29086.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE INVESTIGATION INTO WHETHER PONDEROSA TERRACE ESTATES WATER SYSTEM, INC. IS A PUBLIC UTILITY SUBJECT TO REGULATION BY THE IDAHO PUBLIC UTILITIES COMMISSION
)
)
)
)
)
)
)
CASE NO. GNR-W-01-1

ORDER NO. 29086

On June 6, 2002, the Commission adopted interim rates for Ponderosa Terrace Estates Water System, Inc. effective June 1, 2002 pending the results of the technical and public hearings held June 20, 2002 in Sandpoint. Order No. 29046. Based upon the record created at these hearings, additional customer comment and further analysis, the Commission now adopts an annual revenue requirement for Ponderosa in the amount of $26,604. The monthly rates we approve are $48 for Full- and Part-Time customers and $25 for Active Service customers. These rates shall become effective for service rendered on or after August 1, 2002.
I. BACKGROUND
Robaer Cobott, owner of Ponderosa, operates a water system located south of Sandpoint and southeast of the community of Sagle in Bonner County, Idaho. Approximately 29 full- and part-time customers are connected to the system. There are 33 Active Service customers—those customers with above ground access to water. A total of 87 lots or parcels are within the area served by the water system. In Order No. 28845 issued on September 13, 2001, the Commission found that Ponderosa was operating in such manner as to fall within the Commission’s jurisdiction. See Idaho Code §§ 61-124; 61-125; and 61-129.
On November 28, 2001, the Commission issued Order No. 28903 establishing a $20 per month interim rate (the first interim rate) based upon the statewide average rate for small, flat rate water systems. That Order also scheduled a Show Cause hearing for December 17, 2001 in Sandpoint. The purpose of the hearing was to permit Mr. Cobott to show cause (if any) why the $20 per month flat month rate established by Order No. 28903 was not reasonable and to take public comment from customers regarding the water service. When it became known that Mr. Cobott would likely be unable to attend the hearing, the Commission vacated the Show Cause hearing. Order No. 28917. In its Order vacating the hearing the Commission issued Certificate of Convenience and Necessity No. 393 to the Company and reiterated the findings and directives of its prior Orders.
On May 7, 2002, the Commission received a letter from Mr. Cobott stating that the Ponderosa Terrace Estates Water Company was going to have to go out of business because the rates set by the Commission were too low. He claimed that revenues were down 90 to 95%. He stated that he had not and would not mail bills to customers with the $20 per month charge approved by the Commission. He did not agree with the interim rate and would not send a bill that made it appear as though he accepted the Commission’s authorized rates. Because they did not receive bills, some customers did not pay for service from December 2001 through April 2002.
On May 14, 2002, the Commission issued a Notice of Proposed Increase in Rates, Modified Procedure and Comment/Protest Deadline proposing to increase the first interim rates so that they produce an annual revenue amount for Ponderosa of $25,282.41. Order No. 29024 at 6. Prior to the May 23 comment deadline, the Commission received comments from the Commission Staff, Ponderosa, and several Ponderosa customers regarding what rates should be implemented for water service. Those comments were discussed in greater detail in Order No. 29046.
Based upon these comments and further analysis, the Commission found it reasonable to adopt a second set of interim rates - $56.50 for full- and part-time customers and $6.50 for the remaining customer classes effective June 1, 2002. Order No. 29046 at 10. The Commission also scheduled a technical and public hearing in Sandpoint on June 20, 2002 to gather additional evidence on which to establish final rates. Id. at 13-14. The Commission did not receive any petitions requesting intervention. At the conclusion of the public hearing, the Commission orally extended the public comment deadline to June 27, 2002 to accommodate customers who wished to submit written statements. Tr. at 317.
II. REVENUE AND EXPENSES
The Commission took considerable evidence at the technical hearing regarding the total amount of annual revenue necessary to operate the utility. Staff Witness Robert Smith advocated an annual revenue requirement of $26,992.29. Tr. at 10. Although Ponderosa did not recommend a total revenue amount to be collected, it appears from the Company’s testimony that Ponderosa sought a total revenue requirement of approximately $31,600.
Commission Findings: As noted by Mr. Cobott, the water system thus far has not received enough revenue to keep up with the bills and expenses. Tr. at 177. In reviewing the record to establish a revenue requirement that will adequately fund Ponderosa’s expenses, the Commission considered a variety of factors that influence the amount of revenue required to fund the ongoing operation of the Company.
Each small water company is unique in its physical assets and liabilities. The Ponderosa Terrace Estates Water Company is a small system with two supply wells with a combined capacity of 25 gallons per minute, 10,000 gallons of storage, and a looped unmetered distribution system. Tr. at 76. The system is approximately 30 years old. Tr. at 24.
