reduce bad
debt expense. Bad debt expense, when expressed as a percentage of gross revenues, has declined
each year since the last rate case.
Training Expense - Staff Adjustment F
Staff removes $900 of training expense as not being representative of the normal amount of
yearly training incurred by Falls Water Company. The level of expense included in the 2005 case is
for training that is a one-time experience and not an on-going training expense, therefore Staff
removes half the amount of training included by the Company. Staff asserts that this adjustment
provides for a more reasonable level of ongoing training in the future, for the period when rates will
be in effect.
Amortization Expense and Interest Expense - Staff Adjustment G
The Company proposes to include an amortization expense of $37 833. This amortization
expense is to recover expenses that were incurred in 2004 and 2005 for unanticipated O&M and
office expenses. At the time the last rate case was filed, the Company shared office space and
office personnel with an affiliate of the parent company. As the last case was finalized in December
STAFF COMMENTS MARCH 3 , 2006
of 2003, Falls Water Company was informed by the owner that the office space it occupied was
needed for the expansion of affiliate businesses. Falls Water moved into its current office space in
January of 2005. Because the Company shared office staff with the other affiliates at the previous
location, the Company needed to hire a new employee to assist with the clerical and receptionist
duties previously shared with the affiliate company. Falls Water Company also had the need for an
additional serviceman, but not the necessary cash flow. The owner of the Company funded a
portion of the expenses for this additional employee. Falls Water Company seeks to amortize
$75 667, the expense for the 2 additional employees, over 2 years for an increase in expenses of
$37 833 per year. The Company also includes an adjustment to interest expense of$5 328.
Staff removes the amortization of expenses the Company incurred in 2004 and 2005. While
the Company actually incurred these costs, 2004 is outside the test year, extraordinary and non-
recurring, not reflective of on-going expenses, and to include these costs would retroactively
capture costs contrary to traditional commission ratemaking.The labor expenses for 2005
including the transferred employee are included in the test year and are incorporated in this case.
To include the amortization of these past costs through rates would violate the principle that rates
must be prospective and may not be used to recoup past expenditures through future rates unless
they are preserved for that purpose by deferral or other regulatory action. This Staff adjustment
removes $37 833 from expenses.
Staff proposes an adjustment to Interest Expense, made up of three separate adjustments.
The first adjustment is to remove the interest expense associated with long term debt. Long term
debt with the State Revolving Loan Fund and the parent company are components of the capital
structure. Because Staff includes long term debt in the calculation of the overall return on rate base
the amount of interest expense associated with the long term debt is included in the return rather
than including interest as an expense. The amount of this adjustment is $15 037.
The second adjustment to interest expense moves the amount of interest expense associated
with a vehicle loan from the interest expense account to the transportation expense account. The
vehicle loan interest is better reflected in transportation expense. The amount of interest associated
with the vehicle loan is $412.00.
The final adjustment to interest expense removes $2 006 to correct a computational error in
the Company s spreadsheet. The heading of the interest expense column, showing the year 2006
was inadvertently added to the interest expense. Staffs adjustment to interest expense properly
STAFF COMMENTS MARCH 3, 2006
reflects the interest expense with the return for ratemaking purposes. Staff s adjustment removes
$17,455 from expenses.
Income Tax Expense - Staff Adjustment H
The Company also makes adjustments for increases in income taxes associated with the
increase in revenues requested in this case. These adjustments to state and federal income tax total
$41 849.
Income Tax Expense is an expense that varies with the fluctuation in revenues and expenses.
As Staff adjusts expenses and revenues, the income taxes must also be adjusted. After all proposed
adjustments, Staffs adjustment to federal income taxes reduces expenses by $32 444 and reduces
State income taxes by $8 780.
RATE BASE, CAPITAL STRUCTURE, AND REVENUE DEFICIENCY
The Company proposes a rate base of $651 588. The Company proposes no adjustments to
its actual Utility Plant in Service. The Company s proposed rate base is comprised of the following
components: Utility Plant in Service less Contributions in Aid of Construction (CIAC) and
Accumulated Depreciation of $579 926; and a working capital component of $71 661 using the
1/8th of Operation an Maintenance expense method. The Company uses a capital structure of 100%
Equity, so the proposed 12% return on equity is also the overall return on rate base used to calculate
the return on rate base of $78 191.
