20230301Final_Order_No_35692.pdf

ORDER NO. 35692 1
Office of the Secretary
Service Date
March 1, 2023
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF GEM STATE WATER
COMPANY LLC’S APPLICATION FOR AN
ORDER AUTHORIZING AN INCREASE IN
ITS RATES AND CHARGES FOR WATER
SERVICE IN THE STATE OF IDAHO
) CASE NO. GSW-W-22-01
)
)
) ORDER NO. 35692
)
)
)

On July 21, 2022, Gem State Water Company, LLC (“Company” or “Gem State”) applied
to the Idaho Public Utilities Commission (“Commission”) for authorization to increase its rates
and charges for water service (“Application”). The Company requested its Application be
processed by Modified Procedure and that any changes to its rates and charges be effective for
bills rendered on or after September 1, 2022.
On September 6, 2022, the Commission issued a Notice of Application, a Notice of
Intervention Deadline, and a Notice of Suspension of the Proposed Effective Date under Idaho
Code § 61-622. Order No. 35498. There were no intervenors in this case. On October 6, 2022, the
Commission issued a Notice of Modified Procedure, and set public comment and Company reply
comment deadlines. Order No. 35548. Staff conducted an in-person public workshop in Coeur
d’Alene, Idaho on November 15, 2022.
On December 20, 2022, the Commission scheduled customer hearings and extended the
public comment deadline to January 20, 2023. Order No. 35635.
Commission Staff (“Staff”) filed comments on January 11, 2023.
On January 18, 2023, the Commission held two separate in-person customer hearings in
Athol, Idaho where 11 different people gave testimony on the record.
Over 110 written public comments were received by the comment deadline. On January
31, 2023, the Company filed reply comments.
Having reviewed the record, the Commission enters this Order on the Company’s
Application.
BACKGROUND
Gem State is a wholly owned subsidiary of NW Natural Water of Idaho, LLC, a wholly
owned subsidiary of NW Natural Water Company, LLC, which itself is a wholly owned subsidiary
of NW Natural Holding Company (“NW Natural”). Application at 4; Staff Comments at 1.
ORDER NO. 35692 2
From 2019 to 2021, Gem State acquired eight small water systems in north Idaho: Spirit
Lake East (“Spirit Lake”) and Lynnwood Estates (“Lynnwood”), Case No. SPL-W-19-01, Order
No. 343721; Bitterroot, Rickel Water (“Rickel”), and Happy Valley, Case No. GSW-W-19-01,
Order No. 346162; Bar Circle “S” and Diamond Bar Estates (“Diamond Bar”), Case No. BCS-W-
19-01/DIA-W-19-01, Order No. 344163; and Troy Hoffman, Case No. GSW-W-21-01, Order No.
34977.
Over all of its systems, the Company serves over 1,000 residential connections on parcels
ranging from a 1/4 acre to ten acres in size. The Spirit Lake system serves residences on ten-acre,
forested parcels and has 344 connections. Staff Comments at 2. The Lynnwood system serves
residences on five-acre, forested parcels and has 24 connections. Staff Comments at 2; Company
Reply Comments, fn. 2 at 2. The Bitterroot and Rickel systems—physically interconnected
systems— together have 168 connections serving five-acre residential parcels. Staff Comments at
2. The Bar Circle “S” system serves 253 connections to residences on five-acre parcels, as well as
Garwood Elementary. Id. Diamond Bar has 57 connections to residences on five-acre parcels. Id.
at 3. The Happy Valley system consists of 24 connections providing service to residences on five
and ten-acre parcels. Id. The Troy Hoffman system is located in the city of Coeur d’Alene and
provides 147 connections to residences sited on 1/4-acre parcels. Id.
In addition to owning and operating its Commission regulated systems, the Company,
through its non-Commission regulated affiliate, Gem State Infrastructure, LLC (“GSI”) operates
the Pelican Point Water system (“Pelican Point”) in the state of Washington and other non-
Commission regulated systems in Idaho.4 Application at 5.

