20170921final_order_no_33863.pdf

Office of the Secretary
Service Date
September 21,2017
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF FALLS WATER CO.,INC.FOR )CASE NO.FLSWi7-O1
AUTHORIZATION TO BUILD A NEW )
WATER SOURCE,AND ACCESS TO THE )ORDER NO.33863
SPECIAL PLANT RESERVE ACCOUNT )
On February 10,2017,Falls Water Company filed an Application requesting that the
Commission advise the Company on a request to construct an additional well,well house,
pumping equipment,and controls,and accept those expenses as rate base in a future rate case.
The Company stated that the new well is needed because of systemic water pressure issues
confirmed by the Idaho DEQ.The Company further requested access to a “special plant reserve
fund”created by Commission Order in 2012.
BACKGROUND
The Company’s current rates took effect on October 16,2012.Order No.32663.As
part of that rate case,the Commission required that the Company establish a special plant reserve
fund to finance future infrastructure projects as approved by the Commission.Id.The
Commission further stated that it “strongly encourages the Company to consult with Commission
Staff be/öre it begins any such projects.”Id.at 11 (emphasis in original).
THE APPLICATION
In compliance with that directive,the Company sought permission to construct a new
well and associated plant.Application at 1.It stated that a new well is needed to comply with
Idaho Department of Environmental Quality (DEQ)water pressure requirements.Id.at 2.The
Company estimates a total project cost of $647,215.Id.at 1.Further,the Company seeks
certain ratemaking treatment and access to the special plant reserve fund.
THE COMMENTS AND REPLY
Commission Staff and the Company,the only parties to the case,filed written
comments,summarized below:
A.Staff Comments
After reviewing the Company’s proposal,Staff made a recommendation to authorize
the Company’s request to build a new well.Staff found that action was indeed required to meet
DEQ requirements,and the proposed new well was a reasonable course.Staff stated that the well
estimate was reasonably calculated,and the least cost alternative.Staff recommended the
ORDER NO.33863 1
Commission allow access to the special plant reserve fund,allow specific ratemaking treatment,
recommended future accounting actions,and other actions.Staff examined several other ways to
meet the system’s demand requirements,Id.Also,Staff noted that prior to filing this
Application,the Company implemented odd/even watering days to attempt to relieve peak
demand issues and installed higher quality sand separators,and looped and interconnected
mainlines.Id.at 2-3.
Staff stated that it believed that even with the new well,the system will continue to
not meet pressure requirements for firewater flow.Id.Staff pointed out that this deficiency will
need to be addressed outside of this case,and may require acquisition of additional water rights,
or larger pumps,for example.Id.at 4.Staff recommended that going forward the Company
complete a hydraulic model in order to prioritize the most effective future investments in the
system.Id.
Staffs audit of the plant reserve fund established by Order No.32663 was that “Falls
Water has kept its books and records related to this Fund in a satisfactory manner,”and that “no
expenditures [have been made]since the Fund was established.”Id.at 5.Staff does not make
any recommendations regarding changes to the fund,but recommended that interest be
calculated and deposits treated as if made on a monthly basis regardless of when deposits are
actually made.Id.Ultimately,Staff felt that use of the funds on the new well project would be
appropriate and should be approved.
With regard to accounting treatment of funds associated with the special reserve
fund—annual savings of $8,3 15,now approximately $39,000—Staff recommended that such
contributions be a reduction to rate base,explaining that funds from the special reserve fund are
customer-and not investor-supplied capital.
B.Company Reply
The Company filed a short reply to the Staff comments,agreeing with Staff
recommendations,taking issue with only one:treatment of the investment from the special plant
reserve fund.Citing Commission Order No.32663,the Company claimed the Commission has
already decided this matter,and quoted the Order,“[t]o the extent any investments from this
special plant reserve account are approved by the Commission,they will be allowed in rate base
and depreciated like any other prudent plant investment.”Id.Thus,the Company consented to
ORDER NO.33863 2
the recommendations of Commission Staf±contesting only the accounting treatment for the
savings portion of the plant reserve fund.
DISCUSSION AND FINDINGS
At its core,the issue before the Commission is whether the proposed well and plant,
access to the plant reserve fund,and associated ratemaking treatment is in the public interest.
When determining whether a course of action is in the public interest,the Commission takes into
account all relevant factors,including cost,to determine if the Application is consistent with the
public interest:
In general,where the Commission is required to consider the “public interest,”
it must look to “the interest of the public,their needs and necessities and
location and,in fact,all the surrounding facts and circumstances to the end
that the people be adequately served.”
