990723_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
DON HOWELL
STEPHANIE MILLER
TONYA CLARK
RON LAW
RANDY LOBB
GEORGE FINK
BOB SMITH
MARGE MAXWELL
WORKING FILE

FROM:

DATE: July 23, 1999

RE: CASE NO. GNR-W-97-1 (Grouse Point Water Company)
CERTIFICATE APPLICATION / RATES

On July 23, 1997, Walt Wanner, President of Statewide Construction, Inc. filed an Application on behalf of Grouse Point Water Company LLC (Company; Grouse Point) for a Certificate of Public Convenience and Necessity to serve the Grouse Point Subdivision in Ada County, Idaho. Reference Application, Attachment 4, Legal Description and Maps of Subdivision and Service area; Idaho Code 61-526; Commission Rules of Procedure, IDAPA 31.01.01.111. The Grouse Point Subdivision, consisting of 24 lots in varied states of development, is located on the east side of Cloverdale Road about one-quarter mile south of Hubbard Road and just north of the New York Canal.
Presently, domestic water service, which commenced November 1996, is provided to Grouse Point customers at a flat rate of $20 per month. No connection fees are collected. Operation and maintenance services are provided under contract by EM, a United Water Idaho Inc. affiliate. All system costs have been paid and there are no liens or encumbrances.
Regulatory proceedings in Case No. GNR-W-97-1 were informally suspended at the request of Grouse Point to provide the Company with the opportunity to negotiate for the sale and purchase of the system. Negotiations did not result in a sale. The Company requested that the Commission proceed with processing its Certificate Application contending that issuance of the requested Certificate was required by and consistent with the Public Convenience and Necessity.
On December 1, 1998, a Notice of Application in Case No. GNR-W-97-1 was issued by the Commission. On April 26, 1999, the Commission Staff filed a report with the Commission setting forth the results of its investigation and recommendations. In its report Staff discusses the service area, the water supply system, the operation of the system, accounting and financials, and rate design.
Staff Recommendation
Staff recommends issuance of a Certificate to Grouse Point with the service territory limited to currently developed property and adjoining well sites. Staff notes that the existing water supply has present excess capacity, which may be used to support the Company’s plans for future expansion. Staff recommends approval of the requested $20/month flat rate, but indicates that budget estimates and operating expense for 24 customers would support a higher $28 per month rate. Mr. Walt Wanner, the owner of the Grouse Point Water Company, has reviewed Staff’s report and concurs with its assessment and recommendations.

Staff Analysis
The Grouse Point well system, Staff contends, may be considered a state of the art system. The Company had assistance from United Water Idaho Inc. technical personnel in the design of the system. The system has 2 wells equipped with a soft-start variable speed pump and electronic controllers to continually match pumping capacity with system demands. The No. 1 well has a 15 horsepower pump and is rated at 138 gallons per minute (gpm). The No. 2 well has a 100 horsepower pump rated at 958 gpm, which is used as a backup for high demand periods as well as providing required fire flows.
The distribution system is looped through the subdivision using 6-inch and 8-inch mains. The main lines are looped and are valved adequately to isolate any potential problem areas without interrupting service to the entire system while repairs are being made. Adequate hydrants are in place and the wells have adequate capacity to provide fire flow requirements. Meter bases are in place but no meters are installed at this time. Each lot has a 1-inch service line with a meter box in place.
A separate irrigation system is in place and uses water from the New York Canal located along the southern border of the subdivision. The irrigation system is operated by the homeowners association, independent from the potable water system.
The only deficiency noted by Staff is the lack of any elevated storage or back-up power source to provide water supply and pressurization in the event of an electrical interruption to the pumps.
The Company, Staff notes, has made arrangements with EM2, a subsidiary of United Water, to provide routine operation and maintenance service including pump lubrication, maintenance of the electrical controls, recording water pumped and collecting and submitting water samples for testing as required by the DEQ.
The developer-installed system and related capital investment in plant is considered contributed property under Commission Rule 103. Reference IDAPA 31.36.01.103. Accordingly, Staff recommends that the Commission grant no rate base consideration in establishing water service rates for the Company.
Staff notes that separate accounting records have not been kept for the Grouse Point water system, but states that the Company is in the process of creating a set of accounting records for the water company and will establish a separate checking account for the Company. The Company has no employees. All management and administrative services including customer billing and accounting services are provided by the owner and an independent accounting service. As mentioned above, routine operation and maintenance services are provided by EM2.
Since separate accounting records were not available, certain budgeting assumptions were made by Staff to determine a reasonable revenue requirement for the Company. A“budget” was developed by Staff in cooperation with the Company’s accounting service and Mr. Wanner (attached). The budget is based upon actual costs incurred during the year 1998 where possible and estimates for other reasonable costs where the detail was not readily available. The estimates for water testing expenses are distributed over the frequency period for each of the required water quality tests. The budget estimate indicates that an annual operating revenue requirement of $8,050.81 is required to cover operating expenses and provide reasonable compensation for management and administrative services. Based upon 24 customers, recovery of these costs would require a monthly flat rate per customer of approximately $28.00 per month.
On June 7, 1999, the Commission issued a further Notice in Case No. GNR-W-97-1 apprising the public of Staff’s report, analysis and recommendation, and the Commission’s proposed findings regarding Certificate issuance and rates. The Commission’s Notice included the following language:
YOU ARE FURTHER NOTIFIED that the Commission has reviewed and considered the Company’s Application in Case No. GNR-W-97-1 and Commission Staff’s report, analysis and recommendation. The Commission preliminarily finds that the public interest may require issuance of a Certificate of Public Convenience and Necessity to Grouse Point Water Company LLC for service to currently developed property (approximately 24 lots) in the Grouse Point Subdivision. The Commission notes that Staff’s proposed revenue requirement and rate design is based on a proposed budget. The Company has requested $20.00 per month flat-fee for customers. The Commission Staff indicates that a flat-fee of $28.00 per month could be supported. The Commission in reviewing the budget notes that it is just that, a budget, and is not fully supported by actual auditable expenses. Without particularly adjusting any specific item, the Commission finds an adjusted annual revenue requirement of $7,200.00 and a related flat-rate of $25.00 per month per customer to be fair, just and reasonable and proposes to adopt same.

The Commission also preliminarily found that the public interest regarding issuance of the proposed certificate and implementation of the proposed revenue requirement and rate design might not require a hearing to consider the issues presented and that the Application could 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. Commission Staff was directed to provide a separate summary of this Notice to all Grouse Point customers.
The deadline for filing written comments was June 30, 1997, comments were filed by Commission Staff and one of the Grouse Point customers (attached). Staff adopts its prior report and recommendations. The Grouse Point customer objects to the Commission’s proposal to increase the present $20 per month flat fee to $25 per month. The customer notes that while their personal domestic consumption has been constant and while they use the available separate irrigation waters for sprinkling, many of their neighbors apparently are using domestic potable water for irrigation and sprinkler use. If their neighbors install other items that require large quantities of water, such as swimming pools, the customer queries whether their rates will raise once again?
Commission Decision
Does the Commission wish to issue a Certificate and approve rates as previously reflected in its Notice? The customer filing comments has raised a set of facts, which reflect the inequity of a flat-rate system when all customers do not use available surface irrigation waters. In this instance the homeowners’ association can pass along pumping costs to the regulated water utility by using domestic water instead of canal water for irrigation. This inequity can be addressed by metering. The Company has indicated that it is exploring metering and will pursue same if the identified abuse continues.

vld/M:GNR-W-97-1_sw2

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