1In approving the Company’s acquisition of Spirit Lake East and Lynnwood Estates in Order No. 34372, the
Commission noted that because Lynnwood Estates (referred to there as “Lynnwood Water”) was, before the
Company’s acquisition, an unregulated company, a “comprehensive review of Lynnwood’s rates and rate structure is
more properly deferred to a general rate case.” Order No. 34372 at 4.
2 Ownership of the Happy Valley system was transferred to the owners of the Rickel and Bitterroot systems (Ken and
Cathy Rickel) in 2010. See Case No. HVW-W-13-01. The Bitterroot and Rickel systems subsequently merged into
one entity, Bitterroot Water Company Inc., in Case No. RIC-W-17-01, Order No. 34027. In approving the merger, the
Commission directed the “combined Company” to use “the currently approved rates for Bitterroot and Rickel until it
filed and obtained new rates through a general rate case.” Order No. 34027 at 2.
3 In Order No. 34416, the Commission approved the Company’s acquisition of Diamond Bar Estates and Bar Circle
“S”, two regulated water utilities, and noted that the prudency of the Company’s costs for acquiring assets to operate
the systems would be determined “at the next rate case for these systems.” Order No. 34416 at 5.
4 Gem State explained that “[t]he total payroll costs are allocated among Gem State . . . Gem State Infrastructure, LLC
(a non-Commission regulated affiliate) (“Infrastructure”); and the Pelican Point Water system in Moses Lake,
Washington, owned by Cascadia Water, LLC and operated by Infrastructure (regulated by the Washington Utilities
and Transportation Commission) on a direct allocation and customer count basis.” Application at 6. Staff explained
ORDER NO. 35692 3
This case is the first general rate case for the Company. The most recent rate increase
approved by the Commission for any of these systems was in 2016 for Diamond Bar in Case No.
DIA-W-15-01, Order No. 33578. See id. at 3.
APPLICATION
The Company proposed a $402,000 increase in revenues, a 69.9% increase from its current
revenue requirement. Id. at 1. The Company’s proposed revenue requirement was based on a
10.2% Return on Equity (“ROE”) and a hypothetical capital structure of 45% debt to 55% equity
and a weighted average cost of capital (“WACC”) of 7.8% applied to a net rate base of $1,406,120.
Id. at 4, Exhibit 1 of the Application. The Company requested authorization to incorporate the
partial consolidation of rates into four systems under a Company tariff and incorporate the
proposed rates for the 1-1/2 inch and 2-inch meter customers. Application at 6. Under the
Company’s proposal, the Spirit Lake and Lynnwood systems would consolidate (Schedule No. 1),
the Bar Circle “S” and Diamond Bar systems would consolidate (Schedule No. 2), and the
Bitterroot, Rickel, and Happy Valley systems would consolidate (Schedule No. 3). Troy Hoffman
would remain under its own schedule (Schedule No. 4). Id. at 6, 8. As a result, the Company would
have one tariff containing four separate schedules for recurring charges for each of the consolidated
groups described above. Application at 6, 7, and Exhibits 7 and 8 of the Application.5
The Company’s proposal would implement a uniform minimum fixed customer charge of
$35.00 for all 1-inch metered customers; $70.00 for 1.5-inch metered customers; and $112.00 for
2-inch metered customers, and a separate charge for irrigation customers. Application at 1, 2, 6. In
addition, the Company proposed the following customer volumes included with the minimum
charge:

that “[t]he Company has eight regulated water systems in Idaho, making up 65% of its total customers, and two
systems that are not regulated by the Commission which make up the reaming 35%.” Staff Comments at 4. And that
the “Company failed to allocate a portion of the truck to its Washington subsidiary, Pelican Point Water and . . . [GSI]
. . . a non-regulated service company.” Id. at 11. To put it simply, 35% of Gem State’s customers receive service on
non-Commission regulated systems.
5 The redlined version of the Company’s proposed tariff and the clean version attached to the Company’s Application,
while not demarcated separately as “Exhibit 7” or “Exhibit 8”, are referenced as such in the Application. Application
at 8.
ORDER NO. 35692 4

Id. at 2. The Company proposed the following commodity charge (per 1,000 gallons above
minimum):

Id. at 3. The Company mailed notice to its customers and provided a press release to the Coeur
d’Alene Press on July 29, 2022, informing its customers of its request to raise rates and showing
the proposed average monthly bills compared to the current average monthly bill. Id. at 8, Exhibit
6.
ORDER NO. 35692 5
STAFF AND COMPANY COMMENTS
Staff recommended a total revenue requirement of $682,248, an increase in the Company’s
annual revenues of $107,648 or 18.7%, but $294,000 less than requested by the Company. Staff
Comments at 2. Staff’s proposed revenue requirement was based on a 9.5% ROE and a
hypothetical capital structure of 45% debt and 55% equity for a WACC of 7.41% applied to a net
rate base of $944,552. Id. Staff allocated the Company’s costs among its eight Commission
regulated water systems and the non-Commission regulated GSI and Pelican Point, such that the
Company’s eight Commission regulated systems in Idaho accounted for 65% of the Company’s
total costs, and the remaining 35% of the Company’s costs were attributed to GSI and Pelican
Point. Id. at 4, Table No. 1 “Allocation Method.”6
The Company agreed with Staff’s allocation method, as applied to non-capital assets,
Staff’s adjustments to the expenses for the lease for rental property and equipment, water testing,
the Geographic Information System, and the implementation of the gross revenue conversion
factor. Company Reply Comments at 2-3. The Company also agreed with Staff’s proposed
adjustments to overtime pay and rates for the Company’s existing employees. Id. at 2, and fn. 4.
The Company and Staff were also aligned on Staff’s proposed well pump depreciation adjustment
and method for determining working capital. Company Reply Comments at 4. Finally, the
Company agreed with Staff’s proposed rate design and stated its willingness to work with Staff to
implement these proposals based on whatever revenue requirement was ultimately determined by
the Commission. Id.
However, the Company disagreed with Staff’s adjustments to certain payroll, depreciation,
and other revenue expenses. The Company also disagreed with Staff’s adjustments to claimed
capital project costs, Contributions in Aid of Construction (“CIAC”), and the overall ROE. See id.
at 2-4.
Staff’s comments and the Company’s reply on specific contested adjustments are discussed
below under the “Discussion and Findings” section.
PUBLIC COMMENTS
The Commission received 116 public comments on its website—35 comments were from
customers on the Spirit Lake system; 34 comments came from customers on the Bitterroot system;

