20100310final_order_no_31022.pdf

Office of the Secretary
Service Date
March 10 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF FALLS WATER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
AND CHARGES.
CASE NO. FLS-09-
ORDER NO. 31022
On August 4, 2009, Falls Water Company filed an Application for authority to
increase its rates and charges. Falls Water provides water service to more than 3 600 residential
and commercial customers in an area generally north of the City of Ammon and northeast of the
City of Idaho Falls in Bonneville County. Application at 2. The Company last increased its
basic rates and charges in January 2008. Order No. 30484. Since that time, the Company has
put a new well into service (Well No.9), acquired additional water rights, began installing
meters and transmitters in an effort to upgrade its system, moved offices, acquired new office
furniture, and replaced a hydrant on the water system. Id. at 2. As a result, the Company
requests an increase of $143 496.81 in its total revenue requirement. The Company also
proposes to implement a meter test fee, returned check fee, and late payment fee.
After reviewing the record, including the analysis, comments and recommendations
of Staff, Company reply, and written comments of the customers of Falls Water, we approve an
increase of $92 728 to the Company s existing total revenue requirement. We authorize the new
rates to become effective March 16 2010.
BACKGROUND
A. Procedural History
On September 2 2009, the Commission issued a Notice of Application and Notice of
Intervention Deadline that suspended the Company s proposed effective date of September 10
2009. Order No. 30893. No parties petitioned to intervene. On September 16 2009, a Notice of
Public Workshop and Notice of Modified Procedure were issued setting a deadline for comments
to be filed no later than October 7, 2009.Order No. 30899.On September 30, 2009
Commission Staff filed a Motion to Suspend Deadline for Filing Comments which the
Commission granted. Order No. 30927.
On January 28 , 2010, the Commission issued a Notice of Scheduling and Notice of
Telephonic Hearing. Order No. 30994. The Commission approved a comment deadline of
ORDER NO. 31022
February 11 , 2010, with Company reply comments due no later than February 19, 2010. In
addition to Staff and the Company, 14 customers filed comments with the Commission. A
telephonic hearing was convened on February 23 2010. No customers participated in the public
workshop or telephonic hearing.
B. The Application
Falls Water proposes to increase the fixed base rate for all metered schedules from
$14.00 to $18., an increase of 29%. However, the Company proposes to decrease the
commodity rate from $0.667 per 1 000 gallons to $0.601 per 1 000 gallons, a decrease of 10%.
The Company maintains that these changes will mean the average residential metered customer
will experience an increase of approximately 14.88%; the average multi-family residential
customer will experience an increase of 8.51 %; and the average commercial customer will
experience an increase of 4.22%. The Company placed more emphasis on the basic charge to
alleviate winter cash flow issues. Id. at 5. The Company requests a return on its common equity
of 12%. Id. at 4. The Company proposes use of a 2008 test year.
The Company proposes a new non-recurring charge of $10.00 for testing meters.
The Company explains that many customers question their bills at the beginning of the summer
irrigation period, but their meters rarely test inaccurately. A charge for testing meters would
place the burden on the customers causing the cost to be incurred and remove it from the general
body of ratepayers.! The Company also requests a new charge of $20.00 for returned checks and
a late payment charge of 1 % per month.
The Company proposes to maintain the current single-block commodity rate design
for all metered customers, and also maintain the 12 000 gallon minimum volume included in the
minimum customer charge. Finally, because all of its customers are now metered, the Company
requests authority to cancel its current Residential Flat Rate Schedule R-
DISCUSSION
The Commission has reviewed and considered the complete record in Case No. FLS-
09-, including Staffs comments and recommendations, the Company s reply comments
and the comments of customers.
I If the customer s meter tested outside the manufacturer s specification of plus or minus 1.5% of the factory
calibrated test meter the Company would replace the meter and waive the $10 fee.
ORDER NO. 31022
A total of 14 comments were received from Falls Water customers. All of the
comments filed generally oppose a rate increase. The majority of customers cited poor economic
conditions and fixed budgets as justification to deny any increase in rates. A few customers
mentioned that the Company had recently received a rate increase. Others commented on poor
water quality and/or water pressure issues. The Commission appreciates the time taken by Falls
Water customers to comment on the Company s Application. We recognize that for some
customers an increase will result in economic hardship. Recognizing the current economic
climate of this region and the country, we also note that the Commission has an obligation to
Falls Water and its customers to set rates at a level sufficient to allow the Company to recover its
reasonable expenses and receive a reasonable return on its investments. This is necessary so the
Company can remain financially sound and capable of providing adequate clean water to its
customers.
A. Revenue Requirement
1. Test Year, Revenue, Capital Structure and Overall Rate of Return. The Company
proposes using 2008 as its test year. In 2008 , actual operating revenues totaled $997 043. The
major source of revenue for Falls Water is the sale of water to residential, commercial and
industrial customers. The capital structure proposed by the Company, along with the weighted
actual cost of debt of2.88% and 12% return on common equity, produces a 4.74% overall rate of
return.
