20231115Comments of the Commission Staff.pdf

DAYN HARDIE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION 32
PO BOX 83720
BOISE,IDAHO 83720-0074 4,
[phone]
IDAHO BAR NO.8026
Street Address for Express Mail:
11331 W CHINDEN BLVD,BLDG 8,SUITE 201-A
BOISE,ID 83714
Attorneyfor the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )OF FALLS WATER CO.,INC.,FOR )CASE NO.FLS-W-23-01
AUTHORITY TO INCREASE ITS RATES )AND CHARGES FOR WATER SERVICE IN )THE STATE OF IDAHO )COMMENTS OF THE
)COMMISSION STAFF
COMMISSION STAFF ("STAFF")OF the Idaho Public Utilities Commission
("Commission"),by and through its Attorneyof record,Dayn Hardie,Deputy AttorneyGeneral,
submits the followingcomments.
BACKGROUND
On May 15,2023,Falls Water Co.,Inc.("Falls Water"or "Company")filed a corrected
general rate case application requesting authorityto increase rates by approximately $1,174,000
or approximately 47.3%,with a proposed effective date of July 1,2023.
On June 5,2023,the Commission issued a Notice of Application,Notice of Suspension
of Proposed Effective Date,Notice of Intervention Deadline,Order No.35806.On August 2,
2023,the Commission scheduled a virtual public workshop,set deadlines for Staff testimony the
Company's rebuttal testimony.The scheduled virtual customer workshop was held August 16,
2023.
STAFF COMMENTS 1 November 15,2023
On October 2 and 3,2023 Falls Water and Staff (collectively,"Parties")met for two
settlement conferences and exchanged additional information afterwards to reach a settlement
agreement.On October 13,2023,the Commission vacated the comment deadlines to allow the
Parties to present this Settlement to the Commission for review.
On October 27,the Company filed a Motion for Approval of Stipulation and Settlement
("Settlement").
STAFF COMMENTS
Staff recommends the Commission approve the proposed Settlement.The Settlement
strikes a balance between mitigating the increase to customers while providing the Company the
opportunityto recover its costs and earn a reasonable return on its investment.Staff believes the
Settlement represents a fair compromise of all issues included in the case and establishes rates
that are just,fair,and reasonable,and are in the public interest.If approved,the Settlement
would increase the Company's revenue requirement by $714,562 or approximately 28.8%.The
proposed revenue requirement is based on a 9.70%Return on Equity ("ROE")and a hypothetical
capital structure consisting of 45%debt and 55%equity for a Weighted Average Cost of Capital
("WACC")of7.19%applied to net rate base of $9,589,322.The Parties agreed to move towards
a consolidation of the three water systems'rates.The proposed revenue requirement will be
collected in accordance with the rate design set forth in Exhibit No.3 to the Settlement and
discussed in greater detail later in these comments.
System Description
Falls Water consists of three different water systems:Falls Water ("FW"),Taylor
Mountain ("TM"),and Morning View ("MV").The three systems combined serve over 6,300
residential and commercial customers.
The FW system provides service to customers east of the City of Idaho Falls and north of
the City of Ammon in Bonneville County.The FW system consists of nine production wells,ten
total pumps with two of them driven by variable frequency drives ("VFD"),and four wellhouses
equipped with backup generators.
The TM system provides services to the south of the City of Idaho Falls in Bonneville
County.The TM system has two production wells,two pumps,and one backup generator.
STAFF COMMENTS 2 November 15,2023
The MV system serves customers southeast of the City of Rigby in Jefferson County and
is not contiguous with the other two systems.The MV system consists of two production wells,
three pumps,and one backup generator.
There are currentlyno storage reservoirs or booster pumps present across the three water
systems.The distribution system includes pipes ranging from 2 to 12-inches,made from various
materials includingcement,ductile iron,PVC,etc.Water is delivered to customers using service
meters ranging from 5/8-inch to 4-inch.Approximately98%of all customers have a 3/4-inch or
1-inch service meter size.
REVENUE REQUIREMENT
The Parties agree that the Company should be allowed to implement revised tariff
schedules designed to recover $3,199,665in total revenue requirement,reflecting an increase of
$714,562,or approximately 28.8%.The Parties agree that the revenue requirement includes the
components,as summarized in Settlement Exhibit Nos.1 and 2,a rate base of $9,589,322,and a
ROE of 9.7%.The Parties agree to the adjustments to the Application as shown in the
Settlement and are explained in further detail below.
