19970129Second Notice of Application.pdf

Office of the Secretary
Service Date
January 29,1997
BEFORE THE IDAIIO PTIBLIC UTILITIES COMMISSION
IN TIIE MATTER OF TIIE APPLICATION OF
RICKEL WATER COMPAI\-Y F'OR A CERTI.
I'ICATE OF PUBLIC COITVENIENCE AI\ID
NECESSITY AI\D TO SET RATES.
cAsE NO. GI\IR-W-96-2
SECOND NOTICE
OF APPLICATION
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NOTICE OF MODIX'IED
PROCEDTJRE
YOU ARE IIEREBY NOTIFIED ttrat on August 7,1996, Rickel Water Company filed
an Application for a Certificate of Public Convenience and Necessity (Certificate) and to set rates.
Rickel Water Company is an Idalro corporation that supplies water to a small group of people near
Athol, Idaho. The water system is located approximately 15 miles north of Coeur d'Alene,Idaho
at the intersection of Old Highway 95 and Brunner Road. Presently, 6 customers are being served
by the water system with a capacrty to serve 35 customers. This system is a new water system that
began providing service in October 1995, and began the first billing to customers on January l,
7996. Rickel Water Company has proposed a rate of $30 per month (including 15,000 gallons of
water) plus a charge of $1.10 per thousand gallons in excess of 15,000 gallons per month. The
Company also proposed a hookup fee of $6,000. The Application indicates that all hookups are
metered and read between the first and the fifth of the month.
YOU ARE FURTHERED NOTIFIED that on September 13,1996, the Commission
issued a Notice of Application indicating that ttre Commission has received the Application and the
Commission Staffwould conduct an investigation and audit on the Certificate and proposed rates.
YOU ARE FURTIIERED NOTIFIED that the Commission Staffhas completed the audit
and investigation of the Rickel water system and has filed its report with the Commission. See
Attached Report. Staffrecommends thatthe Company's Application for a Certificate be approved
and that the rates and charges currently being charged be approved. Statrbelieves that based on the
SECOND NOTICE OF APPLICATION
NOTICE OF MODIFIED PROCEDURE 1
data currently available the rates and charges appear to be reasonable. Staffalso recommends that
because the Company is relatively new with little background data to base the rates and charges that
an audit be conducted in approximately one year to measure the reasonableness of the Company's
rates.
YOU ARE FURTIIERED NOTIFIED that the Commission now intends to detennine
whether Rickel Water Company should be issued a Certificate of Public Convenience and Necessity
and, if so, to set rates for water service. The Commission is considering the proposed rate of $30 per
month (including 15,000 gallons of water) plus a charge of $1.10 per thousand gallons in excess of
15,000 gallons per month and a $6,000 hookup fee for new customers.
YOU ARE FURTIIER NOTIFIED tl:rrt ldaho Code $$ 6l-526 to -528 provides that the
Commission must find that the applicant has the financial ability and that there is a need for water
service to issue a Certificate to the Company to operate as apublic utility. Idaho Code $$ 61-301
and 6l-307 provides that the Commission establish just and reasonable rates for each public utility.
Idaho Code $ 61-503 states the Commission shall have the power to investigate rate or schedules
of rates and to establish new rates of any public utility.
YOU ARE FURTHER NOTIFIED that the Commission has reviewed the filings of
record in Case No. GNR-W-96-2. The Commission has preliminarily determined that the public
interest may not require a hearing to consider the issues presented and that the issues raised by the
Application may be processed under Modified Procedure, i.e., by written submission rather than
by hearing. Reference Commission Rules of Procedure,IDAPA 31.01.01.201-.204.
YOU ARE FURTI{ERNOTIFIED that the Commission may not hold a hearing in this
proceeding unless it receives written protests or comments opposing the use of Modified Procedure
and stating why Modified Procedure should not be used. Reference IDAPA 31.01.01.203.
YOU ARE FURTHERNOTIFIED that any person desiring to state a position on this
Application may file a written comment in support or opposition with the Commission within
twenty-one (21) days from the date ofthis Notice. The comment must contain a statement ofreasons
supporting the comment. Persons desiring a hearing must specifically request a hearing in their
written comments.
SECOND NOTICE OF APPLICATION
NOTICE OF MODIFIED PROCEDURE -2-
YOU ARE FURTHERNOIFIED that if no written comments or protests are received
within the deadline, the Commission will consider the matter on its merits and enter its Order
without a formal hearing. If comments or protests are filed within the deadline, the Commission will
consider them and in its discretion may set the matter for hearing or may decide the matter and issue
its Order on the basis of the written positions before it. Reference IDAPA 3 1 .0 I .01 .204.