Browning v.Wood,99 Idaho 174,579 P.2d 120 (1978);see also,IPUC Order No.28213,Case
No.PAC-E-99-1.Similarly,utilities have a statutory duty to maintain adequate service that is
“adequate,efficient,just and reasonable.”Idaho Code §61-302.Notably,the statute does not
require that services be provided at the lowest possible cost.Rather,it takes into account broader
concepts of safety,health,comfort,convenience of patrons,employees,and the public.Here,the
Company’s request stems from the DEQ evaluation that the Company’s system is now unable to
meet minimum pressure requirements for peak daily usage.
Available alternative solutions are either inadequate to satisfy DEQ pressure and flow
requirements or cost significantly more than the Company’s proposed new well.The Company
has already completed several loop and interconnect mainlines,and encouraged customers to
limit use through a voluntary odd/even,early morning lawn watering program.These
improvements did eliminate some pressure drops,but have not improved the system enough to
meet DEQ requirements.The addition of new incremental storage and booster pumps are a
potential alternative,and would likely meet DEQ requirements,but also appear to come at a cost
three times that of the proposed well.
The cost estimate provided for the proposed well—by way of comparison to a well
that the Company recently built—is reasonable.However,the exclusion of a DEQ-required
backup generator should be corrected.While the Company provided a DEQ letter authorizing
portable auxiliary power,we encourage the Company to move to on-site standby power in the
future.Id.
ORDER NO,33863 3
The Company’s position regarding the booking of funds from the plant reserve fund
is understandable,but does not properly reflect the source of the money in the plant reserve fund.
The treatment of annual savings of $8.3 15 (resulting in a total contribution of $39,172)as
contributions in aid of construction (Staff Recommendation No.3)is consistent with this
Commission’s Order No.32663.That Order makes no differentiation between the meter-related
depreciation and annual cost savings to be deposited in the special plant reserve fund.
Rate base is composed of many items including plant-in-service (the well),a
deduction for accumulated depreciation and a deduction for contributions in aid of construction
(CIAC).CIAC is removed from the rate base calculation because it is non-investor supplied
capital.In this case,if the annual savings are not removed from the rate base calculation,the
Company would earn a return on investments not funded by the Company,but by customers.
Removing CIAC from rate base eliminates the double counting/over earning.“Contributions in
Aid of Construction reduce the rate base as a source of non-investor supplied capital.For certain
utilities (water)it is common for CIAC to be contained in its own rate base account.”NARUC
Staff Subcommittee on Accounting and Finance,Rate Case and Audit Manual 22 (Summer
2003).
The remaining funding for the project would be through cash,and a non-interest
bearing loan from the owner.The funds from the owner shall be treated as temporary paid-in-
capital and may be paid back in three to nine months.The Company shall keep detailed records
of all transactions,as they will be required for future review.
While the Company’s request in this case does not include a rate change,based on the
Company’s estimates,the project would have an impact of 3.4%to 4.4%on customer rates.Any
decision to include the well in rate base in a future rate case will be made after the actual
expenditures have been fully audited and subject to proper regulatory review.This ratemaking
treatment is not now before us.
After reviewing the Application and the comments filed in this case,we find that the
Company’s Application is reasonable and adheres to our prior Order regarding approval of
projects and access to the special reserve fund.While other means such as storage may improve
the system’s water pressure issues,the proposed well appears to be the most cost-effective means
of providing adequate service to its customers.Further,we find following appropriate:
ORDER NO.33863 4
1.Inclusion of the well expenditures are subject to review for accuracy and
reasonableness prior to inclusion in customer rates;
2.The contribution of $39,172 (annual savings)from the plant reserve fund
shall be recorded as a contribution in aid of construction,and will be a
reduction to rate base;
3.The Company shall maintain books and records for all transactions related
to this project;
4.The Company shall continue its current practice of depositing the net book
value of meter plant removed to the plant reserve fund in addition to the
depreciation expense and annual savings;
5.The Company shall develop and maintain a hydraulic model of its system,
and present that model to Staff when requesting any future system
improvements or expansions;
6.The Company shall notify the Commission when on-site power is installed
at the well and the cost of any such installation.
Thus,the Commission approves the Company’s Application to install a new well,and access to
the plant reserve fund,and finds it fair,just and reasonable.
ORDER
IT IS HEREBY ORDERED that the Company’s Application is approved.The
Company is authorized to construct an additional water source and well house,and to access the
plant reserve fund,along with the conditions noted above.
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 §6 1-626.
ORDER NO.33863
DONE by Order of the Idaho Public Utilities Commission at Boise.Idaho this
day of September 201 7.
5
PAUL KJELLA1OERJ PRESIDENT
4A:tØ%4J RL
KRISTh’JE RAPER,CO MISSIONER
ATTEST:
Diane 1-lanian
Commission Secretary
O:FLS-W-I 7O lbk2
ANDERSON,COMMISSIONER
ORDER NO.33863 6