20030221Comments.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
DIAMOND BAR ESTATES LLC DBA DIAMOND)
BAR ESTATES WATER COMPANY FOR
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY AND FOR APPROVAL OF
RELATED RATES AND CHARGES.
CASE NO. GNR-O2-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff (Staff) ofthe Idaho Public Utilities Commission, by and
through its Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the
Notice of Application, Notice of Public Workshop, Notice of Modified Procedure and Notice of
CommentlProtest Deadline issued on January 10, 2003 , submits the following comments.
On November 29 2002, Diamond Bar Estates LLC dba Diamond Bar Estates Water
Company (Diamond Bar, Company, Applicant) filed an Application with the Idaho Public
Utilities Commission for a Certificate of Public Convenience and Necessity to serve the
Diamond Bar Estates Subdivision in Kootenai County, Idaho. Reference Application
Attachments, legal description and maps of subdivision and service area; Idaho Code ~ 61-526;
Commission Rules of Procedure, IDAPA 31.01.01.111. Diamond Bar Estates 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.
STAFF COMMENTS FEBRUARY 21 2003
GENERAL COMMENTS OF STAFF
The Diamond Bar Estates Subdivision began with the formation of Diamond Bar Estates
LLC (LLC) in 1994. Mr. Robert N. Turnipseed, as managing member, formed the LLC for the
purpose of subdividing property into a subdivision of five-acre lots. Coincident with the creation
of the LLC, Mr. Robert N. Turnipseed and Dana L. Rayborn Wetzel incorporated a nonprofit
homeowners association known as the Diamond Bar Estates Homeowner s Association, Inc.
(Association). Mr. Robert N. Turnipseed was the initial registered agent for the Association.
The ipitial directors of the Association were Robert N. Turnipseed and his wife Clara B.
Turnipseed.
Part of the improvements made to the property to create the subdivision was the
construction of a water reservoir and distribution system utilizing an existing irrigation well
within the subdivided property. As a developer-installed system, all of the initial capital
improvements made to build the water system infrastructure are considered by this Commission
to be contributed to the water system by the developer who has recovered the initial cost through
the sale of lots. Idaho Public Utilities Commission Rule for Small Water Companies, IDAP A
31.36.01.103, states this position clearly and applies to all new subdivision development. Since
the inception of the subdivision activities, Mr. Turnipseed has operated and maintained the water
system. Billings and correspondence to customers bear the name "Diamond Bar Estates" or
. "
Diamond Bar Estates Water . Tax returns for the water system have been filed under the name
ofthe.homeowners association. Some customers have indicated that until June ofthe year 2002
they did not know that a homeowners association owned and operated the water system.
However, the Declaration of Covenants, Conditions and Restrictions for the subdivision is quite
clear that a homeowners association would have control ofthe water system.
The first full meeting of the homeowners association since its inception was held on June
2002. At that meeting new directors of the Association were elected. The members of the
Association also passed Resolution No. 2002-4 at that meeting authorizing the Association
officers to execute a bill of sale transferring the water system to Diamond Bar Estates, LLc. The
Bill of Sale was executed on the same date. Attachment "A" (two pages) to these comments is a
copy of the resolution. Attachment "B" (two pages) is a copy of the Bill of Sale. The transfer
was accomplished at no cost to the LLc. Members of the Association have since indicated to
Staff that they were ill prepared to vote on control of the water system. They have indicated that
they had no opportunity to review the operation ofthe system or analyze the pros and cons of
STAFF COMMENTS FEBRUARY 21 2003
retaining the system or transferring it to the LLc. At least one customer has indicated a desire to
revisit that decision and possibly reverse the transaction through litigation if necessary. In
August 2002, shortly after the transfer ofthe system to the LLC, the well pump failed and had to
be replaced at a cost of $14,482.50.
The subdivision contains forty-five residential lots of approximately five acres each and
is nearly full. The rate design proposed by the LLC in its Application assumes the subdivision is
built out. During the course of Staff's investigation , it was determined that several of the lots
were not improved and in all likelihood several of these would not be improved in the near
future. Staff therefore has made some adjustments to historical data to annualize and normalize
the Company s operations assuming 41 lots are improved and are active full time customers.
Staff conducted a workshop on February 11 , 2003, that was attended by representatives
of the Applicant and a number of customers. Following that workshop several comments have
been submitted by customers indicating they would have preferred to have had the opportunity to
review Staff's comments prior to the workshop in order to be better prepared to discuss the
issues. They have also suggested that a second workshop or a hearing be conducted after Staff
files these comments and that the Commission not rush into a decision until the customers have
an opportunity for additional comment.
