20030530Final Order No 29247.pdf

Office of the Secretary
Service Date
May 30, 2003
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
DIAMOND BAR ESTATES LLC DBA DIAMOND)
BAR ESTATES WATER COMPANY FORA
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY AND FOR APPROVAL OF
RELATED RATES AND CHARGES.
CASE NO. GNR-O2-
ORDER NO. 29247
On November 29 2002, Diamond Bar Estates LLC dba Diamond Bar Estates Water
Company (Diamond Bar; Company), a water utility, filed an Application with the Idaho Public
Utilities Commission for a Certificate of Public Convenience and Necessity to provide water
service to the Diamond Bar Estates subdivision in Kootenai County, Idaho. The Company also
requested approval of tariffs for related rates and charges. Reference Application Attachments
legal description and maps of subdivision and service area; Idaho Code 9 61-526; Commission
Rules of Procedure, IDAPA 31.01.01.111. The Diamond Bar Estates Subdivision is more
particularly described as a portion of the North Yz of Section 3, Township 51 North, Range 4
West, Boise-Meridian, Kootenai County, Idaho.
The Commission in this Order finds that Diamond Bar is operating as a public utility
subject to Commission jurisdiction, issues a related Certificate of Public Convenience and
Necessity, approves an annual revenue requirement of $15 534, establishes approved rates and
charges, and requires adoption of general service provisions.
Background
The Diamond Bar water system currently provides service to approximately 41
customers and when complete will serve 45 households with water service. The Company
indicates that initial service was started in 1994 by Diamond Bar Homeowners. On June 3
2002, the Homeowners Association elected to turn the water system over to Diamond Bar
Estates LLC. The Company proposes a 2001 test year and an annual revenue requirement of
$23 123. Commission Staff conducted an investigation and in filed comments proposes
adjustments resulting in a revenue requirement of $16 104. The Company in reply comments
objects to some of Staff s adjustments.
ORDER NO. 29247
Domestic water service for Diamond Bar is presently provided at a metered rate.
Separate irrigation service (although also metered) is provided at a flat rate. The Company in its
Application proposes two separate metered rates, one for domestic usage and one for irrigation.
Staff in its comments recommends a single fixed (customer charge) and variable (commodity
charge) rate design for all metered usage, domestic and irrigation.
comments recommend continuing the flat rate for irrigation.
Several customers in
The existing rates of the Company for residential customers are $15 for the first 7500
gallons plus $.95 per 1 000 gallons thereafter. Customers with irrigation service pay a flat fee of
$225 per year for irrigation.
Attached to the Application of Diamond Bar are 1) financial statements for 2000 and
2001 2) water rates from different water districts, 3) proposed rate schedules, 4) customer names
and addresses, 5) a legal description of the service area, 6) a plat map of the service area, 7)
proposed connection fees, 8) customer notice for discontinuance of service, 9) bill statement, and
10) rule summary.
The rate structure proposed by Diamond Bar is as follows:
A customer s water usage will be determined by the reading on the meter.
Readings will be taken the first week of each month (April through
November) and the consumption figures will be measured in gallons used.
Diamond Bar Water Company will bill each current customer every month
based on the following rate schedule which, as proposed, will go into effect
January 2003.
Domestic Service:
0- 7500 gallons
more than 7500 gallons
$21. 00
85 per thousand
Irrigation Service:75 per thousand for all consumption
During the months of December through March, meters will not be read. The
customers will be charged the base rate of $21.00 per month. In April of each
year customers ' meters will be read and usage will be prorated according to
the number of months since the last reading.
In addition to the commodity charge, the Company proposes implementing
the following non-recurring charges:
ORDER NO. 29247
A charge of$l OOO for installation of water meter
A charge of $500 for water hookup fee
A fee of $50 will be charged for reconnection during business hours
A fee of $65 will be charged for reconnection after normal business hours and
weekends.