The Commission also considered the limited customer base over which the expenses can be spread. Ponderosa currently has 81 customers connected to the system, of which 29 are full- or part-time customers. Tr. at 74. The Commission reviewed the revenue requirements of similarly situated small water companies to establish a range of reasonable options. Small northern Idaho water utilities range from nearby Algoma Water Company in Sagle, which has 31 customers and a $6,459 annual revenue requirement, to Spirit Lake East Water Company in Spirit Lake, which has 237 customers and a $47,828 annual revenue requirement. Staff Exhibit 102.
In establishing a revenue requirement, we consider the financial needs of the Company and the ability of customers to pay. Our goal is to maintain Ponderosa’s financial viability without setting rates so high that its few customers are forced to seek alternate water supply sources. With these principles in mind and based on the evidence, the Commission finds it reasonable to authorize Ponderosa to recover $26,604 in annual revenue from its ratepayers. This amount will allow Ponderosa to recover its prudent operating costs, fairly compensate the Company for its labor expenses, and allow Ponderosa to earn a fair rate of return on the capital invested in the water system. If Ponderosa finds that it is under-collecting the authorized revenue amount, we encourage the Company to notify the Commission so that we may review the rate design and/or fees.
It is not the Commission’s intent to micro-manage the operating expenditures of Ponderosa. Although we have not itemized how much revenue should be allocated to each of the various expenses incurred by Ponderosa, we expect Ponderosa to use due diligence to insure that expenditures are made only for appropriate water company activities. As the owner and operator of Ponderosa, Mr. Cobott shall use his own discretion to prudently allocate the funds generated by rates in a manner that benefits the ongoing operation of the Company. That said, we strongly encourage Ponderosa to set aside $2,400 maintenance reserve ($200/month) in a separate account as recommended by Staff to fund system repair and future upgrades.
A. Rate of Return
One contested revenue requirement issue was the overall rate of return Ponderosa should receive for its capital investment. Mr. Cobott testified that most small businesses require a 15% return in order to justify the capital expenditure. Tr. at 160. In contrast, Staff witness Smith recommended a 12% rate of return. Tr. at 18-19. He further stated that the Commission has traditionally allowed small water utilities a higher rate of return than larger utilities because these small companies are inherently more risky. Id. In light of this risk premium, the Commission has allowed a 12% rate of return on equity in recent years as a fair return for small water companies. Id.
Commission Findings: The Commission continues to find that 12% is a reasonable rate of return for small water companies in general and Ponderosa in particular – especially given the low interest rates available during the past few years. This finding, which includes the risk premium discussed by Staff witness Smith, is consistent with past Commission Orders that authorized a 12% rate of return for small water companies.
Although the Commission generally applies a 12% rate of return for small utilities, we have previously rewarded outstanding customer service by incrementally increasing a company’s rate of return. For example, in 1985 the Commission granted Boise Water Company a .25% premium on its common equity return in recognition of Boise Water’s exemplary management, customer relations and plant addition practices. Order No. 19902. In contrast, the Commission allowed General Telephone Company in 1987 to collect only 11.5% of the 12% rate of return on equity that the Commission found to be otherwise reasonable until General Telephone satisfactorily resolved problems resulting from confusing monthly billing statements and inaccuracies in its rural charges. Order No. 21473 at 10-11.
We further find that a return lower than 15% is warranted given the public testimony that numerous customer telephone calls went unreturned. Tr. at 136, 139, 144, 285-6, 316. The Commission hopes that by providing the Company the opportunity to increase its future rate of return by providing exceptional customer service, such communication problems will cease to exist.
B. Rent for Use of Water System’s Land
In comments dated May 21, 2002, Mr. Cobott suggested that Ponderosa should pay him $300/month rent because he personally owns the six acres on which the system’s wells and pump houses are located. Staff Exhibit 103 at 2. Staff recommended that this rental expense be disallowed because the real estate in question was “an integral part of the water system dedicated to public service since before its purchase.” Tr. at 21. Moreover, Staff witness Smith asserted that the land was jointly conveyed with the water company facilities to Mr. Cobott rather than separately conveyed. Id. The real estate contract in Staff Exhibit 104 refers to all “well sites.” Tr. at 122. Mr. Cobott indicated that while the well site is 100’ by 100’, it does not include the tanks or pipes necessary to operate the system. Id. Furthermore, he stated that the real estate contract only identified the property as dedicated to the well per the requirements of state or local government, not dedicated to Ponderosa. Id. Mr. Cobott also indicated that as owner of the property, he personally pays the property taxes owed on the land – not Ponderosa. Tr. at 123.
Commission Findings: To decide this issue, the Commission reviewed the underlying real estate contract included in the record as Exhibit 104. This document evidenced the sale of a water system in 1986 by Mr. Cobott’s in-laws, Bernard and Daisy Reynolds, to Robaer Cobott and Zaderea Raphael in exchange for $100,000. It states that:
the following described real estate, situate in the County of Bonner, State of Idaho, more particularly described as follows, to wit: . . . a water system servicing the Ponderosa Terrace Estates . . . with all equipment, deeded well sites, water tank sites, pipe, hydrants, spigots, electrical components, pumps, water tanks, wells, easements & water rights.