FINANCIAL ANALYSIS
Staff has completed a detailed audit of the accounting records maintained for the water
system for the test year 2001 and eight months of2002. Based upon that analysis, Staff has
determined that an annual revenue requirement of $16 104 is reasonable compared to the request
of $23 123 contained in the Company s Application. Staff's proposed revenue requirement is
based upon actual historical data of the system when under the umbrella of the homeowners
association adjusted to normalize and annualize operating costs assuming there are 41 customers
on the system. Staff notes that from the time the subdivision was first created in 1994, Mr.
Turnipseed as the developer has subsidized the operation of the water system. This is not
unusual. New water systems built in conjunction with the subdivision of property cannot be
financially viable until adequate customer growth occurs to support the costs of the water system
at reasonable rates.
Attachment "C" to these comments is a one-page schedule that shows Staff's
development of the revenue requirement. Column (B) is the data contained in the Company
STAFF COMMENTS FEBRUARY 21 2003
Application. Column (C) is composed of adjustments Staff made to the Company s data to
produce Staff's recommendations shown in Column (D). Many of Staff's adjustments are quite
small and produce a fmal result that is not significantly different from the data submitted by the
Company. Staff believes this detail is necessary to demonstrate to customers that the
Commission Staff has indeed scrutinized the financial condition of this company to insure that
customer rates are not based upon unreasonable expense levels or investments. Column (E)
Attachment "C" is a reference to specific adjustments that are detailed on Staff's Attachment
D" to these comments.
Attachment D" (four pages) to these comments is a schedule that shows the details of a
number of adjustments to the data submitted by the Company in its Application. The following
is a description of each ofthose adjustments:
(A) The Company in its Application included $414.00 for postage expense. This amount
appears high for a system of this size. The water system is one of several business activities
operated by the owner from the same business office. Staff could not verify that this expense
item was solely for the Diamond Bar water system activities. Adjustment (A) shows a budgeting
approach calculation to test the reasonableness of the expense item. Staff's calculation produces
an expense level of $226., that is $188.80 less than contained in the Application.
(B) The Company s Application included $350.00 for meter reading labor expense. The
Company pays $1.00 per customer for this activity. Staff annualized this cost for 41 customers
with eight meter readings per year to produce an expense of $328.00 per year or $22.00 less than
included in the Application. Note that meters are not read during the four winter months.
(C) Water testing requiren:lents are not constant from year to year. The Idaho
Department of Environmental Quality (DEQ) requires some tests on a monthly basis, some tests
on an annual basis and others vary on 3, 4 and 9 year cycles. Staff recommends normalizing the
cost of these testing requirements over the cycle period for which each is required. Some of
these tests are quite expensive. One ofthese tests required on a three-year cycle costs
approximatel y $1 100.00. Staff has determined that the normalized cost of all tests (spread over
the frequency periods) produces an annual average cost of $750 per year. The Company
Application reported actual cost during the 2001 test year period of $500.00. Staff has adjusted
the expense item by increasing the cost by $250.
(D) The Company s Application contained a regulatory expense of $120.00. This is the
regulatory fee assessed by the DEQ during the test year 2001. The DEQ fee is $5.00 per
STAFF COMMENTS FEBRUARY 21 2003
customer. Annualizing this fee for 41 customers at a rate of$5.00 per connection produces a
DEQ fee of$205.00. When the Idaho Public Utilities Commission (PUC) regulates the
Company, it is subject to a regulatory assessment by the PUc. The minimum assessment by the
PUC is $50.00. Staffhas added this additional regulatory fee to the annualized DEQ fee to
produce a total regulatory fee expense of$255., or $135.00 more than included by the
Company in its Application.
(E) Automobile expenses included in the Company s Application were $300.00. Actual
expenses recorded during the test year were $212.14. Both of these amounts appear to be quite
arbitrary. Adjustment (E) is a budget approach Staff performed to test the reasonableness of the
requested expense level using the mileage allowances approved for income tax purposes. Staff's
approach produces an annual allowance of $312.65 that appears to be reasonable.
(F) Electric expenses proposed in the Company s Application were $4 500.00. This
amount includes both the cost of electricity and natural gas. Actual expenses recorded in 2001
were $3 046.70 and for 2002 were $4 870.95. Electric bills in both these years include charges
for street lighting that is now being paid by the Diamond Bar Estates Homeowner s Association.
Staff performed an analysis to determine a reasonable level of electric expense for the wat~r
system by comparing actual electric bills with water pumped for the period August 2001 through
July 2002. This analysis produced a cost per thousand gallons of$0.24. Applying this cost per
thousand gallons to the annualized total consumption for 41 customers produces an annual
pumping power cost of $3 501.70. Addedto this cost is the actual cost to heat the pump house
building with natural gas of $656.27. Staff's analysis produces a total annualized expense of
157.97 as a reasonable estimate for these expenses. Staff adjusted the Company s request
down by $342.03.