The Commission in Order No. 29177 suspended the Company s proposed January I
2003 effective date and determined that the Company should continue charging existing rates
and charges until such time as the Commission issued an Order accepting, rejecting or modifying
the Application.
On January 10, 2003 , the Commission issued a Notice of Application, Public
Workshop and Modified Procedure in Case No. GNR-02-3. Individual copies of the
Commission s Notice were provided to all customers. A public workshop conducted by
Commission Staff was held in Rathdrum, Idaho on February 11 2003 to discuss the Company
Application. The established deadlines for filing written comments were February 18 , 2003 for
customers and February 21 , 2003 for Commission Staff. Reply comments were filed by the
Company on March 17 , 2003.
On April 29, 2003, pursuant to Commission scheduling, a public hearing was held in
Rathdrum to establish a formal transcript record of customer testimony and oral comments
regarding the Company s Application and the various proposals for revenue requirement, rate
design, and rates and charges. A May 6, 2003 deadline was established for further written
comments. The Commission has reviewed and considered the filings of record in Case No.
GNR - W -02- 3 inc1 uding the Company s Application, the filed comments of customers and Staff
the Company s reply comments and the transcript of public testimony.
Certificate of Public Convenience and Necessity
Based on the established record, a review of Idaho Code, Title 61 and the nature and
manner of control exercised by Diamond Bar in the operation and management of the Diamond
Bar Estates water system, we find it reasonable to assert formal regulatory jurisdiction over the
water system operated by Diamond Bar Estates LLC and find it reasonable to issue Certificate of
Public Convenience and Necessity No. 413 to Diamond Bar Estates LLC dba Diamond Estates
Water Company, a public water utility, to provide water service to the Diamond Bar Estates
subdivision in Kootenai County, Idaho. We further find that the present and/or future public
ORDER NO. 29247
convenience and necessity requires issuance of said Certificate. Reference Idaho Code 99 61-
526
, -
528; IDAP A 31.01.01.111.
As a regulated utility, Diamond Bar is required to adopt the Commission s Utility
Customer Relations Rules (UCRR; IDAP A 31.21.01) and Utility Customer Information Rules
(UCIR; IDAPA 31.21.02). We find that the Rules provide a guide for just, reasonable and
nondiscriminatory treatment of customers. The Commission also requires the Company to adopt
an accounting system consistent with the information required by the Commission s Annual
Report for Small Water Companies.
Customer Comments
Numerous and sometimes multiple written comments were filed with the
Commission by customers of Diamond Bar.All comments were distributed to the
Commissioners and are part of the official case file. Several of the commentors objected to a
change in irrigation rates from a flat fee to a metered rate. Some also alleged that representations
were made regarding the irrigation rate structure and rate amount at the time lots were purchased.
Other comments were directed to ensuring that costs allowed in rates reflect actual expenses and
operations of this Company.
provided in these comments.
The Commission appreciates the insights that the customers
Public Hearing - April 29. 2003
Two customers testified at the public hearing. Ms. Carol Abelhanz noted that the
Company provides its utility billings to customers by postcard and that the annual postage
expense should be reduced from $172.20 to $137., an annual difference of$34.00.
Commission Findings:
The Commission finds the proposed adjustment for postage expense to be
uncontested and reasonable and reflective of actual Company billing practice.
Mr. Mike Meehan in his testimony presents an alternative rate structure that
continues a flat irrigation rate of $250/summer, a domestic metered rate of $.50/1 000 gallons up
to 90 000 gallons and $.70/1 000 gallons for usage exceeding 90 000 gallons. Also proposed
an annual fee of $180 for all lot owners, regardless of whether or not they are hooked up.
calculated, Mr. Meehan s proposal provides the Company with total annual revenue of $16 392
(irrigation $5 750; domestic $2 542; customer charge $8 100).