The Company calculates the revenue deficiency to be $258 264. The revenue deficiency is
calculated by adding the requested return on rate base of $78 191 to the difference between the
operating revenues and expenses of$180 073.
Staff Proposed Capital Structure and Overall Rate of Return
The Company s last rate case used a 2002 test year. At that time, the capital structure was
made up entirely of common equity. In 2004, the Company entered into long-term debt with the
State Drinking Water Revolving Loan Account administered through the Department
Environmental Quality. The Company is also repaying a loan from the parent company. These
loans reflect the Long Term Debt. The Company s capital structure has changed with the addition
of this long-term debt, and is currently 71.8% long-term debt and 28.2% common equity.
STAFF COMMENTS MARCH 3 , 2006
In the last rate case, the Company was granted a 12% rate of return (on 100% common
equity) and instructed to use the return on investment as a reserve for capital improvements, repair
and replacement. As the Commission stated in Order No. 29397 dated December 12, 2003
, "
continue to find a 12% return on equity to be reasonable for Falls Water. In doing so we
acknowledge that small water companies have greater risks than other utilities. We also recognize
the operational and economic challenges facing small water companies in their continuing efforts to
provide their customers with safe, potable water.
Staff continues to support a 12% rate of return on common equity. Using the actual capital
structure and a return on equity of 12%, Staff calculates an overall rate of return of 6.30% as shown
in the table below.
WEIGHTED
DESCRIPTION AMOUNT PERCENT COST COST
State Revolving Loan Fund $259 363 50.3.25%64%
Long Term Loan to Parent $109 305 21.3%00%1.28%
Common Equity $144,834 28.2%12.00%38%
Total $513 502 6.30%
Staff Proposed Rate Base
Staff has audited the amounts included in plant in service in the Company s filing and finds
the test year amount to be acceptable. As in the last case, Staff removes the working capital
component of rate base. Staff s working capital analysis finds that the customers continue to supply
the working capital needs of the Company. Based on that analysis, Staff recommends no return on
working capital. Staffs adjustment to rate base provides a rate base of $579 926. Applying the
overall rate of return produces a return on rate base of $36 535. Staffs adjustments to revenues and
expenses total $98 759. With Staffs adjustments, the net income after taxes is $11 875. After
including the return on rate base of $36 535 , and applying the gross-up factor for income taxes, the
total increase recommended by Staff is $31 951. Based on its findings, Staff recommends an
increase of$31 951 or 5.34%.
During the course of its audit, Staff found that the installation and plant costs associated
with hook-up fees are not accounted for completely. The Company collects hook-up fees in an
amount that approximates the actual cost for each hook-up. The Company currently accounts for all
employee labor and benefits as operating expenses. When a capital item is placed in service, the
STAFF COMMENTS MARCH 3 , 2006
Company should be capitalizing the employee labor and benefits associated with the time the
employee spends on that activity rather than expensing it in the current year. All costs, including
company labor, incurred by the Company from a new hook-up should be capitalized to the
appropriate plant-in-service account, and the amount of the hook-up fee should be accounted for in
the Contribution in Aid of Construction account. The Company accounts for the hook-up fee
correctly when they receive it but does not properly book the plant expenditures.
When accounting for a hook-up fee, the contributions in aid of construction account offsets
the plant-in-service account, so that in theory, plant in service is not increased by the hook-up
expenses. The hook-up fee is designed to cover the full amount of the costs incurred. When
accounted for properly, the plant will be capitalized and to the extent that the hook-up fee does not
cover the expenses of the hook-up, those additional costs beyond what the hook-up fee covers will
be included in rate base.
Staff believes the effect from past hook-up accounting errors is small and makes no
recommendation to correct the current balance in the plant-in-service accounts. However, as the
Company implements the meter replacement program, and places meters in the unmetered mobile
home park, Staff recommends that the employee labor and benefits be properly capitalized when
employees work on capital projects.