(G) During the test year 2001 , the Company recorded the purchase of an irrigation meter
as a meter repair and maintenance expense. Staff has removed the $516.29 cost of this meter
from the recorded repair and maintenance expense of$1,493.74 that was rounded up to
500.00 in the Company s Application. All other irrigation meters were recorded as meter
installation expense and treated as capital improvements in the Company s Application. Staff
discusses the capitalization of these meters later in these comments under (L).
(H) During the test year 2001 , check number 3146 payable to Avondale Construction
(one of Mr. Turnipseed's other businesses) in the amount of $1,158.75 was written from the
water system account. This payment should have been made not from the water system account
STAFF COMMENTS FEBRUARY 21 2003
but rather from the LLC account as a developer cost. On December 31 2001 , the LLC wrote
check number 2097 to reimburse the water system for the payment. The reimbursement was not
recorded by the water system until January 2002. Staff has removed this amount from the
expenses recorded in 2001.
(I) During the test year the water system paid $560.00 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.
(J) Mr. Turnipseed acquired a gas/diesel electric power generator at a cost of $5 500.
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 ofresponsibility for support of the unit
appears reasonable and has removed Yz ofthe investment ($2 750.00) from rate base, Y2 of the
depreciation expense ($98.00 see Adjustment (N)) and Yz ofthe accumulated depreciation
($98., see Adjustment (0)).
(K) In August 2002, the Company had to replace the pump in the main well at a cost of
$14 482. Staff has confirmed the cost of replacing this pump. However, at the workshop
conducted on February 11 , 2003 , Stafflearned from Mr. Turnipseed that an insurance policy
paid the majority of the cost. The cost to the Company was the deductible portion of the
STAFF COMMENTS FEBRUARY 21 2003
insurance policy in the amount of $2 500. Staff removed the $11 982 insurance reimbursement
from the Company s investment of$14 482.00 contained in the Application. Staffalso
eliminated depreciation expense of $599.1 0 associated with the insurance reimbursement (see
Adjustment (N)).
(L) 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 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. Staff therefore reduces the Company s rate base by $2 951.00. ,Staff discusses
the customer connection fees in more detail later in these comments.
(M) 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.
(N) In conjunction with the adjustments above, Staff also eliminated: 1. The Company
proposed depreciation expense of$74.00 on the irrigation meters Staff removed from rate base
STAFF COMMENTS FEBRUARY 21 2003
Adjustment (L); 2. Depreciation expense of$599.10 associated with the insurance
reimbursement for the new pump, Adjustment (K); 3. Depreciation expense of $98.00 associated
with Adjustment (J) to the generator investment.
(0) Staff adjusted accumulated depreciation in the amount of $98.00 to be consistent
with Adjustment (J) to the generator investment.
(P) The Company included $50.00 in its Application for income tax expense. Staff
believes it is reasonable to substitute a gross-up factor approach to recognize the effect of income
taxes on the system. Therefore, Staff removed the $50.00 income tax amount included in the
Application as the gross-up factor included in Attachment ", Column (D) line 36 provides for
the effect of income taxes. The Company is organized as a Limited Liability Company and as
such all income flows through to the personal income tax of the Turnipseeds. Staff used the
State and Federal individual income tax rates to calculate the income tax gross-up factor of 1.22
necessary to produce revenues sufficient to provide an operating income after taxes and expenses
of$618.24. The resulting tax amount would therefore be $136.26. Staff notes that prior income
tax returns have been filed as a non-profit association operating at a loss.
The Company requested a return on rate base of 14%. One of the customer comments
recommended a return of no more than 8.5% based upon the earnings of sixteen (16) western
publicly traded utilities. Staff has used a return of 12% on Attachment ", Column (D), line 34
in its revenue requirement calculation. Staff is aware 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
company s for many years and Staff sees no compelling reason to deviate from that return level.
The Company has arbitrarily included a 3% inflation factor in its calculation ofrevenue
requirement. The Conimission does not normally accept such an 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.
STAPF COMMENTS FEBRUARY 21 2003
RATE DESIGN
The Diamond Bar Estates water system design is such that the supply wells, reservoir
and pumping facilities provide water to each lot within the subdivision with service through a
domestic meter and an optional separate irrigation meter. The domestic service is the typical
underground metered service and the optional irrigation service is a larger diameter above
ground metered service fitted with a backflow prevention device. The irrigation meters and
backflow prevention devices are removed in the winter months to avoid freezing. Currently
approximately one-half of the customers request irrigation meters annually.
Staff believes the Company designed the existing rates and service configuration to
possibly improve the marketing of large residential' lots. Currently domestic rates are $15 for the
first 7 500 gallons and $0.95/1000 gallons for each gallon thereafter. For those customers that
chose irrigation meters, the irrigation rates are a flat $225 per year regardless of usage.