ORDER NO. 29247
Commission Findings:
As discussed later in this Order, we find that Mr. Meehan s proposal to continue a
flat irrigation rate is not a fair and just rate design alternative.
May 6, 2003 Comments
In customer comments filed, the Commission is apprised that customers were
without water for three hours on May 3 , 2003 during a scheduled interruption of electric power
by Kootenai Electric. During this outage, the water company did not engage its emergency
back-up generation. The commenting customer contends that the Commission should require
the water company to provide standby power generation capacity that is automatic when the
primary source is lost. Failing same, the customer contends that customers are subjected to
serious loss of property and perhaps life.
Commission Findings:
The Commission notes that it is not common for a small water system to have a
back-up generator. As discussed later in this Order, we do not include either the operating
expense or investment of the proposed back-up generator in the Company s revenue
requirement.
Staff Comments - February 21, 2003
Following some general comments regarding the Diamond Bar Estates water system
and its prior history as a homeowners association system, Staff addresses the following areas in
its comments: financial analysis, rate design, hookup fees and consumer issues. Appended to
Staff s comments were schedules for calculation of revenue requirement, Staff adjustment
worksheets, and alternative rate design proposals. Based on its investigation and analysis, Staff
in its comments makes the following uncontested recommendations:
1. The Certificate Request: Staff recommends that the Commission issue a
Certificate of Convenience and Necessity.
2. Staff recommends that the rate design be reevaluated after one year to
assess how usage patterns may have changed, what effect the new rates
have had on customers bills, and how effectively the rate design generates
the revenue requirement authorized by the Commission.
3. Staff recommends approval of the Company s requested $500.00 one
time meter fee for new irrigation meters.
ORDER NO. 29247
4. Staff recommends that customer reconnection fees (voluntarily
involuntarily disconnected) be set at $15.00 during normal business hours
and $30.00 at all other times. This charge does not apply to the seasonal
installation or removal of irrigation meters.
Commission Findings:
The Commission finds Staff s uncontested adjustments to rate base and 2001 test year
operating expenses to be reasonable and approves them. We also approve as reasonable the
Company s proposed customer reconnection fees (voluntary and/or involuntary), i., $15 during
normal business hours and $30 at all other times. This charge does not apply to the seasonal
installation or removal of irrigation meters.
recommendations elsewhere in this Order.
We address Staff s other uncontested
Company Reply Comments
The Company prefaces its Reply Comments by stating that it would be willing to
negotiate a sale of the water system back to homeowners association.
As a privately owned system, however, the Company contends that water customers
must pay rates that support a self-sustaining system. How the system was financed when Mr.
Turnipseed, as the developer, operated the system, the Company states, is of no importance to
the analysis now before the Commission. The water system, the Company contends, became a
self-supporting system on the date of the transfer from the homeowners association to the LLC
June 3, 2002.
Contested Adjustments
The Company provides the following specific comments, objections and alternative
recommendations regarding Staff proposed adjustments:
Staff Adjustment (I): Technical Computer Support (Meter Statements Expense).
During the test year the water system paid $560 for technical computer
programming assistance. This was a one-time set up cost that is not an
ongoing cost to be repeated every year. Staff eliminated this cost from the
Company s test year expenses.
Company Position. The Company agrees that this is a one-time cost, however, this is
a cost that will provide benefits for several years. If Staff does not want this cost to be expensed
then the Company contends it should be capitalized and depreciated over five years as are other
computer expenses.
ORDER NO. 29247
Staff Response.Staff agrees with the Company s proposal to capitalize and
depreciate the $560 technical computer support expense over five years.
Commission Findings:
The Commission finds the Company s proposal to capitalize and depreciate the $560
technical computer support expense over five years to be reasonable.
Staff Adjustment (J): Back-up Generator.