Staff agrees with the calculation of the capital structure and accepts the return on
equity of 12% as being reasonable. This return on equity is consistent with prior Commission
Orders for small water companies. Consequently, Staff proposes to accept the Company
requested test year, capital structure, and overall rate of return.
Staff proposes to include in test year revenues the income from a rental located on
Company property Staff proposes to include this revenue because the property is included in
plant in service and the customers are paying a return on the property. The Company is currently
recording this income in non-utility income, and excludes this revenue in its Application. The
property that has the rental has a revenue requirement of $2 771. The annual income from the
rental, at $400 per month, totals $4 800 and including this revenue in test year revenues provides
2 This property was originally used by the water company, remains in rate base
, and is held for a future reservoir
site.
ORDER NO. 31022
a benefit to customers of $2 029. Incorporating the adjustments, Staff proposes test year
revenues of$I 001 843. The Company did not dispute this adjustment.
Commission Finding: Based upon our review of the undisputed issues set out above
and the agreement of the parties, we find that the use of a 2008 test year with revenues of
001 843 is appropriate. We further find the undisputed capital structure and overall rate of
return to be consistent with that of other small water companies and, as such, just and reasonable.
2. Office Rent Costs.The Company makes adjustments to the following expense
categories: (1) Adjustment for Non-Recurring Items; (2) Increased Labor Costs; (3) Increased
Office Rent Costs; (4) Increased Liability Insurance; (5) Increased Source of Supply Costs; (6)
Increased Miscellaneous Operating Costs; and (7) Decreased Depreciation Costs. Except for
Increased Office Rent Costs, Staff accepts the Company s proposed adjustments. Staff also
proposes additional adjustments for the Company s Water Testing Expense.
The Company s adjustment for office rent expense reflects the move, during 2008
from the previous office to the current office and warehouse. The Company s adjustment
reflects the average amount of the yearly rental expenses for years two, three, and four of the
current lease. The Company s calculated average monthly office and warehouse rent expense is
640.
The lease is a four-year lease, beginning on September 1 , 2008, and ending on
September 1 , 2012. For the year beginning September 1 , 2008 through August 30, 2009, the
base rent was $2 700 per month. The monthly base rent increases to $2 800 for the second year
900 per month for the third year, and $3 000 per month for the final year of the lease. The
lease also provides for "operating costs" in addition to the base rent. The operating costs are
defined as property taxes, electricity and natural gas, security system, exterior maintenance, and
insurance. The "operating costs" include an escalator of 10% per year. The lease was signed
with Rockwell Development, Inc. on September 10, 2008. Rockwell Development is an affiliate
of Falls Water Company.
As an initial matter, Staff accepted the Company s rationale regarding its need for a
larger office and warehouse.3 Staff reviewed the market analysis provided by the Company, and
also investigated rental rates for office space and warehouse space in the Idaho Falls area. Staff
3 The new office provides Company personnel with adequate space to perform the functions necessary to provide
service to its customers. Staff notes that the new location is not extravagant, and all of the office space is beingused.
ORDER NO. 31022
found the Company s market analysis results to be reasonable. However, Staff is concerned
about the affiliate/interlocking relationship of the owners and officers between Falls Water
Company and Rockwell Development, Inc. Staff notes that affiliate transactions are subject to
close scrutiny and the regulated utility has an increased burden to prove the reasonableness of its
affiliate transactions. For expenses to be justified there needs to be evidence of arm s length
bargaining between the Company and the source of the expense. The burden of proof is on the
Company to show that the costs incurred in the affiliate transaction are reasonable and beneficial
to customers.
Staff stated it is unable to find justification for the escalators in the Company s lease
agreement. Staff did not believe that the market analysis provided by the Company supported
the use of escalators. Therefore, Staff recommended that the total rental expense included in
rates be the base rent of $2 700 per month and the base additional "operating costs" in the
amount of $610 per month. Although the Company included a cost of $43 684 for Office Rent
Costs, Staff proposes that $39 720 be included for recovery from customers.
In response to Staffs adjustment, the Company argues that the lease for its previous
office space, rented from an unaffiliated company, included escalators. The Company maintains
that the terms of its previous lease demonstrate that its current escalators are reasonable and
should therefore be included in rates.
Commission Finding: The Commission is genuinely concerned by the number of
affiliate transactions that Falls Water engages in without apparent regard to providing evidence
of arm s length bargaining. The Company has an increased burden of proving the reasonableness
of the costs incurred in an affiliate transaction. The Company s prior lease that included
escalators with an unaffiliated company was entered into in 2004. Company Reply at 1. The
economic conditions in 2004 were vastly different than those of 2008, and a comparison with
lease terms entered into during an entirely different economic climate is irrelevant. Because the
Company has an increased burden to prove arm s length bargaining and has failed to present
sufficient evidence that escalators are reasonable in the existing local economy, the Commission
finds $39 720 - the base rent of $2 700 per month and the additional "operating costs" of $610
per month - to be just and reasonable Office Rent Costs and therefore recoverable in rates.