ENGINEERING ISSUES
Water Usage
Falls Water Company s water usage in 2005 was 929 million gallons with an average use
per customer of319 335 gallons, well below the prior 5-year average of368 979 gallons. The 2005
test year water usage reflects historical patterns with approximately 50% of the water being used in
the three hottest summer months of July, August and September.This is important when
considering the limitations on the Company s total annual water allocation and pumping rates
allowed under its existing water rights.
The following table shows both the total usage and the usage per customer by tariff
schedule. The two customer groups with the greatest use are the R-l Metered Residential and R-
Flat Rate residential customers. Together, these two customer classes make up approximately 95%
of the total customer usage.
STAFF COMMENTS MARCH 3 , 2006
2005 Falls Water Customer Water Usage Data
Total
Customer Flat Multi-Waste and Water
Class Residential Rate Family Commercial Leakaee Pumped
No. of
Customers 225 585 N/A 908
Usage,
gallons X 462 253 390 916 151 017 39,434 928 771
000
U sage per
Customer 207,568 668,232 213 175 585 780 4.2 %319 385
~allons
Unmetered R-2 customers as a class represent approximately 20% of the total customers, but
used approximately 44% of the water consumed in 2005. The high per customer use of the
unmetered R-2 category indicates a potential for significant reduction of water use and waste
through metering and leak detection in this older part of the Falls Water System.
Given that the Company has experienced significant growth (33% in 3 years) and there are
continuing high growth expectations and potable supplies appear limited, there is an identified need
for the Company to conserve, eliminate waste and leakage and to find alternatives that reduce use.
The best place to look for additional resources is within the Company s system through leak
detection/elimination and efficient end use by existing customers.
Water Resources
In a contested petition for additional water rights before the Idaho Department of Water
Resources in 2004, the Company sought to increase both its total allowable annual consumption and
its maximum allowable withdrawal rate. The Company s petition was opposed by a local irrigation
district, the Northside Canal Company. Reference Falls Waters, Inc. Application for Permit No. 25-
14114. A settlement agreement was negotiated in 2005 that allows the Company to increase its
pumping rates but did not increase the Company s water allocation. The settlement also requires
that the Company actively seek a new county ordinance for Bonneville County that would require
new subdivisions to acquire or use appurtenant surface water rights for irrigation purposes.
In July of 2005 , the Idaho state legislature passed and the governor signed a bill requiring
the use of surface water for irrigation where surface water rights are available. Reference Idaho
STAFF COMMENTS MARCH 3 , 2006
Code Section 67-6537. Staff notes that some cities and counties have passed ordinances requiring
the use of surface water for irrigation in new developments (Meridian and Twin Falls). Reference
Twin Falls City Ordinance No. 2607 and Meridian City Code Title 11. Staff supports the
Company s efforts to fulfill the requirements of the settlement agreement signed in 2005 by the
Company and the North Side Canal Company.
Until such a county ordinance is enacted, other conservation methods should be a priority.
These should include keeping better records of well production in support of water management
reducing waste and leakage, metering of unmetered customers, support of secondary irrigation and
tariff structures that can encourage conservation by the customers.
Well Logs
Well log record keeping practices at Falls Water are poor. Well log data is manually read
and recorded and there is not a procedure in place to guarantee that each well's flow is read and
recorded on a scheduled basis so that the data is certain and recoverable. This particular shortfall at
times results in Falls Water not knowing how much water has been pumped in a given period and
the inability to report actual ground water used or actual water sent to waste (some goes to waste at
each pump start) for each month. Working closely with Falls Water, Staff has been able to
reconstruct the current test year well data to a level that is accurate enough for auditing and tariff
determination.