Mr. Turnipseed acquired a gas/diesel electric power generator at a cost
500. The stated purpose for the acquisition was to provide back-up
emergency pumping power in the event of a power failure. Staff observed this
generator on the morning of February 11 , 2003. The unit was stored in a
building belonging to the Turnipseed family outside the subdivision and it was
not in an operable condition. That evening Staff conducted a public workshop
regarding this case and learned from Mr. Turnipseed that the unit was to be
mounted on a trailer and be mobile. The generation unit is too small to
operate the main well pump but would be used to provide power to the small
back-up well located outside the subdivision on a farm owned by the
Turnipseed family. Customers expressed concern that they should not be
expected to pay depreciation expense and a return on a generator that was not
permanent and dedicated to the water system. As a mobile unit, it could be
easily transported to other locations and used for many other purposes. Staff
notes that the unit is not currently available for use and as such the
Commission could consider the unit as plant held for future use not included
in rate base or subject to depreciation expense. Mr. Turnipseed has assured
Staff that the unit will be put into serviceable condition this spring. Staff
agrees with customers that indeed the mobile nature of the unit does make the
unit subject to use not associated with the Diamond Bar water system.
However, Staff does commend Mr. Turnipseed for his initiative to provide a
source of back-up pumping power. Staff believes that a 50/50 sharing of
responsibility for support of the unit appears reasonable and has removed Y2 of
the investment ($2 750.00) from rate base, Y2 of the depreciation expense
($98.00 see Adjustment (N)) and Y2 of the accumulated depreciation ($98.
see Adjustment (0)).
Company Position. The Company is disappointed that the Staff recognizes the need
and usefulness of back-up generation but only wants to give credit for one-half of the cost of a
generator. It appears to the Company that Staff s position is based in large part upon comments
made by the Company that the generator would be mounted on a trailer. The Company informs
the Commission of its intent to use the generator full-time as a back-up generator for the system
and permanently install and place the generator at the back-up well location. The Company
requests that the Commission allow full recovery of the cost of the generator including the
ORDER NO. 29247
related cost of installing and housing. The estimated cost of installing the generator is $11 838.
The cost break down is as follows: generator $5 500; concrete pad $1,438; electric transfer
switch/hookup $2 500; and building $2 400. Without full recovery of the ordinary and necessary
operating costs such as the cost of a back-up generator, the Company contends that the water
system cannot operate.
Staff Response. Staff concedes that it discounted the emergency back-up generator
by 50% due to mobility. Staff notes that the second well, generator and proposed housing are
located outside the subdivision on property belonging to the Turnipseed family and not the water
company. Staff contends that for rate base consideration, the Company should obtain an
easement from the Turnipseed family for permanent rights of access to the building, well and
generator. Staff notes that the Company has indicated that it is unwilling to grant an easement.
That being the case, should a back-up generator at the second well continue to be a reasonable
requirement, Staff suggests that a service contract may be appropriate. No contract price has
been proposed.
Commission Findings:
While the Commission agrees that a back-up generator can provide an added degree
of service reliability, we find the Company s proposal to locate the generator at the second well
and on non-utility owned property (without enforceable easement rights of access) to be
unacceptable. Weare also unconvinced that the history of service interruption justifies such an
investment. We find instead, pending a further demonstration of need, that a more prudent
course of action for the Company is to lease or rent a generator on an as needed basis. There
being no record to support inclusion of reasonable expense for same, we eliminate all proposed
expense and costs including depreciation associated with a back-up generator
Staff Adjustment (L): Irrigation Meters.