3. Water Testing Cost.The Company claims that the cost for water testing during
the test year is $9,866. The Company did not propose any adjustments to its water testing
ORDER NO. 31022
expenses. Because of different testing cycles required for various water contaminants, Staff
believes it is necessary to make appropriate adjustments to normalize water testing costs. The
Company provided Staff an annualized cost for a nine-year cycle for water testing in the amount
of $5,473. The Company assumed that Well No.9 testing for primary inorganics, synthetic
organics, volatile organics, sodium, arsenic and the radiological contaminants would be done
annually instead of once every nine years because Well No.9 is still a new source. After
consulting with the Idaho Department of Environmental Quality (IDEQ) and verifying the tests
necessary for Well No., Staff made adjustments to annualize expected testing costs.
The difference between water testing costs for Well No.9 proposed by the Company,
155, and that recommended by Staff, $677, based on information gained from IDEQ is
478. Subtracting $1 478 from the total normalized water testing cost of $5 473 proposed by
the Company results in an annual testing cost of $3 995. Staffs adjustment removes $5 871
from the $9 866 test year water testing cost. In its reply, the Company concurred with Staffs
adjustment to its water testing costs.
Commission Finding: Based upon our review and the consensus of the parties, we
find $3 995 in annual water testing costs to be just and reasonable.
B. Rate Base
The Company proposes a total rate base of$I 856 449, which includes completion of
Well No., acquisition ofland and water rights, a pump facility building and a backup generator.
In addition, the Company has included the cost to complete the planned installation of a SCADA
system for Well No., and the planned acquisition and installation of additional service meters
and MXU transmitters as part of its long-term asset replacement and upgrade program. Falls
Water proposes to recover the capital expenditures for the various completed and planned system
improvements by including them in rate base.
Plant in Service.Staff reviewed the Company s request and made several
adjustments to plant in service. First, Staff makes an adjustment to Account 307 - Wells to
include a chlorinator pump for Well No.9 that was not included in the Company s pro forma
estimate for the new well. This adjustment increases plant in service by $2 810. Second, Staff
makes an adjustment to Account 311 - Pumps and Accessories to include new controls for the
Variable Frequency Drive for the pump located at Well No.1 that were not included in the
Company s pro forma plant in service adjustment. This adjustment increases plant in service by
ORDER NO. 31022
668. Next, Staff makes an adjustment to Account 340 - Office Equipment to include two
new laptop computers that were not included in the Company s pro forma plant in service
adjustment. This adjustment increases plant in service by $1 100. The Company did not dispute
these adjustments.
Commission Finding: Based upon our review and the consensus of the parties, we
find the above adjustments to the Company s plant in service to be just and reasonable.
2. Well No.. An engineering study completed by Schiess & Associates Consulting
Engineers for Falls Water in 2004 revealed that the Company s water system was experiencing
tremendous growth during the decade and it was imperative that a new well be planned
immediately to supply peak-flow and fire-flow demands to the Summit Park and Calico
subdivisions. The Company provided a breakdown of the total cost, $1 126 145., of
developing and constructing Well No.9. As part of the cost for the development and
construction of Well No., the Company contracted the services of Schiess & Associates
Consulting Engineers and the East-Central Idaho Planning & Development Association, Inc.
(ECIPDA).
Staff believes it was appropriate for the Company to undertake the construction of
Well No.9. Although the well was not operating during Staffs visit on October 8 , 2009, this
specific project is considered by Staff as "used and useful." Staff reviewed the cost of various
work elements required to construct Well No.9 to determine if they were reasonable. Staff also
asked the Company to explain cost control efforts applied in contracting and/or paying for
project elements. Staff believes that the costs of various project elements were reasonable and
comparable with similar projects built by other water utilities. However, Staff did take exception
to some of the engineering/professional consulting fees.
Staff questions payments made by the Company for bid assistance services. Staff
believes that bid assistance services provided by ECIPDA are duplicative of similar services
provided by Schiess & Associates. Staff recommended that the cost of $8 000 paid to ECIPDA
be excluded from the rate base.
In its reply, the Company maintained that the fees paid to both Schiess & Associates
and ECIPDA were for "different tasks pertaining to the engineering or technical support of the
bid process on the one hand and the administrative support during the bidding phase on the other
hand." Company Reply at 3. The Company stressed that IDEQ, the funding agency for the
ORDER NO. 31022
project, would not have approved disbursement of the loan if it believed that the engineering
firms were duplicating efforts.
Commission Finding: Marked as Exhibit lOin its reply, the Company included a
letter from William Teuscher, a water quality engineer with IDEQ. Mr. Teuscher provided
assurances that each consultant performed separate and distinct tasks. Therefore, based upon the
record and the evidence submitted by the parties, the Commission finds it reasonable to include
the total amount paid to ECIPDA.
