20120615Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
P0 BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
2!7 JUN 15 PM 3:20
r -
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
FALLS WATER COMPANY FOR AN ORDER ) CASE NO. FLS-W-12-01
AUTHORIZING INCREASES IN THE )
COMPANY'S RATES AND CHARGES FOR ) COMMENTS OF THE
WATER SERVICE. ) COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Falls Water
Company's Application.
BACKGROUND
On January 30, 2012, Falls Water Company applied to the Commission for authority to
increase its total revenue requirement by $295,060 or 26.52%. Application at 1, 4. The
Company proposes to increase its metered rates and reduce the volume allowance included in the
customer charge as follows:
STAFF COMMENTS 1 JUNE 15, 2012
Meter Size Current Monthly Rate Proposed Monthly Rate % Change
3/4" or smaller $16.10 for up to 12,000 gallons $19.18 for up to 5,000 gallons 19.1% increase
1" $22.54 for up to 17,000 gallons $26.85 for up to 7,000 gallons 19.2% increase
1½" $28.98 for up to 22,000 gallons $34.52 for up to 9,000 gallons 19.1% increase
2" $37.03 for up to 28,000 gallons $44.11 for up to 12,000 gallons 19.1% increase
4" $66.01 for up to 49,000 gallons $78.64 for up to 20,000 gallons 19.1% increase
Commodity Rate $ 0.611 per 1,000 gallons $ 0.67 per 1,000 gallons 9.7% increase
Id. at 2 and 4.
The Company says the average 3/4-inch metered-customer's bill will increase 26.8%; the
average 1-inch metered-customer's bill will increase 24.3%; the average 1 1/2-inch metered-
customer's bill will increase 26.1%; the average 2-inch metered-customer's bill will increase
27.8%; and the average 4-inch metered-customer's bill will increase 28.1%. Id. at 4-5. The
Company also says the proposed rate design will produce $1,407,749 in revenues, which is
within $78 of the requested revenue requirement. Id.
STAFF REVIEW
System Description
Falls Water serves over 3,900 residential and commercial customers. Application at 2.
The Company's water supply sources consist of eight production wells that normally provide the
daily peak flow during heavy water demand in summer. The system lacks storage reservoirs,
although some of the pumping units are equipped with hydro-pneumatic tanks to supply water
during low demand. The system also lacks booster pumps. Water is delivered to residential and
commercial customers using 5/8-inch to 4-inch service meters. Approximately 96% of all
customers have a 3/4-inch or less service meter size.
Summary of Staff Adjustments
The Company seeks a $295,060 revenue requirement increase. The Company calculates
the increase using a $2,545,288 rate base, a 12% return on equity ("ROE") with an overall 7.75%
rate of return, $933,351 in operating expenses, plus $215,195 in net other expenses.
Staff accepts the Company's proposed capital structure and cost of debt at 3.25%. Staff
proposes an 11% ROE with an overall 7.23% rate of return and a rate base of $1,821,140.
Staff proposes to adjust Plant in Service (PIS) in two ways. First, Staff adjusts the
beginning balances of the reported individual P15 accounts for Land and Land Rights. Second,
STAFF COMMENTS 2 JUNE 15, 2012
Staff adjusts the amount recommended to be included in rates for the 2012 meter project. The
meter adjustment is the single largest adjustment. It impacts rate base and, consequently, the
dollar amount calculated for return and depreciation.
Staff recommends adjusting annual operating expenses by $123,132. This total
adjustment includes an $80,739 depreciation adjustment. It also includes $42,393 in annual
operating expense adjustments for electrical power, chemicals, rental of property and rental of
equipment. The rental adjustments involve the treatment of various affiliated-party transactions.
The remaining difference between the Company-proposed increase and the Staff-recommended
increase is the proformed revenue generated from existing rates in the test year.
Plant in Service
The Company reported PIS with an adjusted total of $6,606,672 as of December 31,
2011. Staff recalculated the year-end balances for each PIS account, and tested additions and
retirements since the last general rate case in 2009 (FLS-W-09-01). Staff believes that all PIS
account balances are reasonable except for: (1) Account No. 303-Land and Land Rights, and (2)
Account No. 334-Meters. Attachment A shows Staff adjustments to these two accounts. The
$92,518 adjustment for Land and Land Rights reflects a Commission-approved adjustment for
plant held for future use. See Order No. 31022. This amount was not properly carried forward
from the 2009 rate case. The detailed adjustment to Account No. 303 is shown on Attachment B.
Attachment A also reduces the $839,878 Meter Project balance in 2012 by $713,542.
Attachment C details Staff's meter-adjustment calculation. The Staff-recommended adjusted
PIS account balances of $5,800,612 as of December 31, 2011 are shown in the final column, line
13 of Attachment A.
Service Meters
The Company began replacing manual-read meters with touch-read meters in 1993. The
Company also installed touch-read meters whenever it received requests for new connections in
newer subdivisions. The Company then gradually installed touch-read meters for customers
without meters with the goal of establishing a fully-metered system. During the Company's
2005 rate case (FLS-W-05-01), the Company asked the Commission to approve metering for the
Company's 585 remaining unmetered residential customers over a six-year period. In Order No.
30027, the Commission encouraged the Company to more rapidly complete metering the entire
STAFF COMMENTS 3 JUNE 15, 2012
system, stating: "We would like to see the meters purchased and installed sooner rather than
later, preferably much sooner than six years." Consequently, the Company completed metering
unmetered customers in 2008. See Attachment D (showing the total meters installed annually).
In 2007, the Company began converting its commercial and multi-residential customers
from touch-read to automated meter reading (AMR) radio-read meters. This conversion allowed
the Company to read the service meters monthly throughout the year. Previously, these meters
were only read monthly from April through the end of October. Because the Company's
previously installed touch-read service meters were already set up for this transition, Meter
Transceiver Unit (MXU) radio transmitters were the only extra components needed to complete
the AMR meter conversion.
In Case No. FLS-W-09-0 I, the Company included the cost in rate base to buy and install
300 new replacement meters and 300 radio transmitters. In Order No. 31022, the Commission
allowed 81 meters and 81 transmitters in the rate base because the remaining units were not yet
installed and did not meet the "used and useful" criteria for cost recovery.
After the Company's last rate case in 2009, the Company decided to fully convert its
service meters from a touch-read to an AMR system. This decision caused the Company to
make significant new investments for replacing existing manually-read meters with touch-read
meters (604), installing MXU radio transmitters in all meters not yet equipped with MXU's
(3,300), and acquiring a Vehicle Gateway Base (VGB) Station to automatically read meters from
a vehicle. The Company also upgraded its handheld touch-read reading devices (two units) to
radio-read reading units. The Company finished installing all AMR meters by January 31, 2012.
See Attachment D (showing the total meters installed).
The Company proposes to increase rate base by $839,878 as a result of the AMR
conversion project. Application at 2. If the additional investments for meter replacements and
radio transmitters were included ($46,571 in 2010 and $17,962 in 2011), the total would be
$904,411.
Staff asked the Company to explain why it converted its manual/touch-read meters to an
AMR system. As part of the explanation, the Company was to include any comparative analysis
(e.g., cost benefit analysis, present worth or annual costs) it performed showing that converting
to an AMR system was more cost effective than using the existing manual/touch-read meters or
other alternatives. See Staff Production Request No. 3. The Company responded that before the
AMR conversion project, the Company used a mixture of manual-read, touch-read and AMR
STAFF COMMENTS 4 JUNE 15, 2012
radio-read meters. The manual-read meters were at least 18 years old and many were 25 years
old. The Company planned to replace the manual-read meters because the accuracy of positive
displacement meters decreases with age. The Company confirmed it started migrating to an
AMR system in the fall of 2007 by installing MXU radio transmitters in commercial and multi-
family residential accounts. AMR meters were also installed in new construction accounts.
The Company said it converted to AMR meter technology to enable it to read meters
year-round and thereby promote better water loss control during the winter. The Company
explained that it does not currently read meters in the winter, and that customers who
experienced excess winter water usage due to undiscovered leaks were not pleased with their
corresponding, high April water bills on top of their repair expenses. The Company claims that
if it can read meters year-round, it can provide customers with better usage information in their
winter bills and inform them of the true expense of plumbing leaks that are not quickly repaired.
Staff reviewed all the available documents presented by the Company. Based on this
review, Staff concedes that there are some non-financial benefits to the Company and its
customers as noted above. However, the Company has failed to show that it was economically
and financially beneficial to its customers for the Company to invest significant capital to
convert all of its customer meters to an AMR system. In Staff's opinion, it was unreasonable
and unnecessary for the Company to convert all of its meters to AMR meters and, consequently,
the Company's capital investment was imprudent and not recoverable through customer rates.