The Company s Application includes $2 951.00 of investment (rate base) in
irrigation meters that were purchased during the test year. The Company has
requested that it be allowed to earn a return of 14% on this investment. These
meters have been provided to customers at no cost. Prior to the 2001 test year
all irrigation meters purchased have been treated as an expense. The
Company has requested that in the future, customers requesting the installation
of irrigation meters be required to pay a one-time initial connection fee of
$500.00 to pay for the meters. Staff believes it may be appropriate to collect
such a fee that would be treated as a customer contribution and would offset
the cost of the meter investment for rate base purposes. All irrigation meters
ORDER NO. 29247
installed prior to 2001 while under the control of the homeowners association
have been expensed and have no rate base valuation. All future irrigation
meters would be contributed by the customer through the connection fee and
would have no rate base valuation. Only the irrigation meters installed in
2001 and 2002 while still under the control of the homeowners association
would be capitalized into rate base. Staff notes that the sale of the system
from the homeowners association to the LLC was consummated at no cost to
the LLC. Stafftherefore reduces the Company s rate base by $2 951.00.
Company Position. The Company notes that the meters on hand are presently being
used and are part of the property acquired and transferred to the Company by the homeowners
association. How the purchase of these meters was treated on the prior books, the Company
contends, is of no consequence. Without being able to rate base the meters and expense
replacement meters, the Company contends that there is simply no reasonable method to recover
these costs. Without any manner for recovery, no further investment can be made. Staffs
contention that a one-time connection fee of $500 is sufficient to offset the cost of the meter
investment for rate base purposes is disputed by the Company. Revenue generated from a $500
connection fee, the Company states, would be insufficient.
Staff Response.Staff disagrees with the Company.Staff notes that what the
The first class would beCompany is proposing would result in three classes of meters.
developer contributed meters, the initial 10 contributed prior to 2001. The second class would
be the five meters in dispute acquired during 2001/2002 for which the Company requested to
rate base $2 951. The third class would be future meters which would be customer contributed.
Commission Findings:
The Commission notes that all meters acquired prior to transfer to Diamond Bar
(including those purchased in 2001 and 2002) were transferred at no cost to the Diamond Bar.
The Commission finds it reasonable in this case to apply what is a standard assumption for
developer-built water systems, i., that the owner/developer recovers the cost of initial
infrastructure including metering through the sale of lots. Reference Rule 103 "Policies and
Presumptions for Small Water Companies " IDAPA 31.36.01.103. The investment is treated for
regulatory purposes as contributed property with no permissible rate base addition. We find
Staffs adjustments to eliminate this investment and associated depreciation expense from the
revenue requirement calculation to be reasonable.
ORDER NO. 29247
Staff Adjustment (M): Rate Case Expense.
The Company included an estimate of $4 000 of rate case expense in its rate
base calculation. Staff reviewed numerous prior orders of the Commission
and cannot find a single instance where the Commission has included these
costs as a rate base increment. Staff has eliminated this item from the rate
base calculation. The Commission routinely allows amortization of such costs
as an expense item over a period of years. The Company has requested and
Staff concurs that a period of five years is a reasonable time frame for
amortization of these costs. The requested amortization expense is $800.
Staff has seen no documentation in support of the expense level and requests
that the Commission require such documentation prior to approval of the
expense item. Staff has made no adjustment of the expense amount at this
time.
Company Position. Staff in its comments recommended that documentation be
submitted supporting this expense item. In preparation of the Application for the workshop, the
Company reports that it has spent $500 in accounting fees and $585 in legal fees. The Company
estimates that it will spend an additional $800 in accounting fees and $900 in legal fees to
perfect its Reply Comments. Should a formal appeal prove necessary, the Company states that it
is not umeasonable to expect the associated fees to reach and even exceed the $4 000 expense
originally presented by the Company. Therefore, the Company continues to request that $4 000
of rate case expense be provided in the rate base calculation.
Staff Response. The Company has presented documentation consisting of actual and
estimated or projected costs. The actual billed costs are $1 085. Estimated additional costs to
date are $1 700. Staff contends that the remaining $1 215 for costs of appeal are speculative and
should not be allowed.
Commission Findings:
We find it reasonable to allow recovery of actual billed costs for accounting and legal
services in the amount of$1 085. We also find it reasonable to allow recovery of the estimated
additional costs for accounting and legal services required to perfect the Company s Reply
Comments in the amount of$1 700. We approve total rate case expense of $2 785. We approve
recovery of this amount amortized over five years. The projected cost of appeal we find is
speculative, not known and measurable and cannot be recovered.