Falls Water has investigated automated well pump flow meters for its 8 wells and found the
cost to approach $150 000. This cost does not fit within current budget limitations. Alternatively,
the existence of the Company SCADA system, which presently tracks all water system operations
including when and for how long each pump is operated, is a tool that should be used to determine
well pump flows for better well log and system record keeping. Staff recommends that the SCADA
system and database, with certified calibrated pump curves be used to make reasonably accurate
calculations of flows for any given period. The data gathered should then be periodically verified
using a planned program of reading and comparing data from the manual read totalizing flow
meters. This will allow the Company to better identify and control water loss and improve delivery
efficiency thereby better utilizing existing water supplies. In support of this, Staff recommends that
the Company purchase the software enhancements to its existing SCADA software that are
necessary to implement better record keeping, especially for well production.
STAFF COMMENTS MARCH 3 , 2006
Meter Replacement
In addition to the planned installation of meters at the 585 residences that are currently
unmetered, as discussed further below, the Company is initiating a program to replace 5% of its
oldest meters each year. The meter replacement program will, at present, call for 116 meters (5% of
the existing 2 323 meters) to be replaced each year and allow for additional 25 meter replacements
each year due to breakage, construction or other non-wear related problems. After all existing
customers are metered the program will require at least 141 replacements per year. At a meter cost
of $155.40 (including sales tax), an average total replacement cost of $180.40 for each meter
replacement including incidental materials and labor is reasonable. This plan will require
replacement of approximately 141 meters annually at a total cost of $25,436, which includes
$20 926 for the 116 meters in the new meter replacement program.
While Staff understands the Company s desire to replace aging meters, we believe metering
currently unmetered customers is a higher priority given the limited potable supply and the greater
equity provided through metered rates. In order to facilitate more rapid conversion of the
unmetered customers to a metered status, Staff recommends that for the first 3 years the meter
replacement program resources be used to accelerate metering of currently unmetered customers.
Staff analysis and recommendation is addressed below.
Metering of Unmetered Customers
There are 585 Flat Rate R-2 customers. The Company has proposed to convert these
customers to the R-l metered tariff over a period of 6 years. The customer water use analysis
suggests there is excessive use, leakage or both taking place in the unmetered service area. Based
on the result of its last application for additional water rights, the Company has stated that is
unlikely to be granted new water rights and will therefore have to buy additional water rights. For
this reason, Staff recommends acceleration of the program to meter unmetered customers from the
year program proposed by the Company to a three year program. By combining the first 3 years
of the system-wide meter replacement program with the Company s proposed expenditures for
metering of unmetered customers all unmetered customers can be metered within 3 years. The total
cost to convert to metered status is approximately $169 670.
The breakdown of the sourcing of these 585 meters, their cost and the cost of installation
between the proposed metering of unmetered customers and the meter replacement program is as
follows:
STAFF COMMENTS MARCH 3 , 2006
Total meters required
Meters from system-wide replacement program
585
348
Total
237
$ 36 829.
$ 16 359.
$ 47 615.
$ 14,786.
$115,591.37
$ 54,079.20
$169 670.
Additional new meters to be purchased
Cost of237 additional new meters
Installation for 472 residences with no meter barrel
Cost of installation for 89 residences with wrong meter barrel
Cost of installation for 24 residences with correct meter barrel
Total Incremental Cost
Cost of 348 Meters from Replacement Program
Staff recognizes that the conversion of all unmetered customers to metered service in three
years rather than six could be difficult for the Company given the accelerated capital requirements.
Additionally, under the Staff recommendation, replacement of aging meters would be delayed.
However, the Company has already proposed to spend approximately $37 000 over the next 3 years
on replacement meters and an additional amount over the same period to meter half of the currently
unmetered customers.
The estimated additional capital commitment when capital expenditures already planned by
the Company over the three-year period are considered would be approximately $58 000.
As mentioned above, these unmetered customers have very high water usage rates. Leaks
are believed to be a substantial problem for the area since it is a 50-year-old mobile home park. In
addition, customers routinely leave water running in the winter to prevent frozen pipes after meter
installation. In order to support conservation by individual customers and to identify and locate
leaks, Staff recommends installing meters for all unmetered customers as quickly as practical. Staff
further recommends that the Company provide these customers with weatherization information and
assistance that could help them identify and eliminate leaks and reduce or eliminate frozen pipe
concerns.