Exhibit 104 at 1. We find the contract unambiguously conveyed the water system to Mr. Cobott and Zaderea Raphael. The Commission further finds that the contract’s reference to “deeded well sites” indicates the land where the wells are located was transferred with, and as part of, the Ponderosa water system. Because the plain meaning of these words indicate that real property was conveyed in the contract, the Commission does not find it appropriate for Ponderosa to pay Mr. Cobott rent for use of land that the contract indicates was included as part of the water system. The property tax for the well sites, easements, and other real estate is properly an expense of the utility.
III. RATE DESIGN
A. Monthly Rate Methodologies
During the course of the public comment periods and technical hearing, the Commission was presented with a variety of rate design options. These rate designs are briefly described as follows:
Ponderosa: Mr. Cobott testified that rates should cover the expenses that the Commission determines are appropriate, but that the rate design itself does not matter so long as the rate covers Ponderosa’s expenses. Tr. at 161. He suggested that resident owners and owners that have a live-in structure on their property should pay the same amount - $65 per month. Id. All other lot owners should pay approximately $15 per month. Id.
In previously filed comments, Mr. Cobott proposed that full-time customers pay $60 per month and all other customers pay $30 per month. This proposal, which Staff referred to as “Option #8,” also included a water usage charge of $0.01 per gallon.
Commission Staff: Staff’s rate design was premised upon five types of customers: 1) “Full-Time” customers that have water service to the customer’s permanent residence; 2) “Part-Time” customers that have water service to an improved lot with a dwelling that is not considered the customer’s permanent residence; 3) “Active Service” customers that have above-ground access to water; 4) “Inactive Service” customers that have underground service extended to their lot that is not readily accessible; and 5) “Former Customers” that do not currently or have never had water service provided to the lot, even though facilities may have been provided at one time. Staff Exhibit 107. Staff performed a customer inventory and determined that the system has 18 Full-Time, 11 Part-Time, 33 Active Service, 11 Inactive Service, and 6 Former Customers for a total of 87 system customers. Tr. at 74. Based on the system limitations and customer usage, Staff witness Fuss recommended “Staff Option #3”: Full-Time and Part-Time customers pay $61.50 per month while Active and Inactive Service customers pay $9.00 per month. Id.
Staff also developed four other rate design alternatives. Staff Option #1 allocated the revenue requirement only to the 18 Full-Time customers at a rate of $125/month. Tr. at 79. Assessing rates based on the allocation of fixed and variable costs, Staff Option #2 would establish Full-Time and Part-Time customer rates at $32.00 per month while active and inactive service customers would pay $25.50 per month. Tr. at 80. Taking customer usage into consideration, Staff Option #4 would require customers to pay the following monthly amounts: Full-Time $64.00, Part-Time $33.00, Active Service $17.00, and Inactive Service $9.00. Id. Staff Option #5 attempted to offer a middle ground between Staff’s Option #4 and a rate design created by customers (which Staff referred to as Option #6). Option #5 would require full-time customers to pay $52 per month, part-time $33 per month, active service $22 per month, and inactive service $12 per month. Id.
Public Comment: Customers had the option of indicating their rate design preference through written comment or oral testimony at the June 20 public hearing in Sandpoint.
1. Joint Letter. On May 20, 2002, the Commission received a letter signed by 23 customers that detailed a rate design proposal for the Commission’s consideration. Using the four categories identified by the customer letter, the joint letter recommended that Staff’s proposed revenue requirement should be collected monthly as follows: $40.00 for Full-Time and Part-Time customers, $20.00 for Active Service customers, and $10.00 for Inactive Service customers. Staff’s testimony referred to this proposal as “Option #6.” Exhibit No. 113 at 1.
The joint letter also identified a number of adjustments that would reduce the revenue requirement. If the revenue adjustments proposed in the customer letter were adopted, the Commission would authorize Ponderosa to collect $14,621.30 in annual operating costs plus $1,754.56 for a 12% rate of return. Id. at 2-3. Using these numbers, customers would pay the following monthly rates: Full-Time residents $30.00, Part-Time residents $15.00, customers with a “Live Hydrant” $15.00, customers with “No Water Pipe Above Ground” $10.00, and customers with “No Water Service” $0.00. Id. at 1. Staff’s testimony referred to this as “Option 7.”