Staff recommends removing $713,542 of the total $839,878 cost of the 2012 meter
project from rate base because the Company spent more to acquire and install an additional 3,300
MXU's and buy related meter monitors than is economically justified. Staff supports recovery
of $126,336 for new touch-read meters. As previously noted, in Staff Production Request No. 3
Staff asked the Company to explain why it converted its manual-read meters to an AMR system
and to include, as part of that explanation: "any comparative economic analysis (e.g., cost-
benefit analysis, present worth or annual costs) performed by the Company showing that [the
conversion] was more cost-effective than using the existing manual-read meters or other
alternatives the Company may have considered." The Company's response, however, did not
provide any economic or financial analysis documenting operational cost savings that would
justify converting to an AMR system. See Company's Response to Staff Production Request No.
3. In response to follow-up Staff Production Request No. 71, the Company provided potential
monthly labor and vehicle cost savings that the Company believes would result from converting
STAFF COMMENTS 5 JUNE 15, 2012
to an AMR system. Staff reviewed the Company's analysis and believes the Company's annual
cost-savings estimate is generally reasonable. Staff did, however, make a minor adjustment to
the Company's assumed gas price per gallon based on price surveys Staff conducted while
preparing these Comments. Staff believes that the gas cost should be $3.75 per gallon rather
than $3.50 as used by the Company. Using a price of $3.75 per gallon for regular unleaded gas,
the recalculated net operational cost savings is about $8,315 as shown below:
Cost Items
Current Cost
Touch-Read
Proposed Cost
Radio-Read
System
Cost
Savings
Meter Reading Labor $ 12,072.13 $4,687.97 $ 7,384.16
Vehicle Fuel Cost $ 1,573.75 $ 840.00 $ 733.75
Office Wages $ 2,127.06 $ 1,930.11 $ 196.95
Total $ 15,772.94 $ 7,458.08 $ 8,314.86
Applying a simple payback test to recover the additional $713,542 investment using the Staff's
projected $8,315 annual cost savings, the Company would need almost 86 years to recover its
investment. This strongly suggests that the Company's investment was not economically
beneficial or prudent.
The Company also claims that additional financial benefits could be derived from power
cost savings for pumping and chlorine cost due to possible volume reduction of water pumped.
The Company says that during the winter of November 2010 through April 2011, the Company
read a sampling of 134 customers. Based on this sample, the Company calculates that the
average customer used 7,000 gallons per month or 42,000 gallons during the winter season. The
Company subtracted this amount from the 3-year-average winter season production of 52,467
gallons per customer, which yields 10,467 gallons per customer. The Company considers this
difference to be water production in excess of expected winter usage, and it calculates extra cost
savings of $4,677 and $220 for power and chemical cost, respectively ($4,897 total). Staff,
however, disagrees with the Company's assumption. The 10,467 gallons per customer
(40,144,340 gallons for 3,835 customers) represent total loss and unaccounted water within the
distribution system (excluding the leakage on the customer side of the meter) and should not be
considered in estimating additional benefits for the calculation of payback for metering
investment.
The Company also contends that converting to an AMR meter system will enable the
Company to provide monthly readings to benefit customers who could potentially be
STAFF COMMENTS 6 JUNE 15, 2012
experiencing service line leaks during the winter. The Company cited cases in 2009, 2010, and
2011 of possible customer leaks. The Company failed, however, to document that those
customers actually experienced leaks in the service lines on the customer side of the meter. In
fact, when Staff asked the Company for all written records of customer complaints about winter
billings related to leaks within the customers' service lines in 2009, 2010, and 2011, the
Company said it did not receive any written complaints about winter billing leaks. Even if all of
the customers cited by the Company actually experienced water losses due to leakage in their
service lines, Staff does not believe the average cost per customer due to leakage would be as
high as the Company represents. As shown in the table below, Staff calculates the cost of
potential winter leaks per customer in 2010 and 2011 to be $62 and $53, respectively:
Year
Number of
Customers
Total Excess
Usage-gals
Total Cost of
Leaks'
Cost of Leaks
per Customer
April 2010 118 11,899,000 $7,270 $62
April 2011 104 9,091,000 $5,554 $53
April 2008 1 2,128,000 $1,300 $1,300
Prior Years 1 1,128,000 $689 $689
In Staff's opinion, these relatively low leakage costs do not justify the Company's decision to
make a $713,542 capital investment to convert to an AMR system. The benefits of the AMR
system are enjoyed by slightly more than 100 customers who may experience leaks, while the
costs are borne by all customers. This disproportionate arrangement violates the principle that
cost causers pay the costs.2
While an engineering study completed in 2006 (copy provided by the Company in
response to Staff Production Request No. 1) identified water meters as one of the major
improvements to be made in the system, it did not recommend upgrading to AMR meters.
Instead, it emphasized that the goal was to ensure that 100% of the customers are metered. The
study further acknowledged that upgrading old meters to touch-read makes good sense and that
no meter should remain that is not touch-read. The study specifically recommended installing
'Based of current commodity rate of $0.611 per 1,000 gallons.
2 Staff notes that the estimated cost incurred by one customer in 2008 amounted to $1,300, and that another
customer possibly incurred $689 in prior years due to winter leakage. In Staffs opinion, these isolated cases should
not have triggered a decision to make a significant investment to benefit only few customers at the expense of more
than 3,000 customers.
Falls Water/AmmonlUcon/Boimeville County Regional Planning Study, Executive Summary, Chapters 5-8,
Schiess & Associates Consulting Engineers, October 2006.
STAFF COMMENTS 7 JUNE 15, 2012
125 touch-read meters on unmetered services, and installing or upgrading 1,261 manual-read
meters to touch-read meters.
Moreover, the Idaho Department of Environmental Quality's ("IDEQ") Rules for Public
Drinking Water Systems (IDAPA 58.01.08) do not require the Company to install AMR meters
in the Company's water system. In response to Staff Production Request No. 36, the Company
indicated that IDEQ has not notified the Company of any water quality or system issues since the
last general rate case. In addition, Staff obtained a copy of the approved State Revolving Loan
document signed by IDEQ and the Company in December 2006. This loan document does not
indicate that the State would fund an AMR system conversion.
The Company did not seek initial authorization from the Commission to convert to an
AMR system, and the Commission did not order the Company to convert all of its customer
meters to an AMR system. As mentioned earlier, during the Company's rate case in 2005 (FLS-
W-05-01), the Commission directed the Company to convert its 585 remaining unmetered
residential customers at that time to meters over a 6-year period if not sooner. The Commission
did not, however, direct the Company to convert all of its metered and unmetered customers to
an AMR system. Staff notes that utilities commonly ask the Commission for authorization or a
Certificate of Public Convenience and Necessity (CPCN) before embarking on a capital
investment of this size. See Idaho Code 61-526. The Company's capital investment on radio
transmitters ($713,542) in this case is extremely large compared to its Commission-approved
rate base of $1,450,625,4 which was established during the Company's latest general rate case.
Because of the size of the investment, Staff believes the Company should have sought
Commission approval for the investment before launching the project. Having failed to do so,
the Company proceeded at its own peril.
Staff recognizes that during the Company's prior general rate case in 2009 (FLS-W-09-
1), the Commission allowed minor capital investments made by the Company in acquiring
MXU's and converting to an AMR system for multi-family, commercial and several residential
accounts. However, Staff does not believe the Commission's approval of these minor
investments implied that it would be prudent or appropriate for the Company to convert all its
meters to an AMR system by purchasing and installing 3,300 additional MXU units in May
"Commission Order No. 31022, Case No. FLS-W-09-01.
STAFF COMMENTS 8 JUNE 15, 2012
2011. The current poor economic conditions in Idaho in general and eastern Idaho in particular
make wide spread investment of AMR particularly questionable at this time.
Staff believes that converting a relatively small number of customers to AMR meters -
295 compared to a total of 3950 meters in the system - would have been reasonable and would
not place a great financial burden on the customers compared to the customer burden arising
from the Company's rapid, mass conversion of the remaining 3,300 touch-read meters.
Finally, the Company's radio-read, drive-by monthly AMR system is well beyond the
normal practice employed by Idaho public water systems.5 Of the 30 privately operated water
utility companies regulated by the Commission, none has installed an AMR metering system to
date including the largest, United Water Idaho. Staff recognizes that some cities use a form of
AMR system, including the cities of Ammon, Blackfoot, Pocatello and Driggs. See Company's
Response to Staff Production Request No. 71. For example, the City of Blackfoot has
approximately 4,800 customers. However, only 10% of the customers have AMR meters while
90% have touch-read meters. Only the high volume-use customers are read monthly throughout
the year. Similarly, of the City of Pocatello's approximately 17,000 customers, two thirds have
manual-read meters and one third have on AMR meters. The City of Ammon, with 3,600
customers, recently converted all 103 of its commercial customers from manual to AMR meters
and is now converting 432 of its residential customers from an unmetered system to an AMR
system. City water department personnel explained to Staff during the brief phone survey that
the main reasons for converting to an AMR system were to conserve water, reduce peak demand,
and reduce pumping and labor costs. However, Staff was not able to obtain any documentation
showing these cities' conversions to AMR systems resulted in significant cost savings.