6 On Staff’s table GSI was shown as having 515 customers and Pelican Point as having 47; however, the inverse is
correct. Company Reply Comments at fn. 2.
ORDER NO. 35692 6
20 comments came from customers on the Troy Hoffman system; 12 comments came from
customers on the Bar Circle “S” system, and the remaining 14 comments came from customers on
the other systems. The Commission also took testimony from 11 different people in Athol, Idaho
at the January 20, 2023, customer hearing. Six of the customers testifying at the public hearing
were connected on the Bitterroot system, three customers were on the Spirit Lake system, and the
remaining two customers were each on the Rickel and Happy Valley systems.
The majority of the public comments expressed frustration with the amount of the
Company’s proposed rate increase. More than half of the commenters stated they were against any
rate increase whatsoever. Many commenters stated that inflation and the fact that many Gem State
customers were on a fixed income were additional factors that made the impact of the Company’s
proposed rate increase particularly onerous for them. Other commenters wondered if the Company
could phase the rate increase in over a longer time or allow customers to “bank” credits for non-
use of water during the winter.
A significant portion of the public testimony and comments expressed frustration with
service problems on the system, including low water pressure, extended outages, and poor water
quality. Customers also alleged that the Company failed to provide sufficient notice of its rate
increase proposal. Other issues included the impact the rate increase would have on customer’s
ability to maintain defensible space around their homes to protect against wildfire, grow gardens,
and maintain habitat for wildlife. One person testified that it was not clear why the Company
proposed to charge more for 1.5-inch metered customers’ water use. Several people also expressed
concern with the proposed changes to the minimum use amounts for the different systems.
COMMISSION JURISDICTION
The Commission has jurisdiction over “every corporation or person, their lessees, trustees,
receivers or trustees, appointed by any court whatsoever, owning, controlling, operating or
managing any water system for compensation within this state.” Idaho Code § 61-125. A “water
corporation” as defined in Idaho Code § 61-125 is a “public utility” as defined by Idaho Code §
61-129. The Commission is “vested with power and jurisdiction to supervise and regulate every
public utility in the state and to do all things necessary to carry out the spirit and intent of [The
Public Utilities Law].” Idaho Code § 61-501. The Commission, upon finding that the rates charged
by a public utility are “unjust, unreasonable, discriminatory, or in any wise in violation of any
provision of law, or that such rates . . . are insufficient . . . shall determine the just, reasonable or
ORDER NO. 35692 7
sufficient rates . . . to be thereafter observed and in force and shall fix the same by order . . . .”.
Idaho Code § 61-502; see also Idaho Code § 61-503.
A public utility has the obligation to provide efficient, adequate, just, nondiscriminatory, and
reasonable service to all customers who desire service with the utility’s service territory. Idaho Code
§ 61-302, 61-315, 61-507. At the same time, public utilities are entitled to a reasonable rate of return
on prudent investments. See Fed. Power Comm'n v. Hope Nat. Gas Co., 320 U.S. 591, 603-605, 64
S. Ct. 281, 288-289 (1944). Gem State, as a public utility, is entitled to rates that permit it the
opportunity to earn a return on the value of its property “which it employs for the convenience of
the public, equal to the return generally being made at the same time and in the same general part
of the country on investments and other business undertakings which are attended by corresponding
risks and uncertainties.” Utah Power & Light Co. v. Idaho Public Utilities Comm’n, 105 Idaho 822,
827 (1983). The Commission has the power and the duty to set rates of return within a “broad zone
of reasonableness.” Intermountain Gas Co. v. Idaho Public Utilities Comm’n, 97 Idaho 113, 128
(1975). “The main elements in fixing reasonable rates for service rendered by [a] public utility are
the cost of rendering service on an economical and efficient basis, fair return to the utility on its
property used and useful in such service and fairness to consumers.” Application of Pacific Tel. &
Tel. Co., 71 Idaho 476, 480-81 (1951).
DISCUSSION AND FINDINGS
Under our statutory authority, we have reviewed the record in this case, including the
Company’s Application, public comments and testimony, Staff comments, and the Company’s
reply comments. Based on that review, we approve a new, total revenue requirement for the
Company of $789,004, a 37% increase from its current revenues. This is the first general rate case
for the Company as owner of the water systems that make up Gem State. Before being acquired
by the Company, many of these systems had not had a general rate case or rate increase for a
decade or more, if at all. Further, the previous owners of these water systems were unable or
unwilling to make the necessary investments to provide safe and adequate water services to their
customers. Only one of the eight systems appears to be fully compliant with state water standards.
Staff Comments at 3. And more than half of these systems would be unable to meet the daily water
requirement if a single pump fails. Id. In short, most, if not all, of these systems require substantial
investments to meet water quality standards, emergency readiness, and reliability requirements.
ORDER NO. 35692 8
Although many of these systems remain in substantial need of improvement, we note that,
since acquiring the various water systems, the Company has expended significant time and capital
in performing electric repairs, constructing back up wells, and in other capital projects that improve
the systems’ reliability and water quality in compliance with Idaho Department of Environmental
Quality standards.
In return for maintaining and improving the systems to comply with regulatory standards,
the Company is statutorily entitled to a fair return on investment. At the same time, the Company,
in exchange for the exclusive right to provide water in an area, is obligated to provide safe and
reliable service to those customers in that area. With increased revenue through this general rate
case, we envision the Company should have the resources to effectively address issues related to
extended outages, water quality, service, and low pressure—issues identified by customers in their
testimony at the hearing and in written comments. The Commission directs the Company to
continue to be diligent in addressing customer and system service issues and apprise the
Commission of any significant developments affecting the same.
A schedule summarizing the Commission’s decision is included as Attachment 1. A table
summarizing the Commission’s approved rates is included as Attachment 2. The Company’s new
rates shall be effective as of March 1, 2023.
1. Seasonal Employee
Staff proposed removing all expenses associated with hiring what the Company referred to
as a “part-time seasonal employee” position. Company Reply Comments at 4. In support of its
recommendation, Staff noted that the Company was unable to fill this position during the 2022
season and that a major job function of this employee—reading meters—would be unnecessary as
the Company moved to radio-read meters. Staff Comments at 6.
The Company replied that it was unable to hire a seasonal employee due to its relatively
low wages and that work that was not completed in the summer of 2022 due to the absence of this
seasonal employee still needed to be done. Company Reply Comments at 5. The Company argued,
contrary to Staff’s position, this seasonal employee was necessary for a plethora of additional
tasks—unrelated to reading meters—that would only increase as time went on. Id.
Commission Decision: The Commission finds that pro-forma expenses associated with
hiring an additional employee are not known and measurable. We note that the Company was
unable to fill this position in 2022, and there is no evidence in the record indicating how successful
ORDER NO. 35692 9
the Company will be in filling this position in 2023. Consistent with our practice in other rate
cases, the Commission does not find it reasonable to grant the Company revenue for costs that
have yet to be incurred and remain unknown. Should the Company hire a seasonal employee this
year, or anytime in the future, it may seek recovery of any associated expenses in its next general
rate case.
2. 401(k) Match
Staff recommended that the Company’s pro forma adjustment to its 401(k) employee
match contributions of $4,685 be removed due to the possibility of employees changing or
discontinuing their contribution rates throughout the year, the amount the Company must match
its employee contributions is not “known and measurable.” Staff Comments at 6 (citing Order No.
29838). The Company replied that its “employees’ actual 401(k) contributions are roughly 3.8%
of payroll.” Company Reply Comments at 6. Therefore, the Company requested $9,083, rather
than the $9,561 requested in its Application for a total reduction of $478 to payroll expense.
Commission Decision: We find it fair, just, and reasonable to remove the Company’s pro
forma adjustment from its 401(k) match contributions. As we have stated before, “with vacant
positions, employee turnover, and the unknown elections of each employee to commence or cease
deductions, pro forma adjustments to the test year data are not known and measurable.” Order No.
29838. We see no reason to make an exception to our standard practice in this case. Accordingly,
we find it appropriate and reasonable to disallow the Company’s inclusion of pro forma employee
401(k) match adjustments of $4,685 in its payroll expenses.
3. Work Truck
Staff argued a reduced value of the Company’s 2019 Ford F-350 truck was appropriate.
Staff Comments at 11. Staff then, “us[ed] the Company’s allocation method”7 to further reduce the
value of the truck by allocating portion of its value to GSI and Pelican Point. Id. The Company
disagreed with Staff’s two-part reduction. The Company argued that the price it paid for the truck,
$85,746 with a cash discount, was reasonable. Company Reply Comments at 9-10, Attachment 7.
The Company further argued that only 3% of the expense should reasonably be allocated to Pelican
Point. Company Reply Comments at 6-7.
For the reasons discussed below, the Commission finds that the truck was a prudent
investment and that the price paid for the truck was reasonable. However, because the record is