2. Individual Letters. The Commission also received several individual letters concerning rate design issues. These letters generally suggested rates for Full-Time and Part-Time customers in the range of $20 to $45 per month. One customer agreed with Staff Rate Option No. 3 and found it to be “very reasonable.” Another customer preferred Rate Option No. 2 with full-time users having a water use meter and paying an additional fee if they use more than 200 gallons/day to be put in escrow to fund an additional well. This customer later wrote that Full-Time and Part-Time customers should be charged $35.00 a month while all other customer classes charged $20.00 to recover Ponderosa’s reasonable expenses. He felt that this 6.5% increase would “probably keep the full timers in the system rather than out with the IPUC rate of $56.50.”
Although she had the community water to her residence shut off two years ago when faced with significant concerns about water quality, availability and customer service, a third resident supported the 4-tiered rate scale proposed by the residents in their meeting with the Staff (Option #6). A different customer agreed that the $30 monthly rate advocated in the customers’ joint letter was “a good offer” and that $61 per month is unjustifiable. This customer also noted that “most water charges are $20.00 monthly for these systems around the lake in developments this size.”
A fifth customer stated that he believed an excellent first improvement to the system would be the installation of water meters to build water conservation into the fee schedule and allow for tiered rates based on season and usage. This customer did not support the tiered schedule proposed by the customer petition because he thought it was complex and would benefit high consumptive users at the expense of other users and the system’s owner.
The Commission also received a letter from a resident that proposed the following rate structure: $40.00 for Full-Time customers, $35.00 for Part-Time customers, $25.00 for Active Service customers, and $10.00 for Inactive Service customers. Another customer voiced her frustration over being held “hostage” by Ponderosa when “we all would have been satisfied with $45.00” a month.
Public Hearing Testimony During the public testimony, at least six different witnesses specifically addressed the issue of customer rate design. One witness suggested a fee based upon actual usage measured by a water meter even though the customer would be required to pay the cost of installing the meter. Tr. at 256. Another witness testified that a monthly water charge between $30.00 and $35.00 would be equitable for everyone.
A third witness stated that he did a “brief check” with some other people in the area to gauge what they felt was a fair cost. Tr. at 278. This witness found it interesting that the group consensus was $30 per household, which was the amount the landowners submitted to the Commission (in the joint letter – Option #7) as being fair. Id. The maximum monthly charge advocated by the informally surveyed group was $35.50. Id.
Another gentleman testified that he felt a monthly water charge in the range of $40 to $45 would be reasonable. Tr. at 140. He also hoped that part-time customers and seasonal people could pay a little more to ease the burden of the full-time customers. Id. This witness also indicated that if rates stay at $56 to $60 per month, some customers (including him) would drill their own wells to avoid paying such high rates. Tr. at 142. If this were to occur, the witness indicated that the water system would collapse because “there wouldn’t be anyone left.” Id.
A fifth witness testified that he preferred each lot be charged a flat monthly rate of approximately $20. Tr. at 200, 203. Part-time and full-time customers would then pay an additional fee on top of the $20 per lot charge, for a total monthly bill in the range of $33 to $35. Id.
Mr. Alan Miller also testified at the public hearing on behalf of the Department of Environmental Quality (DEQ). According to Mr. Miller, DEQ hopes that the Commission will not set Ponderosa’s rates for service so high as to encourage the abandonment of the public water service in favor of drilling individual wells. Tr. at 262. DEQ is concerned that the drilling of individual wells may have negative effects on public health given the shallow aquifer and possible contamination of wells on small lots from neighboring septic systems. Tr. 261-62.
Commission Findings: Based upon the record presented in this case and the need to balance Ponderosa’s reasonably incurred costs with affordable customer rates, the Commission finds it appropriate to authorize the following monthly rates for service on and after August 1, 2002:
CUSTOMER GROUP DEFINED AS MONTHLY RATE Full-Time Customer An improved lot with a dwelling that is used as a permanent residence and is the customer’s primary dwelling place. $48.00 Part-Time Customer An improved lot with a dwelling that is not the customer’s permanent residence or primary dwelling place. $48.00 Active Service Customer Service is extended to the lot and has above-ground access to water. $25.00 Inactive Service Customer The lot does not have above-ground access to water. $0.00
For the purpose of determining Ponderosa’s customer groups, a “dwelling” is defined as any structure that can provide shelter and is located on the lot or parcel for more than 15 days per month or 6 months per year. A “primary dwelling place” is defined as the single place which the customer has his or her true, fixed and permanent home and principal establishment, and to which the individual intends to return whenever he or she is absent. The primary dwelling place is also where the customer resides on January 1 and: (i) at least six (6) months during the prior year; or (ii) the majority of the time the customer owned the dwelling if owned by the customer more than one (1) year; or (iii) the majority of the time after customer first occupied the dwelling if occupied by the customer for less than one (1) year.