Meter Investment
Falls Water reports $839,878 in additions to Account No. 334-Meters for the 2012 Meter
Project, Exhibit 1. These expenditures are discussed in three general categories as shown on
Attachment C, Columns E-G. Column E, totaling $126,336, includes the cost of meters and
installation-related expenditures. Column F, totaling $674,024, includes the purchase of MXUs
with leak detection and radio-read features, plus related expenditures. And Column G, totaling
There are approximately 2,100 public water systems operating in Idaho. 2011 Annual Report. Idaho Public
Utilities Commission.
STAFF COMMENTS 9 JUNE 15, 2012
$39,518, includes $12,852 for extra office labor to handle additional paper work, plus financing
costs of $26,666. The Company has not demonstrated the $12,852 for extra office labor is a
necessary cost of the base meter installation. The financing charges of $26,666 are removed
from meters because financing costs are reflected in the authorized overall rate of return. Staff's
recommended adjustment of $713,542 removes the additions except for base meters. The
detailed Staff adjustment to Account No. 334-Meters of $713,542 ($674,024 + $39,518) is
shown on Attachment C.
Service Meter Depreciation Expense
Falls Water reports total depreciation expense of $84,210 for the 2012 meter project.
Historically, the Company used a ten-year depreciable life and no salvage value for all entries in
Account No. 334-Meters. The Company also used the ten-year life for the 2012 meter project.
The National Association of Regulatory Utility Commissioners' (NARUC) guidelines suggest a
10% salvage value and a depreciable life of 35 to 45 years. Falls Water uses depreciable lives
which are often shorter than the NARUC guidelines. This leads to higher annual depreciation
expenses and may lead to more rapid replacement of equipment. Company representatives said
the Company has experienced shorter useful lives and has adopted depreciable lives reflecting
this reality. However, the Company has not demonstrated that a shorter useful life is reasonable.
Absent such evidence, Staff believes the NARUC standards should be used. Staff notes, for
example, that United Water of Idaho uses mid-range, 40 year depreciable life for their service
meters. Staff is willing to consider reasonable, auditable, evidence demonstrating a basis for the
Company's departure from NARUC useful life standards. Until then, Staff believes NARUC
standards should continue to be used.
Using Falls Water's proposed method, annual depreciation expense for the 2012 meter
project would be $83,988. The Company says it experiences shorter actual life spans than the
NARUC method uses. Recognizing this concern, Staff used the low end of the recommended
NARUC range, a depreciable life of 35 years, to calculate depreciation expense of $3,249 for the
$126,336 of meter investment recommended by Staff. A comparison of the two depreciation
calculations is shown on Attachment E.
In the future, Staff will use the NARUC standard for all PIS accounts and consider other
depreciable life spans only if the Company provides auditable data supporting any variation.
STAFF COMMENTS 10 JUNE 15, 2012
Electric Power Costs
Staff reviewed the electric power cost adjustment made by the Company to recognize
increases in electric power costs. The Company's power cost model initially calculates the
annual power costs by using the actual kWh usage for 12 years (2000-2011) and applying the
current electric power rates for each year. The model then computes the normalized annual
power cost by multiplying the 12-year average yearly demand and energy charges per customer
by the total number of customers during the end of the test year (3,83 1). The result is a
normalized annual power cost of $150,407.
Staff believes the Company's methodology is appropriate. However, Staff does not agree
with the Company's use of 12 years of water production data because that data does not account
for the declining water use per customer, especially during the last several years as shown in
Attachment F. Using 12 years of annual production volumes (2000-2011), the calculated
average annual volume is 338,496 gallons per customer. In contrast, the average water
production using a 6-year average (2006-2011) is 304,296 gallons per customer. Staff believes
that the 6-year annual average more accurately approximates current water production volume
with the corresponding kWh usage. Using the 6-year annual average, Staff calculated a yearly
demand of $15.30 per customer and energy charges of $19.12 per customer. Multiplying these
charges by the total number of year-end customers during the test year (3,832)6 yields a
normalized annual power cost of $131,909. Therefore, Staff recommends reducing the
Company's proforma electric power cost by $18,535 (i.e., $150,444-$131,909).
Water Testing Cost
The Company claims that water testing during the test year costs $3,428. The Company
proposes a $2,725 additional adjustment, making the proforma cost of water testing $6,153.
Because different testing cycles are required for various regulated water contaminants, Staff
believes it is necessary to make appropriate adjustments to calculate a normalized water testing
cost. The Company provided Staff an annualized cost for a nine-year cycle for water testing in
all Company wells. The water testing costs also include the IDEQ-required water sample
analysis at various sampling points of the distribution system. Staff reviewed the Company's
6 The Company later corrected the number of customers during the end of 2011 test year from 3,831 to 3,832.
Recalculated 12-year normalized power costs using 3,832 year-end customers in 2011.
STAFF COMMENTS 11 JUNE 15, 2012
proposed costs and adjustments, agrees that the total annualized testing costs are appropriate and
reasonable, and accepts the Company's $2,725 adjustment to test year water testing cost.
Water Treatment Cost (Chemicals)
The Company claims it purchased $4,548 worth of chlorine for water treatment during
the test year, and it proposes a $2,504 adjustment with a total proforma chemical cost of $7,052.
Staff reviewed the Company's method of calculating the pounds of chlorine needed for each year
and normalized such usage. Staff generally agrees with the Company's method of calculating
the chlorine usage per year. However, Staff disagrees with the Company's use of 10 years of
well production data (2002-2011) to normalize the chlorine usage. Using the same rationale as
used in the electric power costs adjustment, Staff believes that it is appropriate to use the more
recent well production data (6-year average from 2006-2011) to normalize the chlorine usage.
This reduces the normalized usage from 66 pails of chlorine per year to 62 pails per year. At the
cost of $2,564 per pallet (24 pails per pallet), this reduces the chlorine costs from $7,052 to
$6,625. Therefore, Staff recommends that the Commission remove $427 of the chemical
(chlorine) costs.
Building Lease
In a previous case, FLS-W-09-0 1, the Commission discussed a building lease between
Falls Water and a related party. In that case, Falls Water leased a total of 4000 square feet of
combined office and shop space. In Order No. 31022, the Commission expressed concern about
the Company's number of affiliate transactions. The Commission also maintained that the
Company must demonstrate evidence of arms length bargaining between the Company and the
related party as the foundation of reported expenses. The same lease plus a new lease with a
related party are part of the current case, FLS-W-12-01.
In the previous lease, the Company's owner, Mr. Johnson, leased 4000 square feet of
space to the Company. This consisted of 1600 square feet of office space and 2400 square feet
of shop. Another 5000 square feet was leased to Rockwell Homes.
According to Falls Water, the lease with Rockwell Homes was not complete, and Mr.
Johnson asked Rockwell to vacate the 5000 square feet of the building because Falls Water
needed the additional space. The new lease includes the original 4000 square feet plus the
STAFF COMMENTS 12 JUNE 15, 2012
additional 5000 square feet for a total of 9000 square feet. In this rate case, the reported
expenses combine payments for both leases.
Staff calculated the following rates. The original lease of office and shop, a total of 4000
square feet, was approved in the previous rate case, FLS-W-09-01, at an annual cost of $39,720.
This is an average annual cost of $9.93 per square foot. Under the most recent lease, of 9000
square feet, the annual rent for the first year is $53,952, or an average annual cost of $5.99 per
square foot.
Staff asked the Company to provide an economic analysis demonstrating savings or other
economic benefits from the latest lease. No analysis was provided. However, the Company said
it needs the additional 5000 square feet of shop space for several reasons:
First, the Company explained that it needs the additional space to store inventory, like
pipes and fittings that the Company keeps for emergency repairs, along with other materials the
Company needs for daily operations. Staff finds this justification unsupported. Staff examined
the Balance Sheet in the Company's Annual Reports for the last five years, 2007 through 2011
and found no values listed in any of those years for Account No. 151 - Materials and Supplies
Inventory.
Second, the Company said it needs the additional heated space to store a rented backhoe
and dump truck during the winter so they will start easily. Staff notes the Company rents this
equipment from the Company's owner, Mr. Johnson. In Staff's view, rental of this equipment
makes storage the responsibility of the owner, not Falls Water Company. The Company has
provided no evidence suggesting that it is obligated to store the rental equipment.
