19970410Final Order No. 26876.pdf

Office of the Secretary
Service Date
April 10, 1997
BEF'ORE TIIE IDAHO PTIBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
RICKEL WATER COMPAI\TY FOR A CERTI.
FICATE OF PUBLIC COI{VEIYIENCE AI\D
IYECESSITY AI\D TO SET RATES.
CASE NO. GNR.W-96.2
ORDER NO. 26876
On August 7, 1996, the Idaho Public Utilities Commission received an Application from
the Rickel Water Company (Rickel Water; Company) for a Certificate of Public Convenience and
Necessity (Certificate) and to set rates. On September 13, 1996, the Commission issued a Notice of
Application indicating that Commission Staffwould conduct an investigation into the Application. On
January 29, 1997 , the Commission issued a Second Notice of Application after Staff completed the
investigation of Rickel Water. Staffrecommended to the Commission that Rickel Water be issued a
Certificate and 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. No comments were filed in response to the Second Notice. This Order approves the
Certificate and proposed rates and charges.
BACKGROT]T[D
Rickel Water is an Idaho corporation that supplies water to a small group of people near
Athol,Idaho. Rickel Water is owned by Mr.& Mrs. KenRickel and Jerry Rickel. The water system
is located approximately l5 miles north of Coeur d'Alene, Idaho. The Company is currently serving
six customers, including one commercial customer.
This new water system began providing service in October 1995, and began billing
customers on January l, 1996. Rickel Water filed its Application for a Certificate to operate as a
public utility and 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 indicated that all hookups are metered and read between the
first and fifth of the month.
Staffrecommended that the Company's Application for a Certificate be approved and that
the rates and charges currently being charged be approved. Staff believes that based on the data
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1oRDER NO. 26876
currently available the rates and charges appear to be reasonable. Staffalso recommended, because
the Company is relatively new with little background data upon which to base the rates and charges,
that an audit be conducted in approximately one year to measure the reasonableness of the Company's
rates.
FINDINGS
A. The System
The Rickel water system is located approximately 15 miles north of Coeur d'Alene, Idaho
at the intersection of Old Highway 95 and Brunner Road. Presently, the water system is serving six
customers and has the capacity to serve 35 customers. Existing platted lots in the area being served
are approximately ten acres in size with 350 feet to 500 feet of frontage along roads where the water
lines are installed. This water system is interconnected with the Bitterroot Water Company, which
received a certificate from the Commission in December 1995. Bitterroot is the commercial or
wholesale customer of Rickel Water. No other water system is operating in the area served by Rickel
Water.
The Rickel water system was not installed by the real estate developer. The owners
initially drilled a successful well for their own purposes in an area where it is diffrcult to find ground
water. Landowners inthe area bega.r contacting the Rickels seeking connection to the Rickel's well.
The Rickels cooperated and have installed nearly two miles of main line. They have been charging
customers $5,000 to $6,000 to connect to the system as a reimbursement for their costs. The well is
447 feet deep and has a 25-horsepower motor pump, capable of producing 127 gallons of water per
minute.
As of June 30, 1996, the Rickels had 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. Rickel Water also
provides water to the Bitterroot Water Company system through an interconnection. Bitterroot is
charged $.04 per hundred gallons for this water. A meter at the well measures the amount of water
pumped and Bitterroot is charged the amount in excess of the total readings of Rickel Water's
residential customers.
Staff believes it is in the best interest of the current and future customers for the
Commission to issue a Certificate and take regulatory jurisdiction of this company as a public utility.
oRDER NO. 26876 -2-
Staffbelieves that the Rickel water system is an adequate system, is well engineered, and provides a
good source of water. No other utility is serving the area.
B. Revenue Requirement and Operating Expenses
According to Stafl Rickel Water, as a new company has few historical records from wtrich
to develop revenue requirements or rates. Attachment 1 is a comparative balance sheet for
December 31,1995 and June 30, 1996. Those balance sheets show that Rickel Water is recognizing
connection fees as contributions in aid of construction. Attachment 2 is a comparative income and
cash-flow statement for Rickel Water for the year ended December 3 I , 1995 and the six months ending
June 30, 1996. The Company did not begin billing customers until November 1995. As shown on
Attachment 2,the only expenses recognized are direct out-of-pocket expenses of the Rickels.