3. Land Acquisition. The land acquisition cost for Well No.9 was $160 000. The lot
was purchased by the Company from Rockwell Development, an affiliated company of Falls
Water. Through the discovery process, Staff asked the Company to provide the necessary
information to demonstrate arm s length negotiations. The Company explained that it conducted
a market analysis by comparing the sale price of the property obtained from Rockwell
Development to sale prices of other real estate properties similar in size and zoning. Staff
reviewed the results of the market analysis conducted by the Company and believes that the price
of the lot was reasonable.
Staff was informed by the Company that the lot was purchased with the dual intent of
locating the well and as a future site for a water storage reservoir. The well and well house site
plan provided by the Company shows a future site for a two-million-gallon water storage tank.
Although there is no acreage specified for the reservoir site, it appears that only one-half of the
lot is needed for the new well and the remainder is devoted to future storage. Therefore, Staff
recommended only $80 000 (one-half of the total cost of $160 000) of the purchase price be
allocated to the cost of developing Well No.9 and allowed in rate base and the other half
$80 000, be booked as "Plant Held for Future Use.
In its reply, the Company takes exception to the elimination of this investment from
rate base without an equal and commensurate adjustment to the Company s Contributions In Aid
of Construction (CIAC) account because the property was purchased using funds contributed to
the Company by third party property developers. Company Reply at 4. The Company urges the
Commission to "recognize that Contributions (sic) received by the Company for future
construction of source of supply property and equipment should not be used to reduce the value
of existing used and useful plant in service.Id. at 6. The Company further proposes that the
contributed funds be placed in a separate bank account to allow interest to be earned and later
ORDER NO. 31022
recognized as additional contributions to benefit customers when new plant is constructed using
the funds. Id.
Commission Finding: Contributions in Aid of Construction (CIAC) represent funds
paid by a separate entity for the benefit of the system and customers as a whole. Because CIAC
funds are paid by a third party, it is not appropriate for shareholders to receive a return on such
contributions.4 Therefore, rate base must be reduced by $160 000 because, as a third-party
contribution, it is not considered to be tied directly to the land acquisition. It is true that there
may be timing differences between when the CIAC is received and when additional plant is
placed in service by the Company. However, the Company has control over the timing of rate
cases and should manage its concerns accordingly. It is the Commission s responsibility to
assure that rates do not reflect a return on CIAc.
However, for ratemaking purposes the investment in land is separately categorized.
As such, we find it appropriate to include $80 000 of the total $160 000 purchase price in rate
base as "used and useful" plant in service for the cost of developing Well No.9. The remaining
$80 000 must be booked as "Plant Held for Future Use" because it is not yet property that is
used and useful."
4. Other Adjustments. As a result of the engineering study conducted by Schiess &
Associates in June 2004, it was determined that water rights for the Company were insufficient
and that additional water rights were needed to serve existing peak demand during the summer
and to serve new subdivisions. Following the recommendations of the engineering study, the
Company commenced the acquisition of additional water rights through application of new water
rights/permits and purchase of existing water rights. Staff verified that the Company s new
permit to appropriate water was approved on October 11 , 2005.Staff believes that it was
necessary and prudent for the Company to increase its water rights by applying for new
rights/permits and acquiring existing water rights from private parties. Updated numbers from
the Company revealed that the actual amount expended for its additional water rights was
$306 192. Staff proposes to reduce the rate base amount in Account 303 - Land and Land
4 As the Company proposed in its reply, it would be appropriate to place unused contributed funds in a separate bank
account to allow interest to be earned and later recognized as additional contributions to eventually accrue to the
benefit of customers.
5 The Company must still submit proof of putting the water to beneficial use on or before October 1 , 2010, to
complete the licensing process.
ORDER NO. 31022
Rights by $285 114 to include only the actual amount expended for water rights. The Company
does not dispute this adjustment.
The Company planned to purchase and proposes to include the cost for 300 new
meters and 300 transmitters in the rate base. The total estimated cost to complete the planned
meter project is $85 536. The actual number of service meters installed as of October 31 2009
was only 81 meters and 81 transmitters. The total cost for the purchase and installation of 81
meters was $37 359. The difference between the $85 536 and $37 359 is $48 177. Because the
remaining estimated costs of $48 177 are for meters not yet installed, they are not used and
useful and should be excluded from rate base. Staff recommended that the $85 536 proposed by
the Company for new meter installations be reduced by $48 177 and allowing the remaining
$37 359 in rate base for service meter installations and replacements. The Company does not
dispute this adjustment.
Finally, Staff does not oppose the Company s proposal to include $2 150 in the rate
base for replacing a fire hydrant. The cost is properly supported by an invoice and appears to
reasonable.
Commission Finding: Based upon our review of the evidence regarding amounts
expended for (1) water rights; (2) meters; and (3) a fire hydrant, and the agreement ofthe parties
we find the above adjustments to be just and reasonable.