Third, the Company explained that the additional shop space provides an area for routine
maintenance of the Company's vehicle fleet. The Company lists 11 items in Account No. 341-
Transportation Equipment including a snow plow blade and a Ford F-350 that was retired in
2011.
Fourth, Falls Water said it benefits from having all its sites together. However, the
Company did not quantify the costs and benefits. While Staff admits quantification may be
difficult, the Company has not demonstrated any economic justification for tripling shop
facilities space from 2400 square feet to 7400 square feet.
Using the original lease without contract escalators of $36,000 as a starting point, Staff
recommends that one-fifth of the additional 5000 square feet be allowed for a total lease cost of
STAFF COMMENTS 13 JUNE 15, 2012
$41,995 annually. Therefore, Staff recommends that the annual rent be adjusted by $11,957, as
shown on Attachment G.
Equipment Rental
Falls Water Company rents a backhoe and a 12-yard dump truck from the Company's
owner, Mr. Johnson. Staff asked the Company to demonstrate its need for this equipment with
job schedules, equipment needs, etc. The Company claims it has an ongoing need for a backhoe
and dump truck, but it provided little evidence to support this claim. Staff acknowledges there
may be an occasional need for such equipment. Purchasing equipment would be more consistent
with an ongoing need and reduce the annual cost.
While the Company has chosen to rent equipment and has reported a total of $31,474, as
the annual expense, it has only documented $20,000 of the reported amount. Accordingly, Staff
recommends that the Commission allow an annual amount of $20,000 in this case, the same
amount allowed in the 2009 rate case. This will result in adjusting the Company's reported
annual expenses downward by $11,474, as shown in Attachment H.
Revenue Requirement
Staff's rate base adjustments include the recommendations for PIS and associated
depreciation as shown on Attachment I. Working capital is calculated as 1/8 of operating
expense and added to rate base. The Staff's recommended rate base is $1,821,144, as shown on
line 6 of Attachment I.
The proforma results of operation are shown on Attachment J. Column C shows Falls
Water's numbers for each account. Staff's adjustments are shown in Columns D and E, with the
Staff's recommended totals in Column F. The Staff's recommended total expenses are
$1,025,414 as shown on Attachment J, page 2, Column F, line 53.
Staff's recommended revenue requirement for Falls Water is shown on Attachment K.
The last column shows return on rate base (In 3), additional taxes (in 11) plus operating expenses
(In 13) results in a total revenue requirement of $1,169,054 as shown on line 14 of Attachment
K. The gross-up calculations for additional taxes are split in two components to reflect the
taxable nature of the equity portion and the tax deductible nature of the debt portion.
Falls Water utilized a 12% ROE when calculating its revenue requirement. Although the
Commission authorized a 12% ROE in the last rate case, market achieved and allowable returns
STAFF COMMENTS 14 JUNE 15, 2012
are now lower. Falls Water has an equity ratio greater than 50% equity and does not have a
significant required capital budget in the near future. This suggests a 10% ROE would be
appropriate. However, Staff proposes a large adjustment to meters in this case, which creates
regulatory risk. The higher regulatory risk makes an 11% ROE more appropriate. The overall
rate of return recommended by Staff is 7.23% when the Company's capital structure and cost of
debt is accepted.
The Company booked $1,112,611 in 2011. The proforma revenues at existing rates for
3840 customers are $1,153,222 for a difference of $40,611. See Attachment L. When the
generated revenue at existing rates of $1,153,222 is compared to Staff's the total recommended
revenue requirement of $1,169,054, additional revenue of $15,832 needs to be generated from
rates going forward.
RATE DESIGN
The Company proposes the following rate design to produce its requested revenue
requirement: a) maintain the current, single-block commodity rate design based on meter size for
all customers, with volume allowance for the base (fixed or customer) charge; b) reduce the
present volume allowance for the base charge for each meter size; c) increase both the basic
customer charge and the commodity charge for each meter size with a greater percent increase
allocated to the customer charge; d) use the 2011 excess water usage data for various classes of
customers; and e) use 3,840 total number of customers in estimating expected revenues using the
Company's proposed rates.
The Company proposes the following rates to collect its requested annual revenue
requirement of $1,407,671:
STAFF COMMENTS 15 JUNE 15, 2012
Customer Monthly Charges (Base Rate Charges)
Meter Size
(inches)
Present
Rate
($/month)
Present
Volume
Allowance
(gallons)
Proposed
Rate
($/month)
Proposed
Volume
Allowance
(gallons)
Percent
Increase
(%)
%- inchorsmaller $16.10 12,000 $19.18 5,000 19.1%
1-inch $22.54 17,000 $26.85 7,000 19.1%
1 V2 -inches $28.98 22,000 $34.52 9,000 19.1%
2—inches $37.03 28,000 $44.11 12,000 19.1%
4 - inches $66.01 49,000 $78.64 20,000 19.1%
Commodity Charges
Customer Current Proposed Percent
Class Rate Rate Increase (%)
($/1,000 gallons) ($/1,000 gallons)
All Customer Classes $0.611 $0.670 9.7%
Given the limited Staff-proposed revenue requirement increase, Staff recommends that the
customer allowance and commodity charge remain unchanged and the increase be spread
uniformly on the customer charge.
Volume Allowance for Base Charge
As mentioned previously, the Company proposes to reduce the monthly volume
allowance for the base rate (minimum customer charge) from the current volume usage of 12,000
gallons to 5,000 gallons for a representative customer meter size of 3/4-inch or smaller. The
minimum charge volume allowance for other sizes is correspondingly reduced. The Company
says it proposes to set the volume allowance at 5,000 gallons per month primarily to reduce the
subsidy that low usage customers pay to high usage customers. The Company also claims that
lower volume allowances would make the rate fairer because customers will pay for more of the
water they actually use. In addition, the Company states that in order to encourage conservation
of water, it is prudent to create a rate that puts the cost burden of a customer's water use squarely
on the customer. The Company also said that the surrounding communities of Rexburg and
Ucon, respectively, have volume allowances of 6,000 gallons and 5,000 gallons per month.
The Commission has no written policy on setting the minimum customer charge volume
allowance in rate design for small water companies. Rather, it deals with this issue on a case-by-
case basis. For example, in Case No. DIA-W-07-01 the Commission addressed the monthly
volume allowance issue and stated:
STAFF COMMENTS 16 JUNE 15, 2012
• Some customers recommended increasing the monthly allowance of water to as
much as 10,000 gallons per month, others recommended reducing it to as little as
0. Staff reasoning in lowering the base monthly amount of water allowance is
appealing; however, we believe the reduction from 7,500 to 4,000 per month goes
too far. Instead, we find that the monthly allowance should be 5,500 gallons
which coincides with the average winter usage which can be considered
"minimum." (Emphasis added.)
Commission Order No. 30455.
Several Falls Water customers commented that the Commission should not cut the
volume allowance to 5,000 gallons because such a volume cut is extreme and would also be
more expensive for customers.
Staff generally supports reducing the volume allowance to a level that approaches the
average customer's monthly winter usage. However, in this particular case, Staff does not
support changing the volume allowance included with the customer charge for several reasons.
First, the Staff-recommended revenue increase of $15,832 or 1.4% is relatively small compared
to allowance reduction. Reducing the allowance as suggested by the Company, without reducing
the customer charge, causes billing increases for many customers that are well beyond the
overall revenue requirement percentage increase proposed by Staff. Second, the lack of water
consumption data including a bill frequency analysis in a usable executable format (i.e., Excel
file), makes it impossible for Staff to analyze the actual revenue impact of such a significant
change in volume allowances. Staff, therefore, recommends that the current volume allowance
for various meter sizes be maintained in this case.
Number of Active Customers
The Company presents the following figures related to the total number of customers: a)
3,900 (Application at 2); b) 3,835 - total number of customers at the end of December 2011
(Response to Staff Production Request No. 25) but later corrected by the Company to 3,832 on
April 10, 2011; and c) 3,840— total number of customers on January 24, 2012 (page 2, Exhibit 5
of the Application). The Company proposes to use 3,840 customers in its rate design with the
following distribution by meter class:
STAFF COMMENTS 17 JUNE 15, 2012
Meter Class No. of Customers % Distribution
5/8 and %-inch 3,679 95.8%
1-inch 109 2.8%
1 '/2-inch 17 0.4%
2-inch 33 0.9%
4-inch 2 0.1%
Total 3,840 100.0%
Staff concurs with the Company using 3,840 customers with the distribution as presented
above. In Staff's opinion, the total number of customers as of January 24, 2012 is an appropriate
number of customers to use in the rate design and in calculating the Company's fixed revenues.
This total number of customers represents a more recent count of active customers of Falls Water
and is a known and measurable change compared to the end of the test year 2011 data.