Rule 103 of the Commission Rules for Small Water Companies, IDAPA 31.36.01.103,
establishes a presumption that capital investment in plant associated with a new system is contributed
capital and therefore will be excluded from rate base. Staffexplains that Rule 103 is premised on the
assumption that the cost of a developer installed system is 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. However, the
owners have collected connection fees of $5,000 to $6,000 from landowners who are or want to be
connected to the system. These connection fees are similar to contributions toward the cost of
backbone plant the Commission has authorized for other utility companies. Simply stated, these fees
seem to generally reflect actual per customer cost of installing the backbone system. Given the history
of unsuccessful wells in the area, the individual property owners may not be able to furd water on their
property. Staffbelieves these fees are reasonable given the size of the lots being developed in the
service area and the cost of drilling individual wells.
As shown on Attachment 1, the Company has invested $150,287.21 in its total plant in
service. It has collected connection fees of $60,454.72 and recognizednet depreciation (accumulated
depreciation less accumulated amortization of contributions) of $1,746.57. The Company will have
to install additional transmission lines in order to provide service to the total potential of 35 customers.
The Company's current net plant investnent of $88,085.82 represents significant over capacity for the
number of customers currently taking service and should be considered plant held for future use. The
oRDER NO. 26876 a-J-
connection 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 are connected. Staff
recommends recognizing no rate base for this Company and basing rates only upon reasonable
operating costs including compensation to the owners for operating and managing the system.
Attachment 2 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. 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.
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 because the Company intends to collect connection contributions suffrcient 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 actually in service but has excess unused capacrty. Staff believes 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 Staffexpects water testing expenses
to average in the neighborhood of $500 to $700 per year as compared with the minimal $64.19
recorded in the frst six months of 1996. Staffindicated that the majority of water testing has been
provided through the Bitterroot system, which will be seeking reimbursement.
In sum, Staffadvises that because this system is new, it is difficult to calculate a revenue
requirement from the minimal history of the Company. Staffproposes that the revenue requirement
be based on reasonable operating costs, including compensation to the owners for operating and
managing the system.
C. 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. Although suffrcient data is not yet available
oRDER NO. 26876 -4-
to perform a detailed financial analysis, Staffhas reviewed the data available and indicates that the
rates the Company is currently charging are reasonable and do not provide the Company with excess
eamings. Staffhas worked with the Company to establish an accounting system that meets the needs
of a regulated utility and expects more detailed records to be available in the future. Staffintends to
audit the Company in approximately one year to check the reasonableness of the rates.
D. 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 that 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.
Asprescribed inthe CustomerRelations Rules,IDAPA 31.21.01.007, the utility mustmake
available to its customers a sunmary of the Commission's rules 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. Rickel Water, as a regulated utility, must comply with all Commission rules
regarding customer relations.
ULTIMATE FII\IDINGS OF FACT AI\[D CONCLUSIONS OF LAW
Idaho Code $$ 6l-526-528 and Rules 111-113 of the Idaho Public Utilities Commission
Rules of Procedure,IDAPA 31.01.01, provide the guidelines for issuance of a Certificate of Public
Convenience and Necessity. Idaho Code $ 6l-526 specifies that there must be a present or future
public need for the seruice, and that the territory for service by the utility must not already be served
by another utility or that existing service is inadequate. Idaho Code $ 6l-528 provides that the
Commission review the utility's financial ability and good faith ability to construct and maintain the
system.
ORDER NO. 26876 5
Rickel Water is a public utility pursuant to ldaho Code $$ 6l-125 arrd6l-129. We find
thatthe Rickel water system is an adequate system. It is well engineered, has a good source of water,
and the ability to deliver water to the customers. There is no other water utility presently serving the
area and there is a present and public need for water service. Rickel Water has the good faith and
financial ability to operate the Company. We grant Rickel Water's Application for a Certificate of
Public Convenience and Necessity.
Idaho Code $fi 6l-301 and 6l-307 require that the Commission establish just and
reasonable rates for each utility. The Commission's Rules for Small Water Companies, IDAPA
31.36.01, generally state that capital investrnent in plant will be excluded from rate base. Rule 103,
"Presumption of Contributed Capital," is premised on the assumption that the costs 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. Because the owners of this system are not developers of the real
estate within the service are4 the cost of the capital investment in the water system has not and will
not be recovered through the sale of lots. To recover the cost of the capital invesbnent, Staff
recommends approval of a connection fee of $6,000 to connect to the system. We agree with Staffs
recommendation and find that the new service connection fee of $6,000 is reasonable.