YOU ARE FURTHER NOTIFIED that written comments concerning Case No. GNR-W-
96-2 should be mailed to the Commission and the Company at the addresses reflected below:
COMMISSION SECRETARY
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, TDAHO 83720-0074
RICKEL WATER COMPANY
PO BOX 1261
HAYDEN LAKE, ID 83835
Street Address for Express Mail:
472W WASHINGTON ST
BOISE, IDAHO 83702-5983
All comments should contain the case caption and case number shown on the first page of this
document.
YOU ARE FURTIIER NOTIFIED that Rickel's Application and supporting documents
have been filed with the Commission and are available for public inspection during regular business
hours atthe Commission office. Idaho Code $ 6l-528. The Application is also available at Rickel
Water Company, located at Mile 445, Highway 95 North, Hayden Lake, Idaho.
YOU ARE FURTHERNOTIFIED ttrat all proceedings in this case will be held pursuant
to the Commission's jurisdiction under Title 6l of the Idaho Code and that the Commission may
enter any final Order consistent with its authority under Title 61.
YOU ARE FURTHERNOTIFIED that all proceedings inthis matter will be conducted
pursuant to the Commission's Rules of Procedure,IDAPA 31.01.01 .000 et seq.
SECOND NOTICE OF APPLICATION
NOTICE OF MODIFIED PROCEDURE -J-
DATED atBoise,Idaho this ,AB zz day of January 1997.
MyrnaJ. Walters
Commission Secrretary
vld/![d[.lR-f,i-96-2.dr3
SECOND NOTICE OF APPLICATION
NOTICE OF MODIFIED PROCEDI,'RE 4-
RICKEL WATER COMPAIYY
CASE NO. GNR-W.96-2
IDAHO PUBLIC UTILITIES COMMISSION
STAIIII REPORT
Prepared by:
Robert E. Smith, Auditor
Ilonald M. Oliason, Engineer
&
Rose Schulte, Compliance Investigator
ATTACHMENT
IPUC STAFF ANALYSIS
OF
RICKEL WATER COMPAIYY
INTRODUCTION
The Idatro Public Utilities Commission (Commission) received an application from the Rickel
Water Company (Company) for a certificate of Public Convenience and Necessity on August 7,
1996. On September 13, 1996 the Commission issued a notice of application indicating that the
Staffof the Commission (Staff) would conduct an investigation into the application. The
Company is an Idaho Corporation that has filed an election as an S Corporation for income ta:r
purposes. The owners are Mr. & Mrs. Ken Rickel and Jerry Rickel.
The water distribution system is located in portions of Sections 28,29,32 and 33, Township 53
North, Range 3 West, Boise MeridiarU Kootenai County,Idaho. The location is approximately
15 miles north of Coeur d'Alene at the intersection of OId U.S. Highway 95 and Bnumer Road.
The Company is currently serving six customers, including one commercial customer, and
estimates it has the capability of serving 35. Existing platted lots in the area being served are all
approximately ten (10) acres in size with 350'to 500'of frontage along roads where the water
lines are installed. This water system is interconnected with the Bitterroot Water Co. to whom
the Commission issued a certificate in December of 1995. Bitterroot is the commercial customer
of Rickel Water. No other water system is operating in the area served by Rickel. Staffbelieves
it is in the best interest of the current and futtre customers for the Commission to issue a
certificate and take regulatory jurisdiction of this company as a public utility.
Unlike the Bitterroot system, this water system was not installed by the developer of real estate.
The owners initially drilled a successful well for their own purposes in an area where it is
difficult to find ground water. Land owners in the area began contacting the Rickels seeking
corurection to the Rickel's well. The Rickels cooperated and have installed nearly trvo miles of
main line. They have been charging customers $5,000 to $6,000 to connect to the system as a
reimbursement fortheir costs. The well is447'deep with a 25 horsepower motor capable of
producing 127 gallons of water per minute.
As of June 30,1996 the Rickels have invested approximately $150,000 in the well and
distribution system. They have collected connection fees of approximately $60,500 for
connections to eleven acreages and are currently providing water service to six customers. They
also provide water to the Bitterroot Water Co. system through the interconnection. Bittenoot is
charged $.04 per hundred gallons for this water and is treated as a commercial customer by
Rickel Water. A meter at the well is read and Bitterroot is charged for the amount of water
pumped that exceeds the total readings of Rickel's residential customers. This arrangement
could create a potential overcharge to Bitterroot if a leak occurs in the Rickel system that goes
undetected for a period of time.