Minimum Charge Water Allowance
In considering conservation measures, Staff reviewed the amount of water included with the
mmlmum charge. Falls Water presently includes 20 000 gallons of water with the monthly
mmlmum charge and has proposed changing that to 8 000 gallons. There are several water
STAFF COMMENTS MARCH 3 , 2006
companies that provide less than 20 000 gallons with the monthly minimum charge (Brian Water
for example at 4 000 gallons). As part of the review, it was determined that a significant change in
the amount of water included with the minimum charge has relatively small effect on revenue.
Revenue derived from the commodity rate was calculated at the 10 000, 12 000, 15 000 and 20 000
gallon allowance levels. Even at the maximum reduction of minimum charge water allowance from
000 gallons to 10 000 gallons the resulting annual revenue increase of approximately $6 300
1 % of total revenue) was relatively small. The effect on a customer s average monthly bill is
approximately sixteen cents per month. Changes in water allowances included with the minimum
charge are therefore viewed as sending a conservation message only in combination with increases
in the commodity rate. Staff believes that a reduction is appropriate to help send the correct
conservation message, but that reduction of the amount to the 8 000 gallons proposed by the
Company is too severe.
A 12 000 gallon minimum charge allowance is recommended based on the average winter
use for metered customers which varies from about 6 000 gallons per month to approximately
000 gallons per month. At this time, Staff believes it is appropriate to set the amount of water
included with the minimum charge at a level where few, if any, will pay for excess water in the
winter months.
Tariffs
As mentioned above, the availability of new water supplies is driving a need to conserve
existing supplies. Staff proposes changing the tariff design to encourage conservation. This will
involve eliminating the flat rate customers over the next 3 years, increasing the portion of total
revenue collected from excess commodity usage and reducing the amount of water included with
the minimum charge.
The Company proposed tariff for R-1 (metered, residential) customers increases both the
monthly minimum charge and the commodity charge for water used in excess of the minimum
allowance. Additionally, the Company would set summer and winter tariffs with differing
minimum charges and minimum allowances and establish a new tariff for new subdivisions with
secondary irrigation. The Company has proposed the differential summer/winter rates for R-l and
the new R-4 rate to promote conservation and the use of secondary irrigation. Staff finds no
justification for the split rate for R-l customers, especially when compared to the single rate for
metered multi-family and commercial customers. While Staff supports the secondary irrigation
ST AFF COMMENTS MARCH 3 , 2006
measures proposed, we also believe it is inappropriate to implement a rate differential before a
separate irrigation ordinance exists or separate irrigation systems are available. The table below
details the current tariff, the Company s proposed tariff and Staffs proposed tariff.
COMPANY
CURRENT PROPOSED STAFF PROPOSED
SCHEDULE TARIFF TARIFF TARIFF
Minimum Commodity Minimum Commodity Minimum Commodity
Charge Charge Charge Charge Charge Charge
$11.50 $0.41 per Summer $11.50 $0.45 per
000 $12.$0.85 per 000 gallons
gallons over 000 over 12 000
000 gallons gallons
gallons over 8 000
gallons;
Winter
$15.$0.85 per
000 over
000
gallons
$17.N/A $19.N/A $19.N/A
$11.50 $0.41 per $12.$0.85 per $11.50 $0.45 per
000 000 000 gallons
gallons over gallons over 12 000
000 over 8 000 gallons
gallons gallons
N/A N/A $12.$2.50 per N/A N/A
000
gallons
over 8 000
gallons
$11.50 $0.41 per $12.$0.85 per $11.50 $0.45 per
000 000 000 gallons
gallons over gallons over 12 000
000 over 8 000 gallons
gallons gallons
The tariff proposed by Staff provides the Staff recommended revenue requirement of
$630 041 with rate changes aimed at sending a price signal to induce water conservation. Given the
proposed reduction in the amount of water included with the minimum charge from 20 000 gallons
to 12 000 gallons, Staff believes it would be inappropriate to increase the minimum charge. The
required revenue increase will come solely from the excess water commodity charge.The
Minimum Charge in the tariff proposed by Staff provides approximately 72% of required revenue
while the excess use commodity charge will provide 28%. The Company s present tariff structure
provided approximately 78% of its revenue from fixed charges and 22% from excess water
commodity charges in 2005. As a comparison, the minimum charge for United Water residential
STAFF COMMENTS MARCH 3, 2006
customers provides about 57% of United Water s residential revenue. Staff believes this proposed
move toward higher revenues based on actual use is consistent and appropriate.