Inflation.
The Company has arbitrarily included a 3% inflation factor in its calculation
of revenue requirement. The Commission does not normally accept such an
ORDER NO. 29247
adjustment absent substantial compelling evidence that it is necessary. The
Company has offered no such compelling evidence. Therefore, Staff has
excluded the inflation adjustment in its calculated revenue requirement of
$16 104.00.
Company Position. The Company included a 3% inflation factor anticipating that
utility suppliers, A vista and Kootenai Electric Coop will receive rate adjustments this year
increasing the cost of electricity to the Company. Given the low snowpack experienced by
northern Idaho this winter, the Company does not believe its request to be arbitrary. The
Company continues to request that a 3 % inflation factor be included in the revenue requirement.
Staff Response. Neither Avista nor Kootenai Electric have requested or implemented
a change in rates. The Company s requested inflation factor is speculative and should be denied
as being neither known nor measurable.
Commission Findings:
The Commission finds the Company requested annual inflation factor for rates to be
speculative and neither known nor measurable. We find it reasonable to deny this request.
Hook-up Fees.
The Company has requested several one-time charges in this request. The
Company has requested: 1) a hook-up fee of $1 000 for the installation of
water meters; 2) $500 for connection to the domestic system, and 3) $500 for
the installation of irrigation meters. Staff has reviewed these charges and
believes the domestic hook-up fees are umeasonable. The Company has
provided neither justification nor cost causation for the $1 000 water meter
installation or the $500 connection charge. In fact, the Company has notified
Staff that the charges were already collected at the sale of the lots and will not
be collected again from anyone in the subdivision. The Company did discuss
with Staff the cost to extend the main and connect an additional customer if
requested. While it is conceivable that the Company could guess the location
where a customer might want to extend and estimate a hook-up fee, Staff
believes that a proper line extension policy is more appropriate. Staff
recommends denial of the $1 000 water meter fee and the $500 water hook-up
fee for domestic service. Staff further recommends that the Company work
with Staff to develop an appropriate line extension tariff for the system and
have it in place prior to extension of any service beyond those within the
subdivision. Line extension tariffs protect existing customers from costs
associated with extending service to new customers.
Staff has reviewed the costs for the parts included in the installation of
irrigation meters, including the meter and backflow prevention device, and the
costs are approximately $500. Staff believes that the proposed $500 one-time
ORDER NO. 29247
charge is an appropriate charge to customers for the installation of their
individual irrigation meters. Assessing each individual customer the cost of
their installation, when the optional meter is requested, avoids spreading the
costs to other customers who receive no benefit from such facilities.
Furthermore, there is no physical reason for separate irrigation meters from a
system standpoint and Staffs uniform rate proposal requires only a single
meter for domestic and irrigation service. Therefore, Staff recommends
approval of the Company s requested $500 one-time meter fee for irrigation
meters.
Company Position. Staff recommended a line extension policy in lieu of a hook-up
fee and connection fee. The Company does not have a line extension policy in place. A
sampling of surrounding water companies was completed and submitted as a part of the original
Application. The Company contends that it is customary and typical of small water companies
in northern Idaho to charge a hook-up fee and connection fee. The Company maintains that the
charges presented are reasonable based upon the charges of similar water companies in the area
and appear to be sufficient to reimburse the Company for the costs incurred for such
connections.
Staff Response. Staff notes that regarding those lots in the subdivision, the hook-up
and connection fees have already been paid. Should the Company choose to extend service
outside the subdivision, Staff contends that the Company would need to request a Certificate
amendment and any line extension costs would be recovered from the new customer requesting
servIce.
