20120928Surreply.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
P0 BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
RECE'
2012 SEP 2 3 Ml tO: 49
jjJ
UriLfl Eb OMM
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 ) COMMISSION STAFF'S
WATER SERVICE. ) SURREPLY
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%. Staff then submitted Comments,
and the Company filed a Reply. To assist the Commission in its deliberation, the Commission
subsequently authorized Staff to file a short surreply to advise the Commission on whether Staff
now accepts any of the Company's positions given the Reply, thereby potentially narrowing the
technical issues in dispute. See Commission Order No. 32642. Staff files this surreply according
to that Order.
SURREPLY
Staff's Comments make 18 recommendations. The Company's Reply fully agrees with
eight of them (Nos. 1, 4, 8, 9, 14, 16, 17 and 18). The Company's Reply disagrees or partially
agrees with Staff's remaining ten recommendations (Nos. 2, 3, 5, 6, 7, 10, 11, 12, 13 and 15).
Given the Company's Reply, Staff modifies its recommendations as follows.
STAFF COMMENTS 1 SEPTEMBER 28, 2012
Recommendation No. 6.
Staff's Comments recommended that the Commission use a 10% salvage value and a 35-
year depreciable life for Meters with a Depreciation Expense and Accumulated Depreciation of
$80,739. The Company replied that it prefers a 25-year depreciation life and zero salvage value.
Staff can accept and support a zero salvage value and a 25-year depreciable life, but only for the
Sensus iPerl meter additions, totaling $126,336. However, the actual useful life of this new
metering technology remains unknown, and Staff believes a 25-year depreciable life should not
become a precedent. Staff believes Falls Water should be ordered to keep maintenance and
replacement records for each composite construction meter, to establish a reliable record to
determine the useful life for this new enhanced type of meter.
Affect on Revenue Requirement
Recognizing Staff's acceptance of using a zero salvage value and a 25-year depreciable
life, the revenue requirement will increase. Depreciation expense increases by $1,805, rate base
increases to $1,819,339, and the revenue requirement increases to $1,171,179.
Affect on Rate Design
The Company disagrees with Staff's recommended rate design, although the Company
accepts some of the rate design elements. Specifically, the Company accepts Staff's
recommendation to maintain the current volume allowance for various sizes of meters (i.e.,
12,000 gallons for 3/4-inch meter and smaller). However, because Staffs recommended revenue
requirement differs from the Company's, Staff's proposed rate design also differs. Staff designed
its proposed customer rates and commodity charges to produce Staff's recommended revenue
requirement. The customer and commodity rates must change if the corresponding revenue
requirement is changed.
Excess Usage Volume
Revenue from commodity sales depends on the commodity rate and the quantity of water
billed at that rate - i.e., excess usage, or the amount of water that exceeds the monthly
allowance. Staff's rate calculations assumed an excess usage volume based on: (1) the
estimated excess usage volume rate per customer from the Company's last rate case (Case No.
FLS-W-09-0 1, Order No. 31022), and (2) pro forma total number of customers of 3,840. Staff
STAFF COMMENTS 2 SEPTEMBER 28, 2012
recommended that the Commission calculate commodity revenue based on an annual excess
usage of 639,602,000 gallons.'
The Company disagrees with Staffs proposed annual excess usage volume of
639,602,000 and instead proposes a total excess usage volume of 573,038,000 gallons
(566,024,000 gallons used in 2011 + 7,014,000 gallons for new customers based on 2011 excess
usage rate). Staff conditionally accepts the total pro forma excess usage volume of 573,038,000
gallons, which the Company derived based on 2011 customer usage. The Company had not yet
provided this information when Staff analyzed this case.
While Staff accepts the Company's calculation of 566,024,000 gallons based on 2011
data, Staff believes that a single year's data does not capture typical usage for Falls Water
customers. Traditional rate design normalizes water usage over several years, not a single year
or test year. Excess usage data for previous years are not available. But Staff believes it can
reasonably normalize the estimated 2011 excess usage by calculating a proportionate ratio of
average annual usage for each customer class (i.e. residential, commercial, multi-family) for the
last six years (2006 to 2011), and then applying those ratios to the 2011 usage of various
customer classes. The use of six years' data is consistent with the period proposed by the Staff
in adjusting the annual electric power expenses and the annual chemical expenses, which have
been accepted by the Company. The results are shown in the following table:
Customer
Type or Class
Company-Prop.
Excess Usage
(2011 datagal s)*
Percent of
Total Excess
Usage
Ratio of
Average Annual
Usage to 2011
Normalized
Total Annual
Excess Usage
Residential 522,959,000 91.26% 1.05245 550,387,746
Multi-Family 19,296,000 5.37% 0.95724 18,470,918
Commercial 30,406,000 3.37% 1.14916 35,374,471
Total 573,038,000 100.0% 1.05444 604,233,135
*Calculated excess usage over present volume allowance for all meter sizes.
Staff recommends using 604,233,000 gallons (rounded) as the normalized excess usage volume
for estimating the commodity revenue as part of the total Staff-recommended revenue
requirement.
'Adjusted total annual excess volume = 605,955 (Order No. 31022)/3,638 x 3,840 = 639,602,000 gallons.
STAFF COMMENTS 3 SEPTEMBER 28, 2012
Staffs Proposed Rates
Staff maintains its recommendation to leave the commodity rates at the present level and
adjust the customer charges for various meter sizes. The customer (base) charges should be
recalculated based on the final revenue requirement as approved by the Commission and on the
excess volume amounts discussed above. Staffs recommendation to apply the entire increased
revenue requirement to the customer charge is contingent upon the Commission accepting Staffs
recommended revenue requirement. If the Commission accepts a revenue requirement
substantially higher than Staffs recommendation, Staff acknowledges that some increase in the
commodity rate may also be appropriate.
SUMMARY
1.Staff can accept a zero salvage value and a 25-year depreciable life.
2.The Staff revised rate base increases to $1,819,339 and the revenue requirement increases
to $1,171,179.
3.The Company-provided excess usage volumes can be utilized in part for Staff's rate
design methodology.
Respectfully submitted this ,7( day of September 2012.
)41 1Z_
Karl T. Klein
Deputy Attorney General
Technical Staff: Gerry Galinato
Chris Hecht
John Nobbs
i:umisc/comments/flsw 12.1 kkgdgjncwh reply comments
STAFF COMMENTS 4 SEPTEMBER 28, 2012
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 28TH DAY OF SEPTEMBER 2012,
SERVED THE FOREGOING COMMISSION STAFF'S SURREPLY, 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]
SECRETA
CERTIFICATE OF SERVICE