The resulting annual average bill for each customer class under the Staff proposal is
compared to both the present annual bill and the bill that would result from the Company proposed
tariff in the table below:
Annual Average
Present Average Bill with Annual Average
Annual Bill Company Percent Change Bill with Staff Percent Change
Schedule (Adjusted)Proposed Tariff from Present Proposed Tariff from Present
, Metered
Residential $202.$295.45.$209.12 %
, Flat Rate
Residential $210.$231.10.$235.1.81 %
, Multi-
Family $208.$344.65.$215.
Commercial $388.$569.46.$412.
CUSTOMER RELATIONS
A Notice to Falls Water Company s customers was filed with its Application for a rate
increase. The Notice was mailed to customers and the news media on November 7, 2005 as
required by the Utility Customer Relations Rules (IDAPA 31.21.02102). The original notice to
customers did not state that the rate Application was on file at both the Company s and the Idaho
Public Utilities Commission s offices. Staff brought this to the attention of the Company, and it
mailed out in the next month's bill a statement that the Application could be reviewed at both the
Company office in Idaho Falls as well as at the Idaho Public Utilities Commission office in Boise
Idaho.
Since January 2004, only four customers have contacted the Commission. Three of them
called to express their objection to the 2005 rate request or ask questions about it. The other
customer complained that they didn t understand why they had to pay a reconnection fee after the
service had been shut off due to non-payment. A workshop was held in Idaho Falls on January 25
2006.Sixteen customers attended, and actively participated in asking questions regarding the
STAFF COMMENTS MARCH 3, 2006
Company s filing for an increase in rates. A Public Hearing is scheduled for March 15 , 2006 in
Idaho Falls.
review of Falls Water Company s forms, notices and billing statement shows the
Company to be in compliance with the requirements found in the Commission s Utility Customer
Relations Rules (IDAPA 31.21.01000). The Company s "Spout" Information Pipeline pamphlet
gives customers good information on several subjects; it includes information on water rates and a
summary ofUCRR rules as required by Rule 701.
In Order No. 29397 (Case No. FLS-03-1 p., ~ 3), Falls Water Company was directed to
replace the meters in the Henderson Trailer Park area on or prior to June 15, 2004. According to
Manager, Scott Bruce, 45 of the 47 meters in Henderson Park were replaced in the months of March
through June 2004. There were two meters in the Park, however, that were not replaced until July
2005. In one instance, the angle valve in the meter barrel was not functioning. The Company had
trouble locating the other meter. All the meters at Henderson Trailer Park have now been replaced.
In this Application, Falls Water seeks to add a field collection fee. A fee of $15 would be
imposed upon customers who fail to respond to notices of termination for non-payment on account
and do not pay until the service technician is at the home ready to terminate service. In calendar
year 2004, the Company collected payment at the doors of 12 customers. In 2005, there were ten
customers who paid the service technician at the door. The Company delivers a final disconnect
notice to a customer 24 hours in advance of the proposed disconnect date. If the customer fails to
respond, the service technician makes a second trip to the residence the next day to disconnect
service. If customers are experiencing financial difficulty in paying the full amount of the bill, they
can call the Company to work out some payment arrangements. However, when there is no contact
from the customer, the Company has no alternative except to proceed with disconnection of service.