The Company is requesting a revenue requirement of $23, 123 to be collected through a
domestic fixed/variable rate design of $21 per month base charge for the first 7 500 gallons and
$0.85/1 000 gallons thereafter and a separate variable charge of $0.75/1000 gallons for all water
used through the irrigation meters. As stated previously, Staff recommends a lower revenue
requirement of $16, 1 04. Staff further believes that a single rate design for all water used is the
most appropriate. If there is a difference in rates based on end use and service is provided to the
same location from the same source at the same quality as is the case here the rates could be
subject to gaming. Staff further believes that since meters are already installed on the system
and metered service provides equity among users that any final rate design should be based on a
metered volumetric rate. Therefore, Staff prepared and presented a single preliminary
fixed/variable rate design at the public workshop held in Rathdrum on February 11 2003.
In preparation for the workshop, Staff reviewed the available usage data and developed a
fixed/variable rate design around typical water usage. Typical usage was established based on
the domestic and irrigation meter reading data from August 2001 through July 2002. Averages
were developed based on the 31 customers that were on the system for the entire period. Usage
estimates were then extended for the 41 customers that are anticipated on the system going
forward. All subsequent calculations are based on these estimates. The average total monthly
customer usage was approximately 30 000 gallons and the average summer monthly irrigation
usage was calculated at approximately 57 000 gallons.
STAFF COMMENTS FEBRUARY 21 2003
At the workshop, customers overwhelmingly told Staff that the average usage
infonnation as presented would be inaccurate on a going forward basis. Customers explained
that because of subdivision covenants and required lot development, future usage would likely
include significaritly more irrigation usage than that used to calculate test period averages. The
covenants require landscaped front lawns and some homeowners plan to irrigate the full five
acres. Some customers stated that they were just beginning to start the landscaping in the test
period and many more will be completing the required landscaping in the next few years.
Therefore, customers believe that future average usage would likely be closer to the individuals
with large irrigation water usage found in the test period.
Customers also expressed great concern over the loss of a flat rate for irrigation. Several
stated that they moved to the Diamond Bar development because ofthe flat rate irrigation service
and their desire to live in a well-landscaped subdivision. The development is in proximity to a
number of five-acre lot subdivisions and flat rate irrigation water was a consideration when
choosing a lot.
Staff agrees that if customer usage is going to change dramatically over that measured in
the test year, then any initial rate proposal based on historical usage would be ineffective in
generating the authorized revenue requirement in the future. Staff also agrees that a flat
irrigation rate would provide customers the opportunity to use all the water they wished at a
fixed cost. Therefore, Staff in its Rate Design Alternatives (Attachment "), has included a flat
rate proposal. The flat rate proposal is simply the revenue requirement of $16 104 divided by
customers and then divided by twelve months to get a required monthly flat rate of $32.73 for all
customers.
However, Staff has many concerns regarding the flat rate proposal. First, metered rates
are more equitable to customers. Each customer only pays for what they individually use.
Second, metered rates send the appropriate price signal that more usage is more expensive.
Without the price signal, water consumption could exceed system capacity and additional
pumping facilities may be required. Third, metered rates provide customers some control over
their individual bills and finally the meters are readily available.
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 $0.50/1000 gallon for each
gallon thereafter for all water used by each customer (see Attachment "). Staff has considered
customers ' and the Company s concerns in this rate design. First, if historical usage is any
STAFF COMMENTS FEBRUARY 21 2003
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, Staff's proposal addresses the Company s concern regarding revenue generation in
the winter months by providing the same winter revenue as requested by the Company. Staff's
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 Attachment "
Staff recommends a fixed/variable rate design with a base rate of $21 for the first 7
gallons and then $0.50/1000 gallons for each gallon thereafter. Staff further recommends that
this rate design be reevaluated after one year to assess how usage patterns may have changed
what effect the new rates have had on customer bills, and how effectively the rate design
generates the revenue requirement authorized by the Commission.
HOOKUP FEES
The Company has requested several one-time charges in this request. The Company has
requested: 1) a hook-up fee of$l OOO 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 unreasonable. 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 COMMENTS FEBRUARY 21 2003
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 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 Staff's 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.
CONSUMER ISSUES
Included with Diamond Bar Estates Water Company s Application for a rate increase was
a copy of its billing statement, termination notice, and a comprehensive summary of IPUC rules.
All forms comply with IPUC's Utility Customer Relations Rules, IDAPA 31.21.01000 and
Utility Customer Information Rules, IDAP A 31.21.02000.