Commodity Charge
The Company proposes using the 2011 monthly excess data to estimate the variable
(commodity) revenue collected by the Company, and applying the proposed commodity rate of
$0.67 per 1,000 gallons to the monthly excess water usage for various customer classes. The
total excess usage for all customer classes in 2011 is 734,085,000 gallons. The volume
allowance for each customer class (i.e., 5,000 gallons for 3/4-inch meters and smaller, 7,000
gallons for 1-inch meters, etc.) was already subtracted from this total.
As discussed previously, Staff recommends maintaining the current volume allowance
for various meter sizes. Hence, the Company's estimated annual excess volume (734,085,000
gallons), taking into account the proposed volume allowance for various meter sizes in 2011, no
longer applies. In order to calculate the Company's variable (commodity) revenue, the total
annual excess volume needs to be estimated using the current volume allowance for various
meters. This data is not readily available from the Company. However, during the Company's
last rate case in 2009 (FLS-W-09- 1), the Commission established the total annual excess volume
of 605,955,000 gallons for 3,638 customers. See Order No. 31022. By simply multiplying the
annual excess usage rate per customer established in Order No. 31022 of 166,563 gallons by the
total number of customers in 2012 (3,840), the calculated total annual excess usage is
639,602,000 gallons. Staff recommends that this total excess usage be used in calculating the
Company's commodity revenue.
STAFF COMMENTS 18 JUNE 15, 2012
Other Rate Design Issues
The Company proposes to increase the customers' fixed charge by about 19.1% for all
meter sizes while increasing the commodity rates by 9.7%, from $0.611 per 1,000 gallons over
the minimum charge volume allowance to $0.67 per 1,000 gallons. See Application at 1. The
Company believes its proposal helps remedy winter cash flow problems. The Company also
points out that the ratio of fixed cost to commodity charge was altered in the Company's last rate
case to help the Company meet its cash flow needs. See Case No. FLS-W-09-0 1, Order No.
31022. Although the percent increase in the fixed charge is greater than the percent increase in
the commodity charge, the proposed reduction in volume allowances causes the overall result of
the proposed rate design to nearly maintain the current proportion of revenue derived from fixed
charges and commodity charges.
The Company's proposal to put more emphasis on the basic customer charge is generally
contrary the principle of promoting conservation; in short, there is less opportunity and
incentives for customers to be more efficient if most of the total water charges are allocated to
fixed costs. However, Staff reviewed past Commission orders relating to general rate cases filed
by the Company and found that the Commission has allowed the Company to maintain a rate
design with the ratio of fixed charges to the total revenue as high as 72% while the excess
commodity charge provided 28%. See Order No. 30027, Case No. FLS-W-05-01. Staff sees no
significant difference between the previous rate case and this one with regard to revenue
contribution ratio. Staff also recognizes the inherent cash flow problems that small water
utilities experience during the period of low water-customer usage. Consequently, Staff does not
oppose placing more emphasis on the basic customer charge.
Staff Rate Design Proposal
As noted earlier, Staff recommends a revenue requirement of $1,169,054. Staff also
notes that the number of customers increased from 3,638 during the last rate case in 2009 to
3,840 in 2012, a 5.6% increase of 202 customers. These new customers now contribute to the
Company's current revenue. Before exploring various rate design options to meet the Staff-
recommended revenue requirement, the projected Company revenue was calculated using the
3,840 customers from 2012, an adjusted annual excess volume and current rates.' ates The total
adjusted annual excess volume using the current volume allowances for various meter sizes for
all customers was estimated to be 639,602,000 gallons (605,955,000 gallons from Order No.
STAFF COMMENTS 19 JUNE 15, 2012
31022/3,638 customers in 2009 x 3,840 customers in 2012). Based on these estimates, the
projected revenue is $1,153,222, which is insufficient to cover the Staffs recommended revenue
requirement of $1,169,054, a difference of $15,832. See Attachment L.
Subsequently, Staff investigated other design options to meet the Staff-recommended
revenue requirement. There are many combinations using the basic rate structure to satisfy the
revenue requirement. To maintain revenue stability for the Company, Staff recommends
increasing the customer charge and leaving the commodity rate at its current level. Using the net
adjusted annual excess water usage (639,602,000 gallons) discussed previously with 3,840 total
customers, Staff proposes the following rate design:
BASIC CUSTOMER CHARGES
Service Meter
Size
Vol. Allowance
in Gallons
Minimum
Charge
5/8 and 3/4- inch 12,000 $16.44
1-inch 17,000 $23.02
1 1/2 inch 22,000 $29.59
2 inch 28,000 $37.81
4-inch 49,000 $67.40
COMMODITY CHARGES
Commodity Charges for all Meter Sizes ($/1,000 gallons) I $0.611 I
With the Staff-recommended rate design shown above, there is no increase in the
commodity charge but there is an increase in the customer charge from the current rate of $16.10
to $16.44 per month, an increase of 2.1% for a typical customer with 3/4-inch meter size. The
total revenue generated from rates is $1,169,323 ($778,526 from base + $390,797 from
commodity). There is still an emphasis on the basic customer charge which is about 67% of the
total gross revenue compared to 65% under the Company's proposal. The rate proof for the
Staff-proposed rate design by meter size is presented in Attachment M.
With the Staffs proposed rate structure, the average monthly bill for residential
customers with Company standard meter size of 3/4-inch or smaller using an average monthly
volume of 19,624 gallons (per Attachment N) is about $21.10 per month, an increase of $0.34 or
1.6% from current rates. The rate impacts for residential customers with 3/4-inch meter size or
smaller using various monthly water volumes are presented in Attachment 0.
STAFF COMMENTS 20 JUNE 15, 2012
Private Fire and Sprinkler Service
The Company initially proposed including a new Schedule No. 3 for Private Fire
Sprinkler and Service. Application, page 6. However, the Company did not provide a copy of
proposed Schedule 3 as an exhibit in its Application. In response to Staff Request No. 34, the
Company withdrew its proposal to create a new schedule for Private Fire Sprinkler and Service
and explained that the proof of revenue calculation in its proposal did not include any revenues
for the withdrawn proposed Schedule No. 3.
The Company indicated that there are approximately 20 private fire sprinkler systems in
the Company's service area. The exact count is not known because all the private fire sprinkler
systems were installed without the Company's knowledge and the Company only recently
learned of them. The Company believes there are only a few fire sprinkler systems and that they
have, to date, not adversely impacted service to other customers or financially burdened the
Company.
Staff does not oppose the Company's decision not to create a new schedule for Private
Fire Sprinkler and Service at this time. However, Staff recommends that the Company further
investigate how many customers have private fire sprinklers or separate lines for fire fighting
purposes connected to the Company's distribution system. The Company should then submit a
proposal to the Commission for charging these customers under a separate schedule during its
next rate case. Staff believes the Company provides water service to these customers in case
there is a fire on their properties, and that they should pay for that service.
OTHER WATER SYSTEM OPERATIONAL ISSUES
Amending the Company's CPCN
Staff notes that the Company's CPCN No. 236 was last amended in Case No. FLS-W-02-
01. Based on Staffs review of the Company's Annual Reports from 2002 to 2010, it appears
that the Company has been servicing new subdivisions outside its certificated area. In response
to Staff Production Request No. 38, the Company conceded that not amending the CPCN was an
oversight on the Company's part. The Company said it would file an application to amend its
CPCN after this rate case is completed. Staff supports the Company's plan to amend its CPCN
after this case concludes.
STAFF COMMENTS 21 JUNE 15, 2012
Year-Round Meter Reading
Now that the Company has finished installing the additional 604 meters and 3,300
MXU's, the Company is fully converted to an AMR system. As discussed previously, Staff
recommends that the cost for installing the 3,300 MXIJ units and related reading devices be
disallowed.
Nonetheless, regardless of how the Commission rules on the recovery of such
investments, the Company is now ready and equipped to read all its meters monthly throughout
the year. The Company proposes to read meters year-round. The Company claims that the
ability to read meters in the winter benefits customers because: I) customers will be made aware
of winter leaks sooner; 2) catching leaks early will conserve water; and 3) with the reduction of
water allowed in the minimum rate, generating excess usage is a real possibility and the customer
would be more financially capable of paying for the overages as they are incurred rather than
being billed in April for all water excess usages that have accrued since the prior October
reading. As noted earlier, the Company provided a detailed analysis of potential monthly labor
and vehicle fuel cost-savings as a result of monthly readings of all AMR meters installed in the
system. While Staff does not believe the analysis justifies the AMR investment, Staff does not
oppose the Company's plan to perform monthly readings throughout the year.
CUSTOMER RELATIONS
Unauthorized Charges
Falls Water has quoted or assessed several charges related to construction of facilities to
serve new customers. These charges have not been approved by the Commission, but the
Company has indicated that it has been charging these fees for several years.