7 See, again, Table 1 of Staff’s Comments on page 4 for the allocation method.
ORDER NO. 35692 10
unclear as to what extent the truck will be used to support the Company’s Commission-regulated
operations and non-Commission regulated operations, we find that 20% of the truck’s value should
be allocated to the Company’s non-Commission regulated systems and 80% to Commission-
regulated systems.
a. Purchase Price Reduction
Staff believed that, although “the purchase of the truck was necessary for maintaining safe
and reliable service[,]” it was overvalued by $9,058. Staff Comments at 11. In support of this
argument, Staff used the truck’s price before tax and other fees then reduced that price by the
average market price of three online truck listings with similar mileage, make, and year to make
this determination. Staff Comments at 11, Attachment 3.
The Company replied that Staff’s proposal was based on the invoice amount, which did
not include a cash discount of $1,402—an amount which the Company agreed should be deducted
from the value of the truck that was initially put forth in its Application. Company Reply
Comments at 9. The Company further noted that the purchase price of the truck also included
$2,660 for a service contract and $4,475 for extended warranty coverage for a total of $7,135. Id.
The Company believed these were reasonable expenses made to protect the value of the asset and
to avoid costly future services. Id. The Company noted that the trucks Staff used for its comparison
did not appear to include costs for either a service contract or extended warranty. Id. at 10.
The Company further argued that it purchased its truck in May 2022 from a local vendor.
See id. at 11, Attachment 7. The Company contended that Staff’s online searches of three vehicles
as far away as Salida, Colorado and Tacoma, Washington conducted in what appears to have been
October or November 2022, did not contain sufficient factual information to make an equivalent
comparison nor account for the volatility of the used vehicle market in 2022. Id. at 10.
Commission Decision: The record provides that the truck was purchased for hauling large
payloads including portable generators, tools, pumps, and other heavy equipment. Staff Comments
at 10-11; Application at 5. Prior to purchasing the truck, the Company represented that it was using
employees’ personal vehicles to perform these activities. Id. The Company identified risks with
using employees’ personal vehicles for work related activities, including but not limited to 1)
relying on employees to maintain personal vehicles used in utility operations; 2) separation of
employees from the Company whose vehicles are used in utility operations; and, 3) an employee’s
personal activities conflicting with work needs. Id. The record supports a finding that the truck is
ORDER NO. 35692 11
necessary for the Company to carry out its Commission-regulated operations. We acknowledge
that the volatility of the used vehicle market in 2022 could lead to significant price swings in just
a matter of months. We also note that the price for a vehicle on the internet in one geographic
location at one point in time may vary widely from the price of a similar vehicle in a different
geographic location at a different point in time. Accordingly, we find that the price the Company
paid for the truck, as provided in the invoice attached to its Reply Comments, is fair and reasonable.
b. Price Allocation
Staff allocated the truck’s value to Pelican Point and to GSI, consistent with the Company’s
allocation method. The Company replied that, although it agreed the allocation method was
appropriate and common for expenses, it did not believe it should be similarly applied to allocate
the value of the truck. Id. at 11. The Company clarified that the truck was purchased specifically
to be used in Gem State’s Commission-regulated operations and that the four trips the truck made
to Pelican Point were “an anomaly that the Company does not expect to be routine in the future.”
Id. The Company stated that it provided documentation showing time-card entries showing the
four trips to Pelican Point. Id. In addition, the Company noted that, since chlorine was now being
delivered directly to Pelican Point, there was no reason to use the truck for that purpose in the
future. However, the Company acknowledged that “it is possible that sporadic trips to Pelican
Point for other reasons could occur in the future[,]” and therefore did not object to allocating 3%
of the total depreciable expenses to Pelican Point. Id. at 11.
Commission Decision: We find that the evidence in this case is insufficient to establish
that 35%, as Staff recommends, or 3%, as the Company suggests, of the value of the truck should
be allocated to the Company’s non-Commission regulated operations. The record lacks any
documentation showing the truck was purchased exclusively for the Company’s Commission-
regulated operations. It is unclear how the Company allocates ~35% of its employees’ time to
Pelican Point and GSI but no Company employee uses the Company truck more than 3% of the
time in performing employment-related tasks associated with its affiliate entities. Additionally,
there is insufficient evidence in the record to support the Company’s argument that the
Commission allocate merely 3% of the truck’s value to Pelican Point when the Company appears
to agree that ~35% of its employee costs are attributable to non-Commission regulated operations.
Nonetheless, we do acknowledge the Company’s representation that the truck is no longer
necessary to deliver chlorine to Pelican Point and is not used for GSI operations. We also
ORDER NO. 35692 12
understand that now more than evermore work can be done remotely. It is not unreasonable to
assume that many of the functions formerly performed in the field can be performed remotely.
Thus, while employees of Gem State may spend ~35% of their time performing tasks for Pelican
Point and GSI, it does not necessarily follow that the truck is used ~35% of the time for non-