Staff supports the Company being able to collect a $15 fee for each time the service technician is at
the premises to disconnect service and in lieu of disconnecting, collects payment at the door. Other
water, gas and electric companies have been allowed to charge a field collection fee in amounts
ranging from $15 to $20. Staff recommends that Falls Water Company be allowed to charge a $15
field collection charge. Staff also recommends that the "Field Collection" fee be described in the
Company s tariffs. In the Company s proposed tariffs, the fee is itemized without an accompanying
description of when the charge will apply. This fee should be assessed when a personal visit is
made by a Company representative to a service address in order to terminate service and at such
time the customer makes a partial or full payment on the bill. The Field Collection charge should
STAFF COMMENTS MARCH 3, 2006
not be assessed if service is terminated. If service is terminated and the customer pays the bill and
requests reconnection of service, the Company s already authorized reconnection fee will apply.
Summary Of Customers ' Comments
As of February 28, 2006, the Commission had received 35 written comments regarding this
rate Application. Twelve customers commented that they believed it was unfair to reduce the
number of gallons included in the monthly minimum while at the same time increasing the monthly
rate. They believe this results in a double increase to them. Eleven customers stated that they were
willing to pay a reasonable increase in rates, but not as much as the Company was requesting.
Seven customers felt that the percentage of increase requested for metered customers was
significantly higher than the unmetered customers and that it was not fair. Four customers claimed
lower water rates were paid by customers of other nearby water companies and felt that their rates
should be no higher than $15-$20 a month. Three customers mentioned that new development
should pay for itself. One customer stated that the City of Idaho Falls requires a certain amount of
landscaping, apparently implying that the increased rates would have an impact on landscape
irrigation. One other customer brought up the fact that they had not received any promotional
information from Falls Water encouraging water conservation.The customer cited several
instances of other customers watering in the heat of the day, schools watering open fields, etc. The
customer stated that there should be some effort to promote conservation.
In the last rate case, Case No. FLS-03-, Staff pointed out that the Company has no
active conservation program and that the flat rate customers have little incentive to conserve water.
It was recommended by Staff in that case 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. Although Order No. 29397 directed the Company to provide water conservation
and wise use of water information to customers (p. 8 , ~ I), the Company has not provided any
additional information other than the same two sentences it used in the "Spout" in 2003. Staff
recommends that the Company be directed to provide brochures or fact sheets specifically directly
at water conservation and wise water use and mail them out once each year with the bills prior to
high summer water months. Staff can provide examples of printed materials used by other water
companies if the Company needs assistance in preparing its information.
STAFF COMMENTS MARCH 3 , 2006
SUMMARY OF RECOMMENDATIONS
Staff recommendations are as follows:
1. Change tariffs as shown below to reflect an increase to revenues of$31 951 or 5.3%.
2. Provide water conservation/wise water use information to its customers.
3. Implement the proposed $15 field collection charge and file a revised tariff that
describes when the charge will apply.
4. Shorten the proposed 6-year period for conversion of unmetered customers to metered
status to 3 years.
5. Enhance existing SCADA software to implement better record keeping, especially for
well production.
6. At the time of conversion to metered status, provide previously unmetered customers
with weatherization information to minimize frozen pipe problems.
7. File tariffs as described below.
Commodity
Minimum Charge, Each
Schedule Charge
, $
000 Gallons over
12,000
, Metered
Residential $11.50 $0.45
, Flat Rate
Residential $19.N/A
3, Multi-Family $11.50 $0.45
, Commercial $11.50 $0.45
Respectfully submitted this vtf2 day of March 2006.
