19970227Decision Memo.pdf

DECISION MEMORANDUM
TO COMN{ISSIONER NELSON
COMMISSIONER SMITH
COMMISSIONER HANSEN
MYRNA WALTERS
STEPHAIIIE MILLER
TOI\TYA CLARK
DAVE SCHUNKE
TERRI CARLOCK
DON HOWELL
ROSE SCHULTE
DON OLIASON
DAVID SCOTT
WORKING FILE
F'ROM:SUSAN HAMLIN
BOB SMITH
DATE: FEBRUARY 27,1997
RE:CASE NO. GNR-W-96-2; APPLICATION OF RICKEL WATER CO.;
X'INAL ORDER IINDER MODIFIED PROCEDURE.
Rickel Water Company (Rickel or Company) is a small new water company that provides
water to homeowners near the intersections of Old U.S. Highway 95 and Brunner Road
approximately l5 miles north of Coeur d'Alene. The water distribution system is located in
portions of Sections 28,29,32,and 33, Township 53 North, Range 3 West, Boise Meridian,
Kootenai County,Idaho. The Company currently serves six residential customers and estimates
its total potential is 35. Customers on this system are located on acreages of approximately ten
acres each. The owners of the water system are not developers of real estate within the
boundaries ofthe service area.
On August 7,1996, Rickel Water frled an application for a Certificate of Public
Convenience and Necessity and to set rates. The Commission issued a Notice of Application on
September 13,1996 addressing the Certificate of Public Convenience and Necessity. The notice
also indicated that the Commission would issue a notice of Staff s recommendations for
comment following completion of an audit.
IDECISION MEMORANDUM FEBRUARY 27,1997
The Staffcompleted its audit and report (copy attached) on this system and recommended
that the Company's application for a certificate be approved. The Staff further recommended
that the rates and charges currently being charged be approved. Those rates provide for a charge
of $30 per month (including 15,000 gallons of water) plus a charge of $ I .10 per thousand gallons
in excess of 15,000 gallons per month. Stafffurther recoflrmended that the Company's proposal
to collect a $6,000 contribution toward the construction cost of the backbone plant from each
property owner requesting service be approved. The existing customers have all paid this
backbone contribution. In addition, the Company provides water through an interconnection to
Bitterroot Water Company. Bitterroot Water Company is charged $.04 per hundred gallons of
water delivered into its system. Although Staff has some concerns regarding this interconnection
arrangement, the wholesale water rate does not appear to be unreasonable.
Staff made these recommendations because this is a new company with little historical
data upon which to base a rate recommendation. The Company has been cooperative and the
data that is available indicates that the rates and charges appear to be reasonable. Stafffurther
proposes to conduct an audit in 1998 based upon the calendar year 1997 which should provide
more detailed data upon which to measure the reasonableness of the Company's rates. Staff
recommended the Commission issue a notice of modified procedure with a 2l-day comment
period.
On January 29,1997 the Commission issued its Second Notice of Application and Notice
of Modified Procedure in this case. Attached to the notice was a copy of StafFs analysis and
recommendations in this case. Copies of the Notice and attached StaffAnalysis were provided to
the Company and each of its customers. The comment period expired on February 19, 1997. No
comments, other than the Staff report, have been filed in the case.
COMMISSION DECISION
Does the Commission wish to:
l. Issue a certificate and approve the rates as proposed by Staffl
2. Something else?
Bob Smith
u : wpfiles/bsmith/rickle I gnrw9 62 I decmem. feb
2DECISION MEMORANDUM FEBRUARY 27,1997
RICKEL WATERCOMPAI\"Y
CASE NO. GNR.W-96.2
IDAHO PUBLIC UTILITIES COMMISSION
STAFF REPORT
Prepared by:
Robert E. Smith, Auditor
Donald M. Oliason, Engineer
&
Rose Schulte, Compliance Investigator
IPUC STAFF ANALYSN
OF
RICKEL WATER COMPANY
INTRODUCTION
The Idaho 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 (Stafl) would conduct an investigation into the application. The
Company is an Idatro Corporation that has filed an election as an S Corporation for income tax
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 Meridian, Kootenai County,Idatro. The location is approximately
l5 miles north of Coeur d'Alene at the intersection of Old U.S. Highway 95 and Brunner 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. Staff believes
it is in the best interest of the current and futue 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
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' 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. Bitterroot 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 Bitterroot system was approved, the Staffexpressed some concern regarding the
interconnection of these two systems. iire interconnection 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 concerns.
Exhibit No. 101 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 connection 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
StafPs 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 authorized for other utility companies. Simply stated, these fees seem to generally reflect
actual per customer cost of installing the backbone system. Staff believes 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 its physical plant. It
has collected connection 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 transmission lines in order to provide service to the total potential of 35
customers. The Company's current net plant investment 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 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
2STAFF A}.IALYSIS JA}IUARY 24,1997
are connected. Therefore, the Staffrecommendation is to recognizeno 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 AIYD MAINTENAI\CE 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 actually 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 $ I .10 per thousand in excess of 15,000 gallons. Sufficient 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.
JSTAFF ANALYSIS JANUARY 24,1997
CUSTOMER RELATIONS
The Commission's Rules and Regulations on Customer Relations apply to all public utilities in
Idaho. 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.
As prescribed in the Customer Relations Rules, IDAPA 31.21.01.07, the utility must make
available to its customers a sunmary 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,
{--z'
Robert E. Smith, Auditor
Rose Schulte,
M.
ulbsmith\wpfi lesVickel\report.wpd
4STAFF ANALYSIS JA}IUARY 24,1997
ACCOUNT
l3l
t4l
174
l0l
108
271
272
231
232
236
201
2t5
DESCRIPTION
BALANCE SHEET
Cash in Bank
Cust Accts Receivable
Connection Fees Receivable
PLANT IN SERVICE
301 Organization
303 Land & Land Rights
304 Stnrctures & lmprovements
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 lncome Tal(
Common Stock Issued
Retained Earnings
TOTAL LIABILITIES AND CAPITAL
RICKEL WATER CO
BA]3NCE SHEET
s2,097.96
5,094.00
10,569.56
54,380.00
7,152.02
68,041.67
2,952.00
$t50,287.21
(3,2t4.57)
(60,454.72)
1,468.00
JUNE 30. 1996 DEC. 31. 1995
$1,863.64
60.00
4,000.00
88,085.92
s2,097.96
39.00
6,444.56
54,380.00
4,568.87
45,996.67
2,952.00
116,479.06
(t,525.64)
(53,354.84)
672.00
$r46.23
0.00
0.00
62,270.58
$62,416.81
(20.00)
(68,429.91)
6,033.10
($62.416.81)
$94,009.56
($28,418.15)
(5,000.00)
(r 0.00)
(68,429.91)
7.848.s0
($94.009.56)
ExhibitNo. l0l
RICKEL WATER CO.
INCOME STATEMENT
DESCRIPTION
6 months Ended
June 30, 1996
12 Months Ended
Dec. 3I, 1995ACCOUNT
46t
461
401
403
409
42r
REVENUE
Resedential Sales Revenue
Commercial Sales Revenue
Total Revenue
OPERATION & MAINTENANCE EXP.
615 Pumping Power
618 Chemicals
620 Supplies
630 Contract 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
$1,252.67
$948.30
304.37
$0.00
0.00
$0.00
$816.46
853.64
20.00
($1,690.10)
(s836.46)
$351.s9
0.00
80.51
100.00
468.85
64.19
$293.98
54.33
331 .15
r37.00
$1,065.14
892.93
10.00
0.00
($71s.40)
s177.53
ExhibitNo. 102