The Company s proposed tariff includes a reconnection fee of $50 during business hours
and $65 outside of business hours. Both the Disconnect Notice and the Rules Summary state
that the Company will charge a reconnection fee of $15 during business hours and $30 all other
times. The Company provided no cost basis for including an unusually high reconnect charge in
its proposed tariff. In response to Staff's inquiry, the Company indicates that disconnection of
service due to non-payment has not yet been necessary. Therefore, Staff recommends approval
of a $15 reconnection charge during business hours and $30 all other times for reconnection of
service due to a voluntary or involuntary disconnection. This charge will apply only to meters
for domestic water service; it will not apply to the seasonal installation or removal of irrigation
meters.
A workshop held February 11 , 2003 , in Rathdrum was attended by 24 customers
representing 14 households. Bob , Rob & Christy Turnipseed, along with their accountant, Ralph
Nelson attended the workshop. Bob Smith, Michael Fuss, Marge Maxwell and Scott Woodbury
represented IPUC Staff.
Customers offered helpful information during the workshop discussion. They also
brought up issues which do not fall under the Commission s jurisdiction. For example, the
developer s promise made at the time oflot purchase for a flat irrigation rate was raised several
STAFF COMMENTS FEBRUARY 21 , 2003
times. Customers state there are landscaping requirements found in Diamond Bar Estates
covenants, conditions and restrictions. While these issues are a major concern to customers, the
issues involved the marketing efforts of the development rather than the water company and do
not fall under the purview of this Commission.
In addition to general comments made at the workshop, ten individuals submitted
nineteen written comments by February 19, 2003. Four of the ten individuals filed multiple
comments. Two individuals requested another workshop or a hearing be held prior to the
Commission s final decision. All of the written comments are now a part of the official case file
and will be reviewed and considered by the Commission. Attachment "G" contains a brief
overview of customers' written comments.
STAFF RECOMMENDATIONS
1. The Certificate Request: No objection has been received by the Commission from any
party other than the customer comment expressing a desire to revisit the transfer of the system
from the Association to Diamond Bar Estates, LLC. Staff recommends the Commission express
its intent to issue aCertificate of Convenience and Necessity in sixty (60) days unless it receives
positive proof that indeed the Association has entered into negotiation/litigation to reverse the
sale transaction and return the system to the Association.
2. Staff recommends that the Commission either schedule a public hearing or provide the
company and its customers an opportunity to present written responses to these Staff Comments.
3. Revenue Requirement: Staff recommends that the Commission determine that a
revenue requirement of $16 104 is just and reasonable unless the Company or customers submit
compelling evidence that this revenue requirement is not justified.
4. The Commission should direct the Company to submit documentation supporting the
requested rate case expense amortization and adjust the revenue requirement to reflect the actual
costs.
5. Rate Design: Staff recommends that the Commission establish a single fixed/variable
rate design for all water use with a base rate of $21.00 for the first 7 500 gallons of consumption
and $0.5011000 gallons for consumption in excess of the 7 500 gallon base.
6. 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
STAFF COMMENTS FEBRUARY 21 , 2003
how effectively the rate design generates the revenue requirement authorized by the
Commission.
7. Staff recommends denial of the $1 000.00 domestic water meter fee and the $500.
domestic water hook-up fee. The Company was unable to provide cost justification for the level
of these fees. In addition, these fees were recovered from each lot owner at the time of purchase.
8. Staff recommends the Company work with Staffto develop an appropriate line
extension tariff for the system and have it in place prior to extension of any service beyond the
subdivision boundary.
9. Staff recommends approval of the Company s requested $500.00 one time meter fee
for irrigation meters.
10. Staff recommends that customer reconnection fees (voluntarily or 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.
Respectively submitted this
C)/ Yt
day of February 2003.
Scott Woodbury
Deputy Attorney General
Technical Staff: Bob Smith
Michael Fuss
Marge Maxwell
SW :i:umisc/comments/gpwwO2, 1 swresmfussmm
STAFF COMMENTS FEBRUARY 21 2003
RESOLUTION NO. 2002-4
A RESOLUTION 'OF THE DIAMOND BAR ESTATES HOME
OWNERS ASSOCIATION TRANSFERRING OWNERSHIP OF
THE WATER SYSTEM SERVING 'THE DIAMOND BAR
ESTATES SUBDIVISION TO ,DIAMOND BAR ESTATES
L.L.C.; AND PROVIDING, ,FOR OTHER MA TIERS
PROPERLY RELATING THERETO
WHEREAS, the Diamond Bar Estates Home Owners Association, Kootenai
County, Idaho (the "Association ) is a non: profit home owners, association operating
and existing under and pursuant to the provisions of the Constitution and laws of theState of Idaho; and
WHEREAS, The Association currently owns certain assets of the water
system serving the Diamond Bar Estates Subdivision and desires to transfer its
interest in the water system to the Diamond Bar Estates L.L.C; and
WHEREAS, at the duly noticed and convened meeting of the Membe of tile
Association held on June 3, 2002 at which a quorum was present, a majority of the
Members voted to transfer all of the assets of and the improvements of the water
system serving the Diamond Bar Estates Subdivision to Diamond Bar Estates L.L.C.
