20031219Final Order No 29402.pdf

Office of the Secretary
Service Date
December 19,2003
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
GROUSE POINT WATER COMPANY FOR
AUTHORITY TO INCREASE RATES AND TO
CHANGE FROM UNMETERED TO METEREDRATES. CASE NO. GPW-02-
ORDER NO. 29402
On December 17, 2002, Grouse Point Water Company (Grouse Point; Company)
filed an Application with the Idaho Public Utilities Commission (Commission) requesting
authority to increase rates and to change from unmetered to metered rates. Grouse Point operates
under Certificate of Public Convenience and Necessity No. 360 and provides water service to 24
residential customers in Ada County, Idaho. Current authorized rates are $25 per month. The
Company has no employees. Operation and maintenance services are performed by United
Water Operations, Inc., an unregulated affiliate of the regulated company, United Water Idaho
Inc.
In this Order the Commission authorizes a change from unmetered to metered rates.
We approve a monthly base charge to customers of $22 for the first 8 000 gallons plus a
commodity charge of $.50 per 1 000/gallons for all montWy usage exceeding 8 000 gallons.
Noting that the Grouse Point water system was designed to provide domestic potable water and
not outdoor irrigation water, we direct the Company to read meters and bill customers on a bi-
monthly (every two months) rather than monthly basis.
On January 10, 2003 , the Commission issued a Notice of Application in Case
No. GPW-02-01. The Commission Staff conducted a public workshop on January 30th in
Kuna, Idaho to discuss the Company s Application with customers. The Company s filing was
processed pursuant to Modified Procedure, i., by written submission rather than by hearing.
Reference Rules of Procedure, IDAPA 31.01.01.201-204. The comment deadline for customers
was February 6, 2003. The comment deadline for Commission Staff was February 14, 2003.
The Commission in Order No. 29195 issued February 21 , 2003 , suspended the Company
proposed March 1 , 2003 effective date to provide the Company an opportunity to reply to Staff s
adjustments and recommendations. An informal stay of proceedings followed to allow the
ORDER NO. 29402
Company and Grouse Point Homeowners Association to explore and negotiate a sale/transfer of
the water system. The Commission Staff has been informed that the parties have been unable to
reach agreement. Staff has also been informed that the Company does not wish to reply to Staff
Comments and recommendations.
Company Application
On December 17, 2002, Grouse Point Water Company filed an Application for an
increase in rates and a change from unmetered to metered rates. Current authorized rates are $25
per month. The metered rates proposed by the Company are as follows:
Base Charge
Commodity Charge
$33/mo for first 12 000 gallons
$1.70 for each additional 1 000 gallons
The only source of revenue for Grouse Point is the sale of unmetered water to
residential customers. In 2001 , reported revenues totaled $6 625; total reported expenses were
131. The major item the Company is requesting to recover in this case is expenses associated
with the meter installations performed in February 2002. The Company anticipates that with the
ability to measure individual customer consumption it will be able to collect its increased power
costs when irrigation canal water is not available or customers choose to use the potable water
outside as a convenience.
Staff Comments and Recommendations
Staff in its Comments recommends that the revenue requirement for Grouse Point
Water be set at $6 702 per year based on Company and Staff recommended changes to the 2001
test year operating expenses. Staff concurs with the Company proposed transition from
unmetered to metered rates. Staff recommends that the monthly charge to customers be set at
$22 per month for the first 8 000 gallons plus $.50 per 1 000 for each additional gallon.
Revenue Requirement/Rate Base
Staff, based on its review and audit and proposed adjustments to the Company s 2001
test year (to normalize expenses and to bring them in line with known and measurable changes),
recommends an annual revenue requirement for Grouse Point Water of $6 702. Staffs revenue
requirement includes a 12% return on the cost of meters installed by the Company. A 12%
return on equity is commensurate with risk and is in keeping with the return allowed other small
water companies. The cost of the meters was $3 842 (adjusted by Staff to $3 453). Staff
recommends depreciating the meters over 30 years. A 30-year accounting life for meters is
ORDER NO. 29402
standard. All other capital investment was installed prior to issuance of Commission Certificate
and under Commission rules is considered contributed property (IDAPA 31.36.01.103). In other
words , the customers have already paid for that investment in the purchase of their property.
Rate Design
Staff concurs with the Company proposed transition from unmetered to metered rates.
Metered usage ensures that customers pay for their own water usage. Metered rates promote
conservation and allow customers to have more control over individual bills. Metering in this
case also permits a rate design that allows the Company to better recover the variable costs of
production associated with the use of domestic potable water for outdoor irrigation.