Commission Findings:
The Commission finds that the owner/developer of the Diamond Bar Estates water
system recovered meter and hook-up fees from each lot owner in the Diamond Bar Estates
subdivision at the time of purchase. We find it reasonable to deny the Company s request to
establish a $1 000 domestic water meter fee and $500 domestic water hook-up fee.The
Commission is persuaded that for further extension of service outside the existing subdivision
the Company should adopt a line extension policy for first-time connections in lieu of a hook-up
fee and connection fee. The Company is directed to work with Staff to develop an appropriate
line extension tariff for extension of service beyond the existing subdivision boundary. The
Commission finds the requested $500 one-time meter fee for irrigation meters to be cost justified
and approves the charge as reasonable for new irrigation customers.
ORDER NO. 29247
Return on Rate Base.
The Company, in its Application, used a return on rate base of 14% to calculate its
required revenue requirement. Staff, in its comments, opposed this rate and proposed a rate of
12%. One of the customer comments recommended a return of no more than 8.5% based upon
the earnings of 16 western publicly traded utilities. Staff stated in its comments ". . . that the
earnings of many publicly traded utilities are currently at very low levels. As the economy
recovers from its current recession, these returns should increase. The Commission has on
numerous occasions recognized that the risks associated with ownership of a small water system
with a small rate base and limited cash flow are inherently greater than the risks associated with
a large company with a much larger customer base. The Commission has consistently used a
12% rate of return level for small water companies for many years and Staff sees no compelling
reason to deviate from that return level." The Company did not address this issue in its reply
comments.
Commission Findings:
Based upon the record in this case, we find a return on rate base of 12% is fair, just
and reasonable for this small water company.
Revenue Requirement.
Based upon our findings as outlined above, we calculate the revenue requirement for
this Company as shown in the following table.
ORDER NO. 29247
Diamond Bar Estates Water Co.
Commission Adjustments to Staff Revenue Requirement
Descri tion Rate Base Expenses
Staff Proposed Rate Base
Staff Proposed Expenses
$ 5 152.
$15 349.42
Commission Adjustments to Staff Recommendations
Computer Set-up Costs
Add to Rate Base
Incremental Depreciation Exp. (5 Yr.)
560.
112.
Back-up Generator
Eliminate from Staff Rate Base
Eliminate from Staff Accumulated Depreciation
Eliminate from Staff Depreciation Expense
750.00)
98.
(98.00)
Rate Case Expense Amortization
Staff Proposed Expense AmortizationActual Expenses 2 785.
5 Year Amortization
Expense Adjustment
800.
557.
(243.00)
Postage Adjustment (Abelhanz Testimony)(34.44 )
Commission Approved Rate Base
Commission Approved Expenses
$ 3 060.
$15 085.
Revenue Requirement Calculation
Rate Base
Rate of Return
Net Operating Income Requirement
Net to Gross Tax Multiplier
Add Operating Expenses
Total Revenue Requirement
$ 3 060.
12%
$ 367.
$ 447.
085.
$15 533.
Rate Design.
After considering numerous rate design alternatives, Staff proposes a
fixed/variable rate design of a $21.00 base charge for the first 7 500 gallons
and then $0.50 11000 gallon for each gallon thereafter for all water used by
each customer (see Staff Comments Attachment "). Staff has considered
customers' and the Company s concerns in this rate design. First, if historical
ORDER NO. 29247
usage is any indication, irrigation customers that use the historical average
irrigation volume should experience no increase in irrigation costs over the
previous year. However, customers that use as much as the largest users on
the system (665 000 gallons annually), will experience a 26% ($225 to $283
annually) increase in irrigation costs. Second, even though the base rate will
go up by 40% ($15 to $21 monthly) the overall average monthly rate is
anticipated to increase by only 14%. Third, Staffs proposal addresses the
Company s concern regarding revenue generation in the winter months by
providing the same winter revenue as requested by the Company. Staffs
proposal also provides increased revenue as usage increases to offset the
increase in costs of service. Finally, both the flat rate and the fixed/variable
rate proposals are generally in alignment with other regulated water
companies in the vicinity (see Staff Comments Attachment "
Staff recommends a fixed/variable rate design with a base rate of $21 for the
first 7 500 gallons and then $0.50/1000 gallons for each gallon thereafter.