These unauthorized charges include: 1) a charge for improvement to physical plant which
varies depending upon whether the water provided will be used for irrigation; 2) two different
charges for the cost of water rights depending upon whether the water provided will be for in-
house use and/or irrigation; 3) a miscellaneous development fee to cover engineering costs, and
4) a charge to install a service line underneath a street to the customer's property. These
unauthorized charges are further discussed below.
The Company's charges for plant improvements, the purchase of water rights, and
engineering costs are not appropriate for a customer requesting a single connection, and are not
consistent with the Uniform Main Extension Rule incorporated within the Company's approved
STAFF COMMENTS 22 JUNE 15, 2012
tariff. See Order No. 31022 (FLS-W-09-01). The impact of a single connection to the system is
not significant enough in most cases to require further system improvements. Currently,
customers pay a hook-up fee ranging from $500 to $1,205, depending on meter size. Although
there may be circumstances where these charges are appropriate, such as when a large customer
or developer requests service requiring system improvements, the Commission has not
previously approved such charges for Falls Water, or for any other small water company.
Finally, the Commission has previously allowed other companies to charge to install a
service line under the roadway from the main line to the customers lot on the other side of the
street. However, Falls Water's tariff does not include such a charge, and the Company has not
previously requested such a charge.
Based on previous Commission orders concerning other small water utility companies,
Staff recommends that the Commission authorize the Company to modify its tariff to allow
charging customers when the Company must install a service line under a roadway to provide a
customer connection. See Order Nos. 30455 (Case No. DIA-W-07-01), 31002 (Case No. BCS-
W-09-02) and most recently 32105, (Case No. MUR-W-10-01). The cost to install a line under a
roadway will vary depending upon the complexity of the situation. Staff therefore recommends
that the charge to the customer be based on time and material costs and that the customer be
given an option to hire an independent contractor. Staff also recommends that the tariff contain
the following Commission approved language:
When the installation of a new service line requires the Company to bore a line
under a road, all additional costs will be charged to the customer on a time and
materials basis. The new customer may, at their option, hire a Falls Water
Company approved independent contractor to perform the road bore and
connection. The Company will require such contractor to show proof of bonding,
licensing and insurance and have at least five (5) years of experience at hot
tapping water lines. Falls Water Company will inspect and approve all the work
being performed to insure compliance with the Company's installation
requirements.
The Company has not previously requested any of the charges discussed above, either as
part of a general rate case or through a tariff advice. The Company has collected unapproved
charges from at least one customer. Therefore, Staff recommends that any unauthorized charges
collected from customers over the past three years be refunded to the affected customers. See
Rule 203 of the Utility Customer Relations Rules.
STAFF COMMENTS 23 JUNE 15, 2012
Customer Notification and Press Releases
The Company's Application included a copy of the notice that was mailed to the
customers and a copy of the press release that was sent to the Post- Register in Idaho Falls on
January 31, 2012. The customer notice and press release detailed the percentage increase for
various sizes of connection, which the Company calculated using customers' actual usage and a
software program that allowed the Company to enter proposed increases and determine the
percentage increase. Staff has been unable to verify the accuracy of the Company's calculations.
According to Staff's calculations, the average Falls Water customer uses 20,000 gallons
per month and more than 90% of customers are on a 3/4-inch meter. The average monthly bill of
a customer is now $20.98 per month and would increase by about 39.3% to $29.23 if the
Company's request is granted in full.
Questions from customers raised during the customer workshop prompted the Company
to explain its process in determining the percentage increase for the different customer classes.
Staff recognizes the Company efforts in calculating the effect of the proposed rate increase on
customers, but recommends that in the future, the Company comply with the IPUC Rules of
Procedure, (IDAPA 31.01.01). Rule 125 states that the notice shall give the proposed overall
percentage change from current rates as well as the proposed percentage increase in revenue for
each major customer class.
The Commission provided public notification for a customer workshop through a April 3,
2012 press release. The workshop was held on April 10, 2012 in the city of Ammon, and there
were eight attendees.
Customer Relations
As of May 19, 2012, the Commission has received approximately thirty-eight (38)
written comments from thirty-two (32) customers regarding this case. Most comments reflect
concern about how the increase will impact customers in the current economy and the negative
effect that the proposed change in rate design will have on customers who use water for outside
irrigation.
Since the previous rate case closed on March 10, 2010, the Commission has received
fourteen complaints and inquiries about the Company. Almost half of those complaints and
inquiries relate to the current rate case.
STAFF COMMENTS 24 JUNE 15, 2012
Complaint Records
In response to production requests, the Company stated that it has received no complaints
or requests for a conference from customers.
Xpress Bill Pay
In response to customer's requests, the Company has entered an agreement with Xpress
Bill Pay that allows customers to pay their monthly bills by debit card, credit card, or electronic
funds transfer. Xpress Bill Pay deposits the monies in the Company's account and issues a daily
report for the Company to download into its accounting system. Similar services are provided by
other utilities whose vendors typically charge the customer a convenience fee to cover the cost of
the process. However, Falls Water has instead chosen to pay for the cost of the program, which
will work in conjunction with its new vendor for processing electronic transactions. The
Company states that the combined costs are less than under the previous merchant pay system.
The Company indicates that in April 2012 more than 1,400 customer payments were processed
through Xpress Bill Pay. Staff believes that the volume of customer participation to date
indicates the appropriateness of the program, and Staff supports the Company's decision.
STAFF RECOMMENDATIONS
Staff makes the following recommendations:
1.Staff recommends use of a 2011 test year.
2.Staff recommends an 11.00% ROE and an overall return on rate base of 7.23%.
3.Staff recommends a rate base of $1,821,144.
4.Staff recommends a decrease in Land and Water Rights of $92,518.
5.Staff recommends a decrease in Meters (radio transmitters, etc.) of $713,542.
6.Staff recommends a decrease in Depreciation Expense and Accumulated Depreciation
of $80,739.
7.Staff recommends a revenue requirement of $1,169,054. This represents additional
revenue of $15,832 or a 1.4% increase in revenues.
8.Staff recommends a decrease of Power Cost Expense by $18,535.
9.Staff recommends a decrease in Water Treatments Costs (Chemicals) by $427.
10.Staff recommends a decrease in Office & Warehouse Rent Expense by $11,957.
11.Staff recommends decrease in Equipment Rental Expense of $11,474.
STAFF COMMENTS 25 JUNE 15, 2012
12.Staff recommends an increase in Working Capital of $1,177.
13.Staff recommends that the Commission approve the new customer charges proposed
by Staff maintaining the current volume allowance for various service meter size and
maintaining also the current commodity charge for all service meter sizes.
14.Staff recommends that the Company's CPCN be amended after this rate case is
completed.
15.Staff recommends that Commission approve monthly reading of all customer meters
throughout the year as requested by the Company.
16.The Commission approve an additional charge based on time and material expended
when the installation of a new service line requires the Company to bore a line under
a road.
17.The Company refund unauthorized charges collected from customers.
18.The Company comply with the requirements of the Commission's Rules of
Procedure, in particular Rule 125, with respect to preparation of Customer Notices
and Press Releases.