ISTAFF ANALYSIS JANUARY 24,1997
At the time the Bittenoot system was approved, the Staffexpressed some concern regarding the
interconnection of these two systems. Th. iot r.onnection and use of some of the Rickel
transmission main by Bittenoot makes the two systems practically indistinguishable from an
operating perspective. We still have these concens.
Exhibit No. l0l attached is a comparative balance sheet for December 31, 1995 and June 30,
1996. These balance sheets were prepared using data from Rickel's Accountant, Mr. Donald
Brown, and verified by reviewing the source documentation maintained by Mrs. Cathy Rickel.
Those balance sheets show that the Rickels are recognizing the cormection fees as contributions
in aid of construction.
Exhibit No. 102 attached is a comparative income and cash-flow statement for Rickel Water for
the year ended December 31, 1995 and the six months ended June 30, 1996. The Company did
not begin billing customers until November of 1995. As shown on this exhibit, the only
expenses recognized are direct out-of-pocket expenses of the Rickels. No expenses have been
recognized for the labor of the owners to maintain and operate the water system. The revenue
requirement for this system cannot be directly calculated from the minimal history of this
company.
RATE BASE
Staffs interpretation of Commission Rule No. 103 (IDAPA 31.36.01103) is that this rule is
premised on the assumption that the cost of developer installed systems are recovered through
the sale of lots and the buyer is aware that water is available to the lot at the time of purchase.
As discussed above, the owners of this system are not developers of the real estate within the
service area. Therefore, Commission Rule No. 103 regarding the assumption of contributed
capital is not applicable in this case. However, the owners have collected connection fees of
$5,000 to $6,000 from land owners who are or want to be connected to this system. These
connection fees are similar to contributions toward the cost of backbone plant the Commission
has authorizndfor other utility companies. Simply stated, these fees seem to generally reflect
actual per customer cost of installing the backbone system. Staffbelieves these fees are not
unreasonable given the size of the lots being developed in the service area and the cost of drilling
individual wells. Given the history in the area of drilling unsuccessful wells, the individual
property owners may not even be able to find water on their property.
As shown on Exhibit No. 101, the Company has invested $150,287.21 in is physical plant. It
has collected corurection fees of $60,454.72 and recognized net depreciation (Accumulated
depreciation less accumulated amortization of contributions) of $1,746.57. The Company will
have to install additional tansmission lines in order to provide service to the total potential of 35
customers. The Company's current net plant investrnent of $88,085.82 represents significant
over capacity for the number of customer currently taking service and should be considered plant
held for future use. The cormection fees of $6,000 represent a buy-in by new customers intended
to reimburse the system owners for their full investment in the plant assets when all 35 customers
2STAFF ANALYSIS JAI.,IUARY 24,1997
are connected. Therefore, the Staffrecommendation is to recognize no rate base for this
Company and base rates only upon reasonable operating cost including compensation to the
owners for their labor operating and managing the system.
OPERATION AI\ID MAINTENANCE EXPENSES
Exhibit No. 102 shows that the Company has been operating at a loss during its short history.
The Company realized a $715.40 loss for the six months ended June 30, 1996. This loss was
realized even without any provision for compensation to the Rickels for their direct labor in
managing and operating the Company.
Depreciation expense of $892.93 contributed significantly to this loss. The depreciation expense
is calculated on all of the plant-in-service then reduced to recognize amortization of contributions
received from customers. Staffhas some concern regarding the inclusion of depreciation
expense since ultimately the Company intends to collect connection contributions sufficient to
offset the full cost of plant. Conceivably the net plant balance (cost less contributions) could be
considered plant held for future use not subject to a depreciation allowance. However. most if
not all of the existing plant is acttrally in service but has excess unutilized capacity. We believe
some provision for compensation to the owners for their labor would offset the removal of
depreciation expense.
The remaining expenses are all quite low. Over time we would expect water testing expenses to
average in the neighborhood of $500 to $700 per year as compared to the minimal $64.19
recorded in the first 6 months of 1996. We understand that the majority of water testing has been
provided through the Bitterroot system who will be seeking reimbursement.