The Commission s approved adjustments to plant in service necessitate adjustments
to Accumulated Depreciation, Depreciation Expense and Working Capital. Based on the
Commission s adjustments Accumulated Depreciation is reduced by $2 119 and Depreciation
Expense is reduced by $10 165. These adjustments result in a new working capital calculation
that is $1 229 lower. This results in a rate base of $1 450 625 and a total revenue requirement of
094 570.
C. Rate Design
The Company proposes to maintain the current single-block commodity rate design
for all metered customers and maintain the first 12 000 gallons as the basis for the minimum
customer charge. The Company completed installing meters for unmetered customers in late
2008. Because 2008 was also its test year, the Company reasons that there is no historical data to
6 $1 089 770 for purposes of rate design after an adjustment of $4 800 is made for revenue generated to the benefit
of customers by the rental located on the Company s property.
ORDER NO. 31022
determine if the 12 000 gallons of water included in the minimum charge is reasonable. Absent
historical data to perform a comparative bill frequency analysis, the Company does not believe it
is appropriate to make a substantial rate structure change. The Company also contends that it is
not appropriate to adjust the minimum charge and base it on meter size until enough time has
elapsed to allow two to three years of water usage data to accumulate. The Company is
however, requesting a larger increase to the minimum charges and less on the commodity
charges in an effort to remedy winter cash flow problems.
Staff agrees with the Company that it would be more appropriate to revisit the issue
of commodity included in its minimum charges, and possibly the seasonal rate differential, when
better historical consumption data is available. However, Staff believes it is appropriate to
implement a new rate design based on meter sizes for several reasons: (a) the Company has
already converted to a fully customer-metered system; (b) the service meter use data is not
generally relevant or necessary in order to set the minimum charge as a function of meter size;
(c) there is quite a variability of meter sizes in the Company s service area in addition to the
standard meter sizes of 3/4-inch and smaller; and (d) there is more equity among users for paying
fixed costs since it would generally require higher fixed costs to provide service to customers
with larger service lines and meters.
Staff reviewed past Commission Orders and found that the Company has been
permitted to maintain a rate design with a ratio of fixed charges to total revenue as high as 72%
while the excess commodity charge to total revenue provided 28%. Order No. 30027, Case No.
FLS- W-05-01. Given the Commission s past position on this matter, Staff did not oppose the
Company s proposal to put more emphasis on the basic customer charge. Staff also recognized
the inherent problems and cash flow issues encountered by small water companies during
periods of low water usage.
In its reply, the Company expressed concern about "hidden costs to the company and
its customers" should a rate design based on meter size be adopted. Company Reply at 7. The
Company speculated that some customers might want to replace their larger meters for the
standard 3/4-inch meter and questioned who would be responsible for the cost associated with
the replacement. The Company requests that any change in rate design based on meter size be
deferred until a future rate case "to allow the Company an opportunity to properly analyze the
impacts of the proposed rate design on its customers and itself." Id. at 8.
ORDER NO. 31022
Commission Finding: The Commission specifically directed the Company in its
prior rate case to address rate design as it would apply to a minimum charge based on meter size.
Order No. 30484. The Company, therefore, had ample time to consider the ramifications of such
a rate design to itself and its customers prior to the filing of this Application. As noted by Staff
service meter use data is not generally relevant to set a minimum charge as a function of meter
size.Several small water utilities regulated by the Commission employ this approach.
Moreover, it is consistent with the theory of "cost-causation" - that, to the extent practicable
utility costs should be paid by those entities that cause the utility to incur the costs. It is
reasonable that customers who impose a higher demand on the water system because of a larger
meter pay a greater contribution to plant. If this principle were not followed, additional costs
incurred at the request of individuals would be shifted to all other ratepayers. This would not
result in a 'just and reasonable" rate as required by statute. Idaho Code ~~ 61-502 61-503.
The 314-inch and smaller meters make up 96.11 % of the meters in the system. As for
the 3.89% who chose a larger meter, the benefits that prompted them to make the choice for a
larger meter initially still exist, i., better water pressure, fewer sprinkler zones, etc. Any choice
by a customer to replace his meter becomes the financial responsibility of the customer. For the
reasons stated above, the Commission finds it just and reasonable to approve a rate design based
on meter size.
It is a traditional practice in rate design to use normalized water usage rather than a
single year or test year usage to provide the required revenue requirement. Although it originally
asserted that 2008 water usage was most representative of the actual excess usage by metered
customers, the Company did not dispute Staffs adjustment using a four-year average (with
minor adjustments) for residential and a three-year average for commercial normalized excess
water usage. Therefore, the Commission finds the use of a normalized excess water usage
calculation appropriate.
The Company proposed using 3 573 as the total number of customers at the end of the
2008 test year for its rate design. Since the total current number of customers is 3 638 as of
November 11 , 2009 (as reported by the Company), Staff believes that it is more appropriate to
use this figure in the rate design since it is a known and measurable customer change. The
Company did not dispute Staff s adjustment to its total customer count. Because it is known and
ORDER NO. 31022
measurable, the Commission finds that 3 638 is the appropriate customer number for calculating
the rate design.