NOW, THEREFORE, BE IT RESOLVED BY THE MEMBERS OF THE
DIAMOND BAR ESTATES HOME OWNERS ASSOCIATION, KOOTENAI
COUNTY. IDAHO as follows:
Section 1
: '
The Members determine it to be in the best interest of the
Association for the Association to transfer ownership of the water system owned by
the Association to Diamond Bar Estates L.L.C.
Section 2 The Association hereby transfers the water system to Diamond
Bar Estates L.L.C. and authorizes its officers to execute a Bill of Sale for such water
system on behalf of the Association.
RESOLUTION TRANSFERRING. OWNERSHIP OF THE WATER SYSTEM OF THE ASSOCIATION
Page 1
Attaclunent A
Case No. GNR-02-
Staff Comments
02/21/03 Page 1 on
Section This Resolution shall, take effect and be in force from and afterits passage and approval.
DATED this 3rt! day of June. 2002.
, DIAMOND BAR ESTATES HOME OWNERS
ASSOCIATION
Kootenai County I Idaho
(SEAL)
RESOLUTION TRANSFERRING QWNERSHIP OF THE WATER SYSTEM OF THE ASSOCIATION, Page 2
Attachment A
Case No. GNR-02-
Staff Comments
02/21/03 Page 2 of2
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS: DIAMOND BAR ESTATES HOME
" ,
OWNERS ASSOCIATION, INC., fora'nd incOnsideration 'of the covenants and
conditions set forth in theTrarisfer Resolution dated the 3rdday of June, the receipt
whereof is hereby acknowledged~, does by the~e presents grant, bargain, sell and
convey unto, DIAMOND BAR ESrATES " LLC;and to theitexecutors, administrators
and assigns, all of that certain petsonal property 'and assets representing the water
system serVing Diamond Bar Estates subdivision, described' in Exhibit "A" which is "
attached hereto ~nd bYtilis re:erence made
~, ,
p~rt her of. '
, ,
TO HA VEAND TO HOLD, the beforeKIescribed property to DIAMOND BAR
ESTATES, LLC., their executors, administrators, and assigns, forever.
IN WITNESSWHEREOF DIAMOND BAR ESTATES HOME OWNERS
ASSOCIATION, INC. certifies that the signature to this Bill of Sale is an authorized
agent of the DIAMOND BAR ESTATES HOMEOWNERS ASSOCIATION, INC. herein
and has been granted the authority to affixed his signature hereto on behalf of said
coiporation this 3;..d...I d~Y of June, 2002
, ,, '
By:
. (SEAL)
BILL OF SALE PAGE 1
Attachment B
Case No. GNR-O2-
Staff Comments
(),)/,,)1 tn'l. p~o-p, 1 nf2
Exhibit "
WA TER ~YSTEM
The Water Syst~m transferred ul1der thi~ Bill of Sale includes the well, 65 OOO-gallon
reservoir, ~istribution lines.. water rightsalJd monetary assets of the Water System
located in the Diamond Bat Estates Subdivi~ion
The physical assets of the Water System Include but are not limited to: '
The well serving the Water System including a pump, 6,500 gallon
reservoir and the pump house logated on Lot999; Block 1, Diamond BarEstates.
, All control systems for the previously identified well. and all associated
equipment necessary to maintain and operate the well, which is housed in
the pump house building.
The distribution portion of the system including waterlines serving the lots
within the Subdivision , all existing fire hydrants and all existing water
, services and water meters.
. A portion of the water rights for the existing well as set forth in the Water
System Transfer Agreement.
The monetary assets of the Water System include the billing accounts , accounts
receivable and reserves held for the Water System.
BILL OF SALE PAGE 2
Attachment B
Case No. GNR-O2-
Staff Comments
n')/')1 In'). Dn~o ') ~
.')
Diamond Bar Estates
Revenue Requirement
Year Ended 12/31/2001
(A)(B)
As Filed
Compan
(C) (D) (E)Staff Staff Adj,
Adjustments , Recommendation Ref.