RATES
The Company is currently charging its customers $30 per month for the first 15,000 gallons of
use plus $1.10 per thousand in excess of 15,000 gallons. Suffrcient data is not yet available for
this water system to perform a detailed financial analysis for the purpose of determining revenue
requirement or establishing permanent rates. However, our review of the data that is available
indicates that the rates the Company is currently charging do not provide the Company with
excess earnings.
Staff has worked with the Company and its accountant to establish an accounting system that
meets the needs of a regulated utility. The Company has been very cooperative and we believe
adequate records will be available in the future.
We recommend that the Commission issue a certificate to the Company and approve its current
rates. Staffwill review the adequacy of the rates and the Company's results of operations in
1998 based upon the 1997 year where adequate documentation should be available.
3STAFF A].{ALYSIS JANUARY 24,1997
CUSTOMER RELATIONS
The Commission's Rules and Regulations on Customer Relations apply to all public utilities in
Idatro. These rules prescribe the terms and conditions for the customer to receive service. The
rules speciff ttrat the utility is required to adopt the policies and practices including deposits,
disconnections and billings in accordance with Commission standards. The utility is also
required to file its rate schedules, line extension policies and general service provisions with the
Commission for approval. Together, the rules and tariffs establish rights and responsibilities of
both the company and its customers.
As prescribed in the Customer Relations Rules,IDAPA 31.21.01.07, the utility must make
available to its customers a summary of the Commission's rules and regulations and the
Company's general service provisions. The summary will be provided to customers at least once
each year and presented to each new customer upon commencement of service. Consumer Staff
is available to the Company for assistance in designing documents and information to send to its
customers in compliance with the Customer Relations rules and regulations.
Submitted,
*
Robert E. Smith, Auditor
Rose Schulte,
M.
u:\bsmith\wpfi lesVickcl\rcport.wpd
4STAFF ANALYSIS JAI{UARY 24,1997
ACCOUNT
l3l
l4l
t74
l0l
108
271
272
231
232
236
20t
2t5
DESCRIPTION
BALANCE SHEET
Cash in Bank
Cust Accts Receivable
Connection Fees Receivable
PLANT IN SERVICE
301 Organization
303 Land & Land Rights
304 Stnrctures & Improvements
307 Wells
3l I Pumping Equipment
33 I Transmission/Distribution Mains
334 Meters & Installations
Total Plant in Service
Accumulated Depreciation & Amortization
Contributions in Aid of Construction
Accumulated Amortization of CIAC
Net Plant in Service
TOTAL NET ASSETS
Accounts Payable- Rickels
Notes Payable - Rickels
Accrued Income Tax
Common Stock Issued
Retained Earnings
TOTAL LIABILITIES AND CAPITAL
RICKEL WATER CO
BALANCE SHEET
$2,097.96
5,094.00
10,569.56
54,380.00
7,152.02
68,041.67
2,952.00
$150,287.21
(3,214.57)
(60,454.72)
1,469.00
JUNE 30. 1996 DEC.31,1995
$1,863.64
60.00
4,000.00
88,085.92
$94.009.s6
($28,418.15)
(5,000.00)
(10.00)
(68,429.91)
7 848.50
G9LAq9l6)
s2,097.96
39.00
6,444.56
54,380.00
4,568.87
45,996.67
2,952.00
tt6,479.06
(t,525.64)
(53,354.84)
672.00
$r46.23
0.00
0.00
62,270.59
$62,416.81
(20.00)
(68,429.9t\
6,033.10
G62J16.8_!)
ExhibitNo. l0l
RICKEL WATER CO.
INCOME STATEMENT
DESCRIPTION
6 months Ended
June 30, 1996
12 Months Ended
Dec.3l, 1995ACCOI.JNT
46t
46r
40t
REVENUE
Resedential Sales Revenue
Commercial Sales Revenue
Total Revenue
OPERATION & MAINTENA}.ICE EXP.
615 Pumping Power
618 Chemicals
620 Supplies
630 Contact Outside Services
655 Insurance
675 Misc. Expenses (Includes Water Testing)
Total Operation and Maintenance Exp
Depreciation Expense (net of Contrib. Amort)
Income Tax Expense
Non- Utility Income
NET INCOME
Cash Flow
$948.30
304.37
91,252.67
s1,065.14
892.93
10.00
0.00
__l$7!5.4A)
sr77.s3
$0.00
0.00
$0.00
$816.46
8s3.64
20.00
_l$1,699.1CI
---GES,46)
$351.59
0.00
80.51
100.00
468.85
64.19
$293.98
54.33
331 .15
137.00
403
409
421
ExhibitNo. 102