Staff recommends that the monthly charge to customers be set at $22 per month for
the first 8 000 gallons plus $.50 per 1,000/gallons for all additional usage. The base rate, Staff
contends , will recover the fixed costs of the water system and should provide customers with
sufficient water for normal domestic uses. The variable rate provides incentive for customers to
conserve water and for the Company to make energy saving system improvements (see Power
Expense discussion). Staff recommends that the Company read meters and bill customers every
two months. The combined fixed/variable rate design proposed by Staff would decrease the
monthly charges to the average volume customer. Customers that use more than 14 000 gallons
per month will see an increase in rates. Staffs rate design is based on one year s worth of flat
rate data. Staff recommends that the Company be directed to file a report showing actual
customer usage and system improvements following a year of metered service.
Power Expense
Staff notes that the electricity expenses for Grouse Point appear extremely high on a
volumetric basis relative to all other regulated water companies in Idaho. Staff calculates a total
electricity cost of $1 per 1 000 gallons for Grouse Point compared to an average total energy cost
of $0.08 to $0.41 per 1 000 gallons for other regulated water companies based on available 2001
annual reports. The rate design proposed by Staff encourages the Company and customers to
take actions that improve the performance of the system. The Grouse Point water system was
designed to be a potable water system for domestic use only. It was not designed to provide
water for outside irrigation.For outdoor use, customers of Grouse Point have a separate
pressurized irrigation system that uses canal waters. Staff contends that customers should be
ORDER NO. 29402
discouraged from using potable water for irrigation and that the Company should be encouraged
to make system improvements to reduce the high cost of operation.
While Staff is unable to determine the exact cause of the excessive electricity usage
Staff believes that it could be due to several factors. The system is designed to operate primarily
off a small pump with a large backup fire pump for emergency operation. If the equipment
settings are not optimized, the larger pump may be running more frequently than necessary and
add excessively high costs. If customers are using more water than the little pump can provide
such as significant amounts of domestic water for irrigatIOn, the large pump will be required to
run. The large pump, because of its size, would operate inefficiently and provide water at a very
high power cost. The system may also have inadequate storage requiring the pumps to run too
long or to cycle too frequently. Either situation could add additional cost. Staff believes that
power costs of $1.00/1 000 gallons are umeasonable and should be reduced for ratemaking
purposes to $0.50/1 000 gallons. To this end, Staff in its calculation of revenue requirement
reduced the Company s normalized annual power expense by 50% or $1 464.
Customer Comments
Customer comments are summarized in Staff s filing. Written comments, in general
mirror customer comments at the workshop. Comments tend to fall into one of four broad
categories: rates, meters, health and safety, and disaweements with the developer. One
customer, representing the Grouse Point Homeowners' Association, requested that a formal
hearing be held in this case. Most customers object to the Company s proposed increase.
Several customers believe that the proposed increase violates a developer promise of plenty of
water at a reasonable rate.
COMMISSION FINDINGS
The Commission has reviewed and considered the filings of record in Case
No. GPW-02-1 including the comments of Grouse Point customers and the comments and
recommendations of Commission Staff.Although a representative of the Grouse Point
Homeowners Association requested a hearing, we find that customers have not identified issues
that the comments do not adequately address. We continue to find it reasonable to process this
case pursuant to Modified Procedure, i., without hearing and based on the written filings of
record. IDAPA 31.01.01.204. We are satisfied that Grouse Point customers have been provided
ORDER NO. 29402
with adequate opportunity to have their questions answered regarding the Company
Application and to submit comments for Commission consideration.
Addressing the health and safety concerns of customers we note that Grouse Point
customers are served by two water systems, a regulated domestic potable water system and an
umegulated pressurized irrigation system. The two systems were constructed as stand alone
separate systems. Cross connection of the two systems by customers presents a vector for
backflow and contamination of the drinking supply.All customers are at risk should
contamination occur. Customers should educate themselves in safe operating practices and have
their cross connection and backflow prevention devices tested annually. Grouse Point Water, as
a community drinking water system, is required by the Idaho Department of Environmental
Quality to have a cross connection control program. Reference IDAP A 58.01.08.550.07.