Expenses:
1 Meter Statements 560,(560,00) $(I)
2 Water Testing 500,250,750,(C)
3 Meter Reading 350,(22,00)328,(B)
4 Regulatory Fees (DEQ)120.135,255.(D)
5 Meter Repair & Maint 500,(522,55)977.45 (G)
6 Well Repair & Maint 400.400.
7 Elec & Gas 500,(342,03)157.(F)
8 Maint & Repair 900.158.75)741.(H)
9 Auto Expense 300,12.312.(E)
10 Casual Labor 330,330.
11 Depreciation Exp 994,(771.10)222.(N)
12 Rate Case Expense Amortization 800.800.
13 Insurance 300,300.
14 Postage & Delivery 415,(188.80)226.(A)
15 Bookkeeping/Customer Billing 800.800.
16 Legal Fees 228.228.
17 Management Fees 2,400.2,400.
18 Property Taxes 120,120.
19 Income Taxes 50,(50,00)(P)
20 Total Expenses 567.217.58) $349.
21 Rate Base
As Filed Staff Staff
by Company Adjustments Recommendation
22 Investment in System
23 Generator 500.(2,750.00) $750,(J)
24 New Pump 482,(11 982.00)500.(K)
25 Irrigation Meters 951.951,00)(L)
26 Rate Case Expense 000,000,00)(M)
27 Total 933,(21 683,00) $250.
* Note: Appl had incorrect total of 23 933
28 Less Accumulated Depreciation
29 Generator
30 New Pump
31 Irrigation Meters
32 Net Rate Base
34 Rate of Return
35 Net Operating Income Requirement
36 Gross-up Factor for Income Tax
37 Pre-Tax Revenue Requirement
38 Add Expenses
39 Gross Revenue Requirement
40 Inflation Factor Gross-up
41 Revenue Requirement
196,(98.00)98,(0)
$ 27 731.00 $ 5 152.
* Note: Co. Rate Base Total does not compute
$ 3 882.34
882.
567.
22,449,
122.
618.
754.
349.42
103.
(P)
103.
Attachment C
Case No. GNR-02-
Staff Comments
02/21/03
Diamond Bar Estates Water Co.
PUC Staff Adjustments Worksheet
Assumes 41 Lots Improved and Taking Service
(A)Cust Billing Cost Estimate (Excluding Labor)
No, Cust
Mo, Postage
Materials
Cust Billing Cost Mo,14,
Annual Billing Cost 172.
AlP & Correspondence (Excluding Labor)
Cks(correspondence) Mo.
Postage
Materials
Cost
Annual Cost 54.
Total Postage & Supplies $226.
(B)Meter Reading
Cost per Lot per Read
Number of Lots
Number of Reads per Year
Annual Cost $328.
(C)Water Testing (6 year cycle Normalized)750.
Expense Inciuded in Application 500.
Adjustment $250.
(D)Regulatory Fees
DEO ($5 Customer)205.
PUC (Statutory Minimum)50,
Total $255.
(E)Auto Expense
Round Trip Mileage to Coeur d'Alene
Trips per Year
Total miles 480
1 mile per day to monitor system 365
Total Annual Miles 845
Mileage allowance per Mile
Total Annual Cost $312.
Attachment D
Case No. GNR-02-
Staff Comments
02121/03 Page 1 of 4
Diamond Bar Estates Water Co.
PUC Staff Adjustments Worksheet
Assumes 41 Lots Improved and Taking Service
(F)ElectricPower
Recalculate for 41 Users
Billing Pumphouse Electric
Date Vendor Gas Heat Pumping
Aug-01 Avista 3.28
Kootenai 236,
Sep-01 Avista 3.28
Kootenai 429,
Oct-01 Kootenai 360.
Nov-01 Avista 29,
Kootenai 323,
Dec-01 Avista 75.
Kootenai 116,
Jan-02 Kootenai 79,
Avista 114.
Feb-02 Kootenai 72.
Avista 129.
Mar-02 Kootenai 70.43
Avista 115.47
Apr -02 Kootenai 67.
Avista 69,
May-02 Avista 35.
Kootenai 78.43
Jun-02 Avista 76,
Kootenai 86.
Jul-02 Avista
200.
$656.124.
Actual Consumption (Gallons)939 320
Pump Power Cost / 000 Gal 0.24
Annualized Consumption (41 Customers) (000 Gal.)737
Annualized Pumping System Elec Cost 501.
Add Pumphouse Gas Heat 656.27
Total Annualized Power Cost
Total
236.
429.
360,
29,
323,
75,
116,
79.
114.
72,
129,
70.43
115.47
67.
69.
35.
78.43
76.
86,
200,
$2,780,
157.
Attachment D
Case No. GNR-02-
Staff Comments
02/21/03 Page 2 of 4
Diamond Bar Estates Water Co,
PUC Staff Adjustments Worksheet
Assumes 41 Lots Improved and Taking Service
(G)Meter Repair and Maintenance
As Booked by Company 1,493,
Eliminate Irrigation meter purchase (516,29)
PUC Staff Adjusted Total 977.
(H)Maintenance Exp.
As Booked by Company 900.
Remove Dev. Co. Costs 158,75)
PUG Staff Adjusted Total 741.
(I)Meter Statements Expense
As proposed by Company $560.