The Commission finds this rate structure to be appropriate for the Ponderosa system because it allocates variable costs to the customers that are likely to be using the system (full-time and part-time customers) while generally allocating the fixed costs to all customers who have above ground access to water. Although some customers testified or commented that part-time customers use less water and therefore should pay less than full-time customers, we find it is reasonable to charge both groups the same rate because Ponderosa would otherwise have difficulty ascertaining which customers were in residence so as to differentiate between full-time and part-time status. Under this rate design, any Ponderosa customer that frequently has a dwelling located on an improved lot will be charged the $48.00 rate. The current customer class and rate of each Ponderosa customer (identified by block and lot number) is listed as Attachment 1 to this Order.
As noted by both Ponderosa and Staff, each small water system is unique. Staff and several customers testified that the Commission’s proposed and interim rates are significantly higher than nearby small water systems. Ponderosa’s rates are higher for several reasons. First, the Ponderosa system has a small customer base from which it can recover its costs. Second, Ponderosa requires substantial amounts for ongoing maintenance and repair due to the age of the system. The Ponderosa system also has a relatively limited and costly water supply that necessitates greater investment in well drilling, chlorination equipment and pumping costs.
The Commission also directs the Company to adopt and implement the Commission’s Utility Customer Relations Rules (UCRR), the Commission’s Utility Customer Information Rules (UCIR), and an accounting system consistent with the information required by the Commission’s annual report for small water companies. IDAPA 31.21.01; 31.21.02; 31.36.01. Ponderosa shall file tariffs or schedules of these rates and charges no later than 28 days from the service date of this Order. We direct the Staff to assist the Company in preparing the necessary tariffs and we encourage Ponderosa to make use of Staff’s expertise in making such filings.
B. Fees and Other Charges
The Commission also took testimony and comment on the fees and charges Ponderosa should assess. Hook-Up fees, Disconnection Fees, Reconnection fees and Late Payment/Interest fees are discussed in greater detail below.
Hook-Up Fee: Staff witness Fuss recommended that former customers that wish to begin taking service be required to pay a $2,500 hook-up fee. Tr. at 82. This $2,500 hook-up fee is based on Mr. Fuss’s analysis of the cost for a new source and the approximate number of customers that could be served by the new source. Tr. at 82-3. Staff believes the hook-up fee will provide incentive because any customer that pays the monthly rate would avoid the hook-up fee should they ever wish to take water service in the future. Tr. at 83. It would also promote equity by assessing customers that do not currently take service their share of the cost of a new source when or if they choose to begin taking water service. Id. Ponderosa witness Cobott also advocated a $2,500 hook-up fee for customers that wished to reconnect to the system and had been removed from the system for greater than one year. Tr. at 161.
Commission Findings: We find it is reasonable for all landowners that benefit from the Ponderosa system by taking water service to contribute to the funding of new water supplies and maintenance of the system. Based upon Staff witness Fuss’s analysis and the agreement of the Company, the Commission finds it reasonable for Ponderosa to assess a $2,500 hook-up fee for new customers and inactive service customers that wish to begin taking water service. However, the Commission also finds it appropriate to allow a grace period for inactive service customers to change their customer class to avoid this sizable fee and begin making monthly payments. This grace period is discussed in greater detail below.
2. Disconnection Fee: Ponderosa witness Cobott testified that disconnection and reconnection fees for customers with delinquent bills should be at least $50.00 each. Tr. at 161. Staff did not propose a disconnection fee and recommended only a reconnection fee.
Commission Findings: The Commission has traditionally not allowed water companies to charge a disconnection fee because it is primarily a collection tool that protects the company from providing future service without receiving just payment. The Commission does not authorize rates for the purpose of punishing customers that do not pay their bills. Rather, we approve rates that allow the utility to recover its legitimate and reasonable costs of operation plus a reasonable return. After properly disconnecting a customer’s service according to the Commission’s Rules, the Company need not reconnect a customer until such time as the customer has paid any amounts previously owed to Ponderosa and the reconnection fee discussed below. Ponderosa’s proposal to charge customers with delinquent bills a $50 disconnection fee is therefore denied.
3. Reconnection Fee: Ponderosa recommended two different reconnection fees. After a customer’s service has been disconnected for non-payment, Ponderosa advocated imposition of a $50 reconnection fee. Tr. at 161. When a customer is current in their water bill but is leaving the premises for a significant period of time, Mr. Cobott recommended that a $10 charge be assessed to physically turn the water off or on. Tr. at 183-84, 186-190. Staff witness Fuss recommended a $25 fee for routine reconnection of service after the customer has had their service turned off for the season, for customer maintenance, or after involuntary disconnection for non-payment. Tr. at 85.
Commission Findings: As Staff witness Fuss noted, the Commission typically authorizes reconnection fees in the range of $25 to $35 for small water companies. Tr. at 85. Given the nature of the Ponderosa system, the Commission finds it reasonable for Ponderosa to collect a $35 reconnection fee for customers seeking to resume service after an involuntary disconnection for non-payment, or a voluntary disconnection for maintenance or an extended customer absence from the property.