The Company is proposing a larger increase to the minimum charges and less on the
commodity charges in its rate design. Based on the Company s rate proposal, the ratio of fixed
charges to total charges increases from 59% to 68% and the ratio of commodity charges to total
charges decreases from 41 % to 32%. Staff completed a cash flow analysis and found that, as
with many small water companies, Falls Water does indeed experience cash flow problems
during the winter months when revenues are reduced. However, the Company continues to pay
the previous owner $2 000 per month for consulting. In addition to this expense, the Company
president charged over $35 000 in personal expenses to the Company credit card. While these
expenses were not included in the Company s Application for recovery from customers, they can
still contribute to cash flow problems and have an impact on customers to the extent that the
Company is unable to pay for maintenance and upkeep of the water system. Nevertheless, based
on our review of the evidence and given the Commission s past position on this matter for
purposes of rate design, we find the Company s proposal to alter the ratio of fixed and
commodity charges to total charges reasonable.
Finally, the Company proposes that the current Residential Flat Rate Schedule R-2 be
cancelled. All of its customers in the water system are now currently metered and the Company
no longer allows new customers to come onto the system without a meter. Staff does not oppose
the Company s proposal since there are no more residential flat rate customers. Based on our
review of the evidence and the agreement of the parties, we find it reasonable for the Company
to cancel its Residential Flat Rate Schedule R-
Based on the above determinations, a revenue requirement of $1 089 770, and the
current customer total of 3 638, the average monthly bill for a residential customer with a meter
size of 3/4-inch or smaller is approximately $24., or an increase of 6%. See Attachment
D. Non-Recurring Charges
The Company claims that at the beginning of the summer irrigation period, many
customers question the water usage being billed. The Company claims that meter tests rarely
produce results outside the manufacturer s specification.? The Company proposes to charge a
7 The Company uses the meter manufacturer s specification of plus or minus 1.5% to gauge when a meter needs to
be replaced due to inaccurate readings.
ORDER NO. 31022
meter test fee of $10.00 to customers who want their meter tested for accuracy. Ifthe customer
meter tests outside of the manufacturer s specification, the Company proposes to replace the
meter, adjust the customer s billing (if the customer s meter is over-reading) and waive the
$10.00 meter testing fee. Staff does not oppose the Company s proposal to include a "Meter
Test at Customer Request Fee" in its non-recurring tariff.
The Company also proposes to implement a returned check charge and a late payment
charge. The Company requests the authority to assess a charge of $20.00 when a customer
check or bank draft is returned by the bank for an appropriate reason, including non-sufficient
funds. The Company requests a late payment charge of one percent (1 %) per month of the past-
due balance. The General Rules and Regulations for Small Water Utilities require that the
company apply all payments received to a customer s account prior to the application of late
fees. Therefore, Staff recommended a late payment charge based on the unpaid balance at the
time of the next billing date.
Commission Finding: Based on our review of the record and the agreement of the
parties, we find a meter test fee, returned check fee, and late payment fee just and reasonable.
These types of fees are common to regulated water companies and consistent with Commission
rules. As set out above, if the customer s meter tests outside of the manufacturer s specification
the Company will replace the meter, adjust the customer s billing (if the customer s meter is
over-reading) and waive the $10.00 meter testing fee. Also, to be in compliance with our rules
the Company s late payment charge must be based on the unpaid balance at the time of the next
billing date.
E. Other Issues
Rules and Regulations The three sections of a water utility tariff - the
Commission-approved rate schedules, the General Rules and Regulations for Small Water
Utilities and the Uniform Main Extension Rules - describe the relationship between the customer
and the Company and establish the basic rules for providing service. The Company s existing
tariff on file with the Commission does not include the Uniform Main Extension Rules.
As allowed by the Commission s Utility Customer Relations Rules (UCRR), the
Company bills its customers the minimum charge when it is unable to access a meter. However
the Company s billing statements do not separate commodity charges from the monthly
minimum charge. In order to meet the requirements of the UCRR, the billing statement should
ORDER NO. 31022
separately identify the monthly base rate, the commodity charge and any non-recurring charges
such as the late payment or reconnection charges. In addition, the Company s notices regarding
shut-off and termination of service do not presently comply with Commission rules. Finally, the
Company s annual rules summary does not include the Commission contact information as
required under Rule 701 of the UCRR.
Commission Finding: The Commission finds that the Company must revise its
notices, bills, tariff, and other documents to conform to requirements of the UCRR. Updated
Main Line Extension Rules, monthly billing statements, initial notices of termination, final
notices of termination, and the Company s annual rules summary should be filed with the
Commission no later than 60 days from the date ofthis final Order.
2. Customer Complaints . Rule 401 of the UCRR requires the Company to maintain a
record of all customers calling to complain or request a conference. The Company does not
currently keep a formal record of its complaints. In reply comments, the Company indicated its
willingness to make the modifications necessary to meet the requirements of the Commission
rules.