Reverse and Remove (560.00)
$0.
(J)Generator Investment
As Proposed by Company 500.
Eliminate 1/2 750,00)
PUG Staff Adjusted Total 750.
(K)New Pump Investment
As Proposed by Company 14,482,
Eliminate Insurance Paid Portion (11 982,00)
PUG Staff Adjusted Total 500.
(L)Meters Investment
As Proposed by Company 951.
Reverse to Remove 951.00)
PUG Staff Adjusted Total
(M)Unamortized Rate Case Expense
As Proposed by Company 000.
Eliminate From Rate Base 000,00)
PUG Staff Adjusted Total
(N)Depreciation Expense
1 Meters As Proposed by Company 74.
Reverse to Remove (74.00)
2 New Pump As Proposed by Company 724.
Eliminate Depreciation on portion
Paid by Insurance ($11 982/20 Years)(599,10)
3 Generator As Proposed by Company 196.
Eliminate 1/2 (98.00)
PUG Staff Adjustment (771.10)
Attachment D
Case No, GNR-02-
Staff Comments
02/21/03 Page 3 of 4
Diamond Bar Estates Water Co,
PUC Staff Adjustments Worksheet
Assumes 41 Lots Improved and Taking Servi8e
(0)Accumulated Depreciation
Generator Proposed by Company 196,
Eliminate 1/2 (98,00)
PUG Staff Adjusted Total 98.
(P)Eliminate Tax Included by Company (50.00)
Substitute Tax Gross-up Calculation
Taxable 100,
State Rate
Subject to Fed Tax 96.4%
Fed Effective Rate (fY 15%14,
After Tax Net Residual 81.
Net to Gross Multiplier 220405175
Attachment D
Case No. GNR-02-
Staff Comments
02/21/03 Page 4 of 4
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OVERVIEW OF TEN CUSTOMERS' WRITTEN COMMENTS
The number beside each item shown below reflects the number of customers who address
that particular issue in their comments. If a customer filed multiple comments on a particular
issue, his or her comments are counted only once. For example, if a customer filed three
comments and objected to the proposed rate design in each comment, his or her comment would
only be counted once as objecting to the rate design. Because customers discussed multiple
issues, the total exceeds ten.
Objects to change from flat fee for irrigation water to a metered rate. (5 of 10)
Objects to developer selling lots based on flat irrigation fee and then changing policy
when development's CC&R's require landscaping. (5 of 10)
Objects to proposed rate increase. (5 of 10)
Found a rate plan like one Staff proposed had merit. (3 of 10)
Pump replacement cost covered by insurance; should not be in rate base. (3 of 10)
Concerned about water pressure if all properties use irrigation; already notices lower
water pressure during irrigation season. (2 of 10)
Request for either another workshop or a hearing before the Commission makes its final
decision. (2 of 10)
Objects to Staff's failure to provide customers its workpapers so customers could make
meaningful comments at workshop. (2 of 10)
The Company s Application said it had 31 water users when there are 38 users, with a
possible 45 when the subdivision is full. (2 of 10)
Mobile generator can work only on the back up well at Rob Turnipseed's due to size of
the generator. Since the generator is mobile and can be used in multiple locations
Diamond Bar customers should not pay for entire cost of generator. (2 of 10)
Cost of electricity overstated. (2 of 10)
Requests that all customers be required to support the water system, including owners of
a vacant lot. (2 of 10)
Objects to unfairness of being billed on a monthly basis when meters aren t read during
winter months. (1 of 10)
Encourages irrigation meters to be read once annually to cut costs. (1 of 10)
Attachment G
Case No, GNR-02-
Staff Comments
02/21/03 Page 1 of 2
Questions the potential for meter error and costs associated with installing and removing
irrigation meters each year. (1 of 10)
Customer thought IPUC Staff was condescending, insulting, and threatening during
workshop discussions. (1 of 10)
Request for Commission to reject the Company s Application and refer it back to the
homeowners association for further consideration. (1 of! 0)
Customer provided water rate comparisons using three local non-regulated water
systems. (1 of 10)
Meter read costs should be based on 8 months only (no reads during winter). (1 of 10)
One customer provided an alternate rate design on disk. (1 of 10)
Attachment G
Case No. GNR-02-
Staff Comments
02/21/03 Page 2 of 2
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 21ST DAY OF FEBRUARY
2003, SERVED THE FOREGOING COMMENTS OF THE COMl\lISSION STAFF
IN CASE NO. GNR-02-, BY MAILING A COpy THEREOF POSTAGE
PREP AID, TO THE FOLLOWING:
DIAMOND BAR ESTATES WATER CO
2953 N GOVERNMENT WAY
COEUR D'ALENE ID 83815
SEC
CERTIFICATE OF SERVICE