4. Late Payment and Interest Fees: Mr. Cobott testified that Ponderosa would like to charge customers who are more than 30 days late in paying their bill a $10.00 late fee per lot plus 18% interest on the delinquent amounts. Tr. at 161. Staff witness Fuss did not propose such charges and testified that generally “. . . late fees, billing service charges, or interest charges are not allowed at this time.” Tr. at 86.
Commission Findings: The Commission has historically rejected implementing late payment charges and interest on past due bills for non-energy services. Energy utilities are sometimes allowed to collect interest because Commission Rules restrict energy utilities’ ability to terminate service to customers in the winter months. Because no such restrictions are in effect for water utilities, the Commission has not yet authorized water utilities to use late payment charges or charge interest. Because Ponderosa is not subject to a winter disconnection moratorium, the Company’s proposal to implement a $10 late fee per lot plus charge 18% interest on unpaid bills is denied. However, Ponderosa may wish to explore payment plans that make it more convenient for customers to pay their bills (i.e, pre-payment or lump sum payment for part-time customers).
C. Grace Period to Change Customer Classes
If a customer wishes to connect to the system in the future that: 1) had never previously connected to the system or 2) was connected but left the system by choice, Staff recommended that the customer be required to pay a hook-up fee. Tr. at 83-84. Because the customer would not have paid anything to maintain the system, Staff suggested that a hook-up fee be established in the amount of $2,500 for new customers and any customer wishing to reconnect after a 60-day grace period. Id. This grace period would allow customers the opportunity to change customer classes and begin making monthly payments. Once the grace period has expired, all new connections or new service to those not paying a monthly rate would require payment of this $2,500 hook-up fee. Ponderosa did not indicate a preference for or against such a grace period.
Commission Findings: The Commission believes it is possible that former customers that were either removed from the system or chose to leave the system may wish to reconnect now that Ponderosa is regulated with established service rates. Conversely, a customer may now wish to leave the Ponderosa system and switch to the Inactive Service customer class. While a customer can now discontinue service at any time regardless of whether a grace period is in effect, this customer now does so with the knowledge that a future reconnection could be expensive. To this end, the Commission finds it reasonable to allow customers to change customer classes, particularly from Inactive to Active Service, without being subject to the $2,500 hook-up fee authorized above until October 15, 2002. The $2,500 hook-up fee for new customers and those previously in the Inactive Service customer class will go into effect as of that date. Customers that wish to change customer classes shall notify Ponderosa of their intent no later than October 15, 2002.
To provide proper notice to individuals who are or potentially could be Ponderosa customers, the Commission directs the Commission Secretary to send a copy of this Order to all lot and parcel owners on the Ponderosa system by August 20, 2002. This Order shall act as notice of the rates and the grace period authorized in this Order so that potential and current customers can make educated decisions whether to take service from Ponderosa and under which customer class.
D. New Connections
In Order No. 28845, the Commission restricted all new connections to the system in light of concerns that Ponderosa may have inadequate water supply to serve existing customers. Staff witness Fuss testified that the Commission’s restrictions on new hook-ups should be modified to allow up to a maximum of 37 full-time or part-time connections (eight more customers). Tr. at 78-79. Moreover, Staff believes this number could be increased if additional supply is developed or Ponderosa can provide an engineering analysis by a registered engineer indicating that the system can serve more customers. Tr. at 79.
Testifying on behalf of Ponderosa, Mr. Cobott stated that the system should only be allowed the number of hook-ups that the system can handle. Tr. at 160. While he agreed with the 37 hook-ups at present, Mr. Cobott testified that only full-time users (not part-time) should be considered. Tr. at 160, 168.
At the public hearing, Mr. Alan Miller testified on behalf of DEQ that the Commission should consider limiting water service to the current number of customers. Tr. at 262. Because Ponderosa has a demonstrated history of seasonally inadequate water supply, DEQ recommends that the Commission permit no additional connections until the water system can accurately document that the current water supply is adequate on a year-round basis. Id. Mr. Miller also recognized that the water system “does not have enough connections to be a viable entity.” Tr. at 263.
Commission Findings: As we have previously indicated, the Commission does not regulate the drilling of private wells. However, the Commission is quite aware that this Order will impact private well drilling to the extent that the rates we set and the number of customers we allow affect the economic viability of Ponderosa.
We find it appropriate to allow the maximum number of customers the Ponderosa system can safely serve. According to Alan Miller of DEQ, the system has not run out of water since the second well was drilled with some limited short-duration exceptions at higher elevations. Tr. at 264. This was true even though a drought effectively occurred last year in northern Idaho due to rapid run-off of a near-normal snowpack. Tr. at 265. The best information currently available on the quantity of water provided by Ponderosa’s two wells is the 1999 Taylor Engineering Consultants report upon which Staff made its recommendation. Until such time as Ponderosa acquires additional water supplies or can provide an engineering analysis indicating that the system can serve more customers, the Commission finds it in the public interest to limit the number of customers connected to the Ponderosa system to 37 full-time and part-time customers.