Commission regulated operations. Accordingly, we find, based on the record developed in this
case, that allocating 20% of the truck’s value to Pelican Point and GSI strikes a reasonable balance
between the Company and Staff’s position. This decision does not prevent the Company from
documenting and collecting evidence establishing that the truck is used solely for its Commission-
regulated operations in a future proceeding.
4. Miscellaneous expenses
Staff proposed removing $40,749 from miscellaneous expenses based on the Company’s
statement “that these expenses were mostly a double counting for its Pelican Point water system
located in Washington.” Staff Comments at 7-8.
The Company replied that the opposite of Staff’s conclusion was the case; that is, that the
Company overcharged Pelican Point by $40,749 that should have been properly charged to Gem
State. Company Reply Comments at 7. The Company explained that it “erroneously charged
approximately $80,000 in certain overhead expenses to the Pelican Point water system[,]” and that
when “it discovered this error, the Company removed half of the total charge from Pelican Point
and moved it to Gem State Water.” Id. at 7. Therefore, the Company stated that the $40,749 which
Staff sought to remove was properly included as a miscellaneous expense.
Commission Decision: The Commission finds it fair, just, and reasonable to allow the
Company recovery of $40,749 in miscellaneous expenses.
5. Capital Projects
Staff proposed reducing the Company’s claimed capital investments for the Bar Circle “S”
system in 2010, 2011, 2017, and 2018 by a total of $162,310. Staff Comments at 10. Staff also
proposed disallowing capital investments in the total amount of $20,155 for investments to the
Spirit Lake system. Id. Staff based these recommendations on the Company’s failure to provide
sufficient justification and detail for its claimed capital costs. Id.
In response, the Company stated that it “spent hours contacting all the pump and drilling
contractors in the area, identified the contractors that performed the work in 2010, 2016 and 2017,
and successfully obtained documents, including invoices, that verify and support the capital
ORDER NO. 35692 13
investments for the Bar Circle “S” system.” Company Reply Comments at 8. The Company
pointed out that these invoices amounted to $166,518 “for the well, backup generator and other
related assets.” Id. at 8-9.
The Company explained that it expended similar time and effort in tracking down invoices
supporting the capital improvements on the Spirit Lake system as it did for the Bar Circle “S”
system but was unsuccessful. Notwithstanding, the Company argued that, based on the unique
circumstances of this case, it should be permitted to recover these costs. The Company explained
that many of the previous water systems’ owners failed to maintain adequate records of capital
project costs and did not properly operate the systems. The Company asserted that it would
continue to maintain adequate documentation for all the systems it operated and that it should not
be denied a return on capital costs of $20,155 for the Spirit Lake system because of the legacy
owner’s previous mistakes. Id. at 8.
Commission Decision: The Commission finds the Company’s claimed expenses in the
amount of $166,518 for capital projects on the Bar Circle “S” system to be fair, just, and
reasonable. The Company’s provision of invoices verifies and support the capital investments that
were made on the Bar Circle “S” system.
The Commission acknowledges the Company’s promise to maintain adequate
documentation for all the systems it operates. However, absent any documentation or other
evidence in the record, the Commission does not find it fair and reasonable to keep $20,155 in rate
base related to capital costs on the Spirit Lake system. Accordingly, $20,155 in rate base related
to capital costs is removed.
6. Contributions in Aid of Construction
Staff proposed adjustments to CIAC of $173,250 for the Bitterroot/Rickel systems and an
adjustment to CIAC of $70,050 for the Spirit Lake system for a total adjustment of $243,300. Staff
Comments at 12, Table No. 5. Staff pointed out that Spirit Lake, in its 2014 Annual Report, showed
a net CIAC of $70,050 and that Bitteroot/Rickel, in its 2018 Annual Report, showed a net CIAC
of $158,231. Id. However, as Staff further noted, the Company failed to support “that the CIAC
amounts have been fully amortized” and therefore recommended that the CIAC amounts for the
systems be adjusted by $243,300. Id.
The Company responded that it acquired the Bitterroot/Rickel system in 2020 and that the
2022 Annual Report for these systems reflected a Net Utility Plant of $26,147 and no CIAC
ORDER NO. 35692 14
amount. Company Reply Comments at 12. The Company also asserted that Staff’s CIAC
adjustment for the Bitterroot/Rickel system would result in a “large negative rate base” and would
be punitive, unreasonable, and have a devastating impact on the small water system. Id. The
Company mentioned that, although the Spirit Lake Annual Reports for 1995 to 2014 show $70,050
in CIAC, this amount was removed in the 2015 Annual Report based on the system’s previous
bookkeeper’s conversations with Staff “and the lack of documentation or explanation in that
amount of CIAC.” Id. at 13. The Company also noted that imputing $70,050 against Net Plant in
Service would constitute a significant economic impact on the system. Id.
Commission Decision: At the time Gem State purchased these systems, CIAC was not
represented on the books of Rickel or Spirit Lake. It is likely that had this CIAC been recorded,
this would have influenced Gem State’s decision to buy these systems. Based on the record, and
the lack of any evidence of any of the disputed CIAC being recorded after 2018, for the
Bitterroot/Rickel System’s case, and 2015, for the Spirit Lake system, we find it fair, just, and
reasonable to not include $243,300 in CIAC.
7. Return on Equity
Staff recommended a ROE of 9.5% based on its analysis indicating a potential ROE range