4 Respectfully submitted this I 5 -k day of June 2012
Karl T.T. Klein
Deputy Attorney General
Technical Staff: Gerry Galinato
Chris Hecht
John Nobbs
i:umisc/eomments/flswl2. lkkggjnch comments
STAFF COMMENTS 26 JUNE 15, 2012
Falls Water Company
Schedule of Plant in Service
CYE 2011
AuditBals Adds Adds Book New Bals Meter FWC Exh 1 Audit Audited
L# Sub# Item CYE 2009 2,010 2,011 Retmts CVE 2011 Project Pg 1 of 1 Adjusts Balances
1 303.0 Land & Rts
2 304.0 Str & Imp
3 307.0 Wells
4 310.0 Genrtrs
5 311.0 Pumpg
6 320.0 Purifi Sys
7 331.0 Mains
8 334.0 Meters
9 335.0 Hydrants
10 340.0 Offc Eqpt
11 341.0 Transport
12 343.0 Tools
13 Totals
t p CD
CD
cr
1,896,348 12,222 212,736 2,121,306 2,213,824 (92,518) $2,121,306
486,931 1,850 488,781 488,781 $488,781
403,241 1,500 404,741 401,931 $401,931
16,693 0 16,693 16,693 $16,693
398,448 19,253 2,290 419,991 419,992 $419,992
23,626 22,118 45,744 48,554 $48,554
906,136 0 906,136 906,136 $906,136
955,683 46,571 17,962 (36,014) 984,202 839,878 1,825,132 (713,542) $1,111,590
50,371 9,208 59,579 59,849 $59,849
36,260 23,623 59,883 60,519 $60,519
60,607 80,296 (2,500) 138,403 138,403 $138,403
24,049 2,809 26,858 26,858 $26,858
$5,258,393 $219,450 $232,988 ($38,514) $5,672,317 $839,878 $6,606,672 ($806,060) $5,800,612
Falls Water Company
Analysis of Land & Land Rights
Account # 303
Bal Reported CYE 12/31/11
2011 Additions from Recon of Account
2010 Additions from Recon of Account
CYE 2009 Book Balance
CYE 2009 Audit Balance
Difference/Adjustment
$2,213,824
212,735
12,222
$1,988,867
$1,896,348
$92,519
Lit
1
2
3
4
5
6
Attachment B
Case No. FLS-W-12-01
Staff Comments
06/15/12
Falls WaterCompany
Schedule of Meter Project Cost Allocations
2012 Meter Project FLS-W-12-01
CYE 2011
L# A
1 Description
2 3/4 in Iperl meters
3 1 in Iperl meters
4 520 MXU w/leak Detectors
5 Upgrade Hand helds
6 Program Iperls
7 Vehicle Gateway Base Station
8 Labor:
9 Remove Old manl reads
10 Install MXU, prog meters
11 Move MXU consolidate areas
12 Temp offc wkr-xtra paperwk
13 Financing
14 2012 Meter Project Totals
CD 0
t) P
t'J
B C D E F G H
Allocated to Allocated to Allocated to Allocated
Numbers Cost each Total Cost Meters MXUs Other Totals
600 $185 $111,000 111,000 111,000
4 $210 $840 840 840
3,300 $168 $554,400 554,400 554,400
2 $7,500 $15,000 15,000 15,000
1 $424 $424 424 424
1 $42,500 $42,500 42,500 42,500
$0 0
604 $24 $14,496 14,496 14,496
3,300 $17 $56,100 56,100 56,100
175 $32 $5,600 5,600 5,600
1 $12,852 $12,852 12,852 12,852
1 $26,666 $26,666 26,666 26,666
$839,878 $126,336 $674,024 $39,518 $839,878
Falls Water Company Case No. FLS-W-12-01
Number of Service Meters Installed and Replaced
k
Year I No. of
Meters
Replaced
1993 8
1994 15
1995 22
1996 4
1997 10
1998 20
1999 100
2000 44
2001 108
2002 113
2003 247
2004 351
2005 480
2006 560
2007 538
2008 390
2009 165
2010 133
2011 530
2012 5
Sub-total 3843
No dates 107
Total 3950
Falls Water Company Meter Replacement Program
600
560
538 530
500
400
'IIUI
Grand Total 3,950
300
247
200
165 133
100 108 113
100 Lii 0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
*As of January 31, 2012.
**Replacement dates for these meters are not available.
CD
Falls Water Company
Comparison of Depreciation Expenses
2012 Meter Project
L# Item FWC Staff Difference
1 Cost
2 Salvage Value
3 Net Depreciable Amt
4 Depreciable Life
5 Depr Expense Adjustment
6 FWC Adjustment
7 As Reported Exhibit 2, Ln 52
8 per Customer
839,878 126,336 713,542
0 12,634 12,634
839,878 113,702 726,176
10 35
83,988 3,249 80,739
222
$84,210
$21.93
p
CD rn
Falls Water Company Case No. FLS-W-12-01
Annual Water Production
Annual Water Production per Customer
Falls Water Companv 500,000
450,000 c/1 12-Yr Average 338,493 gal/yr/customer
E 400,000
2
350,000
U
300,000 ---- • AAA -AI---
CL
250,000 -- - _____ 6Yr Average =304,290 gal/yr/customer
- 200,000 ------------_____
CL
C)
in 150,000
C
0 = 100,000 (0
50,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Falls Water Company
Calculation of Building and Property Rent
CYE 2011
L# Description Cost per
Year Monthly SqFt Sq Ft Sq Ft Months Total
1 Rockwell Lease
2 Base Rent 2011 $3,000.00 4,000 0.750 4,000 12 36,000
3 Escalators 2011 $811.91 4,000 0.203 0 0 0
4
8 Triple Net Lease 2011 $4,496.00 9,000 0.500 1,000 12 5,995
9 Total 41,995
10 Reported Expense 53,952
11 Adjustment (11,957)
Attachment G
Case No. FLS-W-12-01
Staff Comments
06/15/12
Falls Water Company
Schedule of Equipment Rental Expense
Equipment Rental - Acct # 642.0
CYE 2011
L# Name Related Inv Date Rental Acct # Amount
1 Brent Johnson Owner 3/1/11 BKH0e & DumpTrk 642.0 2,000.00
2 Brent Johnson Owner 4/1/11 BKHoe & DumpTrk 642.0 2,000.00
3 Brent Johnson Owner 5/1/11 BKHoe & Dumplrk 642.0 2,000.00
4 Brent Johnson Owner 6/1/11 BKH0e & DumpTrk 642.0 2,000.00
5 Brent Johnson Owner 7/1/11 BKHoe & DumpTrk 642.0 2,000.00
6 Brent Johnson Owner 8/1/11 BKHoe & DumpTrk 642.0 2,000.00
7 Brent Johnson Owner 9/1/11 BKHoe & DumpTrk 642.0 2,000.00
8 Brent Johnson Owner 10/1/11 BKHoe & DumpTrk 642.0 2,000.00
9 Brent Johnson Owner 11/1/11 BKHoe & DumpTrk 642.0 2,000.00
10 Brent Johnson Owner 12/1/11 BKHoe & DumpTrk 642.0 2,000.00
11 Subtotal 20,000.00
12 Reported Expense 31,474.00
13 Adjustment (11,474.00)
0 CD
CD
Falls Water Company
Rate Base Calculation
as of CYE 2011
Lu
1 Plant In Service
2 Accumulated Depreciation
3 CIAC
4 Net Plant In Service
5 Working Capital 1/8
6 Total Rate Base
FWC Staff Ad] Difference
6,606,672 (806,060) 5,800,612

(1,589,467) 80,739 (1,508,728)

(2,588,586) 0 (2,588,586)
2,428,619 (725,321) 1,703,298
116,669 1,177 117,846 *
2,545,288 (724,144) 1,821,144
*working Capital Calculation
Using 1/8 of Operating Expenses
Subtotal Operating Expense
Property Taxes
Payroll Taxes
State Income Taxes
Subtotal
less: Bad Debts Expense
less:Amortization of Rate Case
Sutbtotal
Divisor
Working Capital Allowance
$890,958
24,552
39,210
20
954,740
(10,921)
(1,054)
942,764
8
$117,846
Attachment I
Case No. FLS-W-12-01
Staff Comments
06/15/12
L#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
Falls Water Company
Adjustments of Revenue & Expenses
Proforma Results of Operations
CYE 2011
A B C D E F
Other CYE2011
Acct# FWC Deprec Expense Totals
400.00 Operating Revs
461.10 Metered Residential 1,030,460.52 1,030,460.52
461.20 Commercial Revs 41,778.43 41,778.43
461.50 Multiple family 32,740.07 32,740.07
470.00 Late Payment 4,508.44 4,508.44
471.00 Misc Revenues 3,123.90 3,123.90
Total Operating Revs $1,112,611.36 $0.00 $0.00 $1,112,611.36
414.00 Gain\loss on Property 0.00 0.00
Total Income 1,112,611.36 0.00 0.00 1,112,611.36
600.00 Expenses
601.50 Labor-Field 167,120.00 167,120.00
601.80 Labor-Office 29,640.00 29,640.00
601.90 Admin-labor 174,000.00 174,000.00
604.00 Employee benefits 73,434.64 73,434.64
610.00 Purchased Water 3,300.38 3,300.38
615.00 Electrcial Power 150,406.11 (18,535) 131,871.11
618.00 Chemicals 7,052.10 (427) 6,625.10
620.20 Source-M&S 9,950.75 9,950.75
620.60 Distribution-M&S 28,491.48 28,491.48
620.70 Postage 20,393.40 20,393.40
620.80 Office 26,592.17 26,592.17
620.81 Telephone 10,992.18 10,992.18
620.82 Bank Service Charges 13,014.58 13,014.58
620.83 Office Utilities Exp 7,009.17 7,009.17
631.10 Engineering 330.00 330.00
631.20 Accounting 2,785.00 2,785.00
631.40 Payroll Services 255.00 255.00
635.00 Testing 6,153.39 6,153.39
636.20 Source Contr Repairs 965.22 965.22
636.20 Trash 2,103.04 2,103.04