As the connection fee is intended to reimburse the system owners for their full investment
in the capital investnent and because Rickel Water is a small new water company, Staffrecommends
recognizing no rate base for the Company. We adopt Staffs recommendation and find that there is
no rate base at this time for Rickel Water. We also adopt Staffs recommendation to calculate rates
based on reasonable operating costs, includrng compensation to the owners for operating and managing
the system. We find this to be reasonable because Rickel Water is a new company with very little data
available for use, and also because the Staffwill audit to confirm the reasonableness of these rates after
one year. We further find that the rates of $30 per month plus $ 1 . 10 per thousand gallons over 15,000
gallons per month are designed to recover the revenue requirement established and are fair, just,
reasonable and nondiscrim inatory.
ORDERNO. 26876 -6-
ORDER
IT IS HEREBY ORDERED that Rickel Water's Application for a Certificate of Public
Convenience and Necessity is approved.
IT IS FURTI{ER ORDERED that Rickel Water file tariffs of rates and charges in
compliance with the terms of this Order no later than 30 days from the service date of this Order.
IT IS FURTHER ORDERED that Rickel Water file tariffs that incorporate the
Commission's Rules and Regulations as required by law and in compliance with this Order.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this Case No. GNR-W-96-2
may petition for reconsideration within twenty-one (21) days of the service date of this Order with
regard to any matter decided in this Order or in interlocutory Orders previously issued in this Case
No. GNR-W-96-2. Within seven (7) days after any person has petitioned for reconsideration, any
other person may cross-petition for reconsideration. See Idaho Code $ 6l-626.
oRDER NO. 26876 -7-
DONE by Order of the Idatro Public Utilities Commission at Boise, Idaho thrs ta Z,{-
day of April1997.
RALPH PRESIDENT
H. SMITH, COMMSSIONER
COMMISSIONER
ATTEST:
a
s
4r,r-*C/*a.*'
Myna J. Walt€rs
Commissisa Secretary
vld/O:G.IR-trr-9G2.sh
oRDERNO. 26876 -8-
ACCOUNT
t3l
l4l
t74
r0l
301
303
304
307
3lr
331
334
r08
27t
272
231
232
236
201
2t5
DESCRIPTION
BALANCE SHEET
Cash in Bank
Cust Accts Receivable
Connection Fees Receivable
PLANT IN SERVICE
Organization
Land & Land Rights
Stnrcnres & Improvements
Wells
Pumping Equipment
Transmission/Disribution Mains
Meters & Installations
Total Plant in Service
Accumulated Depreciation & Amortization
Contributions in Aid of Constnrction
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,M1.67,
2,952.00
$1s0287.2r
(3,214.57)
(60,454.72)
1,468.00
JUNE 30. 1996 DEC.31.1995
$1,863.64
60.00
4,000.00
$ r 46.t3
0.00
0.00
s2.097.96
39.00
6.444.56
54,380.00
4,568.87
45,996.67
2,952.00
116,479.06
(1,525.64)
(53,354.84)
672.00
62270.58
$62.4r6.8r
(20.00)
(68,429.91)
6.033. t0
($62.416.8r )
88,0E5.92
$94.009.56
(s28,418.15)
(5,000.00)
(10.00)
(68,429.91)
7,848.50
l$t400er6)
ATTACHMENT 1
RICKEL WATER CO.
INCOME STATEMENT
6 months Ended
June 30, 1996
12 Months Ended
Dec. 31. 1995ACCOUNT
461
46L
401
DESCRIPTION
REVENUE
Resedential Sales Rerrenue
Commercial Sale.s Revenue
Total Revenrc
OPERATION & IVIAINTENANCE E)(P.
615 Pumping Power
618 Chemicals
620 Snpplies
630 Contract Outside Services
655 Insurance
675 Misc. Experues (lncludes Warcr Tesing)
Toal Operarion and Maintenance Exp
Depreciation Expense (nefof Contrib. Amort)
Income Ta,x Expense
Non- Utility Income
NET INCOME
Cash Flow
$9r8.30
30/..37
st252.67
$1,065.14
E92.93
10.00
0.00
($7rs.40)
_,llzzs3-
$0.00
0.00
s0.00
$8r6.46
853.64
20.00
($r.690.10)
(s836.45)
$35r.59
0.0b
t0.51
100.00
468.E5
u.r9
$293.98
54.33
331.15
r37.00
403
409
42t
ATTACHMENT 2