Customer problems with the pressurized irrigation system, while perhaps impacting
the regulated system, are nevertheless outside this Commission s jurisdiction. Reference Title
, Idaho Code.So too are developer promises to customers made at the time of the
sale/purchase of the lot or new home. We cannot enforce those promises. Our statutory duty to
customers is to ensure that the Company maintains adequate service (Idaho Code 9 61-302); and
that the rates for water and service are just and reasonable (Idaho Code 9 61-301). Our statutory
duty to the utility is to ensure that the rates we establish provide the Company a reasonable
opportunity to recover its costs of production and service. Customers who are having difficulty
in paying their water bills are encouraged to contact the Company to discuss payment
arrangements.
Based on our review of the record established in this case, the Commission finds it
reasonable to approve the Company requested change from unmetered to metered rates. The
Grouse Point potable water system, we find, was not designed to provide water for outdoor
irrigation. For outdoor use, Grouse Point customers have access to a separate pressurized
irrigation system that uses canal water. Potable water is a valuable commodity that must be used
wisely. A flat rate for water provides no economic incentive to conserve. On the facts
presented, we find that the use of domestic potable water by Grouse Point customers for outdoor
irrigation is not an intended, nor is it an economic use of the water. The metering we authorize
will provide customers with an economic incentive to use the Company s potable water only for
ORDER NO. 29402
its intended domestic purpose. A billing rate based on metered water fairly charges customers
for their usage and may also encourage conservation.
We approve in this Order an annual revenue requirement for Grouse Point of $6 702.
The revenue requirement calculation is based on an approved 2001 test year and incorporates
Staffs operating and rate base adjustments, which we find reasonable.Reference Staff
Comments, Attachment 1. We note that Grouse Point has no employees, but utilizes only
contract labor. The authorized revenue requirement we approve includes labor expense for
operation and management services, and the cost of water testing, accounting and meter reading.
The rate base we approve for the Company in revenue calculations , i., $3 453 , is comprised
solely of its investment in customer meters.On this investment, which has a depreciable
accounting life of 30 years, we authorize a 12% return on equity, a return that we find recognizes
the increased risk associated with operating a small water company with a small customer base.
In authorizing the change from unmetered to metered rates, we approve a Staff
recommended monthly fixed charge to customers of $22 for the first 8 000 gallons plus a
commodity charge of $.50 per 1 000 gallons for all monthly usage exceeding 8 000 gallons. The
fixed rate we approve will enable the Company to recover its fixed operating costs and should
provide customers with sufficient water for normal domestic uses. Average volume customers
will realize a decrease in their monthly charges; customers using more than 14 000 gallons per
month will see an increase.
Recognizing that Grouse Point provides potable water for domestic use and not for
outdoor irrigation, the Commission finds it reasonable to require the Company to read meters
and bill customers on a bi-monthly (every two months) rather than monthly basis. We have
accepted Staffs power expense adjustment in this case because we believe that the Company
power costs are umeasonably and unacceptably high.
The rates we approve are based on available information and one year s worth of flat
rate data. Recognizing that time has passed since the data was collected and that some
adjustment to rate design might be necessary, we direct the Company to file a report with the
Commission at the end of calendar year 2004 showing actual customer usage by billing period
and detailing any completed system improvements. The Company should also recommend rate
design changes, if any, that it would like considered.
ORDER NO. 29402
CONCLUSIONS OF LAW
The Commission has jurisdiction and authority over Grouse Point Water Company, a
water utility, and the issues raised in Case No. GPW - W -02-1 pursuant to Title 61 of the Idaho
Code and the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission in Case No. GPW-02-1 does hereby approve as
just and reasonable, a test year of 2001 , and an annual revenue requirement of $6 702, the
calculation of which includes a 12% return on equity on an authorized rate base of$3,453.
IT IS FURTHER ORDERED and the Commission does hereby approve a change
from unmetered to metered rates. We approve and authorize a monthly fixed charge to
customers of $22 for the first 8 000 gallons plus a commodity charge of $.50 per 1 000 gallons
for all monthly usage exceeding the monthly allowance.
IT IS FURTHER ORDERED and the Company is directed in compliance with the
foregoing to file amended tariffs to reflect the authorized rates on or prior to the effective date
that we hereby authorize, i., January 1 , 2004.
IT IS FURTHER ORDERED and the Company is directed to read customer meters
and to bill customers on a bi-monthly basis.
IT IS FURTHER ORDERED and the Company is directed to file a report with the
Commission at the conclusion of calendar year 2004 showing actual customer usage by billing
period and detailing any completed system improvements.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) 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. Within seven (7) days
after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code 9 61-626.
ORDER NO. 29402
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this I q f4.
day of December 2003.
rik~IDENT
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MARSHA H. SMITH, COMMISSIONER
ATTEST:
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Commission Secretary
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ORDER NO. 29402