E. Water and Service Quality
During the public hearing, the Commission took considerable testimony from customers who were concerned about the system’s water quality. Although DEQ is the state agency that formally regulates water quality, we direct Ponderosa to maintain satisfactory water quality as required by DEQ. See Idaho Code § 61-302.
Witnesses at the public hearing also expressed concern about the ability of Ponderosa to promptly address maintenance issues and emergency situations. We also direct Ponderosa to ensure that an on-site troubleshooter is always available to handle such concerns. The Commission was also pleased to note Mr. Costello’s experience in these matters and his offer to assist the system. Tr. at 292.
IV. BILLING AND DISCONNECTION
During the technical hearing, Mr. Cobott reiterated his need to know how to handle past-due amounts owed to Ponderosa by its customers – particularly amounts incurred prior to the Commission exerting jurisdiction over Ponderosa in September 2001. Tr. at 165-66. To minimize any potential confusion on the part of Ponderosa or its customers, we believe it is appropriate to reiterate the billing and disconnection procedures previously set forth in Order No 29046 and contained in our Utility Customer Relations Rules, IDAPA 31.21.01.
A. Billing and Disconnection for Service Since September 2001
On September 13, 2001, the Commission found that Ponderosa was providing utility service that falls within the Commission’s jurisdiction. Order No. 28845. As such, the Commission’s Customer Relations Rules are applicable to both the Company and customers.
Although Utility Rule 201 states that bills shall be issued on a regular basis, it is the Commission’s understanding that Ponderosa did not bill customers for water service for the five months between December 2001 and April 2002. IDAPA 31.21.01.201. The Commission’s Order No. 28903 established an interim rate of $20 per month and customers may still owe Ponderosa $20 per month for each of these five months. Rule 204.03 provides that customers who have not been billed shall be given the opportunity to make payment arrangements over the telephone, by mail, or in person under Rule 313 on the amount due. At the customer’s option, the term of the payment arrangement may extend for the length of time (five months) that the customer was not billed. IDAPA 31.21.01.204.03. For example, residential customers who did not pay Ponderosa for water service for those five months shall pay $56.50 for June 2002 water service plus $20 toward the previously unbilled amount ($100) owed to Ponderosa. Customers may have up to five months to repay the full $100.
Because water service is not free of charge, we presume that customers promptly pay their water bills. If the customer fails to pay the current month owed and/or the arrearage portion ($20 per month for each of the next five months) when due, Ponderosa may disconnect the customer under Rule 302 for failure to pay an undisputed delinquent bill. Rule 202(1) states that a bill may be considered delinquent if not paid fifteen (15) days after the billing date or twelve (12) days after mailing or delivery, if bills are mailed or delivered more than three (3) days after the billing date. IDAPA 31.21.01.202.01.
If the utility intends to terminate service under Rule 302, the utility shall mail a written notice of termination to the customer at least seven (7) calendar days before the proposed date of termination. IDAPA 31.21.01.304.01. Furthermore, this written termination notice must contain the information required by Rule 305. At least twenty-four (24) hours before actual termination, the utility must diligently attempt to contact the customer affected, either in person or by telephone, to advise the customer of the proposed action and steps the customer may take to avoid or delay termination. IDAPA 31.21.01.304.02. This oral notice must contain the same information required by Rule 305. The Commission understands that Ponderosa has out-of-state customers that are difficult to contact in person or by telephone for the purpose of providing 24-hour notice. In those instances, a “diligent attempt” to contact the customer may mean mailing the 24-hour notice to the customer’s primary address but allowing several days for the customer to receive the notice and respond prior to disconnection.
These disconnection procedures still apply once the previously unbilled five months have been paid in full. The Commission would also note that because regulated utilities like Ponderosa can use disconnection as a collection tool, regulated utilities are generally prohibited from filing liens against property to secure the amounts owed.
In summary, the Commission recognizes that this case presents difficult issues regarding the creation of rates and designation of customer classes. To assist both the Company and its customers in understanding their responsibilities, we now summarize the various rates that have been in existence since September 2001. For services provided in September, October and November 2001, the monthly rate was $60.00 per month for resident customers and $30.00 for non-resident customers. Order No. 28845. For service rendered during the months of December 2001 through May 2002, all customers receiving service owe $20.00 per month. Order No. 28903. For June and July 2002, the rate for monthly service for Full and Part-Time customers was $56.50; all other customer classes owe $6.50 per month. Order No. 29046 at 10. Finally, the rates on a going forward basis for service rendered on or after August 1, 2002, shall be $48.00 per month for Full and Part-Time customers, and $25.00 per month for Active Service customers.