Commission Finding: Based upon our review of the record, the agreement of the
parties, and the requirements of Rule 401 , we find it reasonable to require the Company to
maintain a record of customer complaints and requests for conference.
CONCLUSIONS OF LAW
The Commission has jurisdiction and authority over Falls Water Company, a water
utility, and the issues raised in Case No. FLS- W -09-, pursuant to Title 61 of the Idaho Code
and the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq. Specifically, we find
the proposed annual revenue requirement for Falls Water of $1 089 770 (for purposes of rate
design) to be just and reasonable. We further find that a rate design based on meter size is ajust
and reasonable allocation of the Company s revenue requirement among its customers.
Therefore, we conclude that the rates and charges set in this Order are fair, just and reasonable.
ORDER
IT IS HEREBY ORDERED and the Commission in Case No. FLS-09-01 does
hereby approve as just and reasonable an annual revenue requirement of $1 ,094 570, an increase
of $92 728. We also approve as just and reasonable the detailed changes in revenue requirement
capital structure, return on rate base, and rate design.
ORDER NO. 31022
IT IS FURTHER ORDERED that the current Residential Flat Rate Schedule R-2 be
cancelled.
IT IS FURTHER ORDERED that the Company submit tariffs in compliance with the
rates and charges identified in this Order no later than fourteen (14) days from the service date of
this Order. The rates and charges authorized by this Order shall become effective for service
rendered on and after March 16 2010.
IT IS FURTHER ORDERED that the Company revise and file with the Commission
its notices, bills, and other documents as more fully described herein to conform to the
requirements of the Utility Customer Relations Rules no later than sixty (60) days from the
service date ofthis Order.
IT IS FURTHER ORDERED that the Company maintain a record of customer
complaints and requests for conference as required by Rule 401 , UCRR.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code 9 61-626.
ORDER NO. 31022
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this /OfA\
day of March 2010.
~-
ff.
. KE PTO , P IDENT
MARSHA H. SMITH, COMMISSIONER
ATTEST:
D. Jewell
Commission Secretary
O:FLS-O9-01 ks5
ORDER NO. 31022
Commission Decision
Calculation of Rate Base
for Falls Water Company
Plant in Service
303 - Land & Land Rights
304 - Well Structures & Improvements
307 - Wells
310 - Generators
311- Pumps & Accessories
320 - Separators
331- Water Mains
334 - Meters
335 - Hydrants
340 - Office Equipment
341 - Transportation Equipment
343 - Tools & Equipment
Total Plant in Service
14 Less Accumulated Depreciation15 Net Plant in Service
Less Contributions in Aid of Construction16 Gross Contributions (12/31/2008)17 Less Accumulated Amortization18 Net Contributions in Aid of Construction
19 Net Plant in Service
20 Working Capital (1/8 of Operation and Maintenance Expense)
21 Rate Base
Commission
Pro Forma
Rate Base
896 347.
486 931.50
403 240.
693.
398,448.
625.
906 136.
955 683.35
370.
36,260.44
606.
049.
258,393.
722 191.91
536 201.25
397 236.
(199 877.13)
197 359.
338 841.61
111 783.
1,450,625.
A TT ACHMENT
ORDER NO. 31022
CASE NO. FLS-09-
Commission Decision
Proforma Results of Operations
for Falls Water Co., Inc.
Company
Pro forma
Ordinary Income/Expense
Income
400. Operating Revenue
460 . Unmetered Revenue
461.1 . Metered Residential3 461.2. Commercial Revenue
474 . Other Utility Revenue
Total 400 . Operating Revenue
414 . Gain (loss) on Property
Total Income
Expense
9 601.5 . labor Field10 601.7. labor Meter Reading11 601.8 . labor Office
12 601.9 . Admin - labor13 604 . Employee Benefits14 610. Purchased Water15 615 . Electrical Power16 618 . Chemicals
17 620.2 . Source M&5
18 620.6 . Distribution M&5
19 620.7' Postage
20 620.8 . Office
21 620.81 . Telephone Expense
22 620.82' Bank service charges
23 620.83 . Office Uti lites Expense24 631.1 . Engineering
25 631.2' Accounting26 631.4 . Payroll Services27 635 . Testing
28 636.2 . Source Contract Repairs
29 636.3 . Trash
30 636.4 . Outsourced Bad Debt Collection
31 636.6 . Distribution Contract Repairs
32 636.7' Data Processing
33 636.8' Contract Service - Consulting34 641 . Rental of Property35 642. Rental of Equipment36 650 . Transportation Expense37 656 . Insurance Expense
38 656.1' Workers Compensation Ins39 660 . Advertising Expense40 666 . Rate Case Amort41 670 . Bad Debt Expense
42 675.2 . Dues & Publications
43 675.4 . IDHW Fee Expense44 Total Expense
45 Net Ordinary Income
46 Other Income/Expense47 Other Income48 421 . Non-Utility Income49 Total Other Income50 Other Expense51 403. Depreciation Expense52 408. Taxes53 408.11 . Property Taxes54 408.12 . Payroll Taxes55 409.10 . Fed Income Tax56 409.11 . State Income Tax57 Total 408 . Taxes
58 408.10 . Regulatory Fee59 426 . Misc. Non-Utility Expenses
60 426.1 . Donations - Tax Deductible
62 Total Other Expense
63 Net Other Income64 Net Income
947.