Gross Revenue Multiplier
The gross revenue multiplierincreases the revenue requirement to account for revenue-
dependent charges,such as taxes and regulatory fees.The Parties agree to decrease the
Company's requested revenue requirement by $17,397 to account for adjustments to the
Company's gross revenue multiplier.The first adjustment replaces the Commission's regulatory
assessment rate from the 2022 rate to current 2023 rate,while the second adjustment removes
bank service fees completely from the gross revenue multiplierin compliance with Commission
Order No.34925 in Case No.FLS-W-20-03.
Interest on Debt
The Parties agree to a 4.698%interest rate on the debt portion of the capital structure,
which is used to create the hypothetical capital structure of 55%equity and 45%debt.In its
Application,the Company used an interest rate on debt of 5.495%.The interest rate of 4.698%
STAFF COMMENTS 3 November 15,2023
aligns with the parent company's actual cost of debt and decreases the Company's proposed
revenue requirement by $34,464.
Return On Equity
The Parties agree to an ROE of 9.7%as opposed to the 10.2%requested in the
Company's Application.The reduction in ROE decreases revenue requirement by $37,944.
Ground Water Mitigation Fees and Deferral Amortization
The Company is located within the Bonneville-Jefferson Ground Water District
("District"),which is a member of the Idaho Ground Water Appropriators,Inc.("IGWA").In
2016,IGWA entered into the 2015 Stipulated MitigationPlan ("MitigationPlan")with the
Surface Water Coalition ("SWC").The MitigationPlan provided a framework for
administrating groundwater rights,includingFalls Water's groundwater rights,in a manner
designed to decrease conflict between groundwater and surface water users.In 2022,the District
levied an assessment fee up to $100 per acre-foot ("AF")pumped above the Company's baseline
of approximately 3,754 AF.When the Application was filed,the baseline did not include the
additional water rights purchased by the Company but was later updated to 3,838 AF for 2022
and will be 3,955 AF in 2023.In Order No.35706,the Commission authorized the Company to
defer,without interest,the special assessment fees and other costs associated with groundwater
mitigation into a regulatory asset account,with recovery subject to a prudency review in its next
general rate case.
In its Application,the Company proposed to recover an estimated deferral balance of
$275,000,however actual water mitigation fees imposed by the District were $148,136.The
Parties agree to amortize the actual assessed fees over two years which decreases the revenue
requirement by $64,268.
The Parties agree that the Company will establish a balancing account effective
December 15,2023,for recovery of future water mitigation fees.The Settlement establishes an
annual baseline recovery of $182,920 which will be trued up in the Company's next general rate
case based on the actual Ground Water MitigationFees assessed by the District.Staff expects an
increase in future assessment fees on the Company and believes it is necessary to plan
accordingly for these fees to avoid rate shock on the Company's customers in the future.The
STAFF COMMENTS 4 November 15,2023
Company can propose updates to the recovery and Staff will review the prudency of the actual
expenses in the balancing account in the Company's next general rate case.
Rate Case Expense Amortization
The Company included proforma rate case expense of $47,000 in its Application and
requested that the amount be recovered annually.The rate case expenses are comprised of
external consulting fees and legal fees necessary to process the case.The Parties agree that the
expenses were reasonable for the size and scope of this rate case and that the Company should
recover the expenses over a three-year amortization period.The amortization of the rate case
expenses over three years decreases the revenue requirement by $31,746.
Amortization Expense Reclassification
The Company recorded all amortization expenses in Account 666 -Rate Case Expense
(Amortization).The Parties agree that amortization expenses should be reclassified to Account
407 -Amortization Expense Other.This reclassification does not affect overall amortization
expense,but it removes it from Operation and Maintenance ("O&M")expense.Since O&M
expense is a component of the Working Capital Allowance calculation,this adjustment affects
the Company's working capital and reduces revenue requirement by $2,234.
Update Depreciation Rates
The Company currentlydepreciates its assets on a project-by-project basis.This can lead
to disparate depreciation rates within each account.Staff and the Company agree to adjust
depreciation rates to better align with National Association of Regulatory Utility Commissioners
Depreciation Practices for Small Water Utilities Manual,which establishes depreciation rates for
each asset account.The agreed upon depreciation lives are provided on Page Nos 4-5 of the
Settlement.This adjustment to deprecationrates decreases the revenue requirement by $75,637.