636.40 Outsourced Bad Debts 314.64 314.64
636.60 Distribution Contract 9,932.38 9,932.38
636.70 Data Processing 6,062.00 6,062.00
641.00 Rental of Property 53,952.00 (11,957) 41,994.67
642.00 Rental of Equipment 31,474.28 (11,474) 20,000.28
650.00 Transport Expense 37,815.78 37,815.78
656.00 Insurance Expense 18,993.00 18,993.00
656.10 Workers Comp Expense 9,584.69 9,584.69
Attachment J
Case No. FLS-W-12-01
Staff Comments
06/15/12 Page 1 of 2
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
660.00 Advertising Expense 683.47 683.47
666.00 Rate Case Amtz 1,054.19 1,054.19
670.00 Bad Debts Expense 10,921.47 10,921.47
675.10 Training Expense 522.00 522.00
675.20 Dues & Publications 1,180.06 1,180.06
675.40 IDHW Fees 16,872.50 16,872.50
subtotal 933,351.07 0.00 (42,393.33) 890,957.74
419.00 Interest Earned (38.69) (38.69)
421.00 non-utility income (5,112.00) (5,112.00)
403.00 Depreciation Expense 155,892.12 ($80,739) 75,153.12
408.11 Property Taxes 24,552.11 24,552.11
408.12 Payroll Taxes 39,209.86 39,209.86
409.11 State Income Taxes 20.00 20.00
426.00 mIsc Non-Utility Expens 672.00 672.00
Total Expenses 1,148,546.47 (80,739.00) (42,393.33) 1,025,414.14
Net Income (35,935.11) 80,739.00 42,393.33 87,197.22
Attachment J
Case No. FLS-W-12-01
Staff Comments
06/15/12 Page 2of2
Falls Water Company
Calculation of Revenue Requirement
FLS-W-12-01
Ut
1 Rate Base from Att I, Ln 6 1,821,144
2 Required Rate of Return 7.23%
3 Return 131,669 131,669
4
5 Net Op Income (Excess) Att J, Ln 54 (87,197)
6 Additional Income Requirement $44,471
7
8 Taxable and Non-Taxable GrossUp
9 Equity 51.37% 22,845 1.419702 32,433
10 Debt 48.63% 21,626 1.110207 24,010
11 44,471 56,443 11,971
12
13 Total Expenses; Att J, Ln 53 1,025,414
14 Total Revenue Requirement $1,169,054
15
16
17 Gross Up Calculation
18 Gross Revenues 1.000000
19 Less Uncollectibles 0.096970
20 Less 2011 Regulatory Fees 0.002297
21
22
23 Net Revenues 0.900733
24 State Income Tax-8% 0.072059
25
26 Federal Income Tax Base 0.828674
27
28 Fed Income Tax Rate 15% 0.124301
29
30 Net Operating Revenue 0.704373
31
32 Net to Gross Multiplier Equity Return 1.419702
33
34 Gross Up Non-Taxable Debt Return 1.1102069
35
Attachment K
Case No. FLS-W-12-01
Staff Comments
06/15/12
*
Falls Water Company Case No. FLS-W-12-01
Revenue Collected at Present Rate Using 2011 Test Year Number of Customers
Calculated Revenue Collected (see below) $1,153,222
Staff Recommended Revenue Requirement $1,169,054
Revenue collected over (under) Rev. Reqt. -$15,832
Total Number of Customers 3,840
MINIMUM CUSTOMER CHARGES
Service
Meter Size
Number
of
Meters
Minimum
Volume-Gals
Minimum
Charge
Total An. Rev.
from Mm.
Charge
5/8 and 3/4 - inch 3,679 12,000 $16.10 $710,783
1-inch 109 17,000 $22.54 $29,482
11/2 - inch 17 22,000 $28.98 $5,912
2 - inch 33 28,000 $37.03 $14,664
4 - inch 2 49,000 $66.01 $1,584
Total 3,840 $762,425
COMMODITY CHARGES
Total Annual Excess Volume for all meter sizes (x 1,000 gals) 639,602
Commodity charges for all meter sizes ($/1,000 gals) $0.611
Total Commodity Revenue $390,797
Revenue from Rates (base and commodity charges) $1,153,222
Revenue collected over (under) Revenue Requirement -$15,832
Various Charges as a % of Gross Revenue
Minimum Charge 66%
Commodity Charge 34%
*Adjusted annual excess volume=605,955 (Order No. 31022)13,638x3,840=639,602 gallons.
Attachment L
Case No. FLS-W-12-01
Staff Comments
06/15/12
*
Falls Water Company Case No. FLS-W-12-01
Rate Proof of Staff -Proposed Rate Design (By Service Meter Size)
Staff Recommended Revenue Requirement $1,169,054
Revenue Collected Based on Prop. Rate Design $1,169,323
Revenue collected over (under) Rev. Reqt. $269
Total Number of Customers 3,840
MINIMUM CUSTOMER CHARGES
Service
Meter Size
Number
of
Meters
Minimum
Volume-Gals
Minimum
Charge
Total An. Rev.
from Mm.
Charge
5/8 and 3/4 - inch 3,679 12,000 $16.44 $725,793
1-inch 109 17,000 $23.02 $30,105
11/2 - inch 17 22,000 $29.59 $6,037
2 - inch 33 28,000 $37.81 $14,974
4 - inch 2 49,000 $67.40 $1,618
Total 3,840 $778,526
COMMODITY CHARGES
Total Annual Excess Volume for all meter sizes (x 1,000 gals) 639,602
Commodity charges for all meter sizes ($/1,000 gals) $0.611
Total Commodity Revenue $390,797
Revenue from Rates (base and commodity charges) $1,169,323
Revenue collected over (under) Revenue Requirement $269
Various Charges as a % of Gross Revenue
Minimum Charge 67%
Commodity Charge 33%
*Adjusted annual excess volume=605,955 (Order No. 31022)13,638x3,840=639,602 gallons.
Attachment M
Case No. FLS-W-12-01
Staff Comments
06/15/12
Falls Water Company Case No. FLS-W-12-01
Monthly Average Consumption- Residential Customers
Month 2009 2010 2011 Average
January 6,632 6,416 6,708 6,585
February 6,632 6,416 6,708 6,585
March 6,632 6,416 6,708 6,585
April 6,632 6,416 6,708 6,585
May 10,595 11,335 6,459 9,463
June 31,645 17,677 16,810 22,044
July 26,157 45,123 50,299 40,526
August 54,872 50,165 49,742 51,593
September 44,517 44,287 50,191 46,332
October 22,514 28,961 26,745 26,073
November 6,416 6,708 6,547 6,557
December 6,416 6,708 6,547 6,557
Annual Total 229,660 236,628 240,173 235,487
Monthly Ave. 19,138 19,719 20,014 19,624
Falls Water Co. - Residential Customer Usage
60,000
50,000 4 Yearly Ave. (3-Yrs)=23 5,487 gals.
C L__Konthl
- 40,000
a,
VM 30,000 -4-'2009
4-2010
20,000 -è-.2011
4-3-Yr Ave.
10,000
0
S
Attachment N
Case No. FLS-W-12-01
Staff Comments
06/15/12
Falls Water Case No. FLS-W-12-01
Rate Impact - 3/4-inch or Less Meter Size Customers
Current Rates Vs. Sta
Monthly
Usage
Gallons
Current
Base
Rate
0 $ 16.10
2,000 $ 16.10
4,000 $ 16.10
5,000 $ 16.10
8,000 $ 16.10
10,000 $ 16.10
12,000 $ 16.10
14,000 $ 16.10
16,000 $ 16.10
18,000 $ 16.10
20,000 $ 16.10
25,000 $ 16.10
30,000 $ 16.10
35,000 $ 16.10
40,000 $ 16.10
45,000 $ 16.10
50,000 $ 16.10
'roposed Rates
Volume
Allow.
Gallons
Commodit
Rate
$11000 gal
5I Staff
- Poposed
Base Rate
Volume
Allow.
Gallons
Staff Prop.
Corn. Rate
$11000 gal
Difference
per Month
$
Percent
Difference
per month
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 2.1%
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 2.1%
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 2.1%
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 2.1%
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 2.1%
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 2.1%
2.1% 12,000 $ 0.611 - $ 16.44 12,000 $ 0.611 $ 0.34
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 2.0%
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 1.89"
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 1.7%
*
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 1.6%
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 - $ 0.34 1.4%
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 1.3%
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 1.1%
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 $ 0.34 1.0%
12,000 $ 0.611 $ 16.44 12,000 $ 0.6 11 $ 0.34 0.90
12,000 $ 0.611 $ 16.44 12,000 $ 0.611 . $ 0.34 0.9%
*Monthly cost for a typical customer with average monthly usage of 19,624 gallons.
tJo 0 CD
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 15TH DAY OF JUNE 2012,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. FLS-W-12-01, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
K. SCOTT BRUCE
FALLS WATER COMPANY, INC.
2180 N. DEBORAH DR.
IDAHO FALLS, ID 83401
E-MAIL: [e-mail]
Jo/v
SECRETAR
CERTIFICATE OF SERVICE