from 4.754% to 9.89%. Staff Comments at 15. Staff applied this ROE to the hypothetical capital
structure proposed by the Company: 55% equity/ 45% debt. Id. at 13. To create a ROE range, Staff
used the Discounted Cash Flow (“DCF”) method and the Capital Asset Pricing Model (“CAPM”)
then compared the results of these two methods to the ROE agreed to by NW Natural Gas Company
(a subsidiary of NW Natural) in an Oregon rate case (9.4%). Ultimately, Staff recommended an
ROE of 9.5%. Staff believed this rate recognized the higher risk of failure for Gem State and, at
the same time, its access to equity from its large parent company. Id. An ROE of 9.5%, Staff noted,
produced a WACC of 7.41% when using the Company’s proposed capital structure. Id.
In response to Staff’s recommendation, the Company stated it was “particularly concerned”
with Staff’s reference to the ROE attained for Gem State’s “affiliated out-of-state natural gas utility
. . . .” Company Reply Comments at 14. Gem State asserted, as a small water company, it was
more appropriate to compare it to other small water companies in Idaho. Id. at 15 (citing Order
No. 34925 at 5). The Company cited previous Commission orders determining that ROEs between
11%-12% were appropriate for small water companies. Id. at 15-16. The Company noted the
ORDER NO. 35692 15
Commission’s previous recognition of the benefits NW Natural Water provided in acquiring small
water companies. Id. at 16 (noting that the Commission approved a 10.2% ROE for Falls Water, a
subsidiary of NW Natural Water that operates water systems in east Idaho, in Order No. 34925).
The Company stated that Veolia Water Idaho hired an expert witness (an expense which the
Company chose to forgo) who suggested a 10.8% ROE in that company’s pending rate case (Case
No. VEO-W-22-02). Based on the above reasons, the Company believed that its requested 10.2 %
ROE was reasonable.
Lastly, the Company pointed out that its adopted hypothetical capital structure—rather than
its actual capital structure (100% equity)—was “reasonable and quite modest.” Id. at 17. In sum,
the Company requested the Commission consider its previous determination in Order No. 34925
and grant the Company’s request for a 10.2% ROE with the proposed hypothetical capital
structure. Id. at 17.
Commission Decision: In determining the appropriate ROE, we must balance the needs
of the customer to overpay for services and the needs of the utility to be fairly compensated for its
capital investment. We must ensure that rates are increased no more than necessary to provide fair
compensation to the Company for its investment in the water systems, while mitigating the rate
impact to customers. We find that a 9.5% ROE, with a 7.41% WACC, accomplishes that goal, is
supported by the record, and is fair, just, and reasonable.
8. Rate Design
The Company asserted that it “agrees with Staff’s proposals regarding rate design and will
work with [S]taff to implement them on the final revenue requirement.” Company Reply
Comments at 4. Staff’s rate design proposal reduced the Company’s proposed basic charges for
all the systems except for Lynnwood and Diamond Bar (which, under Staff’s proposal, remain
unchanged from the current rates) and decreased the volumetric commodity charge for water
consumption exceeding the amount included with the basic charge across all systems. Staff
Comments at 19-20.
Commission Decision: The rate design approved by the Commission includes base
charges that are similar to those requested by the Company and a commodity charge (for water
consumption exceeding that included in the basic charge) similar, but not identical, to Staff’s
proposal. Our approved rate design results in a basic charge/commodity (volumetric) charge ratio
of 44%/56% based on the revenue requirement of $789,004 approved by this Order. The partial
ORDER NO. 35692 16
consolidation of the systems as put forth in the Commission’s approved rate design offers
administrative efficiency and is a necessary step towards attaining uniform rates and charges for
all customer classes on the eight Commission-regulated systems owned and operated by Gem
State. A summary of the Commission’s approved rate design by meter size is included as
Attachment 2.
It is important to reiterate that most of these systems were severely noncompliant due to
the actions or inactions of their previous owners and lacked the necessary infrastructure to continue
providing safe and reliable water service. The capital costs required to ensure these systems are
compliant were, and remain, in the hundreds of thousands of dollars. Had Gem State not acquired
these systems and filed this rate case, rather than recovering these costs from Gem State’s entire
customer base, currently numbering more than a thousand customers, the costs of these system
improvements would have likely been borne solely by the customers on each individual system.
Although at the system level, some customers may be affected differently than other
customers on other systems as a result of our decision in this Order, in the long term, consolidating
systems by implementing uniform rates and charges will help spread the costs of system-wide
improvements among a larger body of customers more equitably. This will ultimately benefit all
Gem State customers now and in the future.
O R D E R
IT IS HEREBY ORDERED that Gem State shall have an annual revenue requirement of
$789,004, with expenses, rate base, rate of return, capital structure, and rate design as detailed in
the body of this Order and its Attachments. The Company shall submit tariffs in compliance with
the rates and charges identified in this Order no later than fourteen (14) days from the service date
of this Order. The rates and charges authorized by this Order shall become effective for service
rendered as of March 1, 2023.
THIS IS A FINAL ORDER. Any person interested in 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. Idaho Code § 61-626.
//
ORDER NO. 35692 17
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 1st day of
March 2023.