Staff further recommends that this rate design be reevaluated after one year to
assess how usage patterns may have changed, what effect the new rates have
had on customer bills, and how effectively the rate design generates the
revenue requirement authorized by the Commission.
Company Position. Staff recommends a fixed variable rate design without a separate
rate for irrigation. The Company prefers a separate rate for irrigation. However, knowing
Staffs preference on the issue, and its recommendation for a $21 base charge for the first 7500
gallons and then $.50 per 1000 gallons for each gallon thereafter, the Company tested the
proposed rate against current data for water usage. The Company states that its analysis shows
that the rate design proposed by Staff would be insufficient to meet the revenue needs
established by Staff, $16 104, for the system. The Company respectively requests that the base
rate charge be changed from $21 to $23.50 so that the revenue needs established by Staff can be
met. Additionally, if the Commission should determine to allow any or all of the changes
requested by the Company, the Company requests that the base rate be further increased to allow
coverage for the revenue requirement allowed. The Company includes a survey of water rates
from different water districts in the area.
Staff Response. Staff notes that the Company s analysis is based upon actual versus
normalized data (fewer customers than currently connected to the system) and produces an
erroneous result. Staff notes that a lot of customers have not established their lawns and their
irrigation usage will likely increase.
ORDER NO. 29247
Commission Findings:
The Commission is persuaded that the more reasonable rate design for Diamond Bar
is the one proposed by Staff. We specifically reject as umeasonable a separate flat rate for
metered irrigation water. A flat rate is unfair to low usage customers and does not promote
conservation. Based on an approved revenue requirement of $15 534, we approve a $21.00 per
month customer charge plus a $.45 per 1 000 gallons commodity rate for all water usage
exceeding a monthly base allowance of 7 500 gallons. The rate design is to be re-evaluated by
Staff after one year to assess how usage patterns may have changed, what effect the new rates
have had on customer bills, and how effectively the rate design generates the authorized revenue
requirement.
Annual flat irrigation fees already collected by the Company under its present rate
structure are to be prorated and the customer s account credited for the remaining summer
months. The Company and Staff are directed to work together to design an acceptable proration
formula.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction and authority over Diamond
Bar Estates LLC dba Diamond Bar Estates Water Company, a public water utility, and the issues
raised in this Application, pursuant to Title 61 of the Idaho Code and the Commission s Rules of
Procedure, IDAP A 31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby issue Certificate of Public Convenience
and Necessity No. 413 to Diamond Bar Estates LLC dba Diamond Bar Estates Water Company
for water service to the Diamond Bar Estates Subdivision in Kootenai County, Idaho.
IT IS FURTHER ORDERED and the Commission does hereby establish rates and
charges as set out above. The Company is directed to file tariff sheets reflecting authorized rates
including non-recurring charges and general service provisions.
IT IS FURTHER ORDERED and the Company is required to adopt and implement
the Commission s Utility Customer Relations Rules and Utility Customer Information Rules, and
an accounting system consistent with information required by the Commission s Annual Report
for Small Water Companies.
ORDER NO. 29247
IT IS FURTHER ORDERED and the Company is required to inform its customers of
the Commission approved rates and policies. The effective date for the change in rates and
charges is June 1 2003.
IT IS FURTHER ORDERED and the Company is required to make written petition
or application to the Commission prior to any proposed change in ownership of the Diamond Bar
water system.
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 9 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
"""
day of May 2003.
MARSHA H. SMITH, COMMISSIONER
ATTEST:
Commission Secretary
bls/O:GNRW0203 sw2
ORDER NO. 29247