Proforma Plant in Service
In its Application,the Company included several proforma capital projects that were not
completed at the time of settlement discussions with Staff.The Parties agree that these capital
projects should be removed from Plant in Service because they are not currentlyused and useful.
STAFF COMMENTS 5 November 15,2023
The adjustment to remove capital projects that have not yet been completed,includingassociated
depreciation expense and accumulated depreciation,reduces revenue requirement by $105,246.
Proforma Plant to Actual Costs
The Parties agree to update proforma Plant in Service projects to actual project costs.
The Company provided actual costs in response to Staff's Production Request Nos.4 and 99.
This adjustment increases revenue requirement by $1,173.
Restricted Stock Unit Benefit
The Parties agree that the Restricted Stock Unit ("RSU")employee benefit should be
excluded from the revenue requirement.In response to Staff's Production Request No.53,the
Company responded that the RSU benefit would make its final distribution in September of
2023.Staff and the Company agree that it would not be fair,just,and reasonable to continue to
recover these expenses beyond their fmal distribution in 2023.Removing the RSU employee
benefit reduces revenue requirement by $29,437.
Employee Bonuses
The Parties agree to remove the annual employee Christmas bonuses and 50 percent of
the manager's bonus from the revenue requirement.This adjustment decreases revenue
requirement by $11,071.
Actual 401k Expense
In its Application,the Company used proforma 401k employee contribution estimates for
2023,because actual 2023 401k employeecontributions were not available at the time.The
Parties agreed to use 2022 actual 401k contributions.This adjustment to 401k employee
contributions reduces revenue requirement by $4,876.
Seasonal Employee
The Company included a proforma seasonal employeewage allowance for six months.
The actual duration of the seasonal employee was less than the anticipated six months.The
Parties agree to adjust the seasonal employee's wage to account for the actual duration of
STAFF COMMENTS 6 November 15,2023
employment only.This adjustment to reduce seasonal employees annual wage allowance
decreases revenue requirement by $9,754.
NormalizingPurchase Power
The Parties agree to normalize purchase power expense.The Company provided twelve
months (January to December)of electric invoices that were used to calculate normalized
purchase power expenses for the year 2022.The adjustment to purchase power reduces revenue
requirement by $2,376.
RATE DESIGN
The Parties agree to move towards consolidation of rates for the three water systems.
Each system will have the same volumetric rates of $0.64 and $1.439 per 1,000 gallons for
second and third block allotted usage,respectively.The basic charges for the TM and FW
system will be consolidated by meter size,and basic charges for the MV system will be
separated by acre size.
All systems will share a three-block tier structure as proposed by the Company.TM and
FW customers will be subject to the Company's proposed three-block tier based on their meter
size,whereas all MV customers will be subject to the consolidated one-inch meter size block tier
allotments.Details of the specific charges for each meter size and system are provided in
Exhibit No.3 to the Settlement.
Volumetric Charges
Under the Settlement,all three systems will use the same volumetric rates.These
volumetric rates hold the same 2.25 differential between the second and third block tiers as
proposed by the Company.All customers will be subject to their respective block allotments for
their meter size.However,regardless of meter size,all Morning View customers will be subject
to the consolidatedone-inch meter size block tier allotments.
The Settlement represents a shift in revenue recovery from 65.61 percent to 61.55 percent
in fixed charge revenue and from 34.39 percent to 38.45 percent in volumetric charge revenue.
Staff believes this revenue allocation shift is a reasonable transition to help shift more recovery
into the volumetric rate to promote water conservation.
STAFF COMMENTS 7 November 15,2023
The Settlement accomplished Staff's goal to incentivize conservation of water,move all
three systems towards consolidation,and minimize the impact to rate payers.The Company is
facing large assessment fees due to the overproduction of groundwater above the baseline set by
the District.Staff views these fees as difficult to avoid due to increased customer growth on the
system but recognizes that a rate design promoting conservation can help to avoid these fees and
further reduce the impact of District fees on customers.The Settlement shifts more of the
Company's revenue collection from the fixed monthlycharge to the volumetric charge;
therefore,customers will see a price signal encouragingwater conservation.
Secondary Irrigation
The Settlement includes a new tariff for secondary irrigation systems as proposed by the
Company.The addition of a secondary irrigation tariff using non-potable canal water from the
Progressive Irrigation District will align with the Company's groundwater mitigation efforts.