ERIC ANDERSON, PRESIDENT

JOHN R. HAMMOND, JR., COMMISSIONER

EDWARD LODGE, COMMISSIONER

ATTEST:

Jan Noriyuki
Commission Secretary
I:\Legal\WATER\GSW-W-22-01\orders\GSWW2201_final order_rn.doc

Gem State Water, Approved Revenue Requirement, GSW-W-22-01
Attachment 1, Page 1 of 2
CALCULATION OF REVENUE REQUIREMENT
1 Rate Base 1,375,818
2 Rate of Return 7.41%
3 Net Operating Income Requirement 101,948
4 Net Operating Income Realized (57,289)
5 Net Operating Income Deficiency 159,237

37.3% 11 Percent Increase Required

6 Net Operating Income Deficiency
7 Gross up Factor
8 Total Incremental Revenue Requirement

159,237
1.34645
214,404

9 Revenues at existing rates
10 Total Revenue Requirement

574,600
789,004

Gem State Water, Approved Revenue Requirement, GSW-W-22-01
Attachment 1, Page 2 of 2

Company
Application

Income
400 · Operating Revenue
461.1 · Metered Residential 572,799 572,799
464 · Other Water Sales Revenue 1,801 1,801
Total 400 · Operating Revenue 574,600 - - - - - - - 574,600
Total Income 574,600 - - - - - - - - 574,600
Expense
601.1-6 Labor - Operation & Maintenance 127,673 (25,695) (6,037) 95,942
601.7 Labor - Customer Accounts 18,694 (1,965) 16,729
601.8 Labor - Administrative & General 92,662 (5,763) 86,899
604 · Employee Benefits 65,329 (14,913) (1,620) 48,796
610 · Purchased Water 5,086 5,086
615-16 · Electrical Power & Fuel for Power 88,731 88,731
618 · Chemicals 791 791
620.1-6 · M&S - O&M 15,891 15,891
620.7-6 · M&S - A&G 50,385 50,385
620.7 · Postage - -
620.8 · Office - -
620.81 · Telephone Expense - -
620.82 · Bank service charges - -
620.83 · Office Utilites Expense - -
631.1-34 · Contracting Services - Professional 72,849 72,849
635 · Contracting Services - Water Testing 1,923 3,741 5,664
636 - Contracted Services - Other 9,148 9,148
641-42 · Rental of Property & Equipment 59,319 (27,408) 31,911
650 · Transportation Expense 6,572 6,572
656 · Insurance Expense 14,146 14,146
675 · Miscellaneous 49,021 49,021
Total Expense 678,221 (48,337) (27,408) - 3,741 - - (7,657) - 598,560
Net Ordinary Income (103,620) 48,337 27,408 - (3,741) - - 7,657 - (23,960)
Other Income/Expense
Other Expense -
403 · Depreciation Expense 114,917 (2,650) (2,230) (40,230) (2,909) 66,897
408 · Taxes -
408.11 · Property Taxes 21,322 21,322
408.12 · Payroll Taxes 18,469 (2,584) (444) 15,442
408.13 · Other Taxes 4,077 4,077
Total 408 · Taxes 43,868 (2,584) - - - - - (444) - 40,841
Income Taxes (74,409) (74,409)
408.10 · Regulatory Fee - -
409.10 · Federal Income Tax - -
409.11 · State Income Tax - -
Total Other Expense 84,376 (2,584) - (2,650) - (2,230) (40,230) (444) (2,909) 33,329
Net Other Income (84,376) 2,584 - 2,650 - 2,230 40,230 444 2,909 (33,329)
NET Income (187,996) 50,921 27,408 2,650 (3,741) 2,230 40,230 8,101 2,909 (57,289)