B. Billing and Disconnection for Service Prior to September 2001
The Commission understands that some customers have arrearages for unpaid bills extending before September 2001. We encourage the Company and its customers to reach an agreement regarding charges for water prior to September 2001. Because the Commission did not set the rates prior to September 2001, we believe that our utility collection methods should not be used to collect the arrearages. To prevent any misunderstanding on the customer’s account, any amounts owing prior to September 2001 should not be included in the current bill. Of course, Ponderosa may seek collection by other means – including small claims court. Because the Company has judicial remedies available, Ponderosa shall not use the Commission’s disconnect procedures for non-payment of amounts owed prior to the Commission asserting jurisdiction over the Company.
V. MEMBER OWNERSHIP
Several customers indicated that residents would be best served by creation of a water district or homeowners’ association that could hire Larry Fairfax to maintain the system. As was noted in a 1980 rulemaking for Class D Water Companies, “. . . the Commission may find it in the public interest because of service considerations to promote conversion of ownership of a small water company to public ownership or its merger with a more viable entity.” Order No. 21208; see also IDAPA 31.36.01.101. In most cases, it is more beneficial to all parties involved if a homeowner’s association or a water district is formed. Formation of a member-owned or non-profit entity may allow customers greater control over the water system’s management and reduce rates by eliminating return on equity. This arrangement would also reduce Mr. Cobott’s regulatory burden, eliminate considerable legal liability as owner of the system, and allow him to devote his attention to business endeavors that have a greater profit potential than this barely viable part-time business.
The Commission is particularly concerned that Ponderosa is on the brink of a “death spiral” in which customers leave the system, further increasing rates to remaining customers and reducing Company profit until such time as the Company ceases operating and the owner loses his investment. See Order No. 21292. Thus, we strongly encourage Mr. Cobott and the residents of the Ponderosa Terrace Estates Subdivision to further explore the possibility of forming a homeowner’s association, water district, or another consumer-owned not-for-profit organization.
O R D E R
IT IS HEREBY ORDERED that Ponderosa Terrace Estates Water System, Inc. is authorized to collect an annual revenue requirement of $26,604. Full-Time and Part-Time customers (as defined above) shall pay a flat rate of $48 per month. Ponderosa shall also charge Active Service customers (as defined above) $25 per month. These rates are effective for service rendered on and after August 1, 2002.
IT IS FURTHER ORDERED that the Commission Secretary send a copy of this Order to all lot and parcel owners on the Ponderosa system by August 20, 2002 to notify them of the rates and grace period discussed above.
IT IS FURTHER ORDERED that the Company comply with the rules for disconnection of customers with past-due bills as set forth above in this Order and in the Commission’s Rules. The Company shall also adopt and implement the Commission’s Utility Customer Relations Rules (UCRR), the Commission’s Utility Customer Information Rules (UCIR), and an accounting system consistent with the information required by the Commission’s annual report for small water companies.
IT IS FURTHER ORDERED that the Company shall file tariffs in conformance with the rates and charges set forth in this Order no later than 28 days from the service date of this Order.
IT IS FURTHER ORDERED that Ponderosa not exceed 37 full-time and part-time customers connected to the Ponderosa system at any given time.
IT IS FURTHER ORDERED that Ponderosa maintain satisfactory water quality as required by DEQ. Ponderosa shall also ensure that an on-site troubleshooter is always available to address maintenance, repair and service quality matters.
THIS IS A FINAL ORDER. Any person interested in issues finally decided by this Order or in interlocutory Orders previously issued in Case No. GNR-W-01-1 may petition for reconsideration within twenty-one (21) days of the service date of this Order with regard to any matter finally decided in this Order or in interlocutory Orders previously issued in Case No. GNR-W-01-1. For purposes of filing a petition for reconsideration, this order shall become effective as of the service date. Idaho Code § 61-626. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-626.

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of August 2002.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

O:GNRW0101_ln2_final

The Staff should not be confused with the Commission. The Commission’s duty is to regulate every utility and set rates that are reasonable to both the utility and customers. Idaho Code §§ 61-501 and 61-502. The Commission Staff may participate as an independent party in any proceeding. IDAPA 31.01.01.37-38.
See Case Nos. CAP-W-99-1 (Capitol Water, O.N. 26247), FLS-W-97-1 (Falls Water, O.N. 27110), FLS-W-01-1 (Falls Water, O.N. 28907), GNR-W-96-1 (Valley View, O.N. 27328), MCG-W-98-1 (McGuire Estates, O.N. 27658), TRH-W-95-1 (Troy Hoffman, O.N. 28264) and WSM-W-95-2 (Warm Springs Mesa, O.N. 26081).
The definition of “primary dwelling place” is based on Idaho Code § 63-701(9)(a).
The definition of “Inactive Customers” adopted by the Commission includes those customers that Staff referred to in its testimony as “Former Customers.”
Companies with less than $50,000 annual gross water revenues from water operations.

ORDER NO. 29086 1

Office of the Secretary
Service Date
August 8, 2002