The Company states that a secondary irrigation tariff will allow them to charge new development
for maintenance of secondary irrigation system infrastructure,which allows better utilization of
irrigation water rights and mitigates the demand for potable groundwater.Secondary irrigation is
not currentlyin effect and the rates are based on the estimated annual lot assessment from the
Progressive Irrigation District,power cost,and annual maintenance.The proposed rate structure
is unmetered with a fixed rate of $16.85 per month.The monthlyrate is subject to review in the
future as customers begin taking services under this tariff and actual costs are realized.
Non-RecurringCharges and New Billing Options
The Settlement consolidates all the non-recurring charges regardless of system.All water
systems will adopt Falls Water current non-recurring charges under Schedule No.2.There will
also be a new equal pay plan for customers to opt into.
Addressing Systemic Water Loss
The Parties have agreed to three sets of actions the Company will implement over the
first 6 months of 2024 to address systemic water loss.These actions are important steps to
minimize water mitigation fees and expenses that the Company will be recovering from its
customers.
STAFF COMMENTS 8 November 15,2023
First,the Parties have agreed that the Company will provide facility plans currentlyunder
development for the MW and TM systems to Staff by February 1,2024.The Company has
already developed facility plans for the FW system.Having these plans provides a baseline for
potential future investment necessary to meet future growth and to improve the Company's
system.
Second,the Parties have agreed that the Company will develop plans to identifyroot
causes of water losses and related mitigation measures to be delivered to Staff by June 1,2024.
The Company has experienced large water loss in the MV system over the past two years and
has significant opportunities for improvement in the other two systems.
Third,the parties have agreed that the Company will develop plans to implement a meter
accuracy testing program to be submitted to Staff by June 1,2024.Meter accuracy is not only
important to obtain accurate water loss data,but it is also important to ensure customers are
billed correctly.Collecting data on meter accuracy when there are suspect meters or by pulling
meters and testing them using an audit sampling plan will provide data necessary to identify
suspect meters to eliminate meter inaccuracy as a contributing factor to water loss.
CUSTOMER RELATIONS
EqualPay Plan
The Settlement includes a proposed Equal Pay Plan which allows customers with at least
a 12-month account history at the current address to establish an average monthly bill over the
next twelve months.The customers must be current on their bill(s)to qualify.The Equal Pay
Plan would be reviewed annuallyand adjusted based on the previous 12months'average bill.
Customers would have the option to pay off a negative balance or have the balance
calculated as part of the new Equal Pay Plan amount.An account with a negative balance of 25
percent or more would have to be brought current at the end of the 12 months to continue the
Equal Pay Plan.The Equal Pay Plan is similar to those offered by Veolia Water of Idaho,Avista
Utilities,Idaho Power Company,and Rocky Mountain Power.Staff supports approval of the
Equal Pay Plan.
STAFF RECOMMENDATION
STAFF COMMENTS 9 November 15,2023
Staff believes the Settlement establishes fair,just,and reasonable rates and is in the
public interest,therefore Staff recommends the Commission approve the Settlement without
material modifications.
Respectfully submitted this 15th day of November 2023.
n Ha ie
Deputy AttorneyGeneral
Technical Staff:Ty Johnson
Joe Terry
Leena Gilman
Chris Hecht
Dylan Moriarty
Kimberly Loskot
Michael Eldred
Rick Keller
Shubhra Deb Pau
STAFF COMMENTS 10 November 15,2023
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 15TH DAY OF NOVEMBER 2023,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF TO
FALLS WATER COMPANY,INC,IN CASE NO.FLS-W-23-01,BY E-MAILING A
COPY THEREOF,TO THE FOLLOWING:
PRESTON N CARTER ERIC W.NELSEN
MORGAN D GOODIN SENIOR REGULATORY ATTORNEY
GIVENS PURSLEY LLP NW NATURAL 250 SW TAYLOR ST.
601 W BANNOCK ST PORTLAND,OREGON 97204
BOISE ID 83702 E-MAIL:eric.nelsen nwnatural.com
E-MAIL:[e-mail]
[e-mail]
[e-mail]
K.SCOTT BRUCE
FALLS WATER CO.,INC.
2180 NORTH DEBORAH DRIVE
IDAHO FALLS,ID 83401
E-MAIL:scottl fallswater.com
SECRETARY
CERTIFICATE OF SERVICE