939,230.
074.
790.
997 042.
997 042.
173,620.
707.
55,227.
109 600.
801.22
112.
126,621.61
7,432.
920.
677.49
055.
644.
960.
829.
340.
620.
785.
340.50
865.
839.
039.
269.
055.
227.
684.
20,700.
985.
318.
222.
521.82
510.
612.
968.
987.
904 104.
938.
793.
16,766.
503.46
20.
46,289.
121 082.
(121 082.72)
(28,144.52)
Staff
Pro forma
947.31
939,230.56
074.
790.
997 042.
997 042.55
173 620.31
3,707.
227.
109 600.
801.22
112.
126 621.61
7,432.
17,920.
63,677.49
17,055.
644.
960.
829.
340.
620.
785.
340.50
995.
839.58
039.
269.
055.
227.
39,720.
20,700.
32,985.
318.
10,222.
521.
510.
612.
968.
987.
894 269.
102,772.
800.
800.
353.
766.
29,503.46
20.
289.
110,643.38
(105,843.38)
(3,070.52)
Commission
Decision
947.
939 230.56
074.
790.
997,042.
997 042.55
173 620.
707.
227.
109,600.
801.22
112.
126,621.61
7,432.
920.
63,677.49
055.
644.
12,960.
829.
340.
620.
785.
340.50
995.
839.58
039.
269.
28,055.
227.
39,720.
20,700.
985.
15,318.
10,222.
521.82
510.
13,612.
968.
987.
894 269.
102 772.
800.
800.
627.
16,766.
503.46
20.
46,289.47
110 917.
(106 117.25)
(3,344.38)ATTACHMENT 2
ORDER NO. 31022
CASE NO. FLS-O9-
COMMISSION DECISION
CALCULATION OF REVENUE REQUIREMENT
For FALLS WATER COMPANY
(A)
1 Rate Base
2 Rate of Return
3 Net Operating Income Requirement
4 Net Operating Income Realized
5 Net Operating Income Deficiency
1,450 625.
74%
806.
344.38)
151.16
Revenue Requirement Increase
6 Overcome Loss
7 Subject to Income Tax
8 Gross-up Factor
9 Revenue Increase Requirement
10 Total Revenue Increase Required
11 Operating Revenue
12 Other Revenue (Rental Income)
13 Adjusted Test Year Revenue
14 Percent Increase Required
15 Total Revenue Requirement
16 Revenue for Rate Design
Net to Gross Multiplier
Net Deficiency
Less Bad Debts ( percentage of Gross Revenue)
Less PUC Fees (percentage of Gross Revenue)
Less Bank Service Charge Fees (percentage of Gross Revenue)
Taxable Amount
State Income Tax Rate (g) 7.
Federal Taxable
Federal Income Tax Rate (g) 15%
Net After Tax
Net Income to Gross Revenue Multiplier
Gross-up Factor to overcome loss
(B)
Non-Tax
$ 3 344.
102%
$ 3,409.
100%
3653%
1662%
3840%
98.0845%
7.4544%
90.6301%
13.5945%
77 .0356%
129.81%
102%
(C)
Taxable
806.
130%
318.
727.
997 042.
800.
001 842.
26%
094 570.45
089,770.
A TT ACHMENT 3
ORDER NO. 31022
CASE NO. FLS-09-
Falls Water Case No. FLS-O9-
Commission-Approved Rate Design (By Service Meter Size)
Commission-Approved Revenue Requirement
Total Number of Customers
089,770
638
MINIMUM CUSTOMER CHARGES
Number Total An. Rev.
Service Minimum Minimum From Min.
Meter Size Meters Volume-Gals Charge Charge
5/8 inch 373 000 16.063.
3/4 inch 123 000 16.603,363.
1 inch 105 000 22.28,400.40
11/2 inch 000 28.825.
2 inch 000 37.10,664.
000 66.584.
Total 638 719,901.84
COMMODITY CHARGES
Total Excess Volume (x 1 000 gals)619 071
Deduct vol. due to increase of minimum for var. sizes (x 1 000 gals)116
Net volume of excess usage (x 1 000 gals)605 955
Commodity charges for all meter sizes ($/1 000 gals)611
Total Commodity Revenue 370,238.
Total Revevue (minimum and commodity charges)090,140
Revenue over (under) Revenue Requirement $370
Various Charges as a % of Gross Revenue
Minimum Charge
Commodity Charge
66%
34%
ATTACHMENT 4
ORDER NO. 31022
CASE NO. FLS-09-