Le~
cott oodbury
Deputy Attorney General
Technical Staff: Harry Hall
Kathy Stockton
Carol Cooper
i:umisc:commentslflswO5.1swdesklscchh
STAFF COMMENTS MARCH 3, 2006
Ordinary Income/Exoense
Income
400 . Ooerating Revenue
460 . Unmetered Revenue
461.1' Metered Residential
1461.2' Commercial Revenue
1474. Other Utility Revenue
Total 400 ' Operating Revenue
Total Income
Ex nse
601.5. Labor Field
601.7' Labor Meter Readinn
601.8' Labor Office
601.9' Admin - Labor
603. Salarv Officers & Directors
604. EmDlovee Benefits
610. Purchased Water
615. Electrical Power
618. Chemicals
620.2 . Souree M&S
620,6 . Distribution M&S
620.7' Postage
620.8. Office
620.81 . Telephone ExDense
620.82' Bank Service Chames
620.83 . Office Utilities Exoense
631.1' Engineerino
631.2' AccountinD
631.3' Attornev
635 . Testing
636.2 . Source Contract ReDairs
636,3 . Trash
636.6 . Distribution Contract ReDairs
636.7 . Data Processing
641 ' Rental of Procertv
642 . Rental of Eouioment
650. TransDortation Exoense
656. Insurance Exoense
660 . Advertisino ExDense
670. Bad Debt Exoense
675.1' Training ExDenses
675.2 . Dues & Publications
675.4 . IDHW Fee ExDense
65.9 . Uncategorized Expenses
Total Expense
Net Ordinary Income
Other Income/Excense
Other Income
j421 . Non.Utility Income
Total Other Income
Other Exoense
403. DeDreciation Excense
407 . Amortization ExDense . Other
408.10' Regulatorv Fee
426. Misc. Non-utilitv ExDenses
427.3' Interest Expense
Total OtherEXDense
Net Other Income
Net Income Before Taxes
408 . Taxes
408.11 . Prope tv Taxes
409.10. Fed Income Tax
409.11' State Income Tax
Total 408 . Taxes
Net Income After Taxes
Company
Return on Rate Base ReDuested
Return on Rate Base
Total Increase ReQuested
Total Revenue Requested
PercentaDe Increase ReDuested
Staff Adjustments
Falls Water Company, Inc.
General Rate Case
FLS-O5-
Normalize Revenues Labor &
For ConsumDtion Benefits TeleDhone TransDortationFalls Water & Power ExDense Excense ExDense ExcenseProposed A
138 215
981
777
82,388
824
912
112
809
952
091
496
872
744
11.119
762
966
715
893
4,406
3,410
395
198
906
078
11,868
845
008
9,468
054
285
800
870
988
100
573290
226
015
833
035
1,471
455
102810
184
1131 410
129
539
995
663
(180073
78.191
12%
258 284
794,228
48.
124 145
397 651
532
637
535964
535 964
626
8626
537
526
063
063
110
110
654
871
120
658
200
4,479
(27303)(1,200)479)
" f
ReQulatorv
& Bad Debt TraininQExDense Expense
F "
...:; : ,.' j'-
; c:; ;.Amortization & Interest Income Tax I Total Staff
Exoense ExDenses , Ad'ustmentsG' ", H'
, ,!;,' '" "
359
1900
359)
(582)
582
(900)
833
(17,455)
288
888
(11 241)
1 (47 929)
Net Income After Taxes
STAFF
Staff Return on Rate Base Recommended
Overall Return on Rate Base
Staff Revenue Deficiencv
Net to Gross MultiDlier
Staff Total Increase Recommended
Staff TDtal Revenue Recommended
Pereentaoe Increase Recommended
29.537
528
063
063
854
871
120
658
110
200
4,479
359
900
(33 131)
833
582
(17455)
155 870
688
(11 241)
(47 929)
Total
Staff
Proposed
124 145
427 188
058
637
587 027
567 027
130 561
110
777
368
704
254
112
102 919
952
091
24,496
872
744
919
762
966
715
893
4,406
3,410
395
198
906
078
868
845
529
9,468
054
925
900
870
988
100
540 158
869
626
626
44015
1,453
1,471
940
314
445
129
149
246)
733
(12 179
36535
48714
2956
63,116
630143
11.13%
Corrected Attachment A
Case No. FLS-05-
Staff Comments
03/03/06
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 3 RD DAY OF MARCH 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. FLS-05-, BY MAILING A COpy THEREOF, POSTAGE PREPAID
TO THE FOLLOWING:
K SCOTT BRUCE
FALLS WATER COMPANY INC
1770 SABIN DR
IDAHO FALLS ID 83406
Jo~
SECRETARY
---
CERTIFICATE OF SERVICE