Plant in Service Total

301 - Organization - -
302 - Franchises and Consents - -
303 - Land & Land Rights 14,545 14,545
304 - Structures & Improvements 40,438 40,438
305 - Collecting & Impounding Reserviors 120,672 120,672
307 - Wells 1,365,304 - 1,365,304
309 - Supply Mains 84,319 84,319
310 - Generators 140,880 140,880
311 - Pumps & Accessories 410,891 (55,753) 355,138
320 - Purification Systems 1,504 1,504
330 - Distribution Reserviors & Standpipes 7,195 7,195
331 - Trans. & Distrib. Mains & Accessories 140,252 140,252
332 - Services - -
334 - Meters 129,431 129,431
335 - Hydrants 4,405 4,405
339 - Other Plant and Misc Equip 117,626 (18,552) (20,155) 78,919
340 - Office Equipment 120,834 120,834
343 - Tools & Equipment 11,523 11,523
345 - Power Operated Equipment 42,352 42,352
346 - Communications Equipment 5,728 5,728
347 - Miscellaneous Equipment 3,168 3,168
348 - Other Tangible Property 2,655 2,655
- -
Total Plant in Service 2,763,722 - - (18,552) - (55,753) - - (20,155) 2,669,262
Less Accumulated Depreciation (1,428,485) 1,118 17,245 (1,410,122)
Net Plant in Service 1,335,237 - - (18,552) - (54,635) - - (2,910) 1,259,140

Less Contributions in Ad of Construction
Gross Contributions (12/31/2021) 9,307 9,307
Less Accumulated Amortization (12/31/2019) - -
Net Contributions in Aid of Construction 9,307 - - - - - - - - 9,307
-
Net Plant in Service 1,325,930 - - (18,552) - (54,635) - - (2,910) 1,249,833
Working Capital (1/8 of Operation and Maintenance Expense) 84,778 (6,042) (3,426) - 468 - - (957) - 74,820
Materials and Supplies - 55,753 55,753
Deferred Taxes (4,587) (4,587)
Total Rate Base 1,406,120 (6,042) (3,426) (18,552) 468 1,118 - (957) (2,910) 1,375,818

Labor Adj
Bldg
Lease
Company
Truck
Chemical
Testing
Removing
Inventory from
Depreciation
Depreciation
Adj
GIS Labor
Adjustment
Adjustment
to Plant In
Service

Gem State Water, Approved Rates, GSW-W-22-01
Attachment 2

Commission Approved Revenue Requirement $789,004

Water System

Meter Size
Fixed Monthly
Charge
Volume Included
(gallons)
Price for
Excess
Fixed Monthly
Charge
Price for
Excess
Spirit Lake East 1-Inch 35.00 7,500 2.3300 37% 0%
Spirit Lake East 1 1/2-Inch 70.00 15,000 2.3300 174% 0%
Spirit Lake East 2-Inch 112.00 30,000 2.3300 338% 0%
Bar Circle “S” Water Company 1-Inch 35.00 7,500 2.3300 28% 34%
Bar Circle "S” Water Company 1 1/2-Inch 70.00 15,000 2.3300 155% 34%
Bar Circle “S" Water Company 2-Inch 112.00 30,000 2.3300 308% 34%
Diamond Bar Estates 1-Inch 41.00 7,500 2.1500 0% 85%
Lynnwood Estates Subdivision 1-Inch 35.00 15,000 2.1500 0%
First Block 15,001 - 100,000 - 115%
Second Block 100,001 - 200,000 - 8%
Third Block over 200,001 - -28%
Bitterroot Water Company, Inc 1-Inch 35.00 10,000 2.1500 67% 24%
Rickel Water Company 1-Inch 35.00 10,000 2.1500 17% 95%
Troy Hoffman Water Corporation, Inc 1-Inch 35.00 7,500 2.1500 27% 92%
Happy Valley Water Systems, Inc 1-Inch 35.00 15,000 1.4000 30% 100%
Happy Valley Water Systems, Inc 1 1/2-Inch 70.00 15,000 1.4000 159% 100%
Happy Valley Water Systems, Inc 2-Inch 112.00 30,000 1.4000 315% 100%